Opportunity Cost Neglect: Beach Edition

In August we passed 700 blog posts, and many address ideas of behavioral economics, tendencies (née biases), and decision making. Yet for all those published pixels, issues still creep into my life like a palmetto bug in the kitchen. 

On a dog walk with a neighbor, I mentioned an overnight trip to the beach which cost $200 for the hotel. We both agreed it was a good value for the time of year, location, and quality of the building. 

However, put a beach trip through the JTBD machine and the opportunity cost neglect shines through. 

Briefly reviewed: Opportunity cost neglect is the idea that people are terrible at coming up with alternatives for options they select. For example, when students were asked if they would buy an expensive iPod or a cheaper one, they chose the expensive one. However, once the researcher reminded them they could buy the cheaper version and spend the savings on music for said iPod, the students mostly switched their choice. If it’s not apparent, we don’t consider it

Our $200 hotel room was like four two-day theme park tickets. In Florida that is a bargain price. It’s also about the cost of one day of crafting, which we did the previous weekend. It’s more than renting Mulan on Disney+, which at $35 seems expensive however a family of four costs twice that (with snacks) at the actual theater. 

All these were recent reminders of how much context affects perceived value shotonaniphone

☝️ Some nice opportunity cost work; if you’ve got the cheaper product then highlight the opportunity cost. 

While I felt like Homer Simpson (D’oh!), it is fun to see these ideas in the wild. It was a path of JTBD I hadn’t looked at before and like a mental nudge, a good reminder to look for ways opportunity cost lives in our lives. 

Opportunity cost neglect also matters with time. It’s not until we highlight what we could have spent time on that we see the true cost. That’s why these pay-what-you-want features are short. The goal is to scream up the sigmoid curve of ideas.


An easy way to change your mind.

This idea is related to Tyler Cowen’s idea of ‘meta-rationality’ which you read about in this pay-what-you want pdf.

Perhaps there’s no better time to see, sort, and participate in over reactions than week one of the NFL. Though I only watch a full game or two a year, there are a lot of lessons from the likes of Mike Lombardi, Bill Belichick, and questions like, should running backs run the forty-yard-dash? (Narrators: meh).

So, after week one of the NFL, how much should someone change their mind?

There were two comments from Wharton Moneyball related this this exact question.

First, the hosts wondered why the small but powerful vitamin D study wasn’t getting more attention. Their guess was a combination of things including excessive dosing, strong priors, sample size, and general application (the participants were already hospitalized but went to the ICU at a much lower rate with treatment).

While people may have strong beliefs about the efficacy of vitamin D it doesn’t hurt to go for more walks, while the weather holds at least. Whether or not someone believes in vitamin D, walking can’t hurt.

Late in the episode, Cade Massey and Josh Hermsmeyer noted the impressive week one play of Gardner Minshew. While both are rooting for his success, there’s no ‘go-for-a-walk’ equivalent for updating beliefs. Base rates suggest we stay closer to home until Mr. Minshew racks up some road wins.

Lastly is this study about teacher expectations. “(U)nbiased (i.e., accurate) beliefs can be counterproductive if there are positive returns to optimism or if there are socio-demographic gaps in the degree of teachers’ over-optimism, both of which we find evidence of.” Want better results from students? Have higher expectations than the data suggests.

The easiest way to change your mind is to make changing your mind inexpensive.

The hardest way to change your mind is to attach ideas to yourself. Jason Zweig calls this thinking “identity protective cognition,” and said, “If you are not judging the validity of ideas by long-term, objective, peer-reviewed evidence then you are just protecting your own identity and it’s foolish.” 

If vitamin doesn’t affect covid health, it still doesn’t hurt. If high expectations don’t affect student results, it still doesn’t hurt. If extrapolation from week one of the NFL doesn’t predict season success it does hurt.

Related: Make small poker bets.


Small Poker Bets

Maria Konnikova is on the podcast-book-tour to promote The Biggest Bluff. It is great. I liked Mastermind more, only because I like Holmes more than poker.

One idea from her podcast conversations that might get missed by book readers is how Eric Seidel came to coach her. She told Shane Parrish: “He (Seidel) didn’t actually agree to be my coach. He said, this sounds interesting let’s try it out and see if it works.”

This is the key insight to poker, the book, and it seems life in general. It’s the insight for why poker proxies life, (though her last chapter, read the book it’s good, addresses the limits). 

