Author: MIKE

Crossing the know-do chasm

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This is from the daily POV40IQ email.

For most situations in life we know what to do. Partner with aligned people, be kind, save more and spend less, and only eat one doughnut in the office conference room.
For some situations in life we don’t do what we know to do. We partner with the wrong people, we snap, we spend more on things we don’t want, and let’s not talk about doughnuts.

Jon Stein, like all of us, is human. Though he majored economics at Harvard and studied behavioral science, he still found himself day-trading and making short-term ill-advised decisions. He knew better but didn’t know how to do better.

Years later Stein founded Betterment and spoke on the Long View podcast about how Betterment helps their clients cross the know-do chasm. In short, it’s about information.

  1. Presentation. What colors do people see when they log in? Studies show that people act differently if the same trend line is in red or green.
  2. Relevance. Clients share what they want to do with their Betterment money, “this means we can tell you if you are on-track or not for that goal.” It’s not about how much money but what to do with that money.
  3. Salience. When clients choose to sell, Betterment displays the tax implications and according to Stein, 75% choose not to exit their position.

This is behavioral science at its best. Through testing ideas with real people, Betterment is able to scale thoughtful decision making—and anyone can.

Consider your personal, professional, and communal decisions. What information should you highlight and what should you fade?

The Right Proxies

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Wharton Moneyball Super Bowl Show.

“I was blessed to know Bill (Belichick) back in college. We worked together for seventeen years. Bill can make complicated game plans but his general principles aren’t very difficult. He had three rules: be on time, pay attention, and work hard. Those seem like simple things but when you’re deaing with players who are entitled, who do things on their own, they have to buy into that system and fall in line. Bill didn’t care how many earings, how many tattoos, how long your hair was. That had nothing to do with discipline.

Scott Pioli

Using proxies can be helpful or not. It all depends how accurately they map to what matters. When Roger Paloff from Fortune Magazine looked into Theranos, he didn’t understand the science and talked to the board members instead. If these smart, accomplished, wealthy people think this makes sense, it must make sense the thinking went.

Other times, proxies are toxic. Often times, it’s for easy-to-measure things. People love the authority of numbers, regardless of how well they map to reality. Another proxy-tally-folly is mistaking action for effectiveness. Regarding productivity, Cal Newport writes, “busyness is not a proxy for productivity.”

It’s impossible to predict the future so we rely on things that, looking back, were present in good outcomes. Sabermetrics using numbers, not if someone looks good in jeans. Belichick avoids appearances too. Those things come to mind easily, but may not be good proxies. 

Mediums at School, of Words, in Ears

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Three spring examples of the medium and the message.

  • Joe Rogan spoke with Eric Weinstein about what is ‘mainstream’ and wondered why Rogan isn’t ‘mainstream’ when thirteen+ million people watched his interview with epidemiologist Michael Osterholm.
  • Ben Thompson referenced his Books and Blogs post. It explains why Thompson hasn’t written a book and instead writes Stratechery.
  • Dan Carlin recalled going full ‘Mike Brady’ on radio and badly wanting to revisit that character, but didn’t because radio is different than podcasts.

It’s said that people get the government they deserve and a related expression might be that we get the content we incentivize. 

One perspective about reading books that I disagree with is that we need to read the sources. ‘Go straight to the stoics, or economists, or philosophers or whatevers’ someone will shout. Sure, eventually. It’s really helpful at first to start somewhere with some footing. It’s helpful to start first with a storyteller.

Before I read Darwin’s writings I read The Beak of the Finch. In that book the reader gets close enough to smell the Galapagos Islands. When author Jonathan Weiner writes about the beak sizes and the rain patterns and the berry growth it clicks. Of course there’s going to be variation.

Reading about finches made clear that there’s no better finch. When one type of weather pattern is more common then one type of fruit is more common and one type of finch is more common.

We get the finches the environment allows.

In the past Rogan, Thompson, and Carlin would have had a newspaper column, a television gig, or radio seat and sold books because that was the business model for ideas. It was the media the environment allows.

