Stephen Dubner (@freakonomics) joined James Altucher to talk about psychology, backgammon, and answer the age-old question, why don’t we say “I don’t know?” By the end of this set of notes, you’ll know. Dubner is the co-author of all three Freakonomics books, Freakonomics, SuperFreakonomics, and Think Like a Freak.
Dubner starts the interview by telling James he was writing a book about the psychology of money but “put that book in a drawer because Freakonomics happened.” He had left writing for newspapers and magazines to write books and his first two books did okay, but he needed Freakonomics to do much better than those. A day or two before it was released, he asked James “What if this next book doesn’t work out for me?” He told James that, “Most writers vacillate between feelings of intense pride and superiority and intense self flagellation and doubt.” It turned out that Freakonomics was a “total surprise” and complete success and Dubner guesses the books have sold six million copies around the world.
“I could not believe that was me that was going to be attached to a book on the times best seller list. It was full of people who I thought were made of a different stuff than me.” – Stephen Dubner
James says he wants to get into some specific parts from Think Like a Freak, which he says, “could be the best book of all because it gives practical advice, how to think like you guys, from the Freakonomics perspective.”
But first, James has a theory about how Freakonomics was successful, “you give the secret origin story” he says to Stephen. Dan Ariely confessed this in his interview with James. For Ariely, the way his bandages were removed in the burn unit started his thinking about what sort of conventions we hold that might be wrong. How we might be Predictably Irrational. For Mark Cuban the origin story focused on how his old boss was more interested in a store being open on time rather than a customer services. For Wayne Dyer it was teaching people, but not at the university. For Scott Adams it was a cross-country flight that taught him about using systems rather than goals. We all have moments where a switch is flipped to send us down one track versus another.
Stephen thanks James for noticing this, telling him, “most people when they ask about the books just ask about content, and not the process, and they don’t realize that the process makes the content work or not work.” Stephen tells James that “nine out of every ten words I write gets thrown out.” A familiar expression to other writers like Tim Ferriss, Neil Strauss who wish they didn’t send so much waste to the cutting floor.
Stephen says that he started thinking this way by reading biographies, a chance to “reverse engineer” how a person became who they are. Many other of James’s guest have taken this reverse engineering angle. Tony Robbins (episode #62) lives it and a generation before Napoleon Hill wrote about it. A book James says may not be great, but “isn’t bad.”
Another key to the Freak books success James suggests is that Dubner and Levitt tell good stories. It’s even a section in their book, where they admit that telling stories is often a good way to persuade people. Seth Godin (episode #86)says that the story is never about the teller, but the person hearing it. Gary Vaynerchuk (episode #2)would remind you to match the story to the medium.
People are always asking Dubner about writing and how to write better. He tells James that it came from teaching a class at Columbia called Logic and Rhetoric. The class doesn’t exist under that name anymore, but the book the course used is available on Amazon for $0.01 About the course Dubner says:
What was great about it was that it treated writing in this very old greek model. That anytime you wanted to communicate, whether it’s writing, a speech, or whatever. There are these two pillars, they aren’t necessary equal but incredibly important. The logic is all the facts. All the pieces of the argument that add up to what you are trying to articulate. There is the rhetoric, which is how you tell the story, who’s telling the story, the pace, the timing, the tension and so on.
Stephen tells James the secret for a piece of writing to be really successful you have to be good at both the logic and the rhetoric. The way he improved this, was by teaching it. Maria Popova (episode #89) put this ideas in different words, telling James, “learning to read well and to write well is really learning to think well.”
One staple of Freakonomics style thinking is that “conventional wisdom is often wrong” Dubner tells James and which James says, “is incredibly true for entrepreneurship.” We get into trouble with conventional wisdom because we balance between autopilot/heuristical/habitual thinking and objective analysis. Autopilot, or System 1 thinking as Daniel Kahneman calls it and that systems is always on. Take a look at the Muller-Lyer illusion.
Now, you know that those lines between the arrows are the same length. You probably knew it before I even mentioned it. But don’t they still look like different lengths? That’s System 1, autopilot, heursicial thinking. It’s good for saving energy and making quick choices but is not easy to override.