No one knows what’s going to happen but you gotta be in the game to see

At first, Konnikova really wants to learn the rules and strategies. For example, if someone is dealt pocket aces should they play them? It’s a good hand, even a noob like me knows that. But the answer to ‘should I play this?’ depends on the flop, who has bet (how much), who has yet to bet, and so on. 

If the flop is three spades and someone ahead raises, then those pocket aces aren’t as sharp as we first thought. If the flop is a mishmash and we’re in the small blind then it might be good to see what the next card holds. 

When Seidel says “this sounds interesting” it was him calling a bet to see what the next card might be. It wasn’t a raise, or a fold. It was the right time for a small bet for what might be a larger gain. That moment, though Konnikova didn’t know, was the heart of the book. 

Konnikova started The Biggest Bluff looking for decision making in a card game. Years after the inception, Konnikova now thinks about life in poker terms like tilt and the Immanuel Kant idea of ‘wanna bet’. She probably notices Seidel’s insight too.


Should I be a vegetarian?

Finance and fitness are nice corollaries because regular actions compound to large effects. People can also FIRE up their efforts to shorten the time. Dog walking is the ’employer match’ of the finance world.

To be heathy in waist and wallet has a cost. There’s the time it takes to educate yourself on what to do, find the best ways to do it, and work to pay the fees that allow you to do the thing you educated yourself on and optimized for. But there’s a secret to this price, sometimes it’s fun to pay!

“Buying good things can’t be the secret to success in investing. It has to be the price you pay. It’s not what you buy, it’s what you pay. There’s no asset so good it can’t become overpriced.”  – Howard Marks

This idea from Howard Marks doesn’t just apply to investing. It applies to everything.

A friend owns an RV and I asked why he chose that instead of a Hampton Inn. Well, he said, the free breakfast would be nice but he likes the campground vibe and tinkering on the RV. His price for that RV is low because he likes rewiring and upgrading the lighting.

Using this model of ‘what you pay’ the answer to vegetarianism is ‘Yes’. I like to cook, have a general idea about what to eat, and enjoy new things. It’s a low cost switch.

Another angle to answer this question is to think about the opportunity cost. Due to a medley of tendencies (née biases), we think about thing in terms of losses. Expressions like, if it ain’t broke don’t fix it, address this.

Yet, we aren’t creative when it comes to thinking about further upside. Netflix does not compete with sleep but we think it does because we think sleepily. If it’s at night and someone is in bed, we think there’s only a handful of things people might do. But the list is often much much larger.

Using the model of opportunity costs, the answer is ‘Yes’, there’s probably a vegetable based upside. Just because I don’t know about it doesn’t mean it’s not there.

Another angle is to consider the incentives. Do the people who promote doing X also benefit from me doing it? It could be that vegetarians prosthelytize because they love animals and not because eating plants is healthier. I do love my dogs but my motives are more selfish.

Using the model of incentives, the answer is ‘Maybe’. Incentives are conditional and a good default is that if I don’t recognize it, it’s working against me.

One final model is the idea from Nassim Taleb of Extremistan and Mediocristan. Most of social life is one of power laws. Fat Bottom Tails Make the Complex World Go Round. “For if the world is organized into a critical state,” wrote Mark Buchanan “then even the smallest forces can have tremendous effects.” 

For both health and wealth, the goal is to stick the landing within a certain range. According to Taleb, to avoid ruin look to the ancient examples of actions. For example, the best beverages are the old ones: water, tea, milk, wine. Vegetarianism fails this test, though it does raise the question how far into the past should someone go?

Using the model of complexity the answer is ‘Maybe’.

Luckily I’m a designer, luckily we all are, and we can prototype things. My plan going forward is to eat less meat; substitute peanut butter for turkey, nuts for beef jerky, and black-beans for taco meat (which I prefer anyway). All signs point toward moving away from meat, but not necessarily all the way.

Photo is of my daughter’s sixth-grade science experiment: what keeps mashed avocado green longest? Better than lemon juice was a thin layer of water which easily pours off. 

These are just a few models to filter the world through. More are in the short pay-what-you-want piece about how Tyler Cowen thinks. Cowen says that vegetables are better with some heat.


Getting to consumption

It was delightfully ironic. Turner Novak spoke with Patrick O’Shaughnessy and said:

“There’s ideas of TikTok for X, but TikTok can already do that. If you want to watch sports in a TikTok like setting, just go on TikTok because it will know you want to watch sports.”

