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+# A Portrait of Charles T Munger
+
+# By Michael Broggie
+
+"The next thing most like living one's life over again seems to be a recollection of that life, and to make that recollection as durable as possible by putting it down in writing." - Benjamin Franklin
+
+Behind the extraordinary story of Berkshire Hathaway are two financial geniuses: the widely acclaimed Warren Buffett and his "silent partner," Charlie Munger, who relishes his obscurity.
+
+Charlie is Warren's friend, lawyer, adviser, devil's advocate (Warren once called him the "abominable no-man"), and one of the largest stockholders in one of the most successful publicly traded companies in American business history. Since 1964, when Warren, and some years later, Charlie, assumed management of Berkshire, its market value has increased an astonishing 13,500 times, from $10 million to roughly $135 billion, without much of an increase in outstanding shares. Such phenomenal growth is the singular achievement of these two unassuming Mid-westerners, who combine their synergistic abilities to recognize and seize opportunities other businessmen consistently overlook.
+
+According to Charlie, his boss’s staunch anti socialist attitude was manifested in his rule requiring the boys to present two pennies at the end.
+
+---
+
+of their shifts to cover the cost of the new Social Security Act, In return, they received a $2 daily wage along with the admonition that socialism is inherently evil.
+
+While Warren is one of the most admired and publicized business leaders in the country Charlie has purposefully sidestepped the limelight, choosing relative anonymity instead. To better understand this complex and highly private businessman, we must start at the beginning. Charles Thomas Munger was born on January 1, 1924, in America's heartland, Omaha, Nebraska. Many notables share his Midwestern roots: Will Rogers, Henry Fonda, John Pershing, Harry Truman, Walt Disney, Ann Landers, Gerald Ford-and, of course, Warren Buffett.
+
+Charlie initially crossed paths with the Buffett family during the formative years of his life when he worked at Buffett and Son, an upscale grocery store in Omaha, about six blocks from the Munger household. The boss and part-owner was Warren's grandfather, Ernest. A strict disciplinarian, he scheduled his young workers for twelve-hour shifts with no meals or breaks. According to Charlie, his boss’s staunch anti socialist attitude was manifested in his rule requiring the boys to present two pennies at the end of their shifts to cover the cost of the new Social Security Act, In return, they received a $2 daily wage along with a considerable lecture about the evils of socialism.
+
+The arduous working conditions in the Buffett grocery store had a lasting influence on both Charlie and Warren. Warren, six years younger, served his
+
+---
+
+hard times under Grandpa Ernest several years after his future business partner had moved on.
+
+Charlie's formal education began at Dundee Elementary School where he and his younger sisters, Nancy and Carol, were indoctrinated with ethical homilies. Charlie's teachers remember a smart kid who was also incline to be a bit of a wiseacre. he enjoyed challenging the conventional wisdom of teachers and fellow students with his ever-increasing knowledge gained through voracious reading, particularly biographies. Today he can't remember the first time he was exposed to the aphorisms of Benjamin Franklin, but they fledged an ineffaceable admiration for eclectic and eccentric statesman/inventor. Charlie's parents, Al and Florence Munger, encouraged reading and gave each of their children several books at Christmas, usually devoured by that night.
+
+At the nearby home of the Mungers' close friends, the Davises, Charlie often read the medical journals belonging to Dr. Ed Davis, who was both his father's best friend and a family physician. Charlie's early exposure to Dr. Davis's medical library spawned a lifelong interest in science. By the time he was fourteen, the precocious learner also became one of the doctor's best friends. Charlie became so interested in medicine that he watched motion Pictures of Dr. Davis, a urologist, performing surgery and became fascinated with the statistical outcomes of similar procedures in the field. At home, Charlie developed a fondness for raising hamsters and periodically traded them with other children.
+
+---
+
+Even at an early age, Charlie showed sagacious negotiating ability and usually gained a bigger specimen or one with unusual coloring. When his brood grew to thirty five animals, his mother ordered an end to his hobby because of pungent odor from his basement hamster farm. One of his sisters remembered years later that the family had to endure the incessant squeaking of hungry hamsters until Charlie arrived home from school to feed them.
+
+Charlie attended Central High School, a very large public school rather recognized as a good college preparatory school. The teachers, mostly women, were dedicated to work and to their students. Central High curriculum provided a conventional classic education, in which Charlie naturally excelled because of his logically driven, inquiring mind.
+
+Throughout elementary and secondary school, Charlie was younger and smaller than his classmates, having been moved ahead in elementary school after his mother taught him to read phonetically. Too small to compete in regular high school sports, he joined the rifle team, earned a varsity letter, and eventually became team captain. His Letterman's sweater ("a large letter on a very small chest" is Charlie's memory) attracted attention from coeds who wondered how such a scrawny kid could earn a varsity letter. Fortunately for Charlie, his father was an avid outdoorsman and duck hunter and took joy in his son's marksmanship.
+
+Omaha in the 1920s was the proverbial melting pot; different races and religions mixed socially and commercially, and crime was practically unknown. Doors and vehicles were left unlocked, and a person's word was
+
+---
+
+trusted implicitly. Kids played "Kick the Can" on warm summer evenings and went to Saturday matinees to see the latest "talkies," such as King Kong, a favorite of eight-year-old Charlie.
+
+The 1930s brought hard times, and Omaha experienced the severity of the Great Depression. Charlie's observations of the plight of those less fortunate made lasting impressions. He saw hobos roaming the streets looking for handouts and others who were willing to sweep a driveway or porch in exchange for a sandwich. Thanks to family connections, Charlie landed a boring job counting passersby; it paid forty cents an hour.
+
+Charlie preferred this work to carrying heavy boxes of groceries. Charlie learned that, by supporting each other the Mungers weathered the worst economic collapse in the nation's history.
+
+Charlie's grandfather was a respected federal judge, and his father followed in his footsteps to become a prosperous lawyer. Charlie's immediate family was not dramatically affected by the depression, but some members of Charlie's extended family were. This era provided real learning experiences for young Charlie. He witnessed the generosity and business acumen of his grandfather as he helped rescue a small bank in Strasbourg, Nebraska, that was owned by Charlie's Uncle Tom.
+
+Because of the miserable economy and drought-damaged crops, the bank's farm based clients were defaulting on loans. Tom had rolled up $35,000 in uncollectible notes when he called upon Grandpa Munger for support. The judge risked nearly half of his assets by exchanging $35,000 in sound first mortgages for the bank's weak loans, thus enabling Tom to open his doors.
+
+---
+
+after Roosevelt's bank holiday. The judge eventually recovered most of his investment, but not until a great many years later.
+
+Judge Munger also sent his daughter's husband, a musician, to pharmacy school and helped him buy a well-located pharmacy that had closed because of the depression. The business prospered and secured the future for Charlie's aunt. Charlie learned that, by supporting each other, the Mungers weathered the worst economic collapse in the nation's history.
+
+Fortunately, Al Munger's law practice prospered during the depression and was given a boost when the United States Supreme Court agreed to review a tax case involving a small soap-making company he represented. Coincidentally, the huge Colgate-Palmolive Company was also affected by the Court's decision. Concerned that the Midwestern attorney didn't have the requisite experience to argue successfully before the highest court, Colgate offered to pay Al liberally to step aside and allow a famous New York attorney to take his place. The big-city lawyer lost the case while Al pocketed a substantial fee. Later, he joked that he could have lost the case just as well for a much smaller fee. The amount of the fee has never been revealed, but it was enough, when combined with income Al earned from his other clients, to help keep the Mungers comfortable during the depression. Charlie also helped the family by working to earn his own spending money and thus learned first-hand the value of financial independence.
+
+In 1941, as the war raged across the Atlantic, Charlie graduated from Central High School and left Omaha for the University of Michigan. There
+
+---
+
+he chose mathematics as his major, drawn by the appeal of numerical logic and reason. He also discovered physics after enrolling in a basic course to fulfill an academic requirement for science. Charlie was fascinated by the power of physics and its boundless reach. In particular, he was impressed by the process followed by physicists, such as Albert Einstein, to address the unknown. Physics-like problem solving was to become a passion for Charlie and is a skill he considers helpful in framing the problems of life. He has often stated that anyone who wants to be successful should study physics because its concepts and formulas so beautifully demonstrate the powers of sound theory.
+
+College-aged men were then in high demand for military service. Days after turning nineteen and completing his second year at Michigan, Charlie enlisted in the Army Air Corps in a program that would eventually make him a second lieutenant. He was sent to the Albuquerque campus of the University of New Mexico for studies in general science and engineering. Next he was shuffled to the prestigious California Institute of Technology in Pasadena, California. He was schooled in thermodynamics and the science of meteorology-then essential to fliers-and trained to become a meteorologist. After completing his studies at Caltech, Charlie was dispatched to a permanent duty station in Nome, Alaska.
+
+While still in the service, he married Nancy Huggins, a young woman from Pasadena who was a good friend of his sister Mary at Scripps College. They were stationed in Albuquerque and then San Antonio until Charlie was
+
+---
+
+discharged from the Army Air Corps in 1946. Soon Charlie and Nancy had their first child, a boy whom they named Teddy.
+
+Although he had attended several universities, Charlie still did not have a bachelor's degree. Nevertheless, using the GI Bill, he applied to Harvard Law School where his father had preceded him. His lack of an undergraduate degree threatened to derail him, but a family friend, former Harvard Law School Dean Roscoe Pound, interceded on Charlie's behalf. Charlie was admitted, despite the determination of the admissions office to first send him back to college.
+
+As it turned out, Charlie had little trouble succeeding at Harvard though he annoyed a few people along the way. Because of his intellect (the Army measured his IQ at top of the curve), Charlie had a tendency to be abrupt, which was often interpreted as rudeness. Actually, Charlie was just in a hurry and customary pleasantries of the classroom were of little concern to him. Even so, he was liked by most of his peers and fully enjoyed the social aspects of student life in Cambridge.
+
+Charlie graduated from Harvard Law School in 1948 and was one of twelve in his class of 335 to graduate magna cum laude. He considered joining his father's law practice, but, after a discussion with his father, both of them concluded that Charlie should try a larger city. He headed off to Southern California, a place he had liked while a student at Caltech. After passing
+
+---
+
+California bar exam, he joined the firm of Wright & Garrett, later renamed Nicklaus, Peeler & Garrett. Charlie built a house, designed by his architect uncle, Frederick Scott, in South Pasadena where he and Nancy and their three children, Teddy, Molly and Wendy lived.
+
+Despite outward appearances, all was not sunny in Charlie's world. His marriage was in trouble, and he and his wife finally divorced in 1953. Not long thereafter, Charlie learned that his adored son, Teddy, was terminally ill with leukemia. It was a significant burden for twenty-nine-year-old Charlie. In that era, before bone marrow transplants, there was no hope. A friend remembers that Charlie would visit his dying son in the hospital and then walk the streets of Pasadena crying.
+
+During this sad time, his friend and law partner, Roy Tolles, arranged through a friend for Charlie to meet Nancy Barry Borthwick, who lived in Los Angeles. She was a Stanford graduate and had two small boys, close to the ages of his girls. Charlie and Nancy had much in common and had fun together, and after a few months of dating became engaged. They were married in a small family wedding in January 1956, and all four children, his girls and her boys, ages four to seven, attended the wedding.
+
+Charlie and Nancy lived in her house in the hills of west Los Angeles for several years. Then, partly to shorten Charlie's daily commute, they moved to Hancock Park where they still reside. The house they built there was large enough for their ever-expanding family: three more boys and a girl for a total of eight. Fortunately, both liked children! They also liked golf.
+
+---
+
+beach, and social clubs. Charlie and Nancy were soon members of the University Club, the California Club, the Los Angeles Country Club, and the Beach Club.
+
+With many new responsibilities, Charlie worked hard at his law practice. Even so, his earnings were unsatisfactory to him as they were based on a combination of billable hours and seniority. He wanted more than what a senior law partner would be able to earn. He sought to be like his firm's leading capitalist clients, in particular, the universally admired Harvey Mudd, later the founder of the college bearing his name. With Nancy's support, he turned to outside ventures and alternative ways to generate income. However, he never forgot the sound principles caught by his grandfather: to concentrate on the task immediately in front of him and to control spending.
+
+Following this conservative approach, Charlie seized opportunities to build wealth. He began investing in stocks and acquired equity in one of his client's electronics businesses-a practice common among lawyers in the mid-1950s and 1960s. This investment was mutually beneficial: Charlie gained invaluable knowledge about business while his client enjoyed proactive attention of a lawyer who knew more than just the law.
+
+In 1961, Charlie tackled property development for first time, in partnership with Otis Booth, a client and friend. The venture, building condominiums on land near Caltech, was a smashing success, and partners earned a handsome profit of $300,000 on a $100,000 investment. Charlie and Otis
+
+---
+
+then undertook other successful construction and development projects in Pasadena. Later, Charlie participated in similar projects in Alhambra, California. He sharpened his business acumen by canceling the negotiations and contracts. In all cases, he left all of his profits in real estate ventures so that bigger and bigger projects became possible. When he stopped in 1960, he had a nest egg of $1 million from real estate projects alone.
+
+In February 1962, he joined four colleagues from Musick, Peeler & (character in establishing a new law firm. The original partners were Roy Tolles, Rod Fills, Dick Esbcn Shackle, Fred Warder, and Charlie. they were joined by Rod's wife, Carla, and James T Wood, a sole practitioner and friend of the Hills, and, importantly, who had a client. They named the firm Munger, 'belles & Hills. Over the years, the firm had several names, always beginning with Munger, Tolles. With the addition of Ron Olson, it finally became Munger Tolles & Olson, shortened as "Munger Tolles" or "MTO."
+
+The successful practice of law was by then a backstop rather than an ending objective for Charlie. At about the time that he was launching his new law firm, he was carefully crafting his exit plan. Charlie set up an investment partnership with Jack Wheeler, and they were later joined by Al Marshall. The idea for this partnership arose a few years earlier when the death of Charlie's father required him to return to Omaha to administer the estate. To welcome him home, the children of Charlie's friend and medical mentor, Dr. Ed Davis, arranged for a dinner party. Both of the Davis boys, Eddie Jr. and Neil, were former childhood chums of Charlie and were now physicians while their sister Willa had married an Omaha businessman, Lee Seemann.
+
+---
+
+The dinner party included Willa and Lee, Neil and his wife Joan, and a fellow named Warren Buffett.
+
+Charlie recognized Warren's family name from his days at Buffett and Son, and Warren had heard of Charlie a few years earlier when he was raising investment capital in Omaha. At one point, Warren had met with Dr. Davis and his wife, Dorothy, to explain his investment philosophy, and they agreed to place a large part of their life savings - $100,000 - with him. Why? The doctor explained that Warren reminded him of Charlie Munger. Warren didn't know Charlie but already had at least one good reason to like him.
+
+During the homecoming dinner, Charlie and Warren realized they shared many ideas. It also became evident to the others at the table that this was going to be a two-way conversation. As the evening progressed, the two young person were twenty-nine and Charlie thirty-five engrossed in a wide-ranging dialogue covering many aspects of business, finance, and history. Where one was knowledgeable, the other was just as excited to learn.
+
+# Q and A with Warren Buffett
+
+OK, the first question is how, when, and where did you first meet Charlie Munger?
+
+---
+
+Well, I first met Charlie in 1959 when the Davis family got me together with him. Dr. Davis previously had often mistaken me for Charlie, and I wanted to find out whether that was a compliment or an insult. So, when Charlie came home to Omaha in 1959, the Davises arranged for us to go to dinner; in fact, I think we had a small little private room with a few Davises in attendance. Sometime during the evening, when Charlie started rolling on the floor laughing at his own jokes, I knew I had met a kindred spirit.
+
+# What was your first impression?
+
+My first impression was that I had run into somebody that had a lot of similarities to me. I've been known to roll on the floor laughing at my own stuff, too, and to try to dominate the conversation. Charlie was a little more successful at that than I've ever been, but he's been great to study under.
+
+# This is great. Now, here's your big one. What are the secrets of his success?
+
+Well, one time, some attractive woman sat next to Charlie and asked him what he owed his success to, and, unfortunately, she insisted on a one-word answer. He had a speech prepared that would have gone on for several hours. But, when forced to boil it down to one word, he said that he was "rational." You know, he comes equipped for rationality, and he applies it in business. He doesn't always apply it elsewhere, but he applies it in business, and that's made him a huge business success.
+
+# What other character traits do you think have contributed to his success?
+
+---
+
+I think actually it really does come out of Ben Franklin that he admires so much. I mean, there is honesty and integrity, and always doing more than his share and not complaining about what the other person does. We've been associated for forty years, and he's never second-guessed anything I've done. We've never had an argument. We've disagreed on things, but he's a perfect partner.
+
+# What would you say are his most unusual characteristics?
+
+I would say everything about Charlie is unusual. I've been looking for the usual now for forty years, and I have yet to find it. Charlie marches to his own music, and it's music like virtually no one else is listening to. So, I would say that to try and typecast Charlie in terms of any other human that I can think of, no one would fit. He's got his own mold.
+
+# Last question, what effect do you think Nancy has had on his life?
+
+I would have to say that Charlie is not looking for anyone to have an effect on him, but that Nancy has done a remarkable job in spite of that fact. I would hate to be a marriage broker with Charlie as a client.
+
+# Q and A with Susie Buffett
+
+Tell us about Warren and Charlie first meeting one another.
+
+---
+
+The first night they met, Neil Davis had gotten them together at this restaurant, and I'm watching these two people and I thought, did Neil bring them together because he wanted to see what happened when these egos clashed? Because you have these two strong, verbose, brilliant guys. It was amazing to me to see Warren get quieter and let Charlie take the lead. I had never seen that before. Warren always took that role, and I'd never seen anybody take that away from him, and he relinquished it to Charlie that night. It was unique, I'll never forget that evening.
+
+That was unusual?
+
+Well, Warren is usually so much quicker, he's just so much faster and smarter than everybody. I mean, it can't be helped. And here was Charlie "taking off," you see. It was really fascinating to me. And then what happened after that is history.
+
+I think Warren felt that Charlie was the smartest person he'd ever met, and Charlie felt Warren was the smartest person he'd ever met. And that was unique to each of them, and it's continued to be that way, and so their respect for each other's intelligence was I think the beginning. You know, when they see the integrity they have in common, and so forth. It's a match made in heaven.
+
+It's exciting. It's like chemistry and I could see, always when they were together, I mean it's like combustion. It was really, really great. I think that Warren was an aberration in his family, Charlie perhaps was in his, and they just happened, luckily, to meet each other.
+
+---
+
+What effect do you think Nancy has had on Charlie's life?
+
+I think it's obvious to everybody that Charlie's life is enhanced in every aspect because of Nancy. She does things with such grace and humor and dignity. I'm like everyone else that knows this wonderful woman—I just respect her, love her, and she's a phenomenal human being. I think if Charlie's had any good luck in his life, his ultimate luck was, and is, Nancy.
+
+Warren was unenthusiastic about Charlie's continued practice of law. He said that while law might be a good hobby for Charlie, it was a far less promising business than what Warren was doing. Warren's logic helped Charlie to decide to quit law practice at the earliest point he could afford to do so.
+
+When Charlie returned to Los Angeles, the conversations continued via telephone and via lengthy letters, sometimes as long as nine pages. It was evident to both that they were meant to be in business together. There was no formal partnership or contractual relationship—the bond was created by a handshake and backed by two Midwesterners who understood and respected the value of one's word.
+
+There were many benefits to their partnership: friendship, investment opportunities, and the unique ability to grasp each other's ideas and observations. Later, the two organizations they headed were also beneficiaries. As Warren was investing in and acquiring companies, he sent business to Munger Tolles, a practice that allowed him over time to benefit.
+
+---
+
+from having one of the nation's top law firms at his disposal. Munger Tolles, meanwhile, not only got Buffett's legal fees, but also gained because his reputation attracted other blue-chip clients to the firm.
+
+Munger Tolles is not just about money, though. Mirroring the way Charlie conducts his personal life, the firm has an enviable record of quietly providing pro bono assistance to support groups for impoverished and disadvantaged people in the Los Angeles community. To this day, Charlie continues to influence the firm's attorneys, reminding them, "You don't need to take the last dollar" and "Choose clients as you would choose friends."
+
+Though Charlie left the firm as an active partner in 1965 after only three years, his indelible influence remains, as indicated by the fact that his name still heads the listing of 175 attorneys. When he left, he didn't take his share of the firm's capital. Instead, he directed that his share go to the estate of his young partner, Fred Warder, who left behind a wife and children when he died of cancer.
+
+There was no formal partnership or contractual relationship - the bond was created by a handshake and backed by two Midwesterners who understood and respected the value of one's word.
+
+To this day, Charlie continues to influence the firm's attorneys, reminding them, "You don't need to take the last dollar" and "Choose clients as you would choose friends."
+
+---
+
+Charlie's plan for financial independence was soon working with great success. He spent much time building an asset base of Wheeler, Munger & Co., his investment partnership with Jack Wheeler. He also spent time working on various real estate developments. All was going as planned, with no significant reverses. At Wheeler, Munger, Charlie was investing in stocks partly with his own money and partly, with other people's money. Charlie concentrated more on putting his capital to work than in attracting new clients. Because Jack Wheeler held two seats on the Pacific Coast Stock Exchange, the partnership paid low trading commissions while Wheeler, Munger kept the overhead cost at close to zero.
+
+As time passed, Charlie and Warren kept up their frequent telephone conversations and letters, sharing ideas and investment concepts. Sometimes they would agree to invest in the same company. Other times they went different directions. In time, their independent portfolios had overlapping investments. Warren invested in the Blue Chip Stamp Co. and became the largest single shareholder. Charlie became the second largest shareholder, and, eventually, Berkshire Hathaway ended up acquiring the company.
+
+Charlie built the Wheeler, Munger partnership from 1962 through 1975. It did exceptionally well for the first eleven years, compounding at 28.3 percent gross (20.0 percent net) vs. 6.7 percent for the Dow, without a single down year. But the partnership was hit hard in the vicious bear market of 1973 and 1974 when it fell 31.9 percent and 31.5 percent in back-to-back years, as the partnership's largest holdings, Blue Chip Stamps and New America Fund, fell sharply. This decline was despite, as Charlie puts it, "having its major investments virtually sure of eventually being saleable."
+
+---
+
+at prices higher than the quoted market prices." But the partnership rebounded strongly in 1975, rising 73.2 percent, bringing the overall record over fourteen years to 19.8 percent (13.7 percent net) compounded annual returns vs. 5.0 percent for the Dow.
+
+After this difficult experience, Charlie followed Warren in concluding that he no longer wanted to manage funds directly for investors (Warren had closed his own partnerships in 1969). Instead, they resolved to build equity through stock ownership in a holding company. When Wheeler, Munger was liquidated, its stakeholders received shares in Blue Chip Stamps and Diversified Retailing. Later, these shares were converted into Berkshire Hathaway stock, which ended 1975 at $38. Today, each share is worth more than $85,000, making Charlie a member of the Forbes list of 400 wealthiest individuals. While he doesn't mind the wealth, he regrets having his name on any such list. Despite his healthy self-image, Charlie would prefer to be anonymous.
+
+# Warren and Rick on "Commodore Charlie"
+
+Warren, why do you think Charlie built this enormous catamaran?"
+
+"Well, that the question that's been asked throughout the nautical world and, actually, there are two of us that know the answer to that. Rick Guerin and I had an experience in Minnesota where, on a totally calm day, not a ripple on the surface of the lake, Charlie managed to sink a boat with no outside help whatsoever. As Rick and I went down for the third time, we shouted out to Charlie that the next time he should get a boat with a little more stability to
+
+---
+
+It. 'We've decided that Charlie, with 3,400 square feet of surface area on his Channel Cat, may have finally found a boat that he can pilot with only a moderate risk of sinking it single-handedly."
+
+Rick Guerin adds: '.As I came up for the first time, it just so happened that I was nose to nose with Warren. His eyes were as wide as saucers. It was only after I rescued him that I realized I had missed an enormous opportunity namely, that the time to negotiate a reward for rescuing someone is before, not after' you save them. Who knows, with a little more presence of mind, maybe, just maybe, I would today be chairman of Berkshire Hathaway. By the way, I call Charlie's catamaran 'Munger's Folly.' It's the only completely irrational thing Charlie has ever done." Charlie gets the last word: "The boat was fun to design and build. 'What's irrational about that?"
+
+The story of Berkshire Hathaway's extraordinary success under Warren and Charlie's leadership has been told many times elsewhere, so the details won't be repeated here. To summarize, however, they have a spectacular track record of identifying undervalued companies and then either buying large stakes in the public markets or acquiring them outright. Regarding the latter, they have acquired a diverse assortment of businesses such as Johns Manville, the Buffalo Evening News, Flight Safety International, NetJets, Shaw Carpet, Benjamin Moore Paint, GEICO, and Dairy Queen. In addition, they have purchased meaningful stakes in public companies such as The Washington Post, Coca-Cola, Gillette, and American Express.
+
+---
+
+The most part, they have held their major investments for the long term—in fact, they still own almost every business they've ever acquired outright.
+
+"That sounds funny, making friends among 'the eminent dead,' but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It's way better than just giving the basic concepts."
+
+Charlie's affinity for Benjamin Franklin's expansive career in government, business, finance, and industry, can be found in his many speeches and whenever he holds an audience, large or small. At the seventy-fifth anniversary of See's Candy, Charlie said, "I am a biography nut myself. And I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among 'the eminent dead,' but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It's way better than just giving the basic concepts."
+
+Franklin used his self-made wealth to achieve financial independence so he could concentrate on societal improvement. Charlie admires that trait in his mentor and strives to emulate Franklin. He has had long involvement with Good Samaritan Hospital and Harvard-Westlake School, both in Los Angeles, and has chaired the boards of each. He and Nancy have also long supported Stanford University and the Huntington Library, Art Collections, and Botanical Gardens in San.
+
+---
+
+Marino, California. They recently provided funding for a major expansion to the Huntington called the Munger Research Center (which will receive the net proceeds of this book). Although Charlie is a self-described conservative Republican, chief among his causes is Planned Parenthood. He believes that every child deserves to be born to a welcoming mother. He also supports efforts to improve the environment and the quality of education. As the father of eight and grandfather of sixteen, Charlie regards his legacy as helping future generations inherit a better world. With his incisive wit and wisdom, Charlie Munger continues to be an invaluable partner to his best friend, Warren Buffett, and teacher to the broader business world. Together, they have built one of the most successful and widely admired companies in history.
+
+# Praising Old Age
+
+# Munger's Reflections on Aging, Inspired by Cicero's Discourse of Old-Age
+
+In 1744, Ben Franklin was still a relatively unknown tradesman engaged in printing in Philadelphia. At that time, he published, as a non-commercial labor of love, a book containing the first American translation from Latin into English of Cicero's de Senectute. Cicero had written this work, praising old age, in roughly the sixtieth year of his life.
+
+I first heard of this book in 2006 when I received from my friends, Angus and Lucy McBain, an exact reprint of Franklin's 1744 translation. It was entitled Cicero, on a Life well Spent (2005, Levenger Press). I practically
+
+---
+
+went into orbit upon seeing a work by Cicero that I could not recall ever having heard of, full of praise for old age. Perhaps the McBains figured I needed an authoritative book explaining the many opportunities and consolations still available to me at age 82. Whatever their motivations, the McBains inspired the following reflections.
+
+I practically went into orbit upon seeing a work by Cicero...full of praise for of Age.
+
+when I first learned of Cicero while studying Latin at omaha central High at the tail-end of the Great Depression, it did not seem sad to me that Cicero had died shortly after the ending of the republican form of government he loved.
+
+After all, he would have soon died from some other cause. And all around me I could see that in some important sense Cicero had not fully died. Indeed, it was plain that Cicero dead had favorably influenced many more people than Cicero living. This outcome was caused not by his martyrdom, but by the preserved words of so great an author. Nor had his beloved republican form of government perished irretrievably. In fact, a form of government prescribed by Cicero surrounded me right there in Nebraska.
+
+Moreover, not only the form but also the trappings of Ciceronian government were present. The architecture and statuary of Central High were Greco-Roman in nature, reflecting the admirable desire of early Nebraskans to give due credit to ancient models responsible for present felicity.
+
+---
+
+His underlying philosophical view was one of deep and realistic cynicism about human nature.
+
+The full merits of the peculiar form of government that Cicero had recommended and Nebraska had adopted did not come through to me well at Central High, where I did not have an opportunity to study the Cicero tract that explained it. But I later came to share Cicero's governmental views. What he recommended was a combination of aspects of limited-franchise democracy, oligarchy and temporary kingship formed into an elaborate system of checks and balances designed to prevent any one politician from causing unendurable damage. His underlying philosophical view was one of deep and realistic cynicism about human nature, including a distaste for pure mob rule and demagogues. This cynicism was of course counterbalanced by his belief that it was the duty of the citizenry, particularly its most eminent members, to serve the State and its values wisely and vigorously, even if that required a great sacrifice on the part of the servers. All ages have found that the duty part of this prescription is a hard sell. Indeed, Cicero in his own time found it necessary to invent the Latin word "moralis," root of our word moral, to help flog his fellow Romans in the right direction.
+
+That what moved me, in substantial part, was my recognition that in a value system like Cicero's I would be pretty likely to rise.
+
+---
+
+After I came to share Cicero's political views, I fancied many times that I had been converted out of concern for my fellow man. But now I believe that a man seldom fully knows his own motives. Accordingly, I now think that what moved me, in substantial part, was my recognition that in a value system like Cicero's I would be pretty likely to rise.
+
+As it worked out, I got more out of life than I deserved. And the thought patterns that seem to be rewarded in one's life are usually those which end up as part of one's most intense convictions. And so I have come to like Cicero better and better as the years have rolled by. At one time I even skimmed 'Trollope's biography of Cicero in the course of deciding never to recommend it to anyone not already a Cicero addict.
+
+Notwithstanding the McBains' questionable social tact in giving an old man a book on aging, their whole judgment was perfect. Cicero's talk would have done me no good at Omaha Central High, where my main ambition was to make a better impression on Shirley Smails. But in 2006 Cicero's discussion of old age met an enthusiastic reception.
+
+For instance, the very first page lightened one of my main burdens. There Cicero reported that the "thoughts that flowed on me ... in composing [this work] ... proved so entertaining and delightful to me that ... they have [made] Old Age [appear] ... agreeable and comfortable." Here, obviously, spoke a man of my own kind, automatically entranced and convinced by his own words. I had long believed that I had a social defect in my tendency to gain enthusiasm in the course of telling others what I thought they should know. After all, I often caused antipathy I could partially counteract only through being generous to an extent that was sometimes irksome. Happily, the great Cicero described this trait as a helpful virtue, easing the process of instructing the world. Precisely. But
+
+---
+
+what are we to think of the high school that had this great man give me an extra paragraph or two on the Catiline conspiracy when he could have been telling me to become more confident about my own words I suppose the answer is that Central High was a pretty good place for its era or that many of my fellow students were so strong in self-regard that they didn't have my youthful need for reassurance.
+
+Cicero's words also increased my Personal satisfaction by supporting my long-standing rejection of a conventional point of view.
+
+As I continued through Cicero's pages, I found much more material celebrating my way of life. As the years have passed, I have encountered more and more criticism from being lost in my own thoughts when others were talking to me. This behavior, too, is deemed a virtue by Cicero as he demonstrates in his appraisal of the astronomer Gallus and others like him: "How often did the rising sun surprise him, fixed on a calculation he began overnight... and how many others we have known in their old age [so] delighting themselves in their studies... ingenious and commendable?"
+
+And cicero's words also increased my personal satisfaction by supporting my long-standing rejection of a conventional point of view. I have always refused to accept one interpretation of the Parable of the Pharisee and the Publican in the christian Bible. under this interpretation, a learned, pious man, after a long life spent doing his duty, is criticized for rejoicing that he didn't end up like another man who behaved much worse and fell into a low moral and worldly condition. Cicero, like me, is totally against refraining
+
+---
+
+from enjoyment of this sort of delightful contrast. To him, pride in a job well done is vastly constructive. For instance, it motivates good conduct in early life because, in remembrance, you can make yourself happier when old. To which, aided by modern knowledge, I would add "and, besides, as you pat yourself on the back for behaving well, you will improve your future conduct."
+
+...as you pat yourself on the back for behaving well, you will improve your future conduct.
+
+In praise of the potentialities of advanced age, Cicero, for pages and pages, recites great accomplishments of war, statecraft and literature by old and eminent men who are made happy by performing so well for so long. For example, he says of one of the great Scipios, "Had his life been protracted a hundred years, can you suppose it would ever have proved burdensome to him?"
+
+In the course of describing these instances of success in old age, Cicero supplies interesting facts about the Roman political system. He has Cato say: "It was with great uneasiness to myself that, when Censor, I turned Lucius Flaminius out of the Senate, seven years after he had been consul. But I could not bear that his [killing a Gaul with his own hands merely to amuse his favorite prostitute who missed seeing gladiatorial deaths in Rome] should pass without public censure." Ah, those were the days! Given such Roman power, would not any wise person now approach the U.S. Senate with delight? And perhaps also publish a list of Senators under review?
+
+---
+
+Moreover, it is not enough for Cicero to praise the virtues of the old. He also criticizes the defects and follies of the young. In one case he attributes the destruction of a great government to the following cause: "A parcel of young, raw and ignorant orators smarted up who took upon them to act as statesmen and found means to insinuate themselves with and manage the People."
+
+Cicero, learned men that he was, believed in self-improvement so long as breathe lasts.
+
+Cicero generally weighs the normal advantages of youth as inferior to the normal advantages of age. To this end, he points out that Agamemnon in the war on Soy "never once wished for ten more men with the strength of Ajax but, instead, wanted ten more with the wisdom of Nestor."
+
+The age preference of Cicero is clearly attributable to his valuing, most highly, strength of mind over strength of body. In one place he reports: "Milo is said to have entered into the Olympic field carrying an ox on his back. Now, if the choice were given you, would you prefer Milo's strength of body or Pythagoras' ability of mind?" To Cicero this is a rhetorical question with only one answer.
+
+Cicero, learned man that he was, believed in self-improvement so long as breath lasts. He commends Socrates for learning to play the fiddle late in life and another Roman for mastering Greek when old. Indeed, according to Cicero, the deaths of others that hurt the most are the ones of people you are learning from. And so at one point he has Cato say of Quintus Fabius Maximus: "I was so fond of hearing him speak [that] I ... feared that when
+
+---
+
+he was taken from us, I should never find another [such] man to improve by.
+
+And Cicero twice quotes with relish what was often said of Solon, the great man of early Athens: "Daily learning something, he grew old."
+
+Cicero counsels that the study of philosophy, in a lifelong search for basic causes, is an ideal activity, usually serviceable for old people all the way to the grave.
+
+His praise of this form of learning is unstinting: "We can never sufficiently admire the excellences of Philosophy; to whose Dictates whosoever submits, he will never fail to find himself [easy] in any stage or condition of life."
+
+When I reflected on Cicero's love of knowledge, as displayed above, I happened to remember what I regard as Cicero's wisest and most cutting critique of Rome, delivered without the need for a single word: When Cicero was Quaestor in Sicily he sought for the grave of Archimedes, by far the greatest mathematician of antiquity, and found it covered with thorns-a natural, defective outcome in a Roman civilization that had almost no interest in either mathematics or science.
+
+Cicero counsels that the study of philosophy.., is an ideal activity, usually serviceable for old people all the way to the grave.
+
+As might be expected in a work first published in America by Ben Franklin, Cicero's discourse often supplies recommendations regarding all sorts of conduct, sometimes supported pithily by reasons. For instance, Cicero argues against miserly conduct by the elderly rich: "Can anything be more
+
+---
+
+senselessly absurd than that the nearer we are to our journey's end, we should still lay in more provision for it?"
+
+And fear of death is silly and unacceptable for this Roman. He reasons that either (a) you are going to a perpetual, better afterlife, or (b) you won't retain any pain if there is no such outcome.
+
+To Cicero it is unworthy that an old man would work to improve only what he would live to enjoy. For him the only life worth living is dedicated in substantial part to good outcomes one cannot possibly survive to see.
+
+Early retirement is criticized by Cicero as virtually unthinkable. He cites the moral idea of Pythagoras that "no man should quit his post but at the command of his General; that is, of God himself."
+
+In general, Cicero did not appraise the last part of life as inferior, constituting a poor residue of a better life when young. Not for Cicero is the attitude attributed to Lord Chesterfield who "having drunk the cup of life three quarters of the way to the bottom was now willing to share the dregs with some wealthy woman." To Cicero, if you live right, the inferior part of life is the early part.
+
+To Cicero, if you live right, the inferior part of life is the early part.
+
+Cicero believed in the display of great respect to elderly males. He thus had roughly the same good idea as Confucius. Moreover, he counsels old men to stand up for their rights: "Old age is ever honorable when it takes care to
+
+---
+
+support its proper rights and gives them not weakly away but asserts them to the last.
+
+Cicero is never in favor of complaining about personal misfortune, and he has reasons. For instance, he does not believe the old should complain about diminutions in sexual vigor. Instead, he thinks they should rejoice that they are now less likely to disgrace themselves or contract venereal diseases. Thus Cicero found benefits in age similar to those discovered by an old friend of mine, here called "Glotz." Just before he died at age 75, he said to me: "I used to be troubled by unwelcome, lustful thoughts about my friends' wives, but, by God, I finally licked it." However, Cicero is not content when everyone, at 75, is more like Glotz. Cicero, still in his early sixties, brags of his state in which "voluptuous enjoyments" seem inferior to "oratory . . . and the Practice of Pleading." In this the great man may have gone too far in extrapolating a personal preference. Being the greatest lawyer in the world, he may have been misled by his own balance of talents. Surely the rest of us, when still in our early sixties, will not very often prefer litigation as Cicero does.
+
+As part of his opposition to complaining, Cicero points out how silly it is to complain of reaching old age. According to Cicero, the best a young person can hope for is to get old before he dies, and it is not fitting to complain about getting the best outcome you could have ever reasonably wanted.
+
+Cicero, like Cato before him, concedes that, in moderation and meritorious company, the convivial imbibing of wine improves life. So also with stays at one's country place, well tended by others, a practice also favored by
+
+---
+
+Jefferson, who shared Cicero's conviction that such states fostered sound values.
+
+There is a judge-like objective balance in Cicero that makes him shade some of his observations. He has someone ask Cato if his wonderful old age does not benefit from more than his moral attitude, to wit, if his old age has not been benefited by his great success. Cato replies that some benefit probably came from the success.
+
+In reverse, while Cicero argues that handling a low worldly outcome with the right morality and diligence is just as admirable as handling a high outcome, he concedes that abject poverty, if it comes, is inevitably going to make aged life difficult.
+
+According to Cicero, the best a young person can hope for is to get old before he dies, But Cicero does not go so far as to concede that wealth will protect the weak and improvident from misery. According to Cicero, the wealthy are sure to suffer if they are lacking in moral and providential skill.
+
+The most celebrated passage in de Sertare is probably the following grand summary: "The best Armour of Old Age is a well spent life preceding it; a Life employed in the Pursuit of useful Knowledge, in honorable Actions and the Practice of Virtue; in which he who labors to improve himself from his Youth, will in Age reap the happiest Fruits of them; not only because these never leave a Man, nor even in the extremist [sic] Old Age; but because a Conscience bearing Witness that our Life was well-spent, together with the Remembrance of past good Actions, yields an unspeakable Comfort to the Soul."
+
+---
+
+Franklin left behind a full record of an old age that was among the most constructive and happy ever lived.
+
+Do all these prescriptions of Cicero, if followed pretty well, really improve life? Well, by a strange coincidence, Ben Franklin, the man who first published them in America, followed the prescriptions as well as he could. And he lived a very long life, eminent to the end, and left behind a full record of an old age that was among the most constructive and happy ever lived. And this happened despite many disadvantages he suffered, medical and otherwise.
+
+As usual, Ben Franklin improved what he found. Not satisfied with mere cheerful acceptance of an aged state, Franklin relisted the role of an old man and played it joyously to a fare-thee-well, while also laboring to help create what he could not possibly live to enjoy. Thus, these ideas of Cicero worked well for Franklin.
+
+And, no doubt, they will still work well for quite a few others. So there is a special reason, apart from Cicero's contributions to political science, in keeping so many statues of Cicero in our public places. In this way Cicero is still being helpful more than two thousand years after Mark Antony tried to rid the world of his influence.
+
+Moreover, Warren Buffett, as a sort of modern baton carrier for a Ciceronian point of view, is now doing a good job in intimating Cicero and Franklin in old age. Not only does Buffett, much like Cato, stay in the arena with no plan to ever leave. He does so joyously and while providing good.
+
+---
+
+results for those who will trust him patiently. And from a pulpit built high by worldly success, he also imitates Cicero, Cato and Franklin by communicating much that tells others what they should think and how they should behave.
+
+And his words are often made more acceptable through use of insightful humor.
+
+This highly unusual case, I think, I should not cause all others to push so hard as Buffett does to follow almost every perception of Cicero. In the modern world, with its increased wealth and longevity, a great many people live in to gross impairment, and others while still in great condition are forced away from high worldly power when they have much life ahead of them. Therefore some cheerful, non Buffett like adjustment to a reduced worldly role as usually sensible for the old. And, finally, It is wise for the most didactic people to heed the warning, timed to George Bernard Shaw’s death, that the world rewards gadflies, but only a few, with those usually chosen because, like Shaw, they tempered morality with wit.
+
+# Franklin on ageing
+
+"I guess I don't so much mind being old, as I mind being fat and old. I should have no objection to go over the same life from it's beginning to the end: requesting only the advantage authors have, of correcting in a second edition the faults of the first. Life's Tragedy is that we get old too soon and wise too late. When you're finished changing you're finished."
+
+---
+
+Franklin was noted for his curiosity, ingenuity and diversity of interests. He continued his career of inventing, writing, and statesmanship and more into old age, developing a phonetic alphabet at age 62. Five years later, he published two of his most celebrated pro-American satirical essays: "Rules by Which a Great Empire May Be Reduced to a Small One," and "An Edict by the King of Prussia." In 1776 at age 70, Franklin assisted in writing the Declaration of Independence, radically editing Jefferson draft. Later that year, he was dispatched to France as commissioner for the United States and remained there until 1785. After his return, Franklin became an abolitionist, freeing both of his slaves and eventually becoming president of The Society for the Relief of Free Negroes Unlawfully Held in Bondage. At age 81, Franklin served as delegate to the 1787 meetings that would produce the United States Constitution to replace the Articles of Confederation. He is the only Founding Father who is a signatory of all three of the major documents of the founding of the United States: the Declaration of Independence, the Treaty of Paris and the United States Constitution. On April 17, 1790, he died in his Philadelphia home at age 92, leaving his famous autobiography unfinished. Carried only up to the year 1757, it omitted many of the achievements for which he is best remembered.
+
+# Remembering, The Children on Charlie
+
+# From Charles T. Munger Jr.
+
+---
+
+On the last day of a family ski vacation in Sun Valley when I was fifteen or so, my dad and I were driving back in the snow when he took a ten-minute detour to gas the red jeep we were driving. He was pressed for time to have our family catch the plane home, so I was surprised to notice as he pulled into the station that the tank was still half-full. I asked my dad why we had stopped when we had plenty of gas, and he admonished me: "Charlie, when you borrow a man's car, you always return it with a full tank of gas."
+
+My freshman year at Stanford, an acquaintance lent me his car, more because friends we had in common twisted his arm than that he knew me all that well. The tank was half-full, and the Audi Fox was red. So I remembered the jeep and topped the tank before I brought the car back. He noticed. 'We've had a lot of good times since, and he stood as a groomsman at my Wedding.
+
+After Stanford. I learned that on that vacation we had been staying at Rick Guerin house and driving Rick Guerin's jeep. Rick is one of my dad's friends who, on his return to Sun Valley, certainly wouldn't have been troubled, and was unlikely even to notice, if his jeep had less gas than when he left it. My dad still didn't skip a point of fairness and consideration. So I was taught that day not only how to get a good friend, but also how to keep one.
+
+# Family Values at the Munger Dinner Table
+
+By Wendy Munger
+
+My dad often used the forum of the Family dinner table to try to educate his children. His favorite educational tools were the Morality Tale, in which
+
+---
+
+someone faced an ethical problem and chose the correct path, and the Downward Spiral Tale, in which someone made the wrong choice and suffered an inevitable series of catastrophic personal and professional losses.
+
+His specialty was the Downward Spiral Tale. He could really warm to the topic of apocalyptic consequences. He used such extreme and horrific examples that we were often simultaneously groaning and laughing by the time he finished. He's in a league of his own when it comes to describing negative outcomes and the lessons to be learned from them. His Morality Theses were more straightforward. I remember the story my dad told his kids, then ranging from age five to twenty-five, about a financial officer at one of his companies who made a mistake that resulted in the loss of hundreds of thousands of dollars to the company. As soon as this officer realized his mistake, he went immediately to the president of the company and told him about it. My dad told us that the president then said, "This was a terrible mistake, and we don't want you ever to make another one like it. But people make mistakes, and we can forgive that. You did the right thing, which was to admit your mistake. If you had tried to hide the mistake, or cover it up for even a short time, you would be out of this company. As it is, we'd like you to stay."
+
+I think back on this story every time I hear of yet another government official who chose to cover-up instead of the honest confession after making a mistake. I don't know why I use the past tense in describing my dad's educational efforts at the dinner table. His oldest children are heading toward their sixties, the table is now crowded with grandchildren, and he's still using his distinctive style of storytelling to keep us on the side of the angels. 'We're very lucky to have him at the head of our table.
+
+---
+
+From William H. (Hal) Borthwick
+
+It has been a fascinating and wonderful fifty years (nearly) since Charlie and my mother were married. There were many opportunities that I offered Charlie for formative education.
+
+Here are a couple:
+
+# 1. Do the job right the first time.
+
+This story goes back to Minnesota times. One of my jobs as a driving-age teen was to pick up and deliver the housekeeper from the town of Cass Lake. This wasn't just a drive down the street; the boat had to be driven across the lake to the marina where I would hop into the car to drive to town, and then the process was reversed. Part of the job in the morning was to pick up a newspaper while I was in town. 'Well, one day a big storm blew in rain, waves, wind, etc., big-time. With all the excitement and difficulty, I did get to town in the morning and returned with the maid, but forgot the paper. Charlie and I had a one-second or so discussion after I answered the question, "'Where is my paper?" in the negative. "Go back and get the paper and never forget it again!" So, back I went through the storm to get the paper, bouncing in the waves with rain sheeting off the boat, thinking to myself that I wasn't going to allow anything like this ever to happen again.
+
+# 2. Be responsible.
+
+Charlie's mother drove herself from Omaha to Minnesota each summer. When she was there, we used her car for errands. There was but one set of
+
+---
+
+keys, and while I was playing with friends in a sailing boat on the lake, the keys fell out of my pocket into five feet of murky water. I went home and confessed. Of course, in the Great North Woods, there aren't many locksmiths, and with Charlie, there wasn't patience for such stupidity. The solution, again in about a second, was: "Go out with your friends and keep diving till you get those keys, and don't come home without them." After about two hours of diving, with the sun sinking like a stone, the miraculous glint of metal in the weeds was before my eyes, and I could go home. There are a lot of these gems from Minnesota because, in those days when Charlie worked so hard and so long, that was the only meaningful time we spent with him. During the work weeks, he was off before dawn and home about dinner time and then studied Standard & Poor and, at late 6 would spend a couple of hours on the phone with Warren.
+
+From David Borthwick
+
+Many years ago, Father decided our Minnesota lake cabin absolutely had to have a tennis ball practice machine for the court that had been built a few years earlier. While he certainly wanted the children to groove their groundstrokes, there was a bit more to it than that. For it was Father who was out on court more than anyone, with the machine positioned so he could endlessly practice-volley close by the net. Before long, he mastered the well-placed, easy put-away volleys, the kind of shots everyone else instinctively tried to kill but usually hit into the net or ten feet out. By working on the tennis version of golf's short game, which few others could be bothered to practice, Father, as he's done throughout his life, gave
+
+---
+
+himself a fair if maddening competitive advantage. I really dreaded playing against him, especially in doubles where the netplay really counts. Thank God it was tennis, not business. Thinking about Father made me remember a long-ago humorous TV beer ad in which a smartly dressed man at a table is so engrossed in his glass of beer as to be oblivious to a rampaging bull charging a bullfighter right in front of him. He doesn't flinch even when the bull smashes the table into matchsticks. The announcer's tagline was "Try...beer for a truly unique experience," or something like that. Take away the beer and substitute the financial market listings, architectural plans, or a scholarly biography of Keynes, and you have a dead-on comedic take on Father night after night in his favorite chair poring over something, all but deaf to the roughhousing younger children, a blaring TV, and Mom trying to summon him to dinner. Even when not reading, Father was often so deep in contemplation that a routine drive to take Molly and Fendy back to Pasadena could have turned into an excursion to San Bernardino without Mom calling out the correct freeway turn offs. Whatever was on his mind, it wasn't the outcome of a football game or a botched golf shot. Father's ability to Chinese wall off the most intrusive distractions from whatever mental task he was engaged in—a practice alternately amusing and irritating if you were trying to get his attention—accounts as much as anything else for his success.
+
+From Molly Munger
+
+'When I went to college in 1966, I was very lucky to have been thoroughly steeped in Daddy's influence. In an angry and radical era, I would buy the
+
+---
+
+Wall Street Journal or Fortune at the subway kiosk just outside the college gates, tuck it under my oxford cloth arm, and stride off to economics and business classes. People were occupying the dean's office, going to jail. I was in the basement of the Lamont Library learning how to read a balance sheet. Daddy raised us to be skeptical, even contrarian, and that was a particularly helpful way of thinking to carry into the maelstrom of the late sixties. Over many years, sitting in the library at our house on June Street, he had told us often funny stories of people who either followed the group too blindly or lashed out too reflexively. "Crazy," "maladjusted," "pompous," "self-satisfied"-we knew from his adjectives what he thought we should avoid.
+
+In Minnesota, he found a way to hard-wire the same message into our very bodies. He had arranged for the old Larson Boat Works to make us an "aquaplane," a heavy wooden affair we stood on as he towed it behind the boat. He would make sharp turns to see if we could hold on, and the only way to avoid the disgrace of a fall was to keep shifting weight to compensate for the extreme angles. Then, and on into the future, I would always be viscerally terrified if it seemed any thought or activity was getting out of hand in one direction or another.
+
+When I was in college, Daddy had seven other children to raise, worked in a seedy part of Spring Street, and owned but one company, a small, grimy outfit that made motor additive. But he saw these were unhinged times. He sent me the allowance of a much richer father, keeping me in professionally ironed shirts and making me feel sharp as a bandbox. From 3,000 miles away, he continued to help me keep my balance. I could go on. Suffice it to say that our father has always known what he was doing, as a parent as in so much else. I appreciated it greatly. I still do.
+
+---
+
+From Emilie Ogden
+
+"You have your father's hands," my husband remarked out of the blue, as we shared a glass of wine. I looked at him, a little stunned, not by the comparison, but by his telepathy. I had been devising a short piece about my father, and the very subject had been on my mind. I had already noticed that my oldest son's hands are like his grandfather, with fingertips slightly square, and nail beds shaped like tea cups rather than ovals. But it's something about the way our hands take positions that first sparks the comparisons. My father, my son, and I all cross our hands behind us in the same distinct manner, the left hand holding the wrist of the right, as we walk, minds elsewhere.
+
+"What is it about my hands, exactly, that reminds you of my father's?" I asked. "It's in the where your index finger curves into your thumb," he said, showing me. "It's the way you hold things there." My father is holding his hands out above me. His fingers are curled, and his thumbs are pointing at each other, like handles on a bike. I reach my girl arms up straight, and I grasp each of his thumbs as he lifts me off the ground. I hang on delighted until my strength is spent. And when one child is too big for "thumbs," there is always another, on down through the line of grandchildren.
+
+Sometimes we'd get him to put down the Wall Street Journal and play "sandwich." As he sits in the green armchair in the library we pile on like the bacon, lettuce, and tomato of a BLT, his hands squeezing us together in a multilayered hug. My father holds a perfect chicken egg. 'We've won the father-daughter egg toss, earning me one of my favorite possessions: a
+
+---
+
+marble cube sprouting gilt acanthus leaves, with a life-size golden replica of an egg on top. This trophy sits on my desk, reminding me of the sunny day when my dad was so present and so gentle as to keep a flying egg from breaking in either of our hands.
+
+My father's hands know the tensile strength of different fishing lines by feel. They tie on a chartreuse jig or a plain old hook. His hands rise to his lips where he catches his knots with his teeth and bites off the extra line. His hands get wet reaching into tin bait buckets. They pinch twisting black leeches or one of Leroy's famous minnows, "guaranteed to catch fish, or die trying." His hands hold yellow-green Zingers, pickles so spicy-hot a bite will bring a laugh, and peanut butter mustard sandwiches.
+
+My father's hands rise early, with the rest of him, and appear at the edges of the business pages. In Minnesota, he might crumple this newsprint into loose balls, build kindling pyramids, strike long hearth matches, and press spade-shaped wooden bellows. With the fire lit, he might cook blueberry buckwheat pancakes on the Ben Franklin wood stove, using an old wood-handled spatula with chipped red paint.
+
+But if you play Password and give the clue "Charlie Munger hands," anyone will first answer, "books." No matter where he is, his hands are always holding open a volume, typically a Ben Franklin biography, or the latest treatise on genetics. One might also answer "graph paper," for the buildings he's been designing. 'when I think of my father hands, I also see them up on stage, in front of thousands in Omaha every year. His fingers encircle a Diet Coke, pinch peanut brittle or the stick of a Dilly Bar, or try
+
+---
+
+to search incognito through a See's Candies' box, zeroing in on the rum nougat. His hands are crossed in front of him, as he shakes his head saying, "I have nothing to add." Or they move to the rhythm of a longer philosophical answer, making all the hands in the stadium clap together. My father's hands, gesturing alongside every colorful joke and guiding story have molded me as surely as a sculptor. I can be nothing but glad, and grateful, for the touch of my father's hands in mine. and in my son's.
+
+From Barry Munger
+
+Several years ago, I came across a book by Calvin Trillin called Messages from My Father, a memoir about Trillin's father, Abe, who was born in the Ukraine, grew up in Missouri, and spent much of his career operating neighborhood grocery stores in Kansas City. Abe Trillin regarded thrift as a moral virtue, paid his bills the day they arrived, and got up at four in the morning, six days a week, to pick the produce for his stores. A man of few words, he was nevertheless convivial, trenchandy funny, and spoke naturally to small children. He was skilled at cards. He was sardonic, but had an underlying optimism that one could get along in the world with the proper outlook and character.
+
+The fact that my father shares many of these qualities, even if he’s not known for his discernment about produce, does not fully explain my attachment to this light, deft, and anecdotal little book. Reading it somehow conjures my father for me, even though in the broad outlines of his life, my
+
+---
+
+father has almost nothing in common with Abe Thillin, other than the fact that my father once worked part-time at a Midwestern grocery store, Buffett & Son in Omaha.
+
+Like my father, Abe Thillin had a fundamental reserve, partially Midwestern in origin, that was at odds with his personable qualities. He did not regard a long drive in a car or a fishing outing as an opportunity to "catch up." He did not linger on the telephone. His son eventually came to marvel at "how much my father managed to get across to me without those heart-to-hearts that I've read about fathers and sons having in the study or in the rowboat or in the car." The title Message from My Father comes from the author's surmise that his father must have been communicating his expectations through coded messages. "It's possible that my father had a code so subtle that I didn't know of its existence," he writes.
+
+Anyone who knows my father knows that his manner of expression is not always subtle, but he has many ways of sending his messages. If he doesn't like the way his bridge partner plays out a hand, for example, he might say, "You played that like a plumber," but if he wants to offer serious counsel to one of his children, he is more likely to couch the message in an anecdote, preferably delivered in a group setting so that no one is singled out. In both instances, he appears blunt and avuncular-that inimitable Charlie-but at the card table, he uses a lack of indirection for harmless ribbing, and at the dinner table, he uses indirection to spare feelings. He is more subtle than he appears.
+
+---
+
+A friend of mine recently began an anecdote about my father by saying, "So your dad's sitting in his chair, like Rushmore...." I knew exactly what he meant. Not many people can summon up the image of a 5,700-foot granite mountain and the faces of four presidents simply by taking possession of an upholstered chair, but my father can. All of the Munger children have at one time or another approached Rushmore to make a request and felt like Dorothy approaching Oz, except that Oz was more voluble. Rushmore did not always respond. Sometimes my father made a low steady noise from somewhere around his larynx, as though Rushmore had gone volcanic, but that was not so easy to interpret. Can you be more subtle than silent?
+
+Unlike Abe Trillin, perhaps, my father really does send messages, in the form of speeches he has written, letters he has received and sent, and articles from varied sources about social policy, psychology, business ethics, and law, among other topics. Many of them appear in this book.
+
+'What does not appear is the note my father scrawled on the enclosure. The note is usually extremely brief, and often just a "send to" list, but every once in a while the note will have a wry fillip, like this one from 1996, which was appended to a long appreciative letter from a Berkshire Hathaway shareholder in Sweden. "I hope you find this amusing," my father wrote. "If only I had the influence with my wife and children that I have in some other quarters!"
+
+When I finished the Tirillin book, I sent it to my father. Even if he did not recognize himself in it, I figured he would enjoy the book's Midwestern milieu, the immigrant striving of the Trillin family, and the humor. The book is written with so much affection that I thought I could even use it to
+
+---
+
+communicate such feelings to my dad indirectly, which is the preferred route. At the very least, I thought the book might reassure my father that his messages were being received, even if they were not always heeded.
+
+About a week later, the book came back, in a padded envelope, with an address label supplied by his secretary. There was no note, so I wasn't sure whether he had read the book or rejected it. It seemed untouched, so I concluded that my message had gone unreceived, loose pages tossed on Rushmore. Not much escapes my father, however. It turned out that he had simply instructed his secretary to send copies to the whole family.
+
+From Philip Munger
+
+Some of my most affectionate memories of my father are of shopping for clothes at Brooks Brothers and Marla and Spencer. Most people already know that Father is not a big fashion man. He once said that he was nonconformist enough in his behavior and opinions that it made sense to chart a very straight course in attire. His going along with normal social customs and his sense of humor, he said, were what allowed his otherwise sometimes prickly temperament to harmonize with other people.
+
+I vividly recall going with my Father to Brooks Brothers, when it was still housed in that beautiful old wood-paneled building in downtown Los Angeles, to buy my first serious suit. I must have been about eleven or twelve. I can see those polished brass elevator doors opening. We looked through the racks. Father picked out a pin-striped charcoal grey suit. When
+
+---
+
+I was sixteen, we went to buy another suit, this time a three-piece, which I wore religiously during my debate days. It kept the icy wind blowing off the lake at Northwestern, during a tournament, at bay. 'We bought, at the same time, a pair of wing-tip shoes for my summer stint at the Daily Journal (a coming of age ceremony required by Father for each boy), shoes which have lasted till this day. There is another theme here. When we bought a brown tweed coat at Marks and Spencer in London, Father said, "This will always keep its crease." He admired both stores because they were durable institutions and because their merchandise was, too, and fairly priced. Durability has always been a first-rate virtue in my father review, along with ritual and tradition. He never had a desire to change his primary habits, sartorial or otherwise, once he had, like Franklin, acquired them.
+
+I still shop at Brooks, partly because each year at Christmas Father gives every child a gift card, which is perfectly timed for the winter sale. But I always end up going more often than that. One year, I used his largess to purchase trousers with pleats. My father looked at them askance and said, "Do you want to look like a jazz drummer?" In New York, Brooks is still housed in its grand old building. I think of my father every time I go; I'm very attached to the place. 'When I went to study at Oxford, in winter 1988, he gave me an old Brooks coat of his, dating from the forties, of a sort of tannish-olive hue, I think, with a warm zip-in lining. As I walked home from the Bodleian Library each night, that nasty damp penetrating English cold would not get through. When I returned to the United States, I realized I had left the coat on a bus. I wept at the loss. Even now I wish I had that coat.
+
+---
+
+# Friends Have Their Say:
+
+"Charlie's Smart, Curious, Focused...and a Little Absentminded."
+
+"We all have our little quirks-my family and friends tell me I'm sometimes absent minded and opinionated. Maybe they're right."
+
+Roy Tolles, friend and business associate since 1945
+
+Charlie has a desire to understand exactly what makes things happen. He wants to get to the bottom of everything, whether it's something of serious interest to him or not. Anything that comes to his attention, he wants to know more about it and understand it and figure out what makes it tick.
+
+Glen Mitchel, Friend since 1957
+
+He knows how to take all of his brains and all of his energy and all of his thought and focus exactly on a single problem, to the exclusion of anything else. People will come into the room and pat him on the back or offer him another cup of coffee or something, and he won't even acknowledge their presence because he is using one hundred percent of his huge intellect.
+
+Bob Bird, President, Wesco Financial, Friend and business associate since 1969
+
+When he is in deep thought he often loses what is going on around him including social niceties. I remember that when we were negotiating with CenFed to have them take over our savings and loan business, Charlie and I went over to their offices to meet with their CEO, Tad Lowrey. We had a perfectly wonderful meeting-Charlie can put on the charm if he puts his...
+
+---
+
+mind to it-and we were winding things up very satisfactorily. 'Tad walked us to the elevator. Just as we got there, the elevator door opened, and Charlie walked directly inside. He never said goodbye, never shook hands, nothing. Tad and I were left standing there, smiling and speechless."
+
+# Warren Buffett, friend and partner since 1959
+
+I was in New York City with Charlie to attend a Salomon Brothers board meeting. 'We had come out of the building and were standing on the sidewalk, discussing what had transpired at the meeting. At least, that's what I thought we were doing, for suddenly I realized that I had been talking to myself for some time. I looked around for Charlie, only to see him climbing into the back of a taxicab, headed off to the airport. No goodbye, no nothing.
+
+"People think it's Charlie’s eyes that cause him to miss seeing things (Charlie lost his vision in one eye many years ago due to complications from cataract surgery). BUT IT'S NOT HIS EYES, IT'S HIS HEAD! I once sat through three sets of traffic lights, and plenty of honking behind us, as Charlie discussed some complex problem at an intersection."
+
+# Dick Esbenshade, friend and business associate since 1956
+
+When it comes to being curious and focused, when Charlie gets interested in something, he REALLY gets interested in it. I remember three talks he prepared and presented to our law firm on some of what he referred to as 'the eminent dead’ he had encountered through his extensive reading: Isaac Newton, Albert Einstein, and Simon Marks. In particular, I remember the
+
+---
+
+central message of the talk on Simon Marks (of retailer Marks and Spencer): 'Find out what you're best at and keep pounding away at it.' This, of course, has always been Charlie's basic approach to life.
+
+Howard Buffett, son of Warren Buffett and friend of Charlie's since 1959
+
+For years, I would see Charlie at our Southern California beach house. I remember having 'conversations' that were essentially one-sided, feeling like I should have a dictionary at my side to look up all the words I didn't understand. I remember not saying much, being scared to ask a question and appearing stupid. He is so darned smart, like my father, in the stratosphere.
+
+"I've been quoted in the past (out of context, of course) as saying my father is the second smartest person I've ever known, Charlie being the first. To keep peace in my family, I have no comment on such reports."
+
+And Bill Gates has to say:
+
+Ben Franklin once said I cannot conceive otherwise than that He, the Infinite Father, expects or requires no worship or praise from us, but that He is even infinitely above it.
+
+"I think the same can be said of Charlie Munger - despite any accolades from me or others in this book he will still be his own best critic as well as the person who appreciates his own jokes the most." Warren told me before I
+
+---
+
+met Charlie that he was the most amazing business partner a man could have. He also warned me not to expect to get a word in edgewise when talking to Charlie because even at a cocktail party Charlie would hold his hand up to prevent others from starting to speak while he took a drink. "He also warned me that Charlie might not be the best person to choose as a boat captain, relating a story where he managed to sink a boat in a totally calm lake with no other traffic by going full speed in reverse with a low transom on the stern.
+
+"Charlie exceeded even the high expectations that Warren set. He is truly the broadest thinker I have ever encountered. From business principles to economic principles to the design of student dormitories to the design of a catamaran he has no equal. "Our most memorable correspondence was about stock options and their power to distort business results. Our longest correspondence was a detailed discussion on the mating habits of naked mole rats and what the human species might learn from them.
+
+"Charlie has the ability to capture knowledge with simple descriptions. 'When discussing the intelligence of offspring, he refers to the 'genetic lottery.' 'When discussing venture capitalists who defend stock options, he deems them 'no better than the piano player in a whorehouse.' 'When discussing the deleterious effects on efficiency of cost-plus contracts, he likes to say even the mule knew to slow down.' "This book capturing Charlie's wisdom is long overdue."
+
+---
+
+# Chapter 2
+
+# The Munger Approach to Life, Learning, and Decision Making
+
+"Take a simple idea and take it seriously."
+
+Despite being largely self-taught, Ben Franklin was spectacularly successful in such diverse fields as journalism, publishing, printing, philanthropy, public service, science, diplomacy and inventing. Much of Franklin's success was due to the essential nature of the man-most especially his appetite for hard work but also his insatiable curiosity and patient demeanor. Above all, he possessed a quick and willing mind that enabled him to easily master each new field of endeavor he chose to undertake. It is not surprising that Charlie Munger considers Franklin his greatest hero, for Munger is also largely self-taught and shares many of Franklin's unique characteristics. Like Franklin, Charlie has made himself into a grandmaster of preparation, patience, discipline, and objectivity. He has played these attributes into great success in both his personal and business endeavors, especially in his investing.
+
+To Charlie, successful investing is simply a byproduct of his carefully organized and focused approach to life. Warren Buffett once said, "Charlie can analyze and evaluate any kind of deal faster and more accurately than
+
+---
+
+any man alive. He sees any valid weakness in sixty seconds. He is a perfect partner." Why does Buffett proffer such high praise? The answer lies in the markedly original approach Munger applies to life, learning, and decision making the principal subject of this overview. A word to the wise before we begin: Given the complexity of Charlie's approach, what follows is not intended as a "how-to" lesson for the aspiring investor. Instead, it is a general overview of "how he seems to do it." Our goal here is to present the basic outline of Charlie's approach to prepare you for the voluminous details that follow in the rest of the book. If you are anxious to get to the heart of the matter, the "Mungerisms: Charlie Unscripted" and "Eleven Talks" sections-presented verbatim in Charlie's own words-are the best source for exacting "how-to" advice on a broad range of topics. Here we will content ourselves with a presentation of the general thought processes Charlie employs when considering an investment, followed by an outline of his guiding investment principles.
+
+# Munger's "Multiple Mental Models" Approach to Business Analysis and Assessment
+
+"You must know the big ideas in the big disciplines and use them routinely-all of them, not just a few. Most people are trained in one model-economics, for example-and try to solve all problems in one way. You know the old saying: 'To the man with a hammer, the world looks like a nail.' This is a dumb way of handling problems."
+
+Charlie's approach to investing is quite different from the more rudimentary systems used by most investors. instead of making a superficial stand-alone assessment of a company's financial information, Charlie conducts a
+
+---
+
+comprehensive analysis of both the internal workings of the investment candidate as well as the larger, integrated "ecosystem" in which it operates. he calls the tools he uses to conduct this review "Multiple Mental Models." These models, discussed at length in several of the Talks (especially numbers Two, Three, and Four), serve as a framework for gathering, processing, and acting on information. They borrow from and really stitch together the analytical tools, methods, and formulas from such traditional disciplines as history psychology, mathematics, engineering, biology, physics, chemistry, statistics, economics, and so on.
+
+The unassailable logic of Charlie's "ecosystem" approach to investment analysis: just as multiple factors shape almost every system, multiple models from a variety of disciplines, applied with fluency are needed to understand the system. As John Muir observed about the interconnectedness of nature, when we try to pick out anything by itself, we find it hitched to everything else in the universe.
+
+“you have to realize the truth of biologists Julian Huxley's idea that life is just one damn relatedness after another so you must have mental models and you must see the relatedness and the effects from the relatedness." Charlie seeks to discover the universe hitched to each of his investment candidates by gaining a firm grasp on all, or at least most, of the relevant factors comprising both its internal and external environment. When properly collected and organized, his Multiple Mental Models (about one hundred in number, he estimates) provide a context or "latticework" that leads to remarkable insights as to the purpose and nature of life. More
+
+---
+
+Pertinent to our purpose here, his models supply the analytical structure that enables him to reduce the inherent chaos and confusion of a complex investment problem into a clarified set of fundamentals. Especially important examples of these models include the redundancy/backup system model from engineering, the compound interest model from mathematics, the breakpoint/tipping-moment/autocatalysis models from physics and chemistry, the modern Darwinian synthesis model from biology, and cognitive misjudgment models from psychology.
+
+The net result of this broad-spectrum analysis is a heightened understanding for how the many factors affecting an investment candidate blend and link to one another. Sometimes this understanding reveals the existence of second order, "ripple," or "spillover" effects. Other times the factors employed combine to create enormous "Lollapalooza level results," good or bad. By applying this framework.
+
+# T.H.E L.O.L.L.A.P.A.L.O.O.Z.A E.F.F.E.C.T
+
+"Of course, the term Munger has coined for factors which reinforce and greatly amplify each other is 'Lollapalooza Effect.'
+
+"The most important thing to keep in mind is the idea that especially big forces often come out of these one hundred models. When several models combine, you get lollapalooza effects; this is when two, three, or four forces are all operating in the same direction. And, frequently, you don't get simple addition. It's often like a critical mass in physics where you get a nuclear explosion if you get to a certain point of mass—and you don't get anything."
+
+---
+
+much worth seeing if you don't reach the mass. Sometimes the forces just add like ordinary quantities and sometimes they combine on a breakpoint or critical-mass basis.
+
+"More commonly, the forces coming out of these one hundred models are conflicting to some extent. And you get huge, miserable trade offs. But if you can't think in terms of trade offs and recognize tradeoffs in what you are dealing with, you're a horse's patoot. You clearly are a danger to the rest of the people when serious thinking is being done. You have to recognize how these things combine. And you have to realize the truth of biologist Julian idea that 'Life is just one damn relatedness after another.' So you must have the models, and you must see the relatedness and the effects from the relatedness."
+
+# Multiple Mental Models
+
+# "I'll Do It Myself”
+
+When my friend Buffett and I left our respective graduate schools, we found huge predictable patterns of obvious extreme irrationality in the business world. This irrationality was grossly important in what we were trying to do, yet it had never been mentioned by our professors. Our solution' one we learned at a very early age in the nursery: "'Then I'll do it myself," said the Little Red Hen.' "So if your professors won't give you an appropriate multidisciplinary approach, if each wants to overuse his own models and underuse the important models in other disciplines, you can correct that folly yourself."
+
+---
+
+# Wisdom Reaffirmed
+
+Munger and Buffett aren't the only elite investors who use non business models to superb success. Legendary fixed income expert Bill Gross (PIMCO) once told the students of the UCLA Anderson School of Business: "The book that rests on my library coffee table is not Peter Lynch Beating the Street or even my own, but several books by historian Paul Johnson on the makings of the nineteenth and twentieth centuries. "There is no better teacher than history in determining the future.... There are answers worth billions of dollars in a $30 history book.
+
+Particularly in Talks Two, Three, and Four, Charlie lectures on the value and importance of using multiple models in business. He explains where he found his unique models and how he mastered them, and he cites specific examples of their application in real-world analysis and decision making.
+
+Charlie lives in a different world from the most investors when it comes to investment analysis; his approach accepts the reality that investment problems are inherently complex and in many more in keeping with the rigors of scientific enquiry than conventional investing. He attacks them with a staggering degree of preparation and broad based research.
+
+Charlie’s big ideas from the big disciplines approach to investment evaluation is certainly unique in the business world as its origin not finding any adequate approach to the task. Charlie painstakingly created his own largely self-taught system; the self-taught statement is no exaggeration. To this day I have never taken any course anywhere in chemistry, economics.
+
+---
+
+psychology or business he once said. And yet these disciplines specially psychology form the foundation upon which is system is built. It is this signature approach back by Charlie's formidable intellect, temperament and decades of relevant experience, that have made him the virtuoso of business pattern recognition so valued by Buffett. Like a chess grandmaster, through logic, instinct, and intuition, he determines the most promising investment "models," all the while projecting the illusion that the insight came easily, even simple. But make no mistake: This "simplicity" comes only at the end of a long journey, towards understanding—not at the beginning. His clarity is hard won: the product of a lifetime of studying the patterns of human behavior, business systems, and a myriad of other scientific disciplines.
+
+Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles. He will not deviate from these principles, regardless of group dynamics, emotional itches, or popular wisdom that "this time around it's different." When faithfully adhered to, these traits result in one of the best-known Munger characteristics: not buying or selling often! Munger, like Buffett, believes a successful investment career boils down to only a handful of decisions. So when Charlie likes a business, he makes a very large bet and typically holds the position for a long period (see Warren Buffett's analysis of the original 1962-1975 Munger partnership on page 21). Charlie calls it "sit on your ass investing" and cites its benefits: "You're paying less to brokers, you're listening to less nonsense, and if it works, the tax system gives you an extra one, two, or three percentage points per annum." In his view, a portfolio of
+
+---
+
+Three companies is plenty of diversification. Accordingly, Charlie is willing to commit uncommonly high percentages of his investment capital to individual "focused" opportunities. Find a Wall Street organization, financial advisor, or mutual fund manager willing to make that statement! Given Charlie's record of success, not to mention Buffett's endorsement, why aren't his investment practices more routinely emulated by others?
+
+Perhaps the answer is that, for most people, Charlie's multidisciplinary approach is simply too hard. Further, few investors share Charlie's willingness to appear foolish by not following "the herd." Religious in his objectivity, Charlie is content to swim imperturbably against the tide of popular opinion—indefinitely, if necessary—which is a rare attribute in the average investor. And while this behavior can at times appear simply stubborn or contrarian, that is not the defining characteristic. Charlie is simply content to trust his own judgment even when it runs counter to the wisdom of the herd.
+
+This "lone-wolf" aspect of Charlie's temperament is a rarely appreciated reason why he consistently outperforms the larger investment community. Indeed, if temperament chiefly arises from inborn tendencies, it may be that hard work, intellect, and experience, regardless of their intensity, are by themselves insufficient to make a great investor like Charlie Munger. As we shall witness throughout the remainder of this book, the right kind of genetically predetermined "wiring" is needed as well.
+
+# Discipline and Patience
+
+# Ted Williams' Seventy-Seven Cell Strike Zone
+
+---
+
+"It takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities."
+
+"In making investments, I have always believed that you must act with discipline whenever you see something you truly like. To explain this philosophy, Buffett/Munger like to use a baseball analogy that I find particularly illuminating, though I myself am not at all a baseball expert. Ted Williams is the only baseball player who had a .400 single-season hitting record in the last seven decades. In the Science of Hitting he explained his technique. He divided the strike zone into seventy-seven cells, each representing the size of a baseball. He would insist on swinging only at balls in his 'best' cells, even at the risk of striking out, because reaching for the 'worst' spots would seriously reduce his chances of success. As a securities investor, you can watch all sorts of business propositions in the form of security prices thrown at you all the time. For the most part, you don't have to do a thing other than be amused. Once in awhile, you will find a 'fat pitch that is slow, straight, and right in the middle of your sweet spot. Then you swing hard. This way, no matter what natural ability you start with, you will substantially increase your hitting average. One common problem for investors is that they tend to swing too often. This is true for both individuals and for professional investors operating under institutional imperatives, one version of which drove me out of the conventional long/short hedge fund operation. However, the opposite problem is equally harmful to long-term results: You discover a fat pitch' but are unable to swing with the full weight of your capital."
+
+---
+
+At the 2004 Berkshire Hathaway annual meeting, a young shareholder asked Buffett how to succeed in life. After Buffett shared his thoughts, Charlie chimed in: "Don't do cocaine. Don't race trains. And avoid AIDS situations." Many would dismiss his seemingly flippant answer as merely humorous (which it certainly was), but in fact it faithfully reflects both his general views on avoiding trouble in life and his particular method for avoiding missteps in investing.
+
+"When Warren lectures at business school, he says, 'I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches representing all the investments that you get to make in a lifetime and once you had punched through the card you could not make any more investments at all under those rules you would really think carefully about what you did and you would be forced to load up on what you would really thought about. So you'd do so much better.”
+
+Often, as in this case, Charlie generally focuses first on what to avoid—that is, on what NOT to do—before he considers the affirmative steps he will take in a given situation. "All I want to know is where I'm going to die, so I'll never go there" is one of his favorite quips. In business as in life, Charlie gains enormous advantage by summarily eliminating the unpromising portions of "the chessboard," freeing his time and attention for the more productive regions. Charlie strives to reduce complex situations to their most basic, unemotional fundamentals. Yet, within this pursuit of rationality and simplicity, he is careful to avoid what he calls "physics envy," the common human craving to reduce enormously complex systems (such as...
+
+---
+
+those in economics) to one-size-fits-all Newtonian formulas. Instead, he faithfully honors Albert Einstein's admonition, "A scientific theory should be as simple as possible, but no simpler." Or in his own words, "What I'm against is being very confident and feeling that you know, for sure, that your particular action will do more good than harm. You're dealing with highly complex systems wherein everything is interacting with everything else."
+
+Another Benjamin-Graham, not Franklin-played a significant role in forming Charlie's investing outlook. One of the most enduring concepts in Graham's The Intelligent Investor is Mr. Market. Usually, Mr. Market is a temperate and reasonable fellow, but some days he is gripped by irrational fear or greed. Graham cautioned the investor to carefully use his own, unemotional judgment of value instead of relying on the often manic-depressive behavior of the financial markets. Similarly, Charlie recognizes that even among the most competent and motivated of people, decisions are not always made on a purely rational basis. For this reason, he considers the psychological factors of human misjudgment some of the most important mental models that can be applied to an investment opportunity:
+
+"personally I had gotten so that I now use a kind of to track analysis first what are the factors that really govern the interest involved rationally considers? And second, what are the subconscious influences where the brain at subconscious level is automatically forming conclusions in various ways which, by and large comma are useful but which open malfunction? When approaches rationality the way you would work out a bridge problem."
+
+---
+
+# Munger's Investment Evaluation Process
+
+"The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. Move only when you have an advantage. It's very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor. 'We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years.”
+
+As we have noted, Charlie doesn't make a lot of investments. His approach is perhaps best summarised by Thomas Watson senior, the founder of IBM: "I am no genius; I am smart in sports and I stay around these sports. If Chandler knows anything, he knows his spots, his carefully identified circles of competence to stay within." The first apply is a basic over on screen design to limit his investment field to only simple and understandable candidates. As he says, we have three baskets for investing: yes, no, and too tough to understand.
+
+To identify potential yes candidates, Charlie looks for an easy to understand dominant business franchise that can sustain itself and thrive in all market environments. Understandably, few companies survive this first cut, many investor favorites such as pharmaceuticals and...
+
+---
+
+Technology for example go straight to the too tough to understand basket heavily promoted Deals And IPOs earn an immediate no. Those that do survive this first winnowing are subjected to the screens and filters of Charlie mental model approach the process is intense and darwinian but also efficient Charlie detest placer mining the process of sifting through piles of sand for specs of gold instead he applies his big ideas from the big disciplines to find the large and reorganize nuggets of gold that sometimes lie in plain sight on the ground.
+
+Throughout his exhaustive evaluation Charlie is no slave to a database he takes into account all relevant aspects both internal and external to the company and its industry even if they are difficult to identify, measure, or reduce to numbers. His thoroughness, however, does not cause him to forget his overall "ecosystem" theme: Sometimes the maximization or minimization of a single factor (notably specialization, as he likes to point out regarding Costco's discount warehouses) can make that single factor disproportionately important.
+
+# Identifying Your Circle of Competence
+
+In Talk Nine (page 400), Charlie tells the apocrypha story of Max Planck and the chauffeur who drove him to the public lectures he gave throughout Germany. On one occasion the chauffeur who by this time knew the lecture by heart, suggested that he and Planck switch places. At the conclusion of the chauffeur flawless recitation of the lecture, a physicist stood up and posed a very difficult question. The chauffeur, ready for the situation,
+
+---
+
+replied, "I'm surprised that a citizen of an advanced city like Munich is asking so elementary a question, so I'm going to ask my chauffeur to respond."
+
+In the red world, it is critical to distinguish when you are "Max Planck," and when you are the "chauffeur." If you cannot respond legitimately to the next question, you lack true mastery and are likely outside your "Circle of Competence."
+
+# Warren and Charlie on "Moats"
+
+Buffett: "So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn't necessarily mean the profit will be more this year than it was last year because it won't be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that's tenuous in any way - it's just too risky. We don't know how to evaluate that. And, therefore, we leave it alone. We think that all of our businesses - or virtually all of our businesses - have pretty darned good moats. And we think the managers are widening them."
+
+Charlie?
+
+Munger: "How could you say it better?"
+
+Buffett: "Sure. Have some peanut brittle on that one."
+
+Charlie treats financial reports and their underlying accounting with a Midwestern dose of skepticism. At best, they are merely the beginning of a
+
+---
+
+Proper calculation of intrinsic valuation, not the end. The list of additional factors he examines is seemingly endless and includes such things as the current and prospective regulatory climate; state of labor, supplier, and customer relations; potential impact of changes in technology; competitive strengths and vulnerabilities; pricing power; scalability; environmental issues; and, notably, the presence of hidden exposures (Charlie knows that there is no such thing as a riskless investment candidate; he's searching for those with few risks that are easily understandable). He records all financial statement figures to fit his own view of reality, including the actual free or "owners" cash being produced, inventory and other working capital assets, fixed assets, and such frequently overstated intangible assets as goodwill.
+
+He also completes an assessment of the true impact, current and future, of the cost of stock options, pension plans, and retiree medical benefits. He applies equal scrutiny to the liability side of the balance sheet. For example, under the right circumstances, he might view an obligation such as insurance float-premium income that may not be paid out in claims for many years-more properly as an asset. He especially assesses a company's management well beyond conventional number crunching-in particular, the degree to which they are "able, trustworthy, and owner-oriented." For example, how do they deploy cash? Do they allocate it intelligently on behalf of the owners, or do they overcompensate themselves, or pursue ego-oriented growth for growth's sake?
+
+Above all, he attempts to assess and understand competitive advantage in every respect-products, markets, trademarks, employees, distribution channels, societal trends, and so on-and the durability of that advantage. Charlie refers to a company's competitive advantage as its "moat": the virtual physical barrier it presents against incursions. Superior companies have deep moats that are continuously.
+
+---
+
+widened to provide enduring protection. In this vein, Charlie carefully considers "competitive destruction" forces that, over the long term, lay siege to most companies. Munger and and perfect are laser focused on this issue over their long business careers they have learnt sometimes painfully that few business survive over multiple generations. Accordingly, they strive to identify and buy only chose businesses with a good chance of beating these tough odds. Finally, Charlie seeks to calculate the intrinsic value of the whole business and, with allowance for potential dilution, etc., to determine an approximate value per share to compare to market prices. This letter comparison is in the fundamental purpose of the whole process comparing value but you get with price but you pay on this subject he is famous for his you. That a great business at a fair price is superior to affair business at a great price.
+
+Warren Buffett opening credits Charlie with convincing him of the wisdom of this approach Charlie understood this early I was a slow learner child Li inside help Buffett move from pure Benjamin Graham style investing to focusing on great business such as the Washington Post Coca-Cola gellert and others.
+
+Though extremely thorough Charlie is able to ignore the insignificant detail and the distractions to which other sometimes fall victim. Investment variables just like all other variables go through their own process of elimination by the time he's finished with his analysis he has reduced the candidate to its most salient elements and achieve the remarkable degree of confidence about whether or not to act. The evaluation, finally, becomes not so much mathematical as philosophical. Ultimately "a feel" emerges, a
+
+---
+
+function of both the analysis itself and Charlie's lifetime of accumulated experience and skill in recognizing patterns.
+
+At this point, only an exceptionally superior investment candidate will still be in the running. But Charlie does not immediately rush out and buy it. Knowing that a necessary companion to proper valuation is proper timing, he applies yet a finer screen, a "prior to pulling the trigger" checklist, which is especially useful in evaluating what he refers to as "close calls."
+
+The checklist includes such items as:
+
+- What are current price, volume, and trading considerations?
+- What disclosure timing or other sensitivities exist?
+- Do contingent exit strategies exist?
+- Are better uses of capital currently or potentially available?
+- Is sufficient liquid capital currently on hand or must it be borrowed?
+- What is the opportunity cost of that capital?
+
+And so on. Charlie's exhaustive screening process requires considerable self-discipline and results in long periods of apparent "inactivity." But as Charlie says, "Hard work is an essential element in tracking down and perfecting a strategy or in executing it." For Charlie and Warren, the hard work is continuous, whether it results in current investing activity or not—and usually it does not.
+
+This habit of committing far more time to learning and thinking than to doing is no accident. It is the blend of discipline and patience exhibited by true masters of a craft: an uncompromising commitment to "properly playing the hand." Like world-class bridge player Richard Zeckhauser, Charlie scores himself not so much on whether he won the hand, but rather on how well he played it. While poor outcomes are excusable in the Munger Buffett world—given the fact that some outcomes
+
+---
+
+are outside of their control-sloppy preparation and decision making are never excusable because they ARE controllable.
+
+# Properly Playing the Hand
+
+"The right way to think is the way Zeckhauser plays bridge. its just that simple."
+
+"Most players gain pleasure from feeling accepted or belonging to the group. The good player however, gains pleasure from his ability to cope with the realities of the game.”
+
+"In investing, just as in baseball, to put runs on the scoreboard, one must watch the playing field, not the scoreboard.”
+
+On those relatively few occasions when all the circumstances are just right and Charlie does invest, he will likely make a large, decisive bet. He does not pick around the edges, take "initial positions," or make "small, speculative investments."
+
+Such behavior implies uncertainty, and Charlie's moves, few as they are, are anything but uncertain. As he says, he practices "extreme patience combined with extreme decisiveness." Charlie's self-confidence is based not on who, or how many, agree or disagree with him, but on his ability to
+
+---
+
+objectively view and measure himself. This self-mastery affords him rare objectivity in gauging his actual knowledge, experience, and correctness of thought. Again, we see the important role played by the right kinds of temperamental qualities: self-discipline, patience, calm, independence. Charlie's level of investment performance is arguably impossible without them.
+
+Okay, it's a good company. But is the price low enough? Is the management made up of people Munger and Buffett are comfortable with? If it is cheap enough to buy, is it cheap for the wrong reason or the right reason? What's the flip side? What can go wrong that I haven't seen?
+
+What makes a great business model for Charlie? His recommended reading materials (see Appendix) provide some guidance. Guns, Germs, and Steel, The Selfish Gene, Ice Age, and Darwin's Blind Spot all have a certain theme: a focus on the aforementioned issue of "competitive destruction" and an examination of why some entities are nevertheless able to adapt, survive, and even dominate over time. When this theme is extrapolated into investment selection, the preferred Munger business emerges: Some thrive by outcompeting (The Selfish Gene) and others by out cooperating (Darwin's Blind Spot). Once again, we see Charlie's rich fluency across a broad range of disciplines at work: How many investors ever consider, as Charlie routinely does, such a broad and sophisticated spectrum of factors? To name but a few, he routinely considers factors such as conversion, i.e., how the laws of thermodynamics intersect with laws of economics (for instance how paper and petroleum become a newspaper delivered to a front door).
+
+---
+
+psychological tendencies and incentives (notably the extreme behavioral pressures they create, both good and bad), and fundamental sustainability over time (the constant and often deadly interplay between positive factors such as "moats" and the ravages of competitive destruction). Charlie is possibly without peer when it comes to the checklist of atypical investment factors he considers and his deep fluency in the diverse disciplines from which they are drawn.
+
+# Price is What You Pay, Value is What You Get
+
+On several occasions, incurring the skepticism that must often be borne by "value-style" investors, the United States has made astute territorial acquisitions. In 1803, Thomas Jefferson's administration completed the Louisiana Purchase from Napoleon France for the sum of $15 million, which worked out to roughly 2.9 cents an acre. In 1867, in what at the time was known as "Seward's Folly," the US acquired the Territory of Alaska from Russia for the sum of $7.2 million in gold, or roughly 2.5 cents an acre. By way of comparison, the Alaska purchase price, in 2006 dollars, is the equivalent of $1.67 billion, certainly no folly in terms of the value of oil, minerals, and strategic advantages obtained.
+
+"People always want a formula-but it doesn't work that way. You have to estimate total cash generated from now to eternity, and discount it back to
+
+---
+
+today. Yardsticks such as P/Es are not enough by themselves." -Buffett
+
+"You need a different checklist and different mental models for different companies. I can never make it easy by saying, 'Here are three things.' You have to derive it yourself to ingrain it in your head for the rest of your life."-Munger
+
+# An Investing Principles Checklist
+
+"No wisepilot, no matter how great his talent and experience, fails to use his checklist."
+
+We have now examined Charlie's approach to thinking in general and to investing in particular. In keeping with our intent to observe "how he seems to do it," we will recap his approach by using the "checklist" methodology he advocates. (For Charlie's own words of wisdom on the value and importance of checklists, see talk Five and page 320.) Note, however, that the following principles are most certainly not employed by Charlie in a one-by-one or one-time fashion as the checklist format might seem to imply. Nor can they necessarily be prioritized in terms of any apparent or relative importance. Rather, each must be considered as part of the complex whole or gestalt of the investment analysis process, in much the same way that an individual tile is integral to the larger mosaic in which it appears.
+
+1. Risk - All investment evaluations should begin by measuring risk, especially reputational.
+
+---
+
+# 1. Incorporate an appropriate margin of safety
+
+- Avoid dealing with people of questionable character
+- Insist upon proper compensation for risk assumed
+- Always beware of inflation and interest rate exposures.
+- Avoid big mistakes; shun permanent capital loss
+
+# 2. Independence - "Only in fairy tales are emperors told they are naked"
+
+- Objectivity and rationality require independence of thought
+- Remember that just because other people agree or disagree with you doesn't make you right or wrong - the only thing that matters is the correctness of your analysis and judgment
+- Mimicking the herd invites regression to the mean (merely average performance)
+
+# 3. Preparation - "the only way to win is to work, work, work, work, and hope to have a few insights"
+
+- Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
+- More important than the will to win is the will to prepare.
+- Develop fluency in mental models from the major academic disciplines.
+
+---
+
+If you want to get smart, the question you have to keep asking is "why, why, why?"
+
+# 4. Intellectual humility
+
+Acknowledging what you don't know is the dawning of wisdom
+
+- Stay within a well-defined circle of competence.
+- Identify and reconcile disconfirming evidence.
+- Resist the craving for false precision, false certainties, etc.
+- Above all, never fool yourself, and remember that you are the easiest person to fool.
+
+# 5. Analytic rigor
+
+Use of the scientific method and effective checklists minimizes errors and omissions.
+
+- Determine value apart from price; progress apart from activity; wealth apart from size.
+- It is better to remember the obvious than to grasp the esoteric.
+- Be a business analyst, not a market, macroeconomic, or security analyst.
+- Consider totality of risk and effect; look always at potential second order and higher level impacts.
+- Think forwards and backwards - Invert, always invert.
+
+# 6. Allocation
+
+Proper allocation of capital is an investor's number one job.
+
+---
+
+Remember that highest and best use is always measured by the next best use (opportunity cost)
+
+Good ideas are rare-when the odds are greatly in your favor, bet (allocate) heavily
+
+Don't "fall in love" with an investment-be situation-dependent and opportunity-driven
+
+# 7. Patience
+
+Resist the natural human bias to act
+
+"Compound interest is the eighth wonder of the world" (Einstein); never interrupt it unnecessarily
+
+Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
+
+Be alert for the arrival of luck
+
+Enjoy the process along with the proceeds, because the process is where you live
+
+# 8. Decisiveness
+
+When proper circumstances present themselves, act with decisiveness and conviction
+
+Be fearful when others are greedy, and greedy when others are fearful
+
+Opportunity doesn't come often, so seize it when it does
+
+Opportunity meeting the prepared mind: that's the game
+
+# 9. Change
+
+Live with change and accept unremovable complexity
+
+Recognize and adapt to the true nature of the world around you; don't expect it to adapt to you
+
+---
+
+Continually challenge and willingly amend your "best-loved ideas"
+
+Recognize reality even when you don't like it - especially when you don't like it
+
+# 10. Focus
+
+Keep things simple and remember what you set out to do
+
+Remember that reputation and integrity are your most valuable assets and can be lost in a heartbeat
+
+Guard against the effects of hubris and boredom
+
+Don't overlook the obvious by drowning in minutiae
+
+Be careful to exclude unneeded information or slop: "A small leak can sink a great ship"
+
+Face your big troubles; don't sweep them under the rug
+
+# Charlie Sums It Up
+
+"How do some people get wiser than other people? Partly it is inborn temperament. Some people do not have a good temperament for investing. They're too fretful; they worry too much. But if you've got a good temperament' which basically means being very patient, yet combine that with a vast aggression when you know enough to do something, then you just gradually learn the game, partly by doing' partly by studying. Obviously, the more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be. I don't know anyone who did it with great rapidity. 'Warren Buffett has become one hell of a lot better investor since the day I met him, and so have I. If We had
+
+---
+
+been frozen at any given stage, with the knowledge hand we had, the record would have been much worse than it is. So the game is to keep learning, and I don't think people are going to keep learning who don't like the learning process.
+
+"Understanding both the power of compound interest and the difficulty of getting it, is the heart and soul of understanding a lot of thing”
+
+Since human beings began investing, they have been searching for a magic formula or easy recipe for instant wealth. As you can see, Charlie's superior performance doesn't come from a magic formula or some business-school-inspired system. It comes from what he calls his "constant search for better methods of thought," a willingness to "prepay" through rigorous preparation, and from the extraordinary outcomes of his multidisciplinary research model. In the end/, it comes down to Charlie's most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness. Each attribute is in turn lost without the other, but together they form the dynamic critical mass for a cascading of positive effects for which Munger is famous (the "lollapalooza").
+
+Finally, a word or two on why this overview of Charlie's investment philosophy has focused so much on the subject of "what to buy" and so little on "when to sell." 'the answer, in Charlie's own words, serves as a wonderful summation of the "munger School" of highly-concentrated, focused investing described here:
+
+---
+
+we are partial to putting out large amounts of money where we won't have to make another decision if you buy something because it's undervalued then you have to think about selling it when it approaches your calculation of intrinsic value that's hard but if you can buy a few great companies then you can sit on your ass that's a good thing.
+
+Like his hero, Benjamin Franklin, Charlie Munger painstakingly developed and perfected unique approaches to personal and business endeavors. Through these methods, and the development and maintenance of sound, lifelong habits, he has achieved extraordinary success.
+
+'And so these complex, aging prodigies carefully tend their compound interest machine, a joint creation of two exceptional personalities. Others may try to duplicate Berkshire Hathaway, but they won't be able to duplicate these two exceptional minds."
+
+-Robert Lenzner and David S. Fondiller
+
+# Honesty Is the Best Policy
+
+Consistent with his Midwestern roots, honesty and integrity and Charles Munger have always been synonymous. As Charlie once said, "Doing the right thing can pay big dividends both personally and professionally." As a testimonial to just how deeply honesty and integrity are ingrained in Charlie, his daughter Wendy recalls the Watergate era and the sympathy she had for the daughters of Richard Nixon, as their father's ethical lapses became known. "I knew without a doubt that my dad would never put us in a similar situation. I can't tell you how wonderful that made me feel."
+
+---
+
+We asked legendary fixed-income expert Bill Gross of PIMCO to comment on Charlie and honesty. Here is what he had to say: "When the East and the West coast's fall into the sea, either through storm, earthquake, or a deterioration of values, there will still be Munger's Omaha. Charlie's ethical standards should be beamed by satellite to all global financial centers to prevent future Enron's and WorldCom's.
+
+"What fine examples and teachers Charlie and Warren are, especially for young people. As Albert Schweitzer said, 'Example is not the main thing in teaching-it is the only thing.' Charlie and Warren, in a lifetime business 'race,' have not only finished up front, but have never cut any corners along the way.
+
+"One could not find more exemplary 'Honest Abe's' in the financial world than Warren Buffett and Charlie Munger. Their annual reports are legend, and they contain not only words of bona fide investment wisdom, but self-recrimination when deemed necessary."
+
+*I think track records are very important, If you start early trying to have a perfect one in some simple thing like honesty, you're well on your way to success in this world.
+
+-Charles T Munger
+
+Rick Guerin, longtime friend and business associate adds: "On two occasions. I saw Charlie pay more than he needed to in business transactions. First, with two little old ladies who held notes in a business we were buying, which we could have easily redeemed at far less than face."
+
+---
+
+value-Charlie nevertheless paid them face value. Second, to raise some cash I needed for another investment, I offered to sell him my half of a venture we were in together, and he said to set a fair price-I said $130,000; he said, no, $230,000 was correct, and he paid me that. This also presented Charlie with the opportunity to use one of his favorite lines: 'I'm right, and you're smart, and sooner or later you'll see I'm right.' Of course, he was right on both scores-he had set a more accurate price, and I did eventually come to see it that way.
+
+'taking advantage of a cheap stock price on the stock exchange is one thing, but taking advantage of partners or old ladies is something else-something Charlie just doesn't do.'
+
+# Charlie on Honesty: 2004 Wesco Meeting
+
+"Louis Vincenti, who used to sit in the chair I occupy today, used to say, 'If you tell the truth, you don't have to remember your lies.' So we try and keep it simple by telling it like it is at all times. Having so many longtime loyal shareholders means that we have never given a damn whether any quarter's earnings were up or down-at least we don't care in terms of their effect on shareholders. 'We prefer profits to losses, obviously. But we're not willing to manipulate in any way just to make some quarter look a little better. And that's a very difFerent ethos from the standard.
+
+'And in terms of intellectual content, I think this place tries harder to be rational than most places. And I think it tries harder than most places to be ethical-meaning to tell the truth and to not be abusive. Now with 175,000
+
+---
+
+employees, or something like that, at Berkshire, I'll bet as I sit here at least one of them is doing something that I would very much regret. However, despite the presence of some human failing, we've had an amazingly low amount of litigation or scandal or anything of that sort over a vast number of decades. And people notice that.
+
+"We think there should be a huge area between what you're willing to do and what you can do without significant risk of suffering criminal penalty for causing losses. We believe you shouldn't go anywhere near that line. You ought to have an internal compass. So there should be all kinds of things you won't do even though they're perfectly legal. That the way we try to operate.
+
+"I don't think we deserve a lot of credit for that because we early understood that we'd make more money that way. And since we understood it so well, I'm not sure that we're entitled to credit for such morality as we have.
+
+"Of course, it is hard to know your own motivations. But I'd like to believe that we'd all behave well even if it didn't work so well financially. And every once in a while, we get an opportunity to behave that way. But more often we're made extra money out of morality. Ben Franklin was right for us. He didn't say honesty was the best morals, he said it was the best policy."
+
+# Our First I have nothing to Add…
+
+On occasion, Charlie will pose a challenging question to his audience, or receive one, and leave it unanswered. By so doing, he says, he encourages
+
+---
+
+his listeners to "reach" for the answers themselves and, as a result, better learn and retain the information they discover. Charlie says his father routinely used this same technique with him, with results that still benefit him today. In keeping with the promise of this book to present the wit and wisdom of Charlie Munger, we consider it a responsibility and duty to once and for all provide answers to some of the riddles and questions Charlie has long left us "reaching" for, but never quite grasping.
+
+# We begin with this question from the talk Charlie gave at the Harvard Faculty Club, October 6, 1994, "The Psychology of Human Misjudgment":
+
+Question: "You cite the Warren Buffett rule for outcry auctions: 'Don't go.' Then you say, 'We don't go to the closed bid auctions either, but for a different reason, one which Zeckhauser would understand."
+
+Answer: "Zeckhauser-hs's the Harvard professor who is also a great bridge player. The problem, a different one, with closed bid auctions is that they are frequently won by people making a technical mistake, as in the case of Shell Paying double for Belridge Oil. You can't pay double the losing bid at an open outcry auction. You don't have that problem, you have different ones. But closed bid auctions invite a possibility for big mispricing errors."
+
+Look for more "I Have Nothing to Add" moments sprinkled throughout the book.
+
+---
+
+# Chapter 3
+
+# Mungerisms: Charlie Unscripted
+
+# Highlights from Recent Berkshire Hathaway and Wesco Financial Annual Meetings
+
+By Whitney Tilson
+
+"The wisdom of the wise, and the experience of ages, may be preserved by quotations."
+
+-Isaac Disraeli
+
+Warren Buffett and Charlie Munger are undoubtedly the greatest investment duo ever, so any investor who fails to learn as much as possible about these two men and how they achieved their success is, to use one of Charlie's favorite words, "Bonkers."
+
+But the real joy of studying Warren and Charlie is not that one can learn a great deal about how to compound money at a high rate for an extended period—though this is certainly a nice side benefit! Rather, by absorbing their teachings, one will gain a far deeper understanding of the human condition, the state of the world, how to think rationally, and, most importantly, how to better lead a life of integrity, happiness, and kindness (here's a hint: these characteristics are intertwined).
+
+---
+
+Learning from Warren isn't hard there are many books about him; he regularly gives speeches, writes articles, and makes public appearances; and he's published lengthy annual letters for decades (you can read the last thirty of them for free at www.berkshirehathaway.com; if you haven't done so already, what are you waiting for?!). But Charlie is more private: There are only two books about him, and he is a far less prolific writer and speaker.
+
+For this reason, many people fail to recognize that Charlie is a genius in his own right, and that he has had a profound effect on Warren's investment philosophy, which Warren freely acknowledges. The dynamic between them is pretty funny to watch. On stage at the Berkshire annual meeting, Warren generally takes the first stab at answering a question, but then usually turns and says, "Charlie?" Immobile and expressionless (they could easily substitute a mannequin for him, and no one would notice most of the time), Charlie typically replies, "I have nothing to add." Those five words have become a trademark of Charlie's that often delights both Warren and the audience. (In fact, at the special meeting for the Gen Re acquisition in September 1998, Warren actually showed up with a cardboard cutout of Charlie and a recording of Charlie saying, "I have nothing to add." According to one of my friends in attendance, "Warren would get that impish look each of the half dozen or so times he used it.") Those words also reflect both Charlie's abrupt, curmudgeonly nature-at least that's his public persona-and the "two-minds-as-one" relationship of brilliant partners joined in their thoughts.
+
+---
+
+But when Charlie does have something to add, it is often piercing and insightful, and he doesn't pull any punches. To use his own words, Charlie is a "cranky, old fashioned" man and has never worried about being politically correct-he just calls it the way he sees it.
+
+Since Warren does most of the talking at the Berkshire meeting, I always like to attend the Wesco annual meeting a few days later in Pasadena to hear Charlie's in-depth thinking (he is the chairman of Wesco Financial, a holding company with a structure similar to Berkshire's, which owns 80.1 percent of Wesco). One needn't even be a shareholder to attend; Charlie-as he and Warren do at the Berkshire meeting-welcomes all pilgrims to the church of Graham, Dodd, Buffett, and Munger. I've never regretted making the cross-country trip so soon after returning from Omaha, as Charlie's mind remains in peak form. During the 2003 meeting, as Charlie made one insightful observation after another, one of my friends leaned over and whispered to me, "This is one unbelievable eighty-year-old!" Indeed!
+
+As a teacher and a thinker, Charlie is Warren's equal, and I've learned an enormous amount from him, which is why I was so delighted to hear that Peter Kaufman was pulling this book together-and why I immediately agreed to contribute!
+
+This chapter is intended to complement Charlie's formal writings and speeches that appear elsewhere in this book. Drawn from my notes from the Berkshire and Wesco annual meetings over the past five years, this is a collection of the most insightful, provocative, spontaneous, funny things.
+
+---
+
+Charlie said at these meetings. Since almost all of his remarks are in response to questions from shareholders, he comments extensively on Berkshire Hathaway and many business- and investing related topics. To make Charlie's teachings more accessible, I've organized them by topic and also done some light editing, but the goal is to let him speak for himself. Enjoy!
+
+"I have been associated for many years with a man legendary for good judgment, and it never ceases to amaze me to see how much territory can be grasped if one merely masters and consistently uses all the obvious and easily learned principles."
+
+-Munger
+
+# 101
+
+# Keys to Our Success
+
+1. It is occasionally possible for a tortoise, content! to assimilate proven insights of his best predecessors, to outrun hares that seek originality or don't wish to be left out of some crowd folly that ignores the best work of the past. This happens as the tortoise stumbles on some particularly effective way to apply the best previous work, or simply avoids standard calamities. We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
+
+---
+
+2) We don't claim to have perfect morals, but at least we have a huge area of things that, while legal, are beneath us. We won't do them. Currently, there's a culture in America that says that anything that won't send you to prison is okay. We believe there should be a huge area between everything you should do and everything you can do without getting into legal trouble. I don't think you should come anywhere near that line. We don't deserve much credit for this. It helps us make more money. I'd like to believe that we'd behave well even if it didn't work. But more often, we've made extra money from doing the right thing.
+
+Remember Louis Vincent's rule: Tell the truth, and you won't have to remember your lies. It's such a simple concept.
+
+# Comments on Berkshire Hathaway
+
+# Berkshire Is a Hell of a Business
+
+We're like the hedgehog that only knows one big thing: If you can generate float [cash from insurance premiums that Berkshire can invest before claims must be paid] at three percent and invest it in businesses that generate thirteen percent, that's a pretty good business. The businesses that Berkshire has acquired will return thirteen percent pretax on what we paid for them, maybe more. With a cost of capital of three percent generated via other people's money in the form of float-that's a hell of a business. That's the reason Berkshire shareholders needn't totally despair. Berkshire is not as
+
+---
+
+good as it was in terms of percentage compounding [going forward], but it's still a hell of a business.
+
+I hate to be an optimist, but we have added a lot of wonderful businesses to Berkshire over the past few years.
+
+# Berkshire's Past Returns
+
+Berkshire's past record has been almost ridiculous. If Berkshire had used even half the leverage of, say, Rupert Murdoch, it would be five times its current size.
+
+# Berkshire's Future Outlook
+
+One of the smartest things a person can do is dampen investment expectations, especially with Berkshire. That would be mature and responsible. I like our model, and we should do nicely.
+
+The future will be harder for Berkshire Hathaway for two reasons:
+
+1. We're so big. It limits our investment options to more competitive areas that are examined by very smart people like Alice Schroeder [the insurance analyst from Paine Webber and then Morgan Stanley, who was sitting in the audience].
+2. The current climate offers prospects in common stocks over the next fifteen to twenty years that are way less than we've experienced over the past fifteen to twenty years. Read Warren's Fortune article - I totally agree with it. ["Mr. Buffett on the Stock market," 11/22/99]
+
+Berkshire Hathaway's value will be higher in twenty years, but it is certain that the annual rate of percentage growth will be much lower. But this is not a tragedy. We're content. Berkshire Hathaway and Wesco will accumulate cash every year, and we have a structure that gives us enormous flexibility.
+
+---
+
+While we're too big to buy the stock of a small company, we have the advantage of having entire companies offered to us. Something has always turned up for us. I'm not discouraged, but I don't think your money here is going to do anything like what you're used to. It's a finite and very competitive world. All large aggregations of capital eventually find it hell on earth to grow and thus find a lower rate of return.
+
+Personally, I think Berkshire will be a lot bigger and stronger than it is. Whether the stock will be a good investment from today's price is another question. The one thing we've always guaranteed is that the future will be a lot worse than the past.
+
+The future returns of Berkshire and Wesco won't be as good in the future as they have been in the past. *This is true of all large, successful companies.* The only difference is that we'll tell you.
+
+# Berkshire Hathaway's Culture
+
+Our culture is very old-fashioned, like Ben Franklin's or Andrew Carnegie's. Can you imagine Carnegie hiring consultants?! It's amazing how well this approach still works. A lot of the businesses we buy are kind of cranky and old-fashioned like us.
+
+For many of our shareholders, our stock is all they own, and we're acutely aware of that. Our culture *[of conservatism]* runs pretty deep.
+
+This is an amazingly sound place. We are more disaster-resistant than most other places. We haven't pushed it as hard as other people would have pushed it.
+
+---
+
+I'm happy having ninety percent of my net worth in Berkshire stock. We're going to try to compound it at a reasonable rate without taking unreasonable risk of using leverage. If we can't do this, then that's just too damn bad.
+
+# Berkshire's and Wesco's Stock Prices
+
+We like the stocks of both Berkshire and Wesco to trade within hailing distance of what we think of as intrinsic value. When it runs up, we try to talk it down. That's not at all common in Corporate America, but that's the way we act.
+
+I don't want to go back to Go. I've been to Go. A lot of our shareholders take a majority of their net worth in Berkshire, and they don't want to go back to go either.
+
+Today, it seems to be regarded as the duty of CEOs to make the stock go up. This leads to all sorts of foolish behavior. We want to tell it like it is.
+
+# Berkshire Shareholders
+
+We like our current shareholders and don't want to entice anyone to become one. I think our reporting, considering the complexity of the enterprise, is better than that of any enterprise I know at giving shareholders the information they need. We do it conscientiously.
+
+---
+
+# Berkshire's Acquisition Strategy
+
+Two-thirds of acquisitions don't work. Ours work because we don't try to do acquisitions - we wait for no-brainers.
+
+# Competition for Acquisitions
+
+We've had private equity competitors for a long time, but one way or another, we've managed to buy quite a few things. The general assumption is that it must be easy to sit behind a desk and people will bring in one good opportunity after another - this was the attitude in venture capital until a few years ago. This was not the case at all for us - we scrounge around for companies to buy. For twenty years, we didn't buy more than one or two per year. It's fair to say that we were rooting around. There were no commissioned salesmen. Anytime you sit there waiting for a deal to come by, you're in a very dangerous seat.
+
+# Managers of Acquired Companies
+
+We've bought business after business because we admire the founders and what they've done with their lives. In almost all cases, they've stayed on, and our expectations have not been disappointed. What matters most - passion or competence that was inborn? Berkshire is full of people who have a peculiar passion for their own business. I would argue passion is more important than brain power. I don't think our managers who come to this meeting are picking up new tricks - they know all the tricks related to.
+
+---
+
+their business-but this is an interesting place and it gets more interesting every year and they like being part of it.
+
+# Managing Subsidiaries
+
+By and large, we've chosen people we admire enormously to have the power beneath us. It's easy for us to get along with them on average because we love and admire them. And they create the culture for whatever invention and reality recognition is going on in their businesses. And included in that reality recognition is the recognition that previous conclusions were incorrect.
+
+It would help current shareholders to hear our CEOs [of the Berkshire operating subsidiaries], but we promised them they could spend one hundred percent of their time on their businesses. We place no impediments on them running their businesses. Many have expressed to me how happy they are that they don't have to spend twenty-five percent of their time on activities they don't like.
+
+There Are certain virtues that are common in all of Berkshire's subsidiaries. 'We don't creAte them-we select companies that have them already, We just don't screw) it up. We have decentralized power to a point just short of total abdication.
+
+# Synergies
+
+---
+
+The reason we avoid the word "synergy" is because people generally claim more synergistic benefits than will come. Yes, it exists, but there are so many false promises. Berkshire is full of synergies—we don't avoid synergies, just claims of synergies.
+
+# Making the Right Personnel Decisions
+
+It's amazing how few times over the decades we've had to remove a person—far less than other companies. It's not that we're soft or foolish, it's that we're wiser and luckier. Most people would look back and say their worst mistake was not firing someone soon enough. [We don't say that.] Our record is fabulous. We're old fashioned. For example, in the case of CORT Business Services [a furniture rental business that Wesco acquired], Warren said to me, "You're going to love Paul Arnold [CORT's CEO]." And he was right. Paul's been running the business since he was in law school and loves it.
+
+# Berkshire's Insurance Operations
+
+Reinsurance is not as much of a commodity business as it might appear. There's such a huge time lag between when the policy is written and when it is paid that the customer has to evaluate the insurer's future willingness and ability to pay. We have a reputational advantage, though it's not as big as it should be.
+
+I do think we get some advantage in reinsurance because people trust our willingness and ability to pay, so it's not a commodity. I think we have some
+
+---
+
+special talents. That being said, I think it's dangerous to rely on special methods, better to own lots of monopolistic businesses with unregulated prices. But that's not the world today. We have made money exercising our talents and will continue to do so.
+
+I'm glad we have insurance, though it's not a no-brainer, I'm warning you. We have to be smart to make this work. The overall result is that we're going to do pretty well-meaning in the top ten percent [of the industry]-because we do different things and we're willing to do some unpleasant things. Generally speaking, we're mildly optimistic about our insurance operations.
+
+Growing float at a sizeable rate at low cost is almost impossible-but we intend to do it anyway.
+
+I've been amazed by the growth and cost of our float. It's wonderful to generate billions of dollars of float at a cost way below Treasury notes.
+
+Lumpy results and being willing to write less insurance business if market conditions are unfavorable...that is one of our advantages as an insurer-we don't give a damn about lumpy results. Everyone else is trying to please Wall Street. This is not a small advantage.
+
+Nobody Else does it but to me not worrying about trying to please Wall Street is obviously the only way to go a lot about Berkshire is like this being controlling owners is key, it would be hard for a committee to make these kinds of decisions.
+
+---
+
+# Berkshire Hathaway Repurchasing shares
+
+In the past when Berkshire had gotten cheap we have found other even cheapest stocks to buy I would always preferred this it's more fun to have the companies so lacking in repute that we can make money for some shareholders by buying out others.
+
+# Splitting backside stock to create more liquidity
+
+I think the notion that liquidity of tradeable common stock is a great contributor to capitalism is mostly twaddle the liquidity gives as these crazy booms so it has as many problems as virtues.
+
+[Buffett: Berkshire trades $50 million of stock per day, so very few people will have a problem selling it. But we're trying to create more people who have the problem of owning stock worth so much that liquidity is an issue.]
+
+# Why Don't More Companies and Investors Copy Berkshire Hathaway?
+
+It's a good question. Our approach has worked for us. Look at the fun we, our managers, and our shareholders are having. More people should copy us. It's not difficult, but it looks difficult because it's unconventional-it isn't the way things are normally done. We have low overhead, don't have quarterly goals and budgets or a standard personnel system, and our
+
+---
+
+Investing is much more concentrated than the average. It's simple and common sense.
+
+I was recently speaking with Jack McDonald, who teaches a course on investing rooted in our principles at Stanford Business School. He said it's lonely - like he's the Maytag repairman (because of great reliability of Maytag products the appliance repair man becomes the loneliest man in town).
+
+# Comments on Buffett
+
+It's hard to believe that he's getting better with each passing year. It won't go on forever, but Warren is actually improving. It's remarkable: Most seventy-two-year-old men are not improving, but Warren is.
+
+# Charlie's Influence on Warren
+
+I think those authors give me more credit than I deserve. It is true that Warren had a touch of brain block from working under Ben Graham and making a ton of money - it's hard to switch from something that's worked so well. But if Charlie Munger had never lived, the Buffett record would still be pretty much what it is.
+
+I think there's some mythology in this idea that I've been the great enlightener of Warren. He hasn't needed much enlightenment. But we know more now than five years ago.
+
+---
+
+# What Happens When Buffett's Gone?
+
+The key is having good businesses. There's a lot of momentum here. [However,] I don't think our successors will be as good as Warren at capital allocation.
+
+Berkshire is drowning in money—we have great businesses pounding out money. If the stock went down, Berkshire could buy it back. There's no reason to think it will go to hell in a bucket, and I think there's reason to believe it could go on quite well. I'd be horrified if it isn't bigger and better over time, even after Warren dies.
+
+When Warren is gone, the acquisition side of Berkshire will not do as well, but the rest will do well. And the acquisition side will do just fine. In any case, we've guaranteed you that the historical rate of growth will go down, and we wouldn't want to make a liar out of me. I think the top guy won't be as smart as Warren. But it's silly to complain: "What kind of world is this that gives me Warren Buffett for forty years, and then some bastard comes along who's worse?"
+
+If anyone would have a reason to worry, it would be me, but having known the Buffett family for decades, I say to you: "Don't worry about it. You should be so Lucky."
+
+# What If Charlie Dies?
+
+As you can tell, we're planning on immortality here. What do you need—sitting on a pile of money and Warren Buffett sitting at the parent corporation?
+
+---
+
+# Charlie as the Abominable No-Man
+
+Buffet: You just have to learn how to calibrate his answers. If you ask Charlie something and he says "no," then we put all of our money in it. If he says "that's the stupidest thing I've ever heard," then we make a more moderate investment. If you calibrate his answers, you'll get a lot of wisdom.
+
+# Charlie, the Abominable No-Man
+
+Exchange at a recent Berkshire shareholders' meeting: 'Warren: "Charlie, do you have any additional comment?"
+
+Charlie: "No. I think you said ho' perfectly."
+
+Chuck Rickershauser, former Munger Tolles partner and friend since 1964
+
+“Warren told me a story once that, back in the early days of their relationship, when they had no financial connection and each had an investment partnership, Warren would frequently call up Charlie and say, 'I'm thinking of doing something' and describe it, and Charlie would say, 'my God, are you kidding? There's this risk and that risk.' They'd go right through all these risks that Charlie saw and Warren would usually say, 'I think you're right.' But once in a while, he would say, 'Charlie, I've heard everything you said, but I think I'm going to go ahead.' Warren said that it wasn't until that instant that he'd learn what Charlie really thought because occasionally Charlie would respond, 'Warren, if you do it, could I have a
+
+---
+
+percentage of it?' People often think of Charlie as identifying risks and saying, 'No,' but it was his ability to identify the times to ask for a percentage that was most valuable." Otis Booth, friend and business associate since 1956.
+
+Charlie realizes that it is difficult to find something is really good. So, if you say 'No' ninety percent of the time, you're not missing much in the World.
+
+# Investment Advice
+
+# The Importance of Temperament, Patience, and Curiosity
+
+[One of the key elements to successful investing is having the right] temperament - most people are too fretful; they worry too much. Success means being very patient, but aggressive when it's time. And the more hard lessons you can learn vicariously rather than through your own hard experience, the better.
+
+I think there's something to be said for developing the disposition to own stocks without fretting. [But] temperament alone won't do it. You need a lot of curiosity for a long, long time.
+
+You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don't have that case of mind, you're destined for failure even if you have a high I.Q.
+
+---
+
+# Focus Investing
+
+Our investment style has been given a name - focus investing - which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea. But ninety-eight percent of the investment world doesn't think this way. It's been good for us - and you - that we've done this.
+
+What's funny is that most big investment organizations don't think like this. They hire lots of people, evaluate Merck vs. Pfizer and every stock in the S&P 500, and think they can beat the market. You can't do it.
+
+Our game is to recognize a business idea when it comes along when one doesn't come along very often, Opportunity comes to the prepared mind.
+
+We have this investment discipline of waiting for a fat pitch. If I was offered the chance to go into a business where people would measure me against benchmarks, force me to be fully invested, crawl around looking over my shoulder, etc., I would hate it. I would regard it as putting me into shackles. Very few people have adopted our approach. Focus investing is growing somewhat, but what's really growing is the unlimited use of consultants to advise on asset allocation, to analyze other consultants, and so forth. Maybe two percent of people will come into our corner of the tent, and the rest of the ninety-eight percent will believe what they've been told [e.g., that markets are totally efficient.
+
+# Misteaching Investing
+
+---
+
+Beta and modern portfolio theory and the like none of it makes any sense to me. We're trying to buy businesses with sustainable competitive advantages at a low, or even a fair, price. How can professors spread this *[nonsense that a stock's volatility is a measure of risk]? I've been waiting for this craziness to end for decades. It's been dented, but it's still out there. Warren once said to me, "I'm probably misjudging academia generally [in thinking so poorly of it]* because the people that interact with me have bonkers theories."
+
+# Diversification
+
+The idea of excessive diversification is Madness we don't believe that widespread diversification will yield a good result we believe almost all good investments will involve relatively low diversification if you to cover top 15 decisions out we would have a pretty average record it wasn't hyper activity but help of a lot of patience used truck to your principles and when opportunities come along you pounced on them with vigor.
+
+# Sit-on-Your-Ass Investing
+
+If you buy something because it's undervalued then you have to think about selling it when it approaches your calculation of its intrinsic value that's hard but if you buy a few great companies then you can sit on your ass that's a good thing we are partial to putting out large amounts of money when we don't have to make another decision.
+
+---
+
+# What is the better business
+
+There are two kinds of businesses the first and 12% and you can take the profits out at the end of the year 2nd and 12% but on the excess cash must be reinvested there's never any cash it reminds me of the guy who sells construction equipment he looks at his used machines taken in as customers bought new ones and says there's all of my profit rusting in my yard we hate that kind of business
+
+# See's Candy: case study of a better business
+
+If See's Candy, when we were buying it had asked for hundred thousand dollars more Buffett chimed in, 10000 dollars more Warren and I would have walked and that's how dumb we were.
+
+Ira Marshall said you guys are crazy-there are some things you should pay up for, like quality businesses and people. You are underestimating quality. We listened to the criticism and changed our mind. This is a good lesson for anyone: the ability to take criticism constructively and learn from it. If you take the indirect lessons we learned from See's, you could say Berkshire was built on constructive criticism
+
+# Mistakes
+
+The most extreme mistakes in Berkshire's history have been mistakes of omission. We saw it, but didn't act on it. They're huge mistake-we've lost
+
+---
+
+billions. And we keep doing it. We're getting better at it. We never get over it.
+
+# There Are two types of mistakes:
+
+1. doing nothing that Warren calls "sucking my thumb" and
+2. buying with an eyedropper things we should be buying a lot of.
+
+After nearly making a terrible mistake not buying See's, we've made similar mistakes many times. We are apparently slow learners. These opportunity costs don't show up on financial statements but have cost us many billions. Since mistakes of omission [aren't visible], most people don't pay attention to them. We rub our noses in mistakes of omission-as we just did. [They had just discussed failing to buy Walmart stock because it moved up a bit, a $10 billion mistake.
+
+# Buying into Stock Declines
+
+Over many decades, our usual practice is that if [the stock of something we like goes down, we buy more and more. Sometimes something happens, you realize you're wrong, and you get out. But if you develop correct confidence in your judgment, buy more and take advantage of stock prices. Attractive investment opportunities tend to be ephemeral. Really good investment opportunities aren't going to come along too often and won't last too long, so you've got to be ready to act. Have a prepared mind.
+
+---
+
+# Opportunities for Small Investors
+
+If you have only a little capital and are young today, there are fewer opportunities than when I was young. Back then, we had just come out of a depression. Capitalism was a bad word. There had been abuses in the 1920s. A joke going around then was the guy who said, "I bought stock for my old age and it worked - in six months, I feel like an old man!"
+
+It's tougher for you, but that doesn't mean you won't do well - it just may take more time. But what the heck. You may live longer. I'd work with very small stocks, searching for unusual mispriced opportunities, but it's such a small world.
+
+# Short Selling
+
+Being short and seeing a promoter take the stock up is very irritating. It's not worth it to have that much irritation in your life.
+
+# Moats and Sustainable Competitive Advantage
+
+Old moats are getting filled in and new moats are harder to predict, so it's getting harder.
+
+# Learning Process
+
+---
+
+I don't know anyone who learned to be a great investor with great rapidity. Warren has gotten to be one hell of a lot better investor over the period I've known him, as have I. So the game is to keep learning. You gotta like the learning process.
+
+I've watched Warren for decades. Warren has learned a lot, which has allowed him to expand his circle of competence so he could invest in something like PetroChina. If you're going to be an investor, you're going to make some investments where you don't have all the experience you need. But if you keep trying to get a little better over time, you'll start to make investments that are virtually certain to have a good outcome. The keys are discipline, hard work, and practice. It's like playing golf—you have to work on it.
+
+If you don't keep learning, other people will pass you by.
+
+# Circle of Competence and Its Boundaries
+
+There are a lot of things we pass on. We have three baskets: in, our, and too tough. We have to have a special insight, or we'll put it in the "too tough" basket. All you have to look for is a special area of competency and focus on that.
+
+If you have competence, you know the edge. It wouldn't be a competence if you didn't know where the boundaries lie. Asking whether you've passed the boundary is a question that almost answers itself.
+
+# Cost of Capital and Opportunity Costs
+
+---
+
+Buffett: Charlie and I don't know our cost of capital. It's taught at business schools, but we're skeptical. We just look to do the most intelligent thing we can with the capital that we have. We measure everything against our alternatives. I've never seen a cost-of-capital calculation that made sense to me. Have you, Charlie?
+
+Charlie: Never. If you take the best text in economics by Mankiw, he says intelligent people make decisions based on opportunity costs—in other words, it's your alternatives that matter. That's how we make all of our decisions. The rest of the world has gone off on some kick—there's even a cost of equity capital. A perfectly amazing mental malfunction.
+
+Obviously, consideration of costs is key, including opportunity costs. Of course, capital isn't free. It's easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you're generating a one hundred percent return on capital, then you shouldn't invest in something that generates an eighty percent return on capital. It's crazy.
+
+# Value of Forecasts
+
+People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There's always been a market for people who pretend to know the future. Listening to today's forecasters is just as crazy as when the king hired the guy to look at the sheep guts. It happens over and over and over.
+
+---
+
+# IPOs
+
+It is entirely possible that you could use our mental models to find good IPOs to buy. There are countless IPOs every year, and I'm sure that there are a few cinches that you could jump on. But the average person is going to get creamed. So if you think you're talented, good luck.
+
+IPOs are too small for us, or too high tech—we won't understand them. So, if Warren's looking at them, I don't know about it.
+
+# Comments on the Market
+
+# Stocks, Rembrandts, and Bubbles
+
+Stocks are valued partly like bonds, based on roughly rational projections of producing future cash. But they are also valued partly like Rembrandt paintings, purchased mostly because their prices have gone up so far. This situation, combined with big "wealth effects," at first up and later down, can conceivably produce much mischief.
+
+[April 2000] It's the most extreme in modern capitalism. In the 1930s, we had the worst depression in 600 years. Today is almost as extreme in the opposite way.... We use the phrase "wretched excess" because the consequences are wretched.
+
+Bonds are much more rational. No one thinks a bond's value will soar to the moon.
+
+---
+
+# Future Market Returns
+
+[November 2000] If stocks compound at fifteen percent going forward, then it will be due to a big "Rembrandt effect." This is not good. Look at what happened in Japan, where stocks traded at fifty to sixty times earnings. This led to a ten-year depression. I think that was a special situation, though. My guess is that we won't get extreme "Rembrandtization," and the returns [thereafter] will be six percent. If I'm wrong, it could be for a bad reason. If stocks trade more like Rembrandts in the future, then stocks will rise, but they will have no anchors. In this case, it's hard to predict how far, how high, and how long it will last.
+
+[April 2001] I think generally that American investors should reduce their expectations. People aren't being a little stupid, but massively stupid. No one has an interest in saying this though.
+
+[May 2001] We are not in a hog-heaven period. The investment game is getting more and more competitive. I don't know if we'll ever see stocks in general at the mouth-watering levels that we saw in 1973-74 or even in 1982. I think there's a very excellent chance that neither Warren or I will see those opportunities again, but that's not all bad. We'll just keep plugging away.
+
+[Buffett:] It's not out of the realm of possibility though. You can never predict what markets will do. In Japan, a ten-year bond is yielding five-eighths of one percent. Who could have ever imagined that?
+
+---
+
+If that could happen in Japan, something much less bad, could happen in the U.S. We could be in for a period in which the average fancy-paid investment advisor just can't do very well.
+
+# Current Outlook
+
+[May 2004] In terms of the general climate, I think it's pretty miserable for anyone who likes easy, sure money. Common stocks may be reasonably fairly valued, but they are not overwhelming bargains. Our cash is speaking for itself. If we had a lot of wonderful ideas, we wouldn't have so much cash. Berkshire and Wesco are full of cash that we don't know what to do with. Berkshire has $70 billion if you count the bonds, and Wesco is drowning in cash. It's the most extreme it's ever been. In the past, we've just been patient, and we were able to put it to work.
+
+# "Nothing to Add" Number Two
+
+We continue with the question of how Charlie monitors broad economic trends and changes:
+
+Question: "What macro statistics do you regularly monitor or find useful in your attempt to understand the broader economic landscape?"
+
+Answer: "None. I find by staying abreast of our Berkshire subsidiaries and by regularly reading business newspapers and magazines, I am exposed to an enormous amount of material at the micro level. I find that what I see going on there pretty much informs me about what's happening at the macro level."
+
+---
+
+# Critique on Corporate Management
+
+# Earnings Manipulation and Accounting Shenanigans
+
+With so much money riding on reported numbers, human nature is to manipulate them. And with so many doing it, you get Serpico effects, where everyone rationalizes that it's okay because everyone else is doing it. It is always thus. Now, it's chain-letter mechanics. Because it's mixed with legitimate activities like venture capital, it looks respectable. But we're mixing respectable activity with disrespectable activity-hence my comment at the Berkshire Hathaway annual meeting about if you mix raisins with turds, you've still got turds. There is nothing in accounting that can prevent unscrupulous managers from engaging in a chain-letter type fraud.
+
+# Spotting Crooked Managements
+
+Bernie Ebbers and Ken Lay were caricatures-they were easy to spot. They were almost psychopaths. But it's much harder to spot problems at companies like Royal Dutch [Shell].
+
+But we don't learn because I'd still expect that Exxon's figures are fair. I want to make an apology. Last night, referring to some of our modern business tycoons I said that when they're talking, they're lying, and when they're quiet, they're stealing. This wasn't my witticism; it was used long ago to describe the robber barons.
+
+---
+
+# Corporate America's Addiction to Extraordinary Charges
+
+If it happens every year like clockwork, what's so extraordinary about it?
+
+# Corporate Governance
+
+The cause of reform is hurt not helped when an activist makes an idiotic suggestion like saying that having Warren on the board of Coke is contrary to the interests of Coke. Nutty behavior undermines their cause.
+
+# Critique of the Money Management Business
+
+# Flawed Incentives
+
+The general systems of money management [today] require people to pretend to do something they can't do and like something they don't. [it's a terrible way to spend your life, but it's very well paid.
+
+# No Value Added
+
+Mutual funds charge two percent per year and then brokers switch people between funds, costing another three to four percentage points. The poor guy in the general public is getting a terrible product from the professionals. I think it's disgusting. It's much better to be part of a system that delivers value to the people who try the product. But if it makes money, we tend to do it in this country.
+
+---
+
+[It's] a funny business because on a net basis, the whole investment management business together gives no value added to all buyers combined. That's the way it has to work.
+
+# Stockbrokers vs. Index Funds
+
+It's hard to sit here at this annual meeting surrounded by smart, honorable stockbrokers who do well for their clients, and criticize them. But stockbrokers, in total, will do so poor that the index fund will do better. I think indexing is a user choice for the average foundation than what it is now doing in unleveraged equity investment—and particularly so as its present total croupier costs exceed one percent of principal per annum. Indexing can't work well forever if almost everybody turns to it. But it will work all right for a long time.
+
+# The Mutual Fund Scandal
+
+The business of selecting investment managers was recently shown to be even harder by the revelation that a significant fraction of mutual fund managers took bribes to betray their own shareholders. It was as if a man came up and said, "Why don't we kill your mother, and we'll split the insurance money?" And many people said, "Why, yes, I'd like some of that insurance money."
+
+---
+
+And many of them think what happened to them was unjust.
+
+# Critique of Wall Street
+
+# Wall Street's Lack of Ethics
+
+The ethics of Wall Street will always average out to mediocre at best.... This doesn't mean there aren't some wonderful, intelligent people on Wall Street - there are, like those in this room - but everyone I know has to fight his own firm to do the right thing.
+
+The general culture of investment banking has deteriorated over the years. We did a $6 million deal years ago for Diversified Retailing, and we were rigorously and intelligently screened. The bankers cared and wanted to protect their clients.
+
+The culture now is that anything that can be sold for a profit will be. "Can you sell it?" is the moral test, and that's not an adequate test.
+
+# Salomon Case Study
+
+It's amazing what goes on. Solomon was at least disciplined and rational as other investment banks, but by the end Solomon was begging for investment business from Robert Maxwell whose nickname was the bouncing Czech. You would think if this was his nickname investment banks wouldn't be purchasing his business.
+
+---
+
+Buffet: the day they found him Bobbin in the water he committed suicide as this candle about his miss deeds, we Solomon sent to him in exchange for money he was sending to us but he didn't pay. so we went to England to collect his sons and it was a mess. we got what we deserved. (editor's note unlike most creditors Solomon did eventually get paid as Charlie Puth Shit it was a minor miracle we didn't deserve to get it back)
+
+An investment banker earning would be increased in a significant way if he wrote a few more tickets to Maxwell you have to control this if guys can make money by bringing dubious things in the door
+
+# Normandy America Case Study
+
+Warren and Charlie chuckled to themselves as they recalled Salomon doing business with another shady character they didn't name. At the 2002 annual meeting, however, Charlie identified the company as Normandy America Inc., whose IPO Salomon had to pull before money exchanged hands when they discovered the promoter had completely manufactured his record. According to a report on the SEC's website, "Normandy's stock commenced trading on the NASDAQ National Market System on August 15, 1995. One day later, Normandy withdrew its offering from the market and rescinded all trades."
+
+That was a wonderful experience [dripping with sarcasm]. Warren, Lou Simpson, and I were all on the board [of Salomon], we were the largest shareholders, and we said, "Don't do business with this guy." But they ignored us and said that the underwriting committee had approved it.
+
+---
+
+Buffett: He had a neon sign on him saying "CROOK." He did go to jail. Incidentally, he claimed to have owned a lot of Berkshire stock and to have made a lot of money on it, but I checked the shareholder records and couldn't see it. It could have been in street name, but for a block that big, I think I would have found it (so he was probably lying about his Berkshire holdings).
+
+# Critique of Accountants
+
+# Demise of Ethics Among the Major Accounting Firms
+
+When I was younger, the major accounting firms were quite ethical places, and nobody got filthy rich. But in the space of twenty-five years, they sold out to terrible behavior, one little step at a time. Once you start doing something bad, then it's easy to take the next step—and in the end, you're a moral sewer. The idea that the major accounting firms of the country would sell obviously fraudulent tax shelters...
+
+Too many law and accounting firms get roped into shady things. For example, tax shelters, with their contingency fees and secrecy, are a total abomination. You'll better understand the evil of top audit firms starting to sell fraudulent tax shelters when I tell you that one told me that they're better [than the others] because they only sold the schemes to their top twenty clients, so no one would notice.
+
+# Aggressive Accounting
+
+---
+
+We're so horrified by aggressive accounting [that is rampant in Corporate America] that we reach for ways to be conservative. It helps our business decisions and protects Berkshire. How did we get in situations where we're all so close to the line? Creative accounting is an absolute curse to a civilization. One could argue that double-entry bookkeeping was one of history's great advances. Using accounting for fraud and folly is a disgrace. In a democracy, it often takes a scandal to trigger reform. Enron was the most obvious example of a business culture gone wrong in a long, long time.
+
+# Misuse of EBITDA
+
+I think that, every time you see the word EBITDA [earnings before interest, taxes, depreciation, and amortization], you should substitute the words "bullshit earnings."
+
+Arthur Andersen
+
+I regard [what happened to the innocent employees of Arthur Andersen] as very unfair, but capitalism without failure is like religion without hell. When it gets this bad and there's a lack of systems for control—which Arthur Andersen didn't have—maybe a firm should just go down.
+
+We couldn't do anything that would bring down Berkshire. Arthur Andersen was particularly vulnerable because it was a partnership. A partnership must be extra careful in its behavior, choosing clients, etc.
+
+---
+
+# The Scandal of American Pension Fund Accounting
+
+The current practice *[of using unrealistically high assumptions for pension plan returns]* is a dumb and improper way to handle things. But if you talk to management, their eyes glaze over even before hostility comes. Pension Fund accounting is drifting into scandal by using unrealistic assumptions; it's human nature to extrapolate the recent past into the future, but it is terrible that management go along with it.
+
+IBM just raised its return expectations for its pension fund to ten percent. *[Year 2000] Most companies are at nine percent. We think six percent is more realistic. [Company leaders]* may believe it—they're honest people—but subconsciously they believe it because they want to believe it. It makes earnings good so they can promote the stock.
+
+The reason Accountants don't say anything is best summed up by the saying, "Whose bread I eat, his song I sing." I think you're getting very foolish numbers in American Accounting. I don't think it's willful dishonesty, but it might as well be.
+
+# Bad Accounting Leads to Immorality
+
+People who have loose accounting standards are just inviting perfectly horrible behavior in other people. And it's a sin, it's an absolute sin. If you carry bushel baskets full of money through the ghetto, and made it easy to steal, that would be a considerable human sin because you'd be causing a lot of bad behavior, and the bad behavior would spread. Similarly, an
+
+---
+
+# Critique of Stock Options
+
+# Stock Options as Compensation
+
+If you look at the impact of stock options, you'll see a lot of terrible behavior. To give a lot of options to a CEO who built the business and is in his sixties, to incent loyalty, is demented. Would the doctors at the Mayo Clinic or the lawyers at Cravath who are in their sixties work harder if they had options?
+
+As our shareholders know our system is different from most big corporations. We think it's less capricious. The stock option system may give extraordinary rewards to some people who did nothing, and give nothing to those who deserve a lot. Except where we inherit it [a stock option program], we don't use it.
+
+# Valuing Options and the Black-Scholes Model
+
+Black-Scholes works for short-term options, but if it's a long-term option and you think you know something [about the underlying asset], it's insane to use Black-Scholes. Black-Scholes is a know-nothing system. If you know nothing about value-only price-then Black-Scholes is a pretty good guess at what a ninety-day option might be worth. But the minute you get into longer periods of time, it's crazy to get into Black-Scholes.
+
+---
+
+For example, at Costco we issued stock options with strike prices of $30 and $60, and Black-Scholes value the $60 ones higher. This is insane.
+
+# Accounting for Stock Options
+
+The theory that options have no cost has contributed to a lot of excesses, which is bad for the country because corporate compensation is perceived as unfair.
+
+I'm so tired of this subject. I've been on this topic for so long. It's such a rotten way to run a civilization to make the accounting wrong. It's like getting the engineering wrong when making a bridge. When perfectly reputable people say options shouldn't be expensed, it's outrageous.
+
+A stock option is both an expense and dilution. To argue anything else is insane. These people [the eighty-eight senators who voted to maintain the status quo of not expensing stock options] are stupid and dishonorable. They know, it was wrong and did it anyway. The only thing that's consistent is that the whole thing is disgusting.
+
+I'd rather make my money playing piano in a whorehouse than account for options as recommended by John Doerr.
+
+# Warnings About Financial Institutions and Derivatives
+
+# Risks of Financial Institutions
+
+---
+
+The nature of a financial institution is that there are a lot of ways to go to hell in a trucker. You can push credit too far, do a dumb acquisition, leverage yourself excessively-it's not just derivatives [that can bring about your downfall].
+
+Maybe it's unique to us, but we're quite sensitive to financial risks. Financial institutions make us nervous when they're trying to do well. We are exceptionally goosey of leveraged financial institutions. If they start talking about how good risk management is, it makes us nervous. We fret way earlier than other people. We've left a lot of money on the table through early fretting. It's the way we are-you'll just have to live with it.
+
+# Derivatives
+
+The system is almost insanely irresponsible. And what people think are fixes aren't really fixes. It's so complicated I can't do it justice here-but you can't believe the trillions of dollars involved. You can't believe the complexity. You can't believe how difficult it is to do the accounting. You can't believe how big the incentives are to have wishful thinking about values and wishful thinking about ability to clear.
+
+People don't think about the consequences of the consequences. People start by trying to hedge against interest rate changes, which is very difficult and complicated. Then, the hedges make the [reported profits] lumpy. So then they use new derivatives to smooth this. Well, now you've morphed into
+
+---
+
+# Misuse of Derivatives:
+
+# It's a Mad Hatter Tea Party
+
+lying. This turns into a Mad Hatter's Tea Party. This happens to vast, sophisticated corporations. Somebody has to step in and say, "We're not going to do it-it's just too hard."
+
+I think a good litmus test of the mental and moral quality at any large institution [with significant derivatives exposure] would be to ask them, "Do you really understand your derivatives book?" Anyone who says yes is either crazy or lying.
+
+It's easy to see [the dangers] when you talk about [what happened with] the energy derivatives-they went kerflooey. When [the companies] reached for the assets that were on their books, the money wasn't there. When it comes to financial assets, we haven't had any such denouement, and the accounting hasn't changed, so the denouement (the final part of a play, movie, or narrative in which the strands of the plot are drawn together and matters are explained or resolved) is ahead of us.
+
+Derivatives are full of clauses that say if one party's credit gets downgraded, then it has to put up collateral. It's like margin-you can go broke [just putting up more margin]. In attempting to protect themselves, they've introduced instability. Nobody seems to recognize what a disaster of a system they've created. It's a demented system.
+
+In engineering, people have a big margin of safety. But in the financial world, people don't give a damn about safety. They let it balloon and balloon and balloon. It's aided by false accounting. I'm more pessimistic about this than Warren.
+
+---
+
+"Take some more tea," the March Hare said to Alice, very earnestly.
+
+"I've had nothing yet," Alice replied in an offended tone, "so I can't take more."
+
+"You mean you can't take LESS," said the Hatter, "it's very easy to take MORE than nothing."
+
+From Lewis Carroll's Alice's Adventures in Wonderland.
+
+The Hatter, popularly known as the "The Mad Hatter" is an enigmatic character encountered at a tea party and later as a trial witness in Lewis Carroll's Alice's Adventures in Wonderland- The "real" Hatter is generally believed to be Theophilus Carter, inventor of an alarm-clock bed, exhibited at the Great Exhibition of 1851, that tipped out the sleeper at waking time. Carter later owned a furniture shop, and became known as the "Mad Hatter" from his habit of standing in the door of his shop wearing a top hat. Sir John Tenniel is reported to have come to Oxford for the express purpose of sketching Carter for one of his Wonderland illustrations.
+
+# Accounting for Derivatives
+
+I hate with a passion GAAP [Generally Accepted Accounting Principles] as applied to derivatives and swaps. JP Morgan sold out to this type of accounting to front-and revenues. I think it's a disgrace.
+
+It's bonkers, and the accountants sold out. Everyone caved, adopted loose [accounting] standards, and created exotic derivatives linked to theoretical models. As a result, all kinds of earnings, blessed by accountants, are not
+
+---
+
+really being earned. When you reach for the money, it melts away. It was never there.
+
+It [accounting for derivatives] is just disgusting. It is a sewer, and if I'm right, there will be hell to pay in due course. All of you will have to prepare to deal with a blowup of derivative books.
+
+To say accounting for derivatives in America is a sewer is an insult to sewage.
+
+# Likelihood of a Derivatives Blow Up
+
+We tried to sell Gen Re's derivatives operation and couldn't, so we started liquidating it. We had to take big markdowns. I would confidently predict that most of the derivative books of [this country's] major banks cannot be liquidated for anything like what they're carried on the books at. When the denouement will happen and how severe it will be, I don't know. But I fear the consequences could be fearsome. I think there are major problems, worse than in the energy field, and look at the destruction there.
+
+I'll be amazed if we don't have some kind of significant [derivatives-related] blow up in the next five to ten years.
+
+I think we're the only big corporation in America to be running off its derivative book. It's a crazy idea for people who are already rich-like Berkshire-to be in this business. It's a crazy business for big banks to be in.
+
+---
+
+You would be disgusted if you had a fair mind and spent a month really delving into a big derivative operation. You would think it was Lewis Carroll [author of Alice's Adventures in Wonderland]. You would think it was the Mad Hatter's Tea Party. And the false precision of these people is just unbelievable. They make the worst economics professors look like gods. Moreover, there is depravity augmenting the folly. Read the book F.I.A.S.C.O., by law professor and former derivatives trader Frank Partnoy, an insider account of depravity in derivative trading at one of the biggest and best-regarded Wall Street firms. The book will turn your stomach.
+
+# Critique of Lawyers, Law Firms, and Litigation
+
+# Demise of Ethics Among Law Firms
+
+I never have the slightest interest in defending miscreants and helping them misbehave. But the general view is that it's wonderful what Johnny Cochran did [getting O. J. Simpson off].
+
+# Lawyers Botched the Martha Stewart Case
+
+What happened with Martha Stewart was that she heard some news, panicked, and sold the stock. It turns out that if she'd just told the truth, she'd have been okay. But because she had a vague idea that what she'd done was wrong, she had a totally phony story when the investigators came and she lied to them and that's a felony. And she did these acts after she'd
+
+---
+
+hired highfalutin' lawyers! And I'm sure they charged her a lot. I do not invent these stories.
+
+Were I her lawyer, I would have said, "You know, Martha, that's an interesting story, and I'm your lawyer, so I'm required to believe you, but nobody else will. So, you're going to have to come up with a different story, or you'll have to tell it through a different lawyer because I don't like losing cases." And it'll work. It's so simple. Literally, she went to prison for her behavior after she'd hired a lawyer!
+
+# The Tort System
+
+What's particularly pernicious is the increasing political power of the plaintiffs' bar. State supreme court judges are generally on for life. The only thing that can jeopardize this is for them to really anger some important group-like the plaintiffs' bar. Thus, the judges allow junk science and the like.
+
+Because of the tort system, there are whole areas for the already rich to avoid. For example, a company developed a new, safer, better police helmet but sold the product to a judgment-proof company [because the helmet-developer was afraid of liability. It would be crazy for Berkshire to be in the business of providing security guards at airports. The system discourages the best companies from entering certain businesses.
+
+# Asbestos and Tort Reform
+
+---
+
+Asbestos has morphed into a situation with enormous amounts of fraud. People with serious injuries are being hurt [as more and more money flows to the plaintiffs' bar and to claimants with no current injuries]. The Supreme Court has practically invited Congress to step in, but Congress has refused due to the influence of the trial lawyers. I'd be surprised if there's a constructive solution in the next five years. I expect there will just be more of the current mess.
+
+What's happened in asbestos is that a given group of people get mesothelioma - a horrible cancer that comes only from asbestos exposure and kills people. Then, there's another group of claimants who smoked two packs of cigarettes a day and have a spot on their lung. Then you get a lawyer who gets a doctor to testify that every spot is caused by asbestos. Once you effectively bribe a doctor, then you can get millions of people to sue on fears of getting cancer.
+
+But there's not enough money [to pay all of the claimants], so people who are truly harmed don't get enough. In a southern state with a jury pool that hates all big companies [you get big judgments], but lawyers are stealing money from people who are hurt and giving it to people who aren't entitled. It's a bonkers system, but with federalism [states' rights], there's no way to stop it. The Supreme Court refused to step in.
+
+'trying to buy people off is like trying to put out a fire by dousing it with gasoline. With word processors, lawyers can easily produce countless
+
+---
+
+claimants. But only, twenty-five percent of the money goes to claimants-the rest goes to the lawyers, doctors, etc.
+
+If you want to be cynical, look at the perjury. There are only three solvent companies left Facing asbestos claims, so plaintiffs can only remember those three names when recalling which products they were exposed to decades ago.
+
+It's a case of perjury being suborned by practicing lawyers. The only people who can fix it are the supreme court or Congress. The Supreme Court some people would say rightly refused to get involved but I say they chickened out and Congress given the politics has yet to step in.
+
+There's an important lesson here: Once wrongdoers get rich, they get enormous political power and you can't stop it, so the key is to nip things like this in the bud.
+
+It would be easy to fix the problem: The right way is to say we're not going to pay off all these little claims.
+
+# The Government's Lawsuit Against Microsoft
+
+[April 2000] Someone whose salary is paid by U.S. taxpayers is happy to dramatically weaken the one place where we're winning big?!
+
+Every business tries to turn this year's success into next year's greater success. It's hard for me to see why Microsoft is sinful to do this. If it's a sin, then I hope all of Berkshire Hathaway subsidiaries are sinners.
+
+---
+
+# Mental Models
+
+# The Importance of Multiple Mental Models
+
+You must know the big ideas in the big disciplines and use them routinely - all of them, not just a few. Most people are trained in one model - economics, for example - and try to solve all problems in one way. You know the old saying: To the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.
+
+You need a different checklist and different mental models for different companies. I can never make it easy by saying, "Here are three things." You have to derive it yourself to ingrain it in your head for the rest of your life.
+
+You can't learn those one hundred big ideas you really need the way many students do - where you learn 'em well enough to bang 'em back to the professor and get your grade, and then you empty them out as though you were emptying a bathtub so you can take in more water next time. If that's the way you learn the one hundred big models you're going to need, [you'll be] an "also ran" in the game of life. You have to learn the models so that they become part of your ever-used repertoire.
+
+By the way, there's no rule that you can't add another model or two even fairly late in life. In fact, I've clearly done that. I got most of the big ones quite early. However, the happier mental realm I recommend is one from which no one willingly returns. A return would be like cutting off one's hands.
+
+The ethos of not fooling yourself.
+
+---
+
+It is ridiculous the way a lot of people playing to failed ideas keynes it's not bringing in the new ideas that so hard it's getting rid of the old ones. The ethos of not fooling yourself is one of the best you could possibly have. It's powerful because it's so rare.
+
+# Common (and uncommon) Sense
+
+Organized common (or uncommon) sense-very basic knowledge-is an enormously powerful tool. There are huge dangers with computers. People calculate too much and think too little. Part of [having uncommon sense] is being able to tune out folly, as opposed to recognizing wisdom. If you bat away many things, you don't clutter yourself. We read a lot. I don't know anyone who's wise who doesn’t read a lot. But that's not enough: You have to have a temperament to grab ideas and do sensible things. Most people don't grab the right ideas or don't know what to do with them.
+
+The more basic knowledge you have the less new knowledge you have to get. The guy who plays chess blindfolded, a chessmaster comes to Omaha during Berkshire's Annual meeting. We can add in an exhibition place multiple players blindfolded. He has knowledge of the board allows them to do this.
+
+# Henry E. Singleton (1916-1999)
+
+Business and Chess Master
+
+---
+
+Singleton was co-founder of Teledyne, Inc. and chief executive of the Los Angeles-based conglomerate for three decades. He attended the Naval Academy, then transferred to MIT where he received Bachelors, Masters, and PhD. degrees in Electrical Engineering. An enormously skilled chess player, he was only 100 points below the Grandmaster level and could play without looking at the board.
+
+From 1963 to 1990, Glendyne returned an astounding 20.4 percent compound annual return to shareholders—a period in which the S&P 500 returned 8.0 percent. Adroitly repurchasing 90 percent of Teledyne outstanding shares primarily between 1972 and 1984, Singleton built a record as a manager and capital allocator with few peers in modern business history.
+
+Sharing Buffett's admiration for Henry E. Singleton, Charlie wonders, "Given the many talents and record, have we learned enough from him?"
+
+"Henry Singleton has the best operating and capital deployment record in American business...if one took the 100 top business school graduates and made a composite of their triumphs, their record would not be as good as Singleton."
+
+# Critique of Academia
+
+# Fatal Connectedness
+
+---
+
+There's A lot wrong *with American universities*. I'd remove three-fourths of the faculty—everything but the hard sciences. But nobody's going to do that, so we will have to live with the defects. It's amazing how wrong head the teaching is; there is fatal disconnected miss you have these squirrely people in each department who don't see the big picture.
+
+I think liberal Arts faculty is at major universities have used that are not very sound at least on public policy issues; however, they may know a lot of French. Whitehead spoke of the cattle and connectedness of academic disciplines wherein each professor didn't even know the models of the other disciplines, much less try to synthesise those disciplines with his own. I think there is a modern name for this approach that Whitehead did not like, and that name is *bonkers*.
+
+# How to Be Happy, Get Rich, and Other Advice
+
+# Tip* on How to Be Happy and Successful
+
+If all you succeed in doing in life is getting rich by buying little pieces of paper, it's a failed life. Life is more than being shrewd in wealth accumulation. A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.
+
+Just avoid things like AIDS situations, racing trains to the crossing, and doing cocaine. Develop good mental habits.
+
+Avoid evil, particularly if they're attractive members of the opposite sex.
+
+---
+
+If your new behavior earns a little temporary unpopularity with your peer group then the hell with them.
+
+Be satisfied with what you have.
+
+There is one truth that perhaps your typical investment counsel would disagree with: if you are comfortable and rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what? Someone will always be getting richer faster than you. This is not a tragedy. Look at Stanley Druckenmiller, who ran one of George Soros' funds which suffered large losses in speculative tech and biotech stocks. He always had to be the best and couldn't stand that others were beating him by investing in these sectors.
+
+Soros couldn't bear to see others make money in the technology sector without him, and he got killed. It doesn't bother us at all that others are making money in the tech sector.
+
+# Beware of Envy
+
+The idea of caring that someone is making money faster than you are is one of the deadly sins. Envy is a really stupid sin because it's the only one you could never possibly have any fun at. There's a lot of pain and no fun. Why would you want to get on that trolley?
+
+# How to Get Rich
+
+---
+
+A young shareholder asked Charlie how to follow in his footsteps, and Charlie brought down the house by saying: We get these questions a lot from the enterprising young. It's a very intelligent question; You look at some old guy who's rich and you ask, "How can I become like you, except faster?" Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts.... Slug it out one inch at a time, day by day. At the end of the day-if you live long enough-most people get what they deserve.
+
+# How to Find a Good Spouse
+
+What's the best way to get a good spouse? The best single way is to deserve a good spouse because a good spouse is by definition not nuts.
+
+# The Importance of Reading
+
+In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time-none, zero. You'd be amazed at how much Warren reads-and at how much I read. My children laugh at me. 'They think I'm a book with a couple of legs sticking out.
+
+I am a biography not myself. And I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed than. I think you learn economics better if -
+
+---
+
+you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education. It's way better than just being given the basic concepts.
+
+# 1. Reduce Material Needs
+
+Most people will see declining returns defenses if you're worried about inflation is not to have a lot of silly needs in your life-you don't need a lot of material goods.
+
+# 2. Philanthropy
+
+[Warren and I] feel that those of us who have been very fortunate have a duty to give back. Whether one gives a lot as one goes along as I do, or a little and then a lot [when one dies] as Warren does, is a matter of personal preference. I would hate to have people ask me for money all day long. Warren couldn't stand it.
+
+# 3. Avoid Debt
+
+Once you get into debt, it's hell to get out. Don't let credit card debt carry over.
+
+You can't get ahead paying eighteen percent.
+
+---
+
+# The Decline of Public Schools
+
+You could argue that [the decline of public schools] is one of the major disasters in our lifetime. We took one of the greatest successes in the history of the earth and turned it into one of the greatest disasters in the history of the earth.
+
+# Japan's Recession
+
+Anyone has to be flabbergasted by Japan's recession, which has endured for ten years, despite interest rates below one percent. The government is playing all the monetary games, but it's not working. If you had described this situation to Harvard economists, they could have said it's impossible. Yet at the same time, there's an asset bubble in Hong Kong. Why? Because Japan and China are two vastly different cultures; the Chinese are Gamblers.
+
+This is a classic example of why to be a successful investor one must draw from many disciplines. Imagine an economist standing up at a meeting of economists and giving my explanation. It wouldn't be politically correct, but the tools of Economics don't explain what's going on.
+
+# Humor
+
+I would rather throw a viper down my shirt front than hire a compensation consultant.
+
+---
+
+When asked at a cocktail party whether he played the piano Charlie replied, "I don't know I have never tried." I always like it when someone attractive to me agrees with me so I have fond memories of Philfisher.
+
+It is of course normal for self appraisal to be more positive than external appraisal indeed a problem of this sort may have given you your speaker today.
+
+In the corporate world if you have analysts, due diligence and no horse sense you have just described hell.
+
+It's been so long since we've bought anything that [asking us about our market impact when we're trading] is like asking Rip Van Winkle about the past twenty years.
+
+When I first moved to California, there was a part-time legislature that was controlled by gambling interests, race track owners, and liquor distributors, who wined and dined the legislators, supplied them with prostitutes, etc. I think I prefer that to today's full-time legislature.
+
+[On the book Deep Simplicity], it's pretty hard to understand everything, but if you can't understand it, you can always give it to a more intelligent friend.
+
+---
+
+If you rise in life, you have to behave in a certain way. You can go to a strip club if you're a beer-swilling sand shoveler, but if you're the bishop of Boston, you shouldn't go.
+
+I think the people who are attracted to be prison guards are not nature's noblemen to begin with.
+
+You don't want to be like the motion picture executive who had many people at his funeral, but they were there just to make sure he was dead. Or how about the guy who, at his funeral, the priest said, "Won't anyone stand up and say anything nice about the deceased?" and finally someone said, "Well, his brother was worse."
+
+[Responding to a question at the 1999 Berkshire Hathaway annual meeting about the year 2000 compliance issue, Munger replied:] I find it interesting that there is such a problem. You know, it was predictable that the year 2000 would come.
+
+When You Mix raisins and turns you have still got AIDS comparing the benefits that the internet and Technology are providing to society versus the evils of stock speculation in these sectors.
+
+Ben Franklin was a very good and best and whatever was wrong with him from John Adams point of view I am sure helped him with the French.
+
+---
+
+# 158
+
+# Simpson on Munger
+
+When I first met Charlie Munger, I knew he was a unique individual, but I didn't realize just how unique until I knew him better.
+
+I have now known Charlie for twenty-five years and have had the opportunity to observe him under a wide range of circumstances, including the aftermath of the Salomon bond crisis of the early nineties where we were both serving on the board of directors. I can attest that Charlie has a combination of characteristics that I have never seen in any other single individual. He has an extraordinary and deep intelligence across a broad range of interests, and he never seems to forget anything, no matter how arcane or trivial. On top of these attributes is his absolute commitment to honesty, ethics, and integrity—Charlie never "grabs" for himself and can be trusted without reservation. If that's not enough, he has a temperament toward investing that can only be described as ideal: unyielding patience, discipline, and self-control—Charlie just doesn't crack or compromise on his principles, no matter how stressful the situation.
+
+How fortunate we have all been to have this duo of Charlie Munger and Warren Buffett as our partners, teachers, and role models for all these years. These are truly exceptional men.
+
+# Munger on Simpson
+
+---
+
+Lou Simpson is a highly intelligent and honorable man. I was pleased that in the annual letter to shareholders this year (2005), Warren printed Lou's twenty five year investment track record. It's not unheard of to beat the market averages for a couple of years, maybe even five or ten years. But, imagine beating the S&P 500 by an average annual gain of 6.8 percent over twenty-five years! This extraordinary track record speaks for itself—Lou has one of the greatest investment minds of our time. He is, as Warren says, "a shoo-in for the investment Hall of Fame."
+
+I remember well the dot-com boom of the late nineties and how Lou handled it. You can't believe the pressure that he was under, year after year, as the world seemed to be reaping enormous gains while he, correctly, avoided the bubble altogether, staying true to fundamentals. Lou was a wonderful example in that period—intelligent, honorable, and true to his fundamentals.
+
+# Sinegal on Munger
+
+I had the pleasure of meeting Charlie eight years ago when he agreed to have lunch with me in Los Angeles at the California Club. My purpose was to convince him to consider joining the Costco board of directors. I liked him from the moment we met when he told me how much he enjoyed shopping at Costco; and despite our being interrupted continuously by the other 500-plus people dining there that day, who all felt compelled to say hello to Charlie and whom Charlie identified by name in almost every instance, we managed to have a great conversation. First off, Charlie was astute enough to recognize what a great value Costco membership.
+
+---
+
+represented. Later, of course, I learned of Charlie's reputation for thriftiness, which clarified Costco's appeal, but, more importantly his straightforwardness and common sense business acumen came through loud and clear.
+
+Later when he called to accept the position on the board, he referred to himself as a septuagenarian. Pretty fancy description to share with someone from the warehouse industry: I was flattered he thought I understood him.
+
+Since then he has provided everything that can be expected from a director. His insight, questioning, and support have made Costco a better-governed and better-operated company. As an extra bonus, we are treated to regular doses of the Munger wit—we are lucky people!
+
+# Munger on Sinegal
+
+You just wouldn't believe how efficient and sophisticated Costco's warehouse operation is. Jim Sinegal is a fabulous business operator—like a Carnegie, Rockefeller, or James J. Hill. I consider him to be one of the top five retailers of the past century. He's that good. He works eighty hours a week and sets a terrific example for his entire organization in terms of work ethic, integrity, loyalty, and selflessness. He's a moral leader as well as a practical leader. These are not minor virtues. We have our own living, breathing Sam Walton at Costco.
+
+# Chapter 4 : Eleven Talks
+
+---
+
+Charlie Munger is not the least bit shy when it comes to offering both frank criticism and constructive advice. When he sets his sights on an issue—be it a corrupt business practice, an academic failing, or a financial scandal—he lets loose with both barrels. Which is not to say he spends all his time focused on life's failings. He is equally at home discussing the values of lifelong learning or the joys of a successful marriage. But whatever the topic, Charlie is apt to tell it like it is, which is exactly what he has done in over two decades of public speaking. Here then are eleven of Charlie's best talks, including a special compilation he has prepared exclusively for this book. Enjoy.
+
+In a vow that students the world over may hope he renounces, Charlie delivered "the one and only graduation speech I will ever make" in 1986 at the Harvard School in Los Angeles. The occasion was the graduation of Philip Munger, the last of five Munger family sons to matriculate at this prep school (originally an all-boys institution and now the coeducational school called Harvard-Westlake). Despite Charlie's self-effacing procestations about then lacking "significant public-speaking experience," he demonstrates imposing rhetorical talents in this short speech. We also get a good taste of both Charlie's value system and wit. Most graduation speakers choose to lay out a prescription for attaining a happy life. Charlie, using the inversion principle he recommends in the speech, compellingly makes the opposite case by setting forth what a graduate may do to reach a state of misery. For those of you who want to remain unenlightened and mirthless, do not, under any circumstances, read this selection.
+
+---
+
+# Harvard School Commencement Speech
+
+# June 13, 1986
+
+Now that Headmaster Berrisford has selected one of the oldest and longest-serving trustees to make a commencement speech, it behooves the speaker to address two questions in every mind:
+
+1. Why was such a selection made?
+2. How long is the speech going to last?
+
+I will answer the first question from long experience alongside Berrisford. He is seeking enhanced reputation for our school in the manner of the man who proudly displays his horse that can count to seven. The man knows that counting to seven is not much of a mathematical feat, but he expects approval because doing so is creditable, considering the performer is a horse.
+
+The second question, regarding the length of the speech, I am not going to answer in advance. It would deprive your upturned faces of lively curiosity and obvious keen anticipation, which I prefer to remain, regardless of source.
+
+But I will tell you how my consideration of speech length created the subject matter of the speech itself. I was puffed up when invited to speak. While not having significant public-speaking experience, I do hold a black belt in chutzpah, and I immediately considered Demosthenes and Cicero as role models and anticipated trying to earn a compliment like Cicero gave.
+
+---
+
+when asked which was his favorite among the orations of Demosthenes. Cicero replied: "The longest one." However, fortunately for this audience, I also thought of Samuel Johnson's famous comment when he addressed Milton's poem Paradise Lost and correctly said, "No one ever wished it longer." And that made me consider which of all the twenty Harvard School graduation speeches I had heard that I had wished longer. There was only one such speech, given by Johnny Carson, specifying Carson's prescriptions for guaranteed misery in life. I, therefore, decided to repeat Carson's speech but in expanded form with some added prescriptions of my own. After all, I am much older than Carson was when he spoke and have failed and been miserable more often and in more ways than was possible for a charming humorist speaking at a younger age. I am plainly well qualified to expand on Carson's theme.
+
+# Marcus Tullius Cicero
+
+A poet, philosopher, rhetorician, and humorist, Cicero was also one of Rome's great orators. Cicero viewed public service to be a Roman citizen’s highest duty. He defended those unjustly accused by dictatorial leaders and brought down corrupt governments. Late in life, he led the Senate’s unsuccessful battle against Antony, for which he paid with his life in 43 BC.
+
+What Carson said was that he couldn't tell the graduating class how to be happy, but he could tell them from personal experience how to guarantee misery.
+
+---
+
+Carson's prescription for sure misery included:
+
+1. Ingesting chemicals in an effort to alter mood or perception;
+2. Envy;
+3. Resentment.
+
+I can still recall Carson's absolute conviction as he told how he had tried these things on occasion after occasion and had become miserable every time.
+
+It is easy to understand Carson's first prescription for misery-ingesting chemicals. I add my voice. The four closest friends of my youth were highly intelligent, ethical, humorous types, favored in person and background. Two are long dead, with alcohol a contributing factor, and a third is a living alcoholic-if you call that living.
+
+Carson said he couldn't tell the graduating class how to be happy, but he could tell them from personal experience how to guarantee misery.
+
+While susceptibility varies, addiction can happen to any of us through a subtle process where the bonds of degradation are too light to be felt until they are too strong to be broken. And yet, I have yet to meet anyone, in over six decades of life, whose life was worsened by fear and avoidance of such a deceptive pathway to destruction.
+
+Envy, of course, joins chemicals in winning some sort of quantity prize for causing misery. It was wreaking havoc long before it got a bad press in the
+
+---
+
+laws of Moses. If you wish to retain the contribution of envy to misery, I recommend that you never read any of the biographies of that good Christian, Samuel Johnson, because his life demonstrates in an enticing way the possibility and advantage of transcending envy.
+
+Resentment has always worked for me exactly as it worked for Carson. I cannot recommend it highly enough to you if you desire misery. Johnson spoke well when he said that life is hard enough to swallow without squeezing in the bitter rind of resentment. For those of you who want misery, I also recommend refraining from practice of the Disraeli compromise, designed for people who find it impossible to quit resentment cold turkey. Disraeli, as he rose to become one of the greatest prime ministers, learned to give up vengeance as a motivation for action, but he did retain some outlet for resentment by putting the names of people who wronged him on pieces of paper in a drawer. Then, from time to time, he reviewed these names and took pleasure in noting the way the world had taken his enemies down without his assistance.
+
+Johnson spoke well when he said that life is hard enough to swallow without squeezing in the bitter rind of resentment.
+
+One of the greatest poets of the English language, John Milton was best known for his epic poem Paradise Lost (1667). His powerful prose and the eloquence of his poetry had an immense influence, especially on eighteenth-century verse. Milton also published pamphlets defending civil and
+
+---
+
+religious rights. To Samuel Johnson's point about Milton's long-windedness, Paradise Lost runs to twelve "books" and thousands of lines.
+
+Addiction can happen to any of us through a subtle process where the bonds of degradation are too light to be felt until when they are too strong to be broken.
+
+Well, so much for Carson's three prescriptions. Here are four more prescriptions from Munger:
+
+1. First, be unreliable. Do not faithfully do what you have engaged to do. If you will only master this one habit, you will more than counterbalance the combined effect of all your virtues, how so ever great. If you like being distrusted and excluded from the best human contribution and company, this prescription is for you. Master this one habit, and you will always play the role of the hare in the fable, except that instead of being outrun by one fine turtle, you will be outrun by hordes and hordes of mediocre turtles and even some mediocre turtles on crutches.
+
+I must warn you that if you don't follow my first prescription it may be hard to end up miserable even if you start disadvantaged. I had a roommate in college who was and is severely dyslexic but he is perhaps the most reliable man I have ever known. He has had a wonderful life so far, outstanding wife and children, chief executive of a multibillion dollar corporation. If you want to avoid a conventional, main-culture,
+
+---
+
+establishment result of this kind, you simply can't count on your other handicaps to hold you back if you persist in being reliable.
+
+I cannot here Pass by reference to a life described as wonderful sofa without reinforcing the sofa aspects of the human condition by repeating the remarks of coresus, once the richest king In the world later in ignominious captivity as you prepared to be burnt alive he said well now do I remember the words of the Historian in salon “ No man's life should be accounted a happy one until it's over“
+
+My second Prescription for miseries to learn everything you possibly can from your own experiences minimizing what you learn vicariously from the good and bad experience of others, living and dead. This prescription is a sure shot producer cf misery and second-rate achievement.
+
+You can see: the results Of not learning From others mistakes by simply looking about you How little originality there is in the common disasters of mankind drunk driving deaths reckless driving mamimings incurable venereal diseases, conversion of bright college students into brainwashed zombies as members of destructive cults, business failures through repetition of obvious mistakes made by predecessors, various forms of crowd folly, and so on. I recommend as a memory clue to finding the way to real trouble from heedless, unoriginal error the modern saying: "If at first you don't succeed, well, so much for hang gliding."
+
+The other aspect of avoiding vicarious wisdom is the rule for not learning from the best work done before yours. The prescription is to become as non
+
+---
+
+educated as you reasonably can. Perhaps you will better see the type of non miserable result you can thus avoid if I render a short historical account. There once was a man who assiduously mastered the work of his best predecessors, despite a poor start and very tough time in analytical geometry. Eventually, his own work attracted wide attention, and he said of his work:
+
+"If I have seen a little farther than other men, it is because I stood on the shoulders of giants."
+
+The bones of that man lie buried now, in Westminster Abbey, under an unusual inscription:
+
+"Here lie the remains of all that was mortal in Sir Isaac Newton."
+
+# Franklin on Vicarious Learning
+
+"If you will not hear reason, she will surely rap your knuckles." "They that won't be counseled, can't be helped." "Experience keeps a dear school, but fools will learn in no other and scarce in that; for it is true, we may give advice, but we cannot give conduct."
+
+Sir Isaac Newton (1642-1727)
+
+At birth in Lincolnshire, England, Newton was so tiny and frail that he was not expected to live. Yet he lived into his eighties. During his young
+
+---
+
+Adulthood, Newton made tremendous discoveries in general mathematics, algebra, geometry, calculus, optics, and celestial mechanics. Most famous among these discoveries was his description of gravity. The publication of his book *The Mathematical Principles of Natural Philosophy* in 1687 marked the peak of Newton's creative career.
+
+My third prescription to you for misery is to go down and stay down when you get your first, second, or third severe reverse in the battle of life. Because there is so much adversity out there, even for the lucky and wise, this will guarantee that, in due course, you will be permanently mired in misery. Ignore at all cost the lesson contained in the accurate epitaph written for himself by Epictetus: "Here lies Epictetus, a slave, maimed in body, the ultimate in poverty, and favored by the gods."
+
+"Invert always invert," Jacobi said. He knew that it is in the nature of things that many hard problems are best solved when they are addressed backward.
+
+My final prescription to you for a life of fuzzy thinking and infelicity is to ignore a story they told me when I was very young about a rustic who said, "I wish I knew where I was going to die, and then I'd never go there." Most people smile (as you did) at the rustic's ignorance and ignore his basic wisdom. If my experience is any guide, the rustic's approach is to be avoided at all cost by someone bent on misery. To help fail, you should discount as mere quirk, with no useful message, the method of the rustic, which is the same one used in Carson's speech.
+
+---
+
+What Carson did was to approach the study of how to create X by turning the question backward, that is, by studying how to create non-X. The great algebraist, Jacobi, had exactly the same approach as Carson and was known for his constant repetition of one phrase: "Invert, always invert." It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward. For instance, when almost everyone else was trying to revise the electromagnetic laws of Maxwell to be consistent with the motion laws of Newton, Einstein discovered special relativity as he made a 180 degree turn and revised Newton's laws to fit Maxwell's.
+
+It is my opinion, as a certified biography nut, that Charles Robert Darwin would have ranked near the middle of the Harvard School graduating class of 1986. Yet he is now famous in the history of science. This is precisely the type of example you should learn nothing from if bent on minimizing your results from your own Endowment.
+
+Darwin's result was due in large measure to his working method, which violated all my rules for misery and particularly emphasized a backward twist in that he always gave priority attention to evidence tending to disconfirm whatever cherished and hard-won theory he already had. In contrast, most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact. They become people of whom Philip Wylie observed: "You couldn't
+
+---
+
+squeeze a dime between what they already know and what they will never learn.
+
+The life of Darwin demonstrates how a turtle may outrun the hares, aided by extreme objectivity, which helps the objective person end up like the only player without a blindfold in a game of Pin the Tail on the Donkey.
+
+If you minimize objectivity, you ignore not only a lesson from Darwin but also one from Einstein. Einstein said that his successful theories came from "Curiosity, concentration, perseverance, and self-criticism." And by self-criticism, he meant the testing and destruction of his own well-loved ideas.
+
+Finally, minimizing objectivity will help you lessen the compromises and burden of owning worldly goods because objectivity does not work only for great physicists and biologists. It also adds power to the work of a plumbing contractor in Bemidji. Therefore, if you interpret being true to yourself as requiring that you retain every notion of your youth, you will be safely underway, not only toward maximizing ignorance, but also toward whatever misery can be obtained through unpleasant experiences in business.
+
+It is hitting that a backward sort of speech end with a backward sort of toast, inspired by Elihu Root's repeated accounts of how the dog went to
+
+---
+
+Dover, "leg over leg." To the class of 1986: Gentlemen, may each of you rise by spending each day of a long life aiming low.
+
+# Johnny (John William) Carson (1925-2005)
+
+Born in Corning, Iowa, Johnny Carson became famous as America's late-night king of comedy. He had a popular radio show in Omaha for years and claimed the city as his hometown. For thirty years, from 1962 to 1992, he entertained millions as host of NBC television's The Tonight Show. His show featured thousands of authors, filmmakers, actors, singers, and stand-up comedians, of course, many of whose careers he launched.
+
+# Talk One Revisited
+
+As I review in 2006 this talk made in 1986, I would not revise a single idea. If anything, I now believe even more strongly that (1) reliability is essential for progress in life and (2) while quantum mechanics is unlearnable for a vast majority, reliability can be learned to great advantage by almost anyone.
+
+Indeed, I have often made myself unpopular on elite college campuses pushing this reliability theme. What I say is that McDonald's is one of our most admirable institutions. Then, as signs of shock come to surrounding faces, I explain that McDonald's, providing first jobs to millions of teenagers, many troubled, over the years, has successfully taught most of them the one lesson they most need: to show up reliably for responsible work. Then I usually go on to say that if the elite campuses were as
+
+---
+
+successful as McDonald's in teaching sensibly, we would have a better world.
+
+# Avoiding Life's Pitfalls a la Kipling
+
+If you can keep your head when all about you Are losing theirs and blaming it on you, If you can trust yourself when all men doubt you But make allowance for their doubting too, If You can wait and not be tired by waiting, Or being lied about, don't deal in lies, Or being hated, don't give way to hating, And yet don't look too good, nor talk too revise ...
+
+If You can talk with crowds and keep your virtue, Or walk with kings-nor lose the common touch, If neither foes nor loving Friends can hurt you; If all men count with you, but none too much, if you can fill the unforgiving minute With sixty seconds' worth of distance run, Yours is the Earth and everything that's in it, And-which is more you'll be a Man, my son!
+
+Excerpted From the poem "If," which Charlie has always admired
+
+Well-known because it was published in Outstanding Investor Digest May 5, 1995), this talk was given in 1994 to Professor Guilford Babcock's business class at the University of Southern California. Charlie ranges in the talk from education systems to psychology to the importance of possessing both common and uncommon sense. Dissecting business management, he brilliantly describes psychological impacts that can
+
+---
+
+damage or benefit a firm. He also presents an outstanding set of principles for investment, business management, and - most importantly from Charlie's perspective - decision making in everyday life.
+
+Your time investment in reading this talk will be paid back quickly via the effect it will have on your own decision making abilities.
+
+# Talk two
+
+# A Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management and Business
+
+The university of Southern California Marshall School of Business, April 14, 1994
+
+I am going to play a minor trick on you today because the subject of my talk is the art of stock picking as a subdivision of the art of worldly wisdom. That enables me to start talking about worldly wisdom - a much broader topic that interests me because I think all too little of it is delivered by modern educational systems, at least in an effective way.
+
+And, therefore, the talk is sort of along the lines that some behaviorist psychologists call "Grandma's rule" - after the wisdom of Grandma when she said that you have to eat the carrots before you get the dessert.
+
+---
+
+The carrot part of this talk is about the general subject of worldly wisdom, which is a pretty good way to start. After all, the theory of modern education is that you need a general education before you specialize. And I think, to some extent, before you're going to be a great stock picker, you need some general education. The talk is sort of along the lines that some behaviorist psychologists call "Grandma's rule" - after the wisdom of Grandma when she said that you have to eat the carrots before you get the dessert.
+
+So, emphasizing what I sometimes waggishly call remedial worldly wisdom, I'm going to start by waltzing you through a few basic notions.
+
+# 1. What is elementary, worldly wisdom?
+
+Well, the first rule is that you can't really know anything if you just remember isolated facts and try and bang 'em back. If the facts don't hang together on a latticework of theory, you don't have them in a usable form.
+
+You've got to have models in your head. And you've got to array your experience - both vicarious and direct - on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and fail in life. You've got to hang experience on a latticework of models in your head.
+
+---
+
+What are the models? Well, the first rule is that you've got to have multiple models - because if you have just one or two that you're using, the nature of human psychology is such that you'll torture reality so that it fits your models, or at least you'll think it does. You become the equivalent of a chiropractor, who, of course, is the great boon in medicine.
+
+It's like the old saying: to the man with only a hammer, every problem looks like a nail, and of course that's the way the chiropractor goes about practicing medicine. But that's a perfectly disastrous way to think and a perfectly disastrous way to operate in the world, so you have got to have multiple models.
+
+And the models have to come from multiple disciplines because all the wisdom of the world is not to be found in one little academic department. That is why poetry processors, by and large, are so unwise in a worldly sense; they don't have enough models in their head. So you have got to have models across the wide array of disciplines.
+
+And you may say, "My God, this is already getting way too tough," but fortunately it is not that because 80 to 90 important models will carry about 90% of the freight in making you a worldly wise person, and of those, only a mere handful really carry very heavy freight.
+
+Poetry processors, by and large, are so unwise in the world lessons; they don't have enough models in their head, so you have got to have models across the wide array of disciplines.
+
+---
+
+So let's briefly review what kind of models and techniques constitutes the basic knowledge that everybody has to have before they proceed to being really good at a narrow stock picking.
+
+First there's mathematics. Obviously, you've got to be able to handle numbers and quantities basic arithmetic. And the great useful model, after compound interest, is the elementary math of permutations and combinations. And that was taught in my day in the sophomore year in high school. I suppose by now, in great private schools, it's probably down to the eighth grade or so.
+
+The basic neural network of the brain is there through broad genetic and cultural evolution. And it's not Fermat/Pascal. It uses a very crude, shortcut-type of approximation. It's very simple algebra. And it was all worked out in the course of about one year in correspondence between Pascal and Fermat. They worked it out casually in a series of letters.
+
+It's not that hard to learn. What is hard is to get so you use it routinely almost every day of your life. The Fermat/Pascal system is dramatically consonant with the way that the world works. And it's fundamental truth. So you simply have to have the technique.
+
+Invited by French aristocrat Chevalier de Merde to help resolve a gambling dispute in the mid-seventeenth century mathematicians Pierre de Fermat.
+
+---
+
+and Blaise Pascal laid the foundations for probability theory in a series of letters.
+
+De Mird's question concerned bets on rolls of a die that at least one "6" would appear during four rolls. From experience, he knew he would win more often than lose at this game. As a diversion, he changed the game to a bet that he would get a total of 12, or a double "6," on twenty-four rolls of two dice. The new game was less profitable than the old one. He asked the mathematicians to determine why this change occurred.
+
+Many educational institutions-although not nearly enough-have realized this.
+
+At Harvard Business School, the great quantitative thing that bonds the first-year class together is what they call "decision tree theory." All they do is take high school algebra and apply it to real life problems. And the students love it. They're amazed to find that high school algebra works in life.
+
+By and large, as it works out, people can't naturally and automatically do this. If you understand elementary psychology, the reason they can't is really quite simple: The basic neural network of the brain is there through broad genetic and cultural evolution. And it's not Fermat/Pascal. It uses a very crude, shortcut-type of approximation. It's got elements of Fermat/Pascal in it. However, it's not good.
+
+So you have to learn in a very usable way this very elementary math and use it routinely in life-just the way if you want to become a golfer, you can't
+
+---
+
+use the natural swing that broad evolution gave you. You have to learn to have a certain grip and swing in a different way to realize your full potential as a golfer.
+
+If you don't get this elementary but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one-legged man in an ass-kicking contest.
+
+If you don't get this elementary but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one-legged man in an ass-kicking contest. You're giving a huge advantage to everybody else.
+
+One of the advantages of a fellow like Buffett, whom I've worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.
+
+Obviously, you have to know accounting. It's the language of practical business life. It was a very useful thing to deliver to civilization. I've heard it came to civilization through Venice, which, of course, was once the great commercial power in the Mediterranean. However, double-entry bookkeeping was a hell of an invention.
+
+And it's not that hard to understand. But you have to know enough about it to understand its limitations-because although accounting is the starting place, it's only a crude approximation. And it's not very hard to understand its limitations. For example, everyone can see that you have to more or less
+
+---
+
+just guess at the useful life of a jet airplane or anything like that. Just because you express the depreciation rate in neat numbers doesn't make it anything you really know.
+
+In terms of the limitations of accounting, one of my favorite stories involves a very great businessman named Carl Braun who created the C. E Braun Engineering Company. It designed and built oil refineries-which is very hard to do. And Braun would get them to come in on time and not blow up and have efficiencies and so forth. This is a major art.
+
+And Braun, being the thorough Teutonic type that he was, had a number of quirks. And one of them was that he took a look at standard accounting and the way it was applied to building oil refineries, and he said, "This is asinine."
+
+So he threw all of his accountants out, and he took his engineers and said, "Now, we'll devise our own system of accounting to handle this process."
+
+And, in due time, accounting adopted a lot of Carl Braun's notions. So he was a formidably willful and talented man who demonstrated both the importance of accounting and the importance of knowing its limitations. He had another rule, from psychology, which, if you're interested in wisdom, ought to be part of your repertoire-like the elementary mathematics of permutations and combinations.
+
+His rule for all the Braun Company's communications was called the five Ws-you had to tell who was going to do what, where, when, and why. And if you wrote a letter or directive in the Braun Company telling somebody to do something, and you didn't tell him why, you could get fired. In fact you
+
+---
+
+would get fired if you did it twice. You might ask why is that so important? Well, again, that's a rule of psychology. Just as you think better if you array knowledge on a bunch of models that are basically answers to the question, why, why, why, if you always tell people why, they'll understand it better, they'll consider it more important, and they'll be more likely to comply. Even if they don't understand your reason, they'll be more likely to comply.
+
+if you always tell people why, they'll understand it better, they'll consider it more important, and they'll be more likely to comply. So there's an iron rule that just as you want to start getting worldly wisdom by asking why, why, why in communicating with other people about everything, you want to include why, why, why. Even if it's obvious, it's wise to stick in the why.
+
+Which models are the most reliable? Well, obviously, the models that come from hard science and engineering are the most reliable models on this Earth. And engineering quality control-at least the guts of it that matters to you and me and people who are not professional engineers-is very much based on the elementary mathematics of Fermat and Pascal. It costs so much, and you get so much less likelihood of it breaking if you spend this much. It's all elementary high school mathematics. And an elaboration of that is what Deming brought to Japan for all of that quality-control stuff.
+
+I don't think it's necessary for most people to be terribly facile in statistics. For example, I'm not sure that I can even pronounce the Gaussian distribution, although I know what it looks like and I know that events and
+
+---
+
+huge aspects of reality end up distributed that way. So I can do a rough calculation. But if you ask me to work out something involving a Gaussian distribution to ten decimal points, I can't sit down and do the math. I'm like a poker player who's learned to play pretty well without mastering Pascal. And, by the way, that works well enough. But you have to understand that bell-shaped curve at least roughly as well as I do. And, of course, the engineering idea of a backup system is a very powerful idea. The engineering idea of breakpoints- that's a very powerful model, too. The notion of a critical mass-that comes out of physics-is a very powerful model.
+
+All of these things have great utility in looking at ordinary reality. And all of this cost-benefit analysis-hell, that's all elementary high school algebra. It's just been dolled up a little bit with fancy lingo.
+
+And you can demonstrate that point quite simply: There's not a person in this room viewing the work of a very ordinary professional magician who doesn't see a lot of things happening that are not happening and not see a lot of things happening that are happening, I suppose the next most reliable models are from biology/physiology because, after all, all of us are programmed by our genetic makeup to be much the same. And then when you get into psychology, of course, it gets very much more complicated. But it's an ungodly important subject if you're going to have any worldly wisdom.
+
+And the reason why is that the perceptual apparatus of man has shortcuts in the brain cannot have unlimited circuitry. So someone who knows how to
+
+---
+
+take advantage of those shortcuts and cause the brain to miscalculate in certain ways can cause you to see things that aren't there.
+
+Now you get into the cognitive function as distinguished from the perceptual function. And there, you are equally-more than equally in fact-likely to be misled. Again, your brain has a shortage of circuitry and so forth-and it's taking all kinds of little automatic shortcuts.
+
+So when circumstances combine in certain ways-or more commonly, your fellow man starts acting like the magician and manipulates you on purpose by causing you cognitive dysfunction-you're a patsy.
+
+And so just as a man working with a tool has to know its limitations, a man working with his cognitive apparatus has to know its limitations. And this knowledge, by the way, can be used to control and motivate other people.
+
+The mind of man at one and the same time is both the glory and the shame of the universe.
+
+So the most useful and practical part of psychology-which I personally think can be taught to any intelligent person in a week-is ungodly important. And nobody taught it to me, by the way. I had to learn it later in life, one piece at a time. And it was fairly laborious. It's so elementary though that, when it was all over, I just felt like a total horse's ass.
+
+And yeah, I'd been educated at Caltech and the Harvard Law School and so forth. So very eminent places miseducated people like you and me.
+
+The elementary part of psychology-the psychology of misjudgment, as I call it-is a terribly important thing to learn. There are about twenty little principles.
+
+---
+
+And the interact, so it gets slightly complicated. But the guts of it is unbelievably important. Very smart people make totally bonkers mistakes by failing to pay heed to it. In fact, I've done it several times during the last two or three years in a very important way. You never get totally over making silly mistakes.
+
+Here's another saying that comes from Pascal that I've always considered one of the really accurate observations in the history of thought. Pascal said, "The mind of man at one and the same time is both the glory and the shame of the universe."
+
+And that's exactly right. It has this enormous power. However, it also has these standard malfunctions that often cause it to reach wrong conclusions. It also makes man extraordinarily subject to manipulation by others. For example, roughly half of the army of Adolf Hitler was composed of believing Catholics. Given enough clever psychological manipulation, what human beings will do is quite interesting.
+
+# I now use A kind of two-track analysis.
+
+Personally, I've gotten so that I now use a kind of two-track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things—which, by and large, are useful but which often misfunction?
+
+---
+
+One approach is rationality-the way you'd work out a bridge problem: by evaluating the real interests, the real probability, and so forth. And the other is to evaluate the psychological factors that cause subconscious conclusions-many of which are wrong.
+
+Now we come to another somewhat less reliable form of human wisdom microeconomics. And here, I find it quite useful to think of a free market economy-- partly free market economy-as sort of the equivalent of an ecosystem.
+
+Just as animals flourish in niches, similarly, people who specialize in the business world-and get very good because they specialize-frequently find good economics that they wouldn't get any other way.
+
+This is a very unfashionable way of thinking because early in the days after Darwin came along, people like the robber barons assumed that the doctrine of the survival of the fittest authenticated them as deserving power-you know, "I'm the richest. therefore, I'm the Best. God's in his heaven, etc."
+
+And that reaction of the robber barons was so irritating to people that it made it unfashionable to think of an economy as an ecosystem. But the truth is that it is a lot like an ecosystem. And you get many of the same results.
+
+Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world-and get very good.
+
+---
+
+because they specialize-frequently find good economics that they wouldn't get any other way...
+
+And once we get into microeconomics, we get into the concept of advantages of scale. Now we're getting closer to investment analysis- because in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important.
+
+For example, one great advantage of scale taught in all of the business schools of the world is cost reductions along the so-called experience curve. Just doing something complicated in more and more volume enables human beings, who are trying to improve and are motivated by the incentives of capitalism, to do it more and more efficiently.
+
+The very nature of things is that if you get a whole lot of volume through your operation, you get better at processing that volume, That's an enormous advantage.
+
+The very nature of things is that if you get a whole lot of volume through your operation, you get better at processing that volume. 'That's an enormous advantage. And it has a lot to do with which businesses succeed and fail.
+
+Let's go through a list-albeit an incomplete one-of possible advantages of scale. Some come from simple geometry. If you're building a great circular tank, obviously, as you build it bigger, the amount of steel you use in the surface goes up with the square and the cubic volume goes up with the cube. So as you increase the dimensions, you can hold a lot more volume.
+
+---
+
+per unit area of steel. And there are all kinds of things like that where the simple geometry-the simple reality-gives you an advantage of scale.
+
+For example, you can get advantages of scale from TV advertising. When TV advertising first arrived-when talking color pictures first came into our living rooms-it was an unbelievably powerful thing. And in the early days, we had three networks that had whatever it was-say ninety percent of the audience.
+
+Am I going to take something I don't know and put it in my mouth-which is a pretty personal place, after all-for a lousy dime?
+
+Well, if you were Procter & Gamble, you could afford to use this new method of advertising. You could afford the very expensive cost of network television because you were selling so damn many cans and bottles. Some little guy couldn't. And there was no way of buying it in part. Therefore, he couldn't use it. In effect, if you didn't have a big volume, you couldn't use network TV advertising-which was the most effective technique.
+
+So when TV came in, the branded companies that were already big got a huge tailwind. Indeed, they prospered and prospered and prospered until some of them got fat and foolish, which happens with prosperity-at least to some people.
+
+And your advantage of scale can be an informational advantage. If I go to some remote place, I may see Wrigley chewing gum alongside Glotz's chewing gum. Well, I know that Wrigley is a satisfactory product whereas I don't know anything about Glotz's. So if one is forty cents and the other is thirty cents, am I going to
+
+---
+
+take something I don't know and put it in my mouth which is a pretty personal place, after all-for a lousy dime?
+
+So, in effect, Wrigley, simply by being so well knowledge, has advantage of scale-what we might call an informational advantage.
+
+Another advantage of scale comes from psychology. The psychologists use the term "social proof." We are all influenced-subconsciously and, to some extent, consciously- we see others do and approve. Therefore, if everybody's buying something, we think it's better. We don't like to be the one guy who's out of step.
+
+Again, some of this is at a subconscious level, and some of it isn't. Sometimes, consciously and rationally think, "God, I didn't know much about this. 'they know more than I do. 'Therefore, why shouldn't I follow them."
+
+The social proof phenomenon which comes right out of psychology gives huge advantage to scale for example with very wide distribution which course is hard to get one advantage of Coca-Cola is that it's available almost everywhere in the world.
+
+well suppose you have a little soft drink exactly how do you make it available all over the Earth the world wide distribution setup which is slowly won by big enterprise games to be a huge advantage and if
+
+---
+
+you think about it once you get enough advantages of that type it can become very hard for anybody to dislodge you.
+
+There's another kind of advantage of scale in some businesses the very nature of things is to sort of cascade towards the overwhelming dominance of One. For The Other obvious when is daily newspaper there is practically no City left in the United States aside from few very big ones where there is more than one daily newspaper and again that as a scale think once I get most of the circulation I get most of the advertising and once I get most of the advertising and circulation why would anyone want the thinner paper with less information in it? So it tends to cascades to a winner take all situation and that is a separate form of advantages of scale phenomenon.
+
+Similarly, all these huge advantages of scale allow greater specialization within the firm. Therefore, each person can be better at what he does. And these advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, "The hell with it. We're either going to be #1 or #2 in every field we're in or we're going to be out. I don't care how many people I have to fire and what I have to sell. We're going to be #1 or #2 or out."
+
+The Saturday Evening Post and all those things are gone, What we have now is Motocross-which is
+
+---
+
+read by a bunch of nuts who like to participate in tournaments where they turn somersaults on their motorcycles,
+
+That was a very tough-minded thing to do, but I think it was a very correct decision if you're thinking about maximizing shareholder wealth. And I don't think it's a bad thing to do for a civilization either, because I think that General Electric is stronger for having Jack Welch there. And there are also disadvantages of scale. For example, we - by which I mean Berkshire Hathaway - are the largest shareholder in Capital Cities/ABC. And have had trade publications there that got murdered - where our competitors beat us. And the way they beat us was by going to a narrower specialization. We'd have a travel magazine for business travel. So somebody would create one which was addressed solely at corporate travel departments. Like an ecosystem, you're getting a narrower and narrower specialization.
+
+When they got much more efficient they could tell more to the guys who ran corporate travel departments + they did not have to waste the ink and paper mailing out stuff that corporate travel departments are not interested in reading it was a more efficient system and they be our brains out as we relied on our production.
+
+That is what happened to the Saturday evening post and all those things they are gone but we have now is Motocross which is read by a bunch of nuts would like to participate and tournaments where they.
+
+---
+
+turned somersaults on their motorcycles but they care about it for then it is the principal purpose of life a magazine called Motocross is a total necessity to those people and its profit margins would make you celebrate just think of how narrow cast that kind of publishing is so occasionally scaling down and intensifying gives you the big and Vantage bigger is not always better.
+
+The great defect of scale of course which makes the game interesting so that the big people don't always win is that as you get big you get the Bureaucracy and with the Bureaucracy comes the territoriality which is again grounded in human nature.
+
+And then incentives are perverse, for example if you worked for a t and T in my day it was a great Bureaucracy who in the hell was really thinking about the shareholder or anything else? And in a Bureaucracy you think the work is done when it goes out of your in basket to somebody else’s in basket but of course it isn't. It's not done until AT&T delivers what it's supposed to deliver.
+
+big, fat, dumb, unmotivated bureaucracies. They also tend to become somewhat corrupt. In other words, if I've got a department and you've got a department and we kind of share power.
+
+---
+
+running this thing, there's sort of an unwritten rule: "If you won't bother me, I won't bother you, and we're both happy." So you get layers of management and associated costs that nobody needs. Then, while people are justifying all these lawyers, it takes forever to get anything done. They're too slow to make decisions, and nimbler people run circles around them.
+
+Television was dominated by one network CBS-in its early days. The constant curse of scale is that it leads to big, dumb bureaucracy which, of course, reaches its highest and worst form in government where the incentives are really awful. That doesn't mean we don't need government-because we do. But it's a terrible problem to get big bureaucracies to behave.
+
+So people go to stratagems. They create little decentralized units and fancy motivation and training programs. For example, for a big company, General Electric has fought bureaucracy with amazing skill. But that's because they have a combination of a genius and a fanatic running it. And they put him in young enough so he gets a long run. Of course, that's Jack Welch.
+
+But bureaucracy is terrible.... And as things get very powerful and very big, you can get some really dysfunctional behavior. Look at Westinghouse. They blew billions of dollars on a bunch of dumb loans to real estate developers. They put some guy who'd come up by some career path-I don't know exactly what it was, but it could have been refrigerators or something-and all of a sudden, he's loaning money to real estate developers building
+
+---
+
+hotels. It's a very unequal contest. And, in due time, they lost all those billions of dollars. CBS provides an interesting example of another rule of psychology-namely, Pavlovian association. If people tell you what you really don't want to hear-what's unpleasant-there is an almost automatic reaction of antipathy. You have to train yourself out of it. It isn't foredestined that you have to be this way. But you will tend to be this way if you don't think about it.
