A story of two investments

This caught my eye.

I like the 🤷‍♂️ so much that ‘shrug’ is a keyboard shortcut. (Make technology work for you.) The likes and the huh and the obviousness of it makes it interesting. There are three reasons:

Distance. The difference between college debt and stock investments is partially the difference in distance. College tuition, like casino chips or in-app-Uber-payments, is abstracted away. Students do not pay to enter lecture halls or pay each professor (there were no tips in academia when I was there). Unlike the local bistro, there’s a cause-and-effect disconnect. 

Investing meanwhile is immediate. Transfer funds, buy, sell, spend the money. Distance affects how people feel.

Stories. We hear about people swindled, stolen, and schemed against. There’s a villain, an arc, a conclusion. In One Shot, a work of fiction, we get to the heart of the matter. In this case, a former Army soldier was framed for a shooting rampage. 

“A story needs the guy to be still out there. A story needs the guy roaming, sullen, hidden, shadowy, dangerous. It needs fear. It needs to make everyday chores exposed and hazardous, like pumping gas or visiting the mall or walking to church. So to hear that the guy was found and arrested even before the start of the second news cycle was a disaster for Ann Yanni.”

Yanni goes on to be one of the protagonists, but our antagonists act this way because they want to kill the story. Act one, two, and three close the book. Investing has clear stories, education does not. 

Legibility.  Thanks to the workings of Mr. Market, there is a numerical price. Clean and easy to see. Up or down. My local paper goes so far to use a thumb up or down to show price changes, the implied goodness, and badness as plain as the nose on your face. 

College is more nebulous. How much does your education help or hurt your career? There’s no way to tell. Few people would change their past, but then again, we’re terrible at considering opportunity costs

There are a few ways to change this situation. With a few tweaks, we can change the system so that stocks seem slightly better and college a bit more costly. Here are three ideas. 

  1. Borrow a page from Zappos and make students pay for college before they even enter the hallowed halls. Part of the recruiting at Zappos (Amazon too) includes a buy-out. If applicants make it through the application and evaluation, they’re given one more chance to step off the train in the form of payment to quit. At Amazon, it’s once a year. 
    The effect forces people to consider the Why to their actions. Relatedly, companies like Betterment, do the reverse by showing the tax implications of a transaction. Three-fourths of investors, once they see the tax hit, choose not to sell. 
  2. Taking a page from the college playbook, investors can distance the payment process for investments. Pre-tax plans do this, once an employee sets up a contribution they don’t ‘feel’ the effects that money because it never really arrives. Similarly, there are programs like Save-More-Tomorrow where a portion of each future raise gets invested. 
  3. Glamorize the savers. Part of the problem of investing is that we mostly only hear the bad news. Instead, we can highlight the people who live a good life, but also make sound financial decisions. This seems to be a thread among the FIRE crowd, who recognize both the today and tomorrow versions of themselves benefit from the same set of actions. 

The solution to this is probably something weird. Or a combination of the above. Or none.  Whatever the solution is though, I’d bet my investments that it involves distance, story, and legibility. 



Made up start up: The Financial Game

Edit: this was drafted in late 2019.

I loved the movie The Game. The premise was that for his birthday, Michael Douglas’s character was ‘attacked’ in a real life adventure. It was part thrill, part horror. I can’t even remember how much of it was real.

‘What is real’ is a common premise in my favorite movies.

Part-of-the-reason I like it is because it holds a truth. Without skin-in-the-game we really don’t know what we would do. There are our stated and revealed preferences. There are our human biases. There are the ways something is presented.

It’s a real quagmire and something Sallie Krawcheck noted when she spoke on The Long View podcast:

“Ya’ll probably know this as well or better than I do, but when you ask someone what their risk tolerance is, nobody knows it until they go through an ’07 or ’08. They just don’t. Let’s call a spade a spade. But we answer it. Men will answer it and women will go, I need to figure out what it is.”

Sallie Krawcheck

According to Daniel Kahneman, we’re answering an easier question. Instead of what is my risk tolerance we probably answer something like how do I feel today or which column of returns looks good? We do the same thing when choosing college.

Here’s the pitch: Taking a cue from David Fincher and Krawcheck, we’ll create a company that coaches financial advisors on how to stage Doomsday Days with their clients. Like for Douglas, the clients won’t know when it will happen (and we’ll hide this feature in a bunch of legalese).

The plan would be to make up financial statements that mimicked actual downturns; 1953, 1981, 2008, etc. Clients would come in for their regular meetings, be presented with a fictionalized loss for twenty minutes, and then have a debrief session. It’s the financial equivalent of a false positve lung cancer diagnosis.

During the debrief the advisor could talk about real feelings of loss, of risk, and pain. Then, together, work out a new plan.

