Money and Minds - How The Brain Affects Financial Decisions
Posted on April 24, 2008
Filed Under Blogs | 2 Comments
I recently started a new group blog with some very talented writers. Money and Minds focuses on investing and personal finance from the perspective of neuroscience. Why does our brain cause us to make lousy decisions sometimes? Read the site and find out. The writers are a talented group with a diverse background in finance and cognitive science. I think you will find their material interesting.
Why I Gave Up Blogs To Read More Books
Posted on March 31, 2008
Filed Under Critical Thinking | 13 Comments
I logged into Bloglines today for the first time in weeks. 1000+ posts. That is how many I missed among the 63 feeds that I now read, or, did read. At one time, just a few years ago, I read overt 300 RSS feeds almost daily. What happened? Why have I stopped? To understand that, you need to know why I started.
In 2002, blogs were cool. These easy online publishing tools had given the “little guy” a voice. And those voices were refreshing. At the time, I was an avid reader, usually finishing off about 250 pages (roughly one nonfiction book) each week, but I cut back on my book reading to spend more time with these media mavericks called bloggers.
Like most human expression though, as it became cool, everyone wanted to do it, and most people were lousy at it. At birth, the blogosphere was the very antithesis of the shoddy amateurism with which the mainstream media portrayed it. Now that blogs have grown up, we see that the mainstream media was right. Blogs suck. Not all of them, just most of them.
You see, those of you who don’t produce media don’t realize that the very structure of modern media necessitates the constant production of crap. I don’t mean bad writing. The writing is very good. I don’t mean uninteresting content, on the contrary, it can be very interesting. What I mean is that the thinking behind most of what is written on blogs is lousy, or more likely non-existent.
The web today is driven by novelty and recency. In order for content companies to survive, they must produce fresh content at an incredible pace. The result, is articles that are more designed to get you clicking than to get you thinking. When you are forced to write a lot, the quality will inevitably go down.
So, over the past two years or so, my blog reading has declined. As the average intellectual quality of blog content decreased, and the average person began reading blogs, I decided to find a new source of inspiration, so I turned back to books.
When you read what everyone else reads, you will think like everyone else thinks. The best way to be original and creative is to have a different set of inputs. Cut your feed reader. Pick the 10 blogs that you like the most, and don’t waste your time with the rest. All you have to lose is those “me too” thinking patterns that social media promotes.
Content Populism: Blogs Are Not Conversations, They Are Echo Chambers
Posted on March 8, 2008
Filed Under Blogs, Crowd Stupidity | 6 Comments
When I first began blogging back in 2003, it almost felt like a form of media disobedience. We were called “amateurs” but we felt more like “revolutionaries.” The Cluetrain Manifesto had set us free. We were going to talk about what mattered, the stuff the main stream media ignored. We would let readers respond. We would link to each other and praise, criticize, and hold others accountable for what they said. Blogs were conversations. It was the future of media.
Like most ideas about the future though, this one was a little off track.
Today it is obvious how naive we were. Like so many others before us, we viewed this new and groundbreaking thing through the lens of egalitarian nobility. We though that the average person was smart, educated, interested, informed, and had something relevant to say. What we found out was very different.
It really began when programs were released that made it easy to monetize a blog without directly finding an advertiser on your own. People who previously had no interest in blogging suddenly realized they could write better than most of the existing bloggers, and thus could make some decent money. Blogs quickly became dominated by professional writers and media companies. And these new blogs attracted most of the readership. Businessweek could launch a blog and in one month have more traffic and RSS subscribers than most regular business bloggers ever dreamed of having. By 2006, blogs were mainstream media too.
Commenters, as it turned out, only had something relevant and insightful to say about 10% of the time. The rest of the time they promoted viagra or porn, said something stupid like “first”, started childish arguments involving name calling, or made relatively obvious statements that contributed nothing to the discussion. Commenting turned into a way to get your blog linked from a popular blog, or to try to gain some linkage by brown-nosing a popular blogger. The average person wasn’t nearly as insightful as predicted.
Flies in Vinegar Jars
The worst thing that came from blogging over time is that it didn’t encourage discussion about important things nearly as much as it caused a rise of circle jerking, back patting, and echoing the sentiments of everyone else. Groups of bloggers all read and linked to each other, ignoring the little guys and the very ideals on which the blogosphere was founded. This circle jerking has led to the “fly in a vinegar jar syndrome” that has built much of the web 2.0 bubble in recent years.