+
+Television was dominated by one network-CBS-in its early days. And Paley was a god. But he didn't like to hear what he didn't like to hear, and people soon learned that. So they told Paley only what he liked to hear. Therefore, he was soon living in a little cocoon of unreality and everything else was corrupt although it was a great business.
+
+So the idiocy that crept into the system was carried along by this huge tide. It was a Mad Hatter's Tea Party the last ten years under Bill Paley. And that is not the only example, by any means. You can get severe misfunction in the high ranks of business. And, of course, if you're investing, it can make a hell of a lot of difference. If you take all the acquisitions that CBS made under Paley after the acquisition of the network itself, with all his dumb advisors-his investment bankers, management consultants, and so forth, who were getting paid very handsomely-it was absolutely terrible.
+
+---
+
+So life is an everlasting battle between those two forces to get these advantages of scale on one side and a tendency to get a lot like the U.S. Agriculture Department on the other side-where they just sit around and so forth. I don't know exactly what they do. However, I do know that they do very little useful work.
+
+On the subject of advantages of economies of scale, I find chain stores quite interesting. Just think about it. The concept of a chain store was a fascinating invention. You get this huge purchasing power-which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments. And you get specialization.
+
+If one little guy is trying to buy across twenty-seven different merchandise categories influenced by traveling salesmen, he's going to make a lot of dumb decisions. But if your buying is done in headquarters for a huge bunch of stores, you can get very bright people that know a lot about refrigerators and so forth to do the buying.
+
+The reverse is demonstrated by the little store where one guy is doing all the buying. It's like the old story about the little store with salt all over its walls. And a stranger comes in and says to the store owner, 'You must sell a lot of salt.' And he replies, 'No, I don't. But you should see the guy who sells me salt.'
+
+So there are huge purchasing advantages. And then there are the slick systems of forcing everyone to do what works. So a chain store can be a fantastic enterprise.
+
+---
+
+How does a guy in Bentonville, Arkansas, with no money, blow right by Sears, Roebuck? And he does it in his own lifetime-in fact, during his own late lifetime because he was already pretty old by the time he started out with one little store....
+
+It's quite interesting to think about Wal-Mart starting from a single store in Arkansas-against Sears, Roebuck with its name, reputation and all of its billions. How does a guy in Bentonville, Arkansas, with no money, blow right by Sears, Roebuck? And he does it in his own lifetime-in fact, during his own late lifetime because he was already pretty old by the time he started out with one little store....
+
+He played the chain store game harder and better than anyone else. Walton invented practically nothing. But he copied everything anybody else ever did that was smart, and he did it with more fanaticism and better employee manipulation. So he just blew right by them all.
+
+He also had a very interesting competitive strategy in the early days. He was like a prize-fighter who wanted a great record so he could be in the finals and make a big TV hit. So what did he do? He went out and fought forty-two palookas. Right? And the result was knockout, knockout, knockout forty-two times. Walton, being as shrewd as he was, basically broke other small town merchants in the early days. With his more efficient system, he might not have been able to tackle some titan head-on at the
+
+---
+
+time. But with his better system, he could sure as hell destroy those small town merchants. And he went around doing it time after time after time. Then, as he got bigger, he started destroying the big boys. Well, that was a very, very shrewd strategy. You can say, "Is this a nice way to behave" Well, capitalism is a pretty brutal place. But I personally think that the world is better for having Wal-Mart. I mean, you can idealize small town life. But I've spent a fair amount of time in small towns. And let me tell you—you shouldn't get too idealistic about all those businesses he destroyed.
+
+Plus, a lot of people who work at Walmart are very high-grade, bouncy people who are raising nice children. I have no feeling that an inferior culture destroyed a superior culture. I think that is nothing more than nostalgia and delusion. But, at any rate, it's an interesting model of how the scale of things and fanaticism combine to be very powerful. And it's also an interesting model on the other side—how with all its great advantages, the disadvantages of bureaucracy did such terrible damage to Sears, Roebuck. Sears had layers and layers of people it didn't need. It was very bureaucratic. It was slow, to think. And there was an established way of thinking. If you poked your head up with a new thought, the system kind of turned against you. It was everything in the way of a dysfunctional big bureaucracy that you would expect. In all fairness, there was also much that was good about it. But it just wasn't as lean and mean and shrewd and effective as Sam Walton. And, in due time, all Sears' advantages of scale
+
+---
+
+were not enough to prevent it from losing heavily to Wal-Mart and other similar retailers.
+
+The net Amount of money that's been made by the shareholders of airlines since Kitty Hawk is now a negative figure.
+
+Here’s a model that we've had trouble with. Maybe you'll be able to figure better. Many markets get down to two or three big competitors or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well.
+
+Over the years, we've tried to figure out why the competition in some markets gets sort of rational from the investor's point of view so that the shareholders do well, while in other markets there's destructive competition that destroys shareholder wealth.
+
+If it's a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world-safe travel, greater experience, time with your loved ones, you name it. Yet, the net amount of money that's been made by the shareholders of airlines since Kitty Hawk is now a negative figure-a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.
+
+Yet, in other fields-like cereals, for example-almost all the big boys make out. If you're some kind of a medium-grade cereal maker, you might make fifteen percent on your capital. And if you're really good, you might make fifty percent. But why are cereals so profitable-despite the fact that it looks
+
+---
+
+to me like they're competing like crazy with promotions, coupons, and everything else? I don't fully understand it. Obviously, there's a brand identity factor in cereals that doesn't exist in airlines. That must be the main factor that accounts for it. And maybe the cereal makers, by and large, have learned to be less crazy about fighting for market share-because if you get even one person who's hell-bent on gaining market share.... For example, if I were Kellogg and I decided that I had to have sixty percent of the market, I think I could take most of the profit out of cereals. I'd ruin Kellogg in the process. But I think I could do it.
+
+In some businesses, the participants behave like a demented Kellogg. In other businesses, they don't. Unfortunately, I do not have a perfect model for predicting how that's going to happen.
+
+For example, if you look around at bottler markers, you'll find many markets where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the profitability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think you'd have to know the people involved to fully understand what was happening.
+
+In microeconomics, of course, you've got the concept of patents, trademarks, exclusive franchises, and so forth. Patents are quite interesting.
+
+---
+
+When I was young, I think more money went into patents than came out. Judges tended to throw them out-based on arguments about what was really invented and what relied on prior art. That isn't altogether clear. But they changed that. They didn't change the laws. They just changed the administration-so that it all goes to one patent court. And that court is now very much more pro-patent. So I think people are now starting to make a lot of money out of owning patents.
+
+Trademarks, of course, have always made people a lot of money. A trademark system is a wonderful thing for a big operation if it's well known. The exclusive franchise can also be wonderful. If there were only three television channels awarded in a big city and you owned one of them, there were only so many hours a day that you could be on. So you had a natural position in an oligopoly in the pre-cable days. And if you get the franchise for the only food stand in an airport, you have a captive clientele, and you have a small monopoly of a sort. The great lesson in microeconomics is to discriminate between when technology is going to help you and when it's going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does.
+
+For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles-which are a real commodity product. And one day, the people came to Warren and said, "They've invented a new loom that we think will do twice as much work as our old ones." And Warren said, "Gee, I hope this doesn't work-because if it does, I'm going to close the mill." And he meant it.
+
+---
+
+The great lesson in microeconomics is to discriminate between when technology is going to help you and when it's going to kill you.
+
+What was he thinking? He was thinking, "[it's a lousy business. We're warning substandard returns and keeping it open just to be nice to the elderly workers. But we're not going to put huge amounts of new capital into a lousy business."
+
+And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.
+
+They don't do the second step of the analysis—which is to determine how much is going to stay home and how much is just going to flow through to the customer.
+
+That's such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy. The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.
+
+Conversely, if you own the only newspaper in Oshkosh and they were to invent more efficient ways of composing the whole newspaper, then when...
+
+---
+
+you got rid of the old technology and got new fancy computers and so forth, all of the savings would come right through to the bottom line. In all cases, the people who sell the machinery-and, by and large, even the internal bureaucrats urging you to buy the equipment-show you projections with the amount you'll save at current prices with the new technology. However, they don't do the second step of the analysis-which is to determine how much is going to stay home and how much is just going to flow through to the customer. I've never seen a single projection incorporating that second step in my life. And I see them all the time. Rather, they always read: "This capital outlay will save you so much money that it will pay for itself in three years."
+
+So you keep buying things that will pay for themselves in three years. And after twenty years of doing it, somehow you've earned a return of only about four percent per annum. That's the textile business. And it isn't that the machines weren't better. It's just that the savings didn't go to you. The cost reductions came through all right. But the benefit of the cost reductions didn't go to the guy who bought the equipment. It's such a simple idea. It's so basic. And yet it's so often forgotten.
+
+Then there's another model from microeconomics that I find very interesting. When technology moves as fast as it does in a civilization like ours, you get a phenomenon chat I call competitive destruction. You know, you have the finest buggy whip factory, and, all of a sudden, in comes this
+
+---
+
+little horseless carriage. And before too many years go by, your buggy whip business is dead. You either get into a different business or -you're destroyed. It happens again and again and again.
+
+And when these new businesses come in, there are huge advantages for the early birds. And when you're an early bird, there's a model that I call "surfing"-when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows.
+
+But people get long runs when they're right on the edge of the wave, whether it's Microsoft or Intel or all kinds of people, including National Cash Register in the early days.
+
+The cash register was one of the great contributions to civilization. It's a wonderful story.
+
+Patterson was a small retail merchant who didn't make any money. One day, somebody sold him a crude cash register, which he put into his retail operation. And it instantly changed from losing money to earning a profit because it made it so much harder for the employees to steal. But Patterson, having the kind of mind that he did, didn't think, "Oh, good for my retail business." He thought, "I'm going into the cash register business." And, of course, he created National Cash Register. And he "surfed." He got the best distribution system, the biggest collection of patents, and the best of everything. He was a fanatic about everything important as the technology developed. I have in my files an early National Cash Register Company report in which Patterson described his methods and objectives. And a well-
+
+---
+
+educated orangutan could see that buying into partnership with Patterson in those early days, given his notions about the cash register business, was a total one hundred percent cinch. And, of course, that's exactly what an investor should be looking for. In a long life, you can expect to profit heavily from at least a few of those opportunities if you develop the wisdom and will to seize them. At any rate, "surfing" is a very powerful model.
+
+However, Berkshire Hathaway, by and large, does not invest in these people that are "surfing" on complicated technology. After all, we're cranky and idiosyncratic as you may have noticed. And Warren and I don't feel like we have any great advantage in the high-tech sector. In fact, we feel like we're at a big disadvantage in trying to understand the nature of technical developments in software, computer chips, or what have you. So we tend to avoid that stuff, based on our personal inadequacies.
+
+Again, that is a very, very powerful idea. Every person is going to have a circle of competence. And it's going to be very hard to enlarge that circle. If I had to make my living as a musician.... I can't even think of a level low enough to describe where I would be sorted out to if music were the measuring standard of the civilization. So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose. And that's as close to certain as any prediction that you can make. You have to figure out where you've got an edge. And you've got to play within your own circle of competence.
+
+---
+
+Warren and I don't feel like we have any great advantage in the high-tech sector.
+
+If you want to be the best tennis player in the world, you may start out trying and soon find out that it's hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you'd gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work. So some edges can be acquired. And the game of life to some extent for most of us is trying to be something like a good plumbing contractor in Bemidji. Very few of us are chosen to win the world's chess tournaments.
+
+Some of you may find opportunities "surfing" along in the new high-tech fields—the Intels, the Microsoft's, and so on. The fact that we don't think we're very good at it and have pretty well stayed out of it doesn't mean that it's irrational for you to do it.
+
+Well, so much for the basic microeconomic models, a little bit of psychology, a little bit of mathematics, helping create what I call the general substructure of worldly wisdom. Now, if you want to go on from carrots to
+
+---
+
+dessert, I'll turn to stock picking trying to draw on this general worldly wisdom as we go.
+
+You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose.
+
+I don't want to get into emerging markets, bond arbitrage, and so forth. I'm talking about nothing but plain vanilla stock picking. That, believe me, is complicated enough. And I'm talking about common stock picking.
+
+# The first question is, "What is the nature of the stock market?"
+
+And that gets you directly to this efficient market theory that got to be the rage-a total rage-long after I graduated from law school.
+
+And it's rather interesting because one of the greatest economists of the world is a substantial shareholder in Berkshire Hathaway and has been from the very early days after Buffett was in control. His textbook always taught that the stock market was perfectly efficient and that nobody could beat it.
+
+But his own money went into Berkshire and made him wealthy. So, like Pascal in his famous wager, he hedged his bet.
+
+The iron rule of life is that only twenty percent of the people can be in the top fifth.
+
+# Is the stock market so efficient that people can't beat it?
+
+Well, the efficient market theory is obviously roughly right-meaning that markets are quite efficient and it's quite hard for anybody to beat the market by significant.
+
+---
+
+margins as a stock picker by just being intelligent and working in a disciplined way.
+
+Indeed, the average result has to be the average result. By definition, everybody can't beat the market. As I always say, the iron rule of life is that only twenty percent of the people can be in the top fifth. That's just the way it is. So the answer is that it's partly efficient and partly inefficient.
+
+And, by the way, I have a name for people who went to the extreme efficient market theory-which is "bonkers." It was an intellectually consistent theory that enabled them to do pretty mathematics. So I understand its seductiveness to people with large mathematical gifts. It just had a difficulty in that the fundamental assumption did not tie properly to reality.
+
+Again, to the man with a hammer, every problem looks like a nail. If you're good at manipulating higher mathematics in a consistent way, why not make an assumption that enables you to use your Tool?
+
+The model I like-to sort of simplify the notion of what goes on in a market for common stocks-is the pari-mutuel system at the race track. If you stop to think about it, a pari-mutuel system is a market.
+
+Everybody goes there and bets, and the odds change based on what's bet. That's what happens in the stock market. Any damn fool can see that a horse carrying a lightweight with a wonderful win rare and a good post position, etc.. etc.. is way more likely to win than a horse with a terrible
+
+---
+
+record and extra weight and so on and so on. But if you look at the damn odds, the bad horse pays 100 to 1, whereas the good horse pays 3 to 2. Then, it's not clear which is statistically the best bet using the mathematics of Fermat and Pascal. The prices have changed in such a way that it's very hard to beat the system.
+
+And then the track is taking seventeen percent off the top. So not only do you have to outwit all the other bettors, but you've got to outwit them by such a big margin that on average, you can afford to take seventeen percent of your gross bets off the top and give it to the house before the rest of your money can be put to work.
+
+Given those mathematics, is it possible to beat the horses using only one's intelligence? Intelligence should give some edge because lots of people who don't know anything go out and bet lucky numbers and so forth. Therefore, somebody who really thinks about nothing but horse performance and is shrewd and mathematical could have a very considerable edge, in the absence of the frictional cost caused by the house take.
+
+Unfortunately, what a shrewd horseplayer's edge does in most cases is to reduce his average loss over a season of betting from the seventeen percent that he would lose if he got the average result to maybe ten percent. However, there are actually a few people who can beat the game after paying the full seventeen percent.
+
+---
+
+I used to play poker, when I was young, with a guy who made a substantial living doing nothing but bet harness races. Now, harness racing is a relatively inefficient market. You don't have the depth of intelligence betting on harness races that you do on regular races. What my poker pal would do was to think about harness races as his main profession. And he would bet only occasionally when he saw some mispriced bet available. And by doing that, after paying the full handle to the house—which I presume was around seventeen percent—he made a substantial living.
+
+If you stop to think about it, a pari-mutuel system is a market. Everybody goes there and bets, and the odds change based on what's bet. That's what happens in the stock market.
+
+You have to say that's rare. However, the market was not perfectly efficient. And if it weren't for that big seventeen percent handle, lots of people would regularly be beating lots of other people at the horse races. It's efficient, yes. But it's not perfectly efficient. And with enough shrewdness and fanaticism, some people will get better results than others. The stock market is the same way—except that the house handle is so much lower. If you take transaction costs the spread between the bid and the ask plus the commissions—and if you don't trade too actively, you're talking about fairly low transaction costs. So that, with enough fanaticism and enough discipline, some of the shrewd people are going to get way better results than average in the nature of things.
+
+---
+
+The one thing all those winning bettors in the whole history of people who’ve beaten the parimutuel system have is quite simple: they bet very seldom.
+
+It is not a bit easy. And, of course, fifty percent will end up in the bottom half, and seventy percent will end up in the bottom seventy percent. But some people will have an advantage. And in a fairly low transaction cost operation, they will get better than average results in stock picking.
+
+How do you get to be one of those who is a winner-in a relative sense-instead of a loser?
+
+Here again, look at the pari-mutuel system. I had dinner last night by absolute accident with the president of Santa Anita. He says that there are two or three bettors who have a credit arrangement with the track, now that they have off-track betting, who are actually beating the house. The track is sending money out net after the full handle-a lot of it to Las Vegas, by the way-to people who are actually winning slightly, net, after paying the full handle. They're that shrewd about something with as much unpredictability as horse racing.
+
+It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it-who look and sift the world for a mispriced bet-that they can occasionally find one. And the wise ones bet heavily when the
+
+---
+
+world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple. The way to win is to work, work, work, work, and hope to have a few insights. That is a very simple concept. And to me it's obviously right-based on experience not only from the pari-mutuel system, but everywhere else. And yet, in investment management, practically nobody operates that way. We operate that way-I'm talking about Buffett and Munger. And we're not alone in the world. But a huge majority of people have some other crazy construct in their heads.
+
+And instead of waiting for a near cinch and loading up, they apparently ascribe to the theory that if they work a little harder or hire more business school students, they'll come to know everything about everything all the time. To me, that's totally insane.
+
+How many insights do you need? Well, I'd argue that you don't need many in a lifetime. If you look at Berkshire Hathaway and all of its accumulated billions, the top ten insights account for most of it. And that's with a very brilliant man warren’s a lot more able than I am and very disciplined-devoting his lifetime to it. I don't mean to say that he's only had ten insights. I'm just saying that most of the money came from ten insights.
+
+So you can get very remarkable investment results if you think more like a winning pari-mutuel player. Just think of it as a heavy odds against game full of bullshit and craziness with an occasional mispriced something or
+
+---
+
+other. And you're probably not going to be smart enough to find thousands in a lifetime. And when you get a few, you really load up. It's just that simple.
+
+When Warren lectures at business schools, he says, "I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches-representing all the investments that you got to make in a lifetime. And once you'd punched through the card, you couldn't make any more investments at all." He says, "Under those rules, you'd really think carefully about what you did, and you'd be forced to load up on what you'd really thought about. So you'd do so much better."
+
+Again, this is a concept that seems perfectly obvious to me. And to Warren, it seems perfectly obvious. But this is one of the very few business classes in the United States where anybody will be saying so. It just isn't the conventional wisdom. 'To me, it's obvious that the winner has to be very selective'. It's been obvious to me since very early in life. I don't know why it's not obvious to very many other people. I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, "my God, they're purple and green. Do fish really take these lures?" And he said, "Mister, I don't sell to fish."
+
+Investment managers are in the position of that fishing tackle salesman. They're like the guy who was selling salt to the guy who already had too
+
+---
+
+much salt. And as long as the guy will buy salt, why, they'll sell salt. But that isn't what ordinarily works for the buyer of investment advice.
+
+If you invested Berkshire Hathaway-style, it would be hard to get paid as an investment manager as well as they're currently paid-because you'd be holding a block of Wal-Mart and a block of Coca-Cola and a block of something else. You'd be sitting on your ass. And the client would be getting rich. And, after a while, the client would think, "Why am I paying this guy half-a-percent a year on my wonderful passive holdings?"
+
+So what makes sense for the investor is different from what makes sense for the manager. And, as usual in human affairs, what determines the behavior are incentives for the decision maker.
+
+As usual in human affairs, what determines the behavior are incentives for the decision maker., and "getting the incentives right" is a very very important lesson.
+
+From all business, my favorite case on incentives is Federal Express. The heart and soul of its system-which creates the integrity of the product-is having all its airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can't deliver a product full of integrity to Federal Express customers.
+
+---
+
+And it was always screwed up. They could never get it done on time. They tried everything - moral suasion, threats, you name it. And nothing worked. Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift - and when it's all done, they can all go home. Well, their problems cleared up overnight.
+
+So getting the incentives right is a very, very important lesson. It was not obvious to Federal Express what the solution was. But maybe now, it will hereafter more often be obvious to you.
+
+All right, we've now recognized that the market is efficient as a pari-mutuel system is efficient - with the favorite more likely than the long shot to do well in racing, but not necessarily give any betting advantage to those that bet on the favorite.
+
+In the stock market, some railroad that's beset by better competitors and tough unions may be available at one-third of its book value. In contrast, IBM in its heyday might be selling at six times book value. So it's just like the pari-mutuel system. Any damn fool could plainly see that IBM had better business prospects than the railroad. But once you put the price into the formula, it wasn't so clear anymore what was going to work best for a buyer choosing between the stocks. So it's a lot like a pari-mutuel system. And, therefore, it gets very hard to beat.
+
+What style should the investor use as a picker of common stocks in order to try to beat the market - in other words, to get an above average long-term result? A standard technique that appeals to a lot of people is called "sector
+
+---
+
+rotation." You simply figure out when oils are going to outperform retailers, etc., etc., etc. You just kind of flit around being in the hot sector of the market making better choices than other people. And presumably, over a long period of time, you get ahead.
+
+However, I know of no really rich sector rotator. Maybe some people can do it I'm not saying they can't. All I know is that all the people I know who got rich-and I know a lot of them-did not do it that way.
+
+The second basic approach is the one that Ben Graham used, admired by Warren and me. As one factor, Graham had this concept of value to a private owner-what the whole enterprise would sell for if it were available. And that was calculable in many cases. Then, if you could take the stock price and multiply it by the number of shares and get something that was one-third or less of sellout value, he would say that you've got a lot of edge going for you. Even with an elderly alcoholic running a stodgy business, this significant excess of real value per share working for you means that all kinds of good things can happen to you. You had a huge margin of safety-as he put it-by having this big excess value going for you.
+
+But he was, by and large, operating when the world was in shell-shock from the 1930s-which was the worst contraction in the English-speaking world in about 600 years. When in Liverpool, I believe, got down to something like a 600-year low, adjusted for inflation. People were so shell-shocked for a long time thereafter that Ben Graham could run his Geiger counter over this detritus from the collapse of the 1930s and find things selling below their working capital per share and so on. And in those days, working capital
+
+---
+
+actually belonged to the shareholders. If the employees were no longer useful, you just sacked them all, took the working capital, and stuck it in the owners' pockets. That was the way capitalism then worked.
+
+Nowadays, of course, the accounting is not realistic-because the minute the business starts contracting, significant assets are not there. Under social norms and the new legal rules of the civilization, so much is owed to the employees, that the minute the enterprise goes into reverse, some of the assets on the balance sheet aren't there anymore.
+
+Now, that might not be true if you run a little auto dealership yourself. You may be able to run it in a way that there's no health plan and this and that so that if the business gets lousy, you can take your working capital and go home. But IBM can't or at least didn't. Just look at what disappeared from its balance sheet when it decided that it had to change size both because the world had changed technologically and because its marker position had deteriorated.
+
+And in terms of blowing it, IBM is some example. Those were brilliant, disciplined people. But there was enough turmoil in technological change that IBM got bounced off the wave after "surfing" successfully for sixty years. And that was some collapse-an object lesson in the difficulties of technology and one of the reasons why Buffett and Munger don't like technology very much. We don't think we're any good at it, and strange things can happen.
+
+---
+
+# Benjamin Graham (1894-1976)
+
+Born in London, Benjamin Graham migrated with his family to America when he was very young. His father opened an importing business that quickly failed. Despite the challenges of poverty, Graham attended and graduated from Columbia University. He took a job as a chalker on Wall Street with Newburger, Henderson, and Loeb. His intelligence and capability were soon apparent, and by age twenty five, he was a partner at the firm. The 1929 market crash almost wiped out Graham, but he learned valuable lessons about investing. In the 1930s, Graham published a series of books on investing that became classics. Among these impressive titles are *Security Analysis and The Intelligent Investor*. Graham introduced the concept of "intrinsic value" and the wisdom of buying stocks at a discount to that value.
+
+At any rate, the trouble with what I call the classic Ben Graham concept is that gradually the world wised up, and those real obvious bargains disappeared. You could run your Geiger counter over the rubble, and it wouldn't click.
+
+But such is the nature of people who have a hammer—to whom, as I mentioned, every problem looks like a nail—that the Ben Graham followers responded by changing the calibration on their Geiger counters. In effect, they started defining a bargain in a different way. And they kept changing the definition so that they could keep doing what they'd always done. And it
+
+---
+
+still worked pretty well. So the Ben Graham intellectual system was a very good one.
+
+Of course, the best part of it all was his concept of "Mr. Market." Instead of thinking the market was efficient, Graham treated it as a manic-depressive who comes by every day. And some days "Mr. Market" says, "I'll sell you some of my interest for way less than you think it's worth." And other days, he comes by and says, "I'll buy your interest at a price that's way higher than you think it's worth." And you get the option of deciding whether you want to buy more, sell part of what you already have, or do nothing at all.
+
+To Graham, it was a blessing to be in business with a manic-depressive who gave you this series of options all the time. That was a very significant mental construct. And it's been very useful to Buffett, for instance, over his whole adult lifetime.
+
+However, if we'd stayed with classic Graham the way Ben Graham did it, we would never have had the record we have. And that's because Graham wasn't trying to do what we did.
+
+Perhaps the Soviets had this German proverb in mind when they selected the hammer for their revolutionary symbol: "One must either be the hammer... or the anvil."
+
+---
+
+For example, Graham didn't want to ever talk to management. And his reason was that, like the best sort of professor aiming his teaching at a mass audience, he was trying to invent a system that anybody could use. And he didn't feel that the man in the street could run around and talk to management and learn things. He also had a concept that management would often couch the information very shrewdly to mislead. Therefore, it was very difficult. And that is still true, of course-human nature being what it is.
+
+And so having started out as Grahamires-which, by the way, worked fine-we gradually got what I would call better insights. And we realized that some company that was selling at two or three times book value could still be a hell of a bargain because of momentums implicit in its position, sometimes combined with an unusual managerial skill plainly present in some individual or other, or some system or other.
+
+And once we'd gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.
+
+And, by the way, the bulk of the billions in Berkshire Hathaway has come from the better businesses. Much of the first $200 or $300 million came from scrambling around with our Geiger counter. But the great bulk of the money has come from the great businesses.
+
+---
+
+Most investment managers are in a game where the clients expect them to know a lot about a lot of things. We didn't have any clients who could fire us at Berkshire Hathaway.
+
+And even some of the early money was made by being temporarily present in great businesses. Buffett Partnership, for example, owned American Express and Disney when they got pounded down.
+
+[Most investment managers are] in a game where the clients expect them to know a lot about a lot of things. We didn't have any clients who could fire us at Berkshire Hathaway. So we didn't have to be governed by any such construct. And we came to this notion of finding a mispriced bet and loading up when we were very confident that we were right. So we're way less diversified. And I think our system is miles better.
+
+However, in all fairness, I don't think [a lot of money managers] could successfully sell their services if they used our system. But if you're investing for forty years in some pension fund, what difference does it make if the path from start to finish is a little more bumpy or a little different than everybody else's so long as it's all going to work out well in the end? So what if there's a little extra volatility.
+
+In investment management today, everybody wants not only to win, but to have the path never diverge very much from a standard path except on the upside. Well, that is a very artificial, crazy construct. That's the equivalent in investment management to the custom of binding the feet of the Chinese women. It's the equivalent of what Nietzsche meant when he criticized the
+
+---
+
+man who had a lame leg and was proud of it. That is really hobbling yourself. Now, investment managers would say, "We have to be that way. That's how we're measured." And they may be right in terms of the way the business is now constructed. But from the viewpoint of a rational consumer, the whole system's "bonkers" and draws a lot of talented people into socially useless activity.
+
+You're much more likely to do well if you start out to do something feasible instead of something that isn't feasible. Isn't that perfectly obvious? And the Berkshire system is not "bonkers." It's so damned elementary that even bright people are going to have limited, really valuable insights in a very competitive world when they're fighting against other very bright, hardworking people. And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times. You're much more likely to do well if you start out to do something feasible instead of something that isn't feasible. Isn't that perfectly obvious?
+
+How many of you have fifty-six brilliant insights in which you have equal confidence? Raise your hands, please. How many of you have two or three insights that you have some confidence in? I rest my case.
+
+I'd say that Berkshire Hathaway's system is adapting to the nature of the investment problem as it really is.
+
+---
+
+We've really made the money out of high-quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock.
+
+But when you analyze what happened, the big money's been made in the high quality businesses. And most of the other people who've made a lot of money have done so in high-quality businesses.
+
+Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you're not going to make much different than a six percent return-even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you'll end up with one hell of a result.
+
+So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects.
+
+How do you get into these great companies? One method is what I'd call the method of finding them small-get em when they're little. For example, buy WalMart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it.
+
+---
+
+But it doesn't work for Berkshire Hathaway anymore because we've €lot too much money. We can't find anything that fits our size parameter that way. Besides, we're set in our ways. But I regard finding them small as a perfectly intelligent approach for somebody to try with discipline. It's just not something that I've done.
+
+Finding 'em big obviously is very hard because of the competition. So far, Berkshire's managed to do it. But can we continue to do it? What's the next Coca Cola investment for us? Well, the answer to that is I don't know. I think it gets harder for us all the time. And ideally—and we've done a lot of this—you get into a great business which also has a great manager because management matters. For example, it's made a hell of a difference to General Electric that Jack Welch came in instead of the guy who took over Westinghouse—one hell of a difference. So management matters, too.
+
+And some of it is predictable. I do not think it takes a genius to understand that Jack Welch was a more insightful person and a better manager than his peers in other companies. Nor do I think it took tremendous genius to understand that Disney had basic momentums in place that are very powerful and that Eisner and Wells were very unusual managers.
+
+So you do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And, of course, that's hog heaven day. If you don't load up when you get those opportunities, it's a big mistake.
+
+---
+
+Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. I would argue that Simon Marks—who was second generation in Marks & Spencer of England was such a man. Patterson was such a man at National Cash Register. And Sam Walton was such a man.
+
+These people do come along—and, in many cases, they're not all that hard to identify. If they've got a reasonable hand—with the fanaticism and intelligence and so on that these people generally bring to the party—then management can matter much.
+
+However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.
+
+But, very rarely, you find a manager who's so good that you're wise to follow him into what looks like a mediocre business. Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something that compounds for thirty years at fifteen percent per annum and you pay one thirty-five percent tax at the very end, the way that works out is that after taxes, you keep 13.3 percent per annum.
+
+Trying to minimize taxes too much is one of the great standard causes of really dumb mistakes.
+
+---
+
+In contrast, if you bought the same investment but had to pay taxes every year of thirty-five percent out of the fifteen percent that you earned, then your return would be fifteen percent minus thirty-five percent of fifteen percent-or only 9.75 percent per year compounded. So the difference there is over 3.5 percent. And what 3.5 percent does to the numbers over long holding periods like thirty years is truly eye-opening. If you sit on your ass for long, long stretches in great companies, you can get a huge edge from nothing but the way income taxes work.
+
+Even with a ten percent per annum investment, paying a thirty-five percent tax at the end gives you 8.3 percent after taxes as an annual compounded result after thirty years. In contrast, if you pay the thirty-five percent each year instead of at the end, your annual result goes down to 6.5 percent. So you add nearly two percent of after-tax return per annum if you only achieve an average return by historical standards from common stock investments in companies with low dividend payout ratios.
+
+But in terms of business mistakes that I've seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations.
+
+Warren and I personally don't drill oil wells. We pay our taxes. And we've done pretty well, so far. Anytime somebody offers you a tax shelter from here on in life, my advice would be don't buy it.
+
+---
+
+In fact, anytime anybody offers you anything with a big commission and a 200 page prospectus, don't buy it. Occasionally, you'll be wrong if you adopt "Munger's Rule." However, over a lifetime, you'll be a long way ahead—and you will miss a lot of unhappy experiences that might otherwise reduce your love for your fellow man.
+
+There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass: You're paying less to brokers. You're listening to less nonsense. And if it works, the governmental tax system gives you an extra one, two, or three percentage points per annum compounded.
+
+And you think that most of you are going to get that much advantage by hiring investment counselors and paying them one percent to run around, incurring a lot of taxes on your behalf? Lots of luck.
+
+# -We Pay Our Taxes
+
+"Berkshire's Christmas present for Uncle Sam: On my right, Berkshire 2004 Federal tax return- 10,249 pages and three billion plus total tax. In my left hand, the tax return I filed at age 13 showing a total tax of $7." -Buffett
+
+"Warren and I personally don't drill oil wells. 'We pay our taxes. And we've done pretty well, so far. Anytime somebody offers you a tax shelter from
+
+---
+
+here on in life, my advice would be don't buy it." -Munger
+
+Are there any dangers in this philosophy? Yes. Everything in life has dangers. Since it's so obvious that investing in great companies works, it gets horribly overdone from time to time. In the Nifty-Fifty days, everybody could tell which companies were the great ones. So they got up to fifty, sixty, and seventy times earnings. And just as IBM fell off the wave, other companies did, too. Thus, a large investment disaster resulted from too high prices. And you've got to be aware of that danger.
+
+So there are risks. Nothing is automatic and easy. But if you can find some fairly priced great company and buy it and sir, that tends to work out very, very well indeed—especially for an individual.
+
+Within the growth stock model, there's a sub-position: There are actually businesses that you will find a few times in a lifetime where any manager could raise the return enormously just by raising prices—and here they haven't done it. So they have huge untapped pricing power that they're not using. That is the ultimate no-brainer.
+
+That existed in Disney. It's such a unique experience to take your grandchild to Disneyland. You're not doing it that often. And there are lots of people in the country. And Disney found that it could raise those prices a lot, and the attendance stayed right up.
+
+---
+
+So a lot of the great record of Eisner and Wells was utter brilliance but the rest came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies.
+
+At Berkshire Hathaway, Warren and I raised the prices of See's Candy a little faster than others might have. And, of course, we invested in Coca-Cola—which had some untapped pricing power. And it also had brilliant management. So a Goizueta and Keough could do much more than raise prices. It was perfect.
+
+You will get a few opportunities to profit from finding underpricing. There are actually people out there who don't price everything as high as the market will easily stand. And once you figure that out, it's like finding money in the street—if you have the courage of your convictions.
+
+If you look at Berkshire's investments where a lot of the money's been made and you look for the models, you can see that we twice bought into two-newspaper towns which have since become one-newspaper towns. So we made a bet to some extent.
+
+We faced a situation where we had both the top hand in a game that was clearly going to end up with one winner and a management with a lot of integrity and intelligence. It was a dream.
+
+---
+
+An absolute, damn dream, In one of those - the Washington Post - we bought it at about twenty percent of the value to a private owner. So we bought it on a Ben Graham-style basis - at one-fifth of obvious value - and, in addition, we faced a situation where you had both the top hand in a game that was clearly going to end up with one winner and management with a lot of integrity and intelligence. That one was a real dream. They're very high class people - the Katharine Graham family. That's why it was a dream - an absolute, damn dream.
+
+Of course, that came about back in '73 - '74. And that was almost like 1932. That was probably a once-in-forty-years-type denouement in the markets. That investment's up about fifty times over our cost. If I were you, I wouldn't count on getting any investment in your lifetime quite as good as the Washington Post was in '73 and '74.
+
+Let me mention another model. Of course, Gillette and Coke make fairly low-priced items and have a tremendous marketing advantage all over the world. And in Gillette's case, they keep "surfing" along new technology, which is fairly simple by the standards of microchips. But it's hard for competitors to do.
+
+So they've been able to stay constantly near the edge of improvements in shaving. There are whole countries where Gillette has more than ninety percent of the shaving market. GEICO is a very interesting model. It's another one of the one hundred or so models you ought to have in your head. I've had many friends in the sick-business fix game over a long
+
+---
+
+lifetime. And they practically all use the following formula-I call it the cancer surgery formula:
+
+They look at this mess. And they figure out if there's anything sound left that can live on its own if they cut away everything else. And if they find anything sound, they just cut away everything else. Of course, if that doesn't work, they liquidate the business. But it frequently does work.
+
+And GEICO had a perfectly magnificent business- in a mess, but still working. Misled by success, GEICO had done some foolish things. They got to thinking that, because they were making a lot of money, they knew everything. And they suffered huge losses.
+
+All they had to do was to cut out all the folly and go back to the perfectly wonderful business that was lying there. And when you think about it, that's a very simple model. And it's repeated over and over again.
+
+And, in GEICO's case, think about all the money we passively made. It was a wonderful business combined with a bunch of foolishness that could easily be cut out. And people were coming in who were temperamentally and intellectually designed so they were going to cut it our. That is a model you want to look for. And you may find one or two or three in a long lifetime that are very good. And you may find twenty or thirty that are good enough to be quite useful.
+
+Finally, I'd like to once again talk about investment management. That is a funny business-because on a net basis, the whole investment management
+
+---
+
+business together gives no value added to all buyers combined. That's the way it has to work.
+
+On a net basis, the whole investment management business together gives no value added to all buyers combined. That's the way it has to work.
+
+Of course, that isn't true of plumbing, and it isn't true of medicine. If you're going to make your careers in the investment management business, you face a very peculiar situation. And most investment managers handle it with psychological denial-just like a chiropractor. That is the standard method of handling the limitations of the investment management process. But if you want to live the best sort of life, I would urge each of you not to use the psychological denial mode.
+
+I think a select few-a small percentage of the investment managers-can deliver value added. But I don't think brilliance alone is enough to do it. I think that you have to have a little of this discipline of calling your shots and loading up if you want to maximize your chances of becoming one who provides above average real returns for clients over the long pull.
+
+But I'm just talking about investment managers engaged in common stock picking. I am agnostic elsewhere. I think there may well be people who are so shrewd about currencies and this, that, and the other thing that they can achieve good long-term records operating on a pretty big scale in that way. But that doesn't happen to be my milieu. I'm talking about stock picking in American stocks.
+
+---
+
+I think it's hard to provide a lot of value added to the investment management client, but it's not impossible.
+
+A letter from USC finance professor Guilford Babcock (shown below and left) sharing with Charlie one of his student reactions to the talk, "'Worldly Wisdom as It Relates to Investment Management and Business."
+
+I thought the interview with Munger was brilliant. It totally grabbed my attention when he challenged us to make only 20 investments in a lifetime. It changes your perception of an investment when what is at stake becomes more. We marriage and less we date. Perhaps with that article in mind I will dive a little more deeper to make sure my investments are good ones.
+
+# "Nothing to Add" Number Three
+
+We continue with this question occasioned by countless questions over the years at cocktail parties, etc.
+
+Question: "All kinds of people ask me for some foolproof system for achieving financial security or saving for their retirement. I try to dodge those questions." [Editor: "But this time, Charlie, we're not going to let you dodge it"]
+
+Answer: "Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. THIS IS SUCH A NO-BRAINER."
+
+# Talk Two Revisited
+
+---
+
+As I reviewed Talk Two in 2006, I thought it would be improved by adding
+
+1. an attempt to explain the extreme investment success of Harvard and Yale in recent years, plus
+2. a prediction about outcomes for the many pools of capital that will now try to duplicate the past success of Harvard and Yale by copying or continuing their methods, plus
+3. a brief comment about implications for the efficient market hypothesis as demonstrated in a 2005 book, Fortune's Formula, by William Poundstone.
+
+To me, it seems likely that, as Harvard and Yale de-emphasized conventional unleveraged holding of diversified U.S. common stocks, their investment success was boosted by factors including the four described below:
+
+1. By investing in LBO funds, Harvard and Yale introduced leverage into their results from owning interests in U.S. businesses. And the LBO fund structure gave them a way to make their leveraged business investments in a manner safer than is possible in a normal margin account, prone during panics to forced sales. Decent comparative results often followed in markets with tolerable general outcomes. And this happened even when net-after-cost results from investments in the LBO funds were no better than would have occurred through only slightly leveraged investment in an index of U.S. stocks.
+
+---
+
+(2) In category after category, Harvard and Yale selected or directly employed investment managers who were way above average in ability, providing additional evidence that investment markets are not perfectly efficient and that some good investment results come from abnormal skill or other abnormal advantage. As one example, Harvard and Yale, by reason of their own prestige, were able to get into some of the most profitable high-tech venture-capital funds, not available to all other investors. These funds, using momentum provided by their own past success, had an opportunity advantage over less well established venture capital operations, in that the best entrepreneurs, quite logically, made early presentations to the best-regarded funds.
+
+(3) Harvard and Yale wisely and opportunistically imitated investment banking firms by going into several activities that were then non-traditional, like investing in distressed U.S. corporate bonds and high-coupon foreign bonds and leveraged "fixed income arbitrage," during a period when many good opportunities were available to skilled operators in the activities chosen.
+
+(4) Finally, the benefits that came to Harvard and Yale in recent years through leverage and unconventionality were often, of course, given a large tailwind by a happy combination of declining interest rates and rising price-earnings ratios for stocks.
+
+---
+
+The extreme investment success of Harvard and Yale gives me both pleasure and pain. My pleasure comes from this demonstration that academic skill is often useful in worldly affairs. People like me who were attracted by academia, yet have gone into business, naturally respond to such worldly achievement much like the many modern scientists who relish the example of Thales of Miletus. This scientist of antiquity made a large profit by leasing most of the olive presses in his area just before the occurrence of a particularly bountiful harvest.
+
+My pain comes from
+
+1. foreseeing a lot of future adversity for other worthy institutions, driven by envy and salesmen into enthusiastic imitation of Harvard and Yale and
+2. disapproval of the conduct of many of the salesmen likely to succeed in pushing the imitation. Something similar to what I fear happened near the end of the high-tech bubble. At that time envy of successful early-stage, high-tech venture-capital investors like Stanford, plus dubious sales methods of many venture capitalists, caused about $90 billion to rush into low-quality, imitative early stage ventures that by now may have created as much as $45 billion in net losses for late-coming investors.
+
+Moreover, Harvard and Yale may now need new displays of unconventional wisdom that are different from their last displays. It is quite counter-intuitive to decrease that part of one's activity that has recently worked best. But this is often a good idea. And so also with reducing one's perception of one's needs, instead of increasing risks in an attempt to satisfy perceived needs.
+
+---
+
+Talk two was made in 1994, about twelve years before this addendum was written. And during that twelve years much useful thought and data collection has supported the idea that neither securities markets nor pari-mutuel betting systems at race tracks prevent some venturers from gaining highly satisfactory, way-above average results through unusual skill. William Poundstone's book, Fortune's Formula, collects much of the modern evidence on this point in a highly entertaining way. Moreover, the book contains an account of the lollapalooza investment record of Claude Shannon, pioneer scientist in information theory, that makes Shannon's methods look much like those of Charlie Munger.
+
+# Worldly Wisdom updated: O and A with Charlie
+
+# How do you and Warren evaluate an acquisition candidate?
+
+"We're light on financial yardsticks; we apply lots of subjective criteria: Can we trust management? Can it harm our reputation? What can go wrong? Do we understand the business? Does it require capital infusions to keep it going? What is the expected cash flow? We don't expect linear growth; cyclicality is fine with us as long as the price is appropriate."
+
+# What should a young person look for in a career?
+
+"I have three basic rules. Meeting all three is nearly impossible, but you should try anyway:
+
+---
+
+Don't sell anything you wouldn't buy yourself.
+
+Don't work for anyone you don't respect and admire.
+
+Work only with people you enjoy.
+
+I have been incredibly fortunate in my life: with Warren I had all three.
+
+# What overall life advice do you have for young people?
+
+"Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step-by-step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day-by-day, and at the end of the day-if you live long enough-like most people, you will get out of life what you deserve.
+
+Life and its various passages can be hard, brutally hard. The three things I have found helpful in coping with its challenges are:
+
+- Have low expectations.
+- Have a sense of humor.
+- Surround yourself with the love of friends and family.
+
+Above all, live with change and adapt to it. If the world didn't change, I'd still have a twelve handicap.
+
+"You don't have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time."
+
+---
+
+This talk was given in 1996 to the students of Professor William C. Lazier, who was the Nancy and Charles Munger professor of business at Stanford University Lau, School. Because this talk—published in Outstanding Investor Digest on December 29, 1997, and March 13, 1998—repeats many of the ideas and much of the language included in other talks, particularly "Practical Thought About Practical Thought," your editor has abridged certain passages and added comments to maintain the logic and flow of the speech. Even with the abridgments, this talk includes many unique ideas as well as familiar ones expressed in novel ways.
+
+# Talk Three
+
+# A Lesson on Elementary, Worldly Wisdom, Revisited
+
+# Stanford Law School
+
+# April 19, 1996
+
+What I'm going to try to do today is to extend the remarks I made two years ago at the U.S.C. Business School. You were assigned a transcript of my U.S.C. talk. And there's nothing I said then that I wouldn't repeat today. But I want to amplify what I said then.
+
+[It's] perfectly clear ... that if Warren Buffett had never learned anything new after graduating from the Columbia Business School, Berkshire would be a pale shadow of its present self. Warren would have gotten rich—because what he learned from Ben Graham at Columbia was enough to make
+
+---
+
+anybody rich. But he wouldn't have the kind of enterprise Berkshire Hathaway is if he hadn't kept learning.
+
+How do you get worldly wisdom? What system do you use to rise into the tiny top percentage of the world in terms of having sort of an elementary practical wisdom?
+
+I've long believed that a certain system-which almost any intelligent person can learn works way better than the systems that most people use. As I said at the U.S.C. Business School, what your need is a latticework of mental models in your head. And you hang your actual experience and your vicarious experience (that you get from reading and so forth) on this latticework of powerful models. And, with that system, things gradually get to fit together in a way that enhances cognition.
+
+Charlie discusses several of the specific mental models elaborated in other talks.
+
+Your assigned reading for today included the latest annual letters from Jack Welch and Warren Buffett relating to General Electric and Berkshire Hathaway, respectively. Jack Welch has a Ph.D. in engineering. And Warren plainly could have gotten a Ph.D. in any field he wanted to pursue. And both gentlemen are inveterate teachers.
+
+Worldly wisdom is quite academic when you get right down to it. Look at what General Electric has achieved-and, for that matter, what Berkshire.
+
+---
+
+Hathaway has achieved.
+
+Of course, Warren had a professor/mentor-Ben Graham-for whom he had a great affection. Graham was so academic that when he graduated from Columbia, three different academic departments invited him into their Ph.D. programs and asked him to start teaching immediately as part of the Ph.D. program: [those three departments being] literature, Greek and Latin classics, and mathematics.
+
+Graham had a very academic personality. I knew him. He was a lot like Adam Smith-very preoccupied, very brilliant. He even looked like an academic. And he was a good one. And Graham, without ever really trying to maximize the gaining of wealth, died rich-even though he was always generous and spent thirty years teaching at Columbia and authored or coauthored the best textbooks in his field.
+
+So I would argue that academia has a lot to teach about worldly wisdom and that the best academic values really work.
+
+Of course, when I urge a multidisciplinary approach-that you've got to have the main models from a broad array of disciplines and you've got to use them all-I'm really asking you to ignore jurisdictional boundaries.
+
+And the world isn't organized that way. It discourages the jumping of jurisdictional boundaries. Big bureaucratic businesses discourage it. And, of
+
+---
+
+course, academia itself discourages it. All I can say there is that, in that respect, academia is horribly wrong and dysfunctional.
+
+And some of the worst dysfunctions in businesses come from the fact that they balkanize reality into little individual departments with territoriality and turf protection and so forth. So if you want to be a good thinker, you must develop a mind that can jump the jurisdictional boundaries.
+
+You don't have to know it all. Just cake in the best big ideas from all these disciplines. And it's not that hard to do.
+
+I might try and demonstrate that point by using the analogy of the card game of contract bridge.
+
+Suppose you want to be good at declarer play in contract bridge. Well, you know the contract—you know what you have to achieve. And you can count up the sure winners you have by laying down your high cards and your invincible trumps.
+
+But if you're a trick or two short, how are you going to get the other needed tricks? Well, there are only six or so different, standard methods. You've got long suit establishment. You've got finesses. You've got throw-in plays. You've got crossruffs. You've got squeezes. And you've got various ways of misleading the defense into making errors. So it's a very limited number of models.
+
+But if you only know one or two of those models, then you're going to be a horse's patoot in declarer play.
+
+---
+
+Furthermore, these things interact. Therefore, you have to know how the models interact. Otherwise, you can't play the hand right.
+
+Similarly, I've told you to think forward and backward. Well, great declarers in bridge think, "How can I take the necessary winners?" But they think it through backwards, too. They also think, "What could possibly go wrong that could cause me to have too many losers? And both methods of thinking are useful. So to win in the game of life, get the needed models into your head and think it through forward and backward. What works in bridge will work in life.
+
+That contract bridge is so out of vogue in your generation is a tragedy. China is way smarter than we are about bridge. They're teaching bridge in grade school now. And God knows the Chinese do well enough when introduced to capitalist civilization. If we compete with a bunch of people that really know how to play bridge when our people don't, it'll be just one more disadvantage we don't need.
+
+Since your academic structure, by and large, doesn't encourage minds jumping jurisdictional boundaries, you're at a disadvantage because, in that one sense, even though academia's very useful to you, you've been mistaught.
+
+My solution for you is one that I got at a very early age from the nursery: the story of the Little Red Hen. The punch line, of course, is, "'Then I'll do."
+
+---
+
+it myself,' said the Little Red Hen."
+
+"'Then I'll do it myself,' said the Little Red Hen,"
+
+So if your professors won't give you an appropriate multidisciplinary approach if each wants to overuse his own models and underuse the important models in other disciplines-you can correct that folly yourself. Just because he's a horse's patoot, you don't have to be one, too. You can reach out and grasp the model that better solves the overall problem. All you have to do is know it and develop the right mental habits.
+
+And it's kind of fun to sit there and outthink people who are way smarter than you are because you've trained yourself to be more objective and multidisciplinary....
+
+Furthermore, there's a lot of money in it-as I can testify from my own personal experience.
+
+[Charlie begins the Coca-Cola business case retailed in Talk Four, "Practical Thought About Practical Thought” and discusses the importance of flavor]
+
+One of my favorite business stories comes from Hershey. They get their flavor because they make their cocoa butter in old stone grinders that they started with in the 1800s in Pennsylvania. And a little bit of the husk of the
+
+---
+
+cocoa bean winds up in the chocolate. Therefore, they get that odd flavor that people like in Hershey's chocolate.
+
+Hershey, knew enough when they wanted to expand into Canada to know they shouldn't change their winning flavor. Therefore, they copied their stone grinders. Well, it took them five years to duplicate their own flavor. As you can see, flavors can be quite tricky.
+
+Even today, there's a company called International Flavors and Fragrances. It's the only company I know that does something on which you can't get a copyright or a patent, but which nevertheless receives a permanent royalty. They manage to do that by helping companies develop flavors and aromas in their trademarked products-like shaving cream. The slight aroma of shaving cream is very important to consumption. So all of this stuff is terribly important.
+
+continuing the Coca-Cola case study, Charlie explains how our understanding of graphic replications of mathematical ideas are rooted in biology.
+
+---
+
+My friend, Dr. Nat Myhrvold, who's the chief technology officer at Microsoft, is bothered by this. He's a Ph.D. physicist and knows a lot of math. And it disturbs him that biology could create a neural apparatus that could do automatic differential equations at fast speed—and, yet, everywhere he looks, people are total klutzes at dealing with ordinary probabilities and ordinary numbers.
+
+By the way, I think Myhrvold's wrong to be amazed by that. The so-called fitness landscape of our ancestors forced them to know how to throw spears, run around, turn corners, and what have you long before they had to think correctly like Myhrvold. So I don't think he should be so surprised. However, the difference is so extreme that I can understand how he finds it incongruous.
+
+Mankind invented a system to cope with the fact that we are so intrinsically lousy at manipulating numbers. It's called the graph. At any rate, mankind invented a system to cope with the fact that we are so intrinsically lousy at manipulating numbers. It's called the graph. Oddly enough, it came out of the Middle Ages. And it's the only intellectual invention of the monks during the Middle Ages I know of that's worth a damn. The graph puts numbers in a form that looks like motion. So it's using some of this primitive neural stuff in your system in a way that helps you understand it. So the Value Line graphs are very useful.
+
+---
+
+The graph I've distributed is on log paper-which is based on the natural table of logarithms. And that's based on the elementary mathematics of compound interest-which is one of the most important models there is on earth. So there's a reason why that graph is in that form. And if you draw a straight line through data points on a graph on log paper, it will tell you the rate at which compound interest is working for you. So these graphs are marvelously useful....
+
+I don't use Value Line's predictions because our system works better for us than theirs-in fact, a lot better. But I can't imagine not having their graphs and their data. It's a marvelous, marvelous product. . ..
+
+# Carnation Company
+
+In 1899, grocer E. A. Stuart founded the Pacific Coast Condensed Milk Company in the state of 'Washington based on the relatively new process of evaporation. Using a local tobacconist's store name, Carnation, he had a brand for his new milk product. Through attention to processes and clever marketing. Carnation became associated with its "Contented Cows" and high-quality milk products. In 1985, the company was acquired by Nestle.
+
+Now when Carnation tried to make a deal for its trademark, there was this one guy who sold Carnation Fish. So help me God, that was his trade name. Don't ask me why. And every time they'd say, "We'll pay you $250,000," he'd say, "I want $400,000." And, then, four years later, they'd say, "We'll
+
+---
+
+give you $1 million," and he'd say, "I want $2 million." And they just kept doing that all the way through. And they never did buy the trademark-at least, they hadn't bought it the last time I looked.
+
+In the end, Carnation came to him sheep facedly and said, "We'd like to put our quality control inspectors into your fish plants to make sure that your fish are perfect; and we'll pay all the costs"-which he quickly and smirkily allowed. So he got free quality control in his fish plants-courtesy of the Carnation Company.
+
+This history shows the enormous incentive you create if you give a guy a trademark [he can protect]. And this incentive is very useful to the wider civilization. As you see, Carnation got so that it was protecting products that it didn't even own.
+
+That sort of outcome is very, very desirable [for society]. So there are some very fundamental macroeconomic reasons why even communist countries should protect trademarks. They don't all do it, but there are very powerful reasons why they should. And, by and large, averaged out around the world, trademark protection been pretty good.
+
+[Charlie applies various mental models to Coca-Cola.]
+
+However, if you don't have the basic models and the basic mental methods for dealing with the models, then all you can do is to sit there twiddling your thumbs as you look at the Value Line graph. But you don't have to
+
+---
+
+twiddle your thumbs. You've got to learn one hundred models and a few mental tricks and keep doing it all of your life. It's not that hard. And the beauty of it is that most people won't do it-partly because they've been miseducated. And I'm here trying to help you avoid some of the perils that might otherwise result from that miseducation.
+
+OK. We've been through some of the general ideas in the search for worldly wisdom. And now I want to turn to something even more extreme and peculiar than the talk I've already given you. Of all the models that people ought to have in useful form and don't, perhaps the most important lie in the area of psychology....
+
+I recently had an instructive experience: I just returned from Hong Kong. I have a pal there who's a headmaster of one of the leading schools. He gave me this book called The Language Instinct, written by Steven Pinker. Well, Pinker is a semanticist professor who rose in the shadow of Noam Chomsky-Linguistics Institute Professor at M.I.T.-who is probably the greatest semanticist who ever lived.
+
+# Steven Pinker (b. 1954)
+
+Born in Montreal. Steven Pinker earned a degree in experimental psychology at McGill University and then moved on to Harvard for his doctorate. He has taught at Harvard and MIT at various times and is currently the Johnstone Family Professor in the Department of Psychology at Harvard. Pinker is interested in language and the mind, including the
+
+---
+
+field of visual cognition. That field encompasses the ability to imagine shapes and recognize faces and objects. He specializes in language development in children and has written many important papers and books on this and other topics.
+
+And Pinker says that human language ability is not just learned-it's deeply buried, to a considerable extent, in the genome. It's not in the genome of the other animals, including the chimpanzee, to any really useful extent. It's a gift that came to humans. And Pinker proves his point pretty well.
+
+Of course, Chomsky's already proven it. You have to be pretty ignorant not to realize that a good deal of language ability is right there in the human genome. And even though you have to work like hell to improve it through education, you start with a big leg up in your genes.
+
+Pinker can't understand why Chomsky-who, again, is such a genius-takes the position that the jury's still out about why this ability is in the human genome. Pinker, in effect, says: "Like hell, the jury is still out! The language instinct got into humans in exactly the same way that everything else got there-through Darwinian natural selection."
+
+“ The language instinct got into humans in exactly the same way that everything else got there-through Darwinian natural selection."
+
+---
+
+Well, the junior professor is clearly right-and Chomsky's hesitation is a little daft.
+
+But if the junior professor and I are right, how has a genius like Chomsky made an obvious misjudgment? The answer's quite clear to me-Chomsky is passionately ideological. He is an extreme egalitarian leftist who happens to be a genius. And he's so smart that he realized that if he concedes this particular Darwinian point, the implications threaten his leftist ideology. So he naturally has his conclusion affected by his ideological bias.
+
+And that gets into another lesson in worldly wisdom: If ideology can screw up the head of Chomsky, imagine what it does to people like you and me. Heavy ideology is one of the most extreme distorters of human cognition.
+
+Look at these Islamic fundamentalists who just gunned down a bunch of Greek tourists shouting, "God's work!" Ideology does some strange things and distorts cognition terribly.
+
+If you get a lot of heavy ideology young-and then you start expressing it-you are really locking your brain into a very unfortunate pattern. And you are going to distort your general cognition.
+
+There's a very interesting history if you take Warren Buffett as an example of worldly wisdom: Warren adored his father-who was a wonderful man. But Warren's father was a very heavy ideologue (right wing, it happened to...
+
+---
+
+be), who hung around with other very heavy ideologues (right wing, naturally).
+
+Warren observed this as a kid. And he decided that ideology was dangerous and that he was going to stay a long way away from it. And he has throughout his whole life. That has enormously helped the accuracy of his cognition.
+
+I learned the same lesson in a different way. My father hated ideology. Therefore, all I had to do was imitate my father and, thereby, stay on what I regard as the right path. People like Dornan on the right or Nader on the left have obviously gone a little daft. They're extreme examples of what ideology will do to you particularly violently expressed ideology. Since it pounds ideas in better than it convinces out, it's a very dangerous thing to do.
+
+If you get a lot of heavy ideology young-and then you start expressing it-you are really locking your brain into a very unfortunate pattern.
+
+Therefore, in a system of multiple models across multiple disciplines, I should add as an extra rule that you should be very wary of heavy ideology. You can have heavy ideology in favor of accuracy, diligence, and objectivity. But a heavy ideology that makes you absolutely sure that the minimum wage should be raised or that it shouldn't-and it's kind of a holy construct where you know you're right-makes you a bit nuts.
+
+---
+
+This is a very complicated system. And life is one damn relatedness after another. It's all right to think that, on balance, you suspect that civilization is better if it lowers the minimum wage or raises it. Either position is OK. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker. So beware of ideology-based mental misfunctions.
+
+[Charlie laments how poorly the field of psychology deals with incentive-caused bias.]
+
+Another reason that I mentioned Pinker, the semanticist who wrote the book that I told you about earlier, is that at the end of his book, he says (roughly), "I've read the psychology textbooks. And they're daft." He says, "This whole subject is misorganized and mistaught."
+
+Well, I have far less in the way of qualifications than Pinker. In fact, I've never taken a single course in psychology. However, I've come to exactly the same conclusion—that the psychology texts, while they are wonderful in part, are also significantly daft.
+
+In fact, just take simple psychological denial. About three centuries before the birth of Christ, Demosthenes said, "What a man wishes, that also will he believe." Well, Demosthenes was right.
+
+---
+
+I had a family acquaintance whose much-loved son—who was brilliant and a star football player—flew off over the ocean and never came back. Well, his mother thought he was still alive. The mind will sometimes flip so that the wish becomes the belief. It will do so at various levels. Individuals vary in how much psychological denial they get. But miscognition from denial overwhelmingly pervades the reality that you're going to have to deal with. And yet, you won't find an adequate treatment of simple psychological denial in psychology texts.
+
+# Michael Faraday (1791-1867)
+
+Famous for his investigations of physics, chemistry and electricity, Michael Faraday's wisdom includes:
+
+- "Nothing is too wonderful to be true."
+- "Work Finish. Publish." (his advice to the young William Crookes, later a famous chemist and physicist in his own right)
+- "The five essential entrepreneurial skills for success are concentration, discrimination, organization, innovation, and communication."
+- "Why, sir, there is every possibility that you will soon be able to tax it!" (to Prime Minister William Gladstone, on the usefulness of electricity)
+
+So you cannot learn psychology the way your professor speaks at you; you have got to learn everything they teach, but you have got to learn a lot more that they don't teach because they don't handle their own subject correctly.
+
+---
+
+Psychology to me, as currently organised, is electromagnetism after Faraday but before Maxwell a lot has been discovered, but no one mind has put it all together and proper form and it should be done because it would not be that hard to do and it is enormously important.
+
+Just open a psychology text turn to the index, look up envy well envy made it into one or two or three of the Ten Commandments Moses new all about and we the old jews when they were herding sheep's new all about envy it is just that psychology professor is don't know about envy.
+
+Books that thick teaching a psychology course without envy?! And with no simple psychological denial?! And no incentive caused bias?!
+
+And psychological tests don't deal adequately with combinations of factors I told you earlier to be aware of the lollapalooza effect when two or three or more forces are operating in the same direction.
+
+Well, the single most publicized psychology experiment ever done is the Milgram experiment- where they asked people to apply what they had every reason to believe was heavy electrical torture on innocent fellow human beings. And they manipulated most of these decent volunteers into doing the torture.
+
+---
+
+So you can learn psychology the way! your professors teach it. You’ve got to learn everything they teach. But you’ve got to learn a lot more that they don’t teach-because they don't handle their own subject correctly.
+
+Milgram performed the experiment right after Hitler had gotten a bunch of believing Lutherans, Catholics, and so forth to perform unholy acts they should have known were wrong. He was trying to find out how much authority could be used to manipulate high grade people into doing things that were clearly and grossly wrong.
+
+And he got a very dramatic effect. He managed to get high-grade people to do many awful things. But for years, it was in the psychology books as a demonstration of authority-how authority could be used to persuade people to do awful things.
+
+# Stanley Milgram Experiments on Authority
+
+Stanley Milgram, born in 1933 in New York, grew up during World War II when Nazi atrocities became well known to the world. He earned a political science degree from Queens College and went on to Harvard for a PhD. in social relations. He took a faculty position at Yale, where he conducted a classic experiment that pitted the subject's moral beliefs against the demands of authority.
+
+---
+
+His experiment found that sixty five percent of his subjects, ordinary residents of New Haven, were willing to give apparently harmful electric shocks to a pitifully protesting victim, simply because a scientific authority commanded them to, despite the fact that the victim did nothing to deserve punishment. Milgram's results have been used as partial explanation for the German atrocities of World War II.
+
+Of course, that's mere first-conclusion bias. That's not the complete and correct explanation. Authority is part of it. However, there were also quite a few other psychological principles, all operating in the same direction, that achieved that lollapalooza effect precisely because they acted in combination toward the same end.
+
+People have gradually figured that out. And if you read the recent psychology texts at a place like Stanford, you'll see that they've now managed to get it about two-thirds right. However, here's the main experiment in all of psychology. And even at Stanford, they still leave out some of the important causes of Milgram's results.
+
+How can smart people be so wrong? Well, the answer is that they don't do what I'm telling you to do—which is to take all the main models from psychology and use them as a checklist in reviewing outcomes in complex systems.
+
+No pilot takes off without going through his checklist: A, B, C, D.... And no bridge player who needs two extra tricks plays a hand without going down.
+
+---
+
+his checklist and figuring out how to do it. But these psychology professors think they're so smart that they don't need a checklist. But they aren't that smart. Almost nobody is. Or, maybe, nobody is.
+
+If they used a checklist, they'd realize the Milgram experiment harnesses six psychological principles, at least—not three. All they'd have to do is to go down the checklist to see the ones that they missed.
+
+Similarly, without this system of getting the main models and using them together in a multimodular way, you'll screw up time after time after time, too.
+
+One reason psychology professors so screw up denial is that it's hard to do demonstrative experiments without conduct forbidden by ethics. To demonstrate how misery creates mental dysfunction in people, think of what you'd have to do to your fellow human beings. And you'd have to do it without telling them about the injury to come. So, clearly, there are ethical reasons why it's practically impossible to do the experiments necessary to best lay out the ways human misery creates human mental misfunction.
+
+Most professors solve this problem, in effect, by assuming, "If I can't demonstrate it with my experiments, then it doesn't exist." However, obviously, that's asinine. If something is very important but can't be perfectly and precisely demonstrated because of ethical constraints, you can't just treat it like it doesn't exist. You have to do the best you can with it—with such evidence as is available.
+
+---
+
+Pavlov himself spent the last ten years of his life torturing dogs. And he published. Thus, we have a vast amount of data about misery-caused mental misfunction in dogs-and its correction. Yet, it's in no introductory psychology book that you'll ever see.
+
+I don't know whether they don't like the fact that Pavlov tortured dogs or whether B. F, Skinner, by overclaiming when he lapsed into his literary mode, made the drawing of implications from animal behavior into human behavior unpopular. However, for some crazy reason or other, the psychology books are grossly inadequate in dealing with misery-caused mental misfunction.
+
+You may say, "What difference does all this psychological ignorance make?" Well, if I'm right, you need these models that are blanked out by this ignorance. And, furthermore, you need them in a form whereby, if there are twenty constructs, you have all 20 in other words.
+
+250 You have all 20 in other words you should not be operating with pen and you need to use them as a checklist so you have to go back and put in your own head but I had called the psychology of misjudgment in a form where why you have all the important models and you can use them.
+
+---
+
+And you specially need them when four or five forces from these models come together to operate in the same direction; in such cases, you often get lollapalooza effects which can make you rich or they can kill you. So it's essential that you be aware of lollapalooza effects.
+
+There's only one right way to do it: you have to get the main doctrines together and use them as a checklist. And to repeat for emphasis, you have to pay special attention to combinational effects that create lollapalooza consequences.
+
+Charlie discusses the lack of multidisciplinary teaching and the professions, especially how the field of psychology is virtually ignored in academia.
+
+You can also learn when you are playing the game of persuasion for a reputable reason. I hope to combine these forces in a way that makes you more effective.
+
+Let me give you an example of that: the psychology of your in Captain Cook's day. He took these long voyages and at the time, scurvy was the great danger of long voyages. In scurvy, you are leaving gums petrified in your mouth, and the disease gets unpleasant and kills you.
+
+And being on a primitive sailing ship with a bunch of dying sailors is a very awkward business, so everybody was terribly interested in.
+
+---
+
+Scurvy but they did not know about vitamin C. Well, Captain Cook, being a smart man with a multiple model kind of approach, noticed that Dutch ships had less scurvy than English ships on long voyages. So he said, "What are the Dutch doing that's different?"
+
+And he noticed they had all these barrels of sauerkraut. So he thought, "I'm going on these long voyages. And it's very dangerous. Sauerkraut may help." So he laid in all this sauerkraut, which, incidentally, happens to contain a trace of vitamin C.
+
+But English sailors were a tough, cranky!, and dangerous bunch in that day. They hated "krauts." And they were used to their standard food and booze. So how do you get such English sailors to eat sauerkraut?
+
+Well, Cook didn't want to tell 'em that he was doing it in the hope it would prevent scurvy-because they might mutiny and take over the ship if they thought that he was taking them on a voyage so long that scurvy was likely.
+
+So here's what he did: Officers ate at one place where the men could observe them. And for a long time, he served sauerkraut to the officers, but not to the men. And, then, finally, Captain Cook said, "Well, the men can have it one day a week."
+
+In due course, he had the whole crew eating sauerkraut. I regard that as a very constructive use of elementary psychology. It may have saved God knows how many lives and caused God knows how much achievement.
+
+However, if you don't know the right techniques, you can't use them.
+
+---
+
+Charlie discusses psychological effects in play in marketing of consumer items, such as Coca-Cola, Procter & Gamble products, Tupperware, etc.
+
+Worldly wisdom is mostly very, very simple. And what I'm urging on you is not that hard to do if you have the will to plow through and do it. And the rewards are awesome - absolutely awesome.
+
+But maybe you aren't interested in awesome rewards or avoiding a lot of misery or being more able to serve everything you love in life. And, if that's your attitude, then don't pay attention to what I've been trying to tell you - because you're already on the right track.
+
+It can't be emphasized too much that issues of morality are deeply entwined with worldly wisdom considerations involving psychology. For example, take the issue of stealing. A very significant fraction of the people in the world will steal if (A) it's very easy to do and (B) there's practically no chance of being caught.
+
+And once they start stealing, the consistency principle - which is a big part of human psychology - will soon combine with operant conditioning to make stealing habitual. So if you run a business where it's easy to steal because of your methods, you're working a great moral injury on the people who work for you.
+
+---
+
+It can't be emphasized too much that issues of morality are deeply entwined with worldly wisdom considerations involving psychology.
+
+# Serpico (1973)
+
+Serpico was a popular film directed by Sidney Lumet, based on the book by journalist Peter Maas of a "true story." The plot concerns undercover police officer Frank Serpico who does his best arresting criminals of all types, but especially drug dealers, despite working in a corrupt police department. Serpico refuses to accept bribes and becomes sufficiently appalled at his shady colleagues that he testifies against them, thus placing his life in jeopardy. Set in the early 1970s, the film makes several references to "hippie" culture and thus appears somewhat dated to current viewers. Al Pacino appeared in the title role and earned an Academy Award nomination for his acting. The film was also nominated for a screenwriting Oscar.
+
+Again, that's obvious. It's very, very important to create human systems that are hard to cheat. Otherwise, you're ruining your civilization because these big incentives will create incentive-caused bias and people will rationalize that bad behavior is OK. Then, if somebody else does it, now you've got at least two psychological principles: incentive-caused bias plus social proof. Not only that, but you get Serpico effects: If enough people are profiting in a general social climate of doing wrong, then they'll turn on you and become dangerous enemies if you try and blow the whistle.
+
+---
+
+It's very dangerous to ignore these principles and let slop creep in powerful psychological forces are at work for Evil.
+
+# When the Incentives are 'Wrong: 'What a Pain!
+
+Employee fraud in medical disability cases is often an outgrowth of hard-to diagnose complaints such as everpopular "back pain." But disability fraud extends as well to scams perpetrated by medical practitioners, including phantom treatments, double billing, unnecessary care, and unneeded tests.
+
+Charlie's point is that the system as designed invites cheating and that human beings are psychologically predisposed to commit fraud when available incentives overwhelm structural checks and balances. As he puts it, "if you want to change behaviors, you have to change motivations."
+
+# How does this relate to the law business?
+
+When people graduate from places like Stanford Law School and go into the legislatures of our Nation and with the best of motives pass laws that are usually used by people to cheat well there could hardly be a worst thing you could do.
+
+Let's say you have a desire to do public service as a natural part of your planning you think in rivers and ask what can I do to ruin our Civilization that's easy if what you want to do is to ruin your Civilization you just go to the legislature and pass laws that create systems where in people can easily cheat it will work perfectly.
+
+---
+
+Take the workers compensation system in California stress is real and its measuring can be real so you want to compensate people for their strengths in the workplace it seems like a noble thing to do. But the trouble with such a compensation practice is that it's practically impossible to delete huge cheating and once you reward cheating you get group Lions Club doctors group union sexy actress participating in referral scheme you get the total miasma of disastrous behaviour. And the behaviour makes all the people doing it was as they do it so you were trying to help your Civilization but what you did was create enormous damage, net.
+
+So it's much better to let some things go and compensated to let life be hard than to create systems that are easy to cheat.
+
+Let me give you an example I have a friend who made an industrial product at a plant in Texas not far from the border he was in a low margin top business he got massive fraud in the workers compensation system to the point that is premium reached double digit percentages of payroll and it was not that dangerous to produce his product it's not like he was a demolition contractor or something.
+
+So he pleaded with the union, "You've got to stop this. There's not enough money in making this product to cover all of this fraud." But, by then, everyone's used to it. "It's extra income. It's extra money. Everybody does."
+
+---
+
+it. It can't be that wrong. Eminent lawyers, eminent doctors, eminent chiropractors-if there are any such things-are cheating.
+
+And no one could tell them, "You can't do it anymore." Incidentally, that's Pavlovian mere association, too. When people get bad news, they hate the messenger. Therefore, it was very hard for the union representative to tell all of these people that the easy money was about to stop. That is not the way to advance as a union representative.
+
+So my friend closed his plant and moved the work to Utah among a community of believing Mormons.
+
+So my friend closed his plant and moved the work to Utah among a community of believing Mormons. Well, the Mormons aren't into workers' compensation fraud-at least they aren't in my friend's plant. And guess what his workers' compensation expense is today? It's two percent of payroll [- down from double digits.]
+
+This sort of tragedy is caused by letting the slop run. You must stop slop early. It's very hard to stop slop and moral failure if you let it run for a while.
+
+[Charlie describes his notion of "Deprival super-reaction syndrome" as it relates to gambling and the New Coke debacle of the mid-1980s.]
+
+---
+
+Of course, as I said before, there is one big consideration that needs huge and special attention as part of any use of techniques deliberately harnessing elementary psychological forces: and that is that once you know how to do it, there are real moral limitations regarding how much you should do it. Not all of what you know how to do should you use to manipulate people.
+
+Also, if you're willing to transcend the moral limits and the person you're trying to manipulate realizes what you're doing because he also understands the psychology, he'll hate you. There is wonderfully persuasive evidence of this effect taken from labor relations in Israel. So not only are there moral objections, but there are also practical objections - big ones in some cases.
+
+What makes investment hard, as I said at U.S.C., is that it's easy to see that some companies have better businesses than others. But the price of the stock goes up so high that, all of a sudden, the question of which stock is the best to buy gets quite difficult.
+
+Q: how do you incorporate Psychology in your investment decisions? I think it would be more than just pick and products that will appeal to everybody like coke. there are a lot of smart people out there also think just the way that you showed us today. so are you looking for failure in the thinking other investors you go about picking successful companies?
+
+---
+
+What makes investment hard, as I said at U.S.C., is that it's easy to see that some companies have better businesses than others. But the price of the stock goes up so high that, all of a sudden, the question of which stock is the best to buy gets quite difficult.
+
+We've never eliminated the difficulty of that problem. And ninety-eight percent of the time, our attitude toward the market is ... [that] we're agnostics. We don't know. Is GM valued properly vis-a-vis Ford? We don't know.
+
+We're always looking for something where we think we have an insight which gives us a big statistical advantage. And sometimes it comes from psychology, but often it comes from something else. And we only find a few—maybe one or two a year. We have no system for having automatic good judgment on all investment decisions that can be made. Ours is a totally different system.
+
+We just look for no-brainer decisions. As Buffett and I say over and over again, we don't leap seven-foot fences. Instead, we look for one-foot fences with big rewards on the other side. So we've succeeded by making the world easy for ourselves, not by solving hard problems.
+
+Q: Based on statistical analysis and insight?
+
+Well, certainly when we do make a decision, we think that we have an insight advantage. And it's true that some of the insight is statistical in
+
+---
+
+nature. However again, we find only a few of those. We just look for no-brainer decisions. As Buffett and I say over and over again, we don'T leap seven-foot fences.
+
+It doesn't help us merely for favorable odds to exist. They have to be in a place where we can recognize them. So it takes a mispriced opportunity that we're smart enough to recognize. And that combination doesn't occur often. But it doesn't have to. If you wait for the big opportunity and have the courage and vigor to grasp it firmly when it arrives, how many do you need? For example, take the top ten business investments Berkshire Hathaway's ever made. We would be very rich if we'd never done anything else-in two lifetimes.
+
+So, once again, we don't have any system for giving you perfect investment judgment on all subjects at all times. That would be ridiculous. I'm just trying to give you a method you can use to sift reality to obtain an occasional opportunity for rational reaction.
+
+If you take that method into something as competitive as common stock picking, you're competing with many brilliant people. So, even with our method, we only get a few opportunities. Fortunately, that happens to be enough.
+
+---
+
+Q: Have you been successful in creating an atmosphere where people below, you can do the same things you're talking about doing yourself? For example, you talked about the tendency towards commitment and consistency.... Mostly about the terrible mistakes it causes you to make.
+
+Q: How have you created an atmosphere comfortable enough for people to abandon that tendency and admit that they have made a mistake? For example, someone here earlier this year from Intel talked about problems that occurred with their Pentium chip one of the most difficult things for them to do was to realise they have been going about it in the wrong way and turn course and it's very difficult to do that in a complex structure how do you foster that?
+
+Intel and its ilk create a coherent culture where teams solve difficult problems on the cutting edge of science. That's radically different from Berkshire Hathaway. Berkshire is a holding company. We've decentralized all the power except for natural headquarters-type capital allocation. By and large, we've chosen people we admire enormously to have the power beneath us. It's easy for us to get along with them on average because we love and admire them. And they create the culture for whatever invention and reality recognition is going on in their businesses.
+
+---
+
+included in that reality recognition is the recognition that previous conclusions were incorrect. But we're a totally different kind of company. It's not at all clear to me that Warren or I would be that good at doing what Andy Grove does. We don't have special competence in that field. we are fairly good at relating to brilliant people we love but we have defects. For example, some regard me as absent minded and opinionated. I might be a mess at Intel.
+
+However, both Warren and I are very good at changing our prior conclusions. We work at developing that facility because, without it, disaster often comes.
+
+# Q: Would you talk a little bit about your seeming predilection away from investing in high Technology stocks on your own path and the part of Berkshire Hathaway
+
+one of the things I have found a opening and a little surprising is how the difficulties of running low Tech business and dose of running a high tech business are not all that different. They are all hard but why should it be easy to get rich? In a competitive world should not it be impossible for their to be an easy way to get rich for everybody? Of course they are all hard. And, yes-low-tech business can be plenty hard. Just try to open a restaurant and make it succeed.
+
+---
+
+The reason we're not in high-tech businesses is that we have a special lack of aptitude in that area. And, yes—a low-tech business can be plenty hard. Just try to open a restaurant and make it succeed.
+
+Q: You seem to be suggesting that there's special aptitude required in low-tech business, that they're harder. But aren't they equally difficult?
+
+The advantage of low-tech stuff for us is that we think we understand it fairly well. The other stuff we don't. And we'd rather deal with what we understand.
+
+Why should we want to play a competitive game in a field where we have no advantage—maybe a disadvantage—instead of in a field where we have a clear advantage?
+
+Each of you will have to figure out where your talents lie. And you'll have to use your advantages. But if you try to succeed in what you're worst at, you're going to have a very lousy career. I can almost guarantee it. To do otherwise, you'd have to buy a winning lottery ticket or get very lucky somewhere else.
+
+Q: Warren Buffett has said that the investment Berkshire made in an airline was a good example of what not to do. What chain of thinking led to that wrong decision?
+
+We were not buying stock in USAir on the theory that the common shareholders were certain to prosper—because the history of the airline.
+
+---
+
+business in terms of taking care of shareholders has been terrible. It was a preferred stock with a mandatory redemption. In effect, we were loaning money to USAir, and we had this equity kicker.
+
+We weren't guessing whether it would be a great place for the shareholders. We were guessing whether it would remain prosperous enough to pay off a credit instrument-carrying a fixed dividend and a mandatory redemption. And we guessed that the business would not get so bad that we'd have a credit threat for which we were not being adequately compensated by the high rate we were getting. As it happened, USAir went right to the brink of going broke. It was hanging by a thread for several months. It's since come back. And we'll probably get all our money back plus the whole coupon. But it was a mistake. [Editor's note: Berkshire did indeed come out whole on its USAir investment.]
+
+The history of the airline business in terms of taking care of shareholders has been terrible.
+
+I don't want you to think we have any way of learning or behaving so you won't make a lot of mistakes. I'm just saying that you can learn to make fewer mistakes than other people-and how to fix your mistakes faster when you do make them.
+
+But there's no way that you can live an adequate life without Making] many mistakes.
+
+---
+
+In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke. You've made an enormous commitment to something. You've poured effort and money in. And the more you put in, the more that the whole consistency principle makes you think, "Now it has to work. If I put in just a little more, then it'll work."
+
+Part of what you must learn is how to handle mistakes and new facts that change the odds. Life, in part, is like a poker game wherein you have to learn to quit sometimes when holding a much-loved hand.
+
+And Deprival super-reaction syndrome also comes in: You're going to lose the whole thing if you don't put in a little more. People go broke that way- because they can't stop, rethink, and say, "I can afford to write this one off and live to fight again. I don't have to pursue this thing as an obsession- in a way that will break me."
+
+Q: could you talk about The thoughts that went into your decision to swap your capital cities stock for Disney rather than Taking cash. In the media, it was reported that you mentioned thinking about taking the cash.
+
+Disney's a perfectly marvelous company, but it's also very high-priced. Part of what it does is to make ordinary movies which is not a business that attracts me at all. However, part of what Disney has is better than a great gold mine. My grandchildren- I mean. those videocassettes…
+
+---
+
+# The Value of a Spouse
+
+At age 26, Walt Disney was already the head of a successful cartoon studio in Hollywood, California. But business was less than rosy for the young cartoonist, because his principal property, Oswald the Rabbit, had just been wrested from his control by his financial backers. "Mrs. Disney and I were coming back from New York on the train and I had to have something I could tell them," he recalled. "I have lost Oswald, but I had this mouse in the back of my head..." Walt’s new creation was a little mouse in red velvet pants named "Mortimer." Walt's wife, Lillian, felt that was too pompous a name for such a cute character and suggested "Mickey" instead. The rest is Disney history.
+
+Disney is an amazing example of autocatalysis.... They had all those movies in the can. They owned the copyright. And just as Coke could prosper when refrigeration came, when the video cassette was invented, Disney didn't have to invent anything or do anything except take the thing out of the can and stick it on the cassette. And every parent and grandparent wanted his descendants to sit around and watch that stuff at home on videocassette.
+
+---
+
+So Disney got this enormous tail wind from life. And it was billions of dollars worth of tail wind. Obviously, that's a marvelous model if you can find it. You don't have to invent anything. All you have to do is to sit there while the world carries you forward.…
+
+Disney's done a lot of new things right. Don't misunderstand me. But a lot of what happened to Disney was like what a friend of mine said about an ignorant fraternity brother of his who succeeded in life: "He was a duck sitting on a pond. And they raised the level of the round." Eisner and Wells were brilliant in how they ran Disney. But the huge tail wind from videocassette sales on all of the old stuff that was there when they came in, that was just an automatic break for the new management.
+
+To be fair, they have been brilliant about creating new stuff like the Pocahontas and The Lion King the same tailwind but by the time it's done the Lion King alone is going to do billions and by the way when I say when it's done I mean 50 years from now or something but plural billions from one movie?
+
+# Q: Could You talk about Why you left the law
+
+I had a huge family. Nancy and I supported eight children.... And I didn't realize that the law was going to get as prosperous as it suddenly got. The
+
+---
+
+big money came into law shortly after I left it. By 1962, I was mostly out. And I was totally out by 1965. So that was a long time ago. Also, I preferred making the decisions and gambling my own money. I usually thought I knew better than the client anyway. So why should I have to do it his way. So partly, it was having an opinionated personality and partly, it was a desire to get resources permitting independence.
+
+Also, the bulk of my clients were terrific. But there were one or two I didn't enjoy. Plus, I like the independence of a capitalist. And I'd always had sort of a gambling personality. I like figuring things out and making bets. So I simply did what came naturally.
+
+# Q: Do you ever gamble Las Vegas-style?
+
+I won't bet $100 against house odds between now and the grave. I don't do that. Why should I? I will gamble recreationally with my pals. And I'll occasionally play a much better bridge player, like Bob Hamman, who might be the best card player in the world. But I know I'm paving for the fun of playing with him. That's recreational.
+
+As for gambling with simple mechanical house odds against me, why in the world would I ever want to do that-particularly given how I detest the manipulative culture of legalized gambling. So I don't like legalized gambling.
+
+---
+
+And I'm not comfortable in Las Vegas, even though it does not include a higher Percentage of wholesome family recreation. I don't like to be with many of the types who hang around card parlors and so forth. On the other hand, I do like the manly art of wagering, so to speak. And I like light social gambling among friends. But I do not like the professional gambling milieu.
+
+# Q: Could you say something about how the mutual fund and money management business has changed since you got into it-and the growth of capital markets?
+
+Actually, I didn't really get into it. I had a little private partnership for fourteen years-up until a little over twenty years ago. However, I never had enough money from other people to amount to a hill of beans-at least by current investment management standards. So I've never really been part of the mutual fund business.
+
+But the money management business has been one of the great growth businesses in the recent history of the United States. It's created many affluent professionals and multimillionaires. It's been a perfect gold mine for people who got in it early. The growth of pension funds, the value of American corporations, and the world's wealth have created a fabulous profession for many and carried lots of them up to affluence.
+
+---
+
+And we deal with them in a variety of ways. However, we haven't been part of it for many years. We've basically invested our own money for a long, long time.
+
+# "Still the Best"
+
+"The Intelligent Investor still the best book on investing. It has the only three ideas you really need:
+
+1. The Mr. Market analogy
+2. A stock is a piece of a business
+3. Margin of safety."
+
+-Buffett
+
+# Important Books by Benjamin Graham
+
+- Security Analysis (1934)
+- The Interpretation of Financial Statements (1937)
+- World Commodities and World Currency (1944)
+- The Intelligent Investor (1949)
+- Benjamin Graham: The Memoirs of the Dean of Wall Street (1996, posthumous)
+
+# Q: Do you expect this bull run to continue?
+
+---
+
+Well, I'd be amazed if the capitalized value of all American business weren't considerably higher twenty-five years from now. And if people continue to trade with one another and shuffle these pieces of paper around, then money management may continue to be a marvelous business for the managers. But except for what might be called our own money, we're really not in it.
+
+Q: I was interested in the evolution of your investment strategy from when you first began-using the Ben Graham model-to the Berkshire Hathaway model. Would you recommend that model to a beginning investor -i.e., dumping most of it or all of it into one Opportunity we think is a great one and leaving it therefore decades? That strategy really for a more major investor?
+
+Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable-and some losses are inevitable-you might be wise to utilize a very conservative pattern of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don't think there's a one-size-fits-all investment strategy that I can give you.
+
+Mine works for me. But, in part, that's because I'm good at taking losses. I can take 'em psychologically. And, besides, I have very few. The combination works fine.
+
+---
+
+Q: You and Buffett have said that Berkshire stock is overvalued and you don't recommend buying it.
+
+We didn't say [we thought it was overvalued]. We just said that we wouldn't buy it or recommend that our friends buy it at the prices then prevailing. But that just related to Berkshire's intrinsic value as it was at that time.
+
+Q: If I had the money, I should buy it-because you've been saying that your returns will go down for twenty years....
+
+Well, I hope that your optimism is justified. But I do not change my opinion. After all, today, we're in uncharted territory. I sometimes tell my friends, "I'm doing the best I can. But I've never grown old before. I'm doing it for the first time. And I am not sure that I'll do it right.”
+
+I sometimes tell my friends, I'm doing the best I can. But I have never grown old before. I'm doing it for the first time. And I am not sure that I'll do it right."
+
+Warren and I have never been in this kind of territory-with high valuations and a huge amount of capital. We've never done it before. So we're learning.
+
+Q: everything Warren and Buffett say seems logical. But it sounds like the same language that Ben Graham was saying 30 years ago he was saying the stock market was overvalued when it was at 900.
+
+---
+
+The wealth of the World will compound at no such rate. Oh, I don't think that we share that with him. Graham, great though he was as a man, had a screw loose as he tried to predict outcomes for the stock market as a whole. In contrast, Warren and I are almost always agnostic about the market.
+
+On the other hand, we have said that common stocks generally have generated returns of ten to eleven percent after inflation for many years and that those returns can't continue for a very long period. And they can't. It's simply impossible. The wealth of the world will compound at no such rate. Whatever experience Stanford has had in its portfolio for the last fifteen years, its future experience is virtually certain to be worse. It may still be okay. But it's been a hog heaven period for investors over the last fifteen years. Bonanza effects of such scale can't last forever.
+
+Q: Berkshire annual report got a lot of praise for being pessimistic and for expressing concern about the shrinking pool of opportunities as the company gets bigger and bigger Where does that leave you ten years from now?
+
+We've said over and over that our future rate of compounding our shareholders' wealth is going to go down compared to our past—and that our size will be an anchor dragging on performance. And we've said over and over again that this is not an opinion, but a promise.
+
+---
+
+However, let's suppose that we were able to compound our present book value at fifteen percent per annum from this point. That would not be so bad and would work out okay for our long-term shareholder. I'm just saying that we could afford to slow down some, as we surely will, and still do okay for the long-term shareholder.
+
+By the way, I'm not promising that we will compound our present book value at fifteen percent per annum.
+
+# The Limits to Compounding
+
+The $24 real estate investment by the Dutch to buy the island of Manhattan would today, by some estimates, be roughly equivalent to $3 trillion. Over 378 years, that's about a seven percent annual compound rate of return.
+
+# Q:
+
+You talked about how important it was not to have an extreme ideology. What responsibility, if any, you think the business and legal communities have for helping inner-city areas, spreading the wealth and so on?
+
+I'm all for fixing social problems, I'm all for being generous to the less fortunate. I'm all for fixing social problems. I'm all for being generous to the less fortunate. And I'm all for doing things where, based on a slight
+
+---
+
+preponderance of the evidence, you guess that it's likely to do more good than harm.
+
+What I'm against is being very confident and feeling that you know, for sure, that your particular intervention will do more good than harm, given that you're dealing with highly complex systems wherein everything is interacting with everything else.
+
+Q: So [what you're saying is to] just make sure that what you're doing [is doing more good] ....
+
+You can't make sure. That's my point....
+
+On the other hand, I did recently reverse [the conclusions of] two sets of engineers. How did I have enough confidence in such a complicated field to do that? Well, you might think, "Oh, this guy is just an egomaniac who's made some money and thinks he knows everything."
+
+Well, I may be an egomaniac, but I don't think I know everything. But I saw huge reasons in the circumstances for bias in each set of engineers as each recommended a course of action very advantageous to itself. And what each was saying was so consonant with a natural bias that it made me
+
+---
+
+distrust it. Also, perhaps I knew enough engineering to know that [what they were saving] didn't make sense.
+
+finally, I found a third engineer who recommended a solution I approved. And, thereafter, the second engineer came to me and said, "Charlie, why didn't I think of that?” which is to his credit. It was a much better solution, both safer and cheaper.
+
+You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add-and that your best course is to trust some expert.
+
+In effect, you've got to know what you know and what you don't know. What could possibly be more useful in life than that?
+
+Q: You discussed cokes mistake. Do you have any thoughts where apple went wrong?"
+
+Let me give you a very good answer-one I’m copying from Jack Welch, the CEO of General Electric. He has a Ph.D. in engineering. He's a star businessman. He's a marvelous guy. And recently, in Warren's presence, someone asked him, "Jack, what did Apple do wrong?"
+
+---
+
+His answer? "I don't have any special competence that would enable me to answer that question." And I'll give you the very same answer. That's not a field in which I'm capable of giving you any special insight.
+
+On the other hand, in copying Jack Welch, I am trying to teach you something. When you don't know and you don't have any special competence, don't be afraid to say so.
+
+There's another type of person I compare to an example from biology: When a bee finds nectar, it comes back and does a little dance that tells the rest of the hive, as a matter of genetic programming, which direction to go and how far. So about forty or fifty years ago, some clever scientist stuck the nectar straight up. Well, the nectar's never straight up in the ordinary life of a bee. The nectar's out. So the bee finds the nectar and returns to the hive. But it doesn't have the genetic programming to do a dance that says straight up. So what does it do?
+
+Well, if it were like Jack Welch, it would just sit there. But what it actually does is to dance this incoherent dance that gums things up. And a lot of people are like that bee. They attempt to answer a question like that. And that is a huge mistake.
+
+Nobody expects you to know everything about everything.
+
+I try to get rid of people who always confidently answer questions about which they don't have any real knowledge. To me, they're like the bee dancing its incoherent dance. They're just screwing up the hive.
+
+---
+
+Q: As someone who has been in legal practice and business, how, did you incorporate, or did you incorporate, these models into your legal practice? And how did it work? I suspect many of us have seen law firms that don't appear to adhere to these kinds of models.
+
+Well, the models are there. But just as there are perverse incentives in academia, there are perverse incentives in law firms. In fact, in some respects, at the law firms, it's much worse.
+
+Here's another model from law practice: When I was very young, my father practiced law. One of his best friends, Grant McFadyen-Omaha's Pioneer Ford dealer-was a client. He was a perfectly marvelous man-a self-made Irishman who'd run away uneducated from a farm as a youth because his father beat him. So he made his own way in the world. And he was a brilliant man of enormous charm and integrity-just a wonderful, wonderful man.
+
+In contrast, my father had another client who was a blowhard, overreaching, unfair, pompous, difficult man. And I must have been fourteen years old or thereabouts when I asked, "Dad, why do you do so much work for Mr. X-this overreaching blowhard-instead of working more for wonderful men like Grant McFadyen?"
+
+---
+
+My father said, "Grant McFadyen treats his employees right, his customers right, and his problems right. And if he gets involved with a psychotic, he quickly walks over to where the psychotic is and works out an exit as fast as he can. Therefore, Grant McFadyen doesn't have enough remunerative law business to keep you in Coca-Cola. But Mr. X is a walking minefield of wonderful legal business."
+
+This case demonstrates one of the troubles with practicing law. To a considerable extent, you're going to be dealing with grossly defective people. They create an enormous amount of the remunerative law business. And even when your own client is a paragon of virtue, you'll often be dealing with gross defectives on the other side or even on the bench. That's partly what drove me out of the profession.
+
+The rest was my own greed, but my success in serving greed partly allowed me to make easier the process of being honorable and sensible. Like Ben Franklin observed, "It's hard for an empty sack to stand upright."
+
+As you go through life, sell your services once in a while to an unreasonable blowhard if that's what you must do to feed your family. But run your own life like Grant McFadyen.
+
+That was a great lesson.
+
+I'd argue that my father's model when I asked him about the two clients was
+
+---
+
+totally correct dedication. He taught me the right lesson. The lesson? As you go through life, sell your services once in a while to an unreasonable blowhard if that's what you must do to feed your family. But run your own life like Grant McFayden. That was a great lesson.
+
+And he taught it in a very clever way-because instead of just pounding it in, he told it to me in a way that required a slight mental reach. And I had to make the reach myself in order to get the idea that I should behave like Grant McFadyen. And because I had to reach for it, he figured I'd hold it better. And, indeed, I've held it all the way through until today-through all of these decades. That's a very clever teaching method.
+
+There, again, we're talking about elementary psychology. It's elementary literature. Good literature makes the reader reach a little for understanding. Then, it works better. You hold it better. It's the commitment and consistency tendency. If you've reached for it, the idea's pounded in better. Good literature makes the reader reach a line for understanding. If you've reached for it, the idea's pounded in better.
+
+As a lawyer or executive, you'll want to teach somebody what my father taught me or maybe you'll want to teach them something else. And you can use lessons like this. Isn't that a great way to teach a child? My father used indirection on purpose. And look at how powerfully it worked-like Captain
+
+---
+
+Cook's wise use of psychology. I've been trying to imitate Grant McFadyen ever since—for all my life. I may have had a few lapses. But at least I've been trying.
+
+Q: At the end of your article in our OID you mentioned that only a select few investment managers actually add value. Since you are speaking to an audience of future lawyers, what would you encourage them to do in order to be able to add value in our profession?
+
+To the extent you become a person who thinks correctly, you can add great value. To the extent you've learned it so well that you have enough confidence to intervene where it takes a little courage, you can add great value. And to the extent that you can prevent or stop some asininity that would otherwise destroy your firm, your client, or something that you care about, you can add great value.
+
+And there are constructive tricks you can use. For example, one reason why my old classmate, Joe Flom of Skadden Arps, has been such a successful lawyer is that he's very good at dreaming up little, vivid examples that serve to pound the point home in a way that really works. It's enormously helpful when you're serving clients or otherwise trying to persuade someone in a good cause to come up with a little humorous example.
+
+The ability to do that is a knack. So you could argue that the Joe Floms of the world are almost born with a gift. But he's honed the gift. And to one
+
+---
+
+degree or another, all of you were born with the gift. And you can hone it, too.
+
+Occasionally, you get into borderline stuff. For instance, suppose you've got a client who really wants to commit tax fraud. If he doesn't push the tax law way beyond the line, he can't stand it. He can't shave in the morning if he thinks there's been any cheating he could get by with that he hasn't done. And there are people like that. They just feel they aren't living aggressively enough.
+
+You can approach that situation in either of two ways: (A) You can say, "I just won't work for him," and duck it. Or, (B) you can say, "Well, the circumstances of my life require that I work for him. And what I'm doing for him doesn't involve my cheating. Therefore, I'll do it."
+
+And if you see he wants to do something really stupid, it probably won't work to tell him, "What you're doing is bad. I have better morals than you." That offends him. You're young. He's old. Therefore, instead of being persuaded, he's more likely to react with, "Who in the hell are you to establish the moral code of the whole world?"
+
+But, instead, you can say to him, "You can't do that without three other people beneath you knowing about it. Therefore, you're making yourself subject to blackmail. You're risking your reputation. You're risking your family, your money, etc."
+
+---
+
+That is likely to work. And you're telling him something that's true. Do you want to spend a lot of time working for people where you have to use methods like that to get them to behave well I think the answer is no. But if you're hooked with it, appealing to his interest is likely to work better as a matter of human persuasion than appealing to anything else. That, again, is a powerful psychological principle with deep biological roots.
+
+I saw that psychological principle totally blown at Salomon. Salomon's general counsel knew that the CEO, Gutfreund, should have promptly told the federal authorities all about Salomon's trading improprieties in which Gutfreund didn't participate and which he hadn't caused. And the general counsel urged Gutfreund to do it. He told Gutfreund, in effect, "You're probably not legally required to do that, but it's the right thing to do. You really should."
+
+But it didn't work. The task was easy to put off-because it was unpleasant. So that's what Gutfreund did-he put it off.
+
+And the general counsel had very little constituency within Salomon except for the CEO. If the CEO went down, the general counsel was going down with him. Therefore, his whole career was on the line. So to save his career, he needed to talk the dilatory CEO into doing the right thing.
+
+It would've been child's play to get that job done right. All the general counsel had to do was to tell his boss, "John, this situation could ruin your
+
+---
+
+life. You could lose your wealth. You could lose your reputation." And it would have worked. CEOs don't like the idea of being ruined, disgraced, and fired.
+
+CEOs don't like the idea of being ruined, disgraced, and fired. And the ex-general counsel of Salomon is brilliant and generous-and he had the right idea. However, he lost his job because he didn't apply a little elementary psychology. He failed to recognize that what works best in most cases is to appeal to a man's interest.
+
+But you don't have to get similarly lousy results when you face similar situations. Just remember what happened to Gutfreund and his general counsel. The right lessons are easily learned if you'll work at it. And if you do learn them, you can be especially useful at crucial moments when others fail. And to the extent that you do become wise, diligent, objective, and, especially able to persuade in a good cause, then you're adding value.
+
+# Q: Would you discuss how the threat of litigation-shareholder lawsuits and so forth and legal/ complexity in general/ have affected decision-making in big business?
+
+Well, every big business screams about its legal costs, screams about the amount of regulation, screams about the complexity of its life, screams about the plaintiffs' bar-particularly the class action plaintiffs' bar. So there's
+
+---
+
+An absolute catechism on that where you could just copy the screams from one corporation to another and you'd hardly have to change a word. But what causes the screams has, so far, been a godsend for the law firms. The big law firms have had a long updraft. And they now tend to kind of cluck like an undertaker in a plague. An undertaker, of course, would look very unseemly if he were jumping up and down and playing his fiddle during the plague. So law firm partners say, "Oh, isn't it sad-all this complexity, all this litigation, all this unfairness."
+
+An undertaker of course, would look very unseemly if he were jumping up and down and playing his fiddle during the plague. But, really, they're somewhat schizophrenic on the subject because it's been very good for [them]. Some recent California initiatives created some interesting conduct. Part of the defense bar lobbied quietly against certain propositions and, effectively, against their clients because they didn't want their clients to catch 'em in the process. And the reason that they did so was because it became harder for plaintiffs to bring cases.
+
+If you make a living fighting overreaching and it keeps your children in school and somebody proposes a system that eliminates it-well, that's an adult experience and an adult choice that you have to make. So big corporations adapt. They have more litigation. They have to have a bigger legal department. They scream about what they don't like. But they adapt.
+
+---
+
+Q: But hasn't that legal complexity consumed a lot more of companies' resources over the last few decades?
+
+The answer is yes. There's hardly a corporation in America that isn't spending more on lawsuits and on compliance with various regulations than it was twenty years ago. And, yes, some of the new regulation is stupid and foolish. And some was damn well necessary. And it will ever be thus, albeit with some ebb and flow.
+
+Q: But have you seen or experienced any change in decision making at corporations in their being less likely to take on riskier investments for fear of failure or liability?
+
+The only place I saw—with another friend, not Warren [Buffett]—was where I was part owner of the biggest shareholder in a company that invented a better policeman's heel-rest. It was made of Kevlar or something of that sort. And they brought it to us and wanted us to [manufacture] it.
+
+As a matter of ideology, we're very pro-police. I believe civilization needs a police force—although I don't believe in policemen creating too many widows and orphans unnecessarily either. But we like the idea of a better policeman's helmet.
+
+However, we took one look at it and said to the people who invented it, "We're a rich corporation. We can't afford to make a better policeman's."
+
+---
+
+helmet. That's just how the civilization works. All risks considered, it can't work for us. But we want the civilization to have these.
+
+"So we don't maximize what we sell it for it. Get somebody else to make it. Transfer the technology or whatever to somebody who can do it. But we're not going to."
+
+Thus, we didn't try to disadvantage policemen [by keeping them from] getting new helmets, but we decided not to manufacture helmets ourselves. There are businesses-given the way the civilization has developed-where being the only deep pocket around is bad business. In high school football, for example, a paraplegic or quadriplegic will inevitably be created occasionally. And who with deep pockets can the injured person best sue other than the helmet manufacturer? Then everyone feels sorry, the injuries are horrible, and the case is dangerous for the manufacturer. . ..
+
+I think big, rich corporations are seldom wise to make football helmets in the kind of a civilization we're in. And maybe it should be harder to successfully sue helmet makers.
+
+I think big, rich corporations are seldom wise to make football helmets in the kind of a civilization we're in.
+
+I know two different doctors-each of whom had a sound marriage. And when the malpractice premiums got high enough, they divorced their wives.
+
+---
+
+and transferred most of their property to their wives. And they continued to practice-only without malpractice insurance.
+
+They're angry at the civilization. They needed to adapt. And they trusted their wives. So that was that. And they've not carried any malpractice insurance since.
+
+People adapt to a changing litigation climate. They have various ways of doing it. That's how it's always been and how it's always going to be.
+
+I like the Navy system. If you're a captain in the Navy and you've been up for twenty-four hours straight and have to go to sleep and you turn the ship over to a competent first mate in tough conditions and he takes the ship aground - clearly through no fault of yours - they don't court-martial you, but your naval career is over.
+
+What I personally hate most are systems that make fraud easy. Probably way more than half of all the chiropractic income in California comes from pure fraud. For example, I have a friend who had a little fender bender - an auto accident - in a tough neighborhood. And he got two chiropractors cards and one lawyer's card before he'd even left the intersection. They're in the business of manufacturing claims that necks hurt.
+
+---
+
+In California, I believe the Rand statistics showed that we have twice as many personal injuries per accident as in many other states. And we are not getting twice as much real injury per accident; the other half of that is fraud. People just get so that they think everybody does it; it is alright to do so. I think it is terrible to let that stuff creep in.
+
+If I were running the civilization, compensation for stress in Workers' compensation would be zero, not because there are no work-caused stress, but because I think the net social damage of allowing stress to be compensated at all is worse than what would happen if a few people that had real work-caused stress injuries went uncompensated.
+
+I like the Navy system. If you're a captain in the Navy and you've been up for twenty-four hours straight and have to go to sleep and you turn the ship over to a competent first mate in tough conditions and he takes the ship aground—clearly through no fault of yours—they don't court-martial you, but your naval career is over.
+
+You can say, "That's too tough. That's not law school. That's not due process." Well, the Navy model is better in its context than would be the law school model. The Navy model really forces people to pay attention when conditions are tough because they know that there's no excuse.
+
+Napoleon said he liked luckier generals—he wasn't into supporting losers. Well, the Navy likes luckier captains.
+
+---
+
+It doesn't matter why your ship goes aground, your career is over. Nobody's interested in your fault. It's just a rule that we happen to have—for the good of all, all effects considered.
+
+I like some rules like that. I think that the civilization works better with some of these no-fault rules. But that stuff tends to be anathema around law schools. "It's not due process. You're not really searching for justice." Well, I am searching for justice when I argue for the Navy rule—for the justice of fewer ships going aground. Considering the net benefit, I don't care if one captain has some unfairness in his life. After all, it's not like he's being court martialed. He just has to look for a new line of work. And he keeps vested pension rights and so on. So it's not like it's the end of the world.
+
+So I like things like that. However, I'm in a minority.
+
+Q: I'd like to hear you talk a little bit more about judgment. In your talk, you said we should read the psychology textbooks and the title fifteen or sixteen principles that are best of the ones that make sense . . .. The ones that are obviously important and obviously right. That's correct.... And then you stick in the ones that are obviously important and not in the books—and you've got a system.
+
+---
+
+Q: Right my problem seems to be the prior step which is determining which are obviously right and That seems to me to be more essential question to ask.
+
+Well, if you're like me, it's kind of fun for it to be a little complicated. If you want it totally easy and totally laid out, maybe you should join some cult that claims to provide all the answers.
+
+No, no. You overestimate the difficulty. Do you have difficulty understanding that people are heavily influenced by what other people think and what other people do-and that some of that happens on a subconscious level?
+
+Q: No, I don't. I understand that.
+
+Well, you can go right through the principles. And, one after another, they're like that. It's not that hard...
+
+Do you have any difficulty with the idea that operant conditioning works-that people will repeat what worked for them the last time?
+
+Q: It just seems to me like there's a lot of other things out there, as well, that also make a lot of sense. The system would quickly get too complicated, I imagine-as a result of too much cross-talk.
+
+Well, if you're like me, it's kind of fun for it to be a little complicated. If you want it totally easy and totally laid out, maybe you should join some cult.
+
+---
+
+that claims to provide all the answers. I don't think that's a good way to go. I think you'll just have to endure the world-as complicated as it is. Einstein has a marvelous statement on that: "Everything should be made as simple as possible, but no more simple."
+
+I'm afraid that's the way it is. If there are twenty factors and they interact some, you'll just have to learn to handle it-because that's the way the world is. But you won't find it that hard if you go at it Darwin-like, step by step with curious persistence. You'll be amazed at how good you can get.
+
+Q: You've given us about three of the models that you use. I wondered where you found the other ones. And, second, do you have an easier way for us to find them than going through a psychology textbook? I'm not averse to doing that, but it takes longer.
+
+There are a relatively small number of disciplines and a relatively small number of truly big ideas. And it's a lot of fun to figure it out. Plus, if you figure it out and do the outlining yourself, the ideas will stick better than if you memorize 'em using somebody else's cram list.
+
+Even better, the fun never stops. I was miseducated horribly. And I hadn't bothered to pick up what's called modern Darwinism. I do a lot of miscellaneous reading, too. But I just missed it. And in the last year, I suddenly realized I was a total damned fool and hadn't picked it up properly. So I went back. And with the aid of Dawkins-Oxford's great biologist-and others, I picked it up.
+
+---
+
+Well, it was an absolute circus for me in my seventies to get the modern Darwinian synthesis in my head. It's so awesomely beautiful and so awesomely right. And it's so simple once you get it. So one beauty of my approach is that the fun never stops. I suppose that it does stop eventually when you're drooling in the convalescent home at the end. But, at least, it lasts a long time.
+
+If I were czar of a law school-although, of course, no law school will permit a czar (they don't even want the dean to have much power)-I'd create a course that I'd call "Remedial Worldly Wisdom" that would, among other useful things, include a fair amount of properly taught psychology. And it might last three weeks or a month.…
+
+I think you could create a course that was so interesting with pithy examples and powerful examples and powerful principles-that it would be a total circus. And I think that it would make the whole law school experience work better.
+
+People raise their eyebrows at that idea. "People don't do that kind of thing." They may not like the derision that's implicit in the title: "Remedial Worldly Wisdom." But the title would be my way of announcing, "Everybody ought to know this." And, if you call it remedial, isn't that what you're saying? "This is really basic and everybody has to know it."
+
+---
+
+Such a course would be a perfect circus. The examples are so legion. I don't see why people don't do it. They may not do it mostly because they don't want to. But also, maybe they don't know how. And maybe they don't know what it is.
+
+But the whole law school experience would be much more fun if the really basic ideas were integrated and pounded in with good examples for a month or so before you got into conventional law school material. I think the whole system of education would work better. But nobody has any interest in doing it.
+
+And when law schools do reach out beyond traditional material they often do it in what looks to me like a pretty damn way. You think psychology is badly taught in America? You should look at corporate finance portfolio theory. It's demented. It's truly amazing.
+
+I don't know how these things happen at science and engineering tend to be pretty reliably done, but the minute you go outside of the various certain amount of insanity schemes to creep into academia, even in academia involving people with very high IQ.
+
+Many of the legal doctrines are tied to other doctrines. They're joined at the hip. And yet, they teach you those legal doctrines without pointing out how they're tied to the other important doctrines. That's insanity, absolute insanity.
+
+---
+
+On the other hand, a month at the start of law school that really pounded in the basic doctrines. . .. Many of the legal doctrines are tied to other doctrines. They're joined at the hip. And, yet, they teach you those legal doctrines without pointing out how they're tied to the other important doctrines?! That's insanity-absolute insanity.
+
+Why do we have a rule that judges shouldn't talk about legal issues that aren't before them? In my day, they taught us the rule, but not in a way giving reasons tied to the guts of undergraduate courses. It's crazy that people don't have those reasons. The human mind is not constructed so that it works well without having reasons. You've got to hang reality on a theoretical structure with reasons. That's the way it hangs together in usable form so that you're an effective thinker. And to teach doctrines-either with no reasons or with poorly explained reasons?! That's wrong!
+
+Another reason why I like the idea of having a course on remedial worldly wisdom is that it would force more sense on the professors. It would be awkward for them to teach something that was contravened by lessons that were obviously correct and emphasized in a course named "Remedial Worldly Wisdom." Professors doing so would really have to justify themselves. Is that a totally crazy idea? It may be crazy to expect it to be done. However, if somebody had done it, would you have found it useful?
+
+I'm always asked this question: "Spoon-feed me what you know)." And, of course, what they are often saying is, "Teach me now, to get rich with soft white hands faster. And not only let me get rich faster but teach me faster, too."
+
+---
+
+Q: I think it would be a wonderful thing to have. Unfortunately, when it's created, we won't be here anymore. You're proposing that this would be good to teach people in a course form so it would be accessible to them. Is there any way that it could be more accessible to us-other than having to... I get requests for pointers to easy learning all the time. And I'm trying to provide a little easy learning today. But one talk like this is not the right way to do it. The right way to do it would be in a book.
+
+I hope what I'm saving will help you be more effective and better human beings. And if you don't get rich, that won't bother me. But I'm always asked this question: "Spoon-feed me what you know." And, of course, what they're often saying is, "Teach me how to get rich with soft white hands faster. And not only let me get rich faster, but teach me faster, too."
+
+I don't have much interest in writing a book myself. Plus it would be a lot of work for somebody like me to try and do it in my seventies. And I have plenty else to do in life. So I'm not going to do it. But it's a screaming opportunity for somebody. And I'd provide funds to support the writing of an appropriate book if I found someone with the wisdom and the will to do the job right.
+
+Let me turn to some of the probable reasons for present bad education. Part of the trouble is caused by the balkanization of academia. For instance,
+
+---
+
+Psychology is most powerful when combined with doctrines from other academic departments. But if your psychology professor doesn't know the other doctrines, then he isn't capable of doing the necessary integration. And how would anyone get to be a psychology professor in the first place if he were good with non-psychology doctrines and constantly worked non-psychology doctrines into his material? Such a would-be professor would usually offend his peers and superiors.
+
+There have been some fabulous psychology professors in the history of the world. Cialdini Arizona State was very useful to me, as was B. E. Skinner—for his experimental results, if divorced from his monomania and utopianism. But averaged out, I don't believe that psychology professors in America are people whose alternative career paths were in the toughest part of physics. And that may be one of the reasons why they don't get it quite right.
+
+The schools of education, even at eminent universities, are pervaded by psychology. And they're almost an intellectual disgrace. It's not unheard of for academic departments even at great institutions to be quite deficient in important ways. And including a lot of material labeled as psychological is no cure-all.
+
+And given academic inertia, all academic deficiencies are very hard to fix. Do you know how they tried to fix psychology at the University of Chicago?
+
+---
+
+Having tenured professors who were terrible, the president there actually abolished the entire psychology department. And Chicago, in due course, will probably bring back a new and different psychology department. Indeed, by now, it probably has. Perhaps conditions are now better. And I must admit that I admire a college president who will do something like that.
+
+I do not wish to imply in my criticism that the imperfections of academic psychology teaching are all attributable to some kind of human fault common only to such departments. Instead, the causes of many of the imperfections lie deep in the nature of things-in irritating peculiarities that can't be removed from psychology.
+
+Let me demonstrate by a "thought experiment" involving a couple of questions: Are there not many fields that need a synthesizing super-mind like that of James Clerk Maxwell, but are destined never to attract one? And is academic psychology, by its nature, one of the most unfortunate of all the would-be attractors of superminds? I think the answers are yes and yes.
+
+One can see this by considering the case of any of the few members of each generation who can, as fast as fingers can move, accurately work through the problem sets in thermodynamics, electromagnetism, and physical chemistry. Such a person will be begged by some of the most eminent people alive to enter the upper reaches of hard science.
+
+---
+
+Will such a super-gifted person instead choose academic psychology wherein lie verb awkward realities: (A) that the tendencies demonstrated by social psychology paradoxically grow weaker as more people learn them, and, (B) that clinical (patient treating) psychology has to deal with the awkward reality that happiness, physiologically measured, is often improved by believing things that are not true the answer, I think, is plainly no. The super-mind will be repelled by academic psychology much as Nobel laureate physicist Max Planck was repelled by economics, wherein he saw problems that wouldn't yield to his methods.
+
+# Q:
+
+We talk a lot about takeoffs between the quality of our life and our professional commitments. Is there time for a professional life, learning about these models, and doing whatever else interests you? Do you find time to do fun things besides learning?
+
+I've always taken a fair amount of time to do what I really wanted to do some of which was merely to fish or play bridge or play golf.
+
+Each of us must figure out his or her own lifestyle. You may want to work seventy hours a week for ten years to make partner at Cravath and thereby obtain the obligation to do more of the same. Or you may say, "I'm not willing to pay that price."
+
+Either way, it's a totally personal decision that you have to make by your own lights.
+
+---
+
+But, whatever you decide, I think it's a huge mistake not to absorb elementary worldly wisdom if you're capable of doing it because it makes you better able to serve others, it makes you better able to serve yourself, and it makes life more fun. So if you have an aptitude for doing it, I think you'd be crazy not to. Your life will be enriched—not only financially, but in a host of other ways—if you do.
+
+Now this has been a very peculiar talk for some businessman to come in and give at a law school—some guy who's never taken a course in psychology telling you that all of the psychology textbooks are wrong. This is very eccentric. But all I can tell you is that I'm sincere.
+
+There's a lot of simple stuff that many of you are quite capable of learning. And your lives will work way better too, if you do. Plus, learning it is a lot of fun. So I urge you to learn it.
+
+Q: Are you, in effect, fulfilling your responsibility to share the wisdom that you've acquired over the years?
+
+Sure. Look at Berkshire Hathaway. I call it the ultimate didactic enterprise. Warren's never going to spend any money. He's going to give it all back to society. He's just building a platform so people will listen to his notions. Needless to say, they're very good notions. And the platform's not so bad.
+
+---
+
+either. But you could argue that Warren and I are academics in our own way.
+
+Q: Most of what you've said is very compelling. And your quest for knowledge and, therefore, command of the human condition and money are all laudable goals.
+
+I'm not sure the quest for money is so laudable.
+
+Q: Well, then-understandable.
+
+That I'll take. I don't sneer, incidentally, bond indentures. If you need the money, it's a bunch of cases in the course of your career, ought to do something to earn money. Many you earn money. at making sales calls or proofreading fun earning it. And if you have to try you'll learn something doing that. You activities are dignified by the fact that
+
+Q: I understand your skepticism about overly ideological people. But is there an ideological component to what you do? Is there something that you're irrationally passionate about?
+
+Yeah, I'm passionate about wisdom. I'm passionate about accuracy and some kinds of curiosity. Perhaps I have some streak of generosity in my nature and a desire to serve values that transcend my brief life. But maybe I'm just here to show off. Who knows?
+
+---
+
+I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody's that smart....
+
+"The best that is known and taught in the world nothing less can satisfy a teacher worthy of the name."
+
+Sir William Osler
+
+# Talk Three Revisited
+
+When I gave Talk Three in 1996, I argued that intense political animosity should be avoided because it causes much mental malfunction, even in brilliant brains. Since then, political animosity has increased greatly, both on the left and right, with sad effects on the ability of people to recognize reality, exactly as I would have expected.
+
+Naturally, I don't like this result. The grain of my emotional nature is to respond as Archimedes might respond if he complained now to God: "How could you put in those dark ages after I published my formulas?" Or as Mark Twain once complained: "These are sad days in literature. Homer is dead. Shakespeare is dead. And I myself am not feeling at all well."
+
+Fortunately, I am still able to refrain from complaint in the mode of Mark Twain. After all, I never had more than a shred of an illusion that any views of mine would much change the world. Instead, I always knew that aiming
+
+---
+
+low was the best path for me, and so I merely sought (1) to learn from my betters a few practical mental tricks that would help me avoid some of the worst miscognitions common in my age cohort, and (2) to pass on my mental tricks only to a few people who could easily learn from me because they already almost knew what I was telling them. Having pretty well accomplished these very limited objectives, I see little reason to complain now about the un-wisdom of the world. Instead, what works best for me in coping with all disappointment is what I call the Jewish method: humor.
+
+As I revisit talk Three in March of 2006, I still like its emphasis on the desirability of making human systems as cheating-proof as is practicable, even if this leaves some human misery unfixed. After all, the people who create rewarded cheating on a massive scale leave a trail of super-ruin in their wake, since the bad conduct spreads by example and is so very hard to reverse.
+
+And I fondly recall Talk Three's emphasis on both the life-handling lessons I learned from my father's friend, Grant McFadyen, and one teaching method I learned from my father. I owe a lot to these long-dead predecessors, and if you like Poor Charlie’s Almanack, so do you.
+
+In this talk, Charlie explains how he makes decisions and solves problems by taking us step-by-step through a diverse set of "mental models." He presents a case study that asks rhetorically how the listener would go about producing a $2 trillion business from scratch, using as his example Coca-Cola. Naturally, he has his own solution, apt to strike you as both brilliant.
+
+---
+
+and perceptive. Charlie's case study leads him to a discussion of academia's failures and its record of having produced generations of sloppy decision-makers. For this problem, he has other solutions.
+
+This talk was delivered in 1996 to a group that has a policy of not publicizing its programs.
+
+Editor's warning as suggested by Charlie: Most people don't understand this talk. Charlie says it was an extreme communication failure when made, and people have since found it difficult to understand even when read slowly, twice. To Charlie, these outcomes have "profound educational implications."
+
+# Talk Four
+
+# Practical Thought About Practical Thought?
+
+An Informal Talk, July 20, 1996
+
+The title of my talk is "Practical Thought About Practical Thought?"-with a question mark at the end. In a long career, I have assimilated various ultrasimple general notions that I find helpful in solving problems. Five of these helpful notions I will now describe. After that, I will present to you a problem of extreme scale. Indeed, the problem will involve turning start-up
+
+---
+
+capital of $2 million into $2 trillion, a sum large enough to represent a practical achievement. Then, I will try to solve the problem, assisted by helpful general notions. Following that, I will suggest that there are important educational implications in my demonstration. I will so finish because my objective is educational, my game today being a search for better methods of thought.
+
+The first helpful notion is that it is usually best to simplify problems by deciding big "no-brainer" questions first.
+
+The second helpful notion mimics Galileo's conclusion that scientific reality is often revealed only by math as if math was the language of God. Galileo's attitude also works well in messy, practical life. Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest.
+
+The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die so that he'd never go there. Indeed, many problems can't be solved forward. And that is why the great algebraist Carl Jacobi so often said, "Invert, always invert." And why the Pythagoreans thought in reverse to prove that the square root of two was an irrational number.
+
+It is not usually the conscious malfeasance of your narrow professional adviser that does you in. Instead, your troubles come from his subconscious bias.
+
+---
+
+The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But there is one extremely important qualification: You must think in a multidisciplinary manner. You must routinely use all the easy-to learn concepts from the freshman course in every basic subject. Where elementary ideas will serve, your problem solving must not be limited, as academia and many business bureaucracies are limited, by extreme balkanization into disciplines and subdisciplines, with strong taboos against any venture outside assigned territory. Instead, you must do your multidisciplinary thinking in accord with Ben Franklin's prescription in Poor Richard: "If you want it done, go. If not, send."
+
+If, in your thinking, you rely entirely on others, often through purchase of professional advice, whenever outside a small territory of your own, you will suffer much calamity. And it is not just difficulties in complex coordination that will do you in. You will also suffer from the reality evoked by the Shavian character who said, "In the last analysis, every profession is a conspiracy against the laity." Indeed, a Shavian character, for once, understated the horrors of something Shaw didn't like. It is not usually the conscious malfeasance of your narrow professional adviser that does you in. Instead, your troubles come from his subconscious bias. His cognition will often be impaired, for your purposes, by financial incentives different from yours. And he will also suffer from the psychological defect caught by the proverb: "To a man with a hammer, every problem looks like a nail."
+
+---
+
+The fifth helpful notion is that really big effects, lollapalooza effects, will often come only from large combinations of factors. For instance, tuberculosis was tamed, at least for a long time, only by routine, combined use in each case of three different drugs. And other lollapalooza effects, like the flight of an airplane, follow a similar pattern.
+
+It is now time to present my practical problem.
+
+# And here is the problem:
+
+It is 1884 in Atlanta. You are brought, along with twenty others like you, before a rich and eccentric Atlanta citizen named Glotz. Both you and Glotz share two characteristics: First, you routinely use in problem solving the five helpful notions, and, second, you know all the elementary ideas in all the basic college courses, as taught in 1996. However, all discoverers and all examples demonstrating these elementary ideas come from dates before 1884. Neither you nor Glotz knows anything about anything that has happened after 1884.
+
+Glotz offers to invest two million 1884 dollars, yet take only half the equity, for a Glotz Charitable Foundation, in a new corporation organized to go into the non-alcoholic beverage business and remain in that business only, forever. Glotz wants to use a name that has somehow charmed him: Coca-Cola.
+
+The other half of the new corporation's equity will go to the man who most plausibly demonstrates that his business plan will cause Glotz's foundation.
+
+---
+
+to be worth a trillion dollars 150 years later, in the money of that later time, 2034, despite paying our a large part of its earnings each year as a dividend. This will make the whole new corporation worth $2 trillion, even after paying out many billions of dollars in dividends.
+
+You have fifteen minutes to make your pitch. What do you say to Glotz?
+
+Here is my solution, my pitch to Glotz, using only the helpful notions and what every bright college sophomore should know.
+
+Well, Glotz, the big "no-brainer" decisions that, to simplify our problem, should be made first are as follows: First, we are never going to create something worth $2 trillion by selling some generic beverage. Therefore, we must make your name, "Coca-Cola," into a strong legally protected trademark. Second, we can get to $2 trillion only by starting in Atlanta, then succeeding in the rest of the united States, then rapidly succeeding with our new beverage all over the world. This will require developing a product having universal appeal because it harnesses powerful elemental forces. And the right place to find such powerful elemental forces is in the subject matter of elementary academic courses.
+
+We will next use numerical fluency to ascertain what our target implies. We can guess reasonably that by 2034 there will be about eight billion beverage consumers in the world. On average, each of these consumers will be much more prosperous in real terms than the average consumer of 1884. Each consumer is composed mostly of water and must ingest about sixty-four
+
+---
+
+ounces of water per day. This is eight, eight ounce servings. Thus, if our new beverage, and other imitative beverages in our new market, can flavor and otherwise improve only twenty-five percent of ingested water worldwide, and we can occupy half of the new world market, we can sell 2.92 trillion eight-ounce servings in 2034. And if we can then net four cents per serving, we will earn $117 billion. This will be enough, if our business is still growing at a good rate, to make it easily worth $2 trillion.
+
+In essence, we are going into the business of creating and maintaining conditioned reflexes.
+
+A big question, of course, is whether four cents per serving is a reasonable profit target for 2034. And the answer is yes if we can create a beverage with strong universal appeal. One hundred fifty years is a long time. The dollar, like the Roman drachma, will almost surely suffer monetary depreciation. Concurrently, real purchasing power of the average beverage consumer in the world will go way up. His proclivity to inexpensively improve his experience while ingesting water will go up considerably faster.
+
+Meanwhile, as technology improves, the cost of our simple product, in units of constant purchasing power, will go down. All four factors will work together in favor of our four-cents-per-serving profit target. Worldwide beverage-purchasing power in dollars will probably multiply by a factor of at least forty over 150 years. Thinking in reverse, this makes our profit-per-serving target, under l88r conditions, a mere One fortieth of four cent or one tenth of a cent per serving this is an easy to exceed target as we start out if our new product has Universal appeal.
+
+---
+
+# Ivan Pavlov (1849-1936)
+
+Ivan Pavlov was born in central Russia and attended seminary until age twenty-one, when he abandoned theology in favor of chemistry and physiology. Earning his M.D. in 1883, he excelled in physiology and surgical techniques. Later, he studied the secretory activity of digestion and ultimately formulated the laws of conditioned reflexes.
+
+Pavlov's most famous experiment showed that dogs tend to salivate before food is actually delivered to their mouths. This result led him to a long series of experiments in which he manipulated the stimuli occurring before the presentation of food. He thereby established the basic laws for the establishment and section of what he called "conditional reflexes," later mistranslated from the original Russian as "conditioned reflexes." He was awarded the Nobel Prize in 1904 for his work on digestive secretions.
+
+That decided, we must next solve the problem of invention to create Universal appeal there are two inter wind challenges of large scale first over 150 years we must cause a new beverage market to assimilate about one fourth of world's water injection second we must so operate that half the new market is ours while all our competitors combined are left to share the remaining these results are lollapalooza results accordingly we must attack our problem by causing every favourable factor we can think of to work for us plainly.
+
+---
+
+only a powerful combination of many factors is likely to cause the lollapalooza consequences we Desire fortunately, the solution to the winter wind problems turns out to be very easy if one has stayed awake in all the freshman courses.
+
+"I want a can of Coke within arms reach of every American servicemen something to remind him of home."
+
+-Dwight D, Eisenhower; Supreme Allied Commander, world War II
+
+Let us start by exploring the consequences of our simplifying "no-brainer" decision that we must rely on a strong trademark. This conclusion automatically leads to an understanding of the essence of our business in proper elementary academic terms. We can see from the introductory course in psychology that, in essence, we are going into the business of creating and maintaining conditioned reflexes. The "Coca-Cola" trade name and trade dress will act as the stimuli, and the purchase and ingestion of our beverage will be the desired responses.
+
+The "Coca-Cola" trade name and trade dress will act as the stimuli, and the purchase and ingestion of our beverage will be the desired responses.
+
+And how does one create and maintain conditioned reflexes? Well, the psychology text gives two answers: (1) by operant conditioning and (2) by classical conditioning, often called Pavlovian conditioning to honor the great Russian scientist. And, since we want a lollapalooza result, we must use both conditioning techniques-and all we can invent to enhance effects.
+
+---
+
+from each technique. The operant conditioning part of our problem is easy to solve. We need only (1) maximize rewards of our beverage's ingestion and (2) minimize possibilities that desired reflexes, once created by us, will be extinguished through operant conditioning by proprietors of competing products.
+
+For operant conditioning rewards, there are only a few categories we will find practical:
+
+1. Food value in calories or other inputs;
+2. Flavor, texture, and aroma acting as stimuli to consumption under neural reprogramming of man through Darwinian natural selection;
+3. Stimulus, as by sugar or caffeine;
+4. Cooling effect when man is too hot or warming effect when man is too cool.
+
+Wanting a lollapalooza result, we will naturally include rewards in all the categories. To start out, it is easy to decide to design our beverage for consumption cold. There is much less opportunity, without ingesting beverage, to counteract excessive heat compared with excessive cold. Moreover, with excessive heat, much liquid must be consumed, and the reverse is not true. It is also easy to decide to include both sugar and caffeine. After all, tea, coffee, and lemonade are already widely consumed. And, it is also clear that we must be fanatic about determining, through trial and error, flavor and other characteristics that will maximize human pleasure while taking in the sugared water and caffeine we will provide. And, to counteract possibilities that desired operant-conditioned reflexes,
+
+---
+
+once created by us, will be extinguished by operant-conditioning-employing competing products, there is also an obvious answer: We will make it a permanent obsession in our company that our beverage, as fast as practicable, will at all times be available everywhere throughout the world. After all, a competing product, if it is never tried, can't act as a reward creating a conflicting habit. Every spouse knows that. a competing product, if it is never tried, can't act as a reward creating a conflicting habit. Every spouse knows that.
+
+We must next consider the Pavlovian conditioning we must also use. In Pavlovian conditioning, powerful effects come from mere association. The neural system of Pavlov's dog causes it to salivate at the bell it can't eat. And the brain of man yearns for the type of beverage held by the pretty woman he can't have. And so, Glotz, we must use every sort of decent, honorable Pavlovian conditioning we can think of. For as long as we are in business, our beverage and its promotion must be associated in consumer minds with all other things consumers like or admire.
+
+And the brain of man yearns for the type of beverage held by the pretty woman he can't have.
+
+Such extensive Pavlovian conditioning will cost a lot of money, particularly for advertising. We will spend big money as far ahead as we can imagine. But the money will be effectively spent. As we expand fast in our new-beverage market, our competitors will face gross disadvantages of scale in buying advertising to create the Pavlovian conditioning they need. And this
+
+---
+
+outcome, along with other volume creates-power effects, should help us gain and hold at least fifty percent of the new market everywhere. Indeed, provided buyers are scattered, our higher volumes will give us very extreme cost advantages in distribution.
+
+Moreover, Pavlovian effects from mere association will help us choose the flavor, texture, and color of our new beverage. Considering Pavlovian effects, we will have wisely chosen the exotic and expensive-sounding name "Coca-Cola," instead of a pedestrian name like "Glotz's Sugared, Caffeinated Water." For similar Pavlovian reasons, it will be wise to have our beverage look pretty much like wine instead of sugared water. And so, we will artificially color our beverage if it comes out clear. And we will carbonate our water, making our product seem like champagne, or some other expensive beverage, while also making its flavor better and imitation harder to arrange for competing products. And, because we are going to attach so many expensive psychological effects to our flavor, that flavor should be different from any other standard flavor so that we maximize difficulties for competitors and give no accidental same-flavor benefit of any existing product.
+
+What else, from the psychology textbook, can help our new business? Well, there is chat powerful "monkey-see, monkey-do" aspect of human nature that psychologists often call "social proof." Social proof, imitative consumption triggered by mere sight of consumption, will not only help induce trial of our beverage. It will also bolster perceived rewards from consumption. We will always take this powerful social-proof factor into
+
+---
+
+account as we design advertising and sales promotion and as we forego present profit to enhance present and future consumption. More than with most other products, increased selling power will come from each increase in sales.
+
+We can now see, Glotz, that by combining (1) much Pavlovian conditioning, (2) powerful social-proof effects, and (3) a wonderful-tasting, energy-giving, stimulating, and desirably cold beverage that causes much operant conditioning, we are going to get sales that speed up for a long time by reason of the huge mixture of factors we have chosen. Therefore, we are going to start something like an autocatalytic reaction in chemistry, precisely the sort of multifactor-triggered lollapalooza effect we need.
+
+The logistics and the distribution strategy of our business will be simple. There are only two practical ways to sell our beverage: (1) as syrup to fountains and restaurants and (2) as a complete carbonated-water product in containers. Wanting lollapalooza results, we will naturally do it both ways. And, wanting huge Pavlovian and social-proof effects, we will always spend on advertising and sales promotion, per serving, over forty percent of the fountain price for syrup needed to make the serving.
+
+A few syrup-making plants can serve the world. However, to avoid needless shipping of mere space and water, we will need many bottling plants scattered over the world. We will maximize profits if (like early General Electric with light bulbs) we always set the first-sale price, either (1) for fountain syrup or (2) for any container of our complete product. The best
+
+---
+
+way to arrange this desirable profit-maximizing control is to make any independent bottler we need a subcontractor, not a vendee of syrup, and certainly not a vendee of syrup under a perpetual franchise specifying a syrup price frozen forever at its starting level.
+
+Being unable to get a patent or copyright on our super important flavor, we will work obsessively to keep our formula secret. We will make a big hoopla over our secrecy, which will enhance Pavlovian effects. Eventually, food-chemical engineering will advance so that our flavor can be copied with near exactitude. But, by that time, we will be so far ahead, with such strong trademarks and complete, "always available" worldwide distribution, that good flavor copying won't bar us from our objective. Moreover, the advances in food chemistry that help competitors will almost surely be accompanied by technological advances that will help us, including refrigeration, better transportation, and, for dieters, ability to insert a sugar taste without inserting sugar's calories. Also, there will be related beverage opportunities we will seize.
+
+This brings us to a final reality check for our business plan. We will, once more, think in reverse like Jacobi. What must we avoid because we don't want it? Four answers seem clear:
+
+First, we must avoid the protective, cloying, stop-consumption effects of aftertaste that are a standard part of physiology, developed through Darwinian evolution to enhance the replication of man's genes by forcing a generally helpful moderation on the gene carrier. To serve our ends, on hot
+
+---
+
+days, a consumer must be able to drink container after container of our product with almost no impediment from aftertaste. We will find a wonderful no-aftertaste flavor by trial and error and will thereby solve this problem.
+
+Second, we must avoid ever losing even half of our powerful trademarked name. It will cost us mightily, for instance, if our sloppiness should ever allow sale of any other kind of "cola," for instance, a "peppy cola." If there is ever a "peppy cola," we will be the proprietor of the brand.
+
+Third, with so much success coming, we must avoid bad effects from envy, which is given a prominent place in the Ten Commandments because envy is so much a part of human nature. The best way to avoid envy, recognized by Aristotle, is to plainly deserve the success we get. We will be fanatic about product quality, quality of product presentation, and reasonableness of prices, considering the harmless pleasure we will provide.
+
+Fourth, after our trademarked flavor dominates our new market, we must avoid making any huge and sudden change in our flavor. Even if a new flavor performs better in blind taste tests, changing to that new flavor would be a foolish thing to do. This follows because, under such conditions, our old flavor will be so entrenched in consumer preference by psychological effects that a big flavor change would do us little good. And it would do immense harm by triggering in consumers the standard Deprival super-reaction syndrome that makes "takeaways" so hard to get in any type of negotiation and helps make most gamblers so irrational. Moreover, such a
+
+---
+
+large flavor change would allow a competitor, by copying our old flavor, to take advantage of both (1) the hostile consumer super-reaction to Deprival and (2) the huge love of our original flavor created by our previous work. Well, that is my solution to my own problem of turning $2 million into $2 trillion even after paying out billions of dollars in dividends. I think it would have won with Glotz in 1884 and should convince you more than you expected at the outset. After all, the correct strategies are clear after being related to elementary academic ideas brought into play by the helpful notions.
+
+# How consistent is my solution with the history of the real Coca-Cola Company
+
+Well, as late as 1896, twelve years after the fictional Glotz was to start vigorously with two million 1884 dollars, the real Coca-Cola Company had a net worth under $150,000 and earnings of about zero. And thereafter, the real Coca-Cola Company did lose half its trademark and did grant perpetual bottling franchises at fixed syrup prices. And some of the bottlers were not very effective and couldn't easily be changed. And the real Coca-Cola Company, with this system, did lose much pricing control that would have improved results, had it been retained. Yet, even so, the real Coca-Cola Company followed so much of the plan given to Glotz that it is now worth about $125 billion and will have to increase its value at only eight percent per year until 2034 to reach a value of $2 trillion. And it can hit an annual physical volume target of 2.92 trillion servings if servings grow until 2034.
+
+---
+
+at only six percent per year, a result consistent with much past experience and leaving plenty of plain-water ingestion for Coca-Cola to replace after 2034. So, I would guess that the fictional Glotz, starting earlier and stronger and avoiding the worst errors, would have easily hit his $2 trillion target. And he would have done it well before 2034.
+
+This brings me, at last, to the main purpose of my talk. Large educational implications exist, if my answer to Glotz's problem is roughly right and you make one more assumption I believe true—that most Ph.D. educators, even psychology professors and business school deans, would not have given the same simple answer I did. And, if I am right in these two ways, this would indicate that our civilization now keeps in place a great many educators who can't satisfactorily explain Coca Cola, even in retrospect, and even after watching it closely all their lives. This is not a satisfactory state of affairs.
+
+academic psychology, while it is admirable and useful as a list of ingenious and important experiments, lacks intradisciplinary synthesis. Moreover—and this result is even more extreme—the brilliant and effective executives who, surrounded by business school and law school graduates, have run the Coca-Cola Company with glorious success in recent years also did not understand elementary psychology well enough to predict and avoid the "New Coke" fiasco, which dangerously threatened their company. That people so talented, surrounded by professional advisers from the best
+
+---
+
+universities, should thus demonstrate a huge gap in their education is also not a satisfactory state of affairs.
+
+Such extreme ignorance, in both the high reaches of academia and the high reaches of business is a lollapalooza effect of a negative sort, demonstrating grave defects in academia. Because the bad effect is a lollapalooza, we should expect to find intertwined, multiple academic causes. I suspect at least two such causes.
+
+First, academic psychology, while it is admirable and useful as a list of ingenious and important experiments, lacks intradisciplinary synthesis. In particular, not enough attention is given to lollapalooza effects coming from combinations of psychological tendencies. This creates a situation reminding one of a rustic teacher who tries to simplify school work by rounding pi to an even three. And it violates Einstein's injunction that "everything should be made as simple as possible but no more simple." In general, psychology is laid out and misunderstood as electromagnetism would now be misunderstood if physics had produced many brilliant experimenters like Michael Faraday and no grand synthesizer like James Clerk Maxwell.
+
+academic psychology departments are immensely more important and useful than other academic departments think. And, at the same time, the psychology departments are immensely worse than most of their inhabitants think. It is, of course, normal for self-appraisal to be more positive than
+
+---
+
+external appraisal. Indeed, a problem of this sort may have given you your speaker today.
+
+And, second, there is a truly horrible lack of synthesis blending psychology and other academic subjects. But only an interdisciplinary approach will correctly deal with reality-in academia as with the Coca-Cola Company.
+
+In short, academic psychology departments are immensely more important and useful than other academic departments think. And, at the same time, the psychology departments are immensely worse than most of their inhabitants think. It is, of course, normal for self-appraisal to be more positive than external appraisal. Indeed, a problem of this sort may have given you your speaker today. But the size of this psychology-department gap is preposterously large. In fact, the gap is so enormous that one very eminent university (Chicago) simply abolished its psychology department, perhaps with an undisclosed hope of later creating a better version.
+
+In such a state of affairs, many years ago and with much that was plainly wrong already present, the "New Coke" fiasco occurred. Therein, Coke's executives came to the brink of destroying the most valuable trademark in the world. The academically correct reaction to this immense and well-publicized fiasco would have been the sort of reaction Boeing would display if three of its new airplanes crashed in a single week. After all, product integrity is involved in each case, and the plain educational failure was immense.
+
+---
+
+But almost no such responsible, Boeing-like reaction has come from academia. Instead, academia, by and large, continues in its balkanized way to tolerate psychology professors who misteach psychology, non psychology professors who fail to consider psychological effects obviously crucial in their subject matter, and professional schools that carefully preserve psychological ignorance coming in with each entering class and are proud of their inadequacies.
+
+Even though this regrettable blindness and lassitude is now the normal academic result, are there exceptions providing hope that disgraceful shortcomings of the education establishment will eventually be corrected? Here, my answer is a very optimistic yes.
+
+For instance, consider the recent behavior of the economics department of the university of Chicago. Over the last decade, this department has enjoyed a near monopoly of the Nobel prizes in economics, largely by getting good predictions out of "free market" models postulating man's rationality. And what is the reaction of this department after winning so steadily with its rational-man approach?
+
+Well, it has just invited into a precious slot amid its company of greats a wise and witty Cornell economist, Richard Thaler. And it has done this because Thaler pokes fun at much that is holy at the University of Chicago. Indeed, Thaler believes, with me, that people are often massively irrational.
+
+---
+
+in ways predicted by psychology that must be taken into account in microeconomics.
+
+In so behaving, the University of Chicago is imitating Darwin, who spent much of his long life thinking in reverse as he tried to disprove his own hardest-won and best-loved ideas. And so long as there are parts of academia that keep alive its best values by thinking in reverse like Darwin, we can confidently expect that silly educational practices will eventually be replaced by better ones, exactly as Carl Jacobi might have predicted.
+
+Thaler pokes fun at mucli that is holy at the University of Chicago. Indeed, Thaler believes, with me, that people Are often massively irrational in ways predicted by psychology that must be taken into account in microeconomics.
+
+This will happen because the Darwinian approach, with its habitual objectivity taken on as a sort of hair shirt, is a mighty approach, indeed. No less a figure than Einstein said that one of the four causes of his achievement was self-criticism, ranking right up there alongside curiosity, concentration, and perseverance.
+
+And, to further appreciate the power of self-criticism, consider where lies the grave of that very "ungifted" undergraduate, Charles Darwin. It is in Westminster Abbey, right next to the headstone of Isaac Newton, perhaps.
+
+---
+
+the most gifted student who ever lived, honored on that headstone in eight Latin words constituting the most eloquent praise in all graveyard print: "Hie depositum est, quod mortale fuit Isaaci Newtoni" - "Here lies that which was mortal of Isaac Newton."
+
+A civilization that so places a dead Darwin will eventually develop and integrate psychology in a proper and practical fashion that greatly increases skills of all sorts. But all of us who have dollops of power and see the light should help the process along. There is a lot at stake. If, in many high places, a universal product as successful as Coca-Cola is not properly understood and explained, it can't bode well for our competency in dealing with much else that is important.
+
+Ad that was a favorite of mine: "The company that needs a new machine tool, and hasn't bought it, is already paying for it."
+
+Of course, those of you with fifty percent of net worth in Coca-Cola stock, occurring because you tried to so invest ten percent after thinking like I did in making my pitch to Glotz, can ignore my message about psychology as too elementary for useful transmission to you. But I am not so sure that this reaction is wise for the rest of you. The situation reminds me of the old-time Warner & Swasey ad that was a favorite of mine: "The company that needs a new machine tool, and hasn't bought it, is already paying for it."
+
+# "Nothing to Add" Number Four
+
+---
+
+Question: "Do you use a computer?"
+
+Answer: "I don't. I do have one in my office, but I've never turned it on. In fact, I wouldn't even know how to plug it in. In my life there are not many questions I can't properly deal with using my $40 adding machine and dog-eared compound interest table."
+
+# Talk Four Revisited
+
+In this talk I attempted to demonstrate large, correctable and important cognitive failure in U.S. academia and business. After all, I argued:
+
+1. If academia and business functioned with best practicable results, most denizens would be able to explain the success of the Coca-Cola Company through parsimonious use of basic concepts and problem-solving techniques; yet
+2. As the "new Coke" fiasco and its aftermath indicated, neither academia nor business had a respectable grasp of the simple realities causing the success of Coca-Cola.
+
+As matters worked out, my 1996 talk failed to get through to almost all people hearing it. Then later, between 7996 and 2006, even when the talk's written version was slowly read twice by very intelligent people who
+
+---
+
+admired me, its message likewise failed. In almost all cases the message did not get through in any constructive way. On the other hand, no one said to me that the talk was wrong. Instead, people were puzzled briefly, then moved on.
+
+Thus my failure as a communicator was even more extreme than the cognitive failure I was trying to explain. Why?
+
+The best explanation, I now think, is that I displayed gross folly as an amateur teacher. I attempted too much. I have always avoided all people who want to converse at length about the "meaning of meaning." Yet I chose as my title, "Practical Thought about Practical Thought?" This was a start into tough territory. Then I worked out a long, complex interplay of five generalized, powerful problem solving tricks with basic ideas from a great many disciplines. I particularly included psychology, about which I wanted to demonstrate that there is much lamentable ignorance, even among highly educated people, some of whom teach psychology. My demonstration, naturally, relied on correct psychology as part of my would be demonstration. This was logically sound. But, if psychological ignorance is widespread, why would most of my hearers recognize that my version of psychology was correct? Thus, for most hearers, I did the rough equivalent of trying to explain some hard-to-comprehend ideas by simply defining those ideas as equivalent to themselves.
+
+And this was not the outer limit of my teaching folly. After I knew that the written version of my talk was hard to understand, I consented to an order
+
+---
+
+of talks in the first edition of Poor Charlie's Almanack For wherein my psychology talk was talk Ten, inserted many pages after talk Four. Instead, I should have recognized that the order of the two talks should be reversed, considering that talk Four assumed that hearers had already mastered basic psychology, the subject of talk Ten. Then, finally, in the Second Edition of the Almanac, I have preferred to maintain the original, unhelpful order of the two talks. I did this because I like closing the book with my most recent organization of psychology into a sort of check-list that has long been helpful to me.
+
+[Editor's note: Talk Ten is now talk Eleven in this edition. Readers of the Second and Third Edition, if they wish, can correct somewhat for the teaching defects that I have stubbornly retained. That is, they can re-read Talk Four after mastering the final talk. If they are willing to endure this ordeal, I predict that at least some of them will find the result worth the effort.]
+
+"Teachers open the door, but you must enter by yourself" - Chinese Proverb
+
+Having ranted in the previous speech about all that is wrong in academia, Charlie holds forth here on the solutions. Delivered in 1998 at the fiftieth reunion of his Harvard Law School class, this talk focuses on a hugely complicated issue - the narrowness of elite education - and segments it into elements whose solutions, when taken together, form a satisfactory answer to the problem. Through a series of rhetorical questions, Charlie posits that professionals such as attorneys, to their own detriment, lack
+
+---
+
+multidisciplinary skills. From his own extensive multidisciplinary studies, he recognizes that there are "subconscious mental tendencies" that keep people from broadening their own horizons sufficiently. Nonetheless, he brings unique and memorable solutions to the problem.
+
+This talk-a favorite of your editor clearly demonstrates Charlie's "uncommon, common sense." He says, "When it really matters, as with pilots and surgeons, educational systems employ highly-effective structures. Yet, they don't employ these same, well-understood structures in other areas of learning that are also important. If superior structures are known and available, why don't educators more broadly utilize them? What could be more simple?"
+
+# Talk Five
+
+# The Need for More Multidisciplinary Skills from Professionals: Educational Implications
+
+Fiftieth Reunion of Harvard Law School Class of 1948
+
+April 24, 1998
+
+Today I am going to engage in a game reminding us of our old professors: Socratic solitaire. I will ask and briefly answer five questions:
+
+---
+
+# 1) Do broadscale professionals need more multidisciplinary skill?
+
+# 2) Was our education sufficiently multidisciplinary?
+
+# 3) In elite broadscale soft science, what is the essential nature of practicable best-form multidisciplinary education?
+
+# 4) In the last fifty years, how far has elite academia progressed toward attainable best-form multidisciplinarity?
+
+# 5) What educational practices would make progress faster?
+
+We start with the question: Do broadscale professionals need more multidisciplinary skill?
+
+To answer the first question, we must first decide whether more multidisciplinarity will improve professional cognition. And, to decide what will cure bad cognition, it will help to know what causes it. One of Bernard Shaw's characters explained professional defects as follows: "In the last analysis, every profession is a conspiracy against the laity." There is a lot of truth in Shaw's diagnosis, as was early demonstrated when in the sixteenth century, the dominant profession, the clergy, burned William Tyndale at the stake for translating the Bible into English.
+
+# William Tyndale (1495-1536)
+
+William Tyndale, born in Gloucestershire, England, earned a degree from Oxford and became a priest. He found England hostile to his beliefs and spent time in Germany and Belgium, where he expanded his beliefs and spread the teachings of Martin Luther. His books having been burned, and
+
+---
+
+his having become a continuing target of hostility, he nonetheless continued to publish Bible translations and other tracts. After months of imprisonment, he was condemned for heresy, strangled to death, and publicly cremated. Later, Tyndale’s translation formed the basis of the first royally approved English language Bible and had great impact on the development of the English language.
+
+But Shaw plainly understates the problem in implying that a conscious, self interested malevolence is the main culprit. More important, there are frequent, terrible effects in professionals from intertwined subconscious mental tendencies, two of which are exceptionally prone to cause trouble:
+
+1. Incentive-caused bias, a natural cognitive drift toward the conclusion that what is good for the professional is good for the client and the wider civilization; and
+2. Man-with-a-hammer tendency, with the name taken from the proverb: "To a man with only a hammer, every problem tends to look pretty much like a nail."
+
+One partial cure for man-with-a-hammer tendency is obvious: If a man has a vast set of skills over multiple disciplines, he, by definition, carries multiple tools and, therefore, will limit bad cognitive effects from man-with-a-hammer tendency. Moreover when he is multidisciplinary enough to absorb from practical psychology the idea that all his life he must fight bad
+
+---
+
+effects from both the tendencies I mentioned, both within himself and from others, he has taken a constructive step on the road to worldly wisdom.
+
+If "A" is narrow Professional doctrine and "B" consists of the big, extra-useful concepts from other disciplines, then, clearly, the professional possessing "A" plus "B" will usually be better off than the poor possessor of "A" alone. How could it be otherwise? And thus, the only rational excuse for not acquiring more "B" is that it is not practical to do so, given the man's need for "A" and the other urgent demands in his life. I will later try to demonstrate that this excuse for interdisciplinarity, at least for our most gifted people, is usually unsound.
+
+Broadscale problems, by definition, cross many academic disciplines.
+
+My second question is so easy to answer that I won't give it much time. Our education was far too unidisciplinary. Broadscale problems, by definition, cross many academic disciplines. Accordingly, using a unidisciplinary attack on such problems is like playing a bridge hand by counting trumps while ignoring all else. This is "bonkers," sort of like the Mad Hatter's Tea Party. But, nonetheless, too much that is similar remains present in professional practice and, even worse, has long been encouraged in isolated departments of soft science, defined as everything less fundamental than biology.
+
+Even in our youth, some of the best professors were horrified by bad effects from balkanization of academia into insular, turf-protecting enclaves where
+
+---
+
+Notions were maintained by leaps of faith plus exclusion of non believers. Alfred North Whitehead, for one, long ago sounded an alarm in strong language when he spoke of "the fatal unconnectedness of academic disciplines." And, since then, elite educational institutions, agreeing more and more with Whitehead, have steadily fought unconnectedness by bringing in more multidisciplinarity, causing some awesome plaudits to be won in our time by great unconnectedness fighters at borders of academic disciplines, for instance, Harvard's E. O. Wilson and Caltech's Linus Pauling.
+
+Modern academia now gives more multidisciplinarity than we received and is plainly right to do so.
+
+# Alfred North Whitehead (1861-1947)
+
+"Fools act on imagination without knowledge; pedants act on knowledge without imagination."
+
+"True courage is not the brutal force of vulgar heroes, but the firm resolve of virtue and reason."
+
+"Not ignorance, but ignorance of ignorance is the depth of knowledge."
+
+"The silly question is the first intimation of some totally new development."
+
+"Civilizations can only be understood by those who are civilized."
+
+---
+
+No one who achieves success does so without acknowledging the help of others. The wise and confident acknowledge this help with gratitude.
+
+Almost all new ideas have a certain aspect of Foolishness when they are first produced.
+
+The natural third question then becomes: What is now the goal? What is the essential nature of best-form multidisciplinarity in elite education? This question, too, is easy to answer. All we have to do is examine our most successful narrow-scale education, identify essential elements, and scale up those elements to reach the sensible solution.
+
+Yes, I am suggesting today that mighty Harvard would do better if it thought more about pilot training.
+
+To find the best educational narrow-scale model, we have to look not at unthreatened schools of education and the like, too much driven by our two counterproductive psychological tendencies and other bad influences, but, instead, look where incentives for effective education are strongest and results are most closely measured. This leads us to a logical place: the hugely successful education now mandatory for pilots. (Yes, I am suggesting today that mighty Harvard would do better if it thought more about pilot training.)
+
+In piloting, as in other professions, one great hazard is bad effect from man-with-a-hammer tendency. We don't want a pilot, ever, to respond to a hazard as if it was hazard "X" just because his mind contains
+
+---
+
+only a hazard "X" model. And so, for that and other reasons. we train a pilot in a strict six-element system:
+
+1. His formal education is wide enough to cover practically everything useful in piloting.
+2. His knowledge of practically everything needed by pilots is not taught just well enough to enable him to pass one test or two; instead, all his knowledge is raised to practice-based fluency, even in handling two or three intertwined hazards at once.
+3. Like any good algebraist, he is made to think sometimes in a forward fashion and sometimes in reverse; and so he learns when to concentrate mostly on what he wants to happen and also when to concentrate mostly on avoiding what he does not want to happen.
+4. His training time is allocated among subjects so as to minimize damage from his later malfunctions; and so what is most important in his performance gets the most training coverage and is raised to the highest fluency levels.
+5. "Checklist" routines are always mandatory for him.
+6. Even after original training, he is forced into a special knowledge maintenance routine: regular use of the aircraft simulator to prevent atrophy.
+
+---
+
+through long disuse of skills needed to cope with rare and important problems.
+
+We need for best results to have multidisciplinary coverage of immense amplitude, with all needed skills raised to an ever-maintained practice based fluency.
+
+The need for this clearly correct six-element system, with its large demands in a narrow-scale field where stakes are high, is rooted in the deep structure of the human mind. Therefore, we must expect that the education we need for broadscale problem solving will keep all these elements but with awesomely expanded coverage for each element. How could it be otherwise?
+
+Thus it follows, as the night the day, that in our most elite broadscale education wherein we are trying to make silk purses out of silk, we need for best results to have multidisciplinary coverage of immense amplitude, with all needed skills raised to an ever-maintained practice-based fluency, including considerable power of synthesis at boundaries between disciplines, with the highest fluency levels being achieved where they are most needed, with forward and reverse thinking techniques being employed in a manner reminding one of inversion in algebra, and with "checklist" routines being a permanent part of the knowledge system. There can be no other way, no easier way, to broadscale worldly wisdom. Thus the task, when first identified in its immense breadth, seems daunting, verging on impossible.
+
+---
+
+But the task, considered in full context, is far from impossible when we consider three factors:
+
+1. The concept of "all needed skills" lets us recognize that we don't have to raise everyone's skill in celestial mechanics to that of Laplace and also ask everyone to achieve a similar skill level in all other knowledge. Instead, it turns out that the truly big ideas in each discipline, learned only in essence, carry most of the freight. And they are not so numerous, nor are their interactions so complex, that a large and multidisciplinary understanding is impossible for many, given large amounts of talent and time.
+2. In elite education, we have available the large amounts of talent and time that we need. After all, we are educating the top one percent in aptitude, using teachers who, on average, have more aptitude than the students. And we have roughly thirteen long years in which to turn our most promising twelve-year-olds into starting professionals.
+3. Thinking by inversion and through use of "checklists" is easily learned in broadscale life as in piloting.
+
+Moreover, we can believe in the attainability of broad multidisciplinary skill for the same reason the fellow from Arkansas gave for his belief in baptism: "I've seen it done." We all know of individuals, modern Ben Franklin's, who have (1) achieved a massive multidisciplinary synthesis with less time in
+
+---
+
+formal education than is now available to our numerous brilliant young and (Z) thus become better performers in their own disciplines, not worse, despite diversion of learning time to matter outside the normal coverage of their own disciplines.
+
+Given the time and talent available and examples of successful masters of multiple disciplines, what is shown by our present failure to minimize bad effects from man-with-a-hammer tendency is only that you can't win big in multidisciplinarity in soft-science academia if you are so satisfied with the status quo, or so frightened by the difficulties of change, that you don't try hard enough to win big.
+
+# Which brings us to our fourth question:
+
+Judged with reference to an optimized feasible multidisciplinary goal, how much has elite soft-science education been corrected after we left.
+
+The answer is that many things have been tried as corrections in the direction of better multidisciplinarity. And, after allowing for some counterproductive results, there has been some considerable improvement, net. But much desirable correction is still undone and lies far ahead.
+
+For instance, soft science academia has increasingly found it helpful when professors from different disciplines collaborate or when a professor has been credentialed in more than one discipline. But a different sort of correction has usually worked best, namely augmentation, or "take what you wish" practice that encourages any discipline to simply assimilate.
+
+---
+
+whatever it chooses from other disciplines. Perhaps it has worked best because it bypassed academic squabbles rooted in the tradition and territoriality that had caused the unidisciplinary folly for which correction was now sought.
+
+In his great work, A Philosophical Essay on Probabilities, Laplace sets out one of his signature ideas: "We may regard the present state of the universe as the effect of its past and the cause of its future. An intellect which at a certain moment would know all forces that set nature in motion, and all positions of all items of which nature is composed, if this intellect were also vast enough to submit these data to analysis, it would embrace in a single formula the movements of the greatest bodies of the universe and those of the tiniest atom; for such an intellect nothing would be uncertain and the future just like the past would be present before its eyes."
+
+Economics, in turn, took in from a biologist the "tragedy of the commons" model, thus correctly finding a wicked "invisible foot" in coexistence with Adam Smith's angelic "invisible hand."
+
+# Roger Fisher (b. 1922)
+
+Roger Fisher earned a law degree from Harvard in 1948 and stayed on as a faculty member in the Law School. He became director of the Harvard Negotiation Project in 1980. An expert in negotiation and conflict resolution, he co-authored (with Bill Ury) Getting to YES, a classic text in win-win negotiation techniques.
+
+---
+
+In any event, through increased use of "take what you wish," many soft-science disciplines reduced folly from man-with-a-hammer tendency. For instance, led by our classmate Roger Fisher, the law schools brought in negotiation, drawing on other disciplines. Over three million copies of Roger's wise and ethical negotiation book have now been sold, and his life's achievement may well be the best, ever, from our whole class. The law schools also brought in a lot of sound and useful economics, even some good game theory to enlighten antitrust law by better explaining how competition really works.
+
+Economics, in turn, took in from a biologist the "tragedy of the commons" model, thus correctly finding a wicked "invisible foot" in coexistence with Adam Smith's angelic "invisible hand." These days, there is even some "behavioral economics," wisely seeking aid from psychology.
+
+However, an extremely permissive practice like "take what you wish" was not destined to have one-hundred percent-admirable results in soft science. Indeed, in some of its worst outcomes, it helped changes like:
+
+1. assimilation of Freudianism in some literature departments;
+2. importation into many places of extremist political ideologies of the left or right that had, for their possessors, made regain of objectivity almost as unlikely as regain of virginity;
+3. importation into many law and business schools of hard-form, efficient-market theory by misguided would-be experts in corporate finance, one of whom kept explaining Berkshire Hathaway's investing success by adding standard deviations of luck until, at six
+
+---
+
+standard deviations, he encountered enough derision to force a change in explanation.
+
+Moreover, even when it avoided such lunacies, "take what you wish" had some serious defects. For instance, takings from more fundamental disciplines were often done without attribution, sometimes under new names, with little attention given to rank in a fundamentalness order for absorbed concepts. Such practices (1) act like a lousy filing system that must impair successful use and synthesis of absorbed knowledge and (2) do not maximize in soft science the equivalent of linus Pauling's systematic mining of physics to improve chemistry. There must be a better way.
+
+This brings us, finally, to our last question: In elite soft science, what practices would hasten our progress toward optimized disciplinarity? Here again, there are some easy answers:
+
+First, many more courses should be mandatory, not optional. And this, in turn, requires that the people who decide what is mandatory must possess large, multidisciplinary knowledge maintained in fluency. This conclusion is as obvious in the training of the would-be broadscale problem solver as it is in the training of the would-be pilot. For instance, both psychology mastery and accounting mastery should be required as outcomes in legal education. Yet, in many elite places, even today, there are no such requirements. Often, such is the narrowness of mind of the program designers that they neither see what is needed and missing nor are able to fix deficiencies.
+
+---
+
+Second, there should be much more problem-solving practice that crosses several disciplines, including practice that mimics the function of the aircraft simulator in preventing loss of skills through disuse. Let me give an example, roughly remembered, of this sort of teaching by a very wise but untypical Harvard Business School professor many decades ago.
+
+This professor gave a test involving two unworldly old ladies who had just inherited a New England shoe factory making branded shoes and beset with serious business problems described in great detail. The professor then gave the students ample time to answer with written advice to the old ladies. In response to the answers, the professor next gave every student an undesirable grade except for one student who was graded at the top by a wide margin. What was the winning answer? It was very short and roughly as follows: "This business field and this particular business, in its particular location, present crucial problems that are so difficult that unworldly old ladies can not wisely try to solve them through hired help. Given the difficulties and unavoidable agency costs, the old ladies should promptly sell the shoe factory probably to the competitor who would enjoy the greatest marginal utility advantage."
+
+Thus, the winning answer relied not on what the students had most recently been taught in business school but, instead, on more fundamental concepts, like agency costs and marginal utility, lifted from undergraduate psychology and economics.
+
+Ah, my fellow members of the Harvard Law Class of 1948: If only we had been much more often tested like that, just think of what more we might
+
+---
+
+have accomplished! Incidentally, many elite private schools now wisely use such multidisciplinary methods in seventh grade science while, at the same time, many graduate schools have not yet seen the same light. This is one more sad example of Whitehead's "fatal unconnectedness" in education.
+
+Third, most soft-science professional schools should increase use of the best business periodicals, like the Wall Street Journal, Forbes, Fortune, etc. Such periodicals are now quite good and perform the function of the aircraft simulator if used to prompt practice in relating events to multidisciplinary causes, often intertwined. And sometimes the periodicals even introduce new models for causes instead of merely refreshing old knowledge. Also, it is not just slightly sound to have the student practice in school what he must practice lifelong after formal education is over if he is going to maximize his good judgment. I know no person in business, respected for verified good judgment, whose wisdom maintenance system does not include use of such periodicals. Why should academia be different?
+
+Such periodicals are not quite good and perform the function of the aircraft simulator if used to prompt practice in relating events to multidisciplinary causes, often intertwined.
+
+Fourth, in filling scarce academic vacancies, professors of super strong, passionate, political ideology, whether on the left or right, should usually be avoided. So also for students. Best-form multidisciplinarity requires an
+
+---
+
+objectivity' such passionate people have lost, and a difficult synthesis is not likely to be achieved by minds in ideological fetters. In our day, some Harvard Law professors could and did point to a wonderful example of just such ideology-based folly. This, of course, was the Law school at Yale, which was then viewed by many at Harvard as trying to improve legal education by importing a particular political ideology as a dominant factor.
+
+Fifth, soft science should more intensely imitate the fundamental organizing ethos of hard science (defined as the "fundamental four-discipline combination" of math, physics, chemistry, and engineering). This ethos deserves more imitation.
+
+# Richard P. Feynman (1918-1988)
+
+Richard Feynman was born in Far Rockaway, New York. He earned an undergraduate degree in physics from the Massachusetts Institute of Technology and went on to Princeton for a PhD. He worked on the Manhattan Project and was instrumental in the development of the atomic bomb. He held faculty posts at Cornell University until 1951 and then seated at Caltech. Feynman's major contribution to physics was in quantum electrodynamics, the study of the interactions of electromagnetic radiation with atoms and more fundamental particles. He shared the Nobel Prize in physics in 1965.
+
+Late in life, Feynman was named to the commission that investigated the Challenger Space Shuttle accident. He demonstrated the effect of cold
+
+---
+
+temperatures on rubber O-rings and showed how the resulting shrinkage allowed hot gases to escape, causing the explosion.
+
+Read his book surely you're joking Mr. Feynman.
+
+After all, hard science has, by a wide margin, the best record for both (1) avoiding unidisciplinary folly and (2) making user-friendly a big patch of multidisciplinary domain, with frequent, good results like those of physicist Richard Feynman when he so quickly found in cold O-rings the cause of our greatest space shuttle disaster. And previous extensions of the ethos into softer fare have worked well. For instance. biology, starting 150 years ago with a descriptive mess not much related to deep theory, has gradually absorbed the fundamental organizing ethos with marvelous results as new generations have come to use better thinking methods, containing models that answer the question: why? And there is no clear reason why the ethos of hard science can't also help in disciplines far less fundamental than biology.
+
+Here, as I interpret it, is this fundamental organizing ethos I am talking about:
+
+1. You must both rank and use disciplines in order of fundamentalness.
+2. You must, like it or nor, master to tested fluency and routinely use the truly essential parts of all four constituents of the fundamental four-discipline combination, with particularly intense attention given to disciplines more fundamental than your own.
+
+---
+
+3) You may never practice either cross-disciplinary absorption without attribution or departure from a "principle of economy" that forbids explaining in any other way anything readily explainable from more fundamental material in your own or any other discipline.
+
+4) But when the step (3) approach doesn't produce much new and useful insight, you should hypothesize and test to establish new principles, ordinarily by using methods similar to those that created successful old principles. But you may not use any new principle inconsistent with an old one unless you can now prove that the old principle is not true.
+
+There is an old two-part rule that often works wonders in business, science, and elsewhere: (1) Take a simple, basic idea and (2) take it very seriously. You will note that, compared with much current practice in soft science, the fundamental organizing ethos of hard science is more severe. This reminds one of pilot training, and this outcome is not a coincidence. Reality is talking to anyone who will listen. Like pilot training, the ethos of hard science does not say "take what you wish" but "learn it all to fluency, like it or not." And rational organization of multidisciplinary knowledge is forced by making mandatory (1) full attribution for cross-disciplinary takings and (2) mandatory preference for the most fundamental explanation.
+
+This simple idea may appear too obvious to be useful, but there is an old two-part rule that often works wonders in business, science, and elsewhere: (1) Take a simple, basic idea and (2) take it very seriously. And, as some
+
+---
+
+evidence for the value of taking very seriously the fundamental organizing ethos, I offer the example of my own life.
+
+To this day, I have never taken a course, anywhere, in chemistry, economics, psychology, or business.
+
+I came to Harvard Law School very poorly educated, with desultory work habits and no college degree. I was admitted over the objection of Warren Abner Seavey through the intervention of family friend Roscoe Pound. I had taken one silly course in biology in high school, briefly learning, mostly by rote, an obviously incomplete theory of evolution, portions of the anatomy of the paramecium and frog, plus a ridiculous concept of "protoplasm" that has since disappeared. To this day, I have never taken any course, anywhere, in chemistry, economics, psychology, or business. But I early took elementary physics and math and paid enough attention to somehow assimilate the fundamental organizing ethos of hard science, which I thereafter pushed further and further into softer and softer fare as my organizing guide and filing system in a search for whatever multidisciplinary worldly wisdom it would be easy to get.
+
+Thus, my life became a sort of accidental educational experiment with respect to feasibility and utility of a very gross academic extension of the fundamental organizing ethos by a man who also learned well what his own discipline had to reach.
+
+---
+
+What I found, in my extended attempts to complete by informal means my stunted education, was that, plugging along with only ordinary will but with the fundamental organizing ethos as my guide, my ability to serve everything I loved was enhanced far beyond my deserts. Large gains came in places that seemed unlikely as I started out, sometimes making me like the only one without the blindfold in a high-stake game of "pin the tail on the donkey." For instance, I was productively led into psychology, where I had no plans to go, creating large advantages that deserve a story on another day.
+
+Today I have no more story. I have finished my talk by answering my own questions as best as I could in a brief time. What is most interesting to me in my answers is that, while everything I have said is not original and has long been obvious to the point of banality to too many sound and well-educated minds, all the evils I decry remain grossly present in the best of our soft science educational domains where virtually every professor has a too and disciplinary habit of mind, even while a better model exists just across the ice in his own University. To me, these ridiculous outcomes imply that the soft science departments tolerate perverse incentives. Wrong incentives are a major cause because, as Doctor Johnson so widely observed, truth is hard to assimilate in any mind when opposed by interest. And, if institutional incentives cause the problem, then the remedy is feasible because incentives can be changed.
+
+---
+
+# A Notable Exception: One Professor who is Multidisciplinary
+
+Jared Diamond was awarded the 1999 National Medal of Science by President Clinton for his breakthrough discoveries in evolutionary biology and for landmark research in applying Darwinian theory to such diverse fields as physiology and ecology. A physiologist by training and currently a professor of geography at UCLA, Diamond brilliantly synthesizes the great models of many different academic disciplines. To the left is the latest work of this Pulitzer Prize-winning author. (Collapse, how societies choose to fail or succeed)
+
+It is neither inevitable nor advantageous for soft science educational domains to tolerate as much an in disciplinary wrong headedness as they do now.
+
+I have tried to demonstrate today, and indeed by the example of my life, that it is neither inevitable nor advantageous for soft science educational domains to tolerate as much an in disciplinary wrong headedness as they do now. If I could somewhat fix there is an ethos also from Dr. Johnson, that is applicable. Please remember the word Dr. Johnson used to describe maintenance of academic ignorance that is removable through diligence. To Dr. Johnson, such conduct was "treachery."
+
+As Dr. Johnson so wisely observed, truth is hard to assimilate in any mind when opposed by interest. And, if institutional incentives cause the
+
+---
+
+problem, then a remedy is feasible-because incentives can be changed. And if duty will not move improvement, advantage is also available. There will be immense worldly rewards, for law schools and other academic domains as for Charlie Munger, in a more multidisciplinary approach to many problems, common or uncommon. And more fun as well as more accomplishment. The happier mental realm I recommend is one from which no one willingly returns. A return would be like cutting off one's hands.
+
+# Talk Five Revisited
+
+As I review Talk Five in 2006, I would not change a word. And I continue to believe that my ideas are important. In my attitude I may be displaying too much similarity to my long-dead relative, Reverend Theodore Munger, former chaplain of Yale.
+
+Theodore published a collection of his sermons, laying out proper conduct with a strong, excathedra tone. Then, later in life, he published a final edition, reporting in his foreword that he had made no changes at all and was now producing the new edition only because the extreme popularity of his sermons had caused excessive wear in the original printing plates.
+
+“Read over your compositions, and when you meet a Passage which you think is particularly fine, strike it out." -Samuel Johnson
+
+---
+
+# Charlie's Checklists
+
+"How can smart people so often be wrong? They don't do that I'm telling you to do: use a checklist to be sure you get all the main modes and use them together in a multi modular way".
+
+-Munger
+
+"Charlie draws his confidence from the unusually rigorous process he follows to research, analyze, evaluate and decide. He knows he may not always be right, but that the odds are in his favor because his process is so disciplined and realistic. For this reason, he is never reluctant to make a decision and to act decisively upon it."
+
+-Dick Esbenshade, friend and business associate since 1956
+
+In talk Five, Charlie lays out the case for checklists, both formal and informal, as indispensable tools for decision making and problem solving. Throughout the Almanack, he recommends four basic types of checklists that necessarily overlap and reinforce each other:
+
+# The Two-Track Analysis (Pages 63,64):
+
+- What are the factors that really govern the interests involved, rationally considered? (for example, macro and micro-level economic factors).
+- What are the subconscious influences, where the brain at a subconscious
+
+---
+
+# Interesting and Decision Making Checklist (Pages 73-76)
+
+Charlie's informal, but extensive, list of factors worthy of consideration.
+
+# Ultra-Simple, General Problem-Solving Notions (Pages 279-281)
+
+- Decide the big "no-brainer" questions first.
+- Apply numerical fluency.
+- Invert (think the problem through in reverse).
+- Apply elementary multidisciplinary wisdom, never relying entirely upon others.
+- Watch for combinations of factors - the Lollapalooza effect.
+
+# Psychology-Based Tendencies (Pages 440-498)
+
+His famous Twenty-Five Standard Causes of Human Misjudgment.
+
+This speech, delivered in October 1998 to the Foundation Financial Officers Group in Santa Monica, helps account for Charlie's line: "It's sad, but true: Not everybody loves me." In the talk, he attacks the accepted and practiced orthodoxy of his audience with sharp humor, though always without malice.
+
+Charlie has a deep and abiding belief in philanthropy, as is demonstrated by his own generous giving, and he seeks here to save the philanthropic community from itself.
+
+Charlie believes foundations should serve as societal exemplars, which means they must discourage wasteful, non-productive practices. He posits a
+
+---
+
+choice for his audience: the model of genius statesman Ben Franklin or that of disgraced fund manager Bernie Cornfeld. Referring back to his days as a limited partnership manager, Charlie employs, as is typical, self-deprecation and self-reflection: "Early Charlie Munger is a horrible career model for the young." If Charlie can emerge from that state successfully, he seems to be saying, so can the wayward foundation managers in his audience.
+
+# Talk Six
+
+# Investment Practices of Leading Charitable Foundations
+
+Speech to the Foundation Financial Officers Group at Miramar Sheraton Hotel, Santa Monica, California, October 14, 1998, sponsored by the Conrad Hilton Foundation, the Amateur Athletic Foundation, the J. Paul Getty trust, and Rio Honda Memorial Foundation.
+
+I am speaking here today because my friend, John Argue, asked me. And John well knew that I, who, unlike many other speakers on your agenda, having nothing to sell any of you, would be irreverent about much current investment practice in large institutions, including charitable foundations. Therefore any hostility my talk will cause should be directed at John Argue, who comes from the legal profession and may even enjoy it.
+
+---
+
+It was long the norm at large charitable foundations to invest mostly in unleveraged, marketable, domestic securities, mostly equities. The equities were selected by one or a very few investment counseling organizations. But, in recent years, there has been a drift toward more complexity. Some foundations, following the lead of institutions like Yale, have tried to become much better versions of Bernie Cornfeld "fund of funds." This is amazing development. Few would have predicted that long after Cornfeld's fall into disgrace, major universities would be leading foundations into Cornfeld's system.
+
+Now, in some foundations, there are not few but many investment counselors, chosen by an additional layer of consultants who are hired to decide which investment counselors are best, help in allocating funds to various categories, make sure that foreign securities are not neglected in favor of domestic securities, check validity of claimed investment records, ensure that claimed investment styles are scrupulously followed, and help augment an already large diversification in a way that conforms to the latest notions of corporate finance professors about volatility and "beta."
+
+Few would have predicted that long after Cornfeld's fall into disgrace, major universities would be leading foundations into Cornfeld's system. Bernie Cornfeld, born in Turkey, came to America and became a mutual fund salesman in the 1950s. In the 1960s, he started selling his own family of mutual funds, Investors Overseas Services (IOS), incorporated in Switzerland. He hired thousands of salespeople, who sold the funds door to-
+
+---
+
+door all over Europe, especially in Germany. IOS raised $2.5 billion while Cornfeld engaged in lavish personal consumption.
+
+But even with this amazingly active, would-be-polymathic, new layer of consultant-choosing consultants, the individual investment counselors, in picking common stocks, still rely to a considerable extent on a third layer of consultants. The third layer consists of the security analysts employed by investment banks. These security analysts receive enormous salaries, sometimes set in seven figures after bidding wars. The hiring investment banks recoup these salaries from two sources: (1) commissions and trading spreads borne by security buyers (some of which are rebated as "soft dollars" to money managers) plus (2) investment banking charges paid by corporations that appreciate the enthusiastic way their securities are being recommended by the security analysts.
+
+This full cost doesn't show up in conventional accounting. But that is because accounting has limitations and not because the full cost isn't present.
+
+There is one thing sure about all this complexity, including its touches of behavior lacking the full punctilio of honor. Even when nothing but unleveraged stock picking is involved, the total cost of all the investment management, plus the frictional costs of fairly often getting in and out of many large investment positions, can easily reach three percent of foundation net worth per annum if foundations, urged on by consultants, add new activity, year after year. This full cost doesn't show up in
+
+---
+
+conventional accounting. But that is because accounting has limitations and not because the full cost isn't present.
+
+Next, we come to time for a little arithmetic: It is one thing each year to pay the croupiers three percent of starting wealth when the average foundation is enjoying a real return, say, of seventeen percent before the croupiers' take. But it is not written in the stars that foundations will always gain seventeen percent gross, a common result in recent years. And if the average annual gross real return from indexed investment in equities goes back, say, to five percent over some long future period, and the croupiers' take turns out to remain the waste it has always been, even for the average intelligent player, then the average intelligent foundation will be in a prolonged, uncomfortable, shrinking mode. After all, five percent minus three percent minus five percent in donations leaves an annual shrinkage of three percent.
+
+All the equity investors, in total, will surely bear a performance disadvantage per annum equal to the total croupiers' costs they have jointly elected to bear. This is an inescapable fact of life. And it is also inescapable that exactly half of the investors will get a result below the median result after the croupiers' take, which median result may well be somewhere between unexciting and lousy.
+
+The croupiers' take turns out to remain the waste it has always been, even for the average intelligent player.
+
+---
+
+Human nature being what it is, most people assume away worries like those I raise. After all, centuries before Christ, Demosthenes noted, "what a man wishes, he will believe." And in self-appraisals of prospects and talents, it is the norm, as Demosthenes predicted, for people to be ridiculously over-optimistic. For instance, a careful survey in Sweden showed that ninety percent of automobile drivers considered themselves above average. And people who are successfully selling something, as investment counselors do, make Swedish drivers sound like depressives. Virtually every investment expert's public assessment is that he is above average, no matter what is the evidence to the contrary.
+
+But, you may think, my foundation, at least, will be above average. It is well endowed, hires the best, and considers all investment issues at length and with objective professionalism. And to this I respond that an excess of what seems like professionalism will often hurt you horribly—precisely because the careful procedures themselves often lead to overconfidence in their outcome.
+
+A careful survey in Sweden shouted that ninety percent of automobile drivers considered themselves above average. And people who are successfully selling something, as investment counselors do, make Swedish drivers sound like depressives.
+
+General Motors recently made just such a mistake, and it was a lollapalooza. Using fancy consumer surveys, its excess of professionalism, it concluded not to put a fourth floor in a truck designed to serve also as the
+
+---
+
+equivalent of a comfortable five-passenger car. Its competitors, more basic, had actually seen five people enter and exit cars. Moreover, they had noticed that people were used to four doors in a comfortable five-passenger car and that biological creatures ordinarily prefer effort minimization in routine activities and don't like removals of long-enjoyed benefits. There are only two words that come instantly to mind in reviewing General Motors' horrible decision, which has blown many hundreds of millions of dollars. And one of those words is "oops."
+
+Biological creatures ordinarily prefer effort minimization in routine activities and don't like removal of long-enjoyed benefits. Similarly, the hedge fund known as "Long-Term Capital Management" recently collapsed through overconfidence in its highly leveraged methods, despite I.Q.'s of its principles that must have averaged 160. Smart, hardworking people aren't exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.
+
+It is, of course, irritating that extra care in thinking is not all good but also introduces extra error. But most good things have undesired "side effects," and thinking is no exception. The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree, using a mindset described by Nobel laureate Richard Feynman as follows: "The
+
+---
+
+"The first principle is that you must not fool yourself, and you're the easiest person to fool."
+
+# Long-Term Capital Management
+
+Long-Term Capital Management, a hedge fund company founded in 1994 by a well-respected Wall Street bond trader and two Nobel Prize winners in economics, developed complex mathematical models to take advantage of arbitrage deals. Using high levels of debt—about $125 billion by 1998—the fund was poorly positioned for two consecutive months of negative returns combined with Salomon Brothers' exit from the arbitrage business and foreign financial panics. Within a few months, the fund lost almost $2 billion in capital. It became necessary for the Federal Reserve Bank to organize a bailout of the fund to avoid a chain reaction of liquidity requests throughout the economy. The debacle reminded the financial community of the potential seriousness of liquidity risk. The seminal book on the subject, *When Genius Failed*, was translated into many languages.
+
+But suppose that an abnormally realistic foundation, thinking like Feynman, fears a poor future investment outcome because it is unwilling to assume that its unleveraged equities will outperform equity indexes, minus all investment costs, merely because the foundation has adopted the approach of becoming a "fund of funds," with much investment turnover and layers of consultants that consider themselves above average. What are this fearful foundation's options as it seeks improved prospects?
+
+---
+
+There are at least three modern choices:
+
+1. The foundation can both dispense with its consultants and reduce its investment turnover as it changes to indexed investment in equities.
+2. The foundation can follow the example of Berkshire Hathaway, and thus get total annual croupier costs below one-tenth of one percent of principal per annum, by investing with virtually total passivity in a very few much-admired domestic corporations. And there is no reason why some outside advice can't be used in this process. All the fee payer has to do is suitably control the high talent in investment counseling organizations so that the servant becomes the useful tool of its master, instead of serving itself under the perverse incentives of a sort of Mad Hatter's Tea Party.
+3. The foundation can supplement unleveraged investment in marketable equities with investment in limited partnerships that do some combination of the following: unleveraged investment in high-tech corporations in their infancy; leveraged investments in corporate buyouts; leveraged relative value trades in equities; and leveraged convergence trades and other exotic trades in all kinds of securities and derivatives.
+
+For the obvious reasons given by purveyors of indexed equities, I think choice (1), indexing, is a wiser choice for the average foundation than what it is now doing in unleveraged equity investment. And particularly so, as its present total croupier costs exceed one percent of principal per annum.
+
+---
+
+Indexing can't work well forever if almost everybody turns to it. But it will work all right for a long time.
+
+Choice (3), investment in fancy limited partnerships, is largely beyond the scope of this talk. I will only say that the Munger Foundation does not so invest and briefly mention two considerations bearing on LBO funds.
+
+The first consideration bearing on LBO funds is that buying one hundred percent of corporations with much financial leverage and two layers of promotional carry (one for the management and one for the general partners in the LBO fund) is no sure thing to outperform equity indexes in the future if equity indexes perform poorly in the future. In substance, an LBO fund is a better way of buying equivalents of marketable equities on margin, and the debt could prove disastrous if future marketable equity performance is bad. And particularly so, if the bad performance comes from generally bad business conditions.
+
+And there are now very many LBO funds, both large and small, mostly awash in money and with general partners highly incentivized to buy something.
+
+The second consideration is increasing competition for LBO candidates. For instance, if the LBO candidates are good service corporations, General Electric can now buy more than $10 billion worth per year in GE's credit corporation, with one hundred percent debt financing at an interest rate only slightly higher than the U.S. government is paying. This sort of thing is not
+
+---
+
+ordinary competition, but super competition. And there are now very many LBO funds, both large and small, mostly awash in money and with general partners highly incentivized to buy something. In addition, there is increased buying competition from corporations other than GE using some combination of debt and equity.
+
+In short, in the LBO field, there is a buried covariance with marketable equities-toward disaster in generally bad business conditions-and competition is now extreme.
+
+Given time limitations, I can say no more about limited partnerships, one of which I once ran. This leaves for extensive discussion only foundation choice (2), more imitation of the investment practices of Berkshire Hathaway in maintaining marketable equity portfolios with virtually zero turnover and with only a very few stocks chosen. This brings us to the question of how much investment diversification is desirable at foundations.
+
+I have more than skepticism regarding the orthodox view that huge diversification is a must for those wise enough so that indexation is not the logical mode for equity investment. I think the orthodox view is grossly mistaken.
+
+In the United States, a person or institution with almost all wealth invested long-term, in just three fine domestic corporations, is securely rich. And why should such an owner care if, at any time, most other investors are
+
+---
+
+faring somewhat better or worse? And particularly so when he rationally believes, like Berkshire, that his long-term results will be superior by reason of his lower costs, required emphasis on long-term effects, and concentration in his most preferred choices.
+
+# Robert W Woodruff (1889-1985)
+
+Robert Woodruff was born in Georgia to a father who was president of a major trust company. Woodruff had an unremarkable school career, but once in the workforce, he succeeded quickly. Although he started in car sales, by age thirty-three he had taken over the Coca-Cola Company. He turned a fairly small soft-drink manufacturer and bottler into a corporate giant known worldwide. Over the remainder of his life, Woodruff was unusually philanthropic and established a large foundation that now bears his name.
+
+Woodruff's personal creed gives one a good sense of how he accomplished so much in his long life:
+
+"There is no limit to what a man can do or where he can go if he doesn't mind who gets the credit."
+
+I go even further. I think it can be a rational choice, in some situations, for a family or a foundation to remain ninety percent concentrated in one equity. Indeed, I hope the Mungers follow roughly this course. And I note that the Woodruff foundations have, so far, proven extremely wise to retain an approximately ninety percent concentration in the founder's Coca-Cola stock. It would be interesting to calculate just how all American foundations would have fared if they had never sold a share of founder's stock.
+
+---
+
+stock. Very many, I think, would now be much better off. But you may say, the diversifiers simply took out insurance against a catastrophe that didn't occur. And I reply: There are worse things than some foundation's losing relative clout in the world, and rich institutions, like rich individuals, should do a lot of self-insurance if they want to maximize long-term results.
+
+# Peter E Drucker (1909-2005)
+
+Peter Drucker, born in Austria, was educated there and in England. He earned a PhD. in public and international law while working as a newspaper reporter in Germany. Later, he worked as an economist in a London bank and came to the United States in 1937. His academic career has included professorships at Bennington College, New York University and, starting in 1971, Claremont Graduate University, where the graduate management school is named after him. For decades, he consulted for businesses and nonprofit organizations.
+
+Author of some thirty books on management, philosophy, and other topics, Drucker is considered a seminal thinker, writer, and lecturer on the contemporary organization. In 2002, he received the Presidential Medal of Freedom.
+
+Some important factor does not lose share of force just because some 'expert' can better measure other types of force. Furthermore, all the good in the world is not done by foundation donations. Much more good is done through the ordinary business operations of the
+
+---
+
+corporations in which the foundations invest. And some corporations do much more good than others do in a way that gives investors therein better-than-average long term prospects. And I don't consider it foolish, stupid, evil, or illegal for a foundation to greatly concentrate investment in what it admires or even loves. Indeed, Ben Franklin required just such an investment practice for the charitable endowment created by his will.
+
+One other aspect of Berkshire's equity investment practice deserves comparative mention. So far there has been almost no direct foreign investment at Berkshire and much foreign investment at foundations. Regarding this divergent history I wish to say that I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests compared to other interests and compared to most other countries. Indeed, there are many other countries where any good going to public shareholders has a very low priority and almost every other constituency stands higher in line. This factor, I think, is underweighted at many investment institutions, probably because it does not easily lead to quantitative thinking using modern financial technique. But some important factor doesn't lose share of force just because some "expert" can better measure other types of force.
+
+Generally, I tend to prefer over direct foreign investment Berkshire's practice of participating in foreign economies through the likes of Coca-Cola and Gillette. I tend to prefer over direct foreign instrument Berkshire's practice of participating in foreign economies through the lives of Coca-Cola and.
+
+---
+
+# Gillette
+
+To conclude, I will make one controversial prediction and one controversial argument.
+
+The controversial prediction is that, if some of you make your investment style more like Berkshire Hathaway's, in a long-term retrospect, you will be unlikely to have cause for regret, even if you can't get Warren Buffett to work for nothing. Instead, Berkshire will have cause for regret as it faces more intelligent investment competition. But Berkshire won't actually regret any disadvantage from your enlightenment. We only want what success we can get despite encouraging others to share our general views about reality.
+
+My controversial argument is an additional consideration weighing against the complex, high-cost investment modalities becoming ever more popular at foundations. Even if, contrary to my suspicions, such modalities should turn out to work pretty well, most of the money-making activity would contain profoundly antisocial effects. This would be so because the activity would exacerbate the current, harmful trend in whichever more of the nations ethical young brainpower is attracted into lucrative money management and its attendant modern frictions, as distinguished from work providing much more value to others. Money management does not create the right examples. Early Charlie Munger is a horrible career model for the young because not enough was delivered to civilization in return for what was wrested from capitalism. And other similar career models are even worse.
+
+---
+
+Money management does not create the right examples. Early Charlie Munger is a horrible career model for the young because not enough was delivered to civilization in return for what was wrested from capitalism. Rather than encourage such models, a more constructive choice at foundations is long-term investment concentration in a few domestic corporations that are wisely admired.
+
+Why not thus imitate Ben Franklin? After all, old Ben was very effective in doing public good. And he was a pretty good investor, too. Better his model, I think, than Bernie Cornfeld's. The choice is plainly yours to make.
+
+# Talk Six Revisited
+
+A lot of water has passed under the bridge since this talk was made in 1998. And what has happened by 2006 is that we now see much more of the conduct I criticized.
+
+In particular, frictional costs for stock market investors have increased markedly, and there has been an increase in the share of young brainpower becoming, with respect to investments, what the tout is with respect to horse racing tracks.
+
+Indeed, I recently heard Warren Buffett say that if present investment trends spread to racetracks, most bettors will try to improve results by always bringing along a well-paid personal tout.
+
+---
+
+However, at the same time that lovers of frictional costs have been spending more on what they love, there has also been an increase in holdings of stocks that track market indexes in a manner imposing negligible costs. This cost-averse, index-mimicking group does not grow fast enough to prevent an increase in total frictional costs, but more stockholding is slowly being converted to the passive, indexed mode.
+
+# 351 Handicapping Is Investing, Investing Is Handicapping
+
+Charlie likes to cite similarities between the pari-mutuel betting system used at horse races and the stock market (see pages 196 and 197). Further, he compares the best investing opportunities to mispriced bets on horses, saying, "What we're really looking for are 50-50 odds which pay three to one" (see page 64).
+
+Equally attuned to race track analogies is Warren Buffett. Intrigued as a boy by the voluminous data involving variables such as weights, speed ratings, pace, past performance, and breeding, Buffett developed a keen interest in horse racing. Along with a friend, he formed a partnership to produce a tipsheet, Stable Boy Selections, which was then sold at Omaha's Ak-Sar-Ben race track ("Nebraska" spelled backwards).
+
+Buffett's early days as a horse handicapper may continue to benefit him today as an investor. In both arenas, voluminous data, variables and
+
+---
+
+unknowns exist, together with different schools of thought as to how such factors should best be evaluated. Not surprisingly, Buffett applies a similar methodology to both pursuits.
+
+Back on the subject of handicapping, there are two schools to which most practitioners belong: speed and trip. Much like the momentum investor in the stock market, the speed handicapper likes to get horses that win races in fast times—don't we all? The trip handicapper is more concerned with the nuances of the trip the horse had. Did the track favour closers that day? Was the horse hindered? Was there a lot of speed in the race, no speed?
+
+The legendary stock market investor Warren Buffett began his adult life publishing a racetrack date sheet. He was defined in western style by calling himself a trip handicapper; few of his followers likely comprehended his remark—race trackers certainly did.
+
+Added to the credibility of the above view by Rice Debry Journal is the fact that its predicted winner of the 1993 Kentucky Derby, Sea Hero, indeed won, paying a hefty $27.80 for those astute enough to place a $2 bet.
+
+# Nothing to Add
+
+# Number Five
+
+We continue with this question on the subject of performing arts:
+
+Question: "Do you play the piano?"
+
+---
+
+Answer: "I don't know. I've never tried."
+
+This speech was delivered in November 2000 to the Philanthropy Roundtable in Pasadena. Startling Charlie's family and friends, Jody Curtis, of Foundation & Commentary, characterized Charlie as "a friendly old uncle, one with a jolly sense of humor at that."
+
+Charlie's goal, as was the case in the previous speech, was to save foundations from their own mistakes by getting them to invest effectively, with minimum waste. Charlie warns foundations that they often act unwisely because of "a failure to understand their own investment operations, related to the larger system" of which they're a part. Never one to pull punches, he boldly and bluntly challenges his listeners to cure the ignorance that is jeopardizing their foundations and those who depend on them. Charlie coins the term "febezzlement"-the functional equivalent of embezzlement-to explain how wealth is stripped away by layers of unnecessary investment managers and consultants.
+
+# Talk Seven
+
+# Philanthropy Roundtable
+
+# Breakfast Meeting of the Philanthropy Roundtable November 10, 2000
+
+I am here today to talk about so-called "wealth effects" from rising prices for U.S. common stocks.
+
+---
+
+I should concede, at the outset, that "wealth effects" are part of the academic discipline of economics and that I have never taken a single course in economics, nor tried to make a single dollar, ever, from foreseeing macroeconomic changes.
+
+Nonetheless, I have concluded that most Ph.D. economists underappraise the power of the common-stock-based "wealth effect," under current extreme conditions.
+
+Everyone now agrees on two things. First, spending proclivity is influenced in an upward direction when stock prices go up and in a downward direction when stock prices go down. And, second, the proclivity to spend is terribly important in macroeconomics. However, the professionals disagree about the size and timing of "wealth effects," and how they interact with other effects, including the obvious complication that increased spending tends to drive up stock prices while stock prices are concurrently driving up spending. Also, of course, rising stock prices increase corporate earnings even when spending is static, for instance, by reducing pension cost accruals after which stock prices tend to rise more. Thus, "wealth effects" involve mathematical puzzles that are not nearly so well worked out as physics theories and never can be.
+
+I have never taken a single course in economics, nor tried to make a single dollar from foreseeing macroeconomic changes.
+
+---
+
+The "wealth effect" from rising U.S. stock prices is particularly interesting right now for two reasons. First, there has never been an advance so extreme in the price of widespread stock holdings and, with stock prices going up so much faster than GNP, the related "wealth effect" must now be bigger than was common before. And second, what has happened in Japan over roughly the last ten years has shaken up academic economics, as it obviously should, creating strong worries about recession from "wealth effects" in reverse.
+
+In Japan, with much financial corruption, there was an extreme rise in stock and real estate prices for a very long time, accompanied by extreme real economic growth, compared to the United States. Then, asset values crashed, and the Japanese economy stalled out at a very suboptimal level. After this, Japan, a modern economy that had learned all the would-be-corrective Keynesian and monetary tricks, pushed these tricks hard and long. Japan, for many years, not only ran an immense government deficit but also reduced interest rates to a place within hailing distance of zero and kept them there. Nonetheless, the Japanese economy, year after year, stays stalled, as Japanese proclivity to spend stubbornly resists all the tricks of the economists. And Japanese stock prices stay down.
+
+This Japanese experience is a disturbing example for everyone and, if something like it happened here, would leave shrunken charitable foundations feeling clobbered by fate. Let us hope, as is probably the case, that the sad situation in Japan is caused in some large part by social psychological effects and corruption peculiar to Japan. In such case, our country may be at least half as safe as is widely assumed.
