Author: MIKE

The Netflix and Pool Co. Contrast

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Marc Andreessen once noted that it’s important to learn the right lessons from our experiences. As the expression goes, you never step in the same river twice.

One lesson from Reed Hastings’ No Rules Rules book about Netflix is the idea of cadence. To survive in their system, Netflix must tack from explore to exploit at a faster pace than the local pool construction company.

In the book Hastings writes that the Netflix expense policy (‘Act in the best interest of Netflix’) probably costs 10% more than a more strict policy but that it allows the employees to make faster decisions in an industry where the cadence has to be quick.

Co-Author Erin Meyer points out up front that Netflix has succeeded at four inflection points: DVD by mail to streaming, streaming licensed content to original, licensings original content from external studios to internal, from USA only to global.

That’s a lot of change in a short amount of time.

Pool Co. by contrast will probably stay in the exploit region for a longtime, in the right geographic region forever.

The filter from Hastings is this: the internal cadence should reflect the system’s cadence.

What are the incentives behind this prediction?

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Predicting like Tyler Cowen, Enrico Fermi, and Nate Silver.

One way to think more like an economist is to think about incentives.

In our piece about Tyler Cowen, the setting is finding food in a strange place. The incentives question is, what to ask a concierge or driver considering their incentives are often avoid blowback rather than emphasize excellence.

The incentives of predictions are boiling in the last week before the US presidential election. Though math is always clear cut (2+2), the selection isn’t (why do 2+2 explain this?). Some polls, Nate Silver noted (on ModelTalk) offer extreme predictions as a form of marketing. Their incentive is attention, not precision.

In his update of The Signal and the Noise, Silver writes that it’s hard to change ones mind once allies, alliances, and reputation are created.

One way to avoid this pitfall is to make guesses to and with others who have a similar incentive structure. In the book, The Last Man Who Knew Everything, David Schwartz writes about Enrico Fermi. It’s December 1938 and Fermi has just fled Italy via Stockholm for his collection of the prize. It seems a good choice as the Italian media and Mussolini-mob wonder why Fermi shakes hands to receive his prize rather than give the fascist salute.

Settling into his professorship at Columbia (New York, but soon headed to Chicago) Fermi joins the “Society of Prophets”, or that’s at least what his wife calls it.

The Society meets monthly, and each member predicts ten yes/no events. A tally and total are kept. When the family moves to Chicago in 1942 Fermi successfully predicted 97% of the events.

“He did this, she (Laura) writes, using the most conservative algorithm imaginable: the next month would look almost exactly like the previous month. He did, however, miss one prediction—the surprise German invasion of the Soviet Union. The game was ideal for someone of Fermi’s temperament, invariably conservative and skeptical of any predictions of quick or revolutionary change.”

Fermi had strong priors. Fermi made boring predictions. Fermi was right. For Fermi and his colleagues the incentives were academic accuracy. For pollsters it’s media recognition.

The book is a bit thick, but inspiring is that while Fermi won the Physics Nobel Prize in 1938, his explanation for the discovery was wrong.

“Online” Banking, “Traditional” Celebrity

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In one of the business classes I took in college (2000-2005) a professor used online bill pay as a way to demonstrate up-selling. A bank charged clients for the privilege to pay bills online, up to so many a month of course. That feature looks to become commonplace around 2011.

Related is brands and “traditional” celebrity endorsement, a topic between Connie Chan and Tiffany Zhong (more on Zhong here).

First, something is a thing; a celebrity. Or it’s a verb; dating or bill paying. Then, with a new way to do it, its explanation is modified

  • traditional celebrity rather than influencer
  • online bill pay rather than mail the check bill pay
  • online dating rather than dating
  • e-learning rather than school
  • social media rather than media
  • “iPhonography“

This post will be a marker along the way then, when we noticed the world shift slightly, from one of many paths to another. That celebrity must be modified.

“If you use Tinder, you do not do online dating, you just do dating. If you get in an Uber, you’re not doing digital car sharing, you’re just getting somewhere.” “People now behave in a way where the internet is background to everything they do.”

Tom Goodwin, 2018 YouTube

Feel free to add others in the comments.

Jobs with Rules

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Education has been top of mind lately around our house (thanks Covid). We’ve considered college admissions, advantages of online learning, and whether reading is different than listening to a book (spoiler: both are good).

There’s some big picture ideas too: curriculums, college, and careers. My daughters (12, 10) aren’t near that yet, but it’s hard not to think about as we see careers adapt to remote work. My wife can work online, somewhat. Teachers can teach online, somewhat. Aside from some manual labor, for the last decade all my income has been earned online.

In Shop Class as Soulcraft Mathew Crawford notes that you can’t hammer a nail over the internet. Or, are things rule based or not? Rules mean code, code means computers and as Feynman explains, computers are fast at following rules.

TikTok’s design is simple rules. On, off. Yes, no. Open, closed. Watched, not. Shared, not.

Circa 2013 self-driving trucks were the topic du jour. However, driving a truck isn’t that binary, it’s not that rules based.

