Tag: Laurence Endersen

The Distorting Power of Incentives

“The rabbit runs faster than the fox, because the rabbit is running for his life while the fox is only running for his dinner.”
— R. Dawkins


Simply put, incentives matter a lot. Incentives are at the root of a lot of situations we face and yet we often fail to account for them. They carry the power to distort our behavior and blind us to reality.

Pebbles of Perception- How a Few Good Choices Make All The Difference

Even accounting for them is often not enough. As Charlie Munger cautions, “I think I’ve been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I’ve underestimated it. Never a year passes that I don’t get some surprise that pushes my limit a little farther.”

In Pebbles of Perception: How a Few Good Choices Make All The Difference, Laurence Endersen writes:

We can only see a situation with true clarity when we take the time to carefully consider the interests at hand. And we understand it even better when we consider how the situation might be different if the underlying interests were different.

But … just as we often fail to understand them, we can also overly focus on them. To the man with a hammer, everything looks like a nail.

Imagine the nature of a football game where the first goal scorer took all the spoils. There would be one hell of a scramble to score the first goal and it might make compelling viewing. The carrot is effective, but it is too pointed. We suddenly focus on the incentive and forget about the second order consequences. What we see is that narrow incentives influence performance, but they may not improve it. Studies of loan officer approvals during the recent US mortgage crisis showed that the loan officers actually believed the cases with the highest commission were more creditworthy. The effect was worse than naked self-interest: the incentive actually blinded their judgement.

Understanding incentives comes through second-and-third-level thinking. Many incentive systems have backfired because people failed to consider other interests and incentives.

An example is monetary rewards offered to help exterminate unwanted animals such as rats and snakes. What authorities failed to foresee was that people would start to breed the rats and snakes. Forcing people to have overly complex passwords can be another perverse incentive. When faced with this complexity we simply write down our passwords somewhere “safe”.

As to good incentives, money is not enough.

Good incentives acknowledge recognition, public perception, and the value of pursuing work that we can be proud of. So yes, if we want to persuade, we should appeal to interests not reason. But when it comes to interests, appeal not just to net worth but also to self-worth.

There are a few things worth keeping in mind.

First, the behavior you see is usually the result of incentives you don’t see. Consider the sharp elbows you see in a typical workplace. Looking at this behavior in isolation it makes little sense. However, odds are, this is rewarded in some way.

Second, we generally get the behavior we reward.

Third, creating effective incentive systems is hard work. We need to consider not only the first level of incentives but also the second and third and how they will impact the system.

Enderson concludes:

Incentives matter greatly – underestimate them at your peril. People will navigate the shortest path to the incentive. The curious among us will pay particular attention to incentives, monetary or otherwise.

Listening and the Learning Lens

Seneca Friendship
In Pebbles of Perception: How a Few Good Choices make All the Difference, there is an excellent chapter on listening.

When it comes to describing much of what currently passes for personal communication, the analogy of the crocodile is an apt one: all mouth and no ears.

So this is why mom and dad used to tell me that I had two ears and one mouth. Yet no one has ever taught me how to listen. I mean really listen.

Communication is arguably the most important life skill of all. The quality of human relations is in large part determined by the quality of communication. There are talkers and there are listeners, but we don’t learn much, if anything, while we are talking.

Communicating means both transmitting and receiving. We receive through our ears, eyes, feelings, and perception.

But information doesn’t enter the brain directly. It passes through our eyes, ears and other sense organs before being processed by our brain. We receive information through the “lenses” we are wearing. We are going to consider two types of communication lens: what I call the lecturing lens and the learning lens. Each of us has a default tendency towards one or the other. Which is your default mode?

First let’s talk about the lens distorters.


The Lens Distorters

These inhibit clear communication. Here are some of the most common ones.

