Why Ownership Graphs Matter

This is a post about the surprising absence of policy in politics and the complexity of seemingly straightforward policy.

As the 2018 midterms came and went, there was a lot of talk about tax, corporations, and visions for a more prosperous society. I think the most interesting policy discussions aren’t actually about policy as much as the rhetoric, coalition-building, and choice of landmark-issue: one debate that caught my eye was over SF Proposition C. Perhaps the most salient point made by supporters of the tax was that it only affects the biggest billionaire-owned businesses in the city. Normal people won’t get taxed.

Implementation (gross receipts instead of something like net income?) and assumptions (what does everyone’s responsibility mean?) aside, the idea that taxes on big businesses actually tax wealthy people is surprisingly unclear.

Let’s assume that we want to tax rich people who own large companies. A quick Google search shows that Marc Benioff only owns 4% of Salesforce. So only $0.04 of every tax dollar is taken from the pocket of Marc. Where does the rest go?

Huge chunks of publicly traded companies are owned by asset managers like BlackRock, Vanguard, and StateStreet. In fact, the “Big 3” are the largest shareholder in almost 90% of S&P 500 corporations. And that’s only looking at a few firms: going back to the Salesforce example, 83% of Salesforce is owned by some sort of institution! So most of the tax burden falls on asset managers.

Next, one might argue that by taxing institutional investors, you’re taxing a different set of rich people which is fine… Except that the asset managers usually make money by charging a small percentage of AUM. The actual gains or losses are passed on to individuals, pension funds, endowment funds, 401(k)s and anyone else letting institutions manage their money. Keep tracing that back and you end up taxing individuals.

This is almost vacuously true for any tax, I’m merely observing that this concept doesn’t make its way into policy discussion.

So then who are those individuals? What’s particularly interesting is where they’re located: big businesses that fall under Prop C are mostly owned by people outside of SF. The city is effectively taxing people who live elsewhere! This would actually be very clever if it were intentional.

I wish I knew more about the precedent this sets and how lawmakers think about this. It would be absurd to impose a sales tax for someone in another city, example.

If anything, then, it should be the other way around: tax small local businesses-owners, and not big external business-owners. They’re the ones that actually live in SF. It’s hard to continue down this rabbit hole without regressing into some sort of unsupported speculation on tax policy. To be clear: I don’t actually think we should only tax small local businesses. The point is that even simple policy ideas have counterintuitive real-world effects.

Imagine that we had a complete ownership graph of whoever owned a big business. What could you do with that? Might you tax only the individuals in SF who own a share of a Vanguard index fund that owns a share of [insert big SF business]? Are there other creative governance or tax structures you could invent?

Is the complexity of such a graph a feature or a bug? (E.g. does it hedge financial risk or dangerously pool risk in a way we don’t understand?)

This puts aside the practical issue of how you could actually build such a graph. Would mandating the publication of relevant info prevent good things from happening such as the hostile takeover of poorly managed companies? How far can you get with info you could gather as a private party? Does BlackRock have interesting internal research based on their client data?

If you have ideas on any of the above, shoot me a tweet, email, or text! There are certainly more unique and interesting ideas related to ownership graphs.

The Paradox of Compound Interest

I have a nasty habit of asking myself “how much money would I have in 30 years if I didn’t buy this thing?” It’s much harder to justify a $10 omelette or a $500 plane ticket if that money would compound into $50 or $2500 by the time my future kids are growing up.

Founders have the same problem: (source)

 “Equity capital is expensive. Every time you do a raise, you dilute.”  I like to tell a story about the young company founder who told me he was very proud of his expensive new Herman Miller Aeron chairs in his conference room during the Internet bubble. He bought them with cash that had recently been invested  in his company by some new investors. When I explained to him how much the chairs would eventually cost if the company went public someday via dilution the expression on his face turned from a smile to a frown. Dilution maters. Do the math. People say Warren Buffett can tell you nearly exactly how much income you have forgone if you show him an expensive toy. It is a bit unnerving actually, since he does the math in his head. When someone shows a founder some expensive office space with a beautiful and expansive water view they should immediately think: dilution!

That new MacBook for your first employee would cost tens of thousands of dollars in equity dilution if you have a VC-acceptable exit. And it’s not like consumer goods generate much utility on a long time-horizon — a nice pair of earbuds will yield the same benefits whether you listen to them now or in 20 years.

But then the fundamental problem arises: how do you justify spending money on anything beyond the most bare-bones necessities?

Remember that personal growth also compounds.

Qualitatively, our relationships, memories, and perspectives are all valuable, gratifying things to have. Much more so than any financial asset, I’d argue. In the internet-enabled tech economy, our personal qualities are becoming more leveraged than ever. 

With that in mind, it becomes much more reasonable to spend on education, travel, friends, and vanity. But where do you draw the line? I suspect this contributes to why some people take on crushing debt to go to a higher-ranked college than they’d otherwise go to.

It also seems irresponsible to set your personal burn rate equal to your income. Should we spend more? Or less? Or spend extravagantly on the few things most conducive to growth or happiness then cut everything else entirely? This assumes, questionably, that we know how to distinguish between what does and doesn’t cause personal growth!