This works for school too.

Weather changed berries which changed finches. Technology changed media which changed models. Distance learning changed education which changes the learners. My daughter’s teachers were as out of sorts teaching digitally as a finch on the wrong island or radio personality in the wrong time.

The medium of school is the classroom. The format is seven to three. The schedule is forty-four to fifty minutes. For every class. For every student. Doesn’t that sound like radio? Like a newspaper column? Like a talk show?

What’s the incentive? Finches need to eat, producers need to earn, kids need to…

In that spirit I’ve started a daily email. It’s one story each weekday that might give you a new perspective on a current problem. Sign up.

This time *is* different.

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“This time is different,” is often more wrong than right.

But sometimes, “this time is different” is.

This came up in the Super Pumped book about Uber. What made 2008-start-ups different from 1998-start-ups were new tools. Specifically, author Mike Isaac points out; AWS servers, consumers’ online habits (half of all homes paid for broadband), and the iPhone. That new environment meant that Uber had to do a lot to succeed, but not as much as companies of the previous generation.

Think about sports odds. Forget one team being better (in some metric), and instead, think of even odds. This highlights the importance of a bye round. A team with a first-round bye has the same chance of winning ‘both’ games as a team that’s a 70/30 favorite but with two games to play.

Tom Brady’s playoff record isn’t really the official 30-11 but rather 42-11. By winning so many games in the regular season, and earning byes, Brady effectively won twelve first-round playoff games.

This time might really be different if a business needs fewer flips of a coin. Uber succeeded because they needed less to go right.

FIRE Figures

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While surveys are sometimes off, they can be helpful. Based on the data from 1380 (ninety percent men) FIRE participants, via Reddit, here are a few findings. Though all we can say for certain might be that men who follow FIRE fill out Reddit surveys.

  • Average salary household salary is $143,500, median is $104,000.
  • Average mortgage is $94,000, median is zero.
  • Average investment portfolio (everything) is $380,000, median is $100,000.
  • Average savings rate is 46%, median is 50%.

Part-of-the-reason that personal finance is difficult is the lack of experience making large purchases. A wise friend once told me how she counseled her her younger colleagues about bonuses: avoid the three-r’s, rims, rocks, and racks. Morgan Housel offers the same advice noting how homes, educations, and vehicles make up a huge chunk of a person’s budget.

The FIRE folks figured this out. Whereas the national average (and national suggestion) spend on homes is about about 29%, FIRE folks only spend about 10% on housing.

There are a lot of ways to be efficient. Make a left across traffic to buy cheaper gas. Stock up on groceries during a sale. But these are often regular and salient. However these “daily lattes” really don’t matter.

If someone spends less on the big (non-salient cost) things, they’ll probably be fine financially. 

Source: Google Docs.

Baseline data

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Want a daily email with one idea? It’s quick, fun, and sometimes helpful. Sign up here.

One of the coronavirus problems, one of any system’s problems, is lack of good data. When data is precise and simple it’s just a math problem. This is why we have to gamble with coronavirus.

In mid-March I started to feel kinda ill. Did I have it? Everything pointed to yes.

I’d traveled through airports. I felt congested and achy. The news talked more about coronavirus than allergies. Wait. What? The noise of the news made me overlook the color of my car, which was a nicely tinged yellow thanks to an above average pollen count in central Florida. 

My problem was that the ‘fifth vital sign’ had overtaken all the others. Or put differently, the only data I was using was highly subjective. Instead of continuing my confoundedness I started counting. 

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Regularly tracking my temperature showed nothing to worry about.

The other potential problem at the the time was toilet paper. 

Well before we were storming stores and short sheets I had stocked up. But watching the paper pandemonium I had no idea how long our stockpiles would last. So, I counted. Our  conservative count is two rolls per person per month. Prior to counting, I’d never have known.

Now do emergency funds. 

