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This is a World of Incentives

I thought Warren Buffett said a lot of interesting things in his recent interview with Charlie Rose.

Here are some of the bits that stood out for me.

Fairness:

BUFFETT: …I also think fairness is important and I think getting rid of promises that you can’t keep is important. I don’t think we should cut spending dramatically now. I don’t think that what I’m talking about on taxes solves the — the deficit gap at all. But I think fairness is important. I think having a sensible long-term plan is important to explain and I think having it be believable is terribly important because people don’t believe these out year things generally with Congress. They see too much of what’s happened.

The deficit as stimulus

BUFFETT: The deficit is our stimulus. You can — you can say a bridge someplace is part of that act, you can say cutting taxes is part of it as was the case in our stimulus act. But the stimulus is the government pouring more money out than it’s taking in. And we have a — a stimulus going on that’s 10 percent of GDP which we haven’t seen since World War II. So we have a huge stimulus going on. Nobody wants to call it a stimulus because that’s gotten to be a dirty word. But we have a big stimulus. So we do — in my view, whether we have a 10 percent of GDP deficit —

ROSE: Right.

BUFFETT: — which is a huge stimulus or a 12 percent or eight percent it doesn’t make much difference. I — I think that we pushed monetary policy to a level, we’ve pushed fiscal policy to the limit but fortunately the most important thing in terms of this country ever coming out of recessions has been the natural workings of capitalism and I think you’ve seen that for the last couple of years.

Following through

BUFFETT: What our leaders were saying to us then, the key players are saying we’ll do whatever it takes. And I believed it. I knew they had the power to do whatever it took and I believed they would do it.

Now, the problem about government now is that if they come out and get on the Sunday talks shows and say “I’ll do whatever it takes”, you know, people don’t believe them. And I mean, they — they — they’ve got to see action and — and here they see something like the raising the deficit limit used as a hostage for something of vital importance to the United States. And if you — you can use it as a hostage in terms of spending, you can use it as a hostage on funding on education or anything else. I mean, it isn’t limited about it; if you’ve got something that comes up like it.

Incentives

BUFFETT: But I just use it to illustrate that this is a world of incentives and we work on incentives in every way. If we work on education, in business, every other place. And what I try to think of the incentives to get somebody who comes up for re-election in a year to do something where the policy cycle goes out five years or ten years, how do you do it when the policy cycle exceeds the electoral cycle? You’ve got to make sure the electoral cycle is in the equation.

Socrates and the Search For Wisdom

Socrates

The arrogance of limited knowledge results in foolishness.

This is an excerpt from Plato’s Apology, from Plato: Complete Works (an excellent edition that is part of the Great Books program).

To set the context, while this is known as the apology it comes from the word apologia, which means not an apology as we know it but “a defense speech in a legal proceeding.” Socrates does not apologize. At the age of seventy he had been indicted for breaking the law against ‘impiety.’ That is, he was alleged to have offended the Olympian gods (Zeus, Apollo, etc.). The crux of it was on how Socrates had carried out his philosophical work in Athens. In the apologia, Socrates defends his devotion to philosophy as well as the manner in which he pursued it. He argues that he was not offending them but rather following their lead “in making himself as good a person as he can and encouraging others to do the same.” The gods, after all, want that people shall be good. But what is good? That depends on “the quality of our understanding of what to care about and how to behave in our lives.” The pursuit of this understanding was philosophy to Socrates.

… Consider that I tell you this because I would inform you about the origin of the slander. When I heard of this reply I asked myself: “Whatever does the god mean? What is his riddle? I am very conscious that I am not wise at all; what then does he mean by saying that I am the wisest? For surely he does not lie; it is not legitimate for him to do so.” For a long time I was at a loss as to his meaning; then I very reluctantly turned to some such investigation as this: I went to one of those reputed wise, thinking that there, if anywhere, I could refute the oracle and say to it: “This man is wiser than I, but you said I was.” Then, when I examined this man—there is no need for me to tell you his name, he was one of our public men—my experience was something like this: I thought that he appeared wise to many people and especially to himself, but he was not. I then tried to show him that he thought himself wise, but that he was not. As a result he came to dislike me, and so did many of the bystanders. So I withdrew and thought to myself: “I am wiser than this man; it is likely that neither of us knows anything worthwhile, but he thinks he knows something when he does not, whereas when I do not know, neither do I think I know; so I am likely to be wiser than he to this small extent, that I do not think I know what I do not know.” After this I approached another man, one of those thought to be wiser than he, and I thought the same thing, and so I came to be disliked both by him and by many others.