+
+---
+
+"Wealth effects" involve mathematical puzzles that are not nearly so well worked out as physics theories and never can be. Well, grant that spending proclivity, as influenced by stock prices, is now an important subject and that the long Japanese recession is disturbing. How big are the economic influences of U.S. stock prices? A median conclusion of the economics professionals, based mostly on data collected by the Federal Reserve System, would probably be that the "wealth effect" on spending from stock prices is not all that big. After all, even now, real household net worth, excluding pensions, is probably up by less than one hundred percent over the last ten years and remains a pretty modest figure per household, while market value of common stock is probably not yet one-third of aggregate household net worth, excluding pensions. Moreover, such household wealth in common stocks is almost incredibly concentrated. The super-rich don't consume in proportion to their wealth. Leaving out pensions, the top one percent of households probably hold about fifty percent of common stock value, and the bottom eighty percent probably hold about four percent.
+
+Based on such data plus unexciting past correlation between stock prices and spending, it is easy for a professional economist to conclude, say, that even if the average household spends incrementally at a rate of three percent of asset values in stock, consumer spending would have risen less than one-half percent per year over the last ten years as a consequence of the huge, unprecedented, long-lasting, consistent boom in stock prices.
+
+---
+
+I believe that such economic thinking widely misses underlying reality right now. To me, such thinking looks at the wrong numbers and asks the wrong questions. Let me, the ultimate amateur, boldly try to do a little better, or at least a little differently.
+
+# John Kenneth Galbraith (b. 1908)
+
+John Kenneth Galbraith, born in Ontario, Canada, graduated from Ontario Agricultural College and went on for a Ph. D. from the University of California, Berkeley. In 1949, he joined the economics faculty at Harvard University. A friend of President John F. Kennedy, Galbraith served as U.S. ambassador to India from 1961 to 1963.
+
+As an economist, Galbraith holds progressive values and writes accessible books that often describe how economic theory does not always mesh with real life. Among his best known works are American Capitalism: The Concept of Countervailing Power (1952), The Affluent Society (1958), and The New Industrial State (1967).
+
+For one thing, I have been told, probably correctly, that Federal Reserve data collection, due to practical obstacles, doesn't properly take into account pension effects, including effects from 401(k) and similar plans. Assume some sixty three-year-old dentist has $1 million in GE stock in a private pension plan. The stock goes up in value to $2 million, and the dentist, feeling flush, trades in his very old Chevrolet and leases a new Cadillac at the giveaway rate now common. To me, this is an obvious large "wealth effect" in the dentist's spending. To many economists, using Federal Reserve data, I suspect the occasion looks like profligate dissaving by the dentist.
+
+---
+
+dentist. To me, the dentist, and many others like him, seems to be spending a lot more because of a very strong pension-related "wealth effect." Accordingly, I believe that present-day "wealth effect" from pension plans is far from trivial and much larger than it was in the past.
+
+For another thing, the traditional thinking of economists often does not take into account implications from the idea of "bezzle." Let me repeat: "bezzle," B-E-Z-Z-L-E. The word "bezzle" is a contraction of the word "embezzle," and it was coined by Harvard Economics Professor John Kenneth Galbraith to stand for the increase in any period of undisclosed embezzlement. Galbraith coined the "bezzle" word because he saw that undisclosed embezzlement, per dollar, has a very powerful stimulating effect on spending. After all, the embezzler spends more because he has more income, and his employer spends as before because he doesn't know any of his assets are gone.
+
+But Galbraith did not push his insight on. He was content to stop with being a stimulating gadfly. So, I will now try to push Galbraith's "bezzle" concept onto the next logical level. As Keynes showed, in a native economy relying on earned income, when the seamstress sells a coat to the shoemaker for twenty dollars, the shoemaker has twenty dollars less to spend, and the seamstress has twenty dollars more to spend. There is no lollapalooza effect on aggregate spending. But when the government prints another twenty dollar bill and uses it to buy a pair of shoes, the shoemaker has another
+
+---
+
+twenty dollars, and no one feels poorer. And when the shoemaker next buys a coat, the process goes on and on, not to an infinite increase, but with what is now called the Keynesian multiplier effect, a sort of lollapalooza effect on spending. Similarly, an undisclosed embezzlement has stronger stimulative effects per dollar on spending than a same-sized honest exchange of goods. Galbraith, being Scottish, liked the bleakness of life demonstrated by his insight. After all, the Scottish enthusiastically accepted the idea of preordained, unfixable infant damnation. But the rest of us don't like Galbraith's insight. Nevertheless, we have to recognize that Galbraith was roughly right.
+
+Undisclosed embezzlement, per dollar has a very powerful stimulating effect on spending. After all, the embezzler spends more because he has more income, and his employer spends more because he doesn't know any of his assets are gone.
+
+No doubt Galbraith saw the Keynesian-multiplier-type economic effect promised by increases in "bezzle." But he stopped there. After all, "bezzle" could not grow very big because discovery of massive theft was nearly inevitable and sure to have reverse effects in due course. Thus, increase in private "bezzle" could not drive economies up and up, and on and on, at least for a considerable time, like government spending.
+
+Deterred by the apparent smallness of economic effects from his insight, Galbraith did not ask the next logical question: Are there important functional equivalents of "bezzle" that are large and not promptly self-
+
+---
+
+destructive? My answer to this question is yes. I will next describe only one. I will join Galbraith in coining new words: first, "febezzle," to stand for the functional equivalent of "bezzle"; second, "febezzlement," to describe the process of creating "febezzle"; and third, "febezzlers," to describe persons engaged in "febezzlement." Then, I will identify an important source of "febezzle" right in this room. You people, I think, have created a lot of "febezzle" through your foolish investment management practices in dealing with your large holdings of common stock.
+
+If a foundation, or other investor, wastes three percent of assets per year in unnecessary, nonproductive investment costs in managing a strongly rising stock portfolio, it still feels richer, despite the waste, while the people getting the wasted three percent, "febezzlers" though they are, think they are virtuously earning income. The situation is functioning like undisclosed embezzlement without being self-limited. Indeed, the process can expand for a long while by feeding on itself. And, all the while, what looks like spending from earned income of the receivers of the wasted three percent is, in substance, spending from a disguised "wealth effect" from rising stock prices.
+
+It is paradoxical and disturbing to us that economists have long praised foolish spending as a necessary ingredient of a successful economy!. This room contains many people pretty well stricken by expired years-in my generation or the one following. We tend to believe in thrift and avoiding waste as good things, a process that has worked well for us. It is
+
+---
+
+Paradoxical and disturbing to us that economists have long praised foolish spending as a necessary ingredient of a successful economy. Let us call foolish expenditures "foolexures." And now you holders of old values are hearing one of your own add to the case for "foolexures" the case for "febezzelments" - the functional equivalent of embezzlements. This may not seem like a nice way to start a new day. Please be assured that I don't like "febezzlements." It is just that I think "febezzlements" are widespread and have powerful economic effects. And I also think that one should recognize reality even when one doesn't like it, indeed, especially when one doesn't like it. Also, I think one should cheerfully endure paradox that one can't remove by good thinking. Even in pure mathematics, they can't remove all paradox, and the rest of us should also recognize we are going to have to endure a lot of paradox, like it or not.
+
+I also think that one should recognize reality even when one doesn't like it, indeed, especially when one doesn't like it.
+
+Let me also take this occasion to state that my previous notion of three percent of assets per annum in waste in much institutional investment management related to stocks is quite likely too low in a great many cases.
+
+---
+
+A friend, after my talk to foundation financial officers, sent me a summary of a study about mutual fund investors. The study concluded that the typical mutual fund investor gained at 7.25 percent per year in a fifteen-year period when the average stock fund gained at 12.8 percent per year (presumably after expenses). Thus, the real performance lag for investors was over five percent of assets per year in addition to whatever percentage per year the mutual funds, after expenses, lagged behind stock market averages.
+
+If this mutual fund study is roughly right, it raises huge questions about foundation wisdom in changing investment managers all the time as mutual fund investors do. If the extra lag reported in the mutual fund study is probably caused in considerable measure by the constant removal of assets from lagging portfolio managers being forced to liquidate stockholdings followed by placement of removed assets with new investment managers that have high pressure but gaining houses and their mouths and clients whose investment results will not be improved by the super rapid injection of new funds.
+
+I am always having trouble like that caused by this new mutual fund study and describe something realistically that looks so awful that my description is disregarded as extreme satire instead of reality. Next new reality talks the horror of mind is believed description by some large amount. No wonder Manga notions of reality are not widely welcome. This may be my last talk to charitable foundations.
+
+---
+
+Now, talk with the febezzlenrent in investment management about 750 billion dollars in floating ever-growing ever renewing wealth from employee stock options and you get lot more common stock related wealth effect driving consumption, with some of the wealth effect from employee stock options been in substance febezzle effect, fascinated by the corrupt accounting practice now required by standard practice.
+
+Next, consider that each 100. Advance in the s and p adds about dollar one trillion in stock market value and throw in some sort of Keynesian type multiplayer effect related to all febezzlement. the related macroeconomic wealth effects I believe become much larger than is conventionally supposed.
+
+And aggregate wealth effect from stock prices can get very large indeed it is an unfortunate fact that great and foolish excess can come into prices of common stocks in the aggregate they are valued partly like bonds based on roughly rational projections of use value in producing future cash but they are also valued party like rembrandt paintings car purchase mostly because their prices have gone up, so far this situation, combined with big wealth effects at first up and later down, can conceivably produce much mischief.
+
+Latest try to investigate this by a thought experiment one of the big British pension funds once got a lot of ancient art, planning to sell it in 10 years later which date at a modest profit suppose all pension funds purchased Asian Art and only ancient art with all their assets.
+
+---
+
+wouldn't we eventually have a terrible mess in our hands with great and undesirable macroeconomic consequences? And wouldn't the match be bad if only half of all pension funds were invested in ancient art? And if half of all stock value became a consequence of Mania, is it not the situation much like the case where and half of pension assets are ancient at?
+
+One of the big British pension funds once bought a lot of ancient art, planning to sell it ten years later which it did, at a modest profit.
+
+My foregoing acceptance of the possibility that stock value in aggregate can become irrationally high is contrary to the hard-form "efficient market" theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by "rational man" models of human behavior from economics and too little by "foolish man" models from psychology and real-world experience. "Crowd folly," the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior-like investment management practices of many foundations represented here today. It is sad that today each institutional investor apparently fears most of all that its investment practices will be different from practices of the rest of the crowd.
+
+Well, this is enough uncredentialed musing for one breakfast meeting. If I am at all right, our present
+
+---
+
+Prosperity has had a stronger boost from common stock-price-related "wealth effects," some of them disgusting, than has been the case in many former booms. If so, what was greater on the upside in the recent boom could also be greater on the downside at some time of future stock price decline. Incidentally, the economists may well conclude, eventually, that, when stock market advances and declines are regarded as long-lasting, there is more downside force on optional consumption per dollar of stock market decline than there is upside force per dollar of stock market rise. I suspect that economists would believe this already if they were more willing to take assistance from the best ideas outside their own discipline, or even to look harder at Japan.
+
+Remembering Japan, I also want to raise the possibility that there are, in the very long term, "virtue effects" in economics—for instance, that widespread corrupt accounting will eventually create bad long-term consequences as a sort of obverse effect from the virtue-based boost double-entry bookkeeping gave to the heyday of Venice. I suggest that when the financial scene starts reminding you of Sodom and Gomorrah, you should fear practical consequences even if you like to participate in what is going on.
+
+Finally, I believe that implications for charitable foundations of my conclusions today, combined with conclusions in my former talk to foundation financial officers, go way beyond implications for investment techniques. If I am right, almost all U.S. foundations are unwise through failure to understand their own investment operations, related to the larger system. If so, this is not good. A rough rule in life is that an organization
+
+---
+
+foolish in one way in dealing with a complex system is all too likely to be foolish in another. So the wisdom of foundation donations may need as much improvement as investment practices of foundations. And here we have two more old rules to guide us. One rule is ethical, and the other is prudential.
+
+The ethical rule is from Samuel Johnson, who believed that maintenance of easily removable ignorance by a responsible officeholder was treacherous malfeasance in meeting moral obligation.
+
+The ethical rule is from Samuel Johnson, who believed that maintenance of easily removable ignorance by a responsible officeholder was treacherous malfeasance in meeting moral obligation. The prudential rule is that underlying the old Warner & Swasey advertisement for machine tools: "The man who needs a new machine tool and hasn't bought it is already paying for it." 'The Warner & Swasey rule also applies, I believe, to thinking tools. If you don't have the right thinking tools, you, and the people you seek to help, are already suffering from your easily removable ignorance.
+
+# Talk Seven Revisited
+
+This talk in November 2000 turned out to be pretty timely, because stock market unpleasantness therefore greatly increased, particularly for high-tech stocks.
+
+---
+
+But, as nearly as I can tell, there has been absolutely no theoretical reaction from anyone who heard or read the talk. I still believe everything I said about significant macroeconomic effects from "febezzlement" through excessive investment costs.
+
+But no one trained in economics has ever tried to engage with me on this subject.
+
+Undeterred by this apathy, I am now going to push my reasoning one notch further by laying out a "thought experiment" extrapolating the combined reasoning of Talks Six and Seven to an assumed higher level of investment costs.
+
+Assume that 2006 stock prices rise by 200% while corporate earnings do not rise, at which point all the sensibly distributable earnings of all U.S. corporations combined amount to less than the total of all stockholder investment costs, because such costs rise proportionally with stock prices.
+
+Now so long as this situation continues, no money at all, net of investment costs, is going out of all corporations to all corporate owners combined. Instead, frictional cost imposters get more than all sensibly distributable corporate earnings. And at the end of any year, the corporate owners in aggregate can get money by reason of their stockholding only by making stock sales to providers of "new money" who, considering high continuing investment costs for themselves and others, must expect that stock prices will keep rising indefinitely while all stock owners, combined, are getting nothing, net, except by selling stock to more "new money."
+
+---
+
+To many imposers of frictional investment costs, this peculiar state of affairs would seem ideal, with more than 100% of sensibly distributable corporate earnings going to precisely the right sort of people, instead of being wasted on the shareholders. And some economists would regard the result as good because it came about in a market. But to me it would resemble a weird and disturbing combination of (1) a gambling casino imposing an unreasonably greedy take for the house, plus (2) a form of Ponzi-like scheme, similar to the market for expensive art, in which participation would be unsuitable for pension funds, etc., plus (3) a bubble of speculation that would eventually burst, probably with unfortunate macroeconomic consequences. And what the situation would not look like is a state of affairs likely to function well in guiding the capital development of the surrounding civilization.
+
+Such a state of affairs, or even a lesser version, would, I think, reduce the reputation of our country, and deservedly so.
+
+This parable and morality play gives Charlie a chance to vent his anger at the accounting profession's role in corporate malfeasance. Hand written by Charlie when he was vacationing in the summer of 2000, the speech is an eerie prediction of the scandals that surfaced well before his predicted date of 2003 and that continue today to be an important issue.
+
+The early Quant Tech appears to be loosely based on C. E Braun Engineering, a firm whose brilliant founder, Carl F. Braun, and business practices Charlie greatly admired. (The firm was ultimately sold to the
+
+---
+
+Kuwaiti government; so the later Quant Tech is not modeled in any way on C. E Braun Engineering).
+
+Charlie chronicles how leadership change in a very successful company can consign the firm to mediocrity-or worse, to disrepute and failure. When new management adopts modern financial engineering techniques, especially the use of stock options that aren't expensed, all is lost.
+
+Shakespeare's King Henry VI said, "First thing we do, let's kill all the lawyers."
+
+Charlie, an attorney, might reject that idea, but accountants? Well...
+
+# Talk Eight
+
+# The Great Financial Scandal of 2003
+
+An Account by Charles T Munger, Summer 2000
+
+The great financial scandal erupted in 2003 with the sudden, deserved disgrace of Quant Technical Corporation, always called "Quant Tech." By this time, Quant Tech was the country's largest pure engineering firm, having become so as a consequence of the contributions of its legendary founder, engineer Albert Berzog Quant.
+
+Quant Tech is a fictitious engineering company that, in our story, experiences many of the common maladies of real companies-especially the
+
+---
+
+fatal flaw of not accounting properly for the real costs of employee stock options.
+
+After 2003, people came to see the Quant Tech story as a sort of morality play, divided into two acts. Act One, the era of the great founding engineer, was seen as a golden age of sound values. Act Two, the era of the founder's immediate successors, was seen as the age of false values with Quant Tech becoming, in the end, a sort of latter-day Sodom or Gomorrah.
+
+In fact, as this account will make clear, the change from good to evil did not occur all at once when Quant Tech's founder died in 1982. Much good continued after 1982, and serious evil had existed for many years prior to 1982 in the financial culture in which Quant Tech had to operate.
+
+The Quant Tech story is best understood as a classic sort of tragedy in which a single flaw is inexorably punished by remorseless Fate. The flaw was the country's amazingly peculiar accounting treatment for employee stock options. The victims were Quant Tech and its country. The history of the Great Financial Scandal, as it actually happened, could have been written by Sophocles.
+
+As his life ended in 1982, Albert Herzog Quant delivered to his successors and his Maker a wonderfully prosperous and useful company. The sole business of Quant Tech was designing, for fees, all over the world, a novel type of superclean and super efficient small power plant that improved electricity generation.
+
+---
+
+He no more wanted bad accounting in his business than he wanted bad engineering.
+
+By 1982, Quant Tech had a dominant market share in its business and was earning $100 million on revenues of $1 billion. Its costs were virtually all costs to compensate technical employees engaged in design work. Direct employee compensation cost amounted to seventy percent of revenues. Of this seventy percent, thirty percent was base salaries and forty percent was incentive bonuses being paid out under an elaborate system designed by the founder. All compensation was paid in cash. There were no stock options because the old man had considered the accounting treatment required for stock options to be "weak, corrupt, and contemptible," and he no more wanted bad accounting in his business than he wanted bad engineering.
+
+Moreover, the old man believed in tailoring his huge incentive bonuses to precise performance standards established for individuals or small groups, instead of allowing what he considered undesirable compensation outcomes, both high and low, such as he believed occurred under other companies' stock option plans.
+
+Yet, even under the old man's system, most of Quant Tech's devoted longtime employees were becoming rich, or sure to get rich. This was happening because the employees were buying Quant Tech stock in the market, just like non employee shareholders. The old man had always figured that people smart enough, and self disciplined enough, to design power plants could reasonably be expected to take care of their own.
+
+---
+
+financial affairs in this way. He would sometimes advise an employee to buy Quant Tech stock, but more paternalistic than that he would not become.
+
+By the time the founder died in 1982, Quant Tech was debt free and, except as a reputation-enhancer, really didn't need any shareholders' equity to run its business, no matter how fast revenues grew.
+
+However, the old man believed with Ben Franklin that "it is hard for an empty sack to stand upright," and he wanted Quant Tech to stand upright. Moreover, he loved his business and his coworkers and always wanted to have on hand large amounts of cash equivalents so as to be able to maximize workout or work-up chances if an unexpected adversity or opportunity came along. And so, in 1982, Quant Tech had on hand $500 million in cash equivalents, amounting to fifty percent of revenues.
+
+Possessing a strong balance sheet and a productive culture and also holding a critical mass of expertise in a rapidly changing and rapidly growing business, Quant Tech, using the old man's methods, by 1982 was destined for twenty years ahead to maintain profits at ten percent of revenues while revenues increased at twenty percent per year. After these twenty years, commencing in 2003, Quant Tech's profit margin would hold for a very long time at ten percent while revenue growth would slow down to four percent per year. But no one at Quant Tech knew precisely when it's inevitable period of slow revenue growth would begin.
+
+---
+
+The old man's dividend policy for Quant Tech was simplicity itself. He never paid a dividend. Instead, all earnings simply piled up in cash equivalents.
+
+Every truly sophisticated investor in common stocks could see that the stock of cash-rich Quant Tech provided a splendid investment opportunity in 1982 when it sold at a mere fifteen times earnings and, despite its brilliant prospects, had a market capitalization of only $1.5 billion. This low market capitalization, despite brilliant prospects, existed in 1982 because other wonderful common stocks were also then selling at fifteen times earnings, or less, as a natural consequence of high interest rates then prevailing plus disappointing investment returns that had occurred over many previous years for holders of typical diversified portfolios of common stocks.
+
+One result of Quant Tech's low market capitalization in 1982 was that it made Quant Tech's directors uneasy and dissatisfied right after the old man's death. A wiser board could then have bought in Quant Tech's stock very aggressively, using up all cash on hand and also borrowing funds to use in the same way. However, such a decision was not in accord with conventional corporate wisdom in 1982. And so the directors made a conventional decision. They recruited a new CEO and CFO from outside Quant Tech, in particular from a company that then had a conventional stock option plan for employees and also possessed a market capitalization at twenty times reported earnings, even though its balance sheet was weaker than Quant Tech's.
+
+---
+
+Tech's and its earnings were growing more slowly than earnings at Quant Tech. Incident to the recruitment of the new executives, it was made plain that Quant Tech's directors wanted a higher market capitalization as soon as feasible.
+
+The newly installed Quant Tech officers quickly realized that the company could not wisely drive its revenues up at an annual rate higher than the rate in place or increase Quant Tech profit margin. The founder had plainly achieved an optimum in each case. Nor did the new officers dare tinker with an engineering culture that was working so well. Therefore, the new officers were attracted to employing what they called "modern financial engineering," which required prompt use of any and all arguably lawful methods for driving up reported earnings, with big, simple changes to be made first.
+
+By a strange irony of fate, the accounting convention for stock options that had so displeased Quant Tech's founder now made the new officers' job very easy and would ultimately ruin Quant Tech's reputation. There was now an accounting convention in the United States that, provided employees were first given options, required that when easily marketable stock was issued to employees at a below-market price, the bargain element for the employees, although roughly equivalent to cash, could not count as compensation expense in determining a company's reported profits. This amazingly peculiar accounting convention had been selected by the accounting profession, over the objection of some of its wisest and most ethical members, because corporate managers, by and large, preferred that.
+
+---
+
+their gains from exercising options covering their employers' stock not be counted as expense in determining their employers' earnings. The accounting profession, in making its amazingly peculiar decision, had simply followed the injunction so often followed by persons quite different from prosperous, entrenched accountants. The injunction was that normally followed by insecure and powerless people: "Whose bread I eat, his song I sing." Fortunately, the income tax authorities did not have the same amazingly peculiar accounting idea as the accounting profession. Elementary common sense prevailed, and the bargain element in stock option exercises was treated as an obvious compensation expense, deductible in determining income for tax purposes.
+
+The injunction was that normally followed by insecure and powerless people: "Whose bread I eat, his song I sing."
+
+Quant Tech's new officers, financially shrewd as they were, could see at a glance that, given the amazingly peculiar accounting convention and the sound income tax rules in place, Quant Tech had a breathtakingly large opportunity to increase its reported profits by taking very simple action. The fact that so large a share of Quant Tech's annual expense was incentive bonus expense provided a "modern financial engineering" opportunity second to none.
+
+For instance, it was mere child's play for the executives to realize that if in 1982 Quant Tech had substituted employee stock option exercise profits for
+
+---
+
+all its incentive bonus expense of $400 million while using bonus money saved plus option prices paid to buy back all shares issued in option exercises and keeping all else the same, the result would have been to drive Quant Tech 1982 reported earnings up by 400 percent to $500 million from $100 million while shares outstanding remained exactly the same! And so it seemed that the obviously correct plot for the officers was to start substituting employee stock option exercise profits for incentive bonuses. Why should a group of numerate engineers care whether their bonuses were in cash or virtually perfect equivalents of cash? Arranging such substitutions, on any schedule desired, seemed like no difficult chore.
+
+However, it was also mere child's play for the new officers to realize that a certain amount of caution and restraint would be desirable in pushing their new ploy. Obviously, if they pushed their new ploy too hard in any single year, there might be rebellion from Quant Tech's accountants or undesirable hostility from other sources. This, in turn, would risk killing a goose with a vast ability to deliver golden eggs, at least to the officers. After all, it was quite clear that their ploy would be increasing reported earnings only by adding to real earnings an element of phony earnings phony in the sense that Quant Tech would enjoy no true favorable economic effect (except temporary fraud-type effect similar to that from overcounting closing inventory) from that part of reported earnings increases attributable to use of the ploy. The new CEO privately called the desirable, cautious approach "wisely restrained falsehood."
+
+# "The Right Way to Behave is to Never Let Improper Accounting Start"
+
+---
+
+In 1991, the Financial Accounting Standards Board proposed that part of the real cost of employee stock options be recognized as an expense. Because of stiff opposition from both the business community and Congress, the proposal was greatly diluted, requiring only some disclosure in footnotes. Today, however, generally accepted accounting principles in the U.S. require some part of the real cost of employee stock options to be recorded as an expense in the income statement. Charlie remains skeptical: "By the time stock options are exercised, the total cost charged is usually far less than total cost incurred. Moreover, the part of cost that is charged to earnings is often manipulated downward by dubious techniques. This kind of thing has always been hard to stamp out. The right way to behave is to never let improper accounting start."
+
+The outside accountants would probably find it unendurably embarrassing not to bless new financial statements containing only the same phony proportion of reported earnings increase.
+
+Plainly, the new officers saw, it would be prudent to shift bonus payments to employee stock option exercise profits in only a moderate amount per year over many years ahead. They privately called the prudent plan they adopted their "dollop by dollop system," which they believed had four obvious advantages:
+
+1. First, a moderate dollop of phony earnings in any single year would be less likely to be noticed than a large dollop.
+
+---
+
+Second, the large long-term effect from accumulating many moderate dollops of phony earnings over the years would also tend to be obscured in the "dollop by dollop system." As the CFO pithily and privately said, "If we mix only a moderate minority share of turds with the raisins each year, probably no one will recognize what will ultimately become a very large collection of turds."
+
+Third, the outside accountants, once they had blessed a few financial statements containing earnings increases, only a minority share of which were phony, would probably find it unendurably embarrassing not to bless new financial statements containing only the same phony proportion of reported earnings increase.
+
+Fourth, the "dollop by dollop system" would tend to prevent disgrace, or something more seriously harmful, for Quant Tech's officers. With virtually all corporations except Quant Tech having ever-more-liberal stock option plans, the officers could always explain that a moderate dollop of shift toward compensation in option-exercise form was needed to help attract or retain employees. Indeed, given corporate culture and stock market enthusiasm likely to exist as a consequence of the strange accounting convention for stock options, this claim would often be true.
+
+With these four advantages, the "dollop by dollop system" seemed so clearly desirable that it only remained for Quant Tech's officers to decide how big to make their annual dollops of phony earnings. This decision, too,
+
+---
+
+turned out to be easy. The officers first decided upon three reasonable conditions they wanted satisfied:
+
+1. First, they wanted to be able to continue their "dollop by dollop system" without major discontinuities for twenty years.
+2. Second, they wanted Quant Tech's reported earnings to go up by roughly the same percentage each year throughout the whole twenty years because they believed that financial analysts, representing institutional investors, would value Quant Tech's stock higher if reported annual earnings growth never significantly varied.
+3. Third, to protect credibility for reported earnings, they never wanted to strain credulity of investors by reporting, even in their twentieth year, that Quant Tech was earning more than forty percent of revenues from designing power plants.
+
+With these requirements, the math was easy, given the officers' assumption that Quant Tech's non-phony earnings and revenues were both going to grow at twenty percent per year for twenty years. The officers quickly decided to use their "dollop by dollop system" to make Quant Tech's reported earnings increase by twenty-eight percent per year instead of the twenty percent that would have been reported by the founder.
+
+---
+
+And so, the great scheme of "modern financial engineering" went forward toward tragedy at Quant Tech. And few disreputable schemes of man have ever worked better in achieving what was attempted. Quant Tech's reported earnings, certified by its accountants, increased regularly at twenty-eight percent per year. No one criticized Quant Tech's financial reporting except a few people widely regarded as impractical, overly theoretical, misanthropic cranks. It turned out that the founder's policy of never paying dividends, which was continued, greatly helped in preserving credibility for Quant Tech's reports that its earnings were rising steadily at twenty-eight percent per year. With cash equivalents on hand so remarkably high, the Pavlovian mere-association effects that so often impair reality recognition served well to prevent detection of the phony element in reported earnings.
+
+It was, therefore, natural, after the "dollop by dollop system" had been in place for a few years, for Quant Tech's officers to yearn to have Quant Tech's reported earnings per share keep going up at twenty-eight percent per year while cash equivalents grew much faster than they were then growing. This turned out to be a snap. By this time, Quant Tech's stock was selling at a huge multiple of reported earnings, and the officers simply started causing some incremental stock-option exercises that were not matched either.
+
+---
+
+by reductions in cash bonuses paid or by repurchases of Quant Tech's stock. This change, the officers easily recognized, was a very helpful revision of their original plan. Not only was detection of the phony element in reported earnings made much more difficult as cash accumulation greatly accelerated, but also a significant amount of Ponzi-scheme or chain-letter effect was being introduced into Quant Tech, with real benefits for present shareholders, including the officers.
+
+At this time, the officers also fixed another flaw in their original plan. They saw that as Quant Tech's reported earnings, containing an increasing phony element, kept rising at twenty-eight percent, Quant Tech's income taxes as a percentage of reported pretax earnings kept going lower and lower. This plainly increased chances for causing undesired questions and criticism. This problem was soon eliminated. Many power plants in foreign nations were built and owned by governments, and it proved easy to get some foreign governments to raise Quant Tech's design fees, provided that in each case slightly more than the fee increase was paid back in additional income taxes to the foreign government concerned.
+
+Finally, for 2002, Quant Tech reported $16 billion in earnings on $47 billion of revenues that now included a lot more revenue from interest on cash equivalents than would have been present without net issuances of new stock over the years. Cash equivalents on hand now amounted to an astounding $85 billion, and somehow it didn't seem impossible to most investors that a company virtually drowning in so much cash could be earning the $16 billion it was reporting. The market capitalization of Quant Tech
+
+---
+
+Tech at its peak early in 2003 became $1.4 trillion, about ninety times earnings reported for 2002.
+
+# Geometric Progressions: Highly Counterintuitive
+
+Seeking to teach his young charge a lesson in the power of compounding, a teacher made an intriguing offer:
+
+"I will give you one of the following, but you cannot change your mind later, so think carefully before you decide. I will give you $1,000 per day for thirty days that you can begin spending immediately. Alternatively, I will give you a penny on day one, double it on day two, double the resulting sum again on day three, and continue doubling your holdings every day for thirty days, but you may not spend a single cent until the thirtieth day has passed."
+
+The young charge, enticed by the prospect of spending $1,000 per day for a month compared to what he believed would be just a few pennies jingling around in his pocket a month from now, chose the $1,000 per day for a month. Did he choose wisely?
+
+Under the first choice, the young charge would receive a total of $30,000. Under the second choice, the power of compounding would run the total to $5,368,709.12.
+
+All man's desired geometric progressions, if a high rate of growth is chosen, at last come to grief on a finite earth.
+
+---
+
+However, all man's desired geometric progressions, if a high rate of growth is chosen, at last come to grief on a finite earth. And the social system for man on earth is fair enough, eventually, that almost all massive cheating ends in disgrace. And in 2003, Quant Tech failed in both ways.
+
+By 2003, Quant Tech's real earning power was growing at only four percent per year after sales growth had slowed to four percent. There was now no way for Quant Tech to escape causing a big disappointment for its shareholders, now largely consisting of institutional investors. This disappointment triggered a shocking decline in the price of Quant Tech stock, which went down suddenly by fifty percent. This price decline, in turn, triggered a careful examination of Quant Tech's financial reporting practices, which, at long last, convinced nearly everyone that a very large majority of Quant Tech's reported earnings had long been phony earnings and that massive and deliberate misreporting had gone on for a great many years.
+
+This triggered even more price decline for Quant Tech stock until in mid-2003 the market capitalization of QuantTech was only $140 billion, down ninety percent from its peak only six months earlier.
+
+A quick ninety percent decline in the price of the stock of such an important company that was previously so widely owned and admired caused immense human suffering, considering the $1.3 trillion in market value that had disappeared. And naturally, with Quant Tech's deserved disgrace, the public and political reaction included intense hatred and revulsion directed.
+
+---
+
+at QuantTech even though its admirable engineers were still designing the nation's best power plants. Moreover, the hatred and revulsion did not stop with Quant Tech. It soon spread to other corporations, some of which plainly had undesirable financial cultures different from QuantTech's only in degree. 'The public and political hatred, like the behavior that had caused it, soon went to gross excess and fed upon itself. Financial misery spread far beyond investors into a serious recession like that of Japan in the 1990s following the long period of false Japanese accounting.
+
+# John Kenneth Galbraith (b. 1908)
+
+Famed economist John Kenneth Galbraith offers his wisdom:
+
+- "We all agree that pessimism is a mark of superior intellect."
+- "There is certainly no absolute standard of beauty, That precisely is what makes its pursuit so interesting."
+- "Meetings are indispensable when you don't want to do anything."
+- "The only function of economic forecasting is to make astrology look respectable."
+- "The modern conservative is engaged in one of man's oldest exercises in moral philosophy that is, the search for a superior moral justification for."
+
+---
+
+selfishness.
+
+"More die in the United States of too much food than of too little."
+
+*Faced with the choice between changing one's mind and proving there is no need to do so, almost everyone gets bury on the proof.
+
+"People who are in a fortunate position always attribute virtue to that makes them so happy."
+
+"Do you understand 'it is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled seas of thought."'
+
+"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage'"
+
+"In any great organization it is far, far safer to be wrong with the majority than to be right alone."
+
+There was huge public antipathy to professions following the (great Scandal. The accounting profession, of course, got the most blame. The rule-making body for accountants had long borne the acronym "F,A.S.B." And now nearly everyone said this stood for "Financial Accounts Still Bogus."
+
+Economics professors, likewise, drew much criticism for failing to blow the whistle on false accounting and for not sufficiently warning about eventual
+
+---
+
+bad macroeconomic effects of widespread false accounting. So great was the disappointment with conventional economists that Harvard's John Kenneth Galbraith received the Nobel Prize in economics. After all, he had once predicted that massive, undetected corporate embezzlement would have a wonderfully stimulating effect on the economy. And people could now see that something very close to what Galbraith had predicted had actually happened in the years preceding 2003 and had thereafter helped create a big, reactive recession.
+
+With Congress and the SEC so heavily peopled by lawyers, and with lawyers having been so heavily involved in drafting financial disclosure documents now seen as bogus, there was a new "lawyer" joke every week. one such was: "The butcher says, 'The reputation of lawyers has fallen dramatically,' and the checkout clerk replies, 'How do you fall dramatically off a pancake?"'
+
+But the hostility to established professions did not stop with accountants, economists, and lawyers. There were many adverse "rub-off' effects on reputations of professionals that had always performed well, like engineers, who did not understand the financial fraud that their country had made a conventional requirement.
+
+In the end, much that was good about the country, and needed for its future felicity, was widely and unwisely hated.
+
+---
+
+At this point, action came from a Higher Realm. God himself, who reviews all, changed His decision schedule to bring to the fore the sad case of the Great Financial Scandal of 2003. He called in his chief detective and said, "Smith, bring in for harsh but fair judgment the most depraved of those responsible for this horrible outcome."
+
+But when Smith brought in a group of security analysts who had long and uncritically touted the stock of Quant Tech, the Great Judge was displeased. "Smith," he said, "I can't come down hardest on low-level cognitive error, much of it subconsciously caused by the standard incentive systems of the world."
+
+Next, Smith brought in a group of SEC commissioners and powerful politicians. "No, no," said the Great Judge, "These people operate in a virtual maelstrom of regrettable forces and can't reasonably be expected to meet the behavioral standard you seek to impose."
+
+Now the chief detective thought he had gotten the. He next brought in the corporate officers who had practiced their version of modern financial engineering at Quant Tech. "You are getting close," said the Great Judge, "but I told you to bring in the most depraved. These officers will, of course, get strong punishment for their massive fraud and disgusting stewardship of the great engineers' legacy, but I want you to bring the main screen and who will soon be in the lowest circle and help the ones who so easily could have prevented all this calamity." At last, the chief detective truly understood he remembered.
+
+---
+
+that the lowest circle of hell was reserved for traders and so he now brought in from you Reggae tree a group of elderly persons who in their days on earth had been prominent partners in major accounting firms here are you are traitors set the chief detective this adopted the false accounting convention for employee stock options they occupied high positions in one of the noblest professions which like us help make society work right by laying down the right rules they were very smart and Secure replaced and it is inexcusable that they deliberately caused all this lying and cheating that was so obviously predictable they well new that they were doing was disastrously wrong yet they did it anyway. Owing to press of business in your judicial system you made a mistake at first and punishing them so lightly but now you can send them to the lowest circle in hell Startled by the vehemence and presumption the great just first then he quietly said well done my good and faithful servant.
+
+This account is not an implied prediction about 2003 it is a work of fiction except in the case of Professor Galbraith any resemblance to real persons or a company's is accidental it was written in an attempt to focus possibly useful attention on certain modern behaviour and belief systems
+
+# Talk Eight Revisited
+
+---
+
+I had a lot of fun composing this account in the summer of 2000. But I was serious as I tried to show how standard accounting treatment for stock options was functionally equivalent to simpler types of promotional fraud. To me, a profession and a nation that allow unsound accounting for management cost are leaning in the same moral direction as the group that leaves most of the steel out of the concrete in erecting high-rise apartment buildings. Moreover, the unsound accounting is more virulent than the murderous construction practice. After all, the defective constructors have a harder time rationalizing their deplorable behavior. And, therefore, the bad accounting will more easily spread than the defective construction. Which is exactly what happened, as defective accounting for stock options became ubiquitous.
+
+There has been some good news since talk Eight was delivered. The accounting profession now requires that some provision for stock option cost be charged against earnings. However, by the time stock options are exercised, the total cost charged is usually far less than total cost incurred. Moreover the part of cost that is charged to earnings is often manipulated downward by dubious techniques.
+
+What this accounting saga constitutes is one more sad example of evil rewarded dying hard, as a great many people conclude that something can't be evil if they are profiting from it.
+
+"Pleasure is the greatest incentive to evil."
+
+-Plato
+
+---
+
+The editor of this book spent twelve consecutive hours with Charlie on the day he delivered this speech at the University of California at Santa Barbara. Our schedule that day: a two-hour drive each way from Los Angeles, lunch, pre-talk meetings, the talk itself, a post-talk reception, and finally dinner at the home of Jeff Henley, chief financial officer (and now chairman) of Oracle Corp. Despite then being within a few months of his eightieth birthday, Charlie performed like a tireless virtuoso. His sharpness, stamina, and good humor during that long day were astounding and inspiring.
+
+What Charlie laid forth on that occasion might be considered the Grand Unified Theory of the Munger approach. The talk incorporates the many ideas that Charlie discussed in his previous talks and presents them, checklist-style, as a coherent philosophy.
+
+Charlie's audience, the economics department of this major university, was the perfect group on which to unleash this lament-and remediation proposals besides-about the lack of multi disciplinarianism in the soft sciences.
+
+# Talk Nine
+
+# Academic Economics: Strengths and Faults after Considering Interdisciplinary
+
+---
+
+# Needs
+
+# Flerb Kay Undergraduate Lecture
+
+# University of California, Santa Barbara
+
+# Economics Department, October 3, 2003
+
+I have outlined some remarks in a rough way, and after I'm finished talking from that outline, I'll take questions as long as anybody can endure listening, until they drag me away to wherever else I'm supposed to go. As you might guess. I agreed to do this because the subject of getting the soft sciences so they talk better to each other has been one that has interested me for decades. And, of course, economics is, in many respects, the queen of the soft sciences. It's expected to be better than the rest. It's my view that economics is better at the multidisciplinary stuff than the rest of the soft science. And it's also my view that it's still lousy and I'd like to discuss this failure in this talk.
+
+As I talk about strengths and weaknesses in academic economics, one interesting fact you are entitled to know is that I never took a course in economics. And with this striking lack of credentials, you may wonder why I have the chutzpah to be up here giving this talk. The answer is I have a black belt in chutzpah. I was born with it. Some people, like some of the women I know, have a black belt in spending. They were born with that. But what they gave me was a black belt in chutzpah.
+
+But, I come from two peculiar strands of experience that may have given me some useful economic insights. One is Berkshire Hathaway, and the other is my personal educational history. Berkshire, of course, has finally
+
+---
+
+gotten interesting. When Warren took over Berkshire, the market capitalization was about $10 million. And forty-something years later, there are not many more shares outstanding now than there were then, and the market capitalization is about a $100 billion, ten thousand for one. And since that has happened, year after year, in kind of a grind-ahead fashion with very few failures, it eventually drew some attention, indicating that maybe Warren and I knew something useful in microeconomics.
+
+"If you would persuade, appeal to interest and not to reason. For a long time there was a Nobel Prize-winning economist who explained Berkshire Hathaway's success as follows: First, he said Berkshire beat the market in common stock investing through one sigma of luck because nobody could beat the market except by luck. This hard-form version of efficient market theory was taught in most schools of economics at the time. People were taught that nobody could beat the market. Next, the professor went to two sigmas, and three sigmas, and four sigmas, and when he finally got to six sigmas of luck, people were laughing so hard he stopped doing it. Then, he reversed the explanation 180 degrees. He said, "No, it was still six sigmas, but it was six sigmas of skill." Well, this very sad history demonstrates the truth of Benjamin Franklin's observation in Poor Richard's Almanack, "If you would persuade, appeal to interest and not to reason."
+
+---
+
+The man changed his silly view when his incentives made him change it and not before.
+
+I watched the same thing happen at the Jules Stein Eye Institute at ULAC. I asked, at one point, "Why are you treating cataracts only with a totally obsolete cataract operation?" And the man said to me, "Charlie, it's such a wonderful operation to teach." When he stopped using that operation, it was because almost all the patients had voted with their feet. Again, appeal to interest and not to reason if you want to change conclusions.
+
+Well, Berkshire's whole record has been achieved without paying one ounce of attention to the efficient market theory in its hard form. And not one ounce of attention to the descendants of that idea, which came out of academic economics and went into corporate finance and morphed into such obscenities as the capital asset pricing model, which we also paid no attention to. I think you'd have to believe in the tooth fairy to believe that you could easily outperform the market by seven percentage points per annum just by investing in high-volatility stocks.
+
+Yet, believe it or not, like the Jules Stein doctor, people once believed this stuff. And the belief was rewarded. And it spread. And many people still believe it. But Berkshire never paid any attention to it. And now, I think the world is coming our way, and the idea of perfection in all market outcomes is going the way of the dodo.
+
+---
+
+It was always clear to me that the stock market couldn't be perfectly efficient, because, as a teenager, I'd been to the racetrack in Omaha where they had the parimutuel system. And it was quite obvious to me that if the house take, the croupier's take, was seventeen percent, some people consistently lost a lot less than seventeen percent of all their bets, and other people consistently lost more than seventeen percent of all their bets. So the pari-mutuel system in Omaha had no perfect efficiency. And so I didn't accept the argument that the stock market was always perfectly efficient in creating rational prices.
+
+Indeed, there have been some documented cases since of people getting so good at understanding horses and odds that they actually are able to beat the house in off track betting. There aren't many people who can do that, but there are a few people in America who can.
+
+Next, my personal education history is interesting because its deficiencies and my peculiarities eventually created advantages. For some odd reason, I had an early and extreme multidisciplinary cast of mind. I couldn't stand reaching for a small idea in my own discipline when there was a big idea right over the fence in somebody else's discipline. So I just grabbed in all directions for the big ideas that would really work. Nobody taught me to do that; I was just born with that yen. I also was born with a huge craving for synthesis. And when it didn't come easily, which was often, I would rag the problem, and then when I failed, I would put it aside, and I'd come back to it and rag it again. It took me twenty years to figure out how and why cult
+
+---
+
+conversion methods worked. But the psychology departments haven't figured it out yet, so I'm ahead of them.
+
+But anyway, I have this tendency to want to rag the problems. Because WWII caught me, I drifted into some physics, and the Air Corps sent me to Caltech, where I did a little more physics as part of being made into a meteorologist. And there, at a very young age, I absorbed what I call the fundamental full attribution ethos of hard science. And that was enormously useful to me. Let me explain that ethos.
+
+Under this ethos, you've got to know all the big ideas in all the disciplines more fundamental than your own. You can never make any explanation that can be made in a more fundamental way in any other way than the most fundamental way. And you always take with full attribution to the most fundamental ideas that you are required to use. When you're using physics, you say you're using physics. When you're using biology, you say you're using biology. And so on and so on. I could early see that that ethos would act as a fine organizing system for my thought. And I strongly suspected that it would work really well in the soft sciences as well as the hard sciences, so I just grabbed it and used it all through my life in soft science as well as hard science. That was a very lucky idea for me.
+
+Let me explain how extreme that ethos is in hard science. There is a constant, one of the fundamental constants in physics, known as Boltzmann's constant. You probably all know it very well. And the interesting thing about Boltzmann's constant is that Boltzmann didn't
+
+---
+
+# Boltzmann's Constant
+
+Boltzmann constant derives its name from Austrian physicist Ludwig Boltzmann (1844-1906); it defines the relation between absolute temperature and the kinetic energy contained in each molecule of an ideal gas. In general, the energy in a gas molecule is directly proportional to the absolute temperature. As the temperature increases, the kinetic energy per molecule increases. As a gas is heated, its molecules move more rapidly. This movement produces increased pressure if the gas is confined in a space of constant volume, or increased volume if the pressure remains constant.
+
+At any rate, in my history and Berkshire's history, Berkshire went on and on into considerable economic success while ignoring the hard-form efficient markets doctrine once very popular in academic economics and ignoring the descendants of that doctrine in corporate finance where the results became even sillier than they were in economics. This naturally encouraged me.
+
+---
+
+Finally, with my peculiar history, I'm also bold enough to be here today because, at least when I was young, I wasn't a total klutz. For one year at the Harvard Law School, I was ranked second in a very large group, and I always figured that, while there were always a lot of people much smarter than I was, I didn't have to hang back totally in the thinking game.
+
+# 1. Strengths of Academic Economics
+
+Let me begin by discussing the obvious strengths of academic economics. The first obvious strength, and this is true of a lot of places that get repute, is that it was in the right place at the right time. Two hundred years ago, aided by the growth of technology and the growth of other developments in the civilization, the real output per capita of the civilized world started going up at about two percent per annum, compounded. And before that, for the previous thousands of years, it had gone up at a rate that hovered just a hair's breadth above zero. And, of course, economics grew up amid this huge success. Partly it helped the success, and partly it explained it. So, naturally, academic economics grew. And, lately, with the collapse of all the communist economies, as the free market economies or partially free market economies flourished, that added to the reputation of economics.
+
+Economics has been a very favorable place to be if you're in academia. Economics was always more multidisciplinary than the rest of soft science. It just reached out and grabbed things as it needed to. And that tendency to just grab whatever you need from the rest of knowledge if you're an economist has reached a fairly high point in N. Gregory Mankiw's new textbook. I checked out that textbook. I must have been one of the few.
+
+---
+
+businessmen in America that bought it immediately when it came out because it had gotten such a big advance. I wanted to figure out what the guy was doing where he could get an advance that great. So this is how I happened to riffle through Mankiw's freshman textbook. And there I found laid out as principles of economics: Opportunity cost is a superpower, to be used by all people who have any hope of getting the right answer. Also, incentives are superpowers.
+
+And lastly the tragedy of the commons model, popularized by longtime friend, UCSB's Garrett Hardin. Hardin caused the delightful introduction into economics-alongside Smith's beneficent invisible hand of Hardin's wicked evildoing invisible foot. Well, I thought that the Hardin model made economics more complete, and I knew when Hardin introduced me to his model, the tragedy of the commons, that it would be in the economics textbooks eventually. And, lo and behold, it finally made it about twenty years later. And it's right for Mankiw to reach out into other disciplines and grab Hardin's model and anything else that works well.
+
+Another thing that helped economics is that, from the beginning, it attracted the best brains in soft science. Its denizens also interacted more with the practical world than was at all common in soft science and the rest of academia, and that resulted in very creditable outcomes like the three cabinet appointments of economics Ph.D. George Shultz and the cabinet appointment of Larry Summers. So this has been a very favored part of academia.
+
+---
+
+Also, economics early on attracted some of the best writers of language in the history of the Earth. You start out with Adam Smith. Adam Smith was so good a thinker and so good a writer that, in his own time, Emmanuel Kant, then the greatest intellectual in Germany, simply announced that there was nobody in Germany to equal Adam Smith. Well, Voltaire, being an even pithier speaker than Kant, which wouldn't be that hard, immediately said, "Oh well, France doesn't have anybody who can even be compared to Adam Smith." So economics started with some very great men and great writers.
+
+And then, there have been later great writers like John Maynard Keynes, whom I quote all the time and who has added a great amount of illumination to my life. And finally, even in the present era, if you take Paul Krugman and read his essays, you will be impressed by his fluency. I can't stand his politics; I'm on the other side. But I love this man's essays. I think Paul Krugman is one of the best essayists alive. And so, economics has constantly attracted these fabulous writers. And they are so good that they have this enormous influence far outside their economic discipline, and that's very uncommon in other academic departments.
+
+# What's Wrong with Economics?
+
+---
+
+# 1) Fatal Unconnectedness, Leading to Man-with-a-Hammer Syndrome, Often Causing Overweighing What Can Be Counted
+
+I think I've got eight, no nine objections, some being logical subdivisions of a big general objection. The big general objection to economics was the one early described by Alfred North Whitehead when he spoke of the fatal unconnectedness of academic disciplines, wherein each professor didn't even know the models of the other disciplines, much less try to synthesize those disciplines with his own.
+
+I think there's a modern name for this approach that Whitehead didn't like, and that name is "bonkers." This is a perfectly crazy way to behave. Yet economics, like much else in academia, is too insular.
+
+The nature of this failure is that it creates what I always call man-with-a-hammer syndrome. And that's taken from the folk saying: To the man with only a hammer, every problem looks pretty much like a nail. And that works marvelously to gum up all professions and all departments of academia and, indeed, most practical life. The only antidote for being an absolute klutz due to the presence of a man-with-a-hammer syndrome is to have a full kit of tools. You don't have just a hammer.
+
+# Alfred North Whitehead (1861-1947)
+
+Alfred North Whitehead, a British philosopher and mathematician, worked in logic, mathematics, philosophy of science, and metaphysics.
+
+---
+
+is known for developing process philosophy, a view holding that fundamental elements of the universe are occasions of experience. In this view, concrete objects are actually successions of these occasions of experience. By grouping occasions of experience, something as complex as a human being can be defined. Whitehead's views evolved into process theology, a way of understanding God. His best known mathematics work is *Principia Mathematica* co-written with Bertrand Russell.
+
+You've got all the tools. And you've got to have one more trick. You've got to use those tools checklist-style because you'll miss a lot if you just hope that the right tool is going to pop up unaided whenever you need it. But if you've got a full list of tools and go through them in your mind, checklist-style, you will find a lot of answers that you won't find any other way. So limiting this big general objection that so disturbed Alfred North Whitehead is very important, and there are mental tricks that help do the job.
+
+I think there's a modern name for this approach that Whitehead didn't like, and that name is "bonkers."
+
+A special version of this man-with-a-hammer syndrome is terrible, not only in economics but practically everywhere else, including business. It's really terrible in business. You've got a complex system, and it spews out a lot of wonderful numbers that enable you to measure some factors. But there are other factors that are terribly important, [yet] there's no precise numbering you can put to these factors. You know they're important, but you don't have the numbers. well, practically everybody (1) overweighs the stuff that can
+
+---
+
+be numbered because it yields to the statistical techniques they're taught in academia and (2) doesn't mix in the hard-to-measure stuff that may be more important. That is a mistake I've tried all my life to avoid, and I have no regrets for having done that.
+
+The late, great Thomas Hunt Morgan, who was one of greatest biologists who ever lived, when he got to Caltech, had a very interesting, extreme way of avoiding some mistakes from overcounting what could be measured and undercounting what couldn't. At that time, there were no computers, and the computer substitute then available to science and engineering was the Friden calculator, and Caltech was full of Friden calculators. And Thomas Hunt Morgan banned the Friden calculator from the biology department. And when they said, "What the hell are you doing, Dr. Morgan?" he said, "Well, I am like a guy Who is prospecting for gold along the banks of the Sacramento River in 1849. With a little intelligence, I can reach down and pick up big nuggets of gold. And as long as I can do that, I'm not going to let any people in my department waste scarce resources in placer mining." And that's the way Thomas Hunt Morgan got through life.
+
+I've adopted the same technique, and here I am in my eightieth year. I haven't had to do any placer mining yet. And it begins to look like I'm going to get all the way through, as I'd always hoped, without doing any of that damned placer mining. Of course, if I were a physician, particularly an academic physician, I'd have to do the statistics, do the placer mining. But it's amazing what you can do in life without the placer mining if you've got
+
+---
+
+a few good mental tricks and just keep ragging the problems the way Thomas Hunt Morgan did.
+
+# 2) Failure to Follow the Fundamental Full-Attribution Ethos of Hard Science
+
+What's wrong with the way Mankiw does economics is that he grabs from other disciplines without attribution. He doesn't label the grabbed items as physics or biology or psychology or game theory or whatever they really are, fully attributing the concept to the basic knowledge from which it came. If you don't do that, it's like running a business with a sloppy filing system. It reduces your power to be as good as you can be. Now Mankiw is so smart he does pretty well even when his technique is imperfect. He got the largest advance any textbook writer ever got.
+
+But, nonetheless, he'd be better if he had absorbed a hard-science ethos, which has been helpful to me.
+
+It's like running a business with a sloppy filing system. It reduces your power to be as good as you can be.
+
+I have names for Mankiw’s approach, grabbing whatever you need without attribution. Sometimes I call it "take what you wish," and sometimes I call it "Kiplingism." And when I call it Kiplingism, I'm reminding you of Kipling's stanza of poetry, which went something like this: "When Homer smote his blooming lyre, he'd heard men sing by land and sea, and what he
+
+---
+
+thought he might require, he went and took, the same as me." Well, that's the way Mankiw does it. He just grabs. This is much better than not grabbing. But it is much worse than grabbing with full attribution and full discipline, using all knowledge plus extreme reductionism where feasible.
+
+# 3) Physics Envy
+
+The third weakness that I find in economics is what I call physics envy. And, of course, that term has been borrowed from penis envy as described by one of the world's great idiots, Sigmund Freud. But he was very popular in his time, and the concept got a wide vogue.
+
+One of the worst examples of what physics envy did to economics was cause adoption of hard-form efficient market theory. And then, when you logically derived consequences from this wrong theory, you would get conclusions such as it can never be correct for any corporation to buy its own stock. Because the stock price, by definition, is totally efficient, there could never be any advantage. QED. And they taught this theory to some partner at McKinsey when he was at some school of business that had adopted this crazy line of reasoning from economics, and the partner became a paid consultant for the Washington Post. And Washington Post stock was selling at a fifth of what an orangutan could figure was the plain value per share by just counting up the values and dividing. But he so believed what he'd been taught in graduate school that he told the Washington Post it shouldn't buy its own stock. Well, fortunately, they put
+
+---
+
+Warren Buffett on the board, and he convinced them to buy back more than half of the outstanding stock, which enriched the remaining shareholders by much more than a billion dollars. So, there was at least one instance of a place that quickly killed a wrong academic theory.
+
+And Washington Post stock was selling at a fifth of what an orangutan could figure was the plain value per share by just counting up the values and dividing.
+
+It's my view that economics could avoid a lot of this trouble that comes from physics envy. I want economics to pick up the basic ethos of hard science, the full attribution habit, but not the craving for an unattainable precision that comes from physics envy. The sort of precise, reliable formula that includes Boltzmann's constant is not going to happen, by and large, in economics. Economics involves too complex a system. And the craving for that physics-style precision does little but get you in terrible trouble, like the poor fool from McKinsey.
+
+I think that economists would be way better off if they paid more attention to Einstein and Sharon Stone. Well, Einstein is easy because Einstein is famous for saying, "Everything should be made as simple as possible, but no more simple." Now, the saying is a tautology, but it's very useful, and some economist—it may have been Herb Stein—had a similar tautological saying that I dearly love: "If a thing can't go on forever, it will eventually stop."
+
+---
+
+Sharon Stone contributed to the subject because someone once asked her if she was bothered by penis envy. And she said, "Absolutely not. I have more trouble than I can handle with what I've got."
+
+When I talk about this false precision, this great hope for reliable, precise formulas, I am reminded of Arthur Laffer, who's in my political party, and who takes a mistaken approach, sometimes, when it comes to doing economics. His trouble is his craving for false precision, which is not an adult way of dealing with his subject matter.
+
+Einstein is easy because Einstein is famous for saying, "Everything should be made as simple as possible, but no more simple."
+
+The situation of people like Laffer reminds me of a rustic legislator—and this really happened in America. I don't invent these stories. Reality is always more ridiculous than what I'm going to tell you. At any rate, this rustic legislator proposed a new law in his state. He wanted to pass a law rounding pi to an even 3.2 so it would be easier for the school children to make the computations. Well, you can say that this is too ridiculous, and it can't be fair to liken economics professors like Laffer to a rustic legislator like this. I say I'm under criticizing the professors. At least when this rustic legislator rounded pi to an even number, the error was relatively small. But once you try to put a lot of false precision into a complex system like economics, the errors can compound to the point where they're worse than those of the McKinsey partner when he was incompetently advising the Washington.
+
+---
+
+# 4) Too Much Emphasis on Macroeconomics
+
+My fourth criticism is that there's too much emphasis on macroeconomics and not enough on microeconomics. I think this is wrong. It's like trying to master medicine without knowing anatomy and chemistry. Also, the discipline of microeconomics is a lot of fun. It helps you correctly understand macroeconomics, and it's a perfect circus to do. In contrast, I don't think macroeconomics people have all that much fun. For one thing, they are often wrong because of extreme complexity in the system they wish to understand.
+
+Let me demonstrate the power of microeconomics by solving two microeconomic problems. One simple and one a little harder. The first problem is this: Berkshire Hathaway just opened a furniture and appliance store in Kansas City, Kansas. At the time Berkshire opened it, the largest selling furniture and appliance store in the world was another Berkshire Hathaway store, selling $350 million worth of goods per year. The new store in a strange city opened up selling at the rate of more than $500 million a year. From the day it opened, the 3,200 spaces in the parking lot were full. The women had to wait outside the ladies restroom because the architects didn't understand biology. It's hugely successful.
+
+---
+
+Well, I've given you the problem. Now, tell me what explains the runaway success of this new furniture and appliance store that is outselling everything else in the world? Well, let me do it for you. Is this a low-priced store or a high-priced store? It's not going to have a runaway success in a strange city as a high-priced store. That would take time. Number two, if it's moving $500 million worth of furniture through it, it's one hell of a big store, furniture being as bulky as it is. And what does a big store do? It provides a big selection. So what could this possibly be except a low-priced store with a big selection?
+
+But, you may wonder, why wasn't it done before, preventing its being done first now? Again, the answer just pops into your head: It costs a fortune to open a store this big. So, nobody's done it before. So, you quickly know the answer. With a few basic concepts, these microeconomic problems that seem hard can be solved much as you put a hot knife through butter. I like such easy ways of thought that are very remunerative. And I suggest that you people should also learn to do microeconomics better.
+
+Now I'll give you a harder problem. There's a tire store chain in the Northwest that has slowly succeeded over fifty years, the Les Schwab tire store chain. It just ground ahead. It started competing with the stores that were owned by the big tire companies that made all the tires, the Goodyears and so forth. And, of course, the manufacturers favored their own stores. Their "tied stores" had a big cost advantage. Later, Les Schwab rose in competition with the huge price discounters like Costco and Sam's Club and before that Sears, Roebuck and so forth. And yet, here is Schwab now, with
+
+---
+
+hundreds of millions of dollars in sales. And here's Les Schwab in his eighties, with no education, having done the whole thing. How did he do it? I don't see a whole lot of people looking like a light bulb has come on. Well, let's think about it with some microeconomic fluency.
+
+Is there some wave that Schwab could have caught? The minute you ask the question, the answer pops in. The Japanese had a zero position in tires, and they got big. So this guy must have ridden that wave some in the early times.
+
+Then, the slow following success has to have some other causes.
+
+# Les Schwab (1917-2007)
+
+Leslie Schwab was born in Bend, Oregon. After service in the Air Cadet Corps during World War II, he returned to Oregon and bought OK Rubber Welders, a small tire shop that he turned from a $32,000-a-year business into one generating $150,000 annually. In the 1950s, Schwab began expanding his business throughout the Pacific Northwest. Through innovations such as profit sharing, "supermarket" product selection, and independence from the tire manufacturing companies, the company now operates over three hundred stores with sales exceeding $1 billion annually.
+
+And what probably happened here, obviously, is this guy did one hell of a lot of things right. And among the things that he must have done right is he must have harnessed what Mankiw calls the superpower of incentives. He must have a very clever incentive structure driving his people. And a clever personnel selection system, etc. And he must be pretty good at advertising. Which he is. He's an artist. So, he had to get a wave in Japanese tire.
+
+---
+
+invasion, the Japanese being as successful as they were. And then a talented fanatic had to get a hell of a lot of things right and keep them right with clever systems. Again, not that hard of an answer. But what else would be a likely cause of the peculiar success?
+
+He must have a very clever incentive structure driving his people. And a clever personnel selection system, etc. And he must be pretty good at advertising. Which he is. He's an artist.
+
+We hire business school graduates, and they're no better at these problems than you were. Maybe that's the reason we hire so few of them.
+
+Well, how did I solve those problems? Obviously, I was using a simple search engine in my mind to go through checklist-style, and I was using some rough algorithms that work pretty well in a great many complex systems, and those algorithms run something like this: Extreme success is likely to be caused by some combination of the following factors:
+
+1. Extreme maximization or minimization of one or two variables. Example, Costco or our furniture and appliance store.
+2. Adding success factors so that a bigger combination drives success, often in nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a
+
+---
+
+little bit more mass, and you get a lollapalooza result. And, of course, I've been searching for lollapalooza results all my life, so I'm very interested in models that explain their occurrence.
+
+C) An extreme of good performance over many factors. Example, Toyota or Les Schwab.
+
+D) Catching and riding some sort of big wave. Example, Oracle. By the way, I cited Oracle before I knew that the Oracle CFO (Jeff Henley) was a big part of the proceedings here today.
+
+Generally I recommend and use in problem solving cut-to-the quick algorithms, and I find you have to use them both forward and backward. Let me give you an example. I irritate my family by giving them little puzzles, and one of the puzzles that I gave my family not very long ago was when I said, "There's an activity in America, with one-on-one contests and a national championship. The same person won the championship on two occasions about sixty-five years apart." "Now," I said, "name the activity."
+
+Again, I don't see a lot of light bulbs going on. And in my family, not a lot of light bulbs were flashing. But I have a physicist son who has been trained more in the type of thinking I like. And he immediately got the right answer, and here's the way he reasoned:
+
+It can't be anything requiring a lot of hand-eye coordination. Nobody eighty-five years of age is going to win a national billiards tournament, much less a national tennis tournament. It just can't be. Then, he figured it
+
+---
+
+couldn't be chess, which this physicist plays very well, because it's too hard. The complexity of the system and the stamina required are too great. But that led into checkers. And he thought, "Ah ha! There's a game where vast experience might guide you to be the best even though you're eighty-five years of age." And sure enough, that was the right answer.
+
+Anyway, I recommend that sort of mental puzzle solving to all of you, flipping one's thinking both backward and forward. And I recommend that academic economics get better at very small-scale microeconomics as demonstrated here.
+
+# 5) Too Little Synthesis in Economics
+
+My fifth criticism is there is too little synthesis in economics, not only with matter outside traditional economics, but also within economics. I have posed before two different business school classes the following problem. I say, "You have studied supply and demand curves. You have learned that when you raise the price, ordinarily, the volume you can sell goes down, and when you reduce the price, the volume you can sell goes up. Is that right? That's what you've learned?" They all nod yes. And I say, "Now tell me several instances when, if you want the physical volume to go up, the correct answer is to increase the price." And there's this long and ghastly pause. And finally, in each of the two business schools in which I've tried this, maybe one person in fifty could name one instance. They come up
+
+---
+
+with the idea that, under certain circumstances a higher price acts as a rough indicator of quality and thereby increases sales volumes.
+
+# Nothing to Add Number Six
+
+Question: "I have posed at two different business schools the following problem. I say, "You have studied supply and demand curves. You have learned that when you raise the price, ordinarily the volume you can sell goes down, and when you reduce the price, the volume you can sell goes up. Is that right? That's what you've learned?" They all nod yes. And I say, "Now tell me several instances when, if you want the physical volume to go up, the correct answer is to increase the price?" And there's this long and ghastly pause. And finally, in each of the two business schools in which I've tried this, maybe one person in fifty could name one instance' But only one in fifty can come up with this sole instance in a modern business school-one of the business schools being Stanford, which is hard to get into. And nobody has yet come up with the main answer that I like.
+
+Answer: "There are four categories of answers to this problem. A few people get the first category but rarely any of the others.
+
+1. Luxury goods: Raising the price can improve the product's ability as a show-off item, i.e., by raising the price the utility of the goods is improved to someone engaging in conspicuous consumption. Further, people will frequently assume that the high price equates to a better product, and this can sometimes lead to increased sales.
+
+---
+
+# 2. Non-luxury goods:
+
+same as second factor cited above, i.e., the higher price conveys information assumed to be correct by the consumer, that the higher price connotes higher value. This can especially apply to industrial goods where high reliability is an important factor.
+
+# 3. Raise the price
+
+and use the extra revenue in legal ways to make the product work better or to make the sales system work better.
+
+# 4. Raise the price
+
+and use the extra revenue in illegal or unethical ways to drive sales by the functional equivalent of bribing purchasing agents or in other ways detrimental to the end consumer, i.e., mutual fund commission practices. [This is the answer I like the most, but never get.]
+
+# "Nothing to Add" Number Seven
+
+Here is a question that arose concerning the content of Talk Nine:
+
+Question: "You once said you left Mystery defect Number Ten' out of your UCSB talk. What was it?"
+
+Answer: "Oh, yes. I should have included it, but I didn't, and I think we should just leave it as it was delivered. The tenth defect is what I call 'Not Enough Attention to the Effects of Embedded Ponzi Schemes at the Microeconomic Level.' This is easily demonstrated by the unfunded
+
+---
+
+Pension plans at the major law firms where a clear and enormous potential future impact goes unnoticed—and blissfully ignored.
+
+“Now you tell me several instances when, if you want the physical volume to go up, the correct answer is to increase the price?”
+
+This happened in the case of my friend, Bill Ballhaus. When he was head of Beckman Instruments, it produced some complicated product where, if it failed, it caused enormous damage to the purchaser. It wasn't a pump at the bottom of an oil well, true that's a good mental example. And he realized that the reason this thing was selling so poorly, even though it was better than anybody else's product, was because it was priced lower. It made people think it was a low-quality gizmo. So he raised the price by twenty percent or so, and the volume went way up.
+
+But only one in fifty can come up with this sole instance in a modern business school—one of the business schools being Stanford, which is hard to get into. And nobody has yet come up with the main answer that I like. (See the “I Have Nothing to Add” feature on page 393 for Charlie's full answers to this question.) Suppose you raise that price and use the extra money to bribe the other guy's purchasing agent? Is that going to work? And are there functional equivalents in economics—mis-economics of raising the price and using the extra sales proceeds to drive sales higher? And, of course, if there are a zillion, once you've made that mental jump. It's so simple.
+
+---
+
+One of the most extreme examples is in the investment management field. Suppose you're the manager of a mutual fund, and you want to sell more. People commonly come to the following answer: You raise the commissions, which, of course, reduces the number of units of real investments delivered to the ultimate buyer, so you're increasing the price per unit of real investment that you're selling the ultimate customer. And you're using that extra commission to bribe the customer's purchasing agent. You're bribing the broker to betray his client and put the client's money into the high-commission product. This has worked to produce at least a trillion dollars of mutual fund sales.
+
+The second interesting problem with synthesis involves two of the most famous examples in economics. Number one is Ricardo's principle of comparative advantage in trade, and the other is Adam Smith's pin factory. This tactic is not an attractive part of human nature, and I want to tell you that I pretty completely avoided it in my life. I don't think it's necessary to spend your life selling what you would never buy. Even though it's legal, I don't think it's a good idea. But you shouldn't accept all my notions because you'll risk becoming unemployable. You shouldn't take my notions unless you're willing to risk being unemployable by all but a few.
+
+I think my experience with my simple question is an example of how little synthesis people get, even in advanced academic settings, considering economic questions. Obvious questions, with such obvious answers. Yet,
+
+---
+
+people take four courses in economics, go to business school, have all these I.Q. points, and write all these essays, but they can't synthesize worth a damn. This failure is not because the professors know all this stuff and they're deliberately withholding it from the students. This failure happens because the professors aren't all that good at this kind of synthesis. They were trained in a different way. I can't remember if it was Keynes or Galbraith who said that economics professors are most economical with ideas. They make a few they learned in graduate school last a lifetime.
+
+The second interesting problem with synthesis involves two of the most famous examples in economics. Number one is Ricardo's principle of comparative advantage in trade, and the other is Adam Smith's pin factory. And both of these, of course, work to vastly increase economic output per person, and they're similar in that each somehow directs functions into the hands of people who are very good at doing the functions. Yet, they're radically different examples in that one of them is the ultimate example of central planning-the pin factory-where the whole system was planned by somebody, while the other example, Ricardo's, happens automatically as a natural consequence of trade.
+
+# David Ricardo (1772-1823)
+
+David Ricardo, born in London, began working with his father at the London Stock Exchange at age fourteen. His wealth allowed him to retire young, and he secured a seat in Parliament. He became interested in economics after reading Adam Smith’s the wealth of Nations and, made many significant contributions to the field. Ricardo is often credited with
+
+---
+
+# The Theory of Comparative Advantage
+
+The theory of comparative advantage, which explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. The concept was first described by Robert Torrens in 1815 in an essay on the wheat trade, but Ricardo explained it more clearly in his 1817 book *The Principles of Political Economy and Taxation*.
+
+# Adam Smith's Pin Factory
+
+Adam Smith recorded it in *An Inquiry into the Nature and Causes of the Wealth of Nations* (1776) his observations at a pin factory. He found that only ten workers were able to produce 48,000 pins per day because of divided and specialized labor. If each worker handled all the steps required to make a pin, he could only make twenty per day, for a total factory output of two hundred pins daily. Smith recognized and extolled the great productivity gains and economic progress represented by the pin factory and its embrace of specialized labor.
+
+And, of course, once you get into the joys of synthesis, you immediately think, "Do these things interact?" Of course they interact. Beautifully. And that's one of the causes of the power of a modern economic system. I saw an example of that kind of interaction years ago. Berkshire had this former savings and loan company, and it had made this loan on a hotel right opposite the Hollywood Park Racetrack. In due time, the neighborhood changed, and it was full of gangs, pimps, and dope dealers. They tore copper pipe out of the wall for dope fixes, and there were people hanging around the hotel with guns, and nobody would come. We foreclosed on it.
+
+---
+
+two or three times, and the loan value went down to nothing. We seemed to have an insolvable economic problem- a microeconomic problem.
+
+Now, we could have gone to McKinsey, or maybe a bunch of professors from Harvard, and we would have gotten a report about ten inches thick about the ways we could approach this failing hotel in their terrible neighborhood. But instead, we put a sign on the property that said: "For sale or rent." And in came, in response to that sign, a man who said, "I'll spend $200,000 fixing up your hotel and buy it at a high price on credit, if you can get zoning so I can turn the parking lot into a putting green." "You've got to have a parking lot in a hotel," we said. "What do you have in mind?" He said, "No, my business is flying seniors in from Florida, putting them near the airport, and then letting them go out to Disneyland and various places by bus and coming back. And I don't care how bad the neighborhood is going to be because my people are self-contained behind walls. All they have to do is get on the bus in the morning and come home in the evening, and they don't need a parking lot; they need a putting green." So we made the deal with the guy. The whole thing worked beautifully, and the loan got paid off, and it all worked out.
+
+The odd system that this guy had designed to amuse seniors was pure pin factory, and finding the guy with this system was pure Ricardo. Obviously, that's an interaction of Ricardo and the pin factory examples.
+
+The odd system that this guy had designed to amuse seniors was pure pin.
+
+---
+
+factory, and finding the guy with this system was pure Ricardo. So these things are interacting.
+
+Well, I've taken you part way through the synthesis. It gets harder when you want to figure out how much activity should be within private firms, and how much should be within the government, and what are the factors that determine which functions are where, and why do the failures occur, and so on and so on.
+
+# Ronald Coase (b. 1910)
+
+Ronald Coase, born in a suburb of London, graduated from secondary school at age twelve and enrolled in the University of London only two years later. He earned degrees in law and economics and began research into transaction costs. He came to the United States in 1951 for an academic career that started at the University of Buffalo. He settled into the University of Chicago in 1964 and remains there as professor emeritus. His work, "The Nature of the Firm' (1937), was cited as a major consideration in his receipt of the Nobel Prize in economics in 1991.
+
+It's my opinion that anybody with a high I.Q. who graduated in economics ought to be able to sit down and write a ten-page synthesis of all these ideas that's quite persuasive. And I would bet a lot of money that I could give this test in practically every economics department in the country and get a perfectly lousy bunch of synthesis. They'd give me Ronald Coase. They'd talk about transaction costs. They'd click off a little something that their professors gave them and spit it back. But in terms of really understanding
+
+---
+
+how it all fits together, I would confidently predict that most people couldn't do it very well.
+
+why did Max Planck, one of the smartest people who ever lived, give up economics? The answer is, he said, "It's too hard. The best solution you can get is messy and uncertain.
+
+By the way, if any of you want to try and do this, go ahead. I think you'll find it hard. In this connection, one of the interesting things that I want to mention is that Max Planck, the great Nobel laureate who found Planck's constant, tried once to do economics. He gave it up. Now why did Max Planck, one of the smartest people who ever lived, give up economics? The answer is, he said, "It's too hard. The best solution you can get is messy and uncertain." It didn't satisfy Planck's craving for order, and so he gave it up. And if Max Planck early on realized he was never going to get perfect order, I will confidently predict that all of the rest of you are going to have exactly the same result.
+
+By the way, there's a famous story about Max Planck that is apocryphal: After he won his prize, he was invited to lecture everywhere, and he had this chauffeur who drove him around to give public lectures all through Germany. And the chauffeur memorized the lecture, and so one day he said, "Gee, Professor Planck, why don't you let me try it by switching places?" And so he got up and gave the lecture. At the end of it, some physicist stood up and posed a question of extreme difficulty. But the chauffeur was up to it. "Well," he said, "I'm surprised that a citizen of an advanced city like
+
+---
+
+Munich is asking so elementary a question, so I'm going to ask my chauffeur to respond.
+
+# 6) Extreme and Counterproductive Psychological Ignorance
+
+All right, I'm down to the sixth main defect, and this is a subdivision of the lack of adequate multidisciplinarity: extreme and counterproductive psychological ignorance in economics. Here, I want to give you a very simple problem. I specialize in simple problems.
+
+You own a small casino in Las Vegas. It has fifty standard slot machines. Identical in appearance, they're identical in the function. They have exactly the same payout ratios. The things that cause the payouts are exactly the same. They occur in the same percentages. But there's one machine in this group of slot machines that, no matter where you put it among the fifty, in fairly short order, when you go to the machines at the end of the day, there will be twenty-five percent more winnings from this one machine than from any other machine. Now surely, I'm not going to have a failure here. What is different about that heavy-winning machine? Can anybody do it?
+
+Male: More people play it.
+
+Munger: No, no, I want to know why more people play it. What's different about that machine is people have used modern electronics to give a higher ratio of near misses. That machine is going bar, bar, lemon, bar, bar,
+
+---
+
+grapefruit, way more often than normal machines, and that will cause heavier play.
+
+How do you get an answer like that? Easy. Obviously, there's a psychological cause: That machine is doing something to trigger some basic psychological response.
+
+If you know the psychological factors, if you've got them on a checklist in your head, you just run down the factors, and, boom! you get to one that must explain this occurrence. There isn't any other way to do it effectively.
+
+These answers are not going to come to people who don't learn these problem-solving methods. If you want to go through life like a one-legged man in an ass-kicking contest, why, be my guest. But if you want to succeed like a strong man with two legs, you have to pick up these methods, including doing micro- and macro-economics while knowing psychology.
+
+In this vein, I next want to mention a strange Latin American case of a dysfunctional economy that got fixed. In this little subdivision of Latin America, a culture had arisen wherein everybody stole everything. They embezzled from the company; they stole everything that was loose in the community. And, of course, the economy came practically to a halt. And this thing got fixed. Now, where did I read about this case? I'll give you a hint. It wasn't in the annals of economics. I found this case in the annals of psychology. Clever people went down and used a bunch of psychological tricks. And they fixed it.
+
+---
+
+Well, I think there's no excuse if you're an economist, when there are wonderful cases like that of the dysfunctional economy becoming fixed, and these simple tricks that solve so many problems, and you don't know how to do the fixes and understand the problems. Why be so ignorant about psychology that you don't even know psychology's tricks that will fix your own dysfunctional economic systems?
+
+Here, I want to give you an extreme injunction. This is even tougher than the fundamental organizing ethos of hard science. This has been attributed to Samuel Johnson. He said, in substance, that if an academic maintains in place an ignorance that can be easily removed with a little work, the conduct of the academic amounts to treachery. That was his word, "treachery." You can see why I love this stuff. He saves you have a duty if you're an academic to be as little of a klutz as you can possibly be, and, therefore, you have gotta keep grinding out of your system as much removable ignorance as you can remove.
+
+# 7) Too Little Attention to Second- and Higher-Order Effects
+
+Onto the next one, the seventh defect: too little attention in economics to second-order and even higher-order effects. This defect is quite understandable because the consequences have consequences, and the consequences of the consequences have consequences, and so on. It gets very complicated. When I was a meteorologist, I found this stuff very irritating. And economics makes meteorology look like a tea party.
+
+---
+
+Extreme economic ignorance was displayed when various experts, including Ph. D. economists, forecast the cost of the original Medicare law. They did simple extrapolations of past costs. Well, the cost forecast was off by a factor of more than one thousand percent. The cost they projected was less than ten percent of the cost that happened. Once they put in place various new incentives, the behavior changed in response to the incentives, and the numbers became quite different from their projection. And medicine invented new and expensive remedies, as it was sure to do. How could a great group of experts make such a silly forecast? Answer: They oversimplified to get easy figures, like the rube rounding pi to 3.11. They chose not to consider effects of effects on effects. and so on.
+
+One good thing about this common form of misthinking from the viewpoint of academia is that business people are even more foolish about microeconomics. The business version of the Medicare-type insanity is when you own a textile plant and a guy comes in and says, "Oh, isn't this wonderful? They invented a new loom. It'll pay for itself in three years at current prices because it adds so much efficiency to the production of textiles." And you keep buying these looms, and their equivalent, for twenty years, and you keep making four percent on capital; you never go anywhere. And the answer is, it wasn't that technology didn't work, it's that the laws of economics caused the benefit from the new looms to go to the people that bought the textiles, not the guy that owned the textile plant. How could anybody not know that if he'd take n freshman economics or
+
+---
+
+been through business school? I think the schools are doing a lousy job. Otherwise, such insanities wouldn't happen so often.
+
+Usually, I don't use formal projections. I don't let people do them for me because I don't like throwing up on the desk, but I see them made in a very foolish way all the time, and many people believe in them, no matter how foolish they are. It's an effective sales technique in America to put a foolish projection on a desk.
+
+And if you're an investment banker, it's an arr form. I don't read their projections either. Once Warren and I bought a company, and the seller had a big study done by an investment banker. It was about this thick. We just turned it over as if it were a diseased carcass. He said, "We paid $2 million for that." I said, "We don't use them. Never look at them."
+
+Anyway, as the Medicare example showed, all human systems are gamed, for reasons rooted deeply in psychology, and great skill is displayed in the gaming because game theory has so much potential. That's what's wrong with the workers' comp system in California. Gaming has been raised to an art form. In the course of gaming the system, people learn to be crooked. Is this good for civilization? Is it good for economic performance? Hell, no. The people who design easily gameable systems belong in the lowest circle of hell.
+
+They just don't think about what terrible things they're doing to the civilization because they don't take into account the second-order effects.
+
+---
+
+and the third-order effects in lying and cheating.
+
+I've got a friend whose family controls about eight percent of the truck trailer market. He just closed his last factory in California, and he had one in Texas that was even worse. The workers comp cost in his Texas plant got to be double digit percentages of payroll. Well, there's no such profit in making truck trailers. He closed his plant and moved it to Ogden, Utah, where a bunch of believing Mormons are raising big families and don't game the workers' comp system. The workers' comp expense is two percent of payroll.
+
+Are the Latinos who were peopling his plant in Texas intrinsically dishonest or bad compared to the Mormons? No. It's just the incentive structure that so rewards all this fraud is put in place by these ignorant legislatures, many members of which have been to law school, and they just don't think about what terrible things they're doing to the civilization because they don't take into account the second order effects and the third-order effects in lying and cheating. So, this happens everywhere, and when economics is full of it, it is just like the rest of life.
+
+There was a wonderful example of gaming a human system in the career of Victor Niederhoffer in the Economics Department of Harvard. Victor Niederhoffer was the son of a police lieutenant, and he needed to get A's at Harvard. But he didn't want to do any serious work at Harvard because what he really liked doing was, one, playing world-class checkers; two, gambling in high-stakes card games, at which he was very good, all hours.
+
+---
+
+of the day and night; three, being the squash champion of the United States, which he was for years; and, four, being about as good a tennis player as a part-time tennis player could be.
+
+This did not leave much time for getting A's at Harvard, so he went into the Economics Department. You'd think he would have chosen French poetry. But remember, this was a guy who could play championship checkers. He thought he was up to outsmarting the Harvard Economics Department. And he was. He noticed that the graduate students did most of the boring work that would otherwise go to the professors, and he noticed that because it was so hard to get to be a graduate student at Harvard, they were all very brilliant and organized and hardworking, as well as much needed by grateful professors.
+
+And, therefore, by custom, and as would be predicted from the psychological force called "reciprocity tendency," in a really advanced graduate course, the professors always gave an A. So Victor Niederhoffer signed up for nothing but the most advanced graduate courses in the Harvard Economics Department, and, of course, he got A, after A, after A, after A, and was hardly ever near a class. And, for a while, some people at Harvard may have thought it had a new prodigy on its hands. That's a ridiculous story, but the scheme will work still. And Niederhoffer is famous: They call his style "Niederhoffering the curriculum."
+
+This shows how all human systems are gamed. Another example of not thinking through the consequences of the consequences is the standard
+
+---
+
+reaction in economics to Ricardo's law of comparative advantage giving benefit on both sides of trade. Ricardo came up with a wonderful, non-obvious explanation that was so powerful that people were charmed with it, and they still are because it's a very useful idea. Everybody in economics understands that comparative advantage is a big deal when one considers first-order advantages in trade from the Ricardo effect. But suppose you've got a very talented ethnic group, like the Chinese, and they're very poor and backward, and you're an advanced nation, and you create free trade with China, and it goes on for a long time.
+
+Now let's follow second- and third-order consequences. You are more prosperous than you would have been if you hadn't traded with China in terms of average wellbeing in the United States, right? Ricardo proved it. But which nation is going to be growing faster in economic terms? It's obviously China. They're absorbing all the modern technology of the world through this great facilitator in free trade, and, like the Asian Tigers have proved, they will get ahead fast. Look at Hong Kong. Look at Taiwan. Look at early Japan. So, you start in a place where you've got a weak nation of backward peasants, a billion and a quarter of them, and, in the end, they're going to be a much bigger, stronger nation than you are, maybe even having more and better atomic bombs. Well, Ricardo did not prove that that's a wonderful outcome for the former leading nation. He didn't try to determine second-order and higher-order effects.
+
+# Comparative Advantage
+
+---
+
+# The often overlooked benefits of comparative advantage through free trade
+
+were famously revealed by David Ricardo in his 1817 book *The Principles of Political Economy and Taxation*:
+
+"In Portugal it is possible to produce both wine and cloth with less work than it takes in England. However, the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, but only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore, while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade it for English cloth. Conversely, England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at closer to the cost of cloth."
+
+Frequently overlooked is that Ricardo's comparative advantage in "delegating" tasks among nations is equally applicable for managers delegating work. Even if a manager can perform the full range of tasks better himself, it is still mutually advantageous to divide them up.
+
+If you try and talk like this to economics professors, and I've done this three times, they shrink in horror and offense because they don't like this kind of talk. It really gums up this nice discipline of theirs, which is so much simpler when you ignore second- and third-order consequences. The best answer I ever got on that subject—in three tries—was from George Shultz. He said, "Charlie, the way I figure it is if we stop trading with China, the other advanced nations will do it anyway, and we wouldn't stop the ascent of China compared to us, and we'd lose the Ricardo-diagnosed advantages of trade." Which is obviously correct. And I said, "Well, George, you've just
+
+---
+
+invented a new form of the tragedy of the commons. You're locked in this system, and you can't fix it. You're going to go to a tragic hell in a handbasket, if going to hell involves being once the great leader of the world and finally going to the shallows in terms of leadership." And he said, "Charlie, I do not want to think about this." I think he's wise. He's even older than I am, and maybe I should learn from him.
+
+# 8) Not Enough Attention to the Concept of Febezzlement
+
+Okay, I'm now down to my eighth objection: too little attention within economics to the simplest and most fundamental principle of algebra. Now, this sounds outrageous, that economics doesn't do algebra, right? Well, I want to try an example-I may be wrong on this. I'm old and I'm iconoclastic-but I throw it out anyway. I say that economics doesn't pay enough attention to the concept of febezzlement. And that I derive from Galbraith's idea. Galbraith's idea was that, if you have an undisclosed embezzlement, it has a wonderful Keynesian stimulating effect on the economy because the guy who's been embezzled thinks he is as rich as he always was and spends accordingly, and the guy that has stolen the money gets all this new purchasing power. I think that's correct analysis on Galbraith's part. The trouble with his notion is that he's described a minor phenomenon. Because when the embezzlement is discovered, as it almost surely will be, the effect will quickly reverse. So the effect quickly cancels out.
+
+---
+
+But suppose you paid a lot of attention to algebra, which I guess Galbraith didn't, and you think, "Well, the fundamental principle of algebra is, 'If A is equal to B and B is equal to C, then A is equal to C."' You've then got a fundamental principle that demands that you look for functional equivalents, all you can find. So suppose you ask the question, "Is there such a thing in economics as a febezzlement?" By the way, Galbraith invented the word "bezzle" to describe the amount of undisclosed embezzlement, so I invented the word "febezzlement": the functional equivalent of embezzlement.
+
+This happened after I asked the question, "Is there a functional equivalent of embezzlement?" I came up with a lot of wonderful, affirmative answers. Some were in investment management. After all, I'm near investment management. I considered the billions of dollars totally wasted in the course of investing common stock portfolios for American owners. As long as the market keeps going up, the guy who's wasting all this money doesn't feel it because he's looking at these steadily rising values. And to the guy who is getting the money for investment advice, the money looks like well earned income when he's really selling detriment for money, surely the functional equivalent of undisclosed embezzlement. You can see why I don't get invited to many lectures.
+
+So I say, if you look in the economy for febezzlement, the functional equivalent of embezzlement, you'll find some enormously powerful factors. They create some "wealth effect" that is on steroids compared to the old "wealth effect." But practically nobody thinks as I do, and I quitclaim.
+
+---
+
+my idea to any hungry graduate student who has independent means, which he will need before his thesis topic is approved.
+
+# 9) Not Enough Attention to Virtue and Vice Effects
+
+Okay, my ninth objection: not enough attention to virtue and vice effects in economics. It has been plain to me since early life that there are enormous virtue effects in economics and also enormous vice effects. But economists get very uncomfortable when you talk about virtue and vice. It doesn't lend itself to a lot of columns of numbers. But, I would argue that there are big virtue effects in economics. I would say that the spreading of double-entry bookkeeping by the monk, Fra Luca de Pacioli, was a big virtue effect in economics. It made business more controllable, and it made it more honest.
+
+Then, the cash register. The cash register did more for human morality than the Congregational Church. It was a really powerful phenomenon to make an economic system work better, just as, in reverse, a system that can be easily defrauded ruins a civilization. A system that's very hard to defraud, like a cash register-based system, helps the economic performance of a civilization by reducing vice, but very few people within economics talk about it in those terms.
+
+I'll go further: I say economic systems work better when there's an extreme reliability ethos. And the traditional way to get a reliability ethos, at least in past generations in America, was through religion. The religions instilled guilt. We have a charming Irish Catholic priest in our neighborhood, and he loves to say, "Those old Jews may have invented guilt, but we perfected it."
+
+---
+
+And this guilt, derived from religion, has been a huge driver of a reliability ethos, which has been very helpful to economic outcomes for man.
+
+But economists get very uncomfortable when you talk about virtue and vice. It doesn't lend itself to a lot of columns of numbers.
+
+Many bad effects from vice are clear. You've got the crazy booms and crooked promotions—all you have to do is read the paper over the last six months. There's enough vice to make us all choke. And, by the way, everybody's angry about unfair compensation at the top of American corporations, and people should be. We now face various crazy governance nostrums invented by lawyers and professors that won't give us a fix for unfair compensation, yet a good partial solution is obvious: If directors were significant shareholders who got a pay of zero, you'd be amazed what would happen to unfair compensation of corporate executives as we dampened effects from reciprocity tendency.
+
+A roughly similar equivalent of this no-pay system has been tried in a strange place. In England, lay magistrates staff the lower criminal courts, which can send you to prison for a year or fine you substantially. You've got three judges sitting up there, and they all get a pay of zero. Their expenses are reimbursed, but not too liberally. And they work about forty half-days a year, as volunteers. It's worked beautifully for about seven hundred years. Able and honest people compete to become magistrates, to perform the duty and get the significance, but no pay.
+
+---
+
+This is the system Benjamin Franklin, near the end of his life, wanted for the U.S. government. He didn't want the high executives of government to be paid, but to be like himself or the entirely unpaid, well-off ministers and rulers of the Mormon Church. And when I see what's happened in California, I'm not sure he wasn't right. At any rate, no one now drifts in Franklin's direction. For one thing, professors—and most of them need money—get appointed directors.
+
+It is not always recognized that, to function best morality should sometimes appear unfair, like most worldly outcomes. The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they'll be fairer on average for all of us. Thus, there can be virtue in apparent non-fairness. I frequently cite the example of having your career over, in the Navy, if your ship goes aground, even if it wasn't your fault. I say the lack of justice for the one guy that wasn't at fault is way more than made up by a greater justice for everybody when every captain of a ship always sweats blood to make sure the ship doesn't go aground. Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you. But again, I wouldn't put it in your assigned college work if you want to be graded well, particularly in a modern law school wherein there is usually an over-love of fairness-seeking process.
+
+There are, of course, enormous vice effects in economics. You have these bubbles with so much fraud and folly. The aftermath is frequently very
+
+---
+
+unpleasant, and we've had some of that lately. One of the first big bubbles, of course, was the huge and horrible South Sea Bubble in England. And the aftermath was interesting. Many of you probably don't remember what happened after the South Sea Bubble, which caused an enormous financial contraction and a lot of pain. Except in certain rare cases, they banned publicly traded stock in England for decades. Parliament passed a law that said you can have a partnership with a few partners, but you can't have publicly-traded stock. And, by the way, England continued to grow without publicly-traded stock. The people who are in the business of prospering because there's a lot of stock being traded in casino-like frenzy wouldn't like this example if they studied it enough. It didn't ruin England to have a long period when they didn't have publicly-traded shares.
+
+Just as in real estate. We had all the shopping centers and auto dealerships, and so on, we needed for years when we didn't have publicly-traded real estate shares.
+
+It's a myth that once you've got some capital market, economic considerations demand that it has to be as fast and efficient as a casino. It doesn't.
+
+# The South Sea Bubble
+
+The South Sea Bubble was an economic frenzy in England that occurred when speculation in South Sea Company shares peaked spring 1720. The share price rose from $128 in January to a high of $1,000 in August, and then fell back to $150 in September.
+
+---
+
+The company had been granted exclusive trading rights in Spanish South America. When results ultimately proved skimpy, the company engineered a public debt scheme that appeared to bolster profits. Company leaders and other shareholders also talked up future revenues, causing the speculative frenzy. Public outcry following disclosure of the fraud led to imposition of the Bubble Act of 1720, requiring publicly-traded companies to have a royal charter.
+
+Another interesting problem is raised by vice effects involving envy. Envy wisely got a very strong condemnation in the laws of Moses. You remember how they laid it on with a trowel: You couldn't covet thy neighbor's ass, you couldn't cover thy neighbor's servant girl, you couldn't covet.... Those old Jews knew how envious people are and how much trouble it caused. They really laid it on hard, and they were right. But Mandeville—remember his fable of bees? He demonstrated convincingly—to me, anyway—that envy was a great driver of proclivity to spend. And so, here's this terrible vice, which is forbidden in the Ten Commandments, and here it's driving all these favorable results in economics. There's some paradox in economics that nobody's going to get out.
+
+When I was young, everybody was excited by Gödel, who came up with proof that you couldn't have a mathematical system without a lot of irritating incompleteness in it. Well, since then, my betters tell me that they've come up with more irremovable defects in mathematics and have decided that you're never going to get mathematics without some paradox in it.
+
+---
+
+It. No matter how hard you work, you're going to have to live with some paradox if you're a mathematician.
+
+Well, if the mathematicians can't get the paradox out of their system when they're creating it themselves, the poor economists are never going to get rid of paradoxes, nor are any of the rest of us. It doesn't matter. Life is interesting with some paradox. When I run into a paradox, I think either I'm a total horse's ass to have gotten to this point, or I'm fruitfully near the edge of my discipline. It adds excitement to life to wonder which it is.
+
+As I conclude, I want to tell one more story demonstrating how awful it is to get a wrong idea from a limited repertoire and just stick to it. And this is the story of Hyman Liebowitz, who came to America from the old country. In the new country as in the old, he cried to make his way in the family trade, which was manufacturing nails. And he struggled, and he struggled, and, finally, his little nail business got to vast prosperity, and his wife said to him, "You are old, Hyman, it's time to go to Florida and turn the business over to our son."
+
+In his 1989 Pulitzer Prize-winning book Douglas Hofstadter ties together the work of mathematician Gödel, graphic artist Escher, and composer Bach.
+
+So down he went to Florida, turning his business over to the son, but he got weekly financial reports. And he hadn't been in Florida very long before they turned sharply negative. In fact, they were terrible. So he got on an
+
+---
+
+airplane, and he went back to New Jersey where the factory was. As he left the airport on the way to the factory, he saw this enormous outdoor advertising sign lighted up. And there was Jesus, spread out on the cross. And under it was a big legend, "They Used Leibowitz's Nails." So he stormed into the factory and said, "You dumb son! What do you think you're doing? It took me fifty years to create this business!" "Papa," he said. "trust me. I will fix it."
+
+So back he went to Florida, and while he was in Florida, he got more reports, and the results kept getting worse. So he got on the airplane again. Left the airport, drove by the sign, looked up at this big lighted sign, and now there's a vacant cross. And, lo and behold, Jesus is crumpled on the ground under the cross, and the sign said, "They Didn't Use Leibowitz's Nails."
+
+Well, you can laugh at that. It is ridiculous, but it's no more ridiculous than the way a lot of people cling to failed ideas. Keynes said, "It's not bringing in the new ideas that's so hard. It's getting rid of the old ones." And Einstein said it better, attributing his mental success to "curiosity, concentration, perseverance, and self-criticism." By self-criticism, he meant becoming good at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift.
+
+Well, it's time to repeat the big lesson in this little talk. What I've urged is the use of a bigger multidisciplinary bag of tricks, mastered to fluency, to help economics and everything else. And I also urged that people not be
+
+---
+
+discouraged by irremovable complexity and paradox. It just adds more fun to the problems. My inspiration again is Keynes: Better roughly right than precisely wrong.
+
+And so, I end by repeating what I said once before on a similar occasion. If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands.
+
+# Bernard de Mandeville (1670-1733) and "The Fable of the Bees"
+
+Bernard de Mandeville, philosopher and satirist, published a poem, "The Fable of the Bees: or, Private Vices, Public Benefits," in 1705 as a political satire. Mandeville's philosophy suggests that altruism harms the state and its intellectual progress and that self-interested human vice is the real engine of progress. Thus he arrives at the paradox that "private vices are public benefits."
+
+Well, that's the end. I'll take questions as long as people can endure me.
+
+Male: ...financial destruction from trading of derivative contracts. Buffett said that the genie's out of the bottle and the hangover may be proportional to the binge. Would you speculate for us how that scenario can play out?
+
+['The question was garbled, but the person asked about derivatives, which Buffett has called "financial weapons of mass destruction."]
+
+Munger: Well, of course, catastrophe predictions have always been quite difficult to make with success. But I confidently predict that there are big
+
+---
+
+troubles to come. The system is almost insanely irresponsible. And what people think are foxes aren't really fixes. It's so complicated I can't do it justice here-but you can't believe the trillions of dollars involved. You can't believe the complexity. You can't believe how difficult it is to do the accounting. You can't believe how big the incentives are to have wishful thinking about values and wishful thinking about ability to clear.
+
+Running off a derivative book is agony and takes time. And you saw what happened when they tried to run off the derivative books at Enron. Its certified net worth vanished. In the derivative books of America, there are a lot of reported profits that were never earned and assets that never existed. And there are large febezzlement effects and some ordinary embezzlement effects that come from derivative activity. And the reversal of these is going to cause pain. How big the pain will be and how well it will be handled, I can't tell you. But you would be disgusted if you had a fair mind and spent a month really delving into a big derivative operation. You would think it was Lewis Carroll [author of Alice's Adventures in Wonderland]. You would think it was the Mad Hatter's Tea Party.
+
+# John Maynard Keynes (1883-1946)
+
+John Maynard Keynes, son of an economics lecturer at Cambridge University and a social reformist, seemed destined to become a great economist and political thinker. His book, The General Theory, of
+
+---
+
+Employment, Interest, and Money, published in 1936, advocated that government stimulate demand in times of high unemployment for example, by spending on public works. The book serves as the foundation of modern macroeconomics.
+
+And the false precision of these people is just unbelievable. They make the worst economics professors look like gods. Moreover, there is depravity augmenting the folly. Read the book F.I.A.S.C.O., by law professor and former derivatives trader Frank Partnoy, an insider account of depravity in derivative trading at one of the biggest and best-regarded Wall Street firms. The book will turn your stomach.
+
+Rajneesh Mehta: We'll take one more question. There's a class outside that has to come in. So one more question.
+
+Male: Could you describe Warren's reactions to the advice about the negative reaction that he got from musing about defects of California's Prop Thirteen? Was he shocked, surprised?
+
+Munger: It's hard to shock Warren. He's past seventy, he's seen a lot. And his brain works quickly. He generally avoids certain subjects before elections; and that is what I am going to do here.
+
+# California's Proposition 13
+
+In 1978, nearly two-thirds of California voters passed Proposition 13, which limits property taxes to one percent of a property's market value, and to two
+
+---
+
+percent per year any increase in the property valuation assessment unless the property is sold. Prior to Proposition 13, there were no real limits on increases either for the tax rate or property value assessments in the state of California. Prop 13 set the stage for a broader taxpayer revolt" that contributed to Ronald Reagan's election as president in 1980.
+
+In the 2003 California gubernatorial recall election in which Arnold Schwarzenegger was elected, Schwarzenegger advisor Warren Buffett suggested that Proposition 13, still very popular with many homeowners, be repealed or changed to help balance the state's budget. Politically, Buffett suggestion proved to be highly charged. Below is Schwarzenegger reaction.
+
+"Warren, if you mention Prop Thirteen one more time, you owe me five hundred sit-ups."
+
+# Talk Nine Revisited
+
+This waggish talk on economics, given in 2003, gave me pleasure as I put it together. But I hope it provided more than harmless fun. I even hope that some shred of my ideas eventually gets into academic economics, not because I want recognition, but because I think academic economics needs some improvement.
+
+Since the talk was given, I came across a book, published by Alfred A. Knopf in 2005. It was written by a distinguished Harvard economics
+
+---
+
+professor, Benjamin M. Friedman, and dealt with the interplay of economics and morals, much as I wished in my talk. The title of this book is "The Moral Consequences of Economic Growth." As readers will note from the title. Professor Friedman is particularly interested in the impact of economic growth on morals, whereas my interest is mostly in the reverse direction, the impact of morals on economic growth. This difference is not a big deal, because every educated person can see reciprocal effects, for good or ill, between the two factors, creating what is often called either a "virtuous circle" or "vicious circle." Professor Friedman supplies a marvelous quotation on this subject from Rabbi Elazar Ben Azariah: "Where there is no bread, there is no law; where there is no law, there is no bread."
+
+# A Matter of Trust
+
+"Capitalism works best when there is trust in the system." -Munger
+
+Arguably the most important theme in this book is the need for trust: deserved reliance upon the character, values and integrity of those you live and work with. Charlie Munger and Warren Buffett are renowned for their steadfast commitment to unblemished integrity-believing, like Elbert Gary (Chairman of US Steel from 1901 to 1927) that, "Ethical practices aren't good because they pay; they pay because they are good."
+
+---
+
+Charlie recalls a meeting of the "Ben Graham Group" in San Diego many years ago. Ben Graham gave his brilliant followers a "cognitive assessment test!," containing some extremely tricky questions. As Ben anticipated, the rest takers did not fare well, allowing him to deliver a vital lesson regarding the fundamental importance of trust:
+
+"No matter how smart you are, there are smart people out there who can fool you if they really want to. So, be sure you can trust the smart people you work with."
+
+On a warm late-spring day in 2000, Charlie addressed 194 Juris Doctorate, 89 Master of Law, and three Master of Comparative Laws recipients in the University of Southern California's Alumni Park. He offered insights into the practices that have contributed to his success and to his standing as one of the wealthiest people in the world. He observed that the acquisition of wisdom is a moral duty and stressed that, while attending law school, he realized the last road to success in life and learning would be a multi-disciplinary one. Following the audience's enthusiastic reaction to this speech, USC Law Dean Edward J. McCaffery awarded Charlie "honorary" admission into The Order of the Coif-, a scholastic society founded to encourage excellence in legal education.
+
+# Talk Ten
+
+---
+
+# USC Gould School of Law
+
+# Commencement Address
+
+# The university of Southern California May 13, 2007
+
+Well, no doubt many of you why this speaker is so old. The answer is obvious: He hasn't died yet. Why was this speaker chosen? Well, I don't know that. The development department had nothing to do with it.
+
+Whatever the reason, I think it's fitting that I'm speaking here because I see a crowd of older people in the rear, not wearing robes. And I know from having educated an army of descendants, who it is that really deserves a lot of the honors that are being given today to the robe-wearing students in front. The sacrifices, and the wisdom, and the value transfer, that come from one generation to the next should always be appreciated.
+
+I also take pleasure from the sea of Asian faces to my left. All my life I have admired Confucius. I like the idea of "filial piety," of ideas or values that are taught and duties that come naturally, that should be passed onto the next generation. You people who don't think there's anything in this idea, please note how fast Asian people are rising in American life. I think they have something.
+
+# Confucius (551-479 BC) on Filial Piety
+
+In Confucian thought, filial piety—a love and respect for one's parents and ancestors—is a virtue to be cultivated. More broadly, "filial piety means to take care of one's parents; not be rebellious; show love, respect and support;
+
+---
+
+display courtesy; ensure male heirs; uphold fraternity among brothers; wisely advise ones parents; conceal their mistakes; display sorrow for their sickness and death; and carry out sacrifices after their death.
+
+Confucius believed that if people could learn to fulfill their filial roles properly they would be better able to perform their roles in society and government. To Confucius, filial piety was so essential he felt it transcended the law. In fact, during parts of the Han Dynasty those who neglected ancestor worship according to filial piety precepts were subject to corporal punishment.
+
+All right, I've scratched out a few notes, and I'm going to try and give an account of certain ideas and attitudes that have worked well for me. I don't claim that they're perfect for everybody. But I think many of them contain universal values and that many of them are "can't fail" ideas.
+
+What are the core ideas that helped me? Well, luckily I had the idea at a very early age that the safest way to try to get what you want is to try to deserve what you want. It's such a simple idea. It's the golden rule. You want to deliver to the world what you would buy if you were on the other end. There is no ethos in my opinion that is better for any lawyer or any other person to have. By and large, the people who've had this ethos win in life, and they don't win just money and honors. They win the respect, the deserved trust of the people they deal with. And there is huge pleasure in life to be obtained from getting deserved trust.
+
+---
+
+You want to deliver to the world what you would buy if you were on the other end.
+
+Now, occasionally, you will find a perfect rogue of a person who dies rich and widely known. But mostly these people are fully understood as despicable by the surrounding civilization. If the Cathedral is full of people at the funeral ceremony, most of them are there to celebrate the fact that the person is dead. That reminds me of the story of the time when one of these people died, and the Minister said, "It's now time to say something nice about the deceased." And nobody came forward, and nobody came forward, and nobody came forward. And finally one man came up and said, "Well, his brother was worse." (Audience laughs.) That is not where you want to go. A life ending in such a funeral is not the life you want to have.
+
+The second idea that I developed very early is that there is no love that is so right as admiration-based love, and such love should include the instructive dead. Somehow I picked up that idea, and I've lived with it all my life. It's been very useful to me. A love like that described by Somerset Maugham in his book, Of Human Bondage, is a sick kind of love. It's a disease, and if you find yourself with a disease like that, you should eliminate it.
+
+Another idea, and this may remind you of Confucius, too, is that the acquisition of wisdom is a moral duty. It's not something you do just to advance in life. And there's a corollary to that idea that is very important. It requires that you are hooked on lifetime learning. Without lifetime learning, you people are not going to do very well. You are not going to get very far.
+
+---
+
+in life based on what you already know. You're going to advance in life by what you learn after you leave here.
+
+# A sick kind of love
+
+Of Human Bondage, William Somerset Maugham’s autobiographical 1915 novel, is generally considered his masterpiece. The protagonist, Philip, meets Mildred, a London waitress, who snubs him. Falling in obsessive love with Mildred, Philip knows he is foolish and despises himself. He gives Mildred all his money; she repays him with disgust and humiliation. Maugham describes the relationship:
+
+"Love was like a parasite in his legs nourishing a hateful existence on his life's blood; it absorbed his existence so intensely that he could take pleasure in nothing else."
+
+...the acquisition of wisdom is a moral duty.
+
+Consider Berkshire Hathaway, one of the best-regarded corporations in the world. It may have the best long-term, big-assets-involving investment record in the history of civilization. The skill that got Berkshire through one decade would not have sufficed to get it through the next decade, with comparable levels of achievement. Warren Buffett had to be a continuous-learning machine. The same requirement exists in lower walks of life. I constantly see people rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines. They go to bed
+
+---
+
+every night a little wiser than they were that morning. And boy, does that habit help, particularly when you have a long run ahead of you.
+
+Alfred North Whitehead correctly said at one time that the rapid advance of civilization came only when man "invented the method of invention." He was referring to the huge growth in GDP per capita and many other good things we now take for granted. Big-time progress started a few hundred years ago. Before that progress per century was almost nil. Just as civilization can progress only when it invents the method of invention, you can progress only when you learn the method of learning.
+
+Just as civilization can progress only when it invents the method of invention, you can progress only when you learn the method of learning.
+
+I was very lucky. I came to law school having learned the method of learning, and nothing has served me better in my long life than continuous learning. Consider Warren Buffett again. If you watched him with a time clock, you'd find that about half of his waking time is spent reading. Then a big chunk of the rest of his time is spent talking one-on-one, either on the telephone or personally, with highly gifted people whom he trusts and who trust him. Viewed up close, Warren looks quite academic as he achieves worldly success.
+
+Academia has many wonderful values in it. I came across an example not too long ago. In my capacity as a hospital board chairman, I was dealing with a medical school academic named Joseph M. Mirra, M.D. This man,
+
+---
+
+Over years of disciplined work, made himself know more about bone tumor pathology than almost anyone else in the world. He wanted to pass this knowledge on to help treat bone cancer. How was he going to do it? Well, he decided to write a textbook, and even though I don't think a textbook like this sells more than a few thousand copies, they do end up in cancer treatment centers all over the world. He took a sabbatical year and sat down at his computer with all his slides, carefully saved and organized. He worked seventeen hours a day, seven days a week, for a year. Some sabbatical. At the end of the year he had created one of the two great bone tumor pathology textbooks of the world. When you're around values like Mirra's, you want to pick up as much as you can.
+
+Another idea that was hugely useful to me was one I obtained when I listened in law school when some waggish professor said, "A legal mind is a mind that considers it feasible and useful, when two things are all twisted up together and interacting, to try to think about one thing without considering the other." Well, I could see from that indirectly pejorative sentence that any such "legal" approach was ridiculous. And this pushed me further along in my natural drift, which was toward learning all the big ideas in all the big disciplines, so I wouldn't be the perfect damn fool the professor described. And because the really big ideas carry about 95% of the freight, it wasn't at all hard for me to pick up about 95% of what I needed from all the disciplines and to include use of this knowledge as a standard part of my mental roundness. Once you have the ideas, of course, you must continuously practice their use. Like a concert pianist, if you don't...
+
+---
+
+practice you can't perform well. So I went through life constantly practicing a multi-disciplinary approach.
+
+Well, this habit has done a lot for me. It's made life more fun. It's made me more constructive. It's made me more helpful to others. It's made me richer than can be explained by any genetic gifts. My mental routine, properly practiced, really helps. Now; there are dangers in it, because it works so well. If you use it you will frequently find when you're with some expert from another discipline-maybe even an expert who is your employer with a vast ability to harm you-that you know more than he does about fitting his specialty to the problem at hand. You'll sometimes see the correct answer when he's missed it. That is a very dangerous position to be in. You can cause enormous offense by being right in a way that causes somebody else to lose face in his own discipline or hierarchy. I never found the perfect way to avoid harm from this serious problem.
+
+You can cause enormous offense by being right in a way that causes somebody else to lose face in his own discipline or hierarchy.
+
+Even though I was a good poker player when I was young, I was not good enough at pretending when I thought I knew more than my supervisors did. And I didn't try as hard at pretending as would have been prudent. So I gave a lot of offense. Now, I'm generally tolerated as a harmless eccentric who will soon be gone. But coming up, I had a difficult period to go through. My advice to you is to be better than I was at keeping insights hidden. one of my colleagues, who graduated as number one in his class in law school and
+
+---
+
+clerked at the U.S. Supreme Court, tended as a young lawyer to show that he knew a lot One day the senior partner he was working under called him in and said,
+
+"Listen, Chuck, I want to explain something to you. Your duty is to behave in such a way that the client thinks he's the smartest person in the room. If you have any energy or insight available after that, use it to make your senior partner look like the second smartest person in the room. And only after you've satisfied those two obligations, do you want your light to shine at all."
+
+Well, that was a good system for rising in many a large law firm. But it wasn't what I did. I usually moved with the drift of my nature, and if some other people didn't like it, well, I didn't need to be adored by everybody.
+
+# Cicero, the Greatest Lawyer of Antiquity
+
+Marcus Tullius Cicero (106 - 43 BC) lived through the decline and fall of the Roman Republic and was important in many of the significant political events of his time. Besides being an orator politician, and philosopher, Cicero was primarily a lawyer with a great respect for the lessons of history.
+
+He said: "History is the witness that testifies to the passing of time; it illumines reality, vitalizes memory, provides guidance in daily life, and brings us tidings of antiquity."
+
+---
+
+To be ignorant of what happened before you were born is to be ever a child. For what is man's lifetime unless the memory of past events is woven with those of earlier times?
+
+Let me further develop the idea that a multi-disciplinary attitude is required if maturity is to be effective. Here I'm following a key idea of the greatest lawyer of antiquity, Marcus Tullius Cicero [for more ideas from Cicero, please see Munger's Reflections on Aging in Chapter One-Ed.] Cicero is famous for saying that a man who doesn't know what happened before he's born goes through life like a child. That is a very correct idea. Cicero is right to ridicule somebody so foolish as not to know history. But if you generalize Cicero, as I think one should, there are a lot of other things that one should know in addition to history. And those other things are the big ideas in all the disciplines. And it doesn't help you much just to know something well enough so that on one occasion you can prattle your way to an A in an exam. You have to learn many things in such a way that they're in a mental latticework in your head and you automatically use them the rest of your life. If many of you try that, I solemnly promise that one day most will correctly come to think, "Somehow I have become one of the most effective people in my whole age cohort." And, in contrast, if no effort is made toward such multidisciplinarity, many of the brightest of you who choose this course will live in the middle ranks or in the shallows.
+
+The way complex adaptive systems work, and the way mental constructs work, problems frequently become easier to solve through "inversion." If
+
+---
+
+you turn problems around into reverse, you often think better. Another idea that I discovered was encapsulated by that story Dean McCaffrey recounted earlier about the rustic who "wanted to know where he was going to die, so he wouldn't go there." The rustic who had that ridiculous sounding idea had a profound truth in his possession. The way complex adaptive systems work, and the way mental constructs work, problems frequently become easier to solve through "inversion." If you turn problems around into reverse, you often think better. For instance, if you want to help India, the question you should consider asking is not: "How can I help India?" Instead, you should ask: "How can I hurt India?" You find what will do the worst damage, and then try to avoid it. Perhaps the two approaches seem logically the same thing. But those who have mastered algebra know that inversion will often and easily solve problems that otherwise resist solution. And in life, just as in algebra, inversion will help you solve problems that you can't otherwise handle.
+
+Let me use a little inversion now. What will really fail in life? What do we want to avoid? Some answers are easy. For example, sloth and unreliability will fail. If you're unreliable it doesn't matter what your virtues are, you're going to crater immediately. So, faithfully doing what you've engaged to do should be an automatic part of your conduct. Of course you want to avoid sloth and unreliability.
+
+you want to be very careful with intense ideology. It presents a big danger for the only mind you're ever going to get.
+
+---
+
+Another thing to avoid is extremely intense ideology because it cabbages up one's mind. You see a lot of it in the worst of the TV preachers. They have different, intense, inconsistent ideas about technical theology, and a lot of them have minds reduced to cabbage. (Audience laughs) And that can happen with political ideology. And if you're young, it's particularly easy to drift into intense and foolish political ideology and never get out. When you announce that you're a loyal member of some cult-like group and you start shouting out the orthodox ideology, what you're doing is pounding it in, pounding it in, pounding it in. You're ruining your mind, sometimes with startling speed. So you want to be very careful with intense ideology. It presents a big danger for the only mind you're ever going to have.
+
+# The iron Prescription a la Darwin
+
+Darwin formulated his theories on the transmutation of species in the late 1830's, but it was not until 1859 that he published his seminal work, *On the Origin of Species by Means of Natural Selection*. Darwin accepted that any scientific theory proffering an alternative explanation to human origins would be met with widespread prejudice and that therefore prudence dictated he become fully versed in every possible counter argument before publishing his ideas. Accordingly, he spent twenty years painstakingly cultivating his theory and preparing for its defense.
+
+There is a warning example I use whenever I feel threatened by drift toward intense political ideology. Some Scandinavian canoeists succeeded in getting through all the rapids of Scandinavia, and they thought they would
+
+---
+
+continue their success by tackling the big whirlpools in northwest America. The death rate was one hundred percent. A big whirlpool is something you want to avoid. And I think the same is true about intense ideology, particularly when your companions are all true believers.
+
+I have what I call an "iron prescription" that helps me keep sane when I drift toward preferring one intense ideology over another. I feel that I'm not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I've reached that state. This sounds almost as extreme as the "iron prescription" Dean Acheson was fond of attributing to William the Silent of Orange, who roughly said, "It's not necessary to hope in order to persevere." That probably is too tough for most people, although I hope it won't ever become too tough for me. My way of avoiding over-intensity in ideology is easier than Acheson's injunction and worth learning.
+
+This business of not drifting into extreme ideology is very very important in life. If you want to end up wise, heavy ideology is very likely to prevent that outcome.
+
+I feel that I'm not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.
+
+Another thing that often causes folly and ruin is the "self-serving bias," often subconscious, to which we're all subject. You think that "the true little me" is entitled to do what it wants to do. For instance, why shouldn't the
+
+---
+
+true little me get what it wants by overspending its income? Well, there once was a man who became the most famous composer in the world. But he was utterly miserable most of the time. And one of the reasons was that he always overspent his income. That was Mozart. If Mozart couldn't get by with this kind of asinine conduct, I don't think you should try it. (Audience laughs.)
+
+If Mozart couldn't get by with this kind of asinine conduct, I don't think you should try it.
+
+Generally speaking, envy, resentment, revenge and self-pity are disastrous modes of thought. Self-pity can get pretty close to paranoia. And paranoia is one of the very hardest things to reverse. You do not want to drift into self-pity. I had a friend who carried a thick stack of linen-based cards. And when somebody would make a comment that reflected self-pity, he would slowly and portentously pull out his huge stack of cards, take the top one and hand it to the person. The card said, "Your story has touched my heart. Never have I heard of anyone with as many misfortunes as you." Well, you can say that's waggery but I suggest it can be mental hygiene. Every time you find you're drifting into self-pity, whatever the cause, even if your child is dying of cancer, self-pity is not going to help. Just give yourself one of my friend's cards. Self-pity is always counterproductive. It's the wrong way to think. And when you avoid it, you get a great advantage over everybody else, or almost everybody else, because self-pity is a standard response. And you can train yourself out of it.
+
+---
+
+# Mozart-Spendthrift?
+
+The notion of Mozart as impoverished composer comes primarily from a series of letters he wrote from 1788 to 1791 to his Masonic brother, Michael Puchberg, asking for loans. Other evidence suggests Mozart's income, though subject to considerable fluctuation, was unusually high for a musician, placing him during some years in the top 10 percent of all Vienna inhabitants. Economists William and Hilda Baumol, on the other hand, calculate that Mozart's income in the last decade of his life was middle class at 3,000-4,000 forints a year (about $30,000-$40,000 in 1990).
+
+'What happened to Mozart's money? Mozart's sickly wife, Constanze, required regular cures at spring baths used only by the wealthy. During lean times, the Mozarts continued to live in their accustomed style, giving themselves cash flow problems. The situation was exacerbated by their failure to save any money during rush periods and by a judgment against Mozart in 1791 resulting from a suit brought by Prince Karl Lichnowsky. Some scholars also cite evidence that Mozart gambled at billiards and cards.
+
+Of course you also want to get self-serving bias out of your mental routines. Thinking that what's good for you is good for the wider civilization, and rationalizing foolish or evil conduct, based on your subconscious tendency to serve yourself, is a terrible way to think. And you want to drive that out of yourself because you want to be wise not foolish, and good not evil. You also have to allow, in your own cognition and conduct, for the self-serving bias of everybody else, because most people are not going to be very successful at removing such bias, the human condition being what it is.
+
+---
+
+you don't allow for self-serving bias in the conduct of others, you are, again, a fool.
+
+If you don't allow for self-serving bias in the conduct of others, you are, again, a fool.
+
+I watched the brilliant and worthy Harvard Law Review trained general counsel of Salomon Brothers lose his career there. When the able CEO was told that an underling had done something wrong, the general counsel said, "Gee, we don't have any legal duty to report this, but I think it's what we should do. It's our moral duty." The general counsel was technically and morally correct. But his approach didn't persuade. He recommended a very unpleasant thing for the busy CEO to do and the CEO, quite understandably, put the issue off, and put it off, and not with any intent to do wrong. In due course, when powerful regulators resented not having been promptly informed, down went the CEO and the general counsel with him.
+
+The correct persuasive technique in situations like that was given by Ben Franklin. He said, "if you would persuade, appeal to interest, not to reason." The self-serving bias of man is extreme and should have been used in attaining the correct outcome. So the general counsel should have said, "Look, this is likely to erupt into something that will destroy you, take away your money, take away your status, grossly impair your reputation. My recommendation will prevent a likely disaster from which you can't
+
+---
+
+recover." That approach would have worked. You should often appeal to interest, not to reason, even when your motives are lofty.
+
+Another thing to avoid is being subjected to perverse incentives. You don't want to be in a perverse incentive system that's regarding you if you behave more and more foolishly, or worse and worse. Perverse incentives are so powerful as controllers of human cognition and human behavior that one should avoid their influence.
+
+And one of the things you're going to find in at least a few modern law firms is high billable-hour quotas. I could not have lived under billable-hour quotas of 2400 hours a year. That would have caused too many problems for me. I wouldn't have done it. I don't have a solution for the situation some of you will face. You'll have to figure out for yourselves how to handle such significant problems.
+
+You particularly want to avoid working directly under somebody you don't admire and don't want to be like.
+
+Perverse associations are also to be avoided. You particularly want to avoid working directly under somebody you don't admire and don't want to be like. It's dangerous. We're all subject to control to some extent by authority figures, particularly authority figures who are rewarding us. Dealing properly with this danger requires both some talent and will. I coped in my time by identifying people I admired and by maneuvering, mostly without criticizing anybody, so that I was usually working under the right sort of people. A lot of law firms will permit that if you're shrewd enough to work.
+
+---
+
+It out with some tact. Generally, your outcome in life will be more satisfactory if you work under people you correctly admire. Engaging in routines that allow you to maintain objectivity are, of course, very helpful to cognition. We all remember that Darwin paid special attention to disconfirming evidence, particularly when it disconfirmed something he believed and loved. Routines like that are required if a life is to maximize correct thinking. And one also needs checklist routines. They prevent a lot of errors, and not just for pilots. You should not only possess wide-ranging elementary wisdom but also go through mental checklist routines in using it. There is no other procedure that will work as well. I think the game of competitive life often requires maximizing the experience of the people who have the most aptitude and the most determination as learning machines.
+
+# Non Egalitarianism a la John Wooden
+
+Andy Hill was a stand out guard at University High School in Los Angeles in 1968. He averaged 27 points per game as a senior and was widely recruited by some of the best basketball programs in the country. He chose UCLA and had a phenomenal year playing on the freshman squad. His 19 points and 8 assists per game earned him that team MVP award, which he shared with Henry Bibby.
+
+Andy's Cinderella story at UCLA, however, ended shortly thereafter. The varsity squad had just won its sixth national championship in seven years, and Hill soon discovered the caliber of play on Coach Wooden's first-team.
+
+---
+
+was beyond his reach. Together with the other reserves who spent their varsity careers on the bench. Hill became well versed in the non egalitarian nature of the sport as practiced by Wooden. In his enjoyable book, Be Quick-But Don't Hurry!, Hill recounts both the pain of this period of his life, his eventual reconciliation with Wooden, and the valuable life-lessons he gained from the experience.
+
+Another idea that I found important is that maximizing non-egality will often work wonders. What do I mean? Well, John Wooden of UCLA presented an instructive example when he was the number one basketball coach in the world. He said to the bottom 5 players, "You don't get to play - you are practice partners." The top seven did almost all the playing. Well, the top seven learned more—remember the importance of the learning machine—because they were doing all the playing. And when he adopted that non-egalitarian system, Wooden won more games than he had won before. I think the game of competitive life often requires maximizing the experience of the people who have the most aptitude and the most determination as learning machines. And if you want the very highest reaches of human achievement, that's where you have to go. You do not want to choose a brain surgeon for your child by drawing straws to select one of fifty applicants, all of whom take turns doing procedures. You don't want your airplanes designed in too egalitarian a fashion. You don't want your Berkshire Hathaway's run that way either. You want to provide a lot of playing time for your best players.
+
+---
+
+You don't want your airplanes designed in too egalitarian a fashion. You don't want your Berkshire Hathaway's run that way either. You want to provide a lot of playing time for your best players.
+
+I frequently tell the apocryphal story about how Max Planck, after he won the Nobel Prize, went around Germany giving a same standard lecture on the new quantum mechanics. Over time, his chauffeur memorized the lecture and said, "Would you mind, Professor Planck, because it's so boring to stay in our routine, if I gave the lecture in Munich and you just sat in front wearing my chauffeur's hat?" Planck said, "Why not?" And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question. The speaker said, "Well, I'm surprised that in an advanced city like Munich I get such an elementary question. I'm going to ask my chauffeur to reply." (Audience laughs.)
+
+Well, the reason I tell that story is not to celebrate the quick wittedness of the protagonist. In this world I think we have two kinds of knowledge: One is Planck knowledge, that of the people who really know. They've paid the dues, they have the aptitude. Then we've got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have fine timbre in their voices. They make a big impression. But in the end what they've got is chauffeur knowledge masquerading as real knowledge. I think I've just described practically every politician in the United States. (Audience claps.) You're going to have the problem in your life of getting as much responsibility as you can into the people with the
+
+---
+
+Planck knowledge and away from the people who have the chauffeur knowledge. And there are huge forces working against you. They make a big impression. But in the end what they've got is chauffeur knowledge masquerading as real knowledge.
+
+My generation has failed you to some extent. More and more, we're delivering to you in California a legislature in which mostly the certified nuts from the left, and the certified nuts from the right, are the ones allowed to serve. And none of them are removable. That's what my generation has done for you. But, you wouldn't like it to be too easy, would you?
+
+Another thing that I have found is that intense interest in any subject is indispensable if you're really going to excel in it. I could force myself to be fairly good in a lot of things, but I couldn't excel in anything in which I didn't have an intense interest. So to some extent you're going to have to do as I did. If at all feasible, you want to maneuver yourself into doing something in which you have an intense interest.
+
+Another thing you have to do is have a lot of assiduity. I like that word because to me it means: "Sit down on your ass until you do it." I've had marvelous partners, full of assiduity, all my life. I think I got them partly because I tried to deserve them and partly because I was shrewd enough to select them, and partly there was some luck. Two partners that I chose for one phase in my life made the following simple agreement when they created a little design / build construction team in the middle of the great
+
+---
+
+depression: "Two-man partnership," the said, "and divide everything equally. And, whenever we're behind in our commitments to other people, we will both work fourteen hours a day, seven days a week, until we're caught up." Well, needless to say, that firm didn't fail. And my partners were widely admired. Simple, old-fashioned ideas like theirs are almost sure to provide a good outcome.
+
+Another thing to cope with is that life is very likely to provide terrible blows, unfair blows. Some people recover, and others don't. And there I think the attitude of Epictetus helps guide one to the right reaction. He thought that every mischance in life, however bad, created an opportunity to behave well. He believed every mischance provided an opportunity to learn something useful. And one's duty was not to become immersed in self-pity, but to utilize each terrible blow in a constructive fashion. His ideas were very sound, influencing the best of the Roman emperors, Marcus Aurelius, and many others over many centuries. And you may remember the epitaph that Epictetus made for himself: "Here lies Epictetus, a slave, maimed in body the ultimate in poverty, and favored by the Gods." Well, that's the way Epictetus is now remembered: "Favored by the Gods." He was favored because he became wise, became manly, and instructed others, both in his own time and over following centuries.
+
+# Epictetus: His Morals
+
+Control thy passions lest they take vengeance on thee. Do not seek to bring things to pass in accordance with your wishes, but wish for them as they are, and you will find them. First learn the meaning of what you say, and
+
+---
+
+then speak. He is a wise man who does not grieve for the things which he has not, but rejoices for those which he has. If you want to improve, be content to be thought foolish and stupid. It is impossible to begin to learn that which one thinks one already knows. its not what happens to you, but how you react to it that matters. Make the best use of what is in your power, and take the rest as it happens. No man is free who is not master of himself. Only the educated are free. People are not disturbed by things, but by the view they take of them. The key is to keep company only with people who uplift you, whose presence calls forth your best. Wealth consists not in having great possessions, but in having few wants.
+
+I've another idea to emphasize in a brief account. My grandfather Munger was the only federal judge in his city for nearly forty years. And I admired him. I'm his namesake. And I'm Confucian enough that even now as I speak I'm thinking, "Well, Judge Munger would be pleased to have me here." All these years after my grandfather is dead, I conceive myself as duty bound to carry the torch for my grandfather's values. One such value was prudence as the servant of duty. Grandfather Munger was a federal judge at a time when there were no pensions for widows of federal judges. So if he didn't save from his income, my grandmother would become a destitute widow. And, besides, net worth would enable him to serve others better. Being the kind of man he was, he underspent his income all his life and left his widow in comfortable circumstances.
+
+But that was nor all that his prudence enabled. Along the way, in the '30's, my uncle's tiny bank failed and couldn’t reopen without help. My
+
+---
+
+grandfather saved the bank by exchanging over a third of his good assets for horrible bank assets. I've always remembered the event. It reminds me of Houseman's little poem that went something like this:
+
+"The thoughts of others Were light and feeding, Of lovers meeting Or luck or fame. Mine were of trouble, And mine were steady, And I was ready When trouble came."
+
+You may well say "Who wants to go through life anticipating trouble? Well, I did, trained as I was. I've gone through a long life anticipating trouble. And here I am now, well along in my 84th year. Like tricketts I've had a favored life. It didn't make me unhappy to anticipate trouble all the time and be ready to perform adequately if trouble came. It didn't hurt me at all. In fact it helped me. So, I quitclaim to you Houseman and Judge Munger.
+
+In your own life what you want to maximize is a seamless web of deserved trust.
+
+The last idea that I want to give to you, as you go out into a profession that frequently puts a lot of procedure and some mumbo jumbo into what it does, is that complex bureaucratic procedure does not represent the highest reach. One higher form is a seamless, non-bureaucratic web of deserved trust. Not much fancy procedure, just totally reliable people correctly trusting one another. That's the way an operating room works at the Mayo Clinic. If lawyers would there introduce a lot of lawyer-like process, more
+
+---
+
+patients would die. So never forget, when you're a lawyer, that while you may have to sell procedure, you don't always have to buy. in your own life what you want to maximize is a seamless web of deserved trust. And if your proposed marriage contract has 47 pages, my suggestion is that you not enter. (Audience laughs.)
+
+Well, that's enough for one graduation. I hope these ruminations of an old man are useful to you. In the end, I'm speaking toward the only outcome feasible for old Valiant-for-Truth in Pilgrim's Progress: "My sword I leave to him who can wield it." (Audience applauds.)
+
+In the run-up to publishing this book, Charlie remarked that one of the most important talks in our list, "The Psychology of Human Misjudgment," could use "a little revising" to bring it in line with his most current views on the subject. Little did we know, Charlie's "little" revision would amount to a full-scale rewrite, with loads of new material, and a "stop-the-press" completion schedule. The talk features Charlie's original concept of "behavioral finance," which has now burgeoned into its own academic field of study. As attendee Donald Hall recalls, "Charlie was espousing his well-reasoned views on behavioral finance before the term was even coined."
+
+Charlie also addresses the importance of recognizing patterns to determine how humans behave, both rationally and irrationally. He shares with us his checklist of twenty-five standard causes of human misjudgment, which contains observations that are ingenious, counterintuitive, and important-values Charlie treasures in the work of other great thinkers throughout.
+
+---
+
+# Talk Eleven
+
+# The Psychology of Human Misjudgment
+
+Selections from three of Charlie's talks, combined into one talk never made, after revisions by Charlie in 2005 that included considerable new material.
+
+The three talks were:
+
+1. The Bray Lecture at the Caltech Faculty Club, February 2, 1992;
+2. Talk under the Sponsorship of the Cambridge Center for Behavioral Studies at the Harvard Faculty Club, October 6, 1994;
+3. Talk under the Sponsorship of the Cambridge Center for Behavioral Studies at the Boston Harbor Hotel, April 24, 1995.
+
+The extensive revision by Charlie in 2005, made from memory unassisted by any research, occurred because Charlie thought he could do better at age.
+
+---
+
+eighty-one than he did more than ten years earlier when he (1) knew less and was more harried by a crowded life and (2) was speaking from rough notes instead of revising transcripts.
+
+# PREFACE
+
+When I read transcripts of my psychology talks given about fifteen years ago, I realized that I could now create a more logical but much longer "talk," including most of what I had earlier said.
+
+But I immediately saw four big disadvantages.
+
+First, the longer "talk," because it was written out with more logical completeness, would be more boring and confusing to many people than any earlier talk. This would happen because I would use idiosyncratic definitions of psychological tendencies in a manner reminiscent of both psychology textbooks and Euclid. And who reads textbooks for fun or revisits Euclid?
+
+Second, because my formal psychological knowledge came only from skimming three psychology textbooks about fifteen years ago, I know virtually nothing about any academic psychology later developed. Yet, in a longer talk containing guesses, I would be criticizing much academic psychology. This sort of intrusion into a professional territory by an amateur would be sure to be resented by professors who would rejoice in finding my errors and might
+
+---
+
+be prompted to respond to my published criticism by providing theirs. Why should I care about new criticism Well, who likes new hostility from articulate critics with an information advantage
+
+Third, a longer version of my ideas would surely draw some disapproval from people formerly disposed to like me. Not only would there be stylistic and substantive objections, but also there would be perceptions of arrogance in an old man who displayed much disregard for conventional wisdom while "popping-off' on a subject in which he had never taken a course. My old Harvard Law classmate, Ed Rothschild, always called such a popping-off "the shoe button complex," named for the condition of a family friend who spoke in oracular style on all subjects after becoming dominant in the shoe button business.
+
+Fourth, I might make a fool of myself.
+
+Despite these four very considerable objections, I decided to publish the much-expanded version. Thus, after many decades in which I have succeeded mostly by restricting action to jobs and methods in which I was unlikely to fail, I have now chosen a course of action in which (1) I have no significant personal benefit to gain, (2) I will surely give some pain to family members and friends, and (3) I may make myself ridiculous. Why am I doing this?
+
+One reason may be that my nature makes me incline toward diagnosing and talking about errors
+
+---
+
+in conventional wisdom. And despite years of being smoothed out by the hard knocks that were inevitable for one with my attitude, I don't believe life ever knocked all the boy's brashness out of the man.
+
+A second reason for my decision is my approval of the attitude of Diogenes when he asked: "Of what use is a philosopher who never offends anybody?"
+
+MY third and final reason is the strongest. I have fallen in love with my way of laying out psychology because it has been so useful for me. And so, before I die, I want to imitate to some extent the bequest practices of three characters: the protagonist in John Bunyan's *Pilgrim's Progress*, Benjamin Franklin, and my first employer, Ernest Buffett. Bunyan's character, the knight wonderfully named "Old Valiant for Truth," makes the only practical bequest available to him when he says at the end of his life: "My sword I leave to him who can wear it." And like this man, I don't mind if I have misappraised my sword, provided I have tried to see it correctly, or that many will not wish to try it, or that some who try to wield it may find it serves them not. Ben Franklin, to my great benefit, left behind his autobiography, his Almanacs, and much else. And Ernest Buffett did the best he could in the same mode when he left behind "How to Run a Grocery Store and a Few Things I Have Learned about Fishing." Whether or not this last contribution to the genre was the
+
+---
+
+best, I will not say. But I will report that I have now known four generations of Ernest Buffett's descendants and that the results have encouraged my imitation of the founder.
+
+# The Psychology of Human Misjudgment
+
+I have long been very interested in standard thinking errors. However, I was educated in an era wherein the contributions of non-patient-treating psychology to an understanding of misjudgment met little approval from members of the mainstream elite. Instead, interest in psychology was pretty well confined to a group of professors who talked and published mostly for themselves, with much natural detriment from isolation and groupthink.
+
+And so, right after my time at Caltech and Harvard Law School, I possessed a vast ignorance of psychology. Those institutions failed to require knowledge of the subject. And, of course, they couldn't integrate psychology with their other subject matter when they didn't know psychology. Also, like the Nietzsche character who was proud
+
+---
+
+of his lame leg, the institutions were proud of their willful avoidance of "fuzzy" psychology and "fuzzy" psychology professors.
+
+I shared this ignorant mindset for a considerable time. And so did a lot of other people. What are we to think, for instance, of the Caltech course catalogue that for years listed just one psychology professor, self-described as a "Professor of Psychoanalytical Studies," who taught both "Abnormal Psychology" and "Psychoanalysis in Literature"?
+
+Soon after leaving Harvard, I began a long struggle to get rid of the most dysfunctional part of my psychological ignorance. Today, I will describe my long struggle for elementary wisdom and a brief summary of my ending notions. After that, I will give examples, many quite vivid and interesting to me, of both psychology at work and antidotes to psychology-based dysfunction. Then, I will end by asking and answering some general questions raised by what I have said. This will be a long talk.
+
+When I started law practice, I had respect for the power of genetic evolution and appreciation of man's many evolution-based resemblances to less cognitively-gifted animals and insects. I was
+
+---
+
+aware that man was a "social animal," greatly and automatically influenced by behavior he observed in men around him. I also knew that man lived, like barnyard animals and monkeys, in limited size dominance hierarchies, wherein he tended to respect authority and to like and cooperate with his own hierarchy members while displaying considerable distrust and dislike for competing men nor in his own hierarchy.
+
+But this generalized, evolution-based theory structure was inadequate to enable me to cope properly with the cognition I encountered. I was soon surrounded by much extreme irrationality, displayed in patterns and subpatterns. So surrounded, I could see that I was not going to cope as well as I wished with life unless I could acquire a better theory-structure on which to hang my observations and experiences.
+
+By then, my craving for more theory had a long history. Partly, I had always loved theory as an aid in puzzle solving and as a means of satisfying my monkey-like curiosity. And, partly, I had found that theory-structure was a superpower in helping one get what you wanted, as I had early discovered in school wherein I had excelled without labor, guided by theory, while many others, without mastery of theory, failed despite monstrous effort.
+
+Better theory I thought, had always worked for me and, if now available,
+
+---
+
+could make me acquire capital and independence faster and better assist everything I loved. And so I slowly developed my own system of psychology, more or less in the self-help style of Ben Franklin and with the determination displayed in the refrain of the nursery story: "'Then ['ll do it myself,' said the little red hen."
+
+I was greatly helped in my quest by two turns of mind. First, I had long looked for insight by inversion in the intense manner counseled by the great algebraist, Jacobi: "Invert, always invert." I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes. Second, I became so avid a collector of instances of bad judgment that I paid no attention to boundaries between professional territories. After all, why should I search for some tiny, unimportant, hard-to-find new stupidity in my own field when some large, important, easy-to-find stupidity was just over the fence in the other fellow's professional territory? Besides, I could already see that real-world problems didn't neatly lie within territorial boundaries. they jumped right across. And I was dubious of any approach that, when two things were inextricably intertwined and interconnected, would try and think about one thing but not the other. I was afraid, if I tried
+
+---
+
+any such restricted approach, that I would end up, in the immortal words of John L. Lewis, "with no brain at all, just a neck that had haired over."
+
+Pure curiosity, somewhat later, made me wonder how and why destructive cults were often able, over a single long weekend, to turn many tolerably normal people into brainwashed zombies and thereafter keep them in that state indefinitely. I resolved that I would eventually find a good answer to this cult question if I could do so by general reading and much musing.
+
+I also got curious about social insects. It fascinated me that both the fertile female honeybee and the fertile female harvester ant could multiply their quite different normal life expectancies by exactly twenty by engaging in one gangbang in the sky.
+
+The extreme success of the ants also fascinated me-how a few behavioral algorithms caused such extreme evolutionary success grounded in extremes of cooperation within the breeding colony and, almost always, extremes of lethal hostility toward ants outside the breeding colony, even ants of the same species.
+
+Motivated as I was, by midlife I should probably have turned to psychology textbooks,
+
+---
+
+but I didn't, displaying my share of the outcome predicted by the German folk saying: "We are too soon old and too late smart." However, as I later found out, I may have been lucky to avoid for so long the academic psychology that was then laid out in most textbooks. These would not then have guided me well with respect to cults and were often written as if the authors were collecting psychology experiments as a boy collects butterflies—with a passion for more butterflies and more contact with fellow collectors and little craving for synthesis in what is already possessed.
+
+When I finally got to the psychology texts, I was reminded of the observation of Jacob Viner, the great economist, that many an academic is like the truffle hound, an animal so trained and bred for one narrow purpose that it is no good at anything else. I was also appalled by hundreds of pages of extremely nonscientific musing about comparative weights of nature and nurture in human outcomes. And I found that introductory psychology texts, by and large, didn't deal appropriately with a fundamental issue: Psychological tendencies tend to be both numerous and inseparably intertwined, now and forever, as they interplay in life. Yet the complex parsing out of effects from intertwined tendencies was usually avoided by the writers of the elementary texts. Possibly the authors did not wish, through complexity, to repel entry of new devotees.
+
+---
+
+to their discipline. And, possibly, the cause of their inadequacy was the one given by Samuel Johnson in response to a woman who inquired as to what accounted for his dictionary's misdefinition of the word "pastern." "Pure ignorance," Johnson replied. And, finally, the text writers showed little interest in describing standard antidotes to standard psychology-driven folly, and they thus avoided most discussion of exactly what most interested me.
+
+But academic psychology has some very important merits alongside its defects. I learned this eventually, in the course of general reading, from a book, Influence, aimed at a popular audience, by a distinguished psychology professor, Robert Cialdini, at Arizona State, a very big university. Cialdini had made himself into a super-tenured "Regents Professor" at very young age by devising, describing, and explaining a vast group of clever experiments in which man manipulated man to his detriment, with all of this made possible by man's intrinsic thinking flaws.
+
+I immediately sent copies of Cialdini's book to all my children. I also gave Cialdini a share of Berkshire stock [Class A] to thank him for what he had done for me and the public. Incidentally, the
+
+---
+
+Sale by Cialdini of hundreds of thousands of copies of a book about social psychology was a huge feat, considering that Cialdini didn't claim that he was going to improve your sex life or make you any money.
+
+Part of Cialdini's large book-buying audience came because, like me, it wanted to learn how to become less often tricked by salesmen and circumstances. However, as an outcome not sought by Cialdini, who is a profoundly ethical man, a huge number of his books were bought by salesmen who wanted to learn how to become more effective in misleading customers. Please remember this perverse outcome when my discussion comes to incentive-caused bias as a consequence of the superpower of incentives.
+
+With the push given by Cialdini's book, I soon skimmed through three much used textbooks covering introductory psychology. I also pondered considerably while craving synthesis and taking into account all my previous training and experience. The result was Munger's partial summary of the non-patient-treating, non-nature vs. nurture weighing parts of non developmental psychology.
+
+---
+
+This material was stolen from its various discoverers (most of whose names I didn't even try to learn), often with new descriptions and titles selected to fit Munger's notion of what makes recall easy for Munger, then revised to make Munger's use easy as he seeks to avoid errors.
+
+I will start my summary with a general observation that helps explain what follows. This observation is grounded in what we know about social insects. The limitations inherent in evolution's development of the nervous-system cells that control behavior are beautifully demonstrated by these insects, which often have a mere 100,000 or so cells in their entire nervous systems, compared to man's multiple billions of cells in his brain alone.
+
+Each ant, like each human, is composed of a living physical structure plus behavioral algorithms in its nerve cells. In the ant's case, the behavioral algorithms are few in number and almost entirely genetic in origin. The ant learns a little behavior from experiences, but mostly it merely responds to ten or so stimuli with a few simple responses programmed into its nervous system by its genes.
+
+Naturally, the simple ant behavior system has extreme limitations because of its limited nerve.
+
+---
+
+system repertoire. For instance, one type of ant, when it smells a pheromone given off by a dead ant's body in the hive, immediately responds by cooperating with other ants in carrying the dead body out of the hive. And Harvard's great E.O. Wilson performed one of the best psychology experiments ever done when he painted dead-ant pheromone on a live ant. Quite naturally, the other ants dragged this useful live ant out of the hive even though it kicked and otherwise protested throughout the entire process. Such is the brain of the ant. It has a simple program of responses that generally work out all right, but which are imprudently used by rote in many cases.
+
+Another type of ant demonstrates that the limited brain of ants can be misled by circumstances as well as by clever manipulation from other creatures. The brain of this ant contains a simple behavioral program that directs the ant, when walking, to follow the ant ahead. And when these ants stumble into walking in a big circle, they sometimes walk round and round until they perish.
+
+It seems obvious to me at least that the human brain must often operate counterproductively just like the ant's, from unavoidable oversimplicity in its mental process, albeit usually in trying to solve problems more difficult than those faced by ants.
+
+---
+
+that don't have to design airplanes. The perception system of man clearly demonstrates just such an unfortunate outcome. Man is easily fooled, either by the cleverly thought out manipulation of man, by circumstances occurring by accident, or by very effective manipulation practices that man has stumbled into during "practice evolution" and kept in place because they work so well. One such outcome is caused by a quantum effect in human perception. If stimulus is kept below a certain level, it does not get through.
+
+And, for this reason, a magician was able to make the Statue of Liberty disappear after a certain amount of magician lingo expressed in the dark. The audience was not aware that it was sitting on a platform that was rotating so slowly, below man's sensory threshold, that no one could feel the acceleration implicit in the considerable rotation. When a surrounding curtain was then opened in the place on the platform where the Statue had earlier appeared, it seemed to have disappeared. And even when perception does get through to man's brain, it is often mis weighted, because what is registered in perception is in shockingness of apparent contrast, not the standard scientific units that make possible science and good engineering.
+
+A magician demonstrates this sort of contrast based error in your nervous system when he removes your wristwatch without your feeling it. As he
+
+---
+
+does this, he applies pressure of touch on your wrist that you would sense if it was the only pressure of touch you were experiencing. But he has concurrently applied other intense pressure of touch on your body, but not on your wrist, "swamping" the wrist pressure by creating a high-contrast touch pressure elsewhere. This high contrast takes the wrist pressure below perception.
+
+Some psychology professors like to demonstrate the inadequacy of contrast-based perception by having students put one hand in a bucket of hot water and one hand in a bucket of cold water. They are then suddenly asked to remove both hands and place them in a single bucket of room temperature water. Now, with both hands in the same water, one hand feels as if it has just been put in cold water and the other hand feels as if it has just been placed in hot water. When one thus sees perception so easily fooled by mere contrast, where a simple temperature gauge would make no error, and realizes that cognition mimics perception in being misled by mere contrast, he is well on the way toward understanding, not only how magicians fool one, but also how life will fool one. This can occur, through deliberate human manipulation or otherwise, if one doesn't take certain precautions against often-wrong effects from generally useful tendencies in his perception and cognition.
+
+Man’s often wrong but generally useful psychological tendencies are quite numerous and quite different. The natural consequence of this profusion of tendencies is the grand general principle of social psychology: cognition is ordinarily situation-dependent so that different situations often cause
+
+---
+
+different conclusions, even when the same person is thinking in the same general subject area.
+
+With this introductory instruction from ants, magicians, and the grand general principle of social psychology, I will next simply number and list psychology-based tendencies that, while generally useful, often mislead. Discussion of errors from each tendency will come later, together with description of some antidotes to errors, followed by some general discussion. Here are the tendencies:
+
+# One: Reward and Punishment Super Response Tendency
+
+# Two: Liking/Loving Tendency
+
+# Three: Disliking/Hating Tendency
+
+# Four: Doubt-Avoidance Tendency
+
+# Five: Inconsistency-Avoidance Tendency
+
+# Six: Curiosity Tendency
+
+# Seven: Kantian Fairness Tendency
+
+# Eight: Envy/Jealousy Tendency
+
+---
+
+# Nine: Reciprocation Tendency
+
+# Ten: Influence-from-Mere-consequences from Association Tendency
+
+# Eleven: Simple, Pain-Avoiding Tendencies Acting in Favor of Psychological Denial a Particular Outcome
+
+# Twelve: Excessive Self-Regard Tendency
+
+# Thirteen: Overoptimism Tendency
+
+# Fourteen: Deprival-Super Reaction Tendency
+
+# Fifteen: Social-Proof Tendency
+
+# Sixteen: Contrast-Misreaction Tendency
+
+# Seventeen: Stress-Influence Tendency
+
+# Eighteen: Availability-Mis Weighing Tendency
+
+---
+
+# Nineteen: Use-It-or-Lose-It Tendency
+
+# Twenty: Drug-Misinfluence Tendency
+
+# Twenty-One: Senescence-Misinfluence Tendency
+
+# Twenty-Two: Authority-Misinfluence Tendency
+
+# Twenty-Three: Twaddle Tendency
+
+# Twenty-Four: Reason-Respecting Tendency
+
+# Twenty-Five: Lollapalooza Tendency - The Tendency to Get Extreme
+
+464
+
+# One: Reward and Punishment Super Response Tendency
+
+I place this tendency first in my discussion because almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behavior. But this is not often so. For instance, I think I've been in the top
+
+---
+
+Five percent of my age cohort almost all my adult life in understanding the power of incentives, and yet I've always underestimated that power. Never a year passes but I get some surprise that pushes a little further my appreciation of incentive super power.
+
+One of my favorite cases about the power of incentives is the Federal Express case. The integrity of the Federal Express system requires that all packages be shifted rapidly among airplanes in one central airport each night. And the system has no integrity for the customers if the night work shift can't accomplish its assignment fast. And Federal Express had one hell of a time getting the night shift to do the right thing. They tried moral suasion. They tried everything in the world without luck. And, finally, somebody got the happy thought that it was foolish to pay the night shift by the hour when what the employer wanted was not maximized billable hours of employee service but fault-free, rapid performance of a particular task. Maybe, this person thought, if they paid the employees per shift and let all night shift employees go home when all the planes were loaded, the system would work better. And, lo and
+
+---
+
+behold, that solution worked.
+
+Early in the history of Xerox, Joe Wilson, who was then in the government, had a similar experience. He had to go back to Xerox because he couldn't understand why its new machine was selling so poorly in relation to its older and inferior machine. When he got back to Xerox, he found out that the commission arrangement with the salesmen gave a large and perverse incentive to push the inferior machine on customers. who deserved a better result.
+
+And then there is the case of Mark Twain's cat that, after a bad experience with a hot stove, never again sat on a hot stove, or a cold stove either.
+
+We should also heed the general lesson implicit in the injunction of Ben Franklin in *Poor Richard's Almanack*. "If you would persuade, appeal to interest and not to reason." This maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives.
+
+I once saw a very smart house counsel for a major investment bank lose his job, with no moral fault, because he ignored the lesson in this maxim of Franklin. This counsel failed to persuade his client.
+
+---
+
+because he told him his moral duty, as correctly conceived by the counsel, without also telling the client in vivid terms that he was very likely to be clobbered to smithereens if he didn't behave as his counsel recommended. As a result, both client and counsel lost their careers.
+
+We should also remember how a foolish and willful ignorance of the superpower of rewards caused Soviet communists to get their final result as described by one employee: "They pretend to pay us and we pretend to work." Perhaps the most important rule in management is "Get the incentives right."
+
+But there is some limit to a desirable emphasis on incentive superpower. One case of excess emphasis happened at Harvard, where B. F. Skinner, a psychology professor, finally made himself ridiculous. At one time, Skinner may have been the best-known psychology professor in the world. He partly deserved his peak reputation because his early experiments using rats and pigeons were ingenious, and his results were both counterintuitive and important. With incentives, he could cause more behavior change, culminating in conditioned reflexes in his rats and pigeons, than he could in any other way. He made obvious
+
+---
+
+The extreme stupidity, in dealing with children or employees, of rewarding behavior one didn't want more of. Using food rewards, he even caused strong superstitions, pre designed by himself, in his pigeons. He demonstrated again and again a great recurring, generalized behavioral algorithm in nature: "Repeat behavior that works." He also demonstrated that prompt rewards worked much better than delayed rewards in changing and maintaining behavior. And, once his rats and pigeons had conditioned reflexes, caused by food rewards, he found what withdrawal pattern of rewards kept the reflexive behavior longest in place: random distribution. With this result, Skinner thought he had pretty well explained man's misgambling compulsion whereunder he often foolishly proceeds to ruin. But, as we shall later see when we discuss other psychological tendencies that contribute to miss gambling compulsion, he was only partly right.
+
+Later, Skinner lost most of his personal reputation (a) by overclaiming free incentive superpower to the point of thinking he could create a human utopia with it and (b) by displaying hardly any recognition of the power of the rest of psychology. He thus behaved like one of Jacob Viner's truffle hounds as he tried to explain everything with incentive effects. Nonetheless, Skinner was right in his main
+
+---
+
+idea: Incentives are superpowers. The outcome of his basic experiments will always remain in high repute in the annals of experimental science. And his method of monomaniacal reliance on rewards, for many decades after his death, did more good than anything else in improving autistic children.
+
+When I was at Harvard Law School, the professors sometimes talked about an overfocused, Skinner-like professor at Yale Law School. they used to say: "Poor old Eddie Blanchard, he thinks declaratory judgments will cure cancer." Well, that's the way Skinner got with his very extreme emphasis on incentive superpower.
+
+I always call the "Johnny-one-note" turn of mind chat eventually so diminished Skinner's reputation the man-with-a-hammer tendency, after the folk saying: "To a man with only a hammer every problem looks pretty much like a nail." Man-with-a-hammer tendency does not exempt smart people like Blanchard and Skinner. And it won't exempt you if you don't watch out.
+
+I will return to man-with-a-hammer tendency at various times in this talk because, fortunately, there are effective antidotes that reduce the ravages of what pretty much ruined the personal reputation of the brilliant Skinner.
+
+---
+
+One of the most important consequences of incentive superpower is what I call "incentive caused bias." A man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior, like the salesmen at Xerox who harmed customers in order to maximize their sales commissions.
+
+Here, my early education involved a surgeon who over the years sent bushel baskets full of normal gall bladders down to the pathology lab in the leading hospital in Lincoln, Nebraska, my grandfather's town. And, with that permissive quality control for which community hospitals are famous, many years after this surgeon should've been removed from the medical staff, he was. One of the doctors who participated in the removal was a family friend, and I asked him: "Did this surgeon think, 'Here's a way for me to exercise my talents'-this guy was very skilled technically-'and make a high living by doing a few maimings and murders every year in the course of routine fraud?"' And my friend answered: "Hell no, Charlie. He
+
+---
+
+thought that the gallbladder was the source of all medical evil, and, if you really loved your patients, you couldn't get that organ out rapidly enough.
+
+Now that's an extreme case, but in lesser strength, the cognitive drift of that surgeon is present in every profession and in every human being. And it causes perfectly terrible behavior.
+
+Consider the presentations of brokers selling commercial real estate and businesses. I've never seen one that I thought was even within hailing distance of objective truth.
+
+In my long life, I have never seen a management consultant's report that didn't end with the same advice: "This problem needs more management consulting services."
+
+Widespread incentive-caused bias requires that one should often distrust, or take with a grain of salt, the advice of one's professional advisor, even if he is an engineer.
+
+The general antidotes here are: (1) especially fear professional advice when it is especially good for the advisor; (2) learn and use the basic elements of your advisor's trade as you deal with your advisor; and (3) double check, disbelieve, or replace much of what you're told, to the degree that seems appropriate after objective thought.
+
+The power of incentives to cause rationalized,
+
+---
+
+terrible behavior is also demonstrated by Defense Department procurement history. After the Defense Department had much truly awful experience with misbehaving contractors motivated under contracts paying on a cost-plus-a-percentage-of cost basis, the reaction of our republic was to make it a crime for a contracting officer in the Defense Department to sign such a contract, and not only a crime, but a felony.
+
+And, by the way, although the government was right to create this new felony, much of the way the rest of the world is run, including the operation of many law firms and a lot of other firms, is still under what is, in essence, a cost-plus-a-percentage-of-cost reward system. And human nature, bedeviled by incentive-caused bias, causes a lot of ghastly abuse under these standard incentive patterns of the world. And many of the people who are behaving terribly you would be glad to have married into your family, compared to what you're otherwise likely to get.
+
+Now there are huge implications from the fact that the human mind is put together this way. One implication is that people who create things like
+
+---
+
+Cash registers, which make dishonest behavior hard to accomplish, are some of the effective saints of our civilization because, as Skinner so well knew, bad behavior is intensely habit-forming when it is rewarded. And so the cash register was a great moral instrument when it was created. And, by the way, Patterson, the great evangelist of the cash register, knew that from his own experience. He had a little store, and his employees were stealing him blind, so that he never made any money.
+
+Then people sold him a couple of cash registers, and his store went to profit immediately. He promptly closed the store and went into the cash register business, creating what became the mighty National Cash Register Company, one of the glories of its time. "Repeat behavior that works" is a behavioral guide that really succeeded for Patterson, after he applied one added twist. And so did high moral cognition.
+
+An eccentric, inveterate do-gooder (except when destroying competitors, all of which he regarded as would-be patent thieves), Patterson, like Carnegie, pretty well gave away all his money to charity before he died, always pointing out that "shrouds have no pockets." So great was the contribution of Patterson's cash register to civilization, and so effectively did he improve the cash register and spread its use, that in the end, he probably deserved the epitaph chosen for the Roman poet Horace: "I did not completely die."
+
+---
+
+The strong tendency of employees to rationalize bad conduct in order to get rewards requires many antidotes in addition to the good cash control promoted by Patterson. Perhaps the most important of these antidotes is use of sound accounting theory and practice. This was seldom better demonstrated than at Westinghouse, which had a subsidiary that made loans having no connection to the rest of Westinghouse's businesses. The officers of Westinghouse, perhaps influenced by envy of General Electric, wanted to expand profits from loans to outsiders. Under Westinghouse's accounting practice, provisions for future credit losses on these loans depended largely on the past credit experience of its lending subsidiary, which mainly made loans unlikely to cause massive losses.
+
+Now there are two special classes of loans that naturally cause much trouble for lenders. The first is ninety-five percent-of-value construction loans to any kind of real estate developer, and the second is any kind of construction loan on a hotel. So, naturally, if one was willing to loan approximately ninety-five percent of the real cost to a developer constructing a hotel, the loan would bear a much
+
+---
+
+higher-than-normal interest rate because the credit loss danger would be much higher than normal. So, sound accounting for Westinghouse in making a big, new mass of ninety-five percent-of-value construction loans to hotel developers would have been to report almost no profit, or even a loss, on each loan until, years later, the loan became clearly worth par. But Westinghouse instead plunged into big-time construction lending on hotels, using accounting that made its lending officers look good because it showed extremely high starting income from loans that were very inferior to the loans from which the company had suffered small credit losses in the past. This terrible accounting was allowed by both international and outside accountants for Westinghouse as they displayed the conduct predicted by the refrain: "Whose bread I eat, his song I sing."
+
+The result was billions of dollars of losses. Who was at fault? The guy from the refrigerator division, or some similar division, who as lending officer was suddenly in charge of loans to hotel developers? Or the accountants and other senior people who tolerated a nearly insane incentive structure, almost sure to trigger incentive-caused bias in a lending officer? My answer puts most blame on the accountants and other senior people who created the accounting system. These people
+
+---
+
+became the equivalent of an armored car cash carrying service that suddenly decided to dispense with vehicles and have unarmed midgets hand-carry its customers' cash through slums in open bushel baskets.
+
+I wish I could tell you that this sort of thing no longer happens, but this is not so. After Westinghouse blew up, General Electric's Kidder Peabody subsidiary put a silly computer program in place that allowed a bond trader to show immense fictional profits. And after that, much accounting became even worse, perhaps reaching its nadir at Enron.
+
+And so incentive-caused bias is a huge, important thing, with highly important antidotes, like the cash register and a sound accounting system. But when I came years ago to the psychology texts, I found that, while they were about one thousand pages long, there was little therein that dealt with incentive-caused bias and no mention of Patterson or sound accounting systems.
+
+Somehow incentive-caused bias and its antidotes pretty well escaped the standard survey courses in psychology, even though incentive-caused bias had long been displayed prominently in much of the world's great literature, and antidotes to it had long existed in standard business routines. In the end. I
+
+---
+
+concluded that when something was obvious in life but not easily demonstrable in certain kinds of easy to-do, repeatable academic experiments, the truffle hounds of psychology very often missed it.
+
+In some cases, other disciplines showed more interest in psychological tendencies than did psychology at least as explicated in psychology textbooks. For instance, economists, speaking from the employer's point of view, have long had a name for the natural results of incentive-caused bias: "agency cost." As the name implies, the economists have typically known that, just as grain is always lost to rats, employers always lose to employees who improperly think of themselves first.
+
+Employer installed antidotes include touch internal audit systems and severe public punishment for identified miscreants, as well as misbehavior-preventing routines and such machines as cash registers. From the employee's point of view incentive-caused bias quite naturally causes opposing abuse from the employer: the sweatshop, the unsafe work place, etc. And these bad results for employees have antidotes not only in pressure from unions but also in government action, such as wage and hour laws, workplace-safety rules, measures fostering unionization, and workers' compensation systems.
+
+---
+
+Given the opposing psychology-induced strains that naturally occur in employment because of incentive-caused bias on both sides of the relationship, it is no wonder the Chinese are so much into Yin and Yang.
+
+The inevitable ubiquity of incentive-caused bias has vast, generalized consequences. For instance, a sales force living only on commissions will be much harder to keep moral than one under less pressure from the compensation arrangement. On the other hand, a purely commissioned sales force may well be more efficient per dollar spent. Therefore, difficult decisions involving trade-offs are common in creating compensation arrangements in the sales function.
+
+The extreme success of free-market capitalism as an economic system owes much to its prevention of many of the bad effects from incentive-caused bias. Most capitalist owners in a vast web of free market economic activity are selected for ability by surviving in a brutal competition with other owners and have a strong incentive to prevent all waste in operations within their ownership. After all, they
+
+---
+
+live on the difference between their competitive prices and their overall costs and their businesses will perish if costs exceed sales. Replace such owners by salaried employees of the state and you will normally get a substantial reduction in overall efficiency as each employee who replaces an owner is subject to incentive-caused bias as he determines what service he will give in exchange for his salary and how much he will yield to peer pressure from many fellow employees who do not desire his creation of any strong performance model.
+
+Another generalized consequence of incentive caused bias is that man tends to "game" all human systems, often displaying great ingenuity in wrongly serving himself at the expense of others. Anti gaming features, therefore, constitute a huge and necessary part of almost all system design. Also needed in system design is an admonition: Dread, and avoid as much you can, rewarding people for what can be easily faked. Yet our legislators and judges, usually including many lawyers educated in eminent universities, often ignore this injunction.
+
+And society consequently pays a huge price in the deterioration of behavior and efficiency, as well as the incurrence of unfair costs and wealth transfers. If education were improved, with psychological reality becoming better taught and assimilated, better system design might well come out of our
+
+---
+
+legislatures and courts.
+
+Of course, money is now the main reward that drives habits. A monkey can be trained to seek and work for an intrinsically worthless token, as if it were a banana, if the token is routinely exchangeable for a banana. So it is also with humans working for money—only more so, because human money is exchangeable for many desired things in addition to food, and one ordinarily gains status from either holding or spending it. Moreover, a rich person will often, through habit, work or connive energetically for more money long after he has almost no real need for more. Averaged out, money is a mainspring of modern civilization, having little precedent in the behavior of nonhuman animals.
+
+Money rewards are also intertwined with other forms of reward. For instance, some people use money to buy status and others use status to get money, while still others sort of do both things at the same time.
+
+Although money is the main driver among rewards, it is not the only reward that works. People also change their behavior and cognition for sex, friendship, companionship, advancement in status, and other non-monetary items.
+
+---
+
+"Granny's Rule" provides another example of reward superpower, so extreme in its effects that it must be mentioned here. You can successfully manipulate your own behavior with this rule, even if you are using as rewards items that you already possess! Indeed, consultant PhD. psychologists often urge business organizations to improve their reward systems by teaching executives to use "Granny's Rule" to govern their own daily behavior.
+
+Granny's Rule, to be specific, is the requirement that children eat their carrots before they get dessert. And the business version requires that executives force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to their pleasant tasks.
+
+Given reward superpower, this practice is wise and sound. Moreover, the rule can also be used in the nonbusiness part of life. The emphasis on daily use of this practice is not accidental. The consultants well know after the teaching of Skinner, that prompt rewards work best.
+
+Punishments, of course, also strongly influence behavior and cognition, although not so flexibly and wonderfully as rewards. For instance, illegal price fixing was fairly common in America when it was customarily punished by modest fines. Then, after a few prominent business executives were removed from their eminent positions and sent to federal
+
+---
+
+prisons, price-fixing behavior was greatly reduced.
+
+Military and naval organizations have very often been extreme in using punishment to change behavior, probably because they needed to cause extreme behavior. Around the time of Caesar, there was a European tribe that, when the assembly horn blew, always killed the last warrior to reach his assigned place, and no one enjoyed fighting this tribe. And George Washington hanged farm-boy deserters forty feet high as an example to others who might contemplate desertion.
+
+# Two: Liking/Loving Tendency
+
+A newly hatched baby goose is programmed, through the economy of its genetic program, to "love" and follow the first creature that is nice to it, which is almost always its mother. But, if the mother goose is not present right after the hatching, and a man is there instead, the gosling will "love" and follow the man, who becomes a sort of substitute mother.
+
+Somewhat similarly, a newly arrived human is "born to like and love" under the normal and abnormal triggering outcomes for its kind. Perhaps the strongest inborn tendency is love ready to be triggered - is that of the human mother for its child. On the other hand, the similar "child-loving"
+
+---
+
+Behavior of a mouse can be eliminated by the deletion of a single gene, which suggests there is some sort of triggering gene in a mother mouse as well as in a gosling. Each child, like a gosling, will almost surely come to like and love, not only as driven by its sexual nature, but also in social groups not limited to its genetic or adoptive "family." Current extremes of romantic love almost surely did not occur in man's remote past. Our early human ancestors were surely more like apes triggered into mating in a pretty mundane fashion.
+
+And what will a man naturally come to like and love, apart from his parent, spouse and child? Well, he will like and love being liked and loved. And so many a courtship competition will be won by a person displaying exceptional devotion, and man will generally strive, lifelong, for the affection and approval of many people not related to him.
+
+One very practical consequence of Liking/Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend (1) to ignore faults of and comply with wishes of, the object of his affection, (2) to favor people, products, and actions merely associated with the object of his affection (as we shall see when we get to "Influence-from-Mere-Association Tendency," and (3) to distort other facts to facilitate love.
+
+The phenomenon of liking and loving causing
+
+---
+
+admiration also works in reverse. Admiration also causes or intensifies liking or love. With this "feedback mode" in place, the consequences are often extreme, sometimes even causing deliberate self-destruction to help what is loved.
+
+Liking or loving, intertwined with admiration in a feedback mode, often has vast practical consequences in areas far removed from sexual attachments. For instance, a man who is so constructed that he loves admirable persons and ideas with a special intensity has a huge advantage in life. This blessing came to both Buffett and myself in large measure, sometimes from the same persons and ideas. One common, beneficial example for us both was Warren's uncle, Fred Buffett, who cheerfully did the endless grocery-store work that Warren and I ended up admiring from a safe distance. Even now, after I have known so many other people, I doubt if it is possible to be a nicer man than Fred Buffett was, and he changed me for the better.
+
+There are large social policy implications in the amazingly good consequences that ordinarily come from people likely to trigger extremes of love and admiration boosting each other in a feedback mode. For instance, it is obviously desirable to attract a lot of lovable, admirable people into the teaching profession.
+
+# Three: Disliking/Hating Tendency
+
+---
+
+In a pattern obverse to Liking/Loving Tendency, the newly arrived human is also "born to dislike and hate" as triggered by normal and abnormal triggering forces in its life. It is the same with most apes and monkeys.
+
+As a result, the long history of man contains almost continuous war. For instance, most American Indian tribes warred incessantly, and some tribes would occasionally bring captives home to women so that all could join in the fun of torturing captives to death. Even with the spread of religion, and the advent of advanced civilization, much modern war remains pretty savage. But we also get what we observe in present-day Switzerland and the United States, wherein the clever political arrangements of man "channel" the hatreds and dislikings of individuals and groups into nonlethal patterns including elections.
+
+But the dislikings and hatreds never go away completely. Born into man, these driving tendencies remain strong. Thus, we get maxims like the one from England: "Politics is the art of marshalling hatreds." And we also get the extreme popularity of very negative political advertising in the United States.
+
+---
+
+At the family level, we often see one sibling hate his other siblings and litigate with them endlessly if he can afford it. Indeed, a wag named Buffett has repeatedly explained to me that "a major difference between rich and poor people is that the rich people can spend their lives suing their relatives." My father's law practice in Omaha was full of such intrafamily hatreds. And when I got to the Harvard Law School and its professors taught me "property law" with no mention of sibling rivalry in the family business, I appraised the School as a pretty unrealistic place that wore "blinders" like the milk-wagon horses of yore. My current guess is that sibling rivalry has not yet made it into property law as taught at Harvard.
+
+Disliking/Hating Tendency also acts as a conditioning device that makes the disliker hater tend to (1) ignore virtues in the object of dislike, (2) dislike people, products, and actions merely associated with the object of his dislike, and (3) distort other facts to facilitate hatred. Distortion of that kind is often so extreme that miscognition is shockingly large. When the World Trade Center was destroyed, many Pakistanis immediately concluded that the Hindus did it, while many Muslims concluded that the Jews did it. Such factual distortions often make
+
+---
+
+Mediation between opponents locked in hatred is either difficult or impossible. Mediations between Israelis and Palestinians are difficult because facts in one side's history overlap very little with facts from the other side.
+
+# Four: Doubt-Avoidance Tendency
+
+The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision. It is easy to see how evolution would make animals, over the eons, drift toward such quick elimination of doubt. After all, the one thing that is surely counterproductive for a prey animal that is threatened by a predator is to take a long time in deciding what to do. And so man's Doubt Avoidance Tendency is quite consistent with the history of his ancient, non-human ancestors.
+
+So pronounced is the tendency in man to quickly remove doubt by reaching some decision that behavior to counter the tendency is required from judges and jurors. Here, delay before decision making is forced. And one is required to so comport himself, prior to conclusion time, so that he is wearing a "mask" of objectivity. And the "mask"
+
+---
+
+works to help real objectivity along, as we shall see when we next consider man's Inconsistency Avoidance 'tendency.
+
+Of course, once one has recognized that man has a strong Doubt-Avoidance Tendency, it is logical to believe that at least some leaps of religious faith are greatly boosted by this tendency. Even if one is satisfied that his own faith comes from revelation, one still must account for the inconsistent faiths of others. And man's Doubt-Avoidance Tendency is almost surely a big part of the answer.
+
+# What triggers Doubt-Avoidance Tendency?
+
+Well, an unthreatened man, thinking of nothing in particular, is not being prompted to remove doubt through rushing to some decision. As we shall see later when we get to Social-Proof Tendency and Stress-Influence Tendency, what usually triggers Doubt-Avoidance Tendency is some combination of (1) puzzlement and (2) stress. And both of these factors naturally occur in facing religious issues.
+
+Thus, the natural state of most men is in some form of religion. And this is what we observe.
+
+# Five: Inconsistency-Avoidance Tendency
+
+---
+
+The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance. We see this in all human habits, constructive and destructive. Few people can list a lot of bad habits that they have eliminated, and some people cannot identify even one of these. Instead, practically everyone has a great many bad habits he has long maintained despite their being known as bad. Given this situation, it is not too much in many cases to appraise early-formed habits as destiny. When Marley's miserable ghost says, "I wear the chains I forged in life," he is talking about chains of habit that were too light to be felt before they became too strong to be broken.
+
+The rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured. And the great rule that helps here is again from Franklin's Poor Richard's Almanac: "An ounce of prevention is worth a pound of cure." What Franklin is here indicating, in part, is that Inconsistency-Avoidance Tendency makes it much easier to prevent a habit than to change it.
+
+Also tending to be maintained in place by the anti-change tendency of the brain are one's previous
+
+---
+
+conclusions, human loyalties, reputational identity, commitments, accepted role in a civilization, etc. It is not entirely clear why evolution would program into man's brain an anti-change mode alongside his tendency to quickly remove doubt. My guess is the anti-change mode was significantly caused by a combination of the following factors:
+
+1. It facilitated faster decisions when speed of decision was an important contribution to the survival of nonhuman ancestors that were prey.
+2. It facilitated the survival advantage that our ancestors gained by cooperating in groups, which would have been more difficult to do if everyone was always changing responses.
+3. It was the best form of solution that evolution could get to in the limited number of generations between the start of literacy and today's complex modern life.
+
+It is easy to see that a quickly reached conclusion, triggered by Doubt-Avoidance Tendency, when combined with a tendency to resist any change in that conclusion, will naturally cause a lot of errors in cognition for modern man. And so it
+
+---
+
+observably works out. We all deal much with others whom we correctly diagnose as imprisoned in poor conclusions that are maintained by mental habits they formed early and will carry to their graves.
+
+So great is the bad-decision problem caused by Inconsistency-Avoidance Tendency that our courts have adopted important strategics against it. For instance, before making decisions, judges and juries are required to hear long and skillful presentations of evidence and argument from the side they will not naturally favor, given their ideas in place. And this helps prevent considerable bad thinking from "first conclusion bias." Similarly, other modern decision makers will often force groups to consider skillful counter arguments before making decisions.
+
+And proper education is one long exercise in augmentation of high cognition so that our wisdom becomes strong enough to destroy wrong thinking maintained by resistance to change. As Lord Keynes pointed out about his exalted intellectual group at one of the greatest universities in the world, it was not the intrinsic difficulty of new ideas that prevented their acceptance. Instead, the new ideas were not accepted because they were inconsistent with old ideas in place. What Keynes was reporting is that the human mind works a lot like the human egg. When one sperm gets into a human
+
+---
+
+egg, there's an automatic shut-off device that bars any other sperm from getting in. The human mind tends strongly toward the same sort of result. And so, people tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence that they are wrong.
+
+Moreover, this doesn't just happen in social science departments, like the one that once thought Freud should serve as the only choice as a psychology teacher for Caltech. Holding to old errors even happens, although with less frequency and severity, in hard science departments. We have no less an authority for this than Max Planck, Nobel laureate, finder of "Planck's constant." Planck is famous not only for his science but also for saying that even in physics the radically new ideas are seldom really accepted by the old guard. Instead, said Planck, the progress is made by a new generation that comes along, less brain-blocked by its previous conclusions. Indeed, precisely this sort of brain-blocking happened to a degree in Einstein. At his peak, Einstein was a great destroyer of his
+
+---
+
+own ideas, but an older Einstein never accepted the full implications of quantum mechanics.
+
+One of the most successful users of an antidote to first conclusion bias was Charles Darwin. He trained himself, early, to intensively consider any evidence tending to disconfirm any hypothesis of his, more so if he thought his hypothesis was a particularly good one. The opposite of what Darwin did is now called confirmation bias, a term of opprobrium. Darwin's practice came from his acute recognition of man's natural cognitive faults arising from Inconsistency-Avoidance Tendency. He provides a great example of psychological insight correctly used to advance some of the finest mental work ever done.
+
+Inconsistency-Avoidance Tendency has many good effects in civilization. For instance, rather than act inconsistently with public commitments, new or old public identities, etc., most people are more loyal in their roles in life as priests, physicians, citizens, soldiers, spouses, teachers, employees, etc. One corollary of Inconsistency-Avoidance Tendency is that a person making big sacrifices in the course of assuming a new identity will intensify his devotion to the new identity. After all, it
+
+---
+
+would be quite inconsistent behavior to make a large sacrifice for something that was no good. And thus civilization has invented many tough and solemn initiation ceremonies, often public in nature, that intensify new commitments made.
+
+Tough initiation ceremonies can intensify bad contact as well as good. The loyalty of the new, "made-man" mafia member of the military officer making the required "blood oath" of loyalty to Hitler, was boosted through the triggering of Inconsistency-Avoidance Tendency.
+
+Moreover, the tendency will often make man a "patsy" of manipulative "compliance-practitioners," who gain advantage from triggering his subconscious Inconsistency-Avoidance Tendency.
+
+Few people demonstrated this process better than Ben Franklin. As he was rising from obscurity in Philadelphia and wanted the approval of some important man, Franklin would often maneuver that man into doing Franklin some unimportant favor like lending Franklin a book. Thereafter the man would admire and trust Franklin more because a non admitted and non trusted Franklin would be inconsistent with the appraisal implicit in lending Franklin the book.
+
+---
+
+During the Korean War, this technique of Franklin's was the most important feature of the Chinese brainwashing system that was used on enemy prisoners. Small step by small step, the technique often worked better than torture in altering prisoner cognition in favor of Chinese captors.
+
+The practice of Franklin, whereunder he got approval from someone by maneuvering him into treating Franklin favorably, works viciously well in reverse. When one is maneuvered into deliberately hurting some other person, one will tend to disapprove or even hate that person. This effect, from Inconsistency-Avoidance Tendency, accounts for the insight implicit in the saying: "A man never forgets where he has buried the hatchet." The effect accounts for much prisoner abuse by guards, increasing their dislike and hatred for prisoners that exists as a consequence of the guards' reciprocation of hostility from prisoners who are treated like animals.
+
+Given the psychology-based hostility natural in prisons between guards and prisoners, an intense, continuous effort should be made (1) to prevent prisoner abuse from starting and (2) to stop it instantly when it starts because it will grow by
+
+---
+
+feeding on itself, like a cluster of infectious disease. More psychological acuity on this subject, aided by more insightful teaching, would probably improve the overall effectiveness of the U.S. Army.
+
+So strong is Inconsistency-Avoidance Tendency that it will often prevail after one has merely pretended to have some identity habit, or conclusion. Thus, for a while, many an actor sort of believes he is Hamlet, Prince of Denmark. And many a hypocrite is improved by his pretensions of virtue. And many a judge and juror, while pretending objectivity, is gaining objectivity. And many a trial lawyer or other advocate comes to believe what he formerly only pretended to believe.
+
+While Inconsistency-Avoidance Tendency, with its "status quo bias," immensely harms sound education, it also causes much benefit. For instance, a near-ultimate inconsistency would be to teach something to others that one did not believe true. And so, in clinical medical education, the learner is forced to "see one, do one, and then teach one," with the teaching pounding the learning into the teacher. Of course, the power of teaching to influence the cognition of the teacher is not always.
+
+---
+
+a benefit to society. When such power flows into political and cult evangelism, there are often bad consequences.
+
+For instance, modern education often does much damage when young students are taught dubious political notions and then enthusiastically push these notions on the rest of us. The pushing seldom convinces others. But as students pound into their mental habits what they are pushing out, the students are often permanently damaged. Educational institutions that create a climate where much of this goes on are, I think, irresponsible. It is important not to thus put one's brain in chains before one has come anywhere near his full potentiality as a rational person.
+
+# Six: Curiosity Tendency
+
+There is a lot of innate curiosity in mammals, but it's nonhuman version is highest among apes and monkeys. Man's curiosity, in turn, is much stronger than that of his simian relatives. In advanced human civilization, culture greatly increases the effectiveness of curiosity in advancing knowledge. For instance, Athens (including its colony, Alexandria) developed much math and science out of pure curiosity while the Romans made almost no.
+
+---
+
+contribution to either math or science. They instead concentrated their attention on the "practical" engineering of mines, roads, aqueducts, etc. Curiosity, enhanced by the best of modern education (which is by definition a minority part in many places; much helps man to prevent or reduce bad consequences arising from other psychological tendencies. The curious are also provided with much fun and wisdom long after formal education has ended.
+
+# Seven: Kantian Fairness Tendency
+
+Kant was famous for his "categorical imperative," a sort of a "golden rule" that required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody. And it is not too much to say that modern acculturated man displays, and expects from others, a lot of fairness as thus defined by Kant.
+
+In a small community having a one-way bridge or tunnel for autos, it is the norm in the United States to see a lot of reciprocal courtesy, despite the absence of signs or signals. And many freeway drivers, including myself, will often let other drivers come in front of them, in lane changes or the like, because that is the courtesy they desire when roles are reversed. Moreover, there is, in modern human
+
+---
+
+culture, a lot of courteous lining up by strangers so that all are served on a "first-come-first-served" basis.
+
+Also, strangers often voluntarily share equally in unexpected, unearned good and bad fortune. And, as an obverse consequence of such "fair-sharing" conduct, much reactive hostility occurs when fair sharing is expected yet not provided.
+
+It is interesting how the world's slavery was pretty well abolished during the last three centuries after being tolerated for a great many previous centuries during which it coexisted with the world's major religions. My guess is that Kantian Fairness Tendency was a major contributor to this result.
+
+# Eight: Envy/Jealousy Tendency
+
+A member of a species designed through evolutionary process to want often-scarce food is going to be driven strongly toward getting food when it first sees food. And this is going to occur often and tend to create some conflict when the food is seen in the possession of another member of the same species. This is probably the evolutionary origin
+
+---
+
+of the envy/jealousy Tendency that lies so deep in human nature.
+
+Sibling jealousy is clearly very strong and usually greater in children than adults. It is often stronger than jealousy directed at strangers. Kantian Fairness Tendency probably contributes to this result.
+
+Envy/jealousy is extreme in myth, religion, and literature wherein, in account after account, it triggers hatred and injury. It was regarded as so pernicious by the Jews of the civilization that preceded Christ that it was forbidden, by phrase after phrase, in the laws of Moses. You were even warned by the Prophet not to covet your neighbor's donkey.
+
+And envy/jealousy is also extreme in modern life. For instance, university communities often go bananas when some university employee in money management, or some professor in surgery, gets annual compensation in multiples of the standard professorial salary. And in modern investment banks, law firms, etc., the envy/jealousy effects are usually more extreme than they are in university faculties. Many big law firms, fearing disorder from
+
+---
+
+envy/jealousy, have long treated all senior partners alike in compensation, no matter how different their contributions to firm welfare. As I have shared the observation of life with Warren Buffett over decades, I have heard him wisely say on several occasions: "It is not greed that drives the world, but envy."
+
+And, because this is roughly right, one would expect a vast coverage of envy/jealousy in psychology textbooks. But no such vast coverage existed when I read my three textbooks. Indeed, the very words "envy" and "jealousy" were often absent from indexes.
+
+Non Discussion of envy/jealousy is not a phenomenon confined to psychology texts. When did any of you last engage in any large group discussion of some issue wherein adult envy/jealousy was identified as the cause of someone's argument? There seems to be a general taboo against any such claim. If so, what accounts for the taboo?
+
+My guess is that people widely and generally sense that labeling some position as driven by envy/jealousy will be regarded as extremely insulting.
+
+---
+
+to the position taker, possibly more so when the diagnosis is correct than when it is wrong. And if calling a position "envy-driven" is perceived as the equivalent of describing its holder as a childish mental basket case, then it is quite understandable how a general taboo has arisen.
+
+But should this general taboo extend to psychology texts when it creates such a large gap in the correct, psychological explanation of what is widespread and important? My answer is no.
+
+# Nine: Reciprocation Tendency
+
+The automatic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme, as it is in apes, monkeys, dogs, and many less cognitively gifted animals. The tendency clearly facilitates group cooperation for the benefit of members. In this respect, it mimics much genetic programming of the social insects.
+
+We see the extreme power of the tendency to reciprocate disfavors in some wars, wherein it increases hatred to a level causing very brutal conduct. For long stretches in many wars, no prisoners were taken; the only acceptable enemy being a dead one. And sometimes that was not
+
+---
+
+enough, as in the case of Genghis Khan, who was not satisfied with corpses. He insisted on their being hacked into pieces.
+
+One interesting mental exercise is to compare Genghis Khan, who exercised extreme, lethal hostility toward other men, with ants that display extreme, lethal hostility toward members of their own species that are not part of their breeding colony. Genghis looks sweetly lovable when compared to the ants. The ants are more disposed to fight and fight with more extreme cruelty.
+
+Indeed, E. O. Wilson once waggishly suggested that if ants were suddenly to get atom bombs, all ants would be dead within eighteen hours. What both human and ant history suggest is (1) that nature has no general algorithm making intraspecies, turn-the-other-cheek behavior a booster of species survival, (2) that it is not clear that a country would have good prospects were it to abandon all reciprocate disfavor tendency directed at outsiders, and (3) if turn-the-other-cheek behavior is a good idea for a country as it deals with outsiders, man's culture is going to have to do a lot of heavy lifting because his genes won't be of much help.
+
+---
+
+I next turn to man's reciprocated hostility that falls well short of war. Peacetime hostility can be pretty extreme, as in many modern cases of "road rage" or injury-producing temper tantrums on athletic fields.
+
+The standard antidote to one's overactive hostility is to train oneself to defer reaction. As my smart friend Tom Murphy so frequently says, "You can always tell the man off tomorrow if it is such a good idea."
+
+Of course, the tendency to reciprocate favor for favor is also very intense, so much so that it occasionally reverses the course of reciprocated hostility. Weird pauses in fighting have sometimes occurred right in the middle of wars, triggered by some minor courtesy or favor on the part of one side, followed by favor reciprocation from the other side, and so on, until fighting stopped for a considerable period. This happened more than once in the trench warfare of World War I, over big stretches of the front and much to the dismay of the generals.
+
+It is obvious that commercial trade, a fundamental cause of modern prosperity, is enormously
+
+---
+
+facilitated by man's innate tendency to reciprocate favors. In trade, enlightened self-interest joining with Reciprocation Tendency results in constructive conduct. Daily interchange in marriage is also assisted by Reciprocation Tendency, without which marriage would lose much of its allure.
+
+And Reciprocation Tendency, insomuch as it causes good results, does not join forces only with the superpower of incentives. It also joins Inconsistency-Avoidance Tendency in helping cause (1) the fulfillment of promises made as part of a bargain, including loyalty promises in marriage ceremonies, and (2) correct behavior expected from persons serving as priests, shoemakers, physicians, and all else.
+
+Like other psychological tendencies, and also man's ability to turn somersaults, reciprocate-favor tendency operates to a very considerable degree at a subconscious level. This helps make the tendency a strong force that can sometimes be used by some men to mislead others, which happens all the time.
+
+For instance, when an automobile salesman graciously steers you into a comfortable place to sit and gives you a cup of coffee, you are very likely
+
+---
+
+being tricked, by this small courtesy alone, into parting with an extra five hundred dollars. This is far from the most extreme case of sales success that is rooted in a salesman dispensing minor favors.
+
+However, in this scenario of buying a car, you are going to be disadvantaged by parting with an extra five hundred dollars of your own money. This potential loss will protect you to some extent. But suppose you are the purchasing agent of someone else-a rich employer, for instance. Now the minor favor you receive from the salesman is less opposed by the threat of extra cost to you because someone else is paying the extra cost. Under such circumstances, the salesman is often able to maximize his advantage, particularly when government is the purchaser.
+
+Wise employers, therefore, try to oppose reciprocate-favor tendencies of employees engaged in purchasing. The simplest antidote works best: Don't let them accept any favors from vendors. Sam Walton agreed with this idea of absolute prohibition. He wouldn't let purchasing agents accept so much as a hot dog from a vendor. Given
+
+---
+
+The subconscious level at which much Reciprocation Tendency operates, this policy of Walton's was profoundly correct. If I controlled the Defense Department, its policies would mimic Walton's.
+
+In a famous psychology experiment, Cialdini brilliantly demonstrated the power of "compliance practitioners" to mislead people by triggering their subconscious Reciprocation Tendency.
+
+Carrying out this experiment, Cialdini caused his "compliance practitioners" to wander around his campus and ask strangers to supervise a bunch of juvenile delinquents on a trip to a zoo. Because this happened on a campus, one person in six out of a large sample actually agreed to do this. After accumulating this one-in-six statistic, Cialdini changed his procedure. His practitioners next wandered around the campus asking strangers to devote a big chunk of time every week for two years to the supervision of juvenile delinquents. This ridiculous request got him a one hundred percent rejection rate. But the practitioner had a follow-up question: "Will you at least spend one afternoon taking juvenile delinquents to a zoo?" This raised Cialdini's former acceptance rate of 1/6 to 1/2, a tripling.
+
+What Cialdini's "compliance practitioners"
+
+---
+
+had done was make a small concession, which was reciprocated by a small concession from the other side. This subconscious reciprocation of a concession by Cialdini's experimental subjects actually caused a much increased percentage of them to end up irrationally agreeing to go to a zoo with juvenile delinquents. Now, a professor who can invent an experiment like that, which so powerfully demonstrates something so important, deserves much recognition in the wider world, which he indeed got to the credit of many universities that learned a great deal from Cialdini.
+
+# Why is Reciprocation Tendency so important?
+
+Well, consider the folly of having law students graduate, and go out in the world representing clients in negotiations, not knowing the nature of the subconscious processes of the mind as exhibited in Cialdini's experiment. Yet such folly was prevalent in the law schools of the world for decades, in fact, generations. The correct name for that is educational malpractice. The law schools didn't know, or care to teach, what Sam Walton so well knew.
+
+The importance and power of reciprocate-favor
+
+---
+
+tendency was also demonstrated in Cialdini's explanation of the foolish decision of the attorney general of the United States to authorize the Watergate burglary. There, an aggressive subordinate made some extreme proposal for advancing Republican interests through use of some combination of whores and a gigantic yacht. When this ridiculous request was rejected, the subordinate backed off, in gracious concession, to merely asking for consent to a burglary, and the attorney general went along. Cialdini believes that subconscious Reciprocation Tendency thus became one important cause of the resignation of a United States president in the Watergate debacle, and so do I. Reciprocation Tendency subtly causes many extreme and dangerous consequences, not just on rare occasions but pretty much all the time.
+
+Man's belief in reciprocate-favor tendency, following eons of his practicing it, has done some queer and bad things in religions. The ritualized murder of the Phoenicians and the Aztecs, in which they sacrificed human victims to their gods, was a particularly egregious example. And we should not forget that as late as the Punic Wars, the civilized Romans, out of fear of defeat, returned in a few instances to the practice of human sacrifice. On the other hand, the reciprocity-based, religion-boosting
+
+---
+
+idea of obtaining help from God in reciprocation for good human behavior has probably been vastly constructive.
+
+Overall, both inside and outside religions, it seems clear to me that Reciprocation Tendency's constructive contributions to man far outweigh its destructive effects. In cases of psychological tendencies being used to counter or prevent bad results from one or more other psychological tendencies-for instance, in the case of interventions to end chemical dependency-you will usually find Reciprocation Tendency performing strongly on the constructive side.
+
+And the very best part of human life probably lies in relationships of affection wherein parties are more interested in pleasing than being pleased-a not uncommon outcome in display of reciprocate favor tendency.
+
+Before we leave reciprocate-favor tendency, the final phenomenon we will consider is widespread human misery from feelings of guilt. To the extent the feeling of guilt has an evolutionary base, I believe the most plausible cause is the mental
+
+---
+
+conflict triggered in one direction by reciprocate favor tendency and in the opposite direction by reward super response tendency pushing one to enjoy one hundred percent of some good thing. Of course, human culture has often greatly boosted the genetic tendency to suffer from feelings of guilt. Most especially, religious culture has imposed hard-to-follow ethical and devotional demands on people. There is a charming Irish Catholic priest in my neighborhood who, with rough accuracy, often says, "The old Jews may have invented guilt, but we Catholics perfected it." And if you, like me and this priest, believe that, averaged out, feelings of guilt do more good than harm, you may join in my special gratitude for reciprocate-favor tendency, no matter how unpleasant you find feelings of guilt.
+
+# Ten: Influence -from-Mere-association Tendency
+
+In the standard conditioned reflexes studied by Skinner and most common in the world, responsive behavior, creating a new habit, is directly triggered by rewards previously bestowed. For instance, a man buys a can of branded shoe polish, has a good experience with it when shining his shoes, and because of this "reward," buys the same shoe polish when he needs another can.
+
+---
+
+But there is another type of conditioned reflex wherein mere association triggers a response. For instance, consider the case of many men who have been trained by their previous experience in life to believe that when several similar items are presented for purchase, the one with the highest price will have the highest quality. Knowing this, some seller of an ordinary industrial product will often change his product's trade dress and raise its price significantly hoping that quality-seeking buyers will be tricked into becoming purchasers by mere association of his product and its high price.
+
+This industrial practice frequently is effective in driving up sales and even more so in driving up profits. For instance, it worked wonderfully with high-priced power tools for a long time. And it would work better yet with high-priced pumps at the bottom of oil wells. With luxury goods, the process works with a special boost because buyers who pay high prices often gain extra status from thus demonstrating both their good taste and their ability to pay.
+
+Even association that appears to be trivial, if carefully planned, can have extreme and peculiar effects on purchasers of products. The target
+
+---
+
+A purchaser of shoe polish may like pretty girls. And so he chooses the polish with the pretty girl on the can or the one with the pretty girl in the last ad for shoe polish that he saw.
+
+Advertisers know about the power of mere association. You won't see Coke advertised alongside some account of the death of a child. Instead, Coke ads picture life as happier than reality.
+
+Similarly, it is not from mere chance that military bands play such impressive music. That kind of music, appearing in mere association with military service, helps to attract soldiers and keep them in the army. Most armies have learned to use mere association in this successful way.
+
+However, the most damaging miscalculations from mere association do not ordinarily come from advertisers and music providers. Some of the most important miscalculations come from what is accidentally associated with one's past success, or one's liking and loving, or one's disliking and hating, which includes a natural hatred for bad news.
+
+To avoid being misled by the mere association.
+
+---
+
+of some fact with past success, use this memory clue. Think of Napoleon and Hitler when they invaded Russia after using their armies with much success elsewhere. And there are plenty of mundane examples of results like those of Napoleon and Hitler. For instance, a man foolishly gambles in a casino and yet wins. This unlikely correlation causes him to try the casino again, or again and again, to his horrid detriment. Or a man gets lucky in an odds-against venture headed by an untalented friend. So influenced, he tries again what worked before-with terrible results.
+
+The proper antidotes to being made such a patsy by past success are (1) to carefully examine each past success, looking for accidental, non causative factors associated with such success that will tend to mislead as one appraises odds implicit in a proposed new undertaking and (2) to look for dangerous aspects of the new undertaking that were not present when past success occurred.
+
+The damage to the mind that can come from liking and loving was once demonstrated by obviously false testimony given by an otherwise very admirable woman, the wife of a party in a jury case. The famous opposing counsel wanted to
+
+---
+
+minimize his attack on such an admirable woman yet destroy the credibility of her testimony. And so, in his closing argument, he came to her testimony last. He then shook his head sadly and said, "What are we to make of such testimony? The answer lies in the old rhyme:
+
+'As the husband is,
+
+So the wife is.
+
+She is married to a clown,
+
+And the grossness of his nature
+
+Drags her down.'
+
+The jury disbelieved the woman's testimony. They easily recognized the strong mis influence of love on her cognition. And we now often see even stronger mis influence from love as tearful mothers, with heartfelt conviction, declare before TV cameras the innocence of their obviously guilty sons.
+
+People disagree about how much blindness should accompany the association called love. In Poor Richard's Almanac Franklin counseled: "Keep your eyes wide open before marriage and half shut thereafter." Perhaps this "eyes-half-shut" solution
+
+---
+
+is about right, but I favor a tougher prescription: "See it like it is and love anyway."
+
+Hating and disliking also cause miscalculation triggered by mere association. In business, I commonly see people under appraise both the competency and morals of competitors they dislike. This is a dangerous practice, usually disguised because it occurs on a subconscious basis.
+
+Another common bad effect from the mere association of a person and a hated outcome is displayed in "Persian Messenger Syndrome." Ancient Persians actually killed some messengers whose sole fault was that they brought home truthful bad news, say, of a battle lost. It was actually safer for the messenger to run away and hide, instead of doing his job as a wiser boss would have wanted it done.
+
+And Persian Messenger Syndrome is alive and well in modern life, albeit in less lethal versions. It is actually dangerous in many careers to be a carrier of unwelcome news. Union negotiators and employer representatives often know this, and it leads to many tragedies in labor relations.
+
+---
+
+Sometimes lawyers, knowing their clients will hate them if they recommend an unwelcome but wise settlement, will carry on to disaster. Even in places well known for high cognition, one will sometimes find Persian Messenger Syndrome.