When starting a company, I agree with the conventional wisdom that you should focus on minimizing burn. The entire point of an early-stage startup is to figure out the potential growth rate of your product when it fits with the market. In personal matters, I tend to think we should instead focus on growth rate. We know with high certainty that (thoughtfully) spending on ourselves will lead to experiences and friendships that make us a better person over time. The point is that drawing a clear dichotomy between the two cases helps avoid a common pitfall: it’s easy to merge work and life then burn startup cash needlessly or fail to invest in yourself.

Notes on The Elephant in the Brain

For the past several months, I’ve been on a sociology and (evolutionary) biology reading binge. I recently finished my favorite book on the topic: Robin Hanson and Kevin Simler’s The Elephant in the Brain. I found its ideas so concise, useful, and explanatory, even for someone who’s done previous reading in the area, that I should share a little background as well as my notes from the book.

You may have heard the common X isn’t about Y examples:

Food isn’t about Nutrition
Clothes aren’t about Comfort
Bedrooms aren’t about Sleep
Marriage isn’t about Romance
Talk isn’t about Info
Laughter isn’t about Jokes
Charity isn’t about Helping
Church isn’t about God
Art isn’t about Insight
Medicine isn’t about Health
Consulting isn’t about Advice
School isn’t about Learning
Research isn’t about Progress
Politics isn’t about Policy

The point here is directionally right and this thinking serves as a useful heuristic for understanding systems. But it’s the the mechanisms and fine-grained details that provide a useful mental model and worldview. Hopefully the highlights will intrigue you enough to read the book yourself.

There are some interesting corollaries and implications to the Hansonian worldview that I think are horrendously underrated and not really explored in the book. Namely:

  • Everything is inherently political or status oriented because sexual selection, not natural selection, is what drove most of humal evolution (this was Darwin’s real discovery which was not fully accepted and modeled until the 1980’s).
  • Virtue signaling must be good, not bad. How else would we set norms on which (arbitrary) games we compete in? Some games are better than others from an external perspective. E.g. consumerist signaling is harmful to the environment.
  • We live in our own little dream worlds. But I don’t know if it matters from personal and philosophical standpoints.
  • Certain political philosophies (Marxism) assume a natural selection-based Darwinian view of human nature which is only a small fraction of why we actually evolved.

I know those bullets have a lot of big ideas packed into them — I could talk about each one of them for hours. Hit me up for more. I’d rather not attempt to explain everything in an overly-abbreviated post.

Here are my highlights. Update: here is another great list of highlights someone compiled! My friend Jonathan Bi also wrote an excellent review.

Here is the thesis we’ll be exploring in this book: We, human beings, are a species that’s not only capable of acting on hidden motives—we’re designed to do it. Our brains are built to act in our self-interest while at the same time trying hard not to appear selfish in front of other people. And in order to throw them off the trail, our brains often keep “us,” our conscious minds, in the dark. The less we know of our own ugly motives, the easier it is to hide them from others. Self-deception is therefore strategic, a ploy our brains use to look good while behaving badly.

The point is, we act on hidden motives together, in public, just as often as we do by ourselves, in private. And when enough of our hidden motives harmonize, we end up constructing stable, long-lived institutions—like schools, hospitals, churches, and democracies—that are designed, at least partially, to accommodate such motives. This was Robin’s conclusion about medicine, and similar reasoning applies to many other areas of life.

The alpha male, for example, almost never tries to replace the gamma male from guard duty; instead the alpha directs all of his competitive energies toward the beta. If the goal were to help weaker members, the alpha should be more eager to take over from the gamma than from the beta.

Knowledge suppression is useful only when two conditions are met: (1) when others have partial visibility into your mind; and (2) when they’re judging you, and meting out rewards or punishments, based on what they “see” in your mind.

Now consider the human being. Like the redwood, our species has a distinctive feature: a huge brain. But if we think of Homo sapiens like the lone redwood in the open meadow, towering in intelligence over an otherwise brain-dead field, then we’re liable to be puzzled.

Now, our competitions for prestige often produce positive side effects such as art, science, and technological innovation. But the prestige-seeking itself is more nearly a zero-sum game, which helps explain why we sometimes feel pangs of envy at even a close friend’s success.

Coalitions are what makes politics so political.

The problem with competitive struggles, however, is that they’re enormously wasteful. The redwoods are so much taller than they need to be. If only they could coordinate not to all grow so tall—if they could institute a “height cap” at 100 feet (30 meters), say—the whole species would be better off. All the energy that they currently waste racing upward, they could instead invest in other pursuits, like making more pinecones in order to spread further, perhaps into new territory. Competition, in this case, holds the entire species back. Unfortunately, the redwoods aren’t capable of coordinating to enforce a height cap, and natural selection can’t help them either.

But our species is different. Unlike other natural processes, we can look ahead. And we’ve developed ways to avoid wasteful competition, by coordinating our actions using norms and norm enforcement—a topic we turn to in the next chapter.