After that I proceeded systematically. I realized, to my sorrow and alarm, that I was getting unpopular, but I thought that I must attach the greatest importance to the god’s oracle, so I must go to all those who had any reputation for knowledge to examine its meaning. And by the dog, gentlemen of the jury—for I must tell you the truth—I experienced something like this: in my investigation in the service of the god I found that those who had the highest reputation were nearly the most deficient, while those who were thought to be inferior were more knowledgeable.

I must give you an account of my journeyings as if they were labours I had undertaken to prove the oracle irrefutable. After the politicians, I went to the poets, the writers of tragedies and dithyrambs and the others, intending in their case to catch myself being more ignorant then they. So I took up those poems with which they seemed to have taken most trouble and asked them what they meant, in order that I might at the same time learn something from them. I am ashamed to tell you the truth, gentlemen, but I must. Almost all the bystanders might have explained the poems better than their authors could. I soon realized that poets do not compose their poems with knowledge, but by some inborn talent and by inspiration, like seers and prophets who also say many fine things without any understanding of what they say. The poets seemed to me to have had a similar experience. At the same time I saw that, because of their poetry, they thought themselves very wise men in other respects, which they were not. So there again I withdrew, thinking that I had the same advantage over them as I had over the politicians.

Finally I went to the craftsmen, for I was conscious of knowing practically nothing, and I knew that I would find that they had knowledge of many fine things. In this I was not mistaken; they knew things I did not know, and to that extent they were wiser than I. But, gentlemen of the jury, the good craftsmen seemed to me to have the same fault as the poets: each of them, because of his success at his craft, thought himself very wise in other most important pursuits, and this error of theirs overshadowed the wisdom they had, so that I asked myself, on behalf of the oracle, whether I should prefer to be as I am, with neither their wisdom nor their ignorance, or to have both. The answer I gave myself and the oracle was that it was to my advantage to be as I am.

As a result of this investigation, gentlemen of the jury, I acquired much unpopularity, of a kind that is hard to deal with and is a heavy burden; many slanders came from these people and a reputation for wisdom, for in each case the bystanders thought that I myself possessed the wisdom that I proved that my interlocutor did not have. What is probable, gentlemen, is that in fact the god is wise and that his oracular response meant that human wisdom is worth little or nothing, and that when he says this man, Socrates, he is using my name as an example, as if he said: “This man among you, mortals, is wisest who, like Socrates, understands that his wisdom is worthless.” So even now I continue this investigation as the god bade me—and I go around seeking out anyone, citizen or stranger, whom I think wise. Then if I do not think he is, I come to the assistance of the god and show him that he is not wise. Because of this occupation, I do not have the leisure to engage in public affairs to any extent, nor indeed to look after my own, but I live in great poverty because of my service to the god.

Still curious? Plato: Complete Works is a great place to start. The translation is excellent and the editor, John Cooper, does a decent job of providing the necessary context.

Making Good Citizenship Fun — Richard Thaler

Interesting article by Richard Thaler on encouraging good citizenship by making the desired behavior more fun:

Lotteries are just one way to provide positive reinforcement. Their power comes from the fact that the chance of winning the prize is overvalued. Of course you can simply pay people for doing the right thing, but if the payment is small, it could well backfire. …

An alternative to lotteries is a frequent-flyer-type reward program, where the points can be redeemed for something fun. A free goodie can be a better inducement than cash since it offers that rarest of commodities, a guilt-free pleasure. This sort of reward system has been successfully used in England to encourage recycling. In the Royal Borough of Windsor and Maidenhead outside of London, citizens could sign up for a rewards program in which they earned points depending on the weight of the material they recycled. The points were good for discounts at merchants in the area. Recycling increased by 35 percent.

How Successful People Increase Productivity

People ask me about productivity habits all the time. I’ve packaged most of that advice in a productivity webinar available to members but I wanted to tell you one counter-intuitive strategy that a lot of people use to increase their productivity: stop the to-do list.

These lists are rarely as effective as scheduling time.

“Scheduling,” writes Cal Newport, the author of Deep Work, “forces you to confront the reality of how much time you actually have and how long things will take.”

It’s really easy to add things to a to-do list. Because it’s so simple, these lists tend to grow and grow. Even worse they encourage us to say yes to almost everything because, well, we can just add it to our list. This means we’re not discriminating and we’re not as conscious about controlling our time as we should be.

As Steve Jobs said, it’s easy to say yes but the real value comes from saying no.

Warren Buffett agrees: “You’ve got to keep control of your time, and you can’t unless you say no. You can’t let people set your agenda in life.”

Most people have the default of saying yes to everything. Personal relationships aside, the default, however, should be no. This is how you increase productivity.

