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Why Small Habits Make a Big Difference

James Clear’s book Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones explores an interesting subject, on the compounding nature of the long game. While everyone is looking for big gains—the proverbial get rich quick scheme—there is a space that’s not getting much attention.

Those who understand compound interest can make it work for them and those that don’t understand it spend much of life trying to get out from its shackles. When we think of compounding we typically think of finance and positive returns, as in “good compounding.” But compounding just reinforces what’s already happening — good or bad.  There is no judgment. And compounding works outside of finance. So while we can compound money positively and negatively, we can compound ourselves as well.

The neutrality of compounding is what makes it interesting — as we can get it work for us. If we can replace a negatively compounding habit or mental discipline with one that’s neutral or positive, we instantly get better. And if we can accelerate positive compounding, we can really see the results.

Tiny, nearly imperceptible changes can make a huge difference when you factor in time.  As the graph above demonstrates, the difference in tiny changes is astonishing.

Clear writes:

Here’s how the math works out: if you can get 1 percent better each day for one year, you’ll end up thirty-seven times better by the time you’re done. Conversely, if you get 1 percent worse each day for one year, you’ll decline nearly down to zero. What starts as a small win or a minor setback accumulates into something much more.

Habits are the compound interest of self-improvement. The same way that money multiplies through compound interest, the effects of your habits multiply as you repeat them. They seem to make little difference on any given day and yet the impact they deliver over the months and years can be enormous. It is only when looking back two, five, or perhaps ten years later that the value of good habits and the cost of bad ones becomes strikingly apparent.

When we watch people make small choices, like order a salad at lunch instead of a burger, the difference of a few hundred calories doesn’t seem to matter much. In the moment that’s true. These small decisions don’t matter all that much. However, as days turn to weeks and weeks to months and months to years those tiny repeatable choices compound. Consider another example, saving a little money right not won’t make you a millionaire tomorrow. But starting to save today makes it more likely you will become a millionaire in the future.

Our brains have a hard time intuitively understanding time, compounding, and uncertainty. All of those things conspire to work against us when it comes to habits and mental disciplines. Why choose to save $20 today when I could buy a bottle of wine and have instant pleasure? Our minds do not easily realize that $20 saved today could be $100 in the future. And if we do save the money, there is no certainty that it will compound positively, it could, after all, compound negatively and I end up with $15. Now you can begin to see why it’s easier to just live in the moment and do whatever you want.

Clear writes:

But when we repeat 1 percent errors, day after day, by replicating poor decisions, duplicating tiny mistakes, and rationalizing little excuses, our small choices compound into toxic results.

As an entrepreneur, I’m always looking for opportunities. The opportunities that interest me the most offer superior returns, low risk, and a long duration. Just as investing in companies can give you the opportunity to find all three, so does properly investing in yourself. Habits and mental disciplines are controllable, offer enormous opportunity for returns, have extremely low risk, and you can use them for the rest of your life. More importantly, they allow you to diverge from the herd and advantageous divergence is the name of the game.

Love, Happiness, and Time

How many of us regard love and happiness as a place? A box to tick off, a destination we get to? We often conceptualize these two things as goals. Is this responsible for why we are so devastated when they leave after being in our lives for a while?

What do love and happiness have to do with time?

Recently I read The Order of Time, by Carlo Rovelli. In it he writes,

We can think of the world as made up of things. Of substances. Of entities. Of something that is. Or we can think of it as made up of events. Of happenings. Of processes. Of something that occurs. Something that does not last, and that undergoes continual transformation, that is not permanent in time. The destruction of the notion of time in fundamental physics is the crumbling of the first of these two perspectives, not of the second. It is the realization of the ubiquity of impermanence, not of stasis in a motionless time.

This passage, in particular, gets me thinking. By this point in his book, Rovelli has brought me to “a world without time.” Thanks to his writing skills, I am comfortable being there. Time reveals itself to be part of the human condition, not the physical world.

Rovelli continues:

The difference between things and events is that things persist in time; events have a limited duration. A stone is a prototypical “thing”: we can ask ourselves where it will be tomorrow. Conversely, a kiss is an “event.” It makes no sense to ask where the kiss will be tomorrow. The world is made up of networks of kisses, not of stones.