Collective enforcement, then, is the essence of norms. This is what enables the egalitarian political order so characteristic of the forager lifestyle.

right, it was learning to use deadly weapons that was the inflection point in the trajectory of our species’ political behavior. Once our ancestors learned how to kill and punish each other collectively, nothing would be the same. Coalition size would balloon almost overnight. Politics would then become exponentially more complicated and require more intelligence to navigate,

Typically, these are crimes of intent. If you just happen to be friendly with someone else’s spouse, no big deal. But if you’re friendly with romantic or sexual intentions, that’s inappropriate. By targeting intentions rather than actions, norms can more precisely regulate the behavior patterns that cause problems within communities. (It would be ham-fisted and unduly cumbersome to ban friendliness, for example.) But regulating intentions also opens the door to various kinds of cheating, which we’ll explore in Chapter 4.

But there are acceptable and unacceptable ways to do this. It’s perfectly acceptable just to “be yourself,” for example. If you’re naturally impressive or likable, then it seems right and proper for others to like and respect you as well. What’s not acceptable is sycophancy: brown-nosing, bootlicking, groveling, toadying, and sucking up. Nor is it acceptable to “buy” high-status associates via cash, flattery, or sexual favors. These tactics are frowned on or otherwise considered illegitimate, in part because they ruin the association signal for everyone else.

When abstract logic puzzles are framed as cheating scenarios, for example, we’re a lot better at solving them. This is one of the more robust findings in evolutionary psychology, popularized by the wife-and-husband team Leda Cosmides and John Tooby.

Here’s another way to think about it. We typically treat discretion or secret-keeping as an activity that has only one important dimension: how widely a piece of information is known. But actually there are two dimensions to keeping a secret: how widely it’s known and how openly or commonly it’s known. And a secret can be widely known without being openly known—the closeted lesbian’s sexuality, for example, or the fact that the emperor is naked.

Scalping—the unauthorized reselling of tickets, typically at the entrance to concerts and sporting events—is illegal in roughly half of the states in the United States. That’s why you’ll often hear scalpers hawking their goods with the counterintuitive (yet perfectly legal) request to buy tickets. Like wrapping alcohol in a paper bag, this practice doesn’t fool the people who are charged with stopping it; the police and venue security personnel know exactly what’s going on. And yet scalpers find it overwhelmingly in their interests to keep up the charade. This is another illustration of how even modest acts of discretion can thwart attempts at enforcing norms and laws. Note that professional norm enforcers, such as police, teachers, and human resource managers, have a strong incentive to enforce norms: it’s their job. Even so, they’re often overworked or subject to lax oversight, and therefore tempted to cut corners. Sometimes the threat of mere paperwork can be enough to keep police from enforcing minor infractions.

In 1527, King Henry VIII’s marriage to Queen Catherine of Aragon seemed unlikely to give him the son he desperately needed, and at 38 years old, he was running out of options. Everyone at court knew that Henry wanted a younger woman—Anne Boleyn—as his wife. Unfortunately, his marriage to Catherine had been blessed by the previous pope, and the current pope was in no mood to grant an annulment. What the king needed was a pretext, a false but plausible justification to distract from his real reason. So, nearly 20 years into his marriage to Catherine, the king suddenly “discovered” that she hadn’t been a virgin on their wedding night, and that therefore their marriage was illegitimate. As pretexts go, this was pretty ham-handed. But kings don’t need their excuses to be particularly subtle or airtight; their power is enough of an incentive for most people to go along. In Henry’s case, his pretext was enough to let him break from Roman Catholicism (thereby launching the English Reformation) and secure his annulment from the head of the new Anglican Church. Pretexts are a broad and useful tool for getting away with norm violations. They make prosecution more difficult by having a ready explanation for your innocence. This makes it harder for others to accuse and prosecute you. And as we’ve seen, a pretext doesn’t need to fool everyone—it simply needs to be plausible enough to make people worry that other people might believe it.

Another domain is personal health. You might suppose, given how important health is to our happiness (not to mention our longevity), it would be a domain to which we’d bring our cognitive A-game. Unfortunately, study after study shows that we often distort or ignore critical information about our own health in order to seem healthier than we really are. One study, for example, gave patients a cholesterol test, then followed up to see what they remembered months later. Patients with the worst test results—who were judged the most at-risk of cholesterol-related health problems—were most likely to misremember their test results, and they remembered their results as better (i.e., healthier) than they actually were.

In recent years, psychologists—especially those who focus on evolutionary reasoning—have developed a more satisfying explanation for why we deceive ourselves. Where the Old School saw self-deception as primarily inward-facing, defensive, and (like the general editing the map) largely self-defeating, the New School sees it as primarily outward-facing, manipulative, and ultimately self-serving. Two recent New School books have been Trivers’ The Folly of Fools (2011) and Robert Kurzban’s Why Everyone (Else) Is a Hypocrite (2013). But the roots of the New School go back to Thomas Schelling, a Nobel Prize–winning economist best known for his work on the game theory of cooperation and conflict. In his 1967 book The Strategy of Conflict, Schelling studied what he called mixed-motive games. These are scenarios involving two or more players whose interests overlap but also partially diverge.

