Loserthink, page 11
Other notable authors in the getting-your-mind-right genre are Tony Robbins, Tim Ferriss, James Altucher, Seth Godin, and Mike Cernovich. I recommend any book by them.
You can learn to think like a rich person by consuming books, blog posts, and podcasts from the authors who can teach you how. If this sort of reading isn’t your thing, make it your thing, one microstep at a time.
HUMILITY AND TESTING
Confidence is a great quality to have, unless you’re also often wrong. In that case, you’ve got two strikes against you: you’re wrong and you’re an arrogant jerk with too much confidence. That’s not a good look.
If you happen to be a human being—and many of my readers are—you are wrong about all sorts of things more often than you admit, and more often than you remember. Obviously you’re not as wrong as other people you know. Other people are a mess. I think we can agree on that. But as wonderful as you are compared to them, you probably have some blind spots too when it comes to understanding the world.
Nature was kind enough to grant us imperfect brains that easily forget most of the situations in which we have been confident about our rightness only to later find out we were impressively wrong. I, for one, am glad nature gave us this ego-saving amnesia about our frequent mistakes. If we knew how often we were wrong about our understanding of just about everything, it would be deeply demotivating. And if we become demotivated, the portal to progress will shut tighter than a mosquito’s nozzle* in an ice storm.
As I write this chapter, I’m having a Twitter debate with climate change skeptics who fervently believe climate scientists are ignoring the impact of sun activity when they study global warming. I don’t think you need to be a climate expert to know that those who study the climate for a living did not forget THE FRICKING SUN. Believing they forgot the sun would be like believing scientists who study the health impact of owning pets forgot to consider dogs. My certainty that climate scientists have considered all aspects of the sun on global warming is matched only by the certainty of the skeptics who insist they haven’t. Certainty isn’t a good indication of rightness for any complicated situation. As evidence of that point, consider anyone who disagrees with you on any topic whatsoever. They are as confident as you are. And you can’t both be right.
Perhaps you think I’m exaggerating about how often people are confident in their opinions while at the same time they are hilariously wrong. After all, how could so much human wrongness produce our modern world?
Luckily for us, the scientific method is more reliable than human certainty, and it allows for a lot of failure, so long as some things turn out to be right. Most experiments fail. Many published scientific papers turn out to be wrong, or at least imperfect. But you only need a small percentage of rightness in all of that science to move society forward. It doesn’t matter how many times science is wrong so long as sometimes it is right and the good stuff sticks around. To put it in sporting terms, no one cares how many fish you didn’t catch. They only care about the ones you did. (Unless they are judging your fish-catching efficiency, which would be a different topic.)
Capitalism is similar to both science and fishing in that it is largely a failure machine. Most startups fail, for example, and most companies eventually go out of business, one way or another. But while all that failing is happening, employees are getting paid, vendors are selling products and services to the doomed business while it lasts, and the economy chugs along. You only need a small percentage of companies to succeed in order to have a strong economy.1
You might be tempted to think successful companies all have smart founders who see the world clearly, and that skill set is what helps them succeed. But the reality is that entrepreneurs are making educated guesses and talking themselves into a degree of certainty that the facts do not support. People buck the odds because they don’t believe those odds apply to their situations. And it’s a good thing this sort of irrationality exists, because otherwise people wouldn’t take risks and the economy would fall apart.
Being wrong and yet confident is a good description of the human condition. And it isn’t hard to understand why we are this way. Our consistent wrongness has a lot to do with the fact that the world is a complicated place and it is hard to predict what will happen next. Yet we are continually forced to predict the future in both big and small ways because otherwise we wouldn’t know what we should be doing at any given moment. We get the easy stuff right, such as knowing we’ll want a beverage if we eat pretzels. But when it comes to the big, complicated, long-term predictions, we’re not equipped with the psychic powers required to know how the future turns out. We also can’t stop ourselves from imagining we do know how things will work out. I’m not the exception. Neither are you.
Our irrational confidence makes sense if you assume humans evolved to have traits that help us survive. Our world rewards action over inaction, at least in the average sense. The entrepreneur who tries ten startups has a reasonable chance of making it big with at least one. But the person who doesn’t try anything at all is unlikely to succeed. As a general rule, people have to go find luck; it doesn’t find them. Luck is attracted to action and energy; it doesn’t come looking for you on the couch.