Will it be more rewarding and useful to conceptualize love and happiness like time? An event, not a thing. A kiss, not a stone.

If you think of love like a stone—to be fair, we often do—it is a thing that you attain. You may have an expectation that it will persist and continue to exist. So when you and your partner fight, and it seems the love disappears for an evening, you panic. The love is gone! The thing that connects you wasn’t permanent at all. What does that say about your relationship?

If we change our thinking to love being an event, like a kiss, then a burden is lifted. It’s an event we experience with our partners many times, but not always. And then we can focus on creating the conditions that the event of love requires, even if it might not come to pass every moment of every day.

Rovelli has more to say:

On closer inspection, in fact, even the things that are most “thing-like” are nothing more than long events. The hardest stone, in the light of what we have learned from chemistry, from physics, from mineralogy, from geology, from psychology, is in reality a complex vibration of quantum fields, a momentary interaction of forces, a process that for a brief moment manages to keep its shape, to hold itself in equilibrium before disintegrating again into dust…gradually, an intricate knot in that cosmic game of mirrors that constitutes reality.

Even a stone, the most “thing-like” of things, is fleeting, its definition multilayered and dependent on my perception.

Perhaps it is useful to consider happiness the same way. It’s not something we achieve in perpetuity, an object external to ourselves, as if we could just find it and break off a chunk to keep with us forever. Its existence is bound with our ability to experience it.

“I remember one morning getting up at dawn. There was such a sense of possibility. You know, that feeling. And I…I remember thinking to myself: So this is the beginning of happiness, this is where it starts. And of course there will always be more…never occurred to me it wasn’t the beginning. It was happiness. It was the moment, right then.”

— The Hours (screenplay by David Hare)

As with love, we can reconfigure happiness into an event. It happens. It holds itself in equilibrium for a moment and then disintegrates.

Right now it is fall. Outside my window I am super lucky to witness the unrelenting biological changes that produce such spectacular leaf colours every year. It’s a moment that keeps its shape for a small part of the year. As I get older, I make sure to take the time each October to pay attention and enjoy it.

Could we enjoy happiness more if we consider it the same way? It may sound odd to say that, because who doesn’t enjoy happiness? But there seems to be an eternal struggle with happiness. When it goes, it hurts. Sometimes, when it comes back, it’s bittersweet, because we know it will go again.

The idea of time being an event, and how we experience it, relates, I think, to fundamental conceptions of happiness and love. Time, source of much of our anxiety and sadness, can be understood as a momentary holding together of a set of factors that we experience because of how we are built. I think we can consider love and happiness the same way.

Rovelli explains it this way:

And we begin to see that we are time. We are this space, this clearing opened by the traces of memory inside the connections between our neurons. We are memory. We are nostalgia. We are longing for a future that will not come. The clearing that is opened up in this way, by memory and by anticipation, is time: a source of anguish sometimes, but in the end a tremendous gift. A precious miracle that the infinite play of combinations has unlocked for us, allowing us to exist. We may smile now. We can go back to serenely immersing ourselves in time—in our finite time—to savoring the clear intensity of every fleeting and cherished moment of the brief circle of our existence.

Battling Entropy: Making Order of the Chaos in Our Lives

“Nor public flame, nor private, dares to shine;
Nor human spark is left, nor glimpse divine!
Lo! thy dread empire, Chaos! is restored;
Light dies before thy uncreating word:
Thy hand, great Anarch! lets the curtain fall;
And universal darkness buries all.”
― Alexander Pope, The Dunciad

***

The second law of thermodynamics states that “as one goes forward in time, the net entropy (degree of disorder) of any isolated or closed system will always increase (or at least stay the same).”[1] That is a long way of saying that all things tend towards disorder. This is one of the basic laws of the universe and is something we can observe in our lives. Entropy is simply a measure of disorder. You can think of it as nature’s tax[2].