You remember that story, don’t you? The fly born in the vinegar jar believes it is the sweetest place on earth… but only because that is all he knows. Bloggers are flies of the worst kind. We lambast people who don’t get all orgasmic about web communities and social media. “What?! You don’t read Digg (Reddit, Mixx, Stumbleupon, etc)?” As if people who don’t spend every waking moment in a narcissistic online love fest are somehow lesser beings. We pretend the offline world has little to offer. Seriously, what loser would go for a walk in the park when he or she could be turning their Facebook friends into vampires instead? It’s a crisis of values for sure. Or have we just become used to the smell of vinegar?
Don’t misunderstand what I am saying. I do not want blogs to go away. They are useful, and by lowering the barrier to entry for publishing, we get to find some diamonds in the rough that we otherwise would have missed. But a lower barrier to entry also creates a lot of noise and garbage, and what irks me is this classification of the noise and garbage as some kind of great egalitarian paradigm shift.
What it boils down to is this… the blogs making money are not usually the ones that are not the most well written, the most interesting, or the most educational. They are the ones that have adopted a policy of content populism. They give the people what they want, even if those wants are the result of uneducated and unexamined thinking. Then everybody jumps on the bandwagon and agrees with each other and talks about how great it is that Facebook is valued at $15 billion or whatever. And I’m just tired of it. I’m tired of people asking me about Robert Scoble. I don’t follow him and I don’t care what he is doing. I don’t care what is on Techmeme, or Digg, or anything else because I believe in an idea that is extremely radical in this day and age…that what I read should be determined by what interests me, and not what is popular or crowdsourced. Yes, it is heresy, I know. And if you are going to argue that the fact that something is popular shows that people are interested in it, I will call bullshit and say that popularity is a feedback loop, and that people simply think they should like what is popular.
So here’s to the iconoclasts, the independent thinkers, and the guys out there like Nick Carr, who aren’t drinking the Kool-Aid. You are the true bloggers. You represent the real spirit of the blogosphere. Thank you.
Too Much Information Can Lead To Worse Decisions
Posted on February 8, 2008
Filed Under Decision Making | 3 Comments
Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations.
Based on this description, which of the following is more likely to be true?
a) Linda is a bank teller
b) Linda is a bank teller and is active in the feminist movement
This description and question were given to subjects as part of a study by Amos Tversky and Daniel Kahneman. The correct answer is A, because anytime you add detail to a scenario, the probability will decrease (in other words, B is a subset of A). Surprisingly, in the study, 90% of subjects chose B as the more likely alternative.
The study highlights a problem in decision making called the Representative Bias and it points out the dangers of scenario analysis in business. When analyzing possible outcomes from strategic decision making, you must be careful to assign probabilities based on probability theory, not on how well the underlying information represents the class of phenomena you are considering. In other words, detailed scenarios sometimes “feel” more likely than they really are. Thus more time is spent worrying about those risks and consequences than is spent on other scenarios.
In general, more information is a good thing. But in certain instances too much information can cause you to make worse decisions because of the representative bias, or because you are simply listening to random noise. Like all cognitive biases, awareness of the potential bias and a sound decision making process are the best defenses.
What Are Coconut Headsets?
Posted on January 18, 2008
Filed Under About | 5 Comments
Sometimes people ask me about the name of this blog. The term “coconut headsets” refers to a behavior of the Cargo Cults. These cults are usually tribal people who were exposed to military forces of major countries during a war.
Famous examples of cargo cult activity include the setting up of mock airstrips, airports, offices, dining rooms, as well as the fetishization and attempted construction of western goods, such as radios made of coconuts and straw. Believers may stage “drills” and “marches” with sticks for rifles and use military-style insignia and “USA” painted on their bodies to make them look like soldiers, thereby treating the activities of western military personnel as rituals to be performed for the purpose of attracting the cargo. The cult members built these items and ‘facilities’ in the belief that the structures would attract cargo intended to be sent to them. This perception reportedly has been reinforced by the occasional success of an ‘airport’ to attract military transport aircraft full of cargo.
After cargo airplanes stop using the temporary runways around many of these tribes, the tribes people decided to attract the aircraft back by building mock equipment. One of things they did was build coconut headsets to wear when guiding the planes in. Of course, the planes did not return.