•Ignoring information, also known as strategic ignorance. If you’re kidnapped, for example, you might prefer not to see your kidnapper’s face or learn his name. Why? Because if he knows you can identify him later (to the police), he’ll be less likely to let you go. In some cases, knowledge can be a serious liability. •Purposely believing something that’s false. If you’re a general who firmly believes your army can win, even though the odds are against it, you might nevertheless intimidate your opponent into backing down. In other words, mixed-motive games contain the kind of incentives that reward self-deception. There’s a tension in all of this. In simple applications of decision theory, it’s better to have more options and more knowledge. Yet Schelling has argued that, in a variety of scenarios, limiting or sabotaging yourself is the winning move. What gives?

What’s the benefit of self-deception over a simple, deliberate lie? There are many ways to answer this question, but they mostly boil down to the fact that lying is hard to pull off. For one thing, it’s cognitively demanding.

Beyond the cognitive demands, lying is also difficult because we have to overcome our fear of getting caught.

When asked to raise both hands, one man raised his right hand high into the air and said, when he detected my gaze locked onto his motionless left hand, “Um, as you can see, I’m steadying myself with my left hand in order to raise my right.” Apart from their bizarre denials, these patients are otherwise mentally healthy and intelligent human beings. But no amount of cross-examination can persuade them of what’s plainly true—that their left arms are paralyzed. They will confabulate and rationalize and forge counterfeit reasons until they’re blue in the face.

Meanwhile, the rest of us—healthy, whole-brained people—are confronted every day with questions that ask us to explain our behavior. Why did you storm out of the meeting? Why did you break up with your boyfriend? Why haven’t you done the dishes? Why did you vote for Barack Obama? Why are you a Christian? Each of these questions demands a reason, and in most cases we dutifully oblige. But how many of our explanations are legitimate, and how many are counterfeit? Just how pervasive is our tendency to rationalize?

Kings and popes, for example, would often “invite” their subjects to line up for public kiss-the-ring ceremonies, putting everyone’s loyalty and submission on conspicuous display and thereby creating common knowledge of the leader’s dominance.

the psychology of humor—a topic fruitfully explored in the book Inside Jokes,

And many animals, in addition to using specific gestures, will also move slowly or engage in exaggerated or unnecessary movement, as if to convey playful intent by conspicuously wasted effort that no animal would undertake if it were in serious danger.

In another interview he says, “I don’t think it’s fair to get offended by comedians.” And yet what fans say they love about Burr is that he’s honest—“refreshingly,” “brutally,” “devastatingly” honest. So which is it? Is he just joking or telling the truth? The beauty of laughter is that it gets to be both. The safe harbor of plausible deniability is what allows Burr and other comedians to get away with being honest about taboo topics. As Oscar Wilde said, “If you want to tell people the truth, make them laugh; otherwise they’ll kill you.”

Conversation, therefore, looks on the surface like an exercise in sharing information, but subtextually, it’s a way for speakers to show off their wit, perception, status, and intelligence, and (at the same time) for listeners to find speakers they want to team up with. These are two of our biggest hidden motives in conversation.

But why do speakers need to be relevant in conversation? If speakers deliver high-quality information, why should listeners care whether the information is related to the current topic? A plausible answer is that it’s simply too easy to rattle off memorized trivia. You can recite random facts from the encyclopedia until you’re blue in the face, but that does little to advertise your generic facility with information. Similarly, when you meet someone for the first time, you’re more eager to sniff each other out for this generic skill, rather than to exchange the most important information each of you has gathered to this point in your lives. In other words, listeners generally prefer speakers who can impress them wherever a conversation happens to lead, rather than speakers who steer conversations to specific topics where they already know what to say.

Now, it did make some sense for our ancestors to track news as a way to get practical information, such as we do today for movies, stocks, and the weather. After all, they couldn’t just go easily search for such things on Google like we can. But notice that our access to Google hasn’t made much of a dent in our hunger for news; if anything we read more news now that we have social media feeds, even though we can find a practical use for only a tiny fraction of the news we consume.

But when researchers Jesse Prinz and Angelika Seidel asked subjects to consider a hypothetical scenario in which the Mona Lisa burned to a crisp, 80 percent of them said they’d prefer to see the ashes of the original rather than an indistinguishable replica. This should give us pause.

Consider the lobster—as David Foster Wallace invites us to do in an essay of the same name. “Up until sometime in the 1800s,” writes Wallace, lobster was literally low-class food, eaten only by the poor and institutionalized. Even in the harsh penal environment of early America, some colonies had laws against feeding lobsters to inmates more than once a week because it was thought to be cruel and unusual, like making people eat rats. One reason for their low status was how plentiful lobsters were in old New England. “Unbelievable abundance” is how one source describes the situation. Today, of course, lobster is far less plentiful and much more expensive, and now it’s considered a delicacy, “only a step or two down from caviar.”

A similar aesthetic shift occurred with skin color in Europe. When most people worked outdoors, suntanned skin was disdained as the mark of a low-status laborer. Light skin, in contrast, was prized as a mark of wealth; only the rich could afford to protect their skin by remaining indoors or else carrying parasols. Later, when jobs migrated to factories and offices, lighter skin became common and vulgar, and only the wealthy could afford to lay around soaking in the sun.

asked participants how much they would agree to pay for nets that prevent migratory bird deaths. Some participants were told that the nets would save 2,000 birds annually, others were told 20,000 birds, and a final group was told 200,000 birds. But despite the 10- and 100-fold differences in projected impact, people in all three groups were willing to contribute the same amount. This effect, known as scope neglect or scope insensitivity, has been demonstrated for many other problems, including cleaning polluted lakes, protecting wilderness areas, decreasing road injuries, and even preventing deaths. People are willing to help, but the amount they’re willing to help doesn’t scale in proportion to how much impact their contributions will make.

