We wish we had learned about these ideas much earlier, because they not only help us better understand what is going on around us, but also make us more effective decision makers in all areas of our lives. (Location 278)
Tags: mentalmodels
Note: .mentalmodels help you better undrstand the world around you and make more effective decisions
When you don’t use mental models, strategic thinking is like using addition when multiplication is available to you. (Location 315)
Tags: strategy, favorite, mentalmodels
Note: mental models speed up decision making
1 Being Wrong Less
The concept of inverse thinking can help you with the challenge of making good decisions. The inverse of being right more is being wrong less. Mental models are a tool set that can help you be wrong less. They are a collection of concepts that help you more effectively navigate our complex world. (Location 374)
Tags: favorite, inverse, mentalmodels
Note: .mentalmodels .inverse rather than trying to be right more often, be wrong less often
The central mental model to help you become a chef with your thinking is arguing from first principles. It’s the practical starting point to being wrong less, and it means thinking from the bottom up, using basic building blocks of what you think is true to build sound (and sometimes new) conclusions. First principles are the group of self-evident assumptions that make up the foundation on which your conclusions rest—the ingredients in a recipe or the mathematical axioms that underpin a formula. (Location 413)
When arguing from first principles, you are deliberately starting from scratch. You are explicitly avoiding the potential trap of conventional wisdom, which could turn out to be wrong. Even if you end up in agreement with conventional wisdom, by taking the first-principles approach, you will gain a much deeper understanding of the subject at hand. (Location 436)
Tags: fiirstprinciples
Note: .fiirstprinciples start from scratch
Ultimately, to be wrong less, you also need to be testing your assumptions in the real world, a process known as de-risking. There is risk that one or more of your assumptions are untrue, and so the conclusions you reach could also be false. (Location 446)
Once you get specific enough with your assumptions, then you can devise a plan to test (de-risk) them. The most important assumptions to de-risk first are the ones that are necessary conditions for success and that you are most uncertain about. For example, in the startup context, take the assumption that your solution sufficiently solves the problem it was designed to solve. If this assumption is untrue, then you will need to change what you are doing immediately before you can proceed any further, because the whole endeavor won’t work otherwise. (Location 465)
Tags: derisk
Note: .derisk derisk the assumptions which are necessary conditions for success
Ockham’s razor helps here. It advises that the simplest explanation is most likely to be true. When you encounter competing explanations that plausibly explain a set of data equally well, you probably want to choose the simplest one to investigate first. (Location 492)
Tags: simplify, ockham's razor
You can be nudged in a direction by a subtle word choice or other environmental cues. Restaurants will nudge you by highlighting certain dishes on menu inserts, by having servers verbally describe specials, or by just putting boxes around certain items. (Location 573)
Tags: restaurant, nudge
Rightly or wrongly, the media infamously has a mantra of “If it bleeds, it leads.” The resulting heavy coverage of violent crime causes people to think it occurs more often than it does. (Location 602)
Tags: media
Note: .media
Availability bias stems from overreliance on your recent experiences within your frame of reference, at the expense of the big picture.
Let’s say you are a manager and you need to write an annual review for your direct report. You are supposed to think critically and objectively about her performance over the entire year. However, it’s easy to be swayed by those really bad or really good contributions over just the past few weeks.
Or you might just consider the interactions you have had with her personally, as opposed to getting a more holistic view based on interactions with other colleagues with different frames of reference. (Location 610)
Tags: performance review, availabilitybias
Note: .availabilitybias
Another tactical model that can help you empathize is the most respectful interpretation, or MRI. In any situation, you can explain a person’s behavior in many ways. MRI asks you to you interpret the other parties’ actions in the most respectful way possible. It’s giving people the benefit of the doubt. (Location 650)
Note: Assume the best. Dont attribute to malice that which can be explained otherwise
Hanlon’s razor: never attribute to malice that which is adequately explained by carelessness (Location 664)
Tags: hanlons razor
disconfirmation bias, where you impose a stronger burden of proof on the ideas you don’t want to believe. (Location 782)
playing the Devil’s advocate means taking up an opposing side of an argument, even if it is one you don’t agree with. One approach is to force yourself literally to write down different cases for a given decision or appoint different members in a group to do so. Another, more effective approach is to proactively include people in a decision-making process who are known to hold opposing viewpoints. Doing so will help everyone involved more easily see the strength in other perspectives and force you to craft a more compelling argument in favor of what you believe. As Charlie Munger says, “I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.” (Location 812)