Uncontrolled disorder increases over time. Energy disperses and systems dissolve into chaos. The more disordered something is, the more entropic we consider it. In short, we can define entropy as a measure of the disorder of the universe, on both a macro and a microscopic level. The Greek root of the word translates to “a turning towards transformation” — with that transformation being chaos.

As you read this article, entropy is all around you. Cells within your body are dying and degrading, an employee or coworker is making a mistake, the floor is getting dusty, and the heat from your coffee is spreading out. Zoom out a little, and businesses are failing, crimes and revolutions are occurring, and relationships are ending. Zoom out a lot further and we see the entire universe marching towards a collapse.

Let’s take a look at what entropy is, why it occurs, and whether or not we can prevent it.

The Discovery of Entropy

The identification of entropy is attributed to Rudolf Clausius (1822–1888), a German mathematician and physicist. I say attributed because it was a young French engineer, Sadi Carnot (1796–1832), who first hit on the idea of thermodynamic efficiency; however, the idea was so foreign to people at the time that it had little impact. Clausius was oblivious to Carnot’s work, but hit on the same ideas.

Clausius studied the conversion of heat into work. He recognized that heat from a body at a high temperature would flow to one at a lower temperature. This is how your coffee cools down the longer it’s left out — the heat from the coffee flows into the room. This happens naturally. But if you want to heat cold water to make the coffee, you need to do work — you need a power source to heat the water.

From this idea comes Clausius’s statement of the second law of thermodynamics: “heat does not pass from a body at low temperature to one at high temperature without an accompanying change elsewhere.”

Clausius also observed that heat-powered devices worked in an unexpected manner: Only a percentage of the energy was converted into actual work. Nature was exerting a tax. Perplexed, scientists asked, where did the rest of the heat go and why?

Clausius solved the riddle by observing a steam engine and calculating that energy spread out and left the system. In The Mechanical Theory of Heat, Clausius explains his findings:

… the quantities of heat which must be imparted to, or withdrawn from a changeable body are not the same, when these changes occur in a non-reversible manner, as they are when the same changes occur reversibly. In the second place, with each non-reversible change is associated an uncompensated transformation…

… I propose to call the magnitude S the entropy of the body… I have intentionally formed the word entropy so as to be as similar as possible to the word energy….

The second fundamental theorem [the second law of thermodynamics], in the form which I have given to it, asserts that all transformations occurring in nature may take place in a certain direction, which I have assumed as positive, by themselves, that is, without compensation… [T]he entire condition of the universe must always continue to change in that first direction, and the universe must consequently approach incessantly a limiting condition.

… For every body two magnitudes have thereby presented themselves—the transformation value of its thermal content [the amount of inputted energy that is converted to “work”], and its disgregation [separation or disintegration]; the sum of which constitutes its entropy.

Clausius summarized the concept of entropy in simple terms: “The energy of the universe is constant. The entropy of the universe tends to a maximum.”

“The increase of disorder or entropy is what distinguishes the past from the future, giving a direction to time.”

— Stephen Hawking, A Brief History of Time

Entropy and Time

Entropy is one of the few concepts that provides evidence for the existence of time. The “Arrow of Time” is a name given to the idea that time is asymmetrical and flows in only one direction: forward. It is the non-reversible process wherein entropy increases.

Astronomer Arthur Eddington pioneered the concept of the Arrow of Time in 1927, writing:

Let us draw an arrow arbitrarily. If as we follow the arrow[,] we find more and more of the random element in the state of the world, then the arrow is pointing towards the future; if the random element decreases[,] the arrow points towards the past. That is the only distinction known to physics.

In a segment of Wonders of the Universe, produced for BBC Two, physicist Brian Cox explains:

The Arrow of Time dictates that as each moment passes, things change, and once these changes have happened, they are never undone. Permanent change is a fundamental part of what it means to be human. We all age as the years pass by — people are born, they live, and they die. I suppose it’s part of the joy and tragedy of our lives, but out there in the universe, those grand and epic cycles appear eternal and unchanging. But that’s an illusion. See, in the life of the universe, just as in our lives, everything is irreversibly changing.