When you schedule things, you are forced to deal with the fact that there are only so many hours in a week. You’re forced to make choices rather than add something to a never-ending to-do list that only becomes a source of anxiety. And you can’t just schedule important work and creative stuff. You need to schedule time for rest and recovery and mundane things like email.

Scheduling things also creates a visual feedback mechanism for how you actually spend your time — something we’re intentionally blind to because we won’t like what we see.

Just as important, you need to think about your energy levels and when you schedule these tasks. This is another key to increasing productivity.

A lot of people I’ve offered productivity advice to spend hours a day on email. It’s not uncommon for people to tell me their job is moving email around. That’s how the modern office works right? While many of these people hate email, it’s not within their control (or mine) to change how the organization works. Instead, I help them look at what is within their control — the time of day they invest in an email. I’ve discovered most people use some of their most productive and high-energy time on … email. That means that some of our best mental energy is being used on the low value-add task of email. A simple change to schedule “doing email” for times when we have less energy makes a world of difference to both productivity and happiness.

Being more productive isn’t always about doing more, it’s about being more conscious about what you work on and putting your energy into the two or three things that will really make a difference.

The Darwin Economy – Why Smith’s Invisible Hand Breaks Down

In The Darwin Economy: Liberty, Competition, and The Common Good Robert H. Frank, an economics professor at Cornell’s Johnson Graduate School of Management, takes on the debate of who was a better economist—Adam Smith or Charles Darwin. Frank, surprisingly, sides with Darwin, arguing that within the next century Darwin will unseat Smith as the intellectual founder of economics.

Why does the invisible hand, “which says that competition challenges self-interest for the common good” break down?

Without question, Adam Smith’s invisible hand was a genuinely ground breaking insight. Producers rush to introduce improved product designs and cost-saving innovations for the sole purpose of capturing market share and profits from their rivals. In the short run, these steps work just as the producers had hoped. But rival firms are quick to mimic the innovations, and the resulting competition quickly causes prices to fall in line with the new, lower costs. In the end, Smith argued, consumers are the ultimate beneficiaries of all this churning.

But many of Smith’s modern disciples believe he made the much bolder claim that markets always harness individual self-interest to produce the greatest good for society as a whole. Smith’s own account, however, was far more circumspect. He wrote, for example, that the profit-seeking business owner “intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it [emphasis added].”

Smith never believed that the invisible hand guaranteed good outcomes in all circumstances. His skepticism was on full display, for example, when he wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” To him, what was remarkable was that self-interested actions often led to socially benign outcomes.

Like Smith, modern progressive critics of the market system tend to attribute its failings to conspiracies to restrain competition. But competition was much more easily restrained in Smith’s day than it is now. The real challenge to the invisible hand is rooted in the very logic of the competitive process itself.

Charles Darwin was one of the first to perceive the underlying problem clearly. One of his central insights was that natural selection favors traits and behaviors primarily according to their effect on individual organisms, not larger groups. Sometimes individual and group interests coincide, he recognized, and in such cases we often get invisible hand-like results. A mutation that codes for keener eyesight in one particular hawk, for example, serves the interests of that individual, but its inevitable spread also makes hawks as a species more successful.

In other cases, however, mutations that help the individual prove quite harmful to the larger group. This is in fact the expected result for mutations that confer advantage in head-to-head competition among members of the same species. Male body mass is a case in point. Most vertebrate species are polygynous, meaning that males take more than one mate if they can. The qualifier is important, because when some take multiple mates, others get none. The latter don’t pass their genes along, making them the ultimate losers in Darwinian terms. So it’s no surprise that males often battle furiously for access to mates. Size matters in those battles, and hence the evolutionary arms races that produce larger males.

Elephant seals are an extreme but instructive example.10 Bulls of the species often weigh almost six thousand pounds, more than five times as much as females and almost as much as a Lincoln Navigator SUV. During the mating season, pairs of mature bulls battle one another ferociously for hours on end, until one finally trudges off in defeat, bloodied and exhausted. The victor claims near-exclusive sexual access to a harem that may number as many as a hundred cows. But while being larger than his rival makes an individual bull more likely to prevail in such battles, prodigious size is a clear handicap for bulls as a group, making them far more vulnerable to sharks and other predators.

Given an opportunity to vote on a proposal to reduce every animal’s weight by half, bulls would have every reason to favor it. Since it’s relative size, not absolute size, that matters in battle, the change would not affect the outcome of any given head-to-head contest, but it would reduce each animal’s risk of being eaten by sharks. There’s no practical way, of course, that elephant seals could implement such a proposal. Nor could any bull solve this problem unilaterally, since a bull that weighed much less than others would never win a mate.