Note: Understand an opposing view before coming to a conclusion
When something happens, the proximate cause is the thing that immediately caused it to happen. In the case of the Challenger, the Rogers Commission Report showed that the proximate cause was the external hydrogen tank igniting. The root cause, by contrast, is what you might call the real reason something happened. People’s explanations for their behavior are no different: anyone can give you a reason for their behavior, but that might not be the real reason they did something. For example, consistent underperformers at work usually have a plausible excuse for each incident, but the real reason is something more fundamental, such as lack of skills, motivation, or effort. (Location 846)
Richard Feynman was on the Rogers Commission, agreeing to join upon specific request even though he was then dying of cancer. He uncovered the organizational failure within NASA and threatened to resign from the commission unless its report included an appendix consisting of his personal thoughts around root cause, which reads in part: It appears that there are enormous differences of opinion as to the probability of a failure with loss of vehicle and of human life. The estimates range from roughly 1 in 100 to 1 in 100,000. The higher figures come from the working engineers, and the very low figures from management …. It would appear that, for whatever purpose, be it for internal or external consumption, the management of NASA exaggerates the reliability of its product, to the point of fantasy …. For a successful technology, reality must take precedence over public relations, for nature cannot be fooled. (Location 869)
Note: Reality must take precedence over PR, for nature cant be fooled
KEY TAKEAWAYS
To avoid mental traps, you must think more objectively. Try arguing from first principles, getting to root causes, and seeking out the third story. (Location 890)
Tags: root cause
Realize that your intuitive interpretations of the world can often be wrong due to availability bias, fundamental attribution error, optimistic probability bias, and other related mental models that explain common errors in thinking. (Location 892)
Use Ockham’s razor and Hanlon’s razor to begin investigating the simplest objective explanations. Then test your theories by de-risking your assumptions, avoiding premature optimization. (Location 895)
Attempt to think gray in an effort to consistently avoid confirmation bias. (Location 898)
Actively seek out other perspectives by including the Devil’s advocate position and bypassing the filter bubble. Consider the adage “You are what you eat.” You need to take in a variety of foods to be a healthy person. Likewise, taking in a variety of perspectives will help you become a super thinker. (Location 900)
Tags: perspective
Note: You need a varied diet, and varied perspectives
2 Anything That Can Go Wrong, Will
Walmart teamed up with Sheets Energy Strips and offered to put on a concert by international recording artist Pitbull at the Walmart location that received the most new Facebook likes. After an internet prankster took hold of the contest, Walmart’s most remote store, in Kodiak, Alaska, won. Walmart and Pitbull still held the concert there and they even had the prankster who rigged the contest join Pitbull on the trip! (Location 915)
Tags: newsletter
Note: .newsletter
According to the National Institutes of Health, in the U.S., nearly half of young people who inject heroin started abusing prescription opioids first. (Location 920)
Tags: heroin
Note: .heroin
More broadly, the tragedy of the commons arises from what is called the tyranny of small decisions, where a series of small, individually rational decisions ultimately leads to a system-wide negative consequence, or tyranny. It’s death by a thousand cuts. (Location 946)
externalities, which are consequences, good or bad, that affect an entity without its consent, imposed from an external source. The infant who cannot be vaccinated, for example, receives a positive externality from those who choose to vaccinate (less chance of getting the disease) and a negative externality from those who do not (more chance of getting the disease). (Location 1005)
Coase theorem, essentially a description of how a natural marketplace can internalize a negative externality. Coase showed that an externality can be internalized efficiently without further need for intervention (that is, without a government or other authority regulating the externality) if the following conditions are met: Well-defined property rights Rational actors Low transaction costs When these conditions are met, entities surrounding the externality will transact among themselves until the extra costs are internalized. If you recall the Boston Common example, the externality from overgrazing was internalized by setting a limit on the number of cows per farmer (regulation). There were no property rights though. (Location 1025)
moral hazard, is where you take on more risk, or hazard, once you have information that encourages you to believe you are more protected. It has been a concern of the insurance industry since the seventeenth century! Sometimes moral hazard may involve only one person: wearing a bike helmet may give you a false sense of security, leading you to bike more recklessly, but you are the one who bears all the costs of a bike crash. (Location 1047)