In his play Arcadia, Tom Stoppard uses a novel metaphor for the non-reversible nature of entropy:

When you stir your rice pudding, Septimus, the spoonful of jam spreads itself round making red trails like the picture of a meteor in my astronomical atlas. But if you stir backwards, the jam will not come together again. Indeed, the pudding does not notice and continues to turn pink just as before. Do you think this is odd?

(If you want to dig deeper on time, I recommend the excellent book by John Gribbin, The Time Illusion.)

“As a student of business administration, I know that there is a law of evolution for organizations as stringent and inevitable as anything in life. The longer one exists, the more it grinds out restrictions that slow its own functions. It reaches entropy in a state of total narcissism. Only the people sufficiently far out in the field get anything done, and every time they do they are breaking half a dozen rules in the process.”

— Roger Zelazny, Doorways in the Sand

Entropy in Business and Economics

Most businesses fail—as many as 80% in the first 18 months alone. One way to understand this is with an analogy to entropy.

Entropy is fundamentally a probabilistic idea: For every possible “usefully ordered” state of molecules, there are many, many more possible “disordered” states. Just as energy tends towards a less useful, more disordered state, so do businesses and organizations in general. Rearranging the molecules — or business systems and people — into an “ordered” state requires an injection of outside energy.

Let’s imagine that we start a company by sticking 20 people in an office with an ill-defined but ambitious goal and no further leadership. We tell them we’ll pay them as long as they’re there, working. We come back two months later to find that five of them have quit, five are sleeping with each other, and the other ten have no idea how to solve the litany of problems that have arisen. The employees are certainly not much closer to the goal laid out for them. The whole enterprise just sort of falls apart.

It reminds one distinctly of entropy: For every useful arrangement of affairs towards a common business goal, there are many orders of magnitude more arrangements that will get us nowhere. For progress to be made, everything needs to be arranged and managed in a certain way; we have to input a lot of energy to keep things in an ordered state.

Of course, it’s not a perfect analogy: We have to consider the phenomenon of self-organization that happens in many systems, up to and including human organizations. Given a strong enough goal, a good enough team, and the right incentives, perhaps that group wouldn’t need a lot “outside ordering” — they would manage themselves.

“The … ultimate purpose of life, mind, and human striving: to deploy energy and information to fight back the tide of entropy and carve out refuges of beneficial order.”

— Steven Pinker

In practice, both models seem to be useful at different times. Any startup entrepreneur who has stayed long enough to see a company thrive in unexpected ways knows this. The amount of diligent management needed will vary. In physics, entropy is a law; in social systems, it’s a mere tendency — though a strong one, to be sure.

Entropy occurs in every aspect of a business. Employees may forget training, lose enthusiasm, cut corners, and ignore rules. Equipment may break down, become inefficient, or be subject to improper use. Products may become outdated or be in less demand. Even the best of intentions cannot prevent an entropic slide towards chaos.

Successful businesses invest time and money to minimize entropy. For example, they provide regular staff training, good reporting of any issues, inspections, detailed files, and monitoring reports of successes and failures. Anything less will mean almost inevitable problems and loss of potential revenue. Without the necessary effort, a business will reach the point of maximum entropy: bankruptcy.

Fortunately, unlike thermodynamic systems, a business can reverse the impact of entropy. A balance must be struck between creativity and control, though. Too little autonomy for employees results in disinterest, while too much leads to poor decisions.

Entropy in Sociology

Without constant maintenance from individuals and dominant institutions, societies tend towards chaos. Divergent behavior escalates — a concept known as the “broken windows” theory.

Sociologist Kenneth Bailey writes:

When I began studying the notion of entropy it became clear to me that thermodynamic entropy was merely one instance of a concept with much broader applications … I became convinced that entropy applied to social phenomena as well.

One example of what happens when entropy increases unchecked occurred in the Kowloon Walled City. For a substantial length of time, Kowloon was abandoned by the government after the British took control of Hong Kong. At one point, an estimated 33,000 residents were crammed into 300 buildings over 6.4 acres, making Kowloon the most densely populated place on earth. With no space for new construction, stories were added to the existing buildings. Because of minimal water supplies and a lack of ventilation (no sunlight or fresh air reached lower levels), the health of residents suffered. A community of unlicensed medical professionals flourished, alongside brothels and gambling dens.