Patrick West calls it “conspicuous compassion.” The idea is that we’re motivated to appear generous, not simply to be generous, because we get social rewards only for what others notice.

Consequently, even the most celebrated studies are often statistical flukes. For example, one study looked at the 49 most-cited articles published in the three most prestigious medical journals. Of the 34 of these studies that were later tested by other researchers, only 20 were confirmed.

In fact, patients show surprisingly little interest in private information on medical quality. For example, patients who would soon undergo a dangerous surgery (with a few percent chance of death) were offered private information on the (risk-adjusted) rates at which patients died from that surgery with individual surgeons and hospitals in their area. These rates were large and varied by a factor of three. However, only 8 percent of these patients were willing to spend even $50 to learn these death rates. Similarly, when the government published risk-adjusted hospital death rates between 1986 and 1992, hospitals with twice the risk-adjusted death rates saw their admissions fall by only 0.8 percent. In contrast, a single high-profile news story about an untoward death at a hospital resulted in a 9 percent drop in patient admissions at that hospital.

And yet medicine deserves its share of public scrutiny—as much, if not more so, than any other area of life. One of the simplest reasons is the prevalence and high cost of medical errors, which are estimated to cause between 44,000 and 98,000 deaths in the United States every year. As Alex Tabarrok puts it, “More people die from medical mistakes each year than from highway accidents, breast cancer, or AIDS and yet physicians still resist and the public does not demand even simple reforms.”

found that death rates plummet when doctors are required to consistently follow a simple five-step checklist. •Requiring autopsies. Around 40 percent of autopsies reveal the original cause-of-death diagnosis to have been incorrect. But autopsy rates are way down, from a high of 50 percent in the 1950s to a current rate of about 5 percent. •Getting doctors to wash their hands consistently. Compliance for best handwashing practices hovers around 40 percent. Some of these problems are downright scandalous, and yet, as Tabarrok points out, they’re largely ignored by the general public. We’d rather not look our medical gift horse in the mouth. Another way we’re reluctant to question medical quality is by getting second opinions. Doctors frequently make mistakes, as we’ve seen, and second opinions are often useful—for example, for diagnosing cancer, determining cancer treatment plans, and avoiding unnecessary surgery. And yet we rarely seek them out.

If we’re using medicine as a signal of support, however, then we’ll provide and consume more of it during a patient’s times of crisis, when they are more grateful for support. And this is exactly what we find. The public is eager for medical interventions that help people when they’re sick, but far less eager for routine lifestyle interventions. Everyone wants to be the hero offering an emergency cure, but few people want to be the nag telling us to change our diets, sleep and exercise more, and fix the air quality in our big cities—even though these nagging interventions promise much larger (and more cost-effective) health improvements. One study, for example, tracked 3,600 adults over seven and a half years. Investigators reported that people who reside in rural areas lived an average of 6 years longer than city dwellers, nonsmokers lived 3 years longer than smokers, and those who exercised a lot lived 15 years longer than those who exercised only a little. In contrast, most studies that look similarly at how much medicine people consume fail to find any significant effects. Yet it is medicine, and not these other effects, that gets the lion’s share of public attention regarding health.

Imagine a preacher addressing a congregation about the virtue of compassion. What’s the value of attending such a sermon? It’s not just that you’re getting personal advice, as an individual, about how to behave (perhaps to raise your chance of getting into Heaven). If that were the main point of a sermon, you could just as well listen from home, for example, on a podcast. The real benefit, instead, comes from listening together with the entire congregation. Not only are you learning that compassion is a good Christian virtue, but everyone else is learning it too—and you know that they’re learning it, and they know that you’re learning it, and so forth. (And if anyone happens to miss this particular sermon, don’t worry: the message will be repeated again and again in future sermons.) In other words, sermons generate common knowledge of the community’s norms. And everyone who attends the sermon is tacitly agreeing to be held to those standards in their future behavior. If an individual congregant later fails to show compassion, ignorance won’t be an excuse, and everyone else will hold that person accountable. This mutual accountability is what keeps religious communities so cohesive and cooperative.

In the end, our motives were less important than what we managed to achieve by them. We may be competitive social animals, self-interested and self-deceived, but we cooperated our way to the god-damned moon.

Concise Ideas are One-Dimensional

Distill an idea to the most concise and clear form you can to make it memorable. 280 characters if possible.

Luckily some of the tweets, headlines, and soundbites we come across carry wisdom or at least nudge your headspace towards a new idea. This makes it too easy to forget that most things we talk about fall on a spectrum or have extra dimensions. Especially when maximizing viewership is so valuable for content creators.

Some of these are pretty straightforward. The value of “deep work” has been ingrained into our heads by the latest trends in business writing. On the other hand, several people I know online and in-person have said that the most effective people they know are all super responsive through email, text, and over the phone. So clearly you can be successful in both modes. What gives?

