Author: MIKE

Correctly framing a problem goes a long way toward solving it. Things seen in one light are solutions, while in another light become problems. For example, taking six days to get from Vancouver to Anchorage is a problem—unless it’s on a cruise ships and then it’s better to add stops. People now pay extra for the longer journey. Like me in 2015, hoping Denali peaks through the clouds. 

Minimalism has a branding problem. People perceive minimalism as *get rid of your stuff*. However the value is not so much downsizing as prioritizing.

This same confusion is part of the FIRE movement. Participants choose to live with a large delta between what they earn and what they spend because they have a reasonably high earn and a relatively low spend. As a non-FIRE but equally thrifty friend told me, “I like the simple life.” Less consumption is not less life.

This obstacle exists in businesses too. If there’s a gap between what you think your business does, and what your potential customers think, then your business suffers. The world will not beat a path to your door.

In a good interview about her book, April Dunford speaks about the importance of product positioning. Dunford has a JTBD ethos. “A lot of times when your customer is a business and you ask them what they would do, they say they would use word or excel or hire an intern.” There’s a lot of non-consumption. There’s a lot of informing, which doesn’t work.

Instead, think of how your customer views your business. Think about how things that look odd (FIRE) make sense and consider why. 

Florida has a bad reputation. Mostly this is swapping weird for bad, but that’s what you get with a state that’s basically 10 different communities. Part-of-the-reason Florida is this way is because of migration, starting in the early part of the century. At first railroads brought people to Florida. That was okay. But as automobiles improved an allowed for autonomy—I’ll go where I please when I please—Florida improved as well. Christopher Knowlton’s book, Bubble in the Sun is the story of the 1920’s Florida land boom but the precursor to speculation was transpiration: “The resorts towns would remain no more than winter retreats until better, more numerous roads could be built, freeing potential year-round residents from their dependency on the railroad.” A generation later another technology brought people to the sunshine state when air conditioning went from one-in-six homes in 1960 to three-in-six homes by 1980. Think of Florida. Think of the beaches, the bars, the boats. Think of white sand, blue water, and Mickey Mouse red. All that awesome stuff is thanks to asphalt and air-conditioning. Thanks to the boring. 

Charle Songhurst explained this idea to Patrick O’Shaughnessy. 

About recruiting: 

“You really don’t want to be sitting there in San Francisco trying to close your candidate when John Collison is trying to close the candidate as the alternative—because John’s going to win…Whereas if you’re hiring that person in Kiev and their other option is working in outsourced IT for Deutsche Bank it’s a much much easier win. What you want to find is the incredibly qualified people in weakly competitive labor markets.” 

About information:

“Trying to be smarter than other people is very hard and doesn’t work very often. Trying to have an insight that you get because you sit in a different information flow just seems exponentially easier.” 

About industries:

“If you pick two axes, boredom and complexity. You want highly boring highly complex because everything in the universe is a supply-and-demand curve and you get an insufficient supply of entrepreneurs in the highly boring, highly complex space and therefore elevated returns.” 

The central question to Songhurst’s approach is where? Where should we recruit? Where should I get my information? Where should we compete? There are places where things are easier. Non-consumption, new JTBDs, or the funny. 

Florida’s development was boring, and Songhurst would have invested. Now though? Nah, he’s looking elsewhere.

An observation so obvious 🤦‍♂️.
One thread through these posts is the idea of Jobs-To-Be-Done, that what we really want are quarter-inch holes and we drink McDonald’s milkshakes to stave off boredom (pre-podcasts at least). Incentives for action also depend on the JTBD, something Nobel Prizer winner Esther Duflo noted to Tyler Cowen:

“The traffic ticket, I think, is much more than the financial incentive. If you get stopped by a traffic officer, you lose your car right this instant. I think that it’s likely inconvenience is much, much bigger. The point that we are trying to make is not that people are not sensitive to incentives, because we can always construct incentives. If you construct the incentive boldly enough, then it’s almost always true.”

Duflo goes on to say that we probably overrate the effect of financial incentives because we don’t consider them relative to something. “People seem to be pretty inelastic to receiving money for sure that doesn’t lead them to go on vacation.”

This came up with my daughter whose neighbor based babysitting and dog-walking business has been booming (with an assist from dad). Between her complimentary rooming and board, she has no need for any additional money. Books come from the library, music from Amazon, and clothes and makeup are non-issues.

She has no JTBD, so she has no financial incentive.

Like businesses focus on JTBD for their customers, we can focus on the JTBD of the people in our lives. At the margin, evidence from Silicon Valley suggests employees would trade some salary for better work conditions. Work is more enjoyable, hence better, if we like the people we work with.

This was in a magazine for our daughters. The spirit of the article is fine, but the nature is worth discussing. When dealing with people, as we often do, it’s important to remember that people behave in certain ways, for example, by taking action.

In a Capital Allocators’ podcast, Annie Duke spoke about how she convinces people NOT to act. We have a tendency to think that change requires action. Like reading vs listening to a book, we assume effort is good. But sometimes effort is bad.

Duke appeals to identity. Instead of giving advice to do X, try framing things as ‘we are the kind of people who do X’. And prepare others, “You’re going to hear other people who aren’t in on it who don’t understand this kind of stuff.”

In talks about her poker coaching, Duke said that it’s hard to get people to pass on poker hands because folding feels like not-doing. Instead, she works with clients so they choose to fold, because that’s a kind of doing that their group (aka smart players) does.

This beautiful framing from Annie butts heads with recycling because between reduce, reuse, and recycle, it’s the last that the least efficient but most advocated. Buying half as many sodas equates to a recycling efficiency of 200%. Recycling fails compared to reducing or reusing. Yet, recycling sticks because it feels like it’s something.

Beyond basic math, maybe units of ten, we don’t have a good handle on numbers. We are a story-telling species who likes to see cause and effect. The example of randomness demonstrates this as Maria Konnikova told Adi Wyner:

“I had a fascinating conversation with Frank Lantz at the Game Center at NYU who used to be a serious poker player and is currently a game designer. He explained that oftentimes their random number generator isn’t random because people complain, they say the game is rigged because if something is truly random we might be getting a bunch of these outcomes in a row. Game designers say it is bad game design to have an actual random number generator.”

It’s not true only for games but also for Jeopardy Daily Doubles, Spotify and Apple shuffles, and fraud.

One of the ways our storytelling species acts is as the protagonist of the parable. In one study, researchers told students they would draw random numbers and letters out of a can. If they matched what the students chose, the students would win.

If the students were assigned their random numbers, say from a draw of a different can, the students bet less. If the students were assigned their draw based on their name or college, they bet more. If the students chose their numbers and letters, they bet the most.

The students took the most risk when there was a connection because a connection allows for a story. When things are truly random though, stories are harder to tell.

In the world of Thinking Slow, this seems like a bad thing but there are advantages to every disadvantage. Our search for stories allows for magic. When there is a story we are willing to bet, do, and relate more. This allows for magic (see below) and the creation of value simply by using psychology. Put another way, words and choices are cheap ways to improve experiences.

Maria’s book is The Biggest Bluff, and Rory Sutherland explains magic in Alchemy.

This caught my eye. 

https://twitter.com/sjosephburns/status/1028628288607019008?s=21

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. 

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.