Category Archives: Theories

What is the rate you should be scammed?

Let’s say you are investing money in something, what is the rate you want to be scammed?

You could, of course, say that rate should be zero. That you will tolerate no loss due to scams, unethical practices, etc. But that puts an extreme due diligence burden on you before you make an investment. You can’t be 100% on BOTH precision and recall. If you have fewer false positives, you will inevitably have fewer false negatives. 

Being skeptical of everything will allow you to avoid investing with Madoff, but it will also have you miss that angel investment in Facebook and Airbnb. Many ideas seem very crazy (until they aren’t). 

This is also true in life.

You can distrust every taxi driver and every construction contractor … but that might lead do you distrusting most people which could lead to a lot of unhappiness.

Or … or … or … you can accept that you will have some rate that you will be scammed.

You should have a rate you want to be scammed.

A good rate is likely 1-3% of your interactions. This can be on taxi cab drivers, investments, hires, etc. If your scam rate is under 1%, you are likely not taking enough chances. If your scam rate starts approaching 10%, you might lose all your money. 

If you never get into a car, you will never die in an auto accident. But you will also have a lot of trouble living life. So you need to have some guide-rails (wear a seat belt, don’t get in a car with a drunk (or sleepy) driver, etc.). The same is true for investing or doing anything else in life. 

Retail stores as a model.

Retail stores have figured this out. They know that people will steal things from them. Customers will steal things. Employees will steal things. Customers will abuse return policy (like people getting the big screen TV the day before the Superbowl and returning it the day after). 

Retail stores factor in shrinkage. They assume it will happen. Maybe they assume its 2%. They are essentially assuming a 2% scam rate. And yes, they COULD get that rate much closer to zero — but that comes at a large cost. They could make sure that employees don’t steal from them — but that means they need added surveillance, more bureaucracy, and they need distrust the good employees (which are the vast majority of the people that work for them). The same is true for getting the customer shrinkage rate to zero — efforts to do that might inconvenience the good customers (which are the vast majority of people that buy from them). 

Retailers could ensure that customers do not take advantage of them. But allowing for a liberal return policy also increases sales.

Retailers could ensure that items cannot be stolen from the store … but tagging all the items comes at a cost … and customers don’t like to be frisked when leaving. 

So instead retailers target a shrinkage rate. If the shrinkage rate gets too high, they are losing money. BUT … and this is the most important sentence of this post … if the shrinkage rate gets too low, retailers also lose money. If the shrinkage rate was 0.2% rather than 2%, it means they are optimizing for fraud protection rather than revenue growth.

The same thing is true in investing.  

If you never get scammed, you are likely not taking enough risks. 

Of course, if you get scammed too much, then you are also in trouble.

For instance, let’s look at bitcoin. A lot of people think it is a scam with prices pumped up by wash trading. (I don’t personally have an opinion on it). But it would certainly not be responsible to put a massive amount of your investing capital in Bitcoin — whether it is a scam or not, it is a very risky asset that has the potential to go to zero. 

But if you have been a professional investor in the last 10 years and you invested $0 in bitcoin, that also might not be great (especially if you took the time to do the work on it). The important thing is that if the price of bitcoin goes to $0 or your bitcoin gets stolen by a hacker (both of which have high probabilities), how will that affect your life? If 30% of your net worth is in bitcoin, then you’ll be hurt a lot more than if it was 1%.

We will all be scammed … a lot.

If you think you are not being scammed, you are just ignorant. Everyone gets scammed. Scams happen to all of us. And they happen a lot. Sometimes they are big scams. Sometimes they are small scams. But we all get scammed.

The simple thing to remember in investing is that you will be scammed. It will happen. The more you invest, the more you will be scammed. The more people you interact with, the more you will get scammed. The more you do, the more you will be scammed. Walmart gets scammed a lot more than the local corner store because WalMart has a lot more customers. 

The problem isn’t that someone was so stupid to put their money with Madoff. That can (and will) happen to everyone. The problem is that some people put ALL their money with Madoff. 

If you put 2% of your assets with Madoff and found out it was a Ponzi scheme you’d be super bummed but you would survive. If you put 50% of your assets with Madoff, you are in deep trouble. 

If you have to make a very large investment, then you need to do massively more due diligence. For instance, you do NOT want to get scammed by someone you marry. In the case of marriage, you want to have an extremely high likelihood of success. Summation: do a LOT of due diligence on a potential spouse.  

Beware of the macro-scam. 