Taking a moment to think about it, you’ll realize that you don’t have to choose one. Block out an afternoon to dive into your work, then be obsessed with the outside world for the other hours in the day. Both of these techniques are complementary parts in a toolkit, not separate virtues you should aim for.

But you understand that already. The real argument I’m making is it’s critically important that we constantly reconsider the implications of our proverbs. Here’s an example (of many) showing why this can matter so much:

Humbleness and modesty are adjectives that usually show up when someone is being complemented. They’re great traits to have, and everyone clearly benefits when we all treat each other as equally capable and deserving peers. On the dark side of modesty, however, is imposter syndrome. (Which, by the way, disproportionately affects those from underrepresented groups!) I think that by asserting the ultimate value modesty in our bite-size thoughts, we impose a big mental and emotional barrier for people who shouldn’t act that way all of the time.

It can be incredibly useful to feel like you’re bad at something and have to improve ASAP. It motivates you to dive into nitty gritty details and be a sponge at the cost of self-esteem. Likewise, a sense of overconfidence can help you overcome risk-aversion, lead people, and sell, but at the cost of having an open mind.

Most worrying to me is that different people from atypical backgrounds have a stronger need to recognize and act on that duality.

As someone who’s never had trouble fitting right into the tech startup world, I feel that I have the luxury to not have to project any sort of confidence and can just default to whatever mood fits the situation the best (usually a feeling of being humbled by the many brilliant people out there!) But anyone who’s a part of an out-group faces a difficult tradeoff: using brazen confidence as a tool to validate themselves with the in-group will make you feel guilty over their immodesty.

Marketing “humbleness” or “confidence” as objectively desirable qualities misses the point. You can have moods where nobody can stop you, and moods where you’re still pulling yourself up by your bootstraps. They’re both horrifically useful tools at your disposal and you don’t need to stick with one or the other. Everything has a flip side that can be useful, as long as you can keep the balance.

In summary: most things are spectra, not polar, and most things are dimensional, not mutually-exclusive.

Thanks to Niraj for feedback. Subscribe to not miss any future posts!

Decision Making and Mental Models

As I’ve spent more and more time reading Slate Star Codex, Less Wrong, Julia Galef, Farnam Street, and Charlie Munger, I’ve realized how useful it is to write down my mental models and decision making tools. Explicitly outlining them makes it easy to remember each perspective of a problem. Given something in particular I’m thinking about, I can just go down the list and see how each lens shapes my thoughts.

This is a general list of guiding principles and questions to ask myself when making a tricky decision or doing something new. I’d love to hear any comments and suggestions?

Is this something I’d regret doing (or not) in the future?

Jeff Bezos has cited a regret minimization as one of the reasons he started Amazon:

”I wanted to project myself forward to age 80 and say, ‘Okay, now I’m looking back on my life. I want to have minimized the number of regrets I have,’” explains Bezos. “I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the Internet that I thought was going to be a really big deal. I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not ever having tried. I knew that that would haunt me every day, and so, when I thought about it that way it was an incredibly easy decision.”

This is so useful because it applies to so many different types of decisions and it’s particularly powerful with qualitative and personal problems.

Is this the right time to do this?

We naturally think about the ‘what’ and ‘how’ of a decision, but the ‘when’ and ‘why’ are equally important. If you realize that you should do something, it’s easy to think that you need to do it now, even if some other time would be better.

What routine am I forming?

The Power of Habit is one of my favorite books. Think of habit forming as analogous to compound interest for investors.

Beliefs/opinions are agents of the mind. Job based thinking

I’m a fan of Clay Christensen’s milkshake story that suggests thinking about “jobs to be done” to understand why people to buy products and services. This mental model is useful for inspecting your own beliefs and opinions. Given an arbitrary feeling, why is that how you feel? I’ll often times think some public speaking task isn’t worth it — even when it clearly is — just because I still get nervous sometimes when talking in front of a crowd. Asking myself what job that reluctance fulfills for my mind (avoiding something uncomfortable) makes it obvious that I really should just go speak.

Value of people you spend time with >>> what you do

This one’s important, fairly obvious, and has been well-covered before. I leave it here as a constant reminder, though.

Normative vs descriptive is a difficult yet critical distinction

When discussing anything subtle or controversial it’s easy to get caught up in language traps that fail to distinguish what is from what ought to be. For a rather extreme example, you might say “drugs are natural” as a matter of fact, which is technically true. But everyone assumes you’re asserting that because drugs are natural, they should be used. Clearly separating normative and descriptive statements reduces misunderstanding and clarifies your own thinking.

Hell yes, or no

Econ or game theory nerds would be reminded of the Pareto Principle. My favorite example of this is Warren Buffett’s story about focus. It’s too easy to rationalize distractions as still being productive. But those distractions are not the most long-term productive thing to do.