principal-agent problem, where the self-interest of the agent may lead to suboptimal results for the principal across a wide variety of circumstances. Politicians don’t always act in the best interest of their constituents; real estate agents don’t always act in the best interest of their sellers; financial brokers don’t always act in the best interest of their clients; (Location 1055)
Goodhart’s law When a measure becomes a target, it ceases to be a good measure. (Location 1146)
Tags: goodharts law
When you try to incentivize behavior by setting a measurable target, people focus primarily on achieving that measure, often in ways you didn’t intend. Most importantly, their focus on the measure may not correlate to the behavior you hoped to promote. (Location 1154)
Tags: measure
Note: .measure people will optimise to hit targets
cobra effect, describing when an attempted solution actually makes the problem worse. This model gets its name from a situation involving actual cobras. When the British were governing India, they were concerned about the number of these deadly snakes, and so they started offering a monetary reward for every snake brought to them. Initially the policy worked well, and the cobra population decreased. But soon, local entrepreneurs started breeding cobras just to collect the bounties. After the government found out and ended the policy, all the cobras that were being used for breeding were released, increasing the cobra population even further. (Location 1167)
Tags: newsletter
Note: .newsletter
The Streisand effect applies to an even more specific situation: when you unintentionally draw more attention to something when you try to hide it. It’s named for entertainer Barbra Streisand, who sued a photographer and website in 2003 for displaying an aerial photo of her mansion, which she wanted to remain private. Before the suit, the image had been downloaded a total of six times from the site; after people saw news stories about the lawsuit, the site was visited hundreds of thousands of times, and now the photo is free to license and is on display on Wikipedia and many other places. (Location 1175)
Tags: favorite, newsletter
Note: .newsletter
hydra effect, named after the Lernaean Hydra, a beast from Greek mythology that grows two heads for each one that is cut off. When you arrest one drug dealer, they are quickly replaced by another who steps in to meet the demand. When you shut down an internet site where people share illegal movies or music, more pop up in its place. Regime change in a country can result in an even worse regime. (Location 1180)
Note: Like whack a mole. Remove one and another takes its place
An apt adage is Don’t kick a hornet’s nest, meaning don’t disturb something that is going to create a lot more trouble than it is worth. With all these traps—Goodhart’s law, along with the cobra, hydra, and Streisand effects—if you are going to think about changing a system or situation, you must account for and quickly react to the clever ways people may respond. There will often be individuals who try to game the system or otherwise subvert what you’re trying to do for their personal gain or amusement. (Location 1184)
Tags: system
Note: .system if you change a system you must be able to adapt to how people respond
From finance, short-termism describes these types of situations, when you focus on short-term results, such as quarterly earnings, over long-term results, such as five-year profits. If you focus on just short-term financial results, you won’t invest enough in the future. Eventually you will be left behind by competitors who are making those long-term investments, or you could be swiftly disrupted by new upstarts (Location 1252)
preserving optionality. The idea is to make choices that preserve future options. Maybe as a business you put some excess profits into a rainy-day fund, or as an employee you dedicate some time to learning new skills that might give you options for future employment. Or, when faced with a decision, maybe you can delay deciding at all (see thinking gray in Chapter 1) and, instead, continue to wait for more information, keeping your options open until you are more certain of a better path to embark upon. (Location 1295)
Tags: decisions
Note: .decisions make decisions that preserve options
There is a natural conflict between the desire to make decisions quickly and the feeling that you need to accumulate more information to be sure you are making the right choice. You can deal with this conflict by categorizing decisions as either reversible decisions or irreversible decisions.
Irreversible decisions are hard if not impossible to unwind. And they tend to be really important. Think of selling your business or having a kid. This model holds that these decisions require a different decision-making process than their reversible counterparts, which should be treated much more fluidly. (Location 1341)
Tags: decisions
Note: .decisions categorise decisions as reversible and non-reversible
Irreversible decisions (One way doors) - Make slowly
- Some decisions are consequential and irreversible or nearly irreversible.
- These decisions must be made methodically, carefully, slowly, with great deliberation and consultation.
- If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.
Reversible Decisions (Two way doors) - Make quickly
- Most decisions are changeable, reversible.
- If you’ve made a suboptimal [reversible] decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through.