+
+For instance, years ago, two major oil companies litigated in a Texas trial court over some ambiguity in an operating agreement covering one of the largest oil reservoirs in the Western hemisphere. My guess is that the cause of the trial was some general counsel's unwillingness to carry bad news to a strong-minded CEO.
+
+CBS, in its late heyday, was famous for occurrence of Persian Messenger Syndrome because Chairman Paley was hostile to people who brought him bad news. The result was that Paley lived in a cocoon of unreality, from which he made one bad deal after another, even exchanging a large share of CBS for a company that had to be liquidated shortly thereafter.
+
+The proper antidote to creating Persian Messenger Syndrome and its bad effects, like those at CBS, is to develop, through exercise of will, a habit of welcoming bad news. At Berkshire, there is
+
+---
+
+A common injunction: "Always tell us the bad news promptly. It is only the good news that can wait." It also helps to be so wise and informed that people fear not telling you bad news because you are so likely to get it elsewhere.
+
+# Influence-from-Mere-Association Tendency
+
+Often has a shocking effect that helps swamp the normal tendency to return favor for favor. Sometimes, when one receives a favor, his condition is unpleasant, due to poverty, sickness, subjugation, or something else. In addition, the favor may trigger an envy-driven dislike for the person who was in so favorable a state that he could easily be a favor giver. Under such circumstances, the favor receiver, prompted partly by mere association of the favor giver with past pain, will not only dislike the man who helped him but also try to injure him. This accounts for a famous response, sometimes dubiously attributed to Henry Ford: "Why does that man hate me so? I never did anything for him." I have a friend, whom I will now call "Glotz," who had an amusing experience in favor-giving. Glotz owned an apartment building that he had bought because he wanted, eventually, to use the land in different development. Pending this outcome,
+
+---
+
+Glotz was very lenient in collecting below-market rents from tenants. When, at last, there was a public hearing on Glotz's proposal to tear down the building, one tenant who was far behind in his rent payments was particularly angry and hostile. He came to the public hearing and said, "This proposal is outrageous. Glotz doesn't need any more money. I know this because I was supported in college by Glotz fellowships."
+
+A final serious clump of bad thinking caused by mere association lies in the common use of classification stereotypes. Because Pete knows that Joe is ninety years old and that most ninety-year-old persons don't think very well, Pete appraises old Joe as a thinking klutz even if old Joe still thinks very well. Or, because Jane is a white-haired woman, and Pete knows no old women good at higher math, Pete appraises Jane as no good at it even if Jane is a whiz. This sort of wrong thinking is both natural and common.
+
+Pete's antidote is not to believe that, on average, ninety-year-olds think as well as forty year-olds or that there are as many females as males among Ph. D.'s in math. Instead, just as he must learn that trend does not always correctly predict destiny, he must learn that the average dimension in some group will not reliably guide him to the dimension of some specific item. Otherwise Pete will make many errors.
+
+---
+
+like that of the fellow who drowned in a river that averaged out only eighteen inches deep.
+
+# Eleven: Simple, Pain-Avoiding Psychological Denial
+
+This phenomenon first hit me hard in World War II when the super athlete, superstudent son of a family friend flew off over the Atlantic Ocean and never came back. His mother, who was a very sane woman, then refused to believe he was dead.
+
+That's Simple, Pain-Avoiding Psychological Denial. The reality is too painful to bear, so one distorts the facts until they become bearable. We all do that to some extent, often causing terrible problems. The tendency’s most extreme outcomes are usually mixed up with love, death, and chemical dependency.
+
+Where denial is used to make dying easier, the conduct meets almost no criticism. Who would begrudge a fellow man such help at such a time? But some people hope to leave life hewing to the iron prescription, "It is not necessary to hope in order to persevere." And there is something admirable in anyone able to do this.
+
+---
+
+In chemical dependency, wherein morals usually break down horribly, addicted persons tend to believe that they remain in respectable condition, with respectable prospects. They thus display an extremely unrealistic denial of reality as they go deeper and deeper into deterioration. In my youth, Freudian remedies failed utterly in reversing chemical dependency, but nowadays Alcoholics Anonymous routinely achieves a fifty percent cure rate by causing several psychological tendencies to act together to counter addiction. However, the cure process is typically difficult and draining, and a fifty percent success rate implies a fifty percent failure rate. One should stay far away from any conduct at all likely to drift into chemical dependency. Even a small chance of suffering so great a damage should be avoided.
+
+# Twelve: Excessive Self-Regard Tendency
+
+We all commonly observe the excessive self regard of man. He mostly misappraises himself on the high side, like the ninety percent of Swedish drivers that judge themselves to be above average. Such mis appraisals also apply to a person's major "possessions." One spouse usually over appraises the other spouse. And a man's children are likewise appraised higher by him than they are likely to be in a more objective view. Even man's minor possessions tend to be over appraised. Once owned,
+
+---
+
+they suddenly become worth more to him than he would pay if they were offered for sale to him and he didn't already own them. There is a name in psychology for this over appraise-your-own- possessions phenomenon: the "endowment effect." And all man's decisions are suddenly regarded by him as better than would have been the case just before he made them.
+
+Man's excess of self-regard typically makes him strongly prefer people like himself. Psychology professors have had much fun demonstrating this effect in "lost-wallet" experiments. Their experiments all show that the finder of a lost wallet containing identity clues will be most likely to return the wallet when the owner most closely resembles the finder. Given this quality in psychological nature, cliquish groups of similar persons will always be a very influential part of human culture, even after we wisely try to dampen the worst effects.
+
+Some of the worst consequences in modern life come when dysfunctional groups of cliquish persons, dominated by Excessive Self-Regard Tendency, select as new members of their organizations persons who are very much like themselves. Thus if the English department at an elite university becomes mentally dysfunctional or the sales
+
+---
+
+department of a brokerage firm slips into routine fraud, the problem will have a natural tendency to get worse and to be quite resistant to change for the better. So also with a police department or prison-guard unit or political group gone sour and countless other places mired in evil and folly, such as the worst of our big-city teachers' unions that harm our children by preventing discharge of ineffective teachers. Therefore, some of the most useful members of our civilization are those who are willing to "clean house" when they find a mess under their ambit of control.
+
+Well, naturally, all forms of excess of self-regard cause much error. How could it be otherwise? Let us consider some foolish gambling decisions. In lotteries, the play is much lower when numbers are distributed randomly than it is when the player picks his own number. This is quite irrational. The odds are almost exactly the same and much against the player. Because state lotteries take advantage of man's irrational love of self picked numbers, modern man buys more lottery tickets than he otherwise would have. with each purchase foolish.
+
+Intensify man's love of his own conclusions by
+
+---
+
+adding the possessory wallop from the "endowment effect," and you will find that a man who has already bought a pork-belly future on a commodity exchange now foolishly believes, even more strongly than before, in the merits of his speculative bet. And foolish sports betting, by people who love sports and think they know a lot about relative merits of teams, is a lot more addictive than race track betting-partly because of man's automatic over appraisal of his own complicated conclusions.
+
+Also extremely counterproductive is man's tendency to bet, time after time, in games of skill, like golf or poker, against people who are obviously much better players. Excessive Self-Regard Tendency diminishes the foolish bettor's accuracy in appraising his relative degree of talent. More counterproductive yet are man's appraisals, typically excessive, of the quality of the future service he is to provide to his business. His over appraisal of these prospective contributions will frequently cause disaster. Excesses of self-regard often cause bad hiring.
+
+---
+
+decisions because employers grossly over appraise the worth of their own conclusions that rely on impressions in face-to-face contact. The correct antidote to this sort of folly is to underweigh face to face impressions and overweigh the applicant's past record.
+
+I once chose exactly this course of action while I served as chairman of an academic search committee. I convinced fellow committee members to stop all further interviews and simply appoint a person whose achievement record was much better than that of any other applicant. And when it was suggested to me that I wasn't giving "academic due process," I replied that I was the one being true to academic values because I was using academic research showing poor predictive value of impressions from face-to-face interviews.
+
+Because man is likely to be over influenced by face-to-face impressions that by definition involve his active participation, a job candidate who is a marvelous "presenter" often causes great danger under modern executive-search practice. In my opinion, Hewlett-Packard faced just such a danger when it interviewed the articulate, dynamic Carly Fiorina in its search for a new CEO. And I believe (1) that Hewlett-Packard made a bad decision when
+
+---
+
+it chose Ms. Fiorina and Q) that this bad decision would not have been made if Hewlett-Packard had taken the methodological precautions it would have taken if it knew more psychology.
+
+There is a famous passage somewhere in Tolstoy that illuminates the power of Excessive Self-Regard Tendency. According to Tolstoy, the worst criminals don't appraise themselves as all that bad. They come to believe either (1) that they didn't commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and became what they became.
+
+The second half of the "Tolstoy effect", where the man makes excuses for his fixable poor performance, instead of providing the fix, is enormously important. Because a majority of mankind will try to get along by making way too many unreasonable excuses for fixable poor performance, it is very important to have personal and institutional antidotes limiting the ravages of such folly. On the personal level a man should try to face the two simple facts: (1) fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance, and (2) in demanding places, like athletic teams and General Electric,
+
+---
+
+you are almost sure to be discarded in due course if you keep giving excuses instead of behaving as you should. The main institutional antidotes to this part of the "Tolstoy effect" are (1) a fair, meritocratic, demanding culture plus personnel handling methods that build up morale and (2) severance of the worst offenders. Of course, when you can't sever, as in the case of your own child, you must try to fix the child as best you can. I once heard of a child-teaching method so effective that the child remembered the learning experience over fifty years later. The child later became Dean of the USC School of Music and then related to me what his father said when he saw his child taking candy from the stock of his employer with the excuse that he intended to replace it later. The father said, "Son, it would be better for you to simply take all you want and call yourself a thief every time you do it."
+
+The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity. This isn't easy to do well and won't work perfectly, but it will work much better than simply letting psychological nature take its normal course.
+
+---
+
+While an excess of self-regard is often counterproductive in its effects on cognition, or can cause some weird successes from overconfidence that happens to cause success. This factor accounts for the adage: "Never underestimate the man who overestimates himself."
+
+Of course, some high self-appraisals are correct and serve better than false modesty. Moreover, self-regard in the form of a justified pride in a job well done, or a life well lived, is a large constructive force. Without such justified pride, many more airplanes would crash. "Pride" is another word generally left out of psychology textbooks, and this omission is not a good idea. It is also not a good idea to construe the bible's parable about the Pharisee and the Publican as condemning all pride.
+
+Of all forms of useful pride, perhaps the most desirable is a justified pride in being trustworthy. Moreover, the trustworthy man, even after allowing for the inconveniences of his chosen course, ordinarily has a life that averages out better than he would have if he provided less reliability.
+
+# Thirteen: Overoptimism Tendency
+
+About three centuries before the birth of Christ,
+
+---
+
+Demosthenes, the most famous Greek orator, said, "What a man wishes, that also will he believe."
+
+Demosthenes, parsed out, was thus saying that man displays not only Simple, Pain-Avoiding Psychological Denial but also an excess of optimism even when he is already doing well.
+
+The Greek orator was clearly right about an excess of optimism being the normal human condition, even when pain or the threat of pain is absent. Witness happy people buying lottery tickets or believing that credit-furnishing, delivery making grocery stores were going to displace a great many superefficient cash-and-carry supermarkets.
+
+One standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal, taught in my youth to high school sophomores. The mental rules of thumb that evolution gives you to deal with risk are not adequate. They resemble the dysfunctional golf grip you would have if you relied on a grip driven by evolution instead of golf lessons.
+
+# Fourteen: Deprival- Super Reaction Tendency
+
+---
+
+The quantity of man's pleasure from a ten dollar gain does not exactly match the quantity of his displeasure from a ten-dollar loss. That is, the loss seems to hurt much more than the gain seems to help. Moreover, if a man almost gets something he greatly wants and has it jerked away from him at the last moment, he will react much as if he had long owned the reward and had it jerked away. I include the natural human reactions to both kinds of loss experience—the loss of the possessed reward and the loss of the almost-possessed reward—under one description, Deprival-Super Reaction Tendency.
+
+In displaying Deprival-Super Reaction Tendency, man frequently incurs disadvantage by misframing his problems. He will often compare what is near instead of what really matters. For instance, a man with $10 million in his brokerage account will often be extremely irritated by the accidental loss of $100 out of the $300 in his wallet.
+
+The Mungers once owned a tame and good natured dog that displayed the canine version of Deprival-Super Reaction Tendency. There was only one way to get bitten by this dog. And that was to try and take some food away from him after he already had it in his mouth. If you did that, this friendly dog would automatically bite. He
+
+---
+
+couldn't help it. Nothing could be more stupid than for the dog to bite his master. But the dog couldn't help being foolish. He had an automatic Deprival Super Reaction Tendency in his nature.
+
+Humans are much the same as this Munger dog. A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, love, friendship, dominated territory, opportunity, status, or any other valued thing. As a natural result, bureaucratic infighting over the threatened loss of dominated territory often causes immense damage to an institution as a whole. This factor, among others, accounts for much of the wisdom of Jack Welch's long fight against bureaucratic ills at General Electric. Few business leaders have ever conducted wiser campaigns.
+
+Deprival-Super Reaction Tendency often protects ideological or religious views by triggering dislike and hatred directed toward vocal nonbelievers. This happens, in part, because the ideas of the nonbelievers, if they spread, will diminish the influence of views that are now supported by a comfortable environment including a strong belief-maintenance system. University Liberal arts departments, law schools, and business organizations all display plenty of such ideology-based group think that rejects almost all conflicting.
+
+---
+
+When the vocal critic is a former believer, hostility is often boosted both by (1) a concept of betrayal that triggers additional Deprival-Super Reaction Tendency because a colleague is lost and (2) fears that conflicting views will have extra persuasive power when they come from a former colleague. The foregoing considerations help account for the old idea of heresy, which for centuries justified much killing of heretics, frequently after torture and frequently accomplished by burning the victim alive.
+
+It is almost everywhere the case that extremes of ideology are maintained with great intensity and with great antipathy to non-believers, causing extremes of cognitive dysfunction. This happens, I believe, because two psychological tendencies are usually acting concurrently toward this same sad result: (1) Inconsistency-Avoidance Tendency, plus (2) Deprival-Super Reaction Tendency.
+
+One antidote to intense, deliberate maintenance of group think is an extreme culture of courtesy, kept in place despite ideological differences, like the behavior of the justices now serving on the U.S. Supreme Court. Another antidote is to
+
+---
+
+deliberately bring in able and articulate disbelievers of incumbent group think. Successful corrective measures to evil examples of group think maintenance have included actions like that of Derek Bok when, as president of Harvard, he started disapproving tenure appointments proposed by ideologues at Harvard Law School.
+
+Even a one-degree loss from a 150-degree view will sometime create enough Deprival-Super reaction Tendency to turn a neighbor into an enemy, as I once observed when I bought a house from one of two neighbors locked into hatred by a tiny tree newly installed by one of them.
+
+As the case of these two neighbors illustrated, the clamor of almost any group of neighbors displaying irrational, extreme deprival-super reaction over some trifle in a zoning hearing is not a pretty thing to watch. Such bad behavior drives some people from the zoning field. I once bought some golf clubs from an artisan who was formerly a lawyer. When I asked him what kind of law he had practiced, I expected to hear him say, "divorce law." But his answer was, "zoning law."
+
+Deprival-Super Reaction Tendency has ghastly effects in labor relations. Most of the deaths in the labor strife that occurred before World War I came
+
+---
+
+when employers tried to reduce wages. Nowadays, we see fewer deaths and more occasions when whole companies disappear. as competition requires either takeaways from labor-which it will not consent to-or death of the business. Deprival Super Reaction Tendency causes much of this labor resistance, often in cases where it would be in labor's interest to make a different decision.
+
+In contexts other than labor relations, takeaways are also difficult to get. Many tragedies, therefore, occur that would have been avoided had there been more rationality and less subconscious heed of the imperative from Deprival-Super Reaction Tendency.
+
+Deprival-Super Reaction Tendency is also a huge contributor to ruin from compulsion to gamble. First, it causes the gambler to have a passion to get even once he has suffered loss, and the passion grows with the loss. Second, the most addictive forms of gambling provide a lot of near misses and each one triggers Deprival-Super Reaction Tendency. Some slot machine creators are vicious in exploiting this weakness of man. Electronic machines enable these creators to produce a lot of meaningless bar bar-lemon results that greatly increase play by fools who think they have very nearly won large rewards.
+
+---
+
+Deprival-Super Reaction Tendency often does much damage to man in open-outcry auctions. The "social proof" that we will next consider tends to convince man that the last price from another bidder was reasonable, and then Deprival-Super reaction Tendency prompts him strongly to top the last bid. The best antidote to being thus triggered into paying foolish prices at open-outcry auctions is the simple Buffett practice: Don't go to such auctions.
+
+Deprival-Super Reaction Tendency and Inconsistency-Avoidance Tendency often join to cause one form of business failure. In this form of ruin, a man gradually uses up all his good assets in a fruitless attempt to rescue a big venture going bad. One of the best antidotes to this folly is good poker skill learned young. The teaching value of poker demonstrates that not all effective teaching occurs on a standard academic path.
+
+I myself, the would-be instructor here, many decades ago made a big mistake caused in part by subconscious operation of my Deprival-Super reaction Tendency. A friendly broker called and offered
+
+---
+
+me 300 shares of ridiculously underpriced, very thinly traded Belridge Oil at $115 per share, which I purchased using cash I had on hand. The next day, he offered me 1,500 more shares at the same price, which I declined to buy partly because I could only have made the purchase had I sold something or borrowed the required $173,000. This was a very irrational decision. I was a well-to-do man with no debt; there was no risk of loss; and similar no risk opportunities were not likely to come along.
+
+Within two years, Belridge Oil sold out to Shell at a price of about $3,700 per share, which made me about $5.4 million poorer than I would have been had I then been psychologically acute. As this tale demonstrates, psychological ignorance can be very expensive.
+
+Some people may question my defining Deprival-Super Reaction Tendency to include reaction to profit barely missed, as in the well documented responses of slot machine players. However, I believe that I haven't defined the tendency as broadly as I should. My reason for suggesting an even broader definition is that many Berkshire Hathaway shareholders I know never sell or give away a single share after immense gains in market value have occurred. Some of this reaction is caused by rational calculation, and some is, no
+
+---
+
+doubt, attributable to some combination of (1) reward super response, (2) "status quo bias" from Inconsistency-Avoidance Tendency, and (3) "The endowment effect" from Excessive Self-Regard Tendency. But I believe the single strongest irrational explanation is a form of Deprival-Super reaction Tendency. Many of these shareholders simply can't stand the idea of having their Berkshire Hathaway holdings smaller. Partly they dislike facing what they consider an impairment of identity, but mostly they fear missing out on future gains from stock sold or given away.
+
+# Fifteen: Social-Proof Tendency
+
+The otherwise complex behavior of man is much simplified when he automatically thinks and does what he observes to be thought and done around him. And such followership often works fine. For instance, what simpler way could there be to find out how to walk to a big football game in a strange city than by following the flow of the crowd.
+
+For some such reason, man's evolution left him with Social-Proof Tendency, an automatic tendency to think and act as he sees others around him thinking and acting.
+
+Psychology professors love Social-Proof
+
+---
+
+Tendency because in their experiments it causes ridiculous results. For instance, if a professor arranges for some stranger to enter an elevator wherein ten "compliance practitioners" are all silently standing so that they face the rear of the elevator, the stranger will often turn around and do the same. The psychology professors can also use Social-Proof Tendency to cause people to make large and ridiculous measurement errors. And, of course, teenagers' parents usually learn more than they would like about teenagers' cognitive errors from Social-Proof Tendency. This phenomenon was recently involved in a breakthrough by Judith Rich Harris who demonstrated that superrespect by young people for their peers, rather than for parents or other adults, is ordained to some considerable extent by the genes of the young people. This makes it wise for parents to rely more on manipulating the quality of the peers than on exhortations to their own offspring. A person like Ms. Harris, who can provide an insight of this quality and utility, backed by new reasons, has not lived in vain. And in the highest reaches of business, it is
+
+---
+
+not all uncommon to find leaders who display followership akin to that of teenagers. If one oil company foolishly buys a mine, other oil companies often quickly join in buying mines. So also if the purchased company makes fertilizer. Both of these oil company buying fads actually bloomed, with bad results.
+
+Of course, it is difficult to identify and correctly weigh all the possible ways to deploy the cash flow of an oil company. So oil company executives, like everyone else, have made many bad decisions that were quickly triggered by discomfort from doubt.
+
+Going along with social proof provided by the action of other oil companies ends this discomfort in a natural way.
+
+# When will Social-Proof Tendency be most easily triggered
+
+Here the answer is clear from many experiments: Triggering most readily occurs in the presence of puzzlement or stress, and particularly when both exist.
+
+Because stress intensifies Social-Proof Tendency, disreputable sales organizations, engaged, for instance, in such action as selling
+
+---
+
+swampland to schoolteachers, manipulate targets into situations combining isolation and stress. The isolation strengthens the social proof provided by both the knaves and the people who buy first, and the stress, often increased by fatigue, augments the targets' susceptibility to the social proof. And, of course, the techniques of our worst "religious" cults imitate those of the knavish salesmen. One cult even used rattlesnakes to heighten the stress felt by conversion targets.
+
+Because both bad and good behavior are made contagious by Social-Proof Tendency, it is highly important that human societies (1) stop any bad behavior before it spreads and (2) foster and display all good behavior.
+
+My father once told me that just after commencing law practice in Omaha, he went with a large group from Nebraska to South Dakota to hunt pheasants. A South Dakota hunting license was, say, $2 for South Dakota residents and $5 for nonresidents. All the Nebraska residents, one by one, signed up for South Dakota licenses with phony South Dakota addresses until it was my father's turn. Then, according to him, he barely
+
+---
+
+prevented himself from doing what the others were doing, which was some sort of criminal offense. Not everyone so resists the social contagion of bad behavior. And, therefore, we often get “Serpico Syndrome,” named to commemorate the state of a near-totally corrupt New York police division joined by Frank Serpico. He was then nearly murdered by gunfire because of his resistance to going along with the corruption in the division. Such corruption was being driven by social proof plus incentives, the combination that creates Serpico Syndrome. The Serpico story should be taught more than it now is because the didactic power of its horror is aimed at a very important evil, driven substantially by a very important force: social proof.
+
+In social proof, it is not only action by others that misleads but also their inaction. In the presence of doubt, inaction by others becomes social proof that inaction is the right course. Thus, the inaction of a great many bystanders led to the death of Kitty Genovese in a famous incident much discussed in introductory psychology courses.
+
+In the ambit of social proof, the outside
+
+---
+
+Directors on a corporate board usually display the near ultimate form of inaction. They fail to object to anything much short of an axe murder until some public embarrassment of the board finally causes their intervention. A typical board-of-directors' culture was once well described by my friend, Joe Rosenfield, as he said, "They asked me if I wanted to become a director of Northwest Bell, and it was the last thing they ever asked me."
+
+# Social-Proof Tendency
+
+In advertising and sales promotion, Social-Proof Tendency is about as strong a factor as one could imagine. "Monkey-see, monkey-do" is the old phrase that reminds one of how strongly John will often wish to do something, or have something, just because Joe does or has it. One interesting consequence is that an advertiser will pay a lot to have its soup can, instead of someone else's, in a movie scene involving soup consumption only in a peripheral way.
+
+Social-Proof Tendency often interacts in a perverse way with Envy/Jealousy and Deprival Super Reaction Tendency. One such interaction amused my family for years as people recalled the time when my cousin Russ and I, at ages three and four, fought and howled over a single surplus shingle while surrounded by a virtual sea of surplus shingles.
+
+---
+
+But the adult versions of this occasion, boosted by psychological tendencies preserving ideologies, are not funny and can bring down whole civilizations. The Middle East now presents just such a threat. By now the resources spent by Jews, Arabs and all others over a small amount of disputed land if divided arbitrarily among land claimants, would have made everyone better off, even before taking into account any benefit from reduced threat of war, possibly nuclear.
+
+Outside domestic relations it is rare now to try to resolve disputes by techniques including discussion of impacts from psychological tendencies. Considering the implications of childishness that would be raised by such inclusion, and the defects of psychology as now taught, this result may be sound. But, given the nuclear stakes now involved and the many failures in important negotiations lasting decades, I often wonder if some day, in some way, more use of psychological insight will eventually improve outcomes. If so, correct teaching of psychology matters a lot. And, if old psychology professors are even less likely than old physics professors to learn new ways, which seems nearly certain, then we may, as Max Planck predicted, need a new generation of psychology professors who have grown up to think in a different way.
+
+---
+
+If only one lesson is to be chosen from a package of lessons involving Social-Proof Tendency, and used in self improvement, my favorite would be: Learn how to ignore the examples from others when they are wrong, because few skills are more worth having.
+
+# Sixteen: Contrast-Misreaction Tendency
+
+Because the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in the other senses.
+
+Moreover as perception goes, so goes cognition. The result is man's Contrast-MisReaction Tendency.
+
+Few psychological tendencies do more damage to correct thinking. Small-scale damages involve instances such as man's buying an overpriced $1,000 leather dashboard merely because the price is so low compared to his concurrent purchase of a $65,000 car. Large-scale damages often ruin lives, as when a wonderful woman having terrible parents marries a man who would be judged satisfactory only in comparison to her parents. Or as when a man takes wife number two who would be
+
+---
+
+appraised as all right only in comparison to wife number one.
+
+A particularly reprehensible form of sales practice occurs in the offices of some real estate brokers. A buyer from out of the city, perhaps needing to shift his family there, visits the office with little time available. The salesman deliberately shows the customer three awful houses at ridiculously high prices. Then he shows him a merely bad house at a price only moderately too high. And, boom, the broker often makes an easy sale.
+
+Contrast-Misreaction Tendency is routinely used to cause disadvantage for customers buying merchandise and services. To make an ordinary price seem low, the vendor will very frequently create a highly artificial price that is much higher than the price always sought, then advertise his standard price as a big reduction from his phony price. Even when people know that this sort of customer manipulation is being attempted, it will often work to trigger buying. This phenomenon accounts in part for much advertising in newspapers. It also demonstrates that being aware of psychological ploys is not a perfect defense.
+
+---
+
+When a man's steps are consecutively taken toward disaster, with each step being very small, the brain's Contrast-Misreaction Tendency will often let the man go too far toward disaster to be able to avoid it. This happens because each step presents so small a contrast from his present position.
+
+A bridge-playing pal of mine once told me that a frog tossed into very hot water would jump out, but that the same frog would end up dying if placed in room-temperature water that was later heated at a very slow rate. My few shreds of physiological knowledge make me doubt this account. But no matter because many businesses die in just the manner claimed by - friend for the frog. Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny.
+
+One of Ben Franklin's best-remembered and most useful aphorisms is "A small leak will sink a great ship." The utility of the aphorism is large precisely because the brain so often misses the functional equivalent of a small leak in a great ship.
+
+# Seventeen: Stress- Influence Tendency
+
+Everyone recognizes that sudden stress, for instance from a threat, will cause a rush of adrenaline in the human body, prompting faster and more
+
+---
+
+extreme reaction. And everyone who has taken Psych 101 knows that stress makes Social-Proof Tendency more powerful.
+
+In a phenomenon less well recognized but still widely known, light stress can slightly improve performance—say, in examinations—whereas heavy stress causes dysfunction.
+
+But few people know more about really heavy stress than that it can cause depression. For instance, most people know that an "acute stress depression" makes thinking dysfunctional because it causes an extreme of pessimism, often extended in length and usually accompanied by activity stopping fatigue. Fortunately, as most people also know, such a depression is one of mankind's more reversible ailments. Even before modern drugs were available, many people afflicted by depression, such as Winston Churchill and Samuel Johnson, gained great achievement in life.
+
+Most people know very little about nondepressive mental breakdowns influenced by heavy stress. But there is at least one exception, involving the work of Pavlov when he was in his seventies.
+
+---
+
+and eighties. Pavlov had won a Nobel Prize early in life by using dogs to work out the physiology of digestion. Then he became world-famous by working out mere-association responses in dogs, initially salivating dogs-so much so that changes in behavior triggered by mere-association, like those caused by much modern advertisement, are today often said to come from "Pavlovian" conditioning.
+
+What happened to cause Pavlov's last work was especially interesting. During the great Leningrad Flood of the 1920s, Pavlov had many dogs in cages. Their habits had been transformed, by a combination of his "Pavlovian conditioning" plus standard reward responses, into distinct and different patterns. As the waters of the flood came up and receded, many dogs reached a point where they had almost no airspace between their noses and the tops of their cages. This subjected them to maximum stress. Immediately thereafter, Pavlov noticed that many of the dogs were no longer behaving as they had. The dog that formerly had liked his trainer now disliked him, for example. This result reminds one of modern cognition reversals in which a person's love of his parents suddenly becomes hate, as new love has been shifted suddenly to a cult. The unanticipated, extreme changes in
+
+---
+
+Pavlov's dogs would have driven any good experimental scientist into a near-frenzy of curiosity. That was indeed Pavlov's reaction. But not many scientists would have done what Pavlov next did. And that was to spend the rest of his long life giving stress-induced nervous breakdowns to dogs, after which he would try to reverse the breakdowns, all the while keeping careful experimental records. He found (1) that he could classify dogs so as to predict how easily a particular dog would breakdown (2) that the dogs hardest to break down were also the hardest to return to their pre-breakdown state; (3) that any dog could be broken down; and (4) that he couldn't reverse a breakdown except by reimposing stress.
+
+Now, practically everyone is revolted by such experimental treatment of man's friend, the dog. Moreover, Pavlov was Russian and did his last work under the Communists. And maybe those facts account for the present extreme, widespread ignorance of Pavlov's last work. The two Freudian psychiatrists with whom I tried many years ago to discuss this work had never heard of it. And the dean of a major medical school actually asked
+
+---
+
+me, several years ago, if any of Pavlov's experiments were "repeatable" in experiments of other researchers. Obviously, Pavlov is now a sort of forgotten hero in medical science.
+
+I first found a description of Pavlov's last work in a popular paperback, written by some Rockefeller-financed psychiatrist, when I was trying to figure out (1) how cults worked their horrible mischief and (2) what should the law say about what parents could do to "deprogram" children who had become brainwashed zombies. Naturally, mainstream law objected to the zombies being physically captured by their parents and next subjected to stress that would help to deprogram the effects of the stress they had endured in cult conversions.
+
+I never wanted to get into the legal controversy that existed about this subject. But I did conclude that the controversy couldn't be handled with maximized rationality without considering whether, as Pavlov's last work suggests, the heavy-handed imposition of stress might be the only reversal method that would work to remedy one of the worst evils imaginable: a stolen mind. I have included this discussion of Pavlov (1) partly out of general antagonism toward taboos, (2) partly to make my talk reasonably complete as it considers stress and (3) partly because I hope some listener may continue my inquiry with more success.
+
+# Eighteen: Availability- Mis Weighing Tendency
+
+---
+
+This mental tendency echoes the words of the song: "When I'm not near the girl I love, I love the girl I'm near." Man's imperfect, limited-capacity brain easily drifts into working with what's easily available to it. And the brain can't use what it can't remember or what it is blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it, as the fellow is influenced by the nearby girl in the song. And so the mind overweighs what is easily available and thus displays Availability- Mis Weighing Tendency.
+
+The main antidote to miscues from Availability Misweighing Tendency often involve procedures, including use of checklists, which are almost always helpful.
+
+Another antidote is to behave somewhat like Darwin did when he emphasized disconfirming evidence. What should be done is to especially emphasize factors that don't produce reams of easily available numbers, instead of drifting mostly or entirely into considering factors that do produce such numbers. Still another antidote is to find and hire some skeptical, articulate people with far reaching minds to act as advocates for notions that are opposite to the incumbent notions.
+
+---
+
+One consequence of this tendency is that extra vivid evidence, being so memorable and thus more available in cognition, should often consciously be underweighted while less vivid evidence should be overweighed. Still, the special strength of extra-vivid images in influencing the mind can be constructively used (1) in persuading someone else to reach a correct conclusion or (2) as a device for improving one's own memory by attaching vivid images, one after the other, to many items one doesn't want to forget. Indeed, such use of vivid images as memory boosters is what enabled the great orators of classical Greece and Rome to give such long, organized speeches without using notes. The great algorithm to remember in dealing with this tendency is simple: An idea or a fact is not worth more merely because it is easily available to you.
+
+# Nineteen: Use-It-or-Lose-It Tendency
+
+All skills attenuate with disuse. I was a whiz at calculus until age twenty, after which the skill was soon obliterated by total nonuse. The right antidote to such a loss is to make use of the
+
+---
+
+functional equivalent of the aircraft simulator employed in pilot training. This allows a pilot to continuously practice all of the rarely used skills that he can't afford to lose.
+
+Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices and, therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency. His learning capacity will also shrink as he creates gaps in the latticework of theory he needs as a framework for understanding new experience. It is also essential for a thinking man to assemble his skills into a checklist that he routinely uses. Any other mode of operation will cause him to miss much that is important.
+
+Skills of a very high order can be maintained only with daily practice. The pianist Paderewski once said that if he failed to practice for a single day, he could notice his performance deterioration and that, after a week's gap in practice, the audience could notice it as well.
+
+The hard rule of Lose-It-or-Lose-It Tendency tempers its harshness for the diligent. If a skill is
+
+---
+
+raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill (1) will be lost more slowly and (2) will come back faster when refreshed with new learning. These are not minor advantages, and a wise man engaged in learning some important skill will not stop until he is really fluent in it.
+
+# Twenty: Drug-Misinfluence Tendency
+
+This tendency's destructive power is so widely known to be intense, with frequent tragic consequences for cognition and the outcome of life, that it needs no discussion here to supplement that previously given under "Simple, Pain-Avoiding Psychological Denial."
+
+# Twenty-One: Senescence-Miss Influence Tendency
+
+With advanced age, there comes a natural cognitive decay, differing among individuals in the earliness of its arrival and the speed of its progression. Practically no one is good at learning complex new skills when very old. But some people remain pretty good in maintaining intensely practiced old skills until late in life, as one can notice in many a
+
+---
+
+bridge tournament.
+
+Old people like me get pretty skilled, without working at it, at disguising age-related deterioration because social convention, like clothing, hides much decline.
+
+Continuous thinking and learning, done with joy can somewhat help delay what is inevitable.
+
+# Twenty-Two: Authority-Misinfluence Tendency
+
+Living in dominance hierarchies as he does, like all his ancestors before him, man was born mostly to follow leaders, with only a few people doing the leading. And so, human society is formally organized into dominance hierarchies, with their culture augmenting the natural follow-the-leader tendency of man.
+
+But automatic as most human reactions are, with the tendency to follow leaders being no exception, man is often destined to suffer greatly when the leader is wrong or when his leader's ideas don't get through properly in the bustle of life and are misunderstood. And so, we find much miscognition from
+
+---
+
+man's Authority-Mis Influence Tendency.
+
+Some of the mis influences are amusing, as in a case described by Cialdini. A physician left a written order for a nurse treating an earache, as follows: "Tho drops, twice a day, rear." The nurse then directed the patient to turn over and put the eardrops in his anus.
+
+Other versions of confused instructions from authority figures are tragic. In World War II, a new pilot for a general, who sat beside him in the copilot's seat, was so anxious to please his boss that he misinterpreted some minor shift in the general's position as a direction to do some foolish thing. The pilot crashed the plane and became a paraplegic.
+
+Well, naturally, cases like this one get the attention of careful thinkers like Boss Buffett, who always acts like an over quiet mouse around his pilots.
+
+Such cases are also given attention in the simulator training of copilots who have to learn to ignore certain really foolish orders from boss pilots because boss pilots will sometimes err disastrously.
+
+Even after going through such a training regime,
+
+---
+
+however, copilots in simulator exercises will too often allow the simulated plane to crash because of some extreme and perfectly obvious simulated error of the chief pilot.
+
+After Corporal Hitler had risen to dominance in Germany, leading a bunch of believing Lutherans and Catholics into orgies of genocide and other mass destruction, one clever psychology professor, Stanley Milgram, decided to do an experiment to determine exactly how far authority figures could lead ordinary people into gross misbehavior. In this experiment, a man posing as an authority figure, namely a professor governing a respectable experiment, was able to trick a great many ordinary people into giving what they had every reason to believe were massive electric shocks that inflicted heavy torture on innocent fellow citizens. This experiment did demonstrate a terrible result contributed to by Authority-Misinfluence Tendency, but it also demonstrated extreme ignorance in the psychology professoriate right after World War II.
+
+Almost any intelligent person with my checklist of psychological tendencies in his hand would, by
+
+---
+
+simply going down the checklist, have seen that Milgram's experiment involved about six powerful psychological tendencies acting in confluence to bring about his extreme experimental result. For instance, the person pushing Milgram' s shock lever was given much social proof from presence of inactive bystanders whose silence communicated that his behavior was okay. Yet it took over a thousand psychological papers, published before I got to Milgram, for the professoriate to get his experiment only about ninety percent as well understood as it would have immediately been by any intelligent person who used (1) any sensible organization of psychology along the lines of this talk, plus (2) a checklist procedure. This outcome displaying the dysfunctional thinking of long-dead professors deserves a better explanation. I will later deal with the subject in a very hesitant fashion.
+
+We can be pleased that the psychology professoriate of a former era wasn't quite as dysfunctional as the angler in my next-to-last illustration of Authority-Mis influence Tendency. When I once fished in the Rio Colorado in Costa Rica, my guide, in a state of shock, told me a story about an angler who'd earlier come to the river.
+
+---
+
+without ever having fished for tarpon. A fishing guide like the one I had runs the boat and gives fishing advice, establishing himself in this context as the ultimate authority figure. In the case of this guide, his native language was Spanish, while the angler's native language was English. The angler got a big tarpon on and began submitting to many directions from this authority figure called a guide: tip up, tip down, reel in, etc. Finally, when it was necessary to put more pressure on the fish by causing more bending of the angler's rod, the guide said in English: "Give him the rod, give him the rod." Well, the angler threw his expensive rod at the fish, and when last seen, it was going down the Rio Colorado toward the ocean. This example shows how powerful is the tendency to go along with an authority figure and how it can turn one's brain into mush.
+
+My final example comes from business. A psychology Ph. D. once became a CEO of a major company and went wild, creating an expensive new headquarters, with a great wine cellar, at an isolated site. At some point, his underlings remonstrated that money was running short. "Take the money out of the depreciation reserves," said the CEO. Not too easy because a depreciation reserve is a liability account.
+
+---
+
+So strong is undue respect for authority that this CEO, and many even worse examples, have actually been allowed to remain in control of important business institutions for long periods after it was clear they should be removed. The obvious implication: Be careful who you appoint to power because a dominant authority figure will often be hard to remove, aided as he will be by Authority Misinfluence Tendency.
+
+# Twenty-Three: Twaddle Tendency
+
+Man, as a social animal who has the gift of language, is born to prattle and to pour out twaddle that does much damage when serious work is being attempted. Some people produce copious amounts of twaddle and others very little.
+
+A trouble from the honeybee version of twaddle was once demonstrated in an interesting experiment. A honeybee normally goes out and finds nectar and then comes back and does a dance that communicates to the other bees where the nectar is. The other bees then go out and get it. Well some scientist-clever, like B. F, Skinner-decided to see how well a honeybee would do with a handicap. He put the nectar straight up. Way up. Well, in a natural setting, there is no nectar a long way straight.
+
+---
+
+up, and the poor honeybee doesn't have a generic program that is adequate to handle what she now has to communicate. You might guess that this honeybee would come back to the hive and slink into a corner, but she doesn't. She comes into the hive and does an incoherent dance. Well, all my life I've been dealing with the human equivalent of that honeybee. And it's a very important part of wise administration to keep prattling people, pouring our twaddle, far away from the serious work. A rightly famous Caltech engineering professor, exhibiting more insight than tact, once expressed his version of this idea as follows:
+
+"The principal job of an academic administration is to keep the people who don't matter from interfering with the work of the people that do."
+
+I include this quotation partly because I long suffered from backlash caused by my version of this professor's conversational manner. After much effort, I was able to improve only slightly, so one of my reasons for supplying the quotation is my hope that, at least in comparison, I will appear tactful.
+
+# Twenty-Four: Reason-Respecting Tendency
+
+There is in man, particularly one in an advanced culture, a natural love of accurate cognition and a joy in its exercise. This accounts for the widespread popularity of crossword puzzles, other puzzles, and bridge and chess columns, as well as all games.
+
+---
+
+requiring mental skill. This tendency has an obvious implication. It makes man especially prone to learn well when a would-be teacher gives correct reasons for what is taught, instead of simply laying out the desired belief ex cathedra with no reasons given. Few practices, therefore, are wiser than not only thinking through reasons before giving orders but also communicating these reasons to the recipient of the order.
+
+No one knew this better than Carl Braun, who designed oil refineries with spectacular skill and integrity. He had a very simple rule, one of many in his large, Teutonic company: You had to tell Who was to do What, Where, When, and Why. And if you wrote a communication leaving out your explanation of why the addressee was to do what was ordered, Braun was likely to fire you because Braun well knew that ideas got through best when reasons for the ideas were meticulously laid out.
+
+In general, learning is most easily assimilated and used when, life long, people consistently hang their experience, actual and vicarious, on a lattice work of theory answering the question: Why?
+
+---
+
+Indeed, the question "Why?" is a sort of Rosetta stone opening up the major potentiality of mental life.
+
+Unfortunately, Reason- Respecting Tendency is so strong that even a person's giving of meaningless or incorrect reasons will increase compliance with his orders and requests. This has been demonstrated in psychology experiments wherein "compliance practitioners" successfully jump to the head of the lines in front of copying machines by explaining their reason: "I have to make some copies." This sort of unfortunate byproduct of Reason-Respecting Tendency is a conditioned reflex, based on a widespread appreciation of the importance of reasons. And, naturally, the practice of laying out various claptrap reasons is much used by commercial and cult "compliance practitioners" to help them get what they don't deserve.
+
+# Twenty-Five: Lollapalooza Tendency
+
+# The Tendency to Get Extreme Consequences from Confluences of Psychological Tendencies Acting in Favor of a Particular Outcome
+
+This tendency was not in any of the psychology texts I once examined, at least in any coherent fashion, yet it dominates life. It accounts for the extreme result in the Milgram experiment and the
+
+---
+
+extreme success of some cults that have stumbled through practice evolution into bringing pressure from many psychological tendencies to bear at the same time on conversion targets. The targets vary in susceptibility, like the dogs Pavlov worked with in his old age, but some of the minds that are targeted simply snap into zombiedom under cult pressure. Indeed, that is one cult's name for the conversion phenomenon: snapping.
+
+What are we to make of the extreme ignorance of the psychology textbook writers of yesteryear? How could anyone who had taken a freshman course in physics or chemistry not be driven to consider, above all, how psychological tendencies combine and with what effects? Why would anyone think his study of psychology was adequate without his having endured the complexity involved in dealing with intertwined psychological tendencies? What could be more ironic than professors using oversimplified notions while studying bad cognitive effects grounded in the mind's tendency to use oversimplified algorithms?
+
+I will make a few tentative suggestions. Maybe many of the long-dead professors wanted to create
+
+---
+
+a whole science from one narrow type of repeatable psychology experiment that was conductible in a university setting and that aimed at one psychological tendency at a time. If so, these early psychology professors made a massive error in so restricting their approach to their subject. It would be like physics ignoring (1) astrophysics because it couldn't happen in a physics lab, plus (2) all compound effects. What psychological tendencies could account for early psychology professors adopting an over-restricted approach to their own subject matter? One candidate would be Availability-Mis Weighing Tendency grounded in a preference for easy-to-control data. And then the restrictions would eventually create an extreme case of man with a hammer tendency. Another candidate might be envy/jealousy Tendency through which early psychology professors displayed some weird form of envy of a physics that was misunderstood. And this possibility tends to demonstrate that leaving envy/jealousy out of academic psychology was never a good idea. I now quitclaim all these historical mysteries to my betters.
+
+Well, that ends my brief description of psychological tendencies.
+
+---
+
+# Questions and Answers:
+
+Now, as promised, I will ask and answer a few general questions.
+
+My first is a compound question: Isn't this list of psychological tendencies tautological to some extent compared to the system of Euclid? That is, aren't there overlaps in the tendencies? And couldn't the system be laid out just as plausibly in a somewhat different way? The answers are yes, yes, and yes, but this matters only moderately. Further refinement of these tendencies, while desirable, has a limited practical potential because a significant amount of messiness is unfixable in a soft science like psychology.
+
+My second question is: Can you supply a real world model, instead of a Milgram-type controlled psychology experiment, that uses your system to illustrate multiple psychological tendencies interacting in a plausibly diagnosable way? The answer is yes. One of my favorite cases involves the McDonnell Douglas airliner evacuation test. Before a new airliner can be sold, the government
+
+---
+
+requires that it pass an evacuation test, during which a full load of passengers must get out in some short period of time. The government directs that the test be realistic. So you can't pass by evacuating only twenty-year-old athletes. So McDonnell Douglas scheduled such a test in a darkened hangar using a lot of old people as evacuees. The passenger cabin was, say, twenty feet above the concrete floor of the hangar and was to be evacuated through moderately flimsy rubber chutes. The first test was made in the morning. There were about twenty very serious injuries, and the evacuation took so long it flunked the time test. So what did McDonnell Douglas next do? It repeated the test in the afternoon, and this time there was another failure, with about twenty more serious injuries, including one case of permanent paralysis.
+
+What psychological tendencies contributed to this terrible result? Well, using my tendency list as a checklist, I come up with the following explanation. Reward-Super Response Tendency drove McDonnell Douglas to act fast. It couldn't sell its airliner until it passed the test. Also pushing the company was Doubt-Avoidance Tendency with its natural drive to arrive at a decision and run with it. Then the government's direction that the test be realistic drove Authority-Mis Influence.
+
+---
+
+Tendency into the mischief of causing McDonnell Douglas to overreact by using what was obviously too dangerous a test method. By now the course of action had been decided, so Inconsistency Avoidance Tendency helped preserve the near idiotic plan. When all the old people got to the dark hangar, with its high airline cabin and concrete floor, the situation must have made McDonnell Douglas employees very queasy, but they saw other employees and supervisors not objecting. Social Proof Tendency, therefore, swamped the queasiness. And this allowed continued action as planned, a continuation that was aided by more Authority Misinfluence Tendency. Then came the disaster of the morning test with its failure, plus serious injuries. McDonnell Douglas ignored the strong disconfirming evidence from the failure of the first test because confirmation bias, aided by the triggering of strong Deprival-Super Reaction Tendency, favored maintaining the original plan. McDonnell Douglas' Deprival-Super Reaction Tendency was now like that which causes a gambler, bent on getting even after a huge loss, to make his final big bet. After all, McDonnell Douglas was going to lose a lot if it didn't pass its test as scheduled.
+
+More psychology-based explanation can probably
+
+---
+
+be made, but the foregoing discussion is complete enough to demonstrate the utility of my system when used in a checklist mode.
+
+My third question is also compound: In the practical world, what good is the thought system laid out in this list of tendencies? Isn't practical benefit prevented because these psychological tendencies are so thoroughly programmed into the human mind by broad evolution [the combination of genetic and cultural evolution] that we can't get rid of them? Well, the answer is that the tendencies are probably much more good than bad. Otherwise, they wouldn't be there, working pretty well for man, given his condition and his limited brain capacity. So the tendencies can't be simply washed out automatically, and shouldn't be. Nevertheless, the psychological thought system described, when properly understood and used, enables the spread of wisdom and good conduct and facilitates the avoidance of disaster. Tendency is not always destiny, and knowing the tendencies and their antidotes can often help prevent trouble that would otherwise occur. Here is a short list of examples reminding us of the great utility of elementary psychological knowledge:
+
+---
+
+# One: Carl Braun's communication practices.
+
+# Two: The use of simulators in pilot training.
+
+# Three: The system of Alcoholics Anonymous.
+
+# Four: Clinical training methods in medical schools.
+
+# Five: The rules of the U.S. Constitutional Convention: totally secret meetings, no recorded vote by name until the final vote, votes reversible at any time before the end of the convention, then just one vote on the whole Constitution. These are very clever psychology-respecting rules. If the founders had used a different procedure, many people would have been pushed by various psychological tendencies into inconsistent, hardened positions. The elite founders got our Constitution through by a whisker only because they were psychologically acute.
+
+# Six: The use of Granny's incentive-driven rule to manipulate oneself toward better performance of one's duties.
+
+# Seven: The Harvard Business School's
+
+---
+
+emphasis on decision trees. When I was young and foolish I used to laugh at the Harvard Business School. I said, "They're teaching twenty-eight year-old people that high school algebra works in real life" But later, I wised up and realized that it was very important that they do that to counter some bad effects from psychological tendencies. Better late than never.
+
+# Eight:
+
+The use of autopsy equivalents at Johnson & Johnson. At most corporations, if you make an acquisition and it turns out to be a disaster, all the people, paperwork, and presentations that caused the foolish acquisition are quickly forgotten. Nobody wants to be associated with the poor outcome by mentioning it. But at Johnson & Johnson, the rules make everybody revisit old acquisitions, comparing predictions with outcomes. That is a very smart thing to do.
+
+# Nine:
+
+The great example of Charles Darwin as he avoided confirmation bias, which has morphed into the extreme anti-confirmation-bias method of the "double blind" studies wisely required in drug research by the FDA.
+
+# Ten:
+
+The Warren Buffett rule for open-outcry auctions: Don't go.
+
+My fourth question is; What special knowledge
+
+---
+
+problems lie buried in the thought system demon started by your list? Well, one answer is paradox. In social psychology, the more people learn about the system the less it is true, and this is what gives the system its great value as a preventer of bad outcomes and a driver of good outcomes. This result is paradoxical, and doesn't remind one of elementary physics, but so what. One can't get all the paradox out of pure math, so why should psychology be shocked by some paradox?
+
+There is also some paradox in cognition change that works even when the manipulated person knows he is being manipulated. This creates a sort of paradox in a paradox, but, again, so what. I once much enjoyed an occasion of this sort. I drew this beautiful woman as my dinner partner many years ago. I'd never seen her before. She was married to a prominent Los Angeles man. She sat down next to me, turned her beautiful face up, and said, "Charlie, what one word accounts for your remarkable success in life?" I knew I was being manipulated by a practiced routine, and I just loved it. I never see this woman without a little lift in my spirits. And, by the way, I told her I was rational. You'll have to judge yourself whether that's true.
+
+---
+
+may be demonstrating some psychological tendency I hadn't planned on demonstrating.
+
+# 5. Don't we need more reconciliation of psychology and economics?
+
+My answer is yes, and I suspect that some slight progress is being made. I have heard of one such example. Colin Camerer of Caltech, who works in "experimental economics," devised an interesting experiment in which he caused high I.Q. students, playing for real money, to pay price A+B for a "security" they knew would turn into A dollars at the end of the day. This foolish action occurred because the students were allowed to trade with each other in a liquid market for the security. And some students then paid price A+B because they hoped to unload on other students at a higher price before the day was over. What I will now confidently predict is that, despite Camerer's experimental outcome, most economics and corporate finance professors who still believe in the "hard-form efficient market hypothesis" will retain their original belief. If so, this will be one more indication of how irrational smart people can be when influenced by psychological tendencies.
+
+# 6. Don't moral and prudential problems come with knowledge of these
+
+---
+
+psychological tendencies? The answer is yes.
+
+For instance, psychological knowledge improves persuasive power and, like other power, it can be used for good or ill. Captain Cook once played a psychology-based trick on his seamen to cause them to eat sauerkraut and avoid scurvy. In my opinion, this action was both ethical and wise under the circumstances, despite the deliberate manipulation involved. But ordinarily, when you try to use your knowledge of psychological tendencies in the artful manipulation of someone whose trust you need, you will be making both a moral and prudential error.
+
+The moral error is obvious. The prudential error comes because many intelligent people, targeted for conscious manipulation, are likely to figure out what you are trying to do and resent your action.
+
+My final question is: Aren't there factual and reasoning errors in this talk? The answer is yes, almost surely yes. The final revision was made from memory over about fifty hours by a man eighty-one years old, who never took a course in psychology and has read none of it, except one book on developmental psychology, for nearly fifteen years. Even so, I think the totality of my talk will stand up very well, and I hope all my descendants and friends will.
+
+---
+
+carefully consider what I have said. I even hope that more psychology professors will join me in:
+
+1. making heavy use of inversion;
+2. driving for a complete description of the psychological system so that it works better as a checklist;
+3. especially emphasizing effects from combinations of psychological tendencies.
+
+Well that ends my talk. If in considering what I have said you had ten percent the fun I had saying it you were lucky recipients.
+
+# Talk Eleven Revisited
+
+In this talk, made in 2000, I gave favorable mention to Judith Rich Harris strong-selling book *The Nurture Assumption*. You will recall that this work demonstrated that peer pressure on the young is far more important, and parental nurture is much less important, than had been commonly recognized. The success of the book, with its vast practical implications, has an interesting story behind it: Long before the book was published, Ms. Harris, now 67, was kicked out of Harvard's PhD. program in psychology because Harvard believed that she lacked qualities ideal in psychological research. Then, later, out of illness and obscurity, as she was pretty much housebound throughout adult life by unfixable autoimmune.
+
+---
+
+disease, she published an academic paper on which her subsequent book was based.
+
+And for that paper she won a prestigious medal, named after the man who signed her dismissal notice from Harvard, awarded annually by the American Psychological Association for distinction in published writing.
+
+When I learned from her impressive book that this ironic result had occurred, I wrote to Harvard, my alma mater, urging it to award Ms. Harris, whom I did not know, an honorary PhD., or, better yet, a real Ph. D. I cited the example of Oxford. That great university once allowed its best student, Samuel Johnson, to leave without a degree because he was too poor to continue paying tuition. But Oxford later made gracious amends. It gave Johnson a doctorate after he conquered sickness and became famous in a tough climb once described in his own words: "Slow rises worth, by poverty oppressed." I failed utterly in my effort to convince Harvard to imitate Oxford in this way. But Harvard did later recruit from MIT one of the most famous living psychology professors, Steven Pinker, and Pinker is a big admirer of Ms. Harris. From this step, we can see one reason why its liberal arts division is more highly regarded than most others. The division's extreme depth often allows partial correction of bonehead errors that would flourish unopposed elsewhere.
+
+# Judith Rich Harris (b. 1938)
+
+---
+
+Judith Rich Harris is an independent investigator and author. Her significant professional accomplishments include a mathematical model of visual speech, textbooks in developmental psychology, and many influential professional articles. She is best known for *The Nurture Assumption (1998) and No Two Alike* (2000). Ms. Harris lives with her husband in New Jersey.
+
+In 2006, Ms. Harris, struggling further through her unfixable illness, published another book, *No Two Alike*. The title is apt because one central question the author assaults is why identical twins turn out to be so different in important aspects of personality. Her dogged curiosity and rigor in dealing with this question remind me of both Darwin and Sherlock Holmes, and her solution is very plausible as she collects and explains data from professional literature, including an interesting case where one of two identical twins became a success in business and family life while the other twin went to Skid Row.
+
+I won't disclose Ms. Harris's generalised answer to her central question because it would be better for readers to first guess the answer and then read her book. If Ms. Harris is roughly right, which seems very likely to me, she'll have produced academic insights of great practical importance in child rearing, education, and much else from a very handicapped position.
+
+How could this rare and desirable result happen? Well, by Ms. Harris's own account, she was impertinent and skeptical even as a child. And these qualities, along with patient, determined skill, have obviously served her truth-seeking well, all the way through to age 67. No doubt she was also assisted by her enthusiasm in destroying her own ideas, as she now demonstrates by apologizing for her former work as a textbook writer who repeated wrong notions now outgrown.
+
+---
+
+In this talk I displayed some impertinency of my own by delivering an extreme sounding message it claims nothing less than (1) that academic psychology is hugely important, (2) that even so it is usually ill thought out and ill presented by its PHD denizens and (3) that my way of presenting psychology often has a large superiority in practical utility compared to most textbooks. Naturally I believe these extreme claims are correct after all I assemble the material contained in this talk to help me succeed in practical thinking and not to gain advantage by making public any would be clever notions. If anyone partly right the world will eventually see more Psychology in roughly the form of this talk if so I confidently predict that the change in practice will improve general competency.
+
+# Charlie Munger's Recommended Books
+
+"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time-none, zero. You'd be amazed at how much Warren reads-and at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out."
+
+Deep Simplicity: Bringing Order to Chaos and Complexity John Gribbin, Random House (2005)
+
+---
+
+# F.F.I.A.S.C.O.: The Inside Story of a Wall Street Trader
+
+Frank Partnoy, Penguin Books (1999)
+
+# Ice Age
+
+John & Mary Gribbin, Barnes & Noble (2002)
+
+# How the Scots Invented the Modern World: The True Story of How Western Europe's Poorest Nation Created Our World & Everything in It
+
+Arthur Herman, Three Rivers Press (2002)
+
+# Models of My Life
+
+Herbert A. Simon, The MIT Press (1996)
+
+# A Matter of Degrees: What Temperature Reveals About the Past and Future of Our Species, Planet, and Universe
+
+Gino Segre, Viking Books (2002)
+
+# Andrew Carnegie
+
+Joseph Frazier Wall, Oxford University Press (1970)
+
+# Guns, Germs, and Steel: The Fates of Human Societies
+
+Jared M. Diamond, W. W. Norton & Company
+
+# The Third Chimpanzee: The Evolution and Future of the Human Animal
+
+Jared M. Diamond, Perennial (1992)
+
+# Influence: The Psychology of Persuasion
+
+Robert B. Cialdini, Perennial Currents (1998)
+
+---
+
+# The Autobiography of Benjamin Franklin
+
+Benjamin Franklin, Yale Nota Bene (2003)
+
+# Living Within Limits: Ecology, Economics, and Population Taboos
+
+Garrett Hardin, Oxford University Press (1995)
+
+# The Selfish Gene
+
+Richard Dawkins, Oxford University Press (1990)
+
+# Titan: The Life of John D. Rockefeller Sr.
+
+Ron Chernow, Vintage (2004)
+
+# The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
+
+David S. Landes, W. W Norton & Company (1998)
+
+# The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategist
+
+Robert G. Hagstrom, Wiley (2000)
+
+# Genome: The Autobiography of a Species in 23 Chapters
+
+Matt Ridley, Harper Collins Publishers (2000)
+
+# Getting to Yes: Negotiating Agreement Without Giving In
+
+Roger Fisher, William Ury, and Bruce Patton, Penguin Books
+
+# Three Scientists and Their Gods: Looking for Meaning in an Age of Information
+
+Robert Wright, Harper Collins Publishers (1989)
+
+# Only the Paranoid Survive
+
+Andy Grove, Currency (1996)
+
+---
+
+# And a few from your editor...
+
+# Les Schwab: Pride in Performance
+
+Les Schwab, Pacific Northwest Books (1986)
+
+# Men and Rubber: The Story of Business
+
+Harvey S. Firestone, Kessinger Publishing (2003)
+
+# Men to Match My Mountains: The Opening of the Far West, 1840-1900
+
+Irving Stone, Book Sales (2001)
+
+# One Final
+
+I have Nothing to Add…
+
+# We conclude with this final question:
+
+Question: "In your Harvard speech on 'The Psychology of Human Misjudgment,' you mention the strange case of the Latin American country where some very clever reformers used psychology, not economic remedies, to fix an enormously corrupt market system. Can you tell us what country that was and provide more details?"
+
+Answer: "Oh, yes-I ran across that fascinating story not in an Economics book, but in a Psychology paper. I could dig it out of my files for you, but
+
+---
+
+it's too much effort, so I won't.
+
+Editor's note: Sometimes we remain in the dark.…
+
+# A word to the wise is enough
+
+- Poor Richard
+
+The model for Poor Charlie's Almanack is, of course, Ben Franklin's Poor Richard's Almanac. Franklin, as many know, was a polymath. Born in Boston and a leader of the American Revolution, he was a journalist, publisher, author, philanthropist, abolitionist, public servant, scientist, librarian, diplomat, and inventor. Using the pseudonym of "Poor Richard," Franklin published his Almanach from 1733 to 1758. Its content varied, including not only many Franklin aphorisms that became famous but also calendars, weather forecasts, astronomical information, and astrological data. The Almanac was hugely popular in the American colonies, selling about 10,000 copies per year.
+
+Poor Richard's maxims ranged widely in topic and were typically laced with humor. Some samples include:
+
+- "No nation was ever ruined by trade."
+- "Drive the Business, or it will drive thee."
+- "He that falls in love with himself will have no rivals."
+- "Where there's Marriage without Love, there will be Love without Marriage."
+- "Necessity never made a good bargain."
+- "Three may keep a secret, but two of them are dead."
+- "There is no little enemy."
+
+---
+
+It's difficult for an empty stack to stand upright.
+
+---
+
+# THE GREAT MENTAL MODELS
+# Preface
+
+Education doesn’t prepare you for the real world. At least, it didn’t prepare me. I was two weeks into my job at an intelligence agency on September 11, 2001, when the world suddenly changed. The job I had been hired to do was no longer the one that was needed. Instead, I was thrust into a series of promotions for which I had received no guidance and that came with responsibilities I had no idea how to navigate. I had a computer science degree; I came from a world of 1s and 0s, not people, families, and interpersonal dynamics. Now, I found that my decisions affected not only my employees but their families; not only my country but other countries. The problem? I had no idea how to make decisions. I only knew I had an obligation to make the best decisions I could.
+
+To improve my ability to make decisions, I looked around and found some mentors. I watched them carefully and learned from them. I read everything I could about making decisions. I even took some time to go back to school and earn my MBA, hoping that I would finally learn how to make better decisions, as if “making better decisions” was some end state rather than a constantly evolving journey.
+
+My belief that the MBA program was a good use of my time eroded quickly. When I showed up to write an exam, only to find out it was an open-book test, I realized my expectations were entirely wrong and in need of updating. Was I in a master’s program or grade school? Some days, I couldn’t tell. And yet that program is where everything changed for me. I realized that I couldn’t fail, as long as I knew where the answers were in the books I could bring to the exams. This was quite liberating. I stopped putting effort into my assignments and started learning about someone who was often casually mentioned in class. That person was Charlie Munger. I
+
+---
+
+went from studying theoretical examples that were completely divorced from the real world to studying the wisdom behind the achievements of one of the most successful businessmen of all time. Munger, who you will come to know in these volumes, is the deceased billionaire business partner of Warren Buffett at Berkshire Hathaway. He was easy to like: intelligent, witty, and irreverent. Finding Munger opened the door to unexpected intellectual pleasure. I felt I had finally found knowledge that was useful, because it was gained from someone’s real effort to better understand how the world works. It was so much more satisfying to learn from someone who had tried to put many theories into practice and was willing to share his results than from anemic economic theorists. The fact that Munger was so professionally successful made it even more compelling.
+
+Munger had a way of thinking through problems using what he calls a broad latticework of mental models. These are chunks of knowledge from different disciplines that can be simplified and applied to better understand the world. The way Munger described it, these mental models help identify what information is relevant in any given situation and the most reasonable parameters to work within. His track record in business shows that this doesn’t just make sense in theory but is devastatingly useful in practice.
+
+I started writing about my learnings, the result being my website, Farnam Street (https://fs.blog). The past eight years of my life have been devoted to identifying and learning the mental models that have the greatest positive impact, and trying to understand how we think, how we update, how we learn, and how we can make better decisions.
+
+I joke with my kids that if you want to suck up someone’s brain, you should simply read a book. All the great wisdom of humanity is written down somewhere. One day, when we were talking about mental models, the kids asked if we had the mental models book. This made me pause. I was struck with the realization that such a book didn’t exist. I didn’t have something I could share with my kids, and that was a problem—a solvable problem.
+
+This book, and the three further volumes that follow, are the books I wish had existed years ago, when I started learning about mental models.
+
+---
+
+They are my homage to the idea that we can benefit from understanding how the world works and apply that understanding to keep us out of trouble.
+
+The ideas in these volumes are not my own, nor do I deserve any credit for them. They come from the likes of Charlie Munger, Nassim Nicholas Taleb, Charles Darwin, Peter D. Kaufman, Peter Bevelin, Richard Feynman, Albert Einstein, and so many others. As the Roman poet Terence wrote: “Nothing has yet been said that’s not been said before.” We’ve only curated, edited, and shaped the work of others before me.
+
+The timeless, broad ideas in these volumes are for my children, and their children, and their children’s children. In creating these books, I hope to enable others to approach problems with clarity and confidence, helping to make their journey through life more successful and rewarding.
+
+OceanofPDF.com
+
+---
+
+# Introduction: Acquiring Wisdom
+
+---
+
+You’re only as good as your tools.
+
+OceanofPDF.com
+
+---
+
+It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
+
+—CHARLIE MUNGER
+
+---
+
+In life and business, the person with the fewest blind spots wins. Blind spots are the source of all poor decisions. Think about it: If you had perfect information, you would always make the best decision. In a poker game where you could see everyone’s cards, you’d play your hand perfectly. You wouldn’t make any mistakes.
+
+Unfortunately, we have a lot of blind spots. And while we can’t eliminate them, we can reduce them. Reducing blind spots means we see, interact with, and move closer to understanding reality. We think better. And thinking better is about finding simple processes that help us work through problems from multiple dimensions and perspectives, allowing us to better choose solutions that fit the objective. The skill behind finding the right solutions for the right problems is one form of wisdom.
+
+This book is about the pursuit of that type of wisdom—the pursuit of uncovering how things work, the pursuit of going to bed smarter than when we woke up. It is a book about getting out of our own way so we can better understand how the world really is. Decisions based on improved understanding will be better than ones based on ignorance. While, inevitably, we can’t predict which problems will crop up in life, we can learn time-tested ideas that help position us for whatever the world throws at us.
+
+Perhaps more importantly, this book is about avoiding problems. This often comes down to understanding a problem accurately and seeing the secondary and subsequent consequences of any proposed action. The author and explorer of mental models Peter Bevelin put it best: “I don’t want to be a great problem solver. I want to avoid problems—prevent them from happening and do it right from the beginning.”1
+
+# How can we do things right from the beginning?
+
+---
+
+We must understand how the world works and adjust our behavior accordingly. Contrary to what we’re led to believe, thinking better isn’t about being a genius. It is about the processes we use to uncover reality and the choices we make once we do.
+
+---
+
+# How This Book Can Help You
+
+This is the first of four volumes aimed at defining and exploring the Great Mental Models—those with the broadest utility across our lives.
+
+Mental models describe the way the world works. They shape how we think, how we understand, and how we form beliefs. Largely subconscious, mental models operate below the surface. We’re not generally aware of them, and yet when we look at a problem, they’re the reason we consider some factors relevant and others irrelevant. They are how we infer causality, match patterns, and draw analogies. They are how we think and reason.
+
+A mental model is a compression of how something works. Any idea, belief, or concept can be distilled down. Like maps, mental models reveal key information while ignoring the nonessential. For example, you likely have a useful idea about how inertia works, even though you don’t know all the technical details.
+
+Mental models help us better understand the world. While this might sound a bit academic, it’s not. For example, velocity helps us understand that both speed and direction matter. Reciprocity helps us understand how going positive and going first gets the world to do most of the work for us. The idea of a margin of safety helps us understand that things don’t always go as planned. Relativity shows us how a different perspective changes everything. The list goes on.
+
+It doesn’t matter what the model is or where it comes from—the question to ask yourself is whether it is useful. The world is not divided into distinct disciplines. For example, business professors won’t discuss physics in their lectures, but they should. Velocity teaches us that going in the right direction matters more than how fast you go. Kinetic energy teaches us that your company’s velocity matters more than its size when creating an impact in the market. Understanding and applying these insights helps you outperform your competition.
+
+---
+
+While it helps to think of each model as a map, collectively they act as lenses through which you can see the world. Each lens (model) offers a different perspective, revealing new information. Looking through one lens lets you see one thing, and looking through another reveals something different. Looking through them both reveals more than looking through each one individually.
+
+Whether we realize it or not, mental models help us think at the subconscious level. They shape what we see, what we choose to ignore, and what we miss entirely. While there are millions of mental models, these volumes focus on the ones with the greatest utility—the all-star team of mental models.
+
+Volume 1 presents the first nine models, which are general thinking concepts. Although these models are hiding in plain sight, they are useful tools that you likely were never directly taught. Put to proper use, they will improve your understanding of the world we live in and your ability to look at a situation through different lenses, each of which reveals a different layer. They can be used in a wide variety of situations and are essential to making rational decisions, even when there is no clear path. Collectively, they will allow you to walk around any problem in a three-dimensional way.
+
+Our approach to the Great Mental Models rests on the idea that the fundamentals of knowledge are available to everyone. There is no discipline that is off-limits—the core ideas from all fields of study contain principles that reveal how the universe works and are therefore essential to navigating it. Our models come from fundamental disciplines that most of us have never studied, but no prior knowledge is required, only a sharp mind with a desire to learn.
+
+# Why Mental Models?
+
+There is no system that can prepare us for all risks. Factors of chance introduce a level of complexity to any situation that is not entirely
+
+---
+
+Predictable. But being able to draw on a repertoire of timeless mental models can help us minimize risk by better understanding the forces that are at play. Likely consequences don’t have to be a mystery.
+
+Not having the ability to shift perspective by applying knowledge from multiple disciplines makes us vulnerable. Mistakes can become catastrophes whose effects keep compounding, creating stress and limiting our choices. Multidisciplinary thinking—learning these mental models and applying them across our lives—creates less stress and more freedom. The more we can draw on the diverse knowledge contained in these models, the more solutions will present themselves.
+
+# Understanding Reality
+
+“Understanding reality” is a vague phrase, one you’ve already encountered a few times as you’ve read this book. Of course, we want to understand reality, but how do we do that? And why is it important?
+
+In order to see a problem for what it is, we must first break it down into its substantive parts, so the interconnections can reveal themselves. This bottom-up perspective allows us to expose what we believe to be the causal relationships within the problem and determine how they will govern the situation both now and in the future. Being able to accurately describe the full scope of a situation is the first step to understanding it.
+
+Using the lenses of our mental models helps us illuminate these interconnections. The more lenses used on a given problem, the more reality reveals itself. The more of reality we see, the fewer blind spots we have. The fewer blind spots we have, the better the options at our disposal.
+
+Simple and well-defined problems won’t need many lenses, as the variables that matter are known; so too are the interactions between them. In such cases, we generally know what to do to get the intended result with the fewest side effects possible. When problems are more complicated, however, the value of having a brain full of lenses becomes readily apparent.
+
+---
+
+That’s not to say all lenses (or models) apply to all problems. They don’t. And it’s not to say that having more lenses (or models) will be an advantage in thinking through all problems; it won’t. This is why learning and applying the Great Mental Models is a process that takes some work. But the truth is, most problems are multidimensional, and thus having more lenses often offers significant help with the problems we are facing.
+
+# Keeping Your Feet on the Ground
+
+In Greek mythology, Antaeus was the human-giant son of Poseidon, god of the sea, and Gaia, Mother Earth. Antaeus had a strange habit: he would challenge all those who passed through his country to a wrestling match. As in wrestling today, the goal was to force the opponent to the ground. Antaeus always won, and his defeated opponents’ skulls were used to build a temple to his father. While Antaeus was undefeated and nearly undefeatable, there was a catch to his invulnerability. His epic strength depended on constant contact with the earth; when he lost touch with the earth, he lost all his strength. The great hero lost to Heracles, who simply lifted him off the ground.
+
+On the way to the Garden of the Hesperides, Heracles was to fight Antaeus as one of his twelve labors. After a few rounds in which Heracles flung the giant to the ground, only to watch him revive, he realized he could not win by using traditional wrestling techniques. Instead, Heracles fought to lift Antaeus off the ground. With the earthly connection broken, Antaeus was separated from the source of his power, causing him to lose his strength. From that point on, it was easy for Heracles to crush him.2,3
+
+When understanding is separated from reality, we lose our powers to make better decisions. Understanding must constantly be tested against reality and updated accordingly. This isn’t a box we can tick, a task with a definite beginning and end, but rather a continuous process.
+
+We all know the person who seems to have all the answers. They know how to fix all the problems at work, solve world hunger, and get in shape (if
+
+---
+
+only they wanted to). If you don’t test your ideas against the real world—if you don’t keep contact with the earth—how can you be sure you understand it? While pontificating with friends over a bottle of wine at dinner can be fun, the only way you’ll know the extent to which you understand reality is to put your ideas into action.
+
+# Getting in Our Own Way
+
+The biggest barrier to learning from the world is ourselves. It’s hard to understand a system that we are part of because we have blind spots, where we can’t see what we aren’t looking for and don’t notice what we don’t notice.
+
+There are these two young fish swimming along, and they happen to meet an older fish, swimming the other way, who nods at them and says, “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”
+
+—DAVID FOSTER WALLACE
+
+Our failures to update our mental models as we interact with the world spring primarily from three factors: not having the right perspective or vantage point, ego-induced denial, and distance from the consequences of our decisions. As we will learn in greater detail throughout these volumes on mental models, all of these can get in the way. They make it easier to keep our existing and flawed beliefs than to update them accordingly. Let’s briefly flesh out these flaws:
+
+The first flaw is failure of perspective. We have a hard time seeing any system that we are a part of. We think our angle of perception is the right one and the only one.
+
+---
+
+Galileo had a great analogy to describe the limits of our default perspective: Imagine you are on a ship that has reached constant velocity (meaning there is no change in speed or direction). You are belowdecks, and there are no portholes. You drop a ball from your raised hand to the floor. To you, it looks as if the ball is dropping straight down, thereby confirming gravity is at work.
+
+Now imagine you are a fish (with special X-ray vision) and you are watching this ship go past. You see the scientist inside, dropping a ball. You register the vertical change in the position of the ball. But you are also able to see a horizontal change. As the ball was pulled down by gravity, it also shifted its position eastward by about twenty feet. The ship moved through the water, and therefore so did the ball. The scientist onboard, with no external point of reference, was not able to perceive this horizontal shift.
+
+This analogy shows us the limits of our perception. If we truly want to understand the results of our actions, we must be open to other perspectives. Allowing for other perspectives is also key to having productive relationships with others.
+
+The second flaw is ego—the part of us that’s afraid and always in competition. The ego is easily triggered and never feels satiated. Many of us tend to have too much invested in our opinion of ourselves to see the
+
+---
+
+world’s feedback—the feedback we need to update our beliefs about reality. This creates a profound ignorance that keeps us repeatedly banging our heads against the wall. Our inability to learn from the world because of our ego arises for many reasons, but two are worth mentioning here. First, we’re often so afraid of what others will say about us that we fail to put our ideas out there and subject them to criticism; this way, we can always be right. Second, if we do put our ideas out there, and they’re criticized, our ego steps in to protect us—we become invested in defending, instead of upgrading, our ideas. This is antithetical to growth.
+
+The third flaw is distance. The further we are from the results of our decisions, the easier it is to maintain our current views rather than update them. When you put your hand on a hot stove, you quickly learn the natural consequence of doing so. You pay the price for your mistake. Since you are a pain-avoiding creature, you instantly update your knowledge. Before you touch another stove, you check to see if it’s hot. But you don’t just learn a micro lesson that applies in one situation. Instead, you draw a generalization, one that tells you to check before touching anything that could potentially be hot.
+
+Large organizations often remove us from the direct consequences of our decisions. When we make decisions that other people carry out, we are one or more levels removed from their consequences and may not immediately be able to update our understanding—we come a little off the ground, if you will. The further we are from the feedback on our decisions, the easier it is to convince ourselves that we are right and avoid the challenge, the pain, of updating our views.
+
+Admitting we’re wrong is tough. At a high level, it’s easier to fool ourselves that we’re right than it is at the micro level, because at the micro level we see and feel the immediate consequences. At a high or macro level, we are removed from the immediacy of the situation, and our ego steps in to create a narrative that suits what we want to believe, instead of what has really happened.
+
+These flaws are the main reasons we keep repeating the same mistakes, and why we need to keep our feet on the ground as much as we can. As
+
+---
+
+Confucius reportedly said, “A man who has committed a mistake and doesn’t correct it, is committing another mistake.”
+
+Most of the time, we don’t even perceive whatever conflicts with our beliefs. It’s much easier to go on thinking what we’ve already been thinking than go through the pain of updating our existing false beliefs. When it comes to seeing what is—that is, understanding reality—we can follow Charles Darwin’s advice to notice things “which easily escape attention” and ask why things happened.5
+
+We also tend to undervalue elementary ideas and overvalue complicated ones. This makes sense: Most of us get jobs based on some form of specialized knowledge. We don’t think we have much value if we know the things everyone else does, so we focus our effort on developing unique expertise to set ourselves apart. In an effort to ensure that our contributions are unique, we often end up rejecting simple solutions and focusing instead on complexity. But simple ideas are of great value because they can help us prevent complex problems.
+
+In identifying the Great Mental Models, we have looked for elementary principles, the ideas from multiple disciplines that form a timeless foundation for thought. It may seem bold to suggest that the same principles can improve everyone’s life, but the universe works in the same way no matter where you are in it. This is part of what makes the Great Mental Models so valuable—by understanding the principles, you can easily change tactics and apply the ones you need for your particular circumstances.
+
+Most geniuses—especially those who lead others—prosper not by deconstructing intricate complexities but by exploiting unrecognized simplicities.
+
+—ANDY BENOIT6
+
+---
+
+These elementary ideas, so often overlooked, come from multiple disciplines including biology, physics, chemistry, and more. They help us understand the interconnections of the world and see it for how it really is. This understanding in turn allows us to develop causal relationships, which allow us to match patterns, which allow us to draw analogies—all of this so we can navigate reality with clarity on the real dynamics involved.
+
+# Understanding Is Not Enough
+
+Understanding reality is not everything. The pursuit of understanding fuels meaning and adaptation, but this understanding by itself is not enough. Understanding becomes useful only when we adjust our behavior and actions accordingly. The Great Mental Models are not just theory; they are actionable insights that can be used to create positive change in your life. What good is it to know that you constantly interrupt people, if you fail to adjust your behavior in light of this understanding? Granted, recognizing a mistake is easier than changing our behavior, since behavior patterns tend to be ingrained. It takes effort to change behavior, but your effort will be well spent. Don’t give up; change requires consistency. If you stick with it, you’ll see the fruits of your new understanding and its many downstream effects in real life.
+
+# Understand and Adapt or Fail
+
+Now you can see how we make suboptimal decisions and repeat mistakes: We are afraid to learn and to admit when we don’t know enough. This is the mindset that leads to poor initial decisions. These poor decisions are a source of stress and anxiety and consume massive amounts of time. Not when we’re making them—no, when we’re making them, they seem natural, because they align with how we want things to work.
+
+We get tripped up when the world doesn’t work the way we want it to or when we fail to see what is. We end up negotiating with reality, in a fight
+
+---
+
+we are sure to lose; we think the world should work the way we want it to rather than the way it does. Instead of updating our views, we double down on our effort, accelerating our frustration and anxiety. It’s only weeks or months later, when we’re spending massive amounts of time fixing our mistakes, that we truly feel their weight. Then we wonder why we have no time for family and friends and why we’re so consumed by things outside of our control.
+
+It’s easy to convince ourselves that these results stem from circumstances outside of our control. Even if that is partially true, it is not helpful. Passivity means that we rarely reflect on our previous decisions and attitudes and their outcomes. Without reflection, we cannot learn.7 Without learning, we are doomed to repeat mistakes, become frustrated when the world doesn’t work the way we want it to, and wonder why we are falling further behind. The cycle goes on.
+
+Like it or not, we are not passive participants in our decision making. The world does not act on us as much as it reveals itself to us and we respond to it. We need to pay close attention to what’s happening. Ego gets in the way of this attention, locking reality behind a door that it controls with a gating mechanism. Only through persistence in the face of having the door slammed on us over and over can we begin to see the light on the other side.
+
+Ego usually works against us. It’s that part of the mind that’s always comparing and finding lack, fear, and unfairness. Things are never good enough for the ego. It always wants more—more money, more attention, more recognition. And sometimes it leads us to do reckless things to prove we are more. But whether ego is good or bad for you depends on the dose. In small amounts, ego is our friend.
+
+If we had a perfect view of the world and made decisions rationally, we would never attempt to do the amazing things that make us human. Ego propels us. Why, without ego, would we even attempt to travel to Mars? After all, it’s never been done before. We’d never start a business, because most of them fail. We need to learn to understand when ego serves us and when it hinders us. When we strive more toward outcomes rather than
+
+---
+
+personal status—especially if those outcomes benefit more people than ourselves—that’s a good use of ego.
+
+Ego can be blinding when we optimize for short-term status protection over long-term happiness. This is the difference between being right and being effective. As we mature, our understanding of things turns from black-and-white to shades of gray. The world is smarter than we are and it will teach us all we need to know if we’re open to its feedback—if we keep our feet on the ground.
+
+# Mental Models and How to Use Them
+
+Perhaps an example will help illustrate the mental models approach. Think of gravity, something we learned about as kids and perhaps studied more formally in college as adults. We each have a mental model about gravity, whether we know it or not. That model helps us understand how gravity works. We don’t know all the details, but we know the basics.
+
+Our model of gravity plays a fundamental role in our lives. It explains the movement of Earth around the sun. It informs the design of bridges and airplanes. It’s one of the models we use to evaluate the safety of leaning on a guardrail or repairing a roof. But we also apply our understanding of gravity in other, less obvious ways. We use the model as a metaphor to explain the influence of strong personalities, as when we say, “He was pulled into her orbit.” This is a reference to our basic understanding of the role of mass in gravity—the more there is, the stronger its pull. It also informs some classic sales techniques: Gravity diminishes with distance, and so too does your propensity to make an impulse purchase. Good salespeople know that the more distance you get, in time or geography, between yourself and the object of your desire, the less likely you are to buy it. Salespeople try to keep the pressure on, to get you to buy right away, before you can change your mind.
+
+Gravity has been around since before humans, so we can consider it to be time-tested, reliable, and representative of reality. Our understanding of
+
+---
+
+gravity—in other words, our mental model—lets us anticipate what will happen and helps us explain what has happened. We don’t need to be able to describe the physics in detail for the model to be useful.
+
+However, not every model is as reliable as gravity, and all models are flawed in some way. Some are reliable in some situations but useless in others. Some are too limited in their scope to be of much use. Others are unreliable because they haven’t been tested and challenged; yet others are just plain wrong. In every situation, we need to figure out which models are reliable and useful. We must also discard or update the unreliable ones, because unreliable or flawed models come with a cost.
+
+For a long time, people believed that bloodletting cured many different illnesses. This mistaken belief led doctors to contribute to the deaths of many of their patients. When we use flawed models, we are more likely to misunderstand the situation, the variables that matter, and the cause-and-effect relationships between those variables. Because of such misunderstandings, we often take suboptimal actions, like draining so much blood out of patients that they die of it.
+
+Better models mean better thinking. The more accurately our models explain reality, the more they improve our thinking. Understanding reality is the name of the game. Understanding not only helps us decide which actions to take but helps us avoid actions that have a big downside that we otherwise would not be aware of. When we understand, not only do we see the immediate problem with more accuracy, we can also begin to see the second-, third-, and higher-order consequences of various choices. This understanding helps us eliminate avoidable errors. Sometimes, making good decisions boils down to avoiding bad ones.
+
+Flawed beliefs, regardless of the intentions behind them, cause harm when they are put into action. When it comes to applying mental models, we tend to run into trouble either when our model of reality is wrong—that is, it doesn’t survive real-world experience—or when our model is right, but we apply it to a situation where it doesn’t belong.
+
+Models that don’t hold up to reality cause mistakes. The model of bloodletting caused unnecessary deaths because it weakened patients when
+
+---
+
+they needed all their strength to fight their illnesses. It hung around for such a long time because it was part of a package of flawed models, such as ones explaining the causes of sickness and how the human body worked, that made it difficult to determine exactly where the bloodletting model didn’t fit with reality.
+
+We compound the problem of flawed models when we fail to update our models after evidence indicates they are wrong. Only by repeatedly testing our models against reality and being open to feedback can we update our understanding of the world and change our thinking. We need to look at the results of applying a model over the largest sample size of problems possible to be able to refine it so that it aligns with how the world actually works.
+
+---
+
+# What Can the Three Buckets of Knowledge Teach Us About History?
+
+“Every statistician knows that a large, relevant sample size is their best friend. What are the three largest, most relevant sample sizes for identifying universal principles? Bucket number one is inorganic systems, which are 13.7 billion years in size. It’s all the laws of math and physics, the entire physical universe. Bucket number two is organic systems, 3.5 billion years of biology on Earth. And bucket number three is human history, you can pick your own number, I picked 20,000 years of recorded human behavior. Those are the three largest sample sizes we can access and the most relevant.”
+
+---
+
+# Inorganic system
+
+# Organic system
+
+# Record of human behavior
+
+The larger and more relevant the sample size of data, the more reliable the model that’s based on it. But the key to sample sizes is to look for them not just over space but over time. You need to reach back into the past as far as you can to contribute to your sample. We have a tendency to think that how the world is now is how it always was, and so we get caught up in validating our assumptions from what we find in the here and now. But the continents used to be pushed up against each other, dinosaurs walked the planet for millions of years, and we are not the only hominid to evolve. Looking to the past can provide essential context for understanding where we are now.
+
+---
+
+# The Power of Acquiring New Models
+
+The quality of our thinking depends to a large extent on the mental models in our head. While we want useful models, we also want a wide variety of models to help us uncover what’s really happening. Most of us study something specific and don’t get exposure to the big ideas of other disciplines; we don’t develop the multidisciplinary mindset that we need to accurately see a problem. And because we don’t have the right models to understand the situation, we overuse the models we do have, applying them even where they don’t belong.
+
+You’ve likely experienced this firsthand: An engineer will often think in terms of systems by default. A psychologist will think in terms of incentives. A businessperson might think in terms of opportunity cost and risk-reward calculation. Through their respective lenses, each person sees part of the situation, the part of the world that makes sense to them. None of them, however, sees the entire situation unless they are thinking in a multidisciplinary way. In short, they have blind spots—big ones. And they’re not aware of their blind spots. There is an adage that encapsulates this idea: “To the man with only a hammer, everything starts looking like a nail.” Not every problem is a nail. The world is full of complications and interconnections that can only be explained through understanding multiple models.
+
+Removing blind spots means thinking through the problem using different lenses or models. When we do this, our blind spots slowly go away, and we gain a more complete understanding of the problem.
+
+Consider the parable of the blind men encountering an elephant for the first time, trying to understand it by touch. The first person, whose hand touches the trunk, says, “This creature is like a thick snake.” For the second person, whose hand finds an ear, the elephant seems like a type of fan. The third person, whose hand is on a leg, says the elephant is a pillar, like a tree trunk. The fourth blind man, who places his hand on the creature’s side,
+
+---
+
+says, “An elephant is a wall.” The fifth, who feels its tail, describes it as a rope. The last blind man touches a tusk and states that the elephant is something that is hard and smooth, like a spear. They are all right—yet they are also all wrong.
+
+Tree?
+
+Fan?
+
+Snake?
+
+Rope?
+
+Spear?
+
+Wall?
+
+We’re much like the blind men in the classic parable, going through life trying to explain everything through our one limited lens of perspective. Too often that lens is driven by our particular field of expertise, be it economics, engineering, physics, mathematics, biology, chemistry, or something else entirely. Each of these disciplines holds some truth, and yet none of them contains the whole truth.
+
+Here’s another way to look at it: Think of a forest. When a botanist looks at a forest, they focus on the ecosystem. An environmentalist sees the impact of climate change, a forest engineer the state of the trees’ growth, a businessperson the commercial value of the land. None is wrong, but neither is any of them able to describe the full scope of the forest. Sharing
+
+---
+
+knowledge, or learning the basics of other disciplines, would lead them to a more well-rounded understanding that would allow for better decisions about managing the forest.
+
+A lot of people start out with 400-horsepower motors but only get a hundred horsepower of output. It’s way better to have a 200-horsepower motor and get it all into output.
+
+—WARREN BUFFETT9
+
+Relying on only a few models is like having a four-hundred-horsepower brain that’s generating only fifty horsepower of output. To increase your mental efficiency and reach your four-hundred-horsepower potential, you need to use Charlie Munger’s latticework of mental models. Exactly the same sort of pattern that graces backyards everywhere, a lattice is a series of points that connect to and reinforce each other. The Great Mental Models can be understood in the same way—models influence and interact with each other to create a structure that can be used to evaluate and understand ideas.
+
+In a famous speech he gave in the 1990s, Munger summed up his approach to practical wisdom: “Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience—both vicarious and direct—on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”10
+
+---
+
+The chief enemy of good decisions is a lack of sufficient perspectives on a problem.
+
+—ALAIN DE BOTTON
+
+# Expanding Your Latticework of Mental Models
+
+A latticework is an excellent way to conceptualize mental models because it demonstrates the reality and value of interconnecting knowledge. The world does not isolate itself into discrete disciplines. We break it down that way.
+
+---
+
+only because it makes it easier to study it. Once we learn something, we need to put it back into the complex system in which it occurs. We need to see where it connects to other bits of knowledge, to build our understanding of the whole. This is the value of putting the knowledge contained in mental models into a latticework.
+
+Our latticework reduces the blind spots that limit our view of not only the immediate problem but also the second- and subsequent-order effects of our potential solutions. Without a latticework of the Great Mental Models, our decisions become harder, slower, and less creative. By using a mental models approach, by being curious about how the rest of the world works, we can complement our specializations. A quick glance at the lists of Nobel Prize winners shows that many of them, obviously extreme specialists in something, had multidisciplinary interests that supported their achievements.
+
+To help you build your own latticework of mental models, this book, and the volumes that follow, will attempt to arm you with the big models from multiple disciplines. We’ll look at biology, physics, chemistry, economics, and even psychology. We don’t need to master all the details from these disciplines, just the fundamentals.
+
+To quote Charlie Munger, “Eighty or ninety important models will carry about 90 percent of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.”
+
+The four volumes of The Great Mental Models attempt to collect and make accessible organized common sense—the eighty to ninety mental models you need from the major disciplines to get started. To help you understand the models, we will relate them to stories and historical examples. My blog, Farnam Street, will have even more practical examples (see https://fs.blog/mental-models/).
+
+The more high-quality mental models you have in your mental toolbox, the more likely you will have the ones needed to understand a given problem. The better you understand, the better the potential actions you can take. The better the potential actions, the fewer problems you’ll encounter down the road. Better models make better decisions.
+
+---
+
+I think it is undeniably true that the human brain must work in models. The trick is to have your brain work better than the other person’s brain because it understands the most fundamental models: ones that will do the most work per unit. If you get into the mental habit of relating what you’re reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some wisdom.
+
+—CHARLIE MUNGER
+
+# Time Invested Yields Enormous Benefits
+
+Successful people file away a collection of fundamental, established, essentially unchanging knowledge that can be used in evaluating the infinite number of unique scenarios that show up in the real world. Each decision presents an opportunity to comb through your repertoire of models and try one out, so you can learn how to use them. This will slow you down at first —for one thing, you won’t always choose the right models—but you will get better and more efficient at using mental models as time progresses.
+
+Disciplines, like nations, are a necessary evil that enable human beings of bounded rationality to simplify their goals and reduce their choices to calculable limits. But parochialism is everywhere, and the world badly needs international and interdisciplinary travelers to carry new knowledge from one enclave to another.
+
+—HERBERT A. SIMON
+
+With time and consistent effort, we begin to synthesize the ideas we learn with reality itself. No model contains the entire truth, whatever that may be. What good are math and biology and psychology unless we know how they fit together in reality, and how to use them to make our lives better? It would be like dying of hunger because we don’t know how to combine and cook any of the foods in our pantry.
+
+---
+
+Making mistakes is part of the process of using mental models. Failing, if you acknowledge, reflect on, and learn from it, is also how you build mastery. As you use mental models, a great practice is to record and reflect on your process and results. That way, you can get better at both choosing models and applying them. Take the time to notice how you applied the models, what the process was like, and what the results were.
+
+Over time, you will develop your knowledge of which situations are best tackled through which models. Don’t give up on a model if it doesn’t help you right away. Learn more about it and try to figure out exactly why it didn’t work. It may be that you have to improve your understanding of it, or that there were aspects to the situation that you did not consider, or that your focus was on the wrong variable. So keep a journal. Write down your experiences. When you identify a model at work in the world, write that down too. Then you can explore the applications you’ve observed and start to be more in control of the models you use every day. For instance, instead of falling victim to confirmation bias, you will become able to step back and see it at work in yourself and others. Once you get practice with them, you will start to naturally apply models as you go through your daily life, from reading the news to contemplating a career move.
+
+As we have seen, we can run into problems when we apply models to situations in which they don’t fit. If a model is useful—and we can define “useful,” here, as offering a different perspective that uncovers a blind spot in our understanding of a problem—it is wise to invest time and energy into understanding why it worked, so we know when to use it again.
+
+At the beginning, the process is more important than the outcome. As you use the models, stay open to feedback loops. Reflect and learn. You will get better. It will become easier. Results will become more profoundly useful, more broadly applicable, and more memorable. While this book isn’t intended to be a book specifically about making better decisions, it will help you make better decisions.
+
+Mental models are not an excuse to create a lengthy decision process. Rather, their aim is to help you move away from seeing things the way you think they should be and toward seeing them the way they are. Right now,
+
+---
+
+you are touching only one part of the elephant, so you are making all decisions based on your understanding that it’s a wall, or a rope, not an animal. As soon as you begin to take in the knowledge that other people have of the world, like learning the perspectives others have on the elephant, you will start having more success, because your decisions will be aligned with how the world really is.
+
+When you start to understand the world better, when the whys become less mysterious, you will gain confidence in how you navigate. Successes will accrue. More success means more time, less stress, and, ultimately, a more meaningful life.
+
+Time to dive in.
+
+OceanofPDF.com
+
+---
+
+# The Map Is Not the Territory
+
+Reality check.
+
+OceanofPDF.com
+
+---
+
+Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful.
+—GEORGE E. P. BOX
+
+---
+
+The map of reality is not reality. Even the best maps are imperfect. That’s because maps are reductions of what they represent. If a map were to represent the territory with perfect fidelity, it would no longer be a reduction and thus would no longer be useful to us. A map can also be a snapshot from a point in time, representing something that no longer exists. This is important to keep in mind as we think through problems and seek to make better decisions.
+
+We use maps every day to simplify complexity. A great example is the financial statements of a company, which are meant to distill the complexity of thousands of transactions into something manageable. Yet they tell us nothing about whether the product is good for the customer or what’s really going on in the company. A policy document on office procedure, a manual on parenting a two-year-old, or your performance review—all are models, or maps, that simplify some complex territory to guide you through it.
+
+Relying solely on maps can lead you to the wrong conclusion. You need to touch the territory.
+
+Very early in the history of Amazon, Jeff Bezos was going over a set of documents with his team at the weekly business review. He’d heard that a bunch of customers were complaining (the territory) about call wait times, and yet looking at the data (the map), he couldn’t figure out why. “When the data and the anecdotes disagree,” he said in an interview, “the anecdotes are usually right.”2 At the meeting, the head of customer service reported the wait-time metric as under sixty seconds, which was in line with expectations. Bezos paused the meeting, picked up the phone, and dialed the 1-800 number for customer service. He waited on hold for over ten minutes, which made the point: something was wrong with the data collection.
+
+---
+
+Mental models are maps. While they might not be perfectly accurate, they are useful. Mental models and maps are both useful to the extent they are explanatory and predictive.
+
+# Key Elements of a Map
+
+In 1931, the mathematician Alfred Korzybski presented a paper on mathematical semantics in New Orleans. Most of the paper reads like a complex, technical argument on the relationship of mathematics to human language, and of both of these to physical reality. However, with this paper, Korzybski introduced and popularized the concept that the map is not the territory—in other words, the description of the thing is not the thing itself. The model is not reality. The abstraction is not the abstracted.
+
+Specifically, in Korzybski’s own words:
+
+1. A map may have a structure similar or dissimilar to the structure of the territory. The London Underground map is super useful to travelers. The train drivers don’t use it at all! Maps describe a territory in a useful way, but with a specific purpose in mind. They cannot be everything to everyone.
+2. Two similar structures have similar logical characteristics. If a correct map shows Dresden as located between Paris and Warsaw, a similar relation is found in the actual territory. If you have a map showing where Dresden is, you should be able to use it to get there.
+3. A map is not the actual territory. The London Underground map does not convey what it’s like to be standing in Covent Garden Station, nor would you use it to navigate out of the station.
+4. An ideal map would contain the map of the map, the map of the map of the map, etc., endlessly. We may call this characteristic self-reflexiveness. Imagine using an overly complicated “Guide to Paris.”
+
+---
+
+on a trip to France, and then having to purchase another book, the “Guide to the Guide to Paris,” and so on. Ideally, you’d never have any issues—but eventually, the level of detail would be overwhelming.
+
+The only way we can navigate the complexity of the world is through some sort of abstraction. When we read the news, we’re consuming abstractions of events created by other people. The authors consumed vast amounts of information, reflected upon it, and drew some conclusions that they share with us. But something is also lost in the process: the specific and relevant details that were compressed into the abstraction. And, because we often consume these abstractions as gospel, without having done the hard mental work of creating them ourselves, it’s tricky for us to see when the map no longer agrees with the territory. We inadvertently forget that the map is not reality. It’s the illusion of knowledge.
+
+# But My GPS Didn’t Show That Cliff
+
+We need maps and models as guides. But frequently, we don’t remember that our maps and models are abstractions, and thus we fail to understand their limits. We forget there is a territory that exists separately from the map. This territory contains details the map doesn’t describe. We run into problems when our knowledge becomes knowledge of the map rather than of the actual underlying territory it describes.
+
+Reality is messy and complicated, so our tendency to simplify it is understandable. However, if the aim becomes simplification rather than understanding, we start to make bad decisions. When we mistake the map for the territory, we start to think we have all the answers. We create static rules or policies that deal with the map but forget that we exist in a constantly changing world. When we close off or ignore feedback loops, we don’t see that the terrain has changed and we dramatically reduce our ability to adapt to a changing environment.
+
+---
+
+We can’t use maps as dogma. Maps and models are not meant to live forever as static references. The world is dynamic. As territories change, our tools to navigate them must be flexible, to handle a wide variety of situations or adapt to the changing times. If the value of a map or model is related to its ability to predict or explain, then it needs to represent reality. If reality has changed, the map must change.
+
+Take Newtonian physics. For hundreds of years, it served as an extremely useful model for understanding the workings of our world. From gravity to celestial motion, Newtonian physics was a wide-ranging map.
+
+Then, in 1905, Albert Einstein, with his theory of special relativity, changed our understanding of the universe in a huge way. He replaced the understanding handed down by Isaac Newton hundreds of years earlier. He created a new map.
+
+Newtonian physics is still a very useful model. One can use it reliably to predict the movement of objects large and small (with some limitations, as pointed out by Einstein). And, on the flip side, Einstein’s physics is still not totally complete: with every year that goes by, physicists become increasingly frustrated with their inability to tie it into small-scale quantum physics. Another map may yet come. But what physicists do so well, and most of us do so poorly, is carefully delimit what Newtonian and Einsteinian physics are able to explain. They know, down to many decimal places, where those maps are useful guides to reality and where they aren’t. And when they hit uncharted territory, like quantum mechanics, they explore it carefully, instead of assuming the maps they have can explain it all.
+
+# Maps Can’t Show Everything
+
+Some of the biggest map/territory problems are the risks of the territory that are not shown on the map. When we’re following the map without looking around, we trip right over these risks. Any user of a map or model must realize that we do not understand a model, map, or reduction unless we...
+
+---
+
+understand and respect its limitations. If we don’t understand what the map
+does and doesn’t tell us, it can be useless or even dangerous.
+
+---
+
+# The Tragedy of the Commons
+
+What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.
+
+—ARISTOTLE
+
+The Tragedy of the Commons is a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole. Garrett Hardin wrote extensively about this concept.
+
+Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.
+
+As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.
+
+The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.
+
+The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of 1.
+
+---
+
+Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another…. But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit–in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.5
+
+---
+
+Economist Elinor Ostrom wrote about being cautious with maps and models when looking at different governance structures for common resources. She was worried that the Tragedy of the Commons model (see sidebar), which shows how a shared resource can be destroyed through bad incentives, was too general and did not account for how people, in reality, solved the problem. She explained the limitations of using models to guide public policy, namely, that they often become metaphors: “What makes these models so dangerous…is that the constraints that are assumed to be fixed for the purpose of analysis are taken on faith as being fixed in empirical settings.”
+
+This is a double problem. First, having a general map, we may assume that if a territory matches the map in a couple of respects, it matches the map in all respects. Second, we may cling to what we know rather than update our information; we may think adherence to the map is more important than taking in new information about a territory. Ostrom asserts that one of the main values of using models as maps in public policy discussions is in the thinking that is generated. Models are tools for exploration, not doctrines to force conformity. They are guidebooks, not laws.
+
+# In order to use a map or model as accurately as possible, we should take into account three important principles:
+
+1. Reality is the ultimate update.
+2. Consider the cartographer.
+3. Maps can influence territories.
+
+# Reality is the ultimate update:
+
+When we enter new and unfamiliar territory, it’s nice to have a map on hand. In everything from traveling to a new city to becoming a parent for the first time, we benefit from maps that we can use to improve our ability to navigate the terrain. But territories change, sometimes faster than the maps and models that describe them. We
+
+---
+
+can and should update our maps based on our own experiences in the territory. That’s how good maps are built: through feedback loops created by explorers.
+
+We can think of stereotypes as maps. Sometimes they are useful—we have to process large amounts of information every day, and simplified chunks such as stereotypes can help us sort through this information with efficiency. The danger, as with all maps, comes when we forget that the territory is more complex than the map. People constitute far more territory than a stereotype can possibly represent.
+
+In the early 1900s, Europeans were snapping pictures all over Palestine, leaving a record that may have reflected their ethnographic perspective but did not cover Karimeh Abbud’s perception of her culture. She began to take photos of those around her, becoming the first Arab woman to set up her own photo studio in Palestine. Her pictures reflected a different take on the territory—she rejected the European style and aimed to capture the middle class of Palestine as they were. She tried to let her camera record the territory as she saw it, rather than manipulating the images to follow a narrative.
+
+Abbud’s informal style and desire to photograph the variety around her, from landscapes to intimate portraits, have left a legacy far beyond the photos themselves.7,8 She contributed a different perspective, a new map, with which to explore the history of the territory of Palestine.
+
+We do have to remember, though, that a map captures a territory at a moment in time. Just because it might have done a good job at depicting what was at the time it was made, there is no guarantee that it depicts what is there now or what will be there in the future. The faster the rate of change in the territory, the harder it will be for a map to keep up-to-date.
+
+Viewed in its development through time, the map details the changing thought of the human race, and few works seem to be such an excellent indicator of culture and civilization.
+
+—NORMAN J. W. THROWER9
+
+---
+
+Consider the cartographer: Maps are not purely objective creations. They reflect the values, standards, and limitations of their creators. One way to see how maps lack objectivity is in the changing national boundaries that make up our world maps. Countries come and go depending on shifting political and cultural sensibilities. When we look at the world map we have today, we tend to associate societies with nations, assuming that the borders reflect a common identity shared by everyone contained within them. However, as historian Margaret MacMillan pointed out, nationalism is a very modern construct, and in some sense has developed with, not in advance of, the maps that set out the shapes of countries.10 We should not, then, assume that our maps depict an objective view of the geographical territory. For example, historians have shown that the modern borders of Syria, Jordan, and Iraq reflect British and French determination to maintain influence in the Middle East after World War I.11 Thus, they are a better map of Western interest than of local custom and organization.
+
+Models are most useful when we consider them in the context in which they were created. What was the cartographer trying to achieve? How does this influence what is depicted in the map?
+
+Maps can influence territories: This problem was part of the central argument put forth by Jane Jacobs in her groundbreaking work The Death and Life of Great American Cities. Jacobs chronicled the efforts of city planners who came up with elaborate models for the design and organization of cities, without paying any attention to how cities actually work. They then tried to fit the cities into the model. She describes how cities were changed to correspond to these models, and the often negative consequences of these efforts. “It became possible also to map out master plans for the statistical city, and people take these more seriously, for we are all accustomed to believe that maps and reality are not necessarily related, or that if they are not, we can make them so by altering reality.”12 Jacob’s book is, in part, a cautionary tale about what can happen when faith in the model influences the decisions we make in the territory—when we try to fit complexity into the simplification.
+
+---
+
+In general, when building statistical models, we must not forget that the aim is to understand something about the real world. Or predict, choose an action, make a decision, summarize evidence, and so on, but always about the real world, not an abstract mathematical world: our models are not the reality.
+
+—DAVID HAND
+
+# Conclusion
+
+The map is not the territory is a reminder that our mental models of the world are not the same as the world itself. It’s a caution against confusing our abstractions and representations with the complex, ever-shifting reality they aim to describe.
+
+Mistaking the maps for the territory is dangerous. Consider the person who has a great résumé and checks all the boxes on paper but can’t do the actual job. Updating our maps is a difficult process of reconciling what we want to be true with what is true.
+
+In many areas of life, we are offered maps by other people. We are reliant on the maps provided by experts, pundits, and teachers. In these cases, the best we can do is to choose our mapmakers wisely, to seek out those who are rigorous, transparent, and open to revision.
+
+Ultimately, the map/territory distinction is an invitation to engage with the world as it is, not just as we imagine it to be. And remember, when you don’t make the map yourself, choose your cartographer wisely.
+
+---
+
+# Models of Management
+
+Let’s take a model of management. There are hundreds of them, dating back at least to The Principles of Scientific Management, by Frederick Taylor, which had factory managers breaking down tasks into small pieces, forcing their workers to specialize, and financially incentivizing them to complete those specialized tasks efficiently. It was a brute-force method, but it worked pretty well.
+
+As time went on and the economy increasingly moved away from manufacturing, other theories gained popularity, and Taylor’s model is no longer used by anyone of note. That does not mean it wasn’t useful; for a time, it was. It’s just that reality is more complicated than Taylor’s model. Eventually, it had to contend with at least the following factors:
+
+- As more and more people learn what model you’re using to manipulate them, they may decide not to respond to your incentives.
+- As your competitors gain knowledge of the model, they respond in kind by adopting the model themselves, thus flattening the playing field.
+- The model may have been useful mostly in a factory setting, and not in an office setting or a technology-development setting.
+- Human beings are not simple automatons: a more complete model would hone in on other motivations they might have besides financial ones.
+
+And the list goes on. Clearly, though Taylor’s model was effective for a time, it was effective with limitations. As with Einstein eclipsing Newton in physics, better models in management came along in time.
+
+---
+
+NO_CONTENT_HERE
+
+---
+
+NO_CONTENT_HERE
+
+---
+
+OceanofPDF.com
+
+---
+
+# Circle of Competence
+
+What you think you know
+
+What you know
+
+What don’t you know?
+
+OceanofPDF.com
+
+---
+
+I’m no genius. I’m smart in spots—but I stay around those spots.
+
+—THOMAS J. WATSON
+
+---
+
+Understanding where you have an edge in competence and where you don’t helps you prevent problems, spot opportunities, and learn. We all have a circle of competence—an area in which we have a lot of knowledge. The size of that circle is not as important as knowing when you are approaching its perimeter.
+
+Within your circle of competence, you operate with a clear advantage. As you approach the perimeter (the limitations of your knowledge), your advantage starts to decrease. As you cross the perimeter, not only does your advantage vanish, it goes negative. Suddenly, you find yourself playing in an area where others have an advantage.
+
+To get the most out of this mental model, we will explore the following:
+
+1. What is a circle of competence?
+2. How do you know when you have one?
+3. How do you build and maintain one?
+4. How do you operate outside of one?
+
+# What is a circle of competence?
+
+Imagine an old man who’s spent his entire life in a small town. He’s the Lifer. No detail of the goings-on in the town has escaped his notice over the years. He knows the lineage, behaviors, attitudes, job, income, and social status of every person in town. Bit by bit, he has built up that knowledge over a long period of observation and participation in town affairs.
+
+The Lifer knows all the secrets. He knows where the bodies are buried and who buried them. He knows who owes money to whom, who gets along with whom, and whom the town depends on to keep moving forward.
+
+---
+
+He knows about that time the mayor cheated on his taxes. He knows about the time the town flooded—how many inches high the water was, and exactly who helped whom and who didn’t.
+
+Now imagine a stranger enters the town, in from the Big City. Within a few days, the Stranger decides that he knows all there is to know about the town. He’s met the mayor, the sheriff, the bartender, and the shopkeeper, and he can get around fairly easy. It’s a small town, and he hasn’t come across anything surprising.
+
+In the Stranger’s mind, he’s convinced he knows pretty much everything a Lifer would know; with his keen eye, he has sized up the town in no time. He makes assumptions based on what he has learned so far and figures he knows enough to get his business done. This belief, however, stems from a false sense of confidence that likely causes him to take more risks than he realizes. Without intimately knowing the history of the town, how can he be sure that he has picked the right land for development or negotiated the best price?
+
+After all, what kind of knowledge does he really have, compared to the Lifer?
+
+The difference between the detailed web of knowledge in the Lifer’s head and the surface knowledge in the Stranger’s head is the difference between being inside a circle of competence and being outside its perimeter. True knowledge of a complex territory cannot be faked. When it comes to this town, the Lifer could stump the Stranger in no time, but not the other way around. Consequently, as long as the Lifer is operating in his circle of competence, he will always have a better understanding of reality to use in making decisions. Having this deep knowledge gives him flexibility in responding to challenges, because he will likely have more than one solution to every problem. This depth also increases his efficiency—he can eliminate bad choices quickly because he has all the pieces of the puzzle.
+
+What happens when you take the Lifer/Stranger idea seriously and try to delineate carefully the domains in which you’re one or the other? There is no definitive checklist for figuring this out, but if you don’t have at least a
+
+---
+
+few years and a few failures under your belt, you cannot consider yourself competent in a circle.
+
+We shall be unable to turn natural advantage to account unless we make use of local guides.
+
+—SUN TZU2
+
+For most of us, climbing to the summit of Mount Everest is outside our circle of competence. Not only do we have no real idea how to do it, but— even more scary—should we attempt it, we don’t even know what we don’t know. If we studied hard, maybe we’d figure out the basics. We’d learn about the training, the gear, the process, the ideal time of year to climb, all the things an outsider could quickly come to know. But at what point would you be satisfied that you knew enough to get up there, and back, with your life intact? And how confident would you be in this assessment?
+
+There are approximately two hundred bodies on Mount Everest (to say nothing of the ones that have been removed). None of those people thought Everest would take their life. The climate preserves their corpses, almost as a warning. The ascent to the summit takes you past the bodies of people who once shared your dreams.
+
+Since the first recorded attempts to climb Mount Everest, in 1922, all climbers have relied on the specialized knowledge of the Sherpa people to help navigate the terrain of the mountain. Indigenous to the region, Sherpas grew up in the shadow of the mountain, making them uniquely placed to develop the expertise necessary to get to the top.
+
+Sherpa Tenzing Norgay led the team that made the first successful ascent,3 and a quarter of all subsequent ascents have been made by Sherpas (some going as many as sixteen times).4,5 Although the mountain is equally risky for everyone, most people who climb Everest do it only once. For the Sherpas, working and climbing various parts of the mountain is their day job. Would you try to climb Everest without their help?
+
+---
+
+The physical challenges alone of reaching the summit are staggering. It is a climate that humans aren’t suited for. There isn’t enough oxygen in the air, and the top of the mountain is regularly pummeled by winds of more than 150 miles an hour—stronger than a Category 5 hurricane. You don’t get to the top on a whim, and you don’t survive with only luck. Norgay worked for years as a trekking porter and was part of a team that tried to ascend Everest in 1935. He finally succeeded in reaching the summit in 1953, after twenty years of climbing and trekking in the region. He developed his expertise through lots of lucky failures. After summitting Everest, Norgay opened a mountaineering school, to train other locals as guides, and a trekking company, to take others climbing in the Himalayas.
+
+# How Do You Know When You Have a Circle of Competence?
+
+Within our circles of competence, we know what we don’t know. We can make decisions quickly and relatively accurately. We can accurately define the problem. We possess detailed knowledge of additional information we might need to make a decision. We have a proven track record. We can seamlessly adapt our language to a different level, zooming in or out. We know what is knowable.
+
+Within our circle of competence, we can anticipate and respond to counterarguments, because we understand them better than the person making them. We also have a lot of options when we confront problems in our circles of competence. Our deep fluency in the subjects we are dealing.
+
+—CHARLIE MUNGER
+
+---
+
+with means we can draw on different information resources and understand what can be adjusted and what is invariant.
+
+A circle of competence cannot be built quickly. We don’t become Lifers overnight, or as the result of taking a few courses or working at something for a few months—being a Lifer requires more than skimming the surface.
+
+In Alexander Pope’s poem “An Essay on Criticism,” he writes:
+
+A little learning is a dangerous thing;
+
+Drink deep, or taste not the Pierian spring:
+
+There shallow draughts intoxicate the brain,
+
+And drinking largely sobers us again.
+
+There is no shortcut to understanding. Building a circle of competence takes years of experience, of making mistakes, and of actively seeking out better methods of practice and thought.
+
+# How Do You Build and Maintain a Circle of Competence
+
+One of the essential requirements of a circle of competence is that you can never take it for granted. The terrain is always shifting. You can’t operate as if a circle of competence is a static thing that, once attained, is attained for life. The world is dynamic. Knowledge gets updated, and so too must your circle.
+
+There are three key practices needed to build and maintain a circle of competence: curiosity and a desire to learn, monitoring, and feedback.
+
+First, you have to be willing to learn. Learning comes when experience pairs with reflection. Experiences can be yours or those of others, absorbed through books, articles, and conversations. Learning everything on your own is costly and slow. You are one person. Learning from the experiences of others is much more productive. The key to learning is reflecting on
+
+---
+
+those experiences and compressing them into something usable. You need to approach your circle of competence with curiosity, seeking out information that can help you expand and strengthen it.
+
+I want to think about things where I have an advantage over other people. I don’t want to play a game where people have an advantage over me…. I don’t play in a game where other people are wise and I am stupid. I look for a game where I am wise and they are stupid. And believe me, it works better.
+
+—CHARLIE MUNGER
+
+Second, you need to monitor your track record in areas in which you have, or want to have, a circle of competence. And you need to have the courage to monitor honestly, so the feedback you receive can be used to your advantage.
+
+The reason we have such difficulty with overconfidence—as demonstrated in studies that show that most of us are much worse drivers, lovers, managers, traders (and many other things) than we think we are—is because we have a problem with honest self-assessment. We don’t keep the right records, because we don’t really want to know what we’re good and bad at. Ego is a powerful enemy when it comes to better understanding reality.
+
+But protecting your ego won’t work if you’re trying to assess or build your circle of competence. You need to keep a precise diary of your thinking. If you’re an investor, this might be information about your trades in the stock market. If you are in a leadership position, you need to observe and chronicle the results of your decisions and evaluate the outcomes based on what you set out to achieve. You need to be honest about your failures in order to reflect on and learn from them. That’s what it takes.
+
+You need to make the invisible thoughts in your head visible. Keeping a journal of your own performance is the easiest and most private way to give self-feedback. Journals allow you to step out of your automatic thinking and ask yourself: What went wrong? How could I do better? Monitoring your
+
+---
+
+own performance allows you to see patterns that you simply couldn’t see before. This type of analysis is painful for the ego, which is also why it helps build a circle of competence. You can’t improve if you don’t know what you’re doing wrong.
+
+Finally, you must occasionally solicit other perspectives. This helps build a circle of competence but is also critical for maintaining one.
+
+A lot of professionals have an ego problem: their view of themselves does not line up with the way other people see them. Before people can change, they need to be familiar with these outside perspectives. We need to go to people we trust, who can give us honest feedback about our traits. These people are in a position to observe us operating within our circles, and are thus able to offer relevant perspectives on our competence. Another option is to hire a coach.
+
+Atul Gawande is one of the top surgeons in the United States. When he wanted to get better at being a surgeon, he hired a coach. This is terribly difficult for anyone to do, let alone a doctor. At first, Gawande felt embarrassed. It had been over a decade since he was evaluated by another person, in medical school. “Why,” he asked, “should I expose myself to the scrutiny and fault-finding?”9
+
+The coaching worked. Gawande later wrote that he got two things out of this experience. First, he received information about something he couldn’t see himself and that no one else would point out (if they noticed it at all): knowledge of where his skill and technique were suboptimal. The second thing he gained was the ability to provide better feedback to other doctors.
+
+It is extremely difficult to maintain a circle of competence without an outside perspective. We usually have too many biases to rely solely on our own observations. It takes courage to solicit external feedback, so if you notice yourself start to manifest defensiveness, focus instead on the result you hope to achieve.
+
+---
+
+# How Do You Operate Outside a Circle of Competence?
+
+Part of the advantage to understanding your circle of competence is understanding when you are approaching, or arrive on the other side of, its perimeter.
+
+Since we can’t be inside a circle of competence in everything, when we find ourselves Strangers in a place filled with Lifers, what do we do? We don’t always get to “stay around our spots.” We must develop a repertoire of techniques for managing when we’re outside of our sphere, which happens all the time.10
+
+---
+
+# The Problem of Incentives
+
+The problem of incentives can really skew how much you can rely on someone else’s circle of competence. This problem is particularly acute in the financial realm. Until recently, nearly all financial products we might be pushed into had commissions attached to them—in other words, our adviser made more money by giving us one piece of advice rather than another, regardless of its wisdom. Fortunately, the rise of products like index funds of the stock and bond markets has mostly alleviated the issue. Still, in cases like receiving financial advice, we’re not on solid ground until we know, in some detail, the compensation arrangement our adviser is under.
+
+The same goes for buying furniture, buying a house, or buying a washing machine at a retail store. What does the knowledgeable adviser stand to gain from our purchase?
+
+It goes beyond sales, of course. Whenever we are getting advice, it is from a person whose set of incentives is not the same as ours. It is not being cynical to know that this is the case and to act accordingly.
+
+Suppose we want to take our car to a mechanic. Most of us, especially in this day and age, are complete Strangers in that land; we therefore are available to be taken advantage of. Not only is there an asymmetry in our general knowledge base about the mechanics of a car, there is usually an asymmetry of knowledge about the actual current problem with the car. We haven’t been under the hood, but the mechanic has. We know his incentive in this situation—it’s to get us to spend as much as possible while still retaining us as a customer. The only solution, at least until we reach a certain level of trust with our mechanic, is to suck it up and learn a bit of the trade.
+
+Fortunately, these days, that is easy with the aid of the internet. And we don’t need to do our learning ahead of time; we can learn on an as-needed basis. The way to do it, in this case, would be to defer all decisions on major repair spending until you’ve had time to poke around the resources you can find online and at least confirm that the mechanic isn’t making a major bluff.
+
+---
+
+There are three practices necessary to successfully operating outside a circle of competence:
+
+1. Learn the basics of the realm you’re operating in, while still acknowledging that you’re a Stranger, not a Lifer. Keep in mind that basic information is easy to obtain and tends to seduce the acquirer into possessing unwarranted confidence.
+2. Talk to someone whose circle of competence in the area is strong. Take the time to do a bit of research, to define questions you need to ask and information you need to obtain to make a good decision. If you ask an expert what to do, they will give you an answer, but you won’t have learned anything. If you ask them what variables matter in this situation and why, you’ll learn not only what they would do but why they would do it. Furthermore, when you need the advice of others, especially in higher-stakes situations, ask questions to probe the limits of their circles of competence. Then, ask yourself how the situation might influence the information they choose to provide to you (always remember: consider the cartographer).
+3. Use a broad understanding of the basic mental models of the world to augment your limited understanding of the field in which you find yourself a Stranger. These will help you identify the foundational concepts that would be most useful, which will then serve as a guide to help you navigate the situation you are in.
+
+There are inevitably areas where you are going to be a Stranger, even in the profession in which you excel. It is impossible for our circles of competence to encompass the entire world. Even if we’re careful to know the boundaries of our circles and take them seriously, we can’t always operate inside our circles. Life is simply not that forgiving. We have to make HR decisions without being experts in human psychology, implement technology without having the faintest idea how to fix it if something goes wrong.
+
+---
+
+wrong, or design products with an imperfect understanding of our customers. These decisions may be outside our circles, but they still have to get made.
+
+# When Queen Elizabeth I of England ascended to the throne
+
+The security of her reign was by no means assured. The tumultuous years under her father, brother, and sister had contributed to a political situation that was precarious at best. England was in a religious crisis that was threatening the stability of the kingdom, and the nation was essentially broke.
+
+Elizabeth knew there were aspects of leading the country that were outside her circle of competence. She had an excellent education and had spent most of her life just trying to survive. Perhaps that is why she was so able to identify and admit to what she didn’t know.
+
+In her first speech as queen, Elizabeth announced, “I mean to direct all my actions by good advice and counsel.” After outlining her intent upon becoming queen, she proceeded to build her Privy Council—effectively the royal advisory board. She didn’t copy her immediate predecessors by filling her council with yes-men or wealthy incompetents who happened to share her religious values. To develop stability and achieve continuity, she blended the old and the new. She kept the group small, so that real discussions could happen. She wanted a variety of opinions that could be challenged and debated.
+
+In large measure due to the advice she received from this council—advice that was the product of open debate that took in the circles of competence of each of the participants—Elizabeth took England from a country of civil unrest and frequent persecution to one that inspired loyalty and creativity in its citizens. She sowed the seeds for the empire that would eventually come to control one-quarter of the globe.
+
+# Conclusion
+
+The first rule of competition is, you are more likely to win if you play where you have an advantage. Doing so requires a firm understanding of
+
+---
+
+what you know and what you don’t know. Your circle of competence is your personal sphere of expertise, the area where your knowledge and skills are concentrated. It’s the domain where you have a deep understanding, where your judgments are reliable, and your decisions are sound.
+
+The size of your circle isn’t as important as knowing the boundaries. The wise person is the one who knows the limits of their knowledge, who can say with confidence, “This falls within my circle,” or “This is outside my area of expertise.”
+
+Operating within your circle of competence is a recipe for confidence and effectiveness. But venturing outside your circle of competence is a recipe for trouble. You’re like a sailor navigating unfamiliar waters without a map, at the mercy of currents and storms you don’t fully understand. This isn’t to say that you should never venture outside your circle. Learning new things, gaining new skills, mastering new domains is one of the beautiful things about life.
+
+Celebrate your expertise, but also acknowledge your limitations.
+
+Ignorance more often begets confidence than knowledge.
+
+—CHARLES DARWIN
+
+---
+
+# Staying in Your Circle
+
+Berkshire Hathaway’s Warren Buffett is well-known for using the circle of competence as a filter for potential investments. When asked, he has recommended that each individual stick to their area of special competence and be very reluctant to stray from it. For when we stray too far, we get into areas where we don’t even know what we don’t know. We may not even know the questions we need to ask.
+
+To explain his point, Buffett gives the example of Rose Blumkin, a Russian immigrant who ran one of his businesses, the famous Nebraska Furniture Mart. Blumkin spoke little English and could barely read or write, yet had a head for two things: numbers and home furnishings. She stuck to those areas and built one of the country’s great retailing establishments. Here is the story in Buffett’s words:
+
+I couldn’t have given her two hundred million dollars’ worth of Berkshire Hathaway stock when I bought the business because she doesn’t understand stock. She understands cash. She understands furniture. She understands real estate. She doesn’t understand stocks, so she doesn’t have anything to do with them. If you deal with Mrs. B in what I would call her circle of competence…she is going to buy five thousand end tables this afternoon (if the price is right). She is going to buy twenty different carpets in odd lots, and everything else like that [snaps fingers], because she understands carpets. She wouldn’t buy a hundred shares of General Motors if it was at fifty cents a share.
+
+Rose Blumkin’s iron focus on the things she knew best was largely responsible for her massive success, in spite of the obstacles she faced.
+
+---
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Falsifiability
+
+KARL POPPER WROTE, “A THEORY is part of empirical science if and only if it conflicts with possible experiences and is therefore in principle falsifiable by experience.” The idea here is that if you can’t prove something wrong, you can’t really prove it right either.
+
+Thus, in Popper’s words, science requires testability: “If observation shows that the predicted effect is definitely absent, then the theory is simply refuted.” A good theory must have an element of risk to it—namely, it has to risk being wrong. It must be able to be proven wrong under stated conditions.
+
+In a true science, as opposed to a pseudoscience, the following statement can be easily made: “If x happened, it would show demonstrably that theory y is not true.” We can then design an experiment—a physical one, or sometimes a thought experiment—to figure out if x actually does happen. Falsification is the opposite of verification: you must try to show that the theory is incorrect and, if you fail to do so, you actually strengthen it. To understand how this works in practice, think of evolution. As mutations appear, natural selection eliminates those that don’t work, thereby strengthening the fitness of the rest of the population.
+
+Consider Popper’s discussion of the concept of falsifiability in the context of Freud’s psychoanalytic theory, which is broadly about repressed childhood memories influencing our unconscious, which in turn affects our behavior. Popper was careful to say that it is not possible to prove that Freudianism is either true or not true, at least in part. We can simply say that we don’t know whether it’s true, because it does not make specific, testable predictions. It may have many kernels
+
+---
+
+of truth in it, but we can’t tell. The theory would have to be restated in a way that would allow for experience to refute it.
+
+Another interesting piece of Popper’s work was an attack on what he called “historicism”—the idea that history has fixed laws or trends that inevitably lead to certain outcomes. Historicism includes the tendency to use examples from the past to make definitive conclusions about what is going to happen in the future.
+
+Popper considered this kind of thinking pseudoscience—or, worse, a dangerous ideology that tempts wannabe state planners and utopians to control society. He did not consider historicist doctrines falsifiable. There is no way, for example, to test whether there is a “Law of Increasing Technological Complexity” in human society, as many are tempted to claim these days, because it is not actually a testable hypothesis. Instead of calling these ideas interpretations, historicists call them “laws,” or some similarly connotative word that implies an unchanging and universal state that is not open to debate, thereby giving them an authority that they haven’t earned. Too frequently, these postulated “laws” become immune to falsifying evidence—any new evidence is interpreted through the lens of the theory.
+
+For example, we can certainly find confirmation for the idea that humans have progressed, in a specifically defined way, toward increasing technological complexity. But is that a “law” of history, in the sense of being inviolable? Was it always going to be this way? No matter what the starting conditions or developments along the way, were humans always going to increase our technological prowess? We really can’t say.
+
+Here, we hit on the problem of trying to assert any fundamental law by which human history must inevitably progress. Trend is not destiny. Even if we can derive and understand certain laws of human biological nature, the trends of history itself are dependent on conditions, and conditions change.
+
+Bertrand Russell’s classic example of the chicken that gets fed every day is a great illustration of this concept.17 Daily feedings have been going on for as long as the chicken has observed, and thus it supposes that these feedings are a guaranteed part of its life and will continue in perpetuity. The feedings appear as a law—until the day the chicken gets its head chopped off. They are then revealed to be a trend, not a predictor of the future state of affairs.
+
+Another way to look at it is to examine how we tend to view the worst events in history. We tend to assume that the worst that has happened is the worst that can happen, and then prepare for that. We forget that “the worst” once smashed a previous understanding of what was the worst. Therefore, we need to prepare more for the extremes allowable by physics rather than for what has happened until now.
+
+Applying the filter of falsifiability helps us sort through which theories are more robust. If a theory can’t ever be proven false, because we have no way of testing it, then the best we can do is try to determine its probability of being true.
+
+---
+
+OceanofPDF.com
+
+---
+
+# First Principles Thinking
+
+Go back to basics.
+
+OceanofPDF.com
+
+---
+
+I don’t know what’s the matter with people: they don’t learn by understanding; they learn by some other way—by rote or something. Their knowledge is so fragile!
+
+—RICHARD FEYNMAN
+
+---
+
+First principles thinking is one of the best ways to discover new solutions. Sometimes called “reasoning from first principles,” it’s a tool to help break down complicated problems by separating what we know is absolutely true from anything that is an assumption. What remain are the essentials. If you know the first principles of something, you can build the rest of your knowledge around them to produce something new.
+
+While you could take this way of thinking down to an atomic level, a lot of value is gained by simply going a level or two deeper than most people. Solutions are based on what you see. Different answers reveal themselves at different levels.
+
+If I hand you a house made from Lego blocks, you know it’s possible to make a house. Thinking at the first layer, you might move a few blocks around and, in the process, slightly improve the house. Most people stop here. They are presented with something that already exists and they endeavor to make it slightly better. Going a layer deeper and breaking the Lego house into individual pieces opens the door to possibility: not only can you build a better house, you can build something entirely different. Everything that exists is effectively a set of Lego blocks, assembled in a certain way, that can be taken apart and reassembled. A bike is just a seat, chain, body, handlebars, etc. Breaking the bike down into its parts allows you to reassume the parts into something new. However, you can also go deeper, melting the parts into their core metals and making a shield, sword, or anything else, limited only by material and imagination.
+
+The idea of building knowledge from first principles has a long tradition in philosophy. In the Western canon it goes back to Plato, with significant contributions from Aristotle and Descartes. Essentially, these thinkers were looking for foundational knowledge that would not change and on which
+
+---
+
+we could build everything else, from our ethical systems to our social structures.
+
+# 1. First Principles Thinking
+
+First principles thinking doesn’t have to be quite so grand. When we do it, we aren’t necessarily looking for absolute truths—millennia of epistemological inquiry have shown us that these are hard to come by, and the scientific method has demonstrated that knowledge can be built only when we are actively trying to falsify it (see “Supporting Idea: Falsifiability”). Rather, first principles thinking identifies the elements that are, in the context of any given situation, irreducible.
+
+First principles do not provide a checklist of things that will always be true; our knowledge of first principles changes as we understand more. They are the foundation on which we must build, and thus will be different in every situation—but the more we know, the more we can challenge. For example, if we are considering how to improve the energy efficiency of a refrigerator, the laws of thermodynamics can be taken as first principles. However, a theoretical chemist or physicist might want to explore entropy, and thus further break the second law of thermodynamics into its underlying principles and the assumptions that were made because of them. First principles are the boundaries that we must work within in any given situation, so when it comes to thermodynamics, an appliance maker might have different first principles than a physicist.
+
+# 2. Techniques for Establishing First Principles
+
+If we never learn to take something apart, test our assumptions about it, and reconstruct it, we end up bound by what other people tell us is possible. We end up trapped in the way things have always been done. When the environment changes, we just continue as if things were the same, making costly mistakes along the way.
+
+Some of us are naturally skeptical of what we’re told: Maybe it doesn’t match up to our experiences. Maybe it’s something that used to be true but isn’t true anymore. Or maybe we just think differently about something.
+
+---
+
+When it comes down to it, everything that is not a law of nature is just a shared belief. Money is a shared belief. So is a border. So is Bitcoin. So is love. The list goes on.
+
+There are two techniques we can use to change the level where we are looking at a situation, identify the first principles, and cut through the dogma and shared belief: Socratic questioning and the Five Whys.
+
+# Socratic questioning
+
+Socratic questioning can be used to establish first principles through stringent analysis. This is a disciplined questioning process used to establish truths, reveal underlying assumptions, and separate knowledge from ignorance. The key distinction between Socratic questioning and ordinary discussion is that the former seeks to draw out first principles in a systematic manner. Socratic questioning generally follows this process:
+
+1. Clarifying your thinking and explaining the origins of your ideas. (Why do I think this? What exactly do I think?)
+2. Challenging assumptions. (How do I know this is true? What if I thought the opposite?)
+3. Looking for evidence. (How can I back this up? What are my sources?)
+4. Considering alternative perspectives. (What might others think? How do I know I am correct?)
+5. Examining consequences and implications. (What if I am wrong? What are the consequences if I am?)
+6. Questioning the original questions. (Why did I think that? Was I correct? What conclusions can I draw from the reasoning process?)
+
+Socratic questioning stops you from relying on your gut and limits strong emotional responses. This process helps you build something that...
+
+---
+
+The Five Whys: The Five Whys is a method rooted in the behavior of children. Children instinctively think in first principles; just like us, they want to understand what’s happening in the world. To do so, they intuitively break through the fog with a game some parents have come to dread but that is exceptionally useful for identifying first principles: repeatedly asking “why.”
+
+The goal of the Five Whys is to traverse different levels until we land on a “what” or “how.” It is not about introspection, such as asking, “Why do I feel like this?” Rather, it is about systematically delving further into a statement or concept so that you can separate reliable knowledge from assumption. If your “whys” result in a statement of falsifiable fact, you have hit a first principle. If they end up with a “because I said so” or “it just is,” you know you have landed on an assumption that may be based on popular opinion, cultural myth, or dogma. These are not first principles.
+
+There is no doubt that both of these methods slow us down in the short term. They seem to get in the way of what we want to accomplish. We must pause, think, and research. And after we employ them a couple of times, we realize that often, after one or two questions, we are lost. We actually don’t know how to answer most of the questions. But when we are confronted with our own ignorance, we can’t just give up or resort to self-defense. If we do, we will never identify the first principles we have to work with and will instead make mistakes that will slow us down in the long term.
+
+Science is much more than a body of knowledge. It is a way of thinking. —CARL SAGAN
+
+---
+
+# Using First Principles Thinking to Blow Past Inaccurate Assumptions
+
+The discovery that a bacterium, not stress, causes the majority of stomach ulcers is a great example of what can be accomplished when we push past assumptions to get at first principles. For centuries following the discovery of bacteria, scientists thought that bacteria could not grow in the stomach, on account of its acidity. If you had surveyed doctors and medical research scientists in the 1960s or ’70s, they likely would have postulated this as a first principle. When a patient came in complaining of stomach pain, no one ever looked for a bacterial cause.
+
+It turned out, however, that a sterile stomach was not a first principle—it was an assumption. As Kevin Ashton writes in his book on creativity, discovery, and invention, “the dogma of the sterile stomach said that bacteria could not live in the gut.” Because this dogma was taken as truth, for a long time, no one ever looked for evidence that it could be false.
+
+That changed for good with the discovery of Helicobacter pylori bacterium and its role in stomach ulcers. When pathologist Robin Warren saw bacteria in samples from patients’ stomachs, he realized that stomachs were not, in fact, sterile. He started collaborating with Barry Marshall, a gastroenterologist, and together they found bacteria in loads of stomachs. If the sterile stomach wasn’t a first principle, then, when it came to stomachs, what was?
+
+Marshall, in an interview with Discover, recounts that Warren gave him a list of twenty patients identified as possibly having cancer—but when Warren looked, he had found, instead, the same bacteria in all of them. He said, “Why don’t you look at their case records and see if they’ve got anything wrong with them?” Since they now knew stomachs weren’t sterile, they could question all the associated dogma about stomach disease and use some Socratic-type questioning to identify the first principles at play. They spent years challenging their related assumptions, clarifying their thinking, and looking for evidence.
+
+---
+
+Their story ultimately had a happy ending: in 2005, Marshall and Warren were awarded the Nobel Prize, and now stomach ulcers are regularly treated effectively with antibiotics, improving and saving the lives of millions of people. But many practitioners and scientists rejected their findings for decades. The dogma of the sterile stomach was so entrenched as a first principle that it was hard for many to admit that it rested on some incorrect assumptions that ultimately ended with the explanation, “because that’s just the way it is.” Even though, as Ashton notes, “H. pylori has now been found in medical literature dating back to 1875,”6 it was Warren and Marshall who were able to show that “because I said so” wasn’t enough to count the sterile stomach as a first principle.
+
+# Incremental Innovation and Paradigm Shifts
+
+Understanding how and why something works is a key step to improving it. First principles thinking helps us avoid the problem of relying on someone else’s tactics without understanding the rationale behind them.
+
+Temple Grandin is famous for a couple of reasons. First, she is autistic, and was one of the first people to publicly disclose this fact and give insight into the inner workings of one type of autistic mind. Second, she is a scientist who has developed many techniques to improve the welfare of livestock in the agricultural industry.
+
+One of the approaches Grandin pioneered was the curved cattle chute. Before her experiments, cattle were herded through a straight chute. Curved chutes, Grandin found, “are more efficient for handling cattle because they take advantage of the natural behavior of cattle. Cattle move through curved races more easily because they have a natural tendency to go back to where they came from.”7 Of course, science doesn’t stop with one innovation, and animal scientists continue to study the best way to treat livestock animals.
+
+Stockmanship Journal presented research that questioned the efficiency of Grandin’s curved chute. It demonstrated that sometimes, the much
+
+---
+
+simpler straight chute would achieve the same effect in terms of cattle movement. The journal then sought out Grandin’s response, which is invaluable for teaching us the necessity of first principles thinking.
+
+Grandin explained that curved chutes are not a first principle. She designed them as a tactic to address the first principle of animal handling that she identified in her research—essentially, that reducing stress to the animals is the single most important aspect of handling them and affects everything from their conception rates to their weight to their immune systems. When designing a livestock environment, she noted, a straight chute could work if it is part of a system that reduces stress to the animals. If you know the principles, you can change the tactics.8
+
+Sometimes, we don’t want to fine-tune what is already there—we are skeptical, or curious, and are not interested in accepting what already exists as our starting point. When we start with the idea that the way things are might not be the way they have to be, we put ourselves in the right frame of mind to identify first principles. The real power of first principles thinking
+
+---
+
+is moving away from random change and into choices that have a real possibility of success.
+
+As to methods, there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.
+
+—HARRINGTON EMERSON
+
+# Conclusion
+
+First principles thinking is the art of breaking down complex problems into their most fundamental truths. It’s a way of thinking that goes beyond the surface and allows us to see things from a new perspective.
+
+Thinking in terms of first principles allows us to identify the root causes and strip away the layers of complexity and focus on the most effective solutions. Reasoning from first principles allows us to step outside the way things have always been done and instead see what is possible.
+
+First principles thinking is not easy. It requires a willingness to challenge the status quo. This is why it’s often the domain of rebels and disrupters who believe there must be a better way. It’s the thinking of those who are willing to start from scratch and build from the ground up.
+
+In a world focused on incremental improvement, first principles thinking offers a competitive advantage because almost no one does it.
+
+OceanofPDF.com
+
+---
+
+# Thought Experiment
+
+Imagine the possibilities.
+
+OceanofPDF.com
+
+---
+
+Creativity is intelligence having fun.
+
+—ANONYMOUS
+
+---
+
+Thought experiments can be defined as “devices of the imagination used to investigate the nature of things.”2 Many disciplines, such as philosophy and physics, make use of thought experiments to examine what can be known. In doing so, they open new avenues for inquiry and exploration.
+
+Thought experiments are powerful because they help us learn from our mistakes and avoid future ones. They let us evaluate the potential consequences of our actions, take on the impossible, and reexamine history to make better decisions. They can help us figure out both what we really want and the best way to get there.
+
+# The Ovarian Lottery
+
+We can use thought experiments to reveal blind spots.
+
+Warren Buffett, one of the most famous investors in the history of the world, often uses thought experiments to educate. In pointing out the role of luck, he says, “Imagine that it is twenty-four hours before you are going to be born, and a genie comes to you.”3
+
+To further paraphrase this thought experiment: “The genie says you can determine the rules of the society you are about to enter and you can design anything you want. You get to design the social rules, the economic rules, the governmental rules. And those rules are going to prevail for your lifetime and your children’s lifetime and your grandchildren’s lifetime.”
+
+“But,” he adds, “there is a catch.”
+
+“You don’t know whether you’re going to be born rich or poor, male or female, infirm or able-bodied, in the United States or Afghanistan. All you know is that you get to take one ball out of a barrel.”
+
+---
+
+He goes on to tell you that through dumb luck, he and his business partner were born in the United States and, as a result, had a staggering advantage. He won the ovarian lottery.
+
+While how hard you work might improve your relative success, the ovarian lottery determines much of your absolute success.
+
+# Betting on Basketball
+
+Suppose I asked you to tell me who would win in a game of basketball: NBA champion LeBron James or filmmaker Woody Allen? How much would you bet that your answer was correct?
+
+I think you’d get me an answer quickly, and I hope you’d bet all you had.
+
+Next, suppose I asked you to tell me who’d win in a game of basketball: NBA champion LeBron James or NBA champion Kevin Durant? How much would you bet that your answer was correct?
+
+A little harder, isn’t it? Would you bet anywhere near all you had on being right?
+
+Let’s think this through. You attempted to answer both questions in the same way—you imagined the contests. Perhaps more importantly, you didn’t attempt to answer either of them by calling up Messrs. James, Allen, and Durant and inviting them over for an afternoon of basketball. You simply simulated the games in your mind.
+
+In the first case, your knowledge of James (young, tall, athletic, and skilled), Allen (old, small, frail, and funny), and the game of basketball gave you a clear mental image. The disparity between the players’ abilities makes the question (and the bet) a total no-brainer.
+
+In the second case, your knowledge of James and Durant may well be extensive, but that doesn’t make it an easy bet. They’re both professional basketball players who are quite similar in size and ability, and both of them are likely to go down as among the best ever to play the game. It’s doubtful that one is much better than the other in a one-on-one match. The only way
+
+---
+
+to answer the question for sure would be to see them play. And even then, a one-off contest is not going to be definitive.
+
+A better way to answer the “who would win” question is through a remarkable ability of the human brain—the ability to conduct a detailed thought experiment. Its chief value is that it lets us do things in our heads we cannot do in real life, and so explore situations from more angles than we can physically examine and test for.
+
+Thought experiments are more than daydreaming. To be useful, they require the same rigor as a traditional experiment. Much like the scientific method, a thought experiment generally has the following steps:
+
+1. Ask a question.
+2. Conduct background research.
+3. Construct a hypothesis.
+4. Test with (thought) experiments.
+5. Analyze outcomes and draw conclusions.
+6. Compare to hypothesis and adjust accordingly (new question, etc.).
+
+In the James/Allen experiment above, we started with a question: Who would win in a game of basketball? If you didn’t already know who those people were, finding out would have been a necessary piece of background research. Then you would come out with your hypothesis (James all the way!) and think it through.
+
+One of the real powers of the thought experiment is that there is no limit to the number of times you can change a variable to see if it influences the outcome. In order to place your bet, you would want to estimate: In how many possible basketball games does Woody Allen beat LeBron James? Out of a hundred thousand game scenarios, Allen probably wins only in the few where LeBron starts the game by breaking an ankle. Experimenting to
+
+---
+
+discover the full spectrum of possible outcomes gives you a better appreciation for what you can influence and what you can reasonably expect to happen.
+
+Let’s now explore a few areas in which thought experiments are tremendously useful.
+
+# 1. Imagining physical impossibilities
+
+# 2. Reimagining history
+
+# 3. Intuiting the nonintuitive
+
+# Imagining physical impossibilities:
+
+Albert Einstein was a great user of the thought experiment because it is a way to logically carry out a test in one’s own head that would be very difficult or impossible to perform in real life. With this tool, we can solve problems with intuition and logic whose conditions cannot be demonstrated physically.
+
+One of Einstein’s notable thought experiments involved an elevator.4 Imagine you were in a closed elevator, feet glued to the floor. Absent any other information, would you be able to know whether the elevator was in outer space, with a string pulling the elevator upward at an accelerating rate, or sitting on Earth, being pulled down by gravity? By running the thought experiment, Einstein concluded that you would not.
+
+This led to the formulation of Einstein’s second major theory, the general theory of relativity—his universal theory of gravity. Einstein’s hypothesis was that the force you feel from acceleration and the force you feel from gravity don’t just feel the same—they are the same! Gravity, he decided, must work similarly to the accelerating elevator. We can’t build elevators in space, but we can still define some of the properties they would have if we could. This gives us enough information to test the hypothesis. Eventually, Einstein worked it all out—mathematically and in great detail—but he started with a simple thought experiment, impossible to actually perform.
+
+---
+
+This type of thought experiment need not apply only to physics and is reflected in some of our common expressions. When we say, “if money were no object” or “if you had all the time in the world,” we are asking someone to conduct a thought experiment, because removing that variable (money or time) is physically impossible. In reality, money is always an object, and we never have all the time in the world. But the act of detailing the choices we would make in these alternate realities that have properties otherwise similar to our current one—doing the thought experiment—is what leads to insights regarding what we value in life and where to focus our energies.
+
+---
+
+# The Trolley Experiment
+
+Thought experiments are often used to explore ethical and moral issues. When you are dealing with questions of life and death, obviously it is not recommended to kill a bunch of people in order to determine the most ethical course of action. This, then, is where a thought experiment is extremely valuable.
+
+One of the most famous of this type is the trolley experiment. It goes like this: Say you are the driver of a trolley that is out of control. You apply the brakes, and nothing happens. Ahead of you are five people who will die should your trolley continue on the track. At the last moment, you notice a spur that has only one person on it. What do you do? Do you continue on and kill the five, or do you divert and kill the one?
+
+This experiment was first proposed in modern form by Philippa Foot in her paper “The Problem of Abortion and the Doctrine of the Double Effect,” and further considered extensively by Judith Jarvis Thomson in “The Trolley Problem.” In both cases, the value of the thought experiment is clear. The authors were able to explore situations that would be physically impossible to reproduce without causing serious harm and, in so doing, significantly advanced certain questions of morality. Moreover, the trolley problem remains relevant to this day, as technological advances often ask us to define when it is acceptable, and even desirable, to sacrifice one to save many (and, lest you think this is always the case, Thomson conducts another great thought experiment, considering a doctor killing one patient to save five through organ donation).
+
+---
+
+9
+
+---
+
+NO_CONTENT_HERE
+
+---
+
+# Reimagining history
+
+A familiar use of the thought experiment is to reimagine history. This one we all perform, all the time. What if I hadn’t been stuck at the airport bar where I met my future business partner? Would World War I have started if Serbian nationalist Gavrilo Princip hadn’t shot the archduke of Austria in Sarajevo? If Cleopatra hadn’t found a way to meet Caesar, would she still have been able to take the throne of Egypt?
+
+These approaches are called the historical counterfactual and semifactual. If Y happened instead of X, what would the outcome have been? Would the outcome have been the same?
+
+As popular—and generally useful—as counter- and semifactuals are, they are also the areas of thought experiment with which we need to use the most caution. Why? Because history is what we call a chaotic system, wherein a small change in the beginning conditions can cause a very different outcome down the line. This is where the rigor of the scientific method is indispensable if we want to draw conclusions that are useful.
+
+To understand it, let’s think about another chaotic system we’re all familiar with: the weather. Why is it that we can predict the movement of the stars but we can’t predict the weather more than a few weeks out, and even then, not altogether reliably? The reason is because weather is highly chaotic. Any infinitesimally small error in our calculations today will change the result down the line, as rapid feedback loops occur throughout time. Since our measurement tools are not infinitely accurate, and never will be, we are stuck with the unpredictability of chaotic systems.
+
+Compared to human systems, one could say weather is pretty reliable stuff. As anyone who’s seen Back to the Future knows, a small change in the past could have a massive, unpredictable effect on the future. Thus, running historical counterfactuals is an easy way to accidentally mislead yourself. We simply don’t know what else would have occurred had Cleopatra not met Caesar, or had you not been stuck at that airport. The potential outcomes are too chaotic.
+
+But we can use thought experiments to explore unrealized outcomes—to rerun a process as many times as we like in order to see what else could have occurred and learn more about the limits we have to work with.
+
+---
+
+The events that happened in history are but one realization of the historical process—one possible outcome among a large variety of possible outcomes. They’re like a deck of cards that has been dealt only one time. All the things that didn’t happen, but could have if some little thing went another way, are invisible to us—that is, until we use our brains to generate these theoretical worlds via thought experiments.
+
+If we can also factor in the approximate probability of these occurrences, relative to the scope of all possible ones, we can learn what the most likely outcomes are. Sometimes, it is easy to imagine ten different ways a situation could have played out differently, but more of a stretch to change the variables and still end up with the same thing.
+
+So, let’s try it. Start with a question: What if Gavrilo Princip hadn’t shot Archduke Franz Ferdinand? That single act has often been credited with launching World War I, so it is a question worth asking. If we conclude the assassination started a chain reaction of which war was the inevitable result, it would certainly tell us a lot about certain causal relationships in politics, diplomacy, and possibly human psychology.
+
+Then we need to do our background research. What do we need to know to be able to answer this question? So we look into it—treaties, conflicts, alliances, interests, personalities—enough to be able to formulate a hypothesis.
+
+An immediate response to the assassination came two days later, on June 30, 1914. Austria changed its policy toward Serbia. Shortly after that, Germany offered full military support to Austria, and less than two months later, all of Europe was at war. Thus, a next step in our thought experiment might be to refine the question. Perhaps we’d ask something like, how did Princip’s assassination of the archduke influence Austrian policy toward Serbia?
+
+# Our hypothesis could be one of the following:
+
+1. The assassination had no effect on policy.
+2. The assassination had partial effect on policy.
+
+---
+
+# 3. The assassination had total effect on policy.
+
+To test any one of these, we run the experiment in our heads. We sit back and think about what the world looked like in Sarajevo on June 28, 1914: the archduke and his wife being chauffeured in their car, Gavrilo Princip cleaning his gun somewhere. Now we imagine Princip gets stomach cramps from some bad food the night before. The archduke’s car makes it to its destination while Princip is curled up in bed. The archduke gives a speech, emphasizing peace. One of Princip’s gang tries to assassinate the archduke but fails. How does Austria react? Is the outcome demonstrably different from what they actually did?
+
+Princip wasn’t a lone wolf, and there was a lot of resentment in Serbia toward Austria. How could the situation be changed to lead to a different Austrian policy? Given the climate at the time, is our hypothetical situation realistic? Meaning, can you construct a historically accurate scenario in which no events come to pass that prompt Austria’s policy change? How many Serbians would have to get the stomach flu?
+
+One of the goals of a thought experiment like this is to understand the situation enough to identify the decisions and actions that had impact. This process doesn’t provide definitive answers, such as whether the assassination did, or did not, cause World War I. What you are trying to get to is a rough idea of how much it may have contributed to starting the war. The more scenarios you can imagine where war comes to pass without the assassination, the weaker the case for it being the critical cause. Thus, by exploring the realistic relationships between events, you can better understand the most likely effects of any one decision.
+
+---
+
+# Reducing the Role of Chance
+
+Let’s try a real-world example. Suppose you were to buy a hundred thousand dollars of stock in Google, with 50 percent paid for in cash and 50 percent borrowed from the brokerage firm. (They call this a “margin loan.”)
+
+A few years later, the stock price has doubled: That means your $100,000 is worth $200,000. Since you still owe the brokerage $50,000, your own $50,000 is now worth $150,000—you’ve tripled your money! You consider yourself a financial genius.
+
+Before we land on that conclusion, though, let’s run our Theoretical World Generator a bunch of times in our head. What else could have happened but didn’t?
+
+Google could have gone down 50 percent before it went up 100 percent—nearly all stocks on the exchange have had this happen to them at some time or another. In fact, Google could have gone down 90 percent! The whole New York Stock Exchange did just that between 1929 and 1932.
+
+What if something like that had happened? The brokerage would have called in your margin loan: Game over, thanks for playing. You would have been worth zero.
+
+Now, return to the beginning of the chapter. If you’re going to buy Google on margin, is your bet that Google won’t go down 50 percent more similar to the LeBron/Allen thought experiment, or the LeBron/Durant thought experiment? Running through the scenario a hundred thousand times, how many times do you go broke, and how many times do you triple your dough?
+
+This exercise gives you some real decision-making power. It tells you about the limits of what you know and what you should attempt. It tells you, in an imprecise but useful way, a lot about how smart or stupid your decisions were, regardless of the actual outcome. It makes you aware of your process, so that even if the results are good, you can recognize when this was all down to luck and maybe you should work on your decision-making process to reduce the role of chance.
+
+---
+
+NO_CONTENT_HERE
+
+---
+
+Intuiting the nonintuitive: One of the uses of thought experiments is to improve our ability to intuit the nonintuitive. In other words, a thought experiment allows us to verify whether our natural intuition is correct by running experiments in our deliberate, conscious minds that make a point clear.
+
+An example of this is the famous “veil of ignorance” proposed by philosopher John Rawls in his influential book *A Theory of Justice*. To figure out the most fair and equitable way to structure society, he proposed that the designers of said society operate behind a veil of ignorance. This meant that they could not know who they would be in the society they were creating. If they designed the society without knowing their economic status, their ethnic background, their talents and interests, or even their gender, they would have to put in place a structure that was as fair as possible in order to guarantee the best possible outcome for themselves.6
+
+Our initial intuition regarding what is fair in a society is likely to be challenged during the “veil of ignorance” thought experiment. When confronted with the question of how best to organize society, we have a general feeling that it should be “fair.” But what exactly does this mean? We can use this thought experiment to test the likely outcomes of different rules and structures to come up with an aggregate of what is most fair.
+
+We need not be constructing the legislation of entire nations for this type of thinking to be useful. Think, for example, of a company’s human resources policies on hiring, office etiquette, or parental leave. What kind of policies would you design or support if you didn’t know what your role in the company was, or even anything about who you were?
+
+# Conclusion
+
+Thought experiments are the sandbox of the mind, the place where we can play with ideas without constraints. They’re a way of exploring the implications of our theories, of testing the boundaries of our understanding.
+
+---
+
+They offer a powerful tool for clarifying our thinking, revealing hidden assumptions, and showing us unintended consequences.
+
+The power of thought experiments lies in their ability to create a simplified model of reality where we can test our ideas. In the real world, there are always confounding factors, messy details that obscure the core principles at work. But in a thought experiment, we can strip away the noise and focus on the essence of the problem.
+
+Thought experiments offer a reminder that some of the most profound insights and innovations start with a simple question: What if?
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Necessity and Sufficiency
+
+WE OFTEN MAKE THE MISTAKE of assuming that having some necessary conditions in place means that we have the sufficient conditions in place for our desired event or effect to occur. The gap between the two is the difference between becoming a published author and becoming J. K. Rowling. Certainly, you have to know how to write well to become either, but knowing how to write well isn’t sufficient to guarantee you’ll become a Rowling. This is somewhat obvious to most. What’s not obvious is that the gap between what is necessary to succeed and what is sufficient is often luck, chance, or some other factor beyond your direct control.
+
+Assume you wanted to make it into the Fortune 500. Capital is necessary but not sufficient. Hard work is necessary but not sufficient. Intelligence is necessary but not sufficient. Billionaire success takes all of those things and more, plus a lot of luck. That’s a big reason that there’s no recipe for achieving it.
+
+Winning a military battle is a great example of necessity and sufficiency. It is necessary to prepare for the battle by evaluating the strength and tactics of your enemy, and by developing your own plan. You need to address logistics, such as
+
+---
+
+supply chains, and have a comprehensive strategy that allows flexibility to respond to the unexpected. These things, however, are not enough to win the battle. Without them, you definitely won’t be successful, but on their own they are not sufficient to guarantee success.
+
+This concept is easily demonstrated in sports as well. To be successful at a professional level in any sport depends on some necessary conditions: you must be physically capable of meeting the demands of that sport, and have the time and means to train. Meeting these conditions, however, is not sufficient to guarantee a successful outcome. Many hardworking, talented athletes are unable to break into the professional ranks.
+
+In mathematics, they call these groupings sets. The set of conditions necessary to become successful is a part of the set that is sufficient to become successful. But the sufficient set itself is far larger than the necessary set. Without that distinction, it’s too easy for us to be misled by the wrong stories.
+
+---
+
+# Second-Order Thinking
+
+What happens next?
+
+OceanofPDF.com
+
+---
+
+Technology is fine, but the scientists and engineers only partially think through their problems. They solve certain aspects, but not the total, and as a consequence it is slapping us back in the face very hard.
+
+—BARBARA MCCLINTOCK
+
+---
+
+A lmost everyone can anticipate the immediate results of their actions. However, few people think about what happens next. First-order thinking is easy and common. Second-order thinking is harder and requires thinking further ahead and thinking holistically. It requires us to consider not only our actions and their immediate consequences, but the subsequent effects of those actions as well. Failing to consider the second- and third-order effects of our decisions can unleash disaster.
+
+First-order thinking is almost always about satisfying the immediate problem. Second-order thinking, on the other hand, avoids problems before they happen by asking, “And then what?”
+
+Without second-order thinking, it can be hard to appreciate just how often what appears to solve the immediate problem takes you further away from your objective. First-order thinking tells you the chocolate bar tastes good and will satisfy your cravings. Second-order thinking tells you that when the sugar high wears off, you’ll crash.
+
+It is often easier to find examples of when second-order thinking didn’t happen—when people did not consider the effects of the effects. When someone tried to do something good, or even just benign, and instead brought calamity, we can safely assume the negative outcomes weren’t factored into their original thinking. Very often, the second level of effect is not considered until it’s too late. This concept is often referred to as the “Law of Unintended Consequences” for this very reason.
+
+---
+
+# First-Order Consequences
+
+# Second Order
+
+# Third Order
+
+Good
+Bad
+We see examples of this oversight throughout history. The British are a well-intentioned nation with an ample supply of smart politicians. However, during its colonial rule of India, the British government began to worry about the number of venomous cobras in Delhi. To reduce the population, they instituted a reward for every dead snake brought to officials. In response, Indian citizens dutifully began breeding the snakes to slaughter and bring to officials. The snake problem became worse than when the government first intervened, because the British officials didn’t think at the second level.
+
+---
+
+Second-order effects occur even with something as simple as adding traction on tires: it seems like such a great idea, because the more traction you have, the less likely you are to slide, the faster you can stop, and, thus, the safer you are. However, the second-order effects are that your engine must work harder to propel the car, you get worse gas mileage (releasing more detrimental carbon dioxide into the atmosphere), and you leave more rubber particles on the road.
+
+This is why any comprehensive thought process considers the effects of the effects of a decision seriously. You’re going to have to deal with them anyway. The genie never goes back in the bottle; you can never delete consequences to arrive back at the original starting conditions.
+
+Stupidity is the same as evil if you judge by the results.
+
+—MARGARET ATWOOD2
+
+In an example of second-order-thinking deficiency, we have been feeding antibiotics to livestock for decades, to make the resulting meat safer and cheaper. Only in recent years have we begun to realize that in doing so, we have helped create bacteria that we cannot defend against.
+
+In 1963, UC Santa Barbara ecologist Garrett Hardin proposed his First Law of Ecology: “You can never merely do one thing.”3 We operate in a world of multiple, overlapping connections, like a web, with many significant, yet obscure and unpredictable, relationships. Hardin developed second-order thinking into a tool, showing that if you don’t consider “the effects of the effects,” you can’t really claim to be doing any thinking at all.
+
+When it comes to the overuse of antibiotics in meat, the first-order consequence is that the animals gain more weight per pound of food consumed, and thus, there is profit for the farmer. Animals are sold by weight, so the less food you need to use to bulk them up, the more profit you make when you go to sell them. The second-order effects, however, include many serious, negative consequences. The bacteria that survive this
+
+---
+
+continued antibiotic exposure are antibiotic resistant. That means that the agricultural industry, when using these antibiotics as bulking agents, is allowing massive numbers of drug-resistant bacteria to become part of our food chain.
+
+High degrees of connection make second-order thinking all the more critical, because denser webs of relationships make it easier for actions to have far-reaching consequences. You may be focused in one direction, not recognizing that the consequences of your decisions are rippling out all around you. Things are not produced and consumed in a vacuum.
+
+When we try to pick out anything by itself, we find it hitched to everything else in the Universe.
+
+—JOHN MUIR
+
+Second-order thinking is not a way to predict the future. You are only able to think of the likely consequences of your decisions’ consequences based on the information available to you. However, this is not an excuse to power ahead and wait for post facto scientific analysis.
+
+Could the consequences of putting antibiotics in livestock feed have been anticipated? Likely, yes, by anyone with even a limited understanding of biology. We know that organisms evolve. They adapt based on environmental pressures, and those with shorter life cycles, like bacteria, can do it quite quickly, because they have more opportunities to do so. Antibiotics, by definition, kill bacteria. Bacteria, just like all other living things, want to survive. The pressures put on them by continued exposure to antibiotics increase their pace of evolution. Over the course of many generations, eventually, mutations will occur that allow certain bacteria to resist the effects of the antibiotics. These are the bacteria that will then reproduce more rapidly, creating the situation we are now in.
+
+---
+
+# Second-Order Problem
+
+Warren Buffett used a very apt metaphor once to describe the second-order problem, likening it to a crowd at a parade: Once a few people decide to stand on their tiptoes to see better, everyone has to stand on their tiptoes. No one can see any better, but they’re all worse off.5
+
+---
+
+Second-order thinking teaches us two important concepts that underline the utility of this model. If we’re interested in understanding how the world works, we must think about second- and subsequent-level effects. We must understand that just because there is no immediate and visible impact from our decisions doesn’t mean that we are not moving closer to or further from our objectives. How often is short-term gain worth protracted, long-term pain?
+
+Let’s look at two areas where second-order thinking can be used to great benefit:
+
+1. Prioritizing long-term interests over immediate gains
+2. Constructing effective arguments
+
+# Prioritizing Long-Term Interests
+
+Thinking long-term eliminates a lot of poor behavior. Most people prefer to give in to instant gratification. If we want to avoid problems, however, we need to see past the immediate moment and into the future. If we forgo the immediate pleasure of candy, we improve our long-term health. The first-order effect of candy is the amazing feeling triggered by an influx of pure sugar in our system. But what are the second-order effects of regular candy consumption? Is that what I want my body or life to look like in ten years? Second-order thinking involves asking ourselves if what we are doing now is moving us closer to or further away from our objectives.
+
+The most dangerous form of short-term thinking is one that doesn’t understand that just because results are not visible doesn’t mean they are not accumulating. Thinking long-term helps us see how the accumulation of tiny gains or losses moves us toward or away from our intended future.
+
+Finding historical examples of second-order thinking can be tricky, because we don’t want to evaluate based solely on the outcome: “It all turned out well, so he must have thought through the consequences of his actions.”
+
+---
+
+actions.” Even if you can glimpse the long-term gain from your short-term pain, there is no guarantee you’ll get there.
+
+In 48 BC, Cleopatra of Egypt was in a terrible position.6 Technically co-regent with her brother, in a family famous for murdering siblings, she was encamped in a swampy desert, ousted from the palace, with no solid plan for how to get back. She was queen, but she had made a series of unpopular decisions that left her with little political support and that gave her brother ample justification for trying to have her assassinated. What to do?
+
+At the same time, the great Roman general Caesar arrived in Egypt, chasing down his enemy Pompey and making sure the Egyptians knew who really was in charge on the Mediterranean. Egypt was an incredibly fertile, wealthy country, and as such was of great importance to the Romans. The way they inserted themselves in Egypt, however, made them extremely unpopular there.
+
+To survive, Cleopatra had to make some tough decisions. Should she try to work things out with her brother? Should she try to marshal some support from another country? Or should she try to align herself with Caesar?
+
+In Cleopatra: A Life, Stacy Schiff explains that even in 48 BC, at the age of twenty-one, Cleopatra would have had a superb political education, based on both historical knowledge and firsthand exposure to the tumultuous events of life on the Mediterranean. She would have observed actions taken by her father, Auletes, as well as various family members, that resulted in exile, bribery, and murder from either a family member, the Romans, or the populace. She would have known that there were no easy answers. As Schiff explains, “What Auletes passed down to his daughter was a precarious balancing act. To please one constituency was to displease another. Failure to comply with Rome would lead to intervention. Failure to stand up to Rome would lead to riots.”7
+
+In this situation, it was thus imperative that Cleopatra consider the second-order effects of her actions. Short-term gain might easily lead to execution (as indeed it already had for many of her relatives). If she wanted to be around for a while, she needed to balance her immediate goals of
+
+---
+
+survival and possession of the throne with the future need for support to stay on it.
+
+In 48 BC, Cleopatra chose to align herself with Caesar. The first-order effects of this decision, it seems likely she would have known: namely, that it would anger her brother, who would increase his plotting to have her killed, and that it would anger the Egyptian people, who didn’t want a Roman involved in their affairs. She probably anticipated that there would be short-term pain, and there was. Cleopatra effectively started a civil war, including a siege on the palace that left her and Caesar trapped there for months. In addition, she had to be constantly vigilant against the assassination schemes of her brother. So why did she do it?
+
+We will never know for sure. We can only make an educated guess. But given that Cleopatra ruled Egypt quite successfully for many years after these events, her decision was probably based on seeing the effects of the effects: if she could somehow make it through the short-term pain, her leadership had a much greater chance of being successful with the support of Caesar and Rome than without it. As Schiff notes, “The Alexandrian War gave Cleopatra everything she wanted. It cost her little.” In winning the civil war, Caesar got rid of all major opposition to Cleopatra and firmly aligned himself with her reign.
+
+Being aware of second-order consequences and using them to guide your decision making may mean the short term is less spectacular, but the payoffs for the long term can be enormous. By delaying gratification now, you will save time in the future. You won’t have to clean up the mess you made on account of not thinking through the effects of indulging your short-term desires.
+
+---
+
+# Developing Trust for Future Success
+
+Trust and a sense of trustworthiness are the results of multiple interactions. This is why second-order thinking is so useful and valuable. Going for the immediate payoff in our interactions with people, unless the result is a win-win, almost always guarantees that interaction will be a one-off. Maximizing benefits is something that becomes possible only over time. Thus, considering the effects of the effects of our actions on others, or on our reputations, is critical to getting people to trust us and to enjoying the benefits of cooperation that come with that trust.9
+
+---
+
+# Constructing effective arguments:
+
+Second-order thinking can help you avert problems and anticipate challenges that you can then address in advance.
+
+For example, you construct arguments every day: convincing your boss to take a chance on a new product, convincing your spouse to try a new parenting technique. Life is filled with the need to be persuasive. Arguments are more effective when we demonstrate that we have considered the second-order effects of a decision and put effort into verifying that these are desirable as well.
+
+In late-eighteenth-century England, women had very few rights. Philosopher Mary Wollstonecraft was frustrated that this lack of rights limited a woman’s ability to be independent and make choices on how to live her life. Instead of arguing, however, for why women should have rights, she recognized that she had to demonstrate the value that these rights would confer. She explained the benefits to society that would be realized because of the granting of those rights. She argued for the education of women because it would, in turn, make them better wives and mothers, more able to both support themselves and raise smart, conscientious children.
+
+Her thoughts, from her book *A Vindication of the Rights of Woman*, are a demonstration of second-order thinking:
+
+Asserting the rights which women in common with men ought to contend for, I have not attempted to extenuate their faults; but to prove them to be the natural consequence of their education and station in society. If so, it is reasonable to suppose that they will change their character, and correct their vices and follies, when they are allowed to be free in a physical, moral, and civil sense.
+
+Empowering women was a first-order effect of recognizing that women should have rights. But by discussing the logical consequences this empowerment would have on society—the second-order effects—
+
+---
+
+Wollstonecraft started a conversation that eventually resulted in what we now call feminism. Not only would women eventually get freedoms they deserved, they would become better women and better members of society.
+
+# A Word of Caution
+
+Second-order thinking must be tempered in one important way: you can’t let it lead to the paralysis of the “slippery slope effect,” the idea that if we start with action A, everything after is a slippery slope down to hell, with an inevitable chain of consequences including B, C, D, E, and F.
+
+Garrett Hardin smartly addresses this danger in Filters Against Folly:
+
+Those who take the wedge (Slippery Slope) argument with the utmost seriousness act as though they think human beings are completely devoid of practical judgment. Countless examples from everyday life show the pessimists are wrong…. If we took the wedge argument seriously, we would pass a law forbidding all vehicles to travel at any speed greater than zero. That would be an easy way out of the moral problem. But we pass no such law.
+
+In practical life, everything has limits. Even if we consider secondary and subsequent effects, we can only go so far. During waves of prohibition fever in the United States and elsewhere, conservative abstainers have frequently made the case that taking even a first drink would be the first step toward a life of sin. They’re right: it’s true that drinking a beer might lead you to become an alcoholic. But not most of the time.
+
+Thus, we need to avoid the slippery slope and the analysis paralysis it can lead to. Second-order thinking needs to evaluate the most likely effects and their most likely consequences, checking our understanding of what the typical results of our actions will be. If we worried about all possible effects of the effects of our actions, we would likely never do anything, and we’d
+
+---
+
+# Conclusion
+
+Second-order thinking is a method of thinking that goes beyond the surface level, beyond the knee-jerk reactions and short-term gains. It asks us to play the long game, to anticipate the ripple effects of our actions and to make choices that will benefit us not just today, but in the months and years to come.
+
+Second-order thinking demands we ask: And then what?
+
+Think of a chess master contemplating her next move. She doesn’t just consider how the move will affect the next turn, but how it will shape the entire game. She’s thinking many steps ahead. She’s considering not just her own strategy, but her opponent’s likely response. This is second-order thinking in action.
+
+In our daily lives, we’re often driven by first-order thinking. We make decisions based on what makes us happy now, what eases our current discomfort or satisfies our immediate desires.
+
+Second-order thinking asks us to consider the long-term implications of our choices, to make decisions based not just on what feels good now, but on what will lead to the best outcomes over time.
+
+In the end, second-order thinking is about playing the long game. It’s about making choices not just for the next move, but for the entire journey.
+
+OceanofPDF.com
+
+---
+
+# Probabilistic Thinking
+
+# What are the chances?
+
+OceanofPDF.com
+
+---
+
+The theory of probability is the only mathematical tool available to help map the unknown and the uncontrollable. It is fortunate that this tool, while tricky, is extraordinarily powerful and convenient.
+
+—BENOIT MANDELBROT
+
+---
+
+Probabilistic thinking is essentially trying to estimate, using some math and logic, the likelihood of any specific outcome occurring. It is one of the best tools we have to improve the accuracy of our decisions. In a world where each moment is determined by an infinitely complex set of factors, probabilistic thinking helps us deal with uncertainty. When we know these, our decisions can be more precise and effective.
+
+# Are You Going to Get Hit by Lightning or Not?
+
+It’s worth asking why we need to think in probabilities at all. Things either are or are not, right? Either we will get hit by lightning today or we won’t. The problem is, we just don’t know until we live out the day—which doesn’t help us at all when we make our decisions in the morning about what to do. The future is far from predetermined, and we can better navigate it by understanding the likelihood of events that could impact us.
+
+Very few things are 100 percent certain. Nearly everything is a probability. Our lack of perfect information about the world gives rise to all of probability theory, and to its usefulness. We know now that the future is inherently unpredictable, because not all variables can be known, and even the smallest error in our data very quickly throws off our predictions. The best we can do is estimate the future by generating realistic, useful probabilities. So how do we do that?
+
+Probability is everywhere, down to the very bones of the world. The probabilistic machinery in our minds—the cut-to-the-quick “heuristics” made so famous by the psychologists Daniel Kahneman and Amos Tversky—was evolved by the human species in a time before computers, factories,
+
+---
+
+traffic, middle managers, and the stock market. It served us in a time when
+human life was about survival and still serves us well in that capacity.
+
+---
+
+# Conditional Probability
+
+Conditional probability is like Bayesian thinking (see below) in practice but comes at it from a different angle. When you use historical events to predict the future, you must be mindful of the conditions that surrounded that event.
+
+Events can be independent, like tossing a coin, or dependent. A dependent event is one whose outcome is conditional on what preceded it. Let’s say that the last three times I’ve hung out with you, we’ve gone for ice cream. I’ve picked vanilla each time. Do you conclude that vanilla is my favorite, and thus I will always choose it? You’d want to check first whether my choosing vanilla is independent or dependent. Am I the first to choose from among a hundred flavors? Or am I further down the line, when chocolate is no longer available?
+
+My ice cream choice is independent if all the flavors are available each time someone in my group makes a choice. It is dependent if the preceding choices of my friends reduce what choices are available to me. In this case, the probability of my choosing vanilla is conditional on what is left after my friends make their choices.
+
+Thus, using conditional probability means being very careful to observe the conditions preceding an event you’d like to understand.
+
+---
+
+But what about today—a time when, for most of us, survival is not so much the issue? Today, we want to thrive. We want to compete, and win. Mostly, we want to make good decisions in complex social systems that were not part of the world in which our brains evolved their (quite rational) heuristics.
+
+To achieve these aims, we need to consciously add in a layer of probability awareness to our thinking.
+
+# What is probability awareness, and how can you use it to your advantage?
+
+There are three important aspects of probability that we need to explain so you can integrate them into your thinking, to get you into the ballpark and improve your chances of catching the ball:
+
+1. Bayesian thinking
+2. Fat-tailed curves
+3. Asymmetries
+
+# Bayesian thinking
+
+Thomas Bayes was an English minister in the first half of the eighteenth century, whose most famous work, “An Essay Toward Solving a Problem in the Doctrine of Chances,” was brought to the attention of the Royal Society by his friend Richard Price in 1763—two years after his death. The essay, the key to what we now know as Bayes’s Theorem, concerned how we should adjust probabilities when we encounter new data.
+
+The core of Bayesian thinking (or Bayesian updating, as it can be called) is this: given that we have limited but useful information about the world, and are constantly encountering new information, we should consider what we already know—as much of it as possible—when we learn something new. Bayesian thinking allows us to use all relevant prior information in making decisions. Statisticians might call it a “base rate”—taking in outside information about past situations like the one you’re in.
+
+Consider the headline “Violent Stabbings on the Rise.” Without Bayesian thinking, you might become genuinely afraid, because your
+
+---
+
+Chance of being a victim of assault or murder is higher than it was a few months ago. But a Bayesian approach will have you putting this information into the context of what you already know about violent crime: You know that violent crime has declined to its lowest rates in decades. Your city is safer now than it has been since this measurement was started.
+
+Let’s say your chance of being a victim of a stabbing last year was 1 in 10,000, or 0.01 percent. The article states, with accuracy, that violent crime has doubled. Your chance of being stabbed is now 2 in 10,000, or 0.02 percent. Is that worth being terribly worried about? The prior information here is key. When we factor it in, we realize that our safety has not really been compromised.
+
+If we look at diabetes statistics in the United States, our application of prior knowledge would lead us to a different conclusion. Here, a Bayesian analysis indicates you should be concerned. In 1958, 0.93 percent of the population was diagnosed with diabetes. In 2015, it was 7.4 percent. When you look at the intervening years, the climb in diabetes diagnoses is steady, not a spike. So the prior relevant data, or “priors,” indicate a trend that is worrisome.
+
+It is important to remember that priors themselves represent probability estimates. For each bit of prior knowledge, you are not putting it in a binary structure, saying it is true or not. You’re assigning it a probability of being true. Therefore, you can’t let your priors get in the way of processing new knowledge. In Bayesian terms, this is called the “likelihood ratio” or the “Bayes factor.” Any new information you encounter that challenges a prior simply means that the probability of that prior being true may be reduced. Eventually, some priors are replaced completely. Bayesian thinking is an ongoing cycle of challenging and validating what you believe you know.
+
+When making uncertain decisions, it’s nearly always a mistake not to ask: What are the relevant priors? What might I already know that I can use to better understand the reality of the situation?
+
+# Fat-tailed curves:
+
+Many of us are familiar with the bell curve, that nice, symmetrical wave that captures the relative frequency of so many things from heights to exam scores. The bell curve is great because it’s easy.
+
+---
+
+to understand and easy to use. Its technical name is “normal distribution.” If we know we are in a bell curve situation, we can quickly identify our parameters and plan for the most likely outcomes.
+
+# Bewarel
+
+# Fat-tailed curve
+
+Always be extra mindful of the tails: They might mean everything.
+
+At first glance, the two figures seem similar enough. Common outcomes cluster together, creating a wave. The difference is in the tails. In a bell curve, the extremes are predictable. There can only be so much deviation from the mean. In a fat-tailed curve, there is no real cap on extreme events.
+
+The more extreme events that are possible, the longer the tails of the curve get. Any one extreme event is still unlikely, but the sheer number of options means that we can’t rely on the most common outcomes as representing the average. The more extreme events that are possible, the
+
+---
+
+higher the probability that one of them will occur. Crazy things are going to
+happen, and we have no way of identifying when.
+
+---
+
+# Orders of Magnitude
+
+Nassim Nicholas Taleb puts his finger in the right place when he points out our naive use of probabilities. In The Black Swan, he argues that any small error in measuring the risk of an extreme event can mean we’re not just slightly off but way off—off by orders of magnitude, in fact. In other words, we’re not just 10 percent wrong but ten times wrong, or a hundred times wrong, or a thousand times wrong. Something we thought could happen only once every thousand years might be likely to happen in any given year! Using false prior information results in us underestimating the probability of the future distribution being different.2
+
+---
+
+Think of it this way: In a bell curve situation, such as displaying the distribution of heights or weights in a human population, there are outliers on the spectrum of possibility, but the outliers have a fairly well-defined scope. You’ll never meet a man who is ten times the size of an average man. But in a curve with fat tails, like wealth, the central tendency does not work the same way. You may regularly meet people who are ten, a hundred, or ten thousand times wealthier than the average person. That is a very different type of world.
+
+Let’s reapproach the example of the risk of violence we discussed in relation to Bayesian thinking. Suppose you heard that you had a greater risk of slipping on the stairs and cracking your head open than being killed by a terrorist. The statistics, the priors, seem to back it up: a thousand people slipped on the stairs and died last year in your country, and only five hundred died in terrorist attacks. Should you be more worried about stairs or terror events? Some people use examples like these to prove that terror risk is low—since the recent past shows very few deaths, why worry?3
+
+The problem is in the fat tails: The risk of terror violence is more like wealth, while stair-slipping deaths are more like height and weight. In the next ten years, how many events are possible? How fat is the tail?
+
+The important thing is not to sit down and imagine every possible scenario in the tail (which, by definition, is impossible) but to deal with fat-tailed domains in the correct way: by positioning ourselves to survive or even benefit from the wildly unpredictable future, by being the only ones thinking correctly and planning for a world we don’t fully understand.
+
+---
+
+# Antifragility
+
+How do we benefit from the uncertainty of a world we don’t understand, one dominated by “fat tails”? Here, Nassim Nicholas Taleb’s work is again instructive. In his book Antifragile, he explains it thus: We can think about three categories of objects—ones that are harmed by volatility and unpredictability, ones that are neutral to volatility and unpredictability, and ones that benefit from it.4 The last category is antifragile—like a package that wants to be mishandled. Up to a point, certain things benefit from volatility, and that’s how we want to be ourselves. Why? Because the world is fundamentally unpredictable and volatile, and large events—panics, crashes, wars, bubbles, and so on—tend to have a disproportionate impact on outcomes.
+
+There are two ways to handle such a world: try to predict, or try to prepare. Prediction is tempting. For all of human history, seers and soothsayers have turned a comfortable trade. The problem is that nearly all studies of “expert” predictions in such complex real-world realms as the stock market, geopolitics, and global finance have shown again and again that, for the rare and impactful events in our world, predicting is impossible! It’s more efficient to prepare.
+
+What are some ways we can prepare—arm ourselves with antifragility—so we can benefit from the volatility of the world?
+
+The first one is what Wall Street traders would call “upside optionality”—that is, seeking out situations that we expect to have good odds of offering us opportunities. Take the example of attending a cocktail party where a lot of people you might like to know are in attendance. While nothing is guaranteed to happen—you may not meet those people, and if you do, it may not go well—you give yourself the benefit of serendipity and randomness. The worst thing that can happen is…nothing. One thing you know for sure is that you’ll never meet these people sitting at home. By going to the party, you improve your odds of encountering opportunity—your upside optionality.
+
+The second thing we can do is to learn how to fail properly. Failing properly has two major components: First, never take a risk that will do you in—never get taken out of the game completely. Second, develop the personal resilience to learn from your failures and start again. If you follow these two rules, you can only fail temporarily.
+
+No one likes to fail. It hurts. But failure carries with it one huge antifragile gift: learning. Those who are not afraid to fail (properly) have a huge advantage over the rest. What they learn makes them less vulnerable to the volatility of the world. They benefit from it, in true antifragile fashion.
+
+---
+
+Let’s say you’d like to start a successful business, but you have no business experience. Do you attend business school, or start a business that might fail? Business school has its benefits, but business itself—the rough, jagged real-world experience of it—teaches through rapid feedback loops of success and failure. In other words, trial and error carries the precious commodity of information.
+
+The Antifragile mindset is a unique one. Whenever possible, try to create scenarios where randomness and uncertainty are your friends, not your enemies.
+
+---
+
+Asymmetries: Finally, you need to think about something we might call “metaprobability”—the probability that your probability estimates themselves are any good.
+
+This massively misunderstood concept has to do with asymmetries. If you look at nicely polished stock pitches made by professional investors, nearly every time an idea is presented, the investor looks their audience in the eye and states that they think they’re going to achieve a rate of return of 20 to 40 percent per annum, if not higher. Yet exceedingly few of them ever attain that mark. It’s not because they don’t pick any winners—it’s because they get so many so wrong. They are consistently overconfident in their probabilistic estimates. (For reference, the general stock market in the United States, over a long period, has returned no more than 7 percent to 8 percent per annum, before fees.)
+
+Another common asymmetry is people’s ability to estimate the effect of traffic on travel time. How often do you leave “on time” and arrive 20 percent early? Almost never? How often do you leave “on time” and arrive 20 percent late? All the time? Exactly. Your estimation errors are asymmetric, skewing in a single direction. This is often the case with probabilistic decision making.5
+
+Far more probability estimates are wrong on the “over-optimistic” side than the “under-optimistic” side. You’ll rarely read about an investor who aimed for 25 percent annual return rates and who subsequently earned 40 percent over a long period of time, whereas you can throw a dart at The Wall Street Journal and hit the names of lots of investors who aim for 25 percent per annum with each investment and end up closer to 10 percent.
+
+# The Spy World
+
+Successful spies are very good at probabilistic thinking. High-stakes survival situations tend to make us evaluate our environment with as little bias as possible.
+
+---
+
+When Vera Atkins was second in command of the French unit of the Special Operations Executive (SOE), a British intelligence organization during World War II that reported directly to Winston Churchill, she had to make hundreds of decisions by figuring out the probable accuracy of inherently unreliable information.
+
+Atkins was responsible for the recruitment of British agents and their deployment into occupied France. She had to decide who could do the job and where the best sources of intelligence were. These were literal life-and-death decisions, and all were based in probabilistic thinking.
+
+# 1. Choosing a Spy
+
+First, how do you choose a spy? Not everyone can go undercover in high-stress situations and make the contacts necessary to gather intelligence. The result of failure in France during the war was not getting fired; it was death. What factors of personality and experience show that a person is right for that job? Even today, with advancements in psychology, interrogation, and polygraph tests, it’s still a judgment call.
+
+For Vera Atkins, in the 1940s, it was very much a process of assigning weight to the various factors and coming up with a probabilistic assessment of who had a decent chance of success. Who spoke French? Who had the necessary confidence? Who was too tied to family? Who had the problem-solving capabilities? From recruitment to deployment, her development of each spy was a series of continually updated educated estimates.
+
+# 2. Deployment Decisions
+
+Getting an intelligence officer ready to go is only half the battle. Where do you send them? If your information was so great that you knew exactly where to go, you probably wouldn’t need an intelligence mission. Choosing a target is another exercise in probabilistic thinking. You need to evaluate the reliability of the information you have and the networks you have set up. Intelligence is not evidence. There is no chain of command or guarantee of authenticity.
+
+The stuff coming out of German-occupied France was at the level of grainy photographs, handwritten notes that passed through many hands on the way back to headquarters, and unverifiable wireless messages sent quickly, sometimes sporadically, and with the operator under incredible.
+
+---
+
+stress. When deciding what to use, Atkins had to consider the relevance, quality, and timeliness of the information she had.
+
+She also had to make decisions based not only on what had happened but on what possibly could. Trying to prepare for every eventuality would mean that spies would never leave home, but they had to somehow prepare for a good deal of the unexpected. After all, a spy’s job is often executed in highly volatile, dynamic environments. The women and men Atkins sent over to France worked in three primary occupations: organizers were responsible for recruiting locals, developing the network, and identifying sabotage targets; couriers moved information all around the country, connecting people and networks to coordinate activities; and wireless operators had to set up heavy communications equipment, disguise it, get information out of the country, and be ready to move at a moment’s notice.
+
+All these jobs were dangerous. The full scope of the threats was never completely identifiable. There were so many things that could go wrong, so many possibilities for discovery or betrayal, that it was impossible to plan for them all. The average life expectancy in France for one of Atkins’s wireless operators was six weeks.
+
+Finally, the numbers suggest an asymmetry in the estimation of the probability of success of each individual agent. Of the four hundred agents that Atkins sent over to France, a hundred were captured and killed. This is not meant to pass judgment on her skills or smarts. Probabilistic thinking can only get you in the ballpark. It doesn’t guarantee 100 percent success. There is no doubt that Atkins relied heavily on probabilistic thinking to guide her decisions in the challenging quest to disrupt German operations in France during World War II. It is hard to evaluate the success of an espionage career, because it is a job that comes with a lot of loss. Atkins was extremely successful in that her network conducted valuable sabotage to support the Allied cause during the war, but the loss of life this work entailed was significant.
+
+---
+
+# Conclusion
+
+Probabilistic thinking is the art of navigating uncertainty. Successfully thinking in shades of probability means roughly identifying what matters, coming up with a sense of the odds, doing a check on our assumptions, and then deciding.
+
+The challenge of probabilistic thinking is that it requires constant updating. As new information emerges, the probabilities change. What seemed likely yesterday may seem unlikely today. This both explains why probabilistic thinkers are always revising their beliefs with new data and why it’s so uncomfortable for many people.
+
+It’s much easier to believe something false is true than deal with the fact that it might not be true. Being a probabilistic thinker means being willing to say, “I don’t know for sure, but based on the evidence, I think there’s a 63 percent chance of X.”
+
+The rewards of probabilistic thinking are immense. By embracing uncertainty, we can make better decisions, avoid the pitfalls of overconfidence, and navigate complex situations with greater skill and flexibility. We can be more open-minded, more receptive to new ideas, and more resilient in the face of change.
+
+---
+
+# Insurance Companies
+
+The most probability-acute businesses in the world are insurance companies—because they must be. When we think of insurance, we might think of life insurance (the probability of a policyholder dying at a certain age), or auto insurance (the probability of being in a car accident), or maybe home insurance (the probability of a tree falling on the house). With the statistics available to us, the probabilities of these things are easy to price and predict across a large enough population.
+
+But insurance is deeply wide-ranging, and insurers will insure almost any event, for a price. Insurance policies have been taken out on Victoria’s Secret models’ legs, on baseball players’ arms, on the Pepsi Challenge and the NCAA tournament, and even on a famous country singer’s breasts!
+
+How is this possible? Only with close attention to probability. What the great insurance companies in the world know how to do is pay attention to the important factors in a situation, even if they’re not totally predictable, and price accordingly.
+
+What is the probability of a Victoria’s Secret model injuring her legs badly enough to end her career? One in 10,000? One in 100,000? Getting this calculation right would mean evaluating her lifestyle, her habits, her health, her family history—and coming up with a price and a set of conditions that are good enough, on average, to provide a profit. It’s not unlike handicapping a race at the horse track. You can always say yes to insuring, but the trick is to come up with the right price. For that, we need probability.
+
+---
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Causation vs. Correlation
+
+CONFUSION BETWEEN THESE TWO TERMS often leads to a lot of inaccurate assumptions about the way the world works. We notice two things happening at the same time (correlation) and mistakenly conclude that one causes the other (causation). We then often act upon that erroneous conclusion, making decisions that can have immense influence across our lives. The problem is, without a good understanding of what is meant by these terms, these decisions fail to capitalize on real dynamics in the world and instead are rendered successful only by luck.
+
+# No Correlation
+
+The correlation coefficient between two measures, which varies between −1 and 1, is a measure of the relative weight of the factors they share. For example, two phenomena with few shared factors, such as bottled-water consumption versus suicide rate, should have a correlation coefficient of close to 0. That is to say, if we looked at all countries in the world and plotted suicide rates in a specific year against per capita consumption of bottled water, the plot would show no pattern at all.
+
+---
+
+# No Correlation
+
+# Perfect Correlation
+
+By contrast, there are measures that are solely dependent on the same factor. A good example of this is temperature. The only factor governing temperature—velocity of molecules—is shared by all scales. Thus, each degree in Celsius will have exactly one corresponding value in Fahrenheit. Therefore, temperature in Celsius and Fahrenheit will have a correlation coefficient of 1, and the plot will be a straight line.
+
+# Perfect Correlation
+
+---
+
+# Weak to Moderate Correlation
+
+There are few phenomena in human sciences that have a correlation coefficient of 1. There are, however, plenty where the association is weak to moderate, and there is some explanatory power between the two phenomena. Consider the correlation between height and weight, which would land somewhere between 0 and 1. While virtually every three-year-old will be lighter and shorter than every grown man, not all grown men or three-year-olds of the same height will weigh the same.
+
+# Weak to Moderate Correlation
+
+This variation, and the corresponding lower degree of correlation, implies that, while height is a good predictor of weight, there clearly are factors other than height at play.
+
+In addition, correlation can sometimes work in reverse. Let’s say you read a study that compares alcohol consumption rates in parents and their children’s corresponding academic success. The study shows a relationship between high alcohol consumption and low academic success. Is this causation or correlation? It might be tempting to conclude there’s causality, such as the more parents drink, the worse their kids do in school.
+
+However, this study has demonstrated only a relationship, not proved that one causes the other. The factors correlate—meaning that alcohol consumption in parents has an inverse relationship with academic success in children. It is entirely possible that having parents who consume a lot of alcohol leads to worse academic outcomes for children. It is also possible, however, that the reverse is true, or even that having kids who do poorly in school causes parents to drink more. Trying to invert the relationship can help you sort through claims to determine if you are dealing with true causation or just correlation.
+
+---
+
+# Causation
+
+Whenever correlation is imperfect, extremes will soften over time. The best will always appear to get worse, and the worst will appear to get better, regardless of any additional action. This is called regression to the mean, and it means we have to be extra careful when diagnosing causation. This is something that the general media, and sometimes even trained scientists, fail to recognize.
+
+Consider the example Daniel Kahneman gives in Thinking, Fast and Slow:
+
+Depressed children treated with an energy drink improve significantly over a three-month period. I made up this newspaper headline, but the fact it reports is true: if you treated a group of depressed children for some time with an energy drink, they would show a clinically significant improvement. It is also the case that depressed children who spend some time standing on their head or hug a cat for twenty minutes a day will also show improvement. Whenever we come across such headlines, it is very tempting to jump to the conclusion that energy drinks, standing on the head, or hugging cats are all perfectly viable cures for depression. These cases, however, once again embody the concept of regression to the mean:
+
+Depressed children are an extreme group—they are more depressed than most other children—and extreme groups regress to the mean over time. The correlation between depression scores on successive occasions of testing is less than perfect, so there will be regression to the mean: depressed children will get somewhat better over time even if they hug no cats and drink no Red Bull.
+
+We often mistakenly attribute a specific policy or treatment as the cause of an effect, when the change in the extreme groups would have happened anyway. This presents a fundamental problem: How can we know if the effect is real or simply due to variability?
+
+Luckily, there is a way to tell between a real improvement and something that would have happened anyway. That is the introduction of the so-called “control group,” which is expected to improve by regression alone. The aim of the research is to determine whether the treated group improves more than regression can explain.
+
+---
+
+In real-life situations assessing the performance of specific individuals or teams, where the only real benchmark is past performance and no control group can be introduced, the effects of regression can be difficult, if not impossible, to disentangle. We can compare against industry average, peers in the cohort group, or historical rates of improvement, but none of these is a perfect measure.
+
+OceanofPDF.com
+
+---
+
+# Inversion
+
+Change your perspective.
+
+---
+
+OceanofPDF.com
+
+---
+
+The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.
+
+—F. SCOTT FITZGERALD
+
+---
+
+I t can be difficult to appreciate just how much avoiding the standard ways of failing dramatically increases the odds of success.
+
+Inversion is all about identifying and removing the obstacles to success. The root of inversion is “invert,” which means to upend or turn upside down. As a thinking tool, it means approaching a situation from the opposite end of the natural starting point.
+
+Most of us tend to think one way about a problem: forward. Inversion allows us to flip the problem around and think backward. Sometimes it’s good to start at the beginning, but it can be more useful to start at the end.
+
+Avoiding stupidity is easier than seeking brilliance. Even when we don’t know how to achieve a particular objective, we can often identify what prevents it from happening. Perhaps you don’t know all the things that create a good night’s sleep. We can invert the problem by identifying some of the standard things that prevent us from getting a good night’s sleep, such as eating right before going to bed or consuming a lot of alcohol. Simply avoiding those two things dramatically improves the quality of our sleep.
+
+---
+
+# Avoiding the Standard Ways of Failing
+
+Warren Buffett and Charlie Munger are two of the most successful investors of all time. Their track record at Berkshire Hathaway is legendary. One underappreciated aspect of their success is how they avoided the standard ways of failing.
+
+When asked about how otherwise smart people fail, the duo commented that it often involves drugs and leverage. “It’s insane to risk what you have and need for something you don’t really need,” Buffett says of borrowing. “You will not be way happier if you double your net worth.”
+
+In one of his last interviews, Munger commented that one of the keys to success in life is avoiding common traps:
+
+“My game in life was always to avoid all standard ways of failing. You teach me the wrong way to play poker and I will avoid it. You teach me the wrong way to do something else, I will avoid it. And, of course, I’ve avoided a lot, because I’m so cautious.
+“Crazy is way more common than you think,” Munger said. “It’s easy to slip into crazy. Just avoid it, avoid it, avoid it.”
+
+Inversion teaches us that a great deal of wisdom can be found in knowing what to avoid.
+
+---
+
+There are two approaches to applying inversion in your life:
+
+1. Start by assuming that what you’re trying to prove is either true or false, then show what else would have to be true to make that so.
+2. Instead of aiming directly for your goal, think deeply about what to avoid and then see what options are left over.
+
+Set your assumptions: The nineteenth-century German mathematician Carl Jacobi became famous for several reasons—including solving some incredibly difficult problems—but is perhaps best remembered for his advice to “invert, always invert.”
+
+Jacobi solved a range of problems by starting with the endpoint. When faced with proving an axiom in a difficult math problem, he might instead assume that a property of the axiom was correct and then try to determine the consequences of this assumption. From that point, he could work out surprising, and at times counterintuitive, insights.
+
+Jacobi was not the first mathematician to use inversion. In fact, inversion is a staple of mathematical, philosophical, and scientific inquiry.
+
+We can look around today and appreciate that we can’t see atoms and quarks, but we know they exist because we can make predictions about their behavior and test those predictions.
+
+Or, we can go back 2,300 years and look at the work of the Greek mathematician Hippasus, a follower of Pythagoras. (Yes, the one with the theorem.) His attempts to derive the square root of two, and his original direct approach to solving the problem (essentially, dividing larger and larger whole numbers into each other) were both fruitless and time consuming. He hit an impasse, realizing that he’d never be able to definitely solve the problem by thinking forward. In his increasing frustration, Hippasus decided to take the reverse route, thinking about what the square root of two might imply, and working backward from there. If he couldn’t find it the way he had expected to, he’d start by proving what the number
+
+---
+
+couldn’t be. His quest forever changed what we understood about mathematics and led to the discovery of the first irrational number.