One of the tough things with investing and scams is that many investments are highly correlated with each other. For instance, you might believe that the entire last ten years is a bubble propped up by the scam of quantitative easing. If that is the case, many of one’s investments (from stocks, bonds, real estate, etc.) could come crashing down. So if the scam is a meta scam (i.e. bubble) then you might have a much higher percentage of your assets vulnerable if the scam is eventually uncovered (the bubble pops). Summation: it is significantly harder to avoid macro scams than micro scams. 

Advice on what do to after being scammed.

When you do get scammed, here are a three pieces of advice:

1. Move on. Don’t stew on it, just move it. Salvage what you can (and take the tax write off). 

2. Warn everyone you know. If you were scammed by somebody or something, you have a moral duty to warn everyone you know. If it was a person, you have the duty to tell the authorities and to do everything possible to significantly reduce the scammer’s reputation so that they are not in a position to scam others again. Just walking away is immoral (in my opinion) because it means the number of victims will increase.

3. Never, ever, interact with this person again. “Fool me once, shame on you. Fool me twice, shame on me.” If you are scammed by a person, never let them back into your life for any reason ever again. Yes, people do change and people do get reformed … but the psychological impact of getting scammed twice is too great to take the risk. That does not mean you cannot eventually forgive the scammer. You can forgive (I have tried, and failed, to forgive). But even if you forgive, it does not mean you need to interact with the person. 

What is the rate that scams should take place in society?

Maybe a better question is what is the ideal rate of corruption in society? What is the crime rate? It is not zero. Zero would require the panopticon looking over you and watching your every move. 

Again, likely an ideal society scam rate is in the 1-3% range. Where 1-3% of your interactions are scams. Most taxi rides are above-board. But a few taxi drivers are figuratively going to take you for a ride. If you are taking a taxi in Beirut, the number might be more like 80% which can be incredibly frustrating as every ride becomes and a negotiation. If it is closer to 1% (or maybe as high as 5%), then you can be more relaxed.

Certain industries are more likely going to take people for a ride than others. Those industries are generally ones where there are highly unscrupulous people that go into them (illegal drug dealers) or ones that have high information asymmetry (healthcare, construction, etc.).

What do you do if the decision IS really important?

What do you do if you or a loved one get a serious disease? You don’t want to be scammed by the system. This is the case that makes sense for you to do lots of research on every provider. Don’t just take someone’s recommendation. Do lots of reference checks on people. Ask very probing questions. If you can afford it, hire a private investigator. If you can afford it, hire an advocate.

Anyone that has actually gone through life accepting a scam rate has saved up thousands of hours over the years. This is your chance to deploy those time savings to make sure you make the right decision.

Summation: have an internal base rate that you want to be scammed.

What would happen if all job offers had to be quoted post-tax and in PPP-adjusted dollars? (Thought Experiment on Compensation)

Today when you get a job offer from a company (in the U.S.), your salary is quoted in dollars. If you get a job offer for $100,000 and one for $120,000, you can easily compare the compensation levels.

But can you?

It is true that comparing the salary for two jobs in San Francisco is relatively straight-forward. But what if you had to compare a job offer in San Francisco with one in Plano, TX?

A $100,000 salary in Plano goes a lot further than a $120,000 salary in San Francisco. In fact, it probably goes further than a $200,000 salary in San Francisco.

Even within countries (like the U.S.), different regions are higher-cost and others are lower cost.

The Purchasing Power Parity (PPP) between cities can be drastically different. One simple way to see the difference is the price per square foot to purchase a home. The median price per square foot for a home in the U.S. is $123 but in San Francisco it is $810 (and Detroit is just $24). So it takes a lot more dough to live in San Francisco (or Manhattan) than most places.

Also, the tax rates can change substantially between regions and cities. The top income tax rate in California is 13.3%. The top income tax rate in the State of Washington is zero (the seven states with zero income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming). So even though Seattle is getting really expensive, you can save a lot of money by taking a job there instead of San Francisco.

So what would happen in there was a law that stated that all salaries need to be quoted in post-tax PPP-adjusted dollars?

Imagine that there was a law that forced every employer to quote both the absolute salary (like $120,000 in SF) and the after-tax PPP-adjusted salary (would transform to probably $50,000 in SF).

What would happen?

First thing that would happen is that many fewer people would want to work in places like San Francisco and New York City. While everyone intuitive knows that these places are high-tax and high-price, seeing the stark different on the job offer would make a significant number of people pause before taking a job.