As organizations get larger, there seems to be a tendency to use the heavy-weight [irreversible] decision-making process on most decisions, including many [reversible] decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. (Location 1346)
Tags: corporate, innovation, decisions
Note: .decisions
In your own life, you can use Hick’s law to remember that decision time is going to increase with the number of choices, and so if you want people to make quick decisions, reduce the number of choices. One way to do this is to give yourself or others a multi-step decision with fewer choices at each step, such as asking what type of restaurant to go to (Italian, Mexican, etc.), and then offering another set of choices within the chosen category. (Location 1361)
Tags: decisions, hickslaw
Note: .hickslaw .decisions as thenumber of options increases the time to makr decision increases greatly
KEY TAKEAWAYS
In any situation where you can spot spillover effects (like a polluting factory), look for an externality (like bad health effects) lurking nearby. Fixing it will require intervention either by fiat (like government regulation) or by setting up a marketplace system according to the Coase theorem (like cap and trade). (Location 1406)
Public goods (like education) are particularly susceptible to the tragedy of the commons (like poor schools) via the free rider problem (like not paying taxes). (Location 1410)
Tags: tragedy of the commons
Beware of situations with asymmetric information, as they can lead to principal-agent problems. (Location 1412)
Be careful when basing rewards on measurable incentives, because you are likely to cause unintended and undesirable behavior (Goodhart’s law). (Location 1414)
Short-termism can easily lead to the accumulation of technical debt and create disadvantageous path dependence; to counteract it, think about preserving optionality and keep in mind the precautionary principle. (Location 1416)
Tags: short term gains
Internalize the distinction between irreversible and reversible decisions, and don’t let yourself succumb to analysis paralysis for the latter. (Location 1419)
Heed Murphy’s law! (Location 1422)
law of diminishing utility, which says that the value, or utility, of consuming an additional item is usually, after a certain point, less than the value of the previous one consumed. Consider the difference between the enjoyment you receive from eating one donut versus eating a second or third donut. By the time you get to a sixth donut, you may no longer get any enjoyment out of it, and you might even start getting sick. (Location 1669)
One reason why people procrastinate so much is present bias, which is the tendency to overvalue near-term rewards in the present over making incremental progress on long-term goals (see short-termism in Chapter 2). It’s really easy to find reasons on any given day to skip going to the gym (too much work, bad sleep, feeling sick/sore, etc.), but if you do this too often, you’ll never reach your long-term fitness goals. (Location 1703)
Tags: short term gains
Note: People focus on short term rewards rather than long term rewards
In a 1968 paper in the Journal of Personality and Social Psychology, Robert E. Knox and James A. Inkster described two experiments they conducted at two different horse tracks. They asked as many people as possible to rate the chances of their horses’ winning. Some of the people were interviewed right before their bets were placed, and others right after. The group questioned after they made their bets rated their horses’ chances significantly higher. This supported the scientists’ prediction that, post-bet, bettors were more confident in their choices. Evidently, simply the act of committing to the bet convinced bettors that their odds of winning had increased (see cognitive dissonance in Chapter 1). Remaining data-driven can help you avoid this mistake. The “power of positive thinking” can only get you so far. (Location 1827)
Tags: betting
Note: .betting people get more confident in the chances of suuccess after they place their bet
KEY TAKEAWAYS
Choose activities to work on based on their relevance to your north star. (Location 1948)
Select between options based on opportunity cost models. (Location 1952)
Recognize when you’ve hit diminishing returns and avoid negative returns. (Location 1955)
Use commitment and the default effect to avoid present bias, and periodic evaluations to avoid loss aversion and the sunk-cost fallacy. (Location 1957)
Look for shortcuts via existing design patterns, tools, or clever algorithms. Consider whether you can reframe the problem. (Location 1960)
4 Becoming One with Nature
Professor Leon Megginson, paraphrasing Darwin, put it like this in a 1963 speech to the Southwestern Social Science Association: “It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.” (Location 1988)
Tags: adapt
As the CEO of a fast-growing company, Gabriel finds that his job and the jobs of his team look very different from how they looked just eighteen months ago. That’s because as the company grows, what is required of its executives changes, moving initially from building a product (design, creation, etc.) to building a company (managing people, defining structure, etc.), to building a sustainable business (financial models, managing managers, etc.). In such a rapidly changing environment, you need a method for adapting quickly. (Location 1993)
Tags: startup, ceo
Google’s strategy of being the world’s biggest advertising company requires it to pay the tax of not adding significant anti-tracking features to its browser, since doing so would counteract that strategy. Apple does not have to pay this tax since it does not have such a strategy. (Location 2035)
Tags: privacy
Note: Google us an ad company so has doesn't add anti-tracking features to chrome. This does not apply to Apple.
Reversing course once a strategy tax is established can be even more costly. In 1988, George H. W. Bush delivered this famous line at the Republican Party’s national convention: “Read my lips: no new taxes.” Later, this commitment caused significant problems for him when he faced a recession as president. Ultimately, Bush decided he had to break his pledge and raise taxes, and it cost him reelection. The lesson here is that you should, as much as possible, avoid locking yourself into rigid long-term strategies, as circumstances can rapidly change. (Location 2040)
Tags: strategy
Note: .strategy avoid getting yourself into rigid long term strategies
Shirky principle, named after economics writer Clay Shirky. The Shirky principle states, Institutions will try to preserve the problem to which they are the solution. (Location 2045)
The good news is that if you can establish inertia and momentum in an adaptable culture, or in any context really, it can have staying power. A mental model that captures this process well is the flywheel, a rotating physical disk that is used to store energy. Flywheels are still used in many industrial applications, though a more relatable example to get the concept is a children’s merry-go-round. It takes a lot of effort to get a merry-go-round to start spinning, but once it is spinning, it takes little effort to keep it spinning. (Location 2116)
The fact that you are surrounded by chaotic systems is a key reason why adaptability is so important to your success. While it is a good idea to plan ahead, you cannot accurately predict the circumstances you will face. No one plans to lose their spouse at a young age, or to graduate from college during an economic downturn. You must continuously adapt to what life throws at you. (Location 2317)
Tags: adapt
Note: .adapt we are surrounded by chaotic systems which we cant predict. We need to be able too adapt .