+
+Mathematics is not the only area where using inversion can produce surprising and nonintuitive results. In the 1920s, the American Tobacco Company wanted to sell more of their Lucky Strike cigarettes to women. Men were smoking, but women weren’t. There were pervasive taboos against women smoking—it was seen as a man’s activity. Women, therefore, presented an untapped market that had the potential to provide huge revenue. Riding on the slimness trend that had already begun, the head of the company thought that they needed to convince women that smoking would make them thinner, so he hired Edward Bernays, who came up with a truly revolutionary marketing campaign.5,6
+
+In the style of the inversion approach described above, Bernays did not ask, “How do I sell more cigarettes to women?” Instead, he wondered, if women bought and smoked cigarettes, what else would have to be true? What would have to change in the world to make smoking desirable to women and socially acceptable? Then—a step further—once he knew what needed to change, how would he achieve that?
+
+To tackle the idea of smoking as a slimming aid, Bernays mounted a large anti-sweets campaign. After dinner, it was all about cigarettes, not dessert. Cigarettes were slimming, while desserts would ruin one’s figure. But Bernays’s real stroke of genius did lie solely in coming out with advertisements to convince women to stay slim by smoking cigarettes. As author Alan Axelrod puts it, “Instead, he sought nothing less than to reshape American society and culture.”7 He solicited journalists and photographers to promote the virtues of being slim. He sought testimonials from doctors about the health value of smoking after a meal. He combined this approach with “altering the very environment, striving to create a world in which the cigarette was ubiquitous.” Axelrod details the full scope of Bernays’s efforts:
+
+He mounted a campaign to persuade hotels and restaurants to add cigarettes to dessert-list menus, and he provided such magazines as
+
+---
+
+House and Garden with feature articles that included menus designed to preserve readers “from the dangers of overeating.”… The idea was not only to influence opinion but to remold life itself. Bernays approached designers, architects, and cabinetmakers in an effort to persuade them to design kitchen cabinets that included special compartments for cigarettes, and he spoke to the manufacturers of kitchen containers to add cigarette tins to their traditional lines of labeled containers for coffee, tea, sugar, and flour.8
+
+The result was a complete shift in the consumption habits of American women. It wasn’t just about selling the cigarette; it was about reorganizing society to make cigarettes an inescapable part of the American woman’s daily experience.
+
+Bernays’s efforts to make women’s smoking in public socially acceptable had equally startling results. He linked cigarette smoking with women’s emancipation: to smoke was to be free. Cigarettes were marketed as “torches of freedom.” He orchestrated public events, including an infamous parade on Easter Sunday in 1929, which featured women smoking as they walked in the parade. He left no detail unattended, so that public perception of smoking was changed almost overnight. He both normalized it and made it desirable in one swoop.
+
+Although the Lucky Strike campaign utilized more principles than just inversion, it was the original decision to invert the approach that provided the framework from which the campaign was created and executed. Bernays didn’t focus on how to sell more cigarettes to women within the existing social structure. If he had, undoubtedly sales would have been a lot more limited. Instead, he thought about what the world would look like if women smoked often and anywhere, and then set about trying to make that world a reality. Once he did that, selling cigarettes to women was comparatively easy.
+
+This inversion approach became a staple of Bernays’s work. He used the descriptor “appeals of indirection,” and each time he was hired to sell a product or service, “he instead sold whole new ways of behaving, which
+
+---
+
+appeared obscure but over time reaped huge rewards for his clients and redefined the very texture of American life.”9
+
+# Decide what to avoid:
+
+Instead of thinking through the achievement of a positive outcome, another way to use inversion is to ask ourselves how we might achieve a terrible outcome, and let that guide our decision making.
+
+Index funds are a great example of stock market inversion, promoted and brought to bear by Vanguard’s John Bogle.10 Instead of asking how to beat the market, as so many before him had, Bogle simply recognized the difficulty of the task. Everyone is trying to beat the market. No one is doing it with any consistency, and in the process real people are losing actual money. So Bogle inverted the approach. The question then became, how can we help investors minimize losses to fees and poor money manager selection? The results were one of the greatest ideas—index funds—and one of the greatest powerhouse firms in the history of finance.
+
+Index funds operate on the idea that accruing wealth has a lot to do with minimizing loss. Think about your personal finances: Often, we focus on positive goals, such as “I want to be rich,” and use this to guide our approach. We make investing and career choices based on our desire to accumulate wealth. We chase after magical solutions, like attempting to outsmart the stock market. These inevitably get us nowhere, and we have usually taken some terrible risks in the process that leave us worse off.
+
+Inverting our approach, we can instead ask ourselves what the common pitfalls in investing are and how we can avoid them. For example, spending more than we make, taking on too much leverage (or paying high interest rates on debt so that we can’t tackle paying back the principal), and not starting to save as early as we can so as to take advantage of the power of compounding are all concrete financial behaviors that cost us money. We can more readily secure wealth by using inversion to make sure we are not doing the worst things that prevent the accumulation of wealth.
+
+---
+
+# Guarantee a Life of Misery
+
+In one of the more unique graduation speeches ever delivered, Johnny Carson offered the Harvard School some peculiar life advice. While he couldn’t tell the graduating class how to be happy, Carson inverted and offered three guaranteed prescriptions for misery:
+
+- Ingesting chemicals in an effort to alter mood or perception
+- Envy
+- Resentment
+
+Let’s briefly explore each.
+
+# Ingesting chemicals to alter mood or perception
+
+This refers to the misuse of substances like drugs or alcohol to change one’s mental state. If you want to spiral your life out of control, turn to alcohol or other substances for stress relief.
+
+# Envy
+
+Envy involves feeling discontent or resentful longing aroused by someone else’s possessions, qualities, or luck. To ensure a perpetual state of dissatisfaction, constantly compare yourself to others who have more.
+
+# Resentment
+
+Resentment is a failure to let go of anger or bitterness toward someone due to a past slight or injustice. If you want to poison your personal relationships and mental health, hold on tightly to tiny slights.
+
+In a later speech, Charlie Munger added to Carson’s prescriptions to ensure a life of misery.
+
+# First
+
+He offered, be unreliable. Do not faithfully do what you have engaged to do. If you will only master this one habit you will more than counterbalance the combined effect of all your virtues, howsoever great. Being unreliable is a sure way to be excluded and distrusted.
+
+# Second
+
+On the list was not learning from others’ mistakes. Mastering this habit ensures you make every mistake possible. In the process, you will be surpassed by those who master the best of what other people have figured out.
+
+# Finally
+
+Munger offered, go down and stay down. A surefire way to fail is to quit trying.
+
+
+
+---
+
+One of the theoretical foundations for this type of thinking comes from psychologist Kurt Lewin.12 In the 1930s, he came up with the idea of “force field analysis,” which essentially recognizes that in any situation where change is desired, successful management of that change requires applied inversion. Here is a brief explanation of his process:
+
+1. Identify the problem.
+2. Define your objective.
+3. Identify the forces that support change toward your objective.
+4. Identify the forces that impede change toward the objective.
+5. Strategize a solution! This may involve both augmenting, or adding to, the forces in step 3 and reducing or eliminating the forces in step 4.
+
+Even if we are quite logical, most of us stop after step 3. Once we figure out our objective, we focus on the things we need to put in place to make it happen—the new training or education, the messaging and marketing. But Lewin theorized that it can be just as powerful to remove obstacles to change.
+
+The inversion happens between steps 3 and 4. Whatever angle you choose to approach your problem from, you need to then follow up with consideration of the opposite angle. Think about not only what you could do to solve a problem but what you could do to make it worse—and then avoid doing that, or eliminate the conditions that perpetuate it.
+
+This inversion approach was used by Florence Nightingale to help significantly reduce the mortality rate of British soldiers in military hospitals in the mid-nineteenth century. Nightingale is often remembered as the founder of modern nursing, but she was also an excellent statistician and was the first woman elected to the Royal Statistical Society, in 1858.
+
+During the first winter of the Crimean War, 1854–55, the British Army endured a death rate of 23 percent. The next winter that rate had dropped to
+
+---
+
+2.5 percent.13 The main reason for the change was a much better understanding of what was actually killing the soldiers, an understanding that rested on the detailed statistics that Florence Nightingale collected. She demonstrated that the leading cause of death by far was poor sanitation. In her famous polar-area chart—a completely new way of presenting data at the time—she captured a visual representation of the statistics that made them easy to understand. Improve the sanitary conditions in the hospitals, she explained, and many soldiers’ lives would be saved.
+
+Nightingale’s use of statistics helped to identify the real problem of army-hospital deaths. She was able to demonstrate not only what the army could do to improve outcomes but, just as important, what they had to avoid doing to stop making things worse. She reflected on the knowledge that could be derived from statistics and, in another instance of inversion thinking, she advocated for their use as a means of prevention.14 The question became not so much “how do we fix this problem?” but “how do we stop it from happening in the first place?” Nightingale took the knowledge and experience she gained in Crimea and began gathering statistics not just for British Army field hospitals but for domestic ones as well. She demonstrated that unsanitary conditions in military hospitals were a real problem causing many preventable deaths.15
+
+Nightingale’s advocacy for statistics ultimately went much further than British military hospitals. But her use of statistics to improve sanitary conditions can be seen as an example of applied inversion. She used them to advocate for both solving problems and the invert, preventing them.
+
+Hence to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting.
+
+—SUN TZU16
+
+---
+
+# Conclusion
+
+A lot of advantage is gained simply by avoiding the standard paths to failure.
+
+Inversion is not the way we are taught to think. We are taught to identify what we want and explore things that will move us closer to our objective. However, by spending time identifying things that will ensure we don’t get what we want, we dramatically increase our odds of success.
+
+Often, we get so fixated on solving a problem in a particular way that we miss simpler, more elegant solutions. Inversion forces us to consider the opposite side of the equation.
+
+Instead of asking, “How do I solve this problem?” inversion asks, “What would guarantee failure?” Instead of asking, “How can I achieve this goal?” it asks, “What is preventing me from achieving it?” By inverting the question, we can gain insights that our normal thought patterns might miss.
+
+The next time you’re grappling with a difficult problem or striving toward an ambitious goal, try inverting your thinking. Ask yourself how you could guarantee failure. The answers may surprise you and open up new avenues for possible solutions.
+
+OceanofPDF.com
+
+---
+
+# Occam’s Razor
+
+Keep it simple.
+
+OceanofPDF.com
+
+---
+
+Anybody can make the simple complicated. Creativity is making the complicated simple.
+
+—CHARLES MINGUS
+
+---
+
+simpler explanations are more likely to be true than complicated ones. This is the essence of Occam’s razor, a classic principle of logic and problem solving. Instead of wasting your time trying to disprove complex scenarios, you can make decisions more confidently by basing them on the explanation that has the fewest moving parts.
+
+The more complicated the explanation for something, the more skeptical you should be.
+
+We all jump to overly complex explanations about something. Husband late getting home? What if he’s been in a car accident? Son grew a centimeter less than he did last year? What if there’s something wrong with him? Your toe hurts? What if you have bone cancer? Although it is possible that any of these worst-case scenarios could be true, without any other correlating factors, it is significantly more likely that your husband got caught up at work, you mismeasured your son, and your shoe is too tight.
+
+We often spend lots of time coming up with very complicated narratives to explain what we see around us. From the behavior of people on the street to physical phenomena, we get caught up in assuming vast icebergs of meaning beyond the tips that we observe. This is a common human tendency, and it serves us well in some situations, such as creating art. However, complexity takes work to unravel, manage, and understand.
+
+Occam’s razor is a great tool for avoiding unnecessary complexity by helping you identify and commit to the simplest explanation possible.
+
+Named after the medieval logician William of Ockham, Occam’s razor is a general rule by which we select among competing explanations. Ockham wrote that “a plurality is not to be posited without necessity”—essentially, that we should prefer the simplest explanation with the fewest moving parts.2,3 Simple explanations are easier to falsify, easier to understand, and generally more likely to be correct. Occam’s razor is not an
+
+---
+
+iron law but a tendency and a mindset you can choose to use: if all else is equal—that is, if two competing models both have equal explanatory power—it’s more likely that the simple solution suffices.
+
+Ockham himself did not derive this idea, which had been in use since antiquity. Nor was Ockham the last to note the value of simplicity. The principle was stated in another useful way by the eighteenth-century Scottish philosopher David Hume, in his famous Enquiry Concerning Human Understanding. Writing about the truth or untruth of miracles, Hume stated that we should default to skepticism about them.4
+
+Why? It wasn’t simply that Hume was a buzzkill. He had a specific, Occam-like reason for being cautious about miracles. By definition, a miracle is something that has happened outside of our normal understanding of the way nature works. If the miracle was not outside of our common experience, we wouldn’t consider its occurrence miraculous. If there was a simple explanation for the occurrence based on mostly common knowledge, we likely wouldn’t pay much attention to it at all.
+
+Therefore, the simplest explanation for a miracle is that the miracle witnesser is not describing the event correctly, or the miracle represents a more common phenomenon that we currently don’t properly understand. As scientist and writer Carl Sagan explains in The Demon-Haunted World:
+
+A multitude of aspects of the natural world that were considered miraculous only a few generations ago are now thoroughly understood in terms of physics and chemistry. At least some of the mysteries of today will be comprehensively solved by our descendants. The fact that we cannot now produce a detailed understanding of, say, altered states of consciousness in terms of brain chemistry no more implies the existence of a “spirit world” than a sunflower following the Sun in its course across the sky was evidence of a literal miracle before we knew about phototropism and plant hormones.5
+
+---
+
+The simpler explanation for a miracle is that there are principles of nature being exploited that we do not understand. This is Hume’s and Sagan’s point.
+
+# Dark What?
+
+In the mid-1970s, astronomer Vera Rubin had a very interesting problem. She had a bunch of data piling up about the behavior of galaxies that wasn’t explained by contemporary theories.,,
+
+Rubin had been observing the behavior of the Andromeda Galaxy and had noticed something very strange. As explained in an article on Astronomy.com, “The vast spiral seemed to be rotating all wrong. The stuff at the edges was moving just as fast as the stuff near the center, apparently violating Newton’s laws of motion (which also govern how the planets move around our Sun).” This didn’t make any sense. Gravity should exert less pull on distant objects, which should move slower. But Rubin was observing something entirely different.
+
+One possible explanation was something that had been theorized as far back as 1933, by Swiss astrophysicist Fritz Zwicky, who coined the phrase “dark matter” to describe a mass we couldn’t see but that was influencing the behavior of orbits in the galaxies. Dark matter became the simplest explanation for the observed phenomenon, and Vera Rubin has been credited with providing the first evidence of its existence. What is particularly interesting is that, to this day, no one has ever actually discovered dark matter.
+
+# Why are more complicated explanations less likely to be true?
+
+Let’s work it out mathematically. Take two competing explanations, each of which seems equally to explain a given phenomenon. If one of them requires the interaction of three variables, and the other the interaction of thirty variables—all of which must have occurred to arrive at the stated conclusion—which of these is more likely to be in error? If each variable has a 99 percent chance of being correct, the first explanation is only 3
+
+---
+
+percent likely to be wrong. The second, more complex explanation, is about nine times as likely to be wrong, or 26 percent. The simpler explanation is more robust in the face of uncertainty.
+
+Dark matter is an excellent theory with a lot of explanatory power. As Lisa Randall explains in *Dark Matter and the Dinosaurs*, measurements of dark matter so far fit in exactly with what we understand about the universe. Although we can’t see it, we can make predictions based on our understanding of it and test those predictions. Randall writes, “It would be even more mysterious to me if the matter we can see with our eyes is all the matter that exists.”10 Dark matter is currently the simplest explanation for certain phenomena we observe in the universe. The great thing about science, however, is that it continually seeks to validate its assumptions.
+
+|990 chance of being correct|3%|26%|
+|---|---|---|
+|wrong|wrong| |
+|Explanation 1|Explanation 2| |
+
+---
+
+Carl Sagan wrote that “extraordinary claims require extraordinary proof.”11 He dedicated much ink to rational investigation of extraordinary claims. He felt most, or nearly all, were susceptible to simpler and more parsimonious explanations. UFOs, paranormal activity, telepathy, and a hundred other seemingly mystifying occurrences could be better explained by the confluence of a few simple real-world variables—and, as Hume suggested, if they couldn’t, it was a lot more likely that we needed to update our understanding of the world than that a miracle had occurred.
+
+And so, dark matter remains, right now, the simplest explanation for the peculiar behavior of galaxies. Scientists, however, continue to try to conclusively discover dark matter and thus to determine if our understanding of the world is correct. If dark matter eventually becomes too complicated an explanation, it could be that the data describes something we don’t yet understand about the universe. We can then apply Occam’s razor to update what is the simplest, and thus most likely, explanation.
+
+Vera Rubin herself, after noting that scientists always felt as though they were ten years away from discovering dark matter, without ever closing the gap, was described by an interviewer as thinking, “The longer that dark matter went undetected…the more likely she thought the solution to the mystery would be a modification to our understanding of gravity.”12 This claim, demanding a total overhaul of our established theories of gravity, would correspondingly require extraordinary proof!
+
+# Simplicity Can Increase Efficiency
+
+With limited time and resources, it is not possible to track down every theory with a plausible explanation of a complex, uncertain event. Without the filter of Occam’s razor, we are stuck chasing down dead ends. We waste time, resources, and energy.
+
+The great thing about simplicity is that it can be so powerful. Sometimes unnecessary complexity just papers over the systemic flaws that will eventually choke us. Opting for the simple helps us make decisions based.
+
+---
+
+on how things really are. Here are two short examples of those who got waylaid chasing down complicated solutions when simple ones were most effective.
+
+# 1. Ivanhoe Reservoir
+
+The ten-acre Ivanhoe Reservoir in Los Angeles provides drinking water for more than six hundred thousand people. Its nearly sixty million gallons of water are disinfected with chlorine, as is common practice.13 Groundwater often contains elevated levels of a chemical called bromide. When chlorine and bromide mix, then are exposed to sunlight, they create a dangerous carcinogen called bromate.
+
+To avoid poisoning the water supply, the LA Department of Water and Power (DWP) needed a way to shade the water’s surface. Brainstorming sessions had yielded only two infeasible solutions: building either a ten-acre tarp or a huge retractable dome over the reservoir. Then a DWP biologist suggested using “bird balls,” the floating balls that airports use to keep birds from congregating near runways. They required no construction, no parts, no labor, no maintenance, and cost forty cents each. Three million UV-deflecting black balls were eventually deployed in Ivanhoe and other LA reservoirs, a simple solution to a potentially serious problem.
+
+# 2. Bengal Tigers
+
+In another life-and-death situation, in 1989, Bengal tigers killed about sixty villagers in India’s Ganges Delta.14 No weapon seemed to work against them, including lacing dummies with live wires to shock the tigers away from attacking human populations.
+
+Then a student at the Science Club of Calcutta noticed that tigers attacked only when they thought they were unseen and recalled that the patterns decorating some species of butterflies, beetles, and caterpillars look like big eyes, ostensibly to trick predators into thinking their prey is also watching them. The result: a human face mask, worn on the back of the head. Remarkably, no one wearing a mask was attacked by a tiger for the next three years; anyone killed by a tiger during that time either had refused to wear the mask or had taken it off while working.
+
+---
+
+# Occam’s Razor in the Medical Field
+
+Occam’s razor can be quite powerful in the medical field, for both doctors and patients. Let’s suppose that a patient shows up at a doctor’s office with horrible, flulike symptoms. Are they more likely to have the flu or to have contracted Ebola?
+
+This is a problem best solved by a concept we explored in the chapter on probabilistic thinking, called Bayesian updating. It’s a way of using general background knowledge in solving specific problems with new information. We know that, generally, the flu is far more common than Ebola, so when a good doctor encounters a patient with what looks like the flu, the simplest explanation is almost certainly the correct one. A diagnosis of Ebola means a call to the Centers for Disease Control and a quarantine—an expensive and panic-inducing mistake if the patient just has the flu. Thus, medical students are taught to heed the saying, “When you hear hoofbeats, think horses, not zebras.”
+
+---
+
+For patients, Occam’s razor is a good counter to hypochondria. Based on the same principles, you factor in the current state of your health to an evaluation of your current symptoms. Knowing that the simplest explanation is most likely to be true can help us avoid unnecessary panic and stress.
+
+---
+
+# A Few Caveats
+
+One important counter to Occam’s razor is the difficult truth that some things are simply not that simple. The regular recurrence of fraudulent human enterprises like pyramid schemes and Ponzi schemes is not a miracle, but neither is it obvious. No simple explanation suffices, exactly. Such cons are a result of a complex set of behaviors, some happening almost by accident or luck, and some carefully designed with the intent to deceive. It isn’t a bit easy to spot the development of a fraud; if it was, they’d be stamped out early. Yet, to this day, frauds frequently grow to epic proportions before they are discovered.
+
+Alternatively, consider the achievement of human flight. It too might seem like a miracle to our fourteenth-century friar, but it isn’t—it’s a natural consequence of applied physics. Still, it took a long time for humans to figure out because it’s not simple at all. In fact, the invention of powered human flight is highly counterintuitive, requiring an understanding of airflow, lift, drag, and combustion, among other difficult concepts. Only a precise combination of the right factors will do. You can’t know just enough to get the aircraft off the ground, you need to keep it in the air!
+
+Simple as we wish things were, irreducible complexity, like simplicity, is a part of our reality. Therefore, we can’t use Occam’s razor to create artificial simplicity. If something cannot be broken down any further, we must deal with it as it is.
+
+How do you know something is as simple as it can be? Think of computer code. Code can sometimes be excessively complex. In trying to simplify it, we would have to make sure it can still perform the functions we need it to. This is one way to understand simplicity: an explanation can be simplified only to the extent that it can still provide an accurate understanding.
+
+---
+
+# Occam’s Razor in Leadership
+
+When Louis Gerstner took over IBM in the early 1990s, during one of the worst periods of struggle in its history, many business pundits called for a statement of his vision. What rabbit would Gerstner pull out of his hat to save Big Blue?
+
+It seemed a logical enough demand—wouldn’t a technology company that had fallen behind need a grand vision of brilliant technological leadership to regain its place among the leaders in American innovation? As Gerstner put it, “The IBM organization, so full of brilliant, insightful people, would have loved to receive a bold recipe for success—the more sophisticated, the more complicated the recipe, the better everyone would have liked it.”
+
+Smartly, Gerstner realized that the simple approach was most likely to be the effective one. His famous reply was that “the last thing IBM needs right now is a vision.”
+
+What IBM actually needed to do was to serve its customers, compete for business in the here and now, and focus on businesses that were already profitable. It needed simple, tough-minded business execution. By the end of the 1990s, Gerstner had provided exactly that, bringing IBM back from the brink without any brilliant visions or massive technological overhauls.15
+
+---
+
+# Conclusion
+
+Occam’s razor is the intellectual equivalent of “keep it simple.” When faced with competing explanations or solutions, Occam’s razor suggests that the correct explanation is most likely the simplest one, the one that makes the fewest assumptions.
+
+This doesn’t mean the simplest theory is always true, only that it should be preferred until proven otherwise. Sometimes, the truth is complex, and the simplest explanation doesn’t account for all the facts.
+
+The key to wielding this powerful model is understanding when it works for you and when it works against you. A theory that is too simple will fail to capture reality, and one that is too complex will collapse under its own weight.
+
+OceanofPDF.com
+
+---
+
+# Hanlon’s Razor
+
+Don’t assume the worst.
+
+OceanofPDF.com
+
+---
+
+I need to listen well so that I hear what is not said.
+
+—THULI MADONSELA
+
+---
+
+Hard to trace in its origin, Hanlon’s razor states that we should not attribute to malice that which is more easily explained by stupidity. In a complex world, using this model helps us avoid paranoia and ideology. By not generally assuming that bad results are the fault of a bad actor, we look for options instead of missing opportunities. This model reminds us that people do make mistakes and demands that we ask if there is another reasonable explanation for the events that have occurred. The explanation most likely to be right is the one that contains the least amount of intent.
+
+Assuming the worst intent is a habit that crops up all over our lives. Consider road rage, a growing problem in a world that is becoming short on patience and time. When someone cuts you off, to assume malice is to assume the other person has done a lot of risky work. In order for someone to deliberately get in your way, they have to notice you, gauge the speed of your car, consider where you are headed, and swerve in at exactly the right time to cause you to slam on the brakes, yet not cause an accident. That is some effort. The simpler, and thus more likely, explanation is that they didn’t see you. It was a mistake. There was no intent. So why would you assume the former? Why do our minds make these kinds of connections when logic says otherwise?
+
+# The famous Linda problem
+
+demonstrated by the psychologists Daniel Kahneman and Amos Tversky in a 1982 paper, is an illuminating example of how our minds work and why we need Hanlon’s razor.2 It went like this:
+
+Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.
+
+---
+
+Which is more probable?
+
+1. Linda is a bank teller.
+2. Linda is a bank teller and is active in the feminist movement.
+
+The majority of respondents chose option 2. Why? The wording used to describe her suggests Linda is a feminist. But Linda could only be a bank teller, or a feminist and a bank teller. So naturally, the majority of students concluded she was both. They didn’t know anything about what she did, but because they were led to believe she had to be a feminist, they couldn’t reject that option, even though the math of statistics makes it more likely that a single condition is true instead of multiple conditions. In other words, every feminist bank teller is a bank teller, but not every bank teller is a feminist.
+
+Thus, Kahneman and Tversky showed that students would, with vivid enough wording, assume it more likely that a liberal-leaning woman was both a feminist and a bank teller rather than simply a bank teller. They called it the “conjunction fallacy.”
+
+With this experiment, and a host of others, Kahneman and Tversky exposed a sort of tic in our mental machinery: We’re deeply affected by vivid, available evidence, to such a degree that we’re willing to make judgments that violate simple logic. We overconclude based on the available information; we have no trouble packaging in unrelated factors if they happen to occur in proximity to what we already believe.
+
+The Linda problem was later criticized as the psychologists setting up their test subjects for failure—if the problem was stated in a different way, subjects did not always make the error. But this, of course, was Kahneman and Tversky’s point: If we present the evidence in a certain light, the brain malfunctions. It doesn’t weigh out the variables in a rational way.
+
+What does this have to do with Hanlon’s razor? When we see something happen that we don’t like and that seems wrong, we assume it’s intentional. But it’s more likely that it’s completely unintentional. Assuming someone is doing wrong and doing it purposefully is like assuming Linda is more likely
+
+---
+
+to be a bank teller and a feminist. Most people doing wrong are not bad people trying to be malicious.
+
+With such vividness of information, and the associated emotional response, comes a sort of malfunctioning in our minds when we’re trying to diagnose the causes of a bad situation. That’s why we need Hanlon’s razor as an important remedy. Failing to prioritize stupidity over malice causes things like paranoia. Always assuming malice puts you at the center of everyone else’s world. This is an incredibly self-centered and impractical approach to life. In reality, for every act of malice, there is almost certainly far more ignorance, stupidity, and laziness at work.
+
+One is tempted to define man as a rational animal who always loses his temper when he is called upon to act in accordance with the dictates of reason.
+
+—OSCAR WILDE
+
+# The End of an Empire
+
+In 408 AD, Honorius was the emperor of the Western Roman Empire. He assumed malicious intentions on the part of his best general, Stilicho, and had him executed. According to some historians, this execution may have been a key factor in the collapse of the empire.,
+
+Why? Stilicho was an exceptional military general who won many campaigns for Rome. He was also very loyal to the empire. He was not, however, perfect. Like all people, he made some decisions with negative outcomes. One of these was persuading the Roman Senate to accede to the demands of Alaric, leader of the Visigoths. Alaric had attacked the empire multiple times and was no favorite in Rome. The Senate didn’t want to give in to his threats and wanted to fight him.
+
+Stilicho counseled against this. Perhaps he had a relationship with Alaric and thought he could convince him to join forces and push back against the
+
+---
+
+other invaders Rome was dealing with. Regardless of his reasoning, this action of Stilicho’s compromised his reputation.
+
+Honorius was thus persuaded of the undesirability of having Stilicho around. Instead of defending him, or giving him the benefit of the doubt on the issue, Honorius assumed malicious intent behind Stilicho’s actions—that he wanted the throne for himself and so was making decisions to shore up his power. Honorius ordered the general’s arrest and likely supported his execution.
+
+Without Stilicho to influence the relationship with the Visigoths, the empire became a military disaster. Alaric sacked Rome two years later, the first barbarian to capture the city in nearly eight centuries. Rome was thus compromised, a huge contributing factor to the collapse of the Western Roman Empire.
+
+Hanlon’s razor, when practiced diligently as a counter to confirmation bias, empowers us, giving us far more realistic and effective options for remedying bad situations. When we assume someone is out to get us, our very natural instinct is to take action to defend ourselves. It’s harder to take advantage of, or even see, opportunities while in this defensive mode, because our priority is saving ourselves—which tends to reduce our vision to dealing with the perceived threat instead of examining the bigger picture.
+
+# The Man Who Saved the World
+
+On October 27, 1962, Vasili Arkhipov stayed calm, didn’t assume malice, and saved the world. Seriously.
+
+This was the height of the Cuban missile crisis. Tensions were high between the United States and the Soviet Union. The world felt on the verge of nuclear war—a catastrophic outcome for all.
+
+American destroyers and Soviet subs were in a standoff in the waters off Cuba. Although they were technically in international waters, the Americans had informed the Soviets that they would be dropping blank depth charges to force the Soviet submarines to surface. The problem was,
+
+---
+
+Soviet HQ had failed to pass this information along, so the subs in the area were ignorant of the planned American action.6
+
+Arkhipov was an officer aboard Soviet sub B-59—a sub that, unbeknownst to the Americans, was carrying a nuclear weapon. When the depth charges began to detonate above them, the Soviets onboard B-59 assumed the worst. Convinced that war had broken out, the captain of the sub wanted to arm and deploy the nuclear-tipped torpedo.
+
+This would have been an unprecedented disaster. It would have significantly changed the world as we know it, with both the geopolitical and nuclear fallout affecting us for decades. Luckily for us, the launch of the torpedo required all three senior officers onboard to agree, and Arkhipov didn’t. Instead of assuming malice, he stayed calm and insisted on surfacing to contact Moscow.
+
+Although the explosions around the submarine could have been malicious, Arkhipov realized that to assume so would put the lives of billions in peril. Far better to suppose mistakes and ignorance and on that basis make the decision not to launch. In doing so, Arkhipov saved the entire world.
+
+The sub surfaced and returned to Moscow. Arkhipov wasn’t hailed as a hero until the record was declassified, forty years later, and documents revealed just how close the world had come to nuclear war.
+
+As useful as Hanlon’s razor can be, however, it is important not to overthink this model. Hanlon’s razor is meant to help us perceive stupidity, or error, and their inadvertent consequences. It says that of all possible motives behind an action, the ones that require the least amount of energy to execute (such as ignorance or laziness) are more likely to be at work than ones that require active malice.
+
+# Conclusion
+
+Hanlon’s razor is a mental safeguard against the temptation to label behavior as malicious when incompetence is the most common response.
+
+---
+
+It’s a reminder that people are not out to get you and it’s best to assume good faith and resist the urge to assign sinister motives without overwhelming evidence.
+
+This isn’t to say that genuine malice doesn’t exist. Of course it does. But in most interactions, stupidity is a far more common explanation than malevolence. People make mistakes. They forget things. They speak without thinking. They prioritize short-term wins over long-term wins. They act on incomplete information. They fall prey to bias and prejudice. From the outside, these actions might appear like deliberate attacks, but the reality is far more mundane.
+
+The real power of Hanlon’s razor lies in the way it shifts our perspective. When we assume stupidity rather than malice, we respond differently. Instead of getting defensive or lashing out, we approach the situation with empathy and clarity.
+
+For most of the daily frustrations and confusions, Hanlon’s razor is a powerful reminder to approach problems with a spirit of generosity. It’s a way to reduce the drama and stress in our lives, and to find practical solutions instead of descending into blame and recrimination.
+
+---
+
+# The Devil Fallacy
+
+In one of its best-known appearances, Robert Heinlein’s character Doc Graves describes the Devil Fallacy in the 1941 sci-fi story “Logic of Empire,” as he explains the theory to another character:
+
+I would say you’ve fallen into the commonest fallacy of all in dealing with social and economic subjects—the “devil” theory. You have attributed conditions to villainy that simply result from stupidity…. You think bankers are scoundrels. They are not. Nor are company officials, nor patrons, nor the governing classes back on earth. Men are constrained by necessity and build up rationalizations to account for their acts.7
+
+Hanlon’s razor is a great tool for overcoming this fallacy, one we all fall into at one time or another.
+
+---
+
+OceanofPDF.com
+
+---
+
+# Afterthoughts and Acknowledgments
+
+OceanofPDF.com
+
+---
+
+# Afterthoughts
+
+Many of you are no doubt wondering why I choose to partner with Portfolio and rerelease these books. The answer isn’t complicated. First, I wanted to spend less time on the nuts and bolts of running a publishing business (which includes creating, designing, printing, managing inventory, managing relationships, and increasingly complicated tax reporting requirements) and more time on the podcast, newsletter, and helping people become the best version of themselves. Second, I like and trust the team at Portfolio, led by Niki Papadopoulos.
+
+OceanofPDF.com
+
+---
+
+# Acknowledgments
+
+I’m forever indebted to Charlie Munger, Peter D. Kaufman, Warren Buffett, and Peter Bevelin, who, to varying degrees, started me down the path of multidisciplinary thinking. I owe them a huge debt of gratitude.
+
+Thank you to my coauthor, Rhiannon Beaubien, for making this series possible. It’s impossible to overstate her contributions to this volume and the entire series. Without her, you would not be holding this book in your hands.
+
+This series would be lost without our talented illustrator, Marcia Mihotich. Thank you for seeing these words and ideas and bringing them to life in simple and exceptional ways.
+
+While this is a revised volume 1, I wanted to give a special mention to Garvin Hirt and Morgwn Rimel for shaping the creativity of the original version. Working with you both has encouraged me to make things beautiful and timeless. And thank you to Néna Rawdah and our OG editor Kristen Hall-Geisler for her willingness to dive in and ensure the material flows and comes together in the end.
+
+The original version of this series would not have been possible without our partnership with Automattic and their incredible CEO, Matt Mullenweg. Thank you to Niki Papadopoulos and the entire team at Portfolio for rereleasing this series and supporting my efforts to make it as beautiful and as timeless as we can.
+
+Thank you to Simon Hørup Eskildsen, Zachary Smith, Paul Ciampa, Devon Anderson, Alex Duncan, Vicky Cosenzo, Laurence Endersen, David Epstein, Ozan Gurcan, Will Bowers, Ran Klein, Sanjay Bakshi, Jeff
+
+---
+
+Annello, Tara Small, Tina Cantrill, Nathan Taggart, Tim Bragassa, Yves Colomb, Rick Jones, Maria Petrova, and Dr. Gregory P. Moore for taking the time to review books in this series. Your comments and contributions have helped make everything better.
+
+Thank you to my sons, Will and Mack, for reminding me to continue to learn and grow along with you. This series was largely written for you and future generations.
+
+Thank you to the entire Farnam Street team for your hard work and dedication over the years to bring this series to life.
+
+And finally, thanks to you, the reader. I continue to be amazed by how many of you want to take this mental-models journey with me. I hope this book is one you can reference time and again as you seek to better understand the world.
+
+Shane
+
+OceanofPDF.com
+
+---
+
+# Notes
+
+# Introduction: Acquiring Wisdom
+
+1. Shane Parrish, “Peter Bevelin on Seeking Wisdom, Mental Models, Learning, and a Lot More,” Farnam Street (blog), accessed January 30, 2024, fs.blog/2016/10/peter-bevelin-seeking-wisdom-mental-models/.
+2. Robert Graves, *The Greek Myths*, rev. ed. (London: The Folio Society, 1996).
+3. Thomas Bulfinch, *The Golden Age of Myth and Legend* (Stansted, UK: Wordsworth Editions, 1993).
+4. David Foster Wallace, “This Is Water: Some Thoughts, Delivered on a Significant Occasion, about Living a Compassionate Life,” Farnam Street (blog), accessed March 8, 2024, fs.blog/david-foster-wallace-this-is-water.
+5. Charles Darwin, *The Autobiography of Charles Darwin: 1809–1882*, reissue, Nora Barlow, ed. (New York: W. W. Norton & Company, 1996).
+6. Andy Benoit, “The Case for the…Broncos,” Sports Illustrated, January 13, 2014, vault.si.com/vault/2014/01/13/the-case-for-the-broncos.
+7. The best way to reflect can be found here: Shane Parrish, “Writing to Think,” Farnam Street (blog), accessed February 1, 2024, fs.blog/writing-to-think/.
+
+---
+
+# The Map Is Not the Territory
+
+1. George Box and Norman Draper, *Empirical Model Building and Response Surfaces* (Hoboken, NJ: Wiley, 1987).
+BACK TO NOTE REFERENCE 1
+2. See at 1:33:56 in Lex Fridman, “Jeff Bezos: Amazon and Blue Origin,” December 14, 2023, Lex Fridman Podcast, episode 405, video, 2:11:31,
+youtube.com/watch?v=DcWqzZ3I2cY.
+BACK TO NOTE REFERENCE 2
+3. Alfred Korzybski, *Science and Sanity: An Introduction to Non-Aristotelian Systems and General Semantics* (New York: Institute of General Semantics, 1933).
+
+# References
+
+1. Peter D. Kaufman, as found in Joe Koster, “East Coast Asset Management’s Q3 2014 Investment Letter: Grove of Titans,” Value Investing World (blog), November 10, 2014,
+https://www.valueinvestingworld.com/2014/11/east-coast-asset-managements-q3-2014.html.
+BACK TO NOTE REFERENCE 8
+2. Brent Schlender, “The Bill and Warren Show,” Fortune, July 20, 1998,
+https://money.cnn.com/magazines/fortune/fortune_archive/1998/07/20/245683/.
+BACK TO NOTE REFERENCE 9
+3. Charles Munger, “A Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management and Business,” (lecture, USC Marshall School of Business, Los Angeles, CA, 1994), as found in Shane Parrish, “A Lesson on Elementary Worldly Wisdom as It Relates to Investment Management & Business,” Farnam Street (blog), accessed February 2, 2024,
+fs.blog/great-talks/a-lesson-on-worldly-wisdom/.
+BACK TO NOTE REFERENCE 10
+4. Alain de Botton and Diyala Muir, “How to Make a Decision,” The School of Life, November 2, 2017, video, 6:22,
+youtu.be/okdsAZUTJ94.
+BACK TO NOTE REFERENCE 11
+5. Munger, “A Lesson on Elementary, Worldly Wisdom.”
+BACK TO NOTE REFERENCE 12
+6. Charlie Munger, *Poor Charlie’s Almanack* (China: Tsai Fong Books, 2014).
+BACK TO NOTE REFERENCE 13
+7. Herbert A. Simon, *Models of My Life* (Cambridge, MA: MIT Press, 1996).
+BACK TO NOTE REFERENCE 14
+
+---
+
+1. Aristotle, Politics, Benjamin Jowett, trans. (South Kitchener, Ontario: Batoche Books, 1999).
+2. Garrett Hardin, “The Tragedy of the Commons,” Science 162, no. 3859 (1968): 1243–48.
+3. Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge, UK: Cambridge University Press, 1990).
+4. Issam Nassar, “Early Local Photography in Palestine: The Legacy of Karimeh Abbud,” Jerusalem Quarterly, no. 46 (Summer 2011).
+5. Ahmed Mrowat, “Karimeh Abbud: Early Woman Photographer (1896–1955),” Jerusalem Quarterly, no. 31 (Summer 2007).
+6. Norman J. W. Thrower, Maps and Civilization: Cartography in Culture and Society (Chicago: University of Chicago Press, 1999).
+7. Margaret MacMillan, The Uses and Abuses of History (Toronto: Penguin, 2008).
+8. An excellent analysis of the division of the Middle East after World War I can be found in Margaret MacMillan, Paris 1919: Six Months That Changed the World (New York: Random House, 2001).
+9. Jane Jacobs, The Death and Life of Great American Cities, rev. ed. (New York: Vintage Books, 1992), 438.
+10. David J. Hand, “Wonderful Examples, But Let’s Not Close Our Eyes,” Statistical Science 29, no. 1 (2014), 98–100.
+
+---
+
+# Circle of Competence
+
+1. Thomas J. Watson and Peter Petre, *Father, Son, and Co.: My Life at IBM and Beyond* (New York: Random House, 2000).
+BACK TO NOTE REFERENCE 1
+2. Sun Tzu, *The Art of War*, Lionel Giles, trans. (Los Angeles, Enhanced Media, 2017).
+BACK TO NOTE REFERENCE 2
+3. Robert Peirce, “Biography,” SherpaTenzingNorgay.com, accessed February 5, 2024,
+sherpatenzingnorgay.com/bio.html;
+Grayson Schaffer, “The Disposable Man: A Western History of Sherpas on Everest,”
+*Outside*, July 10, 2013,
+outsideonline.com/1928326/disposable-man-western-history-sherpas-everest.
+BACK TO NOTE REFERENCE 3
+4. David Roberts, “Everest 1953: First Footsteps—Sir Edmund Hillary and Tenzing Norgay,”
+*National Geographic*, March 3, 2013,
+nationalgeographic.com/adventure/features/everest/sir-edmund-hillary-tenzing-norgay-1953/.
+BACK TO NOTE REFERENCE 4
+5. Schaffer, “The Disposable Man.”
+BACK TO NOTE REFERENCE 5
+6. Charlie Munger, *Poor Charlie’s Almanack*. (China: Tsai Fong Books, 2014)
+BACK TO NOTE REFERENCE 6
+7. Alexander Pope, “An Essay on Criticism.” *Poetry Foundation*, accessed February 11, 2024,
+poetryfoundation.org/articles/69379/an-essay-on-criticism.
+BACK TO NOTE REFERENCE 7
+8. Charles Munger, untitled speech (Daily Journal Corporation annual meeting, Cathedral of Our Lady of the Angels, Los Angeles, CA, February 12, 2020) as transcribed at Oliver Sung, “Charlie Munger: 2020 Daily Journal Annual Meeting Transcript,”
+*Junto*, accessed February 11, 2024,
+junto.investments/charlie-munger-daily-journal-2020-transcript.
+BACK TO NOTE REFERENCE 8
+9. Atul Gawande, “Personal Best,” *New Yorker*, October 3, 2011,
+newyorker.com/magazine/2011/10/03/personal-best.
+BACK TO NOTE REFERENCE 9
+10. Part of understanding circles of competence is knowing when you’re not the best person to make the decision and allowing someone else with a comparative advantage in this area to
+
+---
+
+# First Principles Thinking
+
+1. Ralph Leighton, *Surely You’re Joking, Mr. Feynman: Adventures of a Curious Character* (New York: Random House, 2014). BACK TO NOTE REFERENCE 1
+2. Thanks go to James Clear for the conversation that inspired my thinking here. For more about first principles thinking, see James Clear, “First Principles: Elon Musk on the Power of
+
+# References
+
+1. Elizabeth Tudor, “Wordes Spoken by the Queene to the Lordes” (speech to members of the House of Lords, Hatfield, November 20, 1558), as found in “Elizabeth’s First Speech,” National Archives, accessed February 11, 2024, https://www.nationalarchives.gov.uk/education/resources/elizabeth-monarchy/elizabeths-first-speech/. BACK TO NOTE REFERENCE 11
+2. Peter Brimacombe, *All the Queen’s Men: The World of Elizabeth I* (New York: St. Martin’s Press, 2000). BACK TO NOTE REFERENCE 12
+3. Charles Darwin, *The Descent of Man, and Selection in Relation to Sex* (New York: D. Appleton and Company, 1882). BACK TO NOTE REFERENCE 13
+4. Warren Buffett, “Lecture to Faculty” (lecture, Notre Dame University, South Bend, IN, 1991), as found on Whitney Tilson’s Value Investing website, accessed February 11, 2024, tilsonfunds.com/BuffettNotreDame.pdf. BACK TO NOTE REFERENCE 14
+5. Popper’s theories on falsifiability as given here are taken from his books *The Logic of Scientific Discovery, The Poverty of Historicism, and All Life Is Problem Solving. The quoted material is taken from Karl Popper, The Logic of Scientific Discovery* (London: Hutchinson & Co., 1959). BACK TO NOTE REFERENCE 15
+6. Popper, *The Logic of Scientific Discovery*. BACK TO NOTE REFERENCE 16
+7. Bertrand Russell, *The Problems of Philosophy* (New York: Henry Holt and Company, 1912). BACK TO NOTE REFERENCE 17
+
+---
+
+# References
+
+1. Thinking for Yourself,” JamesClear.com, accessed February 11, 2024, jamesclear.com/first-principles.
+2. Carl Sagan, “Why We Need to Understand Science,” *Skeptical Inquirer* 14, no. 3 (Spring 1990): 263–269.
+3. Kevin Ashton, *How to Fly a Horse: The Secret History of Creation, Invention, and Discovery* (New York: Anchor Books, 2015).
+4. Pamela Weintraub, “The Doctor Who Drank Infectious Broth, Gave Himself an Ulcer, and Solved a Medical Mystery,” *Discover*, March 2010, discovermagazine.com/health/the-doctor-who-drank-infectious-broth-gave-himself-an-ulcer-and-solved-a-medical-mystery.
+5. Ashton, *How to Fly a Horse*.
+6. Temple Grandin, “Livestock Handling Systems, Cattle Corrals, Stockyards, and Races,” Grandin.com, accessed February 11, 2024, grandin.com/design/design.html.
+7. Temple Grandin, “A Response to Hibbard and Locatelli,” *Stockmanship Journal* 3, no. 1 (January 2014): 24–25.
+8. Harrington Emerson, speech published in “The Convention: Fifteenth Annual Convention of the National Association of Clothiers, held June 5 and 6, 1911,” *Clothier and Furnisher* 78, no. 6 (July 1911).
+
+# Thought Experiment
+
+1. John C. Maxwell, *Thinking for a Change: 11 Ways Highly Successful People Approach Life and Work* (New York: Warner Books, 2003), 107.
+2. James Robert Brown and Yiftach Fehige, “Thought Experiments,” *The Stanford Encyclopedia of Philosophy* (Summer 2017 edition), Edward N. Zalta (ed.), https://plato.stanford.edu/archives/sum2017/entries/thought-experiment/.
+
+---
+
+# Second-Order Thinking
+
+1. Evelyn Fox Keller, *A Feeling for the Organism: The Life and Work of Barbara McClintock* (New York: W. H. Freeman and Company, 1983).
+2. Margaret Atwood, *Surfacing* (Toronto: McClelland and Stewart, 1972).
+3. Garrett Hardin, *Living Within Limits* (New York: Oxford University Press, 1993).
+4. John Muir, *My First Summer in the Sierra* (Boston: Houghton Mifflin, 1911).
+5. Warren Buffett, “Letter to Shareholders, 1985,” dated March 4, 1986, BerkshireHathaway.com, accessed February 13, 2024, berkshirehathaway.com/letters/1985.html.
+6. Stacy Schiff, *Cleopatra: A Life* (New York: Back Bay Books, 2010).
+7. Ibid.
+
+# References
+
+1. Warren Buffet, untitled lecture (Warrington College of Business, University of Florida, Gainesville, October 15, 1998), as found on Whitney Tilson’s Value Investing website, accessed February 11, 2024, tilsonfunds.com/BuffettUofFloridaspeech.pdf.
+2. Walter Isaacson, *Einstein: His Life and Universe* (New York: Simon and Schuster, 2007).
+3. Philippa Foot, “The Problem of Abortion and the Doctrine of the Double Effect,” *Oxford Review, no. 5 (1967); Judith Jarvis Thomson, “The Trolley Problem,” Yale Law Journal* 94, no. 6 (May 1985).
+4. John Rawls, *A Theory of Justice*, rev. ed. (Cambridge, MA: Harvard University Press, 2005).
+
+---
+
+# Probabilistic Thinking
+
+1. Benoit B. Mandelbrot, *The Fractal Geometry of Nature* (New York: W. H. Freeman and Company, 1977).
+2. Nassim Nicholas Taleb, *The Black Swan: The Impact of the Highly Improbable*, 2nd ed. (New York: Random House, 2010).
+3. Peter L. Bernstein, *Against the Gods: The Remarkable Story of Risk* (New York: John Wiley and Sons, 1996). This book includes an excellent discussion, in chapter 13, on the idea of the scope of events in the past as relevant to figuring out the probability of events in the future, drawing on the work of Frank Knight and John Maynard Keynes.
+4. Nassim Nicholas Taleb, *Antifragile: Things That Gain from Disorder* (New York: Random House, 2012).
+5. Ibid.
+
+# References
+
+1. Ibid.
+2. Elinor Ostrom and James Walker, eds., *Trust and Reciprocity: Interdisciplinary Lessons from Experimental Research* (New York: Russell Sage Foundation, 2003).
+3. Mary Wollstonecraft, *A Vindication of the Rights of Woman*, KNARF, Department of English, University of Pennsylvania, accessed March 11, 2024, Wollstonecraft, Vindication of the Rights of Woman (upenn.edu).
+4. Garrett Hardin, *Filters Against Folly: How to Survive Despite Economists, Ecologists, and the Merely Eloquent* (New York: Penguin, 1985).
+
+---
+# THE GREAT MENTAL MODELS
+
+# Physics, Chemistry, and Biology
+
+# Introduction
+
+The world is beautiful, fascinating, and full of curiosities, but it doesn’t have to be completely mysterious. Humans may not know everything about the world, and indeed it often feels like we have just scratched the surface, but we have figured out some fundamentals about how everything on this planet operates. It is those fundamentals that make up Farnam Street’s latticework of mental models, a way of approaching new ideas and situations, problems and challenges with a toolkit of valuable knowledge.
+
+In volume 1 of The Great Mental Models, we introduced nine general-thinking concepts to get you started on the journey of building a foundation of timeless knowledge. Those models had broad applicability, and we hope you were inspired and excited to apply them to achieve better results with fewer problems as you tackled both opportunities and challenges in your life.
+
+In volume 2 of The Great Mental Models, we continue the journey and explore fundamental ideas from physics, chemistry, and biology. These disciplines offer an exceptional amount of insight that we can apply across all areas of our lives to improve our careers, our relationships, and ourselves.
+
+The truths about the physical world, from the forces that allow us to manipulate energy to the behaviors that drive the actions of all organisms, are constants that can guide our choices.
+
+In Storm in a Teacup: The Physics of Everyday Life, Helen Czerski tells the story of the Fram, a boat designed “to work with nature instead of against it.” In the late 1800s, there was immense curiosity about the North Pole. But the ships that were sent to try to get there would get stuck in the ice of the Arctic, freezing in place. As the ice around the ships grew, it put
+
+---
+
+incredible pressure on the hulls, eventually breaking them apart. No one could get to the North Pole without encountering ice, and the total amount of ice and corresponding pressure to be dealt with was essentially an unknown. No ship had the hull strength to handle the upper limits of potential ice pressure. A Norwegian scientist named Fridtjof Nansen came up with the idea for the Fram, a truly unique ship. “She had a smooth curvy hull, almost no keel, and engines and rudder that could be lifted right out of the water. When the ice came, the Fram became a floating bowl. And if you squeeze a curved shape like a bowl or a cylinder from below, it will pop upward. If the squeeze from the ice got too much, the Fram would just be pushed upward to sit on it.”2 Nansen did not try to improve on the design of existing boats. Instead, he let the reality of ice expansion determine the design of his ship.
+
+The Fram floated across the Arctic Ocean for the next three years, not quite making it to the pole, but collecting reams of valuable scientific data. She got closer to the pole than any ship previously and provided conclusive evidence that the Arctic was an ocean. All of this success was due to trying to answer one question: How can I work with the world, not against it? As Czerski concludes, “Instead of fighting the inexorable expansion of the ice, [the Fram] had used it to ride across the top of the world.”3
+
+Taking action that works with the world is more effective, less stressful, and ultimately more rewarding. We don’t waste our time fighting to accomplish the impossible.
+
+# About the Series
+
+The Great Mental Models series is designed to inspire and challenge you. We want to give you both knowledge and a framework for making it useful. One of our goals for the series is to provide you with a set of tools built on timeless knowledge that you can use again and again in daily life.
+
+We present dozens of mental models, spread across four volumes, that define and explore the foundational concepts from a variety of disciplines.
+
+---
+
+We then take the concept out of its original discipline and show you how you can apply it in nonintuitive situations.
+
+We encourage you to dive into new ideas not only to augment your knowledge toolbox but also to leverage what you already know by applying it in new ways, to give yourself a different perspective on the challenges you face.
+
+In the first book, we explained that a mental model is simply a representation of how something works. We use models to retain knowledge and simplify how we understand the world. We can’t relearn everything every day, and so we construct models to help us chunk patterns and navigate our world more efficiently.
+
+Farnam Street’s mental models are reliable principles that you can see at work in the world time and again. Using them means synthesizing across disciplines and not being afraid to apply knowledge from different areas far outside the milieu they usually cover.
+
+Not every model applies to all situations. Part of building a latticework of mental models is educating yourself regarding which situations are best addressed by which models. This takes some work and is not without error. It’s important to constantly reflect on your use of models. If something didn’t work, you need to try to discover why. Over time, by reflecting on your use of individual models, you will learn which models will best help you tackle which situations. Knowing why a model works will help you know when to use it again.
+
+# About This Book
+
+This book explains and explores the core mental models from physics, chemistry, and biology. A degree in these subjects is not required, though if you happen to have one, you might see parts of your discipline in a new light. The models we have chosen from these fields are foundational, relevant far beyond their normal academic applications. We take time in each chapter to explain the science and situate the concepts in real-world.
+
+---
+
+examples. We want you to see each concept in action and to be inspired to find analogous uses in your own life. To achieve this goal, we discuss how using the model as a lens will help you by applying the science to stories and themes in history.
+
+As you go through this book, you will begin to see patterns and understand that both natural systems and people organize themselves in a limited number of ways. What applies in biological growth applies in economic growth. What governs chemical reactions relates to any process of creation. Furthermore, lessons for an individual have relevance for teams and organizations. As you learn the models, identifying the forces at play in any situation will become easier. You’ll see things that others don’t and avoid costly mistakes.
+
+Some of the models in this book function like metaphors, especially in the physics section. Our aim is to show you how to use these models to uncover forces at play in your life. When a problem seems too complex or the behavior of people too mysterious, these models offer insight into the why. The more you know, the easier it is to design solutions that will work.
+
+Other models, many from biology, have a more literal application. Although useful for understanding why certain things are the way they are, these models have a more direct application to human behavior. They can be mapped to your life experiences to give you ideas for better ways to solve common problems. For example, the forces that explain inertia are used more metaphorically to understand why some erroneous beliefs continue to persist, while the concept of cooperation can be applied quite literally to identifying business opportunities.
+
+Finally, it is important to remember that all these science models are value-neutral. They can be used to illuminate both the positive and negative aspects of any situation. It’s up to you to ask yourself: What can this model show me about what not to do? Where will it help me find a better way forward?
+
+You will know the differences in how to apply each model through the stories we have chosen to explain them. Each example offers insights on where the model can apply. You can take the elements of each story as a
+
+---
+
+signpost directing you to find similar situations in your life where the lens of a particular model will be most useful.
+
+The most important thing to remember is that these models are tools. You are meant to try them out, play with them, and learn what you can use each of them to fix. Not all tools are useful for all problems, and just like a traditional toolbox has a hammer when you need to pound a nail and a wrench for when you need to turn a bolt, you’ll learn through practice which tools are useful in which situations. Starting with curiosity is the best way to do that. As you begin each chapter, be open to learning and updating your knowledge. Then, practice. Pick a new model every day, apply it to a situation you are in, and see if you can improve your understanding and decision-making. Finally, reflect. Take some time to evaluate your successes and failures. In doing so, you will begin to learn the full potential of the tool kit you are building.
+
+Let’s get started.
+
+OceanofPDF.com
+
+---
+
+# PHYSICS
+
+Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.
+
+— MARIE CURIE
+
+OceanofPDF.com
+
+---
+
+Relativity
+          0
+        0
+Put it into perspective.
+           OceanofPDF.com
+
+---
+
+The theory of relativity is founded on empathy. Not empathy in the ordinary emotional sense; empathy in a rigorous scientific sense. The crucial idea is to imagine how things would appear to someone who’s moving in a different way than you are.
+
+—STEVEN STROGATZ
+
+---
+
+We often think someone is wrong because they see things from a different perspective than we do. Relativity helps us to understand that there is more than one way to see everything. That doesn’t mean everyone’s perspective is equally valid, only that we might not have the most complete view into a problem or situation.
+
+# Thought Experiments That Changed the World
+
+The science of relativity is best explained through two famous thought experiments—one conducted by Galileo and the other by Albert Einstein. Each describes a situation that demonstrates the reality of differing perspectives.
+
+---
+
+# Thought Experiments
+
+In volume 1, we dedicated a chapter to thought experiments because they are such valuable mental models. Frequently used as tools by scientists, thought experiments let us take on the impossible, evaluate the potential consequences of our actions, and reexamine history to make better decisions. They are rigorous applications of the scientific method to determine what we can infer from what we can imagine.
+
+---
+
+In the 1630s, Galileo discovered that any two observers moving at constant speed and direction will obtain the same results for all mechanical experiments they perform.
+
+Galileo’s original thought experiment describes a scientist on a ship moving at constant velocity. The scientist is belowdecks with no portholes to give him a frame of reference for the movement of the ship. When this scientist drops a ball from waist level, he will notice only the vertical movement caused by gravity. He will observe that the ball drops to the floor of the ship. However, there is also a horizontal movement that the scientist doesn’t perceive. Both the scientist and the ball are also moving the distance covered by the ship as the ball is falling to the ground.
+
+An outside observer, someone standing on a nearby beach or a fish in the water, can detect the complete movement of the ball because their perspective is different. By being outside the ship, they see a more complete version of reality. The scientist on the boat would have to make a conscious effort to remember that both he and the ball are moving with the ship. Before you conclude that the motion of the ship should be obvious to the scientist, consider how often you reflect on your movement through space every day. Right now, you probably feel as though you’re stationary. However, if you’re on Earth, you’re moving around the sun at sixty-seven thousand miles per hour. Galileo developed this thought experiment partly thanks to his belief that Copernicus was right and that the Earth itself is in motion that we do not feel.
+
+Perspective influences what we perceive as reality and how we understand the world. Galileo’s thought experiment is one you can use all the time. Imagine the scientist performing experiments on the boat and ask yourself: Now what does a fish see? And how does that relate to what the scientist experiences? Imagine being either one, or a bird in the sky, and you start to get an idea of how multiple eyewitness accounts of the same robbery can be so different.
+
+To use this yourself, imagine seeing a situation through the eyes of all the participants. Changing your perspective and looking at things through the eyes of others not only reveals blind spots but also creates empathy.
+
+---
+
+In the early 1900s, Einstein used another famous thought experiment when developing his theory of special relativity, which linked mass and energy using the formula E = mc2. This formula demonstrates that energy is equivalent to mass times the speed of light squared. With this theory, Einstein stated that the speed of light is fixed within any frame of reference moving at a constant velocity, and therefore there is no fixed frame of reference from which one can measure the physical laws. This is what Galileo had argued, but his ideas were put aside in the 1700s in favor of a view that said there was an absolute frame of reference. Einstein’s theory of special relativity revived Galileo’s ideas.
+
+Einstein’s thought experiment to describe special relativity illustrated the concept that observers in relative motion experience time differently. This means that two events can happen simultaneously from one observer’s perspective and at different times from another observer’s perspective. Both are right. Here is the experiment:
+
+Imagine you are watching a train go by. Lightning strikes each end just as the train’s midpoint is passing you. The lightning strikes are each the same distance from you, so you correctly conclude that the two bolts of lightning hit the train at exactly the same time.
+
+Later on, you catch up with your friend, who was on the train. “Crazy that two bolts of lightning struck your train at exactly the same time,” you say.
+
+“What are you talking about?” she responds. “The front of the train got hit by lightning first.”
+
+You dismiss her interpretation. After all, you witnessed the whole thing. But here is what was happening for her:
+
+She was sitting at the midpoint of the train. If the train had been stationary, she would have observed the two lightning strikes being simultaneous like you did. However, because the train was moving, the light from the rear strike had farther to travel to reach her. She perceived the light from the strike at the front first. So, she correctly concluded that the lightning strikes were not simultaneous; the one in front happened first.
+
+---
+
+These are two valid interpretations of the same event. Both are correct. The difference arises because of the perspective of each person.
+
+Light
+
+Alice
+
+B
+
+A
+
+Bob
+
+Your perspective informs your experience. Our perspective is very much unique to us, as both Galileo and Einstein so vividly demonstrated. In the day-to-day world that we live in, this means not only that you are seeing what nobody else sees but also that you do not automatically, unconsciously see through the eyes of others. There is an objective reality, but none of us can perceive it in totality without doing a little work. Is it any wonder we make suboptimal decisions?
+
+---
+
+# Perspective-Taking in Psychology
+
+Perspective-taking in psychology refers to the ability to perceive a situation from an alternative point of view. We are not born with this ability. It develops throughout childhood. There are two broad types of perspectives that we learn: differing physical perspectives, such as that the view out your neighbor’s window is different than yours; and conceptual perspectives, such as that people have different feelings or beliefs that in turn influence their perspectives.
+
+Some conditions can negatively impact the development of the ability to fully understand a different perspective. And while we are capable of appreciating the wide variety of perspectives that exist, we are often lazy about developing this ability.
+
+---
+
+# The Subjectivity of Perspective
+
+You are always going to have an imperfect perspective. You can’t see everything at once. Nor will you be able to completely trust that everything you do see is viewed by others. In concrete terms, relativity highlights a subjectivity of perspective that explains partly why eyewitness testimonies have lost their credibility over the years.
+
+When considering an eyewitness testimony during a trial, there are many aspects to consider in order to understand that person’s perspective. First, there are the physical aspects: How good is that person’s vision? What was the light like at the time? How long did they have to observe the person in question? But there are also a host of psychological ones: What mood was the person in? Were they rushing to get somewhere? Had they just had a fight with their spouse? Do they have an incentive to take a certain position? And what about the biases: Do they consider certain ethnicities more likely to commit crimes? How predisposed are they to being helpful with police? All of this factors into what a witness believes they saw and helps explain why two witnesses can have remarkably different accounts of the same situation, as in Rashomon.
+
+Rashomon, the classic Japanese film, is an excellent exploration of the differences in the testimonies of several eyewitnesses to the same crime. A samurai is found murdered in a forest. A bandit is accused of the crime. During the subsequent trial, the bandit, the samurai—speaking through a medium—his wife, and a woodcutter who observed the whole incident each give testimony. Each story is different, partly due to the self-interest of each of the characters, and partly because each can understand the events that play out only through a single perspective—their own.
+
+Rashomon is interesting because the end does not give the viewer “the truth.” The audience does not get any closure on what happened, which is an accurate portrayal of life. They are simply left with the contradictory.
+
+---
+
+testimonies and the implication that each of these has become the truth for the person telling them.
+
+In addition, our memories are not infallible. We often think of memories as being like a video recording, capturing a scene with perfect fidelity. The truth is far more complicated. Our memories are highly subjective and malleable. We often misattribute memories, such as a witness thinking something that they read in the news about a crime is something they witnessed. We are also highly suggestible, such as when a police officer asks us a leading question or uses emotive language.
+
+Our memories of the past are also distorted by what we know now, such as when a witness learns a new piece of information and feels they knew it at the time.2 These and other common memory distortions feed into the subjectivity of eyewitness reports. People rewrite and reshape their memories, often to fit their existing beliefs. We often feel committed to our original perception and unconsciously adjust our memories to support what we think we originally saw.
+
+When juries hear eyewitness testimony, they must sort through the limits and influences on that person’s perspective and consider how self-interest and time have distorted the person’s memory. It is no small feat. One example of the challenge is chronicled here.
+
+On the morning of July 4, 2000, twenty-year-old Chris Kinison was killed in a convenience store parking lot in Ocean Shores, Washington, USA. Minh Duc Hong was charged with the crime. Hong was visiting the area to see a fireworks show with his twin, Hung Hong. Both were Asian Americans, and Kinison was white. During the subsequent trial, a dozen eyewitnesses provided testimony. As David A. Neiwert explains in Death on the Fourth of July, “For every bit of testimony, it sometimes seemed, there arose a view of events that conflicted with the description provided by previous witnesses, creating a web of questions about competing self-interests, and the extent to which they colored different witnesses’ testimony.”3 Many witnesses described seeing things they physically could not have, which was determined once their positioning during the violence was mapped out. Others were clearly biased by their relationship with the
+
+---
+
+victim—a local—versus the accused, who was from out of town. Racial bias was a huge factor, and in his book, Neiwert makes the case for Minh Hong first being a victim of a hate crime, whose subsequent actions were really about defense.
+
+According to witnesses, Kinison waved a Confederate battle flag at Hong and his friends and shouted racial slurs. He also made threatening gestures, indicating a desire to harm Hong, who took a knife from the convenience store, fearing for his safety. When Kinison physically assaulted Hong’s brother, Hong used the knife on him. Kinison had previous accusations of racist violent threats.4
+
+Many of the witnesses had been drinking, and many admitted to being scared. These distortions meant that the jury did not get a reliable, consistent account from each witness. They had to piece together what might have happened. The jury then had to evaluate the credibility of how each witness saw the crime and the laws of physics governing the physical perspectives. One life had already ended. The future of another one was completely dependent on how the jury untangled the testimony through the limits of their own perceptions.
+
+After deliberation, the jury could not reach a verdict and the judge declared a mistrial. The jury revealed that they had deadlocked 11–1 in favor of acquittal. What’s interesting, though, is the ambiguous end to the story. The jurors continued to be comfortable with the position they took, believing that Minh Hong acted reasonably in self-defense. The local sheriff’s office recognized that Hong had been the victim of a hate crime and the officers committed to an education program so they could deal with similar situations better in the future. But, Neiwert further writes, “If there is any lingering sentiment in Ocean Shores, it is a quiet dismay at the outcome of Minh Hong’s trial. Even though the Grays Harbor jury found otherwise, many in town, especially those who knew Chris Kinison, believe an injustice was done.”5
+
+The multiple and conflicting perspectives displayed in the trial of Minh Hong are a common phenomenon. We have all been in situations in which we have a totally different perspective on events than the person standing.
+
+---
+
+next to us. It’s important to be aware of and compensate for different perspectives if you want to get the most complete picture possible of the situation you are in. What you see is never all there is.
+
+When people thought the earth was flat, they were wrong. When people thought the earth was spherical, they were wrong. But if you think that thinking the earth is spherical is just as wrong as thinking the earth is flat, then your view is wronger than both of them put together.
+
+—ISAAC ASIMOV
+
+# Through the Eyes of Others
+
+The limits of perspective are fundamental to how the world works. Considering multiple perspectives is the best chance we have to understand. Given that you can’t go back in time to situate yourself differently, what can you do to augment your perspective? This is where thought experiments come in handy. Think back to Galileo’s scenario of the scientist conducting experiments on the boat. The scientist cannot hang out in the ocean and watch the boat go past. Our scientist can, however, imagine what the view would be like from the perspective of a fish.
+
+Thought experiments don’t have to be confined to what already is or even what’s possible. The scientist, when considering the perspective of the fish, can also imagine the boat as being made of glass and the water as easy to see through as air. Or he need not limit the experiment to the visual perspective of the fish. After all, we don’t gain perspective only with our eyes, but through the lens of our experiences, biases, desires, and more. This can explain a lot of human behavior.
+
+When you see someone doing something that doesn’t make sense to you, ask yourself what the world would have to look like to you for those actions to make sense. While we all see our own version of events, the goal is to enlarge our perspective to be a closer representation of reality by
+
+---
+
+removing some of the factors that cloud our judgment. One of the best ways to do this is by noticing and observing the details of what is going on around you.
+
+It is good to know something of the customs of various peoples, so as to judge our own more soundly and so as not to think that everything that is contrary to our ways is ridiculous and against reason, as those who have seen nothing have a habit of doing.
+
+—DESCARTES7
+
+We bring our sensibilities into what we see. The problem is, most of us usually forget this. We are so used to being on Einstein’s train that we forget it is there. But traveling to new places far outside our normal experiences can jolt us into remembering our train, seeing it in a new light, understanding better its size and shape, and reminding us that not everyone is on it.
+
+One story that drives home the point that considering others’ perspective can substantially enrich our own is that of Rifa’a Rafi’ al-Tahtawi, an Egyptian who traveled to Paris in the late 1820s and recorded in detail the minutiae of what he saw in his book An Imam in Paris. This book tells us a lot about Parisian society in the late 1820s. We can learn loads about the social customs and idiosyncrasies of the urban French and how they reconciled scientific development with religious sensibilities.
+
+We can also, however, draw some conclusions about the author al-Tahtawi. His book is more like a report, a gathering of facts about a foreign culture. He was an observer who was seeking to understand not only the French but how what he could see related to French culture and France’s influence in the world. In doing so, he hoped to gain useful knowledge that he could bring back to Egypt to encourage development. His time in France changed his perception of his own culture, and when he returned he instituted teachings based on the things he had learned from observing the French.8 Daniel L. Newman explains in his introduction to al-Tahtawi’s
+
+---
+
+book, “In the end, al-Tahtawi stayed in Paris for five years and the experiences, know-how and skills acquired during his Paris days…were to have a decisive and lasting impact on the cultural and scientific development of his native country.” Al-Tahtawi had multiplied his perspective, and in doing so contributed to significant change in Egypt.
+
+We frame things through our perspective. How others frame things is not an unobstructed description of reality but rather their individual perspective. Making efforts to understand someone’s view helps you understand their frame, their set of beliefs and biases that guide how they see their world, and the actions they take.
+
+The core concepts of relative perspective and framing have a broad application. When someone gives you something—an opinion, a report, an article, a plan—consider how it is framed. Who is involved in this information, and what do you know about their vantage point? Knowing the factors that influence how a person frames issues helps you understand their perspective and how you can use it to augment your own.
+
+Al-Tahtawi’s experiences of trying to understand his own culture by juxtaposing them against those of another demonstrates the value of considering other perspectives and comparing them with your own. Namely, that you get a more complete picture of the context in which you are operating and where opportunities might be. This is why the publishing industry relies heavily on editors, and why research needs peer review to be credible. Outside views combine to make a better product.
+
+Perspective often comes from distance or time. If you’re attempting to solve a problem and you’re stuck, try shifting your vantage point. Try zooming in to see more details or zooming out to see fewer details.
+
+One reason we offer helpful advice to friends is because we are not them. They often get caught up in all the irrelevant details of a situation that we can’t see. Lacking the confusion these irrelevant details add, we often see things for what they are.
+
+Another way to change your perspective, aside from looking at the situation through the eyes of others, is to extend the timeline. What does this situation look like in the weeks, months, and years ahead? Assuming
+
+---
+
+# Conclusion
+
+Relativity is the idea that our perceptions and judgments are not absolute, but are instead shaped by our unique vantage points and frames of reference. It’s the understanding that our experiences are subjective.
+
+We each inhabit a particular web of experiences. This context shapes how we see the world, what we notice and what we overlook, what we value and what we dismiss. Two people can look at the same event and come away with vastly different interpretations based on their unique frames of reference.
+
+Consider two people standing in the same room: They each experience the same absolute temperature differently. One can feel hot while the other feels cold, even though the temperature is the same. Similarly, consider political debates: Our beliefs are shaped by our unique experiences and social contexts. A policy that seems like common sense to an urban progressive might feel like complete nonsense to a rural conservative, and vice versa. In this way, understanding relativity is key to fostering empathy and finding common ground.
+
+However, relativity is not the same as relativism—the idea that all perspectives are equally valid. Recognizing the relativity of our perceptions doesn’t mean we don’t have to make judgments about validity. Rather, it’s a call to examine our own assumptions, seek out diverse perspectives, and expand our frames of reference.
+
+We all have blind spots—things we cannot see. Understanding that our perceptions are relative allows us to open ourselves to other ways of seeing. If you’re wondering where to get started, try asking others what they see that you can’t. Apply your judgment to their responses and update your beliefs accordingly.
+
+OceanofPDF.com
+
+---
+
+# Reciprocity
+
+Give and take.
+
+OceanofPDF.com
+
+---
+
+For every action, there is an equal and opposite reaction.
+
+—NEWTON’S THIRD LAW
+
+---
+
+Reciprocity can be summed up like this: When you act on things, they act on you. For every action there is an equal and opposite reaction. When pushed on by others, we push back. The harder we push others, the harder they push back. While this is a simple principle, the implications are anything but simplistic.
+
+Reciprocity demonstrates why win-win relationships are the way to go, why going positive and going first puts people on your side, why it’s a good idea to use the least force possible to secure an outcome, and why a lot of companies don’t permit their employees to accept gifts. This model also demonstrates why we should view giving as being as valuable as receiving. It prompts us to rewrite the Golden Rule to say, “Do unto others knowing that something will be done unto you.”
+
+# So what exactly is reciprocity?
+
+In physics, reciprocity is Newton’s third law, which states that for every force exerted by object A on object B, there is an equal but opposite force exerted by object B on object A. Every force involves the interaction of two objects in which the force asserted by one is reciprocated with an equally powerful and directionally opposite force by the other object. Forces always occur in pairs of the same type, and it is not possible for one object to exert a force without experiencing a reciprocal force.
+
+When I land on the ground after jumping, I am exerting a force on the ground. At the moment of my landing, the ground is applying a force on me that is equal but opposite in direction. The earth applies a force on me even when I am just standing. This force is gravity. But the gravitational force exerted on me by earth is reciprocated by me through the force I am exerting on the earth.
+
+In the natural world, this third law of Newton’s explains jet propulsion. The word “propulsion” comes from two Latin terms meaning “forward”.
+
+---
+
+and “drive”—propulsion is a force that drives an object forward.1 Jet propulsion works by forcing a jet of fluid, such as gas produced by burning fuel, in one direction, to generate a force in the opposite direction. This is the primary process behind how jet engines, rockets, and guns work.
+
+Jet propulsion works only if the forward push is stronger than the forces acting on the object, like air friction and its own weight. The greater the force in comparison to drag (the amount of force opposing the motion), the faster the object can move. Octopi and squid force water through their mantle and out through a siphon at a high speed that compensates for their weight and the viscosity of the water. As the animal asserts a force on the water, the water exerts a force on the animal, and this makes the octopus or squid move.
+
+Consider the tackle in American football. The force that the defender puts on the receiver’s body to bring him to the ground is equivalent to the force felt by the defenseman’s body during the tackle. You can’t initiate force without having a force put on you. For the tackle, this is very important. If the tackler felt nothing, there would be no incentive for him to be strategic in the application of his force on the receiver. And who would want to be a receiver if this were the case? If the person who initiates the force feels nothing—much better to be him.
+
+Since this is not the case, the tackle should be more about using the least amount of force required to bring the receiver to the ground. It’s better for the receiver, and it’s also better for the player doing the tackling, because the more force you apply to others, the more damage you do to yourself.
+
+---
+
+# Quid pro Quo
+
+Sometimes, if you want to understand how pervasive a concept is, you can look at the vernacular of a society. English speakers from Commonwealth countries have many expressions that suggest the basics of reciprocity are foundational for how we expect our society to function.
+
+“Quid pro quo,” Latin for “something for something,” appeared in regular usage in the sixteenth century. We also have “give and take,” “tit for tat,” and “If you scratch my back, I’ll scratch yours.” The meaning behind these expressions, which implies an expectation of reciprocity, is perhaps best summed up by another Latin phrase: “do ut des,” translated as, “I give, so that you may give.”
+
+---
+
+# What We Give
+
+The relationship between what we do and what we get is commonly known as karma. It would be amazing if every time you did something good for the world, you received a corresponding amount of positive effect in your life. We all know that unfortunately this is not true. Sometimes positive intentions produce negative results, or bad things happen to people who do good things for other people.
+
+Although the connection between good deeds and a good life isn’t perfect, there is a documented relationship between the two. Using the model of reciprocity can help us understand why people benefit themselves when they work for what they believe is good. The life of Norman Bethune, a Canadian surgeon, is one that can teach us a lot about the nuances of reciprocity.
+
+Bethune grew up wanting to be a surgeon, inspired by his doctor grandfather. During the First World War, he completed his studies while also providing medical support on the battlefield as a volunteer. In the 1920s he practiced medicine in the United States and Canada, eventually settling in Montreal. He initially specialized in thoracic surgery and developed a solid reputation as a surgeon. However, he had an ongoing commitment to helping people beyond what he did in his practice—a goal he pursued in a variety of ways.
+
+During the early 1930s, while in Montreal, Bethune provided free medical services to the poor and established a free clinic, which he ran once per week. He vocally advocated for universal health protection, explaining that many medical issues were created by poverty and negligent employers. In addition, and unique for the time, he used radio broadcasts to educate the public on tuberculosis. Bethune volunteered his time, energy, and intelligence to try to bring about meaningful improvements in the lives of the most impoverished.2
+
+---
+
+During the 1930s, he also became a supporter of communism and joined the Communist Party, mostly on account of what he saw of the benefits of the Soviet socialized health-care system. These political beliefs took him further afield in his efforts to improve access to and outcomes in health care.
+
+In 1936 in Spain during the Spanish Civil War, Bethune designed and developed the first-ever mobile blood transfusion unit. This vehicle could draw and store blood, was used to give transfusions, and most important, could be used on the front lines of the battlefield. It was a remarkable innovation that saved countless lives and inspired the medical approach used in World War II.
+
+All the work that Bethune did in Spain, and later China, was nonprofit. The mobile blood unit and all his other surgical innovations and inventions did not make Bethune any money.
+
+In 1938 Bethune went to China, again trying to help people. China was fighting a war with the Japanese, the Second Sino-Japanese War, and Bethune’s belief in communism led him to deploy his efforts in support of Mao Tse-tung and the Communist Party of China. He was made commander of all Chinese medical forces and immediately set about modernizing the existing primitive health care in China.
+
+Helping the Chinese in their fight, he again deployed his practice of bringing the surgeon to the battlefield, designing mobile operating equipment and improving the survival rate of the injured. He also extensively trained doctors and nurses and established hospitals in areas that had neither. In their article, “The Medical Life of Henry Norman Bethune,” Jean Deslauriers and Denis Goulet write, “His courage, determination and will to fully employ his talents of ingenuity, aggressiveness and selfless response to social concerns when the time came is truly remarkable.” He accomplished so much in his eighteen months in China that when he died of septicemia after operating on a soldier, Mao delivered his eulogy, describing him as “a man who is of value to the people.”
+
+---
+
+Bethune’s achievements continue to be regarded as heroic by the Chinese. The first hospital he founded still exists, and his story is mandatory learning for primary school students in China.
+
+Bethune’s story, however, is not solely one of accolades and recognition, heaps of positive effects achieved as a result of a life spent trying to bring about good. His death at age forty-nine was directly caused by his efforts to improve health outcomes on the battlefield when he accidentally cut his finger while operating on a wounded Chinese soldier, which resulted in a bacterial infection. The fact that he was a communist led him to be written out of Canadian history during the Cold War years, when communism was seen as a direct threat to Western democracy.
+
+Normally one would talk about a life like Norman Bethune’s in terms of sacrifice. He sacrificed personal relationships, social acceptance, and ultimately his life to take actions in accordance with his beliefs and values. But using the lens of reciprocity suggests there is another way to interpret the story.
+
+In a paper on the health benefits of volunteering in adults, the authors explain, “Research has found that participation in voluntary services is significantly predictive of better mental and physical health, life satisfaction, self-esteem, happiness, lower depressive symptoms, psychological distress, and mortality and functional inability.” Multiple studies have demonstrated the positive consequences of volunteering that are conferred on the volunteer. We may volunteer for a variety of reasons, based on our interests, goals, or values, but regardless, we reap health benefits when we do so.
+
+The studies on the positive aspects of volunteering on the volunteer bring to mind the concepts we outlined in the science of reciprocity, like how forces always occur in pairs. Although volunteering is not governed by the laws of physics, using reciprocity as a metaphor can help us understand why volunteering appeals to so many people. And consequently, why some people make the choice to help others at seemingly great cost to themselves.
+
+The research on volunteering makes it clear that when we give, we get. We improve our physical health; we feel better about ourselves and our
+
+---
+
+place in the world. We evaluate our lives as having more meaning. One way of understanding people who take the kinds of actions that Bethune did, which on their face seem to risk so much, is that they receive a benefit from the world proportional to what they put out there. It’s not a benefit that can always be measured in legacy or reward. Sometimes those things come; for Bethune, although North America struggled for decades to appreciate him as the dedicated medical innovator he was on account of his political views, China continues to go all out in its appreciation of his contributions to their country.
+
+However, perhaps the benefit is better conceptualized as the reciprocity received by the individual in terms of the satisfaction they have regarding the choices they’ve made.
+
+The act of doing good for others not only helps them but also causes the doer to feel good. In terms of Bethune’s story, he was not motivated by recognition but rather by a genuine desire to help people, which gave him an exceptional amount of energy and drive. It is very possible that he didn’t evaluate his life as one of sacrifice, but instead derived satisfaction from his efforts.
+
+Many, many men have been just as troubled morally and spiritually as you are right now. Happily, some of them kept records of their troubles. You’ll learn from them—if you want to. Just as someday, if you have something to offer, someone will learn something from you. It’s a beautiful reciprocal arrangement.
+
+—J. D. SALINGER
+
+---
+
+# Tit for Tat
+
+Tit for tat is a strategy that, according to game theory, is the most effective choice for iterated games based on cooperation or defection. Both players benefit if they cooperate, but one benefits and the other loses if only the one defects, and both lose to a lesser extent if they simultaneously defect. As abstract as such games sound, they have important implications for understanding everything from group selection in biology to cooperation in economics. Under tit for tat, a player begins by cooperating, then in subsequent iterations replicates whatever their opponent did last time. So if their initial cooperation is punished with defection, they will then reciprocate. In games that are not iterated and only consist of a single round, defection is thought to be the best strategy.
+
+Tit for tat was codified as a game theory strategy by mathematical psychologist Anatol Rapoport, but it builds upon our instinctual notions of reciprocity. It teaches us that our best option when dealing with people we cannot trust entirely is to reciprocate their choices. Seeing as we can rarely place full trust in anyone, especially if they stand to gain by screwing us over, we lean toward tit for tat. In general, we view this as fair and just. If someone helps us, we’re quite happy to assist them the next time they need help. But if they ignore our plight when we need help, we’re highly unlikely to care in the inverse situation. For this reason, evolution tends to select for cooperative behavior in groups—it benefits everyone in the long run.
+
+However, straightforward tit for tat is not as effective as the strategy known as tit for tat with forgiveness. This strategy involves occasionally cooperating in the face of defection. It is easy for two opponents to get stuck in a cycle of mutual defection, from which they cannot escape unless and until one decides to cooperate. If both are using tit for tat, a cycle of cooperation will then commence.
+
+Life is an iterative and compounding game. In the words of businessman Peter D. Kaufman, it pays to “go positive and go first.” Also, remember that people make mistakes. Assuming there is no maliciousness, it pays to forgive.
+
+---
+
+# The Rise of the “Win-Win”
+
+In the physical world, the law of reciprocity works 100 percent of the time. The harder you punch a wall, the more force pushes against your fist, the more damage is caused to both you and the wall. In the biological world, reciprocity doesn’t have the same perfect record. However, it has been discovered to work much more often than not, and thus harnessing it has significant long-term benefits.
+
+Evolutionary biologists argue that our tendency to engage in reciprocal behavior is a natural product of evolution. You are more likely to survive if you receive help from others. And you are more likely to receive that help if you have offered assistance in the past. So, the genes that encode the reciprocal instinct were more likely to be passed on. And thus, the fact that the human species has made it to now is directly dependent on our building social interactions that are reliable, useful, and trustworthy.
+
+Humans engage in two types of reciprocity with each other: direct, which is “I help you and you help me”; and indirect, which is either a pay-it-forward concept (“I help you and then you help someone else”) or about reputation building (“I help you, building a reputation as one who helps, so that someone else will help me in the future”). Both work.
+
+---
+
+# Loss Aversion
+
+Loss aversion is one of the principles that govern the value of outcomes. Daniel Kahneman explains it like this: “When directly compared or weighted against each other, losses loom larger than gains.” According to Kahneman, people are willing to risk losing $100 for every $250 of potential gains. The loss aversion coefficient is 1:2.5.7 This asymmetry between the power of positive and negative expectations or experiences has an evolutionary history. Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce. When it comes to reciprocity, we need to understand, “We are driven more strongly to avoid losses than to achieve gains.”8 This is why putting ourselves out there, engaging people who might dismiss or reject us, is so scary. Because in the one-off situation, the pain it will cause is perceived as stronger than the positive feelings of acceptance. The trick is to start looking at outcomes in the aggregate instead of focusing on each unique situation.
+
+---
+
+While reciprocity isn’t as reliable when it comes to humans as it is with physics, the concept can help you achieve better outcomes.
+
+Sometimes we go first and go positive and get nothing back, as is the case if we smile at a stranger walking on the street. Most times they’ll smile back at you, but occasionally, you’re met with a scowl. It’s easy to forget the times our smile elicited a smile in response and remember the times when we received nothing in return, and so we stop smiling. However, the small loss we occasionally experience because of putting ourselves out there and not having it reciprocated is more than compensated for by the gains the rest of the time. If you want to get an idea of the true value of engaging in positive reciprocal behavior, just make a list of your outcomes in any given week.
+
+Life is easier and more enjoyable when we start and maintain win-win relationships with everyone. Helping others helps us. And as we explained, reciprocity has been part of our biological makeup for a very long time.
+
+# Tsze-Kung asked
+
+“Is there one word with which to act in accordance throughout a lifetime?” The Master said, “Is not reciprocity such a word? What you do not want done to yourself, do not do to others.”
+
+—CONFUCIUS
+
+Let’s go back to the eastern Mediterranean around 1250 BCE. The bulk of the power in the region was held by the four kings of Egypt, Hatti (a region in present-day Turkey), Assyria, and Babylon. They didn’t like each other much—in fact, “they deeply distrusted each other and frequently squabbled.” Demonstrating military prowess was often a way that a king achieved legitimacy in the eyes of his subjects, and there were constant conflicts, from skirmishes to full-on battles, between these four areas. Fighting was the norm.
+
+Then, one day, as Trevor Bryce chronicles in his article on the Eternal Treaty, fifteen years after a “great military showdown” between the
+
+---
+
+Egyptians and the Hittites, an interesting thing happened. The two kings decided to enter into the world’s first-known peace treaty.
+
+The treaty was not about peace in the global sense, stemming from a desire to have a world without war. It was about peace in the immediate sense: two parties trying to establish a mutually beneficial relationship. The treaty, known as the Eternal Treaty, was the laying out of a directly reciprocal relationship between two civilizations.
+
+Egypt was led by Ramesses, whose primary goal was to build “monumental construction projects, and to build his kingdom’s wealth through trade and the exploitation of its mineral-rich regions.” He had other security issues, most notably the Libyans to the west. So his interest in the treaty was to give himself some space to accomplish the legacy that mattered to him. The reality is, if you’re fighting with everyone all the time, you have to spread your resources along many fronts, and you likely don’t have time to do anything else. One less border to defend was an opportunity to put his efforts elsewhere.
+
+The Hittites had a similar problem, in the form of a growing military threat from the Assyrians. In addition, their ruler Hattusili had usurped the throne from his nephew and was badly in need of some external power to legitimize his rule. Ramesses commanded great respect in the region, and his acknowledgment of Hattusili’s leadership would go a long way toward maintaining stability. In pursuing the treaty with Egypt, “his hope was that Ramesses’ endorsement of his own position, and by implication that of his lineal descendants, would provide some security against future challenges.”
+
+The treaty contained provisions for future military support, the kind of alliance in which an attack on one is an attack on the other. Assyria, despite having both interest and a good position, did not, in fact, invade Hatti during Hattusili’s reign, so “quite possibly, the Egyptian-Hittite alliance did prove an effective deterrent against such an enterprise.”
+
+Reciprocity based on self-interest is still reciprocity. Engaging in positive behavior to then be a receiver of positive behavior is about the long game. For both Ramesses and Hattusili, the benefits of trying to develop an
+
+---
+
+alliance were clear. It gave them both an opportunity to exit fighting that consumed resources and allowed them to focus those resources on long-term stability and their legacies. Over time, the likelihood of reciprocal interactions increases, and thus it’s a much better strategy to try to make them positive. The more people you help, the more people you will have willing to help you.
+
+---
+
+# Schadenfreude
+
+“Schadenfreude” is a German word that has the literal translation of “damage-joy” and the more nuanced definition of delight or satisfaction at another person’s misfortune or suffering. As Tiffany Watt Smith writes in *Schadenfreude: The Joy of Another’s Misfortune*, equivalent concepts pop up in proverbs and words from numerous countries: France, Japan, Holland, Denmark, Israel, China, Russia, and ancient Greece and Rome.
+
+Schadenfreude is closely linked to our sense of reciprocity. We feel it most strongly when someone’s misfortune seems earned, as penance for their misdeeds. No one of sound mind would feel joy at the sight of an elderly lady tripping in the street or a dog getting its paw stepped upon. But when a homophobic politician accidentally tweets a link to gay porn? That’s when we feel a sense of glee and feel less need to hide it. Schadenfreude is not sadism—it’s a normal feeling that ties to our evolutionary programming and sense of fairness. We even use it as a form of bonding.14
+
+According to research, schadenfreude is tied to three things: aggression, rivalry, and justice.15 First, our sense of belonging to a particular group leads us to feel aggression toward anyone outside our tribe. The misfortune of those perceived as outsiders brings us satisfaction because we perceive it as benefiting our own group, even if it might not. Second, seeing things go wrong for other individuals gives us a stronger sense of our own superiority because we look and feel better in comparison. We naturally position ourselves within hierarchies based on every possible quality and are highly sensitive to where we stand in relation to others. Any sign of their inferiority transpires to be a plus for us.16 Status is always relative.
+
+Finally, we experience schadenfreude when our sense of reciprocity is satisfied—when we feel someone deserves comeuppance. We may not be willing or able to enact vengeance ourselves, but we’re delighted when it seems the universe has done it for us. Sometimes we are content to bide our time until this happens, as our sense of reciprocity is so strong that we expect people to get what they deserve sooner or later. Research supports this, suggesting that we feel more schadenfreude when we think someone deserves misfortune.17
+
+---
+
+# Conclusion
+
+Reciprocity underlies everything from basic human kindness to the most complex systems of trade. At its core, reciprocity is the simple idea that we treat others as they treat us—that we give what we get. But from this simple principle grows a vast web of social interactions and expectations that shapes nearly every aspect of our lives.
+
+A lot of people seem to expect the world to just hand them things without putting in any effort. This is a poor strategy because it doesn’t align with the human behavior you can observe around you every day. Reciprocation teaches us that if you give people cynicism and curtness or nothing at all, you are likely to receive the same. But if you give people opportunity and the benefit of the doubt, you will, more often than not, be on the receiving end of the same behavior.
+
+Become what you want to see in the world, and the world will give it back to you. If you want an amazing relationship with your partner, be an amazing partner. If you want people to be thoughtful and kind to you, be thoughtful and kind to them. If you want people to listen to you, listen to them. The best way to achieve success is to deserve success. Small changes in your actions change your entire world.
+
+One of the biggest misperceptions about reciprocity is that people should sit around waiting for others to go first rather than unlocking the power of reciprocity in their favor by going positive and going first without expectation.
+
+Reciprocity reminds us that our actions tend to come back on us. It’s an important reminder that we are part of the world, and thus our actions do not happen in isolation but are instead part of an interconnected web of effects.
+
+OceanofPDF.com
+
+---
+
+# Thermodynamics
+
+Reduce chaos and find order.
+
+OceanofPDF.com
+
+---
+
+A cold sink is essential…. In this sense, the cooling towers of a generating station are far more important to its operation than the complex turbines or the expensive nuclear reactor that seems to drive them.
+
+—PETER ATKINS
+
+---
+
+T hermodynamics refers to a set of laws that provide the ultimate foundation for how the world really works. It helps us understand randomness and disorder in systems and explains the conversion of energy from one form to another, the direction heat will flow, and the availability of energy to do work. One of the most useful aspects of thermodynamics is that it applies to all systems everywhere in the known universe, giving it a broad applicability. All work requires energy, and all systems are headed toward equilibrium.
+
+To explore how the model of thermodynamics might give us new insights, we need to explain the four laws that comprise the theory. Here they are:
+
+# 1. The First Law of Thermodynamics
+
+The first law of thermodynamics states that energy cannot be created or destroyed; it can only be transferred or changed from one form to another, such as from light to heat. The first law is known as the law of conservation of energy, and it deals with the transfer of energy.
+
+There are two forms of energy exchange—heat and work. Heat is energy exchange through thermal interaction and work is energy exchange by any process other than heat. Whereas work can be completely converted into heat, heat cannot be completely converted into work.
+
+# 2. The Second Law of Thermodynamics
+
+The second law of thermodynamics states that entropy (a measure of disorder simply understood as energy unable to be used to do work) of an isolated system always increases. Isolated systems are those that spontaneously progress toward the state of maximum entropy of the system, also described as thermal equilibrium—no net heat flow between objects. The entropy of the universe only increases with time.
+
+---
+
+One of the impacts of this law is that we need to expend energy to create order. Without the deployment of energy, all things move away from order.
+
+# 3. The Third Law of Thermodynamics
+
+The third law of thermodynamics states that as temperature approaches absolute zero, the entropy of a given system approaches a constant value.
+
+# 4. The Fourth Law of Thermodynamics
+
+The fourth law of thermodynamics is known as the zeroth law. This is because it was formulated after the first three laws but is fundamental to and assumed by the others. It states that if two objects are in thermal equilibrium with a third object, then those two objects are also in thermal equilibrium with each other.
+
+Aside from powering most of the world, the laws of thermodynamics have many metaphorical applications. We can recognize that we will be influenced by the behavior of the people around us; therefore, it’s important to be wise in choosing who they are. Entropy reminds us that energy is required to maintain order. You need to anticipate things falling apart and focus on prevention.
+
+The energy state of an economy—that is, its temperature—largely determines what its members can do and how fast they can do it. Temperature—the average kinetic energy of the moving molecules in a gas—affects every chemical process and every physical property associated with life. It influences not only the cost of doing business, but the speed at which tasks can be accomplished, and perhaps most importantly the range of adaptive options available. Temperature is, in other words, the crucial link between energy and time, the two components of power.
+
+—GEERAT VERMEIJ
+
+---
+
+# Putting Up Walls
+
+Much of thermodynamics is about equilibrium, including the fact that two systems of different temperatures, when exposed to each other, eventually become the same temperature.
+
+If thermal equilibrium is desirable, we can expend our efforts to maximize the exposure of the two systems to each other. Conversely, to keep them from reaching a state of equilibrium, some sort of insulating barrier is required. Like the experience of using a thermos to keep coffee hot, insulators can slow down the temperature change but cannot stop it completely.
+
+The physical world, all of it, only ever has one destination: equilibrium.
+
+—HELEN CZERSKI
+
+|HOT|COLD|
+|---|---|
+|Much of thermodynamics is about equilibrium, including the fact that two systems of different temperatures, when exposed to each other, eventually become the same temperature.| |
+
+---
+
+What if we consider the equilibrium of two systems not between two containers of different-temperature water, but two societies with different values?
+
+If we want to encourage equilibrium, then we can think of sharing as transfer of energy. There are three physical modes through which to transfer energy: radiation, convection, and conduction. There are clear analogies of how these modes are used socially to achieve equilibrium across boundaries. For example, radio and TV radiate ideas across borders. Teacher-student exchanges act as intellectual and social convection currents. Brands and foreign aid conduct values. Mixing cultures gives them common ground. We move toward social equilibrium when we share ideas and values that have the same foundations.
+
+Sometimes, however, for various political or cultural reasons, we decide we don’t want social or cultural equilibrium and so choose to erect an insulator in hopes of keeping the two systems from mixing. Humans have been putting up border walls for millennia. These walls often serve a physical and psychological purpose and are a line demarcating some sort of contrast. Us and them. My land, your land. Our values, your values. Our resources, your resources. The walls, however, never seem to work. From Hadrian’s Wall to the Great Wall of China to the Berlin Wall, these complex, expensive structures stopped the movement of neither people nor ideas. Why? Because contrast is hard to maintain. It is hard to keep groups of people from sharing ideas, customs, or language, just as it is difficult and expensive to keep a cube of ice solid on a hot summer day. Through social structures such as trade and marriage, borders tend to be places of exchange and social evolution. Two different states, whether of matter or people, will be impacted by what they are exposed to. An ice cube will undergo a temperature change if left outside in warmer air, and similarly a group of people will undergo changes in custom based on whom they interact with outside their group.
+
+---
+
+Division shapes politics at every level—the personal, local, national and international. Every story has two sides, and so does every wall. It’s essential to be aware of what has divided us and what continues to do so, in order to understand what’s going on the world today.
+
+—TIM MARSHALL4
+
+The Romans, building Hadrian’s Wall from coast to coast in northern England, seemed to best appreciate the limits of what a wall could achieve. From the outset, “Hadrian’s Wall was not designed to withstand attack by a large and determined hostile army, for it was too long for the defenders to be strong at every point.”5 Rather, the wall functioned much like a border wall today. Its design was more about controlling the movement of people and goods than stopping it completely. From the outset, it was accompanied by a diplomatic presence, with the Roman army regularly crossing its line to engage with local tribes, building relationships to gather intelligence and to try to deter major attacks.6
+
+The Romans knew Hadrian’s Wall would not stop a strong enemy force, and thus the placement and design was about slowing down aggression or giving the Romans the opportunity to be proactive by developing relationships with those on the other side. Trade continued, information and materials were shared, and personal relationships were maintained by those living on both sides.7 Hadrian’s Wall thus was just one part of the overall strategy to maintain contrast between Roman territory and the tribes of the north. Controlling the interaction between both sides of the wall, instead of trying to stop it completely, was enough for the Romans, probably because they realized that there is a significant cost to improved insulation. Border walls do not do their jobs on their own; they need to be augmented by border personnel. As Adrian Goldsworthy writes of Hadrian’s Wall, “Ultimately, its success rested less on the fortifications and barriers than on the soldiers who manned them.”8 This statement is true of all walls.
+
+With Hadrian’s Wall, the Romans did not try to prevent cultural equilibrium completely. They recognized that the resources required to
+
+---
+
+prevent any interaction across the border were more than they were willing to invest. They seemed to accept that their society could function as desired despite the influence from the cultures on the other side. To relate to thermodynamics, if we think of Roman culture as “hot,” Hadrian’s Wall acted as an insulator; it slowed down the cooling from exposure to other cultures but did not stop it completely.
+
+But a boundary line, as any military expert will tell you, is also a potential battle line, for a boundary line marks off the territory of two opposed and potentially warring camps.
+
+—KEN WILBER
+
+# Another famous wall that teaches us a lot about social equilibrium is the Great Wall of China.
+
+Walls have been going up between present-day China and Mongolia for at least two thousand years. Far from the restored stone wall that captures the imagination today, there are actually many walls, built of different materials and executed by many different dynasties, along this northern border.
+
+The history of these Chinese walls is a lesson in why barriers designed to completely prevent the mingling of two sides is a bad idea. It’s similar to trying to completely prevent two substances in direct contact from reaching thermal equilibrium—the necessary barrier requires too many resources to be practical.
+
+First, walls are expensive. There is the maintenance, as well as provisioning for the people stationed at them. Second, people can go around or over walls, because walls have to end somewhere. The Chinese walls were an expression of political desire to set the location of the northern border, and as Julia Lovell explains in The Great Wall, they were not purely defensive structures. Instead, they often pushed into foreign territory as a way of asserting claim. So, these walls were often not close to major centers, and they covered vast territory. Not only did they have to be
+
+---
+
+staffed, they required that outposts and associated supply lines be maintained in order to provision them.
+
+Right from the beginning there are stories about the essentially slave labor that was used to build the Chinese border walls and the horrible living conditions for those who staffed them. What good are walls without the loyalty of the troops stationed at them? Not much. The Great Wall was quite porous because “invaders could make detours around strong defenses until they found weaknesses and gaps,”11 and it was often staffed by guards who made a better living accepting bribes from those wanting to cross.
+
+Lovell describes the Ming dynasty attitude toward the Great Wall as “define, enclose, and exclude,”12 which sums up the entire philosophy behind the Chinese border walls right from the beginning. On the one hand was the desire to keep the barbarians out. The nomads from the steppes of present-day Mongolia, the most famous of whom was Genghis Khan, were a constant threat to the Chinese people. But there was also a desire to keep Chinese culture in, to not pollute it with the ideas and sensibilities of others. The walls were thus also inward-looking, a way of maintaining “cultural superiority.”
+
+However, as Lovell describes, “it was not the case that border walls absolutely and immovably separated a culture of rice, silk, and poetry on the one side from a culture of horse milk, pelts, and war on the other.”13 There was a lot of intermingling. There were ethnic Chinese. They were invaded by barbarians. The barbarians adopted some Chinese ways. They became the new ethnic Chinese, who were in turn invaded by barbarians. This cycle played out multiple times over the centuries, influencing the development of Chinese culture. The more cultures mix, the more likely they are to reach cultural equilibrium; we tend not to regard people we share customs with as different.
+
+Lovell tells the following story, which demonstrates the natural push for equilibrium and how hard it is to maintain contrast between two cultures who are in direct contact:
+
+---
+
+In 307 BC—in the middle of the Warring States period—King Wuling of the northern state of Zhao started a court debate about fashion: should upper garments be buttoned to the left or down the middle? Behind this seemingly frivolous and innocuous question of style lay a strategic issue of huge political and cultural significance. King Wuling planned to swap the traditional Chinese gown for the side-buttoning tunic of the nomads, and the aristocratic Chinese chariot for their mounted archers. Embedded in the mooted change of dress was a revolution in worldview: an acceptance of the military superiority of the nomads and of the need to fight them on their own terms.14
+
+Thus, the history of China is not the story of a culture that managed to completely insulate itself and remain “pure.” Current Chinese culture is composed of influences and ideas that were exchanged along its borders.
+
+Of all the walls in history, the Berlin Wall stands out as one that was erected to be an absolute, uncompromising barrier that was intended to prevent the mixing of two ideologies—to stop equilibrium. Walls don’t just restrict physical movement; they can also shape and modify ideas and social norms.
+
+The Berlin Wall was different from Hadrian’s Wall and the Great Wall of China in that it was less a part of a military and diplomatic strategy and more a psychological barrier. It was not designed to facilitate interaction with potentially hostile tribes (like Hadrian’s) or to claim territory and preserve culture (like China’s).
+
+The Berlin Wall tried to stop the movement of ideas as well as people. Soviet Communism and its East German counterpart depended on behavior-shaping propaganda and psychological controls, neither of which would work if challenged by outside economic or political ideas.
+
+The Berlin Wall was built to stop every possible transfer from one side to the other. After World War II, when Germany was divided into East and West, Berlin became this little oasis of democracy behind the Iron Curtain.
+
+---
+
+of Communism. It was the only weak point in an otherwise formidable barrier between the ideas and politics of the Americans and the Soviets. Occupied by Britain, the United States, France, and Russia after the war until 1961, Berlin still functioned as one city, which allowed for an escape route for those who wanted to leave Communist East Germany. As Frederick Taylor explains:
+
+Between 1945 and 1961, some two and a half million fled in this way, reducing [East Germany’s] population by around 15 per cent. Ominously for the Communist regime, most emigrants were young and well qualified. The country was losing the cream of its educated professionals and skilled workers at a rate that risked making the Communist state totally unviable.
+
+During the summer of 1961, the exodus reached crucial levels. Every day, thousands of East Germans slipped into West Berlin and from there were flown to West Germany itself along the so-called “air corridors.” The regime was not prepared to abandon the political and economic restrictions that fueled the hemorrhaging of its brightest and best.
+
+So they built a wall. And not just any wall—one with multiple layers of complexity and deterrents. In addition to the structure aboveground, subway tunnels, sewers, and anything that could give passage to the west was sealed off or modified so that human passage was thwarted.
+
+The Berlin Wall never worked completely. People still crossed, albeit at huge risk, and some lost their lives in the attempt. But what is even more remarkable is that the Berlin Wall contributed to the very ideology it was trying to keep out. Effectively keeping the population prisoner only served to undermine the values of communism East Germany was trying to promote. The pressure built until one day, in November 1989, the wall was taken down by the very people it had been trying to keep apart.
+
+---
+
+The story of the Berlin Wall is a clear example of the inevitable force toward equilibrium. There was no way for the East German state to invest enough energy to prevent the social heat exchange and eventual equilibrium.
+
+To keep two substances in direct contact from adjusting to the same temperature is difficult. It requires an insulator, and preventing any temperature change in the two substances is possible only with a constant investment of energy. The concept of equilibrium is a useful lens for understanding the inevitable fall of physical walls that humans have built around the globe. It is difficult to prevent two cultures in direct contact from sharing ideas and customs.
+
+---
+
+# The Problem of Equilibrium
+
+In Twilight of the Idols, Friedrich Nietzsche writes of politics, “Almost every party grasps that it is in the interest of its own self-preservation that the opposing party should not decay in strength. ” This is pointing out that there is value in contrast. If all the forces are balanced, in a true state of equilibrium, there is no change, no growth, no movement. It is contrast that drives development.
+
+---
+
+# We Don’t Like Disorder
+
+Maintaining order requires energy. Why put in that energy? Why extend ourselves to avoid the inevitable disorder of life? Using the second law of thermodynamics as a lens provides valuable insight into why reducing entropy is important.
+
+Entropy can come across as too complicated or nonsensical, so some effort in coming up with an easy-to-use definition is well worth it. The simplest way to grasp the concept is to think of your residence. It would quickly turn into a mess without the constant effort of cleaning and tidying.
+
+Murray Gell-Mann, a Nobel Prize–winning physicist, clarifies entropy in contexts such as organizing a pile of coins or the mixing of jelly and peanut butter in their containers. Why is it that if someone knocks the table the coins will get mixed up, or that despite their best efforts, your children inevitably get jelly into the peanut butter jar and vice versa? “The explanation is that there are more ways for [coins] to be mixed up than sorted. There are more ways for peanut butter and jelly to contaminate each other’s containers than to remain completely pure…. To the extent that chance is operating, it is likely that a closed system that has some order will move toward disorder, which offers so many more possibilities.”
+
+A simple example of entropy is life itself. There is a constant effort to maintain structure (avoid entropy) by consuming external energy (sunlight, food). In the process, life increases the entropy of (destroys) its environment and decreases entropy (builds or repairs) in the organism’s body.
+
+Another way to think of entropy is to imagine the game of broken telephone that you might have played when you were younger. A group of children sit around in a circle, and one child starts the game by whispering a sentence into the ear of the person next to them. The sentence gets transferred one child at a time until it has made its way around the circle. The final sentence is compared to the original, often with much hilarity.
+
+---
+
+Something mundane like “Today is Wednesday” can turn into “I like scary movies.” Because there are so many more options for change to occur, each repetition is more likely to drift from the original.
+
+Art is born out of as well as encapsulates the continuing battle between order and chaos. It seeks order or form, even when portraying anarchy.
+
+—JOHN YORKE
+
+Humans put a lot of effort into preventing disorder. If we look at society broadly, we notice that disorder flares up all the time. The structures we create nudge the natural disorder of life into order. Examples of this are laws, religions, social norms, customs, and the stories that explain and perpetuate them.
+
+While the stories we tell are unimaginably diverse on the surface, if we go deeper, we can spot distinct patterns and structures that emerge every single time. The content may vary, but the form of the stories we tell is remarkably predictable. Fairy tales are one way we have combated disorder in our history. They offer explanations for occurrences that seem to have none, giving a structure to what we find hard to comprehend. Fairy tales also set out a common understanding that everyone can buy into, trying to slow down entropy by preemptively fitting the unexplainable into a systematic order.
+
+The patterns in our fairy tales are so inescapable across time and cultures that it seems logical to suggest there must be a reason. Soap operas may not seem to have much in common with Shakespeare, yet at the heart of every story is the drumroll moment—the turning point when everything changes and the characters must go on a journey to restore normality. As if we can slow down entropy by telling stories to reduce disorder.
+
+Fairy tales these days are often associated with the Disney renditions most of us are familiar with. But the original compilations, such as those collected by the Grimm brothers, or the more original versions pulling from
+
+---
+
+Even older stories, like those by Hans Christian Andersen, offer a better view of how fairy tales can be understood as combating entropy.
+
+In *Into the Woods*, John Yorke suggests that the way we tell stories is indicative of our desire to find order in the world. Stories are an attempt to tame the terrifying randomness that surrounds us. As we go through life, we are constantly absorbing chaotic information that we make sense of through narratives. Yorke writes, “Every act of perception is an attempt to impose order, to make sense of a chaotic universe. Storytelling, at one level, is a manifestation of this process.”19
+
+The core structure of the stories we tell can be described in a few different ways: equilibrium / disequilibrium / new equilibrium; journey there / journey back; someone is looking for something and someone or something is in their way; and so on. In more detailed terms, Yorke describes the archetypal story structure as follows:
+
+- “Home” is threatened
+- The protagonist suffers from some kind of flaw or problem
+- The protagonist goes on a journey to find a cure or the key to the problem
+- They find a cure or the key
+- On the journey back they’re forced to face up to the consequences of taking it
+- They face some kind of literal or metaphorical death
+- They’re reborn as a new person, in full possession of the cure; in the process “home” is saved.
+
+---
+
+# Call to Adventure
+
+# Returns
+
+# Changed
+
+# Meets Mentor
+
+# Familiar
+
+# Unknown
+
+# Crosses Threshold
+
+# Trials & Failure
+
+# Atonement
+
+# The Hero's Journey
+
+# Growth
+
+# Revelation
+
+# Death & Rebirth
+
+Fairy tales beat back the stress that disorder can cause by putting the world back in order. As Marina Warner argues in *Once Upon a Time: A Short History of Fairy Tale*, they convey a hope that order can come about even in the face of almost unexplainable acts.20 Child abandonment and neglect, rape and death—fairy tales take away the randomness by putting these acts into a larger, explainable structure and offering insight on how to process them.
+
+We are drawn to stories that make things feel a little less random, just as we are drawn to storytellers who seemingly simplify complexity. We are all aware of disorder and the natural uncertainty that follows it and are attracted to stories that reduce it.
+
+By turning individual struggles into common experience, fairy tales put order into the disorder of “assault, cruelty, and injustice.”21 These stories
+
+---
+
+do not feature gods or superheroes, and instead look at the everyday person as they navigate their ordinary lives. “The structures of wonder and magic open ways of recording experience while imagining a time when suffering will be over.”22 Namely, when disorder will be conquered.
+
+There are no surprises in fairy tales. Not for the characters and not for us. We have heard the story before and know what will happen. However magical the world they depict, we have total faith in the structure of the story. That predictability is one means of providing order to things that would otherwise seem chaotic. What you learn about the world through fairy tales is to accept things that may not make obvious sense. Trust that there is order behind them, and by doing so slow down the entropy of life.
+
+“The landscape of fairy tales is symbolic: ‘The forest is where you are when your surroundings are not mastered.’ ”23 Fairy tales provide a means of mastering your surroundings by presenting a way to understand your world, giving it some order, and helping you make your way through it.
+
+While works that deviate from the archetypal narrative can be interesting, those that follow it most closely tend to enjoy the most commercial success. They just feel right. They are an escape from the chaotic real world. Unable to face meaninglessness, “in order to stay sane we must impose some kind of pattern.”24 This is what narratives achieve, and it’s the same reason we craft them within our own lives. They give us a sense of a coherent identity.
+
+It is interesting that fairy tales cross cultural and geographical boundaries. Similar stories occur in many places. Sometimes this is due to exchange via travel. The stories carried by wanderers were then modified and built on in their new homes easily because their structure had already occurred. Often, though, fairy tales in different cultures are very similar even when it’s not believed they were shared through travel. They are a common cultural phenomenon. So it is understandable that they have a lasting, worldwide appeal.
+
+Cinderella stories are a great example. The classic tale of a young woman living in unfortunate circumstances that suddenly change to remarkable fortune is found in many cultures. Variations include “Yeh-
+
+---
+
+Shen” in China, “Cendrillon” in France, and “The Turkey Girl” in Native American Zuni culture.
+
+The staying power of fairy tales “suggests that they must be addressing issues that have a significant social function.”25 By informing behavior in a similar way, fairy tales combat entropy and create a common understanding that most people can interact with.
+
+# Conclusion
+
+Thermodynamics is the science of energy, heat, and work. It’s the set of physical laws that govern how energy moves and changes in the universe. Chances are when you first came across the subject, it was dry, full of equations and abstract concepts. But the truth is thermodynamics is a useful intellectual framework for daily life. Not only can it reveal why your room gets messier over time, but it also explains why you should choose your friends wisely.
+
+The first law of thermodynamics states that energy can neither be created nor destroyed, only transformed from one form to another. This means that every joule of energy in the universe, every bit of heat and work and motion is part of an unbroken chain stretching back to the big bang. When you hop on a flight that burns jet fuel, you’re tapping into energy that was originally captured by plants millions of years ago and stored in chemical bonds until it was transformed into heat and motion.
+
+But while energy is conserved, it’s not always useful. That’s where the second law of thermodynamics comes in. It states that in any closed system, entropy—a measure of disorder—increases over time. In other words, left on its own, the universe tends toward chaos. Your bedroom doesn’t clean itself—it takes energy and effort to maintain order. Stars burn out, structures crumble, ice melts into water.
+
+Entropy is the universe’s tax on time. The constant battle against entropy is the driving force behind much of what we do. The constant struggle between order and disorder is the source of change and progress.
+
+---
+
+While engineers and scientists use thermodynamics to design engines or calculate the energy requirements of a system, we can use it as a framework for understanding the deep interconnectedness of everything. When you feel the warmth of the sun on your skin, you’re experiencing the end result of a thermodynamic process that began in the heart of a star ninety-three million miles away. When you watch a campfire burn down to embers, you’re witnessing the inexorable march of entropy in real time. Thermodynamics is the story of energy across time.
+
+We’re part of an energy story that stretches back to the dawn of time and reaches out to the farthest pockets of space. We can marvel at the fact that in a universe ruled by disorder, pockets of temporary order can emerge, whether it’s a clean room, a planet, or a civilization. By understanding thermodynamics, we gain not just a technical toolbox but an appreciation for the beauty, complexity, and fragility of our very existence.
+
+OceanofPDF.com
+
+---
+
+# Inertia
+
+Change requires force.
+
+OceanofPDF.com
+
+---
+
+Nothing happens until something moves.
+
+—ALBERT EINSTEIN
+
+---
+
+Starting something is hard, but so is stopping something. In physics, inertia refers to the resistance a physical object has to a change in its state of motion. Things at rest don’t start moving on their own, and planets continue to circle the sun without a means of propulsion.
+
+The phenomenon of inertia is the subject of Isaac Newton’s first law of motion, which states, “An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.” If a force—for example, friction—is not present, the object will continue as it was, moving with the same velocity or remaining at rest. Left to themselves, systems resist change. So too do people.
+
+Galileo discovered the principles of inertia through an experiment by setting two inclined planes against each other, almost like a skateboard half-pipe, and then rolling a ball down one of them. The clever experiment made it easy to see that the smoother the surface, the closer the ball would come to reaching its initial height on the opposite plane. From this finding, he argued that any difference in initial and final height of the ball was due to the presence of friction, an opposing force.
+
+In his book Principles of Philosophy, Descartes talks about inertia as well, stating that the first law of nature is that “each thing, as far as is in its power, always remains in the same state; and that consequently, when it is once moved, it always continues to move.”
+
+Inertia is a useful model to try to understand some elements of our behavior, including our thinking patterns and habits. Our natural inclination to reject the new is in part normal resistance to the effort required to change. Keeping things as they are requires almost no effort and involves little uncertainty. We need force to effect change, and force requires effort.
+
+---
+
+Inertia offers a lens to help us understand resistance to change and why we fail ourselves when we get complacent.
+
+Inertia is the reason that starting something is harder than continuing. At a basic level, many brain studies have shown that the idea of multitasking is a myth. When we shift our focus from one input to another, we exert more energy and use more time to finish everything than if we would have completed one task before starting another.
+
+Inertia also helps to explain why we continue bad habits and why it’s hard to make systematic change. Many cities continue to rely on cars for short commutes instead of implementing an infrastructure to facilitate public transportation, walking, or cycling. Inertia is the reason we stay at jobs we hate, avoid meaningful conversations with people of different opinions, and almost never change the religion our parents imposed on us at birth. It is easier to stay on our current path, even if it’s going in the wrong direction.
+
+For, like a mass in Newton’s first law of motion, once our minds are set in a direction, they tend to continue in that direction unless acted on by some outside force.
+
+—LEONARD MLODINOW
+
+---
+
+# Momentum
+
+Imagine a train pulling into a station and screeching to a halt. The driver doesn’t press the brakes when they want to stop. They do it well in advance, allowing enough time for the full length of the train, weighing hundreds or even thousands of tons, to come to a standstill.
+
+A train can’t just stop moving as soon as the driver applies the brakes, because of momentum. The equation for calculating momentum is p = mv, where p is momentum, m is mass, and v is velocity. When something with mass is moving, it has momentum.
+
+The greater the mass and the greater the velocity, the greater the momentum of an object. If you’re out for a run, it takes a lot less effort for you to stop than it does for a train because you’re lighter and slower. Doubling either the speed or the mass of an object will double its momentum.
+
+Isaac Newton’s second law of motion states that the acceleration of an object is the result of two factors: the forces acting upon it and its mass. This contrasts with the first law of motion, which states that an object will remain at its current velocity if the forces acting on it are all balanced. So, acceleration is the product of unbalanced forces.
+
+Outside physics, we consider something to have momentum if it is progressing in a particular direction in such a way that it would take a weighty outside force to stop it or change its direction.4
+
+---
+
+# Once an Idea Gets Rolling, It Can Be Hard to Stop
+
+Why do some products hang around for centuries even when better and cheaper ones come on the market? Why do others burst onto the scene with so much promise, only to flame out quickly? We can use the lens of inertia to provide part of the answer to these questions.
+
+Most of the time, our consumption patterns are based on habit, not conscious thought. We buy what we buy and have the preferences that we do because we’ve had them for a long time. When we go to the grocery store, we seldom invest the energy to apply critical thinking to the products we’ve bought dozens of times. The longer we’ve been buying something, the more ingrained this product is in our lives. Even if we find out it is unhealthy, we seldom switch immediately, if at all. We can understand why this happens by looking at Newton’s second law, relating force to acceleration, which shows us that mass matters when it comes to inertia.
+
+When a force acts on an object, the object accelerates in the direction of the force. If mass stays the same, increasing force will increase acceleration. If the force on an object remains constant, increasing mass will decrease acceleration. Heavier objects require more force to accelerate or slow them down than do lighter objects. Essentially, the greater the mass, the greater the inertia.
+
+The relevance of mass has analogous application in our habits. While it’s not a perfect parallel, you can often think of mass as duration when it comes to habits. The longer we’ve been doing something, the more it has become part of both our identity and our understanding of the world. Thus, the amount of effort required to change a habit is greater proportional to the length of time we’ve had it. What is true for the individual is also true for our larger societies. The longer a product has been used by a society, the harder it is to change to a new one, even if there are obvious benefits. Let’s look at two products, lead and absinthe, and compare their social inertia.
+
+---
+
+About two thousand years ago, Marcus Vitruvius Pollio wrote *On Architecture*, a wide-ranging series of books covering not only architecture but engineering, philosophy, and medicine. He had many suggestions and observations, one of which was, “Water ought by no means to be conducted in lead pipes, if we want to have it wholesome.” Before we had gunpowder, compasses, or forks, we had strong indications that we shouldn’t be exposing ourselves to a lot of lead.
+
+No one really heeded his advice. Over the next millennia, lead was added to makeup, gasoline, and paint, and it was part of many manufacturing processes, such as printing. Concerns about its side effects kept cropping up as people continued to notice a high correlation between death and exposure to lead. Nonetheless, it was used to dilute wine, it made the pipes that carried drinking water, and it was added to face cream to help women achieve the paleness that was the social standard of beauty.
+
+In 1910, Alice Hamilton was appointed to head a survey on industrial illness in Illinois. Over the next few years, she became America’s leading expert on industrial toxicology, providing definitive evidence of, among other things, the dangers of lead exposure in the workplace.5 Despite this evidence, the American car company General Motors proceeded with the creation of leaded fuel in the 1920s. Hamilton campaigned extensively against the introduction of leaded fuel, and she and her colleagues provided an extensive overview of the toxicology of leaded gas and the dangers of lead-tainted exhaust.6 And yet, fuel laced with lead wasn’t banned in the USA until the 1980s.
+
+Lead still crops up in other places despite all we know of its dangers. For example, it is added to paint to prevent cracking caused by changes in temperature. Leaded paint is still used in many countries today in homes and on toys even though nontoxic options are available at a similar price.
+
+The story of lead can be contrasted with that of absinthe, whose rise and fall occurred within fifty years.
+
+“Absinthe was made from a combination of plants and aromatics, including wormwood, aniseed, fennel and wild marjoram, which were first bruised and then soaked in alcohol and distilled, creating a bitter, pear-
+
+---
+
+colored liqueur…. A measure would be placed in a glass, and was then diluted with ice-cold water poured through a sugar cube, turning the whole thing milky pale.”7 Starting in the 1860s, absinthe became a wildly popular aperitif—an alcoholic drink taken before dinner. “In the latter half of the nineteenth century whole districts of Paris were said to smell faintly herbal between 5 and 6 p.m., a time that became known as l’heure verte (‘the green hour’).”8
+
+Fifty years later it was being compared to opium and considered a major social ill. Furthermore, “in France, doctors began to suspect that it was really a poisonous drug…. People were reporting hallucinations and permanent insanity.”9 Experiments were conducted, and animals sacrificed. Then, “in Switzerland, the final straw came in 1905, when a man called Jean Lanfray killed his pregnant wife and two young daughters, Rose and Blanche, after he had been drinking absinthe. The case was dubbed ‘the absinthe murder’ and the drink was outlawed completely in Switzerland three years later.”10 France followed in 1914.
+
+Within fifty years absinthe was used, abused, and abandoned. Interestingly, “subsequent tests have shown that much of the supposed proof of absinthe’s inherently deleterious effects were nonsense.”11 It is no worse for you than any other alcohol of the same strength.
+
+So, on the one hand, we have lead, proposed as poisonous for two thousand years and still in use; and on the other, absinthe, whose suspected effects caused it to be taken off the market within fifty years. Lead, now proven toxic, is still kicking around in consumer products. Absinthe, absolved of all responsibility, remains unobtainable in many liquor stores. Why the difference? Obviously, the reasons are complex, but the use of mental models is about the insight they provide. So, by using the lens of inertia, we can make some observations.
+
+Mass matters. It is much easier to apply force to stop a light object versus a heavy one. Lead and absinthe had different societal masses. Lead performed several highly useful functions in multiple manufacturing processes. Absinthe got people drunk. Lead had been integrated into many other substances, and so there is also an incentive angle. The cost of
+
+---
+
+Containment and remedy for lead was extremely high, and people would have had to abstain from using products they found useful, not to mention the cost of retooling manufacturing systems that relied on lead. Absinthe stood on its own. Thus, it took far less effort to remove absinthe than it is taking to remove lead.
+
+Once we consider a story true, it takes a great deal of force to change it. Data alone is rarely enough. This is part of the reason why the proof of something being harmful is not always enough to produce a change in behavior. The inertia of a product, a habit, or an idea increases the longer it is around. There are countless urban legends and popular myths that have persisted for a long time and have woven themselves into our understanding of the world, despite available evidence of their inaccuracy. Sometimes it can feel monumentally frustrating when reliable information doesn’t seem to change an erroneous popular opinion. Using inertia as a lens helps us understand the dynamics that are involved and gives us some insights on how to tackle addressing the motion we want to change.
+
+---
+
+# Escape Velocity
+
+Escape velocity is the speed an object needs to break free from a planet’s gravitational grip. In a sense, it is the ultimate triumph over inertia. For instance, when a rocket is taking off, it needs to reach an extremely high speed to get away from the strong gravitational influence of the Earth. As it moves farther away, it can slow down a bit. This is because the gravitational force pulling it back to Earth is no longer strong enough to overcome its kinetic energy. As the rocket gains altitude its fuel and kinetic energy are converted to gravitational potential energy. If the rocket can build enough velocity, it can escape the pull of Earth’s gravity indefinitely even without further propulsion—this is referred to as the escape velocity and is equal to seven miles per second on the surface of the Earth. We can relate escape velocity to an idea that comes up later in the book, that of activation energy. How much effort do we need not only to overcome resistance, but to set an object on a new path?
+
+---
+
+# The Inertia of Belief
+
+For the need to think can never be stilled by allegedly definite insights of “wise men”; it can be satisfied only through thinking, and the thoughts I had yesterday will satisfy this need today only to the extent that I want and am able to think them anew.
+
+—HANNAH ARENDT
+
+Inertia as a lens shows us that beliefs can become habits. Habits are entrenched behaviors, some of which are good, while others are bad.
+
+In Learning from the Octopus, Rafe Sagarin writes that belief systems have an “enormous evolutionary inertia behind them,” explaining that our capacity for belief has been one of our survival mechanisms and that this biological relevance helps explain why beliefs are so resistant to change. Thus, sometimes the inertia of our beliefs hinders us, such as when they make us blind to new opportunities. Or when we dismiss new information or ideas because they don’t fit with what we think we know about the world. For example, the history of invention is a story of the dismissal of new ideas. From radio and the telephone to cars, airplanes, and laptop computers, many life-changing inventions were dismissed initially as irrelevant or useless. There are many stories of people who lost out on opportunities to develop and invest in these new technologies later lamenting their lack of foresight.
+
+The flip side is that while we often look back and shake our heads at the lack of vision, it suggests that new ideas must overcome the inertia to displace existing ideas. And given that these technologies eventually did become an indispensable part of our world, there are obviously some visionaries whose beliefs were flexible enough to lend their support in combating the inertia.
+
+---
+
+Thus, the inertia of belief can also be a good thing. At the most basic level, when our beliefs persist, we don’t have to relearn everything all the time. Furthermore, values with strong inertia can also help us persevere through obstacles and setbacks. This does not mean that we should hold on to our beliefs blindly, unwilling to update them once we become adults. Strong beliefs can stay strong while being flexible. In fact, if we continually refine and develop them based on new information and experiences, they can continue to support us through challenges.
+
+Often the stories behind new theories and inventions show both aspects of the inertia of belief: the positive aspect that propels scientists and inventors to carry on in the face of rejection and ridicule, and the negative aspect that fuels those reactions.
+
+The inertia of belief can make it difficult to cause real change in the world. But that same inertia can help those who are determined to cause change to hold on to their beliefs and push through. The story of nuclear physicist Lise Meitner demonstrates this dichotomy. She started off with the deck stacked against her in terms of the strong negative social beliefs that she had to navigate. In a more just world, she would not have had to do what she did, but her determination gave her the willingness to adapt to an unfair system.
+
+# Lise Meitner
+
+Lise Meitner was born in Austria in 1878. At age twenty-three she was the first woman admitted to the University of Vienna’s physics lectures and laboratories and went on to become the second woman to receive a PhD in physics at the university. In 1907 physicist Max Planck invited her to Berlin, where she worked for years as an unpaid research assistant.14 During this time she met Otto Hahn, with whom she would collaborate professionally for decades, and together they discovered protactinium, the element with atomic number 91 on the periodic table. The university would not allow women to do independent research, so she and Hahn had to get creative to pursue their ideas. As described in her biography by Patricia Rife on the Jewish Women’s Archive, “At first, she was an unpaid ‘guest’ under Hahn, but most people knew they were equals in their research team.”15 Officially though, her contributions were always minimized. As Ruth Lewin
+
+---
+
+Sime describes in *Lise Meitner: A Life in Physics*, “In every publication Hahn was first author, to which Meitner apparently did not object, even though she had done much of the work.”16
+
+Despite the slights, Meitner maintained her friendship with Hahn for the rest of her life, even becoming godmother to his only child.
+
+Eventually her work, the respect of her colleagues, and her growing contribution to radiation and nuclear physics led to her being asked to create and supervise the physics section of the Kaiser Wilhelm Institute for Chemistry. It was a position she held for twenty years. On being asked to establish the physics department, Meitner “took it as a sign of recognition, trust, and professional coming-of-age.”17
+
+In 1919 she became a professor at the institute and thus was the first woman in Prussia with the title.
+
+During the 1920s and early ’30s, Meitner continued her work researching different aspects of physics. Any results achieved were the result of careful and patient work. She was the first person to observe and describe multiple transitions without the emission of radiation, and with colleague Kurt Philipp, she was “the first to identify positrons from a noncosmic source and to show, moreover, that positrons appear together with negative electrons in pairs.”18 Her accomplishments during this time put her in “the first rank of experimental physicists.”19 She began to see her teaching duties expanded as she climbed the academic hierarchy and received a series of prizes in recognition of her work.
+
+In 1933 things began to change. That year the Nazi party decreed that Jewish academics were no longer allowed to be professors. Meitner continued her research but in 1938 fled Germany for Sweden with the assistance of legendary physicist Niels Bohr. During the war she worked in a seemingly more limited capacity at the Nobel Research Institute of Physics, living on a small research assistant’s salary and feeling cut off from the work she had been doing in Berlin.20
+
+However, it was during this time that Meitner made her most significant discovery. Hahn continued to communicate with her, detailing the results of his experiments and asking her to come up with the explanation for his results. Meitner began to ponder the data, and through an insight gained...
+
+---
+
+while discussing the matter with her physicist nephew, Otto Frisch, put together the first explanation of nuclear fission. Her work provided the first indication of the power contained in nuclear reactions and eventually led to, among other things, the making of the atomic bomb. It was Meitner’s most significant contribution to physics.
+
+Despite Meitner’s work, Otto Hahn was the sole recipient of the 1944 Nobel Prize for the discovery of nuclear fission. Lise Meitner was nominated twenty-nine times for the Nobel Prize, including three times by Niels Bohr, but was never awarded the honor.21
+
+We do not have to look hard to find beliefs with incredible inertia that Meitner had to fight against. First were cultural beliefs about women, what their capabilities were, and what their place in society was. At so many turns, Meitner had to navigate prejudices about women. On everything from receiving an education to her ability to conduct research in a lab, she had to work hard to overcome the inertia she faced.
+
+In addition, being of Jewish descent in Nazi Germany meant having to deal with a mass of beliefs that had gained a frightening amount of momentum with incredible inertia. The political conditions in Germany were partly responsible for Otto Hahn’s masking Meitner’s contributions to the discovery of nuclear fission.
+
+The remarkable aspect of Lise Meitner’s story, however, is how her passion for physics propelled her through the challenges. First, it takes dedication to be a research scientist. Ruth Lewin Sime’s accounts of Meitner’s patience while conducting research suggests that she had total belief in her work. Not that there was a particular answer she was trying to prove, but that there was value in the scientific process itself. Thus, her beliefs were not a rigid dogma but a flexible understanding that grew through investigating and discovering new ideas. It was these beliefs that likely supported her when she had to take secondary position on papers she had done most of the work on, or when she had to work in subpar lab conditions for low pay.
+
+Meitner achieved more than possibly any other woman working in physics at the time—not only the discoveries in experimental physics but
+
+---
+
+also leading a department and earning widespread respect and prestige. She was treated as an equal within her field, and until the Nazis came to power, she enjoyed a position as the only female physics professor in Germany. Meitner’s beliefs in both physics and herself increased their inertia as her life went on, allowing her to respond to the challenges presented by the prejudice she encountered. Although she never won a Nobel, she was awarded many honorary doctorates and other prizes. In her later years she gave many talks to support women’s progression in the sciences and continued her research until she was eighty-one. She was widely respected by colleagues all over the globe, and Sime writes that Meitner made friends for life wherever she went.
+
+Meitner persevered in the sense that she continued to do what she loved despite the obstacles she faced. To other female scientists she said, “Remember that science can bring both joy and satisfaction to your life.”
+
+# Conclusion
+
+Inertia is the stubborn resistance of the universe to change. It’s the reason why objects at rest tend to stay at rest and objects in motion tend to stay in motion. You can think of inertia as the guardian of the status quo.
+
+At its core, inertia is a property of mass. The more massive an object is, the more it resists changes to its state of motion. A feather, with its tiny mass, is easily blown about by the slightest breeze. A boulder, on the other hand, requires a powerful force to get it moving. This is why it takes more effort to push a heavy cart than a light one, more energy to launch a rocket than to toss a ball.
+
+But inertia isn’t just a physical phenomenon. It’s an illuminating lens to see habits, beliefs, and our resistance to change. The longer we’ve held them, the larger the mass and the more force required to change them. The path of least resistance is always the status quo.
+
+Getting started is the hardest part. Once something is moving in a direction, it’s much easier to keep it in motion. But once something is in
+
+---
+
+motion, it’s hard to stop. This is why most self-help books about positive habits break things down into very small steps—to reduce the force required to overcome the status quo. For example, if you want to get in the habit of doing push-ups daily, start with one rather than with fifty. If you want to start a flossing habit, start with one tooth. After all, the bigger the mass—in this case the gap between where you are and where you want to be—the more effort required.
+
+Inertia is both a challenge and an opportunity. Successful companies struggle with the inertia of their own success and the resistance to change that comes with size, complexity, and entrenched interests. Startups, on the other hand, can leverage their lack of inertia—their agility, their willingness to pivot and adapt—as a competitive advantage.
+
+Momentum and inertia are closely related. While inertia is the tendency to resist change, momentum is the oomph an object has when it’s moving. The more momentum something has, the harder it is to stop or redirect. The key is to pick the right direction and build momentum so inertia works to your advantage and carries you forward. This is the essence of the “flywheel” concept in business—the idea that success breeds success, that small wins can compound into big gains over time.
+
+When you’re fighting the status quo, remember the physics at play. Resistance is natural. Understand that it takes a sustained force in the right direction to build momentum in a new direction.
+
+While the universe resists change, it always rewards those who dare to overcome that resistance.
+
+---
+
+# Friction and Viscosity
+
+Movement is a battle.
+
+OceanofPDF.com
+
+---
+
+Insanity comes in two basic varieties: slow and fast…. Viscosity and velocity are opposites, yet they can look the same. Viscosity causes the stillness of disinclination; velocity causes the stillness of fascination. An observer can’t tell if a person is silent and still because inner life has stalled, or because inner life is transfixingly busy.
+
+—SUSANNA KAYSEN
+
+---
+
+Friction is a force that must be overcome to achieve an outcome. There is always something getting in the way and trying to slow us down. While we can never eliminate the forces that impede our progress, we can work to minimize them. Like a smooth surface provides less challenge to a rolling ball, or how water is easier for a human to swim through than it is for a krill, shaping our environment to reduce the challenges of opposing forces is a key to improving productivity.
+
+Friction is a force that opposes the movement of objects that are in contact with each other, such as the wheels of a pair of roller skates moving across the ground. For objects to move, they must overcome friction that pushes in the opposite direction. This requires extra energy, which produces heat and sound. Smooth surfaces cause less friction than rough ones, which explains why walking on pavement is much easier and less tiring than walking on gravel. There are no frictionless surfaces, only surfaces with less or more resistance.
+
+All objects experience friction. There are two key types of friction: kinetic and static. Kinetic friction occurs when two objects are sliding past each other. This explains why an object in motion, without consistent forces pushing it forward, will come to a halt. For example, if you place a book on a table and give it a push, it will move a bit and then stop. The kinetic friction absorbs the energy you transfer to the book in the push. Static friction, on the other hand, occurs when an object is stationary; it’s what prevents it from moving.
+
+Although scientists have been examining friction for about six hundred years, there are still gaps in our understanding. Despite some of its mysterious qualities, friction remains a useful mental model because it captures how our environment can impede our movement.
+
+---
+
+Viscosity, which can be seen as the partner of friction, is the “measure of how hard it is for one layer of fluid to slide over another layer.” If a liquid is hard to move, it is more viscous. If it is more viscous, there is more resistance.
+
+Viscosity isn’t usually an issue for humans in our day-to-day lives. We mostly deal with gravity and inertia, although viscosity is always present. But for small particles, gravity and inertia become a nonissue compared to viscosity. So if you make things bigger, viscosity is less relevant.
+
+A tiny plankton moving in the ocean is going to have to struggle through the viscous water and will stop coasting forward almost as soon as it stops moving. For a whale, on the other hand, the viscosity of the water hardly registers. Its size means it can push water out of the way with ease and capitalize on other forces, such as inertia, to keep forward motion.
+
+There are two important aspects to using friction and viscosity as a model. First, what is easy in one environment might be harder in another. For instance, what we can accomplish in times of peace is different than what we can accomplish in times of war. Second, we also learn that the main forces relevant to a particular situation depend on the scale you are operating at.
+
+---
+
+# Surface Tension
+
+“Viscosity matters when something small is moving through a single fluid… surface tension, its partner in the world of the small, matters at the place where two different fluids touch. ”
+
+The story of the measuring of surface tension is the story of an individual who persisted: one woman working in a society that made it almost impossible for a woman to move in the environment of scientific study. Agnes Pockels wanted to study physics, but at the end of the nineteenth century in Germany, women were not allowed into the universities. Her younger brother became a physicist, sharing his textbooks and, throughout his life, advances in the discipline.
+
+At home, taking care of aging parents, she maintained her curiosity and passion as best she could in the limited setting. She developed a simple tool called the Pockels trough, which “was able to measure the surface tension of water under the influence of different surface concentrations of the oils and soaps she worked with.” She went on to publish several papers on surface tension, essentially forming the base of the research on the concept, without ever receiving formal training or education in science. Her tool and her research were built upon by others, who went on to receive awards like the Nobel Prize. But her accomplishments are more remarkable when we consider the high viscosity of the environment in which she succeeded.
+
+---
+
+# Slowing the Flow
+
+Everything that moves has to move through something, including information. Why does some information get disseminated quickly, whereas other times it gets bogged down and seems to go nowhere?
+
+The answer often has a lot less to do with the content of the information than with the environment it moves through. To understand just how much a communications environment can be manipulated to affect the pace of information exchange, let’s look at Soviet Russia. By the 1980s the Soviets had created a high-viscosity communications environment that made it hard for information to flow through it. Like a goldfish trying to swim through honey, people had an unrelentingly difficult time trying to communicate information to those who might need it.
+
+During the Cold War era, the Soviets amplified forces that negatively impacted the free flow of individual bits of information, potentially because it’s easier to control things that are moving slower. The viscous information environment they created may have been useful to the state for maintaining control, but it also caused the broad scope of the Chernobyl disaster.
+
+During and after the explosion at the Chernobyl nuclear power plant in 1986, there was a lack of information getting to those affected, from citizens to supporting government departments to other countries. A lot of information was out there, but it had a hard time flowing to those who needed it because of the structure of the Soviet system.
+
+In *Chernobyl: The History of a Nuclear Catastrophe*, Serhii Plokhy describes the entire scope of the disaster. He explains that the leadership of the Soviet Union was characterized by an approach of burying the past instead of learning from it. Their complicated bureaucracy created an environment that made it very hard for correct information to get to those who needed it. This was manifested in censorship, the criminalization of sharing certain information, regular domestic spying, and a total lack of empowerment of the people on the ground.
+
+---
+
+Chernobyl was not the first nuclear accident in the Soviet Union. However, it was illegal for anyone to officially report on or discuss any that had happened previously, notably the multiple accidents at the nuclear power plant in Leningrad, as if by not acknowledging something, the Soviets could pretend it out of existence.6 Because information about previous issues was suppressed, there were no lessons learned that fed into the design of the Chernobyl plant or its procedures.
+
+After the accident at Chernobyl, the pattern of zero communication continued, with nothing being reported within the Soviet Union or to the foreign press. There were secret resolutions, and everything was classified. One consequence of this approach was that the people immediately affected—those who lived in the surrounding area—had no idea what was happening or how to protect themselves. “Intercity telephone networks had been cut, and the engineers and workers at the nuclear plant had been prohibited from sharing news of what had happened with their friends or relatives.”7 Information control was more important than the lives of people.
+
+How does a situation like this come to be? There are a lot of aspects to consider, as a highly viscous information environment is not created by one factor alone.
+
+To start, there was the Soviet preoccupation with image. They didn’t want to look bad to their citizens or the West, as they believed this would weaken the Communist state. They insisted things go on as usual, including the large May Day parade in nearby Kiev, which exposed thousands to high levels of radiation. The Soviets accused the Western media of spreading rumors about Chernobyl and kept repeating in official reports “that everything was fine, and that the party was in control.”8
+
+Additionally, the Soviet mentality within the political structure was characterized by fear and a lack of accountability. Problems were pushed up the chain, because no one wanted to take responsibility and make a decision and thus have to deal with the potential consequences of being wrong and embarrassing the government. But at the same time, “the protocol was to bully subordinates into submission and then demand the fulfillment of
+
+---
+
+unrealistic production quotas.”9 People couldn’t safely say, “No, we can’t get that done in the time frame you are asking for.” With no one wanting to communicate negative information up the chain, and erroneous information being pushed down the chain, building operations like those at Chernobyl cut corners to meet unrealistic deadlines.
+
+Chernobyl itself was built on shaky foundations with questionable reactors, and with safety standards that would never have cut it in North America or Western Europe. No one in the Soviet Union seemed to want to hear accurate assessments of problems or projects. Thus, the information that moved up and down the chain was often completely fabricated. Essentially there was high viscosity for true information, whereas false information faced a low-viscosity medium. Similar to fluid hitting a boundary with different viscosities, false information was disseminated further because it flowed easier.
+
+Finally, the Soviet leadership “was still deeply grounded in the Soviet tradition of secrecy and neglect for the immediate well-being of the people while allegedly staying focused on the greater good and a better future.”10 In the aftermath of the Chernobyl accident, this attitude manifested as a total lack of information sharing with those affected. Radiation levels increased while the residents of nearby Pripyat had weddings and played in the streets. Even though radiation levels were damagingly high, it took days for evacuations to start. And even then, nothing true was communicated, with residents being told they would be back in their homes in three days. The Pripyat hospital, in the town where all Chernobyl workers lived, “was equipped to deal with almost anything but radioactive poisoning.”11 Because whether Chernobyl ever had problems or not, the Soviet leadership had already decided that radioactivity was never going to be an issue.
+
+And even though Chernobyl is in the Ukraine, the Ukrainian leadership often found out what was going on from Moscow.
+
+All these elements combined to create a highly viscous information environment that made it near impossible to speak the truth of what was happening or to communicate it to anyone. As Plokhy describes, “The immediate cause of the Chernobyl accident was a turbine test that went
+
+---
+
+wrong…. Immediately after the accident, as panic spread, the authoritarian Soviet regime imposed control over the flow of information, endangering millions of people at home and abroad and leading to innumerable cases of radiation poisoning that could otherwise have been avoided.”12
+
+What is interesting is that their approach ultimately undermined Soviet goals. Many people felt betrayed by their government and pushed relentlessly for details about the accident. As these started to trickle out, outrage was displayed by many Ukrainians, which helped to fuel the Ukrainian push for independence from Moscow. Creating greater viscosity for information flow may seem like a way to control people and protect them from difficult information, but it easily backfires. If people get an inkling something is hidden from them, they’ll push as hard as possible to find it. If they succeed, they’ll pay far more attention to it than they would have done otherwise. The negative consequences that result from a lack of information sharing in situations like Chernobyl often undermine the control that a government was trying to exert in the first place.
+
+# Trickle-Up Innovation
+
+How else can the lens of opposing forces like we find in the friction and viscosity model be useful? One area is organizational effectiveness. If we think of an organization, we can appreciate that the forces that influence innovation are different for the executive team and the frontline worker. So if the goal is to encourage more innovation on the front lines, then you need to pay attention to what encourages and limits movement in that environment, not in the C-suite.
+
+The Ford Model T left two legacies: the iconic image of the beginning of the automobile age, and the mass-production system. For Ford, and later GM, mass-production systems were not designed to incorporate the potential for innovation at the level of the factory worker. Essentially, “the workers on the shop floor were simply interchangeable parts of the production system.”13 Massive amounts of inventory were kept on the
+
+---
+
+floor, and problems were not fixed until the end of the line. Workers were not there to address problems or improve the system. They were just there to perform their repetitive task, leaving any rework or problem-solving to specialists.
+
+# In the 1940s, Toyota, the Japanese car company, was struggling to survive after the war.
+
+Japanese government expectations were that financial support and success meant exports, which meant being internationally competitive.
+
+Studying the mass-production system of the North American car manufacturers, Toyota knew it wouldn’t work for them. They didn’t have the initial capacity to get a machine of that size functioning. But they noticed something else. Mass production generated a lot of waste, was inefficient because it deferred the addressing of mistakes to the end of the line, where they were most costly to fix, and took an exceptionally long time to change when a new production model of car came out. Toyota development guru Taiichi Ohno thought there was room for improvement.
+
+One of his insights was to focus on the environment of the frontline worker. He saw that output could be significantly affected by reducing the friction happening at that level. “If workers failed to anticipate problems before they occurred and didn’t take the initiative to devise solutions, the work of the whole factory could easily come to a halt.” Therefore, getting more effective output from the shop-floor worker was not about speeding up performance or setting higher quotas. It was about creating a smoother environment that empowered workers to engage with their work.
+
+If we want people to innovate and take initiative in real time at the ground level, then the organizational culture and structure must be one in which it is supported and safe to do so. What creates an environment with low friction for the workers, so they are better able to move to create positive change?
+
+One of the things that Ohno noticed in the mass production system was that “none of the specialists beyond the assembly worker was actually adding any value to the car. What’s more, Ohno thought that assembly workers could probably do most of the functions of the specialists and do
+
+---
+
+them much better because of their direct acquaintance with conditions on the line.”15 A first step was to change the behavior on the line by including responsibilities like minor repairs and quality checking. Every worker was given the ability to stop the line to fix a problem.
+
+As James P. Womack, Daniel T. Jones, and Daniel Roos explain in The Machine That Changed the World, “In striking contrast to the mass production plant, where stopping the line was the responsibility of the senior line manager, Ohno placed a cord above every work station and instructed workers to stop the whole assembly line immediately if a problem emerged that they couldn’t fix. Then the whole team would come over to work on the problem.”16 Pulling this “Andon cord” created a lot of immediate friction—like going from water to cement in a second—but allowed for mistakes on the line to be addressed immediately. Furthermore, the day was arranged so that time was set aside for workers to share ideas on how to improve process. All of these changes were about reducing the friction of the worker environment in the long term.
+
+The result of the changes to the assembly line was a system that produced cars that needed less rework at the end. So even though “every worker can stop the line…the line is almost never stopped, because problems are solved in advance and the same problem never occurs twice.”17 The culmination of these tangible changes made to the factory-worker environment resulted in improved car quality, production efficiency, and worker morale.
+
+Morale is critical to an environment that fosters innovation. In order to take risks, people need to feel supported. Toyota fostered an environment on the factory floor that emphasized communication and collaboration. Workers helped each other solve problems and could switch their focus with ease depending on what the situation called for. The system developed by Ohno encouraged them to be knowledgeable about the entire process and get curious about finding solutions and efficiencies. The resulting process is called “lean” and is summed up in the following: “It transfers the maximum number of tasks and responsibilities to those workers actually adding value to the car on the line, and it has in place a system for detecting defects that
+
+---
+
+quickly traces every problem, once discovered, to its ultimate cause.”18
+
+Paying attention to the environment of workers is a way for organizations to metaphorically keep their feet on the ground. By “touching the territory,” they can empower the people closest to the problem and reduce the friction in their organization.
+
+Changes have to be supported up to the top, and everyone needs to recognize that the forces at higher levels, which push for things like strategy or visions, are not as relevant at the working level. It’s all fine and nice to put out messages of where a company wants to go, but it needs to make sure that the environment doesn’t have such high friction that everyone feels like they are trying to move a cement wall to get there.
+
+Toyota designed an environment that “provides workers with the skills they need to control their work environment and the continuing challenge of making the work go more smoothly. While the mass-production plant is often filled with mind-numbing stress, as workers struggle to assemble unmanufacturable products and have no way to improve their working environment, lean production offers a creative tension in which workers have many ways to address challenges.”19 (“Unmanufacturable” here refers to having to put together components that have flaws and will require rework at the end.)
+
+In lean manufacturing, the environment is designed and continually improved to encourage workers to take initiative and innovate. Using the lens of friction, we can see that what impacts the environment of a factory worker is not the same as what shapes the environment of the executive. If you want to change a situation, you must appreciate the forces that are strongest in that particular environment.
+
+# Conclusion
+
+Friction and viscosity are the sand in the gears of the universe, the invisible hands that slow the motion of all things.
+
+---
+
+Friction is the grip between surfaces in contact, the roughness that resists sliding. Viscosity is the thickness of fluids, the internal friction that makes liquids sluggish and syrupy. Together, they are the great moderators of motion.
+
+Think of the last time you tried to slide a heavy piece of furniture across the floor. The resistance you felt, the effort required to overcome the grip of the surface—that was friction at work. Or consider the slow, thick pour of honey from a jar, the way it clings and drips in slow threads. That’s the viscosity of the fluid resisting the force of gravity, the internal friction that makes the honey flow like molasses rather than water.
+
+While friction is the enemy of efficiency, it’s also necessary for traction. Without it, we couldn’t walk or drive, couldn’t hold tools or tie knots. Viscosity too is a double-edged sword. In pipelines and hydraulic systems, high viscosity means higher pumping costs, slower flows, and greater strain on equipment. But viscosity is also what makes oil a good lubricant, what allows paints and coatings to spread evenly and adhere to surfaces.
+
+Friction and viscosity are powerful metaphors for the forces of resistance in every domain of life. In human relationships, friction is the conflict and tension that arises from differing goals, personalities, or beliefs. It’s the interpersonal roughness that can generate heat and wear, but also the traction that allows us to influence and connect with others.
+
+While often hidden, friction and viscosity work against us whenever we try to do something. To overcome resistance, we often default to using more force when simply reducing the friction or viscosity will do. However, doing both is more effective than either in isolation.
+
+Friction and viscosity can also be wielded as weapons. Rather than try to catch up to the competition with more effort, you might want to explore slowing them down by adding resistance through increased regulation, bureaucracy, or other clever ideas.
+
+In the end, reducing resistance is often easier than adding force.
+
+---
+
+# Velocity
+
+Direction over speed.
+
+OceanofPDF.com
+
+---
+
+If a man does not know to what port he is steering, no wind is favorable to him.
+
+—SENECA
+
+---
+
+M ost people assume speed and velocity are the same thing. They are not. Understanding the difference helps increase productivity, simplify focus, and improve results. Speed is the distance traveled over time. Velocity measures displacement over time. The important distinction is that velocity has both speed and direction.
+
+Velocity moves you toward a goal. Speed does not. If you are in a race and you run in a circle, you might move with a lot of speed, but you’re not closer to your destination. Progress matters more than activity.
+
+The concept that underpins using velocity as a model is displacement in a direction. If we take a step forward, we have velocity. If we run in place, we just have speed. Thus, our progress in a given area is not about how fast we are moving now but is best measured by how far we’ve moved relative to where we started. To get to a goal, we cannot just focus on being fast but also need to be aware of the direction we want to go.
+
+We calculate velocity by dividing the change in distance by the change in time. Something has a constant velocity if it is moving at a consistent speed in a straight line without changing direction. Usually a constant velocity in the right direction is the most effective strategy to get where you want to go. Too many changes in direction and you can end up going in circles.
+
+---
+
+# Kinetic and Potential Energy
+
+Picture yourself throwing a ball up into the air and then watching it fall back to the ground. Its flight involves two types of energy: kinetic and potential.
+
+As the ball flies through the air, it has kinetic energy. This energy is the energy from motion. It comes from the energy you transferred when you pushed it with your hand, thereby exerting an unbalanced force upon it. When the ball falls, it transfers the kinetic energy to the ground. Kinetic energy is a function of velocity.
+
+When the ball is up in the air, it has the potential energy of its position. This energy is considered stored and exists as a result of the force, gravity, that pushes it toward the ground. The higher it is, the greater the potential energy. Potential energy may be gravitational or elastic, due to an object being either raised or stretched.
+
+The kinetic energy of an object is relative to what the other objects are doing in the environment. The ball will have more kinetic energy relative to your friend sitting in a lawn chair watching you throw it but will have almost none relative to the dog that is chasing after it.
+
+Potential energy, on the other hand, is completely independent of the movement of other objects in the environment. When you throw that ball in the air, you can calculate the potential energy regardless of how fast or slow anything else around you is moving.
+
+---
+
+# Faster to the Goal
+
+Napoleon became famous for his emphasis on speed toward a goal in the context of his military campaigns. “ ‘The strength of the army’, he stated, ‘like power in mechanics, is the product of multiplying the mass by the velocity.’ ” His desire to move faster in his planned direction helped him win many battles and changed how enemies were able to respond. His rewriting of battle tactics to achieve velocity ultimately influenced military strategy. This speed was literal—he moved his troops at an unprecedented pace. But the speed was toward a goal. Faster troop movement was a part of his overall strategy.
+
+We can understand how Napoleon’s ability to move his troops faster contributed to his successes when we look at his Italian campaign, which was early in his career and exemplified the velocity-based approach that continued throughout his life. As Adam Zamoyski explains in Napoleon: A Life, when he was just twenty-six, Napoleon led a campaign in Italy against the Austrians. It was his first as the commander in chief of an army and was actually his first independent command in the field. He went into the Italian campaign as an unknown quantity in the French Republic and came out as a celebrated leader and defender of France. He achieved this by employing new and unexpected tactics, many inspired by the principle of velocity.
+
+Napoleon made velocity one of his core principles of battle. In Italy, his army was neither the strongest nor the best trained, and thus superior movement was a battle tactic. “Bonaparte needed to keep up the momentum so that neither of his opponents had time to regroup and strike back.” The effects of investing in velocity weakened the enemy by not giving them time to adjust. Moving fast toward his objectives actually obviated potential obstacles, because the Austrians didn’t have time to put any up.
+
+The pace of his troops was relentless. Even barefoot or poorly clothed, they would move fast. There are records of one division covering nearly fifty miles in thirty-six hours. Another stretch of four days saw his troops...
+
+---
+
+fight three battles and cover fifty-six miles. In Napoleon: A Life, Andrew Roberts writes: “The sheer tempo of the operations ensured that he always kept the initiative, bowling unstoppably along a narrow valley gorge replete with places where the Austrians should have been able to slow or halt him.”
+
+Part of what allowed him to move fast while on this campaign was “a profound study of the history and geography of Italy before he ever set foot there  [and]  his willingness  to experiment   with  others’ ideas.”  He developed expertise of the territory, which gave him flexibility, and he chose his path so as to maintain as constant a velocity as possible.
+
+In order to move with velocity, Napoleon also needed to get others to move at the same pace. He was very involved in the lives and welfare of his troops, partly to inspire them to push themselves to meet the tempo he wanted to move at. He employed various tactics to achieve this. First, “his treatment of the troops under his command had been designed from the start not only to make them more effective as fighting men but also to turn them into his men.”  By “giving them victory…and talking to the men as equals,”  he boosted their self-esteem and made them feel they were achieving what other men and armies could not. They admired Napoleon and completely bought into his vision. Velocity became a group goal. They all wanted to move quickly, seeing it as integral to victory.
+
+Second, he issued clear and simple instructions. Not only did he come up  with  brilliant battlefield strategies, but he seemed  to instinctively understand that in order for a strategy to work, it must be communicated in a way that could be understood and executed. The more time people spend decoding complex instructions, the slower they will move in the direction you need them to go. And since strategy can often get lost in movement and in the complexity of battle, he knew that clear communication would encourage velocity.
+
+In trying to increase your velocity, it’s important to recognize and account  for  the  factors that can  limit it. For Napoleon,   there   were limitations on how fast he could move. Some were within his control, such as camp followers, of which he seriously reduced the number; others were
+
+---
+
+outside his control, such as weather. But part of the reason he could move faster was that the existence and condition of roads had improved during the previous century.
+
+Napoleon’s tempo also depended on supply requirements keeping pace. But where he could jettison baggage or weight, he did. His troops “didn’t sleep in tents at night because the armies marched so rapidly they could not have carted with them all the requisite baggage.” Frequently his “army had advanced so far that it was running out of supplies.” Thus, “one of the reasons he maintained such a fluid campaign was that he had no resources for anything else.”
+
+Our understanding of velocity is incomplete if we don’t comprehend what it is not. For Napoleon, increasing the pace of engagement to improve his velocity worked numerous times in many of his campaigns, but it proved to have limits. Direction at all costs actually undermined his ability to achieve military success in some cases. Napoleon’s impatience during one battle of the Italian campaign, at Cosseria, “cost the French at least 600 and possibly as many as 1,000 casualties.”
+
+And nowhere was the limitation of emphasis on velocity more evident than his foray into Russia in 1812.
+
+The distance from Paris to Moscow is about 1,550 miles. This is more than twice the distance from Paris to Rome or Paris to Vienna. It was farther than Napoleon had ever gone in a military campaign by far, and one he embarked on with one of the largest armies the world had seen. He employed his usual tactics to accomplish his goal of taking Moscow, which was understandable for two reasons. One, they had worked before. Two, the maintenance of such a large force so far from home was both exceptionally costly and difficult. The campaign also needed a quick resolution because they did not have the supplies and necessary infrastructure for a long campaign through many months of a Russian winter.
+
+However, one of the complexities of velocity is that, because direction is paramount, size sometimes compromises our velocity. The bigger we are, the harder it is to adjust our direction.
+
+---
+
+For Napoleon, on his way to Moscow, the tactics of speed ultimately undermined his velocity. Because he gave up so much in order to go fast, he didn’t have the resources to adjust when the route to Russia became treacherous for both his army and his objectives. Writing about the campaign, General Carl von Clausewitz notes that Napoleon lost around one half of his army before Smolensk, and many more before Moscow.12
+
+Disease, starvation, and thirst all culled the ranks of both the soldiers and the horses. And that was just on the way there.
+
+Napoleon got to Moscow, but with ninety thousand men instead of the at least four hundred thousand he started with. Clausewitz suggests that “with more precaution and better regulations as to subsistence, with more careful consideration of the direction of his marches, which would have prevented the unnecessary and enormous accumulation of masses on one and the same road, he would have obviated the starvation which attended his advance from its outset and have preserved his army in a more effective condition.”13
+
+The goal was not to reach Moscow. The goal was to occupy Russia and force them into agreement about French superiority. And here Napoleon failed. He did not have the manpower to follow the Russians farther into their territory, and he had no plans to attend to his army in retreat.
+
+In this sense, Napoleon’s planning was inadequate, which resulted in much speed but in little real territory covered. His initial planning was insufficient for the distance and terrain he planned to cover, preventing him from being able to adjust and adapt to the conditions he encountered and the evolving Russian strategy. Going back to the starting line is never fun. It’s even less fun when you end up with less than you started with the last time. Despite covering so many kilometers, Napoleon ended up back where he started, only with fewer troops and a reputational hit. If anything, this increased his velocity in another direction, toward the day when France no longer respected or wanted his leadership.
+
+In your own life, if you think of the ground you need to cover to achieve your goal, the speed at which you move in that direction is not the only factor, because time is not the only component of success. When someone
+
+---
+
+says they’d like to be debt-free by age forty, they can increase the speed in that direction by making certain financial choices. There are, however, certain implications. They probably want to be debt-free while maintaining their important relationships, not committing any crimes, and being healthy enough at the end to enjoy it. Figuring out how to improve your velocity must take into account the full scope of what you want the arrival at your destination to look like. Better to go in the right direction slowly than in the wrong direction with speed.
+
+# Eye on the Prize
+
+A snapshot of the career decisions of Mae West is another lesson in direction over speed.
+
+Early in her career, West realized that she needed more control over what she was appearing in if she wanted to achieve the success she desired. So she put effort into the other components of a production, beyond acting. “The transition from struggling performer to creator, producer, and star of her own scripts came slowly, and required a major mobilization; getting there took concentrated energy, belief in her own abilities, sweat, and well-worked connections.”
+
+West seemed to be totally devoted to her goals. She turned down scripts she thought were a step backward or portrayed women in a way that didn’t complement the image she was creating. She reworked her roles until they were completely her own, until they couldn’t have been played by anyone other than Mae West:
+
+She went out very little. In the classic age of the speakeasy, a place she made much use of in her stage material, she was hardly ever reported to be in one or photographed there. She figured rarely in the gossip columns except for obvious publicity purposes. She did not frequent nightclubs or premieres, except her
+
+---
+
+own. The reason seems to be that when not actually onstage, she was working. West was a writer.15
+
+West wrote, cowrote, or significantly modified almost everything she appeared in. She came up with the classic one-liners for which she is still famous—like “Goodness had nothing to do with it, dearie,” and “When caught between two evils, I generally like to take the one I never tried.”
+
+Starting on the stage, then moving into film, she was one of the few actresses at the time who worked and were successful outside the Hollywood studio system. She kept control of her persona and thus her career. In 1935 she earned more than any other female in the world, and the most in total earnings in the United States second only to media tycoon William Randolph Hearst. She approached her career focused on the long game. She knew the direction she was headed and made decisions to increase her velocity in that direction.
+
+# Conclusion
+
+Velocity is the great differentiator, the measure that distinguishes the stagnant from the swift.
+
+In the discipline of physics, velocity is a fundamental quantity, a key variable in the equations that describe the behavior of everything from subatomic particles to galaxies. It’s the v in the formulas of motion, the arrow that points the way from here to there.
+
+Velocity is also a metaphor for life. Consider it the rate at which we learn and grow, the speed at which we innovate and create, and the focus with which we pursue our goals.
+
+Velocity challenges us to think about what we can do to put ourselves on the right trajectory, to find a balance between mass and speed to move in the direction of our goals. The ability to set a direction, improve your tactics, and adjust to new information becomes paramount.
+
+Velocity isn’t just about raw speed. Direction matters just as much. A car moving at high speed in circles goes nowhere, while a slow and steady walk.
+
+---
+
+in a straight line can cross continents.
+
+Velocity is progress. Sometimes progress comes from more force and sometimes progress comes from removing friction. Once you have a destination, you can improve your velocity by working harder and eliminating things that aren’t contributing toward reaching that goal.
+
+OceanofPDF.com
+
+---
+
+# Leverage
+
+Enough to move the world.
+
+OceanofPDF.com
+
+---
+
+Design by humans tends to be spare, over optimized, and have the opposite attribute of redundancy, that is, leverage.
+
+—ATTRIBUTED TO NASSIM NICHOLAS TALEB
+
+---
+
+Leverage is achieving results significantly greater than the force you put in. Isn’t this what we all want in life?
+
+Think of written language: a way to leverage what people have learned in the past so that we don’t have to relearn everything from scratch with each new generation. Or consider standardization of processes, which gives companies leverage over people by making them easier to replace. Levers are everywhere, once you start looking for them.
+
+People who simply think that working hard is the path to financial wealth are mistaken. Leveraging your judgment requires opportunity and hard work. But once you have judgment, you want to continue to leverage it in order to decrease the amount of effort needed to achieve your goals.
+
+A good place to begin understanding the concept of leverage is the etymology of the word. We can trace its origins back to the Proto-Indo-European “legwh,” which described something light, agile, or easy. From this, the Latin “levare” formed, referring to something that was “not heavy.” But the word was absorbed into English in the fourteenth century from Old French, where “levier” referred to raising something. In essence, “leverage” refers to making something light by raising it in a specific manner—using a lever.
+
+---
+
+# Types of Physical Levers
+
+There are three main types of physical levers:
+
+1. Force/fulcrum/weight, such as using a crowbar to open a door.
+
+---
+
+# 2. Fulcrum/weight/force, such as a wheelbarrow.
+
+# 3. Fulcrum/force/weight, like a baseball bat.
+
+This third one is a bit counterintuitive, because you have to put in more energy than you would just lifting the weight, and we usually use levers for the opposite reason. However, you get the weight to move a longer distance in return.
+
+Archimedes is credited with establishing the concept of leverage more than two thousand years ago. He famously stated that given a lever long enough, and enough distance, he could lift the earth.
+
+However, the Peripatetic school, the followers of Aristotle, wrote of levers before the birth of Archimedes. In Mechanica, a work believed to have been written by members of this school of thought, they state:
+
+For since under the impulse of the same weight the greater radius from the center moves the more rapidly, and there are three elements in the lever, the fulcrum, that is the cord or center, and the two weights, the one which causes the movement, and the one that is moved: now the ratio of the weight moved to the weight moving it is the inverse ratio of the distances from the center. Now the greater the distance from the fulcrum, the more easily it will move.
+
+Used to great effect for thousands of years, levers enable the gain of disproportionate strength. For example, the ancient Egyptians used levers to lift stones weighing up to one hundred tons in order to build the pyramids and obelisks. Many of humanity’s tools, used for centuries all over the world, incorporate leverage—scissors, pliers, door handles, wheelbarrows, fishing rods, and more. Levers are one of our simplest, yet greatest, inventions.
+
+Leverage unleashes the potential of what we can do. When we all had sticks, the variation in productivity wasn’t much. Small changes in individual performance didn’t have significant absolute impacts. It wasn’t
+
+---
+
+until we developed tools that allowed us to leverage small changes in individual performance that we started to see a lot of variation in productivity. To take that further, if technology leverages variation in individual performance, then we can expect the gap between the most productive and least productive people in a society to increase over time.
+
+# Understanding Where You Have Leverage
+
+Levers provide leverage. In human interactions, these levers are not purely physical, but instead items or ideas that have a shared, common value. Leverage itself is amoral—neither good nor bad. When the term “leverage” comes up in day-to-day conversation, it sometimes has a negative connotation—as if having it allows you to manipulate a situation to your advantage. Leverage is not, however, about manipulation. It’s about influence. Think of negotiations, in which having leverage increases the chances that you will get your desired outcome. We are taught that by applying pressure in the right place you make it attractive for the other party to move in your direction; it often doesn’t take much force if the leverage is substantial enough. And really, the best way to have leverage in any deal is to not need the deal at all.
+
+Knowing how much pressure to apply in any given situation is critical. Too much pressure breaks the metaphorical lever or takes you out of win-win. No one wants to be forced to do something, and if they are, they won’t think kindly of you. Too little pressure and you might not achieve your objective. Leverage should be applied with conscious thought as to when it’s helping you achieve your aims and when it’s hurting your ability to do so.
+
+Roger J. Volkema, in his book aptly titled Leverage, explains two of the principles of leverage in negotiations. The first is that leverage in human interactions is based on perceptions; the second is that it is a social or relational construct. What this means is that for something to be leverage, everyone has to have roughly the same perception of its value, and this is
+
+---
+
+going to be dependent on social context. It isn’t any good to say, “I’m going to give you this box if you agree to my terms,” if the other person doesn’t associate any value with that box. Furthermore, the power of leverage changes. You cease to have leverage if the other party walks away from the exchange.
+
+Leverage is not a binary—something you either have or don’t have. Some people may use their leverage to get X. Some people may have the same leverage and use it to get X, Y, and Z. In order to use leverage to maximize your return, you need to figure out its potential and wield it wisely.
+
+# Applying Leverage Where It Counts
+
+In a situation of true leverage, the lever, not the application of force, does most of the work. When it comes to leverage, we want to know three things:
+
+1. How do I know when I have it?
+2. Where and when should I apply it?
+3. How do I keep it?
+
+If we can figure these out, we can have significant power over the forces acting against us.
+
+Reading any history seems to suggest that humans naturally grasp the principles of leverage. Attaining and holding on to power seems to be a species pastime, and leverage crops up as much as solitary force. Conquering may often be about sheer numbers or, increasingly, asymmetry in technology, but no matter the path to victory, most conquerors extract ongoing leverage over the conquered. They do this through the distribution of land and holdings, payments and reparations, and sometimes marriage contracts (which are used less today but shaped, for example, the borders in
+
+---
+
+most of Western Europe for centuries). These acts themselves, meant to protect and insulate the conquerors from the conquered, often sow the seeds of future destruction.
+
+We can learn a lot about leverage by looking at someone who had no access to solitary force and who had to rely completely on leverage to attain and maintain power: Eleanor of Aquitaine. Queen of France and then England in the twelfth century, she achieved a remarkable amount of power and influence through leverage.
+
+Eleanor was born to the Duke of Aquitaine, ruler of a territorial principality in what is now France. At the time, rulers of duchies in France were at least as powerful as the King of France, who really only ruled over a small territory around Paris. Aquitaine was a large and prosperous territory during Eleanor’s life, encompassing rich farmland, a dozen ports that facilitated both local and overseas trade, and an important manufacturing center for helmets. The towns were thriving, business was booming, and the activities of the region provided the ruling family with a lot of money.2 These factors meant that the ruler of the duchy wielded considerable power in the region.
+
+Due to the death of her brother, and because Aquitaine custom allowed women to inherit, Eleanor became ruler of the duchy.3 The ability of a woman to inherit a duchy was not consistent across the region. Ralph V. Turner explains in Eleanor of Aquitaine that “Once a part of the ancient Roman province of Gaul, Aquitaine still preserved in Eleanor’s childhood customs surviving from Roman rule that guaranteed women greater freedom than those in northern Europe enjoyed.”4 An unofficial east-west line ran through France, with Aquitaine being in the south and Paris being in the north. Therefore, Eleanor’s expectations of her right to rule were not consistent with those of all her contemporaries.
+
+We can think of Aquitaine as Eleanor’s lever, the tool she used to move kings. Through her marriages to two kings, and as the mother of three more, Eleanor used Aquitaine to wield an exceptional amount of influence for a woman in the Middle Ages.
+
+---
+
+To even be the Duchess of Aquitaine, Eleanor first had a little bit of luck: the fact that a woman could inherit, and that even in marriage it would always be her property and not her husband’s. The power accorded to aristocratic women was beginning to change, and a couple hundred years later such clear ownership by a woman in Aquitaine would have been less likely. So Eleanor’s leverage was initially obtained by the circumstances of her birth.
+
+However, she aimed to use her inheritance to the fullest. She saw herself as a queen-duchess, descended from the Carolingian rulers, and was determined to take a visible leadership role. Turner writes that “a major aspect of her nature was a pursuit of power,”5 an attitude out of step with the role women were expected to play in the Middle Ages. Being the Duchess of Aquitaine automatically came with some leverage, a small amount that could have easily been deployed and spent making a good marriage. Eleanor was exceptional because throughout her life she used her birthright to try to achieve increasing power and influence over the affairs of France and England. She used Aquitaine to give herself a voice and role in the affairs of the time, to a degree and impact that was extremely rare for a woman in the Middle Ages.
+
+By the usual customs of the time, when Eleanor married, her husband would govern Aquitaine, but the territory itself would always belong to her. Thus, in order to keep influence in and over her territory, she had to keep influence over her husband. She first married Louis, who became King of France. Her father had made her future father-in-law her protector and charged him with seeing to her marriage. The ailing French king chose his son Louis for Eleanor, and less than a month after her marriage, Eleanor became Queen of France.
+
+Ralph Turner writes that “the marriage of Eleanor and Louis VII would prove to be a trial for both, bringing the couple little happiness.”6 Furthermore, Louis VII was focused on religious conflicts and devoted his time and money to unsuccessful Crusades instead of focusing on consolidating his power in France. After many years, Eleanor chose to exit that marriage. In part, she left Louis because she felt that he could not help.
+
+---
+
+her effectively keep control over Aquitaine, which was “a confusing collection of a dozen or so counties.”7 Keeping the duchy together required firm control and constant maintenance, which Louis was too distracted by his other pursuits to provide. When her marriage to Louis ended, she retained ownership of Aquitaine. She married Henry, Duke of Normandy—who became Henry II, King of England—because she likely hoped that he had a forceful enough personality to help her exercise leadership in Aquitaine.
+
+Ownership and control are different things. All indications were that Henry might be able to govern the large, rebellious area much better than Louis. “In an act almost unheard of in her time, Eleanor acted independently without consulting her kin or other counselors.”8 It was probably the value and prestige of Aquitaine that sold Henry on the marriage—it was a large territory that generated a sizable income for its ruler. Also, being large, it had a population that could be drawn on to help fight battles elsewhere.
+
+Despite her unhappiness and disappointment, it was a bold and risky move to push for the annulment of her marriage to the King of France. Without the security of marriage, Eleanor and her lands would be vulnerable. So why do it? One of the reasons was that Aquitaine and her legacy there were extremely important to her. “As she grew up, she absorbed her dynasty’s sense of its dignity as successors to Carolingian royalty,”9 and she devoted her life to preserving the legacy of her ancestors. Knowing that she had to rely on a husband to actually govern, Eleanor chose the future Henry II of England, who she believed had a better chance of maintaining control of the territory. Aquitaine would cease to be valuable if she no longer had control over it.
+
+Many years later, in an effort to preserve Aquitaine as a separate entity from the English and French crowns, Eleanor named her son Richard as Duke of Aquitaine. There was a lot of custom behind this, as he was the second son, and thus it was normal for him to inherit the property of his mother. But Eleanor also invested a lot in her relationship with Richard, most significantly backing him in his fight with his father for the English.
+
+---
+
+crown, so that she could maintain some degree of control over what happened to and in the duchy.
+
+She did not, however, rely solely on her relationships with her husbands and son to maintain influence. Throughout her life, Eleanor spent much time in Aquitaine. She developed relationships with the nobles, the church representatives, and the people. She financially supported many building projects, such as the abbey at Fontevraud, and took an interest in seemingly small affairs, settling disputes among the minor nobles in Aquitaine. Neither her husband Henry nor her son Richard were well regarded by the people of Aquitaine, and fights and rebellions were always breaking out, as the perception was that the kings of England were simply using Aquitaine to further their own royal interests. Especially in her later years, Eleanor sought to undo, or at least mitigate, the effects of the harsh rule of her husband and son.10 Consequently, she attained and maintained significant influence in her territory, in no small part because she chose to live there and become active in the politics of the region.
+
+The story of Henry and his sons is legendary. The stuff of plays and movies, their hatred of each other, distrust, and disloyalty brought total disarray to Western Europe. The family indulged in constant fighting and rebellion over who would become king. Eleanor supported her sons against their father and ended up a prisoner of her husband for fifteen years.
+
+Territories are not objects. They are dynamic spaces filled with people interacting in complex systems. With all their fighting, Henry and his sons never seemed to comprehend what Eleanor intuitively understood: land can only be used as leverage if the people living in it are supportive of your leadership. Leading requires followers.
+
+As the empire her husband Henry built, combining English territory and large swaths of what is now France, started to collapse due to the total dysfunction of the family, Eleanor began to be concerned about her legacy. She wanted Aquitaine to continue to be ruled by her offspring, carrying the line of leadership forward, and “she was resolutely opposed to seeing it lose its separate identity, absorbed into the domains of either of her two husbands.”11
+
+---
+
+After Richard died, Eleanor’s son John ascended to the throne of England. He turned out not to be the best leader, angering many of his subjects and managing to forever compromise royal authority in England by signing the Magna Carta, but in terms of preserving the family legacy, he was the best she had. All of her other sons had died. So “Eleanor traversed her duchy…issuing charters confirming properties and privileges in an attempt to win her subjects over to John’s side.”12 She was in her seventies at this time, and it was important to her to pass on the leverage that was Aquitaine to her son. This she accomplished before she died in 1204, at the remarkable age of eighty.
+
+# What are some of the ideas about leverage we can learn from Eleanor of Aquitaine’s story?
+
+First, don’t sell yourself short and underestimate the value of your leverage. It seems that right from the beginning, Eleanor was clear about the value of Aquitaine to both the French and English kings. She knew that the resources the region provided could significantly augment the power of whichever monarch controlled it.
+
+Second, keep other people wanting what you have. For leverage to exist, all parties must perceive its value. Throughout her life, Eleanor worked to maintain the value of Aquitaine. She invested money and time there in building infrastructure and reducing conflict. She knew that if Aquitaine became too unruly, it wouldn’t be attractive to a monarch seeking to augment their kingdom. Furthermore, she seemed to understand that a prosperous Aquitaine would continue to give the region leverage in geopolitical affairs after her death.
+
+Third, understand when you can use your leverage and when you can’t. Eleanor used her leverage to have choice in marriage, to influence leadership and succession in England and France, to carve out independence from her husbands, and to build her own legacy. She also seemed to know, however, when the resources and power of Aquitaine were not enough to change her situation. Perhaps the best example of her awareness of the limitations of her leverage was when she was imprisoned by her husband Henry for fifteen years. She could not use Aquitaine to give.
+
+---
+
+anyone enough power to free her, so she did not sacrifice her territory in a wasted effort to escape.
+
+# The Dark Side of Leverage
+
+When wielded smartly, leverage can help you achieve better outcomes. And who doesn’t want that? However, just because you have leverage doesn’t mean you should employ it. As we will see, there is a darker side to leverage, namely when it is employed to the maximum all the time.
+
+When leverage becomes entrenched systematically, it acts more like the application of tyranny. This has happened more than a few times in history, including in the twentieth-century coal company towns in West Virginia.
+
+When technological development allowed coal to be easily transported out of the West Virginia hills, coal operators bought up extensive land in the state. Coal became the most significant economic resource in the state by far. Coal operations required workers, and these miners lived in company towns. With no other industries or big cities nearby to offer alternatives, coal operators used their initial leverage to give themselves an exceptional amount of control over the lives of both their workers and the state in which the companies operated.
+
+The company towns were effectively isolated from the rules and norms that prevailed in the rest of the country. Inhabitants did not own their houses or the land they were built on and could be kicked out with no notice. Workers were paid in “coal scrip,” a proprietary currency unique to each operation that could only be spent in the company store. There was no mayor or local political officials to represent the residents. Information was controlled. Any media the company didn’t approve of was banned, and the postmaster, a company employee, could read all incoming and outgoing mail.13
+
+---
+
+# 3 FOR MERCANTILECO
+
+# 3)
+
+Coal-scrip wages could only be spent in the company store, with each store being unique to each mining operation.
+
+The issue of coal scrip in particular was a significant point of leverage. As David Corbin explains in *Life, Work, and Rebellion in the Coal Fields*, not only did it require that workers buy all their goods from the company store, but it allowed the coal operators to completely control the value of the work being performed. Wages were essentially recouped depending on the needs of the company, because the company store, being a monopoly, could charge whatever it wanted. In this way too, any wage increases were immediately negated by corresponding price increases in the store.14
+
+This control exercised by a company operator over the town inhabitants gave the company access to further points of leverage. Ballots for state elections were inspected by mine guards, so miners effectively had to vote for the interests of the company, and coal companies controlled county court and jury appointments. This leverage was used to exploit loopholes in safety, child labor, compensation, and criminal laws, or even to disregard the laws altogether. In 1913, “a U.S. congressman from Wisconsin toured the coal fields of West Virginia and reported that ‘one cannot imagine the power of the mining companies…. It elects senators and judges. It owns both the Republican and Democratic parties in the state. All laws are made
+
+---
+
+to suit the mine owners. All the judges are elected through their influence, even up to the judges of the Supreme Court.’ ”
+
+How can one act against this kind of exceptional leverage? Often, it’s only through widespread collective action that aggregates small amounts of power until enough is pooled so that there exists counter-leverage. Think strikes and unions. One person walking out on the job may not change much, but if everyone does, significantly more leverage is available to be exercised. Eventually, after brutal labor disputes, the miners of West Virginia formed and participated in unions.
+
+Before that, however, individuals still had some basic degree of leverage. They could choose to walk away, exercising their ability to be geographically mobile. And many coal workers and their families supplemented their coal scrip income through cash from farming, gardening, and selling homemade alcohol, which gave them a small measure of independence from the coal companies. The leverage you have may not always be the leverage you want, but chances are, if you look, you will find you have some somewhere.
+
+# Conclusion
+
+Leverage is the force multiplier of the world, the principle that allows the small to move the large and the few to influence the many. It’s the idea that a little input, strategically applied, can yield outsize outputs.
+
+At its core, leverage is about the amplification of effort. Think of a crowbar prying open a stubborn lid, or a pulley system hoisting a heavy load. In each case, the tool or mechanism allows its user to exert force in a way that multiplies their natural strength and capacity.
+
+But leverage isn’t just useful in physics. Rather, it’s a principle that applies across our lives.
+
+Leverage is often lurking in the background of nonlinear outcomes. Consider the author who took the ideas in their head, put them in a book, and sold millions of copies, or the Wall Street trader who made a single
+
+---
+
+decision that resulted in billions. Or even the CEO who directs the people working for them.
+
+In the realm of personal development, leverage is about identifying the key habits, skills, and relationships that will have the greatest impact on your life and work. It’s about focusing your energy on the critical few rather than the trivial many, about finding the points of maximum leverage where small changes can cascade into massive results.
+
+An example of personal leverage is an employee who learns to use AI to amplify their impact on the organization far beyond their experience or effort. While labor is still a form of leverage, that labor can often be done by chips. In this sense, the person who can leverage technology can compete in a way never before imaginable.
+
+But leverage is not without its risks and responsibilities. Just as a small action can have an outsize positive impact, so too can it have negative consequences. If you borrow too much money against your house and it turns out to be less valuable than assumed or interest rates change, the amplifying effect of leverage can quickly wipe you out.
+
+Good ideas taken too far often cause unanticipated consequences. Wielding leverage to maximum effect all the time, as the West Virginia mine owners did, sows the seeds of ongoing unrest that undermine one’s ability to be truly effective. No one wants to feel exploited, and those who are never give their loyalty or their best work.
+
+The key, then, is to use leverage wisely and judiciously by understanding the systems you want to influence and considering the potential second- and third-order effects of your actions.
+
+Leverage is a tool, not a toy, and like any tool, it requires skill, judgment, and respect.
+
+---
+
+# CHEMISTRY
+
+Science and everyday life cannot and should not be separated.
+
+— ROSALIND FRANKLIN
+
+OceanofPDF.com
+
+---
+
+# Activation Energy
+
+Get to the end.
+
+OceanofPDF.com
+
+---
+
+There’s at least one time when it’s ok to lie to yourself: to get the activation energy required to start a new project.
+
+—PAUL GRAHAM
+
+---
+
+Activation energy is needed for everything from getting up in the morning to revolutions. It’s the ingredient that starts a reaction, breaking apart the current state of affairs and transforming it into something new. When we have enough activation energy, we have the power to finish a reaction, achieving a sustainable result. We know the amount of activation energy is correct when enough new connections form that it becomes impossible to revert to the way we were.
+
+In chemistry, activation energy is the minimal amount of energy that must be delivered to a chemical system to initiate a reaction, breaking bonds so that new ones can form. Molecules must collide to react, and movement speeds up when temperature increases. Consider a match. If you gently rub it against the striking strip on the side of the matchbox, nothing happens. There isn’t enough force to initiate a reaction. Striking the match against the striking strip with some force crosses the activation energy threshold and initiates a chemical reaction that lights the match.
+
+All chemical reactions have a required activation energy, but there is a range. We start with an increase in temperature, which leads to an increase in molecular velocity, resulting in an increase in the frequency of molecular collisions. The more collisions, the more chances of having sufficient energy to produce a reaction.
+
+---
+
+# Energy and Climate
+
+The concept of activation energy comes in large part from the Swedish chemist Svante Arrhenius (1859–1927). He proposed the Arrhenius equation, which calculates the relationship between temperature and reaction rates. In the simplest terms, the equation shows us that higher temperatures lead to faster reaction rates because the molecules of the reactants involved have more energy. They move around more, having more collisions with greater force.
+
+Arrhenius realized that reactions cannot happen without a minimum level of activation energy. Oddly, no one had codified this intuitive idea before. People have known for millennia that higher temperatures make things happen faster—hence food kept somewhere cool lasts longer than food left out in the sun. For physical chemists, the Arrhenius equation is of great importance, because it helps calculate the amount of activation energy required for different reactions to occur at the desired rate.
+
+---
+
+Naturally, then, reactions requiring greater activation energy usually proceed slower. The inputted energy, usually in the form of heat, breaks the bonds of the reactant molecules and increases their speed, thereby increasing their rate of collision. The state in between the initial and final stages of chemical reactions is the high-energy, unstable transition state. Because the transition state is unstable, the molecules don’t stay there long—they quickly proceed to the next step of the chemical reaction without requiring any further input of energy.
+
+Without an initial input of sufficient energy, however, the molecules stay the same and a reaction does not occur. In some cases, this is positive, as without the requirement for activation energy our world would be a chemically unstable place. For example, we would be at serious risk if propane combustion occurred spontaneously at room temperature or if the hydrogen and oxygen in air had sufficient activation energy to yield water.
+
+Activation energy is part of our daily lives. We heat eggs to re-form bonds into a cooked product. We boil water to make our tea, re-forming some of the molecules into a gas in the process.
+
+One of the most important aspects of activation energy is that you need enough of it to power a reaction through to its conclusion. We all know that one sheet of newspaper won’t start a fire in our fireplace. It looks like a real fire for about ten seconds. Then it burns out, and we’re left staring at the minimally charred logs we’ve stacked in the grate.
+
+What we need is enough paper to get those logs burning. We pile it in. We add kindling, smaller pieces of wood that will sustain the reaction until the big pieces really take off. We touch the match to the paper in a few different places. And we monitor and adjust the logs for optimal exposure to the flames and sufficient oxygen flow until the reaction takes hold and things are burning nicely.
+
+Sustaining significant change requires the same effort. You need to plan for not only the initial flame, but all the energy required to get and sustain the fire you want.
+
+---
+
+# Finishing What You Start
+
+In trying to achieve lasting change, forming new bonds is critical. If the new bonds don’t form, the reaction will not complete and the old whatever will return. The activation energy you employ must move re-formation of bonds along to such an extent that it becomes hard, if not impossible, to revert to the way things were. Successful reactions demand a new way of doing things.
+
+The bigger and more challenging an action is, the more activation energy required. And it’s important to remember that the buildup to doing something is part of the activation energy required—this buildup includes everything on the camel, not just the straw.
+
+Figuring out the right amount of activation energy is pertinent to quitting some addictions. It’s not just the moment you decide to quit, it’s everything that had to happen, every crisis you had to face, for you to enact that decision. As to how much activation energy will be required for you to finally stop the negative behavior and build new bonds that are completely different, you need enough to propel the action through the breaking of your current bonds that facilitate the addiction. Usually it requires more energy than you think to break the habit, but once you’ve broken it, it becomes much easier to maintain the new state.
+
+Evaluating both your internal and external environments to identify the situations and suggestions that compel you to reengage in the addiction is an important step. These are triggers, and they require energy to resist, and so you must try to change them up. Otherwise, with no new structure to replace the old one, the old bonds will re-form.
+
+Change that doesn’t last is easy. Where a lot of people miss the mark on what is required to produce real change is figuring out the initial investment of energy needed to not only start the reaction but to finish it. When we don’t put in enough activation energy, we fail to produce the results we want. After enough attempts, this failure is discouraging. We think we are doomed to fail or the situation is impossible to change. We rarely consider
+
+---
+
+If we are putting in enough effort to support the formation of a new structure when the old one breaks apart.
+
+The reason why so many revolutions fail is that it takes a completely different set of skills to fight than to govern. Most revolutions focus on the energy needed to break apart the existing structure. In most cases the energy requirement to start change is not insignificant: physical strength in terms of weapons and ideological strength in terms of support from a significant amount of people. If you were planning a revolution, these two requirements are likely the areas you would focus on. Who needs to be removed, and where are your opportunities to facilitate that? How much firepower and how many supporters do you need? The activation energy required to start the reaction must take leadership changes and weapons capacity into account. But the model of activation energy suggests that you can’t stop there, because removing the leadership is not the full reaction. Revolutions are aimed at changing the structure of a society, so the planning must involve the steps needed to make that happen.
+
+Therefore, you also must anticipate what’s required to form a new structure once you break the old one apart. How do you keep the support of the people? What can you put in place that will allow your revolutionary goals to cement themselves? And how long will it take? Everything you need to do, right to the end of your goals, is the real activation energy required to finish the reaction. Success isn’t going to happen overnight. Plan for the amount of energy required to see you through to the end. Let’s look at an example of an actual revolution to explore the idea of creating sustained change.
+
+# Burkina Faso
+
+Burkina Faso is a small, landlocked country in western Africa. Formerly a French colony, it became independent from France in 1960. Then called Upper Volta, it nonetheless was dependent on French support. Thomas Sankara was a revolutionary in Upper Volta in the 1980s. He was born and raised there and grew up solidly middle class in a country that was quite poor, doing military service that took him around his country. He witnessed firsthand the detrimental effects of the existing political leadership on his country. He developed into a revolutionary, motivated by the suffering and
+
+---
+
+corruption he saw and what he believed was the vulnerability created by his country’s dependence on the West.2 He helped stage a successful coup, changed the name of the country, and then led it for four years. His story, and the story of those years in Burkina Faso, teaches us a lot about the effort required to sustain change.
+
+Sankara recognized that bringing down the existing government would not be enough to implement sweeping changes, including increasing literacy and the availability of education and health services. As Ernest Harsch chronicles in Thomas Sankara: An African Revolutionary, Sankara did not join earlier coups because he didn’t see them as being able to address the systemic corruption and inequality in Burkina Faso. Sankara, and the junior officers in the military who supported him, wanted to wait until they were “strong enough to decisively influence events.”3
+
+We can think of Sankara as planning his revolution by determining how much activation energy is required to see a reaction through to its end. In any revolution, it is not enough to take apart the current system because in the absence of anything to replace it, the same problems, such as corruption and disenfranchisement, are likely to reassert themselves. There were multiple revolution examples from the twentieth century Sankara could have studied, from Cuba to Chile, to provide insight into the preparation required to build a new political, economic, and social infrastructure.
+
+In addition, Sankara obviously learned from the ongoing political unrest in his country. From 1960 to 1982 there were multiple coups and power changes. Tensions between military and civilian leadership, as well as pressures ranging from labor unions to droughts, led to social unrest and power struggles. Sankara eventually joined a coup that had widespread popular support and became president of Burkina Faso from 1983 to 1987. His four years as leader were spent trying to lay out enough kindling and light enough flames that eventually the fire of his vision would become self-sustaining. “Sankara…did not waste time. He soon outlined the broad sweep of his revolutionary vision: an overhauled state to serve the interests of all citizens; the elimination of ignorance, illness, and exploitation; and
+
+---
+
+the development of a more productive economy to reduce hunger and improve living conditions.”4
+
+He empowered local leaders to take on his vision and pushed hard for the equality of women in Burkina Faso society by outlawing female genital mutilation and forced marriage, and by being the first African leader to appoint women to major cabinet positions. Health clinics and schools were built at a rapid pace all over the country, most often by volunteers inspired by his sincerity in wanting to genuinely transform Burkinabe society to the betterment of all. He instituted a successful nationwide literacy campaign and mass vaccinations.
+
+All of these initiatives were part of the activation energy required to build a new social and political system. Sankara wanted to build a country that was self-reliant, and he rejected foreign aid on the opinion that “he who feeds you, controls you.”5 He organized extensive land redistribution to peasant farmers and more than doubled the annual wheat production in three years. Sankara tried to inspire those around him to buy into and work toward building the new structure. “Those who worked with the president learned that by aiming for the seemingly unattainable, they were able to accomplish much more than they had ever dreamed—they could push the boundaries of what was possible.”6
+
+Sankara tried to put practices in place as if his new system was already mature and the manifestation of all these changes was guaranteed. He took a gamble. Part of the activation energy required for a successful reaction is that you have to be determined to see it through to the end. You must be committed to your reaction.
+
+Sankara put in reforms “to encourage Burkinabe to become more responsible for managing land in a rational way and for preserving the environment more generally. ‘One cannot imagine the development of agriculture and an increase in its productivity without a program for the regeneration and conservation of nature,’ he said.”7 This was 1985, and sustainability wasn’t yet an issue of importance in North America. Thomas Sankara, however, was trying to position Burkina Faso as if the country was at the beginning of a great developmental flourishing. He owned his vision.
+
+---
+
+He may have been right in many ways about the activation energy needed to create and sustain a new, stable system. The efforts he put forth, the people he engaged, the staggering improvements he led in four years are testament that he really did try to get the requirements right. However, what he seems to have misjudged was how much of that activation energy had to be provided by the people themselves.
+
+As with any sweeping political change, not everyone buys in right away. Change often scares people. It’s only natural to try and preserve the status quo. Not surprisingly, there was some opposition to Sankara’s new policies. His reaction was to repress it instead of addressing frustrations by modifying his plans or compromising with other political groups. He instituted tribunals that tried people for crimes without credible evidence, and “when the nation’s schoolteachers went on strike, [he] dismissed all of them.” Reactions like these undermined his long-term goals; it’s hard to improve education without teachers. They also caused loss of support for his leadership.
+
+The problem with having an uncompromising stance was it didn’t give people who might have been skeptical the chance to find common ground. In Burkina Faso, “Sankara was so committed to achieving his ideals he was unwilling to give them enough time to ripen in his people.” Without widespread commitment by a population, it is hard to make significant political and social changes in a country.
+
+Sankara didn’t get the time to possibly course-correct. He was assassinated in 1987, and the reactions he started were not yet stable enough to continue on their own. Burkina Faso was taken over by the old order, who valued corruption and concentrated wealth in the hands of a few.
+
+In reaching for goals that were beyond the dreams of most, Sankara expended enough activation energy to have a very interesting, although not likely planned, success: a legacy. As Harsch explains, “So what was left of Sankara’s revolution? The most obvious answer is: the memory of the man, and the ideas he so passionately defended.”
+
+His legacy continues today. “Whether at anniversary commemorations or on other occasions, it has not been uncommon to see young people...
+
+---
+
+across West Africa wearing Sankara T-shirts. Activists can readily find his words…and musicians from Mali, Senegal, and Burkina Faso have released popular songs and videos sampling passages from Sankara’s speeches.”11
+
+In Senegal, youths go to rallies wearing T-shirts with Sankara’s image and the words “I’m still here.”
+
+Sankara likely would have preferred to have many more years to try to carry out his vision, but it does show that investing energy in change can sometimes produce surprising reactions. Ultimately there wasn’t enough energy for him to produce a stable, prosperous Burkina Faso, but “because he embodied and defended causes that resonate today among the world’s oppressed,”12 he was able to produce a stable legacy. And that is quite remarkable.
+
+# Putting the Brakes on Backsliding
+
+What is the activation energy required to go from being a poor country to being a rich one? What is required to achieve sustainable economic development to a level that a downturn will not put you back to the beginning?
+
+In the book How Asia Works, Joe Studwell examines the underpinnings of the success of the economies of Japan, South Korea, and Taiwan, and the failures of Indonesia, the Philippines, and Thailand. All these countries have experienced periods of intense growth, but only the first three were able to turn that growth into a sustainable system that could weather downturns and challenges. The key to activation energy is to evaluate how much of it you need to see the reaction through to its conclusion. At what point have you gone far enough that you can’t go back?
+
+Studwell argues that there were “three critical interventions” that Japan, South Korea, and Taiwan undertook to achieve sustainable economic development. They first maximized output from agriculture; next, each country directed investment and entrepreneurs toward manufacturing; and finally, all had financial policies that supported both of these things. Thus,
+
+---
+
+these three countries applied an integrated approach that “changed the structures of their economies in a manner that made it all but impossible to return to an earlier stage of development.”13
+
+As Studwell explains, “the vehicle for the change was a series of land reform programs…to take available agricultural land and to divide it up on an equal basis (once variation in land quality was allowed for) among the farming population. This, backed by government support for rural credit and marketing institutions, agronomic training and other support services, created a new type of market.”14 Once these agricultural policies were firmly established and their productivity manifested in economic improvement, the governments of Japan, South Korea, and Taiwan set up policies aimed at boosting manufacturing. In order to create long-term productivity in the manufacturing sector, firms were rewarded for their success as exporters. Firms that didn’t measure up to this global competition were culled.