Similar conflicts pervade human interactions when individual rewards depend on relative performance. Their essence is nicely captured in a celebrated example by the economist Thomas Schelling. Schelling noted that hockey players who are free to choose for themselves invariably skate without helmets, yet when they’re permitted to vote on the matter, they support rules that require them. If helmets are so great, he wondered, why don’t players just wear them? Why do they need a rule?

His answer began with the observation that skating without a helmet confers a small competitive edge—perhaps by enabling players to see or hear a little better, or perhaps by enabling them to intimidate their opponents. The immediate lure of gaining a competitive edge trumps more abstract concerns about the possibility of injury, so players eagerly embrace the additional risk. The rub, of course, is that when every player skates without a helmet, no one gains a competitive advantage—hence the attraction of the rule.

As Schelling’s diagnosis makes clear, the problem confronting hockey players has nothing to do with imperfect information, lack of self-control, or poor cognitive skills—shortcomings that are often cited as grounds for government intervention. And it clearly does not stem from exploitation or any insufficiency of competition. Rather, it’s a garden-variety collective action problem. Players favor helmet rules because that’s the only way they’re able to play under reasonably safe conditions. A simple nudge—say, a sign in the locker room reminding players that helmets reduce the risk of serious injury—just won’t solve their problem. They need a mandate.

What about the libertarians’ complaint that helmet rules deprive individuals of the right to choose? This objection is akin to objecting that a military arms control agreement robs the signatories of their right to choose for themselves how much to spend on bombs. Of course, but that’s the whole point of such agreements! Parties who confront a collective action problem often realize that the only way to get what they want is to constrain their own ability to do as they please.

As John Stuart Mill argued in On Liberty, it’s permissible to constrain an individual’s freedom of action only when there’s no less intrusive way to prevent undue harm to others. The hockey helmet rule appears to meet this test. By skating without a helmet, a player imposes harm on rival players by making them less likely to win the game, an outcome that really matters to them. If the helmet rule itself somehow imposed even greater harm, it wouldn’t be justified. But that’s a simple practical question, not a matter of deep philosophical principle.

Rewards that depend on relative performance spawn collective action problems that can cause markets to fail. For instance, the same wedge that separates individual and group interests in Darwinian arms races also helps explain why the invisible hand might not automatically lead to the best possible levels of safety in the workplace. The traditional invisible-hand account begins with the observation that, all other factors the same, riskier jobs tend to pay more, for two reasons. Because of the money employers save by not installing additional safety equipment, they can pay more; and because workers like safety, they will choose safer jobs unless riskier jobs do, in fact, pay more. According to the standard invisible-hand narrative, the fact that a worker is willing to accept lower safety for higher wages implies that the extra income was sufficient compensation for the decrement in safety. But that account rests on the assumption that extra income is valued only for the additional absolute consumption it makes possible. When a worker gets a higher wage, however, there is also a second important benefit. He is able to consume more in absolute terms, yes—but he is also able to consume more relative to others.

Most parents, for example, want to send their children to the best possible schools. Some workers might thus decide to accept a riskier job at a higher wage because that would enable them to meet the monthly payments on a house in a better school district. But other workers are in the same boat, and school quality is an inherently relative concept. So if other workers also traded safety for higher wages, the ultimate outcome would be merely to bid up the prices of houses in better school districts. Everyone would end up with less safety, yet no one would achieve the goal that made that trade seem acceptable in the first place. As in a military arms race, when all parties build more arms, none is any more secure than before.

Workers confronting these incentives might well prefer an alternative state of the world in which all enjoyed greater safety, even at the expense of all having lower wages. But workers can control only their own job choices, not the choices of others. If any individual worker accepted a safer job while others didn’t, that worker would be forced to send her children to inferior schools. To get the outcome they desire, workers must act in unison. Again, a mere nudge won’t do. Merely knowing that individual actions are self- canceling doesn’t eliminate the incentive to take those actions.

The Darwin Economy goes on to explore the consequences and implications of Darwin’s theory being a better model for economics than Smith’s invisible hand.

To Sacrifice the Joy of Life is to Miss the Point

Your ability to get things done and be productive is not always a function of hours.

Working more doesn’t always mean you’re working better or harder. It doesn’t mean you’re doing your best. And it certainly doesn’t mean that you’re going to live a more meaningful life. Heck, it doesn’t even mean you’re going to finish your project faster.

In The Four Agreements, Don Miguel Ruiz tells the story of a man who wanted to transcend his suffering. So he goes to a Buddhist temple to find a Master to help. He asks the master “Master, if I meditate four hours a day, how long will it take me to transcend?”