Our truck driver, Finny Murphy writes more about the problems solving involved. Keep the truck between the lines. Pick up this cargo, take it there. Then go here. Unload, schedule workers, back down this long driveway. Get stuck. Negotiate with owner to use his chainsaw, trim a limb. Murphy’s job would have been better with more computer help as he’d spend less time ‘bob-catting’ (driving without a trailer) if there were a network that listed jobs.

Contrast truck driver with financial planner, the latter has years of college. They’re licensed. They’re a charter holder or a master of business. Even more likely is that they have a podcast. The financial planner helps people with money, a very important thing. They wear suits! They have offices!

Which is more rule based?

One sign to spot rule based conditions is when we stop calling something the ‘internet something’. Internet banking, internet dating, and ‘I read it online’ are all things of the past. It’s just banking, dating, and reading now. Did you know, that internet bill pay used to be an add-on, banks *charged* for that service.

Which is more like TikTok, financial planning or truck driving? Finances is already rule based with target date and index funds.

Okay, so what direction should education head?

In Average is Over, Tyler Cowen writes that three things are scarce: quality land and natural resources, intellectual property or good ideas that should be produced, and quality labor with unique skills. I’ll read ‘good ideas’, ‘quality labor’, and ‘unique skills’ as antonyms for ‘rules based’.

Note: About 7% of truck drivers have bachelor degrees compared to 35% of the population. Both figures lower than I’d guessed. Also, rules can be especially helpful when they make you ‘color blind‘ to unhelpful information.

Cuban Missile Crisis (58 years)

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It’s about halfway through the Cuban Missile Crisis anniversary and if you want to dip in, Dan Carlin did a great podcast about the event.  I enjoy listening this time of year to ‘feel it’. Media transports us through time and space but to listen on anniversaries or read in places adds a something.

Three ideas:

1/ It’s no wonder game theory thinking came from this era. John von Neumann worked on the Manhattan project and later advocated for mutually assured destruction. My prior is more Oppenheimer less Neumann, but as Carlin reminds us, life is complicated:

“What if the US had gone the full force Robert Oppenheimer ban-this-stuff route? What would the Soviets and Joseph Stalin had done? To a man they (the Russian advisors) say it would have been seen as weakness and Stalin would push forward with his weapons program.”

Like the prisoner dilemma, if one player will choose with certainty it reduces the opportunities for the other.

2/ As we covered, Eisenhower liked to argue well. That can be difficult for leaders to model. One technique according to Marc Andreessen, is for those in charge to challenge each other.

Eisenhower gives the Atoms for Peace speech but before playing a clip Carlin confesses, “nothing can be trusted from this era, nothing. The presidents, from Truman to Eisenhower all have two faces to them and I don’t know which one is real.”

Or, it’s hard to have ‘Yes’ men if no one knows what you’re thinking.

3/ That Atoms for Peace speech only comes about because of career capital. Eisenhower succeeds Truman, born in 1884, the year the steam turbine was invented. Carlin suggests we imagine Truman as a grandfather calling his grandchildren asking how to turn the damn devices off.

Eisenhower is elected, gives the speech and coins military industrial complex eight years later. Carlin adds, “I can’t imagine our leaders today giving a speech like (Atoms for Peace). In 1953 he laid the whole situation out.”

If you’ve a long solo fall drive, fall walk, or evening outside take a listen. There’s many more parallel ideas like between humanitarian intervention (related: With the Old Breed) and herd immunity. It’s also a prompt for thinking about hot and cold communication (it took half a day for Kennedy’s letters to make it to Krushchev as well as alternative histories.

Incentives for Marines

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From Nathaniel Fick’s One Bullet Away, and a reminder that incentives function in all kinds of ways. Yes, incentives are financial but that’s just part of the whole.

In his book, No Rules Rules, Reed Hastings notes that the best performers don’t work 5% harder after a 5% raise. Instead, the best performers work harder when they work on hard problems with other hard workers.

Incentives are the ‘internal funnel’. What kind of person do we want here?

There’s no answer but there are reward options. Put on your JTBD hat, and think of the decision train. Forget the engine, what people say. Forget the caboose, what most people think. Talk and talk and talk to find the destination where people want to end up. It’ll be a mix of colleagues, money, problems, commutes (to the right person), and more. Tinkering with the mix will bring in people who best match your problem.

And if in doubt, just find a Marine.

Good luck Spencer.

Are we baking or cooking?

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Though a recipe, this was cooking.

Most of life is a cooking problem. Should you pay off your mortgage or invest? That’s a cooking problem. Cooking problems have leeway because there’s not a lot of interaction. If you get things mostly right you’ll be fine.

For cooking problems the biggest issue is inception. Just start. Cooking problems suffers from paralysis by analysis. Cooking problems should be ‘rough consensus and running code’. Cooking problems are easily fixed and have multiple potential solutions. I made General Tso’s last week. It was a cooking problem. Did I need exactly three scallions? No, as the picky eaters (12, 10) scooped around them anyway.

Baking problems are different. Baking is chemistry and chemistry is balance. Math is precise balance too, so is physics. For baking problems it pays to pay attention. When my daughters make cookies it’s a baking problem; you never want too much baking soda in a batch. Flying planes and medical diagnosis are baking problems too.