The idea behind coconut headsets is that these cargo cult members thought that by copying certain aspects of a situation, they could get the result they wanted. They were obviously wrong. But people still do this frequently. Companies copy the leaders in their industry, even though strategic thinking would say this is a bad move - that you should differentiate your market position unless you have some reason to believe you can beat the market leader out of their own position. Managers wear coconut headsets when they blindly copy ideas, or grossly misapply them, instead of thinking through each situation to see if adopting a new idea makes sense. Leaders wear coconut headsets when they confuse cause and effect, like believing that happy employees leads to better corporate performance, when perhaps the real link is that better corporate performance leads to happy employees.
Human beings make bad decisions because our brains evolved to maximize our fitness the way the world was 10,000 years ago. We aren’t well adapted to modern life, and sometimes make mental mistakes because of the way our brains process information. This blog is about how to take off those coconut headsets, how to make better decisions, and how to think better about business, and about life.
Using the Hedonic Treadmill To Be More Productive
Posted on January 11, 2008
Filed Under Productivity, Critical Thinking | 8 Comments
Joseph Schumpeter used to record a daily score in his diary for how hard he worked that day. He was not kind to himself and frequently gave himself low grades even as he churned out famous works like Capitalism, Socialism, and Democracy. He felt like he spent too much of his day doing unproductive things. He should be glad he did not live in the age of the Web. It’s a productivity killer like no other.
Why do we work? Why do we care about being productive? Ultimately it’s so that we have more time and more money to do the things that we enjoy. But there is a catch. According to a theory called the Hedonic Treadmill, our happiness stays in pretty much the same place regardless of what happens to us in life. It may move for a while if someone close to you dies, or if you win the lottery, but within a few months most people will return to their baseline level of happiness. There is one caveat. Your happiness only stays the same above some baseline level of achievement. For instance, being dirt poor does not lead to the same level of happiness as being filthy rich, but once you reach middle class income levels, there is little happiness variation as income increases.
The hedonic treadmill is an important idea because it means that if we engage in more recreation, spend more time passively idle, and do a lot more shopping and spending to acquire nice things, we aren’t any happier for it (assuming our base level of recreation, etc is met). This probably explains why celebrities lives are so shallow and pathetic. But there is a flip side to the hedonic treadmill that can be useful to us. If we spend time doing difficult things, working a bit more or a bit harder, exercising when we don’t really feel like it, acquiring more knowledge, we are no less happier for all the time spent on such things.
Let me give a personal example here. In 2007, I gave up desserts for the entire year - no cookies, candies, brownies, cakes, doughnuts, pies, ice cream, etc. Several people commented that it would be a miserable year. But there was really no change in my attitude, and I felt healthier for it. My happiness was unchanged, yet I had more energy. When 2008 came, I never looked back on 2007 and thought “man, if only I had eaten more dessert it would have been so much better.” On the contrary, once the first few moments of desire for a chocolate brownie had passed, it didn’t matter. I never thought about it again.
I don’t know about you, but I often get distracted from the things I should be doing to achieve my long-term goals. I sit and watch basketball on tv, or surf the web and Twitter things that really aren’t that important. I justify it by saying that I’m relaxing, that I’m tired, and that I deserve this. But the hedonic treadmill says that is unlikely to be true. And my experience corroborates that. In 1997, I lived 9 months without a tv, and I didn’t miss it. My happiness didn’t change. I just got used to the situation. And ultimately, that is what the hedonic treadmill says - that we get used to things.
So, with that in mind, how do you use the hedonic treadmill to increase your productivity? You structure your life with two goals in mind. First, that you include some time for balance. This is time spent to reach your minimum levels of recreation, idleness, etc. Secondly, you set regular goals that are focused on things other than happiness. For instance, you make yourself work on that side project even when you want to watch Lost. You make yourself get up for that run, even when you want to sleep in. You do this by telling yourself that sleeping in and watching Lost really don’t make you any happier.
Now, the obvious question that pops to mind is why should I want to be more productive if it doesn’t make me happier? Maybe you don’t and that is fine. But, increased productivity can make you healthier, meaning that you live longer. It can mean that you learn more and thus have more opportunities to take interesting jobs, make more money, and contribute something more back to the world. Living longer may not change your day to day happiness, but it is still something most of us desire. Making more money may not change your day to day happiness, but it can have a big impact on the lives of other people if you use it the right way.