With no one controlling the city, organized crime gangs took over. It became a haven for lawlessness. Though police were too scared to make any attempts to restore order, residents did make desperate attempts to reduce the entropy themselves. Groups formed to improve the quality of life, creating charities, places for religious practices, nurseries, and businesses to provide income.

In 1987, the Hong Kong government acknowledged the state of Kowloon. The government demolished and rebuilt the city, evicting residents and destroying all but a couple of historic buildings. Although reasonable compensation was provided for ex-residents, many were somewhat unhappy with the rebuilding project.

Looking at pictures and hearing stories from Kowloon, we have to wonder if all cities would be that way without consistent control. Was Kowloon an isolated instance of a few bad apples giving an otherwise peaceful place a terrible reputation? Or is chaos our natural state?

Needless to say, Kowloon was not an isolated incident. We saw chaos and brutality unleashed during the Vietnam War, when many young men with too much ammunition and too few orders set about murdering and torturing every living thing they encountered. We see it across the world right now, where places with no law enforcement (including Somalia and Western Sahara) face incessant civil wars, famine, and high crime rates.

Sociologists use an intuitive term for this phenomenon: social entropy. Societies must expend constant effort to stem the inevitable march towards dangerous chaos. The reduction of social entropy tends to require a stable government, active law enforcement, an organized economy, meaningful employment for a high percentage of people, infrastructure, and education.

However, the line between controlling entropy and suppressing people’s liberty is a thin one. Excessive control can lead to a situation akin to Foucault’s panopticon, wherein people are under constant surveillance, lack freedom of speech and movement, are denied other rights as well, and are subject to overzealous law enforcement. This approach is counterproductive and leads to eventual rebellion once a critical mass of dissenters forms.

“Everything that comes together falls apart. Everything. The chair I’m sitting on. It was built, and so it will fall apart. I’m going to fall apart, probably before this chair. And you’re going to fall apart. The cells and organs and systems that make you you—they came together, grew together, and so must fall apart. The Buddha knew one thing science didn’t prove for millennia after his death: Entropy increases. Things fall apart.”

— John Green, Looking for Alaska

Entropy in Our Everyday Lives

We have all observed entropy in our everyday lives. Everything tends towards disorder. Life always seems to get more complicated. Once-tidy rooms become cluttered and dusty. Strong relationships grow fractured and end. Formerly youthful faces wrinkle and hair turns grey. Complex skills are forgotten. Buildings degrade as brickwork cracks, paint chips, and tiles loosen.

Entropy is an important mental model because it applies to every part of our lives. It is inescapable, and even if we try to ignore it, the result is a collapse of some sort. Truly understanding entropy leads to a radical change in the way we see the world. Ignorance of it is responsible for many of our biggest mistakes and failures. We cannot expect anything to stay the way we leave it. To maintain our health, relationships, careers, skills, knowledge, societies, and possessions requires never-ending effort and vigilance. Disorder is not a mistake; it is our default. Order is always artificial and temporary.

Does that seem sad or pointless? It’s not. Imagine a world with no entropy — everything stays the way we leave it, no one ages or gets ill, nothing breaks or fails, everything remains pristine. Arguably, that would also be a world without innovation or creativity, a world without urgency or a need for progress.

Many people cite improving the world for future generations as their purpose in life. They hold protests, make new laws, create new forms of technology, work to alleviate poverty, and pursue other noble goals. Each of us makes our own efforts to reduce disorder. The existence of entropy is what keeps us on our toes.

Mental models are powerful because they enable us to make sense of the disorder that surrounds us. They provide us with a shortcut to understanding a chaotic world and exercising some control over it.

