Cowen is one of my favorite online and offline authors. I’ve read most of his books and posts, and enjoy his new podcast. If you want to start reading Cowen, begin at his blog Marginal Revolution and with Average is Over. That book played an influential role in my post about the new career landscape with Adam Davidson and Taylor Pearson.
Cowen’s conversation with Torenberg is wide ranging and the sequence of rapid fire questions was a treat. Do listen to it if you have time. For now, here are 8 takeaways that we can use in our lives.
Stories + Data + Time ≈ Truth
In the interview Torenberg asks Cowen what he thinks of of Steven Pinker and Jared Diamond’s work. Cowen says that both produce good work, but that neither makes the right conclusion with regards to all the data. Pinker’s error is (maybe) that the world wars were so close together, and that the next one will be much worse. This sequence could fit the same data, but isn’t Pinker’s conclusion.
Diamond, Cowen says, points out the importance of distance from the equator as it relates to development, but underemphasized the importance. That single factor can account for much of what Diamond concludes.
I don’t hold a candle to the flame of the intelligence of Pinker, Diamond, or Cowen, but will offer a mental model from Garrett Hardin as a way to think about their information. In his book, Filters Against Folly, Hardin suggests we look at situations through three filters: numerate, literate, and ecolate. Hardin writes:
“In summary, the three filters operate through these particular questions: Literacy:what are the words? Numeracy: What are the numbers? Ecolacy: And then what? No one filter by itself is adequate for understanding the world and predicting the consequences of our actions. We must learn to use all three.”
Right now we face a the predicament of too much data. As is often the case, if some is good, more isn’t necessarily better. You wouldn’t want a stool with one leg twice as long as the other two.
Malcolm Gladwell (2015) recently spoke to this idea and Cowen says something similar, “Statistics are often telling you what the questions are, not what the answers.”
Rather than just statistics, we need to see how the puzzle piece fits in the larger scale. That means using mental models that work in a variety of ways, not only mathematical ones. We need figure out the numbers (numerate filter) but also know the story (literate filter) and then ask, what comes next (ecolate filter).
Process over product
Throughout the interview Cowen mentions that he plays the hand he’s dealt in the game of life. I’ve read Cown, and he’s smart enough to play any hand, but he really focuses on what he sees are his strengths. One of his strengths is to not focus on the big picture. Cowen says,
“I’m bad with plans and goals. If I’m at the firehose, absorbing stuff and soaking it in, I have a presumption that good things will come from that.”
By firehose he means the rush of data through the internet, books, etc. Rather than think about what the next thing is, Cowen seems to move along with whatever the task or mood of the moment is. Both his books, The Great Stagnation and Average is Over seem to come from this line of thinking.
This focus of decision making based on process (ex ante/beforehand forecasts) over product (ex post/outcomes) might just be the best way.
I saw this too closely during a recent iPhone repair. I tried to remove some dust that was mucking up my camera but, after some unscrewing, prying, opening, tilting, spraying (canned air), praying, closing, and powering on – it did not power on.
Actually it did, but it looked like a glitch in the Matrix. Not the good kind of glitch that the movies are built around, but a real glitch. It was a good decision based on the process. The actual repair seemed simple and within my range of skills. The product of that process though was a mistake.
Other podcast interviewees have suggested the same decision making philosophy:
- Mark Cuban talked about how they used this mental model to look at successful basketball decisions.
- Chris Sacca talked about how he used this mental model to decide on what to invest in.
- Michael Lombardi talked about how he applies the “management of self,” to evaluate decisions.
We can think of this big idea in other ways too. Scott Adams writes in How to Fail at Almost Everything and Still Win Big that “goals suck.” Adams found himself on a plane, talking to the businessman next to him. That guy explained how he was always on the lookout for a new job rather than waiting for a promotion. Adams writes:
“This was my first exposure to the idea that one should have a system instead of a goal. The system was to continually look for better options.”
Goals are finite with finish lines and a constant state of presuccess.
“If you achieve your goal, you celebrate and feel terrific, but only until you realize you just lost the thing that gave you purpose and direction. Your options are to feel empty and useless, perhaps enjoying the spoils of your success until they bore you, or set new goals and reenter the cycle of permanent presuccess failure.”