The second think thing that would happen is that many employers would need to react to this. One way to react is to increase salaries. But the salaries in places like San Francisco are already much higher than most places and would likely need to go up another 50%+ to compensate. The more likely reaction is for employers to hire more people outside high-tax and high-PPP areas.

Long term, more people are going to start thinking about their income in “real” dollars — which means the dollars they have left over after living their life.

Photo by Pixabay on Pexels.com

As computers get better, there are massive advantages of being older

Summation: Older people (over 50) are getting more advantages from computers than younger ones.  We should expect to see a huge renaissance the productivity of older business people in the future.

In business, there are advantages of being younger and advantages at being older.   And historically there has been tensions between the two.

Many advantages of Being Younger

Fearlessness: 
Youngers people have less fear of older ones.  They have less to lose, less social status, no mortgage.   If they fail, they will not be lower on the status ring.  The best soldiers are usually those in their 20s.  

Older people have much more to lose and that means they are often quite poor at calculating risks.

More time:  
The older you are, the more time commitments you gather. You eventually get married and have kids.  You volunteer at a non-profit. You get involved in your church.  You pick up golf as a hobby.  You go to the Sundance Film Festival and Burning Man every year.  

When you’re younger, you have not yet accumulated the debt of these commitments.  That allows you to spend more time working.  Of course, not every young person spends a great deal of time working (many spend an equal amount of time socializing) … but those that do concentrate on work have a massive advantage because working hours compound.  Almost all super-successful people worked insane hours in their 20s.  In fact, people who do not work insane hours in their 20s are at a massive disadvantage for the rest of their lives.

More raw brainpower: 
Younger people have better working memory, they have more stamina, and they have more calculations per second.  They have a much faster CPU.  It seems unlikely that we will have a 55 year old chess champion.  And most Physics Nobel prizes went to work that was done by people in their 20s or early 30s.

More ignorance of “what works”:
Older people are more likely to get stuck in their ways.  They have a hard time seeing that the Emperor really has no clothes.  So they are more likely to do things the way they have been done before.  The old saying “science advances one funeral at a time” applies to business innovation as well.  

But there are also many advantages of Being Older

Money:
Older people are a lot richer than younger ones.  Many older people gain leverage by hiring younger people and telling them what to do.  They are often able to rent the time, fearlessness, and brainpower of younger people.

Cunning:
Cunning is the ability to work with people and also work against people.  It is something one gets better at over time.  It is not something people are just born with.  A 55-year-old can often play two 25-year-olds against each other.

Wisdom:
While young people benefit from ignorance, older people benefit from wisdom (which is the opposite side of the coin).  Older people have had more time to read, learn, and compound knowledge.  

Connections:
While “What-You-Know” is now more important than “Who-You-Know”, who-you-know is still important.  Older people have had more time to develop meaningful connections.  And many of those connections will be other very successful people.  I did not know any major CEOs, U.S. Senators, world-renowned authors, etc. when I was 22 (but many of the people I met when I was 22 turned into these people).

Stature:
Older people have a history and a brand.  And while that history can work against them (like a voting record for a member of Congress), it gives comfort for others to work with them.  People with a brand have an advantage in recruiting talent, raising money, etc.  If an entrepreneur sold their last company for $300 million, it will be a lot easier for her to recruit people to her next company than a first-time entrepreneur.

Less competition:
Weirdly, older entrepreneurs have a lot less competition than younger entrepreneurs.  At least in Silicon Valley, it seems there are 100 times more entrepreneurs in their 20s than entrepreneurs in their 50s.  Most successful people in their 50s have no desire to go through the rigor of starting a company again.  They usually opt for less stressful lives (like deciding to be a venture capitalist or running a winery).  That means that those 50+ people that do decide to start companies have a pretty big advantage because there are a not a lot of wise, well-connected, monied people who they are competing with.

Young vs Old: Who Wins?

To summarize the post thus far:

AdvantageYoungOld
Fearlessness
Wisdom
Raw brainpower
Ability to buy brainpower and time
Time
Cunning
Ignorance
Connections
Stature
Less Competition

The advantages of being young seems to equal the advantages of being old … at least when it comes to starting companies.  

Historically young people have a way higher failure rate … but they also have a much higher rate of creating an iconic company (Google, Facebook, Microsoft, Apple, etc.).

In the past there was a tension between young and old. The young having big advantages in some societies and the old having big advantages in others.  If I had to pull a number out of my butt, I would say that the best age to start a company has been 34 (not exactly “young” but definitely not old).

