Random Posts

Do You Know What You Don’t Know?

You probably don’t know as much as you think you do. When put to the test, most people find they can’t explain the workings of everyday things they think they understand.

Don’t believe me? Find an object you use daily (a zipper, a toilet, a stereo speaker) and try to describe the particulars of how it works. You’re likely to discover unexpected gaps in your knowledge. In psychology, we call this cognitive barrier the illusion of explanatory depth. It means you think you fully understand something that you actually don’t.

We witness this all the time with the use of buzz words (think “strategic,” “streamline,” etc.).

While often used, the meaning of these words is usually unclear and masks gaps in our knowledge, “serving as placeholders that gloss concepts we don’t fully understand.”

These words are similar to Aphorisms in the sense that they stifle informed debate — you’re expected to get the gist of what people mean and move on.

For example, several years ago, I attended a corporate meeting where the vice president spoke about streamlining business practices in the coming year. During the talk, executives around the room nodded in agreement. Afterward, though, many of them discussed what streamlining actually meant. None of the people who had nodded in agreement could exactly define the mechanics of how to streamline a business practice.

One tip:

Explain concepts to yourself as you learn them. Get in the habit of self-teaching. Your explanations will reveal your own knowledge gaps and identify words and concepts whose meanings aren’t clear.

Still curious? The Feynman Technique is designed to overcome the illusion of explanatory depth and help you actually understand.

Source

Why we Praise Meaningless Jargon and Fail to Realize the Emperor has No Clothes

“The CEO who misleads others in public may eventually mislead himself in private.”
Warren Buffett

***

Is there a link between candor and execution? L. J. Rittenhouse thinks so.

Rittenhouse is the author of Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications, a book that Warren Buffett recommended in his 2012 Shareholder Letter. He writes:

Jack Welch and others have noted that the absence of candor in a workplace can be a significant deterrent to success. … Welch feared that bureaucratic cultures discouraged people from candidly speaking their minds. He advocated that companies develop corporate cultures to encourage “honest feedback.” He explained, “If you reward candor, you’ll get it.”

In an article titled, Truth-Telling: Confronting the Reality of the Lack of Candor Inside Organizations[1], Management consultant Lynn Harris describes the need to build a culture where “opposing views are debated and more effective solutions and innovations are created.”

I’m not talking about malevolent dishonesty. No one goes to work thinking “I’m going to hinder my own and my company’s performance by withholding the truth from my colleagues.” I’m talking about the many moments each day where we think one thing, but say something different; where we have an idea that may be of value, but we hold back and say nothing; where we are called upon to give an honest opinion, but decide to say what is easier or what we think others want to hear.

It seems simple enough, you should communicate with people as you would want them to communicate with you. But if candor is a necessary element to improving performance, why don’t more businesses promote it? Rittenhouse writes:

Polite and white lies are benign. They are told to smooth over difficult social situations and can do more good than harm. Deliberate omissions of facts or statements, however, can be toxic. Whether the motivation comes from fear or a desire to avoid conflict, it is important in all instances to consider the significance of the information that is left out and the consequences for doing so. The more significant the information is to understanding truth and consequences, the more toxic the lie.

When we state that something is true even when we know it to be false, we are telling outright lies. These are more toxic and can create bigger problems than the ones they try to avoid.

… Then there are the lies of self-deception, the ones we tell about ourselves. These are the most toxic, because they create dangers we cannot see. Why? Telling them blinds us to uncomfortable truths about who we are and how we see the world.

Rittenhouse uses real examples of corporate communication to point out the jargon.

Consider this passage from Coca-Cola’s 1995 Shareholder letter, written by Roberto Goizueta:

We sell a product that not only has universal appeal and accessibility, but also meets the fundamental, frequently recurring human need for refreshment.

By universal appeal, I mean we sell a product with physical attributes that the human palate enjoys, no matter what the culture or demographic status. Five or six decades ago, we stopped listening to those who said that Coca-Cola simply would not be accepted in certain societies, where centuries-old beverage consumption habits would surely lock us out. But, just as consumption of Coca-Cola surpassed the combined consumption of the two leading teas in Great Britain some time ago, so will the per capita consumption of Coca-Cola surpass that of the leading bottled water in France this year, two milestones most people said would never come to pass.

Yet, such milestones do come to pass, and one of the primary reasons is the “delicious and refreshing” nature of the product that comes in a bottle, can, glass or cup of Coca-Cola.

That’s of great importance, but so is the universal accessibility of Coca-Cola. Not only does Coca-Cola satisfy a basic human need, it is also highly affordable to an overwhelming majority of people worldwide.

“Nothing Goizueta wrote,” according to Rittenhouse, “could be described as insincere, although he could have bolstered his claims by citing third-party validation for the consumption trends reported in the passage. Goizueta doesn’t say that everyone finds Cola-Cola to be “delicious and refreshing.” Instead, he creates an impression that this experience is “universal.” Importantly, he omits clichés and jargon that would have diluted his message.”