luck surface area, coined by entrepreneur Jason Roberts. You may recall from geometry that the surface area of an object is how much area the surface of an object covers. In the same way that it is a lot easier to catch a fish if you cast a wide net, your personal luck surface area will increase as you interact with more people in more diverse situations. (Location 2328)
Tags: luck
Note: .luck increase your luck surface area by interacting with more people, in differing environments
In a closed system, like our kids’ rooms, entropy doesn’t just decrease on its own. Russian playwright Anton Chekhov put it like this: “Only entropy comes easy.” If our kids don’t make an effort to clean up, the room just gets messier and messier. The natural increase of entropy over time in a closed system is known as the second law of thermodynamics. ... On a more practical level, the second law serves as a reminder that orderliness needs to be maintained, lest it be slowly chipped away by disorder. (Location 2351)
Tags: entropy
Note: we need too make a conscious effort to maintain order
You can use this 2 × 2 matrix to help you categorize events as either high or low impact and high or low cost (time, money, etc.). You want to attend high-impact, low-cost events, and ignore low-impact, high-cost events. (Location 2373)
Tags: impact, matrix
Note: .matrix .impact when creating 2 by 2 matrix, impact vs cost (time,money,effort) is useful
black-and-white fallacy—thinking that things fall neatly into two groups when they do not. When making decisions, you usually have more than two options. (Location 2388)
Note: Thinks rarely fall neatly into 2 categories
In other words, there are usually several dimensions underlying a negotiation, and each party will value these dimensions differently. This opens up the possibility for a give-and-take where you give things you value less and take things you value more. As a result, both parties can end up better than they were before, getting things they wanted more and giving things they wanted less. (Location 2404)
Tags: negotiation
Note: .negotiation give whhat you value less for what you value more
If you study the biographies of successful people, you will notice a pattern: luck plays a significant role in success. However, if you look deeper, you will notice that most also had a broad luck surface area. Yes, they were in the right place at the right time, but they made the effort to be in a right place. If it wasn’t that particular place and time, there might have been another. Maybe it wouldn’t have resulted in the same degree of success, but they probably would have still been successful. (Location 2418)
Tags: success, luck
Note: .luck .success luck plays a large role in success, but those who are lucky usually create a large luck surface area. This increases their chances of being lucky
KEY TAKEAWAYS
Adopt an experimental mindset, looking for opportunities to run experiments and apply the scientific method wherever possible. (Location 2431)
Tags: experimenting
Respect inertia: create or join healthy flywheels; avoid strategy taxes and trying to enact change in high-inertia situations unless you have a tactical advantage such as discovery of a catalyst and a lot of potential energy. (Location 2433)
When enacting change, think deeply about how to reach critical mass and how you will navigate the technology adoption life cycle. (Location 2436)
Use forcing functions to grease the wheels for change. (Location 2439)
Actively cultivate your luck surface area and put in work needed to not be subsumed by entropy. (Location 2440)
Tags: networking, luck
When faced with what appears to be a zero-sum or black-and-white situation, look for additional options and ultimately for a win-win. (Location 2442)
5 Lies, Damned Lies, and Statistics
Pierre-Simon Laplace wrote in his 1812 book Théorie Analytique des Probabilités: “The most important questions of life are indeed, for the most part, really only problems of probability.” (Location 2479)
Tags: probability
Note: .probability
cold). Defining a hypothesis up front helps to avoid the Texas sharpshooter fallacy. This model is named after a joke about a person who comes upon a barn with targets drawn on the side and bullet holes in the middle of each target. He is amazed at the shooter’s accuracy, only to find that the targets were drawn around the bullet holes after the shots were fired. (Location 2525)
When you critically evaluate a study (or conduct one yourself), you need to ask yourself: Who is missing from the sample population? What could be making this sample population nonrandom relative to the underlying population? For example, if you want to grow your company’s customer base, you shouldn’t just sample existing customers; that sample doesn’t account for the probably much larger population of potential customers. This much larger potential customer base may behave very differently from your existing customer base (as is the case with early adopters versus the early majority, (Location 2617)
First, consider the gambler’s fallacy, named after roulette players who believe that a streak of reds or blacks from a roulette wheel is more likely to end than to continue with the next spin. Suppose you see ten blacks in a row. Those who fall victim to this fallacy expect the next spin to have a higher chance of coming up red, when in fact the underlying probability of each spin hasn’t changed. For this fallacy to be true, there would have to be some kind of corrective force in the roulette wheel that is bringing the results closer to parity. That’s simply not the case. It’s sometimes called the Monte Carlo fallacy because in a widely cited case in August 18, 1913, a casino in Monte Carlo had an improbable run of twenty-six blacks! There is only a 1 in 137 million chance of this happening in any twenty-six-ball sequence. However, all other twenty-six-spin sequences are equally rare; they just aren’t all as memorable. (Location 2646)