+
+Financial policy in Japan, South Korea, and Taiwan was designed to support the agricultural and manufacturing policies. In summary, “Finance policy in northeast Asia recognized the need to support small, high-yield farms in order to maximize aggregate farm output rather than maximizing returns on cash invested via larger, ‘capitalist’ farms. And finance policy recognized the need in industry to defer profits until an adequate industrial learning process had taken place. In other words, financial policy frequently accepted low near-term returns on industrial investments in order to build industries capable of producing high returns in the future.”15
+
+Conversely, the Asian countries that were developing at the same time but did not follow these agricultural interventions had long periods of impressive growth, but they were unable to sustain it. With no real land reform in Indonesia, the Philippines, and Thailand, agricultural output was dampened because landlords made more money renting plots than making investments to increase yields, and families had no incentive to maximize the outputs on land they didn’t own. In terms of manufacturing, these countries allowed firms to focus solely on the easier sell to domestic markets, which removed the incentives for knowledge transfer and
+
+---
+
+technological development. And, of course, financial policy in each country supported these approaches of no land reform and little to no exports, focusing instead on consumer lending. Studwell explains, “The best banking returns in the East Asian region are produced in the region’s most backward countries—the Philippines, Indonesia and Thailand.”16 Short-term focus on banking profits did not create sustainable growth reactions in these developing countries.
+
+Therefore, when times were good, growth was possible, but when financial crisis hit, those that had not substantially transformed their economies were unable to deal with the challenges. Growth stalled in Thailand, Indonesia, and the Philippines, and the populations went back to being poor. Their policies did not have enough activation energy to complete their economic development.
+
+To be clear, it wasn’t all smooth sailing for Japan, South Korea, and Taiwan when they started to implement their policy changes. Some businesses were winners and became internationally popular, like Toyota and Nikon, but there were also losers. Some international relations were strained. There was no overnight success, and the general population had to sacrifice short-term returns for the long-term national interest. However, managing the difficulties is part of getting to the finish line of a reaction. The point here is not that there is a prescription for the exact amount of activation energy needed to fundamentally transform a nation’s economy. As Studwell explains, “different economics [are] appropriate to different stages of development.”17 Instead, recognize that reactions do have an activation energy, and you have a greater chance of success when you consider what is needed to bring about not just the start, but the conclusion of a reaction.
+
+The arguments Studwell sets out are not about how countries can maintain healthy development but are rather an idea of how to “become rich in the first place.”18 Land reforms and protectionism in developing industry are not long-term policy positions—they are instead short-term components of the activation energy required to bring about sustainable growth. In making the case for effective development in Japan, South
+
+---
+
+Korea, and Taiwan, Studwell writes, “There is no significant economy that has developed successfully through policies of free trade and deregulation from the get-go. What has always been required is proactive interventions—the most effective of them in agriculture and manufacturing—that foster early accumulation of capital and technological learning.”
+
+# Conclusion
+
+Activation energy is the spark that ignites the fire of change, the initial burst of effort required to kick-start a reaction or transformation. It’s the metaphorical push that gets the boulder rolling down the hill, the investment of energy needed to overcome inertia and set a process in motion.
+
+In chemistry, activation energy is the minimum energy that must be input for a reaction to occur. It’s the hurdle molecules must overcome to break their bonds and form new ones, the energetic barrier separating the reactants from the products.
+
+But activation energy isn’t just a chemical concept. It’s a principle that applies to any system where change is possible but not automatic. In personal growth, activation energy is the effort required to break old habits and form new ones. In innovation, it’s the investment needed to turn an idea into reality.
+
+The key is to recognize activation energy for what it is: a necessary upfront cost, not a permanent obstacle. Once things are moving, momentum takes over. Once the reaction starts, it becomes self-sustaining.
+
+OceanofPDF.com
+
+---
+
+# Catalysts
+
+OI
+
+B0
+
+Change agent.
+
+OceanofPDF.com
+
+---
+
+Catalysis…is to chemical reactions what civil engineering is to the Alps: you do not need to cross the mountain passes to get to the Mediterranean, you can pass through the Simplon Tunnel.
+
+—LARS ÖHRSTRÖM
+
+---
+
+Catalysts accelerate change. While they cannot, on their own, make a reaction happen that would normally not, they can significantly reduce the time required for change to occur.
+
+Success can act as a catalyst for failure, just as failure can be a catalyst for success. If success leads to a loss of focus or complacency, it accumulates into failure if left unaddressed. A failure, on the other hand, can be a catalyst to explore why something didn’t work and change the approach to get a better outcome.
+
+Finding the right catalyst is critical. No single substance increases the rate of all reactions. Because different reactions have different activation energies, there are many different catalysts. The final important feature of catalysts is that they are not consumed by the reaction. They can be removed and used again, making them extremely useful.
+
+The mechanisms through which catalysts work are relatively simple in theory: they create alternative pathways for the reaction to occur, which means more of the reactant particles have enough energy. The reaction is then faster, safer, and, in industrial contexts, cheaper.
+
+Catalysts are everywhere, even if they might not be obvious. Many everyday products—including bread, paper, yogurt, and detergent—are manufactured with help from catalysts. Inside our bodies, catalysts facilitate processes ranging from movement to digestion.
+
+A common example of catalysts making our lives easier is in the catalytic converters of diesel- or gasoline-fueled cars. Exhaust fumes from these cars contain toxic products, including carbon monoxide. Released into the atmosphere, the products have myriad harmful effects, including exacerbating respiratory conditions. To minimize this, catalytic converters contain catalysts that turn exhaust fumes into less harmful gases.
+
+---
+
+Human experimentation with catalysts dates back to early uses of yeast for alcohol creation, and the employment of catalysts in the combination of fats with alkali substances for the production of soap. Serious study began in the eighteenth century with the work of Elizabeth Fulhame. Through extensive experimentation, Fulhame discovered that most oxidation reactions cannot occur in the absence of water. She also noted that the water involved appeared to be regenerated and was not used up in the process. Fulhame is an extraordinary figure in the history of science, in part for the forward-thinking nature of her work and in part for being one of the first women to make a substantial contribution to a field. For the latter reason, many of her peers refused to accept her work. Time has shown her to be correct, and the impact of her discoveries is hard to overstate.
+
+Several decades later, chemist Jöns Jacob Berzelius coined the term “catalysis” and syndicated the work of numerous earlier researchers into a coherent theory. By the end of the nineteenth century, researchers had a workable understanding of catalysts, which Wilhelm Ostwald defined as substances that speed up reactions. Ostwald believed that there was no chemical reaction that could not be improved through catalysts. When the industrial revolution began, people soon realized the potential for using catalysts in manufacturing, with a number of patents filed. Financial gain proved to be a powerful incentive for those researching catalysis, which is probably why there were so many advancements in a relatively short time.
+
+Catalysts are the unsung heroes of the many processes that they make faster, cheaper, and safer.
+
+# The First Internet
+
+Catalysts are not required for a reaction to occur, but they make things easier. Having them means that there are more possible starting conditions for reactions. Like all models from the physical world, they are value.
+
+---
+
+neutral. Catalysts can just as easily speed up the occurrence of negative reactions as of positive ones.
+
+Once you start looking for catalysts, you see them everywhere—like the printing press, which significantly sped up the learning process. If obtaining knowledge is thought of as a reaction, then prior to the printing press this reaction required comparatively huge activation energy to get started.
+
+Handwritten books were rare and the purview of a very small section of society. Getting access to them was complicated—you needed the time and the means to seek them out. In order to learn, scholars would have to wander from scriptorium to scriptorium, hunting down one of Aristotle’s or Euclid’s works. In addition, they couldn’t rely on the integrity of what they were reading—hand copying lent itself to errors and embellishment, and books were sometimes erased so the parchment could be reused. For medieval scholars, the older a manuscript was, the more likely it was to be accurate.2
+
+The printing press acted as a catalyst to accelerate the process of obtaining knowledge by creating a repeatable process for copying knowledge: books. These books were cheaper and faster to make than the old manuscripts, and thus were more widely available.
+
+Knowledge now required less time and money to obtain—effectively lowering the activation energy. The printing press increased knowledge because it broadened the conditions in which the reaction could occur. There were more pathways to learning and for accessing information.
+
+# Unexpected Consequences
+
+Social catalysts can take on unexpected forms. Consider the Black Death, which swept the world for several centuries, peaking in the fourteenth century. The epidemic was tragic, wiping out hundreds of millions of people. Yet it also proved to be a powerful catalyst for social, religious, economic, and cultural change. Though we can’t know if these changes would have happened anyway, and it is only the distance of time that
+
+---
+
+enables us to find anything positive in it, it seems that the Black Death was the beginning of many elements of the society we now live in.
+
+The precise origins of the Black Death are unlikely to ever be known, but we do know how it spread. Animals, in particular rats, carried fleas infected with the plague bacteria when they climbed aboard ships sailing around the world. The fleas then jumped onto humans, bit them, and infected them with the Black Death. In the 1340s, the trading routes that were bringing Europe new wealth and opportunities brought it something more sinister. With no knowledge of what was causing this devastating disease, people continued to move and trade, spreading the plague farther and farther afield.
+
+As time progressed and more and more people died, society began to change. Old systems of labor collapsed with so few people left to work. Workers could demand more money because they were less replaceable. As wages rose, rents fell as landlords realized, to their chagrin, that they possessed more land than there was demand for. Survivors were considerably better off, and increased social mobility enabled even the poorest people to rise in society and earn more money. New industries bloomed to meet their needs, as those who once struggled to survive now had disposable income. Land became cheap and labor became expensive. With fewer workers, people developed labor-saving technology to make farming more efficient. The overall effect was a restructuring of society to be more equal.
+
+While the Christian Church had long dominated society, the Black Death weakened its grip for two reasons: people found it difficult to reconcile the tragedy they saw with religious teachings, and the numbers of priests and religious leaders shrunk. Those in religious orders died in the same numbers as anyone else. In the cultural gap created, new ideas emerged and led to the Renaissance. While European culture had stagnated for centuries, the weakening of the Church enabled dramatic advancements in science and significant changes in the topics pursued in literature and poetry. People did not become less religious, and the Church remained at the heart of society, but with changing sensibilities.
+
+---
+
+The Black Death may have led to improved conditions for women, who began to enter the workforce in new ways, particularly in industries such as brewing. Women also began marrying later in life.
+
+Medicine also changed. After making only minor improvements for centuries and relying on humoral theory, doctors realized that old ideas surrounding the human body were incorrect, and they moved toward research based on observation.
+
+The Black Death was a catalyst for change in almost every area of society. Although these changes may have happened anyway, the epidemic sped them up. As Peter Frankopan writes in *The Silk Roads*, “And yet, despite the horror it caused, the plague turned out to be the catalyst for social and economic change that was so profound that far from marking the death of Europe, it served as its making.”3 The changes were not evenly distributed, and not all of the survivors enjoyed the same benefits. By and large, however, the Europe that emerged from the tragedy was an entirely different place. As populations recovered, European society continued to evolve. Although the immediate economic gains faded, some of the new structures were there to stay.
+
+Catalysts lead to change. The right catalyst makes an endeavor that once seemed impossible simple. It need not only be about wide, systemic changes, like those just described. There are many smaller catalysts that we encounter in our everyday lives. Getting out of breath while walking up a flight of stairs might be the catalyst for someone to start exercising. Reaching a significant birthday might prompt someone to make a career change. A health scare may push someone to improve their habits. For many people, unpleasant events, such as getting fired or rejected, prove to be catalysts for tremendous personal growth.
+
+---
+
+# Autocatalysis
+
+When the outputs of a reaction are the same catalysts needed to start it, the reaction becomes self-sustaining and accelerates on its own. This is called “autocatalysis.” While it doesn’t go on forever, often there is a good window of time when you get a huge boost.
+
+Autocatalysis reinforces itself and can be positive or negative. Ingestion of chemicals to alter your mood often becomes autocatalytic. The more you take them, the more they cause the feelings you are trying to avoid. A good night’s sleep, on the other hand, can also be autocatalytic, as the increase in focus, mental clarity, and emotional regulation becomes the input into wanting another good night of sleep.
+
+In terms of harnessing the power of catalysts, producing an autocatalytic reaction is the gold standard. How many things in life do we wish could continue on their own for an extended period of time, without constantly needing the input of our energy?
+
+---
+
+# The Comfort of a King
+
+The endorsement of the rich, famous, or respected can act as a catalyst in the evolution of cultural norms. Society evolves. Over time, we change our sensibilities and preferences, our notions of acceptable behavior, even our concepts of what it means to be human. The forces that influence these changes come from a variety of sources.
+
+Innovations in technology allow for different means of organization, whose effects ripple through society, or geopolitical changes that require different functions from citizens and thus serve to create new perceptions of roles in society. Sometimes these developments stagnate, not having enough energy to produce systemic change. Other times, seemingly innocuous changes are embraced by opinion leaders, who become, in effect, catalysts speeding up the adoption of the changes in society.
+
+Louis XV of France was just such a person. Going into the eighteenth century in France, and Europe in general, homes were decorated to show off one’s wealth and possessions. They weren’t private sanctuaries but rather public displays of status. By the mid-eighteenth century the home as a public space had changed. Homes began to be designed for comfort and intimacy. We went from straight-backed wooden chairs to padded sofas, and public privies to private flush toilets.4 It was incredible, and now most of us couldn’t conceive of going back. Thus, we all owe a small debt to Louis XV for embracing the desire to have a comfortable home.
+
+Part of the change to seeing the home as a private space was a result of larger social changes that were occurring. The upper classes were moving around less due to more stable political situations. Technological advancement was booming, leading to a new look at things like indoor plumbing and central heating. And, perhaps most important, the Enlightenment was developing, placing emphasis on individual liberty and the sharing of knowledge and ideas. One of the products of these changes
+
+---
+
+was that the French royalty no longer wanted to be uncomfortable at the palace.
+
+During his reign, Louis XV transformed Versailles from an uncomfortable and public space to a place that reflected the desire of individuals to live somewhere they could also enjoy. He created almost a parallel palace of interior rooms where he, his family, and close confidants could exist outside the public eye. He replaced wooden footstools with legions of sofas and armchairs and made it perfectly acceptable for intimate acquaintances to sit in the presence of the king. In his private rooms he was just Louis. He installed indoor plumbing and flush toilets in their own private rooms. For the first time, guests at Versailles didn’t have to relieve themselves in the hallways. Bedrooms were no longer places where anyone could wander through. Rooms were smaller and had specific functions. In short, Louis XV put in place many aspects of the modern home.5
+
+Importantly, Louis didn’t invent any of these things. He was greatly influenced by the sensibilities of his father’s mistress, the Marquise de Montespan, who started some of the changes at Versailles, and his own mistress, the Marquise de Pompadour, who embraced the notions of comfort and privacy. They, in turn, were influenced by the changes and developments happening in society around them.6
+
+Therefore, it is quite possible that the widespread acceptance of the standards of comfort and privacy would have come to pass anyway. But, as Joan DeJean writes in The Age of Comfort, “The invention of modern comfort was a vast, and vastly costly, enterprise, one that transformed first the look of royal residences and then the cityscape of Paris, and did so, furthermore, in fast-forward mode, so rapidly that contemporaries kept repeating that it was all happening as if by magic.”7
+
+Early adoption by Louis XV and the royalty made comfort desirable and cheaper. The more people who wanted comfort, the more who bought into it, the more the prices lowered. This created a feedback loop in which comfortable elements for the home became accessible to more and more people. Louis XV helped to make comfort both socially acceptable and financially affordable.
+
+---
+
+# microchip
+
+Developments in technology often act as catalysts for social changes.
+
+# Conclusion
+
+Catalysts are the unsung heroes of chemical reactions, the silent partners that accelerate change. By decreasing the amount of time required to cause change, they also make reactions possible that might not have occurred otherwise.
+
+In chemistry, a catalyst is a substance that increases the rate of a reaction without being permanently altered itself. But catalysts aren’t just chemical curiosities, they’re a powerful metaphor for the forces that drive change and growth.
+
+In business, a catalyst might be a new technology that opens fresh possibilities, or a visionary leader who inspires a team to new heights. In your personal life, a catalyst could be a life-changing book, a transformative experience, or a mentor who sees your potential and helps you realize it. Of course, while we benefit from others acting as our catalysts, we can be catalysts ourselves—helping others find the activation energy they need to thrive.
+
+OceanofPDF.com
+
+---
+
+# Alloying
+
+Greater than the sum of its parts.
+
+OceanofPDF.com
+
+---
+
+Innovation is taking two things that already exist and putting them together in a new way.
+
+—ATTRIBUTED TO TOM FRESTON
+
+---
+
+Alloying combines components in specific combinations to produce a substance that can achieve something the individual elements cannot. An alloy is a mixture, either in solution or in compound, of two or more metals, or a metal and a nonmetal. Alloying, then, describes the process of creating an alloy. Alloying synthesizes a product with unique properties, such as greater strength, anticorrosion, service life, and general performance.
+
+Alloying has greatly impacted the lives of humans. The Sumerians, for example, developed bronze, made of 90 percent copper and 10 percent tin, which made the resulting material harder and more chemically resistant than either pure copper or pure tin. Creating tools and weapons from bronze instead of copper allowed them to rule over their neighbors. Bronze was also effectively used by Asians during the Bronze Age. Copper mines in Asia produced a different quality of bronze than those found in other parts of the world. For this reason, they were able to make better musical instruments, mirrors, tools, and weapons during that time.
+
+In the same way that copper and tin produce bronze, the right combination of skills in the same person can produce unexpected results. Marrying a relentless work ethic with extreme reliability and willingness to learn works better over the long term than any of them acting alone.
+
+Another important alloy in history is steel, which is still the most widely produced metal. The combination of iron and carbon results in steel, which is much harder than pure iron. The hardness of steel led to improved agricultural tools and weapons. The addition of metals such as magnesium, nickel, and chromium to carbon steel lends various characteristics to the alloy. These additives give the steel different properties, such as stainlessness, and wear or corrosion resistance.
+
+---
+
+Not every combination of elements produces a better, more useful alloy, but when you find one that works, the results accomplish something previously out of reach. “In the first 4,000 years or so of steel making, the early chemists and metallurgists had no real idea what they were doing and thus found it very difficult to optimize their processes. Add to this difficulty the large and very diverse selection of iron ores found in nature—frequently with phosphorus and silicon atoms causing a nuisance—and you may appreciate some of the complexity of the problem. Simply copying a successful procedure might not give a satisfactory product with iron ore from another mine.” However, they kept at it, giving themselves and their societies new opportunities for growth and development. With a successful alloy, one plus one can truly equal ten. The application of this model is relevant to everything from building teams to knowledge.
+
+Medicine is one field in which the concept of alloying comes into play. Sometimes, a combination of two or more drugs can have a greater benefit than each drug individually. For example, chemotherapy drugs can be so toxic that they are almost certain to produce potentially fatal side effects. But combining them with a drug that reduces the impact of the side effects can make the treatment effective. In other cases, a chemotherapy drug may be designed only to target a particular biochemical pathway. If the drug is used in isolation, the cancer cells may simply develop resistance and use alternate pathways, rendering it useless. Combining drugs that target different pathways leads to a drastically higher chance of destroying a tumor or halting its growth.
+
+In our lives, we often have one significant skill but don’t have the other skills necessary to get the most out of it. We need to partner with those who do, forming an alloy that is greater than the sum of its parts. When we’re building something from scratch, we need to consider both the raw materials and how they mix together. A team in which everyone has good ideas and nothing else won’t be as strong as a team that also includes someone who has an eye for which ideas are worth pursuing and the skills to make them a reality.
+
+---
+
+# How Two Men Beat an Army
+
+Working together and combining skills can give two people greater abilities than either one has alone. The War of 1812, between the British and the American republic, was fought along the border of what is now Canada and the United States. The British were trying to protect the remainder of their North American interests after having lost to the Americans in the War of Independence. The Americans were looking to ideally get the British out of North America completely or at least obtain a bargaining chip for their ongoing negotiations regarding British naval behavior. Canada was of interest on account of abundant resources and a small settled population.
+
+The British, however, were embroiled in war with France, and so their North American territory was imperial priority number two. Therefore, only a fraction of their potential resources was devoted to stopping the Americans. It was apparent to those on the ground in Canada that some creative thinking was required.
+
+The Americans thought taking Canada would be the equivalent of taking a walk. The land was vast, and the people willing to defend it were few in comparison. They were not expecting much of a challenge. So it was to their great surprise that the critical position of Fort Detroit was surrendered to the British without any actual fighting. How this came to pass was because of two men who were able to achieve together what they could not as individuals.
+
+Tecumseh was a Shawnee chief and leader of a Native American confederacy. His “consuming passion was the establishment of a native state on American territory.”2 His war was not the one of 1812, but a separate effort to secure native territory. Major General Isaac Brock had spent his career with the British army, and although he would have preferred a posting in France to one in Canada, he staunchly defended British interests there. As James Laxer writes in Tecumseh and Brock: The War of 1812, “their backgrounds and life experience could not have been more different.”3
+
+---
+
+When the Americans declared war, these two men realized that an alliance with each other gave them an improved chance of success. For Brock, Tecumseh brought experienced warriors and an extensive knowledge of the territory. For Tecumseh, an alliance with the British was important to check American control of land on the continent. In Brock, he also found an ally for his goal of a native state. “Tecumseh and Brock understood each other. Together, they could do what neither could do alone.”4 Both men felt that the upper hand would be gained by going on the offensive. So they set their sights on Fort Detroit.
+
+Working together to employ a brilliant psychological assault on the American fort, they managed to take it without any actual fighting. Brock and Tecumseh coordinated their efforts to give the impression there were thousands more Native Americans waiting to fight at Fort Detroit than there were. Brock played on the fear of Native Americans held by the American commander of the fort, and Tecumseh used his men to provide a calculated visual manipulation. When the Americans rode out with the white flag, neither side had lost any men.
+
+The capture of Fort Detroit in an almost completely bloodless battle took the Americans by surprise. “During the battle for Detroit, Tecumseh and Brock reinforced each other’s strengths, marrying the speed and flexibility of the native force to the firepower and solidity of the British regulars. That potent combination proved lethal for the cumbersome Americans and their shaky commanders. The consequence was a victory that should not have been won.”5
+
+Both men would continue to fight for what they believed in, and those causes would claim the lives of both within a year. The British succeeded in keeping the Americans out of Canadian territory, building on the successful tactics at Fort Detroit. When the end of the war was negotiated, and with neither Tecumseh nor Brock present, British support for Native American territory in America was not included in the treaty.
+
+---
+
+# Knowledge, the Ultimate Alloy
+
+When we reflect on our knowledge, we recognize that it has component parts. At the very least, we can easily appreciate that there is knowledge we have gained from direct experience and knowledge we have gained from theory, like that from books. Knowledge about when a stove is hot is often gained firsthand in our early years, but how that heat is produced is something we later learn in a science textbook.
+
+Furthermore, most of us appreciate that to learn only from others, or to credit only that which is gained from direct experience, would be functionally useless. A scenario in which you could learn from only one or the other would not produce the alloy we call knowledge. Theoretical learning cannot prepare you to understand all the nuances of your particular life, such as your partner or the dynamics of your team. And if you relied solely on your own experiences to learn, you would be condemned to repeat the mistakes of others, which is extremely ineffective. Theory and experience together create knowledge, and each serves to augment and advance the capabilities of the other. Experience can trigger the updating of theory, and the validation or application of theory can trigger new experiences.
+
+The alloy that is knowledge can further be conceptualized with more complexity. Aristotle discussed five components of knowledge. “They are what we today would call science or scientific knowledge (episteme), art or craft knowledge (techne), prudence or practical knowledge (phronesis), intellect or intuitive apprehension (nous) and wisdom (sophia).” These components of knowledge were not mutually exclusive; they reflect the understanding of how much knowledge we bring to bear on any given situation. When driving, we understand the rules of the road and how to operate the machine. We further understand how road conditions are likely to impact our drive, in terms of both vehicle handling and travel time. We also factor in how other drivers are likely to respond in the variety of circumstances we could possibly face as we progress to our destination. The sources of our knowledge are varied.
+
+---
+
+To really explain knowledge as an alloy, something that is strengthened when we mix certain components in, we can look at the life of Leonardo da Vinci. In Walter Isaacson’s account, he explains that Leonardo was able to conceive of things in an extraordinary way, leading him to discover or validate concepts that were often hundreds of years ahead of his time.7
+
+Leonardo was curious; he wanted to know how the world worked and why. He also possessed and honed the skill of intense observation, studying birds and plant stems for hours, or making extensive notes and drawings on eddies of water and optics. He would observe a phenomenon, make a guess as to the principles behind it, and seek to validate those through further observation. Leonardo was willing to challenge accepted truths, seeking to understand them by questioning them. “His lack of reverence for authority and his willingness to challenge received wisdom would lead him to craft an empirical approach for understanding nature that foreshadowed the scientific method developed more than a century later by Bacon and Galileo.”8
+
+He was mainly self-taught, having had almost no formal schooling, but he recognized the value of learning from the experiences of others. A quote from one of his journals reads, “Get the master of arithmetic to show you how to square a triangle…. Ask Benedetto Protinari by what means they walk on the ice in Flanders…Get a master of hydraulics to tell you how to repair a lock, canal and mill in the Lombard manner.”9 These notes suggest that no one has the time to do everything, and the alloy that is our knowledge must contain what we can learn from others.
+
+Leonardo also readily combined knowledge from different disciplines, his understanding of nature informing his art, or his theatrical experiences pushing him to understand more about optics. His interdisciplinary approach strengthened his knowledge by giving it a varied practicality and usefulness. “Thus, Leonardo became a disciple of both experience and received wisdom. More important, he came to see that the progress of science came from a dialogue between the two. That in turn helped him realize that knowledge also came from a related dialogue: that between experiment and theory.”10
+
+---
+
+In building our knowledge, the environment we are in plays a huge part, as it is the source of our experiences. For this component, Leonardo was lucky, because he was born at a time and place that valued the mixing of ideas from different disciplines. In fifteenth-century Florence there were others who brought multidisciplinary thinking to design and creativity. “This mixing of ideas from different disciplines became the norm as people of diverse talents intermingled. Silk makers worked with goldbeaters to create enchanted fashions. Architects and artists developed the science of perspective. Shops became studios. Merchants became financiers. Artisans became artists.” There is a role for discussion and communication in developing one’s knowledge. Sharing knowledge is a part of how you test it, seeing how much stronger your alloy really is after you’ve added some new information.
+
+Imagination can drive curiosity, as was the case for Leonardo, and it is an important component of the knowledge alloy. Imagining what can be drives you to validate what actually exists and then to apply the investigative rigor to see if you can bridge the two. Leonardo was exemplary in this respect. “His uncanny ability to engage in the dialogue between experience and theory made him a prime example of how acute observations, fanatic curiosity, experimental testing, a willingness to question dogma, and the ability to discern patterns across disciplines can lead to great leaps in human understanding.” We start with what we get in terms of genetics and environment, but at a certain point we take over control of what we can become. Understanding that knowledge is an alloy of experience and theory that can be further strengthened with elements of curiosity, imagination, and sharing gives us the ability to develop it as a true source of power in our lives.
+
+---
+
+# Disproportional Wear and Tear
+
+What works for one part of the system doesn’t necessarily work for all of it. In a mechanical system, when one part is subjected to significantly more wear and tear, it makes sense to coat it with a strong alloy that will minimize the damage in proportion to the wear and tear on the rest of the system. You don’t want to have to stop production for the frequent replacement of just one bit.
+
+Leonardo also played a role in the development of an alloy in the original, chemical sense. He “was also the first person to record the best mix of metals to produce an alloy that reduces friction. It should be ‘three parts of copper and seven of tin, melted together,’ which was similar to the alloy he was using to make mirrors. ‘Leonardo’s formula gives a perfectly working anti-friction composition,’ wrote Ladislao Reti, the historian of technology who played a role in discovering and publishing the Madrid Codices of Leonardo’s work in 1965. Once again, Leonardo was about three centuries ahead of his time. The first anti-friction alloy is usually credited to the American inventor Isaac Babbitt, who patented an alloy containing copper, tin, and antimony in 1839. 
+
+---
+
+# Conclusion
+
+Alloying is the art of mixing elements to create something greater than the sum of its parts. While our intuition tells us that pure substances are best, alloying shows us that this is not always true. One plus one can equal ten. By blending ingredients in precise proportions, metallurgists can create materials with bespoke properties—the lightness of aluminum with the strength of steel, the corrosion resistance of chromium with the affordability of iron.
+
+But alloying isn’t just about physical properties. It’s a metaphor for the power of diversity and combination in all walks of life. Within teams, alloying is the mixing of different skills, perspectives, and personalities to create a group that’s more creative, adaptable, and resilient than any individual could be alone. In ideas, it’s the blending of concepts from different fields to spark innovation and insight.
+
+In people, alloying is the combination of skills that makes them unstoppable. Consider a person possessing deep engineering skills with an ability to explain ideas clearly. Surely they are more valuable than someone with just the engineering skills. Now add empathy, humility, resilience, and drive. This person becomes incredibly rare.
+
+The key to successful alloying is knowing which elements to combine and in what proportions. Too little of one ingredient and you don’t get the desired effect; too much and you might end up with something brittle or unstable. The art lies in finding the sweet spot, the golden ratio where the whole becomes more than the sum of its parts.
+
+OceanofPDF.com
+
+---
+
+# BIOLOGY
+
+A totally blind process can by definition lead to anything; it can even lead to vision itself.
+
+— JACQUES MONOD
+
+OceanofPDF.com
+
+---
+
+# Evolution Part One: Natural Selection and Extinction
+
+Adapt or die.
+
+OceanofPDF.com
+
+---
+
+Organisms in nature have survived and thrived for billions of years because they have one powerful trait at their disposal—they are adaptive.
+
+—RAFE SAGARIN
+
+---
+
+Evolution is a powerful mental model because it explains success and failure, the relationship between the environment and the individual, and why you had better plan for constant change. There are so many valuable applications of this concept, we have broken it down into two chapters.
+
+# 1. Evolution Part One
+
+looks at natural selection and extinction. We show how environmental pressures shape groups, spurring them to evolve or die out. The second chapter goes into more detail on ways to adapt to the inevitable changes we face. Evolution as a mental model can be summed up as “adapt or die.” We think, however, it is important to understand not only how we can adapt but what it is we are responding to when we do.
+
+Looking at natural selection and extinction together pushes us to consider the parameters that we must evolve in. We either respond to the changing demands of our environment, or we die out. Natural selection further teaches us that optimization for our environment is an ongoing and dangerous process. We are constantly trying to obtain advantages that will increase our chances of survival and help us avoid extinction as a species.
+
+The word “selection” can be confusing because its common usage implies choice: I’m selecting this over that. In reality, the concept means that the more favorable a trait is for a particular environment, the higher the chance of that organism living long enough to procreate. Biologist Geerat J. Vermeij describes it as “nonrandom elimination.”
+
+Charles Darwin spent decades studying the natural world, and he was one of the first to make the observation that nature played a significant role in shaping all organisms. As each generation contends with its environment, the struggle for the resources needed for survival means that any traits that promote survival will likely get passed on. Thus, over time, the frequency
+
+---
+
+of traits within a population changes as a response to environmental conditions. This is the definition of natural selection.
+
+Natural selection “is very much about advantages here and now, not in the distant future. Traits conferring long-term advantages emerge because they also work well in the lives of individuals and produce positive feedbacks.” For a mutation to be successful, it can’t negatively impact an organism’s ability to survive at that time. For example, slow zebras are the ones who are eaten by the lions. The faster ones survive and reproduce. Over time, the entire zebra population becomes faster. A key element of natural selection, then, is that the beneficial traits that are selected by the environment increase the survival potential of the species. We can also apply an inversion lens, demonstrating that any adaptive response that is not useful will be selected against. As Rafe Sagarin goes on to note, natural selection “is an incredibly simple process requiring just three simple elements—variation between individuals, environmental conditions that favor (or select) certain variants over others, and a means to reproduce those variants that are better suited to the environment.”
+
+There are many ways to be successful in any given environment. It is not only the most successful trait that will reproduce in successive populations but the entire upper echelon of successful traits. We can imagine that it’s not only the faster zebras who will be more likely to reproduce but also zebras that have a more powerful kick or better eyesight. One of the key elements to selecting for positive traits is that they have to be repeatable. Either the genetic mutation or the learning must be able to be passed on to the next generation. If adaptive behaviors can be used and developed in a successive series of situations to increase the fitness of the individual and the species, those behaviors will be selected for.
+
+New circumstances tend to be calamitous for an economic unit if they are either very large or very rare relative to the size and lifespan of that unit.
+
+—GEERAT VERMEIJ
+
+---
+
+Every biological behavior and feature exists for the same reason: to survive long enough to reproduce and therefore avoid extinction. All living things are out to ensure the survival of their species. Organisms must adapt to survive.
+
+The vast majority of the species that have existed on earth since life first emerged are now extinct. In biology, extinction is defined as the moment when the last member of a species dies. For example, the last passenger pigeon, Martha, died in captivity in 1914. But the point where there is no possibility of a species surviving tends to occur earlier, when its population density is below the threshold necessary to keep it away from extinction, a set of circumstances known as Allee effects.5 A species may also become extinct in the wild when the only survivors are in captivity and would be unlikely to repopulate their natural habitat if released. With too few individuals remaining, breeding may be impossible. This may occur because a species has died out by itself, or it may be the result of the activity of another species, as was the case with passenger pigeons. Once numbering in the billions, this species was entirely wiped out by human hunting within a few decades.
+
+We can’t ever identify the precise cause of an extinction. The influences are always complex and unique to the situation. Often, we can only infer causes from outcomes. In addition, extinctions are not always rapid. Sometimes they take place in increments over millennia. We do, however, know the most common causes.
+
+# 1. Causes of Extinction
+
+One cause is competition. A species may die out because it must compete with a better-adapted rival. Two species requiring the exact same resources cannot coexist in the same area. The successful introduction of alien species sometimes leads to the extinction of native ones. Unable to adapt fast enough, the native species is deprived of the resources it needs. Another cause, and one of the most common, is a change in environment. This could be due to climate change, deforestation, a volcanic eruption, or anything significantly disruptive.
+
+To confuse matters, extinctions don’t occur in isolation. Ecosystems are full of complex, nonlinear interdependencies. When one species dies out, it
+
+---
+
+may take others with it. Sometimes, the interrelationships are straightforward. If a prey species goes extinct, it’s logical for its main predator to do likewise if it lacks alternatives. Or the interrelationship may be less direct. If a predator goes extinct, its prey may be able to breed in greater numbers. This can put a strain on its own prey and drive this prey to extinction. Thus, we cannot predict the outcome of an extinction.
+
+A further issue with classifying extinction is that it means we must be able to classify a distinct species. It can be hard to define what constitutes a species. If a dog interbreeds with a coyote, for example, is that a new species? We are far from identifying or even discovering all the species on this planet. Many have gone extinct without us ever knowing they existed in the first place. There are an estimated ten million distinct species, of which fewer than 20 percent have been catalogued.
+
+In any system, it’s natural for parts to continually wear and need replacing. This is true of ecosystems. Extinctions are a ubiquitous feature of life on earth, as a sort of meta–natural selection. The same selection process that applies to individuals also applies to species as a whole. The catch is that the very evolutionary process that ensures a species’ survival can also be its downfall. Natural selection within a stable environment tends to be a process of refinement. A species will become more and more attuned to the precise adaptations it needs to survive. This is ideal in reliable conditions, but it can mean a species lacks the resilience it needs to survive any changes. So, while the best-adapted organisms may be the strongest during normal conditions, they may struggle to survive volatility. Generalist species are far more resilient than specialists. A rat or a cockroach can survive almost anywhere, a panda less so.
+
+One of the main ways species guard against extinction is by having a lot of offspring, fast. The population can quickly restock after events like a new disease. Species that breed slowly are more vulnerable, although they can find ways around it, as humans have done.
+
+While extinction is an extreme event, it’s often normal for large numbers of a species to die out. Deer and elk starve in large numbers on a regular basis. Once the population in an area gets too big, there isn’t enough
+
+---
+
+food available. The periodic mass starvations end up benefiting the species. As brutal as this is, it’s necessary for the whole species to endure.8
+
+Extinctions happen all the time. This is when species are continually dying out but at a steady pace and from a range of causes. By contrast, a mass extinction occurs when a lot of species disappear in one go. It tends to be the result of a single cause, such as a sudden change in climate conditions, like those caused by a meteor.
+
+Thus, natural selection and extinction are two very important concepts from evolution. Together they explain why and how organisms respond to changing environments and what happens when the responses fail. These same principles can be used to look at the development and progression of nonliving things and to better understand why certain social or cultural artifacts change and thrive while others fall out of favor or disappear altogether.
+
+So how does a business survive in constantly changing environments? When change hits, a common response is denial or trying to adapt with a business model that no longer works. We can influence the outcome of changing environments more rapidly by first recognizing that we actually need to survive and then moving to survive with new ideas.
+
+—ROBERTA BONDAR9
+
+# The Evolution of Language
+
+Why do some customs, products, and social norms thrive, while others disappear from the landscape? Natural selection is a lens we can apply to understand how environmental pressures promote certain changes, leading to growth and dominance. And why the same process penalizes those populations that are unable to meet those pressures.
+
+A fascinating example to illustrate the constant interaction between environment and species that leads to evolution is the way some languages
+
+---
+
+grow and become global, while others go extinct. Over human history, there have been thousands of languages used by humans to communicate. Some of these never spread beyond narrow regional dialects used only by a small group of people. Others spread far beyond their original environment to be used by people in all areas of the world. Languages are, in a sense, subject to the pressures of natural selection, which means they can also die out if they aren’t well suited to their environment.
+
+French is one of the successful languages. It evolved from the Latin spoken in the region of present-day France and can be classified as a romance language. The roots of the language that became modern French had remarkable adaptability. As it evolved, French picked up words from many of the different languages it came into contact with, so that even today it retains words that have origins in Norse, Gaulish, Frankish, Arabic, Spanish, and Italian.
+
+Environmental pressures on languages predominantly come in the form of geopolitical changes. Shifts in power result in shifts in language usage. Jean-Benoit Nadeau and Julie Barlow explain in The Story of French, “Three main events pushed the language from one phase to the next: the fall of the Roman Empire, the conquest of England, and the rise of Paris as a center of power.” Early French responded to these changes by mutating —picking up words from other languages—which helped it survive by keeping it useful.
+
+For centuries, the development of the French language was a series of successful adaptations. Use of the language spread all over Europe through conquest and invasion, and thus speaking it was desirable. It became the only real common language of the region. French was used as the language of administration, and gradually “people who wanted power knew they needed French.” The mutations it picked up spread throughout the population, reproducing as more and more people began teaching French to their children as their mother tongue.
+
+The spread of French meant that the language faced more complex environmental pressures. It began to settle into the modern version of the
+
+---
+
+language in response to these pressures. First, “by the twelfth century, writers from the regions around Paris…were making a conscious effort to eliminate dialectical characteristics in their writing so they could be understood by a larger number of people.”12 Second, as it became the pan-European language of business, its grammar, spelling, and precise meanings had to be set so as to avoid disputes based on interpretation. Finally, the growing popularity of printed materials pressured the language to commit to rules and standards, as well as concise characters to save on cost.
+
+French was able to adapt accordingly. Gothic characters were replaced with Roman ones, and dissemination of printed French materials helped communicate and solidify a common understanding of the language. French speakers furthered its use by creating dictionaries and grammar that increased utility. “Because it was defined, French in the seventeenth and eighteenth centuries was regarded as easier to learn.”13 These measures served to create accessibility. The easier it is to learn a language, the more appeal there is in making the attempt.
+
+When geopolitics shifted and colonialism became the goal of many European countries, French again was able to adapt and infiltrate new ecosystems. It continued to incorporate words from other languages confronted in new territories, thereby showing flexibility, which encouraged uptake. As Nadeau and Barlow explain, many French explorers and missionaries understood that communication was a key to relationship building and so taught French and correspondingly learned native languages all over the globe. When colonialism ended, French was often the only common language in an area that had multiple local dialects.
+
+French, however, does not have a perfect record of adaptation. In many ways the language, although global, was heavily influenced by the culture of France. One of the impacts of this situation, for example, was that some cultural prejudices worked against the evolution of French in the colonial era. “An important segment of the [French] elite was simply not interested in questions of industry, science, technology, money or markets—issues that were vital to the development of a trading empire. The French Academy, of course, completely ignored scientific and technical vocabulary (as well as
+
+---
+
+new vocabulary from the colonies).”14 The bias of French culture limited the language. You aren’t going to use a language to try to communicate your ideas if it has no words for the elements you need to express.
+
+French eventually overcame the lack of words in scientific and technical fields and contributed many inventions and innovations to the world. But the point is that in order for languages to evolve, they must have the flexibility to adapt. Any measures that try to constrain flexibility risk the language becoming unusable and eventually extinct.
+
+To this day France responds to the pressures on its language created by the global prominence of English (and Mandarin and Spanish) by trying to make it easy for people to learn French. “French lexicographers do their spring cleaning regularly so that the language doesn’t hold on to words it doesn’t need.”15 And more significantly, there are French schools all over the globe. Many are part of the private Alliance Française, and others are run by the French government, but the vast majority are open to anyone who wants to learn the language.
+
+---
+
+Letters evolve, and so do languages.
+
+Other concentrations of French speakers, such as those in North America and Africa, actively promote the use of French through language laws and cultural associations. Mandating usage is one way of keeping a language alive.
+
+Evolution can be threatening if you can glimpse some of it happening. The changes you observe can suggest that your own fitness may be lacking and that the products of the evolution of your species will be unrecognizable. The evolution of language faces a similar challenge—will it still be French if the language evolves in such a way as to be incomprehensible to contemporary speakers?
+
+Part of the tension in French is about trying to resolve the conflicting pressures placed on the language by changes in the environment. Nadeau and Barlow write that entire tenses have been dropped from usage, and slang is being adopted at a rate that makes it hard for dictionaries to keep.
+
+---
+
+up. Some people react by fighting to keep the language “pure” and consistent with centuries-old usage. They advocate a top-down approach to language development. Others accept changes and innovations and view them as a source of creativity and a way of staying relevant.16 The lens of evolution and natural selection suggests that trying to freeze a language, or trying to maintain tight control on its evolution, is the exact wrong reaction in terms of preventing extinction. If a language cannot adapt, it will cease to be useful. If it ceases to be useful, it will go extinct.
+
+The story of the evolution of French can be contrasted with that of Latin. Latin is perhaps the best-known dead language. The debate over what makes a dead language and whether any particular language falls in that category is endless. By the strictest definition, a language is dead only when no living people speak it. The more typical definition is when a language is no longer native to any community who would speak it as their mother tongue.
+
+Latin originated in Rome, then spread across Europe and Africa as the Romans took over the surrounding areas. The oldest surviving example of written Latin dates back to the seventh century BCE. According to legend, Rome was founded about half a century earlier. In an era when most people spent their entire lives close to where they were born and had little reason to interact much with anyone outside their own community, Italy was home to numerous minor languages, of which Latin was just one. It was pure luck that Latin ended up taking on such significance. By most estimates, Latin ceased to be anyone’s mother tongue and diverged entirely into separate languages by the seventh century CE.17 While geopolitical changes after the fall of the Roman Empire strengthened French, they gradually killed Latin.
+
+This doesn’t mean no one knows the language or that it is not in use in any manner. Latin remains the official language of Vatican City and has a significant role in Catholicism, often used in writing by officials. It’s used in some traditional, ceremonial situations, like the graduation ceremonies at Oxford University in England.
+
+---
+
+In addition, a significant portion of the technical terminology used in medicine, epistemology, taxonomy, law, and other fields is Latin. This is partly tradition and partly to give these fields a universal language to facilitate ease of communication across borders. Some schools still offer Latin classes, and many people still choose to study it. For scholars who study old texts, a knowledge of Latin is useful so they don’t need to rely on translations, which may be subjective. For these reasons, Latin is unlikely to disappear altogether. But the fact that it is not spoken as a native language puts it into the dead category.
+
+Just as a species that goes extinct can have descendant species that survive, incorporating some of its traits, dead languages can be the ancestors of living ones. Latin formed the basis of many of the existing languages in nations that once fell under the Roman Empire, including Italian, French, Portuguese, Romanian, and Spanish.
+
+The main reason Latin fell out of use is its complexity. Learning Latin is far more arduous than learning any of the languages it spawned, as there are numerous ways to modify each word depending on the context. The selection pressures on languages tend to push them toward whatever form is easiest to learn. A language is well adapted to its environment if people can learn it and if they have a strong enough reason to learn it. Much like in everyday use, we often contract words or drop syllables to make our speech easier, Latin evolved into a simpler form known as Vulgar Latin. Because no central authority existed to codify and define the proper use of Latin, its simpler form diverged in different parts of what was once the Roman Empire, becoming a range of different languages.
+
+As humans, we have a tendency to minimize energy output, which gives us a preference for languages that are easy to use and understand. That doesn’t mean the simplest languages become the most popular. But it does mean that in the absence of formal, enforced standards, languages drift toward greater ease of use. This is part of what happened to Latin; it wasn’t best suited to its environment. In addition, there were no laws requiring the use of Latin in particular areas. French, by comparison, was more formalized, with defined
+
+---
+
+standards for its usage. Being easier to learn likewise gave it an advantage in surviving long-term.
+
+Beyond the languages that have direct links to its structure and grammar, other languages use Latin words or ones derived from them. It’s estimated that more than 60 percent of English words are derived from Latin or Greek. For instance, “antique” and “ancient” come from “antiqua,” meaning “old.” Likewise, French uses numerous words of Latin origin, like “agir” (to act) which comes from “agere,” and “bouteille” (bottle) which comes from “butticula.” Thus, although Latin is a dead language, it has had a lasting and widespread influence on many languages that are still in use and spoken by millions of people.
+
+The contrast between French and Latin shows us how languages are subject to the pressures of natural selection. Languages also need to evolve to survive in a changing environment, or they decline in use and eventually go extinct.
+
+# Conclusion
+
+Natural selection is the hidden hand that selects the fittest from a never-ending pile of genetic variation, while extinction is the hammer that shatters the unfit and clears the way for variations to arise.
+
+In biology, natural selection is the process by which traits that enhance survival and reproduction become more common in successive generations of a population. It’s the invisible hand that guides the adaptations of the living world, favoring those creatures that are best suited to their environments and pruning back those that fall short.
+
+But for every winner in the great game of natural selection, there are countless losers. Extinction is the fate awaiting those species that fail to adapt, that find themselves outpaced by changing circumstances or outcompeted by more successful forms. The evolutionary end.
+
+Without the possibility of extinction, there would be no imperative to evolve to our changing environment. And without the sculpting hand of
+
+---
+
+natural selection, the unfit and ill-adapted would consume scarce resources. These principles apply far beyond the realm of biology. In business, in technology, in ideas, we see the same relentless winnowing of the unfit and the elevation of the adaptive. The companies that thrive are those that can navigate the shifting landscape of consumer demand and technological change, while those that stagnate are swept away by the tides of creative destruction.
+
+On a personal level, we are all subject to the pressures of selection and the risk of extinction. Our skills, our knowledge, our ways of thinking must constantly evolve to keep pace with an ever-changing world. Those who consistently adapt are the ones who thrive in the long run.
+
+Above all, remember that in the great game of life, there are no permanent victories—only the ceaseless striving to stay one step ahead.
+
+OceanofPDF.com
+
+---
+
+# Evolution Part Two:
+
+# Adaptation Rate and the Red Queen Effect
+
+Getting better all the time.
+
+---
+
+OceanofPDF.com
+
+---
+
+Adaptation is as good as it has to be; it need not be the best that could be designed. Adaptation depends on context.
+
+—GEERAT VERMEIJ1
+
+---
+
+We have to deal with the environment we are in, not the one we wish we were in. Adaptations are successful relative to their performance in a specific environment, relative to the pressure and competition the organisms face. We don’t have to be objectively best, just better than those we are competing against. “In other words, living things do only as well as they have to rather than optimize.”
+
+“Adaptation” refers to both the trait that is useful and the process of change it undergoes as it is passed on. It functions as both a noun and a verb. Adaptations start as genetic variations that occur in the right time and place to be useful. “Adaptability controls the sweet spot between reaction and prediction, providing an inherent ability to respond efficiently to a wide range of potential challenges, not just to those that are known or anticipated.”
+
+# The Story of the Peppered Moth
+
+The story of the peppered moth in Britain is a textbook example of adaptive change to specific environmental pressures. While normally the moths were very light, there were nonetheless variations that resulted in dark coloring. However, against the normal backdrop of their environment, the dark moths stood out and were quickly eaten—at least at first. However, during the industrial revolution, what was once a negative trait became a positive one.
+
+When blankets of sooty pollution were covering everything for miles, the lighter moths now stood out and became an easy target for their predators. The dark variants became far more successful at camouflaging in the dark soot and were therefore better able to survive and produce significantly more offspring.
+
+Gene mutation confers an advantage that increases the frequency of that mutation in the population. Mutations are constantly being tested in the environment. It’s interesting that now, with more efforts at pollution control...
+
+---
+
+Due to the deleterious effects of smog, the lighter moth is making a comeback.
+
+Populations of organisms adapt in response to changes in both the organic and nonorganic environment. Less sunlight or warmer temperatures influence the process of adaptation, as do changes in the other organisms that occupy the same environment. Predators adapt to changes in prey, and they also adapt to changes in their competitors. When it comes to adapting to environmental change, “nature is limited to the raw materials at hand, and there’s only so much you can do with them.” One consequence is that there might be the same solution for different problems in different species.
+
+Adaptations can arise in multiple places, basically simultaneously. Consider that “humans had earned a living by hunting and gathering wild foods for 10,000 generations, but in just a few, brief millennia, food production sprung up across the globe. It happened separately in at least a dozen places.” Which brings up the full context of the word “adaptation.” There are genetic mutations that allow for direct adaptation, then there are the mutations that allow for learning and thus adaptation on a much shorter timescale.
+
+# Identifying Opportunities to Adapt
+
+Adaptation requires leaving or being forced from your comfort zone and into a place where you observe and experience new threats to your security. —RAFE SAGARIN
+
+When we think about World War II, most of us know that France was occupied by the Germans early on. The Nazis rolled into Paris in the spring of 1940, and not until D-Day, four years later, did the Allies get a toe back in the country. The French toiled under the Vichy government for the rest of
+
+---
+
+the war, and some supported the Allied effort through a small but potent resistance. Have you ever asked why France fell so fast?
+
+It’s interesting to think about. After all, when the Treaty of Versailles concluded World War I, it was the Germans, not the French, whose military was greatly reduced. Despite this, the French continued to be anxious about future German aggression. They maintained their military. They built the Maginot Line as a defensive structure in eastern France. They strategized on how to protect their country. They bought tanks and kept up drills and vowed they would not suffer a repeat of World War I.
+
+Germany was in an entirely different situation. After the First World War, the country “was left, as even the Allies admitted, with something closer to a police force than an army. When the promise of reductions in all armies failed to materialize in later years, it added to British unease about the German treaty, and to German resentment. With an army of 100,000 men and a navy of 15,000, and with no air force, tanks, armored cars, heavy guns, dirigibles, or submarines, Germany was to be put in a position where it could not wage an aggressive war.”
+
+Germany’s munitions were destroyed, and the country was not allowed to import anything that could be used as “war material.” They couldn’t have cadets’ and veterans’ societies and “couldn’t do anything of a military nature.” Further, they were ordered to pay huge sums of money to the Allies, reducing their ability to rearm. Of course, later events showed that the Germans ignored many of the terms, and the Treaty of Versailles has been widely criticized for creating the conditions that led to World War II. However, the point here is that given the circumstances leading up to 1939, it is by no means obvious why the Germans were so successful in invading France.
+
+At the outbreak of the war, France had 110 divisions, “of which no less than 65 were active divisions.” The Germans, on the other hand, “had 98 divisions, 36 of which were untrained and unorganized.” Explaining the technical capacity of each military in 1939, B. H. Liddell Hart says, “On the surface, it would appear that the French had ample superiority to crush the German forces in the west.” So why didn’t they even come close?
+
+---
+
+# Warfare in 1939
+
+Warfare in 1939 had many new components. It was a changed environment to which the French had not adapted. They hadn’t undergone the selective pressures needed to be prepared for the German army.
+
+The Treaty of Versailles had, in a sense, been about maintaining the adaptive status quo. The hints World War I gave that warfare had fundamentally changed and thus required new thinking were largely ignored by the leaders of Europe. In France there was both “an incomprehension of the new idea of warfare, and official resistance to it.” The French were twenty years out of date in their thinking. They had modern equipment but “lacked modern organization.” And they had not invested in airpower to support their ground troops.
+
+On the human timescale, adaptability is about recognizing when the way you have done things in the past is becoming less and less successful in a changing environment. It requires you to innovate, like mutations in the evolution timescale, to see if you can come up with ideas that will improve your chances of success.
+
+In the 1930s, the French prepared themselves for a war they had already fought. Hart writes, “The French High Command still regarded tanks through 1918 eyes—as servants of the infantry, or else as reconnaissance troops to supplement cavalry. Under the spell of this old-fashioned way of thought they had delayed organizing their tanks in armored divisions—unlike the Germans.”
+
+To be fair, the Germans had not fully worked out how to succeed in this new environment either. It wasn’t like they had perfected which adaptations were going to work the best. They were “still far from being a really efficient and modernly designed force…. At the same time the German High Command had, rather hesitatingly, recognized the new theory of high speed warfare and was willing to give it a try.” And it was this willingness to adapt, even in only a few individuals at first, that was one of the reasons they were so successful in the early part of the campaign.
+
+As with genetic mutations, improved fitness doesn’t require everyone to adapt at the same time. At the outset of the war many in the German High Command were remarkably similar to the French in how they thought the
+
+---
+
+invasion would play out in terms of tactics and timing. There were just a few more Germans in positions of sufficient power who were willing to try new tactics. One of the more notable of these is General Heinz Guderian. Hart writes, “The Battle of France is one of history’s most striking examples of the decisive effect of a new idea, carried out by a dynamic executant.”
+
+Hart’s explanation of Guderian’s actions is a chronicle of adaptation in action. “Guderian has related how, before the war, his imagination was fired by the idea of deep strategic penetration by independent armored forces—a long-range tank drive to cut the main arteries of the opposing army far back behind its front. A tank enthusiast, he grasped the potentialities of this idea, arising from that new current of military thought in Britain after the First World War…. When war came Guderian seized the chance to carry it out despite the doubts of his superiors.”
+
+Guderian’s adaptations took him right through the French defenses, giving him an unobstructed path to the English Channel. It was his series of actions that the Germans built on to complete the occupation of France a year later. Guderian led an adaptive German response to the changes in the warfare environment. Like the color of the peppered moth, the changes were successful only in a very specific environment. The German responses to other environmental conditions were significantly less beneficial and contributed to their eventually losing the war and returning France to the French.
+
+# Long Live the Red Queen
+
+The Red Queen effect is a compelling principle of evolutionary biology and vivid image to help understand the pressures that all organisms face just in surviving.
+
+The least fit of a species dies first. You can’t stop adapting because no one around you is stopping. If you do, your competitive position declines, bringing your survival into question. Every living thing is constantly on the
+
+---
+
+lookout for opportunity, the place to accrue advantage, and thus adaptation is also driven as a response to changes in those with whom we share our environment. Staying the same as we are often means falling behind.
+
+# 1. The Red Queen Effect
+
+The Red Queen effect was first used in the context of evolutionary biology by Leigh Van Valen in 1973. In his research, he noticed something interesting: that at no point was a species protected from extinction. Evolution is an ongoing process, and all species must continually respond to pressures in their environment or die off. What’s more, constant adaptation is something that everyone is doing all the time. Hence the use of the Lewis Carroll character from Alice’s Adventures in Wonderland. The Red Queen tells Alice, “Now, here, you see, it takes all the running you can do, to keep in the same place.”
+
+# 2. Biological Adaptation
+
+At the biological level, organisms don’t choose to adapt. A leopard doesn’t sit up one day and say, “Wow, the antelope are getting faster. I need to do something about that.” Rather, the increased speed of the prey means that only the fastest predators will get food and live long enough to reproduce. Thus, over time, the average speed of the predator species increases. The pressures on both the predator and prey are constant, which is what produces the Red Queen effect.
+
+# 3. Human Context
+
+However, this principle applies to the much smaller timescale of our lives as well. And, importantly, we can choose to do something about it. There are so many humans on the planet that even if only 20 percent were trying to move ahead, it’s enough that they wouldn’t leave much behind for the rest of us. There are enough people trying to get smarter, better, and more of the limited resources that are available, that it puts direct pressure on everyone to keep up.
+
+# 4. Feedback Mechanisms
+
+If feedback is positive, or reinforcing, cause and effect together unleash a runaway process with all the characteristics of an arms race. If negative, or stabilizing and self-limiting, feedback acts as a brake, muting change and damping fluctuations.
+
+—GEERAT VERMEIJ
+
+---
+
+The Red Queen effect is often applied to business strategy and human conflict. These two areas bookend the spectrum of the use of this model. Applied to business, it is an argument against complacency. As noted, the originator of the hypothesis, Leigh Van Valen, observed that longevity does not protect species from extinction. No matter how long a species has survived, a failure to adapt can result in extinction. There is no plateau a species can reach when it gets to say, “OK, the hard work is done. I can coast now, getting by on what I have.” Because all species are continually adapting, the pressure is constant.
+
+The same dynamic exists in business. Your competitors are always working to get ahead, and thus you must as well. Your customers’ needs are always changing, and you need to be able to identify and meet these. Considering the actions of your competitors and the desires of your customers is part of the core, daily functions that your business must always perform.
+
+Some organisms exist within an aggressive Red Queen effect, which is the situation for many bacteria, while for others, like cockroaches, the pace is less intense. It is possible that high capacity in both flexibility and learning can slow one’s particular experience of the effect. Overall, when applied in business, this principle can promote an environment where there is an infinite capacity for innovation.
+
+At the other end of the spectrum we may apply the Red Queen effect to human conflict. As in an arms race, in which one side invests resources to outdo the other, eventually the cost of the resources is immense, but no advantage is gained. An arms race points to the limits of using the Red Queen effect as a model. In some scenarios, namely those in which there is an end to beneficial adaptation, it is better to look at changing parts of the environment in which you are trying to survive instead of trying to keep up in a race that is undermining your overall ability to adapt. Actions that put the existence of an individual or a species in danger are not the goal of adaptation and not supported by the Red Queen effect.
+
+---
+
+# Vestigial Structures
+
+Natural selection happens in imperceptible increments over vast periods of time. That means sometimes we can see traces of its path. It’s a misconception that organisms are perfectly formed and adapted to their environments. We can see the traces of natural selection, a slow and imperfect process, in vestigial structures. These are traits that are present in a species or some members of a species but no longer have any function or value. Vestigial structures may be present only during the embryonic stage or they may be a permanent feature. In the past, they served an important purpose that helped a species survive.
+
+For example, flightless birds such as ostriches usually have small, useless wings that are leftover from the ones that once gave them flight. The human goose bump reaction to stress or fear is a vestigial response, based on how our ancestors would have fluffed up their fur to look bigger when confronted with a predator. Some snakes have the remnants of a pelvis from the time when they had legs, as do whales. The presence or absence of pelvic remains is one way we classify snake species. Pigs have useless toes raised off the ground. The parasite responsible for malaria contains the vestiges of a chloroplast in its single cell. Moles have skin-covered, de-evolved eyes hidden beneath their fur, despite being blind.
+
+So why don’t vestigial structures just go away? It all comes down to natural selection. An organism’s traits are selected for or against by natural selection only if they have any impact on its chances of survival. If a vestigial structure confers no benefit but causes no harm, there is no reason for it to disappear. Getting goose bumps during a horror movie isn’t likely to reduce an individual’s chances of reproducing, nor does it require enough energy to be a meaningful hindrance. So goose bumps will probably stick around for a good while longer unless random mutations eliminate the response or it becomes detrimental.
+
+Even when vestigial structures do go away, it happens gradually over many generations. At a certain point, they cease to be relevant to the process of natural selection. There are even instances when further shrinking or eliminating a vestigial structure would be more detrimental than leaving it in a diminished form, so it remains. For them to disappear completely may require overall structural changes in an organism that are not feasible, or not important enough to exert selective pressure. Scientists are always learning more, and sometimes a feature that seems to serve no purpose has one we haven’t discovered yet.
+
+---
+
+Vestigial structures can be helpful for learning about evolution and determining if species have a common ancestor.
+
+---
+
+Success is measured by persistence.
+
+—GEERAT VERMEIJ
+
+One of the interesting problems for humans is that the pressures we face from each other are not isolated and often require a complex response. We are not just trying to run faster than an antelope. We are trying to be better in so many ways that we often feel like we are failing at everything. So we burn out or we give up.
+
+However, like velocity, the “speed of adaptation is not the same thing as effective adaptation…. The point is that what matters is not the speed of adaptation, but what problems it helps you solve and what problems arise as a result of an enemy’s adaptations.”
+
+First of all, the principle of adaptation is that it is useful. Useful adaptations are well suited to life, and they increase your ability to be successful in that life. They have to improve your function. Also, adaptations come with trade-offs. Increasing your fitness in one way will mean a decrease in fitness in other areas. Humans have big brains. A benefit is unmatched problem-solving ability. We can survive in a wide variety of situations for which we have no direct experience. The trade-off? The bodies that house these big brains can’t be fully grown inside the womb. So we are vulnerable for many years after birth.
+
+Adaptations are further constrained by the fact that an organism must be viable at all stages of the adaptation process. What this means on the human life timescale is that if you are compromising your physical health or your sanity, you are not adapting. You are instead weakening your ability to successfully respond to changes in your environment.
+
+Adaptations are about being successful in your environment, so it becomes critical to define success. For animals it means living long enough to pass on your genetics and, depending on your species, getting your young through the early vulnerable stages. Mammals, in particular, don’t
+
+---
+
+just need to have offspring but need to teach them how to successfully navigate their environment. But beyond our biology, there is no universal definition of success that all humans would agree upon. For some it’s about power and recognition, for others it’s about the freedom of choice, and others still would emphasize spiritual enlightenment and peace. However, a fundamental component of success must be that it involves benefit. You gain when you succeed. Anything that compromises your ability to succeed is not justified by this model. Running as fast as you can to stay in place is not a euphemism for sixteen-hour workdays. It should not be the reason you don’t see your children or used to justify ignoring the needs of your body and soul.
+
+No innovation comes into existence perfectly hewn. Error is thus necessary for the generation of variation.
+
+—GEERAT VERMEIJ22
+
+# Don’t Reinvent the Wheel, Repurpose It
+
+There is a lot of opportunity that already exists in your world. You don’t have to start from scratch with adaptation. In evolutionary biology, making use of things you already have is sometimes referred to as an exaptation.
+
+The term “exaptation” was first proposed by Stephen Jay Gould and Elisabeth Vrba in 1982 to make the point that a trait’s current use does not necessarily explain its historical origin.23 In other words, just because A is used for B by species C does not necessarily mean that species C evolved A for the purpose of doing B. It may very well be the case that B is something that this species learned to do after the adaptation of A.
+
+For example, although today most birds use their feathers to fly, it would be incorrect to say that this means feathers emerged in these birds specifically for flight. In fact, feathers first emerged in dinosaurs for the purposes of insulation or attracting mates, not flight. Natural selection
+
+---
+
+Selected for dinosaurs that had feathers because they better allowed them to survive and reproduce. This is the adaptation: Feathers first provided heat and attractiveness. Later on, feathers also became useful for flight as observed in the modern bird. Once the structure was present, the function of flying became possible. The structure did not emerge for the purposes of flying, but it was repurposed to support this new use. It was an exaptation.
+
+There are many other examples of exaptation in the animal world. All of them demonstrate that exaptations are useful to survival because they expand our options in responding to changing environmental conditions. Pandas have a bone, the radial sesamoid, that allows them to easily manipulate bamboo stems, their primary source of food. Most mammals and reptiles have this same bone, yet none eat bamboo or otherwise use the bone to assist in feeding. The bone is available to all of them, but only the panda needs it. Should the environment put certain kinds of pressure on the other species requiring them to adapt their feeding habits, this bone is available as an exaptation that would aid in survival.
+
+Increased autonomy allows parts to take on new, often specialized, functions.
+
+—GEERAT VERMEIJ24
+
+In other words, structures that arise for the purposes of fulfilling an associated function, like echolocation in bats, are adaptations, while structures that arise and are then used for a function other than the one they originally performed, like feathers in birds, are exaptations. The distinction between adaptation and exaptation is not always a clear one, which is why we put them together as a model. What we can get out of this overlap is insight into repurposing already acquired skills and knowledge.
+
+---
+
+# The Surprising Evolution of the Self-Playing Piano
+
+About twelve hundred years ago in Baghdad there lived three brothers: Muhammad, Ahmad, and al-Hasan, collectively known as the Banu Musa. They were scholars who wrote many books on topics such as mathematics and astronomy. One of their most fascinating works was *The Book of Ingenious Devices*. This book was a catalog of machines, including a self-trimming lamp, an automatic flute player, and a programmable machine.25 This last was “the Instrument Which Plays by Itself,” a detailed design for a hydraulic organ that played music notes triggered by small divots in a pinned cylinder. Thus, a human did not interact with the machine directly; instead, they “programmed” the machine via the instructions on the cylinder.
+
+In *Wonderland: How Play Made the Modern World*, Steven Johnson traces the technology of the musical machine devised by the Banu Musa through music boxes and mechanical toys and player pianos, and shows how the innovations generated in the pursuit of this entertainment were the foundation of the frequency-hopping technology so essential to our wireless age in the form of cellular phones, Bluetooth, and wi-fi.26
+
+# How did the technology make this leap?
+
+In 1940, near the beginning of World War II, the Battle of the Atlantic was raging. German submarines were sinking boats with regularity, resulting in a devastating loss of both military and civilian life. Hedy Lamarr, Hollywood actress, and George Antheil, composer, teamed up to try to do something about it. Their goal was to invent a remote-controlled torpedo to attack German submarines.27 One of the main challenges was the vulnerability of the frequency used to control the torpedo. Using one frequency meant that it could be easily discovered and jammed. They needed to find a way for the remote controller and the torpedo to “frequency hop” in synchrony. This way it would be near impossible to find, and the Allies could direct their torpedo without interference.
+
+---
+
+When faced with a challenge, where does one look for inspiration? Usually you start with concepts you already understand and materials you already have. This is the essence of exaptation.
+
+Lamarr and Antheil were faced with the challenge of synchronizing the movement of frequencies. Antheil looked into his current store of knowledge and realized he’d faced a similar challenge before—trying to synchronize the musical notes of multiple player pianos in a composition of his called the Ballet Mécanique. “This is where Antheil’s experience… supplied the missing element that completed Lamarr’s invention…. He proposed a control system whereby the instruction for frequencies were encoded in two perforated ribbons. Where the holes in the piano roll signaled a musical note, the holes in the ribbons signaled a frequency change.”
+
+What was invented or learned for one purpose stays available to be used for entirely different functions. “For almost a thousand years we had that meta-tool [programmability] in our collective toolbox, and we did nothing with it other than play music.” And then we branched out with this tool. We started programming textile looms, torpedoes, and computers. Programmability in all the functions in which we use it today has become indispensable, and we can pretty much guarantee this wasn’t what the Banu Musa had in mind when they came up with that original ingenious device.
+
+Inventions are almost never solitary, isolated creatures; they depend on other inventions that complete them, or endow them with new applications that their original inventors never considered.
+
+—STEVEN JOHNSON
+
+# Innovation without a Plan
+
+Exaptations in evolution do not necessarily have to be new uses from current adaptations—traits that already have a purpose. They can develop
+
+---
+
+from bits lying around that were started for no particular use at all, which has a parallel in technology. Sometimes people invent things solely for the sake of the invention. They don’t have a fundamental social use or business model in mind. There are far more patents than things we use on a regular basis. Sometimes, those isolated inventions provide a foundation for innovations that were not at all anticipated.
+
+What we learn from exaptation is that we don’t always know the value of something at the outset, and there doesn’t always have to be a justification for doing everything.
+
+We must not forget that when radium was discovered no one knew that it would prove useful in hospitals. The work was one of pure science. And this is a proof that scientific work must not be considered from the point of view of the direct usefulness of it. It must be done for itself, for the beauty of science, and then there is always the chance that a scientific discovery may become like the radium a benefit for humanity.
+
+—MARIE CURIE31
+
+Sometimes things that have no apparent purpose at the outset can later be co-opted into use. Having to know the benefit of everything before you begin leads to missed opportunities. No one has a crystal ball—you can’t anticipate all that will be required or have use as our global environment changes.
+
+The history of commercial products is littered with exaptations. Bubble Wrap was invented in 1957 by Alfred W. Fielding and Marc Chavannes when they sealed two shower curtains together and captured bubbles of air on the inside. Obvious use? No. They first tried to sell it as wallpaper, but there were no takers. Then they tried marketing it as greenhouse insulation, but this failed. Finally, the company took it to IBM as a way to protect all their new business computers while in transit. The usage took off and the product developed into the Bubble Wrap we have today.32
+
+---
+
+Time and place also matter for exaptation. A use that might be perfect in one country might seem irrelevant in another. Or a product marketed at one point in history may fall flat but succeed at another time. If they’d tried marketing Bubble Wrap as wallpaper in the 1970s, when wacky wallpaper and plastic clothing were a trend, it might have taken off. Exaptation is all about context. If birds hadn’t faced environmental pressures to fly, feathers may have remained as a form of insulation or evolved to serve a different function.
+
+There’s also Play-Doh. It had a twenty-year career as wallpaper cleaner in the days when coal was the primary home fuel. Using coal turned the walls sooty, and the substance that became Play-Doh was used to remove that soot. But then coal began to be replaced by heating systems based on electricity or natural gas, and Play-Doh wasn’t needed anymore to clean walls. Developed by Cleo McVicker and his close relatives Noah and Joseph, Play-Doh was a product without a future. But McVicker’s sister-in-law, a teacher, had been using Play-Doh as a craft medium in her primary classes. She convinced him to investigate marketing it as a child’s toy. It was fun and nontoxic, and it lasted awhile if sealed properly in between uses. McVicker got prime product placement with the children’s show Captain Kangaroo, and sales exploded, making it one of the most popular children’s products of all time.
+
+Or there is the story of Botox. It’s a toxin, a “naturally occurring by-product of the microorganism that causes botulism, a potentially lethal paralytic disease caused by eating contaminated preserved food.” The bacteria have likely been around a long time and have killed a lot of people. It wasn’t until the nineteenth century that the anaerobic bacteria that cause botulism were isolated and identified.
+
+In the 1970s, a form of the toxin was used to treat eye disorders, including uncontrollable blinking and crossed eyes. By the 1980s it was “widely applied by both ophthalmologists and neurologists as a remedy for…facial, eyelid, and limb spasms.” In 1987, Jean Carruthers, an ophthalmologist, inadvertently discovered cosmetic uses for Botox when a patient mentioned how her eye treatments were relaxing her face. It took a
+
+---
+
+few more years for Botox to hit the mainstream, but it eventually achieved widespread cosmetic application.
+
+Thus, what exaptation is fundamentally about is flexibility. We cannot know the exact pressures we will face in the future. So what we need is a box of diverse tools that can be used and combined in almost a limitless number of ways to meet the challenges we face. Some of these pieces will never have any use, and some will be complete game changers. But no one can divine this ahead of time. Survival of a business often depends on being able to change quickly. You can’t do that if you have to start from a blank slate every time environmental pressures push you to develop and innovate.
+
+It also teaches us that as individuals we must not underestimate the options we have at our disposal. Too often we get stuck in “functional fixedness,” a mindset in which we see in things only their intended use, rather than their potential use. A fork doesn’t have to be just a tool to put food in your mouth. It could also be a hook, tack, or hair detangler. It may be combined with other household objects to fulfill even more purposes. As the saying goes: do what you can, with what you’ve got, where you are. In fact, one of the tests used to measure creativity by psychologists is to ask people to come up with as many uses as possible for an everyday object like a brick. The more exaptations someone can envision, the more creative they’re considered.
+
+The knowledge we’ve accrued, the lessons we’ve learned, are all available to us at any given moment to forge new paths in the environments we are in. The most amazing part of this concept is that it happens on two levels. There is the conscious one, in which you look around at what you have and actively seek out what you can repurpose. But these abilities also manifest on an unconscious level. Like the bird, who did not say, “Hey, maybe I can use these feathers to fly,” but instead had feathers that influenced its behavior in situations they were not originally selected for, we too navigate our world differently the more knowledge and skills we can draw on in any given situation.
+
+---
+
+# Conclusion
+
+There’s no such thing as a permanent lead. No matter how well a species adapts to its environment, it must keep running just to stay in place. Complacency will kill you.
+
+The Red Queen effect is a consequence of the never-ending arms race between predator and prey, between parasite and host, between competitor and competitor. As one species evolves a new adaptation others evolve countermeasures, leading to a constant escalation. The faster you adapt the faster your rivals must adapt in response, and vice versa.
+
+This has profound implications for the pace of evolution. In a static environment, natural selection might favor a leisurely pace of change. But in a world of constant one-upmanship, where your competitors are always nipping at your heels, the premium is on speed. The species that thrive are those that can adapt quickly, that can turn the evolutionary crank faster than their rivals.
+
+But the Red Queen effect isn’t just about biological evolution. In any competitive domain—business, technology, even ideas—the same principle applies. Companies must continually innovate to stay ahead of their rivals. Technologies must evolve at a breakneck pace to avoid obsolescence. Ideas must adapt and grow to maintain their relevance.
+
+The key is to recognize that adaptation isn’t a onetime event but a continuous process. It’s not about reaching a finish line but about maintaining a lead in an endless race. Those who rest on their laurels, who become complacent in their success, are quickly overtaken by hungrier, more agile competitors.
+
+But there is a catch when it comes to people. Once we gain an advantage, we want to hold on to it at all costs, and if we’re not careful, this can slow the pace of adaptation. Before long, our competitors catch up or find innovative ways to neutralize our strength. Sustained success comes from being flexible enough to change, to let go of what worked in the past and to focus on what you need to thrive in the future.
+
+---
+
+In a world of constant change, standing still is the quickest path to extinction. Victory goes to those who can continuously adapt.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Competition
+
+COMPETITION IS A DRIVING FORCE of the biological world. All living things are out to survive and breed as much as possible. This puts them in competition for finite resources like food, status, territory, and mates. This may be between whole species or individuals. The fight for resources is a zero-sum game.35 The more one individual receives, the less there is for others. So competition is inherently harmful to the losers. If a species cannot attain the resources it needs, it will go extinct. The availability of resources dictates the type and intensity of competition. The scarcer the resource, the more aggressive the competition.
+
+Intraspecific competition occurs within species when members fight for the same resource.36 For example, male zebras engage in vicious fights over females. The urge to spread their genes is so strong that losers may die in the process. Male zebras will also kill the offspring of rivals. Interspecific competition occurs between species. If they live in the same area and need the same resources, they’re forced to compete. Trees in a forest compete to grow the tallest and get the most sunlight. All species are constantly engaged in both types of competition.
+
+The distinction is not as clear-cut as it might seem. Everything a species does impacts others within the same ecosystem. Competition can be direct or indirect. If living things must actively fight each other for a resource, it’s direct. If there is no confrontation, it’s indirect.
+
+---
+
+We cannot understand any of the biological mental models without also considering competition. It’s the reason the natural world is so diverse. As Darwin recognized, all life is a struggle for survival.37 Species that are able to fight for the resources they need to survive and reproduce are the successful ones. The type and intensity of competition is dictated by the availability of resources. The scarcer a resource is within a region, the more aggressively organisms must compete for it. When resources are more abundant, competition may be less intense. This, however, typically allows a species to breed until its numbers reach a level at which individuals are forced to compete.
+
+Competition doesn’t just occur in biology. It’s also the driving force behind many human systems. The upside of competition is that it forces improvements. Competition is an important concept in business. Companies are constantly fighting for market share. This process is beneficial for consumers, because it forces companies to keep prices low and quality high whenever possible. Monopolies—in which one company dominates an entire market and customers have no other option—are discouraged because they allow for abuse and create stagnation.
+
+---
+
+# Ecosystem
+
+Everything is connected.
+
+OceanofPDF.com
+
+---
+
+Some systems…are very sensitive to their starting conditions, so that a tiny difference in the initial push you give them causes a big difference in where they end up, and there is feedback, so that what a system does affects its own behavior.
+
+—JOHN GRIBBIN
+
+---
+
+In biology, an ecosystem encompasses a community of interacting species and their nonliving environment. All components play a part in determining the characteristics, from the type of soil to the amount of sun or water available. Some animals cooperate, others compete, and changes in any component can affect both the fitness of individual species and the health of the entire system.
+
+When you learn about ecosystems, you gain insight into how diverse components interact in defined environments in a way that promotes the continued existence of the system. Individual species may gain and lose, and the system itself may be exposed to challenges that it must adapt to and recover from, but the web of interaction that has developed supports the holistic functioning of the system.
+
+# An Interconnected Web
+
+The key point to understand about ecosystems is that they are systems. The different parts don’t exist in isolation; they interact and interconnect in myriad ways. If we intervene in them, we can’t expect the outcomes to be predictable. We need to look at them as a whole and respect that it’s sometimes better to leave them alone than to try improving them. But we often suffer from intervention bias, the desire to always do something instead of leaving things alone, when it comes to ecosystems. We forget that they’ve evolved to manage quite well if we let them get on with it.
+
+For instance, in areas that are prone to forest fires, the local fire department may attempt to put out every single fire they hear about as soon as possible, regardless of size. The problem is that fire is a natural part of these ecosystems. It is only humans that view naturally occurring fires as a
+
+---
+
+problem. As destructive as wildfires can be, they also have ecological benefits. Burning dead plants releases the nutrients they contain back into the soil, helping to fertilize the next generation of plants. Fires cut through the thickest areas of plants, letting sunlight reach new areas. They wipe out alien species and diseased plants.2
+
+Perhaps most important, regular small fires burn up accumulating plant matter. If humans intervene and put these out, larger amounts of fuel build up and pave the way for fires that are beyond the scope of what the ecosystem can handle. Often, the harder we try to control ecosystems, the harder they fight back.3
+
+Likewise, our efforts to save endangered species from extinction often focus on interventions, rather than on preserving the natural ecosystems they need to survive. Take the case of elephants. African elephants are currently considered vulnerable, not endangered, but it is believed they may end up extinct in a matter of years if current rates of poaching and habitat destruction continue.4 Asian elephants are classed as critically endangered.5
+
+The best thing we can do for elephants is to preserve their habitats, allowing them to live and breed naturally. But much of the effort to save elephants from extinction is focused on captive breeding programs, especially artificial insemination. While this works and is safer than other methods of captive breeding, elephant artificial insemination is a classic case of us failing to recognize and support the value of ecosystems.6 It is incredibly expensive and produces results that are far more limited than if we were to hypothetically use the same funds to preserve elephant habitat.7 In addition, artificial insemination only produces more captive elephants, which are deprived of the space they need to roam and the social ties they would otherwise enjoy. They have much higher infant mortality rates than wild elephants, and a substantial number die from conditions related to their limited space for movement.8
+
+Ecosystems are not just about their individual parts. Sometimes we’re so focused on trying to reinvent and improve upon them that we forget they’re quite capable of self-organizing.
+
+---
+
+Economic systems are, of course, complex structures, in which the pattern of interactions resembles a web. This means that the dominant party in one interaction may well be the subordinate in another. Control thus diffuses through the ecosystem, generally from entities with high energy demands to those with more modest requirements. The ability to adapt to, or at least to accommodate, the power structure remains the ticket to success for all players—dominants and subordinates alike—regardless of how much influence an entity wields. —GEERAT VERMEIJ9
+
+There is no size restriction on ecosystems. Isolated puddles in rocks have their own ecosystems, but so too does the ocean. Matter and energy move across ecosystems. Animals migrate, pollen blows around, and water can transport a variety of species or materials to other systems. Very few ecosystems are completely closed. Long-distance migration of many species ties ecosystems together.
+
+Organisms within an ecosystem have varying degrees of importance for the maintenance of that system. Some are foundational to its survival. These are known as keystone species: organisms that would cause an ecosystem to completely change or collapse altogether if they were not present. Without them, new and possibly destructive organisms could take over the same niche. The term comes from zoologist Robert T. Paine, who compared them to the special stone known as a keystone, which is used at the top of an arch to ensure its structural stability. Without the keystone, the arch would collapse. It is a small component, but everything else depends on it.
+
+Keystone species can be hard to identify, as they may be present only in low numbers or may not be highly visible species. We can only know for sure that an organism is a keystone if its numbers drop and we see the second-order effects of that.
+
+It is common for keystone species to be predators (organisms that eat other, usually smaller, organisms), as they play a crucial role in maintaining the numbers of their prey. Predators tend to be present in relatively small numbers compared to their prey. In other cases, herbivores (organisms that eat plants) are important for maintaining the levels of certain plants, thereby...
+
+---
+
+keeping the habitat in a favorable state for other organisms. Some species can have reciprocal relationships (see the chapter on Reciprocity), wherein the loss or reduction of one would harm the other and the effects would ripple out to the rest of the ecosystem. So, in general, the value of keystone species is dependent on their ability either to provide what other species need to survive or to control population levels.
+
+An example of a keystone species is the sea otter, which lives in kelp forests. Sea otters eat sea urchins, which in turn eat kelp. If there are enough sea otters in the ecosystem, they prevent the numbers of sea urchins from getting too high. Without the sea otters, all the kelp would get eaten, which would eventually also lead to the demise of the urchins. In addition, kelp plays a valuable role in removing carbon dioxide from the atmosphere, benefiting the environment as a whole, and supporting a wide variety of other species. Without the sea otters, the ecosystem could not survive. No other predator in the same habitat could fill the same niche as the sea otter. If their numbers drop too low, it could have a genuine impact on global climate change.
+
+Finally, ecosystems aren’t static. The internal dynamics are constantly changing as the system adjusts to and recovers from disturbances. Some ecosystems are robust, others more fragile. Some have a high capacity for resistance, which is the tendency of a system to remain close to its equilibrium state. It takes a significant disturbance to affect these ones. Resistance is contrasted with sensitivity, describing those systems for whom very weak disturbances can have a profound effect.
+
+Also measurable is a system’s resilience, which is the speed with which it recovers after a disturbance. The strength of an ecosystem is thus better considered in more than one dimension. Sensitive systems with very high resiliency can be just as strong as highly resistant systems that have trouble bouncing back.
+
+This is why the ecosystem is such a useful mental model. The parallels with human organization are clear. Our family units tend to function as their own system, and so can our teams at work. But we are also part of the larger
+
+---
+
+ecosystems of our cities or organizations, and people can move across
+ecosystems with ease, bringing change and challenge.
+
+---
+
+# The Law of the Minimum
+
+The law of the minimum states that the yield of a crop will always be dictated by the essential nutrient that is available at the lowest level. No matter how abundant the other essential nutrients are, being deficient in one will always limit the crop’s growth. If the level of that nutrient is increased, another will become the limiting factor. One way to envision this is as a bucket with a hole through which water leaks out. The bucket cannot fill to the brim as a result. The deficient nutrient is the hole in the bucket.
+
+The law comes from botanist Carl Sprengel, who formulated it in the 1820s. Biochemist Justus von Liebig later popularized the concept, an important one for farmers to understand. When the price of a particular fertilizer increases, some farmers are tempted to use less of it and more of cheaper nutrients. But this stunts the growth of their crops, as the other nutrients do not compensate for the deficient one.
+
+It is not necessarily what is available that matters. What is scarce can be paramount too. We can see this in our own lives as well. If you skimp on sleep to have more time, tiredness then becomes the limiting factor to your productivity, not time.
+
+In manufacturing, a bottleneck is a similar concept. A factory process can only move as fast as the slowest step. Likewise, in mathematics we refer to multiplying by zero, which is akin to the law of the minimum: put a zero at the end of a multiplicative calculation and it cancels out the numbers before it, no matter how high.
+
+---
+
+Over time, closed systems produce fewer and fewer innovations, because closed systems, by definition, are based on certain increasingly unchallengeable fundamental principles.
+
+—GARY HART
+
+# Trade Ecosystems
+
+Examining the silver trade between China and Spain in the sixteenth century brings out many of the nuances of ecosystems, demonstrating how there are limits to their organization and infrastructure and how more is accomplished when you work within them.
+
+The first lesson comes from the results of China trying to maintain a closed trading system. For various reasons, over a long period the imperial government did not want to trade with other countries. Fearing a weakening of power or thinking that there was not much to bother trading for, the government in Beijing banned all trade.
+
+Trade with China, however, didn’t stop; it was just done in a different way. No policies, customs, duties, or official infrastructure meant that trade was carried out primarily by smugglers and pirates. European merchants knew that China was the largest economy in the world and therefore represented a huge economic opportunity. Once they figured out how to get there, Europeans became part of the environment. Certain individuals and groups in China adapted accordingly, integrating the opportunities the Europeans offered into the trade ecosystem.
+
+The disruption caused by the arrival of the Europeans with their goods created opportunities for smaller players to compete with those traditionally at the top of society. The result was an extensive criminal network that soon threatened the power of the government, and that became a contributing factor to Beijing repealing the trade laws and opening up somewhat for business.
+
+---
+
+The second lesson about ecosystems comes from looking at what happened in China when trade was opened up. To start, we need a little background. Another motivation for the trade policy change was that Beijing needed money. The traditional currencies, either bronze or paper, had been rendered completely useless by shortsighted policies that put political image ahead of economic sense. By the time those European ships sailed up, everyone in China was paying for goods with little silver bits and shaved-off lumps carried around in their pockets. The problem was that China’s silver mines were depleted. There was no way to infuse new currency into the system when it was needed, and an economic system without the raw materials to produce new currency is like a forest that stops getting light. The Chinese government needed the Spanish ships with their tons of silver mined in the Americas.
+
+Trade policy changes can be likened to an environmental change that impacts an ecosystem—a new, invasive species, a persistent change in the amount of rainfall. Changes that affect the environment in a widespread fashion will inevitably produce successes and failures. Some species will adapt and take on new territory or create a new niche, and others will die off, unable to respond to the challenges. In China, there were many individuals and groups who adapted, capitalizing on the instability brought about by the changing trade laws. These adaptations in turn forced others one or two steps removed from direct trade to adapt to the resulting new businesses with their labor and land requirements.
+
+Thousands of acres were planted with the trees that hosted the worms that produced silk. Raw silk was produced by the ton. And now that the Chinese had a market, other adaptations to the changing ecosystem followed.
+
+As they got to know their customers (according to Quan Hansheng, the Taiwanese historian) they acquired samples of Spanish clothing and upholstery and in China made perfect knockoffs of the latest European styles. Into the galleons went stockings, skirts, and sheets; vestments for cardinals and bodices.
+
+---
+
+for coquettes; carpets, tapestries, and kimonos; veils, headdresses, and passementeries; silk gauze, silk taffeta, silk crepe, and silk damask.13
+
+According to Charles C. Mann, who charts the changes to China that were a result of the silver trade in his book *1493*, the Chinese began making an exceptional variety of goods to sell to the European market. Whatever the Chinese charged, it was still cheaper than the goods the Europeans could make themselves, and China paid more for silver than anyone else in the world.
+
+The leadership in Beijing didn’t adapt so well to the changing economic ecosystem. They could not direct the resulting business boom to stave off inflation, and the silver itself was a double-edged sword. It financed state projects, but the silver “was ever a political threat to the dynasty, because it controlled neither the trade nor the source.”14 And “so much silver flooded into China that the price eventually dropped,” resulting in significant loss of revenue for the government.15
+
+When ecosystems change, new species can become dominant and keystones as the interaction between species alters. Silver changed the economic ecosystem so significantly that the power relationships between various groups in China changed and evolved.
+
+The third interesting lesson regarding ecosystems comes from the mini-ecosystem that grew within the larger changes to China’s trade policy: a very resilient Chinese community in Manila, Philippines. This community originally started when trade with the mainland was outlawed, presumably to have a place to actually conduct trade. The community grew, and when the trade policy was changed it grew some more. As Mann describes, Manila’s Chinese inhabitants far outnumbered their Spanish counterparts in the European enclave in the city. The Spaniards were constantly uneasy about this Chinese community. They didn’t understand it and looked down on it, but they were also quite dependent on it. The Chinese could produce better goods at lower prices than the Europeans could produce or import themselves, but their foreignness and their numbers meant that the Spanish were always psychologically on the defensive.16 It was like the Spanish
+
+---
+
+were rare components in the ecosystem of Manila, who did not appreciate the value the far more common components, the Chinese, provided. There is no evidence for any Chinese plot to oust the Spaniards—which would have made zero economic sense—but perhaps the legacy of a century of conquering caused the Spanish to view all Chinese actions through the lens of potential aggression. Whatever the reason, the Spanish introduced restrictions that caused rebellion by the Chinese, which the Spanish took as reason to massacre the population.17
+
+However, the ecosystem of Manila was very resilient. The abundance of both Chinese goods and people that could keep filling a necessary role in this ecosystem was the source of resiliency. Despite the Spanish committing seven separate massacres of the Chinese population in Manila, the trade and the town always came back. New residents came; more goods were exchanged. The value of the trade, to both the Spanish and Chinese, from the level of individuals to government, created a system that could bounce back after each significant event, and there was no shortage of the raw materials and humans that the community required. The economic infrastructure was valuable, attractive, and efficient. It got goods moving, made a lot of people some money, and made a few people wealthy. The trade also facilitated a projection of power for both the Chinese government (via the infrastructure developments they made with the silver) and the Spanish (via perceived control over lucrative overseas trade). So, despite the periodic catastrophes of widespread murder, the system had evolved to have high resiliency.
+
+The diversity of species present seems to impart long-term survival to an ecosystem.
+
+—RAFE SAGARIN18
+
+---
+
+# A New Approach to Building the Perfect Football Team
+
+The lessons we can learn from ecosystems are ones that we can apply in our organizations. After all, any business is dependent on a web of interactions and influences that includes employees working in different areas, customers, competitors, regulation and governments, and trends and changes in the global environment. So how can we integrate the value of considering the system in how we develop our businesses? We can look at an example from the world of American football.
+
+In 1979, Bill Walsh became the general manager and head coach of the worst team in the National Football League. By 1989, he had developed a dynasty of championship winners. His accomplishment is credited to one meta-factor: he created a culture in the San Francisco 49ers’ organization that recognized the exceptional value a well-functioning ecosystem can provide. As Michael Lombardi explains in Gridiron Genius, “Walsh took over a team with no high draft picks, no quarterback, and no hope. Three years later, that team won the Super Bowl. It got there by following Walsh’s formula, what he called his Standard of Performance: an exacting plan for constructing and maintaining the culture and organizational DNA behind the perfect football franchise.”
+
+Walsh recognized that a football organization’s culture is ultimately the system that will determine if a team can sustain the effort needed to win a championship. When he took over the 49ers and began rebuilding the organization, he was “relying on one premise…that all the components of the Forty Niners’ structure had to be a single unitary construction, all pointed toward the same direction, all generating the same energy, interdependent in the goal of creating a great football team, from the janitors on up.”
+
+In an ecosystem, all species have a role to play. On the African savannah, the elephants and lions may receive a lot of the attention from tourists, but their survival depends on the less glamorous beetles and baobabs making their contributions. Walsh believed that “everyone has a
+
+---
+
+role and every role is essential.”21 By making this philosophy a cornerstone of the 49ers’ culture, Walsh sought to demonstrate that winning football is the product of a well-functioning system; each individual knowing what was required of them and what their contribution was supposed to be was vital for success. It was the organization that was going to win. Not the coach. Not the individual players. “The critical factor whenever people work together,” according to Walsh, “is that they expect something of each other. It’s not just that the coach expects a lot of the players—it’s the fact that the players expect a lot of each other.”22
+
+Species migrate. Players get traded. Walsh was determined to build a culture that could survive and positively respond to inevitable change. In his book Finding the Winning Edge, he wrote, “The structure of an organization must have the flexibility and adaptability to meet unexpected obstacles, crises, or developments.”23 The stronger and more resilient a system, the more easily it can adapt and bounce back. This is why, for Walsh, a successful organization wasn’t about superstar players or running a particular offensive formation. It was about building a culture that could be flexible in effectively responding to ever-changing environmental pressures.
+
+Walsh also understood that his cultural ecosystem wasn’t closed. What happened off the field in the personal lives of his team could have an impact on their ability to maintain the 49ers’ culture. He thus expanded the culture to include initiatives that could help prevent disturbances from which his ecosystem might not be able to recover. One of these was a “Life Skills Program” for the players, which had “four major thrusts, all aimed at equipping otherwise unprepared players for adult life.”24 There was a continuing-education program, a confidential personal and family counseling program, a confidential drug counseling program, and a financial advisory program. As David Harris observes in The Genius, “Most coaches just use a kind of one-size-fits-all approach, but Bill understood that different guys have different buttons. Fifty guys weren’t all motivated the same way. Bill put in the extra work to figure out each of their personalities and what drove each.”25
+
+---
+
+In scouting for talent, Walsh said, “Don’t just say he can’t do this and can’t do that. Find every player’s possible contribution and identify the reason to take him rather than just the reasons not to.” Maybe the way a player could contribute wasn’t needed by the 49ers at that time, but Walsh seemed to recognize that it takes a wide array of skills and specialties to help a team reach optimum performance, and thus it was important to keep an open mind when looking for talent.
+
+One other fascinating property of ecosystems is that different organisms produce different systems, even if the environments are extremely similar. The look and operations of a desert in the Sudan are not identical to those of a desert in Australia. This concept might explain why teams following the same system do not necessarily produce the same results. As Michael Lombardi explains, “Many have tried to copycat Walsh’s offense by hiring his former assistants and associates or anyone else who could lay claim to the West Coast lineage, believing that simply employing someone to run the scheme is enough to create the kind of success Walsh had with it.” Most of them failed. Why? Essentially, ingredients matter.
+
+Finally, with all complex systems, which ecosystems are, the results of the interactions are not always predictable. Accordingly, the culture of the organization did not always translate into an output of wins. The 49ers didn’t win the Super Bowl all the time. The dynamics involved in winning a football championship are too complex to be able to identify and adjust for every factor. Walsh’s system, though, did better than anyone else’s. He won three Super Bowls in his ten years with San Francisco, which is an exceptional achievement in that league.
+
+---
+
+# The Reality of Living in a Web
+
+Too much of any one external factor can effectively kill a system. If you think about the narrow range of temperatures that humans can exist in, compared with all the possible temperatures that exist in our solar system, you can appreciate the fact that significant change in external factors like light, air quality, and so on can devastate the stability of an ecosystem. So too with any business. External stability is important for overall success. Even if you can’t control the external factors, you must pay attention to them.
+
+In order to have customers, you need a large pool of people with enough money to buy your product. In order to run an office, you need a stable economic environment and tax system. In order to have employees, you need a strong education system that teaches the skills you require, and an urban structure that allows people to live a satisfying life on the income you provide. If we love our system, we must also do what we can to influence the external factors that are required to keep our system going.
+
+---
+
+# Conclusion
+
+Nothing exists in isolation. Everything is connected. The ecosystem lens reveals that each species plays its part in a delicate balance of competition and cooperation. The actions of any one species can have consequences for many others in the same environment.
+
+In biology, an ecosystem is a community of living organisms interacting with each other and their physical environment. In an ecosystem, nothing exists in isolation—every creature is both predator and prey, both producer and consumer, locked in an intricate dance of energy and nutrients.
+
+Yet the concept of an ecosystem extends far beyond biology. You can see it nearly everywhere you look. Businesses operate within a complex network of companies, customers, competitors, suppliers, and regulators. Each entity relies on and influences the others, creating a dynamic interplay that determines which businesses thrive and which do not. Economies are also vast ecosystems consisting of various sectors (like agriculture, manufacturing, services) and actors (like workers, consumers, governments). These components interact under the rules set by economic policies and market forces. Economic theories often explore how changes in one part of the ecosystem can lead to significant outcomes in another, much like the ripple effects seen in biological ecosystems.
+
+What all ecosystems have in common is their inherent complexity, their reductionist analysis. In an ecosystem, the whole is always more than the sum of its parts. The behavior of the system emerges from the countless interactions of its components, often in surprising and unpredictable ways. This suggests that to truly comprehend a complex system, we must look beyond the individual elements and consider the patterns of relationship and feedback that bind them together.
+
+Left to their own devices, many systems can take care of themselves, possessing abilities to correct and compensate for changes and external pressures. No matter how well intentioned our interventions, they often lead
+
+---
+
+to unintended consequences as the solution to one problem quickly causes another, bigger problem. Be slow to intervene and if you do, take the time to understand how actions in one part cascade into others. It pays to remember the motto of physicians, “First, do no harm.”
+
+OceanofPDF.com
+
+---
+
+# Niches
+
+Find a good fit.
+
+OceanofPDF.com
+
+---
+
+There are riches in niches.
+
+—ATTRIBUTED TO SUSAN FRIEDMANN
+
+---
+
+In the biological world, some species are categorized as generalists, which cover a large territory and face more competition but are flexible in meeting their needs. Others are specialists that occupy a smaller territory and face less competition but are more rigid in their requirements. Both are vulnerable in their own ways. It is not always better to be one or the other, but knowing which you are can help you strategize your continued survival.
+
+The ecological niche of a species refers to the role it plays in the ecosystem in which it is found. Every species in an ecosystem has a niche. A species’ niche includes everything that affects its ability to reproduce and survive. For example, the amount of water and sunlight it needs, the temperatures it can tolerate, and how much space it requires to live are all part of its niche and are called “abiotic factors,” meaning the nonliving aspects of an ecosystem.
+
+Generalist organisms have a broad niche. Those with a broad niche can survive in a variety of places, as they are usually capable of eating different foods and are able to tolerate different environmental conditions. This usually means that they can protect themselves from different predators, tolerate hot and cold or wet and dry conditions, and eat a wide variety of meats and plants and other foods. For this reason, generalists are not greatly affected by rapidly changing environmental conditions and so they can maintain large populations. Such organisms include cockroaches, rats, raccoons, and humans.
+
+Generalists can survive and flourish in just about any setting. But specialists tend to be much less comfortable with habitat change.
+
+—PETER UNGAR
+
+---
+
+Specialist organisms, on the other hand, have a very distinct set of roles in the ecosystem. For example, some specialists can survive only in specific locations or eat particular foods. They are more prone to extinction. Specialists, therefore, have a harder time maintaining large population sizes because it is common for land conditions to change and for resources such as food to diminish over time. However, in places like tropical rainforests with stable environmental conditions, it is advantageous to be a specialist because they tend to have fewer competitors, whereas most of the generalists must compete against each other.
+
+Another reason why specialists do well under stable environmental conditions is that they possess mechanisms that allow them to not only survive but to thrive in those particular locations. For example, some animals can eat foods that are toxic to other animals, and tiger salamanders have developed the unique ability to seek out and breed only in ponds without fish, so their larvae will not be eaten.
+
+Specialists thrive in environments full of their particular requirements but do poorly when they are placed in environments that are lacking these. Think of koalas and their particular diet of eucalyptus, or the giant panda struggling to avoid extinction in part because its specialized diet consisting mostly of bamboo makes it unable to adapt to changing environmental conditions.
+
+Success is often a product of environment. Understanding how environments impact performance changes how you hire. Someone who thrives in one environment easily fails in another if part of their performance was the operating environment. This is why hiring a superstar away from a competitor, without understanding the role of environment on performance, often disappoints.
+
+The generalist method is adequate if stakes are low, but increasing specialization is often mandated when the stakes—the standards of performance in competition—are high.
+
+—GEERAT VERMEIJ
+
+---
+
+Social animals allow for divisions of labor within their groups, such as having defense specialists. For humans, the species may be a generalist, but as individuals we strongly specialize.
+
+---
+
+# Competitive Exclusion Principle
+
+The competitive exclusion principle, also known as Gause’s law, states that perfect competition between two species requiring the same resources to survive in the same niche is impossible. Georgii Frantsevich Gause first identified the principle in 1934 when he found that two species of bacteria requiring the same resources could not coexist in a petri dish. One species will find its own niche by becoming increasingly specialized to require different resources than the other. This is known as resource partitioning. If it doesn’t, the second species’ slight advantages will become significant enough to wipe out the first. For instance, if there are two carnivores in the same area that hunt the same prey animals, one species will always have some meaningful advantage, like greater speed or camouflage. This will enable it to outpace its competitor, which will have to find another food source or face extinction.
+
+The competitive exclusion principle explains why we see such a diverse range of organisms within ecosystems. Even though they inhabit in the same area, each occupies its own niche and has traits that distinguish it from its neighbors. Natural selection allows only the fittest organisms to survive. Fitness refers to not only how well suited a population of organisms is to its environment but also how well adapted it is in comparison to its competitors.
+
+For instance, red squirrels were once the UK’s sole squirrel species. They thrived in coniferous forests and deciduous woods for around ten thousand years. In the 1870s, gray squirrels were introduced to the UK. Since gray and red squirrels inhabit the same biological niche, living in the same areas and eating the same foods, they couldn’t coexist. Red squirrels have now been eliminated from many areas of the UK. They survive mainly in areas where the two species are kept apart, such as on islands. Population figures are estimated at around 140,000 red squirrels and 2.5 million gray squirrels. The larger numbers of gray squirrels mean they consume the available supply of acorns first and take over suitable shelter. They also carry a virus that can be deadly to red squirrels. Gray squirrels have stronger digestive systems, so they can derive more energy from their food. Despite extensive conservation efforts, it is possible red squirrels will be extinct within years.
+
+---
+
+Species that can’t handle an environmental makeover have three options: move, die, or change.
+
+—PETER UNGAR
+
+# Surviving and Thriving
+
+Invention is an area where this model fits well. If the invention is useful for everyone, like the light bulb or telephone, it’s essentially a generalist forging into new territory. Specialists from your previous environment can’t follow quickly because they don’t have the capacity to adapt easily to the new environment. But once that new environment is open for competition, the other generalists will be right on your heels. You need to lock down as large a territory as you can defend before the other generalists arrive. This territory must have everything you need to reproduce and survive. If it does, it becomes your base, the place from which you can continue to grow and take on the other generalists.
+
+Specialized invention, in contrast, focuses on catering to a smaller niche. The advantages of this are that once you own the niche, you are incredibly hard to dislodge. Your invention fills the niche so completely, there is very little incentive for anyone to invest in developing a competing product. Your growth is capped, but as long as the environment remains stable, as long as there is a continued need for your invention, you have significantly less competition to deal with than the generalists. An example of specialization is Zildjian cymbals. The company has been around since 1623 and has become so synonymous with great music and the artistry of drumming that they have no real competition among professional drummers. The group of professionals is small enough that there is no incentive to try to compete with Zildjian cymbals.
+
+A generalist faces more competition every day. Surviving and reproducing are a constant struggle. Stress is part of existence. To exist
+
+---
+
+means to compete—for territory, for food, for a mate. This is reflected in how we talk about the large, generalist companies: the constant fight for market share to stay ahead of the changing conditions by offering new and better products and merging with or taking over other companies to grow even bigger.
+
+Specialists, on the other hand, have less of a daily struggle. No one else wants their territory, like the fishless ponds where tiger salamanders breed, or their food, like the panda’s staple of crunchy, nonnutritious bamboo. Their day-to-day stress is lower. But as soon as the environment starts to change, the stress explodes. Being unable to adapt means death. At the species level, it means extinction. When no one needs what you are selling anymore, like encyclopedias to put on your bookshelf, there is nowhere else to go. Your niche disappears.
+
+Most people don’t realize that the fax machine, something that sends images over wires, was invented in the 1840s. We tend to think of it as this failed technology that started with a short-lived boom in the early 1980s. But no, as soon as we could send information over wires, we experimented to discover what the full scope of that information could be. Images were an early example of what could be sent. The fax survived for more than 150 years in part because it lurched from niche to niche, staking out the few small but often powerful areas where the ability to transmit images was game-changing. How did it do this?
+
+To start, fax users didn’t exist. If you never had the ability to send images, if you didn’t even know it was possible, then it isn’t something you were likely pining for. Therefore, developers of fax technology identified and sought out small groups of potential users to create a market. Appealing to small, unrelated groups was one of the main challenges for the technology for almost a hundred years. It was never very obvious whom the technology would be extremely useful for. As Jonathan Coopersmith explains in Faxed, “Despite numerous efforts by inventors and some state support, pushes to develop facsimile technology never created corresponding significant pulls by market demand.”
+
+---
+
+In addition, the fax niche was a protected environment. “For facsimile, that protected niche was both institutional and technological…. These protected environments allowed a fragile and expensive technology to survive.” Fax developers deliberately sought out markets with less competition, “where faxing received greater resources (including users willing to pay the high costs) and support, giving it an opportunity to mature and develop.”7
+
+Faxing needed a specialist niche because it couldn’t compete with the early generalist of the telegraph. The telegraph “had enormous advantages of easier use, much lower cost, less interference in transmission, and an already-developed infrastructure as well as users who had by now incorporated the standard telegram into their business routines.”8
+
+Fax’s first niche was with the newspapers—a niche that it helped solidify by creating an expectation that only faxed photographs could fill. “Judged strictly by numbers, facsimile was a minor technology. Less than a thousand transmitters and receivers existed in 1940. Their impact was greatly out of proportion to their numbers, however, because they enabled newspapers to print the latest photographs with the latest stories, visually transforming the news and strengthening the role of photographs in newspapers.”9 Once the public had photographs with their news, there was no going back. It might have been a small niche, but it was one that, at the time, only faxing could fill.
+
+Faxes stayed around and progressed because there were some niches that it fit perfectly. The military was another early consumer, and its requirements were filtered back into the development of the technology. Anyone who needed images was interested in fax, as well as anyone who needed messages with as little room for error as possible. Both of these were requirements for the military. From weather diagrams to direct orders, by exactly copying images, faxing ensured that as long as the technology and necessary infrastructure worked well, nothing was lost in translation.
+
+There was a downside to focusing on niche markets. It allowed the technology to develop with complete incompatibility across the different manufacturers as they competed for the same small pool of clients.
+
+---
+
+reality, deliberate incompatibility fragmented the market and scared away potential users fearful of choosing the wrong system.”10 In the world of business, fax was originally adopted as an intra-office tool, and machines compatible with those of another organization were not needed. This lack of compatibility and standards had to be addressed before fax could become the generalist of the 1980s and ’90s. “Starting in the early 1980s, the combination of increasing deregulation, true compatibility, quickly dropping costs, and rapid technological change created a blossoming of new machines, applications, and services.”11 Fax was finally able to survive out of the niche.
+
+In terms of information over wires, telegraphy, then telephony, became the generalists in the environment. Faxing could not compete with their lower cost and ease of use. It was through identifying and marketing to niches that fax managed to survive until the conditions changed and the technological advancement and social interest allowed it to flourish as a generalist for a time.
+
+Natural selection has a limited repertoire of potential forms from which to choose, and convergent evolution is the result.
+
+—GEORGE R. MCGHEE12
+
+# Convergence
+
+In biology, “convergence” refers to the process wherein organisms evolve analogous traits that were not present in their last common ancestor. In other words, species that are not closely related to each other will find the same solutions to the same problems in their quest to survive. This occurs when various unrelated species occupy niches with the same qualities and constraints; for instance, if two species live in areas at a high altitude with little water, or in densely wooded, humid areas—but on different continents.
+
+---
+
+We call traits that emerge through convergence “analogous structures” or “homoplasies” (convergence is also known as homoplasy). Homoplasies can include body shapes, the presence of organs, behaviors, markings, types of intelligence, social structures, vocalizations, breeding habits, and so on. While they are unlikely to be entirely identical, they have the same form or purpose. Convergence is fascinating because it shows us that biology does involve a degree of predetermination. Evolution is not an entirely random process. Certain features and behaviors recur again and again for the simple reason that they are the best way of surviving within an environment with certain characteristics.13
+
+Take the example of flight, an ability that has evolved in birds, bats, some types of dinosaurs, and insects. Each species is unrelated, and each evolved wings as a means of getting around, tens of millions of years apart. The wings of both birds and bats started off as regular limbs for land-based locomotion and still contain traces of finger bones. Take a look at the bones in a bat’s wing and you’ll see something with a structure not unlike that of your own hands, elongated into the spidery structure of a wing. There are obvious differences. A bat’s wing consists of thin skin stretched over bones, whereas birds’ wings are covered in feathers. The reason why bats and birds converged is simple. Both lineages evolved in niches where flight became essential for their survival.14 The number of potential ways to fulfill a function is finite.15
+
+A more widespread example is the evolution of eyes. It might seem natural to us that most animals, except those living underground or in the depths of the sea, have eyes. But the fact that so many unrelated lineages evolved organs that look the same and function in the same way is extraordinary. The eye of a squid has much the same structure as that of a spider. Human and octopus eyes are similar, despite the closest common ancestor having lived 550 million years ago and only possessing a basic eyespot.16 Echolocation, another way of “seeing,” evolved in unconnected lineages: cetaceans, bats, shrews, tenrecs, some birds, and possibly hedgehogs. Clearly these are the best possible traits for certain types of biological niches.
+
+---
+
+Due to convergence, we can tell by looking at a niche what kind of organisms would occupy it even without seeing them. For instance, if scientists discover a new nectar-producing plant, they can also predict the existence of an insect specially evolved to feed from it, even if said insect hasn’t been discovered yet. If there’s a keyhole, there’s also a key somewhere that fits it. In popular culture, organisms from other planets are generally depicted as wildly different from anything on earth. But convergent evolution suggests that might not be the case and that other life forms could have evolved to be recognizably similar to ones on earth.
+
+As humans, we are in part the product of the pressures of our environment. Each of us occupies various niches throughout our lives, which we must adapt ourselves to fit. By and large, the same pressures acting on people and the same incentives seem to produce the same outcomes. If you took a baby from an Amazonian tribe and switched it with a baby from a wealthy family in Canada, would it grow up any different from other Canadian babies? Probably not. While some traits may be inbuilt, it would have to adapt to its ecosystem.
+
+Convergence explains why people in disconnected cultures throughout history have made similar tools, told similar stories, organized themselves in similar social structures, cooked similar food, and generally found analogous solutions to the problems they faced. John Thomas Osmond Kirk, writing in *Science and Certainty*, compares biological traits to mathematical concepts in the way that they seem to exist beyond our definition of them, reappearing again and again everywhere we turn, as if they are laws of the universe.
+
+It’s important to understand that it is the environment that makes the organism. When we look at the behavior of others, it’s easy to imagine we would never do the same if we find them abhorrent. For instance, a corrupt politician stealing aid money or a neighbor turning on a neighbor during a genocide. But it’s possible that if we were in the same circumstances, we would act in much the same way. It’s a lot easier to be empathetic if we look at the environment that shaped someone instead of merely considering.
+
+---
+
+the result. To a certain extent, we are all more predictable than we would like to admit.
+
+We misunderstand that equivalent problems tend to have equivalent solutions, as convergence shows us. Our own problems often feel unique, which leads us to ignore the solutions that worked for others in equivalent situations. Yet just as bats and birds found analogous ways to solve the problem of flight, often what works for others would work for us too.
+
+# Defining a Generalist
+
+Generalists face more daily competition, but they are more adaptable. They maintain a large population that occupies a broad niche. In the world of consumer products, Coca-Cola used advertising to become one of the world’s most successful generalists. Coke’s spread and ability to compete in most geographical and socioeconomic markets was all down to its advertising campaigns.
+
+Coke’s first advertising efforts were a turn away from its roots as a medicinal tonic, marketing its product as a beverage for “relaxation and enjoyment.” As the nineteenth century turned into the twentieth, the brand created an image associated with refinement and the upper class. But instead of isolating its product as out of reach, Coke set one of the first examples of selling an idea before a product. Anyone could join that upper echelon by buying the right brand, in this case a five-cent Coke.
+
+Using pretty women, celebrity endorsements, and vast sums of money—$750,000 in 1909 alone, which is more than $18 million in today’s dollars—Coke convinced consumers that they weren’t just buying a drink. They were buying a lifestyle. “By the 1920s, Coke had established itself as the national brand of soft drink.” Its advertising created an image in which everyone could participate. To drink Coke was to live a better life.
+
+In The Coke Machine, Michael Blanding writes, “As it became more and more a part of the landscape, lifestyle started imitating advertising: Films began incorporating the drink into scenes, music started
+
+---
+
+spontaneously referring to it in lyrics.” Thus, Coke became a ubiquitous part of life. It was just there. Everywhere.
+
+From these roots, Coke attained success as a generalist. It survived in different environments because it appealed to a diversity of consumers. There were no class or ethnic barriers to Coke. The lifestyle associated with it was available to everyone. Whereas other brands had previously tended to market by class or gender or location or other identifiers, Coke just sold itself to people. That was arguably the company’s greatest innovation.
+
+# 1. The 1920s and Memorable Slogans
+
+The 1920s saw the company come up with the first of many memorable slogans. By far the most popular at the time was “The pause that refreshes.” This slogan positioned Coke as “a momentary time-out.”19 Again, this is a generalist approach, because a break from the frantic pace of each day is something everyone wants and needs. Who doesn’t want a pause that refreshes? Coke’s slogans became particularly captivating during the Depression, a period in which its sales did well. Drinking the beverage became a momentary escape. “A better life was only the pop of a bottle cap away.”20
+
+# 2. World War II and International Expansion
+
+World War II made Coke international as bottling facilities started operating all over the world so that American troops could have easy access to the drink that reminded them of home. When times change, generalists can adapt more easily, and this was what happened with Coke during the war. The company used the sentiments of soldiers and its new international presence to inform new advertising campaigns that associated Coke with US prosperity. Directed at soldiers, the campaigns reminded them what they were fighting for, and in the war-torn international markets, it offered foreigners a piece of American luxury.
+
+# 3. Competition with Pepsi
+
+When Coke had to position itself against Pepsi, its most significant competitor, Coke “marketed itself as the product for everyone—workmen and businessmen, soldiers and socialites—[while] Pepsi focused solely on young middle-class families.”21 Pepsi tried to carve itself a small niche in Coke’s vast territory.
+
+Over time, everyone from Santa Claus to polar bears has been seen drinking Coke. In 1963 Coke had the number-one ad budget in the United States.
+
+---
+
+States, spending $53 million a year on ads and targeted consumer research.
+
+“After the challenge from Pepsi, Coke redoubled its efforts to associate Coke subliminally with almost everything.”
+
+Around this time, the company created its first successful slogan in years: “Things go better with Coke.” According to Blanding, “What went better didn’t matter so much—Coke could just as well spark romance as childhood friendship. It was left to the consumer to fill in the blank.”
+
+Advertisements no longer talked about what Coke tasted like or contained. It didn’t matter. In such vast territory, Coke had to be adaptable to different environmental pressures. It was this flexibility that was the key to its success. The general image could be adapted to suit any particular.
+
+Being a generalist in the world of beverages wasn’t about taste. People were attached to Coke not as a drink but as a representative of the nostalgia of good moments. Coke’s malleability was how it conquered such a large spectrum of the population.
+
+# Conclusion
+
+A niche is a special place where a particular species or idea can thrive. It’s the ecological equivalent of a custom-fitted suit, tailored to the unique needs and abilities of its occupant. In a niche, you don’t have to be all things to all people—you just have to be the best at what you do.
+
+In biology, a niche is the specific role and position a species occupies within its ecosystem. It’s the unique combination of resources it consumes, the habitat it lives in, the interactions it has with other species. A place where a species’ adaptations flourish.
+
+But the concept of a niche extends far beyond the realm of ecology. In business, we talk about “market niches”—the specific segments of customers with particular needs or preferences. A company that focuses on a niche can often outcompete larger, more general rivals by specializing, by becoming the best at serving that particular slice of the market or moving with velocity.
+
+---
+
+The same principle applies to careers. By specializing in something unique and valuable, you can create a space where you can excel, where your combination of skills can thrive. The key is to find the niche that fits you, that rewards your strengths and neutralizes your weaknesses.
+
+This isn’t to say that occupying a niche is without risks. In fact, you become very fragile. If the environment changes, if consumer preferences shift, a once-cozy niche can quickly become a tight squeeze. That’s why successful niche occupants are often those that can adapt, that can evolve their niche as the world around them changes.
+
+Specialists have less competition and stress, but only in times of stability. Generalists face greater day-to-day challenges for resources and survival but have more flexibility to respond when times change.
+
+OceanofPDF.com
+
+---
+
+# Self-Preservation
+
+Survive to thrive.
+
+OceanofPDF.com
+
+---
+
+Self-preservation is the first law of nature.
+
+—SAMUEL BUTLER
+
+---
+
+Self-preservation and survival instincts are innate behaviors that all organisms possess for the sake of protection from harm. They are considered both fundamental and useful, and they govern a lot of our behavior.
+
+Surviving and thriving are very reliable human biological motivators. We all want to live the best life possible. However, how each person responds to these driving forces is different. There is no universal human definition of a great life. Sometimes these instincts push us to reject the status quo, leading to new opportunities. And sometimes they hold us back, preventing us from realizing our potential. Knowing how to manage your self-preservation instincts can help you truly understand how to motivate yourself and others.
+
+Think of reflexes. These are involuntary, automatic actions that our bodies perform in response to a stimulus. For example, if you put your hand on a hot stove, a reflex will cause you to remove your hand right away, even before a “Hot!” message is sent to the brain. This reaction protects the body from serious burns. Blinking is another example. When dust or bugs approach the eye, the eyelid automatically closes, without you having to voluntarily contract any muscle to close it. These simple examples demonstrate that self-preservation is hardwired. The better your survival reflexes, the greater your chances of survival, and so these systems are easily selected for in the evolutionary process.
+
+A more complex self-preservation instinct is the fight, flight, or freeze response in humans and other mammals. When human beings are faced with imminent danger, this mechanism kicks in with the mobilization of the sympathetic nervous system. The results in the body are a sharp increase in blood sugar levels, constriction of blood vessels, increase in heart rate, and the diversion of blood from nonessential organs to heart and skeletal.
+
+---
+
+muscles. These are responses that help the mammal deal most effectively with the situation they are in.
+
+Sometimes the survival of a group can require the sacrifice of certain members. The survival of some species is contingent on sacrifices within the breeding process. This is known as “kin selection” and is a form of natural selection concerning populations, not individuals or individual lineages. Many species of animals stick around only because individuals have evolved to display completely selfless behaviors. If a behavior is beneficial for a population overall, despite its impact on the individual, it is likely to be selected for.
+
+Just like human mothers, many animals are willing to go to great lengths to ensure the survival of their offspring and therefore their species. Some will literally sacrifice their own lives, like the black lace-weaver spider, which will allow its babies to eat it. Some animals, like African elephants, zebras, and sea lions, will work together in large groups to protect the offspring of others. Orcas and dolphins remain awake for a full month after the birth of their young to care for and protect them. Other animals, including polar bears and penguins, may go months without eating for the sake of their offspring. Marmots will delay their own reproduction if others in their group need help with childcare.
+
+Worker honeybees even completely neglect to reproduce so they can look after their queen’s babies—and if they don’t, the other bees destroy their eggs.2 Once the workers become too old to be useful for foraging, the other bees will either kill them or refuse to let them into the hive, leaving them to starve to death. Drones, which are male bees, die during the mating process, having successfully passed on their genes. Any drones that don’t manage to mate are likewise killed by other bees so the hive does not need to waste resources feeding them. Bad for the individuals, excellent for the hive.3
+
+From a natural selection standpoint, this makes sense because it ensures the survival of their own genes. Even in a herd, protecting the offspring of others makes sense because the animals in that population are likely to be at
+
+---
+
+least distantly related or even immediate family. This has the long-term effect of selecting for altruistic genes and not selecting for selfish ones.
+
+Other animals will end their own lives to protect their buddies. One species of ant, Colobopsis explodens, will explode when threatened by a predator, killing the individual but helping the group survive by releasing a poisonous substance. Bees and some types of termites behave similarly, attacking predators by destroying themselves.4 Belding’s ground squirrels announce the presence of a predator through alarm calls that make themselves more conspicuous and therefore vulnerable.
+
+Why are automatic reactions programmed in? The desire for survival seems a given, but it exists in organisms that don’t have anywhere near the size of cortex that we do. These widespread instincts exist without the ability to philosophize about them because the longer an organism survives, the greater its chances of passing along its genetics, and that is the ultimate point of evolution.
+
+Humans are also, however, capable of overriding our own biological survival instincts. Sometimes it is innocuous, like when we go on a roller coaster. We tell ourselves it’s perfectly safe, so the biological reaction of terror gets processed as a thrill. Sometimes, though, we override them because our circumstances seem to demand it, and we put ourselves in situations of chronic stress and pressure. So self-preservation instincts are complex. The biological motivation is to ensure one’s own survival, but not if it comes at the cost of the survival of one’s own genes.
+
+---
+
+# Territorial Behavior
+
+A core component of self-preservation for all organisms is ensuring access to the resources necessary to survive. This manifests as territorial behavior. An organism or population’s territory is loosely defined as the geographical region containing both the resources it needs to survive and the mating opportunities needed to ensure the survival of its species.5 Only the areas that an organism makes an active effort to defend count as its territory, as there may be additional areas where it also lives.
+
+For an organism to maintain its territory, it must compete with other species, or with other members of its own species. Some animals use scents to mark out their territory, as a warning to others to stay out. Others release unpleasant chemicals or make visible markings. Some actively guard their area, attacking any intruders. Others, birds in particular, use threatening calls.
+
+Maintaining a territory often requires a great deal of time and energy, which is always a signal that a trait confers some serious survival advantage. Territorial behavior is not necessary if resources are abundant, and organisms will
+
+---
+
+generally cease to engage in it over time if this is the case. The scarcer
+resources prove to be, the more aggressive the territorial behavior is likely to be.
+
+---
+
+# Self-Preservation Means More Than Survival
+
+At first glance, self-preservation seems straightforward. You run from a suspicious-looking person on the street. You fight back against a bully. You freeze when your boss yells at you for the fourteenth time in one day and you are too vulnerable to do anything else.
+
+We choose fight or flight when we think we have a chance to succeed. Freeze mode usually takes over when the accumulation of stressors is so great that we can no longer really function. By freezing we hope to preserve the little life we have left. The drive for survival is deeply ingrained in our behavioral responses.
+
+How, then, do we understand people who risk their lives for a cause? What propels someone to put their immediate survival in jeopardy in support of a possible future?
+
+Gioconda Belli was not an obvious choice to join the Sandinista revolution in Nicaragua in the 1970s. She was married with two young daughters. She came from an upper-middle-class family and had a decent life under the Somoza dictatorship that had been in power in Nicaragua for forty years. However, she didn’t like the oppression, corruption, and poverty she saw in her country. She sought political and social change and concluded that joining the revolutionary Sandinista organization was the best way to achieve it. In her memoir, The Country Under My Skin, she writes that she knew “joining the Sandinistas was a risky proposition. It meant putting my life in the line of fire.”6 From the beginning of the Sandinista movement, suspected revolutionaries were arrested and tortured by the Somoza dictatorship. As the revolution progressed, there were horrific accounts of the measures the regime took to suppress the revolutionaries, including throwing people to their deaths from helicopters. Deciding to face potential torture and death seems to be the opposite of self-preservation. Belli deliberately and knowingly put her life at risk to try to achieve political and social change that was far from guaranteed. Self-
+
+---
+
+Preservation is such a useful model because it helps us understand seemingly counterintuitive actions: sacrificing short-term guarantees for long-term possibilities, like the animals we looked at who sacrifice themselves for their offspring or their group.
+
+Belli was not fully committed to the revolution right away. She had moments of doubt, both about the Sandinista organization and about the wisdom of putting her daughters in a position in which they might have to grow up without a mother. She quotes a friend of hers trying to help her reconcile being a revolutionary with being a mother: “Your daughter is precisely the reason you should do it,” he said. “You should do it for her, so that she won’t have to do the job you are not willing to do.”7 Belli was motivated by trying to create a world for her daughters where they would not have to make a similar sacrifice. We can understand it as deferred preservation: a more equitable and stable world would give her genes the best possible chance of carrying on.
+
+It’s important, however, not to frame her choice simply in terms of calculated biological preservation. Belli explains that when she was contemplating committing to the Sandinistas, she saw participating in the revolution as her “only way into a more meaningful existence.”8 There is a nuance here: that for humans, survival is not merely a binary, like dead/alive. We don’t want to just continue breathing, but to have a life that we perceive as having meaning, value, or at least a point.
+
+Working with the Sandinistas was perilous. Belli writes of being followed, interrogated, and exiled to neighboring Costa Rica after having been convicted by the Somoza government of being a traitor. She spent a lot of time separated from her children and went through personal turmoil as she tried to navigate two marriages that failed under the pressure of her activities. Watching many comrades jailed or killed, she writes, she was afraid that “so many dreams and efforts might be wasted.”9 Belli was, however, driven by the desire to stop the actions of the Somoza regime that kept so many Nicaraguans poor and desperate while the leaders lined their pockets with international aid money. She explains: “At twenty-four, I was
+
+---
+
+a citizen of a terrible, destitute country, but no misfortune seemed eternal to me. I was sure we could change everything and build a bright future.”
+
+Working with the Sandinistas meant joining a tribe of sorts. Belli explains, “I understood how strong the bond between those of us who were in the struggle was.” Therefore, individuals were prepared to take actions that put their own lives at risk to increase the chances of survival of the group. Belli writes of the many times she smuggled guns, money, and fake identification across borders, bringing them to others in the revolution, jeopardizing her own freedom to help the Sandinista movement.
+
+She admits to questioning the desire of people to put the group first. “Were we all mad?” she writes. “What mystery in human genes accounted for the fact that men and women could override their personal survival instincts when the fate of the tribe or collective was at stake?” What makes us take a risk on an uncertain future instead of sticking with guaranteed immediate survival? Belli herself offers an interesting perspective when she explains how she pushed through the setbacks and stress of exile: “If I gave in to fear, I would end up killing my soul to save my body.” She also writes of explaining to her children “the obligation to be responsible to other people,” to be responsible to the group.
+
+The Sandinista revolution was successful in that it removed Somoza from power in Nicaragua. With the dictatorship gone, the Sandinistas tried to rebuild the country’s political and social infrastructure based on the ideals they had developed and refined as a revolutionary organization. Belli’s main contributions to the ultimately successful revolution were in communications and public relations. She wrote press releases and recruiting letters, trying to explain the goals of the Sandinistas and recruit people to the cause. She traveled abroad many times to represent the movement and gain international support. But, she explains, “Sandinismo was a fundamental element of my identity,” which propelled her to take whatever action necessary to support the group. As the revolution approached, she continued her efforts from her exile in Costa Rica, “but I was anxious for the moment when I could join in the one, most basic contribution to the struggle: combat in Nicaragua.” Very often, her
+
+---
+
+course of action had her saying goodbye to her children as if it could be the last time she saw them. But she did it anyway. Her self-preservation instincts were focused on doing everything she could to see her children grow up in the world “safely and happily.”17
+
+---
+
+# Permanent Record
+
+We humans preserve ourselves not just through the genetics that we download into our offspring but by maintaining a record of who we are. Around the time that humans first started writing, we began to keep the most permanent records we could in libraries. Almost immediately we decided that it wasn’t enough to record but far more important to preserve our records. The knowledge that we have captured over millennia allows us to leave a legacy of remembering who we are.
+
+In 1849, Austen Henry Layard found Nineveh, an ancient Assyrian city that had once been the center of a civilization. It had been completely destroyed by fire in 612 BCE, and in the intervening millennia had been reduced to fiction. The destruction by fire, however, had an extremely valuable side effect: it had preserved the clay tablets that were contained in the city’s remarkable library. The city’s last king, Ashurbanipal, had collected texts from all over Mesopotamia, so the library was full of tablets chronicling not only Assyrian life but Sumerian and Babylonian as well. Finding the library brought to life people, cities, and customs that had disappeared from history. The “library contained dictionaries and grammars, treatises on botany, astronomy, metallurgy, geology, geography, chronology, tracts on religion and history, and a collection of royal edicts, proclamations, laws, and decrees.”
+
+The find gave us more context to understand human history. A tablet was discovered that chronicled a flood story similar to the one found in the Bible, but from centuries earlier. Another find, the Law Code of Hammurabi, provides insight into cultural norms that influenced later civilizations. Knowledge like this helps to trace, with more and more comprehension, the story of humanity. Without what is contained in libraries, we would have had to reinvent and reimagine everything all the time. Preserving knowledge allows us to transfer it more easily, supporting the preservation of the species.
+
+---
+
+# Derinkuyu: Turkey’s Ancient Underground City
+
+It may be a myth that ostriches bury their heads in the sand, but during times of danger, humans have often looked beneath their feet for safety. During the Great Fire of London in 1666, people buried valuables in their gardens. The Dead Sea Scrolls were found underground in a cave. And in the Central Anatolia region of Turkey, a number of persecuted groups over the course of thousands of years transferred their lives beneath the ground in a move that illustrates the incredible lengths we will go to for self-preservation.
+
+Derinkuyu is the deepest of the cities yet discovered beneath Cappadocia. In 1963, a Turkish man renovating his basement found something astounding: an entire room behind its wall. From there, archaeologists discovered a whole city snaking beneath the ground, carved into the soft yet sturdy rock.
+
+Descending 200 to 280 feet underground, it has 18 different levels capable of housing as many as 20,000 to 30,000 people at a time. Future excavations may find it to have been even bigger than that.20 Derinkuyu is far from being just a maze of tunnels to huddle in and wait for danger to pass. It is a complete city, containing everything its residents needed to comfortably thrive for a while, not just survive. Archaeologists have uncovered schools, areas for worship, bedrooms, bathrooms, areas for storing food and equipment for making olive oil and wine, tombs, stables for horses and other animals, and community meeting spaces. In addition to fresh food and water, the residents had fresh air from above through at least fifty-two shafts that kept the city well ventilated.21
+
+Some experts attribute the construction of Derinkuyu to the Phrygians, an ancient race of Indo-Europeans from the southern Balkans who migrated to the area in the twelfth century BCE, according to accounts by the Greek historian Herodotus. The Phrygians may have built it to hide from the
+
+---
+
+# Assyrians
+
+Derinkuyu could also be the work of the Persians or the Hittites. Historians have suggested that the Hittites may have dug tunnels for storage before other groups turned them into cities.22 Alternatively, the Hittites may have sheltered in Derinkuyu during their twelfth-century BCE war with the Thracians. Romans, early Christians, and Turks all used the tunnels at various points. Some archaeologists go as far as to claim they are prehistoric, first dug as protection from the heat, due to the discovery of ten-thousand-year-old stonecutting tools in the area. The variation in the quality of the tunnels lends support to this theory.
+
+Regardless of who dug the first tunnel, subsequent groups expanded upon and advanced Derinkuyu to the extent that it is hard to view it as the property of any single group. Derinkuyu belongs to the region.
+
+The region of Anatolia has spent much of its history in a stew of conflict and uncertainty. Its position between Asia and Europe made it an appealing target for major world powers who, again and again, sought to control the region. For the residents to survive the endless wars and confusion, they needed to take drastic action. Derinkuyu and the other underground cities in Cappadocia repeatedly saved the area’s residents from extinction. During the seventh century, the Persian Wars took place in Cappadocia, tearing the region apart. That conflict was scarcely over when Muslim Arab armies arrived and caused a complete civil breakdown.23
+
+Based on its design, Derinkuyu was intended to provide protection during conflict, like a turtle retreating into its shell. The tunnels were narrow enough to require walking along them in single file, hunched over. This would have prevented attackers from moving into Derinkuyu, as the residents could easily pick off soldiers emerging one by one from tunnels. Huge carved stone disks weighing eleven hundred pounds were rolled in front of entrances when the residents wanted to prevent anyone else from entering, with small holes in the middle through which arrows may have been fired.24 Derinkuyu even had a tunnel, based on preliminary excavations, stretching several kilometers to another underground city. If its defenses were somehow breached, the inhabitants could hastily take refuge elsewhere.
+
+---
+
+When we feel threatened, flight is often the first response. We want to get away from the danger and hide. The people who sheltered in Derinkuyu and other underground cities in the region did so because it put them in a situation in which they had maximum leverage. They had everything they needed to survive in relative comfort for long periods of time. Even if any attackers did manage to get into Derinkuyu, they could only do so one at a time and were easy to defeat.
+
+The strategy of fleeing and hoarding worked well for the residents of Cappadocia, but this self-preservation response can backfire. Hoarding supplies beneath the ground may have made sense for them in the short term. While there is much left for researchers to learn about Derinkuyu, it seems unlikely that people could have remained entirely underground in the long term. They could store only so much food, and over extended periods of time would have suffered serious vitamin deficiencies from the lack of sunlight and fresh food. If their enemies had decided to start a siege, it wouldn’t have worked so well.
+
+An underground city is a vivid image, but the ways the same impulse can influence our behavior can be less obvious. Acting in survival mode is not sustainable long-term. Hoarding and hiding are not lifelong strategies. As humans, we’re always on hair trigger to hoard at the slightest sign of scarcity, even if doing so ends up worsening that scarcity. If people at a company fear impending layoffs, they may make like the residents of Derinkuyu and metaphorically hide away from everyone else, hoarding information, because they feel that keeping all the information to themselves will make them more valuable to the company. They might hoard work, refusing to delegate and taking on irrelevant responsibilities. It might make them indispensable in the short term, but in the long term trust breaks down and less work gets done, putting the company, and thus their job, at risk. In reality, this self-preservation instinct has the opposite effect. Not helping others or sharing the leverage is worse for everyone.
+
+Anytime we’re fighting to preserve ourselves in an emergency situation, we need more of a concrete plan than hiding and hoarding. In addition to our natural instincts, we need to move beyond our evolutionary
+
+---
+
+# Conclusion
+
+Self-preservation is a core instinct that drives all living things to protect and sustain their own existence. It’s the biological imperative that makes a gazelle run from the lion, the roots of a tree seek water, and bacteria evolve resistance to antibiotics. In the game of life, self-preservation is the only rule: stay alive.
+
+For humans, self-preservation goes beyond physical survival. It encompasses the protection of our psychological well-being, our social status, our sense of identity. Anything that threatens how we see ourselves becomes a threat.
+
+While self-preservation is a necessary instinct, it can also be a limiting one. When we’re too focused on avoiding threats, we can easily miss opportunities right in front of us. Left unchecked, self-preservation can lead to stagnation. The key, then, is to find balance: to protect what’s essential but also be willing to let go of what no longer serves us.
+
+Listen to the voice that tells you when to be cautious but don’t let it be the only voice you hear. Often the greatest risk is to not take risk at all.
+
+OceanofPDF.com
+
+---
+
+Replication
+                   2
+Copy copy copy.
+           OceanofPDF.com
+
+---
+
+There must be a certain amount of imitation, copying, in outward technique, but when there is inward, psychological imitation surely we cease to be creative.
+
+—JIDDU KRISHNAMURTI
+
+---
+
+Replication in biology is ultimately about the ability of DNA to make a copy of itself during cell division. This is how we start life, and it is a process that continues in some of our cells until our death.
+
+Let’s think about this process at the small level: cell replication. Our skin cells flake off by the millions every day, yet throughout our lives we never run out. That’s because there are skin cells making copies of themselves all the time. This ability to make perfect copies is built into their structure, and without it we wouldn’t last very long.
+
+This type of replication is called “mitosis.” It refers to the entire process of replication of nonsexual cells, the result being two genetically identical daughter cells. Mitosis is the process that gives us more skin, more hair, more nails. This replication is far from mysterious and can be conceptualized as having certain basic requirements.
+
+In an adapted unit, most variation introduced by errors (mutations) in copying are harmful. For an adapted entity, therefore, increasing fidelity in copying, or mechanisms that concentrate error in parts of the code where they will be least harmful or most helpful, will be favored.
+
+—GEERAT VERMEIJ
+
+You need three things for replication to occur:
+
+1. A code that represents what you wish to replicate
+2. A means of copying this code
+3. A place to process the code and construct the replication
+
+---
+
+This is how our skin cells are constructed. They possess a code of themselves, a mechanism to copy the code, and a place to execute the code —all to produce more skin cells. Furthermore, this replication machine is phenomenal. We never run out of skin.
+
+Replication is useful beyond skin cells. It has another amazing property: combination. Replicas don’t have to be exact copies. The components of cells can be combined in new ways to give us unique instances of existing things. This is sexual reproduction, or “meiosis,” and it creates new opportunities. A sex cell contains a copy of half a female’s chromosomes and is combined with half a male’s chromosomes to produce a new whole. The offspring of these parents are genetically unique due both to having two sources for their genes and to variation that occurs in the copying.
+
+Sexual reproduction is prevalent all over the biological world. Mammals, fish, and plants all partake. Why? Because over several generations, a lack of sexual reproduction means less genetic variation, which leads to fewer options when the environment changes. And if you can’t adapt to a new environment, you die.
+
+Replication, then, is what allows for diversity in traits that can improve fitness and increase the chances of survival. Exact copies perpetuate bad mutations. The power of replication combination prevents the accumulation of traits that impair fitness and lets us, as a species, try out new behaviors that can be super beneficial. Of course, there is a significant cost. We have to work hard to find another half with which to combine and not be intimidated by the diversity that might offer the best chance of producing successful adaptations.
+
+# Keeping It All in the Family
+
+When we have replication without diversity, the outcomes are disastrous. Replication can be thought of as sharing information, and “thus, like all forms of transmitting information, replication is inevitably accompanied by some degradation, or at least change, in content.” It’s not enough just to
+
+---
+
+copy; there also need to be innovations and improvements to compensate for the errors that are inevitably introduced.
+
+# Beginning in the eleventh century and ending in the eighteenth
+
+The Habsburg family dynasty ruled over a significant portion of Europe. Members of the family at various times ruled over Germany, England, Hungary, Ireland, Portugal, Spain, and other countries. As Benjamin Curtis writes in *The Habsburgs: The History of a Dynasty*, “The family’s members were sure that they were born to rule…. Their preeminence was longer lasting and their ambitions more grandiose than almost any other royal family.” The Habsburgs guarded their power so jealously that they loathed marriages that required them to share it with other families. Whenever possible, they chose to marry close blood relatives—first cousins or nieces and nephews—to keep their veritable empire intact. One of their mottoes was “Let others wage war; you, happy Austria, marry.”
+
+Unsurprisingly, the lack of genetic variation caused by these consanguineous marriages carried serious consequences. The best-known result of the Habsburgs’ lack of diversity was their unusual jawline, with an enlarged chin, underbite, and thick lips. Even in their most flattering portraits, this feature is unmistakable.
+
+As the generations progressed, the results of their inbreeding led to extreme difficulties with basic things like speaking and eating. The Habsburgs’ infant mortality rate was far higher than that of even the poorest members of society at the time. Between 1527 and 1661, the Spanish branch produced thirty-four children. Of these, half died in their first decade, and another ten before their first birthday.
+
+Closed systems, those without any new inputs, die in changing environments. Ultimately, after sixteen generations of intermarriage, the Habsburgs ended up with such serious disabilities that they wiped the family out. Their success in controlling Europe proved to be a Pyrrhic victory. The final member, Charles II, was infertile and thus unable to produce an heir. He also experienced dire health from birth. He did not learn to speak until the age of four due to his distended jaw, could not walk until he was eight, frequently drooled, was of low intellectual ability, and
+
+---
+
+was barely able to speak comprehensibly. His infertility may have been the result of a pituitary hormone deficiency, and he also suffered from kidney problems.7 Charles II died in his late thirties, young for someone of his wealth even at the time. He reportedly had the intellectual capabilities of a small child.
+
+Replication is necessary but not sufficient for survival. The more you copy something, the more it weakens. Thus, replication alone is not always beneficial. Imagine a teacher photocopying a worksheet for a class and then throwing away the original. The next year they make photocopies of the photocopies and again throw away the originals. As the years go by, the quality of the sheet progressively gets worse because each copy will pass on errors and introduce new ones. Minor problems compound with each copy. The same happened to the Habsburgs. Without genetic diversity, recessive mutations that would have otherwise failed to show up in children were reinforced and compounded over generations.8 Only with the relatively recent discovery of genetics did it become clear why this happens. Without diversity, replication only works if the original is perfect. Otherwise errors build upon themselves.
+
+# The German Secret to Hitting the Replication “Sweet Spot”
+
+There is a sweet spot to replication. The components have to be rigid enough to be easily copied but flexible enough to adapt to inevitable changes. As with genetic mutations piling up, replication of errors compounds errors in all fields of human endeavor. We often think of new things as polluting or diluting and try to stick with the old, but this doesn’t work. We need to inject newness, or the lack of variation proves destructive. Relevant to everything from military campaigns to venture capital, figuring out how to replicate strategy or success is critical. How do you allow for adaptability and innovation without sacrificing your goals, values, or vision?
+
+---
+
+After the Germans kept getting humiliated by Napoleon on the battlefield, they realized that his methods in war were different than any they had previously come across. If they wanted to win, they needed to change and try new tactics. Early in his career, Napoleon employed the strategy of inserting his army between two opposing forces and then striking at both before they could coordinate and combine. He wrote, “It is contrary to all principle to make corps which have no communication act separately against a central force whose communications are open.” The traditional German armies, with “their linear tactics, iron discipline, blind obedience and intolerance of independent action,” were initially unequipped to deal with Napoleon’s approach. Recognizing the need for a new strategy, the Germans developed Auftragstaktik, or what we now call commander’s intent, which is the idea of sharing the information necessary “to empower subordinate commanders on the scene.” The theory underpinning commander’s intent is all about trying to construct the right circumstances for replication.
+
+Any given side in a confrontation wants to replicate their strategy to the point of execution. What is the best structure for this? Too rigid and the guy on the ground can’t adapt and innovate to execute the strategy when the circumstances change—which they will. There is a direct connection to the challenges of replication in biology: “Rigid specialization—by a genetic code, for example—is not feasible, simply because the code would be excessively large, prone to breakdown, and inadequate for anticipating the many challenges and opportunities an economic entity is likely to encounter during its lifetime.”
+
+When the Germans faced Napoleon, they were experiencing problems related to their rigidity of organization. The guys on the front lines couldn’t adapt. Discouraged from ever considering the why or the rationale behind an order, the German troops had nothing to draw on when Napoleon changed his tactics mid-battle. The environment always changes, which is why successful replication has a bit of flexibility built in.
+
+If there is not enough fidelity in the copying, however, the strategy gets polluted with too many errors and cannot be executed. Empowered
+
+---
+
+Subordinates can adapt to changing battlefield conditions, but giving flexibility cannot cost the commander the ability to synchronize events to execute the strategy.
+
+As Clausewitz explained in *On War*:
+
+Strategy is the employment of the battle to gain the end of the war; it must therefore give an aim to the whole military action, which must be in accordance with the object of the war; in other words, strategy forms the plan of the war, and to the said aim it links the series of acts which are to lead to the same, that is to say, it makes the plans for the separate campaigns, and regulates the combats to be fought in each. As these are all things which to a great extent can only be determined on conjectures, some of which turn out incorrect, while a number of other arrangements pertaining to details cannot be made at all beforehand, it follows, as a matter of course, that strategy must go with the army to the field in order to arrange particulars on the spot, and to make the modifications in the general plan which incessantly become necessary in war. Strategy can therefore never take its hand from the work for a moment.
+
+How do you hit the sweet spot between execution of strategy and flexibility to adapt to changing conditions? There are four elements of commander’s intent: formulate, communicate, interpret, and implement. The first two are the responsibility of the senior commander, the latter two the job of the subordinate commander. In order to develop these skills, commanders must consider four criteria:
+
+1. Explain the rationale (not just the what and why, but how they arrived at a decision)
+2. Establish operational limits (identify what is completely off the table)
+
+---
+
+# 3. Get feedback often (a continuous loop between levels)
+
+# 4. Recognize individual differences (the unique psychological makeup of each subordinate)
+
+In combination, these criteria, when executed properly, hit the sweet spot of replication. They allow for the continuous application of strategy, while having room to adapt and innovate in the face of changing conditions.
+
+# Replicating a Culture
+
+The model of replication can also be used to help us understand why some products or customs propagate around the globe. Often, when exposed to other cultures, we notice the differences: the things those others do or say that we find foreign and almost nonsensical; ideas that seem to be barriers to communication and understanding. It is possible, however, to see these customs as being too rigid to allow for the necessary development that comes when new ways of doing things have to fit into existing cultures.
+
+There are spectacular examples of customs that are near global, something that otherwise disparate cultures partake in, albeit in slightly different ways. One of the products that have had the flexibility to take root all over the world is tea. How it was able to replicate not just biologically, but culturally, speaks to the value of being able to adapt.
+
+Tea-drinking cultures are all over the world. From China, Japan, and Russia, to Iran, the United Kingdom, and Kenya, tea has spread everywhere. In most places, the development of a tea culture—simply understood as a place where a lot of people like drinking tea—followed a typical pattern. First, a place was exposed to tea, from explorers, voyagers, or invaders. Once people got a taste for it, the country began trading for it. Then, after its uptake into the culture, countries would try to grow it themselves, climate permitting. This was a pattern that played out in many areas around the globe.
+
+Tea first started in China, as the tea plant is native only to a small region encompassing southwestern China and parts of India and Myanmar.
+
+---
+
+Cultivation of the tea plant started there at least three thousand years ago and as early as 400 CE was being described as a drink that “lightens the body and changes the bones.”17 Tea can taste wonderful, but now we also know that it has caffeine, which is no doubt a huge part of the reason for its initial and ongoing popularity.
+
+Tea has played a lot of roles in China. For many centuries it was one of the country’s greatest exports, and it has played a significant part in the country’s international relations with everyone from the Mongols to the British. Tastes changed and evolved over time in China regarding the right way to brew a cup or the right tools required for serving. However, when it comes to tea, China is the original consumer of the plant, and it was ultimately from there that everyone else replicated the tea culture.
+
+Traveling Buddhist monks brought tea to Japan, where it and its associated ceremonies became related to both political power and cultural expression. Tea came over from China a few times, but as Victor Mair and Erling Hoh explain in The True History of Tea, “It was not until 1191, when the Buddhist monk Myōan Eisai, having returned from studies in China, began to propagate Zen as a teaching that could save Japan, and tea as a medicine that could restore the Japanese people to health, that Japanese tea culture began to develop in earnest.”18 Once the culture had started, the Japanese began to cultivate the tea plant themselves. Tea consumption became part of a much more elaborate cultural expression. The tea ceremony, or chanoyu, was long and complicated, and each participant was required to know their role going in. But far from being a turn-off, this complicated way of consuming tea “was perfected as an art form that fuses nature, the crafts, philosophy, and religion, lending poignant expression to the Japanese spirit.”19 Tea had undergone its first total replication, leading to new cultural expression in Japan.
+
+In the seventeenth century, trade routes developed linking China and Russia. Tea was one of the most important commodities, making its way from China to Moscow, more than four thousand miles away. The Russians took to tea almost immediately. “From the gilded halls of the Kremlin, to the tarred cabins of the country’s peasants, tea became Russia’s national...
+
+---
+
+temperate drink, and the samovar, a metal urn used to boil water, the embodiment of the warm, hospitable Russian hearth.”20 The Russian temperance movement actively promoted tea as a means of reducing vodka consumption. Initially, Russia sustained its tea habit through trade with China. However, as time passed, Russia wanted to change its dependence on Chinese tea. So, “in 1893, the Popoff tea firm established the empire’s first tea garden in the Caucasus near the Georgian town of Batumi.”21 Thus, Russia began to cultivate its own tea, creating another cultural and industrial replication.
+
+The last place we will look at for the development of tea culture is Persia, the region now known as Iran. Tea came to this area not directly from China, but via the groups in central Asia who had already become addicted to it, and who carted it into Persia for trading purposes. There, “by the first half of the 17th century it had become part of daily life.”22 Tea was well suited to Islamic culture given its prohibition of alcohol. It provided a religiously acceptable little boost. Tea taverns developed “where persons of good repute went to drink tea, smoke tobacco, and play chess.”23 Persian pilgrims took tea to the countries of the Arabian Peninsula, much like the Buddhist monks had taken tea all over China and to Japan. As tea culture firmly took hold, Persians too desired to reduce their dependency on outside sources for the plant. So “tea production was initiated at the beginning of the 20th century, when the Persian consul to India succeeded in smuggling some 3,000 Assam tea seedlings back to his country and had them planted in the Lāhījan region on the southwestern side of the Caspian Sea.”24 And thus did the replication of tea as both industry and culture continue.
+
+What is it about tea that allowed it to be replicated all over the globe? For starters, it has an inherent flexibility. There are multiple ways to make and consume tea, which can be modified based on cultural norms and social desires. Different degrees of oxidization of tea leaves will produce green, oolong, or black tea. Each of these can be flavored with different spices or milk, or whatever else is locally available. It lends itself to different brewing techniques based on equipment and resources. But all outputs of
+
+---
+
+steeping tea leaves in boiling water are uniformly called “tea.” So there is also a core structure that cannot be changed. Tea comes only from the tea plant.
+
+This combination of a firm concept within a flexible package is one clear explanation of how tea managed to spread from a tiny geographical location to have acolytes in almost every country on the planet.
+
+# Conclusion
+
+Replication is the molecular magic trick that allows organisms to make copies of themselves, to pass their genetic blueprints from one generation to the next. In the grand ballet of evolution, replication is the music that keeps the dance going.
+
+At its core, replication is about information transfer. It’s the process by which the instructions encoded in DNA are faithfully copied and transmitted. Every time a cell divides, every time an organism reproduces, the replication machinery swings into action, ensuring that the genetic message is preserved and propagated. But replication is not a perfect process. Errors creep in, mutations occur. And it’s these imperfections that fuel the engine of evolution. Without the variation introduced by replication errors, life would stagnate, unable to adapt to changing environments.
+
+Replication is useful outside of biology too. As a mental model, it teaches us that we don’t always need to reinvent the wheel. When you’re just getting started, the quickest way to make great leaps is to imitate what others are already doing. This establishes an average baseline of performance. Once you get a sense and a feel for the environment, you can innovate and adapt to set a new baseline.
+
+The power of replication lies in its exponential nature. A single replicated entity can give rise to countless copies, each of which can replicate further. This is the power that viruses and viral ideas harness—the ability to spread explosively by exploiting the machinery of replication.
+
+---
+
+Memes, beliefs, and practices also replicate, spreading from mind to mind, shaping the contours of our shared reality.
+
+But replication also comes with risks. Unchecked replication can be cancerous, leading to uncontrolled growth that threatens the health of the larger system.
+
+Effective replication requires enough structure and space to produce a copy and enough flexibility to adapt that copy to changes in the environment. Just because something has worked for a while doesn’t mean it will be effective in perpetuity. Maintaining a successful approach requires an ability to grow and modify that approach as required.
+
+As we contemplate the role of replication in life and in thought, we must recognize both its creative and destructive potential. We must strive to create conditions that favor the replication of what is true, good, and beneficial, while resisting the spread of what is false, harmful, or malignant.
+
+OceanofPDF.com
+
+---
+
+# Cooperation
+
+Work together.
+
+OceanofPDF.com
+
+---
+
+If you want to go quickly, go alone. If you want to go far, go together.
+
+—AFRICAN PROVERB
+
+---
+
+Cooperation, or symbiosis, in biology rests on the idea that an organism that cannot perform an important function alone fills this particular gap by using the physical body of another organism, who also benefits from the interaction. It’s often a way to increase species’ competitive prowess by giving them an advantage over their competitors. “All organisms are constrained in their adaptability at some point, and symbiotic relationships allow them to extend their inherent adaptive capacity to exploit new resources and environments or adapt to their own environment as it changes.”
+
+We commonly think of biological cooperation as a win-win arrangement for the parties involved. You have a need. Someone fills it in. In exchange, you fill one of their needs. You don’t require cooperation to survive, but with it the quality of your life improves. A shark doesn’t need little fish to clean its teeth in order to live that day, but overall the quality of the shark’s life is enhanced because clean teeth mean healthy teeth, which will give it more years to feed on prey. Cooperation significantly expands what’s possible, by creating emergent properties that have more power than the individual components.
+
+The origin of mitochondria is an excellent example of cooperation in biology. Mitochondria are the energy-producing organelles of cells. They are now an indispensable component of cells, but they do not exist as a product of natural selection. We are here because at some point a mitochondrion and another cell cooperated.
+
+According to one theory, mitochondria originally existed in nature as free prokaryotic (simple) cells and that one such mitochondrion was then acquired by an anaerobic, already eukaryotic (complex) cell for the purposes of converting toxic oxygen radicals into harmless water for the host. Another theory states that both the mitochondria and the host cell were
+
+---
+
+prokaryotes and that the eukaryotic cell that now powers the vast majority of living organisms was created as a result of the cooperation.2
+
+Either way, the ancestor of mitochondria was a bacterium that got incorporated into a cell, from which a mutually beneficial relationship developed. Mitochondria produce adenosine triphosphate, or ATP, which can be thought of as the energy currency of the cell. Most chemical reactions in the cell need a lot of energy. These reactions are possible because the mitochondria are on board to create a rich energy source.3
+
+Because of the success of this new cell, the mitochondria began “living” in the host cell, and over time became a part of the cell and reproduced. These events took place more than a billion years ago. Without this cooperation between two types of cells, complex organisms would not have been able to evolve.
+
+The symbiosis between cows and the bacteria that live in their digestive systems is also interesting. These bacteria digest the cellulose found in hay and grass for the cow, while the cow offers a nutrient-rich environment for the bacteria. It’s a win for both organisms. Combined with their multilayered stomach and short appendix, this relationship means cows can eat tough plant foods. Humans cannot digest cellulose in part because they do not have cellulose-digesting bacteria in their digestive systems!
+
+A final, fascinating example is the interaction of the Hawaiian squid and a bacterium, Vibrio fischeri. The bacteria emit light and live in the light-producing organ of the squid. This is a relatively safe environment for the bacteria, as anything that wants to consume them has to get through the squid. The squid, in turn, uses the light produced by these bacteria to camouflage itself from predators in oceans.
+
+Cooperation…is its own evolutionary force that contributes to an organism’s immediate survival but also creates the possibility for adaptive responses to future challenges.
+
+—RAFE SAGARIN4
+
+---
+
+# Progress Takes the Fast Track
+
+In some cases, cooperation can be so valuable to the organisms involved that they evolve to become part of each other permanently. As in the mitochondria example, the benefits realized by those organisms’ cooperation provide a foundation for further development. When you can depend on the cooperation and the needs it addresses, you can leverage the freed energy to support growth and innovation.
+
+A human example of this is the development of the railroad and the telegraph. As inventions they were completely separate, but the cooperative relationship that developed between the two allowed them to take over the world. As Alfred D. Chandler Jr. writes, “The railroad and the telegraph marched across the continent in unison.” The telegraph provided train companies with a mechanism for communicating the progress of trains on the line—if they were late or early—so people could be ready to unload perishable goods and otherwise adjust their schedules. This extreme efficiency was key to the railroad being profitable. In return, the rail lines provided telegraph companies with an infrastructure on which to construct their system—from the poles and wires linking cities to the stations that often housed telegraph offices.
+
+The cooperation was so successful that very quickly neither industry could conceive of doing business without the other. Their businesses became linked because of the mutual benefit each provided, as well as the benefits that further accrued from their symbiotic relationship. The interactions between the two technologies “intensified the speed and volume of the flow of goods, passengers, and messages.” They helped each other to be better, and similar to cooperation among biological organisms, “what matters is that partnerships develop according to how effectively tasks are accomplished.” The attachment between the railroad and telegraph was so strong that it could be depended on completely, allowing each industry to free up resources that would otherwise be spent on duplicating the other’s technology and infrastructure.
+
+---
+
+The lesson here is to consider how often you look for opportunities for collaboration. We frequently talk of the competition—what they are doing, what direction they are headed—so we can keep up where we need to and not get blindsided or lose too much market share. But how many of us devote resources to looking for “the cooperation”—companies or industries with whom we can partner for mutual benefit?
+
+# Exceptional Harmony
+
+Writing about lichens, which are essentially a new organism produced through the symbiotic relationship between algae and fungi, Rafe Sagarin says of symbiosis that it “creates emergent properties that you wouldn’t predict from just looking at the two organisms on their own.”
+
+There is possibly no better example of the power of cooperation to transform existing structures and create new capabilities than the relationships required to achieve success as a symphony orchestra. The interaction between the musicians, and theirs with the conductor, involves a huge amount of trust and commitment to produce something that is greater than the sum of its parts.
+
+Alexander Shelley, conductor of the National Arts Centre Orchestra in Ottawa, Canada, describes the interaction of its members as such: “In the best-case scenario, they start to behave like a flock of birds. When you see a flock of birds moving around, you’re not quite sure who’s leading it or what’s happening.” This speaks to the unusual collaboration that happens in symphony orchestras. It’s not a leader with a bunch of followers. It is not a rigid hierarchy of responsibility. Shelley says, “When it’s functioning correctly, it’s a symbiosis between me and the eighty musicians on stage.”
+
+Why does an orchestra pursue its goals in this way? Because this is what all the participants believe is required to truly make the music. Perfect cooperation is the difference between good and inspirational. Shelley describes an orchestra by saying, “When things are working well, a
+
+---
+
+conductor and orchestra are in this state of absolute coordination where the music is speaking the way it needs to speak.”
+
+Other conductors have made similar points. Conductor Valery Gergiev says, “I just go straight to the most important thing—what is the color, what is the character of this music, what is the principal voice? And that means we are working immediately on…the relationship between all the parts, which is a huge coordination between all of us.”
+
+Conductor Mariss Jansons defines that moment of success for an orchestra as “when a good performance becomes a great one, a coming together of the piece, the performers, and the audience that creates a positive feedback loop of continuous enrichment and enchantment.”
+
+Therefore, trust is an essential component of successful symphony orchestras. Each musician hears the instruments closest to them best, and in some halls they cannot rely on their ears at all if they have to collaborate with an instrument in a different section. To cooperate fully as a group, they have to trust each other, and they have to understand how their individual part contributes to what the rest of the orchestra is doing. In Music as Alchemy, Tom Service describes the musicians in the Berlin Philharmonic orchestra as “a group of players who value themselves enormously as individual musicians, but who together create an instantly identifiable single sonic body in their performances.” It’s the complete cooperation that allows the emergence of the musical experience.
+
+An orchestra has to come together on many levels in order to make music. To achieve the trust required to anticipate the needs of the performance, the cooperation must be absolute. Each member has to be all in.
+
+An orchestra is an all-or-nothing situation. If one member is messing up and playing terribly, they can ruin the whole performance. Their playing jars with everyone else and throws them off. It requires total cooperation.
+
+A remarkable example of this cooperation and trust is the Montreal Women’s Symphony Orchestra. Started in 1940, they were “the only complete all women’s symphony orchestra in North America at that time—conducted by a woman, managed by women, and composed of women.”
+
+---
+
+This orchestra was born at a time when it was rare for women to play in orchestras, and if they did, they were confined to certain instruments that were considered “ladylike,” such as the harp. Anything happening in the public sphere, even music, was still very much considered the purview of men. Of course, not everyone agreed, and two women, Madge Bowen and Ethel Stark, decided that there was enough untapped female talent in the city of Montreal to put together an all-female symphony orchestra.
+
+The only requirement to join the orchestra at the beginning was commitment and passion. Thus, the orchestra comprised women from many walks of life—professional musicians and amateurs, housewives, socialites, working class, and upper class. There were Jewish women, Christians, French, English, and white and black women, including Violet Grant, the first black Canadian to be a permanent member of a symphony. Their emphasis, under the guidance of their conductor, Ethel Stark, was on teamwork and inclusiveness, so that “despite their differences, they came together for one purpose: to make music.”
+
+The diversity of the group required a staggering amount of cooperation in order to make the orchestra succeed. They had to deal with social tensions that are still unresolved in contemporary society. Before the instruments could cooperate to make music, the cooperation of the members was required to create the orchestra. Class divisions had to be set aside during rehearsal time in order for their dedication to the music to achieve fruition.
+
+Cooperation often comes about in a biological context because of the latent understanding that no one can do everything. No species or individual is perfectly adapted to deal with the entire spectrum of possible environmental conditions. This applies equally well to an orchestra. There is no music without all the instruments, and these instruments cannot work together without people who are willing to trust each other to respond correctly to the demands of performance.
+
+The Montreal Women’s Symphony Orchestra devoted themselves to their music, demonstrating, as Maria Noriega Rachwal describes in her biography of the group, “the power of music to transcend boundaries.”
+
+---
+
+Their dedication and talent were recognized after years of practice in basements and drafty industrial buildings, squeezing the music in between factory work and child-rearing, when the group became the first Canadian orchestra to be invited to play at Carnegie Hall in New York. The performance was exceptional; the music flowed out to rave reviews. Building on this success, the orchestra toured all over the world, as well as performing on television and radio. Never well paid, the Montreal Women’s Symphony Orchestra eventually had to shut down after being denied funding that was made available to other Canadian symphony orchestras.17
+
+So it is truly their commitment to music and each other that led them to the successes they had. In terms of cooperation, theirs was absolute. The women in the orchestra were all in.
+
+---
+
+# Shared Belief
+
+In the book Sapiens, Yuval Noah Harari explains and examines how humans cooperate in extensive systems of shared belief.18 He points out that, uniquely among species on the planet, humans are able to imagine things that have no physical counterpart, and furthermore that this imagining allows us to function in the large, complex societies that we have. These shared beliefs are requirements for our lifestyles—“large numbers of strangers can cooperate successfully by believing in common myths.”19
+
+These shared beliefs frame every aspect of our lives. Our belief in the value of currency, laws, corporations, and nations is what allows us to work together and to live together. Without these shared beliefs, we wouldn’t own anything or have homes, jobs, or any social infrastructure. According to Harari, it is this ability to trust in shared beliefs that allowed humans to move from small groups focused on daily needs to the large, interconnected population that studies the past and worries about the future.
+
+Whether or not this gets a value judgment of “good” can be debated. As Harari argues, “most human cooperation networks have been geared toward oppression and exploitation.”20 After all, it is only shared belief that explains why some people’s lives are easier than others—if we didn’t all buy into the myth of money, it wouldn’t exist, let alone be useful to accumulate. And there is an element of inertia here. The more encompassing a shared belief becomes, the more we forget it is a human construct. Eventually, the mass of belief becomes so large that we consider it an inescapable part of the natural world. There is no doubt that we can no longer operate without cooperating in these shared beliefs.
+
+---
+
+# Conclusion
+
+Cooperation is the surprising secret of success in the ruthless world of survival. If there is any one model that explains humanity, then this is it. Cooperation unleashed the potential of the human species.
+
+At first glance, cooperation seems to defy the logic of natural selection. Why would an organism invest its hard-earned resources in helping another rather than focusing solely on its own survival and reproduction? The answer lies in the magic of reciprocity and shared interest. When organisms can benefit more by cooperating than by competing, cooperative strategies emerge and flourish. Collaboration with others gives us options and opportunities that are unavailable when we insist on going it alone.
+
+But cooperation is not automatic. It requires specific conditions—repeated interactions, shared benefits, mechanisms to prevent cheating.
+
+Cooperation is the foundation of civilization. Our species’ success is built on our ability to cooperate flexibly and at scale—to share knowledge, coordinate efforts, and create institutions that incentivize cooperative behavior. From the division of labor in the economy to the norms of reciprocity in society, cooperation underlies our greatest achievements. But, as in nature, human cooperation is not guaranteed. It requires constant cultivation and protection from the forces of selfishness and short-term thinking. It requires norms that reward cooperation and punish defection.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Dunbar’s Number
+
+ROBIN DUNBAR, AN EVOLUTIONARY ANTHROPOLOGIST, argues that there is a limit to the number of people with whom one can maintain stable social relationships. This limit, of about 150 persons, is set by our neocortex size. He explains that in groups beyond this number, neocortical limitations make it difficult for people to maintain relationships with everyone, as they suffer from information overload. Using studies by field anthropologists working with primates, Dunbar suggests that there is a direct correlation between the number of neocortical neurons and the number of social relationships that can be monitored.21
+
+To support this argument, Dunbar refers to historical communities that were about 150 in number. These include hunter-gatherer communities, military units, successful businesses, communities counted in the Domesday Book, Neolithic villages, and Christmas-card networks, to name a few.
+
+Dunbar’s research suggests that because we are limited by our brain capacity, the fitness advantage of larger social groups was a driver in the evolution of parts of the brain. Other scientists have corroborated this idea that our larger brains are primarily a social versus an ecological adaptation. It wasn’t because we happened
+
+---
+
+to have a bigger brain for, say, hunting that we pursued complex social relationships, but rather that these relationships were critical to the evolutionary development of neocortical capacity.
+
+This means that being socially successful is critical for our survival, both as a species and as individuals. There is, however, a limit to how many social relationships we can successfully navigate. Thus, being socially successful is about knowing our limits and investing our time accordingly.
+
+# Dunbar's Scale of Closeness
+
+Dunbar identified the following scale of closeness for humans in groups. Note that each group includes the individuals from the smaller groups, and each number is about the maximum that could be maintained at that level.
+
+|5 people:|This is our inner core of closeness, the people we support and who support us on a daily basis, such as partners, family, and best friends.|
+|---|---|
+|15 people:|This is our close friend group. These people are integrated into our lives to the extent that we have an excellent understanding of their behavior, even if we may not see them all the time.|
+|50 people:|This includes our basic friends and acquaintances. We hang out occasionally, probably more often in groups, and know a bit about what is happening in their lives.|
+|150 people:|This is the size at which you feel you are part of a community. “This is the number of people you can have a relationship with involving trust and obligation—there’s some personal history, not just names and faces.”|
+|500 people:|This category includes friends of friends, people you know something about but don’t know as well and don’t make a sustained effort to know.|
+|1,500 people:|This is the upper limit and includes all the faces you can put names to.|
+
+Dunbar’s number is useful in terms of reminding us about working with our biology. Our brains can process only so much of the information required to maintain social groups. The larger the group, the more brain power required. Eventually we are going to run out. In addition—and we do this all the time—is the cost-benefit analysis. At what point does an increase in our social efforts start to bring diminishing returns?
+
+At around 150 people we max out, according to Dunbar. Too far beyond this and we will have trouble keeping track of who everyone is and how they relate to everyone else. To invest effort beyond this may be more than our brains are capable of doing. Also, less related to scientific research but very relevant to life experience, relationships of any sort require a time investment. How much time we have to devote to social maintenance has a definite cap.
+
+---
+
+OceanofPDF.com
+
+---
+
+# Hierarchical Organization
+
+Know your place.
+
+OceanofPDF.com
+
+---
+
+A civilized society handles hierarchy very politely, but it’s still there. It permeates everything.
+
+—PETER D. KAUFMAN
+
+---
+
+Hierarchies can be found across the animal world. They are a form of social structuring characterized by a linear or almost linear dominance ranking between individuals that live close to one another. These types of organizing structures are most common in social mammals such as baboons and wolves, but they are also found in chickens, bears, and elephant seals. All else being equal, hierarchies are relatively stable over time, as the individuals within a lower group are aware and accept their position and thus do not directly challenge those on top. Organizing this way generally means there is less fighting and more order.
+
+# Getting to the Top
+
+There is a contract implied in a hierarchy. The dominant member of a group has certain responsibilities to execute in relation to the other members. Specifically, “(a) direction each day for food, (b) protection each day from predators and other dangers, and (c) the maintenance of order every day by orienting members to their places and roles, by resolving conflicts when they break out, and by reinforcing social norms whenever transgressions occur.”
+
+It was the Norwegian researcher Thorleif Schjelderup-Ebbe who first studied hens to explore how dominance hierarchies, and consequently peace, were maintained in their flocks. He recognized that peace was found only in already established flocks where a dominance hierarchy had been set—each hen knew whom it could dominate and whom it was subordinate to. Each hen was able to remember the pecking order, and in Schjelderup-Ebbe’s experiments, he discovered that one hen had extraordinarily recognized twenty-seven other hens from different flocks. This shows that
+
+---
+
+Hierarchical organizations are respected by these birds and form the basis of their way of living.
+
+In chimpanzees, “the alpha male usually wins his position not because he is physically stronger, but because he leads a large and stable coalition. These coalitions play a central part not only during overt struggles for the alpha position, but in almost all day-to-day activities. Members of a coalition spend more time together, share food, and help one another in time of trouble.”
+
+One of the drawbacks of hierarchies is the lack of perceived value of those who are at the bottom. “An efficient new gathering strategy devised by a low-ranking chimpanzee, for example, might not get replicated just because of her status in society.”
+
+Hierarchies in the human world act as information filters, causing us to potentially miss opportunities and ideas. The way we organize ourselves is often a default to our instincts on leadership and authority. Sometimes this is optimal, sometimes it isn’t. If it isn’t getting us what we need, either as individuals or as a society, it is within our power to make different choices emphasizing the values and strengths that would be beneficial. Our hierarchical organizations are where we derive our ego, status, and reputation, and they are what conditions us to focus on growing ourselves rather than growing others.
+
+The interesting thing about hierarchies in humans is that their benefits aren’t always obvious at first. Few people would say they like them, unless they happen to be at the top of the pile. Most of us hate having to defer to our parents, our bosses, the state. Hierarchies reduce creativity. They put extra stress on those at the bottom, potentially increasing their mortality levels. They put a lot of pressure on those at the top too, forcing them to constantly worry about maintaining their position. Most organizations promote cultures that emphasize rather than de-emphasize an individual’s status, power, and place, which is part of the reason they get torn apart. Hierarchies are inherently and inevitably unequal and unfair.
+
+Hierarchies, however, clearly confer a benefit that is large enough to balance out their costs. In the absence of an imposed structure, people have
+
+---
+
+a natural instinct to self-organize. In organizations that claim to have a flat structure with no leaders, people often just end up more frazzled than normal as they attempt to navigate the inevitable unspoken power structures critical to their success. Even anarchist movements end up with leaders. Leadership is important. Getting rid of the title of “captain” or “boss” doesn’t change the fact that someone in the locker room or the boardroom is going to set the example for others, so it’s best to ask who we want that person to be.
+
+If we can’t avoid hierarchies, we need to recognize their presence and focus on structuring them in the most beneficial way for everyone involved, like having prestige associated with belonging to the group rather than being conferred on individuals. The key is to be aware of hierarchies and work with, not against, them. We want to use hierarchies as a tool, not be used by them.
+
+# A Place for Everyone and Everyone in Their Place
+
+According to both Plato and Plotinus, another major ancient Greek philosopher, the entire universe is arranged in a hierarchical structure. At the bottom, we have inanimate objects like pebbles or soil. Next, we have plants, then animals, then humans. Then God is at the top of the hierarchy, superior to everything else in the universe. As Charles Van Doren explains in A History of Knowledge, it was this idea that informed human society from the very beginning. The assumption that humans can be organized into a hierarchy from the lowest up to the individual with the most power and perceived importance has always been integral to the way we’ve constructed our world. Look at any ancient civilization and you’ll find someone at the top, with only that group’s god above them. Following Plato and Plotinus, people used their ideas about hierarchy to justify a stratified society.5
+
+---
+
+Yet people have always, at various times, rebelled against hierarchies. As Van Doren points out, many of the individuals, in particular religious leaders, to whom we’ve accorded the highest esteem throughout history are those who have questioned and thought against existing, unequal hierarchies. This is especially true when a hierarchy becomes so severely stratified that only a handful of individuals can benefit from it. The French Revolution is one of the most iconic instances of people fighting to overthrow a flawed social hierarchy.
+
+Prior to the revolution, French society was divided into three main groups, known as estates. The First Estate consisted of the Catholic clergy, who oversaw the Catholic Church and had some other duties, like giving the monarch advice. They didn’t have to pay taxes, collected tithes, and owned lands. As with each of the estates, it was further divided into hierarchical levels, with higher-ranking individuals in Paris and Versailles having very different lives than rural parish priests. The Second Estate consisted of aristocrats with inherited titles. Like the First Estate, they didn’t need to pay taxes, but they could collect them.
+
+Into the Third Estate went everyone else, about 96 to 98 percent of the population. At the highest level of the Third Estate were the bourgeoisie, including those in finance, medicine, law, and trade. They could become wealthy, just without gaining any political power or influence. Next were the sansculottes, artisans, and other city workers. The final layer was the peasants, who labored on farms, paid heavy taxes, and had essentially no rights or influence. They owned land, but few had enough to feed their families. For instance, between 1720 and 1729, and 1780 and 1789, land rents rose by 142 percent, while the prices of agricultural products rose by only 60 percent.6 About three quarters of peasants had less than five hectares, the minimum amount of land needed to survive. In many areas, at least a quarter of peasants had just one hectare.
+
+At the top of society was the king, who had absolute power and few limitations on his behavior. This system of power, known as absolutism, was popular in Europe at the time. Not only was arguing against it dangerous, but some people did see the system as positive because of its
+
+---
+
+ability to maintain order. It’s worth noting that absolutism was not like other monarchy systems, like the ones used during the medieval era, because here the king did not share his power. When King Louis XIV said “L’état, c’est moi” (“I am the state”), he meant it. For everyone but the king and a few nobles, the system was entirely unfair.7
+
+During the French Revolution, people fought for a more equal society without the intense divisions of the estates. The vast majority of the French population was trapped in harsh poverty with too little to eat and no rights whatsoever. The wealthy minority merrily spent their tax income and racked up a growing national debt. People began to question the age-old notion of an absolute ruler with a monopoly on force and no restrictions on their behavior. They saw that the social hierarchy was arbitrary and could be overthrown. When the common people seized weapons and means of exercising force in Paris, they upended the hierarchy. What they had more trouble with was finding a system to replace it.
+
+During the interim between the end of the monarchy and the rise of Napoleon, the French people tried out different hierarchical structures and leaders, each of which failed. Here is the summary of those years:
+
+# 1. Phases of the French Revolution
+
+Between 1789 and 1815 the country went through roughly five phases. From 1789 to 1792 France was a constitutional monarchy. During that time Louis XVI came to be seen as a despot, and in 1792 he was tried and beheaded. That marked the beginning of the most radical period of the Revolution, called the Terror, when France was run by the…Committee of Public Safety, headed by Maximilien de Robespierre. Robespierre quelled civil war within the country and waged war on the neighboring countries hostile to the Revolution. Some seventeen thousand opponents of his regime were beheaded and another thirty-five thousand jailed, but in 1794 Robespierre himself was led to the guillotine in a counter-coup.8
+
+---
+
+The country was then run for five years by the government of the Directory, staffed mostly by the bourgeois class. What’s interesting is that within a few years, the old hierarchy was effectively back in place. When Napoleon came to power in the late 1790s, he reinstated absolutism, although he did not call himself a king. He seized power in 1799, and in 1804 he declared himself emperor. Hardly a revolutionary move. Napoleon had absolute power and was not answerable to anyone. He maintained this by violently quashing any dissent.
+
+France did not emerge from the revolution as a country without a hierarchy. Instead, Napoleon instituted a system that was based more on ability than on class, although it is still debatable whether a meritocracy is even possible or what a true one might look like. In addition, Napoleon saw France as at the top of the hierarchy of European countries and therefore sought to make the others subordinate. This was part of the rise of nationalism, the belief that one’s own country is superior to all others and must be willing to fight to expand its borders. Napoleon was then defeated by the British and sent into exile in 1815.
+
+The period from 1789 to 1815 thus saw a constant jostling of the hierarchy in France, as various groups and individuals tried to take and maintain power. One of the lessons of the French Revolution is that upending a hierarchy creates instability, and many people will maneuver to influence what the old hierarchy will be replaced with. A new hierarchy might have different rules and different roles, but it will still be a hierarchy. Surviving the establishment of a new order is by no means easy.
+
+Take the story of Charles-Maurice de Talleyrand-Périgord, “who simply kept reinventing himself in order to ride France’s political roller coaster.” Talleyrand was bishop of Autun in the Loire Valley when he joined the revolution. When things got extreme, he went into exile. In 1797 he returned, became foreign minister under the Directory (government), and remained there under Napoleon. But in 1807, as Napoleon’s ambitions began to become alarming, Talleyrand turned against the emperor. In 1814 he represented France during the peace negotiations of the Congress of Vienna as foreign minister during the brief reign of Louis XVIII. Talleyrand
+
+---
+
+thrived by finding a way to maintain position in the constantly changing hierarchy.
+
+Another important lesson from the French Revolution is that when contemplating the hierarchy we want to live with, it is worth asking what kind of leaders our hierarchical system will produce.
+
+Our hierarchical instincts are not always right in getting us the most efficient organization to deal with the challenges we are facing. Writing about sports teams, Sam Walker argues in The Captain Class that the best performers are not the best leaders. We seem to want our leaders to be the alpha performers, the guys and gals who dazzle us with their play.10 Walker writes, “All too often, the people who propose themselves for positions of power are quick to trumpet their abilities. And those of us who make these decisions [on who should lead] are often swayed by the force of their personality.”11 For example, the leader becomes dominant because of skills displayed in the competitive process of becoming leader—strength, smarts, and so on. This means that the leader is just the most powerful competitor, like Robespierre or Napoleon. Their skills are exemplary for winning the competition of dominance. They are not necessarily the most skilled for actually running the show. Maybe the role would benefit from some of the strengths exhibited by others, but because those traits didn’t help in the competitive process, the leader doesn’t possess them—to the detriment of the entire hierarchy. We then end up with leaders who don’t actually have the skills to lead.
+
+The French Revolution, with its focus on ending absolutism and the subsequent return of absolute power and the rise of nationalism, can show us a lot about our hierarchical instincts. People could not destroy the hierarchy altogether; they just ended up with a new form of it. One of the lessons here, then, is that allowing for the fact of hierarchical instincts is critical in the development and leadership of any organization.
+
+---
+
+# Status Symbol
+
+The history of fashion can be read, in part, as a chronicle of humans trying to establish and negotiate social hierarchies. How we dress communicates information to people about our status. In Survival of the Prettiest, Nancy Etcoff says of magazines, “The fashions they feature are as much products of social competition as the finest bird feathers or the sweetest birdsong.”
+
+Thinking about fashion exposes the ongoing tension in human hierarchies. On the one hand we are comfortable when we can place people quickly in the hierarchy. From their clothing we infer information about their relative power and wealth in the society we inhabit. On the other hand, we continually chafe at the restraints of whatever position of the hierarchy we happen to find ourselves in. I may be limited by my biology, but I certainly don’t want to be limited by the messages of the clothes I wear.
+
+Yuval Harari observes, “Hierarchies serve an important function. They enable complete strangers to know how to treat one another without wasting the time and energy needed to become personally acquainted.” In different times and places, the hierarchy of fashion has been legally mandated in the form of sumptuary laws. They were often enforced not legally, which was logistically challenging, but socially. If your status meant you weren’t allowed to wear purple and yet you showed up at court decked out from head to toe in violet, you were risking a lot. You probably wouldn’t be arrested, but you could be snubbed by your peers, laughed at by those higher up, and left off the list for the next social occasion or business opportunity. Fashion laws thus meant that you could easily place people in their social position and act toward them accordingly.
+
+Taken to the extreme, some markers of high status were intended solely to convey that status. Black teeth were fashionable in the Elizabethan era to show that one could afford sugar, and very long nails demonstrated the lack of a need to work.
+
+Of course, hierarchies are dynamic, with ongoing challenges for top position. Fashion and accessories were a way to make it harder for those lower in the hierarchy to successfully compete, mostly through cost. Silk, gold, silver, precious stones—these long-recognized components of “luxury adornment” have always put those who could afford them “at the top of the pyramid, setting apart the haves from the have-nots.” Cost barriers to various goods are an easy and long-lived way to set up and define social hierarchies.
+
+The upper class also shows status through wearing clothes that are totally impractical for doing any labor, reflecting participation in expensive activities and having more than one actually needs. “Charlemagne owned 800 pairs of...”
+
+---
+
+fine gloves at a time when gloves were difficult to produce and clean,” notes Etcoff.15 We can admit to ourselves that not a lot has changed; status is still frequently demonstrated through fashion. Labels, fabric, and the cut of a suit or a hoodie communicate a lot. Yes, it is often nuanced. For example, even though luxury goods in some contexts are still markers of status, dressing scruffy when you don’t have to is also a form of demonstrating your privileged place in the hierarchy. The academic in a shirt with soup stains, the CEO in battered jeans, the billionaire in a tracksuit—these are all examples of them announcing to the world that their status is so secure, they don’t need to indicate it through luxury clothing. In so many cases, what we wear “helps us negotiate our relations with the outside world and provide us with comfort and protection.16
+
+---
+
+# “Underground” Hierarchies
+
+Hierarchies are critical in survival situations and in combat. In these scenarios, we primally crave leadership. In chaotic, life-and-death situations, sheepdogs magically appear to herd the sheep. Even in the US Special Operations Forces, which are designed to be as flat as an organization can be within a military division, hierarchical decision-making immediately emerges and takes over in combat or when there are time constraints.
+
+How do hierarchies form and break down? There are, broadly, two components: biological enablers and cultural constraints. These two dynamics influence how our tendency toward hierarchies manifests. To get insight into these dynamics, let’s look at the 2010 Copiapó mining accident in northern Chile, when a cave-in at the San Jose copper-gold mine trapped thirty-three miners seven hundred feet underground.
+
+The miners were completely isolated in a physically stressful environment. It was hot, humid, and dark. The ground was unstable, and debris and rocks continued to fall. They retreated to a refuge that had only enough provisions for ten miners for two days.
+
+Luis Urzua was the shift foreman, a position that granted him automatic authority. He “held formal leadership; in the Chilean mining culture the authority of the shift foreman was considered absolute.”17 Urzua, however, had worked at the San Jose mine for less than three months. He hadn’t had time to develop a bond with the miners on his team to back up the authority implied by his title. In the small power vacuum created, two other miners, Mario Sepulveda and Mario Gomez, “rallied the miners to explore escape routes and send signals to the rescue workers.”18 Although these two may have had the right characteristics for leadership, they could not take a place at the top of the hierarchy because they lacked the culture-supported authority. Thus, in the first twenty-four hours, “most [miners] felt
+
+---
+
+accountable to no one” and stayed in “subgroups based on kinship and past friendships.”
+
+Our desire for hierarchy, for leadership, is most present in survival situations. It will arise. For the miners in Chile, days two to five saw the emergence of spiritual leadership by one of the team who had pastoral experience. A democratic process was instituted to make decisions about allotment of the food supply and bathroom rules. Mario Sepulveda, clearly having natural leadership instincts, used them in a way that exploited the culture he was in; he urged the group to “respect Urzua and suggested that if Urzua were willing to lead, the miners should accept him as their leader. If Urzua were unwilling to lead, Sepulveda would be willing to take charge.” Leadership was necessary not only to get tasks done, but for the comfort it would offer to the group.
+
+By day five, “throughout the day, the miners gave more authority and respect to both Urzua and Sepulveda. Gomez was also widely respected for his experience and wisdom. Sepulveda had started to assign specific tasks to people based on their skills, experience, and mental stability.” Good leadership is about acting in the interests of the group. In The Captain Class, Sam Walker, in one of the most counterintuitive conclusions in his book, explains it this way: “When it comes to competition, most people believe that the leader of a team is the person who does something spectacular when the chips are down.” This, however, is actually not true. Walker’s conclusions about the real qualities of great captains apply to the dynamics of the miners in Chile. “The great captains lowered themselves in relation to the group whenever possible in order to earn the moral authority to drive them forward in tough moments. The person at the back, feeding the ball to others, may look like a servant—but that person is actually creating dependency. The easiest way to lead, it turns out, is to serve.” It’s possible that Sepulveda, by supporting the leadership of Urzua, was doing the most valuable thing he could to serve the interests of the group.
+
+The hierarchy developed in the early days held until day seventeen. During this time, there was widespread despair about the success of the
+
+---
+
+Rescue efforts, with the miners rationed down to one bite of food every thirty-six hours. Hope was low, but the hierarchy served its purpose of maintaining a structure that supported a maximum chance of survival.
+
+On day eighteen, a “breakthrough shaft” reached the refuge where the miners were located. Not large enough for rescue, it was used to get items to the miners, including food, medical supplies, letters from their families, and a television. At this point the hierarchy of the thirty-three miners began to break down, because there was a new top of the pyramid. Control shifted to people aboveground. The miners were no longer accountable to just each other. “Fights occurred about which channels to watch,” and “discipline gradually declined alongside their humility as the miners began to digest the news of their celebrity status.”
+
+As the days continued, the hierarchy that had maintained order while they were isolated and scared continued to fade. Miners began developing relationships with doctors and media advisers, fighting for more information from their loved ones. Some miners began receiving drugs in their communications from family, which shifted relationships and allegiances underground. The hierarchy, though, didn’t completely disappear. It was as though they were pulled between two different hierarchies, the one belowground that had gotten them this far, and that aboveground, which offered promise of rescue. As they passed sixty days underground, “the miners’ behaviors…oscillated between extremes, indulging in petty fights one minute and promising never to break their fraternal bonds the next minute.”
+
+The rescue started on day seventy. The miners were lifted out one by one, with Urzua coming up last. They had expressed the desire to leave San Jose as a group, which they did with the world watching.
+
+---
+
+# Boss vs. Leader
+
+There is a nuance here between authority and leadership. Those at the tops of hierarchies have authority that they are expected to use to solve problems and address issues facing the hierarchy. But as Ronald Heifetz points out in his article “Leadership,  we can easily think of examples of people with lots of authority who don’t actually lead or who don’t have the solutions in times of crisis, and lots of people who exhibit leadership without having any authority.
+
+---
+
+# Conclusion
+
+Hierarchy is the invisible scaffolding that organizes the living world.
+
+Hierarchies in biology aren’t just about structure but about function. They allow for specialization and division of labor, for the emergence of complex behaviors from simple rules. In the hierarchy of an ant colony, the queen, workers, and soldiers all play their roles, their interactions giving rise to the sophisticated operation of the colony as a whole.
+
+But hierarchy isn’t rigid or fixed. It’s fluid and dynamic, with levels constantly interacting and influencing one another. A change at one level can ripple across the entire hierarchy, transforming the system in unexpected ways.
+
+While hierarchy is a way to manage complexity, it can also backfire. Too much hierarchy leads to unrest and instability. Too little leads to chaos.
+
+Most organizations promote cultures that emphasize rather than de-emphasize an individual’s status, power, and place, which is part of the reason they get torn apart, as the fight to get to the top of the hierarchy takes precedence over the success of the organization.
+
+In the end, hierarchy is the organizing principle that allows scale from the microscopic to the magnificent.
+
+OceanofPDF.com
+
+---
+
+# Incentives
+
+Shape behavior.
+
+OceanofPDF.com
+
+---
+
+Never, ever, think about something else when you should be thinking about the power of incentives.
+
+—CHARLIE MUNGER
+
+---
+
+Incentives shape behavior. We move in the direction of rewards and take steps to avoid punishment. Humans, when we are thoughtful about incentives, will change our behavior to attain a perceived benefit. We will go through the same behavioral hoops to detour around perceived disadvantages. However, the ability to identify and respond to incentives is an intrinsic part of our biological makeup. Therefore, their influences on our behavior are not always rational. We often evaluate the value of an incentive through an incredibly biased lens made up of our self-esteem, our personal narrative, and our physiological state.
+
+# Behavior Modification
+
+Behaviors can be a response to both internal and external factors. Multiple studies have shown, in both rats and humans, that consistent but infrequent rewards can create stronger behavioral changes than those that are given all the time.
+
+A rat learns that a certain lever will sometimes produce food. It’s always the same lever, but it doesn’t always have food. The rat will continue to press that lever for far longer after food is no longer given than a lever that always gave food then one day just stopped.
+
+Our behavior changes based on both actual reward and punishment and our perceptions of it. If something we did resulted in something good, just the anticipation of having that good thing again is an incentive to repeat the behavior. Same goes with a negative experience. Just the possibility of a repeat of punishment makes us want to avoid similar situations in the future.
+
+---
+
+The ability to store things such as fat and food gives us flexibility in responding to incentives. Money can be thought of as a form of storage—all the potential purchasing power is stored until it’s used to buy things. “Perhaps the greatest economic innovation in human society was the invention of money, an exchangeable commodity that in effect stores the power to purchase and sell goods.”2 This is part of money’s incentive. You can choose how and when to spend it, and saving it means that you aren’t as vulnerable to having to adjust and respond to every minor or risky incentive that comes your way.
+
+The discovery and reinforcement of a certain incentive can change our behavior. Like helping to build the mechanisms that allow elephants to remember how and where to find water over vast distances, we can create new neural pathways when obtaining rewards. Uncertain incentives, as well, can be beneficial to survival. Through studies of gambling and loyalty programs, researchers speculate that a tolerance for uncertain incentives is necessary because so many of our attempts to achieve something new fail on the first few tries.
+
+The darker side of incentives is that sometimes pursuing our wants can rewire the brain so that these wants become requirements. This has been seen in studies examining drug addiction. After repeated chasing of an incentive because of the reward of feeling good, the brain pursues the incentive not because of how it feels to use drugs but because those wants have become hardwired to be their own reward. It’s like getting the drug is what now gives the pleasure, beyond the actual use of the drug itself. Thus, incentives can have a powerful impact on our biology as well.
+
+# The Long-Term Influence of Short-Term Incentives
+
+One of the main challenges with incentives is that they are a factor everywhere: with our needs, our wants, short-term interests, and long-term goals. In a basic survey of the people around us, humans do not generally
+
+---
+
+appear to be able to prioritize incentives for deferred rewards over those that bring us immediate pleasure.
+
+This is a problem in democracies, as Aristotle pointed out more than two thousand years ago. For all their political attractiveness, they are essentially governed by millions of people acting in their own self-interest. And those interests tend to be driven by incentives that offer immediate rewards.
+
+Voters want to hear about policies that will have an immediate positive impact on their lives. Most have less interest in policies that won’t have any obvious benefits for years or even generations. As Niall Ferguson writes in Civilization, “We love our grandchildren. But our great-great-grandchildren are harder to relate to.” Politicians have no choice but to respond to the incentives to think short-term; otherwise, they won’t gain voter support. They therefore present platforms highlighting the benefits that will miraculously occur should they win. Due to the relatively short term that people tend to hold political office, it’s difficult for any particular politician to make significant positive change in that time. They’re surrounded by rapid feedback loops that depend on them showing fast results—short election cycles, frequent opinion polls, media reports every minute of the day, and instant social media chatter. The result is a system in which politicians have little incentive to think beyond the current election cycle.
+
+In a similar manner, publicly traded companies are incentivized to sacrifice long-term growth in the interest of showing profits on quarterly reports. The short tenure of CEOs and their large bonuses create perverse incentives. As a result, companies have difficulty investing in the sort of improvements that compound over time. For instance, many companies feel the need to jump on every new trend within their market to capitalize on the attention of their customers. This results in a hamster wheel of new tweaks rather than companies focusing on building timeless products and services.
+
+Some large organizations have budgets that incentivize reckless spending. Federal agencies with use-it-or-lose-it budgets spend an average of 8.7 percent of those budgets during the last week of the fiscal year, nearly five times the typical weekly expenditure.3 In addition, projects funded during the last week are between two and six times as likely to be
+
+---
+
+rated as low quality as those from the rest of the year. Furthermore, variable pay for managers in these organizations is often tied to spending their budget.
+
+Incentives have a powerful impact that spreads out like ripples on a pond. The short-term incentives in both politics and business impact every area of our lives. To change a system involving humans, we need to change the incentives.
+
+---
+
+# Aligning Incentives
+
+One of the challenges of leadership is aligning incentives. How do you get people to move in the same direction without being waylaid by immediate reward? Sun Tzu suggested more than two thousand years ago that a good leader “leads his men into battle like a man climbing to a height and kicking away the ladder.”4 When you can’t go back, your motivation is to go forward together.
+
+---
+
+# Manipulated by Incentive
+
+We are vulnerable to the influence of incentives—whether from money, prestige, or power. Most insidious is when an incentive is designed to appeal to our personal narrative about the kind of person we are. No one wants to be thought of as bad, so we often perform intellectual contortions to justify our pursuit of an incentive as good.
+
+Thalidomide is a drug with a tragic history. Discovered and developed by a West German drug manufacturer in the 1950s and widely marketed as a sedative and antinauseant, it was responsible for thousands of infant deaths and deformities. The story of how this happened exposes a lot of the nuances of incentives.
+
+Thalidomide was first produced by the Chemie Grünenthal company. It was “a drug without a disease,” and thus the first tests in animals and humans were actually to find something it could cure.5 The scientists there could not find a dosage high enough to kill rats, and no side effects were observed on any animals tested. From this they concluded that the drug was completely nontoxic. They still didn’t know what humans could use it to cure, but these original animal-testing results formed the foundation of their enduring belief that the drug couldn’t hurt anyone.6
+
+The Grünenthal company then began handing out free samples to doctors. There was no clinical trial as we understand it now. Instead, the initial users of the drug were the clinical trial. Thalidomide was put out into the world and “tested” on people without their knowledge or consent. The general population was the lab.7
+
+As Trent D. Stephens and Rock Brynner explain in Dark Remedy: The Impact of Thalidomide and Its Revival as a Vital Medicine, the drug couldn’t kill a rat, so Grünenthal thought it had to be safe. The company developed a large marketing campaign that sold thalidomide as a sedative. They partnered with manufacturers in other countries and brought the drug to market all over the world. In most countries it was available without a
+
+---
+
+prescription. Doctors were routinely given marketing confirming the drug’s safety—information that they passed on to their patients. Thalidomide was sold under various brand names, but with the assurance that it was like aspirin: mild, useful, and certainly not anything that could hurt you.
+
+This, however, was not true. Slowly doctors in different countries began to notice physical impacts in which the only thing the patients had in common was their use of thalidomide. First it was permanent nerve damage in the hands and feet, and then it was significant birth defects in the fetuses of otherwise healthy mothers.
+
+The research began to come together showing that thalidomide caused deformities in gestation that were so severe that babies could often not survive after birth. If they did, it was with debilitating and painful abnormalities, most often the lack of properly formed limbs. Grünenthal doubled down on their marketing, casting suspicion on the medical articles that discussed the dangers of thalidomide and attacking the credibility of the physicians who wrote them.8
+
+At no point in the subsequent years did Grünenthal ever admit mistake or wrongdoing. All the drug manufacturers who sold thalidomide settled all compensation claims out of court. No company was ever held criminally responsible for selling a drug without verifying the claims they made about it, such as “safe for pregnant women.”9
+
+One way to understand how this happened is to look at the situation through the lens of incentives.
+
+As you can imagine, there are financial incentives throughout the story of how thalidomide came to market. The heads of the team that discovered the drug were paid a percentage of the profits of its sales. And thalidomide was a big seller. There was a huge global market for sedatives, and in some countries it became the second-highest-selling drug.
+
+There was also a significant financial incentive for drug companies to partner with Grünenthal. It meant that they could “avoid the cost of research, development, and testing.”10 And for Grünenthal itself, by not performing proper clinical trials on humans, it saved a ton of money.