As advisors are already busy, the business would sell them a script. They could choose a level of pain, and we would provide the portfolio forms (printed on very formal looking paper) as well as suggestions on handling the psychology of it. As an upset we could offer “Confederate Coordination” as we called the wife and explained the plan to her. Yes, it would have to be, the wife.


The Three Design Rules at Facebook

According to Julie Zhuo (YouTube), there are three design rules at Facebook. 

  1. What problem do people really have?
  2. Is this problem real? 
  3. How will we know if we solve it?

These three questions have a very JTBD essence to them. Serving customers is not just about giving them what they ask for but giving them what they really need. 

For example, Zhou said, many people over many years have asked Facebook for a dislike button. If there’s a thumbs-up for things we like, why can’t there be a thumbs-down for things we don’t? 

But this isn’t really what people want. If the Facebook feed was too much thumbs-down material and not enough friend’s photos, easy recipes (Tasty anyone?), and photos from the past no one would log on. What people want, said Zhuo, is that “not everything in the feed is likable and I want to express other things.”

It’s odd to think that what people say they want may not be what they really want, but we can trust this idea because conditions matter. For example, when parents were collected and questioned in focus groups about what kind of medical information they wanted for a vaccine, they said they wanted more information. The thinking was something along the lines of: ‘this is science, let me weigh the facts.’ 

But when researchers created 84 Facebook posts that went on to reach three-and-a-half million users, the results were different. The most resonate posts were those with personal stories. 

In another example, people were asked if they would wear masks during the coronavirus pandemic. The yes/no split was largely along party lines. However, when people were observed out-and-about, political preference yielded to prudence. 

In finance, Nassim Taleb rails, ‘don’t tell me how to invest, show me what’s in your portfolio.’ Tyler Cowen says to look at your actions, and then tell me what you think. 

Zhou’s other good point to add to our JTBD quiver is to think not in terms of supplier language but demander. It’s not about the click-through-rate as much as it’s about engaging content. Financial advisors should never bring up words like theta, Sharpe ratio, or quarter-Kelly. None of those are about the JTBD. 


Downward sloping, downright lying demand curve

From Keith Harmon’s pricing Chicken Parmesan

What’s notable isn’t to question simple models, or as the first draft of this post noted ‘economic textbooks’ but it’s to think about things as they act in real life. People buy more and complain less when the Chicken Parmesan menu price increases.

As Rory Sutherland puts it, the opposite of a good idea can be another good idea. 

Find these weird but good ideas by making small bets


Information Questions

close up photo of woman covering her ears
Photo by Oleg Magni on

“People always ask us how we do what we do without talking to management. I say that’s probably made me more money than a single fact of my investing process.” – Jim Chanos

Part-of-the-reason we are the way we are is because of energy conservation. Human tendencies (nee biases) exist so we, unlike a robotic vacuum, get stuck in a never-ending decision loop. We’ve survived this far, so these things work.

However sometimes we need to consider, weigh, or evaluate information. One tactic to do that is to think about the who, what, when, and how of the information.

Who. The person communicating a message offers information and we use that, even when we say we don’t. Doctors face the white coat effect as well as the halo effect. In his book, Messengers, Stephen Martin notes that “the messenger has increasingly become the message.” Why, do you think, businessmen wear suits?

What. A silver lining of the coronavirus pandemic is the rising awareness of statistics and their limitations. Average rarely is. The same treatments can have different outcomes because the groups are different in some way. If someone says ‘the average’ we think ‘the red flag’.

When. Ben Hunt spoke with Aaron Watson and noted “I always ask myself, why am I hearing this? It’s not just the what you’re hearing but also the why. it’s not to be conspiratorial, it’s just to ask the question.” We get this when it comes to marketing a movie but forget it in many similar areas.

How. The medium is the message. Audio offers intimacy. Have people read, listen, or watch opposing political messages and the the audio conveyers are “dehumanized less.” The sister effect is why audiobooks are different, not good or bad for learning.

On the Long View podcast, Moshe Milevsky spoke about narrowing the distribution of retirement returns. Just as some jobs are unlikely to make you obscenely rich (or poor), some financial products are unlikely to make you obscenely rich (or poor).

The employee of Enron (or Facebook) had (or has) a much greater chance of banking billions or blowing up, rather than earning an average retirement account return. A teacher who buys an annuity, has a great chance of earning the market average, but avoiding the extremes.

When Milevsky spoke in May 2020, it was a good chance to apply the who, what, when, and how to communication. Milevsky is an academic, speaking about finances during hectic time as people saw portfolios cut in half, but then running up. And it was the Morningstar podcast which has an authority and intimacy in itself.

Information used to be through a few sources and the contrast was easy. Visual or not. Political or not. Mainstream or not. Now, what is mainstream, what is orthodox, what is real? Whatever the answer, it comes from a question.

Want more? Check out this pay-what-you-want placebo prescription pdf.