…on an episode where Patrick led off talking about Bottomless, a smart scale subscription service.

I want to say one word to you, just one word. Are you listening?

The Graduate


Thanks to technology (like podcasts!) there’s been a shift in getting to consumption. In the past, we’d consume if we were told. Locality mattered a lot. In 1995 a friend said I should get Dookie. I went to K-Mart. It was out of stock. I heard Green Day on the radio, went back to the store, bought the album, didn’t like it that much.

In 1995 there was a lot of what David Ogilvy called reason why advertising. “Imagine that you’re at a dinner party and the woman next to you says, ‘I have to buy a new car, have you any advice to offer to me?’ And I tell her that I think she should buy a Mercedes Benz. She says, ‘Why a Mercedes Benz?’ Well I don’t try to put a mirage up, I give her rational reasons.”

In general, said Ogilvy, the more you tell the more you sell.

There was nothing special about 1995 other than I was thirteen and that Green Day album is my first consumer memory. If anything, the era of being told about something (at least at the macro level) was tapering off.

Being told worked for a long time because we were mostly told things by groups who we trusted. There’s always been word-of-mouth, but brands are trustworthy. If a company could advertise it showed fitness. That was information.

Then we got the information superhighway.

The internet allowed people to shift from being told to searching out. Rather than using advertising’s availability, we shifted to other forms. The internet allowed reviews, questions-and-answers, stars, ratings, lists, rankings, and more. We asked Google ‘What is the best…’.

Screen Shot 2020-07-16 at 6.17.40 AM

If you do get an air fryer, opt for the bigger basket.

In 2020, we can search and be given ‘reasons why’. In 2020, we use Amazon, Google, and Instagram.

In 2020 time, we’re also seeing the rise of prediction. Bottomless predicts when you need a refill. TikTok predicts what you’ll watch. YouTube suggests next videos. Netflix has always done this.

In 1999 Reed Hastings spoke to Sarandos about Netflix. The company, Sarandos recalled to Katie Couric:

“Was about a marketing move. Back in those days, studios argued about digital distribution; who is going to pay to retrofit theaters for digital? But the cheapest thing a studio does is mail prints around, what really costs a lot of money, and is inefficient, is marketing. If we can get tasted-based merchandising of ‘You’re going to love this movie!’ And you dont’ have to spend tens or hundreds of millions of dollars on marketing, you can change the P/L of every studio in the world. Taste based picking has been at the core of the business from the beginning.”

In 1975, film critic Roger Ebert won a Pulitzer Prize for Criticism. Consumers were informed.

In 1983 Sarando enrolled in his MBA and Film School program at “Arizona Video Cassettes West”. People came in the store and they were informed, they searched, and they were suggested by Sarandos and his staff.

In 1999 Hastings noticed Pixar’s problem of profitability and wanted to change the equation.

Broadly it seems like there are three paths to consumption: being told, being sought, and being delivered.

Being told. Advertising. Billboards, Facebook Ads, and so on. In Retirementville Florida one friend says that the weekly newspaper ad brings in more business than she can handle.

Being sought. Can the right people find your product? Search Engine Optimization and Content Marketing.

Being delivered. Can a business act with ethics?



Algos, attribution, and allowances

One of our psychological tendencies (neé biases) is the fundamental attribution error. Also known as: that driver didn’t signal. We have the disposition to note that when others misstep it is their fault, but when we error it’s due to the very specific, unique, unavoidable nuance of the situation.

Conditions matter and we tend to underrate them.

Hannah Fry spoke with Shane Parrish about the role of algorithms in our lives. Though algorithms are impartial in their functionality, they are not in their design. The training set (or set of experiences by the programmer) affects the outcome. Sometimes this means we get the wrong proxies because we use what’s easy to discover, digest, or divide.

“You can’t just build an algorithm, put in on the shelf and decide whether it’s good or bad in isolation. You have to think about how the algorithm actually integrates with the world you’re embedding it in.” Hannah Fry

Conditions matter. For a natural experiment, researchers looked at county-level obesity rates and military transfers. Personnel assigned to counties with higher obesity rates were more likely to be obese. The longer they were assigned in a place, the more they trended toward the average weight.

