If you’ve gone house hunting, these thoughts are familiar as you enter another property: Is this the one? Should I keep looking? What if the perfect home is just around the corner?
This is a familiar dilemma for house hunting and other major personal finance decisions.
It also belongs to a class of mathematical problems known as the theory of “optimal stopping,” which is the problem of choosing a time to take a given action.
Fortunately, there’s an answer to maximise your chances of getting the best outcome.
Thirty-seven percent.
This article was written by a Financial Horse Contributor.
The 37% Rule
The 37% Rule defines a simple series of steps for solving this problem. It’s a simple yet powerful tool for better decision-making.
Here’s how it works.
Imagine you’re searching for a new property. You’ve gone through listings and lined up viewings.
Assume listings are so popular you can’t compare options. You can either buy the property immediately, giving up all others, or walk away and never return. (This may not be so far-fetched for property buyers for the last few years.)
Spending 37% of your property hunt noncommittally exploring options gives you the highest chance of getting the best property.
If you’ve given yourself three months to find the perfect apartment, spend the first 37% (33 days) exploring without committing. View many properties, gather information, and establish a baseline of your wants and what’s available. After that, go for the next best property you’ve seen.
This solution is described in “Algorithms to Live By” by Brian Christian. He writes that modern computers face similar problems. For instance, when a search engine is looking for the most relevant results, it needs to decide when to stop searching and return the best