Now consider this passage from Coca-Cola’s 2010 shareholder letter:

This past year, I had the privilege of visiting our Coca-Cola operations in 17 countries on four continents. During my travels with our associates around the world, we opened new bottling plants, visited research and development centers, worked with retail customers, met with consumers and suppliers, and collaborated with an assortment of amazing leaders from business, government and civil society. From the bustling cities of China to the remote villages of South Africa, I walked away with one overriding impression of the Coca-Cola Company. What I saw and continue to see in the second decade of the 21st century is a company that is steadily and strategically advancing its momentum all around the world. [author’s emphasis]

On this letter Rittenhouse comments:

Current Coca-Cola CEO Muhtar Kent’s description of his travels during the year is sincere, truthful, and personal. At the end, however, he stumbles when he reflects on the significance of these experiences and reports, “[ Coca-Cola] is a company that is steadily and strategically advancing its momentum all around the world” [author’s emphasis]. How is it possible for Coke or any company to “steadily and strategically [advance] its momentum”? This description doesn’t qualify as a lie. Instead, it is meaningless, the kind of doublespeak or nonsense that George Orwell portrayed in his classic novel 1984.

A Simple Candor Test

Just about anyone can measure the absence of candor in communications.

… start reading with a red pencil or pen in hand and use it to underline clichés such as “employees are our greatest assets,” “our future is bright,” “advancing momentum,” and “we aim to create shareholder value.” This kind of meaningless jargon and platitudes diminishes our understanding of the business and our trust in the leadership.

When you’re done, look back. If there’s a lot of red on the page, consider yourself warned.

Consider this passage, which happens to come from Enron’s shareholder letter for the year 2000, but could come from any company anywhere:

Our talented people, global presence, financial strength and massive market knowledge have created our sustainable and unique businesses. EnronOnline will accelerate their growth. We plan to leverage all of these competitive advantages to create significant value for our shareholders.

In one short paragraph, Enron introduced six popular clichés:

  1. Talented people
  2. Global presence
  3. Market knowledge
  4. Financial strength
  5. Leverage competitive advantages
  6. Significant value for our shareholders

This is meaningless to a reader. It doesn’t speak to candor and it doesn’t speak to the fact that the people in charge know what’s going on. Reading between the lines you can spot trouble and a void of leadership. Perhaps they are hiding something malicious through obfuscation and meaningless jargon, or, perhaps they are hiding their own incompetence. Either way, it’s a red flag.

Rittenhouse coined an acronym for the absence of candor: “FOG.” It stands for “fact-deficient, obfuscating generalities.”

The Emperor’s New Clothes

When we read something full of jargon and clichés we end up thinking that we’re the problem — we think that we’re just not smart enough to understand it and we ignore our judgment and common sense.

we fear our vulnerability in relation to leaders whom we must trust? To imagine that they would injure us to advance their self-interest is disturbing, even frightening. Instead, we choose to doubt ourselves.

In doing so we become the adults in Hans Christian Andersen’s fairy tale The Emperor’s New Clothes. We praise the jargon of meaningless communication and deny what our eyes tell us to be true – the emperor has no clothes.

After reading Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications Buffett commented, “Rittenhouse is still on the side of the angels.”

 

Sources:

[1] Original Source http://www.linkageinc.com/thinking/linkageleader/Documents/Lynn_Harris_Truth-Telling–Confronting_the_Lack_of_Candor_Inside_Organizations_0506.pdf.

What Makes You Happy?

flow
Source: The Decision Book: 50 Models for Strategic Thinking

Aristotle came to the conclusion that what a person wants more than anything else is to be happy.

But what makes us happy?

Is it that next vacation? A new car? A promotion?

In 1961, the US psychologist Mihaly Csikszentmihalyi wrote: ‘While happiness itself is sought for its own sake, every other goal – health, beauty, money or power – is valued only because we expect that it will make us happy.’ (And that makes for a pretty limited life, according to Steve Jobs.)

Csikszentmihalyi looked for a term that described the state of feeling happy. He called it ‘flow’.

But when are we ‘in the flow’?

After interviewing over a thousand people about what made them happy, he found that all the responses had five things in common.

Happiness, or ‘flow’, occurs when we are:

– intensely focused on an activity (busy but not rushed)
– of our own choosing, that is
– neither under-challenging (boreout) nor over-challening (burnout), that has
– a clear objective and that receives
– immediate feedback.

Csikszentmihalyi discovered that people who are ‘in the flow’ not only feel a profound sense of satisfaction, they also lose track of time and forget themselves completely because they are so immersed in what they are doing.

Musicians, athletes, actors, doctors and artists describe how they are happiest when they are absorbed in an often exhausting activity – totally contradicting the commonly held view that happiness has to do with relaxation.

— Via The Decision Book: 50 Models for Strategic Thinking

How to Live on 24 Hours a Day: Arnold Bennett on Living a Meaningful Life Within the Constraints of Time

“We shall never have more time.
We have, and have always had,
all the time there is.”

***

Despite having been published in 1910, Arnold Bennett’s book How to Live on 24 Hours a Day remains a valuable resource on living a meaningful life within the constraints of time. In the book, Bennett addresses one of our oldest questions: how can we make the best use of our lives? How can we make the best use of our time?

