Tag: Business Notes

Skin In The Game – Nassim Talab

Posted on by Admin

The most intolerant wins.   The dominance of the stubborn minority.  

The main idea behind complex systems is that the ensemble behaves in ways not predicted by its components.  The interactions matter more than the nature of the units.   Studying individual ants will almost never give us a clear idea of how the ant colony operates.   For that, one needs to understand an ant colony as an ant colony, no less, no more, not a collection of ants.   This is called “emergent” property of the whole, by which parts and whole differ because what matters are the interactions between such parts.  And interactions can obey very simple rules.  P69.

The minority rule explains why a small intransigent minority of people (with a high level of intolerance / skin in the game) will even at a small level of 3 or 4 % of the population dictate the behaviour of the whole population.  

For instance nearly all soft drinks that are sold are Kosher in the USA.   Very few people actually want Kosher food.  But those people who do want it wont eat anything else.   The majority don’t really care if the food is Kosher or not as such they simply accept it when it is.   It is therefore easier for shops to stock and drinks company to sell drinks that everyone can buy.   The preference for Kosher is therefore imposed on the majority even though the majority have no preference for it.

The whole population submits to the dominance of the minority because the majority do not care enough and do not have enough invested to fight the minority on their preference.   The minority who feel deeply about the issue are prepared to change their behaviour and create disruption for the majority so causing behaviour change in the majority.

Therefore, influencing a small highly motivated, active group can lead to the whole population to adopt positions they otherwise would never take.   (think USA gun control, USA rules on campaigns finance etc)  (my summary of ideas P69 -74).

Don’t give crap. Don’t take crap.

Start by being nice to every person you meet.  But if someone tries to exercise power over you, exercise power over him.   P22

You can criticise either what a person said or what a person meant.   The former is more sensational, hence lends itself more readily to dissemination.   The mark of the charlatan… is to defend his position or attack a critic by focusing on some of specific statements (“look what he said”) rather than blasting his exact position (“look at what he means” or, more broadly, “look at what he stands or” – for the latter requires an extensive grasp of the proposed idea.   P181

It can be useful to consider that many superstitions and beliefs exist and have remained in place because they provide some benefit in their outcome rather than the fact they are logically valid.   Thus the value in many beliefs is in their outcomes not their logic.  (my summary)

In real life, belief is an instrument to do things, not the end product.   This is similar to vision: the purpose of your eyes is to orient you in the best possible way, and get you out of trouble when needed, or help you find prey at a distance.  Your eyes are not sensors designed to capture the electromagnetic spectrum.  Their job description is not to produce the most scientific representation of reality rather the most useful one for survival.  P213

We can not possibly measure and assess everything as if we were a computer; we therefore produce, under evolutionary pressures, some short-cuts and distortions.   Our knowledge of the world is fundamentally incomplete, so we need to avoid getting into unanticipated trouble.  And even if our knowledge of the world were complete, it would still be computationally near-impossible to produce a precise unbiased understanding of reality.  P216

I have shown in Antifragile that making some types of errors is the most rational things to do, when the errors are of little cost, as they lead to discoveries.   For instance, most medical “discoveries” are accidental to something else.   An error free world would have no penicillin no chemotherapy…. Almost no drugs and most probably no humans.  P217

Lets consider a betting at a casino.   For the sake of argument lets say that 1% of gambler go bust.   If you gamble at the casino over the same time window then you will also have the same chance of going bust at the casino.  But if you gambled every day for 100 days.   You go bust on day 28 so now there is no longer a day 29.   By increasingly the time line of the bets you increase you chances of going bust to almost 100%. 

Many recommendations fail to take into account the impact of time on risk.   That is to say you get continually exposed to the risk.   They also fail to take into account that you will likely to be unable continue after you have become the victim of this risk. 

So recommendations based on the long term results of the financial market.   You can not expect to match the average of the market because at some point something is likely to happen to get in the way of you doing so and so prevent you continuing.   This may for instance be because you need to reduce your exposure due to losses or something in your personal life stops you such as a divorce.

We can not apply cost benefit analysis to situations that have a defined stop in them.  (going bankrupt at a casino or getting shot when betting on Russian roulette).   The stop point means that you can not calculate an expected return because if you keep playing you hit a stop point (death in Russian roulette) meaning expected returns are not calculable. 

People confuse risk of ruin with variations and fluctuations.   In other words can you keep playing.   If so then risks may actually be beneficial.   Even when the risks are in volatile situations.   You want to gain the benefits of risk without hitting the down side of an end point. (summary ideas from P.223 -233)

Money Ball – Michael Lewis

Posted on by Admin

The book looks at how clubs value players in sport.   The characteristics that are valued by clubs often did not reflect the characteristics that lead to results.  Thus characteristics that were valuable (such as on base percentage) were undervalued.