Appropriate Proxies


Is this art?

One of the best way to find deals in life is to find things where people have attached the wrong proxy metric.

In any systems where we count things (scores, hits, years, etc.) we optimize. People buy more fuel efficient cars rather than consider riding a bike, carpooling to work, or calling an Uber. If it’s counted, it’s prioritized. “Personally, I feel it has gone too far in that direction, and economics has overinvested in one very particular kind of intelligence,” laments Cowen.

How do people find new metrics?

Creativity. It takes a certain worldview to see that there might be a better way. Like the vertical-horizon illusion but for our worldview.

New counting techniques. Sports changed, and is changing, when data collection  (e.g. cameras) changed. Math ability is easy to quantify, so we do.

Career capital. Jason Blum outfitted a van as a mobile office because he spent so much time in Los Angeles traffic. From there he made calls to directors who had recently flopped and asked if they wanted to make movies for his company, Blumhouse Productions. In an industry where ego rules too many decisions, Blum only had to answer to himself.

Ties to history. Since 1987, the NFL combine has been held in Indianapolis. With activities like the 40-yard dash, 20-yard shuffle, and 3-cone drill it’s an annual tradition for fans and front-offices. But those tests have less predictive power than collegiate performance. Yet the show goes on.

First principles. Of the many flaws highlighted in Bad Blood, was a lack of scientific understanding from the Theranos investors. “Since he didn’t have the expertise to vet her scientific claims,” John Carreyrou wrote, “Parloff interviewed the prominent members of her board of directors and effectively relied on them as character witnesses.”

Front lines. Proxies exist to make things easy, but business doesn’t exist on a spreadsheet. Alain Bertaud said ” By living in the cities, and confronted very early, I learned the difference between the theory about a city which you read books and what it means to live in a city.”

Perhaps Rory Sutherland, of course, put it best. Too many people, Rory reasoned, think of art as something you hang on a wall. It’s something famed and famous. It’s by a so-and-so from a certain era. It’s recognizable. That. Is. Art.

Unless it’s not. Architecture is also art, and because people don’t think of homes that way, they may be undervalued. Sutherland thinks so:

“Human decision making is also pretty path-dependent. In one case in my life I’ve been able to profit from this. I live in a house, which in the UK is something called Grade 1 listed. It’s by the great eighteenth century Robert Adam, and the grounds are by Capability Brown. I’m in a four bedroom flat on the roof of a house built for the doctor of George III in about 1785. For a time it was the home of Napoleon III.”

Want more? Check out this pay-what-you-want placebo prescription pdf.


The room or use Zoom?

We noted in the Quarantine Education post that things will need to change in how teachers teach. The classroom model, with breaks for stations, specials, and snacks works fine only in the classroom. Teachers will need to adapt.

Rory Sutherland spoke on Great Minds and Jason Blum spoke on Bill Simmons and both addressed how being in-person was especially helpful in creative endeavors.

“When you’re talking to a creative person, there is so much insecurity and doubt if this is going to be a good idea. Part of what my job is making whoever I’m talking to feel early on tat there is no bad idea.

“Of course there’s bad ideas, but right now, talking early on or how something fits, we can think of any idea.

“And that’s very hard to do on video.”

Jason Blum

Blum makes horror movies in a Moneyball way so he even kinda wants things that look or sound a little hairy. He wants something to be ugly on the first draft and beautiful on screen.

Sutherland’s angle is only slightly different and it’s in the field of marketing.

Take comedy, for example. It’s a field very similar to marketing because it reframes an idea. People are relative thinkers (more than that, different from those, etc.) and comedy changes the that and those we compare against.

In his book, Shtick to Business, Peter McGraw prints an Anthony Jeselnik joke: “My parents were strict. My mom and dad once made me smoke an entire pack of cigarettes. An entire pack of cigarettes in one sitting..just to teach me a valuable lesson..about brand loyalty.”

That’s good reframing. That’s a good laugh.

But it probably didn’t start out that way. It probably started in a place, as Blum put it, of “insecurity and doubt.”

At Ogilvy’s behavioral unit, Sutherland said they have a rule to “dare to be trivial and don’t be afraid of looking stupid.” That’s easier in the room than on the Zoom.

Coming out of social distancing it’s likely that the individuals and collectives that do best are the ones who can communicate the best. If Jason Blum has a series of great meeting he’ll have a great movie. If Sutherland finds a ‘Python-esque’ framing, he’ll have a great ad and behavior change. Alchemy, is powerful but will take more work when using Zoom rather than in the room.

Want more? Check out this pay-what-you-want placebo prescription pdf.


Survivor Explains Sampling

One of the nice parts of distance learning and social distancing has been extra family time. Without commutes, commitments, and the common-chaos, things are kinda quieter. So we’ve been watching Survivor.