Modern life has made even the poorest of American rich relative to global standards of living. All the time we spend keeping up with the Jones, trying to make ourselves happier, is rarely going to make a difference in our lives. With that in mind, you should use the hedonic treadmill to help you break out of the the pattern. Why pursue more happiness as a goal when the truth is that you are already happy enough, and are unlikely to get happier? The pursuit of ever more happiness often distracts us from other goals that we have, and those goals shouldn’t get pushed to the side. So pursue a balanced life with balanced goals, and you can have your happiness and much more along with it.
Picking the Right Tool: Why Absolutes Aren’t the Path to Success
Posted on December 27, 2007
Filed Under Decision Making | 4 Comments
Have you ever seen a strap wrench? It’s a useless tool most of the time. It can’t turn a screw, hammer a nail, solder, saw, measure, cut, sand, or do any of the things you spend most of the time doing on home improvement projects. But, on rare occasion, it is the perfect tool, because there are a few things it can do that no other tools can.
I have been thinking a lot about tools as I think about how to sum up the last five years of blogging at Businesspundit. Over the past 5 years, I have seen so many management tools and ideas written up in business related blogs, books, and periodicals, and the one thing they have in common is that they tend to focus on a single, or at most a handful, of ideas as the keys to success. Just visit your local bookstore and you can learn to become a One Minute Manager, or learn the Four Obsessions of An Extraordinary Executive. You can find the Only Negotiation Guide You Will Ever Need, or learn the Only Thing That Matters. You can learn how Mass Collaboration Changes Everything, how Trust Changes Everything, or how Everything You’ve Heard Is Wrong. What is a businessperson to do? What are the key things that you have to know to be successful in business? What are the drivers of change, creating value, successful management, and great leaders? Well, I think they are a bit complicated. People who think you only need to master one thing to build a successful business should try to build a house with just a saw, or only a hammer.
The problem with business is that people want it to be simple, because simple is easy. Employees want to focus on just a few key things. Managers want to measure just a few key statistics. Executives want to boil decisions down to a few key variables. Everyone wants to cut through the noise and find the signal. Most of the time, that is a good thing. But the problem is that business is always changing. What worked in the past may not work in the future. Tools that helped you in 2007 may fail you in 2008. Both the signal and noise are always changing shape, making it an ongoing effort to distinguish between the two.
So what does this mean for you? It means that the best path to success is not to get stuck on one tool, or a handful of key ideas. It means you must constantly be learning new tools and evaluating them against the old ones. Add tools to your toolkit that are useful, discard tools that aren’t serving you well. Store tools that you may need for a special occasion. Most importantly though, learn when to use the right tool to get the job done.
That last statement reveals that business really is complex. While it might be easy to master six sigma, servant leadership, win-win thinking, customer focus, one minute managing, or whatever tool it is you are trying to use, it’s much much more difficult to understand when to use that tool properly.
My advice to a young entrepreneur or manager is to take the following steps to make sure you are successfully building the right toolkit for your future.
1. Read broadly across topics and types of content. Choose everything from blogs and major periodicals to books to journals to white papers. If something is interesting, investigate it further. If something seems dumb, don’t waste your time finishing it just for the sake of finishing.
2. Cycle your focus by occasionally halting your broad search for new ideas to spend a few months focusing on depth. Dig in deeper and learn more about the tools and ideas that seem most useful. Don’t worry about what you may miss when you stop your broad based reading, because important ideas will bubble to the top eventually.
3. Approach your learning from two perspectives:
- How does a tool mesh with your skill set? Will it be easy for you to use, or difficult for you? Can you use it well?
- What situations will be best for the tool? Are certain industries, companies, or employees more likely to embrace this tool?
4. Constantly re-evaluate what you know, what you are learning, and how well you are applying it. This one is tough for me personally, because any time spent in the “meta” stage (where I am thinking about the way that I think and apply these ideas) seems like wasted time. It seems like that time may be better spent learning something new or learning something more in-depth. But, in a world with overwhelming amounts of information, the only way to make sure you stay on the right path is this constant self-evaluation period. Think of it as time spent looking at a roadmap to make sure you are picking the right roads to get you where you want to go.
Building a great business over the long-term is a difficult thing to do. Your best shot at success is not to be simple minded in how you go about it, but to learn as much as possible. Increase the number of tools at your disposal. Constantly improve your ability to use them. Over the long-term, you will end up much better off than those who are distracted by quick fixes and easy absolutes.