Clubs often overvalued things that actually had impact on performance like whether or not a player appeared confident or had a good looking playing style.  The statistical data showed that these measures were flawed.   Leading some players undervalued.   Such as having emotional problems, being physically small or being overweight.   But if the data shows their actual performances these perceived weakness are irrelevant the actual performance is what counts.

Instead the Oakland As looked at statistical data.   This eliminated the inaccurate and flawed judgements of individuals.   It also eliminated biases such as the Availability Heuristic which lead scouts to make judgements based on recent performances.   Or from limited viewing in a small number of games.   Where as the long term statistical data is far more revealing of what is actually going on.  This also tackled the fact that people tend to over value their own experience as if it is the most valid.  Taking emotion and bias out of the equation with statistics eliminates these biases.

This insight lets us understand that perhaps the way we look at people is biased and may not lead us to getting the best options based on our own biases.   We might unfairly discriminate against an older worker, someone who is quiet, or someone who seems overweight when in fact this bears no relation to their performance.  We may therefore unwittingly miss out on the best options in favour of options that appear good on the surface.   We don’t have statistical data like baseball clubs do but we could perhaps place a greater weight on past performance as an indicator of future performance.   If we want an innovator for example we should probably look for someone who on close inspection has implemented lots of innovations in their career history.  Not someone who talks about innovation at interview and sounds good at interview but can not back it up with a proven history of action.   We might also consider that people who are not sociable or do not interview well may in fact be good employees but this fact is disguised by the process we choose to use to select them. 

(Summary of the book [above] and my thoughts on it).

It is the process that matters not the outcome.   People tend to overvalue outcomes and disregard process.   But if a player gets the desired result by doing the wrong thing this is actually something that will hurt you in the long term. (eg running when they shouldn’t but getting way with it)   But a player who fails when doing the right  thing will befit you in the long term (getting caught out when doing a statistically safe move).   The fact that luck and factors out of your control means that something that does not work out should not necessarily lead to a change of course.   Instead you need to focus on the correct process and understand that luck means that even the correct process won’t work all the time.  But sticking to the correct process will lead to greater success in the long term.   P 146.  (paraphrase and own notes on idea)

It is very hard to teach certain skills.   Even when you try to drill it into people.   For instance, it is very hard to make someone disciplined who is not with in a work environment.   It may be simply better to hire for these skills if they are important to you.   Acknowledging that other skills may be more easily taught such as product knowledge so someone who lacks them than basic personal skills.  P148 (idea developed by me)

Bill Beane did not watch the games of the Oakland As : “All they provide me with is subjective emotion and that can be counterproductive” (P245 – quote) Instead he focused on non-subjective data (statistics).

Predatory Thinking

Posted on by Admin

Marketing like war is a zero sum game.   If you want something you have to take it from someone else.  In order for someone to win, someone has to lose.   P35  So you have to be a competitor you need to be prepared to make waves and upset people.

If you your two favourite foods together they don’t taste twice as good.  In fact they probably taste worse.  Marketing people need to learn the same lesson.  More is less.   You can’t have more than 100%.   You can’t add something without taking something away.   That’s why propositions need to be single minded so 100% of your marketing spend is on the main message.   P40.  (paraphrased)

An advertising problem always involves the question, how do we get someone to do (or think) what we want?   So the simple equation is always  “What’s in it for them?”.  P49

If we want something that works for them we need to forget about what works for us.   P55

It doesn’t matter what went in to it.  It matters what people get out of it.   P63

There are loads of ads I love but I don’t buy the product.  Does that mean advertising doesn’t work?  We if you believe that advertisings job is to sell things to people they don’t want then no it doesn’t work.  But if you view it as a way of persuading people who are interested, to give you an edge over your competitors then it does work.   P74 (idea re-written in my words)

Criticism is not always negative.  I can mean that someone thinks you are worth investing time in to improve.  P 84  (idea re-written)

We are only ever talking to one person (an individual customer).  When we communicate via media.  P113 (idea re-written)

Don’t let other peoples view of what is reasonable stop you.   Come to your own conclusions.  P246 (idea re-written)

“Efficiency is doing things right.  Effectiveness is doing the right things.”  P194 (quoting a common saying)

Lead and Lag Indicators

Posted on by Admin

When tracking movement towards an objective we can look at either lead or lag indicators.   If we were trying to lose weight we could measure our weight every week.   This would be a lag indicator that would tell us if our efforts had been successful or not.   Alternatively we could track the calories we consumed each day.   This would be a lead indicator.   Making sure we conformed to certain requirements would tell us if we were taking the actions that would result in our desired outcome.   Looking at lead indicators is often more effective as your daily activity and therefore your movement towards the goal.   Lag indicators are useful and should be used as well but they tell you after thing have already happened.   The results from a lag indicator might be the consquence of actions that were taken perhaps a few weeks previously.   It is therefore less clear what actions actually caused the outcome you recieve.