The researchers supposed that part-of-the-reason was because of the built and natural environment. The number of gyms and parks, the access to healthy food, and the walkability of a region were all associated with a place being more or less healthy. It’s not so much ‘you are the average of the five people you spend the most time with‘ but ‘you are the average of the five places you spend the most time

Place and space make some things easier. It’s not impossible to in Ohio winters, but do watch the ice.

Ohio, January 2018

The latest pay-what-you-want pdf is now online and covers a handful of ideas from Tyler Cowen. Get it here


Playing telephone with Bill Miller

Bill Miller spoke with Barry Ritholtz about active management and the importance of stakeholders.

When Miller departed from Legg Mason and then bought out the residual partners, he didn’t take any of the institutional clients.

“We brought the mutual funds along but I did not bring the institutional business along. We have some separate accounts but we don’t really take institutional money, not that we won’t take it, but we aren’t actively trying to grow it. We are only interested in having clients that understand you’re going to get volatility. We try to monetize the volatility. “

Part-of-the-reason institutions are more difficult to work with is the people. Not only investment committees, but investment committee boards. Not who Miller talks to, but who they talk to.

Around the same time as the Miller interview with Ritholtz, Hannah Fry spoke with Shane Parrish about the algorithms in our lives. Counting leads to coding and our interaction with algorithms, automations, and augmentations is accelerating. One approach (often wrong) is to educate people. Tell someone the number of calories in a Starbucks drink and they don’t opt for the smaller size.

Fry highlights this. It’s not realistic to expect that an outsider has the time, talent, and tenacity to interrogate a source code. They are numbing numbers. If something is too hard to understand, often instantaneously, then it may as well not exist.

The most ubiquitous parts of life are complex. This was a good book about the iPhone but I don’t remember much other than it truly is a global supply system that makes the device in my pocket work. Mix in some YouTube videos about cellular networks (it’s ‘cell’ as in which hexagon from our tessellation map is this person in?) and relearning what the UV spectrum is and I kinda-sorta-get it. There are videos too about repairing a screen. A layperson can do that, but jailbreaking or writing apps? How much does, or should, one person know?

Back to Mr. Miller. He’s not explaining the physical world (Mediocristan), a mostly stable place where the UV spectrum has held relatively constant for hundreds of years. He’s operating in the social world (Extremistan), a mostly unstable place, and it is hard to communicate there.

When asked what he wished he knew when he started, Miller said:

“The thing that I am constantly realizing is that the world, the economy, and the markets are so much more complicated than you have any idea. Having dogmatic views and pontificating about the world as this way or that is a complete waste of time because nobody has any idea about what’s going to happen in the future.”

Listen to Ted Seides’s podcast and you’ll hear that investment committees get this. Institutions employ smart, thoughtful, well-rounded people. However, it’s the next level when the alignment of communication, incentives, and priorities breaks down. It’s how the game of telephone works. Someone can read and watch and kinda-get-it. That same person cannot pass it along.

The alignment of stakeholders is why investment letters (and to another degree, podcasts) are so important. It’s a filter. If someone can read a letter, consider the ideas, and still wants to invest then that person gets it. It’s reading the source code. It’s succeeding at the game of telephone. It’s communicating well.

Your work with stakeholders depends on communication and your communication depends on how clearly you see the world. In the latest pay-what-you-want piece we look at advice from Tyler Cowen and my grandmother. The gist? If you see the world as you wish and not as it is, you’re in for a rude awakening. Get it here


Multiply all potential WFH consequences by 1.2

From Maria Konnikova’s The Biggest Bluff.

In the same way that mediums matter for content (why are there no good FinTwit YouTube channels?), mediums matter for work too. 

Much work is information exchange. The internet repairman comes to your, now home, office to install a better modem and upgrade the internet plan. The internist diagnosis that ‘thing’. The teacher teaches.

A group of researchers wondered how virtual chess might lead to different decisions. It is still chess; sixty-four squares, four rooks, two kings, but it is a different medium.

During the COVID-19 pandemic there was the Magnus Carlsen Invitational. The researcher wrote:

> “We use this event to compare the performance of the participating players to their performance in recent editions of the World Rapid Chess Championship as organized by the World Chess Federation in a traditional offline setting. Both tournaments are organized under comparable conditions, in particular giving players the same amount of thinking time during a game, and offer comparable prize funds.”

Researchers compared each of the 27,000 move across 441 games to the Stockfish 11 engine and found that while the number of mistakes was about the same, the quality of the mistakes was worse (16.8% to be exact).

