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Linda buys a bat and brand

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There’s a quarrel in psychology research over Linda the banker. First some background. Most behavioral psychology is about crafting nearly identical situations with nearly identical composites of people who, despite the near identity, act in different ways.

One example is when employees are prompted with savings cues for their 401k. Imagine that with the annual corporate messaging about insurance, vacation adjustments, and outlook projections was a form that said “Did you know that your 401k contributions from October through December are eligible for a full employer match?” Employees who get the annual message with lines like that, raise their savings rates three percent. Employees who don’t get that message don’t change their rate.

What anyone saves is dependent on their own choices, right? However with the change in one line they aren’t.

Okay, now let’s talk about Linda.

Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.

Which is more probable?

  • Linda is a bank teller.
  • Linda is a bank teller and is active in the feminist movement.

When this original research was done, most people chose the second option.

And it’s wrong.

This ‘conjunction fallacy’ goes like this: there’s no way that there can be more bank tellers who are active in the feminist movement than there are all bank telllers.

This is mathematical logic. But it’s not how people think. When people hear Linda’s story they take the contextual clues that come along with it. If we could peak inside a participants mind we might see thoughts like this, ‘If you’re telling me all this stuff about Linda then it must be true that she is both a bank teller and active in the feminist movement.’

Any information that people get, people use and numbers are a special kind of information.

Numbers carry an authority.

Home values increased.

Home values increased by 8%.

And numbers lead to fast thinking. 

In his best-selling book, Daniel Kahneman framed this idea in terms of thinking fast or thinking slow. For some things in life, Kahneman wrote, we tend to think fast. Brands are fast thinking.

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There’s no interpretation here.

Numbers are like brands. Though an 8% increase in home values is a complex computation of home sales, realtor surveys, incomes, and so on, we see that and think it’s true without really thinking.

…

Joining Linda in the pantheon of psychology phrasing is the bat and ball problem. It looks like this:

A bat and a ball together cost $1.10. If the bat costs a dollar more than the ball, how much does the bat cost?

Ok, now try it this way.

Bat + Ball = $1.10, the bat costs a dollar more than the ball.

Or, the same idea in a different way.

A Ferrari and a Ford together cost $190,000. The Ferrari costs $100,000 more than the Ford. How much does the Ford cost?

Each step down slows thinking. People see the bat and ball problem the same way they see brands or 8% increases: fast.

Most of the numbers we encounter in life is like brands, the bat and ball problem or Linda the banker—our default is to move quickly past them. But to get all the details we’ll need to slow down.

Foraging for BRKB

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It was a nice coincidence that on the same day I bought BRKB stock I learned about the optimal foraging equation. What’s great about this is the ability to tweak different variables to affect the value.

From a decision making perspective, investing is super interesting. People like Michael Mauboussin, Shane Parrish, and Patrick O’Shaughnessy explain important ideas simply. However, investing is super difficult. 

The optimal foraging equation is why target date 401k funds work so well. The ‘calories gained’ value may be moderate but the ‘expended’ and ‘time’ values are also quite low. 

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.