Cowen’s terminology is not to think about ideas, but methods. “I’m not even sure what my ideas are,” Cowen says, “when I spread an idea I’m really trying to spread a method.”
Travel, Cowen says, “is much better than reading.” Instead of a deep dive into book research, suggests Cowen, read one book and then go someplace.
This was the experience for John Chatterton when he wanted to dive a sunken U-boat off the coast of New Jersey. The only problem was that no sub was supposed to be there. Add in that it was in 200+ feet of water and the innards twisted around like a pile of spaghetti. There was no amount of reading that would describe the inside.
Chatterton luckily found out that a similar submarine was on display at the Museum of Science and Industry in Chicago. The book Shadow Divers explains his experience there:
“Chatterton moved slowly with the audio tour, pressing STOP on the player ever few seconds to orient himself and make careful mental notes. He studied the composition of shelves, components, gauges, and floors, envisioning each as it might appear covered in sea anemones and rust after fifty years on the Atlantic floor. He craned his neck around machinery and into off-limits areas, looking for anything – a tag, a builder’s plaque, a diary – inscribed with the U-boat’s number so that he might search for the ame in New Jersey. Everything he did annoyed other visitors. He blocked impassable aisles, backed up into children, wiggled around seniors. When a tour guide asked him to move along, he exited the U-boat, got back in line, and waited for another turn.”
He walked through seven times.
It makes a difference too. When Samuel Zemurray was began his small fruit business, being somewhere mattered a lot. His competition was with United Fruit, headquartered in – and rarely leaving – Boston. Zemurray though was on the docks, boats, and banana plantations. “They’re there. We’re here,” was his rally cry. The idea worked. Zemurray eventually turned his fruit cart into ownership of United Fruit.
2nd Level Thinking – Harvard Edition
When asked if he would let more students into Harvard, Cowen says he would. It sounds like a good idea, but if we stop there we stop at first level thinking. Of course Cowen, much like Howard Marks, can’t stop there. Yes, you can let in more students, says Cowen, but then what?
He starts to think about what effect that might have on the professors. Can Harvard find qualified staff for the larger student body? (This is a 2nd level question).
It goes back to back to the formula we opened this post with, stories + data + time = truth. Second level thinking like this comes from the time portion of our equation. It’s one tool that Howard Marks uses for his successful investments. It’s one of Ray Dalio’s decision making tools, where he writes, “the quality of our lives depend on the quality of the decisions we make.” We need to think forward in time and use our best guess for what might happen if we take one path and not another.
Torenberg asks Cowen what he would put on a billboard if had one in New York City. “I don’t know,” Cowen, says, “Would a billboard really convince anyone?”
Cowen settles on the suggestion of a new record album, but doesn’t think that would matter much. What might work best, says Cowen, is to advertise Coca Cola. To what extent does a billboard (sponsored tweet, blog sidebar, etc.) matter anymore?
We can see this online when someone like Christopher the Conquered was tweeted by Ryan Adams (who has 699K followers) guess how many sales he made from the publicity? Zero. Why? My theory is that people look who follow Ryan Adams don’t look for music suggestions as much as they look for backstage pictures or thoughts about songwriting. It’s the same reason I look at almost all of the books Cowen suggests, but none of the music.
Twitter is a platform of one to one communication and scale effects. It’s bimodal. If Ryan Adams tweeted to only you – or Cowen reach out to only you – and suggested an album, would you listen? Probably, but the scale effects only work for certain messages.
Chris Sacca seemed to have a good angle on scale effects with his investments. Specifically in his talk with Tim Ferriss they mentioned that people dismissed Uber as an app for the 1%ers. Not really, said Sacca. Torenberg takes this idea one step further and says that even things that start as high end luxuries (cell phones Cowen notes) trickle down to everyone.
Webs of nature, free will or will free?
It can’t be a The Waiter’s Pad post without some song lyrics. Rush, you’re up:
“You can choose a ready guide in some celestial voice
If you choose not to decide, you still have made a choice
You can choose from phantom fears and kindness that can kill
I will choose a path that’s clear
I will choose freewill”
Cowen’s response? “Free will is an absurd idea.”