Bennett begins by reflecting on our counterintuitive tendency to value money over time. This is a topic which has been discussed as far back as the Stoics, and more recently by the financial independence movement. He writes:

Newspapers are full of articles explaining how to live on such-and-such a sum…but I have never seen an essay ‘how to live on 24 hours a day.’ Yet it has been said that time is money. That proverb understates the case. Time is a great deal more than money. If you have time, you can obtain money-usually. But…you cannot buy yourself a minute more time.

Next, he urges people to realize what a wonder it is that our daily allocation of time appears anew each time we wake:

The supply of time is truly a daily miracle. You wake up in the morning and lo! your purse is magically filled with 24 hours of the unmanufactured tissue of the universe of your life! It is yours.

Bennett’s original audience consisted of working people of slim means, used to structuring their lives around money. For this reason, he uses money as a metaphor for time, to make the abstract concepts seem more real:

You cannot draw on the future. Impossible to get into debt! You can only waste the passing moment. You cannot waste tomorrow, it is kept from you.

You have to live on this 24 hours of time. Out of it you have to spin health, pleasure, money, content, respect and the evolution of your immortal soul. It’s right use…is a matter of the highest urgency.

Perhaps one of the starkest and most memorable lines in the book is this:

We shall never have more time. We have, and have always had, all the time there is.

Bennett strongly encourages his readers to pursue their dreams, even if they fail. When we listen to the regrets of the elderly and dying, they invariably lament on what they neglected to do, not what they did. It is, however, the trying which matters, the journey which fulfills us:

A man may desire to go to Mecca… He fares forth…he may probably never reach Mecca; he may drown before he reaches Port Said; he may perish ingloriously on the cost of the Red Sea; his desire may remain eternally frustrated. Unfulfilled aspiration may always trouble him. But he will not be tormented in the same way as the man who…never leaves Brixton.

There is no magic bullet, no secret way to find more time. We see the desire to find one today, as people chase time management techniques which promise to free up more hours in the day:

I have found no such wonderful secret. Nor do I expect to find it, nor do I expect anyone else to find it. It is undiscovered… there is no easy way, no royal road. The path to Mecca is extremely hard and stony and the worst part is that you never get there after all.

This could be discouraging but it’s not. Bennett encourages us to focus on how we can use our time to improve ourselves, stating that it is never too late:

You can turn over a new leaf every hour if you choose.

The idea that you can reinvent yourself each hour of the day is liberating. We get stuck in ruts and tell ourselves that we cannot change because we are too old, too young, too poor, too tied down. These are only excuses. They absolve us from responsibility. Bennett reminds us that just as money can be spent on anything, so can time. And, as Seneca reminded us, most of us fail to understand time until it’s too late.

Bennett foreshadows modern research on habit change and personal development, which urges people to start small:

Beware of undertaking too much at the start. Be content with quite a little. Allow for accidents. Allow for human nature, especially your own… a glorious failure is better than a petty success.

Having set the stage, Bennett begins to discuss exactly how much time his audience has available to them. It is a simple fact that most of us believe we work for far more hours than we do – the average person’s estimate of their work week is out by 20 hours. Most workers are only productive for 3 hours a day. (the rest is spent on social media, gossiping and so on.) You can indeed get more done by working less.

You say your day is already full to overflowing. How? You actually spend in earning your livelihood – how much? Seven hours on the average. And in sleep, seven? I will add another two to be generous. And I will defy you to account for me the other 8 hours on the spur of the moment.

We all know the odd feeling of time passing without us noticing. We have all looked up on a Sunday evening, baffled as to where the day went. We have all arrived home at 6 pm and found that by the time we make dinner and shower, it is suddenly midnight.

Looking at the example of the average office worker at the time, Bennett reflects on our skewed attitude to work. We view our hours at work as our day and the rest as a margin. (Another example of how we fail to understand time.)

He persists in looking at the hours from 10 to 6 as ‘the day’ to which the 10 hours proceeding and the 6 hours following are an epilogue and prologue … this general attitude is illogical and unhealthy.

Next, Bennett laments the practice, ubiquitous of the time, of spending the morning commute reading the newspaper. We can apply his statements to the newspapers modern equivalent: social media. No doubt you have seen pictures of the past where a train carriage is full of people reading newspapers. Today the buses and subways are full of people on their telephones.

You calmly and majestically give yourself up to your newspaper. You do not hurry…your air is the air of a leisured man, wealthy in time, of a man from some planet where there are 124 hours in the day…I cannot possibly allow you to scatter such precious pearls of time with Oriental lavishness. You are not the Shah of time.

If you have ever known someone who complains of being time poor, yet scrolls Facebook with all the ease of a cat watching dust particles, you can doubtless relate to Bennett’s frustration. The number one question I receive from readers is how can I find more time to read? There is a simple answer but it involves tradeoffs that most of us are unwilling to make. It means putting reading and learning and growing ahead of the immediate gratification of social media. To waste vast swathes of time mindlessly consuming the day’s information is a bizarre concept to anyone who shares his attitude. Depending on the activity, The Red Queen of time is indeed formidable.