The evolution of everything

The cognitive biases are all byproducts of our evolution. You’re probably familiar with the sunk cost fallacy, anchoring, fundamental attribution error, or zero-sum bias. Some rationalists spend a lot of time studying the cognitive biases but I think it’s extremely difficult to actually put them to practical use. I prefer to frame the cognitive biases in terms of our evolutionary history which always invokes some concrete and relatable examples (our hunter-gatherer ancestors always had to worry about where they’d get their next meal so the risk-aversion bias makes sense in that society, for instance). Thinking about Darwinian dynamics has probably been my #1 most useful tool for understanding everything — politics, economics, people, morality, etc. Matt Ridley’s book The Evolution of Everything covers this more.

The billboard question

If you had to put a single message on a billboard, what would it say?

This exercise forces you to distill your thoughts to their most concise, elemental forms. Once you’ve simplified your idea to a billboard-sized chunk, it becomes easy to act on and communicate it to others.

As an example: if you could only send one text message to your friends, what would it say? What about a one line email to your employees? Find that thing and act in support of that singular idea.

What would you need to know to make you change your viewpoint?

I believe many people only hold views because they’re stubborn, hyper-partisan, or irrational. This applies to much more than just politics.

So how do you distinguish between an ideologue and someone who just has a strong, reasoned opinion?

Asking somebody about what information would change their mind is an incredibly powerful tool to detect this. If they can’t come up with a reasonable example of opinion-altering data, they almost certainly came to their opinion for non-rigorous reasons. Look for people with a thoughtful answer to that question and learn from them.

Goal setting: trivially easy or impossibly hard

A common piece of productivity and life advice goes something like “set goals you can hit.” It makes sense that you’d be most motivated if your goals are challenging and exciting, but still within reach.

But I think that reasoning is wrong. Goals should be trivially easy or moonshot challenging. In the first case, you’ll have no problem getting tasks done, building momentum, and clearing the path needed to focus on the bigger picture. In the second case, impossible goals remove the stress and pressure to perform. You’re okay taking risks (we’re naturally too risk averse) and more flexible in your approach to the problem.

K-step thinking

This NYT article (also: academic paper) about k-step thinking really changed the game for me when it comes to understanding crowd behavior, games, and the “average user” of a product. In situations where the best course of action is a series of steps or depends on what other people’s actions, you’ll have a hard time systematizing/rationalizing what’s going on. But most people only think a few steps ahead. There’s no need to overthink the problem and a theoretically-correct model is probably wrong in practice.

Is this hard work or something I don’t like? Conversely, is this enjoyable or just easy?

Recently there’s been a lot of discussion surrounding “grit,” success, education, and how you achieve goals. Starting early and working hard is important at the micro-level, but I think that whole mindset loses perspective of the macro-level. Case in point: a significant fraction of college students change majors (estimates vary, but 25%-50% seems to be the right) and waste time figuring out what they want to do (the how is well known). I believe the what problem is bigger and less acknowledged than the how problem.

Part of what makes discovering what you want to do such a challenge is that exploration is often at odds with rigor (success). When slowly learning things purely out of curiosity, you lose the pace you need to compete. This adds pressure to do both the interest-exploration and rigorous-skill building at the same time. Some things are obviously hard and miserable and you can rule those out. Some are enjoyable, in which case you need to dig deep and make sure you’re in it for the right reasons.

This thinking applies to prioritization too. Is your startup’s current task actually impactful, or do you just want to do it because you’ll feel productive?

Revealed Preferences as a tool for self-reflection

Related to the hard work or something I don’t like question, revealed preferences are a useful tool for understanding the true nature of yourself and others. The theory was originally created by an economist to solve the problem that “while utility maximization was not a controversial assumption, the underlying utility functions could not be measured with great certainty. Revealed preference theory was a means to reconcile demand theory by defining utility functions by observing behavior.” The idea is that what people say they want is often not at all what they actually want. This matters a lot for understanding your internal utility function (which defines what you care about and should prioritize).

Thinking empirically about how you spend your time and what historically makes you laugh/love/learn will get you much farther than trying to take a first principles approach to what sorts of things we say we care about. The non-empirical approach makes it easier for the fundamental attribution error to kick in and lets you project what you think you should be rather than what you are.

Punctuated equilibrium

Have you noticed how things seem to stay the same for a long time only to change very suddenly? This is another idea from the world of evolutionary biology. Wikipedia describes it: “most social systems exist in an extended period of stasis, which are later punctuated by sudden shifts in radical change.” Most people understand this idea in terms of technological/scientific revolutions and innovation — somebody builds a new tool that rapidly changes how people operate. But it can be applied more generally to anything operating within a larger environment or dealing with independent agents or incentive structures (politics, management, social group preferences, etc.) Phenomena like changes in political dialogue are often described as trends when I think they’re better conceptualized as punctuated equilibria. It makes it easier to systematize and predict second-order consequences.

Meta-competition as a cause for punctuated equilibrium

There’s an interesting game-theory problem for each example of punctuated equilibrium in society. In EvBio terms it can be explained that organisms naturally fit competitive niches which are often shifted by outside factors, almost like the gas from a popped balloon dissipating to fill its container. But in all the situations relevant to real life, the players are people with biases, unique objectives, and an awareness of what other people are thinking.