+
+---
+
+Thalidomide’s main competition as a sedative was a class of drugs called barbiturates. These had known undesirable side effects, and thus an incentive for doctors to recommend thalidomide was that it was purportedly safer than the alternative.
+
+The drug companies regularly paid doctors for their endorsement, even going so far as to draft their lab articles.11 This created more incentives. The first, financial incentive was payment, but then, once your name is linked with endorsement of a drug, you have an incentive to maintain your reputation by continuing to defend that drug.
+
+In the later criminal trials and civil suits, a lot of drug company executives pointed out that their legal and moral responsibility was to their shareholders. The incentives to keep their shareholders happy in the form of large dividends were far more significant than fairly compensating victims.
+
+One fascinating part of the thalidomide story is that it was never approved for sale in the United States. The Richardson-Merrell company had obtained the rights to distribute to the American market and so sought to obtain the approval of the Food and Drug Administration. The drug approval process in 1960 was not the same as it is today. The FDA had the responsibility of evaluating the safety and efficacy of all new drugs, powers that it had received in 1938 on account of another pharmaceutical tragedy.12 But their efforts were often focused on drugs after they hit the market, with premarket testing and evaluation less regulated and more vulnerable to manipulation.
+
+Unfortunately for Richardson-Merrell, and fortunately for the rest of the country, Dr. Frances Kelsey had just begun to work there. Having spent many years as a researcher, she was deeply concerned about the lack of evidence for the safety of the drug.13 Neither Richardson-Merrell nor Grünenthal could provide any documentation to back up their claims of safety for both mother and fetus during pregnancy. Dr. Kelsey determined that there was no way they had done the research to show that thalidomide did not cross the placental barrier. She stalled approval as long as she could, sending back their application multiple times for being incomplete. She later explained that she had a very low incentive for approving the drug, as
+
+---
+
+it was not a lifesaving one. The delay tactics worked, and she was able to keep thalidomide out of the American market until reports of its horrible effects were so widespread that countries began to take it off the shelves.14
+
+An incentive is a bullet, a key: an often tiny object with astonishing power to change a situation.
+
+—STEVEN D. LEVITT AND STEPHEN J. DUBNER15
+
+# How do incentives work to make people seemingly lose their minds—to make normal people double down on their immoral decisions?
+
+In light of how numbers of drug company executives and doctors never admitted that thalidomide caused such horrible effects, it is worth explaining more about the power of incentives.
+
+The initial financial component is easy to understand. Money is desirable, and therefore it is a common incentive that modifies behavior everywhere. But money alone isn’t often enough. Undoubtedly if you ask people whether they would harm thousands of children for money, most would say no. Therefore, in order to understand the real power of incentives, you have to look at the psychological condition they create.
+
+Humans don’t like cognitive dissonance—“the state of tension that occurs whenever a person holds two cognitions (ideas, attitudes, beliefs, opinions) that are psychologically inconsistent.”16 We engage in self-justifying rhetoric to reduce this dissonance. In the case of incentives for endorsements, the often subconscious thought process might go like this: “I am a good person. I supported this drug. A good person would not support a drug that is harmful. So, the drug can’t be harmful because I am a good person.” We don’t see these connections laid out, and so what is produced is the opinion the drug is good without having a window into the mental gymnastics that got us there.
+
+Carol Tavris and Elliot Aronson have written about the manifestation of cognitive dissonance due to incentives in the medical profession.
+
+---
+
+“Physicians, like scientists, want to believe their integrity cannot be compromised. Yet every time physicians accept a few dollars or other incentives for performing certain tests and procedures, for channeling some of their patients into clinical trials, or for prescribing a new, expensive drug that is not better or safer than an older one, they are balancing their patients’ welfare against their own concerns.”
+
+Consider the story of Andrew Wakefield, the lead author on the paper published in The Lancet that claimed it had found a positive correlation between vaccines and autism. Later debunked, but not before causing a widespread drop in vaccinations that has resulted in needless deaths, the article was retracted. He did not sign the retraction. Why?
+
+He had “a conflict of interest that he had failed to disclose to the journal: he was conducting research on behalf of lawyers representing parents of autistic children. Wakefield had been paid more than eight hundred thousand dollars to determine whether there were grounds for pursuing legal action.” Tavris and Aronson demonstrate that “unlike truly independent scientists, however, he had no incentive to look for disconfirming evidence of a correlation between vaccines and autism, and every incentive to overlook other explanations.”
+
+This is why understanding the power of incentives is both critical and tricky. The acceptance of an initial incentive creates a psychological state whereby we become invested in maintaining whatever story brought about that incentive, so we can justify our acceptance of it.
+
+The greater danger to the public comes from the self-justifications of well-intentioned scientists and physicians who, because of their need to reduce dissonance, truly believe themselves to be above the influence of their corporate investors. Yet, like a plant turning toward the sun, they turn toward the interests of their sponsors without even being aware they are doing so.
+
+---
+
+If we’re not aware of the incentives that direct our behavior, we can end up doing things we might prefer not to. It’s also important to be aware of how other people can incentivize us to do things that go against our wishes and values—much like those who sold thalidomide for the powerful incentive of money. By being aware of the incentives that may be directing our actions, we can recognize any unsavory influences and refocus by considering what we are really valuing. We may be driven by rewards like money, attention, and power, but we may actually value things like making a positive impact on the world, kindness, and honesty. We need not blindly follow incentives if they don’t align with our values.
+
+---
+
+# Motivated by Uncertainty
+
+Humans can also be heavily motivated by uncertainty. There are particular situations in which we find it more compelling to go after a possible payoff instead of a sure thing. Why? Because it is often more stimulating, which is an incentive in itself. Think of getting together with a group of friends every Saturday to play board games. Numerous studies have shown that we would cease this behavior if we knew we were going to win every time. Winning is fun. Guaranteed winning is not.
+
+The limit to this is when the value of the result outweighs the value of the process. Winning a game against your friends is not life-changing, and thus the incentive to have fun in the process of playing is more compelling than the incentive to be sure about winning. Conversely, if an amount of money were involved that would allow us to quit our jobs and travel around the world, we would go for the guaranteed win every time.
+
+---
+
+# Conclusion
+
+Incentives are the hidden engines that drive behavior. They’re the unseen forces that shape our choices, the carrots and sticks that guide our actions. Think of a business offering a bonus for hitting a sales target. The bonus is an incentive, the external reward that motivates the salesperson to excel. But incentives aren’t always so obvious. They can be subtle, even subconscious—the social approval we seek, the habits we form, the desires we pursue.
+
+Incentives are powerful because they tap into the fundamental wiring of the human brain. We’re hardwired to seek reward and avoid punishment, to optimize for the outcomes that serve our interests. When the incentives align with our goals, we thrive. When they don’t, we struggle.
+
+In a classroom it’s easy to say that we’ll be motivated by doing the right thing; however, in reality, we’re mostly driven by rewards. We have a hard time turning down the pleasure of immediate gains even if it takes us away from our ultimate goal.
+
+Often short-term and long-term incentives differ. You might not feel like going to the gym today, but you want to be healthy as you age. Making choices to maximize your satisfaction today often leads to less reward down the road.
+
+Poorly designed incentives backfire, encouraging short-term thinking, unethical behavior, or unintended consequences. The key is to craft incentives that reward the behaviors that lead to long-term success.
+
+In the end, if you understand the incentive, you can predict the outcome. By shaping the incentives, we shape the outcomes. By aligning the incentives, we unlock the power of human potential.
+
+OceanofPDF.com
+
+---
+
+# Tendency to Minimize Energy
+
+# Output
+
+Least-effort principle.
+
+OceanofPDF.com
+
+---
+
+Nature is thrifty in all its actions.
+
+—PIERRE LOUIS MAUPERTUIS1
+
+---
+
+A ll living beings require energy to perform their daily functions, including sleeping. Over time, species have developed different mechanisms to increase their energy efficiency. The tendency in organisms to conserve their energy is what ensures they will have extra to draw on in times of increased need. For humans, we have to be careful, though, to make sure minimizing our energy output increases our effectiveness and doesn’t lead to laziness.
+
+# Saving It Up
+
+There are many cold-blooded species. Without the biological requirement to maintain stable internal body temperatures, these animals do not need to expend energy for this purpose, allowing them to save energy for other activities. Some turtles, for example, can spend winters at the bottom of very cold bodies of water without moving because they have body parts that can maintain their integrity in extreme temperatures. Moreover, these turtles have powerful mechanisms to direct blood flow to essential organs during these times. They also have advanced energy-storage abilities that they make use of when they are in nutrient-deficient environments.
+
+Sharkskin is another example of biological energy efficiency. The skin is composed of backward-structured scales that reduce water resistance. Along with the wavy motion in which sharks move, these scales allow them to swim at incredible speeds in an energy-efficient manner. There is a significant increase in survival potential for organisms that develop efficiency in handling the ongoing, repetitive requirements of their environments.
+
+---
+
+Change is costly for most organisms. It can be easier to keep doing whatever has guaranteed their survival thus far than to try something new that might fail and waste energy or endanger them. The instinct to minimize energy output can lead us to be resistant to change or risk-taking. Using this model as a lens can help us better understand our default thinking tendencies, and how our patterns of movement impact our physical environments.
+
+---
+
+# Desire Paths
+
+Cutting through forests, fields, snow, and debris are paths created by the feet of people who wanted to get between two points as efficiently as possible. Our tendency to minimize our energy output means that we don’t always defer to the paths that have been set out for us. Sometimes these desire paths unwittingly trample on sensitive vegetation or cause other environmental fractures. But other times they are used by city or park planners to design traffic flows and the spaces around them. When designers and planners don’t take into account our instinct to minimize energy expenditure, we end up with spaces that impede our movement, which we must use in a different way.
+
+---
+
+The way people solve problems is first by having an enormous amount of commonsense knowledge, like maybe 50 million little anecdotes or entries, and then having some unknown system for finding among those 50 million old stories the 5 or 10 that seem most relevant to the situation. This is reasoning by analogy.
+
+—MARVIN MINSKY
+
+# The Lazy Brain
+
+Humans, like every other species, are energy minimizers—intensely so. Our brain has developed as an energy minimizer, as have the rest of our body parts.
+
+Psychologists have a word for the efficiency mechanism in how we think: “heuristics.” When we’re thinking of making a decision, large or small, we use shortcuts developed from our long experience in the world; in chess terms, we do not consider ten million different moves but instead rapidly choose the two or three that are most likely to work.
+
+Decisions carry a “cognitive load,” meaning they require brainpower. Taking the time to analyze ten million moves requires significant effort, which uses significant energy. We cannot possibly stop in our day to do the work required to make the most optimal decision in all cases.
+
+Heuristics are shortcuts and thus require us to expend less energy. The results may not always be the best (they usually aren’t), but they are often good enough for whatever situation we are in. In a process known as “satisficing,” we’ll often search for the first thing in our brain that satisfies our minimum acceptable conditions. This saves time and energy, but it doesn’t mean we get the best outcome.
+
+Some heuristics develop based on previous experience. These are going to be the most reliable if the prior experiences are themselves fairly consistent. Heuristics are more likely to be accurate in situations with a
+
+---
+
+stable environment, frequent exposure (large sample size), and immediate, unambiguous feedback.
+
+In his studies of firefighters, for example, Gary Klein demonstrates the accuracy of the quick decisions that they make in the course of their jobs and how this accuracy increases over time.3 Why? Fires are governed by rules of chemistry and physics, and thus exhibit consistent behaviors. The more you interact with fires, the more you will build knowledge that allows you to intuitively make good decisions in future fire situations.
+
+The more unreliable the previous experience, such as by being too complex to identify true cause and effect or being based on too small a sample size, the more likely your heuristics aren’t going to be particularly useful. Clinical therapy has this problem. The nature of the situation makes it hard to receive immediate feedback on the actual effectiveness of the therapy. There could be a host of other factors that contribute to eventual improvement, even simple regression to the mean. The confidential nature and often long duration of the therapy process makes it very hard for each individual practitioner to build experience over a large sample size.
+
+Other heuristics seem to be built into how our brains operate. The most famous of these—anchoring, availability, and representativeness—were extensively studied by Daniel Kahneman and Amos Tversky. They demonstrated that these heuristics are essentially innate to the human brain. They are just how we do things, even when it’s comparatively simple to demonstrate that they are often ineffective and filled with bias.
+
+In Thinking, Fast and Slow, Kahneman describes the affect heuristic as a mental shortcut “in which people make judgments and decisions by consulting their emotions: Do I like it? Do I hate it? How strongly do I feel about it?”4 He explains that “the affect heuristic is an instance of substitution, in which the answer to an easy question (How do I feel about it?) serves as an answer to a much harder question (What do I think about it?).” Answering the easier question is not necessarily a bad thing; we substitute our emotional response for a thinking response because we have to. We absolutely must react and trust our reactions in order to process the many interactions we have in a day. Our brain goes to the emotional.
+
+---
+
+reaction because it takes less energy to figure out how we feel about something than it takes to do the work to have an informed perspective. Often this is useful, as it lets us put minimal effort into decisions of little consequence, such as buying laundry detergent based on your love of its smell. Sometimes, however, we would increase our skills and knowledge if we put the effort into answering the harder question of what we think about something instead of relying on the emotional shortcut.
+
+Heuristics exist because they are much more efficient—in terms of energy use, not necessarily in getting the most useful answer. As Kahneman explains, “A general ‘law of least effort’ applies to cognitive as well as physical exertion. The law asserts that if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action. In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.”
+
+We often do what feels good. Using less energy often feels better than mentally taxing ourselves. We fall to the level of our evolutionary programming, not our best, often naive intentions. When we think we can overcome our basic instincts, we forget that our brains want to do the exact opposite.
+
+The good news is, when we are willing to expend the energy, Kahneman offers a couple of corrections for the tendencies of heuristics: remember the base rates and pay attention to the quality of information. If you know that 20 percent of people like chocolate ice cream and 80 percent like vanilla, you can easily guess that your new friend prefers vanilla. Even after you are exposed to a series of news stories about a current trend of athletes partaking in cocoa-avocado ice cream, you can still safely guess your friend’s preference of vanilla. Always go back to the base rates and then ask if this new information you have could affect those rates substantially enough for you to change your guess. Without this vigilance, the availability of the news stories and the anchor of the word “cocoa” would likely prompt you to choose chocolate when asked to guess your new friend’s favorite ice cream. But this new information has no relevance to
+
+---
+
+your situation, unless the friend is a professional football player. Your best guess is the probability indicated by the base rates. Thinking that expends the least amount of energy possible is often what feels most natural. Sometimes, though, we have to invest extra calories to get more relevant, useful results.
+
+# To Cubicle or Not to Cubicle
+
+Designing environments for focus, to give people the space and time to do what they actually need to do, will allow for maximum energy efficiency. Like the hydrodynamic shark, whose scales allow for minimum water resistance, we need to develop mechanisms that promote efficiency in the ongoing, repetitive activities we undertake every day.
+
+Open-plan homes can be beneficial in reducing energy expenditure. With an open-plan living space, you can cook dinner while keeping an eye on your kids. You can spot the keys you left in the hallway from the couch. You can move around with ease, transitioning between different spaces and activities without needing to open and close doors. Natural light can flood in from the right angles. Adapting the area to different needs, such as moving the living room furniture to make space for a dinner party, is simple.
+
+But our homes are very different from our offices. They’re a space where we’re meant to be surrounded by people we trust, where we can let our guard down and relax. We can reshape them at will, and we’re not confined by someone else’s rules. Plus, even mostly open-plan homes tend to have private spaces, such as bedrooms, bathrooms, and studies, to retreat to.
+
+When it comes to offices, open-plan layouts don’t reduce overall energy expenditure. They may make it easier to move around, but they vastly increase the effort needed to focus and get work done—which is what matters most in an office. In an open office, workers have to ignore the constant onslaught of stimulus and disruptions—the ding of phones, the
+
+---
+
+slurping of drinks, the sound of music leaking out of headphones, the clatter of feet, the sound of laughter, the annoyance of coworkers tapping on shoulders to ask questions, the slamming of doors, and so on. Not only are employees expending energy on their work, they’re also expending energy on ignoring distractions, which means work is even more exhausting, without more getting done. Without control over when and where we interact, we get overloaded and drained.
+
+Furthermore, people talking in an open office have no control over who is listening and who isn’t. They can’t form strong, one-on-one social ties. Social interactions become more superficial and performative when there’s always an audience. When people need privacy and don’t have spaces that allow it, they turn to means of communication that can’t be overheard. This takes less effort than staying vigilant to see who is listening in.
+
+A large part of the appeal of open offices to employers and designers is that they reduce costs. They also look impressive on the recruitment page of a website or when showing an investor around. However, any claims that they increase collaboration and reduce information silos tend not to be substantiated by research, which means that they actually are likely to increase costs in the long term. For example, face-to-face interactions decrease by as much as 70 percent, with more emails, messages, and other forms of digital communication making up the difference.7
+
+What is interesting is that open-plan offices are far from modern and have indeed been the standard throughout much of history. Although their design has taken on many different iterations, their deficiencies are not new.
+
+Frank Lloyd Wright, the iconic architect, designed the first modern open office in the 1930s for the Johnson Wax headquarters. The building featured incredibly high ceilings that let in natural light, with delicate supporting columns designed to evoke trees. Despite its industrial surroundings, the inside of the building felt airy and natural. Administrators had their own private offices on a mezzanine level so they could focus and enjoy privacy while still being part of the office floor. Wright designed the desks to be spread out enough to reduce distraction and enable free movement within the space.8 The columns and filing cabinets acted as unofficial divisions.
+
+---
+
+With the success of the Johnson Wax headquarters, open-plan offices became increasingly popular, but they lacked the careful design and ample space of Wright’s work and devolved into rows of cramped desks.
+
+In the 1950s, a German design group created the “office landscape,” with partitions dividing different parts of companies in a manner conducive to the way information needed to flow. Essentially, the office landscape was about minimizing the energy people needed to collaborate or to focus.9 And if someone’s needs changed, they could just move the partitions around.
+
+In the 1960s, designer Robert Propst recognized the issues with open-office layouts. To improve upon the concept of office landscaping, he developed the Action Office system, which was intended to be a compromise between open and private workspaces. It involved flexible furniture and movable dividing walls that could be adapted to suit the day-to-day needs of employees. The Action Office was the perfect compromise to support both connection and privacy, but it was too expensive to become mainstream. Employers simply took the basic notion of dividing walls and ran with it, creating the notorious cubicle-farm office where everyone sat in tiny boxes, tapping away. Modern open offices were in part a means of stepping away from this imposed separation.
+
+So, it’s a cycle of open offices as a reaction against cubicles, then cubicles as a reaction to open offices. What’s clear is that effective office design needs to recognize and honor the human tendency to minimize energy output in the same way Wright originally did. People need the space to focus as well as to move around, instead of environments that increase the energy required to get work done.
+
+# Conclusion
+
+The tendency to limit energy output is the universal inclination to follow the path of least resistance. From the flow of a river to the behavior of a market, this tendency is the invisible hand that guides the actions of the world.
+
+---
+
+Sometimes our tendency to conserve energy helps us, and sometimes it hurts us. While minimizing our output ensures we will have extra to draw on in times of increased need, it can also get in the way of learning. Experience doesn’t become learning without reflection, and reflection is an energy expenditure.
+
+If we want to develop our thinking and get the most out of our environments, then we have to be aware of the natural tendency to minimize energy output and correct for it where doing so creates value.
+
+OceanofPDF.com
+
+---
+
+# Afterthoughts
+
+The models in this book give you the tools that you need to better understand the world. We’ve explored fundamentals from physics, chemistry, and biology to show you how scientific concepts have wider applications in all sorts of everyday situations.
+
+The more tools you have in your mental toolbox, the more likely you are to make better decisions. In turn, better decisions should free up your time and help you live a more meaningful life.
+
+The world is fundamentally connected. However, the ideas in this volume are deliberately presented without connection, leaving you, the reader, to connect them to build your own latticework of mental models. While challenging, this is the work of assimilating information and making it usable. First you have to develop the models in your mind by learning about the fundamentals, applying them to situations in your life, and learning from the results. Then you have to keep using your latticework, refining and updating as you go. You must always be willing to adjust for new information but be knowledgeable enough to be selective about what you let in.
+
+We recommend journaling to stimulate learning from your experiences. While most people assume that experience is the key to learning, the key is actually reflection. Journaling works because it prompts reflection. Keeping a journal, in which you chronicle your use of the models and your results, allows you to build a repertoire that you can rely on time and again. Using the models does get easier.
+
+What is most important, however, is to find a method of reflection, feedback, and learning that works for you. Reread the chapters. Fill in the
+
+---
+
+Make a note about any relevance that pops into your mind. Usually when we finish a book that inspires us, we get excited and want to make changes right away. Then we get caught up in something else and forget about it. Before life gets in the way, take a step in the direction you were inspired to go. Pick one model and use it today. Test it out. Make the models in this book and in the rest of the series something you reach for in your everyday life. They’re too useful to leave on a bookshelf.
+
+# The Great Mental Models
+
+is a four-volume series. The next book, volume 3, covers models from systems and mathematics. It presents the fundamentals from these two disciplines that govern our world and shows how we can harness them to improve our thinking and outcomes in a wide variety of situations. Systems and numeracy models have broad applicability and are the best source we have for trying to anticipate and plan for the future.
+
+As the series goes out into the world, we will post resources on our website at fs.blog/tgmm to help you integrate the models into your thinking. Before long, when it comes to using mental models, you will be capitalizing on the powerful momentum you have created. These ideas will become such an integral part of the fabric of your thinking that it will be impossible to view any situation without the valuable lenses they provide.
+
+OceanofPDF.com
+
+---
+
+# Acknowledgments
+
+I’m forever indebted to Charlie Munger, Peter D. Kaufman, Warren Buffett, and Peter Bevelin, who, to varying degrees, started me down the path of multidisciplinary thinking. I owe them a huge debt of gratitude.
+
+Thank you to my coauthor, Rhiannon Beaubien, for making this series a reality. It’s impossible to overstate her contributions to this volume and the entire series. Without her, you would not be holding this book in your hands.
+
+This series would be lost without our talented illustrator, Marcia Mihotich. Thank you for seeing these words and ideas and bringing them to life in simple and exceptional ways.
+
+While this is a revised volume 2, I wanted to give a special mention to Garvin Hirt and Morgwn Rimel for shaping the creativity of the original version. Working with you both has encouraged me to make things beautiful and timeless. And thank you to our OG editor Kristen Hall-Geisler for her willingness to dive in and ensure the material flows and comes together in the end.
+
+The original version of this series would not have been possible without our partnership with Automattic and their incredible CEO, Matt Mullenweg. Thank you to Niki Papadopoulos and the entire team at Portfolio for rereleasing this series and supporting my efforts to make it as beautiful and as timeless as we can.
+
+Thank you to Simon Hørup Eskildsen, Zachary Smith, Paul Ciampa, Devon Anderson, Alex Duncan, Vicky Cosenzo, Laurence Endersen, David Epstein, Ozan Gurcan, Will Bowers, Ran Klein, Sanjay Bakshi, Jeff Annello, Tara Small, Tina Cantrill, Nathan Taggart, Tim Bragassa, Yves.
+
+---
+
+Colomb, Rick Jones, Maria Petrova, and Dr. Gregory P. Moore for taking the time to review various books in this series. Your comments and contributions have helped make everything better.
+
+Thank you to my sons, Will and Mack, for reminding me to continue to learn and grow along with you. This series was largely written for you and future generations.
+
+Thank you to the entire FS team for your hard work and dedication over the years to bring this series to life.
+
+And finally, thanks to you, the reader. I continue to be amazed by how many of you want to take this mental models journey with me. I hope this book is one you can reference time and again as you seek to better understand the world.
+
+---
+
+# THE GREAT MENTAL MODELS
+
+# Systems and Mathematics
+
+We learn so much from the world if we are willing to take the time to let it teach us. Each discipline we study contains fundamentals that provide insight into many of the common challenges we face. These fundamentals make up Farnam Street’s latticework of mental models, a way of approaching new ideas and situations, problems, and challenges with a toolkit of valuable knowledge.
+
+In volume 1 of The Great Mental Models, we introduced nine general thinking concepts to get you started on the journey of building a framework of timeless knowledge. Time and again those models have proven indispensable in both solving problems and preventing them in the first place.
+
+In volume 2 of The Great Mental Models, we continued the journey and explored fundamental ideas from physics, chemistry, and biology. The truths about the physical world, from the forces that allow us to manipulate energy to the behaviors that drive the actions of all organisms, are constants that can guide our decisions so that our actions are aligned with how the world works.
+
+How much you know in the broad sense determines what you understand of the new things you learn.
+
+—HILDE ØSTBY AND YLVA ØSTBY
+
+In this book, volume 3, we will consider the core ideas of systems thinking and mathematics. Although these subjects can appear abstract, as soon as we start taking them apart, we quickly see that they describe many
+
+---
+
+of the behaviors and interactions that govern our lives. We hope you are excited about embarking on this next step of the journey.
+
+The more moving parts you have in something, the more possibilities there are.
+
+—ADAM FRANK
+
+# About the Series
+
+The Great Mental Models series is designed to inspire and challenge you. We want to give you both knowledge and a framework for using it in everyday life.
+
+One of our goals for the series is to provide you with a set of tools built on timeless knowledge that you can use again and again to spot opportunities others miss, avoid problems before they happen, and live a better life. It is a guide to dozens of mental models, spread across multiple volumes, that define and explore the foundational concepts from a variety of disciplines. We then take the concept out of its original discipline and show you how you can apply it in less obvious situations. We encourage you to dive into new ideas not only to augment your knowledge toolbox but also to leverage what you already know by applying it in new ways to gain a different perspective on the challenges you face.
+
+In the first book, we explained that a mental model is simply a representation of how something works. We use models to retain knowledge and simplify how we understand the world. We can’t relearn everything every day, so we construct models to help us chunk patterns and navigate our world more efficiently. Farnam Street’s mental models are reliable principles that you can see at work in the world time and again. Using them means synthesizing across disciplines and not being afraid to apply knowledge from different areas far outside the domain they usually cover.
+
+Not every model applies to all situations. Part of building a latticework of mental models is educating yourself regarding which situations are best.
+
+---
+
+addressed by which models. This takes some work, and you’re likely to make some mistakes. It’s important to constantly reflect on your use of models. If something didn’t work, you need to try to discover why. Over time, by reflecting on your use of individual models, you will learn which models will best help you tackle which situations. Knowing why a model works will help you know when to use it again.
+
+Systems thinking is a discipline for seeing wholes. It is a framework for seeing interrelationships rather than things, for seeing patterns of change rather than static “snapshots.”
+
+—PETER SENGE
+
+# About This Book
+
+Volume 3 examines some of the core mental models from systems and mathematics.
+
+Systems are everywhere, and we live our lives as part of many of them. Mathematics too explains the dynamics of how a great deal of our world works. We start each chapter by explaining the theory behind the concept and then situate it in real-world examples. We want you to see each concept in action and be inspired to find analogous uses in your own life. To achieve this goal, we show how using the model as a lens will help you see stories and themes in history in a new way.
+
+As you go through this book, you will begin to see just how interconnected systems and mathematics are. Although we have broken the components apart to consider them separately, by the end you will be making connections between the models yourself. A lot of the work of this series is helping you reach these connections yourself. For example, you will start to see how bottlenecks connect to surface area and how feedback loops underpin the behavior of so many system interactions. Often the lessons and insights are relevant at both an individual and organizational level.
+
+---
+
+level. As you learn the models, you will start to see the principles they cover in almost any situation in which you find yourself. You’ll see things others don’t and avoid costly mistakes.
+
+Some of the models in this book function like metaphors, especially in the mathematics section. We aim to show you how to use these models to uncover the dynamics in a variety of challenging situations you may face and give you insight on how to harness the suggested ideas to positively influence your outcomes. The more you know, the easier it is to design solutions that will work.
+
+Other models, especially from systems, have a more literal application. Because systems are so ubiquitous, it’s not useful to try to apply these models outside them. Instead, we offer ideas for considering just how much of life is part of a system so you can expand your application of systems thinking.
+
+When looking at historical examples through the lens of a model, it’s important to remember we are not attempting to demonstrate causation. We are not saying that what happened in a particular moment in history can be explained by, for example, a mathematical formula or that a certain historical figure used the described model to guide their decisions. We are simply showing you how you might understand that bit of history differently when you use a particular model as a lens or giving you a different perspective on why a particular person’s decisions led to the outcomes they did. You therefore will get inspiration for applying the same model to nonintuitive situations in your own life.
+
+Finally, all these models, as with those covered in the previous books, are value-neutral. They can be used to illuminate both the positive and negative aspects of any situation. They might work well in one situation but not in another. We try to balance use of the models with noting some of their limitations so you have ideas for when you might want to take an alternate approach.
+
+You will learn the differences in how to apply each model through the stories we have chosen to explain them. Each example is crafted to give you insight into where the model can apply. You can take the elements of each
+
+---
+
+story as a signpost directing you to find similar situations in your life where the lens of a particular model will be most useful.
+
+The most important thing to remember is that all models are tools. You are meant to try them out, play with them, and learn what you can use each of them to fix. Not all tools are useful for all problems, and just as a traditional toolbox has a hammer when you need to pound a nail and a wrench for when you need to turn a bolt, you’ll learn through practice which tools are useful in which situations in your life. The best way to do that is to start by being curious. As you begin each chapter, be open to learning and updating your knowledge. Then, practice. Pick a new model every day, apply it to a situation you are in, and see if you can improve your understanding and decision making. Finally, reflect. Take some time to evaluate your successes and failures. In doing so, you will begin to learn the full potential of the toolkit you are building.
+
+Time to get started.
+
+OceanofPDF.com
+
+---
+
+# SYSTEMS
+
+In spite of what you majored in, or what the textbooks say, or what you think you’re an expert at, follow a system wherever it leads. It will be sure to lead across traditional disciplinary lines.
+
+— DONELLA H. MEADOWS
+
+OceanofPDF.com
+
+---
+
+Feedback Loops
+Listen and incorporate.
+               OceanofPDF.com
+
+---
+
+The key to the feedback loop is the information it provides. You need to know whether you are moving toward your goal or away from it, and you need to know if your actions are having the intended effect.
+
+—JAMES CLEAR
+
+---
+
+Feedback loops are everywhere in systems, making them a useful mental model.
+
+Think of feedback as the information communicated in response to an action. Whether we realize it or not, we give and receive different forms of feedback every day. Sometimes feedback is more formal, as is the case with performance reviews. Other times, it is less so. Our body language is a form of feedback for people interacting with us. The tone you use with your kids is feedback for them.
+
+A feedback loop is a process in which the output of a system also acts as an input to the system, helping to refine and improve the system over time. It’s like a conversation in which each reply helps to shape the next question and answer, making the discussion better and more focused.
+
+Once you start looking for feedback loops, you see them all over the place, giving you insight into why people and systems react the way they do. For example, much of human behavior is driven by incentives. We want to take actions that lead to us getting something good or avoiding something bad on a range of timescales. The incentives we create for ourselves and other people are a form of feedback, leading to loops that reinforce or discourage certain behaviors. If you get visibly upset whenever someone at work offers you constructive criticism, you’ll incentivize your colleagues to only tell you when you’re doing something well—thereby missing out on chances to improve.
+
+The challenge in using this mental model is that the ubiquity of feedback loops can become overwhelming. How do you know which ones to pay attention to? Or which ones to adjust to improve your outcomes?
+
+We are constantly offering feedback to others about our feelings, preferences, and values. Others, in turn, communicate feedback on the same things, but we don’t necessarily receive it or interpret it correctly. A critical
+
+---
+
+Requirement is learning how to filter feedback. Not all of it is useful. The quicker you learn to identify feedback that helps you progress, the faster you will move toward what you want to achieve.
+
+Learning to communicate feedback in a way that makes it easy for others to receive is a valuable skill to develop. Feedback is crucial to relationships of all kinds. The skill is in giving feedback in a kind and clear way, in hearing it without getting defensive, and in partnering with people who can receive it on a regular basis. If you feel you can’t communicate important thoughts and feelings, you won’t be happy in that relationship or situation long-term. Much of relationship therapy consists of a therapist helping a couple tell each other things they have been afraid to say—when that feedback should have been free-flowing for years.
+
+There is a larger implication here about working with the world. The world offers us feedback, but do we listen and incorporate, or do we just keep wanting it to work differently than it does?
+
+# The Technical Definition of a Feedback Loop
+
+A feedback loop is a process in which the outputs (information) of a system affect that system’s behaviors. Depending on the complexity of a system, there may be a single source of feedback or multiple, possibly interconnected sources. It helps to first consider feedback in a simple system as we do in the following, but keep in mind, we are part of many large systems that contain many interconnected feedback loops.
+
+Feedback loops are a critical model because they are a part of your life whether you are aware of them or not. Understanding how they work helps you be more flexible with the variety of feedback you receive and incorporate, and then you can offer better feedback to others.
+
+# Types of Feedback Loops
+
+There are two basic types of feedback loops: balancing and reinforcing, which are also called negative and positive. Balancing feedback loops tend toward equilibrium. Your thermostat and heating system run on a balancing feedback loop. Information about the temperature of the house is communicated to the thermostat, which then adjusts the output of the furnace to maintain your desired temperature.
+
+---
+
+Reinforcing feedback loops amplify a particular process. They don’t counter change, like your thermostat does. Instead, they keep the change going, as with the popularity of trends in fashion (in which styles become ubiquitous within months, only to disappear soon after) or the loops usually involved in poverty (in which different but related circumstances can compound the problem). Breaking out of reinforcing loops often requires outside intervention or a new change in conditions. Or, as with fashion, they simply burn themselves out after a while.
+
+Within complex systems, feedback is rarely immediate. It can take a long time for changes in flows to have a measurable impact on how the system works. This delay complicates establishing cause and effect. In our lives, problems arise when the feedback for our actions is delayed or indirect, as is often the case.
+
+A challenge to improving our decision making is getting accurate feedback on decisions. On one hand, consequences may take a long time to become apparent or may be hard to directly attribute to a particular decision. On the other, we may trap ourselves in maladaptive behaviors when something we do receives positive short-term feedback but has negative long-term consequences. Thus, it’s important to remember immediate feedback isn’t the only feedback. When you eat junk food, there is an instant hit of pleasure as your body responds to fat and sugar. After a little while, though, you receive other feedback from your body that indicates your choice of junk food has negative consequences. And over longer periods, conditions such as type 2 diabetes and high blood pressure provide more feedback from your body about the effects of your eating habits.
+
+The faster you get useful feedback, the more quickly you can iterate to improve. Yet feedback can cause problems if it’s too fast and too strong, as the system can surge. It’s like when you press the gas or brake too heavily when first learning how to drive.
+
+Feedback loops are a useful mental model because all systems have them, and we operate in a world of systems and subsystems.
+
+---
+
+# Adam Smith and the Feedback Loop of Reactions
+
+You probably know Adam Smith as one of the most influential economists of all time, notable for his notion of the “invisible hand” of the market. But Smith’s first book, The Theory of Moral Sentiments, is a work of philosophy.2 In it, he describes a different sort of invisible force that guides us: how the approval and disapproval of others, real or imagined, influences our behavior.
+
+We are, by nature, selfish. We value ourselves above all other humans. Smith illustrates his point by suggesting that the news that your little finger must be amputated would likely be more stressing than the news of the deaths of a huge number of strangers overseas. Yet despite our inherent selfishness, the majority of people the majority of the time are cooperative and kind to one another.
+
+Smith believed our interactions with others are responsible for our well-established reciprocity. He saw others’ responses to our behavior as feedback guiding how we act in the future. To do something selfish usually warrants a disapproving reaction. To do something selfless usually merits an approving one.
+
+The feedback loop of others’ reactions to our actions is the basis of civilization. Russ Roberts writes in How Adam Smith Can Change Your Life, “Smith’s vision of what sustains civilization is the stream of approval and disapproval we all provide when we respond to the conduct of those around us. That stream of approval and disapproval creates feedback loops to encourage good behavior and discourage bad behavior.”3
+
+This type of feedback doesn’t just cover formal punishments and prohibitions according to the law where we live. It also covers the ways people respond to behavior that is just considered the norm. If a friend says hello to you on the street and you fail to acknowledge them, you haven’t broken any laws, but they’re likely to respond in a negative fashion. So you adhere to the norm. Smith writes: “When Nature formed man for society, she endowed him with a basic desire to please his brethren and a basic aversion to offending them. She taught him to feel pleasure in their favorable regard and pain in their unfavorable regard. She made their approval most flattering and most agreeable to him for its own sake, and their disapproval most humiliating and most offensive.”
+
+Smith asked readers to imagine a person who grows to adulthood without any interactions with other people. He believed such a person would have no awareness of their character and no notion of the right or wrong way to act.4 Our desire to be loved and accepted prompts moral behavior relative to the
+
+---
+
+standards of our society. We in turn respond with approval of the same behavior on the part of others.5
+
+---
+
+# Everyday Loops
+
+We can address many of the challenges we face every day by adjusting feedback loops. Figuring out how to change behavior (ours and others’), dealing with inaccurate information, and building trust are ongoing challenges. How to get customers to buy your product and not the competitors’; how to sort through information to find what’s relevant to your decision; how to cooperate effectively with others: these are common situations many of us face.
+
+All these dynamics play out on the larger social scale as well. How do societies incentivize the behavior they want and disincentivize the behavior they don’t want? How do they get people to trust one another enough to keep society functioning?
+
+Any system with an unchecked reinforcing feedback loop is ultimately unsustainable and destructive. Balancing feedback loops are more common in systems because they are sustainable—they maintain a system long-term, whereas reinforcing loops can crash and burn. In many societies, a legal system has historically served to stop reinforcing feedback loops from crumbling the social infrastructure and to promote balancing feedback loops that support desired dynamics. How they do it suggests options for addressing similar issues with feedback loops in our own lives.
+
+# Let’s explore four aspects of social systems through the lens of feedback loops:
+
+1. Creating the right future incentives
+2. Influencing behavior at the margins
+3. Dealing with information cascades
+4. Building trust
+
+---
+
+# Creating the Right Future Incentives
+
+We want to minimize, as much as possible, making a choice today that creates a negative reinforcing feedback loop down the road. So, we consider the future incentives a decision will create.
+
+A classic example of today’s solution inadvertently creating a reinforcing feedback loop of future problems is paying off kidnappers. The immediate problem is someone being kidnapped and a ransom being demanded. If you have the resources to meet the kidnappers’ demands, you might want to pay the money right away. You save a life and solve the problem.
+
+However, your response communicates to the kidnappers that you will meet their demands. You thus create an incentive for them to kidnap again, as well as signal to other would-be kidnappers that there is money to be made. By paying a ransom, you create a powerful reinforcing feedback loop that causes more problems in the future.
+
+In many legal systems, each decision by a court becomes a bit of information that moves via a feedback loop into the stock of legal options to influence both how the system responds to future cases and how judges form future decisions. Each decision becomes legal precedent. In The Legal Analyst, Ward Farnsworth explains that in making decisions courts will consider “what incentives people will have after the case is over.”6 Courts need to be careful. If they compensate for a wrong now, they could create a climate that increases the chances of that wrong happening again.
+
+One set of issues courts often face is questions of liability. If something bad happens to me, then does someone else need to pay to compensate? Sometimes the answer is yes, but not indiscriminately so. If we go back to the kidnapping example; let’s say an American citizen is kidnapped overseas and the kidnappers demand the government pay for release. Is the government liable to compensate the victim’s family for the loss of life if they choose not to pay the ransom? Most courts will answer no. If I am held liable, it incentivizes me to pay in the future, and we are back in the same reinforcing feedback loop. When considering certain instances of liability,
+
+---
+
+Farnsworth explains, “Instead of looking back and deciding who should bear the suffering, [a court] can look ahead and decide what ruling will make the suffering less likely to occur later.”
+
+In some situations, choosing an immediate benefit creates reinforcing feedback loops that remove the possibility of future benefits. For cases like these, laws are designed to support balancing feedback loops, such as protecting attorney-client privilege, or copyright and patent laws. Although one could argue for the immediate benefit of, say, forcing a defense attorney to testify about what their client disclosed, the feedback loop created would make clients disinclined to disclose things to their attorney. As Farnsworth summarizes concerning copyright protection, “Once books and music exist…there’s a great case for free distribution of them. But then they are less likely to exist at all next time.”
+
+People look around and often see what they view as unfairness—but they don’t realize that unfairness sometimes has a greater purpose. Unfairness in specific cases creates fairness on the whole, as in the aforementioned cases. Often things happen that look like an injustice to the individual, and they may be so. But those things may create greater justice for the collective. Think of someone being “excessively” punished; that may seem unfair to them, but if it is successful in deterring others from committing the same infractions, it’s not always such a bad idea.
+
+# Influencing Behavior at the Margins
+
+Not everyone is likely to change their behavior in response to pressures, such as social or economic changes, at the same intensity and rate. Some people need more convincing; others need more time.
+
+A good customer retention strategy doesn’t lump all customers into one group. It might, for example, treat customers of ten years better than customers of six weeks. These are examples of margins. “Margins” can mean a lot of things in economics; in this case we mean “by increments,” or “small changes”—shades of gray instead of all or nothing.
+
+---
+
+explains thinking at the margin as “looking at problems not in a total, all-or- nothing way…but in incremental terms: seeing behavior as a bunch of choices about when to do a little less along one dimension and a little more along another.”
+
+Let’s consider the consumption of sugary drinks. Influencing behavior at the margins means that you won’t see the problem as a binary of consumption or no consumption. Instead, you look at how you can influence people’s behavior to help nudge them toward a particular choice you consider better for them without preventing them from making the opposite choice. The idea is to make it easier to choose one option and harder to choose another.
+
+Maybe you want people to consume fewer drinks. Maybe you want them to substitute sugar-free drinks as a healthier option. If we were thinking about putting in rules to reduce the consumption of sugary drinks, we could tax them, or limit where they could be consumed or sold, or limit the age of people who can buy them. Farnsworth writes, “The activities of individual people have margins…and then groups of people have marginal members,” and often a legal rule is created with “the hope, realistic or not…that it cuts down on the practice at the margin.”
+
+Using feedback loops as a lens, we can understand influencing behavior at the margins as instituting a series of incentives that create loops. Over time this feedback changes the system to produce the desired outcomes. We can tailor our feedback to adjust to nuances in behavior that, when combined across a large population, can have significant positive impacts on our system.
+
+Another reason to pay attention to the margins is that they are often the place where reinforcing feedback loops start. A loyal customer of twenty years is not likely going to be the first to leave after a price hike. It’s probably going to be the person who just purchased recently. However, when they leave to go to a competitor or even just buy less, there is a danger of setting off a negative reaction that sees sales plummet, which makes reinvestment in the product harder, which leads to more customers leaving.
+
+---
+
+Criminal law has to work at the margins in terms of deterring unwanted behavior. This means any additional (incremental) crime must be met with appropriate punishment. For example, if a criminal “faces execution for the crime he already has committed, he pays no additional price for adding a murder to it.” We don’t want thieves to get a death sentence, or there would be no incentive for them not to kill people in the course of their thievery. Farnsworth explains, “The designers of criminal penalties have to worry about preserving marginal deterrence—scaling penalties so that there is always something more to fear by doing a little worse.” In essence, this creates a balancing feedback loop that responds with appropriate consequences depending on the severity of the crime.
+
+One of the issues as systems get larger is that there are more margins on which to adjust behavior. Adjusting a feedback loop in an attempt to balance it may create an undesirable reinforcing feedback loop somewhere else. For example, if you make it more difficult for people to consume sugary drinks in public, do you then force them into consuming in private indoor spaces? If you do, there is the danger that consuming sugary drinks in the home could lead to increased consumption with fewer judgmental eyes around. It could also normalize the behavior for children in the household, leading to another generation of sugary drink consumers.
+
+The concept of feedback opens up the idea that a system can cause its own behavior.
+
+—DONELLA H. MEADOWS
+
+# Dealing with Information Cascades
+
+Information cascades happen when people make decisions based on the observations or actions of others, which often leads to a convergence of behavior. Many investors selling a particular stock might trigger a cascade in which others sell the same stock, not because of something being wrong.
+
+---
+
+with the company but rather because others are selling. Or consider social media virality. A small number of people rapidly liking a post makes the algorithm show the post to more people, who, seeing everyone else liking it, engage with it as well—often without evaluating the content.
+
+Information cascades are a reinforcing feedback loop. They can be evaluated as either positive or negative, depending on the information they communicate. Information cascades occur because we rarely have perfect information, and in many situations, especially in situations of uncertainty, we look to others to determine what we ought to do.
+
+In his book *Kitchen Confidential*, Anthony Bourdain offers a lot of advice to would-be restaurant-goers based on his years working in the industry—useful tips such as try the local food and never ask for your steak well done. Another insight: when choosing which restaurant to go to, pick the one that looks the busiest. If lots of people are eating there, the food must be fairly good.14
+
+Restaurateurs are aware of the effects of signaling. They know that the more customers you seat, the more will come in the door. This is why they will seat the first patrons of the evening close to the window and why they don’t mind a line of people waiting to be seated. They understand that the more people there are signaling their interest in the restaurant, the greater the reinforcing feedback loop communicating how wonderful their restaurant is. Farnsworth explains, “People draw inferences from what they see others doing and do the same; now even more people are doing it, and they create a still stronger impression on the rest.”15 People who were on the fence about the restaurant will be drawn in by the apparent interest. As they join the queue, the interest of the next threshold level (the next number of customers) gets piqued.
+
+There are other information cascades, some of which can be damaging if left to grow unchecked. Many legal systems have rules designed to interrupt reinforcing feedback loops of illegal activity. Most of us think we are law-abiding citizens. But we break the law more often than we realize. Just think of speeding. When was the last time you drove under the speed limit for your entire car journey? When it comes to things like speeding—or
+
+---
+
+consuming pirated media, insider trading, or paying someone under the table—we often draw inferences about acceptable behavior from the people around us. However, a legal system cannot prosecute everyone who speeds. So how does it interrupt the loop?
+
+Farnsworth writes, “Ignorance and uncertainty are the best soil for a cascade; people rely on what others think when they have no strong knowledge of their own, and the fragility of the consensus that results makes it easily disrupted by shocks.”16 Thus two common legal solutions for dealing with a negative information cascade are laws that require public disclosure of information and prosecuting in certain high-profile situations to make a visible example.
+
+Sometimes having more easily available and accurate information can interrupt a cascade. Think of the disclosure of financial information for publicly traded companies. Not only does the prosecution of high-profile cases act as a deterrent, but the publicity involved often provides more information about the legal territory. The prosecution of Al Capone for tax evasion probably did a lot to educate people about their basic tax responsibilities.
+
+Ultimately these types of actions by the courts are “meant to send signals stronger than the ones people get by watching each other.”17 And it is those signals that interrupt the reinforcing feedback loop of an information cascade.
+
+# Building Trust
+
+Complex societies require trust among members to function. Look at how much trust we place in the other drivers on the road every time we get into a car. We trust that they will stop at red lights and stay in their lane. We are vigilant for the occasional mistake, but we drive as if other drivers will obey the same rules and quickly notice when they don’t. We place trust everywhere—from the people of our children’s school system to those who work in our food and safety systems. For relationships without direct
+
+---
+
+interaction, the law facilitates trust. Farnsworth writes, “Law often amounts to a substitute for trust in situations too complex or dispersed for trust to arise.”18
+
+# B
+
+# Prisoner B
+
+| |Cooperation|Defection|
+|---|---|---|
+|A: 1 year|4|1|
+|A: 0 years|1|2|
+|B: 5 years|B: 1 year|B: 0 years|
+|B: 2 years| | |
+
+Numerous tournaments have been held in which participants use different strategies to compete to win the most points in the iterated Prisoner’s Dilemma. The results show how repeated interactions between self-interested agents can lead to cooperative behavior.
+
+---
+
+The thought experiment goes as such: Two criminals are in separate cells, unable to communicate. They’ve been accused of a crime they both participated in. The police do not have enough evidence to sentence both, though they are certain enough of their case to wish to ensure both suspects spend time in prison. So they offer the prisoners a deal. They can accuse each other of the crime, with the following conditions:
+
+- If both prisoners say the other did it (both defect), each will serve two years in prison.
+- If prisoner A says the other did it (defects) and prisoner B stays silent (cooperates), prisoner A will serve zero years and prisoner B will serve five years (and vice versa).
+- If both prisoners stay silent (both cooperate), each will serve one year in prison.
+
+In game theory, the altruistic behavior (staying silent) is called “cooperating,” while accusing the other is called “defecting.”
+
+What should they do? If they were able to communicate and they trusted each other, the rational choice is to stay silent; that way, each serves less time in prison than they would if the other defects. But how can each know the other won’t accuse them? After all, people tend to act out of self-interest. The cost of being the one to stay silent is too high. The equilibrium outcome when the game is played is that both accuse the other and serve two years. In a one-off game of the Prisoner’s Dilemma, you are always better off defecting, which means not trusting the other player. Your outcomes are not usually great, but defecting prevents them from being horrible.19
+
+We can imagine, however, in iterated versions of the game, that defecting might not always be the best choice. If you have to face the same situation over and over, figuring out ways to trust is worth the investment.
+
+---
+
+Feedback loops are one of the key mechanisms that provide the information we use to make trust-based decisions. What happened before in your interaction with a person provides feedback that may cause you to modify your behavior, as does someone’s reputation.
+
+The loop of information is the basis for the classic strategy of the Prisoner’s Dilemma, tit for tat. In a repeated Prisoner’s Dilemma, the best solution, based on experiments conducted by Robert Axelrod, is to cooperate first, and then in subsequent rounds, to do what the other player did in the previous round. You start off trusting, and more important, you create a feedback loop that says you are capable of and willing to trust.
+
+The law has a couple of mechanisms that help in encouraging a basic level of trust. The first mechanism is that legal systems often enforce contracts. Knowing that there are repercussions for defecting on our agreement might dissuade me from defecting the first time we work together. Consequences also increase the costs of defecting, even if we will never work together again. In addition to protecting individuals in the one-off, contract enforcement also helps to create feedback loops that promote and incentivize trust. Farnsworth explains, “Contracts…give everyone a convenient way to beat prisoner’s dilemmas and enjoy the gains that come from cooperation.”20 The point here is that we can trust the feedback loops of the system to enforce micro-interactions so we can establish trust. We can imagine that after a few interactions, the gains that come from cooperation contribute to a feedback loop that encourages people to prioritize cooperation in those situations.
+
+The law can also impose rules and associated penalties for noncompliance in situations where contracts are not possible. Paying your taxes is a way of participating in a sort of contract with your fellow citizens, and most countries have laws that penalize people for not paying. Rules can also govern the use of common or public stocks to incentivize people to cooperate for the common good.
+
+This is often the intent with rules governing fishing quotas. To prevent all those who fish for a living from acting in their self-interest and depleting the stock beyond sustainable levels, laws regulate how much each company...
+
+---
+
+can fish. Enforcing quotas is a way of forcing a level of cooperation to maintain a common good.
+
+As we can easily imagine, if no one cooperates, that quickly becomes a reinforcing feedback loop with negative consequences in many situations. The less people cooperate, the less incentive there is for future cooperation. To prevent that loop from beginning, the law can impose rules that discourage the initial defection.
+
+---
+
+# Kandinsky’s Iterations
+
+We learn from our efforts. Our first try at anything is rarely any good, but the experience of trying gives us feedback. If we pay attention to it, this feedback can help us improve in our next effort. Through many iterations, by paying attention to and incorporating feedback, we end up becoming more capable. Too often we remove the learning process, including the inevitable failures and disappointments, in success stories. In particular, when it comes to artistic creation, we look at the final product of a painting or piece of music without seeing all the iterations that came before.
+
+In How to Fly a Horse, Kevin Ashton tells the story of how Wassily Kandinsky created one of his most famous works, Painting with White Border. The piece was not the single output of a flash of inspiration, but from a series of small changes and adjustments based on the feedback he received from each iteration.
+
+The artist started with what would be called Sketch I for Painting with White Border. Based on the feedback he received from looking at the effort, he continued to iterate. As Ashton describes it, “His second sketch, barely different, diffused the lines until they were more stain than stroke…More sketches followed…. He made twenty sketches, each no more than one or two steps different from the last. The process took five months.”
+
+Ashton describes Kandinsky as trying to solve certain problems in his painting (these can also be understood as artistic goals). Each iteration Kandinsky produced gave him feedback on whether he was closer to solving his problems. Eventually he had enough information from the feedback on multiple iterations to produce the painting he wanted. The finished work is Kandinsky’s twenty-first iteration.
+
+---
+
+# Conclusion
+
+Feedback loops are the engines of growth and change. They’re the mechanisms by which the output of a system influences its own input.
+
+Complex systems often have many feedback loops, and it can be hard to appreciate how adjusting to feedback in one part of the system will affect the rest.
+
+Using feedback loops as a mental model begins with noticing the feedback you give and respond to every day. The model also gives insight into the value of iterations in adjusting based on the feedback you receive. With this lens, you gain insight into where to direct system changes based on feedback and the pace at which you need to go to monitor the impacts.
+
+Feedback loops are what make systems dynamic. Without feedback, a system just does the same thing over and over. Understand them, respect them, and use them wisely.
+
+OceanofPDF.com
+
+---
+
+# Equilibrium
+
+Dynamic balance.
+
+OceanofPDF.com
+
+---
+
+A system can be said to be at equilibrium when it is in a stable state. All the forces acting upon it and within it are in balance. Nothing changes until something disturbs the equilibrium.
+
+Usually when systems stray too far from their equilibrium, they fall apart. When we consider just the pure functioning of a system, equilibrium is a good thing. Using this model as a lens helps us understand where we might intervene to promote equilibrium, but it also cautions us that in complex systems, anticipating what is needed for equilibrium is exceptionally difficult.
+
+Think of equilibrium as a system’s comfort zone—in static equilibrium, everything is at a standstill, perfectly ordered and unchanging. But that’s rare. What’s common is dynamic equilibrium, in which things aren’t frozen but dance within a certain range, adjusting constantly. It’s the system’s way of self-correcting through feedback loops, nudging anything that drifts too far back into its rhythm.
+
+One way to conceptualize the idea of equilibrium is to imagine a hypothetical family whose overall household forms a system. For the household to run in the way that’s best for everyone on average, many variables need to stay within the desired range. If they get out of that range, the family makes adjustments to restore balance. For instance, to cover their living costs, the family needs a certain amount of money to flow into the household each month as well as to keep their money for emergencies at a comfortable level. When they decide to start paying for piano lessons for one of the children, they may cut down on dining out to maintain equilibrium. The family also needs their home to remain within a certain cleanliness range for them to remain happy and healthy. When they decide to get a dog, remaining at equilibrium means they have to spend more time cleaning to compensate for the mess the dog makes. When one family
+
+---
+
+member is away for the week, the others reduce how many groceries they buy. If you imagine your household—even if it’s just you—you can think of innumerable variables you’re always tweaking to keep things as you like them.
+
+|Transport|Savings|
+|---|---|
+|Housing|Food|
+
+There are only so many hours in a day and so much money available to spend. Adding in new commitments means adjusting our current equilibrium.
+
+Homeostasis is the process through which organisms make continual adjustments to bring them as close as possible to their ideal conditions. Changes in external conditions lead to changes in internal conditions, which may shift a system away from what it needs to work well.
+
+Physician Walter Cannon coined the term “homeostasis” in his iconic 1932 book, The Wisdom of the Body. He marveled at the many variables our bodies manage to keep within narrow parameters, including blood glucose, body temperature, and sodium levels. Although systems theory did not exist
+
+---
+
+as a field of study at the time, Cannon was espousing a view of the human body as a whole system that needed to maintain a stable internal state in response to its ever-changing environment.1
+
+An important point is that systems can have multiple equilibriums. Just because a system is at equilibrium, that doesn’t mean it’s functioning as well as it can. It just means things are stable. Sometimes systems achieve equilibrium in inefficient ways. If you’re feeling ill one week and struggling to focus on work, you might work extra hours each day to get your usual work done. You’ve maintained equilibrium, but you would have probably been better off overall if you’d done less.
+
+Short-term deviations from equilibrium are often what is needed to maintain it in the long term. An argument with a sibling that takes work to resolve might shift your relationship with that sibling away from its equilibrium for a few weeks, but in the long run, it could make things more stable between you by helping you resolve tension and agree on new ways to treat each other.
+
+---
+
+# A Different Look at Homeostasis
+
+In his book *The Strange Order of Things*, Antonio Damasio explores the role of homeostasis in evolution. He explains that homeostasis “ensures that life is regulated within a range that is not just compatible with survival but also conducive to flourishing, to a projection of life into the future.” He further clarifies the concept by saying, “Homeostasis refers to the process by which the tendency of matter to drift into disorder is countered so as to maintain order but at a new level, the one allowed by the most efficient steady state. ”
+
+Individuals, organizations, and countries—all are systems that must respond to environmental changes with modifications intended to bring them closer to a desired state. When we go through external challenges, whether it be a breakup, job challenges, or extreme weather, homeostasis kicks in to help us return to a point where the surrounding system functions at its best. Sometimes that can simply be a matter of what feels good rather than a precisely definable set of conditions. Unlike biological systems, we as humans can change the state we aim for, such as when we realize something else would work better—we can be quite happy alone, in a smaller house, or at a different job.
+
+Damasio argues that feelings act as the key to understanding the biological role of homeostasis. Our feelings are a feedback loop that provides information to our body system about how we are doing. You have to be able to monitor the adjustments and responses to make changes that put you back on track. We do this through the value judgment of feelings. After a disaster, for instance, homeostasis does not need to (and frequently doesn’t) return the system to its previous state. Instead, it’s more useful to think of homeostasis returning a system to a place where it “feels good” under new conditions.
+
+Therein lies the potential of homeostasis. How systems define themselves as “feeling good” will have a huge impact on their ability to adapt to stress and change. In biological systems, feelings are a critical component of how we assess problems. When your blood glucose drops, you feel terrible, which causes behavior that seeks to bring you back to where you feel OK. But that level of OK is a range, and Damasio’s idea is that homeostasis normally keeps us at the end of the range that allows us to develop. As variables under- and overshoot and external conditions change, systems can never stop making adjustments. Homeostasis is never a static state.
+
+---
+
+# When Information Can Help
+
+When we look at biological systems, we can easily see that information is required to maintain homeostasis, or dynamic equilibrium. In our bodies, various components are constantly receiving and communicating an incredible amount of information about everything from the sensations on our skin from the external temperature to the potassium levels in our blood. Without accurate information, our bodies cannot work properly. Using this model as a lens, we can understand which situations might benefit from information to maintain equilibrium. One such situation is the modern approach to doctor-patient communication in many medical systems.
+
+The doctor-patient relationship is universally unbalanced in terms of power and knowledge. Doctors have more knowledge about both medicine and the system used to treat patients. This dynamic has led to patients being passive participants in their health care, given neither the knowledge nor the opportunity to make decisions regarding their treatment. Now, in some places, the relationship has started to change, with patients becoming more active participants. There is growing recognition in some medical systems that the experience of treatment (and consequently sometimes health outcomes) improves when patients are more active participants in making treatment-related decisions. To facilitate this participation, in some medical systems patients are now given much more extensive information about their condition and the various treatment options, including associated risk.
+
+Part of the reason for the change to more patient participation is the acknowledgment that diagnostics and treatments are rarely black-and-white. In a paper called “Tolerating Uncertainty,” the authors write, “Doctors have to make decisions on the basis of imperfect knowledge, which leads to diagnostic uncertainty, coupled with the uncertainty that arises from unpredictable patient response to treatment and from health care outcomes that are far from binary.”3 It doesn’t make sense for a doctor to make treatment decisions for a patient in isolation, because any treatment is going
+
+---
+
+to have consequences that the patient will disproportionately bear. Involving a patient in the discussion of their care options also serves to minimize blind spots and bias. Explaining options to a patient means that a doctor must at least acknowledge the options that exist, and coming to a solution through dialogue with a patient helps to make the solution situation-specific.
+
+People who are actively supported in making decisions about their health care often experience more favorable health outcomes, including less anxiety and a quicker recovery.
+
+One of the methods for increasing the information availability of treatment options in the doctor-patient relationship is a process called “shared decision making” (SDM). SDM does not put the responsibility for a
+
+---
+
+decision on one party or the other but instead provides the resources necessary for the doctor and patient to come to an acceptable decision together. In a 1997 paper, the authors explain that SDM is “seen as a mechanism to decrease the informational and power asymmetry between doctors and patients by increasing patients’ information, sense of autonomy and/or control over treatment decisions that affect their well-being.”
+
+For patients to make an informed choice about their care, they need to understand the benefits and harms of the various treatment options. They might also require the support of a loved one, multiple opportunities to hear and assess the information, the ability to ask questions, and some time to process the information. In one definition of dynamic equilibrium, the condition exists “when the system components are in a state of change, but at least one variable stays within a specified range.”
+
+A medical situation is just such a system because many parts are usually in a state of change, specifically the exact parameters of the health issue itself. Usually too, in more complicated health situations, there are many doctors and specialists involved. In addition, the needs and desires of the patients are not always static. SDM tries to keep the information variable within a range that allows for both the doctor and patient to navigate the situation in an informed way.
+
+For information to be closer to equilibrium for both patient and doctor in medical treatment situations, it’s important to recognize the elements that might affect the flow of information. It’s not enough to share raw information. Doctors and patients also must build trust that will allow that information to be accepted and processed. In a 2014 analysis of parent experiences in neonatal intensive care units (NICU), the authors explain, “When families voice their dissatisfaction with the NICU, it is often not because they think their baby has not received good medical care. Instead, it is because the parents’ needs have not been acknowledged and addressed.”
+
+Small things like using a baby’s name and acknowledging the parents’ caregiving role help create a communication environment where the information needed for good decision making can be heard and understood.
+
+---
+
+Medical situations are often complex. They can involve a lot of people and a lot of uncertainty. In addition, they almost always include very powerful emotions. Allowing information to come as close as possible to equilibrium in these types of situations can provide enough structure to support positive functioning in a changing environment.
+
+---
+
+# Exploiting Assumptions
+
+If you become too dependent on a particular equilibrium to perform well, you make yourself vulnerable to being thrown off by changing circumstances. Being able to function in a wider range of conditions makes you more versatile and flexible. It’s also useful to have homeostatic processes in place to enable you to get back to what you find optimal after any sort of disruption. In competitive situations, those who flounder when they’re thrown off their equilibrium by something unexpected without having the mechanisms to reorient often suffer.
+
+Sometimes you can transcend your abilities by thinking about what an opponent expects or considers normal. You can also achieve more by rethinking what the equilibrium is in your field.
+
+Take the case of card tricks. When an audience watches a magician perform a trick, they start with certain assumptions and expectations. The same is true for professional magicians watching other magicians perform a trick. Their equilibrium consists of a set of assumptions that enables them to identify how a trick works by watching it or to reverse-engineer it from the end point. Professional magic includes all sorts of conventions and assumptions. One unspoken assumption is that a magician performing a particular named trick does it the same way every time, using the same technique. To figure out how the trick works, you need to identify that technique.
+
+One American magician, Ralph Hull, managed to invent a card trick no one—not even the smartest expert magicians—could fathom by rethinking the equilibrium of card magic. He called it “The Tuned Deck.” Hull would show the audience a pack of cards, claiming he could sense the location of any card in the deck by detecting minute vibrations. He would then allow an audience member to pick a card, look at it, then put it back into the pack. Hull moved the cards around, shuffling them one way and another, then pulled out the correct card. Its unique vibrations revealed its location, or so he said.
+
+No one managed to figure out how he did the trick, despite expert magicians watching him perform it again and again. Only at the end of his life did Hull reveal the secret: The Tuned Deck didn’t have one, single secret. Hull would use a mixture of different techniques, moving between them depending on whether an audience seemed to be twigging what he was doing. If a professional magician were watching, he might use a few different consecutive methods until he threw them off the scent. The real trick was that Hull shifted away from the
+
+---
+
+equilibrium assumption that a trick with a name had to be done the same way
+every time.
+
+---
+
+# The Complexity of Equilibrium
+
+Beginning in the 1960s, scientists began to ask questions such as: How could humans survive for a long time in space—or even form permanent settlements on other planets? What does it take to sustain life within a sealed environment, like a spaceship or underground bunker on Mars? How can we create an ecosystem in a closed environment, capable of reaching an equilibrium necessary to keep people alive?
+
+In asking these questions, scientists recognized that our planet is itself a closed system. Innumerable complex processes come together to enable humans to survive. Beginning with experiments in which samples of microbial life were sealed permanently into flasks (some of which are still alive today),10 researchers demonstrated ways in which closed systems could sustain themselves. Such experiments, on a modest scale, formed an important part of the Russian and US space programs. But the project known as “Biosphere 2” (with planet Earth being Biosphere 1) was on a scale unlike anything that had come before it, and few experiments since have matched its sheer scale, audacity, and ambition.
+
+Biosphere 2 consists of a 180,000-square-meter structure located in the desert near Tucson, Arizona. Its aboveground structure is made of almost 204,000 cubic meters of glass supported by a steel framework with a maximum height of 27.7 meters.11 Parts of the building are rectangular, parts are pyramid-shaped, parts are domed. Inside, Biosphere 2 contains the following five separate ecosystems mimicking key environments in the outside world:
+
+1. Coastal fog desert
+2. Tropical rainforest
+3. Savanna grassland
+
+---
+
+# 4. Mangrove wetland
+
+# 5. Ocean
+
+Biosphere 2 also includes areas for agriculture, as well as underground areas for housing the equipment necessary to keep the whole thing functioning. It was the brainchild of John Allen and Ed Bass. Allen was a metallurgist and Harvard MBA who, following a psychedelic trip in the 1960s, founded a commune called Synergia Ranch in Santa Fe County, New Mexico. Successful relative to similar projects at the time, Synergia attracted the attention of Ed Bass, a young billionaire heir to an oil fortune. Together they launched several ambitious projects before deciding in 1984 to set out and discover what it would take to form a Mars colony that humans could live in. With Bass’s fortune and Allen’s ambition at hand, they assembled a team of experts and began the monumental task of creating Biosphere 2.
+
+In 1991, the “Biospherians”—a team of eight individuals who’d spent years preparing—were sealed inside Biosphere 2 for two years. The aim was for them to maintain a functioning ecosystem with nothing (not even air) coming in from the outside. They would farm all of their food, grow plants and raise animals, and strive to maintain all conditions necessary for their survival. By the time they emerged, the Biospherians had endured a great deal. Oxygen levels had sunk drastically, to the point where it proved necessary to bring in outside oxygen to keep them alive. They struggled to meet their caloric requirements while engaging in so much physical work, though this lifestyle left them healthier than before and they suffered no major health problems during the experiment. The Biospherians frequently fell out with one another and with those controlling the experiment.
+
+Much of the contemporary media coverage of Biosphere 2, as well as its representations in popular culture, depict the whole thing as a failed experiment replete with fraud and trickery. But this is the result of a gross misunderstanding of both the aims of the project and indeed the nature of science. Experiments aren’t meant to “succeed.” They’re meant to provide us with data about the world that we can use as the basis for future.
+
+---
+
+experiments. None of the people who worked on Biosphere 2 expected everything to run perfectly from the first day. They understood that for a system—in this case, the biosphere within the dome, consisting of plants, animals, and people as well as air, water, and more—to achieve an equilibrium, a lot of variables need to be right. Only by trying out the experiment could they discover what all those variables were. They couldn’t preempt everything, and it would have been hubris to think they knew everything an ecosystem needed to function well.
+
+As a voyage of discovery, Biosphere 2 excelled. It showed us that maintaining life in a sealed environment is almost infinitely challenging because ecosystems are complex adaptive systems. Under natural conditions, they have countless feedback loops in place to maintain equilibrium. An artificially created ecosystem requires humans to maintain those feedback loops, in part by preempting what they’ll need to control but also in part by learning to sense when something is going wrong so they can create a new feedback loop.
+
+When left alone in their typical conditions, systems are pretty good at reaching equilibrium. But when we try to control them or we disrupt their conditions, it takes a lot of effort to bring them to a desirable balance. Despite the early stage of the project, the achievements of the Biospherians were remarkable. They did manage to produce almost all their food, get enough clean water, and keep hundreds of plant and animal species alive. Anyone who has ever tried to grow vegetables at home or even keep a few houseplants alive can appreciate the scale of the experiment. Those who view the project as a comical failure have arguably neglected to think about the sheer complexity of getting a system like that to an equilibrium. Just maintaining the level of balance the Biospherians achieved was a monumental act deserving of acclaim.
+
+Not only that, but Biosphere 2 is an important reminder of the effects of human activity on ecosystems. It highlights how small, misguided interventions can have catastrophic domino effects and just how much damage we can do anytime we interfere with nature. Everything that went into Biosphere 2 required careful examination of ways in which it might
+
+---
+
+both be unable to maintain its equilibrium and also disrupt the overall balance of the ecosystem. Linda Leigh, who helped develop Biosphere 2 and was one of the participants sealed inside, described the complexity of choosing animal species to include.14 Every animal needed to be evaluated for how it might interact with everything else. For example, they consulted a bat specialist to choose a species that could pollinate some of the plants. Yet when they looked at the consequences of including that species, they were huge:
+
+One of those bats would nightly have needed to eat twenty two-centimeter-long night-flying moths, and would have had to [have] encounters with over a hundred per night in order to catch the twenty. Where would all of the moths come from? What would their larvae eat, and could we have enough and the correct habitat for the moths’ eggs? In addition, the air handlers, as designed, would have sucked the moths in and killed them. Engineers suggested a fine screen over the opening to the fans in order to give the moths a chance to survive the pull. That screen would increase the electricity needed to pull the air through, a budget increase that was not supported.15
+
+In another example, an expert tried to find a hummingbird species that could live inside Biosphere 2.16 They had to ask lots of questions about each option, which a casual observer might not consider. What shape is this type of hummingbird’s bill? Will it be the right size to pollinate enough plants? What kind of mating display does this type of hummingbird exhibit? Will it be at risk of colliding with the glass during this display? And so on. The considerations were endless.
+
+Even the most seemingly inconsequential things had the potential to compound and endanger the lives of everything in the ecosystem. As professor and filmmaker Shawn Rosenheim explained, “Part of the point in building a self-sustaining world was to make the unimaginably rich.
+
+---
+
+interconnections of the actual Earth newly vivid.” The initial two-year closure experiment was meant to be the first of fifty such experiments, with the aim of improving incrementally each time. As a starting point, the first closure went better than expected. For instance, 30 percent of the species inside went “extinct,” but researchers had predicted up to 70 percent.
+
+At the time of writing, Biosphere 2 still stands, having been donated to the University of Arizona in 2011. From the outside, it looks like a shadow of its former self. The windows are murky without sufficient funds to employ a full-time crew to keep them clean, and rust accumulates on the structure. But inside, Biosphere 2 remains full of life. Many of the microcosms within it are thriving, having found the equilibrium they need to function as they would in the outside world. Researchers still utilize it as a unique place for valuable controlled experiments they can’t easily do anywhere else.
+
+# Conclusion
+
+Equilibrium is the state of balance, the point where opposing forces cancel each other out. It’s the calm in the center of the storm, the stable point around which the chaos swirls. In a system at equilibrium, there’s no net change. Everything is in a steady state, humming along at a constant pace.
+
+However, systems are rarely static. They are continuously adjusting toward equilibrium, but they rarely stay in balance for long.
+
+Equilibrium is a double-edged sword, both stability and stagnation. In our lives we often act like we can reach an equilibrium: once we get into a relationship, we’ll be happy; once we move, we’ll be productive; once X thing happens, we’ll be in Y state. But things are always in flux. We don’t reach a certain steady state and then stay there forever. The endless adjustments are our lives. The trick is to find the right balance, to strive for equilibrium where it’s needed, but to also know when to break free, to embrace the disequilibrium that drives progress.
+
+---
+
+# Bottlenecks
+
+The limiting factor.
+
+OceanofPDF.com
+
+---
+
+All systems have parts that are slower than others. The slowest part of a system is called the “bottleneck” because, as the neck of a bottle limits the amount of liquid that can flow through, bottlenecks in systems limit the amount of outputs they can produce. Viewing systems through the lens of their bottlenecks offers us a powerful perspective: these constraints can either stifle our progress or serve as a strategic choke point that, when managed wisely, can compel efficiency and innovation.
+
+No one wants to be a bottleneck, which is easily conceptualized as that person who makes everyone else wait. We see this behavior in people who can’t delegate. If you insist on making every decision yourself, there’s likely a long line of people twiddling their thumbs as they wait for you to move their projects forward while you are overwhelmed.
+
+Bottlenecks tend to create waste as resources pile up behind them. In manufacturing, they limit how much you can produce and sell. If you work in an industry that depends on timely information, then you risk inputs becoming irrelevant before they make it through the bottleneck.
+
+A bottleneck is also the point that is most under strain. It can be the part that is most likely to break down or has the most impact if it does. In trying to improve the flow of your system, focusing on anything besides the bottleneck is a waste of time. You will just create more pressure on the bottleneck, further increasing how much it holds you back by generating more buildup.
+
+Every system has a bottleneck. You cannot completely eliminate them because once you remove one, another part of the system becomes the new limiting factor. You can, however, anticipate bottlenecks and plan accordingly. Or you can leverage the need to overcome them as an impetus for finding new ways of making a system work. Sometimes you can overcome bottlenecks by adding more of the same, such as dedicating more...
+
+---
+
+resources to ease the pressure on a bottleneck. But sometimes the sole solution is to rethink that part of the system.
+
+# Yield
+
+(Liebig’s law of the minimum refers to the idea that a plant’s growth will be limited by the nutrient that is least available. Yield is thus constrained by resource limitation.)
+
+What you want to avoid is opening one bottleneck only to create additional, worse ones for yourself later. If bottlenecks are unavoidable, we at least want them to be in a less disruptive place.
+
+Although the terms are sometimes used interchangeably, a bottleneck is different from a constraint. A bottleneck is something we can alleviate; a constraint is a fundamental limitation of the system. So a machine that keeps breaking down is a bottleneck, but the fact that there are twenty-four hours in the day is a constraint.
+
+---
+
+Be vigilant for masqueraders in the system—those false dependencies that pose as bottlenecks. Like the illusionists of the machine, they divert attention and resources as if they hold sway over the throughput, when in reality they’re just specters of constraint, not its substance. We often hear explanations in the form of: “I won’t do X before Y.” Most statements of this type are only in place to make you feel good about procrastinating when you are the bottleneck. For example, you might say you will start writing every day once you move and have a dedicated desk for it. If the bottleneck is a lack of a suitable workspace, then moving will alleviate it. But if the bottleneck is something else, like time or ideas, you’re setting up a false dependency. The bottleneck will still be there once you move. Even if the problem is your workspace, you could still find ways to make progress, such as by going to the library or reading source material. Anything you do now will make it easier to get into the habit of daily writing.
+
+If you think you’ve identified a bottleneck, it’s a good idea to do what you can to validate that this is indeed the limiting factor. Otherwise, you might end up solving the wrong problem.
+
+# The Trans-Siberian Railway
+
+How you deal with your bottleneck can have huge impacts on the overall quality of your system. Often, we tend to just take care of the bottleneck no matter the cost. But there is always one in every system. Some bottlenecks are better to have than others because they are easier to organize the rest of our system around.
+
+The building of the Trans-Siberian Railway (TSR) was a complicated project with many moving parts that borrowed from future resources to address its bottleneck. It is both an inspiring and cautionary tale, as sometimes dealing with bottlenecks in the most expedient way possible can cause significant issues later. Part of solving a bottleneck is anticipating the consequences.
+
+---
+
+The TSR was a massive undertaking. Not only is it the longest railway in the world, but the challenges in building over that distance were unmatched at the time. The railway spans the entirety of Russia from Saint Petersburg in the west, close to Finland, to Vladivostok on the Sea of Japan just east of North Korea.
+
+As W. Bruce Lincoln describes in *The Conquest of a Continent*, there were multiple challenges to building the TSR:
+
+- Construction crews would have to work thousands of miles away from their bases of supply.
+- Rails and bridge iron would have to be brought to Siberia from foundries as far away as St. Petersburg and Warsaw.
+- Ties would have to be cut in European Russia and shipped across the Urals because almost no hardwoods grew in the steppe or the taiga.
+- Stone for bridge piers and abutments would have to be transported from quarries on the western frontier of Mongolia.
+
+Then, as the tracklayers moved deeper into Siberia, terrain and climate would magnify the obstacles. Then endless forest, the gorges cut from solid rock, the mountains of the Transbaikal, the treacherous permafrost, the short winter days, and the deep, deep Siberian cold all presented obstacles on a scale that the world’s builders had yet to face.
+
+Given the scope of the undertaking—9,458 kilometers, two to three times longer than the transcontinental railways that had been built in North America at the time—it’s not surprising that addressing a bottleneck could have far-reaching consequences.
+
+One critical point about bottlenecks is they can move around systems. You fix one only to introduce another. In *The Chip*, T. R. Reid gives an example of shifting a bottleneck that threatened an entire system. He describes a textile factory that started falling far behind its normal production rate. To figure out what was going on, the factory manager followed the output process on the production floor. They found the
+
+---
+
+Employees constantly had to rethread their sewing machines because a cheaper thread they’d bought kept breaking. To save fifteen cents per spool, they were losing $150 per hour in production output.2
+
+The TSR was a complex undertaking, so attempts to alleviate a bottleneck could easily cause unanticipated consequences. Problems beset the project. There was a continual shortage of local supplies. There were limits to construction schedules caused by the seasonal weather. The fact that all decisions about the railway had to go through a central committee in Saint Petersburg with a weeks-long communication delay created uncoordinated short-term solutions to problems.
+
+In addition, the deepest lake in the world sits in the middle of the route. Originally the main line stopped on one side of the lake and goods were ferried across to the rail continuation on the other shore. This created a huge physical bottleneck in terms of the movement of goods and people until a track was completed around the lake’s southern shore decades after the main line was built.
+
+Finally, and perhaps most critically for the actual construction, an extreme shortage of labor created a bottleneck that had significant impacts on the functioning of the other parts of the system.
+
+The railway was built as five separate projects that were worked on simultaneously. One of the consequences of deciding to work this way was that the railroad wasn’t treated as one project when it came to labor. Each of the five projects competed with the others for the same pool of resources. The desire to shorten the total building time resulted in a trade-off that augmented the labor bottleneck. As Christian Wolmar explains in To the Edge of the World, this construction approach created a competition for resources that, combined with a low local population density, meant there weren’t enough locally available workers. They had to be imported.3 In order to ease the pressure on the labor bottleneck, skilled workers were imported from all over Europe to work along the length of the TSR. For the eastern section, thousands of workers were brought in from China, Japan, and Korea. And on all parts except the middle section that ran through the
+
+---
+
+Siberian prison camp area, convicts were used in the construction of the track.
+
+The enormous time pressures placed on the men charged with building the railway meant that the labor bottlenecks were often addressed with excessive sums paid to contractors. Thus labor absorbed most of the money available for the project. As Wolmar describes, local peasant contractors were unsupervised, and there was no competitive tendering process. Contractors “often asked for extra payment, once work had begun, as they knew that there was no alternative supplier because the imperative was to get the job done quickly.”
+
+The problem with easing the pressure on the labor bottleneck by subcontracting the work to those without sufficient experience manifested on the train track itself. The incentive for the contractors was to pocket money in the short term. The labor shortage could be solved with money, yet there was only so much funding available. Something had to give. What got sacrificed was safety. “With very little supervision of the work, contractors boosted their profits by skimping on material or building below the required standard, resulting in embankments that were too narrow, insufficient ballast, inadequate drainage and a host of other failings.” To save money on building materials because the labor was so expensive (and the cut directly pocketed by the subcontractor so high), the inclines in many places were too steep and the curves too tight. It was a dangerous railway.
+
+For the TSR, solving the labor shortage created a materials bottleneck because the money used to solve the labor problem meant there wasn’t enough left over to purchase quality materials. The central committee thousands of miles away could not keep up with the demands to solve workmanship and safety issues. They were unable to react fast enough, so the integrity of the track was compromised.
+
+Despite the remarkable achievement of building the TSR, the cost-cutting on materials and the shortening of the route through unsuitable terrain with steep grades and tight corners meant it had problems from the start. Wolmar explains, “Almost as soon as each section of the line was completed, improvements had to be made to ensure it was functioning properly.”
+
+---
+
+Even with the sustained effort, the locomotives wore out quickly, goods were shipped painfully slowly, and accidents and deaths occurred all the time.
+
+Spending money without quality assurance only moves problems into the future. Russia effectively had to build the same railroad multiple times because the first track was almost unusable.
+
+On a project with the scope of the TSR, bottlenecks are inevitable. Identifying them and planning how to manage them is part of the process of construction. The lesson here is to be careful how we address bottlenecks so that we don’t create huge problems for ourselves later on.
+
+Often when we encounter a bottleneck, we patch it over, and it bounces back to being a bottleneck again. On the TSR, the money used to solve the labor shortage also created incentives to keep that shortage going. Throwing money at the problem without understanding the system is unlikely to yield the intended benefits.
+
+Instead of addressing bottlenecks as they appear, your time might be better spent on a root-cause fix that makes a foundational improvement that leads many bottlenecks to disappear indefinitely. One way to achieve foundational improvement is to simulate conditions you are likely to face to try to find bottlenecks ahead of time. Instead of merely fixing the problem, we can solve a bottleneck by asking how the system could be designed to not have that problem in the first place. Addressing bottlenecks is a never-ending job and must always be factored into your planning.
+
+# Bottlenecks and Innovation
+
+Bottlenecks inspire innovation. When a limit emerges, we’re often forced to try something new to alleviate it. Many inventions come about as the result of shortages that prompt us to find alternatives.
+
+Innovating as a response to bottlenecks is common during wars, when default materials may be unobtainable. Looking at the past century, many
+
+---
+
+Things we now use regularly were invented in times of conflict to alleviate bottlenecks in supply.
+
+Nylon was the first synthetic fiber, and today we use it in everything from swimwear and fishing nets to seat belts and tents. It’s light, strong, and waterproof—in other words, versatile and practical.7 Nylon was invented in the early 1930s as an alternative to silk and began commercial production toward the end of the decade. The United States obtained most of its silk from Japan at the time but risked losing access due to rising tensions between the two nations. Nylon eliminated that bottleneck by providing an alternative material manufactured in the United States.
+
+While it was invented in response to a shortage, it proved to have advantages over silk in common products as well as new uses. In particular, nylon stockings were popular during the early 1940s, before nylon’s production was diverted for military purposes. It served an essential wartime role as parachute and tent material. DuPont, the inventors of nylon, decided not to trademark it so it would seem like a material in itself, not a brand.8 By being in the public domain and available for experimentation and development, nylon continues to find many uses.
+
+Similarly, the United States had difficulties obtaining rubber during World War II due to conflict with Japan. Ameripol, a synthetic rubber that didn’t rely on access to Asian natural resources, was invented by chemist Waldo Semon as an alternative.9 Not having any rubber would have been disastrous for the war, as it was integral for practically every item and device used in the fighting, in particular tires. Without rubber, as innocuous as it seems, vehicles like planes and tanks wouldn’t have been able to operate. It’s very possible that without the rapid effort to invent a viable form of synthetic rubber and develop the capacity to produce almost a million tons of it, the Allies would have lost the war.10 Now most rubber is synthetic.
+
+Medical science tends to advance the fastest during wars. Facing new demands and shortages of essential supplies, people find creative ways to deal with injuries and diseases. During the American Civil War, dozens of new types of prosthetic limbs were invented, and surgeons became more...
+
+---
+
+Adept at using ligatures. At the start of the war, the mortality rate from infections was 60 percent. By the end, it was 3 percent.11 During World War II, production capabilities for penicillin skyrocketed.12
+
+During World War I, many people became malnourished or undernourished due to food rationing. Nutrients became a bottleneck. Lack of adequate food was problematic for children, many of whom developed rickets (soft bones due to vitamin D deficiency). Many soldiers suffered serious bone breakage. Kurt Huldschinsky, a doctor working in Berlin, discovered he could cure rickets by seating children in front of an ultraviolet lamp. Research after the war identified why this worked: a sun lamp simulates sunlight and prompts the body to produce vitamin D, thereby helping to alleviate the bottleneck in access to nutritious food caused by the war. Today sun lamps are a common medical tool for everything from skin conditions to seasonal affective disorder.13
+
+The need to overcome the effects of a lack of nutritious food led to the invention of an alternative way of meeting people’s nutritional needs. Wartime medical innovations that developed as a response to bottlenecks have, in many cases, ended up benefiting everyone.
+
+# Conclusion
+
+Bottlenecks are the choke points, the narrow parts of the hourglass where everything slows down. They’re the constraints that limit the flow, the weakest links in the chain that determine the strength of the whole. In any system, the bottleneck is the part that’s holding everything else back.
+
+The tricky thing about bottlenecks is that they’re not always obvious. It’s easy to focus on the parts of the system that are moving quickly and assume everything is fine. But the real leverage is in finding and fixing the bottlenecks. Speed up the slowest part, and you speed up the whole system.
+
+This is the theory of constraints in a nutshell. Figure out what your bottleneck is and focus all your efforts on alleviating it. Don’t waste time optimizing the parts that are already fast. They’re not the limiting factor.
+
+---
+
+However, bottlenecks aren’t always the villains we make them out to be. Sometimes, they’re a necessary part of the system. Think of a security checkpoint at an airport. It slows everything down, but it’s there for a reason. Remove it, and you might speed things up, but at the cost of safety.
+
+The key is to be intentional about your bottlenecks. Choose them wisely, and make sure they’re serving a purpose. A deliberate bottleneck can be a powerful tool for focusing effort and maintaining quality. An accidental bottleneck is just a drag on the system.
+
+Bottlenecks are the leverage points, the places where a little effort can go a long way.
+
+OceanofPDF.com
+
+---
+
+# Scale
+
+Bigger or smaller = different.
+
+OceanofPDF.com
+
+---
+
+If you do not look at things on a large scale, it will be difficult to master strategy.
+
+—MIYAMOTO MUSASHI
+
+---
+
+Systems come in a variety of sizes, and they change as they scale up or down. Staying small can sometimes be a strategic choice, a way to avoid the growing pains that would force unwanted changes.
+
+Scaling up is rarely simply a matter of multiplication. Take baking as an example: double the dough doesn’t mean double the bread. The geometry of growth affects the pace of fermentation. Size influences function, a principle as true in baking as in building businesses. Understanding scale means recognizing that what works in a small setup may falter when magnified.
+
+When we study a complex system, it’s beneficial to consider how its functioning behaves differently at different scales. Looking at the micro level may mislead us about the macro, and vice versa. As systems expand, complexity does too; more connections breed more potential blockages. Thus, it’s important to combine scale with bottlenecks. As systems become larger, different parts might struggle to keep up. Imagining your business scaling up in some areas faster than others lets you anticipate breakages and bottlenecks.
+
+To give an example of how things change as they scale, consider a company at two different sizes. For a small company with a handful of people with close personal relationships working together in a garage, there’s no need for an HR department or management consultants. They can work together and solve problems face-to-face. Proximity can discourage them from letting too much tension build up. No one is going to steal a coworker’s lunch from the fridge because it’s a tight-knit group and the culprit would be obvious.
+
+Fast-forward a few years and the company is larger, with six hundred employees in several offices. Many have never met, and few are friends. Scaling up means the system has completely changed. It’s now necessary to
+
+---
+
+hire people whose entire job is to organize and make sure everyone gets along. To avoid communication bottlenecks, the company divides into teams, meaning they are better able to manage social dynamics. Provided links remain between parts, systems can safely scale in this fashion: by dividing into parts. But things will always be different as a system scales, and a collection of teams within a company will never be able to communicate like individuals in a small company. The larger the company grows, the more work it takes to ensure information flows to the right places.
+
+As companies increase in scale, parts of the system break because what works for ten people doesn’t typically work for a thousand. As changes to the system are implemented in response to growth, the question always is: How will this system fare in the next year? Ten years? A hundred years? In other words, how well will it age?
+
+As growth occurs, resilience can be increased by keeping a measure of independence between parts of a system. Macro dependencies tend to age poorly because they rely on every one of their micro dependencies aging well.
+
+---
+
+# Economies of Scale
+
+In economics, production processes change as they scale. The more of something that is produced, the more the marginal cost of each additional unit tends to shrink. As more people can afford a product, demand tends to increase. Owning it may become a norm or habit. Economies of scale work because they enable cost-cutting measures, such as purchasing materials in bulk. Systems do not scale indefinitely; economies of scale begin to break after a certain point. Eventually, saving any more money becomes impossible, or there may be no more possible customers. In addition, limitations exist when there are dependencies on finite resources, such as energy, raw material, or computing power.
+
+---
+
+# Long-Lived Japanese Family-Run Companies
+
+Success often sows the seeds of its own destruction. Sometimes getting bigger means becoming more vulnerable, and some things are most apt to survive if they stay small. After all, the majority of species on this planet are insects—tiny, simple creatures that move quickly when a potential threat arrives.
+
+In business, scaling is often seen as inherently good. The bigger a company gets, the more successful we consider it. We hear laudatory stories of how fast new companies grow—hiring more people, opening new offices, and spreading their products or services to vast new audiences. But getting bigger can make companies more fragile. During difficult economic times, companies that scaled too fast can struggle to sustain themselves. Sometimes, when longevity is the goal, staying small and simple can be a superpower.
+
+Most businesses fail in the first few years. The largest companies around at any given point in time, however mighty they may seem in the moment, don’t last long. The average life span of an S&P 500 company is twenty-four years, and this number is decreasing over time.2 In most parts of the world, a company lasting a few decades is remarkable. Yet in Japan, that’s not the case. The country is home to an astonishing number of incredibly old companies, known as shinise.3 Over 50,000 Japanese companies are more than a century old, with nearly 4,000 dating back over 200 years.4
+
+Why are long-lived companies more common in Japan than in the rest of the world? It’s impossible to know for certain. But most of the oldest companies have something in common: the way they scale. Or rather, the way they don’t scale.
+
+Long-lived Japanese companies tend to be small. They’re owned and run by relatives and people with close relationships. They usually have fewer than a hundred employees and trade within a small area in Japan. Durable, loyal customer relationships are integral to their business models.
+
+---
+
+Also, they are driven by a strong internal philosophy that goes beyond their products and services, enabling them to adapt to changing times. By staying small, long-lived Japanese companies can hold on to their traditional values. Being no larger than necessary benefits them during less favorable economic conditions. In a small team where a job may last a lifetime, diffusion of responsibility is less of a problem, as there’s nowhere to hide. Employees may be more invested and take their work as a point of pride.
+
+Take the case of perhaps the most famous long-lived Japanese company, Kongo Gumi. A construction company specializing in high-quality Buddhist temples, it operated independently from 578 AD to 2006. Today it exists as a subsidiary of a larger company. At the time of Kongo Gumi’s liquidation, it was the oldest company in the world, having built Japan’s first-ever Buddhist temple. All that time, it remained in the hands of the same family—forty generations of them. Each owner passed the company on to his oldest son.5 However, to ensure this close-knit succession system worked no matter what, it had some flexibility. If the oldest son didn’t have the right leadership potential, a younger son would take over. If none of the sons were suitable or an owner had no male children, they would choose a suitable husband for a daughter and then adopt him. Adult adoption for business purposes is a common practice in Japan even today, enabling companies to stay within a single family for many generations.6 At one point, the widowed wife of an owner took charge of Kongo Gumi.7
+
+To give context for the length of time Kongo Gumi remained in operation building iconic temples, at the time of its founding, the Roman Empire had just collapsed. The prophet Muhammad was not yet a decade old.8 The world changed a great deal between then and 2006. Kongo Gumi survived numerous wars, periods of immense political upheaval, economic crises, and other disasters. It managed this by adapting to the times. For instance, during World War II, demand for Buddhist temples was low. The company switched to making coffins.
+
+Other notable long-lived Japanese companies also keep things small and within a single family. The same family has owned the Tsuen Tea shop for
+
+---
+
+twenty-four generations and the Nishiyama Onsen Keiunkan inn for fifty-two. In some cases, even the staff pass on their jobs to their children. Other companies of comparable ages may not have remained in the possession of their founders’ descendants but were under the ownership of the same families for long periods.
+
+Scaling up is not always advantageous. Systems change as they get bigger or smaller, and so, depending on your goals and desires, staying small and flexible might be the ideal choice to realize them.
+
+Scaling up from the small to the large is often accompanied by an evolution from simplicity to complexity while maintaining basic elements or building blocks of the system unchanged or conserved.
+
+—GEOFFREY WEST
+
+---
+
+# On Being the Right Size
+
+In 1928, British-Indian scientist J. B. S. Haldane published an essay titled “On Being the Right Size,” which explores the role of scale in biology. Different animals are of different sizes. What’s less obvious is the link between an animal’s size and its appearance. In general, it would be impossible for a species to become much bigger without changing its appearance.
+
+For instance, Haldane imagines what would happen if a gazelle became much larger. The only way its long legs would be able to support its weight would be by either becoming short and thick, or long and spindly but with a smaller body. Incidentally this is how rhinoceroses and giraffes manage.
+
+Not only does changing an animal’s scale require it to look different, but it also transforms the impact of gravity on it. “You can drop a mouse down a thousand-yard mine shaft,” Haldane writes, “and, on arriving at the bottom, it gets a slight shock and walks away, provided that the ground is fairly soft. A rat is killed, a man is broken, a horse splashes.” The reason is air resistance, which prevents a mouse from falling too fast due to the ratio between its weight and surface area.
+
+---
+
+# The Story of Illumination
+
+We often think linearly: If we double our inputs, we’ll get double the outputs. It’s hard for us to imagine that double our inputs will give us half the amount of outputs, or four times the amount. Understanding that systems can scale nonlinearly is useful because it helps us appreciate how much a system can change as it grows.
+
+Since the dawn of time, humans have had to contend with one of our greatest foes: the dark. Once the sun goes down, without artificial light our eyes are ill-equipped to see our surroundings, and we cannot keep watch for danger. Nor can we carry out useful daytime activities like making tools or foraging for food. For this reason, throughout history people have been willing to put a remarkable amount of effort and ingenuity into developing artificial light and making it better, safer, cheaper, and accessible to more people. Each time the technology available to supply us with light has improved, there have been two interesting results. We’ve had to scale up the infrastructure necessary to fuel it, and we’ve changed our productivity scale.
+
+The first attempts humans made at illumination, around forty thousand years ago, were simple unworked pieces of limestone with a smidgeon of burning animal fat, held in cupped hands. As time progressed, people used shells, then fashioned lamps out of pottery, making incremental improvements to the design.10 Early lamps took little work to power, but their light had a tiny range and went out easily. They extended the range of human activity only a little, though it was enough to allow us to make art on the walls of caves.
+
+While the Romans likely made the first beeswax candles, cost considerations meant that for many more centuries, most people used any available form of oil for lighting.11 There were no elaborate systems behind this activity; people made their own fuel. It was labor-intensive to
+
+---
+
+make and maintain, and still only brightened the night a fraction, but it was enough that the value of artificial light was evident.
+
+It can be hard for us to imagine how lacking an effective means of artificial light limited the scale of human activity. Light allowed productive time to scale. People could work longer and produce more.
+
+There was a time when all the women in a village would cluster in one cottage at night, sit in a tiered circle around a single lamp, and share its rays as they sewed, made lace, and the like.12 They were limited to whatever work they could manage with their share of the light. Outside, the streets would remain dark until the seventeenth century. Most activities outside the home were restricted to daylight hours, which kept the world small. Unless you were rich, brave (or foolhardy), or doing something illegal, the night was off-limits for most activities. In cities throughout Europe in the Middle Ages, night meant a total shutdown. The city gates closed, chains ran across roads to prevent movement, and a night watch patrolled the streets to ensure no one was out.13
+
+Moving into the eighteenth century, whale oil became a widespread choice for lamp fuel. This led to a drastic change. For the first time, people fueled their lights with something they hadn’t made themselves. Whale oil came from far away and was purchased in its prepared form. The system required to make whale oil was a huge increase in scale from people producing their own forms of fuel. It took elaborate, dangerous operations aboard ships to find, kill, and extract oil from whales, each of which could yield up to eighteen hundred gallons of the fuel.14 Light was an industry for the first time. For individuals, purchasing fuel was more efficient than making it themselves.
+
+However, the light produced by burning whale oil was still no brighter than that from older forms of oil. The next change in artificial lighting would require a giant change in the scale of the surrounding systems. The transition from candles and oil lamps to gas also enabled human affairs to scale up, transforming areas such as factory work.15
+
+The production of coke (a type of coal-based fuel) created a by-product of burnt gas, which made for a much clearer, stronger flame than anything.
+
+---
+
+to come before it.16 Factories embraced it first, for it offered a way to approximate the kinds of precise work previously possible only in daylight. In Disenchanted Night, Wolfgang Schivelbusch says, “Modern gas lighting began as industrial lighting.” The new artificial light, he explains, “emancipated the working day from its dependence on natural daylight… Work processes were no longer regulated by the individual worker…In the factories, night was turned to day more consistently than anywhere else.”17 Factories could scale up production and run at any time of day, all year round.
+
+Though the first gas systems were built for individual factories and dwellings, inventor Frederick Albert Winsor came up with the idea of a centralized supply connected via underground pipes to all the buildings in an area.18 This would be cheaper, decreasing the marginal price of adding more users, as well as cementing gas’s place as an essential utility for the modern home.
+
+Here we see another increase in the scale of the systems surrounding lighting. Not only did gas have its own production system outside the home, it also had its own distribution system, further removing people from the process of making their light. They didn’t even have to tend gas lamps to keep them working; they just turned them on and off.19
+
+Jane Brox writes in Brilliant that “gaslight divided light—and life—from its singular, self-reliant past. All was now interconnected, contingent, and intricate.” People’s homes became part of a larger system.20
+
+Two consequences of this increased scale were, as Schivelbusch argues, the loss of autonomy for individual households and the regulation of utilities in geographical areas. Houses became part of an infrastructure that increased the scale of the city. Gas lighting provided for households many of the same benefits it gave to industries—activities were no longer bound by the availability of daylight or constrained by the cost and coverage of a candle. But households became dependent on infrastructure they had very little say in.
+
+Gas also scaled up what people could do during the night out on the city streets. Gas streetlamps soon became widespread in cities in England and
+
+---
+
+the United States. No longer did people have to hide away at night while armed watchmen prowled the streets. Now “nightlife” came into existence as a concept.21 New activities or better versions of old ones became possible: coffeehouses and taverns stayed open late as patrons socialized, shops lit up their windows so people could window-shop their wares, areas of cities grew famous for their beautiful appearance at night, and theaters could create visual effects and better distinguish the stage from the audience.22
+
+Artificial light increased the scale of what we could see at night and thus opened up new businesses and new ways of conducting one’s day. Festivities and holiday celebrations began to move later and later into the evening.
+
+With the advent of electricity—a means of making light without fire—nighttime activity was able to further scale up by an order of magnitude. Once electric technology progressed, it was much cheaper, safer, and easier to use for the end consumer, and it could evenly light a whole space as well as the sun could.
+
+Electric light was at first an oddity that seemed to possess no practical value. Humphry Davy discovered the arc light, which used carbon sticks, but it faced the problem of being too bright and short-lived to be practical. Inventing the incandescent bulb would take several more decades of problem-solving, with Thomas Edison and his lab finding the right filament material for bulbs that could scale.23
+
+Having solved that problem, Edison needed a way to supply electricity to homes. As Jane Brox explains it, gas was both a rival and an inspiration. Edison copied the concept of a central supply with a grid connecting houses. As with gas, factories proved eager customers, especially those that used flammable materials.24 Manufacturers soon learned that with electric light, they could operate all the time, increasing profits by running shifts during the night. Time of day ceased to matter in the factory.25 Every moment of the day could be productive, eliminating one of the biggest limitations on human activity.
+
+---
+
+Achieving the ambition of supplying as many people as possible with electric light required creating supporting systems on a whole new scale. It meant digging tunnels for cables and building power stations. Generating electricity meant massive-scale engineering undertakings, like utilizing the power of the Niagara Falls.26 The electric grid, which continues to connect ever more people around the world by transmitting electricity from power plants via power lines, would end up being one of humanity’s greatest ideas.27
+
+As light coverage increased, new concerns emerged. As Schivelbusch notes, “The twentieth century was to experience this relentless light to the full. The glaring and shadowless light that illuminates H. G. Wells’ negative Utopias, no longer guarantees the security of the individual. It permits total surveillance by the state.” As the coverage of artificial light has scaled up, the opportunities for and constraints on individuals have changed. As wonderful as artificial light is for navigation and safety, most of us realize it has limits. To banish darkness suggests “a nightmare of a light from which there is no escape.”28
+
+Artificial light changed the scale at which human activities can happen. In many ways, the limits of our lights are the limits of our world. There are still places where we lack the means to eradicate darkness, such as outer space and the deepest parts of the oceans.
+
+When you scale up a system, the problems you solved at the smaller scale often need solving again at a larger scale. In addition, you end up with unanticipated possibilities and outcomes. As the scale increases, so does its impact on other systems. Increasing the size of a system does not result in just more of the same; there are often new impacts and requirements as the system develops new capabilities.
+
+Looking at the development of artificial light through the lens of scale, we see how important it is to be aware of how scale changes might impact the system as a whole. A more interconnected, larger system may be able to handle variations better, but it may also be vulnerable to widespread failures. Increasing the scale of a system might mean using new materials or
+
+---
+
+# Conclusion
+
+Systems change as they scale up or down, and neither is intrinsically better or worse. The right scale depends on your goals and the context. If you want to scale something up, you need to anticipate that new problems will keep arising—problems that didn’t exist at a smaller scale. Or you might need to keep solving the same problems in different ways.
+
+Think about a recipe. If you’re making a cake for four people, you use a certain amount of ingredients. But if you want to make a cake for four hundred people, you don’t just multiply the ingredients by one hundred. That’s not how scale works. You need to change the process, use bigger mixers, bigger ovens. You need a system that can handle the increased volume without breaking down.
+
+The challenge with scale is that it’s not always obvious how to achieve it. What works for a small system often breaks down at larger volumes. You have to anticipate the bottlenecks, the points where the system will start to strain under the increased load. And you have to be ready to re-engineer your processes as you grow.
+
+If you’re building something, always be thinking about scale. How will this work when you have ten times as many customers? One hundred times? One thousand times? Build with scale in mind from the start, and you’ll be ready for the growth when it comes.
+
+OceanofPDF.com
+
+---
+
+# Margin of Safety
+
+Expect the unexpected.
+
+OceanofPDF.com
+
+---
+
+This world of ours appears to be separated by a slight and precarious margin of safety from a most singular and unexpected danger.
+
+—ARTHUR CONAN DOYLE1
+
+---
+
+When we interact with complex systems, we need to expect the unexpected. Systems do not always function as anticipated. They are subject to variable conditions and can respond to inputs in nonlinear ways.
+
+A margin of safety is necessary to ensure systems can handle stressors and unpredictable circumstances. This means there is a meaningful gap between what a system is capable of handling and what it is required to handle. Think of the margin of safety like a buffer zone or extra space on a busy highway; it’s the wiggle room you keep between you and the car in front, so you have time to react if something unexpected happens. It’s the extra bit you don’t use unless you really need it, ensuring you stay safe even when things get a bit wild. A margin of safety is a buffer between safety and danger, order and chaos, success and failure. It ensures a system does not swing from one to the other too easily, causing damage.
+
+Engineers know to design for extremes, not averages. In engineering, it’s necessary to consider the most something might need to handle—then add on an extra buffer. If five thousand cars are going to drive across a bridge on an average day, it would be unwise to construct it to be capable of handling precisely that number. What if there were an unusual number of buses or trucks on a particular day? What if there were strong winds? What if there were a big sports match in the area, and twice as many people want to cross the bridge? What if the population of the area is much higher in a decade? Whoever designs the bridge needs to add on a big margin of safety so it stays strong even when many more than five thousand cars cross it in a day. A large margin of safety doesn’t eliminate the possibility of failure, but it reduces it.
+
+For investors, a margin of safety is the gap between an investment’s intrinsic value and its price. The higher the margin of safety, the safer the
+
+---
+
+Investment and the greater the potential profit. Because intrinsic value is subjective, it’s best this buffer be as large as possible to account for uncertainty.2
+
+Margin of safety is the wisdom of having an emergency fund, health insurance, and friends you can call on if needed. You need it the most when you don’t have it. It’s wise to build in margins of safety in all areas of life, and the more you cultivate them, the safer and more prepared you’ll feel for anything life throws your way.
+
+When calculating the ideal margin of safety, we always need to consider how high the stakes are. The greater the cost of failure, the bigger the buffer should be.
+
+To create a margin of safety, complex systems can utilize backups—in the form of spare components, capacities, or subsystems—to function when things go wrong. Backups make the system resilient. If an error occurs or something gets broken, the system can keep functioning. One way to think of backups is as an alternate path, like how you might have multiple routes to your office in mind so you can still get there if there’s a car accident blocking one road. A system can’t keep working indefinitely without anything breaking down. One without backups is unlikely to function for long.
+
+As with margins of safety, the higher the stakes, the greater the need for backups. If a part in your pen breaks, it’s not a big deal. If a critical part in an airplane breaks, it’s a different story. If you’re going to the local shops, taking your phone in case you need to communicate with anyone is sufficient. If you’re going hiking in the wilderness alone, you might want more than one communication method. You’re safer in an airplane than in a car, in part because it has so much backup; after all, the cost of failure is higher.
+
+We have to be careful with margins of safety, as they can make us overconfident. If we get too reckless, we cancel out the benefits. When humans are involved in a system, too much margin of safety or backup can lead to risk compensation. For instance, we all know we should wear a seat belt in a car, but do they make us safer? Some research suggests they might.
+
+---
+
+not reduce car accident fatalities because people drive with less care, feeling there is a margin of safety between them and injury. This puts pedestrians and passengers at a higher risk even if drivers are safer.3 Still, seat belts save lives, and most of us would feel at least slightly uncomfortable riding in a car with a driver or front-seat passenger not wearing one.
+
+The risk of a system failure is not fixed. Failure rates can remain consistent when humans are involved because margins of safety sometimes create perverse incentives. If we change our behavior in response to the knowledge that we have a margin of safety in place, we may end up reducing or negating its benefits. Setting your watch fifteen minutes ahead could help you be on time more often. If you follow the time it displays, you’ll have a buffer in case of delays. But if you remember the time is wrong and amend it in your head, it won’t make any difference to your punctuality.
+
+Conversely, margins of safety and backups can also make us too cautious. Not all situations we face are like building a bridge, in which it either stands or doesn’t and collapsing results in death. There is a difference between what’s uncomfortable and what ruins you. Most systems can be down for an hour. Our bodies can go without food or water for days. Most businesses can do without revenue for a little while. Too much margin of safety could be a waste of resources and can sow the seeds of becoming uncompetitive. If you know it’s impossible to fail, you get complacent. But too little margin of safety can lead to destruction. You won’t be able to weather inevitable shocks.
+
+---
+
+# Minimum Effective Dose
+
+The difference between medicine and poison is in the dose. Too much of a beneficial substance can be harmful or lethal, and a tiny amount of a harmful substance can have beneficial effects. It’s necessary for doctors to give patients doses of medication that are high enough to be effective but not so high as to be dangerous. However, prescribing a bit less than the harmful amount isn’t much good; a patient could take too much or take their doses too close together.
+
+So pharmacologists calculate the minimum effective dose: the lowest possible amount of a medication to achieve a meaningful benefit in the average patient. Then they calculate the maximum tolerated dose: the largest amount an average patient could take without suffering harm. For example, a vaccine contains the minimum possible dose of a virus necessary to get the body to produce an immune response. Too much could cause actual illness; too little would not be protective. Knowing this window means doctors can ensure a margin of safety by starting with a low dose they know is still likely to work.
+
+---
+
+# Learning as a Margin of Safety
+
+How can we develop a margin of safety in our lives?
+
+Things go wrong, at least once in a while, and it would be ideal to increase our resilience in the face of dramatic change by having a built-in margin of safety. One way of applying this model on an individual level is learning.
+
+The more we learn, the fewer blind spots we have. Blind spots are the source of all mistakes. While learning more than we need to get the job done can appear inefficient, the corresponding reduction in blind spots offers a margin of safety. Knowledge allows us to adapt to changing situations.
+
+The best way to learn? Books, nonfiction or fiction. Books offer vicarious experience—they put you in a character’s shoes, so you experience the consequences of their mistakes without making them yourself. Most people have been tempted to cheat on their partners, but through Anna Karenina you experience the dissolution of family that an affair causes. Most people are tempted to punish thieves, but through Bishop Myriel in Les Misérables, you learn that one act of kindness can be transforming. It’s infinitely easier to learn these lessons through a book than by living them out in real life.
+
+One profession that demands that an individual have far more knowledge than they will ever use is astronaut. Carrying out your job in the hostile environment of space means that you have to prepare for as many variables as possible in order to have the best potential response to any challenge. Learning is a way for an astronaut to develop a large margin of safety, giving them the chance to deal with the unexpected in space. The human capacity for not only learning but also the ability to flexibly apply knowledge in novel situations is one of the main reasons we need astronauts in space. They respond to new information, use creativity, and make assessments in a way that only humans can.
+
+---
+
+In his book *An Astronaut’s Guide to Life on Earth*, Chris Hadfield explains how and why astronauts learn as much as they can. They don’t stop at what they need to know but continue lifelong learning to prepare for any eventuality they can think of. They reduce blind spots. He says of astronauts, “No matter how competent or how seasoned, every astronaut is essentially a perpetual student.” They are “trained to look on the dark side and to imagine the worst things that could possibly happen.” And then they train for them. Hadfield describes hours in simulators and classrooms, constantly training and preparing for an incredibly vast array of potential scenarios.
+
+The culture of the space program is one of constant debriefs about every detail. The point of these is not to be pedantic or shame anyone but to get the information necessary to learn and to improve the program. Thus for both the individual astronaut and the space organization they are a part of, there is a recognition that ongoing learning is the key element in creating a margin of safety in space operations.
+
+Although astronauts are well educated and very experienced, they come into the space program with an incredible amount to learn. Hadfield says of his early career, “Training in Houston, I hadn’t been able to separate out the vital from the trivial, to differentiate between what was going to keep me alive in an emergency and what was esoteric and interesting but not crucial.” Throughout the program, working both in space and on the ground, he says of his development, “Over time, I learned how to anticipate problems in order to prevent them, and how to respond effectively in critical situations.” Hadfield’s experience demonstrates why it’s important for astronauts to learn meta skills: they always need to know something, they just don’t know ahead of time what knowledge they will have to use in the variety of situations they will face on a space mission.
+
+In the space program, learning is critical to success. “Our core skill,” Hadfield writes, “the one that made us astronauts—the ability to parse and solve complex problems rapidly, with incomplete information, in a hostile environment—was not something any of us had been born with. But by this point, we all had it. We’d developed it on the job.”
+
+---
+
+While the space missions get all the attention, the job of an astronaut is so much more. If all someone wants to do is be in space, they aren’t a good fit for the program, because there is no guarantee of any one individual getting the go-ahead for a mission. Rather, most of the job of an astronaut is performed on Earth, doing things like learning Russian and practicing mechanics in a spacesuit while submerged in a pool. The training is ongoing, with a mission to space only a possibility.
+
+Hadfield spent six months commanding the International Space Station (ISS). There are three to seven people on the ISS at any given time, and when things go wrong, at least one, but preferably two, of them can deal with it. There isn’t any time for someone to be flown in to solve a problem. Although astronauts can communicate with the ground to get insight and advice, they have to rely on the group up in space to fix any problem. That is why, Hadfield says, “having ‘overqualified’ crewmates is a safety net for everyone.”
+
+Astronauts need to be good at everything. That redundancy is necessary in case one of them is incapacitated or in need of help. This means that time on Earth is best spent learning as much as possible that might be relevant to a space mission. “The more you know and the keener your sense of operational awareness, the better equipped you are to fight against a bad outcome, right to the very end.”
+
+Our ego gets in the way of capitalizing on the margin of safety that is produced by knowing more than you need to. Often we learn enough to solve today’s problem but not enough to solve tomorrow’s. There is no margin of safety in what we know. Another way our ego gets in the way is that we tend to coast on our natural strengths, too afraid or intimidated to dive into being the worst at something. But as Hadfield explains, “Early success is a terrible teacher. You’re essentially being rewarded for a lack of preparation, so when you find yourself in a situation where you must prepare, you can’t do it. You don’t know how.” Life will throw at you challenges that require capabilities outside your natural strengths. The only way to be ready is to first build as vast a repertoire of knowledge as you can.
+
+---
+
+in anticipation of the possibilities you’ll face, and second to cultivate the ability to know what is relevant and useful.
+
+Hadfield concludes that in space and on Earth, “truly being ready means understanding what could go wrong—and having a plan to deal with it.” Even if the plan is just knowing how you deal with uncertainty, these plans, based on learning, are your margin of safety. Astronauts train in simulators all the time for all sorts of disasters that may come to pass on a mission. Instead of being disheartening, Hadfield suggests, they have incredible value because they teach the astronaut how to think clearly in real-life situations.
+
+After decades in the space program, Hadfield offers this perspective on life: “If you’ve got the time, use it to get ready…. Yes, maybe you’ll learn how to do a few things you’ll never wind up actually needing to do, but that’s a much better problem to have than needing to do something and having no clue where to start.”
+
+After all, “When the stakes are high, preparation is everything.” The more you know, the more you will be able to anticipate and avoid problems. Knowledge then can be conceptualized as a margin of safety, a buffer against the inevitable unexpected challenges you will have to face.
+
+The professionals plan for “mild randomness” and misunderstand “wild randomness.” They learn from the averages and overlook the outliers. Thus they consistently, predictably, underestimate catastrophic risk.
+
+—JAMES GLEICK
+
+# Anticipating the Worst
+
+We cannot have a backup plan for everything. We do too much in a day or a year to devote the resources necessary to plan for dealing with disaster in all our endeavors. However, when the stakes are high, it is worth investing in a
+
+---
+
+comprehensive margin of safety. Extreme events require extreme preparation.
+
+“To lead is to anticipate” was the motto of Jacques Jaujard, director of the French National Museums during World War II.15 If this is true, Jaujard was a perfect leader.
+
+Before the war started, many French people refused to believe the Nazis would target Paris and disturb the cultural treasures contained within its museums and galleries. But Jaujard was less optimistic. Considering the irreplaceable work in his care, he wanted to err on the side of caution. Jaujard had seen things most French people hadn’t that impressed upon him the role of art in conflict. During the Spanish Civil War of the 1930s, he assisted with the transportation of artwork from the Museo Nacional del Prado in Madrid, Spain. Artworks are vulnerable to destruction from bombing, fire, and so on during wars. They’re also vulnerable to seizure by a country’s enemy—for profit, as a means of subjugation, and to erode culture. Jaujard’s experiences had taught him it was best to move Paris’s treasures away if there was any risk whatsoever of attack.16 That way, no matter what, France could hold on to a piece of its pride knowing part of its culture was safe.
+
+Anticipating that invasion by the Germans was inevitable, Jaujard developed a plan. What turned out to be mere days before the war reached France, he announced that the Louvre would close for three days for maintenance. But once the doors opened again, it was empty. Where had the thousands of pieces of artwork gone?
+
+While the Louvre was closed, a team of hundreds of its staff, art students, and other volunteers packed up every piece for transportation.17 Some paintings could be rolled into tubes; others were large enough to need transporting in trucks intended for theatrical sets.18 Then a crew of vehicles, including everything from taxis to ambulances, slipped through the night and left Paris for the countryside. Before the war even began, the artwork was installed in the basements and other safe storage spaces of castles around France.
+
+---
+
+By starting before the threat was imminent, Jaujard and his team ensured a margin of safety for the Louvre’s treasures. His forethought was wise. The Nazis stole an estimated five million works of art,19 around one hundred thousand of which came from France.20 One of Hitler’s ambitions was to build the Führermuseum in Austria, featuring artwork plundered from other nations.
+
+To reduce the risk of the Nazis discovering the hidden artwork, Jaujard and his team had dispersed it across multiple locations. If the Nazis found any of these stashes, it would be only a small portion of the total. Jaujard built in extra safety mechanisms at every point, supplying equipment to maintain the right temperature and humidity conditions and relocating pieces anytime he doubted their safety. Should some disaster compel someone to choose the most important pieces to save, Jaujard labeled the cases with colored circles denoting levels of importance.21
+
+For years, the collection remained in hiding. The Louvre’s treasures were moved repeatedly. As the Nazi occupation progressed, Louvre curators sometimes resorted to sleeping next to the most important pieces.
+
+One notable figure among the hundreds involved in the Louvre operation was Rose Valland. She worked in the Nazis’ art-theft division recording the whereabouts of the thousands of stolen paintings that left France. But she was not loyal to the Nazis, and she used her position to make copies of the information on French artwork. Her unassuming nature allowed her to spy on the Nazis without them suspecting her of anything. They didn’t even know that she could speak German and was eavesdropping on their conversations.
+
+After the war her records helped with the repatriation of many works that might otherwise have been lost, including more than twenty thousand items hidden in Neuschwanstein Castle in the Bavarian Alps. Up until her death, Valland continued to work to help bring home French art and cultural items.22
+
+Due to the extreme prudence of Jaujard and his team, by the end of the war, not one item from the Louvre’s collection had been lost or damaged.
+
+---
+
+The collection stayed safe from the Nazis, as well as avoiding damage by fire or water, or even theft. Acting early and being cautious worked.23
+
+After the war ended, the Louvre reopened its doors at last. The survival of the museum’s collection symbolized the resistance of many French citizens to Nazi occupation.24 We could say what Jaujard did was a waste of effort and irrelevant to the outcome of the war for the French. But he was simply doing his job as the director of the French National Museums: helping to preserve the country’s soul, the heritage and history that made it worth fighting for and part of what made France special.
+
+Of course, the Nazis lost in the end. But many of the artworks they took from other museums were never returned or were damaged beyond repair. The Louvre and other French museums still host around eight hundred that never made it back to their original owners.25 We can learn from Jaujard’s removal of artworks from Paris during the war the importance of building in a significant margin of safety when the risk of failure is high. The future is seldom predictable, and so the greater the threat, the more important it is to plan for the worst.
+
+# Conclusion
+
+Margin of safety is a secret weapon. It’s the buffer, the extra capacity, the redundancy that you build into a system to handle unexpected stress. It’s the difference between a bridge that can just barely handle the expected load, and one that can handle ten times that load without breaking a sweat.
+
+You can apply margin of safety to any area of life where there is uncertainty and risk. The key is to always be asking yourself: What if I’m wrong? What if things don’t go as planned? How much extra capacity do I need to build in to handle the unexpected?
+
+But here’s the rub: building in a margin of safety often isn’t free. It means spending more upfront, investing more resources, taking on less risk. In the short term, it can feel like you’re leaving money on the table, like you’re being too conservative. But in the long run, it’s what separates the
+
+---
+
+winners from the losers. It’s what allows you to survive and thrive in an uncertain world.
+
+Margin of safety is the unsung hero of long-term success. It’s not flashy. It’s not exciting, but it’s the foundation on which everything else is built. Master it, and you’ll be well on your way to navigating the uncertainties of life with confidence and stability.
+
+OceanofPDF.com
+
+---
+
+# Churn
+
+There’s always movement.
+
+OceanofPDF.com
+
+---
+
+Within systems, components are constantly wearing out and getting used up. This includes both the material and information within a system and the parts of the system itself. Keeping a system functioning requires ongoing replenishing of both the stocks and the parts used to maintain them. We call this process of attrition “churn.”
+
+There are examples of churn everywhere. For example, your favorite sneakers wearing out after lots of use. The skin cells on your body being constantly replaced. Trees in a forest die and new ones grow. The parts in a car deteriorate with time; some need replacing, and some render the car unfixable once they break. People move in and out of cities. System components are never static, and to run a successful system you need to understand how and why parts wear out. The churn model is a lens through which you can look at that kind of system change and learn how to work with it.
+
+In business, churn refers to the loss of a customer, whether that’s because they canceled a subscription, stopped buying a product, moved away from a store, or something else. No business can retain every customer forever. However, the rate of churn varies depending on factors like the availability of alternatives, ease of switching, and overall satisfaction. Often given as a percentage, churn is an indicator of whether a product fits its market.
+
+Growth may be good in business, but churn is also important to consider. It doesn’t matter how many new customers a company gets through the door if those customers don’t stick around long enough for the company to earn back the cost of acquisition. If churn is high, a company may run out of money acquiring new customers.
+
+Churn can also refer to the turnover of employees, something that varies between industries because of the varying costs for both employees and
+
+---
+
+employers. If hiring and training new employees is costly, a company has an incentive to keep churn low, and vice versa. Fast-food restaurants, for instance, have a higher employee churn rate than governments. A certain level of churn, even just from people retiring, helps bring in new perspectives and experiences. Too much churn prevents expertise from accumulating.
+
+|Churn Rates|Churn Rates|
+|---|
+|5% Churn|10% Churn|
+
+When we have a customer retention rate of 90 percent, we may think we’re doing great. But over time, the 5 percent difference between us and our competitor means we have less growth and have to work a lot harder to keep up.
+
+When churn is too high in a system, replacing what is lost or used up becomes a process of running to stay in the same place. Once we get stuck in the trap of keeping up with churn, it’s time to step back and reassess if it’s worthwhile or if there’s another way.
+
+---
+
+Because churn is inevitable in all systems, it’s useful to ask how we can use it to our benefit. Is it worth going through contortions to keep every customer, or should we let a certain percentage go and focus on the core customers who keep our business going? Is it worth trying to retain employees who have lost interest in the job or who would experience more professional growth elsewhere? Understanding your situation through the lens of churn can help you figure out how to harness the dynamics that drive it.
+
+# Cults
+
+We can never eliminate churn in groups of people. When the purpose of an organization becomes preventing members from leaving, it turns into a cult. A cult is a group that does everything possible to control its members. Avoiding churn becomes the whole purpose, as opposed to whatever the initial aim was. Every detail is intended to entrap members further. Even if the initial purpose was positive, this process can only ever end up harming members.
+
+“Today is the first day of the rest of your life.” These words might be a motivational quote, but their origins are somewhat more sinister. Charles Dederich, founder of the cult Synanon, is the originator of this quote. Synanon is one of the most notable cults in US history for several reasons. Its success in attracting members lent it a place in popular culture, earning mentions in well-known songs and books between the 1950s and 1990s. It gained support from political figures like Senator Thomas J. Dodd and First Lady Nancy Reagan. Synanon was also practically unrivaled in the intensity of its efforts to prevent members from leaving or the outside world from impeding its activities. It was an efficient churn-minimizing machine. Though the organization began with positive intentions, the goal of holding on to members became all-encompassing.
+
+Synanon began in 1958 as a drug addiction rehabilitation program. Dederich, a former alcoholic, started the group in his small apartment, using
+
+---
+
+a thirty-three-dollar (about three hundred dollars today) unemployment check.1 By its demise in 1991, Synanon had progressed to an incomprehensible level considering its inauspicious origins; it had morphed into a full-blown cult with thousands of indoctrinated members.2
+
+When Dederich founded Synanon, treatment options for people with addictions were limited in the United States. Having dropped out of college and failing to hold down a job or make relationships work due to his own out-of-control drinking, he knew the cost of uncontrolled addiction for individuals and their families. Although Alcoholics Anonymous existed at the time, rehabilitation facilities were not widespread, and the belief that addiction is a personal failure was prevalent. Based on his own experiences, Dederich believed addiction was curable, provided an individual changed their social context and helped others.3 He saw it as the result of a combination of systemic issues. Although we now know that environment and relationships do play a significant role, his belief ended up being a means of control and not of treatment.
+
+A decade after Synanon’s founding, Dederich changed his mind about the nature of drug addiction. He decided it was impossible for people with addictions to ever make a full recovery and go on to live regular lives. Synanon members were now expected to stay in the group. Forever.
+
+Dederich began using brainwashing techniques to eliminate churn while using the threat of force to deter potential defectors. To grow Synanon further, he started accepting new types of members, including middle-class people in search of personal growth and young people sent to him by court order—showing that the organization had mainstream approval at the time.
+
+Synanon’s control over members to prevent them from churning was total, using a combination of brainwashing, denial of autonomy, and threats of violence. Synanon members shaved their heads, wore overalls, and quit smoking and drugs cold turkey. As they went about their day in dedicated Synanon buildings, they listened to Dederich repeat his views over radio stations for hours on end. Married couples who joined together had to divorce. Members were not permitted to have children.
+
+---
+
+Perhaps the most extreme mind-control technique was “the Game.”4
+
+During lengthy sessions, members were encouraged to criticize one another and air grievances with anyone in the group. In theory the purpose was to ensure no secrets were held and no hierarchies emerged. In reality it served to break members down emotionally before rebuilding them with support from others. The Game is best viewed as a deliberate form of traumatic bonding in which cycles of abuse appear to strengthen relationships. Synanon also had a paramilitary group equipped with hundreds of guns and capable of attacking anyone who opposed Dederich or left. A lawyer who sued Synanon found a live rattlesnake in his mailbox, its rattle removed.
+
+When Synanon came under legal scrutiny for operating without medical licensing, Dederich declared it was no longer an addiction treatment program and was now a religion. Once again this move allowed more control over members. A rehabilitation or personal development program has an end point. A religion does not. Dederich had a stronger justification for preventing the churn of members.
+
+Synanon met its end when the IRS revoked its tax-exempt status and ordered it to pay millions in back taxes.5 Its story teaches us that churn is inevitable within any system and seeking to eliminate it perverts the goals of a system. Regardless of initial intentions, a group that tries to stop anyone from leaving can only end up violent and coercive. People being able to leave when they wish places checks on abuses of power. The same is true for countries or companies. People need the freedom to vote with their feet if things get too bad. In this sense, lack of churn can be a powerful indicator that something is not right.
+
+# Using Churn to Innovate
+
+Like a duck on the pond. On the surface everything looks calm, but beneath the water those little feet are churning a mile a minute.
+
+---
+
+# GENE HACKMAN
+
+At the right level, churn is a healthy part of systems. Components need to change and be refreshed. In some cases, when churn isn’t naturally high enough, it can be necessary to build it into a system as a deliberate process. People leaving a business can be good. New people bring in fresh ideas. And if you mandate a degree of churn, you can make it less likely that people will stay for the wrong reasons or that you’ll do harmful things to prevent them from leaving.
+
+The value of churn varies with the kind of group you are trying to create, but for organizations wanting to invent and innovate, having a fixed tenure with no bonuses or promotions can keep the focus where it needs to be. This is what a group called Bourbaki did with its members: it ensured a regular turnover to allow for the flow of ideas and inspiration.
+
+In 1935 a group of eminent young French mathematicians met in a Paris café. Among them were André Weil (a foundational figure in number theory and algebraic geometry), Henri Cartan (a major advancer of the theory of analytic functions), Claude Chevalley (a significant figure in many mathematical theories), Charles Ehresmann (best known for the concept of the Ehresmann connection), and Szolem Mandelbrojt (who received recognition for his mathematical analysis work). As a collective, they had an ambitious goal—though it was a realistic one, considering their credentials. They wanted to compile all existing mathematical knowledge into a single overarching theory, then produce comprehensive textbooks covering it.
+
+They decided that everything they produced should be a group effort and not the work of any particular individual. How else could it be a unified theory reflecting the best of mathematical knowledge at the time and not the opinions of one person? So the mathematicians created a fictional persona to whom they attributed their work: Nicolas Bourbaki of Poldevia. They took pains to make him seem like a real person. Many of the students who used their textbook never had any idea that Bourbaki was a group.
+
+---
+
+Aside from a break during World War II, the members of Bourbaki met for a week two or three times each year to work on their textbook series. It was a truly collaborative effort. The mathematicians debated every single sentence until everyone was at least reasonably satisfied. Each textbook took years of criticism and rewriting to complete. To a casual observer, the approach looked chaotic. There was no discernible system to it. But it meant their work was rigorous. Sometimes, amid a heated disagreement, they would come up with a new way of doing things. The resulting textbooks did indeed have a significant impact on mathematics. By some accounts, the approach they took to conveying knowledge has become the standard.10
+
+Bourbaki is relevant to the mental model of churn because of the context in which the group began. Unlike other countries, France did not exempt certain professions, including academics, from military service during World War I. This meant that distinguished mathematicians were as much at risk of dying on the front lines as anyone else.11 Those who survived that war tended to have been over forty-five years of age at the time of Bourbaki’s founding—old enough to be excused from service in World War II. With the deaths of so many young mathematicians in the First World War, many of those teaching and writing textbooks in 1935 tended to be reasonably elderly. Though experienced, they were not always entirely up-to-date with the latest research. The field missed out on the usual regular influx of new figures with new ideas. Having lost a generation of mathematicians, no doubt with many potential geniuses among them, the field stopped progressing at its usual speed in France.12
+
+Part of what made Bourbaki such a revolutionary collective was its insistence that members churn at regular intervals. This ensured an inflow of new perspectives and knowledge. Bourbaki members were asked to retire at the age of fifty and invite new, younger mathematicians to join in their place. While we may decry this as ageist today, it was not a critique of their expertise. The intention was to keep bringing people who had studied the latest theories into the fold. Anyone who wanted to leave the group at any point for any reason could without impediment. If a mathematician lost
+
+---
+
+interest, they didn’t stay. Only those who wanted to remain part of Bourbaki stayed. Its membership was never static.
+
+Bourbaki still exists in name and runs seminars, although the group no longer publishes anything. This vibrant, ever-shifting group played an important role in mathematical history in the twentieth century. There may be a time one day that calls for it to rise and once again revitalize the field.
+
+Using the lens of churn on the story of Bourbaki demonstrates there can be value in constant change. Harnessed and directed appropriately, churn brings in new ideas and increases our adaptability. It’s what allows for evolution by selecting for beneficial traits. Within Bourbaki, the churn of members selected for those with up-to-date knowledge of mathematics and enthusiasm for the project. Within any system, parts need replacing from time to time in order to keep the whole functioning well and to remove anything that proves a hindrance. Churn helps systems improve over time, and it is both undesirable and unrealistic for all the parts to stay the same. However, no matter how often the parts are replaced, no system can function forever. Bourbaki no longer exists in its original form as a producer of textbooks. Its environment changed, and it ceased to be the thing best suited to that task. But while it pursued its original goal, churn helped Bourbaki stay relevant and useful.
+
+# Conclusion
+
+Churn is the silent killer of businesses. It’s the slow leak, the constant drip of customers slipping away, of users drifting off to find something new. It’s the attrition that eats away at your growth, that forces you to keep running just to stay in place. The thing about churn is that it’s often hidden. It’s not like a sudden crisis that grabs your attention. It’s a slow, quiet process that happens in the background.
+
+Churn can present opportunity. Like a snake shedding its skin, replacing components of a system is a natural part to keeping it healthy. New parts can improve functionality.
+
+---
+
+When we use this model as a lens, we see that new people bring new ideas, and counterintuitively, some turnover allows us to maintain stability. Replacing what is worn out also gives us a chance to upgrade and expand our capabilities, creating new opportunities.
+
+Some churn is inevitable. Too much can kill you.
+
+OceanofPDF.com
+
+---
+
+# Algorithms
+
+# Start
+
+# Step 1
+
+|2|No|Step 2|
+|---|---|---|
+| |Yes|End|
+
+Recipes for success.
+
+OceanofPDF.com
+
+---
+
+# Algorithm
+
+“Algorithm” is arguably the single most important concept in our world. If we want to understand our life and our future, we should make every effort to understand what an algorithm is, and how algorithms are connected with emotions. An algorithm is a methodical set of steps that can be used to make calculations, resolve problems, and reach decisions. An algorithm isn’t a particular calculation, but the method followed when making the calculation. For example, if you want to calculate the average between two numbers, you can use a simple algorithm. The algorithm says: “First step: add the two numbers together. Second step: divide the sum by two.” When you enter the numbers 4 and 8, you get 6. When you enter 117 and 231, you get 174.
+
+—YUVAL NOAH HARARI
+
+---
+
+Algorithms turn inputs into outputs. An algorithm is like a recipe for a computer, giving it a step-by-step guide to solve a problem or complete a task. It’s a set of rules or instructions that if followed precisely lead to a predictable end, just like following a recipe leads you to a tasty dish.
+
+One reason they are worth understanding is because many systems adjust and respond based on the information provided by algorithms. Another reason is that they can help systems scale. Once you identify a set of steps that solve a particular problem, you don’t need to start from scratch every time. In this chapter we will explore how algorithmic thinking can help you prevent problems and discover answers.
+
+Algorithms are useful partly because of the inherent predictability of their process. That’s why we like them. They are a series of if-then statements that are completely unambiguous. In *Intuition Pumps and Other Tools for Thinking*, Daniel Dennett defines an algorithm as “a certain sort of formal process that can be counted on—logically—to yield a certain sort of result whenever it is ‘run’ or instantiated.” The reliability of a well-designed algorithm in terms of producing consistently logical results is its most attractive feature. Mix flour, water, eggs, and other ingredients in a certain way, and voilà! A scrumptious cake results.
+
+Dennett includes the three defining characteristics of algorithms:
+
+1. Substrate neutrality: “The power of the procedure is due to its logical structure, not the causal powers of the materials used in the instantiation.” It doesn’t matter whether you read your recipe on a phone or from a book; neither has an impact on the logic of the algorithm.
+
+---
+
+# 2. Underlying mindlessness
+
+“Each constituent step, and the transition between steps, is utterly simple.” For a recipe to be an algorithm, it must tell you the amounts of each ingredient you need as well as walk you through the process in steps so clear that there is no room for interpretation or misunderstanding.
+
+# 3. Guaranteed results
+
+“Whatever it is that an algorithm does, it always does it, if it is executed without misstep. An algorithm is a foolproof recipe.” Using a good algorithm, the cake will look and taste the same every time.
+
+Algorithms can be simple, like a recipe containing a clear set of instructions that do not vary over time. They can also be complicated, like computer algorithms that try to predict future locations of crime. Furthermore, if we extrapolate our ideas about algorithms beyond humans and our technology, it’s possible to consider something like the execution of DNA code as an algorithm, or human learning as being the product of biological algorithms.
+
+Some algorithms can evolve and learn over time. Others stay static. Depending on the requirements of a system, different types of algorithms are more useful for obtaining the information necessary to maintain resiliency and proper functioning.
+
+Moving beyond computers, all systems need algorithms to function: sets of instructions for adapting to and solving problems. Increasingly, algorithms are designed to be directionally correct over perfect. They often evolve—or are designed—to get useful and relevant enough outputs to keep the system functioning properly. Neither nature nor humans worry about creating algorithms that produce the most optimal outputs 100 percent of the time. When we look at systems, it’s useful to consider the underlying instructions dictating their behavior in order to determine how to intervene to improve them.
+
+---
+
+# Pirate Constitutions
+
+When groups of people work together with a shared goal, they need coherent algorithms for turning their inputs into their desired outputs in a repeatable fashion. For many people to move toward the same aim, they must know how to act, how to resolve problems, and how to make decisions in a consistent and reliable manner.
+
+For people to follow systems of rules, the right incentives need to be in place. Organizations often rely on the threat of force for compliance, especially when people have not chosen to be part of a system or cannot leave it. But when people choose to work together, it’s possible for them to evolve systems of rules that benefit them and that avoid pitfalls such as unjust leadership.
+
+A constitution is one means of making that happen. It can be thought of as a high-level algorithm to limit the power and define the responsibilities of those charged with governance.6 It is a means of increasing the chance that leaders will work for the benefit of the people, not for their own enrichment. It exists on a level higher than law; it determines how the law itself works. Welding politics, literature, and law, a constitution is something to turn to for guidance when leaders face problems, as well as a source of reassurance for the people. For countries, designing a constitution tends to be a meticulous process that takes into account political ideals.
+
+However, it’s not just countries that have constitutions. The concept can make sense for any group of people with rules to follow and leaders to keep in check. Nor does a constitution need to be about lofty ideals; it can evolve without planning to achieve quite different aims. All it takes is for a group of people to aim for the same outcome and look for the best, most consistent way of achieving it. A constitution will never be perfect, but clear goals and consistent application with the ability to make amendments can increase the chance it will achieve those outcomes.
+
+In popular culture, pirates of the past are often portrayed as lawless, wild rebels. They roamed the high seas, answering to no one and plundering treasure from whatever hapless ships happened to sail into their paths. In
+
+---
+
+reality, this wasn’t the case. To be a successful pirate, it has always been necessary to operate like a controlled business. The pirates who survived the longest and became the richest during the heyday of piracy did so by following rigid rules underscored in many cases by something a lot like a constitution, known as articles, as Peter T. Leeson explains in The Invisible Hook.
+
+We can think of pirate articles as an algorithm that helped turn physical labor and resources, such as gunpowder, into valuable plundered goods and money. Every detail that went into a ship’s articles needed to have a positive contribution to its profits. Pirates opted for whatever rules helped their bottom line without considering factors that were relevant for landed people.
+
+Looking at the way they formed their articles during the golden age of piracy in the early eighteenth century can teach us a great deal about how groups of people use algorithms to ensure collaboration toward shared goals. They also show that algorithms need room for adaptation and change if they cease to work for the people involved, as well as mechanisms for modification if something breaks. By seeking profit above all else, pirates ended up designing a legal system that was far ahead of its time and arguably fairer than that of mainstream society in that era.
+
+When a person joined a pirate fleet, they renounced their connection to mainstream society and became part of a floating society. That meant they could no longer rely on mainstream law to protect and govern them. As Leeson writes, “Pirates had no government…. Pirates had no prisons, no police, and no parliament. They had no barristers, no bailiffs, and no royal bench.” With an average crew comprising eighty members, usually from different countries, they couldn’t rely on standard social bonds. At the same time, pirates needed to be able to cooperate seamlessly, to ensure everyone put in their full effort, and to ensure adequate leadership without abuse of power. If they could overcome all these hurdles, the rewards could be enormous. A pirate could earn a hundred or even a thousand times as much per year as a merchant seaman. As a result they had a strong incentive to come up with articles that helped them attain the level of
+
+---
+
+organization needed for dangerous attacks.12 Articles were designed to produce a set of repeatable behaviors in the pirates who followed them and thereby tame uncertainty in the high-stakes situation of raiding another ship. They couldn’t control external factors, like the weather or the behavior of the crew of a captured ship, but they could ensure their fellow crew members behaved in predictable ways best suited to profiting.
+
+A typical set of articles required a crew to keep their weapons in good shape, not gamble with one another aboard the ship, not drink belowdecks after eight p.m., and resolve any disagreements on the shore.13 All had obvious benefits. A pirate with poorly maintained weapons would not be able to fight as well when taking control of another ship. Gambling could lead to conflict and reduce cooperation. Drinking belowdecks would disrupt the sleep of other pirates. Resolving disagreements on the shore meant that fights couldn’t injure other crew members or harm the ship. Articles covered the allocation of plunder (which was equal, aside from leaders receiving a bit more), bonuses for anyone who showed unusual bravery (to compensate for the added risk involved), and what we could consider a prototype of disability benefits for anyone injured in battles.14 Plus they stipulated punishments for wrongdoing, what leaders could and couldn’t do, and requirements for any new rules.15
+
+This is all very impressive, but why would a bunch of violent criminals want to follow a set of rules imposed upon them? Because pirate society was democratic at a time when mainstream society was not.16 Implementing a set of articles required unanimous agreement from everyone aboard. This ensured pirates joined a ship only if they were willing to follow its rules.
+
+What if a tyrannical captain decided to abuse his power? Pirates had a solution for that too. They voted their captains and quartermasters into power by majority and could remove them from office at any time, for any reason.17 Everyone had weapons, and if a captain didn’t want to respect the results of a vote, they didn’t have much choice once the crew turned on them. Dividing leadership between two people provided an additional
+
+---
+
+check. Captains led during battles, and quartermasters handled the day-to-day matters.18
+
+# Ching Shih
+
+Ching Shih is a pertinent example of how tight systems of rules helped pirates succeed. Born in China in 1775, Ching Shih may have been the most successful pirate ever to live. She began her career as a sex worker in Canton, where she met the pirate Zheng Yi. He proposed to her, and she agreed—provided she had equal share in his wealth and power aboard his Red Flag fleet. When her husband died, she took full control, becoming one of few female pirates.19 At one point, she oversaw 70,000 to 80,000 pirates and up to 2,000 ships, a fleet of unusual size.20 To give context, the most famous pirate of all, Blackbeard, probably never led more than 700 individuals, with his crew typically numbering a few hundred.21 Ching Shih was essentially leading a floating city that needed to be able to control itself without the help of the standard legal system. After all, a pirate who discovered that a crewmate had stolen his already-stolen plunder couldn’t report them to the police.
+
+Ching Shih laid out a strict set of rules for all her pirates that was designed to ensure both her power and their success. When they attacked other ships, she ordered her crew not to harm anyone unless they failed to surrender. They could not step onto land without permission—the penalty for doing so twice was death. After the looting of a ship, they had to report all goods and not keep more than a fifth. Deserters were mutilated. It was the death penalty for anyone who gave unsanctioned orders, harmed land people without provocation, or raped a female captive.
+
+Ching Shih’s might was so great that, unlike most pirates, she was able to peacefully retire in great wealth, having negotiated terms with the Chinese government.22
+
+The existence of pirate laws might be surprising at first glance, but when we consider the context in which pirates worked, they were necessary for success and survival. Looking at how pirate leaders like Ching Shih managed to lead large numbers of pirates in high-stakes situations teaches us how algorithms can ensure cohesion within systems. For a system to produce its intended output, the goals of its parts need to be aligned in the
+
+---
+
+same direction. This increases the chances of consistently achieving a predictable outcome.
+
+Controlling so many pirates was a major challenge, but Ching Shih managed it by enforcing a strict system of rules. Her enforcement is the critical component for understanding her actions through the lens of algorithms. Part of the definition of an algorithm is that it uses the same input every time and produces the same output every time. By all accounts, Ching Shih was invariant in her application of the rules. There were no exceptions. Of course, pirates operated in a complex world where conditions were always changing, and even the tightest system of rules couldn’t ensure the same outcomes each time they raided a ship. But her strict enforcement gave Ching Shih the best opportunity to produce consistent and reliable outputs.
+
+---
+
+# New Numbers
+
+Where algorithms can become really interesting is when seemingly innocuous, standard inputs create entirely brand-new outputs.
+
+Algorithms seem to be a natural consequence of repetitive actions. For most humans, doing the same thing in the same way over and over gets boring. We thus wonder if there is a way to codify those repetitive actions to streamline the process. A lot of modern math seems to be a result of the codification of the processes used to manipulate numbers. When you multiply 157 by 2693, you probably don’t count the individual units in each group in sequence. You likely use a calculator (programmed with algorithms) or a pencil-and-paper method that has you starting with 7 × 3.
+
+One interpretation of the history of numbers is that certain numbers didn’t exist until they were produced by an algorithm. Think of negative numbers. They are common enough now, especially for those of us who live in cold climates, but if you think about it, they aren’t intuitive. It’s hard to imagine ancient humans looking at a bunch of mammoths and thinking there might one day be a negative amount of them. There could be ten mammoths on the plain, two mammoths, or no mammoths, but negative five mammoths? Not likely.
+
+In the book Arithmetic, Paul Lockhart suggests that negative numbers are the result of subtraction. Imagine you are in agriculture three thousand years ago. The addition algorithm says that when you have three bags of grain, and you trade for two more, you will have five bags of grain. But then you decide to give one to your poor cousin. Now you have to “un-add,” or subtract. The act of subtracting is really the acknowledgment of the negative. You have five bags of grain and negative one bag of grain. And if you are interested in the processes you’ve just exposed your numbers to, you’ve got an interesting problem.
+
+Lockhart says, “The issue here is symmetry—or rather, the lack thereof. With addition, no matter what number I have and no matter what number I add to it, their sum is a perfectly valid entity, already extant in the realm of numbers. With the subtraction operation, however, we have an unpleasant restriction: the number we are taking away cannot exceed the number we have. There definitely already is a number that when added to three makes five, but (at the moment) none of our numbers play the role of ‘the thing that when added to five makes three.’” Use of subtraction quite likely prompted the idea of negative numbers, which aren’t obvious in the physical representations of amounts we encounter in everyday life.
+
+Essentially our process might have gone something like this. Let’s say our ancient subtraction algorithm for two values is something along the lines of:
+
+---
+
+Input two distinct, countable whole quantities. Remove the quantity of the second value from the quantity of the first value. So five bags of grain minus one bag of grain becomes four bags of grain. But because our algorithm doesn’t say anything about the minimum value of the quantities, we could easily input six and then nine. Which leaves us with what? The nonintuitive concept of a number representing negative three.
+
+The same thinking gives us an understanding of how we got irrational numbers. After some playing around with numbers and their properties, a process was invented called “square root.” The square root of a number is another number that, when multiplied by itself, gives you the original number. So the square root of 9 is 3, and the square root of 64 is 8. We can have a lot of fun plugging various number inputs into the algorithm that calculates a square root. Some numbers don’t get such pretty results, and their square root is a fraction. But they are still rational numbers. However, use the algorithm to calculate the square root of 2 (and why wouldn’t you, it’s such an accessible little number) and you get something entirely different: the world’s first irrational number.
+
+---
+
+# Finding Quality Inputs
+
+Algorithms are developed to generate an output. As we’ve discussed, you start with inputs, you follow a process, and you end up with expected outputs. However, sometimes it’s not obvious which inputs will result in the desired outputs. So one use for this model is helping you determine and refine what kind of inputs to feed into it in the first place. You can consider it “algorithmic thinking.” You may not have the luxury of a completely closed system in which you can implement complete end-to-end automation, but the lens of algorithms can show you how to organize your system to leave as little to chance as possible.
+
+In the late 1920s, one company developed a repeatable process to try to create the world’s first broad-spectrum antibiotic. After World War I, scientists had a good understanding of bacterial infection. They were able to identify some of the primary bacteria, such as streptococcus, that caused incurable infections. They also understood how and why bacterial infection often occurred, such as from exposure to contaminated tools and instruments. But once infection took hold in the body, there was no way to stop it. What was missing was an understanding of bacteria—how it worked and where it was vulnerable.
+
+Bayer, a giant German pharmaceutical company whose origins lay in dye-making, decided there was money to be made if they could find a cure for bacterial infections inside the body. There was some indication that a substance with bacteria-fighting properties could be created; earlier research had produced a treatment for syphilis called salvarsan, but nothing else had been found in the subsequent fifteen years.24
+
+In charge of pharmaceutical research for Bayer was Heinrich Hörlein. He thought the research to find bacteria-killing drugs was lacking scale and therefore too much was dependent on individual scientists. So at Bayer, he created an industrial system to identify possible antibacterial compounds.
+
+---
+
+and hired dozens of people to put each antibiotic candidate through the same algorithmic-like process.
+
+In *The Demon under the Microscope*, Thomas Hager explains that Hörlein knew the search would take years but also knew that success would result in enormous profits. Thus he aimed “to expand drug research from the lab of a single scientist to an efficiently organized industrial process with carefully chosen specialists guided by a coordinated strategy.” Hörlein hired Gerhard Domagk to run the “recipe,” putting each compound created by the chemists through an identical testing and evaluation process to see if the result would be an antibiotic that was safe for humans.25
+
+Domagk and his team tested the chemicals given to them by Bayer’s chemists. One of the most prolific chemists was Josef Klarer. He produced hundreds of new chemicals that were systematically tested by Domagk and his assistants. Each chemical compound was tested against a panel of “the most common and deadly bacteria: tuberculosis, pneumonia, Staphylococcus, E. coli, and Streptococcus pyogenes.” After a bit of initial refining, Hörlein and Domagk created “a smooth-functioning, reliable machine for discovery.” The chemicals were tested both in test tubes and in living animals. In the animals, each chemical was “delivered three different ways (intravenously, subcutaneously, and by mouth).” Every chemical was tested the same way in mice, and meticulous records were kept of each test.26
+
+Time went by. Thousands of mice died. But the researchers did not give up on their process. As the years went on, “despite the repeated negative results, Domagk changed neither his methods nor his approach.”27 The team knew their recipe for testing was correct, and one day it would produce a result that would allow them to refine their inputs.
+
+In the fall of 1932, their methodology and patience paid off. Klarer decided to attach sulfur to an azo compound. Chemical KL 695 was put through the testing process that thousands of other chemicals had been put through in the previous years. For the first time, the process produced the desired result: mice that recovered from bacterial infection with no apparent toxicity. Domagk didn’t yet know how it worked, only that it did.
+
+---
+
+“Strangely, it did not kill strep in a test tube, only in living animals. And it worked only on strep, none of the other disease-causing bacteria. But, given the number and deadliness of strep diseases, it worked where it counted.”
+
+Funny enough, Domagk was on vacation during the first round of testing of KL 695 and so missed witnessing the initial breakthrough.28 But the process by then was so entrenched, any one of the dozens of people on the team could run it.
+
+The discovery of chemical KL 695 allowed the team at Bayer to refine the inputs they used for their testing algorithm. “Klarer now made variations on KL 695, finding that as long as sulfa was attached to the azo-dye frame in the correct position, the drug worked against strep. Attaching sulfa to an azo dye—any azo dye—somehow transformed it from an erratic, ineffective chemical into an efficient anti-strep medication.”29 They kept refining their inputs so that more effective azo-sulfa compounds were discovered, including KL 730.
+
+What the Bayer scientists didn’t realize was that it wasn’t the azo-sulfa combination that was the key, but rather the sulfa itself. Later research demonstrated the efficacy of sulfa in treating strep infections. Structurally sulfa looks a lot like PABA, a key nutrient for some disease-causing bacteria, like strep. Mistaking it for PABA, the bacteria bind to sulfa but cannot metabolize it, which effectively kills them. Sulfa is cheap and widely available, so once Bayer’s sulfa antibiotic was on the market, many companies began to make their own.30
+
+Bayer’s algorithmic-like approach that led to the discovery of the antibiotic properties of sulfa had far-reaching effects. “Sulfa also changed the way drug research was done. Before sulfa, small laboratories followed investigators’ hunches and patent-medicine makers cobbled together remedies without testing the results. After sulfa, industrial-scale chemical investigation guided by specific therapeutic goals—the system for finding new medicines pioneered by Hörlein and his Bayer team—became the standard. Successful drugmakers were those who followed the Bayer model.”31 Bayer continued to discover many useful antibiotics using a system that codified the process as much as possible.
+
+---
+
+Having the correct algorithm can help you even if you aren’t sure about the best inputs to get you the results you want. By testing various inputs in a repeatable process, you can use the results to refine what you feed into the algorithm. You don’t always need to be good at knowing the answers, you just need to have a good algorithm for finding them.
+
+# AI
+
+In the thick of World War II, Alan Turing was not just breaking codes; he was deciphering the very notion of thinking machines. The German Enigma machine’s complex encryption was a formidable wall, and Turing, with relentless logic, not only scaled this wall but also envisioned a world where machines could think—a foundation for what we now call artificial intelligence.
+
+Today’s reality of AI stretches that logic into realms beyond what Turing likely could have imagined. Algorithms, those precise step-by-step instructions Turing was so fond of, have grown into a vast labyrinth of decision-making paths. They’ve become our modern-day sorcerers, capable of wielding scalpels in surgeries with inhuman precision, orchestrating military symphonies of strategy and execution, and propelling scientific inquiry at a pace humans have never reached.
+
+But here’s the twist in the tale: AI is not just about cold, hard logic; it’s about learning, adapting, and evolving. Algorithms are more than just a set of rules; they’re a mental model, a framework through which we’re learning to see not just the future of machines, but the future of our own decision making, creativity, and problem solving. In a sense, we’re all living in Turing’s world, a world where “What if?” is not just a question, but a doorway to possibilities we’re just beginning to explore.
+
+---
+
+# Conclusion
+
+Algorithms are recipes. A list of crisp, unambiguous steps that tell you how to get from point A to point B. But they’re more than just directions. Algorithms are if-then machines for tuning out the noise and zeroing in on the signal. Have the specs been met? Follow the algorithm and find out. Thinking algorithmically means searching for processes that reliably spit out the results you want, like a vending machine dispensing the same candy bar every time someone punches in E4.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Complex Adaptive Systems
+
+Often, scholars distinguish between complex systems—systems in which the entities follow fixed rules—and complex adaptive systems—systems in which the entities adapt. If the entities adapt, then the system has a greater capacity to respond to changes in the environment.
+
+—SCOTT E. PAGE
+
+SOME SYSTEMS ARE SIMPLE AND nonadaptive. You can learn how they work by learning about their parts. They don’t change based on their environments. For instance, imagine a basic pocket watch. You can take it apart to figure out how it works, and it keeps working the same regardless of what goes on around it—within limits.
+
+Complex adaptive systems have properties that are greater than the sum of their parts. You cannot understand them by studying their individual components, which may be simple but which interact in unpredictable, nonlinear ways. A few,
+
+---
+
+often basic rules enable the parts to self-organize without centralized control. The way the various components interact and pass information between themselves creates complexity. The ability to change in response to its environment and in pursuit of a goal makes a system adaptive. Complex adaptive systems have “memories”—they are impacted by what has happened to them before.
+
+One example of a complex adaptive system is the traffic within a city. While cars are simple systems in the sense that the way they work is a logical outcome of all their parts working together, when we look at the combined interactions of cars, we see remarkable self-organization. Traffic changes its behavior based on information from its environment. Focusing on one car won’t teach you about the entire system because what matters is the interactions between them.
+
+In Complexity: A Guided Tour, Melanie Mitchell defines a complex system as one “in which large networks of components with no central control and simple rules of operation give rise to complex collective behavior, sophisticated information processing, and adaptation via learning or evolution.”
+
+Within complex adaptive systems, components are all interdependent. They can directly or indirectly influence the behavior of the entire system. If one car breaks down on a main street, it can have a domino effect for the traffic in the rest of the city. Interactions between parts amplify the impact of tiny changes.
+
+In a complex adaptive system, we can never do just one thing. Anytime we intervene, unintended consequences are almost inevitable. Often when we try to improve a complex adaptive system, we end up making things worse because we overestimate our degree of control.
+
+We cannot expect complex adaptive systems to be governed by predictable rules. Nor can we expect to understand the macro by examining the micro. To handle complex adaptive systems, we need to be comfortable with the nonlinear and the unexpected.
+
+Another aspect of complex adaptive systems that can derail us is their ability to learn and change in response to new information. Consider a model that predicts the spread of the flu among a population. It will need to anticipate that people can change their behavior. If people hear warnings of an epidemic or see others getting sick, they may take measures to prevent catching the flu.
+
+No gluing together of partial studies of a complex nonlinear system can give a good idea of the behavior of the whole.
+
+—MURRAY GELL-MANN
+
+We can still learn from complex systems; we just need to be humble and use the scientific method. We must not mistake correlation for causation, and we
+
+---
+
+should always be open to learning more about the system and accepting that it will change. What we learned yesterday may guide us, but it can change tomorrow. We shouldn’t give up just because a system is complex.
+
+From the outside, complex adaptive systems can look chaotic, but they tend to work best when slightly disorganized, as this allows for mutations and experimentation. In the long run, deviations tend to cancel out into more coherent patterns of functioning.
+
+OceanofPDF.com
+
+---
+
+# Critical Mass
+
+Going critical.
+
+OceanofPDF.com
+
+---
+
+A system becomes critical when it is on the verge of changing from one state to another. The unit of input that causes the change is like all the ones that came before it, yet it has a disproportionate impact. For example, consider the proverbial straw that breaks the camel’s back. Before a critical mass is reached, the camel can support the amount of weight it’s required to carry. Then the weight passes a threshold at which any additional amount is disastrous, and the final straw tips the camel into another state. Once a system passes a certain threshold and enters a critical state, it takes only a tiny nudge to change it.
+
+When a system changes from one state to another, we say it has achieved critical mass, also known as reaching the tipping point. In social systems, critical mass tends to mean the point when enough people have adopted something, such as a belief or product, that its growth can sustain itself. In his 1978 book, *Micromotives and Macrobehavior*, game theorist Thomas Schelling wrote, “The generic name for behaviors of this sort is critical mass. Social scientists have adopted the term from nuclear engineering, where it is common currency in connection with atomic bombs.”
+
+The amount of energy required for a system to achieve critical mass is variable. Different systems have different properties and thus require varying amounts of inputs to tip from one state to another.
+
+Heated water is at critical mass when it is hot enough to change from liquid to gas. There is a massive difference between 212 and 211 degrees Fahrenheit. One is the boiling point; the other is not. In business, critical mass is the point where a business makes enough money to no longer need outside investment or the point where the financial growth of a company becomes self-perpetuating. In epidemiology, critical mass can refer to the point where enough people are vaccinated in a population to prevent an
+
+---
+
+infectious disease from spreading to vulnerable people who cannot be immunized.
+
+Using critical mass as a model helps us understand the effort required to achieve sustained change. Systems have certain inflection points where they change from one state to another. It doesn’t help us to focus solely on the tipping point and ignore the work required to bring a system there. It’s easy to be dazzled by the final input that pushes a system from one state to the next, because it seems to make everything happen all at once. But the straw breaks the camel’s back only when there is already a lot of weight on it. The last piece matters only because of all the pieces that came before it.
+
+The critical mass lens also helps us identify the parts of a system we can target to advance change. In social systems, for example, we don’t need to spend equal effort changing everyone’s mind. We can instead focus our efforts on changing the minds of opinion leaders to more quickly advance change.
+
+Systems in a critical state tend to be precarious, but they don’t stay that way for long because they’re so easily tipped.2 Getting insight into what could be the straw is valuable, as is recognizing when a system is poised on the edge of instability. A pencil balanced on its end may appear at equilibrium as it remains upright. But it could topple at the slightest disruption, so it is not stable.3
+
+---
+
+# The Overton Window
+
+Day by day, people’s minds don’t change that much. It’s unusual for someone to wake up one day and decide to completely change their tack on a pertinent issue. But in the long run, over decades, the ideas in the mainstream alter drastically. Fringe ideas become mainstream, and mainstream ideas become fringe. One way to understand this phenomenon is by considering the Overton window, a concept developed by Joseph P. Overton in the 1990s as part of his work for the Mackinac Center for Public Policy.
+
+The Overton window is the range of ideas considered acceptable for politicians to propose as policy. Ideas outside of that, no matter how good, cannot gain widespread support. They’re too extreme for the current climate and are best avoided lest they harm one’s chances of reelection. Over time, the Overton window shifts. Some politicians may advance far-out ideas in a deliberate attempt to move the window further from the norm and make more moderate ideas more palatable.
+
+Ideas move in a progression: unthinkable → radical → acceptable → sensible → popular → policy.4 For instance, the suffrage movement shifted the Overton window to make the idea of women being able to vote move from unthinkable to policy. Now to suggest otherwise would be unthinkable.
+
+Politicians must prioritize the Overton window over their personal beliefs.5 It’s important to recognize this window isn’t universal. The conservative political positions of one country may be considered liberal in another.
+
+The value of the Overton window as a concept is that it encourages us to recognize that attitudes and opinions are not static. What we consider acceptable today may one day be unacceptable. Ideas that are fringe and wacky now may one day be mainstream.
+
+---
+
+# The Work Required for Change
+
+We like to tell stories about tipping points. We look at the landmark cases or individual actions that sparked a cascade of change in the past and wonder how we can re-create them to push our current system into a new state. Using the mental model of critical mass, however, reminds us that it is equally important to pay attention to the effort involved in the buildup.
+
+In September 1893, New Zealand became the first self-governing country to give most adult women the right to vote in parliamentary elections. American women would not earn this right for another twenty-seven years and British women for twenty-five. An important thing to understand about women’s suffrage in New Zealand is that it was far from a sudden change, even if it may have appeared as such from afar. Through the efforts of many people over many years, there was a slow shift of the Overton window to the point where women being able to vote became reasonable in the minds of enough people to move the voting system into a new state.
+
+Certain unusual aspects of New Zealand’s society and events in its history helped lay the groundwork for changes in the voting system even before the official suffrage movement began.6 Many of the people living in the country had settled there in recent decades and desired to create a fairer society than the European one they had left behind.7 Seeing as the population was small (under 750,000 in 1893, including 40,000 Maori),8 fewer minds needed changing to create a critical mass. The movement received support from prominent male politicians early on, which aided in getting a foothold in Parliament.
+
+Women receiving equal access to education in New Zealand was another key factor in the buildup of opinion change to critical mass. Due to the campaigning of educationalist Learmonth Dalrymple, girls received the same secondary education as boys, with the first school for girls opening in 1871.9 Dalrymple also successfully ensured women were able to attend
+
+---
+
+university, where they made up half the student body by 1893.10 Greater education led to improved employment prospects outside the home, beyond the customary option of domestic labor. More and more women entered the workforce once they had better education, gaining social influence in areas such as teaching, journalism, medicine, and the arts.11 When they faced worse working conditions than men, New Zealander women began to unionize.12
+
+In many ways, the New Zealander suffrage movement was entwined with the temperance movement, which sought to restrict or prohibit the consumption of alcohol. Throughout the nineteenth century, alcohol became a growing problem in many countries, leading to poverty, violence, crime, and harm to family life. For New Zealanders, it was particularly harmful among men working in the agricultural, maritime, and industrial industries.13 As in many other countries, it was reported that many men drank away their wages before even making it home on the weekend, leaving their wives and children bereft. Because women tended to suffer the most as a result of widespread heavy drinking, they were influential in the movement.
+
+Although the temperance movement never achieved the aim of total prohibition in New Zealand, it constructed a framework for women to politically organize. Alongside unionization, it gave women the confidence that they could have influence if they worked together in sufficient numbers with clear goals and a sense of focus. As Patricia Grimshaw writes in Women’s Suffrage in New Zealand, “Women, on the practical side, learned the arts of organization, administration, and leadership which could be turned to use in later years in their own cause. Women, on the ideological side, entered a sphere in which a new outlook on their basic rights developed rapidly, spurring them to aim at the realization of their full rights as women.”14
+
+All this work culminated in the suffrage movement, led by Kate Sheppard, which built upon the social change that had been growing since the country’s founding. In the early 1890s, Sheppard organized several petitions in favor of women being able to vote, which she presented to Parliament. Despite initial failures, the movement kept trying, gaining more
+
+---
+
+and more support each year. By 1893, her petition had amassed thirty-two thousand signatures, a number all the more impressive considering the tiny population of the country at the time. After numerous attempts, the bill passed by a whisker. The changes in opinion had reached critical mass.
+
+In turn, women earning the right to vote in New Zealand helped motivate and inspire similar movements elsewhere because it showed wider suffrage was possible. After World War II, women’s political emancipation spread around the globe, a visible symbol of wider improvements.15 Once you pass a tipping point, the whole nature of a system changes. It develops new properties, and new things are possible. New Zealand was that tipping point for women’s suffrage in many other countries.
+
+When we look back at significant social changes, it’s important to recognize the work involved in building a critical mass. Women getting the vote in New Zealand was the result of years of effort on many different fronts to build the capabilities needed to change opinions. As social norms regarding women voting started to change, the movement gained the critical mass necessary for petitions in Parliament to be the final straw that resulted in a new state.
+
+We can learn from the mental model of critical mass that changing a system doesn’t require changing everything about it. Changing a small percentage of its parts can shift the whole thing into a new state. Getting people to alter their beliefs doesn’t mean convincing everyone; once you pass a threshold, the change perpetuates itself.
+
+---
+
+# Minority Opinions
+
+Sometimes, people change their minds a lot in a short time. Although it can seem as though this shift occurs overnight, what really happens is that things change slowly until a critical mass of people hold a viewpoint. Interestingly, a majority is not required for things to tip and result in almost everyone changing their minds. Once opinion leaders hold a viewpoint, it spreads easier because people who don’t hold this same viewpoint face negative consequences. Targeting opinion leaders can accelerate reaching the tipping point.
+
+Researchers at Rensselaer Polytechnic Institute identified the percentage of a population necessary for social change as 10 percent. They stated that this holds true regardless of the type of network.16 However, other research suggests the number is much higher, with around 25 percent of a population being the tipping point. Past this point, a minority view can replace the status quo. The researchers attribute this to most people not being as committed to their opinions as they imagine, meaning they’re liable to change their mind as those around them do. The 25 percent figure is likely to vary depending on the
+
+---
+
+extent of the stake people have in their viewpoints and the social clout of the minority seeking to change things.17
+
+---
+
+# Organic Cities
+
+In nuclear physics, critical mass is the minimum amount of fissile material needed to start a self-sustaining reaction. You can pile up the uranium, and nothing will happen until a high enough density is reached. To focus on what prompts the change from inert to active in a nuclear reaction isn’t all that interesting. It’s just one more bit of uranium. The more interesting question is, how much is needed to kick-start the reaction so that it can continue without further inputs? The lens of critical mass is thus a useful one to apply to other situations in which we’d like to produce self-sustaining reactions, such as cities.
+
+Cities are complex systems where planners have often misidentified the elements required to create enough density to produce self-sustaining interactions.18 In cities, it’s not the amount of infrastructure that produces interactions, it’s how that infrastructure is laid out. A certain number of interactions are required for a city to function well and adapt to meet the needs of those living in it. What makes a city safe, interesting, prosperous, and creative isn’t the buildings or streets. It’s how the infrastructure fosters interactions and relationships between people.
+
+Jane Jacobs wrote extensively in *The Death and Life of Great American Cities* about how to achieve self-sustaining interactions in cities and why they are important. She argued that when we isolate parts of cities, we miss the many interconnected functions they perform. For example, “A city sidewalk by itself is nothing. It is an abstraction. It means something only in conjunction with the buildings and other uses that border it, or border other sidewalks very near it.”19
+
+The system formed by a sidewalk and its users is what makes an area both safe and interesting. When the area around a sidewalk is subject to active mixed uses—homes, cafés, shops, and so on—there are always eyes upon it and people passing through. These people do not need to know one another or even to talk to one another. It is enough that they see one another.
+
+---
+
+are aware they are watching and being watched, and observe one another’s behavior. Jacobs writes, “The basic requisite for such surveillance is a substantial quantity of stores and other public places sprinkled along the sidewalks of a district; enterprises and public places that are used by evening and night must be among them especially.”20
+
+It is the interplay of people that ensures a sidewalk is safe and places limits on antisocial behavior. People moderate how they act knowing someone is or might be watching. Any antisocial behavior that does break out is likely to be swiftly halted by the interventions of bystanders. An organic, unorganized system of control enforced by social norms is more immediate and effective than the use of police, although the threat of them being called plays a role.21
+
+To understand why neighborhood safety breaks down in certain situations, we need to consider a sidewalk as needing a minimum number of interactions in order to function as part of a city system instead of just a piece of concrete. You’d feel safer at night walking along a street lined with bars open late than one with stores that close at five p.m. You’d feel safer walking along a main street passing the fronts of houses than an alleyway only visible from a couple of windows. You would feel safer on a crowded street than an empty one with a police officer present. You feel safer on a sidewalk that is part of a whole system of self-sustaining interactions.22
+
+The more people who are using a sidewalk, at different times and for varied purposes, the better it functions as a safe space. This is true outside cities, but other factors are likely to be relevant for safety in towns or rural areas.
+
+It is this “intricacy of sidewalk use, bringing with it a constant succession of eyes” that also makes an area lively and interesting, and therefore a desirable destination.23
+
+Activity attracts more activity. Many people using an area brings economic benefits, which further attracts more businesses, especially more unusual and specialized ones, which in turn attracts more people.
+
+Visual activity is appealing to the eye. We like to watch things happening and other people going about their days, so crowds attract more crowds. People who watch attract more people who do by making an area
+
+---
+
+safer, and people who do attract more people who watch by making an area interesting.24 It is a feedback loop that is dependent on a myriad of uses and interactions.
+
+Our experience of a city also has to do with the relationships it fosters with other people. Again, interactions are paramount. Both social isolation and a lack of privacy are risks in cities. An individual may contend with both throughout the course of a day in a poorly designed city. Ideally we gravitate toward spaces where we can have controllable levels of interaction with others. In Happy City, Charles Montgomery says, “The richest social environments are those in which we feel free to edge closer together or move apart as we wish. They scale not abruptly but gradually, from private realm to semi-private, to public; from boardroom to living room to porch to neighborhood to city.”25
+
+One instance of an environment that allows individuals to regulate their level of interaction but also accommodates a wide variety of users is a plaza or square. Present at varying scales as a standard feature of the city, squares are mixed-use areas in which one could, among other things, meet a friend or a date, enjoy a coffee at a sidewalk café, watch a street performer, exercise a dog or child, attend a protest, or strike up a conversation with a stranger. The surrounding bustle allows for both safety and interest. You feel safe meeting a date or talking to a stranger because there are enough people around to take note if something goes wrong. But you also feel comfortable having a private conversation with a friend or writing in a notebook because no one is likely to pay much attention to you in particular with so much going on.
+
+Space alone does not create this environment. An overly large square can actively repel people, as it feels overexposed and empty. A popular one must have enough activity and reasons to visit in a small enough space to create the density needed for spontaneous and ongoing interactions to occur.
+
+Strøget is a network of pedestrianized streets in Copenhagen, Denmark, created in the 1960s as part of an effort to switch the city’s focus from cars to pedestrians and cyclists. Closing off the area to cars was a controversial move. People didn’t believe Danes would simply want to mingle in a public.
+
+---
+
+space, considering the country’s typically cold weather and lack of a preexisting café culture.
+
+But today, Strøget is a lively area with an annual peak of 120,000 visitors braving the icy Danish winter on the last Sunday before Christmas.
+
+Strøget works because it manages to combine many possible uses in one area, making it a busy and engaging place to visit. It facilitates the interactions necessary for a city to function in a way that promotes needs like psychological safety and controllable social engagement. Pedestrians and cyclists pass through on their way to somewhere else. Shoppers visit both luxury boutiques and chain stores. Others visit the theater or church. Street performers attract audiences, as do peaceful demonstrations. People sit at pavement cafés or wander along eating inexpensive street food. Tourists visit museums and art galleries.26 People are willing to brave the cold because the area has so much to offer.
+
+Architect Jan Gehl has since applied the principles of Strøget to other parts of Copenhagen and cities around the world. The city was able to promote a new sort of street culture by recognizing that a bustling public space is the product of several factors coming together at a certain density.27 Street culture is not specific to certain cultures; it is about having the right kind of spaces for it. These spaces recognize that a minimum of interactions must be maintained in order for them to function in a self-sustained way. The actual architecture should be invisible because the focus is on the people and on bringing out their best qualities.
+
+The idea that infrastructure needs to promote and facilitate a certain number of interactions and not just look good explains why some attempts to design and build cities from scratch have been riddled with problems. If you focus on the infrastructure first and just build a list of requirements—like houses, stores, and streets—you increase the chance that your city won’t function well. Rather, the infrastructure needs to be designed to facilitate a critical mass of interactions—something that planned cities often miss. Planned cities may try to design out those interactions because designers see them as a waste of time, or they may even want to discourage any type of organized action.
+
+---
+
+Planned cities often segregate different functions, like workplaces and homes, ignoring the benefits of mixed-use areas, which are the standard in natural cities. Visually this segregation looks ordered and pleasing, but it doesn’t promote the interactions cities require. It’s useful for people to be able to access resources close to where they live. It cuts down on commuting and increases time people can spend on relationships.
+
+Mixed-use areas combining residential and commercial elements create more interactions than those segregated for one function. Planned cities may segregate roads and sidewalks for pedestrians, viewing driving and walking as distinct activities. But this prevents people from being able to hail a taxi and combine the two functions.28
+
+Brasília, the federal capital of Brazil, was designed in the 1950s and ’60s to replace Rio de Janeiro as the capital. Architect Oscar Niemeyer and urban planner Lucio Costa crafted a vision of a utopian city from scratch. In the visual sense, Brasília is a stunning World Heritage site. From the air, it has a beautiful birdlike form. As a place to live, it functions less well.
+
+Areas of Brasília have specific uses: people live in one part, work in another, and shop in another. Without mixed-use areas or much catering to pedestrians, the city cannot form a street culture. Communities cannot cohere due to a lack of areas where people can mingle. Visual order—Brasília is laid out in a grid—does not translate into good function.
+
+Everything in Brasília was built new and modern, to similar specifications. Yet cities need buildings of varying age and quality to allow for people at different income levels. The architects and designers never planned for low-income housing, despite Brasília needing inexpensive labor as much as any other city.29 As a result, unofficial areas have sprung up around the city that house its poorer residents. Only by deviating from the plan can it function at all.30
+
+So although Brasília contains the same parts as a typical city, those parts do not facilitate much interaction. It seems as if its designers believed that the arrangement of the infrastructure is irrelevant to city functioning. But how the infrastructure is laid out is crucial because it facilitates the critical.
+
+---
+
+# Conclusion
+
+Critical mass isn’t just a science term; it’s a guide for understanding that often things happen slowly and then all at once. It’s the moment when a system goes from sputtering along to explosive growth. Like a nuclear chain reaction, once you hit critical mass, the reaction becomes self-sustaining.
+
+Through this lens we gain insight into the amount of material needed for a system to change from one state to another. Material can be anything from people and effort to raw material. When enough material builds up, systems reach their tipping point. When we keep going, we get sustainable change.
+
+Using critical mass as a lens for situations in which you want different outcomes helps you identify both the design elements you need to change and the work you need to put in.
+
+OceanofPDF.com
+
+---
+
+# Emergence
+
+Organization without an organizer.
+
+OceanofPDF.com
+
+---
+
+You look at where you’re going and where you are and it never makes much sense, but then you look back at where you’ve been and a pattern seems to emerge. And if you project forward from that pattern, then sometimes you can come up with something.
+
+—ROBERT M. PIRSIG1
+
+---
+
+When we look at systems on the macro scale, they sometimes exhibit capabilities that aren’t present on the micro scale. This is known as “emergence,” when systems as a whole function in ways we can’t predict by looking at their parts. As Aristotle put it thousands of years ago, “The whole is something over and above its parts, and not just the sum of them all.”2 The mental model of emergence reminds us that new capabilities are often produced from seemingly innocuous elements.
+
+Emergence is like watching a flock of birds suddenly move together to form a pattern in the sky; it’s the surprise of seeing a whole new thing appear from just simple parts coming together. It’s when all the separate pieces, following their own simple rules, create a complex and unexpected dance you could never predict just by looking at the pieces alone.
+
+We cannot understand systems with emergent properties by reducing them to their individual components. Termite mounds exhibit emergent properties. A single termite is powerless, but a million or two working together can build a complex mound up to seventeen feet tall, requiring the movement of a ton of soil and several tons of water each year.3 Without a leader orchestrating their movements, termites build ventilation and cooling systems, storage chambers, fungus gardens, and specialized housing for the queen.4
+
+Emergence is either strong or weak. Weak emergence occurs in systems in which functions are based on identifiable rules. We can model weak emergence by identifying the underlying rules. Strong emergence does not have identifiable rules behind it, so we cannot model it. So it’s possible to construct a computer simulation of the flocking behavior of a group of birds (weak emergence) but not of the interplay of cells in our brains that creates consciousness (strong emergence).5
+
+---
+
+One of the primary features of emergence is self-organization. The parts of a system may appear to interact in chaotic ways, but the whole can seem orderly. This occurs without centralized control—the parts organize themselves from the bottom up. For instance, flocks of birds tend to fly in a coherent shape. They don’t manage this by following the instructions of a leader; instead, each bird instinctively follows certain rules, like keeping an even distance between themselves and their neighbors.
+
+---
+
+# Emergence and Complexity
+
+Emergence is not synonymous with complexity. Some complex systems exhibit emergent properties, some only resultant properties. Some simple systems have complex emergent properties.
+
+For example, a nuclear power plant is a complex system with numerous parts all working together. But it does not display emergence: the parts work together as expected. Meanwhile, a much simpler game of chess can show emergence, as there are novel outcomes originating from simple rules. The rules governing how pieces can move are basic, but they lead to complex, high-level strategies, and the outcomes of games are unpredictable. The rules don’t tell you how a game will end.
+
+---
+
+# The Mothers of the Plaza de Mayo
+
+Emergence is all about understanding that sometimes systems can exhibit capabilities that are beyond the additive properties of their components. Using it as a lens suggests that groupings of people can produce results that are nonintuitive when you consider how the capabilities of any one person should scale. The cumulative actions of groups of people can also result in novel outcomes different from their initial intentions. We can see emergence in protests, in which groups of people with little power can end up having a tremendous influence. Protests can also have unexpected results that organizers and participants never planned.
+
+Every Thursday evening between 1977 and 2006, a group of women, many quite elderly, met in the Plaza de Mayo in Buenos Aires, Argentina. Mostly wearing matching white headscarves, they walked across the square while chanting and holding banners. Though their methods were humble, what they peacefully achieved over the decades is remarkable.
+
+Periods of history form a coherent narrative under a name only in retrospect. We know the period of state terrorism in Argentina between 1976 and 1983 as the Dirty War. The average Argentinian simply experienced it as a period of extreme, random violence. Due to media censorship, many people didn’t even know much about the events at the time if no one they knew personally was targeted.
+
+After the Argentine military performed a successful coup against President Juan Domingo Perón, it declared anyone who opposed its policies an enemy of the state. Anyone who came under suspicion, even if they were not an actual threat, risked going missing. Argentinians referred to these people as los desaparecidos, meaning “the disappeared.” The government did everything possible to erase any proof they ever existed or to obscure their whereabouts. Many were drugged and thrown from airplanes to prevent their bodies from being found. The total death toll is estimated at thirty thousand. In addition, the children of pregnant desaparecidos were
+
+---
+
+put up for adoption or sold, with many never learning their true backgrounds. Even to attempt to trace the whereabouts of a missing friend or family member could be fatal.
+
+Despite the fierce censorship and punishment of dissenters, one group retained power—by virtue of their powerlessness and vulnerability. For the mothers of the many people who disappeared, the grief was unbearable. A handful couldn’t contain it any longer, and despite the extreme risk, they decided to challenge the regime. On April 30, 1977, fourteen mothers met in the Plaza de Mayo and marched, demanding to know what had happened to their children. Soon their numbers grew to the hundreds.8 The mothers wore white headscarves embroidered with the names and dates of birth of their children, which became a symbol of their movement.9 As the disappearances continued, their tactics grew bolder.
+
+The Argentine government didn’t know how to respond. Murdering a visible group of mothers and grandmothers would risk a major backlash. In any case, annoying as they were, a handful of women seemed harmless. They had no power to oppose the government. Officials called them crazy and left it at that.
+
+But they misunderstood the potential for and impact of emergence. As individuals, the Mothers of the Plaza de Mayo had no power or influence over the government. At first they had little support because most people didn’t even know about the disappearances.10 When they worked as a group, repeating the same actions each week for years, the total effect was greater than the sum of its parts. They had a power that was the result of them coming together. Seeing as the regime relied on scaring people into silence, speaking out was the most impactful thing they could do.
+
+As Diana Taylor writes in Disappearing Acts, “Only by being visible could they be politically effective. Only by being visible could they stay alive. Visibility was both a refuge and a trap—a trap because the military knew who their opponents were but a refuge insofar as the women were only safe when they were demonstrating.”11
+
+While the government paid no attention, news of the Mothers of the Plaza de Mayo spread outside Argentina. Countries without media
+
+---
+
+Censorship reported on their protests, raising awareness of the brutality of the Dirty War.12 Human rights groups offered up resources to help the group achieve more.
+
+With increased support came increased pushback. The Argentine government began to target the mothers, and a number became desaparecidos themselves. A policeman fired a machine gun at them during one protest.13 The founders of the movement were murdered, and the ultimate fate of some members is still unknown. But they refused to back down because they were safer in the public eye, not out of it.
+
+Once the Dirty War came to an end in 1983, the mothers knew their fight was far from over. They still needed to know the fate of their children and wanted those who had murdered them or were responsible for orders that led to deaths to face the consequences. Mothers whose children were pregnant at the time of their disappearances wanted to trace their grandchildren. To date, more than 850 people have been charged with crimes committed during the Dirty War, and more than 120 stolen children14 have been identified and reunited with relatives.15 DNA testing has helped to identify bodies from mass graves.
+
+By taking advantage of their power as a peaceful group, the Mothers of the Plaza de Mayo managed to help change things in Argentina. Nothing they did could bring their children back, but they could hope that it prevented others from losing theirs, and it could bring them closure. Their methods inspired similar groups around the world. While their main initial intention was to find out what had happened to their children, their protests had larger effects, such as calling the wider world’s attention to the regime’s abuse of power. They helped undermine the regime’s sense of its ability to control people’s thinking.
+
+As a group, the mothers possessed qualities none of them had as individuals. They were visible, and that visibility made them counterintuitively less vulnerable to harm. Oppressive regimes thrive when people are too scared to be seen opposing them. Visible opposition inspires more people to ask questions and to join in fighting oppression. That’s why the government at the time went to such lengths to prevent dissent.
+
+---
+
+What the mothers achieved was not inevitable. Many other similar groups failed to provoke change. The fact that the mothers did was a novel property. Finally, the story can teach us that you don’t always need to plan things all the way to the end. If you have a simple starting point on the right trajectory, surprising things can pan out through the power of emergence.
+
+# Social Innovation
+
+Knowledge sharing can often produce unexpected results. We start to work together; I bring an understanding of x, and you contribute experience with y. Combining our knowledge means we have x and y covered, but sometimes we are also able to create z. Using the lens of emergence, we can look at learning in humans and highlight that social interaction matters as much as, if not more than, individual smarts if we want to ramp up innovation.
+
+As a species, we can do more than any one human brain is capable of because of cultural learning. We don’t need to reinvent the wheel each generation. We have evolved social networks that allow us to learn from our elders and to pass on that knowledge to our children. What is important for humans, though, is that we all don’t need to know everything. Look around and you will see many items that you cannot build but that you can use. Cultural learning produces products that are emergent properties of human collective organization.
+
+In describing the role of cultural learning for humans, Joseph Henrich, in *The Secret of Our Success*, explains, “The striking technologies that characterize our species, from the kayaks and compound bows used by hunter-gatherers to the antibiotics and airplanes of the modern world, emerge not from singular geniuses but from the flow and recombination of ideas, practices, lucky errors, and chance insights among interconnected minds and across generations.”16 Basically humans create things as a group that no one person is capable of.
+
+---
+
+Furthermore, as cultural learning gets passed from generation to generation, “our cultural learning abilities give rise to ‘dumb’ processes that can, operating over generations, produce practices that are smarter than any individual or even group.”17 Thus it is not just the knowledge that accumulates, but our abilities to learn from and teach others, that grow and give rise to emergent properties.
+
+Think of it this way: Could you build a pyramid or a telephone? Even if you worked with the five or ten smartest people you know? How about survive in a forest? How many people would you have to bring with you to guarantee one of you knew how to start a fire? There is so much knowledge that has accumulated in the history of humanity, it isn’t possible to know all of it. Henrich explains that the “practices and beliefs [of cultural learning] are often (implicitly) much smarter than we are, as neither individuals nor groups could figure them out in one lifetime.”18 Cultural learning has produced a cultural mind: an emergent property allowing human knowledge to accumulate and grow far beyond the scope of any individual.
+
+# How does cultural learning work?
+
+In their paper “Culture and the Evolution of Human Cooperation,” Robert Boyd and Peter J. Richerson look at living in the Arctic as one example and explain:
+
+Arctic foragers could make and do all the other things that they needed because they could make use of a vast pool of useful information available in the behavior and teachings of other people in their population…. Even if most individuals imitate most of the time, some people will attempt to improve on what they learned. Relatively small improvements are easier than large ones, so most successful innovations will lead to small changes. These modest attempts at improvement give behaviors a nudge in an adaptive direction, on average. Cultural transmission preserves the nudges, and exposes the modified traditions to another round of nudging.19
+
+---
+
+Humans are generally very good at sharing our improvements and insights with those around us. Furthermore, we find it natural to learn from other people. Thus, although innovating is important in terms of adaptability and survival, what makes humans unique is our social networks that encourage the sharing and uptake of innovation.
+
+Cultural evolution is part of the natural selection process. No one guides cultural learning. It’s not prescribed. There is no authority setting out what we will learn every generation. And for most of what we do, we have no idea why it works.
+
+Henrich traces the development of cultural learning in the human line. Compared with our nearest relatives, chimpanzees, we learn from more individuals right from birth. He suggests that “once individuals evolve to learn from one another with sufficient accuracy (fidelity), social groups of individuals develop what might be called collective brains.”20 It is these collective brains—products of large, interconnected groups with strong social norms—that have the potential to generate emergent properties and propel a society to increased sophistication in technological complexity.
+
+Language is a great example of the collective brain propelling the development of complexity. When it comes to language development, Henrich says, “No single individual does much at all, and no one is trying to achieve this [development] as a goal. It’s an unconscious emergent product of cultural transmission over generations.”21
+
+Henrich explains how cultural learning has put selection pressures on humans, changing both our bodies and our instincts. Thus, we start out in life not as a total blank slate but with a huge amount of cumulative cultural evolution behind us. In his paper “The Pace of Cultural Evolution,” Charles Perreault concludes, “Culture allows us to evolve over time scales that are normally accessible only to short-lived species, while at the same time allowing us to enjoy the benefits of having a long life history, such as a large brain, an extended juvenile period, and long life span.”22
+
+When explaining the power of cultural learning, Henrich says, “The first thing to realize is that you are much smarter than you would otherwise be because you’ve tapped into and downloaded an immense repository of
+
+---
+
+mental apps from a vast pool of culturally inherited knowhow and practices.” People specialize because no one can know everything. Then they interact. And in that system in which the interaction occurs, something happens that otherwise wouldn’t.
+
+He argues that “innovation does not take a genius or a village; it takes a big network of freely interacting minds.” Innovation, then, is not the product of one-off smarts but is the result of the emergent property that our cultural learning has produced.
+
+# Conclusion
+
+Nearly everything is an emergent effect—a table, a space shuttle, even us—combinations of ingredients that come together in a specific way to create something new. Emergence is the universe’s way of reminding us that when we combine different pieces in new ways, we get results that are more than the sum of their parts, often in the most unexpected and thrilling ways.
+
+Using this mental model is not about trying to predict emergent properties but rather acknowledging they are possible. There is no need to stick with what you know; mix it up and see what happens. Learn new skills, interact with new people, read new things.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Chaos Dynamics
+
+Most systems behave linearly only when they are close to equilibrium, and only when we don’t push them too hard. —STEVEN STROGATZ25
+
+CHAOTIC SYSTEMS ARE SENSITIVE TO initial conditions. This sensitivity gives rise to a phenomenon known as the butterfly effect, so named for the work of MIT meteorologist and mathematician Edward Lorenz. In the 1950s, Lorenz was working on weather-prediction computer models. One day he entered data into a program and left to get a coffee. When he returned, he found the predictions were completely different than when he’d entered the same data earlier that day. At first he thought there was some sort of technical error. Then Lorenz realized he’d accidentally entered a rounded-up number for one of the variables. The discrepancy was tiny, yet the differences in the results were stark.26
+
+---
+
+From this accident, Lorenz discovered chaos dynamics, or the butterfly effect. He found that it wasn’t just weather; other chaotic systems exhibited the same sensitivity to initial conditions. It explained why predicting the weather was such a challenge. In later research and talks, Lorenz compared the difference to the change in air pressure produced by the flap of a butterfly’s wings.
+
+Predicting the future behavior of chaotic systems is difficult or impossible because modeling outcomes requires perfect understanding of starting conditions. Any inaccuracies will result in incorrect—perhaps drastically so—predictions. As we progress into the future, the impact of such deviations is magnified further and further, so predictions become exponentially less accurate.27
+
+The butterfly effect is significant because it contradicts many of our assumptions about the world. We tend to assume systems are deterministic and tiny differences shouldn’t matter too much. In a lot of what we encounter in our day-to-day life, that’s true. But it’s false for chaotic systems. Without perfect accuracy, we can’t make useful, comprehensive predictions about them. It’s often only possible to make probability-based predictions, which is why you might hear that there’s a 60 percent chance of rain tomorrow.
+
+Since Isaac Newton first codified laws explaining the functioning of the universe at a fundamental level, people have wondered whether it would one day be possible to completely understand the world. Could we one day identify all the relevant laws and be able to predict everything? In 1814, the mathematician Pierre-Simon Laplace declared Newton’s laws would enable us, should we know the position and velocity of every particle in the universe, to predict anything, forever. More than a century later, computers made it seem as though we could put Laplace’s prediction to the test.28
+
+The butterfly effect suggests otherwise. Even when we can identify deterministic rules, we cannot make perfect predictions. In the face of chaos, we should expect to be surprised. We may know the rules governing a chaotic system’s behavior, but we cannot know its precise initial conditions. When we look at the behavior of chaotic systems, we are in fact seeing the outcomes of deterministic rules. Even if we cannot predict their future behavior, it still has its own logic.
+
+For want of a nail the shoe was lost;
+
+For want of a shoe the horse was lost;
+
+For want of a horse the battle was lost;
+
+For the failure of battle the kingdom was lost—
+
+All for the want of a horseshoe nail.
+
+—ANONYMOUS
+
+---
+
+As far as the laws of mathematics refer to reality, they are not certain, and as far as they are certain, they do not refer to reality.
+
+—ALBERT EINSTEIN
+
+---
+
+# What Popular Culture Gets Wrong about the Butterfly Effect
+
+The image of a butterfly flapping its wings and causing a typhoon is a vivid one, and it’s no surprise it went on to inspire endless films, books, songs, and motivational quotes. It’s unusual for a mathematical idea to become so mainstream. The idea of a tiny thing having a big impact on the world is powerful.
+
+But this is a misreading of the actual meaning of the butterfly effect.30 It’s not that the wing flap causes the typhoon; it’s that the difference in starting conditions between a world where the butterfly flaps its wings and one where it doesn’t is sufficient to mean a typhoon in one and not the other. Chaotic systems are so sensitive to starting conditions that the minutest differences can lead to highly divergent outcomes. We cannot, however, look at an outcome and say that a particular change in conditions caused it. Within chaotic systems, no moment is any more significant than any other. Every single moment changes everything that happens after.
+
+Some systems…are very sensitive to their starting conditions, so that a tiny difference in the initial “push” you give them causes a big difference in where they end up. And there is feedback, so that what a system does affects its own behavior.
+
+—JOHN GRIBBIN31
+
+---
+
+OceanofPDF.com
+
+---
+
+# Irreducibility
+
+As simple as possible but no simpler.
+
+OceanofPDF.com
+
+---
+
+It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.
+
+—ALBERT EINSTEIN
+
+---
+
+Albert Einstein’s idea was that it is possible to reduce any theory down to a certain level that makes it as understandable as possible to as many people as feasible, but past a certain point, it will lose its meaning. Some things—like feelings, life, or even a game of chess—have to be taken as a whole because the magic lies in how all the parts work together, not just in the pieces themselves. The point at which reducing something further loses usefulness is the point where it is effectively irreducible.
+
+Using irreducibility as a model has an echo of first principles thinking. It’s a tool for thinking through to the basics: the minimum amount of time, or components, or structure required to maintain the overall qualities. What is the minimum amount necessary for a thing to still be that thing? Irreducibility is about finding the point beyond which you will inevitably change the fundamentals so that you can recognize when you are changing the system to something different.
+
+There are certain irreducible limits to any system past which the system ceases to function as intended. One of the challenges is being able to identify those limits and not get sidetracked by what you think ought to be there.
+
+Irreducibility is exemplified in the parable of the goose and the golden eggs. In this story, a farmer finds a goose that lays a solid-gold egg each day. The farmer grows tired of waiting for just one egg each day and cuts the goose open, imagining it will be full of gold. Instead, it dies, and the farmer is left with no more gold because emergence is irreducible. The parts of a system with emergent properties do not display those properties, only their aggregate does. If you disassemble such a system, like the farmer cutting open the goose, it loses its emergent properties.
+
+---
+
+# Loose Lips Sink Ships
+
+In communications, getting to the essence of the thing is important because simple communications are easier to understand. They contain less ambiguity and give fewer options for interpretation. Wartime propaganda posters are an excellent example of using few words and images to convey complicated information. Poster artists sought the minimum number of words and images they needed to depict their message.
+
+Propaganda posters from World War I and World War II often contain simple images with few words that nonetheless convey an incredible amount of information. Just consider the slogan Loose Lips Might Sink Ships. These five words were often paired with a simple image of a boat sinking. Together the words and images impart a lot of meaning. They ask people not to talk about anything that could negatively impact the war effort. They suggest that spies are circulating within the home population. The poster also suggests that the war could be compromised if everyone is not on the same page in terms of offering vocal support.
+
+In addition to the messages implying that the words of civilians can derail the war, the posters convey broader themes. They communicate that everyone is in it together and everyone has a role in the war effort. The posters also serve to condition people to think behavior changes are needed for their side to come out successful. If we imagine being a poster artist, we can understand how difficult it is to convey complex themes and messages like these in simple graphics and slogans.
+
+Poster artists must consider the minimum number of elements to be drawn in order to still communicate their intended message. Posters that read more like novels or that are filled with multiple complicated images are not effective.
+
+Abram Games was a graphic designer and the official war artist for the British during World War II. Many of his posters are visually stunning and are excellent examples of going right to the edge of irreducibility. The British National Army Museum describes his technique: “Always keen to derive maximum meaning from minimum means, his use of clever...
+
+---
+
+symbolic devices and simplified forms resulted in some of the most arresting and powerful posters of the era.” The images may have been uncomplicated, but the message was clear. His posters were an effective means of communicating complex topics. They were not so simple as to introduce ambiguity or confusion.
+
+Games’s posters covered a range of topics, from inspiring patriotism to “instilling desirable habits and behavior in soldiers and civilians alike.” The National Army Museum explains, “Among other things, his portraits encourage people to avoid waste, give blood, buy war bonds, handle weapons and ammunition properly, avoid gossip and maintain fighting fitness.” To promote this wide spectrum of behavior change, Games not only used few images but often reduced them to simple forms.
+
+Wartime posters make use of common symbols and symbolic representations. These types of symbols are often culturally specific, such as an eagle to represent the United States, or red to represent warning or danger. This is a critical component of being able to simplify the message. The less you have to explain, the more you can communicate in any one poster.
+
+Joseph Kaminski, in the paper “World War I and Propaganda Poster Art,” provides an analysis of one recruiting poster for the American Air Service. Two servicemen against a backdrop of a plane mid-flight implore readers to join. The phrase “Give ’em the gun” is centered, and the words “learn” and “earn” are highlighted at the bottom. Kaminski explains that “learn” and “earn” are “meant to appeal to the individual’s self-centered interest of learning a useful skill and making money so they can live comfortably after the war.” Thus the poster appeals to those who want to belong and those who want to fight, and shows how war experience can be useful later on. None of that messaging is explicit. The poster doesn’t spell out what you will learn or how it will help you earn. But the placement of the words on a recruiting poster, in addition to their large size, is the minimum amount needed to still convey the complex message.
+
+Using the lens of irreducibility on wartime posters demonstrates why in communication it can be so effective to find that minimum amount needed.
+
+---
+
+without compromising comprehension. Simplicity can convey a powerful meaning. But too much simplicity conveys no meaning at all.
+
+# Typography
+
+The mental model of irreducibility also teaches us that when we simplify or change things past a certain point, they cease to work or have meaning. There are limits to how much we can reduce while maintaining the important qualities that make a thing what it is. Being aware of those limits allows for experimentation and creativity.