(In case you’re wondering how I square this view of time squandering on newspapers with the fact you’re reading a wesbite right now, allow me to explain the difference. Newspapers are focused on things that change. You can’t run fast enough to keep up with this world and yet while you may think it’s valuable the information you receive is full of noise. Farnam Street focuses on helping you learn things that don’t change over time — It’s an investment. What you learn today becomes the scaffolding to solving tomorrow’s problem.)

Bennett describes the average person’s evening which has changed little in the last century.

You are pale and tired…in an hour or so you sit up and feel you could take a little nourishment. And you do. Then you smoke, seriously, you see friends, you potter, you play cards, you flirt with a book, you take a stroll, you caress the piano…by jove! A quarter past eleven.

Replace seeing friends for texting them, cards for video games, a book for a movie, a stroll for a trip to the gym and that is how most of us spend our evenings. Worn out by work, we flirt between whichever diversion seems interesting, dumping it when it begins to require focus. Then, suddenly it is time to sleep. Another day is over. But tomorrow will be different, right? Not without a concentrated effort, it won’t.

Bennett remarks on how different our evenings are when we have something specific to do and urges us to find specific diversions more often:

When you arrange to go to the theatre (especially with a pretty woman), what happens? You rush…you go. Friends and fatigue have been equally forgotten and the evening has seemed so long…can you deny that when you have something definite to look forward to at eventide, something that is to employ all your energy – the thought of that something gives a glow and more intense energy to the whole day?

Next, come some specific instructions on how we should spend our evenings. Bennett, echoing Machiavelli’s ideas, suggests employing an hour and a half each evening for cultivating the mind, which still leaves 45 hours a week for errands, adventure, and seeing friends. This is a practice which we can all employ if only we’d stop the mindless diversions of Netflix and Snapchat and exchange the time for a concentrated effort on something meaningful.

My contention is that those 7 and a half hours will quicken the whole life of the week, add zest to it, and increase the interest which you feel in even the most banal occupations.

The control of the thinking machine is perfectly possible. And since nothing whatsoever happens to us outside our brains, since nothing hurts us or give us pleasure except within our brain, the supreme importance of being able to control what goes on inside the mysterious brain is patent… people complain of the lack of the power to concentrate, not witting that they may acquire the power if they chose…mind control is the first element of a full existence.

Bennett advocates an exercise which has much in common with mindfulness meditation, an idea which had yet to reach the country:

When you leave your house, concentrate your mind on a subject (no matter what to begin with.) You will not have gone ten paces before your mind has skipped away under your very eyes and is lurking around the corner with another subject. Bring it back by the scruff of the neck. Ere you have reached the station you will have brought it back 40 times. Do not despair. Keep it up. You will succeed.

As a subject to focus on, he recommends the works of the Stoics, which is still an ideal choice for personal study.

How can we, a century later in a somewhat different world, take Bennett’s advice?

It’s quite simple. His messages are uncomplicated, despite being wrapped up in his somewhat difficult to understand prose. For starters, we can stop viewing our work as our lives and learn to distinguish the two or intertwine them. We can plan specific pursuits for our spare time, rather than flitting it away. We can take stock of how much free time we actually have and where it is going. Then, we can structure those hours and minutes to ensure they are used for something meaningful. We can stop using all our spare time to consume stimulating information that changes quickly and focus on things that last. Instead, we can set aside blocks of time (guarded well) for working on our minds.

Unsurprisingly, the best way to improve ourselves is by reading. Books enable us to add the lives of other people onto our own. They are the most effective means humanity has found of making our lives meaningful, no matter how little time is available.

If you’re looking to expand on these ideas, other books on the same topic which compliment this one include On the Shortness of Life by Seneca and Martin Eden by Jack London.

The Stormtrooper Problem: Why Thought Diversity Makes Us Better

Diversity of thought makes us stronger, not weaker. Without diversity, we die off as a species. We can no longer adapt to changes in the environment. We need each other to survive.

***

Diversity is how we survive as a species. This is a quantifiable fact easily observed in the biological world. From niches to natural selection, diversity is the common theme of success for both the individual and the group.

Take the central idea of natural selection: The genes, individuals, groups, and species with the most advantageous traits in a given environment survive and reproduce in greater numbers. Eventually, those advantageous traits spread. The overall population becomes more suited to that environment. This occurs at multiple levels, from single genes to entire ecosystems.

That said, natural selection cannot operate without a diverse set of traits to select from! Without variation, selection cannot improve the lot of the higher-level group.

Diversity of Thought

We often seem to struggle with diversity of thought. This type of diversity shouldn’t threaten us. It should energize us. It means we have a wider variety of resources to deal with the inevitable challenges we face as a species.

Imagine that a meteor is on its way to earth. A crash would be the end of everyone. No matter how self-involved we are, no one wants to see humanity wiped out. So what do we do? Wouldn’t you hope that we could call on more than three people to help find a solution?