In The Information: A History, a Theory, a Flood, James Gleick writes,

Organisms organize. … We sort the mail, build sand castles, solve jigsaw puzzles, separate wheat from chaff, rearrange chess pieces, collect stamps, alphabetize books, create symmetry, compose sonnets and sonatas, and put our rooms in order… We propagate structure (not just we humans but we who are alive). We disturb the tendency toward equilibrium. It would be absurd to attempt a thermodynamic accounting for such processes, but it is not absurd to say we are reducing entropy, piece by piece. Bit by bit … Not only do living things lessen the disorder in their environments; they are in themselves, their skeletons and their flesh, vesicles and membranes, shells, and carapaces, leaves, and blossoms, circulatory systems and metabolic pathways—miracles of pattern and structure. It sometimes seems as if curbing entropy is our quixotic purpose in the universe.

The question is not whether we can prevent entropy (we can’t), but how we can curb, control, work with, and understand it. As we saw at the start of this post, entropy is all around us. Now it’s probably time to fix whatever mistake an employee or coworker just made, clear up your messy desk, and reheat your cold coffee.

How Can I Use Entropy to My Advantage?

This is where things get interesting.

Whether you’re starting a business or trying to bring about change in your organization, understanding the abstraction of entropy as a mental model will help you accomplish your goals in a more effective manner.

Because things naturally move to disorder over time, we can position ourselves to create stability. There are two types of stability: active and passive. Consider a ship, which, if designed well, should be able to sail through a storm without intervention. This is passive stability. A fighter jet, in contrast, requires active stability. The plane can’t fly for more than a few seconds without having to adjust its wings. This adjustment happens so fast that it’s controlled by software. There is no inherent stability here: if you cut the power, the plane crashes.[3]

People get in trouble when they confuse the two types of stability. Relationships, for example, require attention and care. If you assume that your relationship is passively stable, you’ll wake up one day to divorce papers. Your house is also not passively stable. If not cleaned on a regular basis, it will continue to get messier and messier.

Organizations require stability as well. If you’re a company that relies on debt, you’re not passively stable but actively stable. Factoring in a margin of safety, this means that the people giving you the credit should be passively stable. If you’re both actively stable, then when the power gets cut, you’re likely to be in a position of weakness, not strength.

With active stability, you’re applying energy to a system in order to bring about some advantage (keeping the plane from crashing, your relationship going, the house clean, etc.), If we move a little further down the rabbit hole, we can see how applying the same amount of energy can yield totally different results.

Let’s use the analogy of coughing.[4] Coughing is the transfer of energy as heat. If you cough in a quiet coffee shop, which you can think of as a system with low entropy, you cause a big change. Your cough is disruptive. On the other hand, if you cough in Times Square, a system with a lot of entropy, that same cough will have no impact. While you change the entropy in both cases, the impact you have with the same cough is proportional to the existing entropy.

Now think of this example in relation to your organization. You’re applying energy to get something done. The higher the entropy in the system, the less efficient the energy you apply will be. The same person applying 20 units of energy in a big bureaucracy is going to see less impact than someone applying the same 20 units in a small startup.

You can think about this idea in a competitive sense, too. If you’re starting a business and you’re competing against very effective and efficient people, a lot of effort will get absorbed. It’s not going to be very efficient. If, on the other hand, you compete against less efficient and effective people, the same amount of energy will be more efficient in its conversion.

In essence, for a change to occur, you must apply more energy to the system than is extracted by the system.

 

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Resources:

[1] http://www.exactlywhatistime.com/physics-of-time/the-arrow-of-time/

[2] Peter Atkins

[3] Based on the work of Tom Tombrello

[4] Derived from the work of Peter Atkins in The Laws of Thermodynamics: A Very Short Introduction

 

There’s Seldom Any Traffic on the High Road

We’ve all been there: someone says something rude to us and our instinct is to strike back with a quick-witted comeback. That’s what many people do. It’s also a big reason that many people don’t get what they want. Consider this example from my recent travels:

“Are you dense?” the gate agent blurted to me, clearly frustrated as I asked a question she’d be asked a million times that day. Only moments before, I had been sitting on a plane to Seattle when the announcement came over the PA system that the flight was cancelled.

The instructions were clear: check with the gate agent for reassignment.  I was tenth in line. By the time I talked to her, this agent had already had to deal with nine angry customers. She wasn’t frustrated with me, but I knew that everyone else had verbally beat her up. I also travel enough to know how seldom that works. She had instructed the previous nine passengers to collect their bags, go through customs, and go to the Air Canada customer service desk for reassignment.