I think we need to side with Cowen on this one. We are embed in a world of webs, you right now on this interweb. In these webs we feel the tugs and pulls of others, and depending on our connection, the tugs and pulls move us more or less.
Hardin, who’s filter system we adopted for this post, writes, “we can never do merely one thing.”
I think Cowen’s point is that even the slightest nudge one way or another changes a cascade of decisions.
Much of Richard Thaler’s latest book, Misbehaving, is about the the evolution of the economics profession to understand these nudges. Standard economic theory, Thaler writes, believes that we are all rational agents. In some ways we are. But in many ways we aren’t, at least on the surface.
We can look at the current (August 2015) stock market ebbs and flows and wonder what is going on. We don’t know, and we probably can’t tease out everything.
Thaler quotes Merton Miller who said, “behind each holding may be a story of family business, family quarrels, legacies received, divorce settlements and a hose of other considerations almost totally irrelevant to our theories of portfolio selection.”
This was the case in 1998 as well. Long Term Capital Management (LTCM) was the greatest hedge fund ever, until they weren’t. Their webs included two strong tugs.
In, When Genius Failed we see the story of their growth and death. The latter was influenced by guys who thought they could always do better. This tug was one where their perspective got pegged to a high figure of returns and they wanted to beat it. They couldn’t settle for “good” returns on their investments. They had to find “great” ones.
This led to riskier and riskier options, which led to the second tug, a domino effect.
You see, it’s informational to see how LTCM messed up, but they almost didn’t. If they had held one or two fewer positions, or got out of those positions near the top, they probably would have been fine. They didn’t and the lack of leverage in one area forced them to sell at the bottom of another which created a feedback loop that devalued the first. Their web of investments was too tight.
We are biased, go back to Ramit Sethi’s interviews for examples in business. The Jason Calacanis post has a footnote as well. Chris Sacca’s post explains how Charlie Munger hurdles biases. The point is that there are all kinds of influence around us, and we should consider how and where that comes from.
It’s like that mid-morning moment when you realize you’ve been tapping your foot to some musical beat. When did I listen to this you ask yourself? Oh, that’s right, it was some Rush song on the elevator this morning.
I wish that Torenberg got into what sort of signals Cowen uses, because I know he has many. One examples is; restaurants in strip malls, with lots of locals (who yell or talk loudly, to or at each other) is a signal for a good place to eat.
When Cowen interviews people he asks what their favorite novel is and why. This question and how they answer, he says, tells a lot about the person and how they think. We may not host a podcast like Cowen, but even our lives we can install signal questions, in fact, they help quite a bit.
- Ramit Sethi installed signal questions to help him figure out who to hire.
- Barry Ritholtz installed signal questions to help him figure out who to work for.
- Van Halen installed signal questions to their tour rider to ensure the lighting rigs were set up correctly.
Signal questions won’t be perfect, but if they do a good enough job that’s all we need.
The new economy, and the big problem
One of Cowen’s newish (April 2015) articles was about the fundamental problem being immobility rather than inequality.
“Income inequality and economic immobility are often lumped together, but they shouldn’t be.”
“Consider the two concepts positively: Income equality is about bridging the gap between the rich and the poor, while economic mobility is about elevating the poor as rapidly as possible. Finding ways to increase economic mobility should be our greater concern.”
The people that I read say “a new economy is coming.” Adam Davidson and Taylor Pearson talked for two hours about the same idea on separate podcasts. Cowen’s book, Average is Over focuses on this idea. James Altucher highlights this idea when he speaks and Mark Ford has encouraged people to become intrapreneurs.
The problem, as Cowen sees it, is not the total or relative wealth. “The fact that Bill Gates earns a lot more than some poor person doesn’t bother me,” says Cowen, “It does bother me that the poor person can’t buy a house in a good school district.”
Thanks for reading, I’m @MikeDariano on Twitter. This interview felt a bit uneven as I wrote it, Cowen – and maybe Torenberg too – were all over the place (but enjoyably so). If this summary piqued your interest at all, do go listen to it. My favorite novel? American Gods. Why? I like the mystery that swirls around it. What does that say about me? Who knows.