Tags: gambling
Note: .gambling
Random data often contains streaks and clusters. Are you surprised to learn that there is a 50 percent chance of getting a run of four heads in a row during any twenty-flip sequence? (Location 2657)
The term statistics is actually just the name for numbers used to summarize a dataset. (It also refers to the mathematical process by which those numbers are generated.) Graphs and summary statistics succinctly communicate facts about the dataset. (Location 2688)
One thing that really bothers us is when statistics are reported in the media without error bars or confidence intervals. Always remember to look for them when reading reports and to include them in your own work. Without an error estimate, you have no idea how confident to be in that number—is the true value likely really close to it, or could it be really far away from it? The confidence interval tells you that! (Location 2816)
Note: always inclluxde reference to confidence
And more commonly, remember not to confuse a conditional probability with its inverse: P(A|B) is not equal to P(B|A). You now know that these probabilities are related by Bayes’ theorem, which takes into account relevant base rates. (Location 2888)
Tags: bayestheorem
Note: .bayestheorem
you have to make decisions on the trade-off between the different types of error, recognizing that some errors are inevitable. For instance, the U.S. legal system is supposed to require proof beyond a reasonable doubt for criminal convictions. This is a conscious trade-off favoring false negatives (letting criminals go free) over false positives (wrongly convicting people of crimes). (Location 2910)
KEY TAKEAWAYS
Avoid succumbing to the gambler’s fallacy or the base rate fallacy. (Location 3085)
Anecdotal evidence and correlations you see in data are good hypothesis generators, but correlation does not imply causation—you still need to rely on well-designed experiments to draw strong conclusions. (Location 3086)
Look for tried-and-true experimental designs, such as randomized controlled experiments or A/B testing, that show statistical significance. (Location 3089)
The normal distribution is particularly useful in experimental analysis due to the central limit theorem. Recall that in a normal distribution, about 68 percent of values fall within one standard deviation, and 95 percent within two. (Location 3092)
Any isolated experiment can result in a false positive or a false negative and can also be biased by myriad factors, most commonly selection bias, response bias, and survivorship bias. (Location 3094)
■ Replication increases confidence in results, so start by looking for a systematic review and/or meta-analysis when researching an area. (Location 3097)
Always keep in mind that when dealing with uncertainty, the values you see reported or calculate yourself are uncertain themselves, and that you should seek out and report values with error bars! (Location 3099)
6 Decisions, Decisions (Location 3103)
There are three reasons for this that are important to appreciate, so please excuse the tangent; back to the cost-benefit analysis in a minute. First, if you receive money (or another benefit) today, you can use it immediately. This opens up opportunities for you that you wouldn’t otherwise have. For instance, you could invest those funds right now and be receiving a return on that money via a different investment, or you could use the funds for additional education, investing in yourself. (See opportunity cost of capital in Chapter 3.) Second, most economies have some level of inflation, which describes how, over time, prices tend to increase, or inflate. As a result, your money will have less purchasing power in the future than it does today. When we were younger, the standard price for a slice of pizza was one dollar; now a slice will run you upward of three dollars! That’s inflation. Because of inflation, if you get one hundred dollars ten years from now, you won’t be able to buy as much as you could if you had the same amount of money today. Consequently, you don’t want to regard an amount of money in ten years as the equivalent amount of money available today. Third, the future is uncertain, and so there is risk that your predicted benefits and costs will change. For instance, benefits that depend on currencies, stock markets, and interest rates will fluctuate in value, and the further you go into the future, the harder they are to predict. (Location 3184)
Given that the discount rate is always a key driver in cost-benefit analyses, figuring out a reasonable range for the discount rate is paramount. To do so, consider again the factors that underlie the discount rate: inflation (that the purchasing power of money can change over time), uncertainty (that benefits may or may not actually occur), and opportunity cost of capital (that you could do other things with your money). Since these factors are situationally dependent, there is unfortunately no standard answer for what discount rate to use for any given situation. (Location 3226)
Tags: discountrate
Note: .discountrate
KEY TAKEAWAYS
When tempted to use a pro-con list, consider upgrading to a cost-benefit analysis or decision tree as appropriate. (Location 3631)
When making any quantitative assessment, run a sensitivity analysis across inputs to uncover key drivers and appreciate where you may need to seek greater accuracy in your assumptions. Pay close attention to any discount rate used. (Location 3634)
Beware of black swan events and unknown unknowns. Use systems thinking and scenario analysis to more systematically uncover them and assess their impact. (Location 3636)
For really complex systems or decision spaces, consider simulations to help you better assess what may happen under different scenarios. (Location 3639)