The Master looked at him and said, “If you meditate four hours a day, perhaps you will transcend in ten years.”

Thinking he could do better, the man then said, “Oh Master, what if I meditated eight hours a day, how long will it take me to transcend?”

The Master looked at him and said, “If you meditate eight hours a day, perhaps you will transcend in twenty years.”

“But why will it take me longer if I meditate more?” the man asked.

The Master replied, “You are not here to sacrifice your joy or your life. You are here to live, to be happy and to love. If you can do your best in two hours of meditation, but you spend eight hours instead, you will only grow tired, miss the point, and you won’t enjoy your life.”

Working harder often misses the point.

When interviewed, those nearing the end of their lives did not say they wished they’d worked harder. Rather, they encouraged being willing to make sacrifices to spend time doing things that bring enjoyment.

Just to be clear, I’m not in the The 4-Hour Workweek camp. Farnam Street Media is 60+ a week.

However, it’s not a simple ask coming up with work life balance. As David Whyte argues, that is a flawed lens.

Questions about work and its interaction with the joy of living are personal and significant. We often only think about them toward the end of our life, when it’s too late to make changes.

Start asking yourself these questions today. And if you need a break, join me for a thinking/reading week in Hawaii this March.

The Meaning of History

“The present is the past rolled up for action and the past is the present unrolled for understanding.”
— Will Durant

***

In the audio version of The Lessons of History, you can find excerpts of interviews with the authors Will and Ariel Durant where they explore the meaning of history.

Here is one excerpt from the interviews, not the book, where Will Durant talks about whether history makes sense.

Well, a lot of people have thought that. Voltaire thought that history is the record of the crimes and absurdities of mankind. I thought that was a very unworthy definition. I should say history is the record of the activities of mankind and it has two sides — one is the crimes and absurdities and the other is the contributions to civilization, the lasting developments which enabled each generation to proceed with a larger heritage than the one before. And that to me is the meaning of history.

[…]

The meaning of history is that it is man laid bare. You see there are two ways of arriving at a large perspective, which would be a definition of philosophy, a large perspective. One is by studying the external world through science in all its aspects. You come to some general conclusion then, the way Hebert Spencer did, approaching it from that point of view, as an engineer. The other is to examine how man has behaved for the last six or ten thousand years and consequently history becomes the best guide we have to what man is and we have to presume that one of the lessons of it is that he continues to behave basically, in each generation, as he behaved in the generation before. His instincts are the same, the basic situations that he faces are the same. Naturally he makes similar responses: he makes poetical organizations, he makes love affairs, he over-eats, and so forth so that the present is the past rolled up for action and the past is the present unrolled for understanding.

***

In fact, this was so good, I had the entire interview transcribed for Farnam Street members.

Rich Thinking Versus Poor Thinking: Why it Matters

“Thought is the original source of all wealth, all success, all material gain,
all great discoveries and inventions, and of all achievement.”
—Claude M. Bristol

***

One of the most controversial chapters in Brian Tracy’s book, Get Smart!, is “Rich Thinking versus Poor Thinking.”

In that chapter, he shares a series of simple ideas you can learn and apply. While I fundamentally disagree with much of the gross over-simplification, there are veins of excellence that we can use to add to our mental toolkit.

(Pause for a second before we continue. Just to be clear, this isn’t an article about going from zero to a million in a lifetime. No clickbait here. No, this article is about giving you tools you can add to your mental toolbox.)

The Role of Mindset

Best-selling author Og Mandino says:

There are no secrets of success. There are simply timeless truths and universal principles that have been discovered and rediscovered throughout human history. All you have to do is to learn and practice them to enjoy all the success that you could desire.

Sounds a lot like what we’re trying to discover.

Fearing Failure

A lot of us do things not to succeed but to avoid failure. This is what Elon Musk calls the fundamental problem with regulators. Tracy writes:

Because of destructive criticism in early childhood and mistakes they have made as adults, they are paralyzed by the fear of making a mistake, of losing their time or money. Even if they are presented with an opportunity, they go into a form of paralysis.

Their fear of failure causes them to create all kinds of reasons not to take action. They don’t have the time. They can’t make the minimum investment. They don’t have the necessary knowledge and skills. Like a deer caught in the headlights, they are paralyzed by the idea of failure, which causes them to never take any action at all.

As it happens, most fortunes in America were started by the sale of personal services. The people had no money, but they had the ability to work hard, to upgrade their skills, and to become more and more valuable. As a result, more and more doors of opportunity opened up for them.

