My 62 Favorite Ideas

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Are you familiar with “the travel guide”? Before the internet, maybe still – I don’t know, people bought books that acted as guides for the things they wanted to do. My shelves have/had: Italy, Disney, Disney, Orlando, and the Bahamas.

The guides gave a nice overview. Here’s what to know about the Sistine Chapel. It wasn’t a substitute for going and gawking, but the guides were a map, combining: geographic, informational, cultural, and other bits of information. That’s what I made, an idea map.

It’s like a travel guide. Each entry is short and to the point. Each entry also connects with other entries. A travel guide might say something like: “make sure you visit in the morning and stop at the nearby coffee shop after”. That’s a considerate connection, two attractions that are nearby in space and time (low crowds, tasty treat after standing). My guide does that too. Here’s two examples:

Alpha erosion

Alpha erosion is the idea that advantages erode as the market notices a success. When an organization balances the explore and exploit nature of work, it will land on opportunities to deliver value and earn profits. Competitors will notice and attempt to recreate this success. Sometimes competitors will succeed, even outperform, and sometimes they will not. The best way to avoid alpha erosion is to not be noticed. There are at least two ways. First is the path taken by Amazon, where the company was unprofitable but valuable and the desire to imitate was limited. For many competitors, unprofitability was a restricted action. The second is to create alpha in a business where the rewards are unappealing. There are many people who want to be movie producers or winemakers, but many less who want to operate a regional chain of construction dumpsters — even though the latter suffers less erosion.

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Explore and exploit

Explore and exploit is the idea of a spectrum of work between exploratory work and exploitative work. At any given time there’s a better area on this spectrum to be for an organization as well as an individual. One way to view the explore and exploit spectrum is through two different businesses. One business is a streaming media technology firm. They have a direct relationship with their individual customers and bill them monthly. They also work with the providers of media to create content for the customers. Both the providers and the customers have a JTBD. The providers want freedom. The customers want choice, uptime, and lower bills. The competition meanwhile wants alpha erosion. This business must quickly move back and forth between the explore and exploit ends of the spectrum. They must innovate in delivery, technology, and marketing then implement each. A different business is the regional construction company. They too have customers who want a new kitchen or pool and they have suppliers who specialize, subcontract, or deliver supplies. But the regional construction company has to move back and forth at a different cadence. Someone’s system suggests their location on the spectrum. It is also rare for a situation at either extreme. Even the regional construction company must allocate resources to exploratory ends. The location between explore and exploit can guide a person or organization towards what type of work is best for the moment.

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Swedish-style as a service

MIKE

People love IKEA, to the effect of nearly one billion annual visits. The flat pack furniture and furnishings yields twenty-four billion euros in revenue each year. But could there be more in store for this store of galore?

One way to find business opportunities is to observe users and follow their lead. Instagram for example, developed both polls and shops (in-part) because users hacked those features before they were available. IKEA faces a similar opportunity.

If you’ve never been, IKEA is organized as an upstairs showroom and a downstairs warehouse. When a customer likes a lamp upstairs they note the aisle and bin code and when downstairs find the item. An upstairs room might look like this:
An IKEA "show room"

For larger item like couches and shelves, customers do the above and haul, unbox, and assemble their purchase. Flat packs, material selection, design choices, and scale all contribute to IKEA’s success.

Here’s the pitch: IKEA as a service.

The upstairs showrooms have appealing arrangements. It’s modern. It’s clean! For this made up start up an IKEA specialist comes to customer’s home to clean and arrange it in the flat packer’s fashion. The program includes a points program, where customers earn points toward future delivery and installation of IKEA products.

An IKEA saas offers a few advantages: recurring revenue, reduced churn, and a chance to grow their customer base. Wow Mike the house looks great, someone might say and of course I would tell them about the service, and offer my IKEA referral code.

Consider cleaning a car. My car isn’t new but it looks new after a good cleaning. The same thing occurred to college-me while shopping at The Gap. It wasn’t the clothes that looked good, it was the manikins! If I wanted to look good it wasn’t the clothes I needed, it was the body. Some number of people must do this at IKEA. Their goal is appearance and one way for that job-to-be-done is buying IKEA products.

The IKEA effect may be taken but this saas business might have great legs, like the beautiful bamboo ones available at IKEA.

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Made up start ups is an ongoing series. They’re intended to be half-tongue-in-cheek and half-serious. The point is thinking in different ways, like Tyrone.

Apples to apples in Iceland

MIKE

The basic base rate question is: what should I expect in situations like this? Most often we have looked at base rates through the lens of projects. We have an optimistic tendency to think, “yeah but…”. Sometimes it is! Sometimes it’s not.

but it might work for us

The general advice for using base rates has been to start with them, rather than our impressions, and then adapt from there.

