Compromise or Coin Flip?

“And so the general mathematical way of thinking about this,” explained Vitalik Buterin, “is if you have A and B, and you had to choose between a compromise between A and B or a coin flip between A and B, would you take the compromise or the coin flip?”

Convex situations are x^2 conditions. These are coin flips. War, says Buterin, is a convex condition. It’s better to fight at A or B rather than A and B (Jack Reacher style). Travel during Covid is another. Host Julia Galef adds another, “as someone who took only two thirds of her course of antibiotics for strep throat at one point in college, I can attest to the all or nothing approach.”

Concave decisions are compromise. Omnivores are concave. Iatrogenics is concave.

Concavity filters advice. Any really great idea is too expensive to pay for.

There are always trade-offs. A or B vs A and B won’t always work, but it’s another idea to add to the mental toolbox.

Summer 2020 definitions

These are the additions to the full list below.

Advice (verb). A suggestion based on unstated conditionals.

Breath mint (noun). Candy with branding. See also: muffin/cupcake and flower/weed.

Groupthink (verb). Interpersonal incentives plus culture.

Reality index (noun). Via Dana Gioia. About his best teachers Gioia said, “They were older men who had served in the military in World War II. That had given them a kind of reality index about what the purposes of literature were.”

Two tickets and twenty dollars. (expression). From Thomas Tull noting that good marketing is to the people who are convinced. I could give my mother two tickets and twenty dollars and she wouldn’t go to this movie.

Sampling bias (psychological state). When a spouse asks, have you ever lied to me and you reply No, not that I can remember.

Previously:

We put a man on the moon but…. (expression). When people confuse the rules of one system for another. We put a man on the moon but we can’t fix the summer reading gap.

If you really study it”. (expression) a signal someone hasn’t changed their mind but is willing to capitalize on the current trend. 

Assumption (noun): To make a theory into a law. This is not an issue because of Moore’s Law.

Middleman (noun). (1) the person who facilitates a transaction (2) the person screwing you in a transaction (3) the previous person who screwed you in a transaction, not this new innovator, no-sir not this new person, I will NOT ever complain about this new person. 

Sludge Audit (verb). Evaluating the red-tapes, hoops, and frictions in a process. I’m going to batch these customer feedbacks and see if there’s a theme, then I’ll conduct a sludge audit to see how our processes can be improved

Performance architecture (noun). The design of “structures to make better decisions and perform at optimal levels.” The last thing I do each day is write in my decision journal because it’s part of my performance architecture. 

Crash (verb). A drastic change in the market with negative effects due to one’s time horizons. The market crash means Bob won’t be able to retire in two years. See also: Correction.

Correction (verb). A drastic change in the market with neutral effects due to one’s time horizons. The market correction means Alice will be buying more Bitcoin and hodling. See also: Crash.

Franchise Fees (noun). Customer acquisition cost. Chipotle for example..

Konnikova’s Data

Park of poker’s appeal  is that people balance consequences and rewards. Thoughtfully in the best cases. But the lessons aren’t always obvious.

Nate Silver notes that live poker can be boring because participants don’t play that many hands. Yes, Maria Konnikova replied, that’s one way to look at it.

“There’s a perception that live poker can be boring because if you’re playing well you shouldn’t be playing that many hands. There is a lot of time you are just sitting there. But something I learned from Eric Seidel is that the times you are not in a hand are some of your most valuable opportunities to gather data.”

Konnikova recounts to Silver a time she was disposed as chip leader by an opponent who, after a day of play complimented her on her previous tournament. Why? It was televised. He picked up on her over aggressive style (something Konnikova notes in her book, I highly recommend The Biggest Bluff) in that tournament, and he used that against her in this one.

So rather than play as the thing-to-do, observe and learn are the things to do. Konnikova (and Seidel) reframed poker folds from something passive to something active. This is the same trick Annie Duke used for her poker clients. Duke reframed the action from playing hands to making good decisions.

Barry Ritholtz calls this the don’t just do something, sit there challenge. It’s hard to break the action-progress association. Yet there are situations, beyond poker, where not doing is more important that doing.