The limits of language. There are a few distorters at work here. To begin with, verbal communication represents just a small part of overall communication. When we speak to each other we are essentially blowing air at each other – albeit in a highly sophisticated fashion. Phone calls are far less effective than face-to-face encounters. Secondly, we are not always able to find the right words. Words are often not specific enough. We have a word for friend and a word for enemy. What about someone in between? An acquaintance perhaps? What about a work colleague that you respect and trust but would not want to socialise with? Even black and white are not black and white. I recently met the head of an international thread manufacturer that produced over 200 different shades of “white” thread!

Different histories and cultures. Your lens and my lens will have been shaped by our individual histories and conditioning. Words, gestures or tones that may seem humorous and harmless to me could seem offensive to you.

Different contexts. In addition to unique histories, everyone has a different current context and emotional state. …

Irrational expectation of rationality. When we communicate we expect that logic is what drives other people’s behaviour. The reality is that much more is at play and you will waste a lot of time in this world trying to move people through brute logic.


What Is Your Default Lens?

Are you a talker or listener?

Animated or observant? Focused on yourself or on the other person? I characterise those of us who are more likely to be talkers as wearing the lecturing lens. Gaps in conversation are simply periods during which we gather our thoughts to continue our lecture – me and my story. Others are better listeners and tend to communicate through a learning lens. I suspect that good listeners are in the minority, which makes defaulting to the learning lens all the more effective. There can be no real understanding without listening. We feel honoured when others take a genuine interest in understanding our position. When people understand us we are psychologically validated. Our opinion matters. We matter.


Suggestions For Better Communication With Others

Make the learning lens your default setting. Approach every conversation with an open mind. OK, I have a view and I believe it to be the correct one, but, what might I be missing here? What if the other person has some insight that can illuminate my own? What if I am wrong? We listen intently not just with our ears, but with our eyes and our senses. We are paying attention, striving to perceive what is really going on in the other person’s mind. And they know and appreciate it. The whole conversation is a journey of discovery not a battle of wits.

Make them a star. Try to bring out the best in other people. This is not false flattery, but helping people get their views properly heard and understood. Do not seek to show off how smart you are.

Be courteous. There is no need for rudeness. Respect the right of someone to have a different opinion from yours. Leave unconstructive criticism at the door. There is no good in it. It merely creates resentment and distorts the other person’s lens, often for a long time. If you call a person an idiot, both you, and the person you insulted, have changed. No apology can take back the words. Avoid criticising people in print or in front of others.

Double check your gut feelings. For example, first impressions can trigger subconscious negative emotions. The person resembles someone you had a problem with, and you suddenly dislike them. Abraham Lincoln understood this risk. When he met someone he didn’t like, he resolved to get to know them better.

Find your words. Once you have demonstrated a full understanding of the other person’s view, think carefully about what you want to say and then don’t say it! Try instead to figure out what the other person is likely to hear. In other words, try to make some allowance for the distortions in their lens. Your opinion on something is more credible when you can also clearly articulate the contrary view. Good communicators are thoughtful in how they choose and arrange their words.

Words are never enough. Your tone and demeanour should be consistent with, and supportive of, the whole message.

Choose quality over quantity. Don’t always feel there is a need to fill every moment with communication.

Know when to give or accept an apology. A genuine apology, offered sincerely and accepted, is one the most emotionally mature human interactions.


To Sum Up

Don’t be a crocodile, all mouth and no ears. Choose a learning lens over a lecturing lens. Be aware of the differences between your lenses and those of others. To truly listen to others is a gift to them. Give it with courtesy and humility. The payback is real understanding.


I highly recommend you pick up a copy of Pebbles of Perception: How a Few Good Choices make All the Difference.

Lifelong Learning

“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.”

— Confucius

I’m a huge fan of Laurence Endersen’s book: Pebbles of Perception: How a Few Good Choices Make All The Difference. I think it deserves to be on the shelf of every knowledge seeker in the world.

There is a chapter in the book on lifelong learning.

When we are captain of our own ship, life can be a wonderful continuous voyage of discovery. Yet we frequently pigeonhole our learning and discovery into limiting discrete blocks. There are the childhood years, filled with exploration and getting to know the world around us at a sensory level. The early school years follow, during which we are introduced to reading and writing. Middle school years bring a range of core subjects and some people will finish up the formal part of their education with university-level learning.