Another way to think about base rates is as sampling. It’s important to get the “situations like this” part right, right? This is tricky, and this came up during the summer of 2021 as more and more covid vaccinated people became infected with the covid virus. At one point 67% of Iceland’s cases were among the vaccinated.

“When you look at Iceland and graph out (cases) by who is vaccinated, who is not, and where the cases are, you can see that there are more cases in the vaccinated group than the unvaccinated group.” – Dr. Kat, NPR Planet Money, August 2021

That sounds like the vaccine doesn’t work, or doesn’t work as well, or never-worked?! Maybe, but maybe our conclusions are muddied by an initial assumption that’s wrong.

Rather than jump right to Iceland, let’s pull a Zeckhauser and simplify everything. Imagine in Indiana there is a group of 100 people, half are vaccinated and half are not. In the vaccinated group there are five infections and in the unvaccinated group there are five infections. Putting aside “long-infection”, hospitalization, and death, it-looks-like, in-this-case, that the vaccine is meh.

Okay, now in Nevada there is another group of 100 people. This time there are 90 which are vaccinated and 10 are not. In the vaccinated group there are five infections and in the unvaccinated group there are five infections. Putting aside the same other-factors, in this case the vaccine is doing a lot of work! This was the case in Iceland too. Six of every thousand vaccinated people caught covid while fifteen of every thousand unvaccinated people caught covid. And all of the other-factors were much worse for the unvaccinated group. Vaccination reduced someone’s risk by more than half.

This idea is known as the “base rate fallacy” but really it’s comparing apples to apples which will make the idea stick better anyway(another bit of Zeckhauser advice is to keep explanations simple). BRF is good for talking with economists and behavioral scientists but for implementing this idea it’s an apple-to-apples question a day that will keep the bad decisions at bay.

Travel budgets

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Actions are the children of mindset and environment.

When running his document storage company, AJ Wasserstein created a travel budget. Budgets are good. Budgets are a design tool, and we are all designers.

Wasserstein’s budget wasn’t denominated in dollars, it was in days away from home

“One thing I did while working at Archives One was give myself a travel budget. I gave myself permission to travel a certain number of days a month. It wasn’t a financial budget, rather a nights-away-from-home budget. If I started to exceed that consistently, my role at the company needed to be cleaved and I had to hire someone to do part of what I was doing.” – AJ Wasserstein, Circle of Competence, June 2021

Wasserstein asked a different question. Rather than ask what was financially costly he asked what was socially costly and optimized for that. A lot of times we assume that the important is easily measured. Dollars? Yes. But other things too.

Peloton ease

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Economist Tyler Cowen cautions against the optimism around self-driving cars because when costs fall, consumption rises. If the costs of driving fall, there could be a lot more cars on the (now congested) road. Cost isn’t just about price, but also understandability, beliefs, and time.

Another way to think-like-an-economist is to consider ease. Every time a how will I… question gets answered things get easier and Peloton answers a lot of questions.

Wooden barrel

A wooden barrel like this can only hold water up to the shortest piece. Each answered how will I… extends the length of that board. Extend the set and action is taken. Here’s Christian Hunt on his background to buying a Peloton:

“My partner brought it up…we had been bombarded by advertisements…I knew a few people who had them and it just got to the point where we thought, ‘Let’s just give this a go, we can return it if we don’t like it.’ And the people I spoke to about it were so positively engaged. Worse case scenario: this thing goes back.” – @ChristianHunt, Human Risk

Just in that comment Hunt hints at the many boards that lead to a Peloton purchase. There’s price (finance it!), usage (we’ve got classes), social (follow your friends), competition (leaderboards), and even logistics!

When surveyed why they bought a Peloton, 78% of people said convenience. Consciously that means convenient to use but really it is everything.

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Wood Barrel, via Wikipedia.

From field to city to car to circuit

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This is a podcast episode covering the consumer journey from field to city to car to circuit.

The consumer journey has been one where a business shares information to a consumer depending where they are. That started at the farm with the creation of the Sears catalog, a moved to the city with the creation of stores, then moved to the car with the creation of malls and large big box centers like Walmart, and finally our story is at the point where it is on the Internet with online brand Zappos, Amazon, Warby Parker.

The selling, at least to the American consumer, is remarkably consistent. There has to be a way to talk directly to consumers whether in a store on the pages of a catalog or via an Instagram account. There has to be a way to get the product to the consumer, whether that is the new railway system, the rural mail delivery, or two day shipping.

This episode was a little less organized than normal and recorded outside. Thank you for your patience.

The podcast is available as Mike’s Notes: Apple, ListenNotes, or Overcast.