Baking problems have tight feedbacks within closed systems and single solution aims. Kill virus, land plane, eat cookie. Baking problems require domain expertise.

Most of life though is cooking.

Baking is recipes. Cooking is mental models: like this pay-what-you-want pdf of ideas from Tyler Cowen. If you like Cowen and podcasts, here is an RSS feed for you.

The pool of tears

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A lesson from distance learning.

To keep up with my kids I’ve been taking Khan Academy classes and in one, founder Sal Khan noted that when Abraham Lincoln was in law school he used Euclid’s geometric proofs as a test for understanding. Recounted:

“In the course of my law-reading I constantly came upon the word demonstrate,” Lincoln said. “I thought, at first, that I understood its meaning, but soon became satisfied that I did not.” Resolving to understand it better, he went to his father’s house and “staid there till I could give any propositions in the six books of Euclid at sight.”

That’s ambitious, and demonstrates how much of learning is not linear.

In this way online learning excels. If we need time we take time. If we’re done early we make things. We act like Lincoln. Like Naval.

This is hard to do in school, scheduled to the year, week, day, hour, and even minute. Compounding and confounding is that we are relative creatures. I don’t get it compared to the kids that do. In the same way we are spending by neighbors but not saving, we see those who excel and calculateaccordingtothat.

Online learning isn’t great but it’s not all bad either and we’ve shed a few fewertears.

Gambling with Votes

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Thirty days of September and October PredictIt markets.

Like Gambling with Covid19, betting markets can demonstrate probabilistic thinking. In that post we considered an idea from Matt (+EV) about Tom Brady’s potential passing yards.

In April Brady’s over-under yardage was 4,256, nicely inline with previous years of 4057, 4355, 4577, and 3554. However, Matt noted, there’s a lot more room under 4,256 than over it. Brady could get injured, retire mid-year, have a worse system, lose teammates and so on.

On Wharton Moneyball Cade Massey noted that the same idea can apply to modeling voting and prediction markets. In the FiveThirtyEight simulation (40,000 runs), Joe Biden wins eighty-seven times out of one hundred.

What’s the gap between 87 and 66?

  • Potential polling errors. 538 is an aggregation. Put another way, the level of awareness while driving one hour twelve times is not the same as driving twelve hours one time.
  • The Brady effect. There’s just more room for ‘something to happen‘ in one direction instead of another.
  • Matt’s Twitter handle +EV gives an idea too. It could be that Donald Trump’s odds to wins are less than a coin flip just not as bad as a single number on a roll of the dice. That middle area is the market.
  • People like betting favorites, public teams, and for the safety.

A neighbor invited me to a watch party on November third. Another challenges himself to go as long as possible without finding out the news (in 2016 he made it three days). I follow things loosely but thinking about it this way does feel sharp.

As Howard Marks says, it’s not so much what you buy as what you pay. Brady, for those interested, is on pace to go over.

SFTE: College Admissions

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This is from our pay-what-you-want collection of ideas from Tyler Cowen.  

Equilibriums and incentives exist everywhere but not always in the same forms because conditions matter. “The key question is no longer: What’s the incentive?” Cowen said, “But to understand the incentive, you have to ask: What do people believe is the case? Subjective perceptions of the objective incentives out there become the new starting point for economics.”

The 2019 college admissions scandal is a situation where incentives and equilibriums existed and produced odd behavior which became criminal. Why would wealthy parents pay tens of thousands of dollars for their children to be admitted to schools, where in some cases, the kids didn’t even want to go?

Let’s pause our pursuit of Cowen’s ideas and introduce a set of cousins: the paradox of skill and the paradox of signalling. 

The paradox of skill is the idea that if skills between people are relatively similar, then luck matters more. If Serena Williams shows up at a local racket club, she’ll win (in straight sets) against the local pro. However, at Wimbledon she needs every bit of skill and a little bit of luck to claim the championship. 

That same idea exists in the world of signalling status. Ask the same question, and we get different results. If the incentive is to stand out from your peers, but your peers are already famous, already rich, and already take vacations to French Polynesia then what do you do? 

You stand out through your kids.

The ring leader was Rick Singer, a once legitimate college counselor who found a side door for clients. Kids were flagged as recruits even though they sometimes never had or wanted to play the sport, but the coach was compensated by the kid’s parents through Singer. It worked because collegiate athletic departments didn’t actually check if the kids were on the team. 

The thinking at the time was that coaches were incentivized to win because that’s how they kept their jobs and paychecks. But the violators followed the JTBD theory to include non-recruits in return for, what they claimed, were non-quid-pro-quo donations.

Ryan Singer solved for the equilibrium. 

Parents wanted kids admitted. Coaches wanted compensated, and recognized. Singer wanted paid. Students wanted help. Like ingredients in a recipe, combining these things and it almost seems inevitable.

To solve-for-the-equilibirum means to also think about incentives, which we look at in the short piece from Cowen. It’s written as an alternative to Netflix or for the dentist who chronically runs late.