The best age to start a company will get much higher as computers are becoming a bigger part of our lives …

How the age advantages shift with computers: advantage to the older

Computers significantly change the advantage calculation. 

Computers give younger people more access to wisdom through easy access to knowledge. The compounding advantage that older people have had in the past is going to be less important in the future. Computers also make it easier to find people and get in touch with them — so the Who-You-Knows are going to be less valuable in the future — and younger people, while still having less access to connections, are at less of a disadvantage here.

But computers help older people IMMENSELY.  

Computers are the world’s best way to get access to raw brainpower. And as more brainpower tasks are getting taken over by computers, people with money (older people) will have a significant advantage over those that don’t (younger folks).

The proliferation of tech services also advantage older people. You can get access to the best APIs and services with dollars. Of course, most people (especially older people) will have trouble selecting and managing vendors. Most people (especially old people) are going to be trapped in the 20th century paradigm (one that rewards hiring and growing people). The most important business skill in the 21st century is the ability to select and manage vendors. But the older people that can successful navigate the new world will have an advantage.

As computers get stronger, it gets easier and easier to buy time and brainpower. We already have compute-on-demand (AWS) and people-on-demand (UpWork).

The biggest disadvantage that remains for older people is being trapped in an old way of thinking. If science really advances one funeral at a time, innovation could be significantly slowed as older people have more advantages (and are living longer).

One of the advantages that older people have that seems to be not going away is lack of competition. It used to be that very few 24 year olds ever thought about starting a company (especially those that had lots of opportunities). Even when I started an Internet company in college in the 1990s, it was really strange to have a student entrepreneur. Today it is becoming easier and easier to for 24 year olds to start companies — easier to get training, knowledge, and seed capital. YCombinator and other institutions have significantly promoted entrepreneurism among the young. My guess is that the number of amazing twenty-somethings starting companies has gone up at least 5 times in the last decade … and that trend is happening all over the world.

But people over 50 are still not starting companies in large numbers. It never was big, and I see no anecdotal evidence that it is growing. People that have been successful in the 30s and 40s are rarely opting to get back “in it” in their 50s. Instead, they are opting for easier and less stressful lives. So the few 50-somethings that do start companies could have increasing advantages. Especially those that still put in the long hours. (Even Bill Gates, one of the best entrepreneurs ever, hung up his business cleats before he turned 50).

More people in their 50s SHOULD start companies. It is actually a great time to start a company. Many people in their 50s are empty nesters (or at least no longer have super young kids). They can actually travel more and work harder than those in their 40s because they have fewer family obligations. They are usually more financially secure (maybe have paid off their mortgage already) and potentially more willing to take some sort of financial risk. And people in their 50s have so much more energy today than in years past — people live healthier, are more active, etc.

What are the societal implications of computers giving older people advantages?

The most obvious implication is wealth inequality. If older people get more advantages as they age, their wealth will compound faster. Coupled with living longer (and being active longer) means more wealth inequality.

Since the person in their 50s is more likely to build a one-to-N business than a zero-to-one business … it could mean less innovation for society and more incrementalism.

But it also could give hope to millions of people who are over the age of 50 and still have big dreams and ambitions. Ambition shouldn’t end at 45. Computers can keep ambition going way longer than in the past.

This also means that MORE 50-year-olds should start companies. However, I don’t think they will. So the few 50-year-olds that do should see very big advantages.

Summation: They advantage of getting older is growing. Computers are getting better at doing what young people do.  

Berkshire Hathaway’s Charlie Munger and Warren Buffett

We have reached Peak Planning … the declining Marshmallow Test advantage

We’ve finally reached “Peak Planning.”   

yes, we have reached “Peak Planning”

For the last 2000 years, one of the most important skills someone could have was the ability to plan ahead.  Those that could plan ahead would reap massive awards, those that didn’t would starve in the winter.  

But there has always been a tension between the forgetful creative genius (the absent-minded professor type) and the Planner.  Of course, the most successful people were the combination of the Planner AND the Creative Genius (like Bill Gates and like Warren Buffett) … but that is a real rarity. For the last 2000 years, you were MUCH better off being the planner than the creative-type unless you were the BEST creative in your field.  The 1,000,000th best planner still did very well.

The Planner is typically someone who is really good at seeing the likely future and making plans to address it.  For instance, 2000 years ago, it was really important to plan for winter.  Things did not grow in the winter so one needed to store food.  In fact, thinking about food was extremely important because harvests were not certain so you would need to save grain from a good harvest to cover an eventual shortfall year.  