Curated Creativity

MIKE

Broadly there are 3 ways to spend a day online.
– trends, the algorithm or human generated headlines
– feeds, the self selected sources
– search, the internet queries of Wikipedia articles, travel plans, and what-is-my-kid’s-teacher’s-email

Articulating the ways helps distinguish when we are, or aren’t in a helpful place. On days when it’s time to work it isn’t helpful to spend too long in the trends. Naming also helps us establish healthy habits. Jason Zweig uses the fire hoses and tea cups system.

The 3 ways aren’t good or bad. They are more helpful or less helpful depending on the work to be done. Here’s some help for the feed type of work, two curated podcast feeds.

Economics. Tyler Cowen is a wonderful thinker we have looked at many times: how to eat well, how to argue well (with yourself!), and how to consider incentives. Cowen is a podcast host and frequent guest but more importantly, he shares many potential podcast people on his blog Marginal Revolution.

Periodically I cull through the blog for the MR Mentions podcast feed. These are guests or ideas mentioned by Cowen. It’s not a comprehensive list and it runs through my own filter, but it is a way to think a bit more like an economist.

Behavioral Science. Rory Sutherland is a wonderful thinker too. We’ve probably looked at his ideas even more: the room or Zoom, marathon lottos, and ambiguity aversion are just some places his ideas percolate. Sutherland has hosted Nudgestock, a B.S. conference since 2014 (the presentations are on YouTube!), a great index of thinkers.

Periodically I cull through a Twitter list of Nudgestock guests to find podcast episodes for the Behavioral Listenings podcast feed.

The pitch. These feeds are free and both contain potentially valuable ideas. The main cost is the time to listen, however with the advantages of 1.5x speed, wireless headphones, asynchronous listening, and portability those costs are reduced. Plus there’s no psychological baggage (sunk costs) to make you stick around. This is my list, not yours, so passing on an episodes is a reflection of my (poor) choices.

Happy listening and cheers to the long-tail of content. Before the fire hose it felt good to “stay abreast”. In 2021 it’s about timing: what do I need to know and when. A good feed is one internet tool.

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Football ’21 favorites or field?

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“Between the Chiefs, Bucs, Packers and Bills there’s a fifty percent chance of one of those four teams winning the Super Bowl. In other words, you can have those four teams or the other twenty-eight in the league.” – Cade Massey, Wharton Moneyball, August 2021

Take the other twenty-eight! This idea holds in both sports and investing.

One potential bit of mental muck is what we can call Visibility. It is easy to imagine a specific thing happening rather than a range of things happening. Visibility is part-of-the-reason counterfactuals and postmortems are difficult to conduct. That three of the four quarterbacks have in fact won a Super Bowl makes this effect more so. I can ‘see’ one of these quarterbacks winning the big one, but that doesn’t provide helpful information.

Not so fast though.

What is ‘the field’? As Tim Harford wrote, it is as often the words as the numbers which cause confusion (life expectancy for instance). In the case of the NFL, it’s the twenty-eight other teams that might win the Super Bowl.

But is that right? Can every other team win the Super Bowl? While on “any given Sunday” any team might win, stringing together a group of wins to be champion is far less likely.

The central point to Zeckhauser’s Maxims is that reframing a situation may cause our conclusions to change. We used this framework to ask: Was the Ohio Vaccine Lotta a Good Idea? What if we reframe the question around Super Bowl favorites then?

Roughly speaking there are three groups: the Favorites (4 teams), the Chasers (X), and the No Chancers (Y). Now how many Chasers and No Chancers there are is questionable, but the framing changes our thinking. If this is the structure then the relevant idea isn’t the field but a subset of the field: the Chasers. If there are 4 Favorites, 4 Chasers, and 24 No Chancers then the choice changes. Take the favorites. What if there are 4 Favorites, 8 Chasers, and 20 No Chancers? The top twelve preseason favorites have won 85% of the previous 20 Super Bowls.

There’s no definite answer to this Favorites, Chasers, and No Chancers structure but the framing does change how we think about it.

Another mental model is the same mindset we used “Tracking Tom“. The idea there was that there’s more downward variance than upward variance. The same idea holds for the Bucs, Chiefs, Bills, and Packers: those teams are more likely to underachieve. Put another way, it’s more likely that something goes wrong (someone’s quarterback underperforms) than right. The Chiefs and Bills, for instance, both notably outperformed their 2020 Pythagorean figures.
“Uncertainty is generally underestimated,” said Adi Wyner, “and that means that the field collectively have a little bit more probability than you might assign to four teams.” The data agrees. Take the field.

