Bryan Caplan has some great advice to live by: Two Heuristics to Live By When You Don’t Know What You’re Doing:
When we see people making bad decisions - whether as consumers or voters - we often blame the “complexity” of the issues they face. If Ph.D. economists can’t figure out the best mortgage to use, how can we expect the average borrower to do so? If health policy experts can’t agree on how to fix the U.S. medical system, what is the typical voter to think?
But if complexity is your only demon, I’ve got two simple rules of thumb to exorcise him. Here goes:
If you don’t have clear and convincing evidence that doing something is better than doing nothing, do nothing.
If you know that doing nothing is bad, but don’t have clear and convincing evidence that one action is better than another, do the simplest, standard thing.
I frequently apply these rules to my consumption decisions. Until I’m convinced that a product will make my life better, I just don’t buy it. I might enjoy a big plasma T.V., but until a seller clearly explains how he’s going to painlessly install it in my house, I’m not buying one. If I do decide in favor of a plasma T.V., but remain confused about which one to buy, I’ll probably just get the biggest one that CostCo carries.
In the mortgage market, similarly, my heuristics say: (a) Rent until it’s clear that buying will improve your life; and (b) Get a standard 30-year fixed-rate mortgage from an established lender. Don’t buy a house you might not be able to afford by signing a contract you can’t explain to your friends.