The basic level of learning a new thing is the advice to “just do it”. Just exercise/save/invest/read more. That’s difficult, especially without an anchor. A better way might be to substitute something of the same class. In the case of poker, Duke and Konnikova substituted one verb with another, and gave a reason for doing so.

I’m on a big pickleball kick right now and this advice, along with Winning Ugly from Brad Gilbert points in a clear direction: my game isn’t so much about hitting winners first but hitting winners second. A lot of my level is about setting up n+1 shots. Rather than beat an opponent down the line, with varying success, my aim should be to hit feet high down the line, move them, wait for a ‘green light ball’ and then hit winners. 

onward and upward

Thinking like an Economist: Costs

With computers, “the stories were coming in at six or nine-thousand words,” rather than the three thousand words courtesy of typewrites, “but there wasn’t much more story.” What was happening, recalled Neil Gaiman, “if you’re typing, putting stuff down is work. If you have a computer, adding is not work. Choosing is work.”

To think like an economist is to think about costs. Cheaper tends to equal more, not only price but ambiguity, uncertainty, time and whatever frame a person looks through. To consider costs broadly is to think about design.

Gaiman’s writing shed has no Wi-Fi. This raises the cost. This is the same idea that James Clear told Ted Seides: even though your phone is 10 seconds away that 10 seconds is a huge cost compared to remaining on your couch.

Anchor Skills

Bob Hamman is the greatest bridge player ever. So what’s his advice for learning how to play bridge?

“Similarly in bridge if you have some baseline to work off you’re dealing with a lesser set of problems. That doesn’t mean you can’t start from scratch, you can. If have an anchor it helps. If you have a few anchors then solving is simplified.”

Think of a sudoku board, says Hamman. The minimum necessary numbers is 17. Typical ‘difficult’ boards will have twice that many. The more numbers the easier the board, but not all numbers are equally helpful. A board full of fives removes fives but leaves a lot of ambiguity.

For bridge, Hamman suggests, start with a game of trick taking (euchre, hearts) rather than a game of bidding. If someone gets tricks first it’s easier to teach bidding.

Ben Horowitz offers a corollary to this: it’s easier to teach an engineer how to be an executive than it is to each an executive to be an engineer.

Hamman was mentioned by Bill Chen (mentioned in Kris‘s newsletter). Chen plays chess and some bridge but he addresses the same idea. When someone tells Chen he’s really smart he says that he’s not really that smart, he just gets math-and math is the best baseline, at least for what Chen does.

There’s a lot of names for this idea: first principles, baselines, anchors, foundations. What’s helpful in this advice is the idea that some fundamental ideas are more helpful than others.

Hamman has played with Bill Gates and Warren Buffett. Two “regular guys with a bunch of bodyguards.

Home Run King and Zen Master

I had hit 750-some-odd home runs, and Barry Bonds was slowly snipping at my heels — and people were saying that the reason that he was getting so close was because he was doing some things illegal. I didn’t know he was doing anything illegal, I’ve never known him.

But that’s what they were saying. And they were saying that, ‘Are you going
to give him the record?’ I said, ‘I’m not giving him anything.’ I said records are made to be broken. And no matter who it is, somebody is going to break somebody’s record, you know.

Hank Aaron, 2018

A CAC of $18,500

When former Zappos CEO Tony Hsieh heard about selling shoes online he thought the business would never work only to be told by Nick Swinmurn that already, at that moment, millions of dollars of shoes were sold via catalogs every year.

In 1999 Zappos was a rough business. It was the early days of the internet. People were getting used to buying things online, in a limited way. eBay was there. Amazon existed, but those were different. Amazon was hundreds of listings, but every copy of Who Moved my Cheese was identical. eBay was full of Beanie Babies, but only one for each listing. Zappos might’ve had the richest library of offerings.

That early Zappos used a now common DzTC strategy: arbitrage. Find a thing being made or sold in one not-online and sell it online. That’s what Zappos did, but with no mark-up. In those early days whatever someone paid for shoes on Zappos was the same price Zappos paid for those shoes.

It was a terrible business model. They had to find the sweet spot: acquire customers cheaply and get them to stick around.