Watch out for blind spots that arise from groupthink. Consider divergent and lateral thinking techniques when working with groups, including seeking more diverse points of view. (Location 3641)
Strive to understand the global optimum in any system and look for decisions that move you closer to it. (Location 3644)
Tags: goal
7 Dealing with Conflict
straw man, where instead of addressing your argument directly, an opponent misrepresents (frames) your argument by associating it with something else (the straw man) and tries to make the argument about that instead. For example, suppose you ask your kid to stop playing video games and do his homework, and he replies that you’re too strict and never let him do anything. He has tried to move the topic of conversation from doing homework to your general approach to parenting. (Location 3902)
Note: Direct attention away from the argument
ad hominem (Latin for “to the person”), where the person making the argument is attacked without addressing the central point they made. “Who are you to make this point? You’re not an expert on this topic. You’re just an amateur.” It’s essentially name-calling and often involves lobbing much more incendiary labels at the other side. Political discourse in recent years in the U.S. is unfortunately littered with this model, and the usual names leveled are so undignified that we don’t want to include them in our book. (Location 3915)
Note: Attack the person rather than their argument
The Enron and Theranos tactics both exemplify another dark pattern, called a Potemkin village, which is something specifically built to convince people that a situation is better than it actually is. The term is derived from a historically questionable tale of a portable village built to impress Empress Catherine II on her 1787 visit to Crimea. Nevertheless, there are certainly real instances of Potemkin villages, including a village built by North Korea in the 1950s near the DMZ to lure South Korean soldiers to defect, and, terribly, a Nazi-designed concentration camp in World War II fit to show the Red Cross, which actually disguised a way station to Auschwitz. (Location 3950)
vaporware, where a company announces a product that it actually hasn’t made yet to test demand, gauge industry reaction, or give a competitor pause from participating in the same market. (Location 3964)
Deterrence, containment, and appeasement are all strategic mental models to keep you out of costly direct conflict. You want to enlist these models when other conflict-avoidance models have failed and you are still faced with a situation that you think you can’t “win,” as when engaging would create so much damage it isn’t worth it or when you want to preserve your resources for more fruitful engagements (see opportunity cost in Chapter 3 (Location 4106)
Tags: conflict
Note: .conflict
generals always fight the last war, meaning that armies by default use strategies, tactics, and technology that worked for them in the past, or in their last war. The problem is that what was most useful for the last war may not be best for the next one, as the British experienced during the American Revolution. The most effective strategies, tactics, and especially technologies change over time. If your opponent is using outdated tactics and you are using more modern, useful ones, then you can come out the victor even with a much smaller force. (Location 4161)
Note: People use strategies that worked for them in the past. New tech can make those strategies dated
Cortés started a war with the Aztecs that led to the destruction of their empire. However, he had only six hundred men, whereas the Aztecs controlled most of modern-day Mexico. The odds were obviously thought to be heavily against the Spanish, and many of Cortés’s soldiers were reasonably wary of his plans. To secure their motivation, Cortés sank his ships to make sure they had no option but to succeed or die. Without the escape hatch of going back to Spain on the boats, the soldiers’ best option was to fight with Cortés. Translation errors led some to believe he burned the boats, but now we know he just had them damaged to the point of sinking. Nonetheless, burn the boats lives on as a mental model for crossing the point of no return. (Location 4226)
Tags: favorite, burn the boats
Note: Burning the boats ensures you cross a point of no return
KEY TAKEAWAYS
Analyze conflict situations through a game-theory lens. Look to see if your situation is analogous to common situations like the prisoner’s dilemma, ultimatum game, or war of attrition. (Location 4244)
Think about how a situation is being framed and whether there is a way to frame it that better communicates your point of view, such as social norms versus market norms, distributive justice versus procedural justice, or an appeal to emotion. (Location 4250)
Try to avoid direct conflict because it can have uncertain consequences. Remember there are often alternatives that can lead to more productive outcomes. If diplomacy fails, consider deterrence and containment strategies. (Location 4254)
If a conflict situation is not in your favor, try to change the game, possibly using guerrilla warfare and punching-above-your-weight tactics. (Location 4256)
Be aware of how generals always fight the last war, and know your best exit strategy. (Location 4259)
8 Unlocking People’s Potential
“Leadership is unlocking people’s potential to become better.” (Location 4309)
Tags: leadership
Note: .leadership
higher roles tend to involve more strategy than tactics. Generally, strategy is the big picture; tactics are the details. Strategy is the long term, defining what ultimate success looks like. Tactics are short term, defining what we’re going to do next to get there. (Location 4424)
Tags: strategy
Note: .strategy