Ideally there would be thousands of people with different skills and backgrounds tackling this meteor problem, many minds and lots of options for changing the rock’s course and saving life as we know it. The diversity of backgrounds—variations in skills, knowledge, ways of looking at and understanding the problem—might be what saves the day. But why wait for the threat? A smart species would recognize that if diversity of knowledge and skills would be useful for dealing with a meteor, then diversity would be probably useful in a whole set of other situations.

For example, very few businesses can get by with one knowledge set that will take their product from concept to the homes of customers. You would never imagine that a business could be staffed with clones and be successful. It would be the ultimate in social proof. Everyone would literally be saying the same thing.

The Stormtrooper Problem

Intelligence agencies face a unique set of problems that require creative, un-googleable solutions to one-off problems.

You’d naturally think they would value and seek out diversity in order to solve those problems. And you’d be wrong. Increasingly it’s harder and harder to get a security clearance.

Do you have a lot of debt? That might make you susceptible to blackmail. Divorced? You might be an emotional wreck, which could mean you’ll make emotional decisions and not rational ones. Do something as a youth that you don’t want anyone to know? That makes it harder to trust you. Gay but haven’t told anyone? Blackmail risk. Independently wealthy? That means you don’t need our paycheck, which means you might be harder to work with. Do you have a nuanced opinion of politics? What about Edward Snowden? Yikes. The list goes on.

As the process gets harder and harder (trying to reduce risk), there is less and less diversity in the door. The people that make it through the door are Stormtroopers.

And if you’re one of the lucky Stormtrooopers to make it in, you’re given a checklist career development path. If you want a promotion, you know the exact experience and training you need to receive one. It’s simple. It doesn’t require much thought on your part.

The combination of these two things means that employees increasingly look at—and attempt to solve—problems the same way. The workforce is less effective than it used to be. This means you have to hire more people to do the same thing or outsource more work to people that hire misfits. This is the Stormtrooper problem.

Creativity and Innovation

Diversity is necessary in the workplace to generate creativity and innovation. It’s also necessary to get the job done. Teams with members from different backgrounds can attack problems from all angles and identify more possible solutions than teams whose members think alike. Companies also need diverse skills and knowledge to keep a company functioning. Finance superstars may not be the same people who will rock marketing. And the faster things change, the more valuable diversity becomes for allowing us to adapt and seize opportunity.

We all know that any one person doesn’t have it all figured out and cannot possibly do it all. We can all recognize that we rely on thousands of other people every day just to live. We interact with the world through the products we use, the entertainment we consume, the services we provide. So why do differences often unsettle us?

Any difference can raise this reaction: gender, race, ethnic background, sexual orientation. Often, we hang out with others like us because, let’s face it, communicating is easier with people who are having a similar life experience. And most of us like to feel that we belong. But a sense of belonging should not come at the cost of diversity.

Where Birds Got Feathers

Consider this: Birds did not get their feathers for flying. They originally developed them for warmth, or for being more attractive to potential mates. It was only after feathers started appearing that birds eventually began to fly. Feathers are considered an exaptation, something that evolved for one purpose but then became beneficial for other reasons. When the environment changes, which it inevitably does, a species has a significantly increased chance of survival if it has a diversity of traits that it can re-purpose. What can we re-purpose if everyone looks, acts, and thinks the same?

Further, a genetically homogeneous population is easy to wipe out. It baffles me that anyone thinks they are a good idea. Consider the Irish Potato Famine. In the mid-19th century a potato disease made its way around much of the world. Although it devastated potato crops everywhere, only in Ireland did it result in widespread devastation and death. About one quarter of Ireland’s population died or emigrated to avoid starvation over just a few years. Why did this potato disease have such significant consequences there and not anywhere else?

The short answer is a lack of diversity. The potato was the staple crop for Ireland’s poor. Tenant farms were so small that only potatoes could be grown in sufficient quantity to—barely—feed a family. Too many people depended on this one crop to meet their nutritional needs. In addition, the Irish primarily grew one type of potato, so most of the crops were vulnerable to the same disease. Once the blight hit, it easily infected potato fields all over Ireland, because they were all the same.

You can’t adapt if you have nothing to adapt. If we are all the same, if we’ve wiped out every difference because we find it less challenging, then we increase our vulnerability to complete extinction. Are we too much alike to survive unforeseen challenges?

Even the reproductive process is, at its core, about diversity. You get half your genes from your mother and half from your father. These can be combined in so many different ways that 21 siblings are all going to be genetically unique.

Why is this important? Without this diversity we never would have made it this far. It’s this newness, each time life is started, that has given us options in the form of mutations. They’re like unexpected scientific breakthroughs. Some of these drove our species to awesome new capabilities. The ones that resulted in less fitness? These weren’t likely to survive. Success in life, survival on the large scale, has a lot to do with the potential benefits created by the diversity inherent in the reproductive process.

Diversity is what makes us stronger, not weaker. Biologically, without diversity we die off as a species. We can no longer adapt to changes in the environment. This is true of social diversity as well. Without diversity, we have no resources to face the inevitable challenges, no potential for beneficial mutations or breakthroughs that may save us. Yet we continue to have such a hard time with that. We’re still trying to figure out how to live with each other. We’re nowhere near ready for that meteor.