My best mental model for understanding this is meta-competition. In many cases, performance in some game matters less than choosing which game you compete in. I found a random blog post that used political conflict as an example: “the solidarity folks want a rivalry with the rivalry folks because they (the solidarity folks) think they can win, but the rivalry folks don’t want a rivalry with the solidarity folks because they (the rivalry folks) think they would lose.”

Remember that structural or environmental changes lead to punctuated equilibrium as actors quickly adapt to fit the new landscape or incentive structure. I think that in a lot of cases (deciding who gets the promotion, or the highest-status date, or most cultural recognition,) the result given some rules and boundaries would largely be known. So the most effective way to compete is to change the game you’re playing. This means that since people know what they can win or lose at, they compete over the game being played and when the game/rules are changed, the equilibrium shifts. A noteworthy corollary relevant to career planning: changing a system can have far more impact on the world than doing anything within a system (sounds a lot like Silicon Valley ethos!)

 XY Problem

Taken from a Stack Exchange post: “The XY problem is asking about your attempted solution rather than your actual problem. That is, you are trying to solve problem X, and you think solution Y would work, but instead of asking about X when you run into trouble, you ask about Y.

I catch myself doing this all the time. It doesn’t help that we naturally want to show off the progress that we made on something (even if it’s a dead-end) and fix the attempted solution for gratification or to close the learning feedback loop.

Optimize for serendipity

Several of the most valuable opportunities and friendships throughout my life have happened out of pure chance (read more about this in my post here). Notice that this principle is seemingly at odds with the “hell yes, or no” idea. It’s important to make the distinction: maximizing serendipity creates opportunities, and “hell yes, or no” picks the most meaningful ones. Those are two separate, independently necessary steps in the process.

We stop learning and performing when we can’t tell action/decision quality from outcome

VCs often point out that the feedback loops for investments are 10+ years so it’s hard to learn from your decisions. Less extreme cases pop up in real-life all the time. Being more aware of this helps you 1) put feedback loops in place, and 2) put less weight on what you learn from outcomes loosely connected to actions/decisions.

Training behavior. Idiosyncrasies and preferences are defense for that

I read a fascinating EvBio article theorizing that we have preferences and idiosyncrasies as a sort of social defense mechanism. Clearly we trust and build relationships with people who spend energy/resources affirming the relationship — like how your closest friends remember to call you on your birthday or reward you by playing your favorite song at a party. The fact that everyone has their own unique and seemingly random preferences ensures that people can only gain your trust by spending the time and energy to learn then remember your preferences. A social-trust Proof-Of-Work if you will (deep apologies for the blockchain reference). This helps consciously contextualize and understand our social priorities and be more deliberate in building relationships with people we care about.

Decision making: reversal and double-reversal

If you haven’t learned by now, Wikipedia articles and papers are usually more articulate than I am: “Reversal Test: When a proposal to change a certain parameter is thought to have bad overall consequences, consider a change to the same parameter in the opposite direction. If this is also thought to have bad overall consequences, then the onus is on those who reach these conclusions to explain why our position cannot be improved through changes to this parameter. If they are unable to do so, then we have reason to suspect that they suffer from status quo bias”

“Double Reversal Test: Suppose it is thought that increasing a certain parameter and decreasing it would both have bad overall consequences. Consider a scenario in which a natural factor threatens to move the parameter in one direction and ask whether it would be good to counterbalance this change by an intervention to preserve the status quo. If so, consider a later time when the naturally occurring factor is about to vanish and ask whether it would be a good idea to intervene to reverse the first intervention. If not, then there is a strong prima facie case for thinking that it would be good to make the first intervention even in the absence of the natural countervailing factor.

This is really, really effective in debates/discussions. A concrete (somewhat straw man) example: many people are strongly against any sort of gene enhancement whether through embryo selection or something like CRISPR (I personally see many unanswered questions on the topic). The argument is usually that it’s unfair to make one person unnaturally smarter than another. The reversal is asking if we should then ban private tutoring or even schools, because a select few with access to those resources are “unnaturally smarter” in all consequential ways. This is clearly at odds with the premise of the default argument against gene enhancement. There are many adjacent and orthogonal reasons to hold a position against enhancement, but the reversal is pretty widely applicable and powerful.

Good-story bias. We naturally bias towards thinking of less-likely scenarios that form a story

This one is useful in two ways. First, it’s the base rate fallacy restated in more natural words. When learning through pattern recognition and empiricism, we should try not to be biased by the good stories or outlier data points. Second, storytelling is an incredibly powerful way to influence thinking. Try to tell a story rather than give facts.

Chesterton’s Fence

When trying to change a system or policy it’s easy to find flaws and use those flaws to justify your proposed change. But almost everything was designed intentionally. There is probably a good reason for why something is the way that it is. Before working to change something, spend the time to understand how it was designed in the first place. That process will uncover issues you hadn’t previously considered or will give you further validation for altering the system or policy. This idea is referred to as Chesterton’s Fence. See the Wikipedia article for a history and quick example.

Additive or Ecological?

Any useful technology or policy developments will change user behavior. Making an explicit dichotomy between additive changes (first-order effects only) and ecological changes (higher-order effects are present) makes it easier to choose your decision-making toolkit and weigh factors appropriately.

That’s it for now. Please tell me about your mental models (seriously!) My email and Twitter are on the homepage.