Radical candor is giving feedback in a way that both challenges directly and cares personally (upper right quadrant of the matrix). Your feedback is completely candid and gets to the root of an issue, its radical form. It goes hand in hand with deliberate practice because this type of feedback is exactly the type that should be given in a deliberate practice session: a specific account of what the person could be doing better at a particular skill they are trying to improve. (Location 4545)
Tags: feedback
Note: .feedback care about the person and give direct specific feedback
golem effect is the phenomenon where lower expectations lead to lower performance. (That one’s named after a clay creature in Jewish mythology that came to life, grew increasingly corrupt and violent, and eventually had to be destroyed.) Both are types of self-fulfilling prophecies. (Location 4611)
Fortunately, there are many straightforward ways to positively shape culture: • Establishing a strong vision—“Our north star, our vision for the future, is X” (see Chapter 3). • Defining a clear set of values—where your organization sits along the various cultural dimensions, e.g., “Our organization values taking calculated risks, even if they fail.” • Reinforcing that vision and those values through frequent communications—including at all-hands meetings and through team-wide broadcasts. • Creating processes that align with that vision and those values—such as how you decide on hiring new team members. • Leading by example—making sure leaders adhere to the norms and values you want everyone else to adhere to. • Establishing traditions—gatherings that celebrate stated values, such as holiday celebrations, group volunteer events, or recurring award ceremonies. • Fostering accountability—e.g., reviewing previous experiences for lessons learned in post-mortems (see Chapter 1) or giving honest feedback on performance reviews. • Rewarding people for exhibiting exemplary cultural behaviors—giving them promotions, awards, etc. (Location 4742)
Tags: culture
Note: .culture create traditions, reward
KEY TAKEAWAYS
People are not interchangeable. They come from a variety of backgrounds and with a varied set of personalities, strengths, and goals. To be the best manager, you must manage to the person, accounting for each individual’s unique set of characteristics and current challenges. (Location 4839)
Craft unique roles that amplify each individual’s strengths and motivations. Avoid the Peter principle by promoting people only to roles in which they can succeed. (Location 4842)
Tags: peter principle
Note: Seek to amplify the strengths of your employees
Properly delineate roles and responsibilities using the model of DRI (directly responsible individual). (Location 4845)
People need coaching to reach their full potential, especially at new roles. Deliberate practice is the most effective way to help people scale new learning curves. Use the consequence-conviction matrix to look for learning opportunities, and use radical candor within one-on-ones to deliver constructive feedback. (Location 4847)
When trying new things, watch out for common psychological failure modes like impostor syndrome and the Dunning-Kruger effect. (Location 4850)
Tags: dunning-kruger effect
If you can set people up for success in the right roles and well-defined culture, then you can create the environment for 10x teams to emerge. (Location 4854)
9 Flex Your Market Power
When you take advantage of price differences for the same product in two different settings, it’s called arbitrage. (Location 4868)
Warren Buffett puts it this way in Warren Buffet Speaks: “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” (Location 4936)
Tags: favorite
Jeff Bezos again, in a 1997 letter to shareholders: Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. (Location 4946)
Tags: favorite, bezos
Note: .bezos pay heed to the size of the return vs the odds of it occurring
Science fiction writer William Gibson put it like this: “The future is already here—it’s just not very evenly distributed.” (Location 4977)
Tags: future
Politician Rahm Emanuel offers this perspective: “You never want to let a serious crisis go to waste. And what I mean by that [is] it’s an opportunity to do things you think you could not do before.” (Location 5023)
Tags: opportunity, crisis
Note: .crisis .opportunity there is opportunity in crisis
Japanese proverb, “Vision without action is a daydream. Action without vision is a nightmare.” (Location 5034)
Tags: quote, execution, vision
Note: .vision .execution .quote
To give yourself the best chance of winning this race, you must engage in customer development the fastest. A model from the military can help: the OODA loop, which is a decision loop of four steps—observe, orient, decide, act (OODA). (Location 5077)
KEY TAKEAWAYS
Find a secret and build your career or organization around it, searching via customer development for product/market fit (or another “fit” relevant to the situation). (Location 5372)
Strive to be like a heat-seeking missile in your search for product/market fit, deftly navigating the idea maze. Look for signs of hitting a resonant frequency for validation. (Location 5375)
If you can’t find any bright spots in what you’re doing after some time, critically evaluate your position and consider a pivot. (Location 5377)
Build a moat around yourself and your organization to create sustainable competitive advantage. (Location 5380)
Don’t get complacent; remember only the paranoid survive, and keep on the lookout for disruptive innovations, particularly those with a high probability of crossing the chasm. (Location 5382)
Second, try writing. Even if you never publish anything, the act of writing clarifies your thinking and makes you aware of holes in your arguments. You can combine writing and finding a partner by participating in an online forum or blog where the complex topics that interest you are discussed and analyzed. (Location 5413)
Tags: writing
Note: writing clarifies your thinking