Article Summary

  • Visible diversity is not the same as cognitive diversity.
  • Cognitive diversity comes from thinking about problems differently, not from race, gender, or sexual orientation.
  • Cognitive diversity helps us avoid blind spots and adapt to changing environments.
  • You can’t have selection without variation.
  • The Stormtrooper problem is when everyone working on a problem thinks about it in the same way.

Giffen Goods: Raising prices and increasing consumption

Other things being equal when the price of a good rises, the quantity demanded should fall. Economics refer to this as the law of demand. Because there are many counter-examples to this law it’s more of a quick rule of thumb.

Giffen goods are ones which people consume more of as the price rises, thus violating the law of demand. The name comes from Sir Robert Giffen, who first proposed this paradox from his observations of the purchasing habits of the Victorian era poor.

Alfred Marshall, explains it like this:

a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it.

But this exceptions to the “law of demand” can be more broader than food or even inferior goods. Often a price can act as a quality indicator. More mischetvious people could rasie prices and use part of the profits to bribe the purchasing agent (like Visa). Amazon does this. Brian Zen does this. Mutual Funds do this. Bribing the purchasing agent is actually fairly common once you open your mind to it.

In his speech “Academic Economics Strengths and Faults after Considering Interdisciplinary needs,” Chalie Munger explained:

One of the most extreme examples is in the investment management field. Suppose you’re the manager of a mutual fund, and you want to sell more. People commonly come to the following answer: You raise the commissions, which of course reduces the number of units of real investments delivered to the ultimate buyer, so you’re increasing the price per unit of real investment that you’re selling the ultimate customer. And you’re using that extra commission to bribe the customer’s purchasing agent. You’re bribing the broker to betray his client and put the client’s money into the high-commission product. This has worked to produce at least a trillion dollars of mutual fund sales.

* * *

A real world example of what Munger was talking about:

Sanjay Bakshi offers a great real-world example of how Brian Zen, from Zenway bribes the purchasing agent.

(Brian) wants me to recommend to you, as my student, his online investment course which has helped “people with limited means to become millionaires and multi-millionaires.”

Dr. Zen will charge you $800 to sign up. He promises to pay me $400, if you do.

You will, I hope, recall the connection between Dr. Zen’s offer and Mr. Charlie Munger’s example of “bribing the purchasing agent”….How, then, does one go about selling a high-priced product derived out of something so cheap? That’s simple. One uses, the reward super-response tendency and the associated incentive-caused bias (whose bread I eat, his song I sing) which it produces– Mr. Munger’s terms – by pricing the product high and offering a very significant part of the sales proceeds to people like me having access to “captive audience” like you.

There is nothing illegal about Dr. Zen designing his business model in this manner. After all, seeking profits is the essence of capitalism, isn’t it? But I doubt it very much – if the fathers of value investing – Mr. Graham and Mr. Buffett – would approve of the marketing strategies used by Dr. Zen, for promoting products created out of their knowledge, which they generously shared with the world, without any profit motive involved.

When Wal-Mart pushes its suppliers to lower their prices, and then passes on these low prices to its customers, and yet is able to earn a respectable return on capital, it’s an example of a positive-sum game which benefits civilization as a whole. Wal-Mart does not make money off its customers – it makes money with them. But when someone pushes a high-priced product using as ammunition, mouth-watering commissions offered to people who are in a position to influence others, it largely becomes, at least in my view, a zero-sum game. You’re not making money with your clients anymore- you’re making money off them. And, this aspect of capitalism is not very good for civilization.

You can read more on Griffen Goods at wikipedia.

Recognizing Our Flaws is The Beginning of Wisdom

A short post today that packs a punch.

The liberating power of humility is one we’ve covered before. In fact, it’s a concept that is core to understanding your Circle of Competence. Now Russ Roberts adds to our collection of wisdom with this excerpt from How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness:

As I have gotten older, I have become less confident and maybe more honest. The economy is too complex; we can’t measure the interactions of all its various pieces with any precision. We don’t have enough data, and we don’t understand how things fit together. We are drunks looking for our lost keys under a lamppost not because that’s where we lost our keys but because that’s where the light is. We should be humbler and more honest. Our empirical studies are very imperfect. We often hold the views we do because of ideology and principle. Then we find some evidence that supports those views. We ignore the rest … An awareness of reason’s limits is a caution sign to remind us that we’re not as smart as we think; we’re not perfect truth seekers. We’re flawed. Recognizing our flaws is the beginning of wisdom. Many things look like nails that do not benefit from being pounded. That should induce caution and humility for those with hammers … Humility is an acquired taste. Once you come to like it, it’s a dish best served hot. It’s amazing how liberating it can be to say “I don’t know.”

Vincent van Gogh on Color

Vincent van Gogh on Color

In a letter to his brother Theo, dated July 1882, found in Ever Yours: The Essential Letters, Vincent van Gogh describes how the simple few fundamentals combine into nearly endless permutations.