One big disadvantage of being both confident and wrong is that we construct artificial worlds in our minds that are based on that wrongness. We are confident we can discern which news reports are real and which are not. We are confident we know how to hire good employees. We are confident our scientific studies tell us something useful, until new studies fail to confirm what we thought we knew. We are confident the people we marry will love us forever. Most of us are confident our opinions on religion are correct while believing that everyone who has a different religious opinion is wrong. And if you are an investor, there are probably times when you are sure you can see the future, at least for the companies in which you’ve invested. But that confidence is generally not fact-driven.
When we combine our irrational certainty on all sorts of topics with our normal human capacity to be spectacularly wrong, we end up with a civilization in which people have designed elaborate mental prisons for themselves. We all inhabit a reality of our own making. In each of our artificial realities, we know our version of things is both proper and right, while all the people who disagree with us are obviously wretched, ignorant, and weak. Sometimes we feel sorry for them.
Most of the time it doesn’t matter who is right and who is wrong. You can be failing at your science experiment and also in your marriage while I’m failing in business and gullibly consuming one conspiracy theory after another. And yet, despite all of our wrongness, both of us can eat, sleep, and procreate. Nature doesn’t seem to care whether we are smart. In terms of our survival as a species, it only matters that some people, in some places, get things right some of the time. And if that success comes only from luck, that still moves society forward.
Favoring action over inaction, even in the face of uncertainty, is generally a good approach to life. The world rewards energy, and it even rewards failure by teaching you valuable lessons and expanding your network of contacts.
One form of loserthink is having too much confidence in your own rightness and your ability to divine the future. Another form of loserthink involves waiting too long to develop confidence in your worldview before acting. It might seem as if there are only two options in life—do something or do nothing—and both paths have a high chance of failing. So what do you do?
For the solution to that dilemma, I borrow from the fields of science, business management, and entrepreneurship for a better way to think. And they provide the answer. It goes like this:
Find a way to test your assumption in a small way so no one gets hurt.
Those of you with backgrounds in the fields I just mentioned reflexively think in terms of testing things small before going big. But the vast majority of the public has no education in those disciplines. For them, loserthink is the default approach because they have never learned any other way. They either recklessly insist on starting big (unrealistic confidence) or they favor doing nothing at all (failure by inaction). If that describes you, I just fixed it for you. You only have to be exposed to the idea of testing things small before committing to something big. And it is immediately obvious why that makes sense, at least whenever it is practical to do so.
The next time you find yourself in a debate about doing something big, ask yourself how the idea can first be tested small. The alternatives are loserthink.
CHAPTER 10
Thinking Like an Economist
MONEY INFLUENCE
As a teenager, I observed the world around me and I often didn’t understand why people did what they did. This was before I learned that human beings are fundamentally irrational creatures. The one thing of which I was certain, both from observation and personal experience, was that money motivates people. I thought that if I could understand the field of economics, I would have a huge advantage in comprehending my world. When it came time for college, I made economics my major. In my late twenties, I went back to school for evening classes and earned a master’s in business administration (MBA) from the Haas School of Business at the University of California at Berkeley. Both of those educational experiences confirmed my hypothesis that understanding economics helps you understand the world on a deeper level.
For instance, I use my understanding of economics to avoid speeding tickets. The police department is like any organization that has a limited budget and limited resources. It is fair to assume that they have figured out how to get the most enforcement value out of the dollars they have. And that means not wasting resources handing out speeding tickets on Sunday mornings at six a.m., for example. It wouldn’t make economic sense to deploy resources when there is so little traffic. One of the benefits of giving out speeding tickets is that the other motorists see it happen. You don’t get that benefit with one motorist and one police officer on an empty highway.
It’s probably also harder to find law enforcement employees who would be willing to work the odd hours. It might even cost more because of supply and demand.
Like nearly everyone else who drives, I sometimes exceed the speed limit. But I use my knowledge of economics to predict when and where the police—with their limited budget and resources—are likely to have speed traps. Obviously, my method is not 100 percent effective, but watch how rarely you see speed traps on off hours of the week. And please don’t drive unsafely.
A basic understanding of economics can help you “see around corners” that others cannot.
Sometimes people who don’t understand economics will tell me they plan to buy real estate and rent it out to make money. Without doing any research whatsoever, I tell them with confidence that such opportunities do not exist in my state. My economic reasoning is that real estate brokers buy those properties as soon as they are available (which is rare), so the rest of the public never sees them. How do I know that? It’s obvious if you understand economics. I’ve also done the math to confirm that these opportunities do not exist in any common way. But if you talk to experienced real estate brokers, there’s a good chance they own a few rental properties. They buy what you never get a chance to see. If the properties have positive cash flow, why wouldn’t one of the brokers who view properties before the general public buy it for themselves? They would, and they do, exactly as I assumed. My knowledge of business and economics made this obvious to me from the start. When you understand the world of money, and you understand human nature, it feels as if you can see around corners.