“I guess you’re right, I can be slow sometimes,” I said. “I’m sorry.”

Her words finally caught up with her, and she apologized. “I’m sorry, that was rude of me. I didn’t mean—”

“You’ve had a long day. People are frustrated and taking it out on you when it’s not your fault. I know how hard that can be.”

She cracked a smile, the first I had seen from her since I joined the line. And she happily found me a seat on the next flight.

She was being rude. Yes. But that wasn’t the best version of her.

When people are rude, our subconscious interprets it as an assault on hierarchy instincts. Our evolutionary programming responds with thoughts like, “Who are you to tell me something so rude? I’ll show you….”

Our instincts are to escalate when really, we should be focused on de-escalating the situation. One way to do that is to take the high road.

Say something along the lines of “I can see that.” You don’t have to apologize. You don’t have to agree with what the other person is saying. But I promise the results are magic. It’s hard to be angry with someone who agrees with you. And when there is no one to argue with and they’re the only person worked up about the situation, they will quickly feel uncomfortable and try to correct course.

Making enemies is expensive. Sometimes you don’t even realize how expensive. I saw one of those other nine passengers two and a half hours later, running to the gate to board the flight I was on. They had only just gotten through the hassle that resulted from their dealings with the gate agent—while I had grabbed a glass of wine and read a book. They had no idea how much their rudeness cost them in time and energy. It wasn’t visible to them. It was, however, visible to me.

The high road not only holds your frictional costs to the minimum, but it makes you happier. You’ll go farther and faster than others in the same situation. Sure, it involves putting your ego aside for a second—but if you think about it, this approach can often be the quickest to getting what you want.

Defensive Decision Making: What IS Best v. What LOOKS Best

“It wasn’t the best decision we could make,” said one of my old bosses, “but it was the most defensible.”

What she meant was that she wanted to choose option A but ended up choosing option B because it was the defensible default. She realized that if she chose option A and something went wrong, it would be hard to explain because it was outside of normal. On the other hand, if she chose option A and everything went right, she’d get virtually no upside. A good outcome was merely expected, but a bad outcome would have significant consequences for her. The decision she landed on wasn’t the one she would have made if she owned the entire company. Since she didn’t, she wanted to protect her downside. In asymmetrical organizations, defensive decisions like this one protect the person making the decision.

My friend and advertising legend Rory Sutherland calls defensive decisions the Heathrow Option. Americans might think of it as the IBM Option. There’s a story behind this:

A while ago, British Airways noticed a reluctance for personal assistants to book their bosses on flights from London City Airport to JFK. They almost always picked Heathrow, which was further away, and harder to get to. Rory believed this was because “flying from London City might be better on average,” but “because it was a non-standard option, if anything were to go wrong, you were much more likely to get it in the neck.”

Of course, if you book your boss to fly out of Heathrow—the default—and the flight is delayed, they’ll blame the airline and not you. But if you opted for the London City airport, they’d blame you.

At first glance, it might seem like defensive decision making is irrational. It’s actually perfectly rational when you consider the asymmetry involved. This asymmetry also offers insight into why cultures rarely change.

Some decisions place the decisionmakers in situations where outcomes offer little upside and massive downside. In these cases, it can seem like great outcomes carry a 1% upside, good outcomes are neutral, and poor outcomes carry at least 20% downside—if they don’t get you fired.

It’s easy to see why people opt for the default choice in these cases. If you do something that’s different—and thus hard to defend—and it works out, you’ve risked a lot for very little gain. If you do something that’s different and it doesn’t work out, and you might find yourself unemployed.

This asymmetry explains why your boss, who has nice rhetoric about challenging norms and thinking outside the box, is likely to continue with the status quo rather than change things. After all, why would they risk looking like a fool by doing something different? It’s much easier to protect themselves. Defaults give people a possible out, a way to avoid being held accountable for their decisions if things go wrong. You can distance yourself from your decision and perhaps be safe from the consequences of a poor outcome.