Fearing Disapproval and Criticism

This relates to our fear of criticism and disapproval, which results in approval-seeking behavior. And when we’re seeking approval and acceptance, we’re more likely to think conventionally. And when we think conventionally, we’re unlikely to get above-average results.

We don’t want to look different. As a result, we stop learning and growing.

***

“I will study and prepare myself and someday my chance will come.”
— Abraham Lincoln

Tracy writes:

To achieve something you’ve never achieved before, you must learn and practice something that you’ve never done before.

If you’re learning something universal you’ll always have an opportunity to practice what you learn.

Putting all of this together becomes tricky.

Often we have the courage to think and act differently, we mentally prepare ourselves for the critical feedback and then we dip our toe in the water only to find it’s not to our liking.

This is where persistence comes in.

Most of us are simply unwilling to sacrifice in order to succeed. We want our cake and we want to eat it too. Most of the people I know that are incredibly successful have suffered some setback that they had to overcome. A lot of people would have given up. Only they persisted. (Of course, there are plenty of people that persist and fail too.) I’m generalizing a bit here but the people who look for the nearest exit when things get tough are usually the ones with the average results.

Something-For-Something

There is only one type of relationship that is sustainable over a long period of time and that’s one where everyone wins. Tracy writes:

Rich people are always looking for ways to create value, to develop and produce products and services that enrich and enhance the lives and work of other people.

They are always willing to put in before they take out. They do not believe in easy money or something for nothing. Rich people believe that you have to justly earn and pay for, in terms of toil and treasure, any rewards and riches that you desire.

Poor people lack this fundamental understanding, the direct relationship between what you put in and what you get out. They are always seeking to get something for nothing or for as little as possible. They want success without achievement, riches without labor, money without effort, and fame without talent.

Poor people gamble, buy lottery tickets, come to work at the last possible moment, waste time while they are there, and then leave work at the first possible minute. They line up by the hundreds and thousands to audition for programs like American Idol, thinking that they can become rich and famous without ever having paid the price necessary to develop the level of talent and ability that enables them to rise above their competitors.

One of the great secrets of becoming wealthy is to always do more than you are paid for. If you do, you will always be paid more than you’re getting today. And there is no other way.

Go the extra mile. Be willing to put in far more than you are taking out. There are never any traffic jams on the extra mile.

Fear can often keep us mediocre. We don’t risk being wrong.

Getting rich isn’t as simple as changing your mindset. However changing your mindset can go a long way to changing the way you see the world. And when you see the world differently you can behave and respond differently to the stimuli around you. When you do that, you have the potential to outperform.

The Cookie Monster Knows More About Willpower Than You

I had no idea how much thought actually went into the programming of Sesame Street before reading Focus: The Hidden Driver of Excellence.

Willpower is important to life success and that’s why Cookie Monster knows more about it than you.

Before we get to that, let’s consider the famous marshmallow test, a legendary study from the 1970s by psychologist Walter Mischel.

Mischel invited four-year-olds one by one into a “game room” at the Bing Nursery School on the Stanford campus. In the room the child was shown a tray with marshmallows or other treats and told to pick one she would like.

Then came the hard part. The experimenter told the child, “You can have your treat now, if you want. But if you don’t eat it until I come back from running an errand, you can have two then.”

The room was sanitized of distractions: no toys, no books, not even a picture. Self-control was a major feat for a four-year-old under such dire conditions. About a third grabbed the marshmallow on the spot, while another third or so waited the endless fifteen minutes until they were rewarded with two (the other third fell somewhere in the middle). Most significant: the ones who resisted the lure of the sweet had higher scores on measures of executive control, particularly the reallocation of attention.

How we focus holds the key to willpower, says Mischel. His hundreds of hours of observation of little kids fighting off temptation reveal “the strategic allocation of attention,” as he puts it, to be the crucial skill. The kids who waited out the full fifteen minutes did it by distracting themselves with tactics like pretend play, singing songs, or covering their eyes. If a kid just stared at the marshmallow, he was a goner (or more precisely, the marshmallow was).

When self-restraint comes up to instant gratification, there are three “sub-varieties of attention” that become engaged.

The first is the ability to voluntarily disengage our focus from an object of desire that powerfully grabs our attention. The second, resisting distraction, lets us keep our focus elsewhere— say, on fantasy play— rather than gravitating back to that juicy whatever. And the third allows us to keep our focus on a goal in the future, like the two marshmallows later. All that adds up to willpower.

That’s easy for a marshmallow you say. Show me something in real life. As you wish. Enter the children of Dunedin, New Zealand.