Good data is an objective tool to use alongside the subjective. If we kinda feel ill, we can take temperatures. If we see toilet paper rolling out of stores, we can use a rule of thumb. If we’re worried about finances, we can compare spending to savings. Good data is the base rate, our adjustments are the subjective. 

In any quantitative field three things matter: counts, computations, and communications.

Without accurate counts, we know nothing. 

Without accurate counts and computations, we infer nothing. 

Without accurate counts, computations, and communications, we do nothing. 

Sometimes we jump the gun. We build a model and share it to the world. #dataisbeautiful. Sometimes though we just need to start at the beginning and count. 

Thanks for reading. 

Temperature Design

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From the daily POV40IQ email. The idea is that a change in POV can be worth forty IQ. 

Here’s a business idea. Take a piece of fitness equipment. Make some updates. Attach a monitor and wifi card. Offer a subscription fitness package (recurring revenue!).

Peloton is an amazing business. They took something people readily joked was for hanging clothes and collecting dust, upped the price, and upended long-established equipment manufactures.

One part of their success was design.

But not of the stuff.

Of the people.

In a tangent on the Daring Fireball podcast, Ben Thompson and John Gruber said about temperature scales:

(Gruber) “I staunchly believe that Fahrenheit is the better scale for weather because it’s based on the human condition. Who gives a crap about what the boiling point of water is, it’s the most ridiculous thing I’ve ever heard in my life.”

(Thompson) “The other thing is that Celsius is not precise enough. In the car it adjusts it by point-five because a single degree of celsius is too much for the car. Fahrenheit is more finely grained in a positive way.”

Fahrenheit is easier for humans to use. Peloton is easier for humans to use.

For individuals in organizations, the goal is to make the Job To Be Done as easy as possible.

Note, I’m not taking anymore JTBD clients right now, but you can read an overview of the approach.

Book Review: Schtick to Business

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Want a daily email with one idea? It’s quick, fun, and sometimes helpful. Sign up here.

Peter McGraw and Shane Mauss joined up to write Schtick to Business, a pop-science-pop-culture look at the ways comedians can force business people to see things with fresh eyes. While most books should be blog posts, this one felt about right.

McGraw, and it’s mostly McGraw’s voice, focuses on the idea that business is mostly hunting, then harvesting. Businesses exist to find areas of need (hunt) and then serve customers over those needs (harvest). Business owners are collar-shirt-wearing truffle hunters.

Typically, and where comedians excel, is in the hunting part. It’s finding the Zero to One ideas that make the difficult act of business slightly easier. McGraw writes that you won’t be funnier after reading the book, but “I want you to think funny. That is, I want you to start thinking differently.”

When we say that people aren’t creative, we’re saying that we err towards confirmation bias, myopia, and narrow thinking. We will always do education a certain way because that’s the way we do eduction. Well, until something happens (see: a quarantine education).

Part-of-the-reason creativity is missing is career risk. McGraw’s solution to this is shitstorming. It’s brainstorming, but inverted. Instead of coming up with good ideas, a group comes up with bad ones. This isn’t necessarily a waste of time because sometimes bad ideas can lead to good ideas. Sometimes changing one part of a bad idea, is a great idea.

For example, how does an investment advisor in a medium-size town get more clients? Her weaknesses include lack of resources in staffing, lack of high-income-residents, lack of marketing resources, lack of continuing education opportunities, and so on.

However, those same drawbacks can be advantages. Chuck Akre likes being in a small town with one stoplight. Investors want LPs that stick with them. Inverting the question leads us to avenues of advantage. Jokes are a kind of inversion.

“My mom has learned everything from Martha Stewart, about cooking, and cleaning, and withholding affection.” Nikki Glaser

Comedians see the world differently and it’s why we’ve looked at so many of them; Judd Apatow, Jenna Fischer, and Penn Jillette for example.

Once a comedian hunts down a new idea they need to harvest it and McGraw gives tools and tips for that but it’s mostly just boils down to ‘work really hard and maybe get lucky.’ That’s business.