At first Zappos whiffed on the “cheaply” part. Here’s how Hsieh told it:

> “We did what all the other internet companies did back then, we got high profile advertising. For example, we bought the billboard behind home plate for a Giants game. That cost us $75,000, we tracked it and we got four customers out that. We did it all in the name of market share. That’s a good strategy if your goal is to go out of business as quickly as possible. We stopped that when we realized that even though every other dot-com at that time was doing this, we realized that we couldn’t make the numbers work. Instead of worrying about new customers we just focused on what we could do to make customers we already have repeat customers. How do we make them happier? How do we get them to come back again and again?” – Tony Hsieh

The answer was service.

Hsieh thought there were three competition arenas for Zappos: price, selection, service. The first two were devilishly difficult. The third though, that might have legs.

It worked. Zappos worked.

One thing that’s so much fun studying businesses is seeing the different ways a company solves a problem. Gillette’s CAQ was WW1, where each GI got a razor and blades. L.L. Bean started with out of state hunting licenses. Michael Dell got his chops selling newspapers. His cheap customers? Newlyweds.

CAQ :Customer AcQuisition.

Incentivizing outcomes or optics?

These circles overlap to some degree in every situation. A minimal overlap situation might be the coder who wears sliders and hoodies and the banker who wears suits and slacks.

Outcome (noun): something which matters, is measured and measurable. Examples: sabermetrics, code, sales.

Optics (noun): something which might matter, however is unmeasured and unmeasurable. Examples: appearance, attention, cultural expectations..

Things which are difficult to measure will be evaluated by optics. In these conditions it’s best to maximize optics.

Things which are easy to measure will be optimized on their measured quantities. In these conditions it’s best to optimize.

Batman & BATNA (podcast)

This is a repost of this Substack: POV40IQ.

An inflation-adjusted chart of Global Box Office + Home Video compared to budget. All in millions. 

The inspiration from this episode was Tyler Cowen’s response to Tim Ferriss’s question: What would you put on a billboard? 

“If you look at billboards we actually have, what do you see on those billboards? The billboards I see a lot of them are advertisements for insurance. Some of them are, “Don’t drive drunk.” You see a bail bondsman on billboards and suicide hotlines. I guess I would study the market and pick one of those four things like, “Buy this insurance, bail bondsman, suicide hotline, don’t drive drunk.”

It’s to ask, what’s the business model? 

This episode covers a 1975ish onward look at the movie business model. Briefly sequentially, the movie making business model looked like this:

  1. National advertising plus national distribution (Jaws)
  2. ^ plus merchandise (Star Wars)
  3. ^ ^ plus home video (VHS then DVD)
  4. ^ ^ ^ plus more movie screens (everything’s bigger in _____)
  5. ^ ^ ^ ^ plus international 

The number of movies made and the kinds of movies made are the direct results of the underlying business model.

If you want EVEN MORE, there’s this pre-1975 look at movies as well as the John Cena apology.

Hurdle Technologies for Consumer Goods

“The truth was, we sold health and safety first, environment second and as an add-on, these products worked as well as traditional products,” said Jeffery Hollender, co-founder of Seventh Generation on HIBT, “We believed that in order to set ourselves apart, especially to new moms – health and safety was critical as well as the environmental benefits.”

In food safety there’s an idea called ‘hurdle technology’. Rather than a single preventative measure for keeping food safe, there are a series of ‘hurdles’ that pathogens must clear to make it into the human body. Preservatives, temperatures (extreme high or low), and acidity are all hurdles that can and are used.

The same idea applies to consumer products, though we don’t quite have the language to think this way. Each consumer has a series of questions they want answered before they decide to buy a product, though we don’t quite have the language to articulate this.

Winning wines, for instance, showed that people want something that tastes good (average), something with an interesting label, and some guidance about how to, or what to serve with. Every time I walk past the 19 Crimes wines I smile, they get it.

Rx Bars demonstrate that same idea. Are there grains? No, okay, next hurdle. Is it tasty? Yes, okay, next hurdle.

Framing a problem this way helps a lot because as companies develop products they can narrow down the issues. Also notable, like Barefoot Wine and JTBD of wine, there was a new set of consumers (young moms) that Seventh Generation served.