Another good part of the book James says, is that “incentives are the cornerstones of life.” Incentives are good, but Dubner cautions you to find the right ones. For example, second graders will read more if you pay them $2 per book read. Once you get up to middle school though, the prices goes up to $20 plus some psychologic hypnosis. When middle school students take a test, you could pay them to get good grades and see a small increase in scores. To get a big jump though, you need to make a connection between the recipient and the incentive. In The Why Axis – another pair of economists – Uri Gneezy and John List offered students a cash reward but had them visualize how they’ll spend it this weekend before even taking the test.
Picture this, you’re thirteen years old, daydreaming in the corner and the teacher announces an exam that you loosely studied for. She says that if you score more than 80% correct, you get $20 but she wants you to take a moment to think about how you can spend it this weekend. My little mind would have been saving up for Warcraft:II. Gneezy and List found that if you get students to visualize what they will spend the money on, their test scores jump quite a bit. This theory goes that, once people have something, they hate to lose it. The students had the money in a way that they were mentally spending it. The Why Axis is a good book if you like the Freakonomics series, also check out Jodi Begg’s econ blog, Economists Do It With Models.
Back to the interview with James, Stephen says that finding the right incentive to use with people can be tricky. People have their revealed preferences and their actual preferences. For the middle school test takers, it was pretty clear that they wanted twenty bucks, what else does a thirteen year old desire? Okay, that, but what do they want that you can give them? For others the incentives aren’t quite as clear and we have the disparity between real and revealed. For example, which one of these statements is most persuasive to you?
- I will conserve energy because I want to save money.
- I will conserve energy because I want to save the environment.
- I will conserve energy because other people in my neighborhood are doing it.
Stephen tells James that when researcher Robert Cialdini surveyed people about this question, most said yes to the first two, and very few said they would follow the pack and be persuaded by the third. When Cialdini ran an experiment though, he found this wasn’t quite true. People who found out their neighbors were using less energy, decreased their usage more than people who were inspired to save money or the environment.
How can you then apply this idea? In Think Like a Freak, Dubner gives the following suggestions.
1. Figure out what people really care about
Middle school kids care about twenty bucks, second graders will be satisfied with two. People don’t always want money or time and it’s up to you to figure out what’s truly valuable to them.
2. Choose something they value but is cheap for you to provide
This idea has come up again and again in the interviews and I’ll again and again point to the first place I heard of it, Getting to Yes. Let me tell you a story in my house. My daughters have three chores to do each day. Pick up their room, pick up the entry, and a rotating chore like feed the dogs or take out the recycling. If they do those three chores, they can have $1 or a token for 1 hour of screen time. To me, the dollar costs more and I’m more than happy to keep a $1 and will give up letting them watching some TV or play on the iPad.
3. Pay attention to how they respond to the incentives
Arnold Schwarzenegger did an interview with Tim Ferriss. He told Ferriss about what it was like before he was a movie star (yes kids, he was a movie star before a governor). To make money on the side he started a european brick company in California. He and his partner in the company played good cop, bad cop to get people to buy more quickly and it worked. The rub was that when they went into their routine, they were yelling at each other in languages neither understood but the customers saw it and it was part of the show and deal they got.
Dubner has a few more specific instructions in the book.
Another point from the book James brings up “is knowing what to measure and how to measure it.” In the book Dubner advocates for people to go back and go back again and go back again to find the source of the problem. The divergence between this and that. One way to make this easier is to ask a question a new way. Rather than ask, how do I eat more hot dogs, ask, how do I make hotdogs easier to eat. This is an actual example from the book.
A third point from the book is to avoid your own biases because of domains transfers. It’s wise, Dubner says, to maintain our domain dependence in knowledge. You wouldn’t confuse the skills of an accountant and chef, even though both use their hands to do repeated tasks that require attention to detail. Thankfully, Dubner says, this is “one of the easiest biases to avoid.”
Problems arise because it’s hard to say I don’t know. Maria Popova (episode #89) called this the “uncomfortable luxury of changing your mind.” This is another case where incentives matter. The incentive or cost, of saying “I don’t know” is a loss of face in many instances. Rather if you make a guess, you might be right and if you’re wrong, well at least you tried. Guessing and being right though can cause more harm than good because you think you understand and missed the important variables. If you hit 21 while playing blackjack you wouldn’t say it was because you had a lucky rabbit’s foot, but that’s sometimes what we do.
James gives the example of a report that said political experts were right in their predictions 47% of the time. If we hypothetically consult with Dubner he would suggest we ask about their incentives. Okay, this makes sense, we keep hearing that incentives matter, so what’s the incentive to someone on TV? To get more viewers. How do you get more viewers? You can be right more often or you can give the people a show.