People who understand economics can more easily spot hoaxes because money drives human behavior in predictable ways.
I once talked to a professional financial advisor who recommended managed stock funds for his clients. The funds he recommended paid him to recommend their firms, so his clients were not getting independent advice. They were getting conned. They paid this advisor about 1 percent of their portfolio per year to park their money with another fund that also charged a management fee. None of those fees added value. And the financial advisor knew this. I asked him where he put his own money, and he laughed, saying he put his own money in unmanaged index funds that anyone could buy without paying fees to experts who recommend them. I already knew the answer to my question because I understand human nature, I know enough about investing, and I knew how the expert could make the most money.
In the case of the financial advisor, everything he was doing was legal, although one could argue it shouldn’t have been. One of the most consistent rules of life is that bad behavior happens almost 100 percent of the time whenever you have this combination of variables:
There is money to be made from the bad behavior
The odds of detection are low
Lots of people are involved
When you have that setup, it is reasonable to assume crime is rampant. Unfortunately, I just described much of the financial world. Consider insider trading, for example. If you do it in a dumb way, you are likely to get caught. But there are plenty of ways to avoid detection, the potential gains are huge, and lots of people have access to insider information. And sure enough, insider trading is a common crime.
Your best defense for navigating a world in which experts are too often frauds is to seek second opinions whenever that is an option. Real experts are likely to give you advice that is similar or at least compatible. Frauds are more likely to freelance, meaning any two frauds would give you different advice. And whenever possible, ask a retired expert or a family friend for a second opinion. The frauds of this world always have an advantage, but if you are alert to the influence of money, you can spot them more easily.
Be skeptical of any experts who have a financial incentive to mislead you and almost no risk on their end.
ENDS JUSTIFY THE MEANS
Economists learn how to make rational comparisons of alternatives. This skill is not common among the general public, and it shows. For example, people often ask me if the ends justify the means, on all sorts of topics, usually political. You have probably seen that question on social media as well as heard it from the punditry class. The question is an attempt to win a debate before the debate happens. It’s a clever word trap, designed to paint you as immoral if you stick to your original opinion.
A similarly tricky question is, “Do you still abuse your spouse?” There is no right answer to that question. If you say yes, you’re a spouse abuser. If you say no, you have admitted you were once a spouse abuser.
When people ask you if the ends justify the means, they are trying to frame themselves as the moral player in the conversation while framing you as the unethical weasel. Don’t answer the trick question. Instead, restate the question in this form before answering: I think you mean: Are the benefits greater than the costs?
After reframing the question, explain that a good decision-maker considers all the relevant costs and all the benefits, including moral and ethical considerations. We live in a social world in which ethics and morality matter, in terms of how we feel about ourselves and our place in the universe, as well as in a practical sense, meaning that you might be setting a bad example, creating a bad precedent, or inviting problems you don’t want. All of those considerations are part of the cost-benefit analysis.
I just described the polite way to answer, “Do the ends justify the means?” The funny version goes like this: “I consider all the costs and all the benefits of my decisions, including the moral and ethical questions. What do you do?”
Suppose I asked you if you would lie to a terrorist to thwart a terror attack. Lying is generally considered unethical, but in this specific case, the benefits clearly outweigh the costs.
On the other extreme, suppose I said I wanted to shoot someone because I didn’t like that person’s haircut. Nearly everyone reading this book believes the cost of doing that would exceed the benefits on all the important dimensions, legally, practically, and morally. When people consider all the costs and all the benefits of a decision, including the ethical/moral considerations, we might disagree with their conclusions, but not the process by which they were formed. A trained economist would know to consider all factors in a decision. The public at large tends to leave out the parts they don’t like.
If you reframe the “ends justify the means” question as a balance of costs and benefits, expect the target of your persuasion to respond with some sort of Hitler/murderer analogy in which the benefits do not exceed the costs on any dimension. The best response to a bad analogy is to say you don’t address analogies because those are different situations by definition, but you would be happy to address the costs and benefits around your topic.
If you think in terms of “the ends justifying the means” instead of “costs compared to benefits,” you are buying into loserthink.
HOW TO COMPARE THINGS
As I mentioned, I was an economics major in college. Later I went on to get my MBA. Those college courses taught me, among other things, how to compare alternatives in a rational way. If you have not learned that skill, and you mistakenly believe it is “common sense,” you are at a tremendous disadvantage in all dimensions of life, from your career to your opinions on politics.