Goleman explains:

Dunedin has a populace of just over one hundred thousand souls and houses one of that country’s largest universities. This combination made the town ripe for what may be the most significant study yet in the annals of science on the ingredients of life success.

In a dauntingly ambitious project, 1,037 children— all the babies born over a period of twelve months— were studied intensively in childhood and then tracked down decades later by a team assembled from several countries. The team represented many disciplines, each with its own perspective on that key marker for self-awareness, self-control.

These kids underwent an impressive battery of tests over their school years, such as assessing their tolerance for frustration and their restlessness, on the one hand, and powers of concentration and persistence on the other.

After a two-decade lull all but 4 percent of the kids were tracked down (a feat far easier in a stable country like New Zealand than, say, in the hypermobile United States). By then young adults, they were assessed for:

(1) Health. Physicals and lab tests looked at their cardiovascular, metabolic, psychiatric, respiratory, even dental and inflammatory conditions.
(2) Wealth. Whether they had savings, were single and raising a child, owned a home, had credit problems, had investments, or had retirement funds.
(3) Crime. All court records in Australia and New Zealand were searched to see if they had been convicted of a crime.

The better their self-control in childhood, the better the Dunedin kids were doing in their thirties. They had sounder health, were more successful financially, and were law-abiding citizens. The worse their childhood impulse management, the less they made, the shakier their health, and the more likely it was that they had a criminal record.

The bigger shock? A child’s level of self-control is as powerful a predictor of adult financial success and health as are “social class, wealth of family of origin, or IQ.”

Bottom line: kids can have the most economically privileged childhood, yet if they don’t master how to delay gratification in pursuit of their goals those early advantages may wash out in the course of life. In the United States, for example, only two in five children of parents in the top 20 percent of wealth end up in that privileged status; about 6 percent drift down to the bottom 20 percent in income. Conscientiousness seems as powerful a boost in the long run as fancy schools, SAT tutors, and pricey educational summer camps. Don’t underestimate the value of practicing the guitar or keeping that promise to feed the guinea pig and clean its cage.

So where does the Cookie Monster come in? Well, anything we can do to increase “children’s capacity for cognitive control will help them throughout life.” What better way to give them tools than with the Cookie Monster?

If you thought Sesame Street was just for giggles, you’re wrong. It’s all about the science of learning. “At the core of every clip on Sesame Street is a curriculum goal,” said Michael Levine, executive director of the Joan Ganz Cooney Center. “Everything we show is pretested for its educational value.”

A network of academic experts reviews show content, while the real experts— preschoolers themselves— ensure that the target audience will understand the message. And shows with a particular focus, like a math concept, are tested again for their educational impact on what the preschoolers actually learned.

“We need top researchers sitting with top writers in developing the shows,” said Levine. “But we need to get it right: listen to the scientists, but then play with it— have some fun.”

Take a lesson in impulse control, the secret sauce in a segment about the Cookie Connoisseur Club. Alan, the owner of Hooper’s Store on Sesame Street, baked cookies to be sampled by the club— but no one had planned for Cookie Monster to join. When Cookie arrives by surprise on the scene he, of course, wants to eat all the cookies.

Alan explains to Cookie that if you want to be a member of the club, you need to control your impulse to gobble up all the cookies. Instead, you learn to savor the experience. First you pick up the cookie and look for imperfections, then smell it, and finally nibble a bit. But Cookie, impulse embodied, can only gobble the cookie down.

To get the self-regulation strategies right in this segment, says Rosemarie Truglio, senior vice president for education and research, they consulted with none other than Walter Mischel, the mastermind behind the marshmallow test.

Mischel proposed teaching Cookie cognitive control strategies like “Think of the cookie as something else” and reminding himself of that something. So Cookie sees the cookie is round and looks like a yo-yo, and dutifully repeats to himself over and over that the cookie is a yo-yo. But then he gobbles anyway.

To help Cookie take just a nibble— a major triumph of willpower—Mischel suggested a different impulse-delay strategy. Alan tells Cookie, “I know this is hard for you, but what’s more important: this cookie now, or getting into the club where you’ll get all kinds of cookies?” That did the trick.

“Teachers in early grades tell (Sesame Street), I need kids to come to be ready to sit down, focus, manage their emotions, listen to directions, collaborate, and make friends,” Truglio explained. “Then I can teach them letters and numbers.”

Concluding, Goleman writes:

“Cultivating a sense for math and early literacy skills,” Levine told me, requires self-control, based on changes in executive function during the preschool years. The inhibitory controls related to executive functioning correlate closely with both early math and reading ability. “Teaching these self-regulation skills,” he added, “may actually rewire parts of the brain for kids in whom they have been underdeveloped.”

Check out this video.