Words mean competition. Once there is a category like ‘theme-park-vacation’ or ‘miles-per-gallon’ every Tom, Dick, and Sally can compete on that feature. Making it salient means consumer will compare on it—even if it doesn’t really matter to their decision making.

When stand up stand-up comedians work on their set; writing observations, testing jokes, and refining material they are hunting innovation. They are looking for something new. It’s creative.

Then, for a very brief time, for a very fortunate few, they get to harvest and share their ‘set’. Comedy, Luisa Diez told McGraw on his podcast, is the fastest art form. Comedians are inspired, share, then a joke expire. Comedy is the fruit fly of the hunt to harvest dichotomy.

Business owners have a longer cadence, but they can learn from comedians. Some will be inspired from McGraw’s book. Most will laugh. I did.

Personal Finance Research #1

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cash coins money pattern
Photo by Pixabay on Pexels.com

What’s so interesting about decision making is the variability. Change a condition change an outcome. Here are a few examples.

What would you do with $500? A grain-of-salt study because it asks about what people say they’ll do rather than what they will do. Notable is the role of time and quantities regarding promising windfalls.

They hypothetical prompt led one-in-five to say they would spend nearly five-hundred dollars. As the amounts offered increased, the amount spent increased, mostly in non-durable things. However, if people were promised the amount was coming in three months, seven-in-ten of that twenty percent said they would not ramp up spending.

Takeaway: to stimulate spending send larger sums faster. 

In the red, the effects of color in investing. Thanks to Dan Egan for assisting researchers on the effect of color on investing. Through evolution and culture, people associate certain colors with certain meanings. To most Americans, red is bad. When researchers showed one anonymized stock line in red, rather than black, propensity to purchase fell by twenty-percent.

Communication with (LPs, or any stakeholder) is crucial and getting buy-in makes cutting checks easier. To paraphrase Seth Klarman, work with people who cash checks when you write them and write checks when you ask for them.

Takeaway: regular, consistent communication matters a lot, even in color. 

Financial Incentives Beat Social Norms. Part of the problem of any ‘free’ service is getting people to use it. If needs aren’t salient people don’t do it. In this study, researchers looked at how to incentivize employees to select a 401k strategy.  When researchers offered a chance to win a ~$25 gift card, employees logged in and investigated their plan options. That outperformed all social norm conditions.

Takeaway: whether dollars or feelings, incentives matter.  In this case dollars proved more effective. 

Failure to Refinance. Rightly, Tom noted that refinancing a home is well past dealing with credit card debt but these findings fit with the idea of salience affecting behavior.

Researchers looked at how much people might save if they were to refinance their home. On average it was $160 per month. Even conservative estimates around taxes, moves, and options yielded re-fi savings over one-hundred-dollars each month.

Taking their research to the street, the researchers mailed homeowners a letter offering help (and no upfront costs, those would be rolled into the new loan) to no avail. A quarter failed to open he mail, a third planned to call but didn’t, and a third didn’t think the savings were worth it.

Takeaway: the less everyday salience a behavior has, the more effort it takes to make it seem important. 

Businesses exist to serve customers. Bob Moesta’s JTBD (my overview) framework (push, pull, inertia, anxieties) offers a way to see things from the customer’s perceptive. Let’s test that framework using the re-fi ideas.

  • Push. Often the current situation works—or else people would have already changed. It easy to think that a current budget, just is the budget. Things, are fine.
  • Pull. How much does a customer want to make the change? Refinancing a home falls prey to the ‘Gas Price Delusion.’ Things that are salient, like filling up the tank and seeing price changes in two-foot numbers, matter a lot relatively but not a lot absolutely. Refinancing a home mortgage matters could be a large budget slice, but it’s also a quiet one.
  • Anxieties. Will a re-fi affect my credit? How much is it *really* worth? What if I do change my choice to live here long-term? There’s probably a larger emotional weight on a place of residence than on most anything else.
  • Inertia. It’s easy to just-keep-paying the mortgage. What would motivate someone to research rates, apply to a lender, fill-out-paper-work, go through another inspection and so on.