I was a huge fan the first season. I was in college, online, and this was new. I kinda grew out of the show, losing touch with the premise, but now with kids that are twelve and ten we are ready.

We’ve watched as a family, working backwards from season thirty-four. Our favorite contestant of season thirty-three was Ken who played a straight version of the game; forming alliances, keeping his word, and winning challenges.

In this case it was the wrong way, as Adam took the final vote. Unanimously.

Ken was liked by all, played well, won challenges, and made it to the final three. What happened?

Two guesses.

Option 1: Survivor is a television show that’s edited a certain way. This is good. A time lapse or documentary or Instagram version of Survivor is worse. Television is a certain medium that excels with a certain message.

The producers know it’s sweeping panoramic of Bali islands, difficult-but-not-impossible challenges that make people at home say I-could-do-that, with some interpersonal drama mixed in. People are edited a certain way so there could have been a lot we didn’t see.

Maybe Ken wasn’t as sharp as he looked. Maybe Adam was even better.

Option 2: A sampling bias. The jury didn’t vote for Ken because they weren’t like him. They were there to play the game a certain way which is what Adam did. The people who want to go on Survivor want to play the game.

Sarah Tavel told Patrick O’Shaughnessy that in the early days of Pinterest there were a group of power users who wanted a specific feature to rearrange their pins. It would take a lot of work, but people really wanted it. So the engineering team built the feature and it largely went unused. What happened?

Sampling bias.

The power users weren’t a good sample.

The same thing was said by Ken Jennings about his run on Jeopardy. Everyone, Jennings said, that makes it to Jeopardy is really smart. That means they compete on something besides smarts. Competing against Ken was really about mastering the buzzer.

In his SSAC talk, Ken said that the producers didn’t know if his run was good or bad. Would this move Jeopardy to, “this is the spirit of the age” or repulse the loyal audience. After watching Ken rip off another week of winnings in a single day, the producers started to let the other contestants have longer buzzer practice. Jennings had mimed and timed the pattern and that was his key to winning.

Samples are fun to think about. With a good selection, a thousand people can explain the world. With a bad selection, and selection is often bad, we get things that may appear one way, but are not.

Want more? Check out this pay-what-you-want placebo prescription pdf.


When a quarter and dime are the same size.

Collect a quarter, a dime, a notecard, and a pen. Trace the dime with the pen on the notecard. Press and repeat to the point where the ink softens the paper and the circle easily pushes out.

Make extra for the neighborhood kids – and the neighbors who are kids at heart.

You’re reading this and I’m writing this so we both know there’s a catch. But like with comedy, we’re here for those moments.

It seems like the quarter won’t fit because it’s larger. But what does that mean? There’s two approaches. 

  • The quarter’s diameter is larger than the dime’s diameter.
  • The quarter’s circumference is larger than the dime’s circumference.

But we can change the framing and get the larger quarter through the dime size hole.

  • The quarter’s diameter is NOT larger than the dime’s circumference.

One of the largest lessons from Herbert Simon’s Confessions of a Pricing Man was that all value is perceived value. The starkest way to understand this is to think of the expression, you couldn’t pay me to. For example, you couldn’t pay me to sit outside on a hot Florida Saturday surrounded by tens-of-thousands-of-other people watching a game I don’t understand or care about

Yet people pay good, and sometimes a lot, of money to watch college football.

In a literal sense this expression doesn’t work so well but in a figurative sense it shows that all value is perceived value—and that all perception is malleable. As Rory Sutherland said, “you can always use a bit of psychology to make products better.” 

People don’t like investing in stocks when the numbers are red. People do like red painkillers, believing they work better. And half of all Ferrari’s are, you guessed it, one color

Framing things in a new way is how we make the impossible easy. 

Want more? Check out this pay-what-you-want placebo prescription pdf.


Summer Listening

The Behavioral Scientist listed their summer reading suggestions and it looks like a nice mix of new and old. But it’s also a long list at twenty-five books.

Most of us will not benefit from spending three-hours with Robert Frank (Russ Roberts excluded) but most of us will benefit from thirty minutes. Listening is like playing the idea lottery. A change in point-of-view could be worth forty-IQ.

In that spirt, here is a podcast list of interviews of the authors. I made the list so it’s a collection of podcast I listen to, recognize, or randomly selected.

If listening in browser isn’t your jam, then follower the link over to Listen Notes for the option to add the RSS to your podcast player of choice.

We believe that mediums matter and that this list of podcast episodes is not the same as the list of books. Though it’s the same people it’ll lead to different ideas, and that’s good.

If you think you might like Frank, consider this question: why do people buy wedding dresses but rent tuxedos when the former will be worn once  and the latter could be used again and again? If that’s interesting, check out Robert Frank’s work.

Also, if this playlist sounds perfect, you might like this bit of hour-long reading I put together.