Subtraction’s Value

MIKE

One way to think of a decision is to think of the ‘right’ answer. This has limits. ‘Right’ answers exist within conditional assumptions, and mostly in the mathematics and moral fields. Should I be honest with my partner? has a ‘right’ answer. What’s the optimal distance my 2017 Subaru Outback should follow this other vehicle given these LIDAR, radar, sonar, sonic readings? has a ‘right’ answer. Note, I have no idea how adaptive cruise control works but it is the best automotive technology of the last decade.

‘Right’ answers are limited because of all the conditionals. Self-driving cars are one example. It’s a math heavy domain, the cost and availability of technology (read: number collecting and computing) has fallen, and we’ve never had as many smart-focused-people or as many save-our-collective-butt-companies, and yet it feels slow. Why is self-driving so slow? The conditions! Snow, rain, city, country, semis, motorcycles, bright lights, night lights, desserts, animals, forests, and not least of all: other drivers.

To get the ‘right’ answer to a question like: should the car warn the driver and begin automatic braking? the system needs a pretty tight window of conditions. So if the ‘right’ answer is difficult to come by is there a better option? There might be.

Rory Sutherland’s work comes up a lot here because Rory Sutherland’s work brings up an important idea. Sutherland loves marketing because marketing deals with psychology which is a lot easier to change than the objective thing. Package delivery is an example. Tracking numbers, emails that note your package is on its way, and estimated delivery dates all deliver psychological value. Contrast this with getting a package faster: logistical value, which has a very real cost. It’s not that better package tracking is better than faster package delivery but that it delivers more value than it costs. It’s the same idea of Michael Lewis’ Moneyball: what’s highly (or somewhat) valuable yet costs very little? Sutherland’s tool is psychology. Lewis highlights math. Let’s add another: subtraction.

“It’s an easy problem for a dad to fix, I grabbed a block to add to the shorter column but Ezra had removed a block from the shorter problem. Ezra is normally a horrible subtractor but he plays a lot of Legos and this was an instance where he stumbled upon subtraction.” – Leidy Klotz

Leidy knew how to fix his son’s Lego bridge. Add a block here —>. But Ezra had an idea too. Take a block away here —>.

Whether a situation’s ‘right’ answer is to add or remove is irrelevant – for now. What’s a better car: a Toyota or a Lexus? The question is which costs more?
It’s easy to add. We have a tendency to add. But adding probably costs more and when it’s a costlier implementation but only a marginally better outcome then the better choice might be to subtract.

March 2, 2022 update:

https://twitter.com/DudespostingWs/status/1499065846588657667?s=20&t=Xq3AqM7fl6OkweZh4CnFdg

Sunk cost straws

MIKE

me and my straws

See these green things? They are reusable straws, purchased from Wawa.

A lot of times people say “sunk costs” like it’s a bad thing. Part of Poker’s Appeal is thinking conditionally, and one way to do that is to avoid sunk costs. Here’s Maria Konnikova talking with Annie Duke:

“The chips don’t remember they used to be in a stack this tall and there used to be more of them. All they know is they are chips. It’s hard mentally, but it’s really important to forget what happened and how much you had because bias is going to creep in: I need to make it back, I need to be more risk averse because I can’t lose the rest.” – Maria Konnikova, Alliance for Decision Education, July 2021

Bill Gates says it is “very important” to bring in outsiders in part to avoid sunk costs.

When we say (with hindsight!) ‘sunk costs yada yada’ what we mean is: ‘This person used unhelpful information to make their decision.’ Sometimes the mechanism with sunk costs is ego, admitting we were wrong is hard.

So I won’t admit it. I was right to buy the straws!

My reusable straws are not going to save the world. They are not going to make a marginal difference. But we will use them, and we will use them because of sunk costs. I paid for these darn things so I may as well use ’em. Here, the mental barnacle that usually afflicts decision making navigation can steer me in the pro-social direction. Like a person who commits to working out if only to use their gym membership I dutifully wash the straws after each milkshake, Frappuccino, and coke my kids consume.

How we even ended up with the straws is a testament to the Wawa ordering system. After ordering drinks, the whole screen filled with a picture and prompt offering the straws and I said yes. Only forty-nine cents! While my use is negligible, Wawa’s is not. Our family of four’s lifetime will probably use fewer straws cumulatively than one-week of lunch orders at a busy Wawa. And there’s the trick. It doesn’t make sense individually but it does collectively. It’s a case of Large N small p being used to change the world.

One of the best changes in my life has been to accept things as they are, rather than upset at the way they should be. Things should not be a way, things just are. Human psychology is like that. It’s not that humans have biases but that we have tendencies in how we understand the world. We have sunk costs because that approach works, conditionally.

To be the most right, and affect the most change, we must see the world as it is. That means noticing sunk costs as a tool, and using it as needed.

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Eric Bradlow of Wharton talks a lot about Large N small p. He also wonders about the “effect size” and with-regard-to straws I have no idea.