How To Become a Better Blogger By Not Reading Blogs
Posted on December 20, 2007
Filed Under Blogs | 17 Comments
Andy Swan left an interesting comment on my post about MBAs.
The strategic thinking aspect of an MBA is worthless. Why? Because it is EXACTLY the same strategic thinking that your competitors are using. Think of business like a poker game or trading the stock market…if most people are playing based on the same set of strategic rules, then it is going to be the “maverick” who changes the dynamic of the game and can exploit the weakness of ALL competition with a single strategic difference.
I was thinking about his comment today as I looked at the links to Businesspundit in Technorati. I noticed that my hastily published post Management by Semantics received several incoming links, while a post I spent a lot of time on, The Google of Eden, didn’t get squat. The interesting thing about the former is that it came from a quote I found in a book. The latter was a response to another blog post.
As I thought about this, I realized that over the 5 years I’ve been blogging, my most popular posts have not come from following the blogosphere. They haven’t been the result of me responding to some online conversation. They haven’t been on techmeme. They have all been original stuff, stuff that I thought of when I wasn’t in front of a computer. My most popular post of all time, How to Network For Introverts came from a lunch conversation with a friend. The second most popular post of all time, my criticism of the book “Good to Great”, came when a friend of mine made a random comment about one of the companies in the study. Do you see a pattern emerging? Not one of my top 20 posts was on a popular blogosphere topic. Not one of them was about me “being part of the conversation.” Not one of them was anything other than a random observation or encounter that led to an idea.
In the early days of blogging, I read a lot and linked a lot, but now, to stand out, you have to take Andy’s comment into account. If you read the top blogs on the web, well, so does everyone else. Why are you suddenly going to have different ideas of what to write about?
My advice, if you want to become a better blogger, is not to read so many blogs. Or mix them up, rotating through a different list each week. I know, I know, you are afraid you will “miss something.” Miss what? Anything that is really important will filter up to a higher level of news anyway. Maybe that isn’t what you are concerned about. Maybe you are looking for that diamond in the rough - that unpopular piece of information that will somehow make all the difference to your life. Well, you may find that, but you will have to read so much redundant crap to get to it, that won’t be worth the tradeoff.
If you want to stand out, get your ideas from some place that other people don’t. Blogging is about differentiation, and to get different outputs, you need different inputs. So shut down that RSS reader. Pick up a book or a magazine. Chat with a friend. Find your blogging ideas in life, not in other blogs. You, and your readers, will enjoy your posts more.
Availability Cascades
Posted on December 6, 2007
Filed Under Crowd Stupidity, Critical Thinking | 1 Comment
Holman Jenkins has an excellent piece in the Wall Street Journal today about cascades. He asks some very important questions that any critical thinker should consider. While discussing Al Gore’s Nobel prize, he notes that:
How this honor has befallen the former Veep could perhaps be explained by another Nobel, awarded in 2002 to Daniel Kahneman for work he and the late Amos Tversky did on “availability bias,” roughly the human propensity to judge the validity of a proposition by how easily it comes to mind.Their insight has been fruitful and multiplied: “Availability cascade” has been coined for the way a proposition can become irresistible simply by the media repeating it; “informational cascade” for the tendency to replace our beliefs with the crowd’s beliefs; and “reputational cascade” for the rational incentive to do so…
…Here’s exactly the problem that availability cascades pose: What if the heads being counted to certify an alleged “consensus” arrived at their positions by counting heads?
We obviously do not have the time and energy to investigate every single one of our beliefs in deep detail, and life without believing anything except what we have personally investigated would be a very strange way to live. So how does one avoid informational cascades that end up becoming orthodoxy only through social proof and crowd behavior? That is the kind of question I hope to address over the next few months on this blog.
Welcome to Coconut Headsets
Posted on November 26, 2007
Filed Under About | 1 Comment
On March 12, 2003, I started blogging at Businesspundit. The blog became one of the most popular business blogs on the web. In 2007, I grew tired of blogging and decided to sell it. Coconut Headsets is my new blog home. What can you expect here? Well, for starters, I probably won’t write nearly as often. I prefer quality over quantity, and I plan to write just once or twice a week at most. The format will be more essay, more tutorial, more stuff like that. I won’t write just for the sake of writing, but rather, will write because I have something to contribute.
I encourage you to pick up my feed. I also hope you will go read Businesspundit.com, as the writing there is still excellent.