The forgetful creative genius (the absent-minded professor) was at a big disadvantage in society because of their lack of planning skills. At the same time, the Planner (less creative but very good at logistics for the future) was needed for most tasks. 

While both skills (planning and creativity) are important, the future will need more creatives types and less planners.

A history of the Planner advantage

Being a Planner 25,000 years ago (as a hunter gatherer), while important, did not pay huge dividends.  You mostly wanted to avoid being eaten by lions or bitten by poisonous snakes.  And you had a limit to how much you could succeed because humans where generally confined to small tribes of people.

But as the farming revolution spread and we domesticated, planning became more and more important.  By the time the Renaissance and (later) Enlightenment hit, Planners could rule vast lands or get very wealthy.

Napoleon would have passed the Mashmallow Test

Napoleon Bonaparte surely would have passed the Marshmallow Test.

Then came the industrial revolution and Planners became even more in demand. Alfred Sloan, the famous CEO of General Motors, was an incredible planner.

But planning was not just important in becoming a successful business person. Planning was ESSENTIAL in every-day life.  

In 1990, the people with great social lives were the planners.  If you did not not plan to meet your friends, you might not be able to meet them.  In the pre-mobile phone era, you needed to be constantly planing ahead.  The rewards, both economic and social, went to the planners.

And yes, there were still some extremely successful forgetful creative geniuses like Einstein.  But Einstein had a brain like Einstein.  He was an exception.  

Even the most famous 20th Century artists were Planners

People think that “creative geniuses” are not planners. But in the 20th Century (the century were planning mattered most), most of the great artists were planners.

Warhol was a planner. Picasso was a super Planner. And other “artists” are planning machines.  The successful comics like Seinfeld and Chris Rock were always planning.  Most of the best actors, musicians, etc. have been Planners. Planning was how you got ahead.

Until recently.

In fact, we’ve reached Peak Planner.

Today, it is easier than ever to do something in the last minute.

Want to watch a TV show? Not that long ago you’d have to plan to watch it. Seinfeld was available to watch only on Thursday at 9p. Later, when DVRs came, you’d still have to plan by setting up your DVR. Non-planners often had to resort to watching infomercials. Today, you just go watch the great show whenever you want.

Want to go on a good vacation? It is actually possible to plan the whole thing that day.

Restaurants? Yelp + OpenTable = instant gratification.

Need a ride to the airport? You can call a Lyft or Uber a minute before.

Want food? The biggest problem is picking from one of the 400 apps that help you do that.

Want to meet a special someone? Swipe right on Tinder.

Even businesses need less planning. When I stated LiveRamp in 2006 I had to plan ahead to buy servers. I remember the day when we moved our colo to a new host and we had a checklist of over 250 items. I fondly remember the celebration when we completed the move. But need more compute power for your application today? Simple to spin up more instances on Amazon Web Services.

You don’t even need to plan for office space — WeWork gives you office space on demand.

And you can even get workers on demand through UpWork and Mechanical Turk.

On-demand services are built by Planners to give non-Planners an advantage

The best planners are working themselves out of a societal advantage because they are spending their time planning logistical companies that give small benefits to other planners … but very large benefits to the absent-minded professors.

Coordination is getting easier and easier

Coordination … especially between 2–10 people … is getting easier and easier. Not that long ago, if you wanted to meet someone you’d have to spend a lot of time coordinating it. You’d break out a map and plan your route. You’d call them a few days ahead of time and meticulously plan where to meet.

Today your mobile phone takes care of all of this in real-time. No need to coordinate. It is Planning for Dummies.

The Marshmallow Test will not be as important 50 years from now

The famous Marshmallow Test predicted that people who were good at delaying gratification would be more successful. These are people who better appreciated the value of compound interest. But in a future world where planning is not as needed as today’s world, delaying gratification may not be as important. 

I’m a planner and I benefitted from it.

And yes, you can still get big economic benefits if you plan.  I pay half price when I buy my GoGoAir Pass on the ground instead of in-the-air.  I can save a lot of money by packing a chocolate bar rather than buying one at the airport.  But the benefits to planning, while significant, ain’t what they used to be.

Yeah, I plan meticulously to queue up my reading so that I always have something good to read. I save book and movie recommendations from people. But while this lack of spontaneity has generally served this Generation Xer well, it is likely not a core skill that someone born in the last decade should be focusing on.   

Summation: While people that do well on the Marshmallow Test will still have an advantage … that advantage will be much smaller 50 years from now as it was 50 years ago.