Doing the safe thing is not the same as doing the right thing. Often, the problem with the safe thing is that there is no growth, no innovation. It’s churning out more of the same. So in the short term, while you may think that the default is a better choice for your job security, in the long game there’s a negative. When you are unwilling to take risks, you stop recognizing opportunities. If you aren’t willing to put yourself out there for 1% gain, how do you grow? After all, the 1% upsides are more common than the 50% upsides. But in either case, if you become afraid of downside, then what level of risk would be acceptable? It’s not that choosing the default makes you a bad person. But a lifetime of opting for the default limits your opportunities and your potential.

And for anyone who owns a company, a staff full of default decision makers is a death knell. You get amazing results when people have the space to take risks and not be penalized for every downside.

Footnotes
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    Image source: https://www.flickr.com/photos/hyku/3474143529

What’s Staying the Same

I want to know the future. So do you. However, our desire to know the future leads us to seek answers to unanswerable questions.

The question, “What’s going to change in the next 10 years?” is a popular one in nearly all industries. The siren song of avoiding uncertainty and knowing the future is hard to resist. Having the answer is the equivalent of signaling to the world that you’re an oracle.

The best thing? No one will remember how wrong you were.

To capitalize on what’s going to change in the future, a lot of things have to go right. Not only do you have to speculate the changing variables correctly, but you have to guess how they will interact. And you have to go all in on that version of the future. On top of that, you have to hope that your competitors thought you were crazy and didn’t invest resources in that version of the future. This is why it rarely works, and when it does it’s mostly luck.

While predicting the future is important, it’s often not knowable. We’re speculating, but our brains convince themselves otherwise. Plausible answers about the future tend to cement as reality in our minds. We convince ourselves that we know something that is not knowable.

The range of possible futures is always changing, a lot like electrons. Electrons baffle physicists because they are hard to pin down.  Any attempts to locate them require the use of energy.  Electrons are so light that the energy we use to locate them changes their location. In the same way that shining a light on an electron will change its position ever so slightly, investing in a particular version of the future will change the probability of that particular future ever so slightly. Complicating things further, it’s not a single-player game—it’s a multi-person game and the odds are always changing.

Beyond that, once you shine the light on what’s going to change and how this time is different, you may forget to look at a simpler and more important question: “What’s not going to change in the next ten years?”

Jeff Bezos and Warren Buffett agree on this question being the more important of the two. Think about that for a second. The leader of one of the most innovative high-tech companies in the world and the leader of one of the most boring conglomerates in history both agree that a question about what’s not going to change is more important than one about what will change.

Bezos realizes that energy and effort put into predicting what’s going to change is a speculative bet. It might work, and it might not. The hope is that if it works it pays off spectacularly, and if it doesn’t work, it doesn’t cost you much.

While investing in what’s changing is risky, investing in what stays the same is not. Bezos realizes investments in what doesn’t change will still be paying off in ten years. “When you have something you know is true, even over the long term,” he said, “you can afford to put a lot of energy into it.”

Predicting what’s going to change is hard. Predicting what’s going to stay the same is relatively easy. Think about the dotcoms. Everyone was running around and saying this time would be different—everyone but Warren Buffett. He was sitting in his office in Omaha asking himself what would stay the same.

Alice Schroeder, Buffett’s authorized biographer, explains it this way:

There is less emphasis on trying to reason out things on the basis that they are special because they are unique, which in a financial context is perhaps the definition of a speculation. But pattern recognition is his default way of thinking. It creates an impulse always to connect new knowledge to old and to primarily be interested in new knowledge that genuinely builds on the old.

While you can’t know what’s going to change in the future you can intelligently speculate on it, which is the best path. The safe play is to invest resources into all probable futures. This conveniently keeps options open, allows you to tell the board of directors with a straight face that you’re working on it, and makes you better off than had you not explored the future. The problem, again, is that the game has many players. While most companies took the same safe strategy as yours, someone—somewhere—went all in on this particular version of the future. That company is now being expensively acquired, by you or someone else.

The important point is that while you’re doing that, you should be inverting the problem. Answers to what’s going to stay the same in the next ten years, while boring, offer the best investment opportunities.