One way digital work will be different than in-person work will be in how we interact with technology. For example, many writers print their words to proofread their work. They noticed differences in a different form.

Jason Blum and Rory Sutherland both work in creative fields and note the importance of a confidence boost–which is hard to do virtually. In his op-ed, Jerry Seinfeld wrote that New York City will bounce back, that broadband isn’t enough to do the same work. Why? “Energy, attitude, and personality cannot be ‘remoted’ even through the best fiber optic lines.” 

In the same way we might leave early if an upcoming drive is through a notoriously congested area, we should adapt our decisions, interactions, and intentions as we WFH.

Here’s the suggestion: When working virtually try to be 20% nicer, more supportive, and more cautious. There’s a psychological heft that’s lost in our virtual interactions.

Hey, you read the whole post, want more? I’ve got a new pay-what-you-want pdf. It’s a handful of ideas from Tyler Cowen about thinking like an economist. It’s here. It’s twenty-seven minutes ideas. 


Minimalism’s branding problem

Correctly framing a problem goes a long way toward solving it. Things seen in one light are solutions, while in another light become problems. For example, taking six days to get from Vancouver to Anchorage is a problem—unless it’s on a cruise ships and then it’s better to add stops. People now pay extra for the longer journey. Like me in 2015, hoping Denali peaks through the clouds. 


Minimalism has a branding problem. People perceive minimalism as *get rid of your stuff*. However the value is not so much downsizing as prioritizing.

This same confusion is part of the FIRE movement. Participants choose to live with a large delta between what they earn and what they spend because they have a reasonably high earn and a relatively low spend. As a non-FIRE but equally thrifty friend told me, “I like the simple life.” Less consumption is not less life.

This obstacle exists in businesses too. If there’s a gap between what you think your business does, and what your potential customers think, then your business suffers. The world will not beat a path to your door.

In a good interview about her book, April Dunford speaks about the importance of product positioning. Dunford has a JTBD ethos. “A lot of times when your customer is a business and you ask them what they would do, they say they would use word or excel or hire an intern.” There’s a lot of non-consumption. There’s a lot of informing, which doesn’t work.

Instead, think of how your customer views your business. Think about how things that look odd (FIRE) make sense and consider why. 


Would Charlie Songhurst invest in Florida?

Florida has a bad reputation. Mostly this is swapping weird for bad, but that’s what you get with a state that’s basically 10 different communities. Part-of-the-reason Florida is this way is because of migration, starting in the early part of the century. At first railroads brought people to Florida. That was okay. But as automobiles improved an allowed for autonomy—I’ll go where I please when I please—Florida improved as well. Christopher Knowlton’s book, Bubble in the Sun is the story of the 1920’s Florida land boom but the precursor to speculation was transpiration: “The resorts towns would remain no more than winter retreats until better, more numerous roads could be built, freeing potential year-round residents from their dependency on the railroad.” A generation later another technology brought people to the sunshine state when air conditioning went from one-in-six homes in 1960 to three-in-six homes by 1980. Think of Florida. Think of the beaches, the bars, the boats. Think of white sand, blue water, and Mickey Mouse red. All that awesome stuff is thanks to asphalt and air-conditioning. Thanks to the boring. 

Charle Songhurst explained this idea to Patrick O’Shaughnessy

About recruiting: 

“You really don’t want to be sitting there in San Francisco trying to close your candidate when John Collison is trying to close the candidate as the alternative—because John’s going to win…Whereas if you’re hiring that person in Kiev and their other option is working in outsourced IT for Deutsche Bank it’s a much much easier win. What you want to find is the incredibly qualified people in weakly competitive labor markets.” 

About information:

“Trying to be smarter than other people is very hard and doesn’t work very often. Trying to have an insight that you get because you sit in a different information flow just seems exponentially easier.” 

About industries:

“If you pick two axes, boredom and complexity. You want highly boring highly complex because everything in the universe is a supply-and-demand curve and you get an insufficient supply of entrepreneurs in the highly boring, highly complex space and therefore elevated returns.” 

The central question to Songhurst’s approach is where? Where should we recruit? Where should I get my information? Where should we compete? There are places where things are easier. Non-consumption, new JTBDs, or the funny

Florida’s development was boring, and Songhurst would have invested. Now though? Nah, he’s looking elsewhere.