Moesta’s Force Diagram along with some behavioral finance research shows that people are not rational and not rational for good reason. Conditions matter.

 

 

 

 

Fat Bottom Tails Make the Complex World Go Round

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This is an attempt at understanding R0 (reproductive number) as more than a numbing number. View these notes as less definitive. 

In his (2014) paper Risking It All: Why are public health authorities not concerned about Ebola in the US?, Yaneer Bar-Yam writes about why R0 isn’t an even distribution.

One April report noted the coronavirus reproductive number was 5.7 but offered a range of 3.8-8.9. In January the estimate was 2.6. There’s many reasons but one is that the reproductive number varies by the individual in the network.

Humans form the same (power-law graphed) networks over and over again. In research about Wikipedia edits, the graphs of posts per user was nearly identical across languages. It holds across time too, we can imagine that church members knew their parson but not every other member. It’s on TV too.

curb_your_enthusiasm_-_season_9_-_network_graph

Image from Funkhauser.

These networks are so common, they may be part of our evolution, like ten fingers. Nicholas Christakis said, “Maybe natural selection had something to do with the topology of human networks.”

Christakis looks at networks to seed interventions like a farmer who avoids the arid or soaked parts of a his field. In lab research, Christakis found that when one person is nice to another person (via monetary rewards) then that person is nicer to the next. Courtesy is contagious.

In other studies, Christakis changed the visibility of charity (or selfishness) and the  contagion changed too. Visibility of inequality mattered a lot, unseen inequality mattered very little. That’s kinda interesting.

Christakis has found three features which influence how things spread through networks.

  1. Connections, more lines between hubs
  2. Contagions, faster spread between hubs
  3. Positions, different originations hubs

If Larry David gets an idea for his television show and he wants Julia Louis-Dreyfus to guest star he can ask her (#1), but if it’s someone he doesn’t know he’ll have ‘his people call your people’. He could pitch Julia via text (#2) or write her a letter. If it’s Jeff Garlin that has the idea and not Larry David, (#3) then the idea has to wind through Larry to get onto the show.

A real example of virality is the Zillow Zestimate. Co-founder Rich Barton wanted to advertise. That had worked for Barton at Expedia. But Bill Gurley said, “If you’re buying ads to sells ads, then you’re arbitraging traffic and that dog don’t hunt very long.” Barton wanted to focus on spreading the message (#3) far and wide. What worked better was creating something people would share (#2) among themselves.

Bar-Yam warns about an average R0 when he writes about Ebola:

“However, in a complex interdependent society it is possible for the actual number due to a single individual to dramatically differ from the average number, with severe consequences for the ability to contain an outbreak when it is just beginning.”

Ebola needs to be a disease of more concern, he wrote in 2014, because the prediction models used the connections, contagions, and positions of Africa — a different structure. “One person is not likely to be in close contact with much more than about 10 or 20 family members.” That is, the rural African figures for 1, 2, and 3 are quite different from the urban African figures. “In urban areas in Africa and in the US, the nature of the contact network is different.”

Ebola is a hot virus and should be treated with extreme caution. Richard Preston’s book, The Hot Zone is about the mid-90s almost crisis when the Ebola virus was spreading through the air in a monkey research facility just outside of Washington D.C.

(Here’s Preston in 2019)

In the book Preston writes about the history of research. Recalling one trip in the mid-80s:

“Occasionally they (researchers) came to villages, and at each village they encountered a roadblock of fallen trees. Having had centuries of experience with the smallpox virus, the village elders had instituted their own methods for controlling the virus, according to their received wisdom, which was to cut their villages off from the world, to protect their people from a raging plague. It was reverse quarantine, an ancient practice in Africa, where a village bars itself from strangers during a time of disease, and drives away outsiders who appear.”

Some strands of Ebola pass through he air (#2). Some do not. African villages follow the precautionary principle.

Thanks to Tim H and Tim B for the suggestions and trailheads for this post. For thinking about position (#3) check out the Friendship Paradox.