Note: This is adopted from my 2017 Quora article on Peak Planning.

some totally random Rules for Life (2019)

ABC: Always Be Charging
Whenever you have a chance to charge your devices (phone, laptop, etc), always do it. You never know when you will lack access to reliable power.

Always Be Reading Long-form
Read at least 7 hours a week of long-form. Read books. But also read well-written articles longer than 3 pages. Save time to go down reading rabbit holes. Feel free to cut out short-form reading (like clickbait articles) to make time for long-form. The airplane is a fantastic place to read.

Always Go to the Bathroom
Whenever you have a chance to go to the bathroom, take it. Never “hold it in.” Just makes you very uncomfortable and unproductive.

Always Be Listening Long-Form
We are in a podcast revolution — take advantage of it. You also can get many books (but unfortunately only 20% of good books) on audio.

Always Love Email
Email is the best form of communication ever invented. All new communications methods in the last 20 years are inferior to email. Email is the greatest asynchronous communication tool. For synchronous communication: meet in-person, by live video, or talk on the phone. Slack and Facebook Messenger can be productivity killers.

Always be Writing
Try to write something over 500 words a few times per week … even if the only person who reads it is yourself. This will help you collect your thoughts.

Sometimes Change your Mind
At least once a year, challenge yourself to change your mind about a deeply held belief (business, family, political, societal, etc.).

self-driving cars will cause the Rich to Get Even RICHER

When self-driving cars come (and I’m skeptical they will come in mass in the next 20 years … but that is for another post), everyone’s commute will be much faster. That is because cars will be able to coordinate with each other and rarely need to go below 80 miles/hour on highways (even during the busiest of times).

But once self-driving cars happen, the next thing is to allow cars to pay up to go EVEN faster. There is no reason a car can’t go 160 miles per hour and get you there in half the time.

Cars that don’t pay up for the privilege will be forced to yield to cars that do. Essentially expect to see surge pricing to get to places faster.

Would you pay an extra $100 to get from San Francisco to Los Angeles in 100 minutes by car? An extra $300?

Note: I’ve been thinking a LOT about transportation recently because of all the transportation-related companies that use SafeGraph Places.

Summation: while self-driving cars will be good for everyone, they will be GREAT for people with lots of money (especially in capitalist societies like the U.S. and China).

Waymo self-driving car

What-You-Know now beats Who-You-Know

What-You-Knows ascends past Who-You-Knows

The old adage that “it’s not what-you-know but who-you-know” is so entrenched that we don’t question the premise. Undoubtedly, who-you-know has been important throughout history, whether in the trade networks of ancient Greece, or in the dense web of high tech companies in Silicon Valley. A good network is especially important when capital is scarce, information hoarded, and when finding the appropriate contacts is difficult. For much of history, knowing the right people was crucial if you wanted cash and cache.

By definition: a “What-You-Know” knows a lot about a certain thing. They possess a lot of knowledge, insight, and research. They usually spend a lot of time reading broadly and interacting with a few dozen select people (strong ties).

A “Who-You-Know” generally has a very large network of weak ties. The ultimate who-you-knows make money by being in a profession that introduce two what-you-knows together and taking a vig. In the 1980s, the professions with the highest prestige were the what-you-know professions (like investment banker, corporate lawyer, real estate agent, wealth manager, etc.).

Because the who-you-knows were constantly talking to smart what-you-knows, the who-you-knows ACTUALLY BECOME what-you-knows because they had access to a ton of proprietary knowledge.

Think back to the 1980s … there were no blogs and there were a very small number of news sources. Information was really hoarded and having a deep network was one of the best ways to get access to interesting and unique knowledge.

But something happened in the last 10 years … it is easier to find people, connect with them, learn new things, and get access to capital. So the what-you-know has been ascendant.

Finding people is easier.  So is connecting with them.

Tools such as LinkedIn and Google, democratize the ability to network. If before it was difficult to ferret out the perfect contact, today finding a right marine biologist in New Zealand or the genetic researcher in Norway is as easy as a Google search. And social media has made it even easier to connect with that person.  

Access to capital is much easier.

Today, capital is relatively plentiful and accessible. In fact, it is the easiest time in history to get capital. That does not mean getting capital is “easy” — it certainly is still really hard. But it is significantly easier than in the 1980s (and the 1980s were easier than the 1880s). It is also much easier than ever to get access to people who have money (accessing capital can be as easy as sending an email). 

Access to information is easier.