Absolute black doesn’t in fact occur. Like white, however, it’s present in almost every colour and forms the endless variety of greys — distinct in tone and strength. So that in nature one in fact sees nothing but these tones or strengths.

The 3 fundamental colours are red, yellow, blue, “composite” orange, green, purple.

From these are obtained the endless variations of grey by adding black and some white — red-grey, yellow-grey, blue-grey, green-grey, orange-grey, violet-grey.

It’s impossible to say how many different green-greys there are for example — the variation is infinite.

But the whole chemistry of colours is no more complicated than those simple few fundamentals. And a good understanding of them is worth more than 70 different shades of paint — given that more than 70 tones and strengths can be made with the 3 primary colours and white and black. The colourist is he who on seeing a colour in nature is able to analyze it coolly and say, for example, that green-grey is yellow with black and almost no blue, &c. In short, knowing how to make up the greys of nature on the palette.

Montaigne’s Rule for Reading: The Promiscuous Pursuit of Pleasure

montaigne-anon-ca-1590

“His rule in reading remained the one he had learned from Ovid: Pursue pleasure. ‘If I encounter difficulties in reading,’ he wrote, ‘I do not gnaw my nails over them; I leave them there. I do nothing without gaiety.’”

— How to Live: A Life of Montaigne

Michel de Montaigne (1533-1592) might have been the original essayist. George Orwell before George Orwell. Montaigne was well-read, smart, critical, and possesed a tendency to write in a personal tone—with references to and reflections on—his own thoughts and his own life.

Montaigne was known as a well-born French statesman during the time of the Reformation in Europe, when Catholic and Protestants were viciously fighting one another over the “one true church.” (The strong, violent ideologies at play ring familiar to those of us observing extreme religious terrorism today.) A century after the delivery of the printing press to the West, the Wars of Religion coincided with two historical periods that we now consider monumental —  the Renaissance and the Reformation. Such were the times molding a young Montaigne.

The son of a wealthy businessman, Montaigne was born on a chateau near Bordeaux (rough life) although his father did his best to keep him grounded — he forced Michel to spend some of his early years living with peasants in a cottage.

After a fairly rigorous education in the classics initiated by his family, a stint at boarding school, and a formal legal education, Montaigne went on to a career as a court adviser at Bordeaux Parliament, and then retired to his extensive personal library where he would begin to write. His personal essays — on topics ranging from death and the meaning of life to the cultural relativism inherent in judging Brazilian cannibals — would go on to influence every generation hence, starting with Shakespeare.

Montaigne became well-known for his devotion to skepticism in the tradition of the Pyrrhonians. In short: A constant withholding of judgment, a deep distrust of his own knowledge, and a desire to avoid ideology and overreaching.  In fact, one of the pillars of the Pyrrhonian style of thought was to construct both sides of an argument as cogently as possible before leaning one way or another, something reminiscent of Charlie Munger’s work required to hold an opinion and a foundation of modern legal training. This devotion of Montaigne’s, combined with the personal feel and wide-ranging topics of his writing, made him the first of his kind as a writer.

The Books That Influenced Montaigne

In the wonderful biography How to Live: A Life of Montaigne, by Sarah Bakewell, we learn a bit about the books that influenced Montaigne himself. As would have been the case for most of his contemporaries, his primary influences were classics from Greece and Rome. He started with the 16th century’s version of the Grimm Brothers: Ovid’s Metamorphoses, and then moved on to Virgil’s Aeneid and some modern comedic plays. In other words, Montaigne started out with works of fiction:

One unsuitable text which Montaigne discovered for himself at the age of seven or eight was Ovid’s Metamorphoses. This tumbling cornucopia of stories about miraculous transformations among ancient gods and mortals was the closest thing the Renaissance had to a compendium of fairy tales…In Ovid, people change. They turn into trees, animals, stars, bodies of water, or disembodied voices. They alter sex; they become werewolves. A woman called Scylla enters a poisonous pool and sees each of her limbs turn into a dog-like monster from which she cannot pull away because the monsters are also her….Once a taste of this sort of thing had started him off, Montaigne galloped through other books similarly full of good stories: Virgil’s Aeneid, then Terence, Plautus, and various modern Italian comedies. He learned, in defiance of school policy, to associate reading with excitement.

From Fiction to Non-Fiction

As he got older, though, Montaigne turned more and more to non-fiction, to works of real life. In his words, reading non-fiction taught you about the ‘diversity and truth of man,’ as well as ‘the variety of ways he is put together, and the accidents that threaten him.’

The best material he had available to him were from the classical stylings of writers like Tacitus, historian of the Roman periods in the early years after Christ; Plutarch, the biographer of the eminent Greeks and Romans; and Lucretius, the Roman philosophical poet. In Bakewell’s biography, we learn what it was he loved about these authors:

He loved how Tacitus treated public events from the point of view of ‘private behavior and inclinations’ and was struck by the historian’s fortune in living through a ‘strange and extreme’ period, just as Montaigne himself did. Indeed, he wrote of Tacitus ‘you would often say that it is us he is describing.’