Then we add some work experience and attain a certain level of competence. From this perch we coast pretty well. It’s like driving. How many of us are getting better at driving? All of those hours behind the wheel are not deliberate practice. If you consider the product of the modern knowledge worker to be decisions, all of this coasting without getting better should concern you.


Lifelong Learning

The incentives to follow a path of lifelong learning are not easily apparent.

When assessing our competence in any particular discipline, we can place our level of ability somewhere along a continuum moving from ignorance, to conversational competence, to operational competence, then towards proficiency, and finally all the way to mastery. For most of us, if we get to operational competence in our main career area we are happy enough. We can get by and we don’t have to expend too much energy continuously learning. We become what I call flat-line learners. For the flat-line learner the learning curve might look something like this:

And yet, Endersen argues that if we pursue a path of lifelong learning our path more closely resembles this:

Lifelong Learning
You could even make an argument that lifelong learning puts you on a non-linear path but I’ll leave that for you to think about.

The question as to why everyone doesn’t want to become a lifelong learner remains.

It may boil down to choices and priorities. It is easy to be drawn towards passive entertainment, which requires less from us, over more energetic, active understanding. Inconvenience might be an alibi: “I don’t have time for continuous learning as I am too busy with real life”. But that excuse doesn’t withstand close scrutiny, as experiences (coupled with reflection) can be the richest of all sources of investigation and discovery.

Why not make a conscious decision to learn something new every day? No matter how small the daily learning, it is significant when aggregated over a lifetime. Resolving early in life to have a continuous learning mindset is not only more interesting than the passive alternative, it is also remarkably powerful. Choosing lifelong learning is one of the few good choices that can make a big difference in our lives, giving us an enormous advantage when practised over a long period of time.



The ignorant man can’t learn from his own mistake and the fool can’t learn from the mistakes of others. These are the primary ways we learn: Through our own experiences and through the experiences of others.

While both avenues have their place, there is no substitute for direct learning through experience – which we enhance through reflection. The process of thoughtful reflection makes our experiences more concrete, and helps with future recall and understanding. Reflecting about what we learned, how we felt, how we and others behaved, and what interests were at play, hardwires the learning in our brain and gives us a depth of context and relevance that would otherwise be absent.

Even if it were desirable, which it’s not, there simply is not enough time to learn everything we need to know through direct experience.



“Reading,” writes Endersen, “is the foundation of indirect learning.” Learning how to read and finding time to read are two of the easiest and best changes you can make if you want to pursue lifelong learning.

Many read for entertainment. Some read for information. Too few read for understanding. Adler’s book (How To Read a Book) is concerned with reading to understand. Being widely read is not the same as being well read. The more effort and skill we put into reading, the greater our understanding.


The Feynman Technique

As for testing whether we really understand something after we’ve read it, there is a powerful and elegant technique called the Feynman Technique.

Step 1. Choose the topic or concept that you are trying to understand. Take a blank piece of paper and write the name of the topic at the top.

Step 2. Assume you’re teaching the topic to someone else. Write out a clear explanation of the topic, as if you were trying to teach it. A great way to learn is to teach. You identify gaps in your knowledge very quickly when trying to explain something to someone else in simple terms.

Step 3. If you get bogged down, go back to the source materials. Keep going back until you can explain the concept in its most basic form.

Step 4. Go back and simplify your language. The goal is to use your own words, not the words of the source material. Overly elaborate language is often a sure sign that you don’t fully understand the concept. Use simple language and build on that with a clear analogy. An example that springs to mind is Warren Buffet’s explanation of compound interest (i.e., interest earned on interest), when he likened it to a snowball that gathers snow as it rolls down a hill.


Lifelong learning is a better path than flat-line learning.

Savour experiences as opportunities to learn. Reflect on your experiences. Read regularly. Learn how to read for understanding. Know how to test whether you really understand something by demonstrating that you could teach it in simple terms with a clear analogy.

The best way to do that? Follow Einstein’s advice.