Information, too, has been democratized. It used to be that if you wanted to get access to cutting-edge ideas in technology, you needed an invitation to an exclusive conference like TED … or to attend a university like MIT. Today, TED lectures and MIT courses are offered free online. The only barrier to most of the world’s best information is knowing English (and even that is changing).  Some of the best information is available on blogs.

As an aside, I count myself extremely lucky to be friends with Tyler Cowen (who is truly a wondrous person). But if I knew someone like that in the 1980s, I might have 95% advantage (in getting interesting information) than people that did not know him. Today, anyone can read Tyler’s blog (which I highly recommend you do). It is chock-full of information. My information advantage in knowing Tyler may only be 15% more than those that do not. That is a huge change in a short time.

Given our hyper-connected world, could it be that “who you know,” while still important, matters a little less than in the past? Could it be that “what you know” carries more weight? The answer to both questions is undeniably “yes.”

My intuition is that “what you know” has now crossed the line to be more important … and possibly even MUCH MORE important … than “who you know.” Like Kurt Vonnegut said in Breakfast for Champions; “new knowledge is the most valuable commodity on earth. The more truth we have to work with, the richer we become.” 

In today’s world, if you know something really compelling, you will be sought out … and sought out directly. In the past, the people with connections were gatekeepers who controlled access to the elite circle and got paid handsomely for that. Today, people that invent interesting things (the true What-You-Know people) will reap many more rewards than the brokers who make introductions.  

Even the traditional who-you-know professions such as banking and law are becoming more specialized.  The lawyer that understands the intricate tax implications of U.S.-Brazil joint ventures is now much more valuable than the generalist lawyer that introduces you to that person.   

Today the professions most prized are the what-you-knows. The inventors, hedge fund managers, etc. One hundred years ago, most inventors would capture only a small portion of their intellectual property. Most of it would be taken by the who-you-knows.

All this does not mean that your network isn’t important. Of course it is. Who-you-know is still incredibly useful. But it will just be less important than it has been in the past.  Even the Wizard of Oz was looking to network: just before he leaves the Emerald City he tells Dorothy that he is off “to confer, converse and otherwise hobnob with my brother wizards.”

Summation: In the new world of abundant capital, easy access to information and people with knowledge, the what-you-know skills are more important than those of the who-you-know.

This is drawn from my original 2012 post in Summation and my  2014 post on Quora.

If you like this, follow Auren on Twitter.

People are Highly Susceptible to Suggestion

Your decisions are easily primed by random factors

People are influenced by the strangest things and sometimes we make decisions because of random bias. We should be aware of our bias and how our opinions and actions can be shaped by priming.

Jonah Berger, Assistant Professor of Marketing at the Wharton School of Business, conducted a terrific study where he demonstrates that where people vote affects how they vote. Essentially, people whose voting booth is located in a church are more likely to put more weight into social issues, people voting in fire houses care more about safety, and people voting in a school tend to put more weight on things like education.

Can you believe that where you vote affects how you vote?

People are easily primed by the simplest thing, like their name. University of Buffalo’s Associate Professor and Psychologist Brett Pelham conducted a groundbreaking study that some of the biggest decisions of our life – where we live, what we do, and who we marry – are influenced by our first name. The book The Happiness Hypothesis by Jonathan Haidt explains further:

Men named Lawrence and women named Laurie are more likely to become lawyers. Louis and Louise are more likely to move to Louisiana or St. Louis, and George and Georgina are more likely to move to Georgia.

My guess is that people with the last name of Clinton, Kennedy, and Bush (all relatively common last names) tend to have a more favorable opinion of the Presidents sharing the same last name than the rest of the population.

People can also start acting a certain way because other people expect them too. Berger has other studies which suggest people are more likely to conform to a stereotype of them because that stereotype exists.

In psychology, these actions are known as priming. And we humans are primed often. As advanced decision makers, we need to make sure we are making important decisions for the right reasons and not just because of being primed. Deciding to see a Dustin Hoffman movie just because we have the same last name is no big deal. But if I wanted to switch professions and become an actor because of my name, it might be a good idea to really understand why.

This is another reason why your “gut” isn’t always right. A gut reaction is generally a collection of biases and can be easily primed. While it can be right (the brain can often analyze information implicitly faster than it can explicitly), it can also be dangerously wrong. It would be a really bad idea to hire someone to watch over your child just because you got a “good feeling” about the person.