Turning to biographers, Montaigne liked those who went beyond the external events of a life and tried to reconstruct a person’s inner world from the evidence. No one excelled in this more than his favorite writer of all — the Greek biographer Plutarch, who lived from around AD 46 to around 120 and whose vast Lives presented narratives of notable Greeks and Romans in themed pairs.

Plutarch was to Montaigne what Montaigne was to many later readers: a model to follow, and a treasure-chest of ideas, quotations, and anecdotes to plunder. ‘He is so universal and so full that on all occasions and however eccentric the subject you have taken up, he makes his way into your work.’

[…]

Montaigne also loved the strong sense of Plutarch’s own personality that comes across in his work: ‘I think I know him even into his soul.’ This was what Montaigne looked for in a book, just as people later looked for it in him: the feeling of meeting a real person across the centuries. Reading Plutarch, he lost awareness of the gap in time that divided them — much bigger than the gap between Montaigne and us.

The last point is, of course, fascinating. When we think about Montaigne, he seems a whole world away. 16th century France is a place we fill in our imagination with velvet cloth and kings and queens and peasants and history class. Impossibly far in the past. But that period was only 450 short years ago; Montaigne himself was reading authors 1,500 years or more before him! A far greater gap in time. Yet he felt their insights were as relevant as when they were written — a lesson we should all learn from.

The Lazy Reader

We can also get a glimpse of the kind of reader Montaigne considered himself: A pretty lazy one.

I leaf through now one book, now another,’ he wrote,’ without order and without plan, by disconnected fragments.’ He could sound positively cross if he thought anyone might suspect him of careful scholarship. Once, catching himself having said that books offer consolation, he hastily added, ‘Actually I use them scarcely any more than those who do not know them at all.’ And one of his sentences starts, ‘We who have little contact with books…’

His rule in reading remained the one he had learned from Ovid: pursue pleasure. ‘If I encounter difficulties in reading,’ he wrote, ‘I do not gnaw my nails over them; I leave them there. I do nothing without gaiety.’

Although Bakewell, and we, suspect he was feigning some humility as far as his laziness; of the second point on pursuing pleasure, Bakewell writes that Montaigne took this philosophy of gentleness and freedom and, “Of this, Montaigne made a whole principle of living.”

Still curious? Pick up Montaigne’s Essays and Bakewell’s biography for more.

Maya Angelou on Living

Letters to My Daughter is both a simple and a complex read, which makes it at once engaging and thoughtful. Simple because we can see ourselves in the various stories it shares. Complex because it demonstrates how hard it can be just to live.

While the time to read the book is short, the writing is so evocative that when you put the book down, you feel like you have lived an entire life, with all the accompanying laughter and tragedy and accumulated wisdom.

At the beginning of the book, Maya Angelou offers this advice: “You may not control all the events that happen to you, but you can decide not to be reduced by them. Try to be a rainbow in someone else’s cloud. Do not complain. Make every effort to change things you do not like. If you cannot make a change, change the way you have been thinking. You might find a new solution.”

In slices of her life that somehow capture the essence of the whole, she proceeds to explain how she arrived at those words. She gives us this message because we are all her daughters, her children. The accessibility of the prose can make you forget that you are learning about humanity and race, about grief and love.

The chapters cover the long arc of her life, and the lesson there is that learning never stops. Our experiences can often teach us something, right up to the end. Here are some of her lessons.

On charity: “The ensuing years have taught me that a kind word, a vote of support is a charitable gift. I can move over and make another place for someone.”

On parenting: “The birth of my son caused me to develop enough courage to invent my life. I learned how to love my son without wanting to possess him and I learned how to teach him to teach himself.”

On honesty: “I wish we could stop the little lies. I don’t mean that one has to be brutally frank. I don’t believe that we should be brutal about anything, however, it is wonderfully liberating to be honest. One does not have to tell all that one knows, but we should be careful what we do say is the truth.”

On self-esteem: “I am never proud to participate in violence, yet, I know that each of us must care enough for ourselves, that we can be ready and able to come to our own defense when and wherever needed.”

On loss:
“When I find myself filling with rage over the loss of a beloved, I try as soon as possible to remember that my concerns and questions should be focused on what I learned or what I have yet to learn from my departed love. What legacy was left which can help me in the art of living a good life?”

On living: “The ship of my life may or may not be sailing on calm and amiable seas. The challenging days of my existence may or may not be bright and promising. Stormy or sunny days, glorious or lonely nights, I maintain an attitude of gratitude. If I insist on being pessimistic, there is always tomorrow. Today I am blessed.”

Maya Angelou’s words remind us that there is power in reflection. It is how we learn from our experiences, widening our perspectives to appreciate that life has all manner of ebbs and flows. Indeed, I would argue that we cannot learn without reflection.

Angelou did enough living for two lifetimes. Her book doesn’t shy away from the pain that led to wisdom. There are very honest chapters about violence, rape, and racism, but one of her gifts is to show us that fighting for a better world while finding peace is a process of lifelong learning from our experiences.

She shares what she learned through hate and fear, as well as through humility and love, perhaps so that we can see, through the tumult of our own experiences, the value of the lessons we are learning and pass them forward within our own spheres of influence.