Dubner doesn’t mind political experts giving people a show and appluads that it’s a form of experimentation, soemthing we don’t do as often as we should. Imagine what would happen today if university presidents, authors, and great thinkers joined something as paranormal as the Society for Psychical Research, but that’s what happened in the 1890’s. Erik Larson writes:
Its membership expanded quickly to include sixty university dons and some of the brightest lights of the era, among them John Ruskin, H. G. Wells, William E. Gladstone, Samuel Clemens (better known as Mark Twain), and the Rev. C. L. Dodgson (with the equally prominent pen name Lewis Carroll). The roster also listed Arthur Balfour, a future prime minister of England, and William James, a pioneer in psychology, who by the summer of 1894 had been named the society’s president.
Why could such smart people do this? My guess is in part they were open to experimentation. This was a time – and Larson’s book follows this story – where inventors and scientists and governments were harnessing a mysterious power to send information transmissions from one place to another without wires. The Society for Psychical Research members didn’t know what was beyond what we could see, so trying to find other things in thee ether makes sense. These mysterious transmissions are what we call radio waves.
Dubner and his co-author Steven Levitt have been successful because they both have jobs that offer them a chance to experiment and ask new questions. Dubner is a journalist, Levitt an economist, and both get rewarded for asking good questions. In the business world this is harder, as Dubner tells James, “out in the real world, people’s reputations are on the line. People who work at firms..there’s ego and cognitive bias to know the way things work out.” The biggest cost of this Stephen says, isn’t being right or wrong in the moment but that we don’t experiment to find out why things are a certain way.
Dubner says, “When you make an assumption (that you know a reason something happened) you stop actually trying to use and embark on creative ways to gather feedback and experiment and find out.” If you want to start, Dubner writes in the book, start small and here’s why:
- Small questions are less often asked and may be virgin territory for discovery
- Big problems are dense and intertwined small problems that have to be solved first
- Small problems have a smaller mass and are easier to change
- Thinking big leads to more speculation, small problems can have more accurate observation
Dubner also echos what others have said about education, that maybe it’s too rote, telling James that formal education is “learning a set of standard facts and talking them back.” Seth Godin (episode #27) says that education should be teaching people to solve interesting problems and to lead. Maria Popova (episode #89) told James that education should be learning about how to live.
One way that Dubner and James have used reframing to re-examine a situation is to replace themselves with a different version of ourselves. James has written about pretending to be an alien or someone’s mother. Duber says that he uses a version of this trick while shopping, pretending that the object he’s looking at is at a New England yard sale rather than perfect retail environment.
This takes work though, to pause in the moment and think about whether or not this situation is something you want. Rather, Dubner suggests you “teach your garden to weed itself” a chapter from Think Like a Freak. That chapter is centered on the story of Van Halen and Brown M&M’s. It’s a story that’s been told many times over – and really best told by David Lee Roth himself.
Rather, here’s a more modern version.
Selling marijuana legally is really hard. There’s growing it, legal issues, and selling it the right away. This doesn’t include one of the hardest parts – getting a business checking account. Many banks don’t want to enter this smoke-gray area of the law. This means that people legally selling it find alternate ways to deposit the money. In episode #602 the NPR Planet Money team find out how some banks are offering their services. One credit union in Seattle is offering a checking service, but with a certain set of questions like do you have a business plan and do you have insurances. And this one:
“Do you have an e-business risk management policy?”
Hmm. Why are they asking about e-business when you can’t sell it online in the state of Washington?
You answer the question and move on. Does your facility have; “security access, security cameras, security alarms, 24 hour surveillance, armed guards, or guard dogs?” This credit union has taught their garden to weed itself because if you are selling marijuana and went a checking account you better NOT have an e-business policy, armed guards, or guard dogs. Answer yes to any of those questions, and you’re done.
I was recently hiring someone to run my support organization and I knew that I would get a lot of applications…I needed a way to filter people out.
Ramit sent out an email with ten questions, but he only really cared about question #7: “Which metrics do you see as most important for measuring customer service?” This was his version of brown M&M’s and armed guards. It was the answer to this question that would show him if he should examine the rest of the applicants essay. Of the 412 responses, only 2 used the words he was looking for in that question.