Your gut might be much better at telling you what not to do than giving you good direction on what to do. If your gut tells you something is wrong with someone, than you probably do not want to entrust your kid with her. But a positive gut-check often does little good (at least for me). When thinking about how this affects hiring, our goal at Rapleaf is to attempt to remove primed biases from hiring decisions. While you’ll never be able to remove all bias, removing just a few of them can give you a dramatically large advantage over a competitor. Malcolm Gladwell has a great anecdote about this in Blink where a metropolitan symphony decides to change its hiring by listening to someone play (person was behind a screen) rather than seeing them play. It turned out that the symphony in question massively increased the number of women they hired when they stopped watching people play and instead just listened to them. And, of course, the quality of the music got much better too.

So the next time you are voting in an elementary school, think twice to yourself if we really need this new school bond.

economic lesons of premium airline status

If you have premium status, you get better seats with more legroom.  But those seats are the most coveted so you’ll almost certainly be sitting next to an occupied middle seat.   But if you don’t have status you get worse seats (usuall near the back of the plane), but you have a better chance of not having to sit next to someone.  

Bad coach seats with an empty middle seat is BETTER THAN a good seat with a full middle seat.   So depending on when you are flying, you have to make a decision about how full the plane will be as you choose where you’d like to sit.

How to Disagree and always shooting the messenger

I love reading Paul Graham … I’ve read pretty much
everything he has written and while I don’t always agree, I always come away
from his articles with a new thought. In fact, I think he has most insightful blog/column out there.

 
Graham writes a new one entitled How to Disagree:

http://www.paulgraham.com/disagree.html


this is well worth reading. Many people have trouble disagreeing and the most common way to
discredit an argument is to go after the messenger. Graham points out this is a really a poor
argument as to why the messenger’s point is bad.

but most humans give too much weight to the messenger and not
enough weight to the message. That
makes sense from a purely evolutionary point of view. If Stephen Hawking says something about
physics, you might want to listen. But
if Britney Spears starts discussing string theory, you might think she’s talking
about bikinis and not theoretical physics. This reasoning works most of the time as usually Hawking has interesting
things to say about science and Spears is known for other talents.


But in politics and business, not listening to the messenger
can lead to very bad decisions. Giving
a little more weight to a new opinion of someone you like over those that you
dislike makes sense. But a good
decision maker should only weigh the messenger a little and focus much more on
dissecting the message. The boy who
cries wolf might be right sometime … you shouldn’t just reject the message out
of hand.

 

multi-tasking verses micro-tasking

People always say women are better multi-taskers than men. My bet is that the stereotype is largely true. Most men I know can only concentrate on one thing at a time. Where many women I know can do multiple things at the SAME time.

For instance, if you want eliminate my productivity, just put on the television. If the television is on, there is almost nothing else I can do. I am absolutely powerless. I cannot watch television and do anything else that takes brainpower. I might be able to fold laundry or run on the treadmill, but nothing where I am really utilizing my brain.

Many women can compartmentalize their brains better and do many things at once. There has been a lot of studies that claim to prove this but I never believed the studies before because it seemed to me that men and women were equally productive in the workplace. But what I didn’t realize was while women really excel at multi-taking, men compensate for this by micro-tasking.

Micro-tasking is the ability to do lots of different things in series while multi-tasking is doing different things in parallel. While parallel-processing is inherently better, you can make up for it by being very efficient when working in series.

You might think someone is a really good multi-tasker because they get a lot of stuff done in an hour but they might actually be a really good micro-tasker (maybe doing 20 different things in order for an average of three minutes each).

Instant messaging is the bane to people that love to micro-task but cannot deal with true multi-tasking. I can’t deal with IM – it makes any other work I was considering doing fall by the wayside. So like many people who understand that they are not a parallel processor, they organize life hacks to compensate for this.

After actively using ICQ in 1997-1998, I eliminated IM from my life. In fact, I tried to eliminate all unnecessary synchronous communication (which is why I love email – it is by far the best asynchronous communication medium ever invented). And while I use IM to communicate with people occasionally (I don’t have an IM client, I always use Meebo) and recognized the power of IM (I even invested in Meebo), IM should be for people who truly can multi-task and not poor chaps like me (and most men) who have to resort to micro-tasking. And, of course, IM is for people that don’t want to be productive (most people in the world).

Another life hack I made four years ago was to eliminate TV. I canceled my cable subscription because TV, to me, was like chocolate cake – it is so addictive that if it was available in my home it would be consumed.

If you’re a man, chances are you’re not wired for parallel processing. So if you want to gain efficiency and output, you’ll need to set up your life inputs to better gel with your internal systems.

(special thanks to my office-mate, Vivek Sodera, who pointed out these differences to me)