 

Focus: The Hidden Driver of Excellence is a must-read for learning more about the impoverishment of attention.

How Companies Learn Your Secrets

Companies don’t need to ask you if you’re pregnant, they know from the change in your purchases. And sometimes they even know you’re pregnant before you do. This fascinating article in the New York Times takes a look at habit formation and the rise of data mining.

In order to conserve energy, the brain will try to convert any repeated behavior into a habit. And habits, despite our best intentions, are hard to break:

But conserving mental energy is tricky, because if our brains power down at the wrong moment, we might fail to notice something important, like a child riding her bike down the sidewalk or a speeding car coming down the street. So we’ve devised a clever system to determine when to let a habit take over. It’s something that happens whenever a chunk of behavior starts or ends — and it helps to explain why habits are so difficult to change once they’re formed, despite our best intentions.

The process to create a habit is a three-step loop.

First, there is a cue, a trigger that tells your brain to go into automatic mode and which habit to use. Then there is the routine, which can be physical or mental or emotional. Finally, there is a reward, which helps your brain figure out if this particular loop is worth remembering for the future. Over time, this loop — cue, routine, reward; cue, routine, reward — becomes more and more automatic. The cue and reward become neurologically intertwined until a sense of craving emerges. What’s unique about cues and rewards, however, is how subtle they can be.

Once a habit is formed and reinforced, your brain stops participating in the decision-making. According to the times article, simply understanding our habits makes them easier to control. Cue’s are the key.

Our relationship to e-mail operates on the same principle. When a computer chimes or a smartphone vibrates with a new message, the brain starts anticipating the neurological “pleasure” (even if we don’t recognize it as such) that clicking on the e-mail and reading it provides. That expectation, if unsatisfied, can build until you find yourself moved to distraction by the thought of an e-mail sitting there unread — even if you know, rationally, it’s most likely not important. On the other hand, once you remove the cue by disabling the buzzing of your phone or the chiming of your computer, the craving is never triggered, and you’ll find, over time, that you’re able to work productively for long stretches without checking your in-box.

The best part of the article, however, is how marketers apply the loop of cue, routine, reward. Consider the early history of Febreze. When it wasn’t selling the marketers realized that the original cue—a stinky smell—wasn’t effective because people couldn’t detect most of the bad smells in their lives. If you live with 12 dogs, you become desensitized to their scents. The Febreze reward (an odorless home) was meaningless to someone would couldn’t smell in the first place. Procter and Gamble eventually realized that cleaning has its own habit loop. Rather than trying to change the loop, they decided to change the reward.

Each ad was designed to appeal to the habit loop: when you see a freshly cleaned room (cue), pull out Febreze (routine) and enjoy a smell that says you’ve done a great job (reward). When you finish making a bed (cue), spritz Febreze (routine) and breathe a sweet, contented sigh (reward). Febreze, the ads implied, was a pleasant treat, not a reminder that your home stinks.

Increasingly stores are mining your purchasing habits to better tailor promotions to what’s happening in your life.

…when some customers were going through a major life event, like graduating from college or getting a new job or moving to a new town, their shopping habits became flexible in ways that were both predictable and potential gold mines for retailers.

Customers going through major life events don’t really notice their purchasing habits have changed, but retailers both care and notice. And no life event is more important, from the retailers perspective, than a baby.

At that moment, new parents’ habits are more flexible than at almost any other time in their adult lives. If companies can identify pregnant shoppers, they can earn millions.

The only problem is that identifying pregnant customers is harder than it sounds. Target has a baby-shower registry, and Pole started there, observing how shopping habits changed as a woman approached her due date, which women on the registry had willingly disclosed. He ran test after test, analyzing the data, and before long some useful patterns emerged. Lotions, for example. Lots of people buy lotion, but one of Pole’s colleagues noticed that women on the baby registry were buying larger quantities of unscented lotion around the beginning of their second trimester. Another analyst noted that sometime in the first 20 weeks, pregnant women loaded up on supplements like calcium, magnesium and zinc. Many shoppers purchase soap and cotton balls, but when someone suddenly starts buying lots of scent-free soap and extra-big bags of cotton balls, in addition to hand sanitizers and washcloths, it signals they could be getting close to their delivery date.

As Pole’s computers crawled through the data, he was able to identify about 25 products that, when analyzed together, allowed him to assign each shopper a “pregnancy prediction” score. More important, he could also estimate her due date to within a small window, so Target could send coupons timed to very specific stages of her pregnancy.

Continue Reading

Still Curious? Try reading, The Power of Habit: Why We Do What We Do in Life and Business, which will be published on Feb. 28.