+
+Designers of all kinds often pay attention to the irreducible components of whatever they’re designing. If they want to make things simpler or be creative, they need to consider how they can do so while still being comprehensible. Designers need to identify what makes something what it is so they can ensure the irreducible components are present. If they remove or change into an unfamiliar form something that is essential for users to understand what they’re looking at, the result is useless. Recognizing those limits is a key part of good user-friendly design. Subverting the limits can be bad design—but it can sometimes also be an exercise in finding new ways to represent the same thing or in challenging expectations.
+
+Typography is one area we can look at through the lens of irreducibility. Look around you at all the different fonts in your vicinity as well as their variant sizes, spacing, colors, and so on: in this book, on food packaging, on billboards, street signs, clothing labels, newspapers, slogan T-shirts, and so on. They all vary a great deal, yet you can still read them. Whoever designed the font retained the irreducible elements of each letter. Despite the differences in overall design, they figured out what makes each letter recognizable as itself.
+
+Eric Gill’s 1931 book, *An Essay on Typography*, is an ideal starting point for considering irreducibility in typography. At their core, Gill explains, “Letters are signs for sounds…. Letters are not pictures or representations. They are more or less abstract forms.”5 We have created
+
+---
+
+them as signifiers, and we can modify them to suit new mediums or the social demands. Letters have changed a great deal over time, yet each generation of designers aims to identify the irreducible elements of older forms, to hold on to them, and to ensure their type remains legible.
+
+The letters of the English alphabet do not directly symbolize the sounds of the language. A designer must “take the alphabets we have got, and we must take these alphabets in all essentials as we have inherited them.”6
+
+There are three core versions of the English alphabet: lowercase, uppercase, and italic. Each forms letters differently, but each is still recognizable because it contains the same irreducible elements. It is possible to change parts of the design without losing these elements. Gill writes, “A Roman capital A does not cease to be a Roman capital A because it is sloped backwards or forwards, because it is made thicker or thinner, or because serifs are added or omitted; and the same applies to lowercase and italics.”7 It is possible to change those elements because they are not irreducible—certain features of the letter’s shape are. Looking at a text mixing all three alphabets highlights that each has its own irreducible element. Capitals should be larger than lowercase when used together, and italics should be narrower and sloping.8 These are irreducible elements of the alphabet, not the letters themselves.
+
+For a designer, identifying and retaining those irreducible elements of each letter is an important, rare skill: “Everybody thinks that he knows an A when he sees it, but only the few extraordinary rational minds can distinguish between a good one and a bad one, or can demonstrate what constitutes A-ness. When is an A not an A? Or when is an R not an R? It is clear that for every letter there is some sort of norm.”9
+
+---
+
+A letter can be stripped of every flourish, and its components manipulated, but there is a point beyond which too much change renders it no longer the symbol it once was. Typography designers must balance creativity and comprehensibility.
+
+Gill explains that the irreducible elements of a letter may be different depending on its context. For example, “A square or oblong with its corners rounded off may, by itself, be more like an O than anything else, but in conjunction with a D made on the same principles there is not much by which to recognize which is which, and from a distance the two are indistinguishable.” The irreducible elements of a system are not fixed and depend on the context and goals of that system.
+
+In the book The Ten Commandments of Typography: Type Heresy, Paul Felton explores how experienced designers who know the rules can break them while still getting a message across. It comes down to understanding the irreducible elements of that component of type and how they vary between contexts.
+
+The most important feature of a headline, for example, is that it is the first thing a reader notices and therefore reads when they look at the page. Convention states the easiest way to achieve this is to make the headline much larger than the rest of the text and to place it at the top of the page. Felton illustrates that the eye will also naturally go first to the boldest text on the page if everything is the same size, so it is also possible to differentiate a headline by making it bold, in which case it can be positioned anywhere. What might appear to be an irreducible element is in fact not. The irreducible element of a headline is that it is immediately noticeable, not that it is larger than the rest of the text.
+
+---
+
+Sometimes irreducible components are obvious. As famously attributed to Warren Buffett, you can’t produce a baby in one month by getting nine different women pregnant. Natural selection has resulted in an irreducible pregnancy process. Irreducibility, however, is not always this clear. Typography shows us the importance of identifying irreducible components. Each letter has elements that need to be present for legibility. The same goes for the overall way you lay out text on a page. When we mistake the irreducible components and then jettison the rest, we change the nature of the system, which often results in a new system. Fonts that fail to retain the irreducible elements necessary for readability move into the domain of visual art as opposed to communication.
+
+---
+
+# Gall’s Law
+
+Gall’s Law, put forward by author and pediatrician John Gall in The Systems Bible, states that complex systems that work invariably evolve from simple systems. Attempting to build a complex system from scratch tends to be ineffective. Complex systems emerge from basic components. Although it’s not foolproof, we can see examples of Gall’s Law everywhere. A convoluted bureaucratic process in an organization probably began with something simple, a single form that served its purpose. Complex organisms like tigers and whales evolved from single-cell bacteria. Sprawling cities started off as small towns with a handful of inhabitants. Complex technologies like airplanes evolved from simpler ones like bicycles. Gall’s Law explains we cannot always establish how a complex system works by looking at its parts. It also teaches us to avoid trying to design complex systems from scratch.
+
+---
+
+# Conclusion
+
+Irreducibility is about essence. It’s the idea that some things can’t be broken down into smaller parts without losing what makes them tick. It’s the idea that not everything can be explained by looking at its components. Emergent properties arise from complex systems that can’t be predicted by studying the individual parts.
+
+Grappling with irreducibility requires a shift in thinking. Instead of trying to break things down, sometimes you have to zoom out. Look at the big picture. Embrace the complexity. Because some problems don’t have neat, modular solutions. They’re irreducibly messy.
+
+Using irreducibility as a lens helps you focus on what you can change by understanding what really matters.
+
+OceanofPDF.com
+
+---
+
+# The Law of Diminishing Returns
+
+Hard work stops paying off.
+
+OceanofPDF.com
+
+---
+
+When we put more effort or resources into something, we usually expect to get more out of it. Work more hours, be more productive. Exercise more, become fitter. Assign more people to a project, complete it sooner. Using the law of diminishing returns as a model shows us that the relationship between inputs and outputs in systems is not always linear. Past a certain point, diminishing returns almost always set in.
+
+The law of diminishing returns posits that inputs to a system lead to more output, up until a point where each further unit of input will lead to a decreasing amount of output. In other words, at that point more effort leads to less return. Progress even further despite diminishing returns, and more inputs may reduce the amount of total output.
+
+Consider adding sugar to your lemonade; the first scoop sweetens it a lot, but each extra scoop makes it only a bit sweeter than before. If you keep going, more sugar doesn’t make it sweeter, it just starts piling up at the bottom, unused.
+
+The concept of diminishing returns applies in almost any system. In economics, it is a specific term for the fact that increasing inputs, like materials and labor in production processes, increases outputs, but not indefinitely. Past a certain level, more inputs will lead to lower increases in outputs, until the inputs start to become a hindrance. A classic example is the number of workers in a factory. Hire more people and production goes up. Hire too many people and the factory gets crowded, people get in one another’s way, and there isn’t enough equipment to go around. Each additional worker then contributes less to the factory’s output.
+
+One early application of the law of diminishing returns was in farming, with the advent of artificial fertilizers in the nineteenth and twentieth centuries.1 Farmers found that adding more nutrients to their soil increased crop yields at first, making plants grow bigger in less time. But past a
+
+---
+
+particular ratio of fertilizer to soil, adding more meant less corresponding increase in yield. Adding even more meant less yield in total, as the soil became overloaded.2
+
+Diminishing returns are everywhere. Working an extra hour might make you more productive; working an extra three might mean more mistakes, so less work gets done per hour.3 Tweaking the little details of a project might improve it, but doing so for too long might mean the improvements aren’t worth the time invested. Receiving enough funding to get off the ground might be a godsend for a new company, but receiving too much might mean decreasing benefits, as proving profitable for investors takes precedence over serving customers. When you’re learning a new skill, early practice sessions have a huge impact on your abilities, then subsequent hours of practice lead to diminishing improvements in performance.
+
+The law of diminishing returns teaches us that outcomes are not linear and not all inputs to a system are equal. Often we focus on the trivial at the expense of the meaningful. An extra worker in a factory with ten employees is not equivalent to an extra worker in the same factory with one hundred. An extra hour of work at nine p.m. is not the same as an hour of work at nine a.m. The advantage of understanding the law of diminishing returns is being able to calculate where that point is for different systems so we know how best to interact with them.
+
+# The Viking Raids of Paris
+
+Diminishing returns happen because systems adapt. They become accustomed to certain inputs and stop responding to them in the same way. The law of diminishing returns teaches us that a way of interacting with a system that produces desirable results at first can become less and less effective over time. No matter how impressive the initial windfall may be, we should anticipate eventually getting less for our effort.
+
+In 814, the Holy Roman emperor and king of the Franks, Charlemagne, died. The death of the ruler of Francia (now France) left a sudden power
+
+---
+
+void in Europe. Throughout his life, Charlemagne led successful military campaigns against the Saxons and the Vikings. Europe had no other leader of equivalent might to fill his role of keeping them confined to Scandinavia. His successor Louis the Pious didn’t inspire the same fear as the leader who once massacred forty-five hundred captive Saxons in one go.4
+
+The Vikings were never defeated; rather they allowed themselves to be assimilated.
+
+—NEIL OLIVER5
+
+The first little fleet of Viking ships sailed up the river Seine in 820, looking to test Paris’s defenses. Frankish guards beat them back without much trouble. But this was only a pilot raid. The first notable raid occurred in 841, when the Vikings targeted the abbey of Saint-Denis, as churches tended to hold the most wealth at the time. It proved to be a profitable attack. Viking leader Asgeir enriched himself by taking a large number of hostages, returning some for ransom and selling the rest as slaves.6 After the initial success, the Vikings soon launched more raids.
+
+The Viking leader Reginfred, who conducted the most notorious raid of all in 845, is so shrouded in mystery that historians are unclear if he was a single individual or a composite. He is sometimes also known as Reginherus, Reginhero, or Ragnar Lodbrok. Under his command, 120 ships carrying thousands of Vikings advanced up the river Seine toward Paris.7 Guessing they would target Saint-Denis, the Frankish leader Charles the Bald, grandson of Charlemagne, placed one half of his army on each side of the river. His plan was misguided. By dividing his force, he allowed the Vikings to concentrate theirs, targeting one half at a time. Any soldiers they didn’t slaughter they took as prisoners.8 Then the Vikings demanded a ransom of seven thousand French pounds of silver and gold.
+
+The 845 raid of Paris was not an attempt to take control of the city—it was about profit. Their pockets full, the Vikings left, ransacking a few.
+
+---
+
+villages along the way. Villagers viewed them as some sort of divine punishment for their sins.9
+
+Historians remain divided on whether the ransom was a wise choice or not. It was certainly controversial among the people who had to pay for it.10 Charles the Bald paid it because it got the Vikings to leave without inflicting further damage, saving him the expense of mobilizing an army again. He was also contending with divisions within Francia and was unsure whom to trust.
+
+But in doing so, he set a dangerous precedent. Paying the ransom encouraged more Viking attacks.11 Between 845 and 926, the Franks paid an estimated total of 685 pounds of gold and 43,000 pounds of silver to the Vikings.12 Buoyed by the success of the 845 Paris raid, they continued to besiege any towns that held enough wealth to be of interest.13
+
+The Franks did not just sit back and let this happen. Walls went up around Paris to withstand attacks. They built bridges across the Seine to block ships from reaching the city. Towers equipped with hundreds of guards capable of pouring boiling wax and oil on any Vikings below added to the protection.14 Unable to get close to the city, the Vikings resorted to sitting out lengthy sieges, which taxed them in terms of resources, morale, and human life due to disease. They tried setting fire to boats and pushing them toward the bridges, but they sank without causing damage.15
+
+Diminishing returns set in for the Vikings. Raiding Paris resulted in smaller and smaller ransoms at a higher cost. It became difficult and time-consuming relative to the rewards. In 886, a weakened Viking leader requested just sixty pounds of precious metals in exchange for leaving. In 911, the Viking leader Rollo received an enticing offer from the Frankish king, Charles the Simple. Rather than gold, Charles offered to give him land, a title, and his daughter’s hand in marriage. There was one condition: Rollo had to protect the area from any further Viking attacks. They shook on it and thus founded Normandy.16
+
+The Viking raids of Paris show us that we cannot keep performing the same actions and expecting the same results. Things change. When we first try something new, the returns can be dramatic. We might be tempted to
+
+---
+
+keep repeating ourselves, expecting to reap the same benefits. But we’re likely to end up expending more effort for less return. When that happens, it’s time to change tack. During the first few attacks on Paris, the Vikings extracted large ransoms because people were unprepared, lacking appropriate defense mechanisms. Over time, they built up their ability to withstand attack.
+
+In addition, the areas simply began to run out of wealth to extract. The Franks stopped reconstructing their holy buildings so the Vikings would have less incentive to attack them. Finding new villages meant going farther afield, which cost more and carried greater risk. Due to the distances traveled, the Vikings began to spend months at a time in Europe to avoid sailing during the winter. Eventually it made sense for them to just settle for good. Once the returns weren’t worth the effort, Rollo took the opportunity to benefit from Europe in a different way. His choice teaches us that noticing diminishing returns means it’s time to try something new.
+
+The main body of Vikings were given lands in the Seine basin in exchange for protecting Paris. They settled into northern France and within a century were speaking a dialect of French and became known as the Normans.
+
+—MARK KURLANSKY17
+
+Only after the raids stopped did Paris as we know it today begin to take shape, as the Franks found the courage to begin grand construction projects like Notre Dame cathedral. It would take a long time for the memory to fade and the area to recover.18
+
+---
+
+# The Diminishing Returns of Mass Incarceration
+
+New opinions are always suspected, and usually opposed, without any other reason but because they are not already common.
+
+—JOHN LOCKE
+
+Incarcerating people has a long history as a means of punishing criminals and, in theory, making society safer. But incarceration has diminishing returns. Taking the most dangerous, violent individuals in a society off the street makes everyone else much safer. After all, most violent crimes are the work of a tiny minority of the population. However, the more people a society incarcerates, the less everyone benefits. As we punish more minor crimes with prison sentences, the safety gains decrease. If incarceration continues increasing, it may reach the point of diminishing returns, where the benefits are outweighed by the cost to taxpayers and by the inability of incarcerated individuals to contribute to society. Mass incarceration rests on the assumption that locking up people who commit crimes is always a good idea. But that belief has a logical end point.
+
+French sociologist Émile Durkheim argued that a certain amount of crime is inevitable in any society because what is considered criminal is based on the “collective sentiments” of a society. As long as people are divergent and have many different ideas about the correct ways to act and live, in any group there will be individuals whose actions will not follow the norms and who will be labeled as criminal. Durkheim did not condone crime but did argue that it is impossible to conceive a society without it. This is not to say that acts we currently label as criminal are merely divergent behavior, but that divergent behavior that people end up labeling as criminal is inevitable.
+
+Even in a hypothetical world where none of the acts we condemn by law occurred, there would still be variations in behavior that some would consider criminal. Preventing the worst sorts of crimes does not create a perfect society. It just means people attach greater significance to crimes that are more minor. Continue this process and you end up with a world where someone might be, say, put to death for spitting their gum on the ground because it is the worst conceivable infraction.
+
+---
+
+What the wise do in the beginning, fools do in the end.
+
+—WARREN BUFFETT
+
+---
+
+# Exploitation Films from the 1950s to the 1970s
+
+Our reactions to novel things are subject to diminishing returns. Enjoyable things tend to become less enjoyable if we’re exposed to them a few times. The first snowfall of the year is beautiful. By March, you can’t remember why you chose to live in a cold climate. The first time you go on a roller coaster, it gives you a thrill. After a dozen rides, you get bored. A new threshold has been set. If you want people to pay attention, you need to keep raising the bar, pushing past their evolving threshold.
+
+One area where this habituation is apparent is in films. A new technique that terrifies millions in a horror movie is a dull trope the dozenth time another director copies it. A film that kept someone awake at night when they were a teenager might end up being something they show their kids on a weeknight. A powerful advertising campaign might seem quaint after it becomes a convention. We can use the mental model of diminishing returns to consider how we become nonchalant about things that used to provoke a reaction, by looking at the history of exploitation films.
+
+An exploitation film is a type of movie that seeks to generate interest by capitalizing on current trends, niche genres, or sensational content. Often, these films are B movies, with low budgets, and tend to feature an unknown cast and crew. Some, like The Blair Witch Project, set new trends and gain a cult following.
+
+Exploitation films are higher risk, higher reward. Early on, they pushed the limits of what was acceptable—constantly setting new thresholds a little bit at a time by tackling themes like sex, violence, drug use, and fear. Before the genre gained popularity in the 1960s, these movies were often wrapped in the guise of education to evade censorship.
+
+As soon as the film industry began to take shape in the 1910s, people panicked about the morality of the medium. Some worried the content of films could corrupt viewers and pressed for censorship. In the 1930s, this
+
+---
+
+concern led to the Motion Picture Production Code, which placed restrictions on what Hollywood could include in films. At the time, Hollywood was the film industry. Major studios owned the means of cinematic production, distribution, and exhibition, which gave them full control over the movies the public saw.23
+
+In 1948, a landmark US Supreme Court ruling declared that the big Hollywood studios were violating antitrust laws and could no longer remain vertically integrated. Around the same time, network television was taking hold, and theaters were looking for new ways to get audiences through their doors. Into the mix came the rise of youth culture, as entertainment industries began to cater more to the tastes of young people. These three main factors laid the foundation for the exploitation film industry.24
+
+As Ric Meyers writes in For One Week Only, “Fools and filmmakers rushed in where wise men feared to tread. They pored over the various rules and regulations that controlled the motion picture industry until they fell through a loophole.”25
+
+These types of films began with the “nudist camp” pictures of the 1950s, which claimed to be documentaries. With the rise of grindhouse theaters and drive-ins, exploitation films took off. Low-budget studios churned out films to meet the demand for shocking content.
+
+Horror is fear of the unknown. Terror is fear of the known.
+
+—RIC MEYERS26
+
+To look at the history of exploitation films during this era is to see a repeated pattern of audiences responding strongly to one film, then directors and studios hastily copying its distinguishing features—on and on until the impact was lost. Audiences couldn’t be as surprised the tenth time they saw a possessed child or a group of campers being picked off one by one. They needed to see more deaths, more graphic gore, more taboo subjects, more nudity. Everything had to turn up a notch each time or diminishing returns set in.
+
+---
+
+Sometimes titles were copied. The 1962 film *What Ever Happened to Baby Jane?, an acclaimed Academy Award winner, was eventually followed by What Ever Happened to Aunt Alice? (1969), What’s the Matter with Helen? (1971), and Who Slew Auntie Roo? (1971). Similarly, we have Don’t Look in the Basement (1973), Don’t Open the Window (1976), Don’t Go in the House (1979), and Don’t Answer the Phone!* (1980). When making a new film with a copycat title was too much of a stretch, production companies were not averse to rereleasing an old one with a new name and poster. Any successful exploitation film would see its basic premise replicated ad nauseam until the effect wore off.27
+
+Advertising materials were fair game too. After *Color Me Blood Red (1965) used the tagline “You must keep reminding yourself it’s just a movie, it’s just a movie, it’s just a movie,” similar sentiments followed for films lacking the clout to warrant it. The Last House on the Left (1972) advised viewers, “To avoid fainting keep repeating, it’s only a movie…only a movie…only a movie…” Hallmark then reused essentially the same marketing for Don’t Look in the Basement (1973) and The Horrible House on the Hill* (1974).28 Makers of exploitation films had to keep coming up with new ideas to get a response. Any part of a film that got a reaction was fair game for copying, which deadened future responses and made viewers more skeptical of marketing materials. A clever new title structure might be a surprise to audiences at first, but copies wore them out.
+
+Despite occasional later freak successes for low-budget, shocking films like *The Blair Witch Project* (1999), exploitation films as they existed from the 1950s to the 1970s are largely dead.29 As we mentioned before, their key characteristic was covering content mainstream cinema couldn’t or wouldn’t touch. But times have changed. Viewers are no longer easily shocked. Fringe themes have been absorbed into the mainstream. Ric Meyers writes, “The major movie studios, who once spit on the very idea of making money off sex and slaughter, now bank on it.” It takes much higher budgets to interest audiences, and with less censorship, mainstream films have become less tame and audiences more desensitized.30
+
+---
+
+Meyers explains, “Exploitation films were the price we pay for, essentially, living a lie. Once upon a time, many would like others to think that they were well-adjusted, considerate, intelligent people who would never enjoy—even revel in—the suffering of others.” But exploitation films were an extension of the same urges that drove people in the past to watch gladiators slaughter one another or accused witches burn. The films were an unabashed recognition of those urges and thus “allowed one to receive all of the perverted pleasure of looking at a car wreck without the guilt of knowing that the victims are real.”31
+
+Our reactions to shocking content diminish over time, and we have to seek out something worse to get the same reactions. That’s why exposure therapy can be an effective means of overcoming phobias. Exploitation films show that strong reactions cannot continue indefinitely. We return to being unsurprised after we’ve seen the same thing a few times. Exploitation films may seem an unimportant footnote in cinematic history, yet they reflect the cycles culture goes through as the fringe becomes a banal part of the mainstream.
+
+Exploitation films changed what we considered average in films. To produce content at the far end of the spectrum, films had to respond to continually changing standards. Diminishing returns is an interesting model through which we can explore why we become indifferent to novelty and thus always push the boundaries in trying to find something that causes the rush we experience when we find something new.
+
+---
+
+# Diminishing Returns and Societal Collapse
+
+Why do complex societies, like the Roman Empire, collapse? One theory, advanced by Joseph A. Tainter in *The Collapse of Complex Societies*, is that it comes down to diminishing returns. As societies grow and develop, they become more complex and require more and more “energy flow” to stay intact.32 With increasingly advanced networks between individuals, “more hierarchical controls are created to regulate these networks, more information is processed, there is more centralization of information flow, there is increasing need to support specialists not directly involved in resource production, and the like.” More complex societies extract an exponentially higher amount of energy from individuals just to stay intact than simple ones. At a certain point, the cost may exceed the benefits individuals derive from being part of that society. When this happens, it may begin to disintegrate.33 Being complex no longer carries benefits, and it makes sense to return to a simpler level of organization.
+
+---
+
+# Conclusion
+
+Diminishing returns is the idea that the easy wins usually come first. The more you optimize a system, the harder it gets to eke out additional improvements. Like squeezing juice from a lemon. The first squeeze is easy. The second takes a bit more work. By the tenth squeeze, you’re fighting for every last drop.
+
+When you’re a beginner, every bit of effort translates into significant gains. But as you level up, progress becomes more incremental. It takes more and more work to get better and better. That’s why going from good to great is often harder than going from bad to good.
+
+Understanding diminishing returns is crucial for allocating resources efficiently. You want to focus on the areas where you can get the biggest bang for your buck. Sometimes, that means knowing when to stop optimizing and move on to something else.
+
+OceanofPDF.com
+
+---
+
+# MATHEMATICS
+
+What is mathematics? It is only a systematic effort of solving puzzles posed by nature.
+
+— SHAKUNTALA DEVI
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Distributions
+
+Bell Curve
+Power Law Distribution
+DISTRIBUTIONS ARE DIFFERENT WAYS A group of something—like people’s heights, grades on a test, or flavors of ice cream sold—spreads out or bunches up. They tell you how often each item shows up.
+
+Distributions help you contextualize what to expect given a certain data set. They help you make predictions about the probability, frequency, and possibility of future events. There are many different types of distributions. The four characteristics that will most determine the type of distribution you are dealing with for any given data set are:
+
+1. Is the data made up of discrete values, or is it continuous?
+2. Are the data points symmetric or asymmetric?
+3. Are there upper and lower limits on the data?
+4. What is the likelihood of observing extreme values?
+
+Distributions are often idealized (unrealistic) representations of a data set. According to NYU Stern School of Business, “Raw data is almost never as well behaved as we would like it to be. Consequently, fitting a statistical distribution to data is part art and part science, requiring compromises along the way. The key to
+
+---
+
+good data analysis is maintaining a balance between getting a good distributional fit and preserving ease of estimation, keeping in mind that the ultimate objective is that the analysis should lead to better decisions.”
+
+The distribution we are all most familiar with is the normal distribution, and it is one of our most important lenses for looking at the world. Its influence is everywhere from education to medicine, even if it is often invisible. But it’s also an easy mental model to take too literally and end up trying to fit reality to the model, not vice versa. Reality rarely fits into a neat normal distribution, and we miss a lot of important nuance and variation when we try to make it do so.
+
+A set of data points is normally distributed if the majority of values cluster around a midpoint, with a few falling on either side. The farther from the midpoint, the fewer values show up. The midpoint is simultaneously the mean, mode, and median value. When plotted on a graph, normally distributed data forms a characteristic symmetrical shape known as a bell curve. Leonard Mlodinow, writing in The Drunkard’s Walk, summarizes it as such: “The normal distribution describes the manner in which many phenomena vary around a central value that represents their most probable outcome.”
+
+Many common measurements, such as height, IQ, blood pressure, exam results, and measurement errors, are normally distributed. This tends to be the case for values that are subject to certain physical constraints, such as biological measurements. Normal distributions usually also characterize the price of common household goods. If you have an idea of the average price of toothpaste, you can use an estimation of the distribution to tell you if you are paying too much for the one in front of you or if you are getting a good deal.
+
+In a normal distribution, the more extreme a value is, the less likely it is to occur. However, it’s important to note that the tails in most distributions, even normal ones, go on forever. The probabilities of these values get smaller but are not impossible.
+
+We refer to values far from the mean as long-tail values. Seeing as they are highly unlikely, we tend to forget about them. But if we get too caught up in seeing the world as normally distributed, we can forget that long-tail values tend to have an outsize impact. If you commute to work, it probably takes roughly the same time each day with minor variations. Once in a while, though, there might be a major issue like a road closure or broken-down train, which means it takes significantly longer, with the corresponding ripple effects for your day.
+
+Normal distributions can be contrasted with power law, or exponential, distributions. The values in a power law distribution cluster at low or high points. Even though the distribution might cover a large diversity of potential values, the vast majority of points on the curve will represent a comparably small subset.
+
+Wealth follows a typical power law distribution. Although the range of the possible wealth of an individual is quite large, most people cluster around a small range of values at one end of the curve. There are exponentially more people with $1,000 in assets than $1 billion. In our wealth curve, excessive wealth may be rare relative to the entire population, but there is no real cap on the wealth any one
+
+---
+
+person can accumulate. In Algorithms to Live By, Brian Christian and Tom Griffiths say that power law distributions are also called “ ‘scale-free distributions’ because they characterize quantities that can plausibly range over many scales: a town can have tens, hundreds, thousands, tens of thousands, hundreds of thousands, or millions of residents, so we can’t pin down a single value for how big a ‘normal’ town should be.”
+
+Something normally distributed that’s gone on seemingly too long is bound to end shortly; but the longer something in a power law distribution has gone on, the longer you can expect it to keep going.
+
+—BRIAN CHRISTIAN AND TOM GRIFFITHS
+
+Being able to identify when you are in a power law distribution situation can help you be realistic about the effort required to break out of the end cluster. It also forces you to consider the diverse range of potential values you have to contend with. When imagining future wealth, a diversity of possible data points can be motivational, but the opposite is true if your power law distribution is about potential calamities.
+
+There are other distributions. Geometric distributions give you intuition as to when a particular success might happen, and binomial distributions can suggest how long it will take to get particular numbers of successes. The Poisson distribution can give you an idea of the distribution of rare events in a large population. And understanding memoryless distributions, where the probability of an event occurring in the future is independent of how long it has been since the last event occurred, can make you feel better when you have to wait awhile for the next bus.
+
+You never really know if you have the right distribution for your data. You can test your distribution against the ideal and conclude that they are similar with a high degree of confidence, but future data points may change the distribution.
+
+---
+
+# The Good Life
+
+One philosophy that has been misunderstood since it was first articulated is that of Epicurus. Writing around 300 BCE, he came to prominence after Plato and Aristotle and was a contemporary of the early Stoics. One of his core ideas centered around the value of pleasure. Epicurus argued that pleasure is the only realistic measure we have of evaluating our lives. When we experience pleasure, things are good, and thus the pursuit of pleasure ought to be the driving force behind our choices.
+
+At first glance, his philosophy seems to advocate a life of selfish indulgence. Criticized for promoting a hedonism that would lead to the breakdown of society, Epicurean philosophy has endured much maligning over the millennia. However, a complete read of his philosophy reveals how pursuing the Epicurean ideal of pleasure actually leads to a very sedate, mindful life. Using the lens of a normal distribution curve helps us understand why and thus suggests modern uses for this ancient philosophy.
+
+In his “Letter to Menoeceus”, Epicurus writes, “No pleasure is a bad thing in itself. But the things which produce certain pleasures bring troubles many times greater than the pleasures.” These latter types of pleasures are the ones we should avoid, because what positive feeling we gain in the short term is outweighed by the ensuing negative experience.
+
+An excellent way to thus capture Epicurus’s idea of pleasure is the bell curve. If we imagine those things that cause us great pain being the values on the far left and those things that cause us great pleasure being on the far right, where we want to be is in the middle. The ideal state is one of neither pleasure nor pain. As Daniel Klein writes, for Epicurus, “Happiness is tranquility.” The state we should aim to be in is at the top of a normal distribution curve—a life free from pain and also free from the negative consequences of excess pleasure.
+
+Far from promoting the pursuit of indulgence in all things pleasurable, Epicurus writes, “For we are in need of pleasure only when we are in pain because of the absence of pleasure, and when we are not in pain, then we no longer need pleasure.” For Epicurus, “ ‘Pleasure’ is the logical opposite of ‘pain.’ In other words, for him pleasure meant non-pain.” His conceptualizing of pleasure lends itself well to imagining life events plotted along a normal distribution curve. There are extremes at either end that are possible, but the most rewarding life is one that hovers around the middle, experiencing neither too much pain nor too much pleasure.
+
+---
+
+How does one achieve this midpoint, and what does life look like there? Epicurus said, “Therefore, becoming accustomed to simple, not extravagant, ways of life makes one completely healthy, makes man unhesitant in the face of life’s necessary duties, puts us in a better condition for the times of extravagance which occasionally come along, and makes us fearless in the face of chance. ” He believed that living a simple life was the best way to avoid pain, which is a pleasure in itself. Albeit a very sedate, mindful one.
+
+It is the focus on pain reduction that gives us indicators of the value of aiming for the median of the normal distribution curve of life. As Catherine Wilson explains in How to Be an Epicurean, Epicurus “stated clearly that the best life is one free of deprivations, starting with freedom from hunger, thirst, and cold, and freedom from persistent fears and anxieties. ” Thus conceptualizing pleasure as a life free from pain demonstrates why the extreme pleasure end of the curve would be well worth avoiding. Excess pleasure of the indulgent kind results often in pain. From the more visceral experiences of pain, such as a stomachache from too much rich food, to the painful psychological consequences of always choosing what feels right now at the expense of future satisfaction, when we focus on immediate gratification, we often sacrifice the happiness and contentment of our future selves.
+
+For Epicurus, paying attention to the knowledge we gain from our experiences is critical for achieving a pain-free life. We need to be in tune with ourselves, noticing how our actions impact our bodies and psychological states. We also need to actively perform second-order thinking, considering the effects of our actions.
+
+Epicurean philosophy thus invites us to reconceptualize what we consider pleasure in order to attain that pain-free median at the top of the curve. Wilson explains, “Regardless of the trouble other people can cause for us, Epicurus believed close human relationships to be the greatest source of pleasure in life.”  Pleasure is not, then, about the attainment of things, status, and stuff, but about the interactions we have and the knowledge we gain from them. It is a philosophy of experience rather than consumption.
+
+---
+
+OceanofPDF.com
+
+---
+
+# Compounding
+
+Play the long game.
+
+OceanofPDF.com
+
+---
+
+Play iterated games. All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.
+
+—NAVAL RAVIKANT
+
+---
+
+Compounding is like a snowball rolling downhill: the longer it rolls, the bigger it gets because it’s not just the original snow but also the fresh snow it picks up along the way.
+
+Compounding follows a power law, and power laws are magical things. Knowledge, experience, and relationships compound. When it comes to our personal capabilities, there are few limits to the possibilities suggested by this model.
+
+One of the key things to understand about compounding is that most of the gains come at the end, not at the beginning. You have to keep reinvesting your returns to experience the exponential growth that is compounding.
+
+Albert Einstein supposedly described compounding as the eighth wonder of the world. While he probably didn’t, whoever did wasn’t far off the mark. Compounding is an immensely powerful and often misunderstood force.
+
+The most visible form of compounding is compound interest, in which the interest on a sum of money, if reinvested and untouched, goes on to itself earn interest. This means the total sum of money grows faster and faster, like a snowball rolling down a hill. Even a small amount of money can compound into a fortune over a long enough time span.
+
+---
+
+Exponential gains increase more dramatically the longer we leave them to compound.
+
+In the same way that money compounds and grows by earning interest, debt can compound too, even to the point where it becomes essentially impossible to pay off. This is called a debt spiral. Many people (and governments) who get into debt fail to realize just how powerful compounding can be over time. As Debt.org puts it, “Compound interest is a powerful tool for building wealth. It’s also a devastating tool that can destroy wealth. It just depends on which side of the financial equation you use it.”
+
+Compounding is a crucial, versatile mental model to understand because it shows us that we can realize enormous gains through incremental efforts over time. It forces us to start thinking long-term because the effects of
+
+---
+
+compounding are remarkable only on a long timeline and most of the gains are realized near the end.
+
+Money isn’t the only thing that compounds. Everything from knowledge to relationships can grow exponentially if we keep adding to it and reinvesting the returns. All that matters is making continuous progress, no matter how small.
+
+Exponential functions are hard to envision, so it’s no wonder we tend to underestimate the power of compounding. We’re used to thinking in terms of linear dynamics, but compounding is nonlinear. Of course, other forms of compounding are not literal, and it’s not like we can use a formula to calculate how something like knowledge builds upon itself. But we can use the concept as a metaphorical lens for thinking about how things grow.
+
+An apparently trivial indulgence in lust or anger today is the loss of a ridge or railway line or bridgehead from which the enemy may launch an attack otherwise impossible.
+
+—C. S. LEWIS
+
+In a process similar to compound interest, the impact of decisions we make early on in any endeavor grows over time. These early decisions can have a greater impact than decisions made later on because their consequences compound. For instance, imagine a new graduate who takes a job that is disconnected from their true interests. It might seem like a temporary, harmless choice, but it increases the chances the next job they get will be in the same area. The more experience they accrue, the better they’re likely to be, and before they know it, switching is a challenge. It’s important to consider how the consequences of our choices can multiply over time.
+
+---
+
+# You Don’t Always Know the Payoff
+
+When we invest in things that compound, we don’t always know how we will be able to leverage our compounding interest. Think of investing your money. If you know how much you will put into an account and the interest rate under which it will accrue, you can estimate how much money will be in your account in twenty years. What you cannot predict is what you will be able to do with that money. At the outset, you may imagine you’ll buy yourself your dream home. But twenty years from now, you might leverage the money to make a different career choice. The security of having it in the bank might mean that you can take bigger risks to pursue your dreams.
+
+Small investments over time in areas like relationships and learning have immediate benefit, which is usually what prompts us to undertake the initial commitment. But one of the most fascinating properties of using compounding as a lens is that it illuminates how investments now can give us opportunities later that we can’t even imagine now.
+
+One example of how compounding knowledge creates options is the long-term effects of Jewish education norms. In The Chosen Few, Maristella Botticini and Zvi Eckstein trace the role of education in the Jewish religion and show how it was an investment that gave the Jewish people incredible opportunities.
+
+In the first century of the Common Era, Jewish scholars and religious leaders “issued a religious ordinance requiring all Jewish fathers to send their sons from the age of six or seven to primary school to learn to read and study the Torah in Hebrew. Throughout the first millennium, no people other than the Jews had a norm requiring fathers to educate their sons.” Botticini and Eckstein make it clear that there was no plan in the early days of Jewish education that this practice would offer advantages down the road. As they explain, in the beginning “sending children to school to learn to read and study the Torah was a sacrifice with no economic returns in the agrarian economies in which the Jews lived.” Following the rule to educate was costly in terms of both maintaining the educational infrastructure and
+
+---
+
+productive time lost. Initially the only tangible benefit of following the rule was probably something like spiritual satisfaction.5
+
+When the norm of education was instituted, Jewish people were primarily farmers. Within a few centuries, they had given up farming for more lucrative professions as craftsmen, merchants, and moneylenders. Botticini and Eckstein demonstrate that “the direction of causality thus runs from investment in literacy and human capital to voluntarily giving up investing in land and being farmers to entering urban occupations to becoming mobile and migrating.”6
+
+The authors argue, “Learning to read helps people learn to write. It also helps develop numeracy and the ability to compute prices, costs, interest rates, and exchange rates, and thus to keep account books.” Therefore, literacy creates opportunities. Jewish people did not have to be farmers, a profession with less earning potential than those options available in the growing urban centers. Not only does literacy give you a competitive edge to be, say, a moneylender or merchant, but it also “raises productivity and earnings in these professions.”7
+
+First in the Muslim caliphates and then in medieval Europe, Jewish people were consistently able to move into more financially rewarding professions at a significantly higher rate than non-Jewish people. “The literacy of the Jewish people, coupled with a set of contract-enforcement institutions developed during the five centuries after the destruction of the Second Temple, gave the Jews a comparative advantage in occupations such as crafts, trade, and moneylending.” So while “most of the population in medieval Europe consisted mainly of illiterate peasants, sharecroppers, and agricultural laborers,” Jewish people were able to leverage their literacy (and other aspects of their culture) to specialize in lucrative professions.8
+
+They took advantage of the opportunity their education gave them by moving into professions that paid well.
+
+Just because you don’t anticipate all the opportunities an investment will give you down the road doesn’t mean you don’t take advantage of them when they arise. From very early days, Jewish people invested in education. At first, likely for spiritual reasons, the investment nonetheless allowed
+
+---
+
+them to capitalize on changes in the world economy. Their literacy allowed them to be first movers when new professions arose that required and thrived on an understanding of words and numbers. Botticini and Eckstein explain, “The Jewish community reaped the benefits of their investment in literacy by selecting into urban skilled occupations.”9
+
+We cannot know all the opportunities that will arise because of the investments we make today. Botticini and Eckstein conclude that “high levels of literacy and the existence of contract-enforcement institutions became the levers of the Jewish people.” And they used these levers to “continue to search for opportunities to reap return from their investment.”10
+
+# Reinvesting Experience
+
+Experience can also compound. If we choose to build on the skills we’ve developed by using them in new situations, we are significantly more capable later in life. Using compounding as a lens to look at personal experience isn’t about proving an equation. Rather, this model can give us insight into what it means to reinvest what we learn through experience.
+
+In 2008 Mireya Mayor, a scientist and explorer for National Geographic, participated in an expedition to retrace the path of Henry Morton Stanley, the man sent to find Dr. David Livingstone in Tanzania. Livingstone, the nineteenth-century rock star explorer of his generation, had gone missing, and Stanley was sent by an American newspaper to try to locate him. Mayor was part of a team of four who were filmed trying to complete the treacherous journey with the same equipment Stanley would have had in 1865. Despite challenging terrain, illness, and a variety of
+
+---
+
+dangerous animals, she and the rest of the group completed the challenge. How Mayor was able to do things like trek for hours in incredibly hot, humid temperatures while battling dysentery can be illuminated through the lens of compounding.
+
+One of the key components of financial compounding is the reinvestment. When the money you have invested earns interest, you can’t take it out and go buy a new pair of shoes. You have to reinvest that interest into the original investment, so you increase the amount of funds earning interest.
+
+We can think of using what we’ve learned in a similar way. The insights we get from experiences will pay off more if we reinvest them into further experiences.
+
+Exponential gains from what we’ve learned aren’t standard. Not everyone who has a degree in journalism wins the Pulitzer. Not everyone who has a lemonade stand as a kid ends up running a national juice chain.
+
+Humans have evolved to be pretty good at using past experience to guide future decisions, so a lot of knowledge compounding happens naturally over time, especially when we are young. But sometimes we get stale. We stop reinvesting that interest because we stop challenging ourselves. We stop compounding our learning. Twenty years of living becomes the same year repeated twenty times.
+
+To gain insight and eventually wisdom, we need to reinvest our knowledge and let it compound. One way to do that is to be more deliberate about identifying how our past experiences can improve our chances of success in future ones.
+
+Getting back to Mireya Mayor, it’s unlikely she would have been successful on her Tanzanian expedition if it had been her first. It was tough. The conditions and the team dynamics were brutal. But she had years of insights from previous expeditions to draw on and apply.
+
+Her first expedition was to Guyana in 1996, where she started doing the field research necessary to become a primatologist. She recounts how she packed for this expedition to study a rare species of monkey: “I purchased my plane tickets, the impractical teddy-bear backpack, and a pair of trendy
+
+---
+
+hiking boots.”11 Her luggage also included a sleeping bag, tweezers, and a little black dress. She learned that the sleeping bag was unusable due to the deadly creatures that crawled around the forest floor and that hiking boots need to do more than look good. But she also learned that tweezers are invaluable on field expeditions because they can be used to remove a variety of small organisms that like to lodge in the skin.
+
+In reflecting on her knowledge about packing gained from fieldwork, she writes, “By the time I had a few other trips to remote places under my belt, I had become an expert at packing minimalist.” This expertise was gained through experience and included insights on the value of packing mirrors (for signaling and tick checks), tampons (for starting fires), and Windex (for neutralizing flesh-eating bacteria).12
+
+Beyond what to pack for survival in the jungle, Mayor’s story suggests further reinvestment of experiences compounding into her eventual success. Granted, she doesn’t use the words “deliberate reinvestment,” but the stories she shares demonstrate a conscious reflection on how to use past knowledge. For example, before she was an explorer and primatologist, she was a cheerleader for the Miami Dolphins American football team. At first glance one might think there was no useful knowledge that could be applied from one job to the other, but Mayor writes, “Working under pressure is nothing new to me. Even when I was an NFL cheerleader, I had to perform under the gun. Dancing in front of more than 75,000 screaming fans, remembering to smile, and making sure my hair remained in place in scorching heat after twisting an ankle—that’s pressure.”13
+
+Mayor made numerous trips to Madagascar to study small primates that are unique to the island, like Perrier’s sifaka. Over time she built relationships with everyone from other primatologists to organizations with grant money to the locals she relied on to navigate the island and support the expeditions. After years of fieldwork, she became a wildlife correspondent for National Geographic. She says, “Years before I appeared on television pointing out little-known facts about snakes or describing the mating behaviors of gorillas, I was putting in the legwork.”14
+
+---
+
+This legwork gave her the knowledge to take on a vast array of assignments for National Geographic, from diving with sharks and giant squid off the coast of Mexico to working with leopards and giraffes in Namibia. Following Mayor through the journey of her career, from cheerleader and graduate student to television host, explorer, and primatologist, it’s clear that her early experiences allowed her to take on increasingly complicated and dangerous challenges.
+
+Which brings us back to Tanzania and the expedition to re-create the journey of Stanley’s ultimately successful search for Livingstone. The journey was dangerous right to the final day. This is her description of the end:
+
+Back in canoes, we paddled up a tributary that ran through a swamp; it was slow going. A blood-red torrent of unknown origin came out of the swamp and reminded me of descriptions in Stanley’s journals. When we couldn’t go any farther, we stepped out into the swamp. There were snakes and crocs everywhere. We were treading through mud up to our waists when suddenly my bad cheerleading ankle gave out on me. I tore a toenail off as I landed face first in the mud. This was no spa treatment. In the process I lost my shoe and would have to walk through the swamp barefoot, getting slashed by razor-sharp grasses while being sucked into the mud. Tanzania had already kicked my ass, but it was nothing compared to these last few miles.
+
+Mayor’s success at completing the arduous expedition is testament to her ability to reinvest the knowledge accrued from past experiences and capitalize on the resulting growth. A career like Mayor’s reveals the power of using the lens of compounding to shape how we use our hard-won insights to allow us to take on exponentially greater challenges.
+
+---
+
+# Compounding Relationships
+
+Relationships are another thing that compound, becoming stronger over time if we keep investing in win-win dynamics. Imagine a network of nodes that connect to one another at random. The likelihood of any given node receiving an additional connection is proportional to the number of connections it already has. Through randomness, a small number of nodes will end up receiving most of the connections—a phenomenon called “preferential attachment.”
+
+Preferential attachment is a type of compounding that occurs when a certain thing (such as money or friends) is more likely to accrue to individuals or entities that already have more of it. For instance, people who have many friends tend to keep making more and more. They have more opportunities to meet new people through the ones they already know.
+
+For someone to gain a serious cumulative advantage, it���s not even necessary for them to have dramatically different starting conditions than their peers. Michael J. Mauboussin writes in The Success Equation that small differences in the economic climate when someone graduates from college can compound. For each additional percentage point higher the unemployment rate is when someone graduates, they can expect to earn 6 percent to 7 percent less in their career.16 To graduate during a recession means having a serious disadvantage, regardless of how smart someone is or how hard they work.
+
+Thus where you start in life may have a huge impact on where you end up, but it doesn’t have to define it. Some people can achieve extraordinary things against the odds by understanding and leveraging the concept of cumulative advantage. Such people grab hold of one tiny advantage and get every additional possible benefit out of it. Then they keep repeating that process until they get where they want to be. One way of doing this is through networking. Each person you know has the potential to lead you to additional people. The stronger your network, the more influential or interesting the people you could get introduced to. Professional and social
+
+---
+
+Networks build upon themselves. Some people have an uncanny ability to take a connection with one person and use it to accelerate their careers.
+
+# Sidney James Weinberg
+
+Sidney James Weinberg was not your typical Wall Street banker—not by today’s standards, nor even by the standards of the early twentieth century, when he rose to the pinnacle of the banking world. For a start, there was his background. Weinberg didn’t come from an illustrious family. He didn’t have a top-tier education or a long list of credentials. He didn’t get a leg up from well-positioned Wall Street contacts either. Instead, he was the son of a Polish liquor dealer and one of eleven children. His education didn’t stretch beyond his thirteenth year, when a teacher deemed him ready to enter the workforce. By that point, he’d already been working for several years selling newspapers and doing other menial jobs.17
+
+Nor did he particularly look or sound the part of a Wall Street success story. Weinberg was just five feet, four inches tall and was usually dwarfed by the other bankers around him. His back was marked with knife scars from childhood street fights.18 He never made any effort to disguise his distinctive Brooklyn accent or lie about his background, even going so far as to proudly keep the spittoon he’d polished when he first got his start doing low-level work at Goldman Sachs.19 He was famously outspoken and always willing to make jokes at his own expense.20
+
+Yet despite his unorthodox background, Sidney Weinberg became one of the most powerful people on Wall Street, holding the position of Goldman Sachs CEO for thirty-nine years. What set him apart was his understanding of cumulative advantage. His greatest assets were the relationships he carefully built and then continued to build upon to form more relationships. He understood that the more people he knew, the more people he could meet. By focusing on strengthening and then leveraging his relationships, Weinberg achieved remarkable success.
+
+He started off on Wall Street at about age fifteen. These being the days before security was a thing, he picked a skyscraper and went from office to office, looking for any available work. Eventually he earned a menial job as a janitor’s assistant at Goldman Sachs for a few dollars a week.21
+
+---
+
+One day Weinberg was tasked with taking a delivery to Paul Sachs, the founder’s son. Sachs was charmed by him and had him promoted to the mailroom. Having a sudden opportunity to prove himself, Weinberg made an impression by reorganizing the mailroom to be more efficient, convincing Sachs he had potential in a banking role within the company. Sachs paid for Weinberg to take his first banking course and mentored him through university. When Weinberg returned to Wall Street after serving in World War I, his hard work paid off: he was now a salesperson. Eight years later, he was a securities trader. Another three years after that, Weinberg was the CEO. While we don’t know exactly what happened during those years, everything began with that lucky meeting with Paul Sachs, which gave Weinberg a chance to prove himself. From there, he was able to get a better role in the company, which gave him access to even more people and more opportunities for promotion.
+
+We can understand Weinberg’s phenomenal rise if we consider the ways in which he worked to build beneficial relationships that offered him accruing influence and opportunities throughout his entire career. We can see clues as to how he managed this further on in his career. One way that Weinberg built relationships was by serving on the boards of corporations—at one point over thirty, for which he attended more than 250 meetings per year. He befriended every CEO he could by being as helpful as possible. Board meetings weren’t a distraction from his main job, they were a way to further it.
+
+When Franklin D. Roosevelt ran for president, he was an unpopular candidate on Wall Street. Weinberg saw a chance to stand out by supporting him and raising campaign funds, bridging business and politics. He already had influence on Wall Street, which he was able to convert into political influence. After Roosevelt won the election, Weinberg organized an advisory board of corporate executives, all carefully chosen to align with his own business interests.22 He knew that giving the executives such a high-status position would ensure their patronage later on. Many indeed became clients of Goldman Sachs.
+
+---
+
+It’s worth noting that Goldman Sachs was not the giant it is today, meaning Weinberg’s political influence was unusual and likely the result of his relationship-building.23 He always declined offers of political roles; Wall Street was his world, and politics served simply as means of building relationships. Throughout his career, he advised a total of five US presidents, using the entry point of Roosevelt’s campaign.
+
+Building lasting relationships with Goldman Sachs clients was also an important part of Weinberg’s work. But he didn’t just help people who were of direct use to him. One story tells of him sending a hundred dollars a week to a business rival who fell on hard times. As he told others, friendship should always come before business.24
+
+Weinberg saw both the number of his relationships and their durability compound over time. His conscientious approach to his interactions with people suggests he invested in his relationships. When we aim to make our relationships reciprocal, seeking to give as much as possible before we take, we can reap the benefits of compounding. The more we strengthen and deepen relationships, the more they build on themselves. The Wall Street of Weinberg’s heyday was built on relationships. These days, we’re not likely to see another Sidney Weinberg because the old system of reciprocity is no longer sufficient. When we create societies in which starting conditions matter more than capacity and effort, we narrow the range of who can reap the benefits of compounding even if they start from nothing. That initial foot in the door upon which relationships build can be the hardest part.
+
+# Conclusion
+
+Compounding is the magic of exponential growth. It’s the idea that small, consistent gains can snowball into massive results over time. Like a tiny snowball rolling down a hill, picking up more and more snow until it’s an avalanche.
+
+Compounding requires us to think long-term about our knowledge, experiences, and relationships. It tells us that the small stuff we learn, the
+
+---
+
+people we meet, and the connections we deepen, when reinvested into our lives, build up our fortunes in wisdom and relationships, not by chance, but by the steady, patient accumulation of efforts. The majority of success doesn’t happen by accident, and the lens of compounding illuminates the investments we need to make to get there.
+
+Compounding is how you turn ordinary into extraordinary, one tiny gain at a time.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Network Effects
+
+NETWORK EFFECTS OCCUR WHEN THE utility of a product or service increases as more people use it. More users means more value for all users. An obvious example is the telephone. If you own one but none of your friends do, it’s not much use. But with each additional friend who gets one, the utility increases.
+
+Network effects may also be indirect, as when a group of people using something for one purpose generates value for a group using it for a different purpose. For instance, more drivers joining a ride-sharing app means more utility for riders.
+
+Network effects set off a reinforcing feedback loop wherein the added value attracts new users, who in turn create new users. Getting network effects started can be difficult, as certain types of products and services have little use until they reach a critical mass of users. But once this occurs, it creates a strong competitive advantage over new entrants to the market, even if they have a better product.
+
+However, first movers are not always the most successful in a market, as later movers can learn from the early mistakes. Ultimately network effects can lead to a winner-takes-all market, in which one product or service captures most of the users. Competitors can secure only a negligible share. Users become reluctant to switch to an alternative because of the advantages created by network effects. Once network effects take hold, a product or service will continue to grow in popularity even without additional marketing.
+
+The single most important factor behind the rise of many of the most significant technologies over the past two centuries is network effects. It not only contributes to the success of new technologies, it also secures it long-term. For this reason, companies put a lot of effort into attracting early users in hopes of reaching the critical mass requisite for network effects to take hold. Often, it is a matter of luck.
+
+Network effects don’t just occur for technology. We can apply the concept to any situation in which the value of something increases the more people use it. If a large number of skilled workers live in an area, it will attract companies offering well-paid jobs that use their skills, attracting yet more workers. Stores of value like gold are subject to network effects. The more people hold them as a long-term store of value, the more stable their prices become and the more appealing they are to future investors.
+
+---
+
+But network effects cannot continue forever. More users build more value only up to a certain point, past which negative network effects set in. This occurs when user base growth results in less, not more, value. Negative network effects can take several forms. A product or service may become overloaded and unable to serve its users as before. For instance, a public train network may benefit from a growing user base. More users means more investment in infrastructure, more frequent service, and possibly lower cost. However, if too many people use it, the trains may become overcrowded and dangerous. If there isn’t space to build more train lines, this may reduce value for users.
+
+Negative network effects can also occur when too many users change the fundamental nature of something. A small online forum may have a tight-knit user base with high standards for posting. If there is an influx of new users, they may change the forum’s norms and dilute its value, destroying what attracted them in the first place.
+
+---
+
+# Sampling
+
+Your samples become your reality.
+
+OceanofPDF.com
+
+---
+
+Numbers are intellectual witnesses that belong only to mankind.
+
+—HONORÉ DE BALZAC
+
+---
+
+Sampling is like taking a few sips to judge a bottle of wine. In math, it means picking a small, manageable bunch from a huge group to learn something about the whole. It’s a shortcut that when done correctly gets you pretty close to the full picture and when done poorly leads you to the wrong conclusions. Understanding the influence and importance of sampling is a fundamental key to understanding the world better.
+
+The mental model of sampling is a first principle for a number of concepts in mathematics, especially in statistics. Seeing as we often use statistics to gain a picture of reality, taking sampling into account will broaden your knowledge of other areas involving measurement, such as psychology. It will also help you think about risk and reward while disentangling luck from skill.
+
+Your personal experiences with money make up maybe 0.00000001 % of what’s happened in the world, but maybe 80 % of how you think the world works.
+
+—MORGAN HOUSEL
+
+When we want to get information about a population (meaning a set of alike people, things, or events), we typically need to look at a sample (meaning a part of the population). It is usually not possible or even desirable to consider the entire population, so we aim for a sample that represents the whole. We use samples to tell us about the world. The exception is a census, which aims to include everyone, not just a sample. Sample size refers to the number of people, things, or events we look at from a population. It can have an enormous influence on the results we get. According to the law of large numbers, the larger the sample size, the more
+
+---
+
+The result obtained will converge with the true value. For instance, the likelihood of getting any of the numbers from one to six when you roll a fair die is 1 in 6. If you roll a die 6 times, it would be unusual for each number to show up once. If you roll it 600 times, the frequency of each number would be closer to 1 in 6, and even closer if you roll it 6,000 times or 60,000 times.
+
+Sampling gives you an idea of the possible values in your data set. The law of large numbers helps identify the probability of any of those values occurring.
+
+As a rule of thumb, more measurements mean more accurate results, all else being equal. Small sample sizes can produce skewed results. If your sample for assessing the color of swans is the white birds in your neighborhood pond, you might deduce all swans are white. But if you looked at a larger sample of swans from different places, you’d discover some are black. Even if you took a small sample from your local pond dozens of times, it might not be representative and would always mislead you. Small sample sizes can fail to include rare or outlier results, making it seem like these don’t exist. If you are once again just looking at the birds in a particular pond, you might ascertain that all swans have two legs. But if you took a much larger sample (or visited a wildlife sanctuary), you could well discover a swan that has had an accident and has only one leg.
+
+One area where sampling is especially salient is in scientific studies of people, in which case the sample size is the number of participants. The larger the sample, the lower the margin of error and the higher the sampling confidence level, meaning the more probable it is the results will generalize to the whole population.4
+
+But we have to make trade-offs. Studies with small sample sizes are not useless. Managing the funding and logistics for a larger study might be impractical, so a small one can provide evidence that further research is worthwhile. Researchers can combine a number of small studies in a meta-analysis to get a broader overview. If the costs of a study are high, such as a psychological study in which participants are subjected to a great deal of distress, a small sample may be more ethical. Researchers have to consider.
+
+---
+
+a range of factors to establish the right sample size, including the expected effect size and the expected dropout ratio.
+
+In addition to being an appropriate size, samples need to be random to be representative of a varied population. This means every person, thing, or event within the population has an equal chance of ending up in the sample.
+
+ George Gallup, who could be called the inventor of the opinion poll, once gave a useful analogy for the necessity of a random sample. He said you can decide if a pot of soup needs more seasoning by tasting a single spoonful—provided you’ve stirred it well first.
+
+A large sample size is certain to be more accurate only if it is representative, which means it’s important to be aware of sampling biases. For instance, the healthy worker effect refers to the fact that people who are unwell are less likely to be employed, meaning that workers within a field or for a company will be, on average, healthier than the general population. If you’re trying to measure the impact of a dangerous chemical on factory workers who handle it, a sample of those currently employed in that type of factory will not be representative—no matter how large. You’ll need to factor in those whose health has been damaged so much they no longer work or have moved to another field.
+
+Thinking about sampling can help us overcome some forms of bias. For example, we tend to place too much emphasis on anecdotes, in particular those coming from people close to us or that make good stories. We’re all the more inclined to respect anecdotes if they confirm what we already believe. An anecdote is a sample size of one, and we should collect more data points if possible. The exception is when one result indicates something is possible. The first person to survive a heart transplant was more than an anecdote.
+
+Thinking about your samples also teaches that sometimes what you need to do to see the world in a more accurate way is to obtain a larger or more representative sample. Traveling, living in a big city, or otherwise finding a way to meet more diverse people may make you more tolerant. Exposing yourself to a broader range of ideas through interdisciplinary, far-reaching reading may make you more open-minded. Learning more about
+
+---
+
+the history of your industry and accumulating more experience may make you more risk-aware as you discover rarer and more extreme possibilities.
+
+# Defining a Language
+
+It is important to recognize when one measurement isn’t enough. The making of the first *Oxford English Dictionary* (OED) is a story that demonstrates the value of increasing sample size, in terms of the increased accuracy many measurements can bring.
+
+It’s hard to imagine the effort required for the first dictionary of a language to be created. We have grown up in a post-dictionary world, where all words are cataloged with their definitions and history. In looking through any dictionary, it’s easy to find words that have multiple meanings. Does “dove” refer to a bird or the past action of jumping into a pool? To capture the entire history and use of a language, the first dictionaries must consider hundreds of thousands of data points. The OED, although not the first English dictionary, was the first to accomplish the feat of a thorough cataloging of the English language.
+
+Talk of the OED first got underway in 1856. At the outset, the purpose of the OED was described thus: “A dictionary should be a record of all words that enjoy any recognized lifespan in the standard language.” The group initiating the task felt that a proper dictionary should not just show contemporary usage of words, but “had to have, for every word, a passage quoted from literature that showed where each word was used first.”8
+
+What would producing this kind of record entail? As Simon Winchester explains in *The Professor and the Madman*, it “would mean the reading of everything and the quoting of everything that showed anything of the history of the words that were to be cited. The task would be gigantic, monumental, and—according to the conventional thinking of the times—impossible.”9 Essentially, to produce the OED, all books ever written in the English language would have to be read in order to pull out not only all
+
+---
+
+the words the language has ever produced, but their first instances, their multiple uses, and their evolutions.
+
+At what can be regarded as the kick-off meeting, Winchester describes that, with a sensibility that was out of step for their place and time, the group of men who sought to produce a dictionary of the English language realized the only way it would ever be achieved would be to enlist the help of large numbers of people “to peruse all of English literature—and to comb the London and New York newspapers and the most literate of the magazines and journals.” Production of the dictionary would require combing through millions of pages of words.
+
+Why wasn’t it enough to just note the common usage of a word and carry on? Let’s briefly consider the word “take.” It’s fairly common and likely one we use every day. But to define it based on one example of usage would be a mistake. It has at least four definitions:
+
+1. To remove something (e.g., I take that away from you)
+2. To hold something (e.g., I take my mother’s hand)
+3. A recorded scene from a movie (e.g., We shot that in one take)
+4. The amount of something gained from a source (e.g., taxation or being paid off; he was on the take)
+
+To get a complete understanding of the word “take,” you need to factor in all these possible uses. In order to include “take” in the dictionary, all these uses need to be found. And you need to make sure there aren’t any more.
+
+An army of volunteers read through every book in the English language, preparing submissions for the editorial group. As Winchester describes, “Each volunteer would take a slip of paper, write at its top left-hand side the target word, and below, also on the left, the date of the details that followed: these were, in order, the title of the book or paper, its volume and page.
+
+---
+
+number, and then, below that, the full sentence that illustrated the use of the target word.”
+
+Entries poured in from across the world. Winchester states, “In the end more than six million slips of paper came in from the volunteers.”
+
+The vast numbers of books and magazines being investigated meant not only that the entirety of the language was being covered but also that the accuracy of the history and definitions of each word were quite refined. The editors could cross-reference ideas and sources to produce a final product verified against all written sources of English.
+
+# The first OED
+
+The first OED was finished on December 31, 1927. It contained 12 volumes with 414,835 words defined and 1,827,306 illustrative quotations. It is the most complete chronicle of the English language ever produced. It is also a testament to the value of considering what sample size you need to get accurate results.
+
+---
+
+# Insurance
+
+Insurance, as a concept, is predicated on the idea of reducing uncertainty by spreading the cost of adverse events between groups of people, companies, and other entities, and across time. It’s impossible to predict if a given individual will get their laptop stolen or break their leg, or if a particular company will have a factory burn down or cause an oil spill, and so on. But with a large enough sample size, it’s possible to predict with reasonable accuracy the expected number of payouts per year. Insurance companies use this to calculate how much to charge. Each customer pays much less than they would if they were to face a calamity uninsured, but most never receive a payout.
+
+Insuring a small group of customers tends to be high risk, and a big group is usually low risk. With enough customers, an insurance company can effectively eliminate the uncertainty. Individual risks are uncertain; aggregate risks are predictable.13 In order for a risk to be safely insurable, it must show some uniformity across the population.
+
+Occasionally insurers are blindsided by extreme or unforeseen events. The 1906 San Francisco earthquake was one of the most severe natural disasters in US history, leading to insured losses of more than $6.3 billion in today’s money. Such an earthquake (with an estimated magnitude of 7.7 to 8.3) is expected only every two hundred years, making it a surprise for insurers. Around fourteen insurance companies went bankrupt as a result of the payouts, and the losses were equal to all profit the industry earned over the prior forty-seven years.14 Due to the earthquake’s rarity and the extent of the damage, much of it caused by subsequent fires, sample size didn’t help in this case.
+
+In other cases, an event can essentially be the first of its kind and be so extreme and rare that no sample size makes it safe to insure. Following the 9/11 terrorist attacks, which led to payouts of $31.6 billion, the US government had to intervene to ensure companies continued offering terrorism risk insurance.15
+
+---
+
+# Not All Sample Sizes Are Created Equal
+
+One of the most important considerations with sample sizes is their representative diversity. The insights you get from a large number of data points are only going to be as good as the range of possibilities they cover. If, for example, you want to know how effective airbags are in preventing serious injury in car passengers, but you’ve collected information only on drivers, no amount of that data will give you a useful answer.
+
+The authors of “The Weirdest People in the World?” explain, “Behavioral scientists routinely publish broad claims about human psychology and behavior in the world’s top journals based on samples drawn entirely from Western, Educated, Industrialized, Rich, and Democratic (WEIRD) societies.”16 They go on to demonstrate that the people in WEIRD societies are outliers in many ways; therefore, we probably shouldn’t be using studies based entirely on the behavior of WEIRD subjects as representative of the entire human population.
+
+If we want to uncover universals about the behavior of human three-year-olds, we don’t need to study more children in California. Adding to the numbers we already have with more studies using the same subject set is not going to help us gain insights with broad applicability. If we want to say something meaningful about human nature, then our data set ought to contain information from a sample of humans who represent the diversity found on the planet.
+
+In the book Invisible Women, author Caroline Criado Perez explores how data sets often used to make decisions that impact women don’t actually contain any information about women. She argues, “When your Big Data is corrupted by big silences, the truths you get are half-truths, at best.”17
+
+---
+
+# Sample
+
+It is important to study samples representative of the overall population. However, it can also be important to study subsets with different features that might not be apparent from averages.
+
+Data needs to be collected in order to be analyzed, so you need to ask yourself if you have the right mechanisms to collect the data that will give you the fullest picture possible—or at least enough to make a good decision with the potential for good outcomes. Perez reports that more than 90 percent of people who experience unwanted sexual behavior on public transport in New York and London don’t report it. Nor do female metro users in Azerbaijan. So if someone were to conclude, based on official police reports, that safety for women isn’t an issue in these places, they would be dead wrong.18 Therefore, those making rules and changes based on data need to look hard at the data being used.
+
+Not including women creates a data set that eliminates half the human race. Perez gives examples of when this is annoying, like phones too big for the average female hand, and when it creates serious negative outcomes for women, such as in medical treatment. She explains, “Nearly all pain studies have been done exclusively on male mice,” and many clinical trials done exclusively on men will have their results applied equally to women, despite women having different physiognomies.19
+
+---
+
+The majority of clinical trials (at least for prescriptions used by everyone) produce results applicable to a two-hundred-pound adult. There’s also ethnicity to consider in the sample size: for example, African American, Latino, Asian, and Caucasian populations have their own unique metabolic and enzymatic profiles, thus leading to many medications behaving differently in each population. To obtain sufficient diversity in a sample size is often far too costly for pharmaceutical companies. Therefore, many medications are launched with suboptimal data or never reach the market because a subset of the larger sample showed unexpected adverse events.
+
+One of the problems with assuming that a large sample size alone gives us a good data set is that we can undermine the problems we are trying to solve. For example, no number of samples will be sufficient if you can’t acknowledge that you have biases, and volume on its own won’t help you overcome them. Perez writes, “If you aren’t aware of how those biases operate, if you aren’t collecting data and taking a little time to produce evidence-based processes, you will continue to blindly perpetuate old injustices.”
+
+Perez argues, “The introduction of Big Data into a world full of gender data gaps can magnify and accelerate already-existing discriminations.” It is not a big leap to conclude that Big Data based on narrow data sets can exacerbate many different forms of discrimination. As the authors of “The Weirdest People in the World?” conclude, “We need to be less cavalier in addressing questions of human nature on the basis of data drawn from this particularly thin, and rather unusual, slice of humanity.” The lesson is that deep data on a homogeneous population is relevant only to that population. If a data set is being used to describe the broad category of “human,” then it needs to be representative of the diversity of the species.
+
+Why should we care about the quality of our sample sizes? Because, as Perez explains, “having an accurate measure is important because data determines how resources are allocated.” We tend to draw conclusions from samples not for fun but to make meaningful, sometimes critical decisions that can have a wide impact. You will reduce your chances of a
+
+---
+
+# Conclusion
+
+Sample size is about how much of the world you’re looking at. It’s the number of data points you’re using to draw conclusions. Like trying to guess the average height of people in a city by measuring a few folks on the street. The more people you measure, the more confident you can be in your estimate.
+
+One of the biggest mistakes we can make is drawing conclusions from too small a sample size—like trying to guess a puzzle picture from only a few pieces. In most instances, increasing our sample size gives us valuable information that lets us see our situation in a new light. The catch is that large sample sizes are expensive. It takes time and money to collect all that data. So practitioners and researchers are always balancing the need for precision with the constraints of budget and deadline. They’ll often settle for the smallest sample size that can still give them a statistically significant result.
+
+Using this model means taking the time to explore what isn’t obvious and being aware of how easy it is to corrupt our samples with bias. The next time you hear a statistic, think about the sample size. It’ll give you a clue about how seriously to take it. Remember: the larger the sample, the closer to the truth.
+
+OceanofPDF.com
+
+---
+
+# Randomness
+
+Predictability is often an illusion.
+
+OceanofPDF.com
+
+---
+
+The human mind is built to identify for each event a definite cause and can, therefore, have a hard time accepting the influence of unrelated or random factors.
+
+—LEONARD MLODINOW
+
+---
+
+Randomness can be a hard model to use because humans aren’t great at comprehending true randomness. When we look at the world, we tend to see order. We notice patterns and sequences, like thinking the world is out to get us because a few bad things happened in a row. Yet our sense of predictability and order is an illusion. Much of what we encounter day-to-day is random; we just don’t perceive that. Using randomness as a model means being willing to accept that it exists and looking for situations in which it can help us.
+
+A dictionary definition of randomness is “proceeding, made, or occurring without definite aim, reason, or pattern.”2 It is the opposite of predictability and order, something we aren’t wired to conceptualize. Randomness goes against the way we like to view the world. Yet it’s not an anomaly or a rarity; randomness is the rule, not the exception. We misunderstand randomness anytime we attribute causality where none exists. Although we cannot tame it, we can learn to work with—not against—randomness.
+
+One reason randomness can be challenging is that it makes the universe seem less friendly and comprehensible than we might wish. It’s hard to accept that much of what happens in our lives is chance, not ordained in any way. It’s like the world throws random dots at us, and humans are constantly trying to draw lines between them, even if none exist. Randomness thus forces us to confront our lack of control over outcomes in many situations.
+
+The history of ideas is a history of gradually discarding the assumption that it’s all about us.
+
+—PAUL GRAHAM3
+
+---
+
+Similarly, we can forget that the past was as random as the future will be. In hindsight, history can seem ordered and logical. When we open a history book, we see structured narratives. Events have a beginning, a middle, and an end. It only seems this way in retrospect. Not only are past events random, so is the information we have about them. Historical documents survive at random, and it’s also up to chance whether a particular researcher comes across them or even how they interpret them.4 Documents get lost, destroyed by fire or water, or thrown away because no one recognizes their value. Others get ignored or are hard to interpret. The further back in time we look, the more incomplete the information we have becomes.
+
+Randomness is not something to be afraid of. It’s a tool at our disposal. For example, our immune systems have to contend with a vast variety of possible pathogens. To deal with new and varied threats, our bodies produce different-shaped lymphocytes at random, meaning each has the potential to fight different pathogens.5 Similarly, when ants forage for food, they all move around at random. If one finds food, it leaves a pheromone trail to it. Other ants will find that trail at random and follow it, making it stronger. Without any central control, this enables ants to coordinate themselves.6
+
+“It appears that such intrinsic and probabilistic elements are needed in order for a comparatively small population of simple components to explore an enormously large space of possibilities, particularly when the information to be gained from such explorations is statistical in nature and there is little a priori knowledge about what will be encountered.”7
+
+Randomness is a fundamental part of the universe, and embracing it instead of trying to fit order where it doesn’t belong can help us do two things: be less predictable and be more creative.
+
+Making use of chance can be a deliberate and effective part of approaching the hardest sets of problems.
+
+—BRIAN CHRISTIAN AND TOM GRIFFITHS8
+
+---
+
+# What Are the Odds?
+
+One situation in which we misunderstand randomness is when equally likely random events happen in a sequence. We sometimes think what happened last time dictates what will happen next time. For instance, in a sequence of random events, we may think it is unlikely for the same thing to happen multiple times in a row. If you flip a coin six times and it’s heads every time, it might seem like it’s not a fair coin. But seeing as the outcome of each flip is equally likely to be heads or tails regardless of the previous result, HHHHHH is as probable as any other specific sequence, say, HTTHTH.
+
+Casinos take advantage of this principle, getting people to bet on random events while ensuring the odds are always to their benefit. Whether a given gambler wins any particular round is random, but on average everyone loses. One major fallacy casinos profit from is the mistaken belief that what happened in the previous round affects what happens in the next one. Assuming no tampering, any particular outcome of a roll of the dice or a spin of a roulette wheel is equally likely each time. The past does not influence it.
+
+In 1913, the roulette wheel in a Monte Carlo casino landed on black twenty-six times in a row. Gamblers lost millions when they kept betting large sums of money on it being red next. The fallacy was that each time the wheel landed on black, the chances of the next spin being red increased. But the probability of getting red is always 50 percent, and the previous results have no impact on that. The gamblers had no reason to bet more in that situation than in any other. While a roulette wheel landing on black so many times in a row is remarkably unlikely, it doesn’t change the probability of any given spin being black.
+
+---
+
+# Serendipity and Creating
+
+A question authors always seem to be asked in an interview is, “Where do you get your ideas?” More than a few have gone on record stating how much they hate this question. Why? Because it implies there is an idea bank, or a creativity app, or some defined source authors can access—that when they are faced with a blank page, they can purchase or otherwise pull out an idea from this source, and away they go.
+
+The reality is far messier. Ideas come from everywhere with great inconsistency. What is inspiring to one author one day may not inspire them the next time they are looking for an idea. And a particular source of inspiration is unlikely to work for another author in the same way. When one’s creativity feels blocked or interesting ideas seem inaccessible, the introduction of randomness can come to the rescue.
+
+Author Jane Smiley, in her book *13 Ways of Looking at the Novel*, reflects on her creative process in developing her works of fiction.
+
+I hadn’t ever had much of a theory of creativity beyond making a cup of tea or opening a can of Diet Coke and sitting down at the typewriter or computer. The first and last rules were “get on with it.” But perhaps that getting on with it that I had taken for granted for so many years was dependent upon those half-attentive ruminations during diaper changes and breadmaking and driving down the road?
+
+Smiley makes it clear that although ideas definitely come from somewhere, an author can never know precisely where that might be. And so randomness—in this case understood as unpredictability—is a very useful tool when trying to create.
+
+The writing process for fiction is far from formulaic. Sometimes you start with the whole plot in your head, and sometimes you don’t. Sometimes
+
+---
+
+you plan out every chapter before you start writing, and sometimes your characters unexpectedly steer your story in a different direction. Sometimes you have enough ideas to give you momentum to reach the end, and sometimes you get stuck halfway through. Smiley recalls how she dealt with a challenging time writing a story: “Rather than planning and working out in advance, as I had done with most of my earlier novels, I willingly entered a zone of randomness.”
+
+Making your characters do something unexpected by writing a scene you hadn’t planned is one way to work around a creative block. These scenes aren’t always amazing, and you may cut them later. But sometimes just seeing your characters having an unplanned experience can give you insight into how to use their attributes to keep your story going. Writing a work of fiction is not a linear process. As Smiley describes in one experience, “One day I waited for inspiration, got some, went off in a completely new direction, then had second thoughts the next day and tried something new.” Often an author will have to try a variety of options for a particular scene to determine the best way forward.
+
+When you begin a novel, where you start is often not where you end up. You may have certain ideas going into it, but your research demonstrates you’ve made some erroneous assumptions, and you have to change your plot or your setting. Or a character turns out to be more interesting than you imagined, and they end up carving out a bigger role for themselves.
+
+In Smiley’s description of the novel-writing process, she makes it clear that there are very few universals. “Some novelists write by obligation, others by desire. These are questions of temperament. There is no intrinsically better way, since the only standard of achievement to begin with (and for quite a long time) is the accumulation of pages.” Which brings up another important point about the value of randomness in novel writing: authors are by no means universal themselves. The experiences, desires, assumptions, and goals of those telling the stories are just as varied as the stories themselves.
+
+In exploring the history of the novel, Smiley looks at the works of Daniel Defoe, like Robinson Crusoe, and says, “Defoe’s Nonconformist
+
+---
+
+religious training gave him a sense of sympathetic connection with subjects not previously given serious literary treatment—prostitutes, servants, criminals, working men and women, courtesans, adventurers of all stripes.” And Defoe is but one example. We can imagine that all novelists draw on their own lives for inspiration, and their particular backgrounds determine what they see in the world around them. The unique intersection of experience and temperament, combined with the unpredictability of how one feels at any given moment when writing, means that it is very hard to trace a line of cause and effect in the writing of a story.
+
+Even with an interesting story developing in the brain, with plot points and characters pushing to get out and onto the page, sometimes authors get stuck. Instead of waiting to get unstuck as if by magic, the better solution is to add an element of randomness and see where it takes you.
+
+Smiley advises as a remedy to “find out more—read more, travel to the spot where your novel is set and spend a few days there, ask questions, look for original documents, engage your senses to gain more knowledge of what you are writing about. If you are bored with your subject, it is fatal to try to think your way out of it.” Instead you must experience your way out of it. If you are stuck, it means that everything you currently think cannot help you. You must get out into the world and experience the serendipity of stumbling into new things. One of these new things will help you continue your story, and you have no way of knowing in advance which thing it will be. So get out there and see what you run into.
+
+Although it’s impossible to know for sure, it seems unlikely that all great novels haven’t benefited from their authors’ exposure to random events. Why? Great novels aren’t a formula. You cannot copy exactly what others have done and achieve the same results.
+
+Perhaps most important, there is no precise definition of what makes a novel great anyway. As Smiley explains to a novelist as they begin their creation, “As you aim for perfection, don’t forget that there is no perfect novel, that because every novel is built out of specifics, every novel offers some pleasures but does not offer some others, and while you can try to
+
+---
+
+achieve as many pleasures as possible, some cancel out others.”15 A particular novel cannot be all things to all people.
+
+One of the greatest and most frustrating elements of creativity is its imprecision. One can neither master creativity nor be creative all the time. When you are stuck while pursuing the nebulous task of trying to achieve creative output, introducing an element or two of randomness can help you make new connections to move past the block you are pushing against.
+
+# Two Perspectives on Randomness
+
+To understand true randomness, we need to distinguish it from pseudorandomness. Pseudorandomness is the appearance of randomness due to our inability to predict or detect a pattern although there are underlying causal influences. True randomness is different. It is still coupled with probability distributions but is completely detached from any causal factor, meaning there’s no explanation that we could apply to even approximately guess a more or less likely outcome for the next trial.
+
+Our tendency to create a narrative to order and organize the world makes us predictable. We are also highly suggestible, remembering the most recent things we were exposed to. Thus, humans often behave in a pseudorandom manner, a fact that can be exploited.
+
+Professional magicians exploit our availability bias and narrative tendencies in some of their tricks. If you’re asked to think of a random number or pick out a random card from a pack, you might not realize there is an order to your choices. Your choice is not truly random, merely pseudorandom.
+
+Chananel Mifelew, better known by his stage name, Chan Canasta, became famous for his magic tricks in the 1950s and ’60s. His tricks were typically simple, performed using little more than a pack of cards or a book, but with a flair that earned him the nickname “a remarkable man.”
+
+---
+
+Canasta’s tricks had an experimental air, as they tended to rely on taking chances. It was not unusual for them to go wrong during live performances. Yet failures only highlighted Canasta’s lack of trickery. Sometimes he took wild chances if he believed it was worth the risk. In one trick, Canasta asked a panel to each come up with a random word and then combine them into a sentence that he would predict in advance. Canasta was completely wrong, but he explained that it was worth trying. The chance of him getting it right was higher than you might imagine because of the way we misinterpret pseudorandomness as randomness. When someone picks a “random” word, the chances of them picking any particular word in the dictionary are not equal. In reality, certain words are much more likely to come up than others.
+
+Unlike many modern magicians, Canasta didn’t pretend he was performing magic. Instead, he took advantage of his impressive memory and his ability to give the impression of randomness.16 For instance, in one trick, he would ask a volunteer to pick three random cards from a pack and then place each in a different pocket, again at random. He was able to subtly influence which cards they took and where they placed them. But the volunteer felt it was random and was unaware of his influence. Even if it didn’t always work perfectly, it was impressive when it did.17
+
+Canasta went on to inspire other mind readers, who took advantage of the same psychological trick—making people think their choices were random when they were pseudorandom.
+
+When we’re asked to make a random choice, especially if we’re under pressure, we tend to fall into certain patterns.18 Asked to name a random vegetable, most people say carrot. After George H. W. Bush declared his hatred of broccoli, that briefly became the more popular choice. Asked to name a shape, mentalist Banachek writes that most people will opt for a square. For a flower, they will usually say a rose. For a number between 1 and 5, most will name 3, and for 1 to 10, the usual choice is 7. The typical “random” color people name is blue, and the piece of furniture is a chair.19
+
+Performed with enough flair, simple tricks like this can seem like mind
+
+---
+
+reading. It works because we don’t recognize we’re not making random choices.
+
+Our inability to predict in Canasta’s type of magic tricks comes from seeing only one instance of the trick instead of seeing hundreds. The magician takes advantage of the seeming randomness of a single trial, while few people would think it was purely random if they watched it performed a thousand times with different audiences. That’s because it’s not truly random; it’s only pseudorandom.
+
+Generating randomness is hard. Ask someone to give you a string of random numbers and they’ll end up following a form of order. Generating genuine disorder for things like data encryption requires unpredictable physical processes, like radioactive decay, atmospheric noise, and the movement of lava lamps.20 When generating true randomness is essential, we have to find a method that overrides the way our brains work. One way that people throughout history have achieved this is through divination rituals that provide random data. Although people attributed the success of these practices to magic or divine wisdom, that’s not why they worked. Rather, despite the narrative of divination, the rituals generated truly random results that were far more useful than the pseudorandom data our brains often generate.
+
+The Naskapi foragers in Labrador, Canada, needed a way to come up with hunting paths at random so the caribou wouldn’t learn to anticipate their routes and avoid them.21 They achieved this through a ritual involving heating the shoulder bone of a caribou over hot coals until the surface was covered in cracks. Then they used the cracks as a map to tell them where to hunt. Beaver pelvises, skinned otters, and fish jaws also served similar purposes.22 Although they saw it as a form of divination, it worked by giving them hunting routes more random than any human could manage.
+
+True randomness is detached from any causal factor, which is why no one could predict where the next hunting area was going to be before the bones were heated.
+
+---
+
+# Conclusion
+
+Randomness is the chaos that underlies the cosmos. It’s the unpredictable, the uncontrollable, the stuff that doesn’t follow any discernible pattern. Randomness is what makes life surprising. It’s why you can’t predict the future with certainty. You might make plans, but there’s always the possibility of a random event throwing a wrench in the works. A flat tire, a chance encounter, a sudden inspiration. Randomness is the spice that keeps things interesting.
+
+The tricky thing about randomness is that humans are terrible at recognizing it. We see patterns where there are none. We attribute meaning to coincidence. We think we can beat the odds. But true randomness is immune to our predictions and superstitions. It doesn’t care about our theories or desires.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Pareto Principle
+
+|Effort|Results|
+|---|---|
+|20%|80%|
+
+IN 1906, THE ITALIAN POLYMATH Vilfredo Pareto was researching wealth distribution in Italy. He noticed that 20 percent of the population owned 80 percent of the land and wealth. He is also said to have observed the same distribution in the pea plants he grew, wherein 20 percent of plants produced 80 percent of the peas. In the 1940s, quality control consultant and engineer Joseph M. Juran noted that 80 percent of manufacturing defects were the result of 20 percent of production issues. Juran applied Pareto’s name to the principle he defined as a result: In systems, 80 percent of outputs are typically the result of 20 percent of inputs. The other 20 percent of outputs are the result of the remaining 80 percent of inputs.
+
+We can apply the Pareto principle to numerous areas where this type of distribution holds roughly true: 20 percent of researchers in a field produce 80 percent of published research; 20 percent of words in a language are used 80 percent of the time; 20 percent of the population use 80 percent of healthcare resources and public services; 20 percent of a company’s customers create 80 percent of its profits. We often generate 80 percent of our personal results from 20 percent of our efforts. Of course, such distributions tend to be approximate, not precise. The Pareto principle is a rule of thumb, not a law of nature. However, the true split is often surprisingly close to 80-20.
+
+---
+
+Inputs and outputs are not evenly distributed. Not all inputs lead to the same sort of output. Not all the time you put into a project will be equally productive. Not all the money you put into a retirement fund will have the same impact on the final amount. Not all the employees in a company will be responsible for the same amount of its annual profits. Knowing this can teach us where to focus time and energy. If a company knows 80 percent of users of a piece of software will only ever touch 20 percent of its features, they know to make those as effective and user-friendly as possible.
+
+That is all there is to the 80/20 rule. We tend to assume that all items on a list are equally important, but usually, just a few of them are more important than all the others put together.
+
+—HANS ROSLING
+
+OceanofPDF.com
+
+---
+
+# Regression to the Mean
+
+Moderate outcomes follow extreme ones.
+
+OceanofPDF.com
+
+---
+
+When the gods intend to make a man pay for his crimes, they generally allow him to enjoy moments of success and a long period of impunity, so that he may feel his reverse of fortune, when it eventually comes, all the more keenly.
+
+—JULIUS CAESAR
+
+---
+
+Things often even out over time. When we have success in life, we are typically faced with a challenge. Successes are great, and no doubt we want to repeat them, but we have to consider how much of our initial success was skill and how much was luck. Did we succeed mostly on our own merit, thanks to preparation and hard work? Or was our success the result of a massive stroke of luck, such as our competitors making poor choices? If we had faced stronger competition, would we have had more average results? The model of regression to the mean is a tool to understand where individual experiences fit on the spectrum of possibility.
+
+Even when success is entirely the result of hard work and preparation, it often sows the seeds of its own destruction. When things are going really well, a few things tend to naturally happen: we get overconfident, more opportunities come our way, we get complacent, and we get greedy. The skills we need to be successful are different from the skills needed to stay successful. When things are going badly, complacency falls to the wayside and we get back to what made us successful.
+
+Luck is random. So outlier results with a luck component are probably followed by more moderate ones. This is regression to the mean: when data far above or below the mean is more likely to be followed by data close to it. Outlier results in situations like exam scores tend to normalize if measured multiple times as we perform to what is average for us over multiple iterations. Where luck is a factor, some successes and failures always come down to randomness.
+
+The statistician Francis Galton identified the concept of regression to the mean in the late nineteenth century while comparing the heights of parents and their children. He found that unusually tall or short parents tended to have children of a more average height. It was as if nature were
+
+---
+
+trying to maintain an average height by returning to the average after outlier results.2
+
+The same is true for other phenomena we experience in our lives. Extreme events and results tend to be balanced out. Extraordinary successes are often followed by average results as we perform to our true capabilities. From a single result, we can’t distinguish luck from skill. An athlete who bombs one competition will likely perform at their regular skill level in the next one. A warm day in the winter might be followed by an average cold one. You will make both profitable and poor investment decisions, with most generating average returns corresponding to your knowledge and experience.
+
+Failure or success is usually followed by a result closer to the mean, not the other extreme.
+
+The larger the influence of luck in producing an extreme event, the less likely the luck will repeat itself in multiple events.
+
+—WIKIPEDIA
+
+Regression to the mean is beneficial for differentiating between luck and skill. As you progress through any venture, be it investing in stocks, reading minds, or growing vegetables, it is inevitable you will have both good and bad luck. With repeated iterations, results will converge more toward your true ability level. It’s unwise to place too much emphasis on the initial few outcomes because they’re unlikely to be truly representative. Beginner’s luck is a real thing, because beginners who fail spectacularly are less inclined to continue.
+
+A further lesson from regression to the mean is that if you keep trying something, most of your results will be average, but with repetition you might get an exceptional outlier. For example, if you write a blog post every week for years, most will get roughly the same number of readers, yet you might end up writing one that attracts a lot of attention. Your skill will have
+
+---
+
+improved, and you’ll have more chances for luck to play a role too. Just as one extreme result is not always the start of a new pattern, lots of average results do not preclude the occasional big success.
+
+---
+
+# The Sports Illustrated Curse
+
+# Sports
+
+Athletes refer to the “Sports Illustrated curse,” wherein those who appear on the cover of the magazine experience a sudden decline in their performance afterward. Regression to the mean offers an explanation. Athletes featured tend to be at the very top of their game—something that is partly due to skill and partly due to luck. From there, they’re most likely to regress to the mean and return to more average performance.3
+
+An athlete who reaches the level of success necessary to appear on the magazine’s cover probably has nowhere to go but down. It’s usually outlier success that gets athletes on the covers of magazines, and outlier success always has a component of unreliable good luck to it. An athlete will probably regress to their mean in the next season, while someone else will have some lucky success.
+
+Serious injuries bring an end to many athletic careers. Again, the more times someone plays a sport, the more opportunities they have to sustain an injury. Age-related wear and tear from doing something so physically demanding further compounds the role of bad luck. Just as good luck might lead an athlete...
+
+---
+
+to do exceptionally well one season, bad luck may lead them to break a bone the next. In baseball, players who win the Cy Young Award for pitching tend to later experience a downward turn for the same reason.4
+
+The best way to assess someone’s abilities is to consider their track record, not their greatest achievements. An extreme result is not necessarily the start of a new trend; we need a larger sample size to make an accurate assessment. While an athlete achieving something incredible during one season or game is for sure impressive, it doesn’t mean they’ll keep performing like that forever.
+
+The same is true in our lives outside the sports world, and for both positive and negative events. After having a bad experience in a job at a company with a terrible culture, the company you work at next is likely to have a more normal, reasonable culture. After being in an amazing relationship, you might find that your next one is less extraordinary. The key is to recognize when luck is a factor. Whether things are going better than normal or worse than normal, they may well not continue that way. Life has its ups and downs, but most of the time you’ll find yourself somewhere around the mean.
+
+---
+
+# The Ford Edsel Was Just a Car
+
+Not every effort we make is going to produce rare and spectacular results. There’s always an average. So often we put so much pressure on ourselves to knock it out of the park all the time that average results can seem like failures. Regression to the mean is a useful model for helping us put our averages in perspective. We have some influence over what our personal average is. We can work hard to get that mean comparatively high. But we will always have an average and cannot expect outlier success all the time. Appreciating the average is one way to consider the story of the Ford Edsel.
+
+In 1957, sixteen-year-old Don Mazzella skipped class for a rather unusual reason. He wasn’t off to smoke cigarettes in the local park or meet a girlfriend. Mazzella and a couple of friends were sneaking off to see a car.5 They didn’t plan to buy or joyride it. They just wanted to know what it looked like.
+
+Why were they so excited about this particular car? The vehicle in question was the Edsel, launched dramatically by Ford on what the company dubbed “E-day.” Named after Henry Ford’s son, it might well have been the most hyped product released during the 1950s.
+
+Everyone knew about the Edsel before its release; no one knew what it looked like. Ford preceded its release with a lavish two-year advertising campaign. Its name was everywhere, but none of the ads depicted the car itself.6 Aiming to build anticipation by shrouding the vehicle in mystery, they showed only small details or unrelated images accompanied by bold claims.
+
+Ford made big promises about the Edsel. They said it was to be the greatest car ever made. Cars were a huge deal for Americans in the 1950s. In the post-war era, owning one went from being a luxury to being attainable for the average person. Mainstream car ownership literally changed the landscape of America with the construction of motorways and surrounding infrastructure like gas stations and motels. People took pride in
+
+---
+
+their vehicles, viewing them as the linchpin of a new form of freedom and prosperity. So the Edsel captured their imagination, and the notion of it being something revolutionary seemed plausible. If cars had already changed the country, why couldn’t a new car model prove transformative again?
+
+Millions were spent on the Edsel’s advertising. Ford’s initial idea was to make a strategic move into the new market for medium-priced cars, which their main competitors dominated at the time. Following the wild success of the Thunderbird a couple of years earlier, Ford management was confident they couldn’t fail with the Edsel. If the Thunderbird had sold so well, surely the Edsel could only sell better with a bigger advertising budget.7 They already had the brand name and the trust of consumers.
+
+There was a queue at the local showroom to see the Edsel. Mazzella and his friends waited in line to peek around a corner. As soon as their eyes fell on the Edsel, they went through the same realization as the rest of America. The Edsel was just a car. For many who saw it, it wasn’t a particularly attractive one at that. Its huge, vertical front grille looked odd and distorted, like a grimacing mouth.8 The excitement bubble popped. Americans viewed the Edsel as a disappointment and didn’t buy it in anywhere near the expected numbers.
+
+Part of the problem was that the Edsel was so overhyped, it could only ever fall short. Too much advertising drummed up so much excitement that it made the car seem worse than it was in comparison to people’s expectations. In addition, its launch wasn’t flawless. Early vehicles had some technical issues that, though minor, tarnished its image. When Ford hadn’t managed to invent something truly revolutionary, it settled for marketing the Edsel as something it wasn’t.
+
+Within two years, Ford stopped selling the Edsel.9 Some—possibly exaggerated—estimates put the total losses at $2 billion in today’s money. Ford had tried to make it more desirable than it was through advertising. They ended up making it less desirable. As David Gartman writes in Auto-Opium: A Social History of American Automobile Design, “The Edsel was
+
+---
+
+indeed different, but it protested its novelty so loudly that its exhortations rang hollow.”10
+
+Thomas E. Bonsall, writing in Disaster in Dearborn: The Story of the Edsel, takes a similar view: “People are mesmerized by the mighty brought low…. The Titanic became a modern morality play. Man had reached too far, gotten too arrogant, and had, inevitably, been given a comeuppance. So it was with the Edsel.”11 People reveled in the schadenfreude of seeing Ford fail at last. (Ford didn’t stay down for long, following up the Edsel with the Mustang in 1964.)
+
+Many car models have failed over the decades, many in an even more spectacular fashion than the Edsel. Yet it remains the most famous car failure of all. In an ironic twist, today surviving Edsels are worth a great deal due to small production numbers. Failure made Edsels more popular among collectors of 1950s vehicles, some of whom delight in the almost comically distorted front grille.
+
+The story of the Edsel is complicated. There wasn’t one reason for its failure. There is no doubt that the prerelease hype caused consumer expectations to be high. And the higher expectations are, the harder it is to fill them. But there were also issues within the Ford Motor Company during the development of the Edsel that contributed to many poor decisions.
+
+One way to understand the enduring fascination with the story of the Edsel is through the lens of regression to the mean. Businesses are under constant pressure to have every release achieve a new level of success. But sometimes new products are just average. Ford had spectacular success with the Thunderbird before the Edsel and the Mustang after. When judged against those vehicles, the Edsel seems like a massive failure. It wasn’t really, though. It ran OK. Some people liked it. It was just an average car useful for a mother taking her kids to baseball practice or an insurance salesman headed to work.
+
+When you look at the spectrum of cars produced by Ford over time, some sold amazingly and others hardly registered, with everything else falling in the range in between. The more cars the company releases, the more it is statistically likely that some will be average sellers. The problem
+
+---
+
+for the Edsel was that the investment made in the marketing suggested brilliance. When the result turned out to be average, the disappointment was in the contrast.
+
+# Fighting Back
+
+Throughout history, extreme and unusual events have often been followed by more average ones. The highlights are what we study, with the many more mundane occurrences not even recorded. Regression to the mean is thus an interesting lens to use to look at historical change, because it suggests that we be cautious about making assumptions about the future based on the immediate past.
+
+History is far too complicated to use a simple statistical concept to try to demonstrate a definitive pattern in complex and often random interactions. Rather, using regression to the mean as a model helps you put extremes of success and failure into perspective. An extreme event is not necessarily the start of a new trend. Dramatic events do not always change what follows them.
+
+The Trung sisters, Trung Trac and Trung Nhi, were born in rural Vietnam. While we don’t know exactly when they were born or died, they are best known for their activities between 39 and 43 CE, when they earned a lasting legacy as Vietnamese national heroines. As daughters of a lord at a time when women in their country enjoyed unusual freedom, they experienced a relatively privileged upbringing.12 Vietnamese women were able to inherit property and take on political, legal, commercial, and military roles. By some accounts, Vietnam at the time might even have been a matriarchy, although this may be an exaggeration to highlight the contrast with patriarchal China.13
+
+At the time, Vietnam had been under Han Chinese rule since 111 BCE—a period of control that would last more than a thousand years, with just a few intermissions of independence. The Chinese attempted to enforce their way of life based on Confucian philosophy, alongside other unpopular
+
+---
+
+measures like harsh taxation. In 39 CE, Thi Sach, lord of Chau Dien and Trung Trac’s husband, protested the rising taxes and was executed as a result. Rather than going into mourning as expected, Trung Trac turned her anger and grief into fuel. Together with her sister, she rallied an army of eighty thousand, consisting mostly of ordinary Vietnamese people without training or much equipment. The sisters assigned mostly women as generals and are often depicted riding elephants into battle.
+
+According to legend, Trung Trac killed a man-eating tiger and wrote her intentions on its skin. Then their army fought back against the Chinese. Another legend tells of a soldier who went into battle nine months pregnant, gave birth on the field, then strapped her baby to her back and continued fighting. While the story is not altogether plausible, it says a lot about how the army was viewed.14 Their attack was so unexpected that they succeeded in pushing the Chinese from sixty-five cities and establishing an independent state.
+
+For three years the sisters ruled together and helped restore fairer conditions for the Vietnamese people—including doing away with the heavy taxes that had led to their rebellion. In addition they revived aspects of Vietnamese culture the Chinese had replaced with their own, such as the traditional language and literature. However, their rebellion proved to be an outlier. The Chinese were initially taken by surprise, so part of the sisters’ success was due to the poor preparation of the Chinese. Because they were still far more powerful, the Chinese rebounded quickly. Their next efforts against the Vietnamese were more in line with the Chinese mean for military capability.
+
+In 43 CE, the Chinese took back full control of the country and violently punished the rebels. In addition to slaughtering supporters of the Trung sisters, they sought to override Vietnamese culture with their own. Devastated by the loss and seeing no hope, the sisters are said to have leapt into a river together. Their army didn’t have the strength to hold off the Chinese long-term. China would ultimately control Vietnam for nearly a thousand years, but by some accounts, Vietnam wouldn’t still exist as a
+
+---
+
+country without the Trung sisters. Today they’re commemorated throughout Vietnam and remain a source of inspiration.15
+
+All the male heroes bowed their heads in submission / Only the two sisters proudly stood up to avenge the country.
+
+—FIFTEENTH-CENTURY VIETNAMESE POEM16
+
+Using regression to the mean as a metaphorical lens, rather than pure math, can provide the insight that great, unusual success isn’t usually followed by more of the same. The actions of the Trung sisters were outliers in their time. What they accomplished was not the start of a new standard. When you are new to something, it’s a good idea to try to ascertain where the mean lies so you know whether your early results are representative.
+
+# Conclusion
+
+Regression to the mean is the universe’s way of saying “not so fast.” It’s the tendency for extreme outcomes to be followed by more average ones. Extreme results are rarely repeated.
+
+The next time you see something extraordinary, enjoy it. But remember, it probably won’t last. Sooner or later, regression to the mean will come calling and eventually pull the exceptional back to ordinary. That’s the way the universe keeps things in check.
+
+OceanofPDF.com
+
+---
+
+# Multiplying by Zero
+
+0
+
+The ultimate destroyer.
+
+OceanofPDF.com
+
+---
+
+Multiplication by zero destroys information. This means there cannot be a reverse process. Some activities are so destructive they cannot be undone.
+
+—PAUL LOCKHART
+
+---
+
+A ny number multiplied by zero equals zero. This is basic math we all learn early in life. This mental model is useful for teaching us to look for the zero—the weak part of any system that threatens to bring the whole thing down.
+
+Within a multiplicative system, there is no point in optimizing the other components if we ignore the zero. It’s always worth investing effort in the weakest part because nothing else can compensate for it. It doesn’t matter if you multiply zero by 100 or 285,490,940, you still get the same result.
+
+As commonplace as zero might seem now, it’s extremely easy to forget it is a remarkable number. Without it much of modern mathematics would be impossible. Early numerical systems couldn’t progress further without a means of representing nothing—a number that you can multiply by another number and still get nothing.
+
+It doesn’t matter if you have two zeros or five billion zeros. See, in multiplicative systems each number says something about the properties of the other numbers in that system. For example, 2 × 3 says of the number 2 that there are 3 of them (2 + 2 + 2), and of the number 3 that there are 2 of them (3 + 3). It follows that 2 × 0 says of the 2 that there are none of them, and of the 0 that there are 2 of them. Zero twos is nothing. Two zeros is also nothing. So in a multiplicative system with a zero, you will always have a total of zero. No matter how many zeros you add together, they will always add up to zero. And the rest of the numbers in that system are effectively nothing.
+
+The principle of multiplying by zero applies outside math. Any multiplicative system is only as strong as its weakest link. A zero in a system has the power to negate everything that comes before it. For instance, in a competent, well-organized team, one unmotivated person who complains nonstop can bring everyone else down. A company might have
+
+---
+
+strong branding, a large user base, and a useful product, but a CEO who publicly makes racist comments has a good chance of canceling all that out. You might have a fancy security system in your house, but it’s useless if you leave the front door open.
+
+The value of this mental model is in learning to identify where the zero might be, how to avoid introducing one, or how to transform an existing one. Imagine you’re trying to design an ideal dining experience for customers of a restaurant. What would create a zero for you as a customer? You go to a restaurant to eat. The most important component of the restaurant system for the customer is good food. Beautiful decor, attentive service, good atmosphere—none of these will compensate for tomato-soup pasta sauce or fish that has spoiled. This restaurant could serve the water in gold glasses and be located in a charming French chateau, but if the food is tasteless and unimaginative, you will never go back. Bad food is the zero of the restaurant’s system. Great food can compensate for slow service. But the sexiest, most attentive server will not make up for undercooked chicken.
+
+# East German Technology Theft
+
+We all work in systems. Whether they’re large or small organizations employing thousands of people or just one, we spend most of our time trying to make our systems better. Many of the decisions we make at work are about improving our system, whatever that means for us: higher sales, more flexibility, better outcomes for our clients. Deciding where to invest, what to research, how to develop ourselves and others—these can be done by evaluating the strength of the components of our system.
+
+Work environments are multiplicative systems. Whether you work for the government, a local brewery, or a high-tech multinational, or as a freelance artist, the properties of each component of your system interact in the whole. Understanding sales means understanding marketing, which necessitates a firm grasp of R&D, which in turn draws from finance. If any
+
+---
+
+one of these isn’t working, there will be a negative impact on the rest of the system. Therefore, you have to be able to identify if there are any zeros in your system—a part of the system that isn’t producing at all. Putting time, effort, and resources into the other elements of a system will produce no results if any part of the system is a zero. Having a zero in a multiplicative system creates a mirage. You see all these other big numbers and think they are strong enough to compensate for this zero, but they aren’t.
+
+A great example of ignoring a zero is the East German quest to build a computer at the end of the Cold War. In the 1970s and ’80s, the computer was seen, understandably, as an important technology, a critical element in the ongoing technological development race between East and West. The East Germans had a goal, which was, as Kristie Macrakis explains in Seduced by Secrets, “nothing less than constructing an indigenous self-sufficient computer industry.”2
+
+However, they were nowhere near developing computer technology for themselves. Decades into a social experiment that eventually proved untenable, they had created a system that punished creativity, innovation, and collaboration. It was hardly ideal for developing a computer industry. In addition, because of the political climate, the East Germans couldn’t partner with Western technology companies to build their computer industry either. By the late 1970s, most Western technology was under embargo; it could not be sold or distributed to Eastern Bloc countries.
+
+The East German solution was to steal what they wanted, continuing as they had for much of the Cold War. The theft was carried out by the Ministry for State Security, commonly referred to as the Stasi. Using their networks of agents, Stasi officials worked around the embargo and proceeded to steal the information and technology required to build computers. They obtained everything from blueprints to hardware and reverse-engineered the technology in order to build it themselves. The East Germans spent billions of marks on theft, illegal smuggling, and espionage.3
+
+---
+
+In one example, “rather than conducting its own research and development work, East Germany would import the know-how and production facilities of a complete factory to produce 20 to 30 million 256K RAM circuits yearly.” “Import” here meant paying far more than the market price to try to bring in embargoed technology through elaborate illegal routes. This factory never came to pass.
+
+Overall the attempt to build a computer industry in East Germany was a complete failure. Why? Because they didn’t develop anything on their own. They didn’t let their scientists travel to participate in research efforts or to obtain knowledge to build the desired technology in-house. Their whole computer industry was to be built on a foundation of theft. Money that could have been spent on research and development was instead poured into elaborate schemes to bring in embargoed technology. As Macrakis sums up, “That was the main contradiction the Stasi presents us with: On the one hand, they vigorously supported state programs by acquiring the needed embargoed or secret technology. On the other hand, security concerns made them work against their own interests by restricting the needed international travel of scientists and by imposing other harmful security measures.” Consequently, despite years of trying, the East Germans never met their technology production goals.
+
+We can understand their failure by considering that innovation does not just happen out of thin air. The history of invention shows us that smart people fail dozens of times before they succeed. They build on the failures of others by testing their own hypothesis, tinkering and refining, and learning a remarkable amount in the process. They learn not only how to make things work but why those things work in the first place. Therefore, when things go wrong, they have a deep store of earned knowledge to draw on. They can troubleshoot, adapt, and ultimately improve.
+
+The East Germans had none of the knowledge that is earned in development and failure. “Even with their highly perfected espionage system and seasoned embargo smuggling operations, East Germany forgot one thing: A scientific establishment based on pirated and cloned technology can never be a leader.” Because they didn’t develop the
+
+---
+
+knowledge themselves, they were not able to troubleshoot, adapt, and most importantly innovate. Macrakis says, “Often machinery did not work when it arrived. Because it was acquired illegally, calling a service repairman was a problem. Sometimes only bits and pieces of information were available, when the whole puzzle was needed intact. But more fundamental problems arose because of secrecy. The [Stasi’s] cult of secrecy clashed with the scientific ethos of openness.”6
+
+The lack of collaboration and knowledge gained from experience was the East Germans’ zero, the part of their system that reduced the rest of it to nothing. More spies, more theft, and more money were thrown at the problem, but increasing the value of the rest of the properties in a multiplicative system does nothing if that system contains a zero.
+
+How do you find the zeros in your system? Zeros don’t hide. In fact they are usually quite obvious when you draw your perspective back, allowing you to see your system as a whole. They are usually what we deliberately ignore, naively hoping that they will “fix themselves” or that someone might come along who can magic a solution. Zeros are persistent structural flaws that intimidate us. If we avoid them, this is when we fall prey to snake oil salesmen who promise they have an easy (and often expensive) solution based on the latest technology/psychology/accidental success of someone else.
+
+Changing a zero to a one is not going to happen overnight. But for all required components, all zeros can be turned into ones. In trying to build the computer, what the Stasi were missing was at least one person who had earned the knowledge required for the endeavor, someone who had studied, apprenticed, or worked beside others who knew what they were doing. Why didn’t they have that one person?
+
+They didn’t have that one person because they hadn’t created a culture that would allow someone like that to exist. Inventors ask questions, explore options, and challenge the status quo. These were all behaviors that were not encouraged in Cold War East Germany. For the Stasi to have turned their zero into a one, they would have had to modify their culture to support innovation. They would have had to build a team or an organization.
+
+---
+
+that would support the development of the creative people they needed. In effect, they would have produced more than one person to solve their problem. And this is the magic of changing your zero into a one. The result is a capitalization of all the other strong numbers you have in place.
+
+It is hard. For the Stasi to implement structural changes of this sort would have amounted to an acknowledgment of the failures of their particular brand of socialism. It’s understandable that they didn’t own this and instead threw money at the other components of their system.
+
+However, most people understand that success is complex and has many contributing factors. There is no one secret to a good marriage or a profitable business. These systems have many components, all of which have to be working to some degree of efficiency to achieve success. But critically it can often be just one thing that determines failure. If one essential component of the system is neglected, then the whole thing breaks down.
+
+---
+
+# Crop Diversity
+
+When the consequences of failure are high, it’s important to do everything you can to avoid multiplying by zero and negating your prior efforts. One place where this is apparent is in agriculture, where maintaining crop diversity is vital.
+
+“Crop diversity” refers to the practice of using a variety of plants in agriculture, both in terms of different species of the same plant as well as variations within species. It applies to individual farmers, to communities, to nations, and to the world as a whole. Crop diversity is also relevant in terms of both the plants we are currently growing and those we have the capacity to grow, as well as domesticated and wild strains. Being dependent on a single crop is a bad idea because something could go wrong and leave you with no harvest, such as a plant disease, a parasite, or unfavorable weather conditions. For a subsistence farmer, that means having nothing to eat. On a larger scale, if most people in the world eat the same thing, a crop failure could mean widespread hunger or even political instability. There are other risks to crop homogeneity, like soil depletion and erosion.
+
+Unfortunately crop diversity is decreasing over time as more of the world comes to depend on wheat, rice, and potatoes.7 The mental model of multiplying by zero helps illustrate the importance of not creating situations in which one thing going wrong could wipe everything else out. Having crop diversity is like having multiple different equations: if one is multiplied by zero, it doesn’t negate the others.
+
+The Irish potato famine, beginning in 1845, is a classic example of the risks of lacking crop diversity. When a fungus affecting potato plants spread throughout the country, more than a third of the population were without their main food source for up to five years.8 Not only were many people dependent on potatoes alone, there was also a lack of genetic variation within the species. Propagating these vegetatively meant the plants were all clones—that is, genetically identical. When a fungus came along targeting this particular plant, all were equally susceptible. There was no genetic diversity to ensure some plants had resistance.9
+
+The mental model of multiplying by zero highlights the importance of not creating excessive dependency on one thing that could fail.
+
+---
+
+# Transforming Zeros
+
+Sometimes we feel like we have a zero in our personal equations: a characteristic, quality, or condition that serves to undermine our efforts in other areas. It can be frustrating when we work hard to develop skills and capabilities only to feel like they are negated by just one part of who we are. This feeling is common for stutterers. Sometimes it can seem like their struggle to verbalize words reduces the perception of the value of their knowledge and experience. In overcoming the limits that stuttering may place on them, many have found varied techniques and treatments to effectively manage their stuttering. Dealing with a stutter is often not just about addressing the condition itself but about overcoming the sense of inadequacy other people place on those who stutter early in life. There are many fascinating stories of the various ways people have turned their perceived zero of stuttering—and all its often-negative consequences—into a one.
+
+Stuttering is defined as “a speech condition that disrupts the normal flow of speech…. With stuttering, the interruptions in flow happen often and cause problems for the speaker.” Stutterers may repeat words or syllables, or have a hard time articulating certain sounds. One of the major frustrations for stutterers is that their difficulty in speaking is not at all representative of what is going on in their head or of their intelligence. They know what they want to say. It is the disconnect between having an idea and being able to express it in the course of conventional conversation that causes issues. There is nothing intrinsically wrong with stuttering. It’s just a different way of talking and therefore harder for other people to understand.
+
+For many stutterers the physical condition has further consequences. It can lead to poor self-esteem and increased anxiety as everyday situations become huge challenges due to the judgment of other people. The Mayo Clinic says, “Stuttering may be worse when the person is excited, tired, or under stress, or when feeling self-conscious, hurried, or pressured.”
+
+---
+
+Situations such as speaking in front of a group or talking on the phone can be particularly difficult for people who stutter. Daily interactions that most of us don’t even register can become ongoing sources of stress and tension for stutterers, which can lead them to avoid needed social interaction and relationships.
+
+There is no cure for stuttering. It is a condition that can be greatly improved by speech therapy and other types of therapy, such as cognitive-behavioral. But stuttering never goes away completely and thus must always be managed.
+
+One result of stuttering is often the feeling that regardless of the effort you put into other areas of your life, the condition negates them all. No matter how much you know, how witty you are, or how much wisdom you’ve gained from your experiences, the struggle to verbally articulate negates the value of anything you have to say.
+
+Stuttering affects millions of people. What many find surprising is the list of stutterers who have achieved success in very public speech roles. From James Earl Jones to King George VI of England, Carly Simon to Winston Churchill, many stutterers have found ways to effectively manage their stuttering in certain public situations.
+
+Marilyn Monroe was one of the first famous people to talk openly about how stuttering affected her life. In a 1955 discussion with the American columnist Maurice Zolotow, Marilyn recalled, “I guess you could say I gave up talking for a long while. I used to be so embarrassed in school. I thought I’d die whenever a teacher called upon me. I always had the feeling of not wanting to open my mouth, that anything I said would be wrong or stupid.” Yet she worked through this limitation to achieve success in the film industry.
+
+Many actors who stutter have spoken about how the notion of taking on a role helps them step away from their speech impediment and thus helps them manage it. For example, Emily Blunt is described in an article in W Magazine as developing a stutter “so debilitating that she could barely hold a conversation, let alone elbow her way into the limelight. ‘I was a smart kid, and I had a lot to say, but I just couldn’t say it…. It would just haunt
+
+---
+
+me. I never thought I’d be able to sit and talk to someone like I’m talking to you right now.’ ”12 Then one of her teachers at school suggested acting lessons, and it was this experience that helped her manage her stutter.
+
+Another fascinating thing about stuttering is that it often goes away while singing. Many stutterers find the words come much easier if they are put to sound. In his 1996 autobiography B. B. King wrote:
+
+I struggle with words. Never could express myself the way I wanted. My mind fights my mouth, and thoughts get stuck in my throat. Sometimes they stay stuck for seconds or even minutes. As a child, I stuttered. What was inside couldn’t get out. I’m still not real fluent. I don’t know a lot of good words. If I were wrongfully accused of a crime, I’d have a tough time explaining my innocence. I’d stammer and stumble and choke up until the judge would throw me in jail. Words aren’t my friends. Music is. Sounds, notes, rhythms. I talk through music.
+
+13
+
+Singing also played a role in how Rubin “Hurricane” Carter was able to, over time, effectively manage his stutter. The Stuttering Foundation has a profile on Carter, among many other stutterers, that tells us, “From an early age, Rubin Carter had to fight so much due to abuse he received because of his stuttering that he developed into a great fighter and was urged by people to consider a career as a boxer.”14 In a 2006 interview with Nicholas Ballasy on his show On the Issues, Carter said, “My first eighteen years of my life, I couldn’t talk. I stuttered very badly. So fighting became just a natural thing for me because if you are going to attack people when they laugh at you, you better damn well know how to fight or you’re gonna get your butt whooped. So that’s what got me into fighting.”15
+
+In his 1974 autobiography, The Sixteenth Round: From Number 1 Contender to Number 45472, which was written in prison, Carter writes openly about his stuttering. He says, “I couldn’t speak to save my life. I had always been told that as I became older, my speech would eventually
+
+---
+
+Straighten itself out, but it did not happen that way with me. Any effort I made to talk made my speech worse, and therefore my habit was to speak as little as possible.16
+
+His speech began to change when he discovered that he didn’t stutter while singing. The Stuttering Foundation shares a summary from the book Hurricane: The Miraculous Journey of Rubin Carter, by James S. Hirsch: “Carter…worked hard on trying to replicate that relaxed fluidity from singing into his everyday speaking patterns. Over time he also diligently practiced cadences and forced himself to speak before groups, becoming a compelling speaker.” Relaxing while speaking and changing up the cadence of one’s speech are two of the core practices of speech therapy, which has helped millions of stutterers gain a measure of control over their stuttering.
+
+Managing a stutter will not always lead to such visible success, but that isn’t the point. Too often we think of certain conditions as inherently limiting, zeros that will always render the rest of our personal equations useless. Zeros, however, can form us and challenge us to develop new skills and qualities. How some people have managed their stuttering is a great example of the power of transforming a zero. As stuttering can never be completely “cured,” it is not about getting rid of the zero. Stutterers have found many ways to shift the zero just enough to turn it into a one, thereby activating the power of the rest of their equation.
+
+# Conclusion
+
+Multiplying by zero is the mathematical version of the Midas touch in reverse. Everything it touches turns to nothing. No matter how big or small a number is, when you multiply it by zero, you get zero. It’s the ultimate reset button.
+
+Multiplying by zero shows us that we have to be mindful of the zeros that will negate our other efforts. Just as in engineering, where one faulty component can make an entire system fail, not being reliable can have the same effect in life.
+
+---
+
+When you multiply by zero everything else becomes irrelevant.
+
+OceanofPDF.com
+
+---
+
+# Equivalence
+
+|5 km|mm|
+|---|---|
+| |5000000|
+
+Equal doesn’t mean same.
+
+OceanofPDF.com
+
+---
+
+The art of doing mathematics consists in finding that special case which contains all the germs of generality.
+
+—DAVID HILBERT
+
+---
+
+Things do not have to be the same to be equal. Equivalence as a model helps us see that there are usually many paths to success. One of the ways equivalence is most useful as a model is when our traditional solution to a problem is no longer viable. We know we must now do things differently, yet we wish to achieve an equivalent result. It also reminds us not to focus on apparent differences but to look for the underlying equality of experiences if we want to better connect with others.
+
+In math, one of the most basic equivalency concepts is “If A = B and B = C, then C = A.” We can infer that A, B, and C need not be the same; after all, they are represented by different symbols. But for the purposes of comparison, in at least one aspect they are equivalent. It is often true in mathematics that different symbols can provide an equal answer to a question.
+
+The world is full of things that seem different yet are in some way equivalent. Take the case of human universals. We are, as a species, unimaginably diverse. Despite this, cultures across the world often solve the same problems in equivalent ways.2 According to anthropology professor Donald Brown, these universals include taboo language, a distinction between how people behave when they are in full control of themselves and when they are not, making promises, rules surrounding inheritance, attempts to predict and influence the weather, and bodily adornments. While these features and behaviors manifest in different ways, they have equivalent purposes across cultures.3
+
+Sometimes things recur in equivalent yet different ways. Historical recurrence is the phenomenon wherein seemingly equivalent events happen more than once at varying points throughout history. It’s a cliché that history repeats itself, but the similarities can be uncanny in events like the assassinations of Lincoln and Kennedy and the invasions of Russia by both.
+
+---
+
+# Napoleon and Hitler
+
+People in similar situations facing similar incentives are likely to behave in similar ways.
+
+History, we know, is apt to repeat herself, and to foist very old incidents upon us with only a slight change of costume.
+
+—GEORGE ELIOT4
+
+# Multiple Discoveries
+
+There’s a powerful myth surrounding scientific discoveries and inventions. We imagine a solitary genius toiling away in their laboratory or workshop, performing experiment after experiment. Then one day, lightning strikes. They shout “Eureka!” as a new idea is born and the sum of human knowledge grows in one swoop. The idea gets named after them, they receive awards and patents, and their name goes in the history books. Should they have been felled by a falling piano a day prior, the idea may never have come into existence.
+
+Except invention and discovery rarely work that way in reality. Most discoveries are the product of the cumulative work of many people inching toward the conclusion. Often multiple people or teams reach an equivalent result independently at around the same time. In the past it was possible for this to occur even without them being aware of one another’s work. Steel, slingshots, and the abacus are some of the many examples of inventions and discoveries that occurred in multiple places and multiple times in history.
+
+Because everything arises from steps, not leaps, most things are invented in several places simultaneously when different people walk the same path, each unaware of the others.
+
+—KEVIN ASHTON5
+
+---
+
+None of us live in full isolation from the ideas of others or the context of our time. New discoveries are the product of broad scientific and cultural landscapes, and often of recombining existing ideas.6 We all draw upon what we are exposed to. The work of a researcher is the product of a lifetime spent absorbing the work of others.7
+
+To give some of the many, many examples of simultaneous discovery, both Charles Darwin and Alfred Russel Wallace conceived of natural selection without knowledge of each other’s work. Chemist Carl Wilhelm Scheele discovered oxygen in 1772 but didn’t publicize his discovery for three years, by which point two other chemists, Joseph Priestley and Antoine Lavoisier, knew of its existence.8 Both Louis Ducos du Hauron and Charles Cros presented similar methods for color photography in the 1860s.9 Their work differed, as du Hauron used pigments and Cros favored dyes. Nettie Stevens and Edmund Beecher Wilson independently demonstrated that specialized chromosomes (X and Y) determine biological sex.10 Takaaki Kajita and Arthur B. McDonald’s research ended up sharing the 2015 Nobel Prize in Physics for demonstrating that neutrinos have mass.11
+
+A misunderstanding of how invention truly works is apparent in patent law, which suggests a patent should go to the inventor of something nonobvious.12 The implication is that, as the patent’s source, the inventor deserves to profit from it. So it’s often the case that the person who profits isn’t truly the sole source of innovation. They’re one of many; they just happen to be the one who files a patent first or gets it accepted. The components of a steam turbine were described by Taqī al-Dīn in 1551 in Syria, long before the first patent was awarded in England for an early steam engine in 1698.13
+
+The phenomenon of multiple discoveries shows us how things can be equivalent even if not precisely identical. While they may differ in their details, the underlying principles and concepts are the same. They solve the same problem. In most cases, we credit a well-known discovery or invention only to the person who popularized it. We thus miss out on a rich understanding of the full process of innovation and often fail to hear the
+
+---
+
+stories of those working outside the mainstream. In particular, female and minority scientists and inventors often have a hard time publicizing their work. Credit may go to someone else at a later date. Once a particular individual becomes well-known, they’re yet more likely to receive credit, even if someone else had the same idea previously.
+
+---
+
+# Madeleine Vionnet and the Bias Cut
+
+Up until the early twentieth century, for many Western women corsets were part of their standard daily attire. Often containing boning, corset design evolved over the centuries to shape the female body to whatever was considered attractive at the time. Gradually corsets became less fashionable, partly driven by the restriction on material during World War I. In response to the changing trends, designer Madeleine Vionnet came up with a truly novel approach to dressmaking and demonstrated that there is more than one way to look good in clothes. “Vionnet’s unique solution was to make the movement of the body part of the movement of the remarkably fluid shapes she was working on. No more boning, no more rubber, no more elastic to give support.”
+
+As most of us can verify quite easily in our homes, if you hold a square of fabric—say, cotton—at the center of its edges and pull outward in opposite directions, the material will only stretch a little. However, if you hold it at the corners and pull, the material will stretch significantly more. In 1922 Vionnet exploited this property of fabrics, called the bias cut, to stunning effect in the design and construction of clothes.
+
+As J. E. Gordon describes in Structures: “She realized intuitively that there are more ways of getting a fit than by pulling on strings or straining at hooks and eyes [of corsets]. The cloth of a dress is subject to vertical tensile stresses both from its own weight and from the movements of the wearer; and if the cloth is disposed at 45 degrees to this vertical stress, one can exploit the resulting large lateral contraction so as to get a clinging effect.”
+
+As explained by Colin McDowell in his online biography of Vionnet, “Starting with studying classical Greek statues, she became obsessed with the soft flattery of clothes that ‘moved like water.’ From there, she made her great step forward by cutting fabric on the bias (previously used only for collars) and, by doing so, created a completely new shape, which could be called free-form geometric. In her own words, it was ‘to free fabric from the constraints that other cuts imposed on it.’ She had found her road and, for the rest of her design life, she tackled the whole question of dress with an almost scientific rigor.”
+
+The bias cut has become a staple of fashion. It looks nice, it easily clings to different body shapes, and it uses less fabric to achieve its effects. Vionnet’s bias cut demonstrated that there is more than one way to shape a silhouette in fashion.
+
+---
+
+# How We Deal with the Universal of Death
+
+Death is a reality all humans have in common. We know our lives will one day be over, and at some point we will have to process the death of a loved one. Due to our social natures, we form strong attachments to people in our lives. Our families and friends mean a lot to us, and when they go, it hurts. The need to process the death of someone we care about is a state all of us experience. How we choose to go about that processing varies widely across cultures. Equivalence is a useful lens through which to look at the various death rituals that exist in the world because it demonstrates just how many ways there are to get the same outcome.
+
+Writing in Do Funerals Matter?, William G. Hoy says, “Just as death is a universal event, the desire of groups to make sense of death through ceremonies seems also to hold a universal appeal.”17 There is a wide variety of after-death practices in the world. Some are religion-based, such as the Jewish custom of sitting with the body until burial or the Hindu tradition of constructing a pyre on which the deceased is cremated. Other practices are community-centered, such as sharing food and drink at a gathering or parading with the deceased in a procession. Hoy continues, “Humans have an undeniable need to make sense of death; funeral rituals are created by social groups as potential scripts to achieve this end.”18
+
+When Darius was king, he summoned the Greeks who were with him and asked them what price would persuade them to eat their fathers’ dead bodies. They answered that there was no price for which they would do it. Then he summoned those Indians who are called Callatiae, who eat their parents, and asked them (the Greeks being present and understanding by interpretation what was said) what would make them willing to burn their fathers at death. The Indians cried aloud, that he should not speak of so horrid an act.
+
+—HERODOTUS, THE PERSIAN WARS19
+
+---
+
+Losing someone you love is painful. Across all human culture, crying, anger, and fear are standard reactions. We grieve for the life that is over, and we mourn their loss from our lives. Rarely do we deal with this pain alone; the ceremonies we perform, diverse as they are, serve the function of helping us deal with death. In “How Death Imitates Life,” James Gire explains, “In whatever form they may take within a given culture, funerals and burial rituals are ways that each society tries to help the bereaved with the death of a loved one.” Or as Colin Murray Parkes, Pittu Laungani, and Bill Young put it in Death and Bereavement Across Cultures, “Time of death and bereavement are times when people need people.” We all have the same needs when processing the death of a loved one. There are just many different ways of meeting them.
+
+One further aspect of death that the accompanying ceremonies address can be thought of as the closure of the deceased’s experience of life. Parkes, Laungani, and Young conclude, “All societies see death as a transition for the person who dies.” The way we engage with that transition is varied, but the fact of engaging with it is pretty much ubiquitous across cultures. Hoy summarizes, “The concepts of eventual rest and reward for the dead are common in death rituals, transcending religious beliefs and cultural customs.”
+
+The funeral is one such death ritual. Gire explains, “Funeral and burial rites vary significantly across cultures and are influenced by each culture’s conceptions of death and dying.” Some funerals are somber affairs, with everyone dressed in dark colors and voices kept to a murmur. Others are lavish and colorful. Some include singing, others dancing. Still others incorporate stories of the deceased. And the ways in which funerals treat the body are just as varied. Some end in burial, others in cremation. Tibetan Buddhists chop human remains and leave them on a mountain to return to the elements, and South Koreans turn the ashes into colorful beads. What ties together the variety of traditions is the intent behind them: consoling the living and dealing with the dead. On the subject of the funeral, Gire concludes, “Death is the final life transition. The funeral is often considered as a celebration of a rite of passage for both the deceased and the living.”
+
+---
+
+We all have a need to process death. The traditions and ceremonies we practice are a means of activating that process, allowing us to grieve for lost loved ones as well as have reassurance in what will happen after our passing. The lens of equivalence shows that there are many ways to meet our need. None are the same, but all are equal in the ways they help people.
+
+# Conclusion
+
+Equivalence is the art of making things interchangeable. It’s the idea that two things can be swapped out without changing the essence of what they’re a part of. Like swapping a red Lego brick for a blue one. The color changes, but the structure remains the same.
+
+Being equal doesn’t mean being the same. Different inputs can produce identical results, and there is more than one way to solve most problems. Equivalence lets us simplify complex systems. Instead of getting bogged down in details, we can focus on the essentials. We can see the forest for the trees. And we can make changes without fear of breaking the fundamental structure.
+
+Of course, equivalence has its limits. Not everything is interchangeable. You can’t swap out a car’s engine for a hamster wheel and expect the car to run. The art is in knowing where equivalence applies and where it doesn’t. It’s in recognizing the essential differences that matter, and the superficial differences that don’t.
+
+The next time you’re faced with a complex problem, try thinking in terms of equivalence. Look for the underlying patterns. See if there are components you can swap out or simplify. You might just find a solution that’s been hiding in plain sight all along.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Order of Magnitude
+
+REPRESENTING VERY LARGE OR VERY small numbers can be a challenge. Our brains struggle to conceptualize them. Writing them out can be unwieldy. Primitive counting systems past and present sometimes progress from one and two to “many” because those are the figures needed for day-to-day life.26 But today we also sometimes need to handle numbers on scales that aren’t straightforward to depict. Science is essentially all about measurements. As it advances, its scale expands to include values like the weight of a cell and the size of a galaxy.
+
+Orders of magnitude are a form of notation used to represent large or small numbers in a compact fashion. To say a number is an order of magnitude larger than another number is to say that it is 10 times larger (a power of 10). To say it is an order of magnitude smaller means it is .10 the size. So, 10 is an order of magnitude smaller than 100, and 1,000 is an order of magnitude larger. We represent numbers between 0 and 1 with negative orders of magnitude. We write out orders of magnitude using the smallest possible power of 10. Science,
+
+---
+
+Mathematics, and engineering are disciplines for which this form of notation can be crucial.
+
+One reason orders of magnitude are useful is that they enable us to make comparisons between numbers to give them context, such as stating how many orders of magnitude greater the weight of Earth is than the weight of a car. We also use powers of ten when handling imprecise numbers and making estimations. In our day-to-day lives, we might easily be able to imagine a group of twenty people, but what would a crowd of one million look like? We can picture a thousand dollars in one-dollar or one-hundred-dollar bills, but how big would a stack of a billion dollars be? If we sacrifice perfect accuracy, learning to conceptualize orders of magnitude can help us compare numbers. For instance, spending a dollar a second, it would take you just over eleven days to spend a million dollars and about thirty-two years to spend a billion. The difference between the two is three orders of magnitude.
+
+The Richter scale is an earthquake measurement system using orders of magnitude. Created by seismologists Charles F. Richter and Beno Gutenberg, it measures the size and destructive power of earthquakes and was designed with the Southern California region in mind.27 Although other systems are in use, “Richter scale” tends to serve as an umbrella term for any means of categorizing and comparing earthquakes by magnitude. Using orders of magnitude is a shortcut for showing the size difference between seismic events.
+
+The Richter scale ascends from 0 (with negative numbers being available on more advanced seismometers) to 10. In theory it could continue higher, but there has never been a recorded earthquake measuring 10 or more. Each step on the scale means an earthquake has ten times the ground motion effect of the prior step, which in turn means it releases thirty-two times as much energy. The largest earthquake recorded to date occurred in Chile in 1960, reaching 9.5 on the Richter scale. Most earthquakes are at the bottom end of the scale, too small for anyone to notice or measure them. Each year there are about 1.3 million measuring between 2 and 2.9, but only one at 8 or higher.28
+
+As Richter himself explained in his original paper on the topic:
+
+Precision in this matter was neither expected nor required. What was looked for was a method of segregating large, moderate, and small shocks, which should be based directly on instrumental indications, and thus might be freed from the uncertainties of personal estimates or the accidental circumstances of reported effects.29
+
+Comparing the destructive potential of earthquakes going up the Richter scale is one tool for understanding orders of magnitude.
+
+---
+
+# Surface Area
+
+Know your exposure.
+
+OceanofPDF.com
+
+---
+
+We can think of surface area as the amount in contact with, or able to react to, the outside world. A teaspoon of loose sugar will dissolve much faster than a cube because the surface area is larger. You need more wrapping paper for a large gift than a small one, because the surface area is larger.
+
+As a model, surface area is about recognizing when increasing our exposure will help us and when it will cause us problems. Sometimes we want a large surface area, such as when we are trying to increase our exposure to new ideas. But large areas come with risks, so when we want to protect ourselves, shrinking our surface area might be the answer.
+
+In chemistry, the greater a reactant’s surface area, the faster a reaction is likely to occur, as there are more collisions between particles. So the same material in powdered form will produce a faster reaction than when in lumps. It’s easier to start a fire with many small sticks than a few logs.
+
+In biology, living things evolve to have a greater or smaller surface area for achieving different aims, either on the whole or in different parts of their bodies. Our lungs and intestines have a huge surface area to increase the absorption of oxygen and nutrients. Animals living in cold regions tend to have a lower surface-area-to-volume ratio than those in warmer regions to reduce heat loss, and vice versa. When you’re cold, you probably scrunch up your body without thinking about reducing your surface area.
+
+Surface area is useful when considering the amount of dependencies or assumptions something has. A program whose code has little surface area is much more likely to age well and be robust than a piece with many dependencies. The same goes for projects. If a project depends on ten teams, it’s much less likely to finish on time than one with less surface area.
+
+---
+
+# Surface Area
+
+As a rule, the larger your surface area, the more energy you have to expend maintaining it. Of course, when most of us think of surface area, we think of a rectangle or how much grass we have to mow. But there is a surface area of life, and most of us never realize how much it consumes.
+
+If you have one house, you have a relatively small surface area to maintain (depending on the size of the house, of course). If you buy another one, your surface area expands. But it doesn’t expand linearly—it expands slightly above that. It’s all the same work plus more.
+
+Friends are another type of surface area. You have a finite amount of time to spend with friends before you die. The more friends you have, the less time you can spend with each one individually.
+
+Wealth is another form of surface area. The more money you have, the more you have to keep track of different types of assets and investments.
+
+When your surface area expands too much, you hire people to help you scale—assistants, property managers, family offices, and so on. They’re scaling you—but they’re also scaling the surface area of responsibility. This, of course, only masks the rapidly expanding surface area by abstracting it.
+
+Beliefs are another type of surface area.
+
+The thing about surface area is that the more you have, the more you have to defend and maintain. The larger your surface area, the more you are burdened with, mentally and physically.
+
+If you think in terms of surface area, it’s easy to see why we are so anxious, stressed, and constantly behind. We feel like we need more time, but what we’re really craving is more focus on things that are important. What we need is a smaller surface area.
+
+Surface area becomes part of your identity. She’s the “busy person” with her hand in every project. He’s the guy with four houses.
+
+Competition can drive expansion. Most people want a bigger house to compete with someone else who has a nicer house. We are animals, after all. On a group level, this causes great benefits. On an individual level, it can cause unhappiness.
+
+Most of the really happy people I know have a relatively small surface area. I know billionaires with two houses. Most of my close friends have only four or five close friends—everyone else is a friend in the loose sense of the word. Most of the productive people I know at work are focused on one or two things, not five.
+
+---
+
+The way to maximize your enjoyment in life is to keep your surface area small. It’s a lot of work but if the happiest people I know are any indication, it’s a lot less work to keep it small than to maintain it when it’s large.
+
+---
+
+# Circus Schools and Increasing Creativity
+
+Sometimes, as individuals or as organizations, we have a creativity problem. We need some fresh ideas but have a hard time coming up with them. We rely on what we already know and often end up with more of the same. When we need to spur innovation we can try increasing our surface area of exposure to new disciplines. More surface area can give us more diversity, which is sometimes what we need in order to innovate and create.
+
+One short period in the history of circus development provides an excellent example of why multidisciplinary learning can be so powerful. The circus has been around for a long time in various forms. Records of people juggling or doing acrobatics in a public space go back to the Middle Ages. The circus has evolved since then in response to changes in the social environment, and eventually it coalesced into the form that seems to represent the archetype: the big tent with a ringmaster, animals, clowns, and the flying trapeze.
+
+Iconic circuses like Barnum & Bailey, with trains traveling around the country and setting up the big top for a few days of shows at every stop, became the definition of “circus.” The performers would live in the circus and raise their kids in the circus environment, and often those children would grow up to become circus performers. Duncan Wall explains in The Ordinary Acrobat, “During the eighteenth and nineteenth centuries, well after the rise of public education, circus performers continued to educate their children themselves.” This resulted in a situation in which “they didn’t just learn their skills, they lived them, an intuitive experience that translated into astonishing ability.” From very young ages, circus performers could accomplish the amazing feats presented in a circus show.
+
+However, this family system led to a problem. Circus acts became predictable. They may have required great athleticism, but they were always the same. As Wall describes, “Beholden to tradition, each generation mindlessly duplicated the work of the last,” creating an artistic bubble in
+
+---
+
+which “technical ability continued to rise, but the art as a whole stagnated. A cheap uniformity ensued.”
+
+Eventually the circus became synonymous with nostalgia and directed its marketing at children because they were the only group to whom the circus was new and exciting. Overall ticket sales went down, and the circus was well on its way to becoming history.
+
+# How did this decline happen?
+
+One of the reasons was that, as Wall explains, “the family system defined the circus for centuries. But while it provided the source for much of the circus’s strength and allure, it also had a fundamental flaw. Ruled by families, the circus was what physicists call a closed system. Although the troupes traveled widely, they remained almost totally isolated from the outside world.” The surface area of the circus community was small. The borders were not around individuals but the whole unit. Interactions with anyone outside the circus were kept to a minimum. Thus there were minimal opportunities for creative reactions to occur.
+
+Today it’s a different story. Circuses are vibrant and diverse. Commercially, companies like Cirque du Soleil have wide appeal and earn into the billions of dollars. The shows are nothing like the traditional circus. In many, the animals have disappeared. Circuses are performed in a variety of venues, from stand-alone theaters to open-air spaces under the stars. Audiences go to see what is new and dynamic in both tricks and artistry. The creativity has exploded in the past fifty years. And one of the reasons is the increased surface area of the new circus education.
+
+# Duncan Wall writes
+
+“The story of how the circus finally extracted itself from [its] creative hole is, in large part, the story of the development of circus education. It begins in Russia.” After the Russian Revolution in 1916, many of the circus families left due to the political uncertainty. Russians, however, still wanted to go to the circus. So the Russian government, deciding that maintaining and improving the circus could improve the people, re-created the Russian circus and opened a school.
+
+These actions proved momentous in the evolution of the circus. Wall explains how circus performer education was changed by the Russians:
+
+---
+
+Based largely on Russia’s famous ballet schools, the program took an interdisciplinary approach to education. Students learned traditional techniques, but they also learned philosophy, physics, math, and chemistry, which “develop[ed] their intellects” and served as sources of inspiration.
+
+To complement this new education, the Russians took a fresh look at other aspects of the circus. “To encourage innovation, the state invited revered artists from other disciplines” to develop circus content, and “in circus ‘labs’ around the country, artists and scientists developed new circus methods and equipment.”
+
+The results were incredible. “During the fifties and sixties, while the critics were lamenting the death of the circus in the West, the Soviet circus was soaring…. They developed what was known as ‘the Studio,’ a sort of circus production house, in which artists from all disciplines…teamed up to devise original circus material. The work coming out of such institutions was unparalleled in artistry and professional polish.” Eventually the shows filtered out from behind the Iron Curtain. Soviet circuses toured abroad to critical acclaim and sold-out shows wherever they went. They established dozens of permanent circus theaters at home, selling a hundred million circus tickets every year.
+
+The new multidisciplinary approach to circus education did not go unnoticed, and many countries started their own schools. One of the most notable is the national circus school in France. They too teach a wide variety of subjects to their students. The French school culminates with the creation of an original work, giving students experience in all facets of a production. Wall explains why: “It trained the students to create new work, not just perform work, in order to keep the circus evolving.”
+
+Therein lies the difference between the family approach that almost rendered the circus obsolete and the way circus education is taught now. Students are expected to come up with innovations to move the art in new directions. It is no longer enough to repeat what came before. Both audiences and performers expect new ideas to push the art forward.
+
+Making the core of circus education multidisciplinary is effectively increasing the surface area to promote more creative reactions, increasing
+
+---
+
+the pace of innovation. When you have a narrow knowledge set to draw on, it’s harder to come up with new ideas. Exposure to different disciplines sets up circus performers to be creative in the execution of their art. Increasing our own knowledge surface area is a solution when lack of creativity or fresh ideas is a problem.
+
+# Guerrilla Warfare
+
+Sometimes reducing your surface area is important. Decreasing your exposure can make you less vulnerable to influence, manipulation, or attack. Designing security measures is one area where surface area needs to be as small as possible without compromising functionality.
+
+In internet security, surface area refers to the number of opportunities an attacker has to gain unauthorized access. Every additional entry point increases the surface area. For instance, employees who have access to important information in a company increase the surface area, as an attacker could gain control of their accounts. Or the more connection points your network has to the internet, the more attack vectors an adversary has. While perfect security is impossible, having the smallest possible surface area reduces the risk of breaches.
+
+Far from being a modern concept, the application of reduced surface area for security is also evident in the narrow slit windows of medieval fortifications and walled cities with only a few guarded entrances. There is a natural relationship between surface area and defense. The smaller your area of exposure to an adversary, the more you can concentrate your resources on a powerful defense of those exposure points.
+
+A small surface area is not only a defensive strategy but also a possible offensive one. Guerrilla warfare is essentially the use of small attack groups against larger, more conventional standing armies. Those who engage in guerrilla warfare reduce their surface area in two dimensions. First, they operate in small autonomous units, and second, they aren’t attached to
+
+---
+
+occupying and holding a given territory. Both factors provide little surface area for their adversaries to attack.
+
+The use of guerrilla warfare can be traced back to ancient times, when the guerrillas were nomads fighting against the rulers in a particular region. In Invisible Armies, Max Boot explains one of the advantages that small, mobile bands of attackers had: “Having no cities, crops, or other fixed targets to defend, nomads had little cause to worry about enemy attack, making them hard to deter.”9 When you aren’t defending a territory or other fixed structures, you give your adversary far fewer points of vulnerability.
+
+As nomads evolved into more contemporary guerrilla warriors, the basic principle of reduced surface area continued to define their tactics. As Robert Greene explains in The 33 Strategies of War, “Early guerrilla warriors learned the value of operating in small, dispersed bands as opposed to a concentrated army, keeping in constant motion, never forming a front, flank, or rear for the other side to hit.”10 It’s harder to attack small groups of people with no attachment to the territory they occupy.
+
+Guerrilla warriors keep their infrastructure to a minimum, as mobility is always a factor. Although a guerrilla organization has leaders, they tend to organize offensive efforts around small groups that can act independently. Guerrilla warfare maintains such a small surface area because it is critical if they are to have any success. As Boot explains, guerrilla tactics “always have been the resort of the weak against the strong. That is why insurgents wage war from the shadows; if they fought in the open…they would be annihilated.”11
+
+Perhaps one of the most famous examples of successful guerrilla warfare was that carried out under the leadership of Fidel Castro in Cuba in the 1950s. His rebel group operated out of mobile bases in the highest mountains in Cuba and was dedicated to overthrowing the regime of Fulgencio Batista. Their eventual success came as a result of more than just the guerrilla warfare tactics they employed, but those were textbook.
+
+Castro started out in the mountains with only about twenty men. The United States Army Special Operations Command produced a document
+
+---
+
+titled Case Studies in Insurgency and Revolutionary Warfare: Cuba 1953–1959. The report makes it clear that Castro’s available manpower was only ever a small fraction of Batista’s: “Castro has revealed that he had only 180 men with him in April 1958” (Batista’s regime fell on January 1, 1959), and that “the two columns that were given the single biggest operation in August 1958 [by Castro] amounted to only 220 men.”12 Contrast these numbers with the thousands of trained military personnel Batista commanded and the surface area of the Cuban rebels seems incredibly small.
+
+This small number of guerrillas operated in tiny tactical units that, in classic guerrilla warfare style, chipped away at Batista’s infrastructure. They obviously never attacked the Cuban military directly; they didn’t have the manpower for that. Instead they went after vulnerable, isolated units or relatively unguarded parts of the communications infrastructure or supply chains.
+
+Castro’s rebels were also mobile. They operated out of bases deep in the heart of mountainous territory that was hard to access. But they were not attached to any particular piece of territory. Thus they could easily move around, evading capture and giving their adversary minimal surface area to attack.
+
+The lens of surface area demonstrates how a small one can be both a defensive and offensive strategy. One of the most famous guerrilla warriors, T. E. Lawrence—who led small groups of Bedouins against the Turks, wrote foundational literature on guerrilla warfare, and became famous as Lawrence of Arabia—explained the essence of the strategy thus: to become “a thing intangible, invulnerable, without front or back.”
+
+---
+
+# When You Can’t Tell the Whole Truth
+
+Maps are a great example of both the dangers and opportunities of reducing a surface area. All maps present “a chosen aspect of reality.” No map can represent everything in a territory. When we choose which details to include, we are deciding which view of the territory to present. Thus all maps show a smaller surface area than the corresponding territory they represent. We are not talking about a geographical surface area but rather a conceptual one. Maps cannot capture every point of detail in a territory, nor is that their function. By necessarily omitting some details, a map reduces the number of information points about a given area.
+
+In How to Lie with Maps, Mark Monmonier explains, “A good map tells a multitude of little white lies; it suppresses truth to help the user see what needs to be seen…. Reality is three-dimensional, rich in detail, and far too factual to allow a complete yet uncluttered two-dimensional graphic scale model…. But the value of a map depends on how well its generalized geometry and generalized content reflect a chosen aspect of reality.”
+
+A clear example of the need to simplify a territory in order to make a useful map is the London Underground (known as the Tube) map. It’s instantly recognizable, popping up on T-shirts, mugs, posters, and souvenirs. It’s been the inspiration for countless underground maps across the world. For Londoners, becoming fluent in reading it is an important rite of passage and a point of pride. As a design, it’s beautiful and elegant. Yet part of what makes it so successful is the fact that it doesn’t represent reality.
+
+The original design for the Tube map comes from Harry Beck, a humble electrical draftsman. Lacking any relevant formal design training, Beck took his knowledge of drawing circuit diagrams and applied it to a new domain. As an outsider, he was able to approach the problem of conveying the relative locations of stations and lines in a fresh manner. Ignoring geographical accuracy, he portrayed the tube lines as simple colored lines, with circles representing stations. In reality, neither is laid out in a logical manner.
+
+Beck unveiled his radical design in 1933 and was met with unequivocal derision. The Underground’s publicity department couldn’t imagine commuters using it. After all, it wasn’t a map in the usual sense of the word. Beck ignored the actual scale of the city. He portrayed the distance between stations as almost exactly equal. He conveyed the Tube lines as a grid, ignoring the true way they twist and turn beneath the ground. He showed the line intersections as forty-five-degree angles to indicate where to change trains.
+
+---
+
+Yet as soon as they made a trial print run of the Tube map, people fell in love with it. Harry Beck opened up the city in a new way. The first prints were snapped up by commuters, for whom the simplicity mattered far more than geographical accuracy. Despite numerous changes to the transport system, the modern map retains the spirit of Beck’s original design. It now also indicates certain landmarks and other forms of transport, like overground trains and the Docklands Light Railway.
+
+Seeing as a map is always a simplification, it must omit a large amount of unnecessary detail and nuance. It may match the territory in some details but not all. It can never be an exact representation. The London Underground map excludes a number (some estimates run as high as fifty) of abandoned stations that were closed due to low passenger numbers or never opened in the first place. There isn’t any real need to include these on the general public’s map. It would just confuse people and prompt more requests to visit them, which isn’t allowed. A few can be briefly glimpsed if you look out the window at the right moment.
+
+The Tube map reduces the surface area of London to a few points of information to communicate for a single purpose. Thus, when we communicate, it might be helpful to reduce surface area to provide useful content. We cannot cover everything at once. Monmonier writes, “The map must omit details that would confuse or distract. ” We want Tube travelers to get to Piccadilly Circus if they need to.
+
+---
+
+# Conclusion
+
+Surface area is what determines how much an object interacts with its environment. The more surface area the more contact. Surface area can be good and bad. Sometimes keeping it small is favorable and sometimes increasing our exposure is beneficial.
+
+Surface area teaches us that increasing cognitive diversity can give us fresh ideas and help us innovate. The model also reminds us, however, that in many ways, the more we expose ourselves, the more vulnerable we are. Different situations require different surface areas.
+
+OceanofPDF.com
+
+---
+
+# Global and Local Maxima
+
+Embrace the peaks and valleys.
+
+OceanofPDF.com
+
+---
+
+The maxima and minima of a mathematical function are the largest and smallest values over its domain. Although there is one maximum value—the global maximum—there can be smaller peaks of value in a given range: the local maxima. Global maxima are like the highest mountain peak in the world—the ultimate point you can reach on Earth. Local maxima, on the other hand, are like the highest hills in your neighborhood; they’re the top points in their immediate area, but they might not be the highest points when you look at the bigger picture.
+
+|Global Maximum|Local Maximum|
+|---|---|
+|Local Minimum|Global Minimum|
+
+The hill-climbing graph looks much like our experience of life: a lot of time spent navigating between highs and lows.
+
+---
+
+Using global and local maxima as a model is about knowing when you have hit your peak, or if there is still potential to go higher. It reminds us that sometimes we have to go down to go back up. The model can also help us understand that to optimize and reach our peaks, we need to align the large components before we refine the details.
+
+We may need to temporarily worsen our solution if we want to continue searching for improvements.
+
+—BRIAN CHRISTIAN AND TOM GRIFFITHS1
+
+One of the characteristics of maxima is that there is an increase before and a decrease afterward. Thus, they occur at a critical point of change.
+
+The algorithm that produces the global and local maxima graph is known in computer science as “hill climbing,” because, as Christian and Griffiths explain, “the search through a space of solutions, some better and some worse, is commonly thought of in terms of a landscape with hills and valleys, where your goal is to reach the highest peak.”2 We go up and down hills and valleys our entire lives as we work through challenges and develop new expertise.
+
+One of the challenges with climbing a hill is how to know we are climbing the highest peaks. The value of using global and local maxima as a model is that it pushes us to consider if and how we could do better. Even when things are going well, we are often just at a local maximum. In the article “Escaping Local Maxima,” Dave Rael explains that the “chasms between where we are and where we could be [are] opportunities to improve by finding ways of moving from a place where progress is flat to find a new slope to climb.”
+
+Getting to a new peak means change—changing what you know, changing the way you are doing things. At a local maximum, things are as good as they can get with the current structure. To get to the peak of a higher hill requires us to walk through a valley as we go back to being.
+
+---
+
+neophytes in some ways. Or it requires us to step back, broaden our view, and determine if we are heading in the right direction. But as we learn new skills, partner with new people, or make big jumps in our optimization, we start climbing back up to reach the next maximum.
+
+# Navigating the Hills
+
+The story of a new product, from conception to widespread use and high market share, is usually one of ups and downs. There are so many facets of business to learn, from production to sales to marketing, that for novice businesspeople trying to turn their great idea into a successful sales story, there are usually a few mistakes along the way. In addition, we often have to manage traversing our own peaks and valleys while trying to ensure that our current capacities don’t limit our ability to climb a higher peak. Using the lens of global and local maxima shows that in bringing a new product to market, there are many times when the owners reach a peak of success only to have to go down to a local minimum as they take on the next challenging climb.
+
+The story of the development of the sports bra in 1977 is a great example of the hills and valleys one is likely to experience taking a product from conception to market success. Lisa Lindahl loved running, but she had a problem. The motion of running caused her breasts to hurt, but she didn’t want to give up on a pastime she found so physically and psychologically rewarding. So she and her friend Polly Smith designed the first sports bra based on the requirements Lindahl noted when running: straps that don’t dig in, seams that don’t rub, and support that minimizes breast movement.3
+
+Forty years later, sports bras were everywhere. Reading Lindahl’s story makes it clear that a graph of the eventual success of the sports bra looks less like a forty-five-degree line that just keeps climbing up and more like the hills and valleys of reaching and moving past local minima and maxima.
+
+After many experiments with different designs and fabrics, Smith constructed a one-off sports bra. Lindahl wore it running, and it worked.
+
+---
+
+But as anyone who has prototyped a new product knows, what you do to get the first one isn’t scalable to turning it into a business.
+
+Lindahl entered into a partnership with another woman who had been around during the initial design phase, Hinda Schreiber. Together they tried to develop the sports bra prototype into a business. Calling it the Jogbra, Lindahl and Schreiber had to figure out production, sales, logistics, and marketing. Where could they source the very specific material needed? Where could they get the bras sewn? How would they bring them to market? Who would sell them? How would they let women know the product was available?
+
+Lindahl reflects in her memoir, Unleash the Girls, “Starting and running this business was always about learning, gaining information, then accruing the knowledge to apply it correctly.”4 This cycle is often filled with mistakes, as part of accruing knowledge is learning what doesn’t work as much as figuring out what does.
+
+Part of what makes Lindahl’s story interesting is that the development of the Jogbra company required her to work through personal local maxima and minima to reach a higher global maximum.
+
+Lindahl describes how growing the Jogbra company required her to push herself out of the comfort zones of early security. She went back to college in her late twenties, despite being intimidated, because she realized that in a sense, she had maxed out atop the hill she was on. In order to go higher, she had to start climbing another hill, “challenging many old, ingrained limitations that had held [her] back in the past.”
+
+Another factor that required dedicated effort to address was her epilepsy, which she’d had since childhood. She writes of how it shaped her early choices and understanding of her capabilities. For instance, she was conditioned to be afraid of living alone due to the risks associated with having a seizure, and thus she chose early marriage as a result. Part of Lindahl’s attachment to running was the better connection it gave her to her own body. It was this connection that helped her not to let her epilepsy stop her from looking for ways to reach her global maxima. Her epilepsy was a
+
+---
+
+factor in her life, but she recounts how she often made decisions so that it wasn’t a limiting one (it became a one instead of being a zero).
+
+When it came to the Jogbra business, Lindahl’s description of some of the early choices she made makes it clear that she was looking at what was needed to scale the highest peak. For example, she decided to sell it in sporting goods stores as a piece of sports equipment instead of the more obvious choice of the lingerie section of department stores. She recounts how during the late 1970s, women in the United States were starting to get into sports in unprecedented numbers due to legislative changes that mandated equal access to athletics. And the Jogbra was the only product on the market to give women the flexibility and support needed to participate. She felt that putting the Jogbra out there as lingerie would limit its sales, especially because bra sales in general were on a downward trend. It was, however, by no means obvious to the mostly male sales reps and owners of sports stores that the Jogbra was a piece of athletic equipment. She and her small team had to work hard to convince them that Jogbras for women were as essential as jockstraps for men.
+
+She recounts their first full year of business:
+
+Already articles had been written about the product, about us, and there was never a lack of orders. So, yes, the perception, both publicly and personally, that Jogbra was a success came right away. Right. Away. And the perception was supported by some impressive numbers. We were profitable in our first full year in business and had no idea that this was unusual.5
+
+It was an awesome start, and very quickly they hit a local maximum. The end of their first year, though, wasn’t a global maximum, and Lindahl often references the learning she had to do to keep the company growing.
+
+Do you go back down a hill when you learn something new? In a lot of ways, yes. If you’ve never done marketing, you’re probably going to have to be bad at it for a while before you get good at it. And before your
+
+---
+
+company can leverage marketing to reach a new local maximum, you’re going to have to start near the bottom of that hill.
+
+Lindahl describes the many mistakes the company made as they were developing both their product line and their brand. There were poor naming choices, awful colors, styles that didn’t sell. She says, “In those early years, we got off track quite a bit. But we were learning. We were learning the importance of not being a one-product company.” She describes the Jogmit —mitts to wear while jogging—as a failure but the foray into a men’s line as a success. “The line evolved over time, some products came and went; some became staples. And some…some should have just stayed on the drawing board.”6 Using the lens of global and local maxima, we can see that experimentation, with its inevitable failures, is part of achieving success. Going down sometimes is a part of going up, but if you can improve, you know you haven’t reached your global maximum.
+
+Product failures taught the Jogbra team to be aware of their niche, and over time they got better and better at exploiting it. As the company grew, there were continued downs and ups. Expansion required new expertise—and often new capital. The partnership went through challenges. Competition increased. Eventually, as Lindahl describes, “the looming need for capital to fund our continually climbing sales growth” led to her and Schreiber selling the Jogbra company to Playtex.7 For Lindahl, this was just another hill and valley that led to her exploring other life maxima. Reflecting on her experience with the invention of the sports bra and the development of the Jogbra company, Lindahl writes, “You make your plans looking upward toward your goal, only to reach it and find that what you thought was the pinnacle, the ceiling of your endeavor, was in fact only the floor of your next level.”8
+
+Using the model of global and local maxima helps us remember that we often cannot reach our full potential if we aren’t willing to stretch ourselves, take risks, and fail once in a while.
+
+---
+
+# Optimization
+
+Another use of the global and local maxima model is in optimization. It helps you know how and when to optimize, and when to avoid overoptimization.
+
+This is actually easier to explain if we start by talking about minima instead.
+
+Let’s suppose you want to identify the lowest point in your hometown (the point from which everywhere else is uphill). How would you go about doing so? One way to solve this problem could be to take a ball (let’s pick a basketball), set it down, and watch where it rolls. We expect it to roll downhill, at least if it’s on a hill, but since your town is probably pretty large and the ball is unlikely to navigate all the routes, it’s improbable that it will stop at the absolute lowest point. Instead it might stop on the lowest point of your street—a local minimum. Could we improve this?
+
+What if we took a giant ball, say, a quarter mile in diameter. Forget for a minute the liability of such a plan and the cost of producing it. How would it roll? With such a large size, it could easily roll over houses, and it’s much more likely to find something approaching the global minimum, but it’ll never find the global minimum itself. Why is that?
+
+The scale is simply too large. The true global minimum probably fits underneath such a large object, which never quite gets down there. Now that we’re close, though, we could switch back to our basketball. Finally we may have found the true global minimum (or at least we’re close enough—we’ve already destroyed a lot of houses in our pursuit).
+
+This story tells a lesson about scale in optimization. We need to make the big changes first, before we try to optimize the details. There is just no other practical way to do it. We also need to be mindful of the directionality of the changes. The feedback mechanism of the ball rolling tells us which way to look. We’re not just randomly sampling different locations to try to predict which way will give us the greatest optimization. The other major lesson in this thought experiment is that local minima (or maxima) act as a sort of trap. Our little basketball gets stuck too soon. Stepping back and making a bigger jump by using a bigger ball gives us a better indication of where the global minimum is.
+
+---
+
+# Using New Partnerships to Optimize
+
+We don’t have mathematical functions to determine subjective states in our life, such as whether we’ve reached a global or local maximum on our success potential. We have to perform an analysis of events to determine if we’ve gone as far as we can within the parameters we’ve set up, or if we need to regroup and change the scale of how we’re optimizing in order to find a higher peak.
+
+Using the model of global and local maxima helps us identify when and how to find a higher peak. Sometimes we know we’re close and just need to fine-tune, like rolling the basketball in the sidebar example. And sometimes we need to get out the giant ball because we have the feeling we’re not in the right place at all. Changing the scale at which we are optimizing gives us perspective on where to go and how to get there. For example, with a rock band, we can think of its members like the giant balls and individual chords like the basketballs. There is no point in changing the chord in one particular song to get out of a local minimum if your guitar player isn’t a good fit and is leading you in the wrong direction. Before bands start tinkering with their image or style, they first need to have the optimal people in the group.
+
+Who hasn’t heard of the band Queen? Who can’t sing along to at least one of their multiple top-ten hits? They are a rock band who unequivocally made it. They seemed to create hit after hit, entertaining millions and inspiring many musicians. It’s easy to think it was all luck, but it wasn’t. Queen was the product of years of experimentation and development, and many failed bands. Before they came together as Queen, each member of the band spent years learning how to try to optimize for success in the music business.
+
+All of the members of Queen—Freddie Mercury, Brian May, John Deacon, and Roger Taylor—were members of bands before. Many of these bands weren’t total failures. They had gigs in decent-size venues, fans, and
+
+---
+
+even a record contract. However, we can look back and see that each band before Queen was a local maximum.
+
+John Deacon, the bassist, “who had been strumming the acoustic guitar he bought with his early morning paper round wages since the age of twelve,” formed a band called the Opposition with some friends before he turned fourteen.9 They played together for four years, and during that time they went through ten members. Some left to pursue other interests; some were asked to leave on account of inferior playing or not gelling with the rest of the group. Deacon was noted as a perfectionist in both playing and arranging, and the Opposition had many gigs in their home region of Leicester. As Mark Hodkinson writes in Queen: The Early Years, “This was John Deacon’s musical apprenticeship, and it was extraordinarily thorough.”10 In addition, just before joining Queen, he briefly formed another band with some friends simply called Deacon.
+
+Roger Taylor started out on guitar before settling on the drums. He was part of three bands. His third band, the Reaction, had some longevity. With six different members over the years, this band too experimented with group dynamics. It was a learning process, a continual effort to understand what promoted cohesion and creativity as well as what undermined group success. Taylor “evolved into the natural leader. He was barely seventeen years old…but he willingly shouldered most of the responsibility for running the group.”11 These were lessons that he applied later to success with Queen.
+
+Brian May also started strumming guitar in his school days. Captivated by science as well as music, “it was fated that Brian would fuse his interest in music and technology, and along with a school friend…he began to record songs.” He and friends formed a band called 1984, which over the years had eight members. With one of them, Tim Staffell, he wrote songs. These were harmonies that later turned into Queen songs, and “during these raw formative days, there was already evidence of ideas which would be developed many years later.”12 The band didn’t have the right members to help the sound take off, but the process of trying to write songs gave May
+
+---
+
+An indication of the type of people who might be needed to optimize the music.
+
+May played guitar and did backing vocals on the recordings of other groups, and with 1984 he gained exposure to some of the components that are required of a successful band: stage setup, sound checks, band etiquette and industry quirks, and the need for patience. This was information that was useful for figuring out the essentials of the minimum needed for success: who a band needed to develop style, sound, and songs.
+
+In the late 1960s, Brian May and Roger Taylor formed the band Smile with Tim Staffell. Smile worked hard to try to put together what each member had learned to find a higher peak. “The coyness and ready conformity was gone forever, and Brian May and Tim Staffell’s ideology reflected these changes. Individuality was everything and in support of this free expression, their new group would mainly write their own material, or interpret others from a unique panorama.”
+
+Smile got a record deal and steady gigs—definitely a local maximum in the music business. They recorded tracks and tried to be an “albums band,” but they found their record deal was going nowhere. They pivoted, and “with laudable fortitude, resolved to find a niche as a live band.” Smile learned there is little predictability in the music business, and their studio-recorded album was never released. However, “elements which were later brilliantly realized by Queen were already present.”
+
+Freddie Mercury, who became the legendary front man of Queen, was born Farrokh Bulsara and grew up in Zanzibar and India before moving to England in his late teens. Although he loved music and sang covers as part of his school’s unofficial band, Mercury also cultivated a prescient understanding of another key component of musical success: image. The Freddie Mercury who rocked Live Aid in 1985 spent years, like every other member of the band, developing as an artist. He was a member of the group Ibex and then joined the band Sour Milk Sea. Playing with these groups helped him refine and polish both his vocals and his stage presence. Mercury was described as having “a certain tenacity, a single-mindedness,” and reading his story reveals a man who paid a lot of
+
+---
+
+attention to the details, absorbing the dynamics of the environment he intended to succeed in.
+
+Before Queen could start producing hits, the members had to find one another.
+
+Changing who you play with in a band is like rolling the big ball. You already have a decent sense of the territory and can make an educated guess about which direction the ball is likely to roll. But the emergent properties of playing music as a group mean that you can never exactly predict what sound certain individuals will make when they come together. You don’t know if a group might have settled over the global maximum at least until they start playing together.
+
+In 1970 May, Taylor, and Mercury, who had been friends for a while, decided to form a new band. Putting in all the knowledge they had gained over the years, they first had to roll that big ball to find a bass player. They went through three bassists before they found John Deacon, who turned out to be an excellent fit.
+
+Once they thought they were in the general territory of the global maximum, they refined element by element. They played shows. They wrote music. “They openly solicited their friends’ comments about performances and were not afraid of criticism.” Through constant learning and a willingness to incorporate feedback into developing new functions aimed at optimizing to reach their global maxima, the members of Queen became one of the most dynamic and memorable rock bands of all time.
+
+# Conclusion
+
+Global and local maxima as a model can be used in different ways to help us make the changes we need for success. It encourages us to see achieving our goals not as a steady upward trajectory but as a path full of peaks and valleys. Understanding that sometimes we have to go down in order to climb even higher helps us make short-term sacrifices to play the long.
+
+---
+
+In engineering, you might be trying to maximize efficiency. In life, you might be trying to maximize happiness. But in all these cases, it’s easy to get stuck on a local maximum. You find a pretty good solution, and you stop looking for a better one.
+
+The next time you’re trying to optimize something, remember the concept of global and local maxima. Don’t just settle for the first peak you find. Keep exploring. Keep searching for that global maximum. It might be a tough climb, but the view from the top is worth it.
+
+OceanofPDF.com
+
+---
+
+# Afterthoughts
+
+# The Great Models
+
+# Mental
+
+---
+
+# The Great Mental Models
+
+# Conclusion
+
+You’ve finished reading the third volume of The Great Mental Models series. You now have almost fifty models from these books in your toolkit. We hope you have found our exploration of each model interesting and insightful. But now you may be wondering, what next? How can you take these seeds of ideas about timeless knowledge and grow them to make improvements in all areas of your life?
+
+Exposing yourself to new ideas is always the first step in learning. But to develop wisdom, what you learn needs to be put to the test. When it comes to mental models, you can’t just passively read about them and hope that one day you will notice a positive change in your life. You need to use them.
+
+Pick a model, maybe one per week, and start looking at your life through that lens. What do you notice? What looks different? Write down or record your observations. Take the time to reflect on your experiences using each model, because it is through reflection that the most valuable knowledge builds. Note where you make a different choice based on the insight provided by the model. Pay attention to what worked and improved your outcomes. Learn from your mistakes. Over time you will build knowledge of where each model is most useful and most likely to help you.
+
+As you practice using more models, you will begin to build a latticework. You will see connections and notice that some models give the best insight when paired with certain others. Eventually your latticework will be comprehensive enough that you will be able to use it in every situation, reducing your blind spots and preventing problems.
+
+Using mental models is a lifelong journey, and this book is just one step on that road. The next volume in the series will cover the foundational ideas from economics and military strategy, which will give you another set of tools for your toolbox.
+
+---
+
+Improving our lives means seeing the world as it is and learning to work with the fundamental principles that govern it. Having a diverse set of thoughtful mental models that reflect how the world works is a critical component of making better decisions and ultimately living a more meaningful life.
+
+As The Great Mental Models goes out into the world, we will continue to create and update resources on fs.blog/tgmm to help you integrate these models into your thinking. As we wrote in the previous volume, before long, when it comes to using mental models, you will be capitalizing on the powerful momentum you have created. These ideas will become such an integral part of the fabric of your thinking that it will be impossible to view any situation without the valuable lenses they provide.
+
+OceanofPDF.com
+
+---
+
+# Acknowledgments
+
+I’m forever indebted to Charlie Munger, Peter D. Kaufman, Warren Buffett, and Peter Bevelin, who, to varying degrees, started me down the path of multidisciplinary thinking. I owe them a huge debt of gratitude.
+
+Thank you to my coauthor Rhiannon Beaubien for making this series possible. It’s impossible to overstate her contributions to this volume and the entire series. Without her, you would not be holding this book in your hands. And thank you to my other coauthor, Rosie Leizrowice, for her substantial contribution to this book.
+
+This series would be lost without our talented illustrator, Marcia Mihotich. Thank you for seeing these words and ideas and bringing them to life in simple and exceptional ways.
+
+While this is a revised volume 3, I wanted to give a special mention to Garvin Hirt and Morgwn Rimel for shaping the creativity of the original version. Working with you both has encouraged me to make things beautiful and timeless. And thank you to our OG editor Kristen Hall-Geisler for her willingness to dive in and ensure the material flows and comes together in the end.
+
+The original version of this series would not have been possible without our partnership with Automattic and their incredible CEO, Matt Mullenweg. Thank you to Niki Papadopoulos and the entire team at Portfolio for rereleasing this series and supporting my efforts to make it as beautiful and timeless as we can.
+
+Thank you to Simon Hørup Eskildsen, Zachary Smith, Paul Ciampa, Devon Anderson, Alex Duncan, Vicky Cosenzo, Laurence Endersen, David Epstein, Ozan Gurcan, Will Bowers, Sanjay Bakshi, Jeff Annello, Tara
+
+---
+
+Small, Tina Cantrill, Nathan Taggart, Tim Bragassa, Yves Colomb, Rick Jones, Ran Klein, Maria Petrova, and Dr. Gregory P. Moore for taking the time to review various books in this series. Your comments and contributions have helped make everything better.
+
+Thank you to my sons for reminding me to continue to learn and grow along with them. This series was largely written for you and future generations.
+
+Thank you to the entire FS team for your hard work and dedication over the years to bring this series to life.
+
+And finally, thanks to you, the reader. I continue to be amazed by how many of you want to take this mental models journey with me. I hope this book is one you can reference time and again as you seek to better understand the world.
+
+---
+
+# THE GREAT MENTAL MODELS
+
+# Economics and Art
+
+We learn so much from the world if we are willing to take the time to let it teach us. Each discipline we study contains fundamentals that provide insight into many of the common challenges we face. These fundamentals make up Farnam Street’s latticework of mental models, a way of approaching new ideas, situations, problems, and challenges with a toolkit of valuable knowledge.
+
+# Volume 1
+
+of The Great Mental Models introduced nine general thinking concepts to start building a framework of timeless knowledge. Time and again, those models have proven indispensable in both solving problems and preventing them in the first place.
+
+# Volume 2
+
+continued the journey, exploring fundamental ideas from physics, chemistry, and biology. Truths about the physical world, from the forces that allow us to manipulate energy to the behaviors that drive the actions of all organisms, are constants that can guide our decisions so that our actions are aligned with how the world works.
+
+# Volume 3
+
+considered the core ideas of systems thinking and mathematics. Although these subjects can appear impermeable, as soon as we start taking them apart, we quickly see that they are easily accessible. Not only that, they describe many of the behaviors and interactions that govern our lives.
+
+# Volume 4
+
+covers economics and art, exploring the relationship between two disciplines often hidden in plain sight, influencing all our behavior, the world we live in, and the meaning we find.
+
+---
+
+# About This Volume
+
+This volume explores some of the core mental models from economics and art—a fitting pair.
+
+Economics is as much art as it is science. While the core models we have selected from this discipline remain timeless principles, they are not unchanging laws of nature. Much of our individual economic behavior is based on the stories we tell ourselves and the ones culture tells us.
+
+Price is what you pay; value is what you get.
+
+—BEN GRAHAM
+
+It seems obvious to study economic models when tackling life’s challenges, especially when it comes to our work and business lives. So much of the modern world hangs in the economic balance, affecting job mobility, wages, social safety nets, and entrepreneurial success. And that’s not even considering the massive economic wheels of governments at all levels, from local to national, which also affect our lives over the short and long term.
+
+Art offers something more elusive—meaning. What is life other than a story, with plot and characters? There is a reason the language we use with ourselves, after something happens, is that we are “turning the page” or “starting a new chapter.”
+
+However, we’re not here to educate you with ten hot tips for negotiating a raise or six ways to write a good plot. Instead, we’re going to cover foundational models. We’ll show you how they apply in their core discipline and how you can use them to better understand the world we live in.
+
+Once you know the key principles and basic facts about economics, you can make some robust judgments without knowing the technical details.
+
+---
+
+# HA-JOON CHANG
+
+Take something as fundamental as supply and demand, something many of us have heard about for most of our lives. High supply of and low demand for an item means prices are likely to become or remain low; the reverse is true for high demand, low supply—prices for that item are likely to skyrocket. In this volume, we look at examples, including sex work and car sales, to show how these economic concepts shape behavior.
+
+In the economics section, we’ll cover such bedrock ideas as debt, monopolies, and trade-offs as mental models for confronting everyday issues in our lives. Each chapter discusses the concept at hand, then offers a case study or two illustrating how the concept has played out in history. These economic models can spark creative solutions to common problems, giving you the advantage even in situations where not one cent is in play.
+
+The purpose of art is washing the dust of our daily life off our souls.
+
+—PABLO PICASSO
+
+As with previous volumes in this series, each chapter in this book explores an idea—say, the concept in its original discipline. Then, we’ll show you how it can apply in other ways. Some of the models are metaphors, others have a more literal application.
+
+When looking at historical examples through the lens of a model, it’s important to remember we are not attempting to demonstrate causation. We are telling a story to illustrate a point. We are not saying, for example, that what happened in a particular moment in history happened because a particular historical figure used the described model to guide their decisions. Instead, we are showing how you might understand that bit of history differently when you use a particular model as a lens, or giving you a different perspective on why a particular person’s decisions led to the
+
+---
+
+outcomes they did. In so doing, we hope you will gain inspiration for applying the same model to nonintuitive situations in your own life.
+
+Finally, note that all these models, as with those covered in the previous books, are value neutral. They can be used for good or evil, as defined in whatever era you are in. They might work well in one situation but not in another. We try to balance use of the models with noting some of their limitations, so that you have ideas about when you might want to take an alternate approach.
+
+Together, we will learn the differences in how to apply each model through the stories we have chosen to explain them. Each example is crafted to give you insight into where the model can apply. You can take the elements of each story as a signpost directing you to find similar situations in your life where the lens of a particular model will be most useful.
+
+What is art? I feel that if we see art as something isolated, something holy and separate from everything, that means it’s not life. Art must be a part of life. Art has to belong to everybody.
+
+—MARINA ABRAMOVIĆ
+
+All models are wrong, but some are useful. The ones in this book aren’t perfect, but they can be useful. Think of them as a mental toolbox: you won’t use every tool for every job, but with practice, you’ll learn which one works best in each situation. Just like a hammer is for nails and a wrench is for bolts, different mental models solve different problems. Collect them, experiment with them, and figure out what each one is good for.
+
+# About the Series
+
+For those new to the series, The Great Mental Models is designed to give you the education you were never taught in school. We want to give you
+
+---
+
+both knowledge from the core disciplines and a framework for using it in everyday life.
+
+One of our goals for the series is to provide you with a set of tools built on timeless knowledge that you can use, again and again, to spot opportunities others miss, avoid problems before they happen, and live a better life.
+
+# The Great Mental Models
+
+The Great Mental Models is a guide to dozens of mental models, spread across four volumes, that define and explore the foundational concepts from a variety of disciplines. We then take each concept out of its original discipline and show how you can apply it in less obvious situations. We encourage you to dive into new ideas to augment your knowledge toolbox and also to leverage what you already know by applying it in new ways to gain a different perspective on the challenges you face.
+
+A mental model is simply a representation of how something works. We use models to retain knowledge and simplify how we understand the world. We can’t relearn everything every day, so we construct models to help us chunk patterns and navigate our world more efficiently.
+
+Farnam Street’s mental models are reliable principles that you can see at work in the world time and again. Using them means synthesizing across disciplines and not being afraid to apply knowledge from different areas far outside the domain they usually cover.
+
+Not every model applies to all situations. Part of building a latticework of mental models is educating yourself regarding which situations are best addressed by which models. This takes some work, and you’re likely to make some mistakes. It’s important to constantly reflect on your use of models. If something didn’t work, you need to try to discover why. Over time, by reflecting on your use of individual models, you will learn which models will best help you tackle which situations. Knowing why a model works will help you know when to use it again.
+
+Let’s dive in.
+
+OceanofPDF.com
+
+---
+
+# ECONOMICS
+
+The first rule of compounding: Never interrupt it unnecessarily.
+
+— CHARLIE MUNGER
+
+OceanofPDF.com
+
+---
+
+# Scarcity
+
+|NET|GOLD|
+|---|---|
+|700Og|WEIGHT|
+
+When resources are finite.
+
+OceanofPDF.com
+
+---
+
+It sometimes feels as if we have temporarily solved the problem of scarcity and replaced it with the problem of excess.
+
+—MATT HAIG
+
+---
+
+Economics, as a field, exists because of a fundamental problem we face as individuals, groups, and a species: how to allocate scarce resources to meet limitless needs. All resources are scarce, meaning there is a finite amount available.
+
+Scarcity is like having one pizza for a hundred people at a party. You don’t have enough for everyone who wants it. In economics, scarcity means a limited supply of things people want or need, such as money, time, or raw materials. One way to look at the development of human societies over time is as a process of overcoming different kinds of scarcity. Technology enables us to increase our access to scarce resources or to decrease our requirements for them.
+
+Scarcity forces creativity and invention. When we run up against limits, we find ways to increase supply of or reduce demand for resources. While eliminating scarcity is unlikely, technology helps us make resources go further.
+
+Where there is scarcity of something, its price goes up. For a resource to have economic value, it must be both scarce and desirable. If something is scarce, but no one wants or needs it, then it has no or low value. If something is desirable but not scarce, its value is also low or nonexistent. A resource can be valuable purely by dint of being scarce—for example, if owning it serves as a signal of wealth.
+
+Perceptions of scarcity impact our ability to make decisions. Not only does scarcity trigger our biological instinct for self-preservation, it often results in making trade-offs. We become fenced in by perceived limits, whether they reflect actual limits or not.
+
+Experiencing temporary scarcity of something essential can impact our actions for a long time after. For example, someone who grows up in poverty and then, later in life, makes a lot of money may continue to fear.
+
+---
+
+running out of money or may retain frugal habits that are no longer needed. The Great Depression is an example of this; many people who grew up during the Depression maintained the same resource-preserving behaviors well after it ended.
+
+Looking back at how our time or money was spent during moments of scarcity, we are bound to be disappointed. Immediate scarcity looms large, and important things unrelated to it will be neglected. When we experience scarcity again and again, these omissions can add up.
+
+—SENDHIL MULLAINATHAN AND ELDAR SHAFIR
+
+When we lack what we need, we are often forced to make complex, even constant, calculations, which is mentally taxing and leaves less attention for other things.
+
+Scarcity may be harmful to us when it comes to the requirements of living, like food, but that doesn’t mean abundance is always good news for our thinking. The kind of abundance many people in wealthy countries experience is something altogether new in human history. Food, for example, has never been more abundant in wealthy countries. Yes, we need to eat, but we don’t need to eat a lot of refined sugar. When a resource that has been scarce for much of human history becomes abundant to the point where we can access more than we need or have the capacity to use, we may struggle to stop consuming it.
+
+When one resource becomes more abundant, something else tends to become the bottleneck restricting how much we can consume. Making a lot of money, say, can come at the expense of not having enough time to spend it. We may need to moderate our use of one resource to allow us to realize the benefit of another.
+
+Sometimes, making something more abundant (whether in reality or perception) can go both ways in terms of affecting how much of it people consume. Usually, the more abundant something desirable is, the more of it we consume. Think rice in Asia, bread in Italy, coconuts in Costa Rica—the
+
+---
+
+Abundance of something brings its price down. However, if we expect something desirable to be in short supply, we may behave in detrimental ways. The possibility of a short supply of a resource can trigger the urge to hoard as much of it as possible for ourselves, as we saw with the hoarding of basics like toilet paper during the early days of the COVID pandemic.
+
+Scarcity can also perpetuate itself. When access to a resource has previously been severely limited, leading to high economic value, it creates strong incentives to maintain its scarcity, even if the resource actually becomes abundant. Take diamonds: for centuries, their supply was tightly controlled, making them expensive. Now we can grow flawless diamonds in labs, but the industry still works hard to preserve the perception of scarcity. They’re not selling diamonds; they’re selling the story.
+
+Scarcity is the business model of the luxury sector. Luxury brands take advantage of one particular aspect of psychology: the fact that the more scarce something is, the more we want it. Hermès can make more Birkin bags but chooses not to. Fewer than 100,000 Birkins are made every year, and the process of buying one is famously difficult—it involves either waiting for months or having a purchase history with Hermès. This controlled scarcity is key to the high prices of the luxury sector.
+
+Scarcity as a model is very useful as a tool for second-order thinking. If I get more or less of something, what is the result? More money? Great! What will I spend it on? How will my life be different when I’ve made those choices? For example, money seems to be the most sought-after resource, since it’s key to obtaining many others. Yet lottery winners often end up richer (at least temporarily) but not much happier, having walked into new problems: loss of privacy, risk of exploitation, being valued for your money and not your character, and struggling to balance a huge new responsibility in a way your family and friends see as fair.
+
+In our personal lives, scarcity can be a great motivator. When we think about reducing scarcity, maybe we think about learning new skills to increase our income. Maybe we think about changing jobs to earn a higher salary or decrease our commute. In both cases, we are aiming to give
+
+---
+
+ourselves more of a resource, either money or time, and therefore to reduce the scarcity of those elements in our lives.
+
+When considering how to reduce scarcity, it’s equally important to consider what effects that reduction in scarcity might have. As in the example of lottery winners, we need to do a little second-order thinking and say, “Now that I have more money or time, what am I going to do with it?” It’s just as important to think, “If I do those things, then how does my life change?”
+
+Many seem to think that having a three-million-dollar net worth or a salary of five hundred thousand dollars would solve most of their problems. They are often surprised to find out that due to lifestyle creep (increasing your living standard to match a higher salary), many people with high salaries spend most of what they make and feel the same financial pressures as the rest of us. Whatever economic rung of the ladder you’re on, that cohort has its own financial cues, expectations, and mores. It’s about acknowledging that changes in one part of a system will often generate changes in another part.
+
+# Reducing the Scarcity of Information
+
+To help us understand just how far-reaching the consequences of reducing scarcity can be, let’s look at the abundance of information created by the printing press. Exploring moments in history like this is not the same as evaluating the control we have over our individual choices, and the changes wrought by the printing press were almost entirely out of the realm of being predictable by its inventor. But the printing press is an excellent example of how changing scarcity can have rippling consequences in areas you might not initially consider.
+
+Before it, manuscripts were hand copied by scribes. Manuscripts were also often written on parchment, and these two factors go a long way toward explaining why there was comparatively little written material around. Parchment, made from animal skins, takes longer to produce than
+
+---
+
+paper, and hand copying is time-consuming. Even if sufficient scribes could be hired to produce a manuscript in a few days, we can easily imagine how many copies a printing press could produce in the same amount of time.
+
+Information, before the printing press, was scarce. This scarcity meant that it required work for scribes to find manuscripts to copy. Christopher de Hamel explains that “the keeping, borrowing, begging, or hiring of exemplars [books to copy] was an important preliminary to the business of writing a medieval book.”4
+
+Further, hand copying inevitably introduced errors. Although many manuscripts display evidence of review, in that they contain corrections, it is a certainty that not all errors were caught. A scribe was lucky to have one text to copy; having two of the same, for comparison, would have been an inconceivable luxury. Because of the reality that hand copying risked perpetuating earlier errors while also introducing new errors, older texts often were more accurate. The scarcity of manuscripts also meant there was no way of knowing if more, better, or more useful information was out there. There was no index of all known works, no compendium of knowledge.
+
+People did not learn from manuscripts in the way we learn from books today. Manuscripts were not shared widely and thus were not considered a learning tool for the average person. Knowledge was shared verbally and directly. To learn how to do something, you had to be taught by someone who already knew. Most information was passed along orally, and on a need-to-know basis.
+
+The printing press caused a radical change in the availability of written information and its preservation and future utility. “After the advent of printing,” Elizabeth Eisenstein explains in her seminal work on the subject, “the transmission of written information became more efficient.”5 Scribes no longer had to wander in search of texts; copies of manuscripts were widely available. People no longer had to learn solely by being taught in person.
+
+These initial changes caused widespread ripples of change throughout Western European society. It’s impossible to cover all of them here, but let’s
+
+---
+
+look at a few. First, different theories and ideas could be compared and considered together for the first time. “Different texts,” Eisenstein explains, “which had been previously dispersed and scattered were also being brought closer together for individual readers.”6 Can you imagine the power of having so many ideas in one’s library? In scribal culture, you would have been lucky to have one book on mathematics. After the printing press, you could have multiple texts on a single subject, allowing for a more complete picture of the state of knowledge in a subject.
+
+The reduction in scarcity of information quickened the pace of developing new information. Putting different texts together highlighted inconsistencies and contradictions and inspired investigation and resolution. “An enriched reading matter also encouraged the development of new intellectual combinations and permutations…. And then, later on, the creation of entirely new systems of thought”7 were added to the pool of available information, Eisenstein notes.
+
+Second, new types of written products emerged. There was “the job-printing that accompanied book-printing. It lent itself to commercial advertising, official propaganda, seditious agitation, and bureaucratic red tape as no scribal procedure ever had.”8 This point is about the creation of structures that go with the creation of new products. More information meant new possibilities for communicating and using that information, which in turn created new categories of information.
+
+Take propaganda. By definition, propaganda involves wide distribution. It is targeted at the masses. Whether it’s leaflets, radio broadcasts, or internet memes, propaganda can exist only if there is technology to replicate it in sufficient volume to reach large numbers of people. Propaganda couldn’t exist in scribal culture; there wasn’t enough potential for reproduction and dissemination. The printing press allowed for a new type of written product, propaganda, that in turn supported the creation of organizations that could use it.
+
+Being able to trace the effects of the printing press on areas such as business possibilities, organizational development, and social structures.
+
+---
+
+shows us how widespread the impact of decreasing the scarcity of information was.
+
+Third, books offered educational independence. “There is simply no equivalent in scribal culture for the ‘avalanche’ of ‘how-to’ books which poured off the new presses, explaining by ‘easy steps’ just how to master diverse skills, ranging from playing a musical instrument to keeping accounts.” In The Printing Press as an Agent of Change, Eisenstein recounts many examples of how the availability of educational books undermined the guild system and changed the nature of apprenticeship.
+
+More information meant that students did not necessarily require teachers. This in turn put pressure on teachers to contribute something more to education than could be provided in books. It also meant that people could shop around to find lessons that interested them versus relying on what was available in their town. People could develop skills that didn’t exist in their area, thereby increasing the availability of a wide spectrum of services.
+
+Competition, therefore, also increased. Before books, if the local blacksmith didn’t want to take you on as an apprentice, you would likely be stuck unless you could move to another village. After books, assuming you were literate, there was at least the possibility of teaching yourself the basics (especially because the use of images also increased with the printing press) so that you could start your own blacksmith shop.
+
+Fourth, more people could participate in creating information. “Sixteenth-century editors and publishers…did not merely store data passively in compendia,” Eisenstein writes. “They created vast networks of correspondents, solicited criticism of each edition, sometimes publicly promising to mention the names of readers who sent in new information or who spotted the errors which would be weeded out.” This was an early form of crowdsourcing. Books were not the same as manuscripts; they were not something that was merely copied. They were analyzed, challenged, and developed. The printing press created the notion of an edition, the idea that a text would be updated as new information became available. Increased engagement with the printed word created a feedback loop that worked to
+
+---
+
+further reduce the scarcity of information. “After printing, large-scale data collection did become subject to new forms of feedback which had not been possible in the age of scribes.”
+
+Finally, underpinning all of these changes was the way preservation changed. Eisenstein writes, “Of all the new features introduced by the duplicative powers of print, preservation is probably the most important.” The printing press transformed the nature of preservation of written text, changing texts from something you tucked away for safekeeping to something you shared widely. Now, you preserved something by printing it on paper, many times, and sending it out into the world. “The notion that valuable data could be preserved best by being made public, rather than by being kept secret, ran counter to tradition…and was central both to early modern science and to Enlightenment thought.”
+
+Although we can imagine increased public information had all sorts of effects, one tangible outcome was the reduction of inefficiency. Knowledge being less scarce means it’s more accessible. Therefore, less effort needs to be directed at preservation: “Successive generations could build on the work left by sixteenth-century polymaths instead of trying to retrieve scattered fragments of it.”
+
+Printing meant that knowledge could be recorded in many places and be made accessible for future retrieval.
+
+When Johannes Gutenberg constructed his movable-type printing press, he could not have foreseen all the changes the invention would ignite. Not all reductions in scarcity will have the same impact. However, the more fundamental the scarcity being reduced, the higher the likelihood of widespread impact. This is the lesson for our lives. Time and money tend to be our two most fundamental resources, although there can be others. When you reduce the scarcity of a core resource in your life, the effects are likely to be significant. It is thus worth some effort to identify such reductions as they occur and plan for managing those changes as best you can. Abundance has its own consequences.
+
+---
+
+A wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.
+
+—HERBERT A. SIMON
+
+# Conclusion
+
+Scarcity shapes our choices and drives our actions. When something is scarce, it suddenly becomes valuable. We want it more because there is less. It’s the principle that underlies everything from the price of gold to the thrill of the hunt.
+
+Scarcity isn’t just about material things. It applies to time, opportunities, and ideas. It’s why we’re drawn to the exclusive, the limited-edition, the one of a kind.
+
+In economics, scarcity is a foundational principle. There are infinite wants and desires but limited resources. We can’t have everything, so we must choose. Scarcity guides those choices.
+
+Some businesses operate with a scarcity mentality, removing shock absorbers and operating lean, with just enough resources to produce the day’s goods. This model is prone to disruption with the slightest hiccup and signals to employees that they’re in a culture of scarcity, triggering our biological instinct toward self-preservation. We subconsciously hoard things of value to gain an individual advantage.
+
+Scarcity can work to your advantage. Imagine you’ve got a rare combination of qualities: you’re honest, hardworking, and smart. People like that are scarce, and the world tends to reward them disproportionately. It’s not just about being good at one thing; it’s about having a mix of traits.
+
+The key to navigating scarcity is understanding its power, recognizing when it’s driving our choices, and asking if those choices align with our true values and goals. Sometimes, scarcity creates real value. But sometimes, it’s just a mirage, a trick of the mind.
+
+---
+
+OceanofPDF.com
+
+---
+
+# Supply and Demand
+
+Scarcity drives price.
+
+OceanofPDF.com
+
+---
+
+We need each other to do things that we can’t do for ourselves. If we are intimately connected with each other, we just give things to each other; if we don’t know each other we find another way to handle it. If you think about it, each according to his or her abilities and each according to his or her needs is sort of the same thing as supply and demand.
+
+—DAVID GRAEBER1
+
+---
+
+Supply and demand describes how people manage the allocation of scarce resources by setting prices. If lots of people want something that’s rare, like the latest gaming console, the price goes up; if something’s plentiful and not many want it, like old smartphone cases, the price drops.
+
+The dance between supply and demand sets the rhythm for market prices. When demand outstrips supply, prices rise until the number of people who want something drops, decreasing demand. When supply outstrips demand, prices fall until more people want something, reducing excess supply.
+
+Supply and demand are actively stable; the two are never really at an equilibrium. The relationship between them is dynamic, always changing.
+
+The basic supply-and-demand curves are predicated on the assumption that no one agent can influence price—everyone, firm and individual alike, must work with the price as dictated by the market. But in reality, both supply and demand can be manipulated. Some firms are large enough, in terms of their market share, that they can affect supply. Thus, the total supply of something is not necessarily equal to the available supply; firms can create artificial scarcity to increase the perceived value of their product. A great example of this is luxury goods. Limiting the supply of a good so it can be sold at high prices can lead to greater overall income than selling a greater volume at whatever price the market agrees upon.
+
+Demand can also be manipulated. In The Origin of Wealth, Eric D. Beinhocker writes, “On the demand side, our preferences determine the relative attractiveness of products and services competing for our attention”—and those preferences can be easily influenced. Marketing can convince individuals to want something, or more of something, that they previously had little desire for. Marketing can also create demand for new ways to meet unfulfilled wants. Josh Kaufman notes in The Personal
+
+---
+
+MBA that “the essence of effective marketing is discovering what people already want, then presenting your offer in a way that intersects with that pre-existing desire.”
+
+Often, supply and demand are discussed in terms of one commodity, like shoes or pizza, but the reality is we have a variety of choices when it comes to supplying our demands. These choices create change and instability in markets; it’s part of how new businesses rise to challenge incumbents. Even though we may have a preference for orange juice over apple juice, our demand for orange juice can be filled by many different orange juice producers. On top of that, there are many ways to satisfy our thirst with substitutions like water.
+
+How supply and demand intersect in a world of choice was first explored by economists Joan Robinson and Edward Chamberlin, who wrote about “imperfect competition.” Marketing and advertising play a role in imperfect competition by convincing us to choose one brand of boot over another. The danger of a boot monopoly forming as the result of a successful marketing campaign is limited by the other boot manufacturers, who market their own products to slightly different audiences. Thus, there are enough players in the field that new boot sellers could enter the market. This reality of choice makes supply and demand nuanced. Although the demand for boots may stay static for a while, the fluctuating demand for different styles and brands creates movement and change in the boot market.
+
+Rarely can we demand that which we don’t know is possible. To twist the old quote, no one was clamoring for cars at the end of the nineteenth century; they were interested in faster horses. According to economist Joel Mokyr, most new technology throughout history was invented “if not randomly then in a highly unpredictable fashion.” Demand was thus probably not a major factor in what people invented or improved.
+
+We tend to not demand things that require no energy for their production. As economist Eric Beinhocker explains, “On the supply side, things with low entropy have value. By definition, things with low entropy are scarce and require energy, materials, and information for their creation.”
+
+---
+
+Entropy, as a reminder from volume 2, is a measure of disorder—the more ways things can be arranged, the higher the entropy. In the land of products, we see immediately that to supply something requires energy. The energy of nature, of individuals, and of machines are required to produce everything we buy; we would never value something that can exist without energy inputs of some sort. Of course, we tend to overvalue the results of human and machine labor, and undervalue the incredible energy required to grow a tree or an elephant or maintain an ecosystem.
+
+We often think of supply as fixed, believing that there is only so much to go around. But increased demand often leads to a larger supply pool: for example, of votes, doctors, and university degrees.
+
+The complexities of supply and demand highlight the impossibility of a central control of all economic production. Our consumption would have to be confined to a small handful of goods, and trying to plan in a way that met supply and demand would limit, if not eliminate, innovation.
+
+The model of supply and demand speaks to how complementary interests and competing interests intersect. In a traditional supply-and-demand graph, both the consumer and the firm have a complementary interest: one wants to buy, and the other wants to sell. But they also have a competing interest: one wants to pay the lowest possible price, the other wants to receive the highest possible price. The result is an economic win-win. The complexities of the model also illustrate how the win-win is vulnerable to interference.
+
+# Never Underestimate the Power of Demand
+
+Where there is demand, there is often supply. If there is a market for something—meaning people willing to pay—some enterprising person will try to serve it.
+
+It happens occasionally that people demand something that the larger society deems unacceptable to supply—think illegal drugs, jeans and other Western products in Eastern Europe under communist regimes, medical
+
+---
+
+Treatments banned in one country but available in another—so laws are created to try to prevent the transaction from taking place. A major challenge in these situations is that laws can only effectively target the supply side; they can try to stop certain goods or services from being sold in the marketplace. It is much harder to regulate the demand side, because ultimately, it’s impossible to legislate that someone no longer want something. Often, in situations where only the supply side can be regulated, underground markets are created. Demand still exists, and people operating outside the legalized market provide products to meet it.
+
+Throughout the centuries, there are many ways governments have tried to regulate the supply of sex work (and, less often, the demand for it). Looking at the history of prostitution laws through this model demonstrates the challenges of regulation and the power of want. Social attitudes toward sex work have changed across time and place, but in most cases, attempts to make the industry conform to prevailing social standards have focused almost exclusively on the supply side. Historically, where sex work has not been banned outright, regulation has involved confining sex workers to specific locations, specifying dress codes for them, and/or requiring mandatory health checks. These regulations target the people, mostly women, providing the sexual services.
+
+For example, in medieval London, historian Kate Lister writes, “prostitution was not illegal…but it was very heavily regulated, and the tactics deployed to control it were stigma and zoning.” Laws were passed requiring “harlots” to dress a certain way so they wouldn’t be mistaken for ladies, and brothels were mandated to be outside city walls, except for one central street, Cock Lane. “The extensive regulations governing life in the stews were intended to control the sex trade, rather than stamp it out,” but control always meant supply-side regulation.
+
+This type of regulation—stigma and zoning—has been (and still is) practiced in many countries. In seventeenth-century Japan, sex workers were divided into three categories based on the services they offered and confined to specific walled areas in a city. In eighteenth- and nineteenth-century France, sex work was meant to be confined to state-supervised.
+
+---
+
+brothels, and a program of public hygiene was instituted whereby women suspected of prostitution were detained and treated for venereal disease. Of course, as Kate Lister explains in her book Harlots, Whores and Hackabouts, “This approach did very little to help the women selling sex as no one was screening their clients.”6 Focusing on the supply side without having similar measures on the demand side meant that venereal disease continued to spread.
+
+There have also been times in history when an outright ban on sex work was implemented. “In 1259, the authorities of Bologna passed a statute that banished all sex workers from the city. Any woman caught selling sex was to have her nose cut off.” In China, after the rise of the Communist Party in 1949, sex work was made illegal, and the floating brothels that had served an international clientele were abolished. Sex workers were arrested and forcibly retrained.7
+
+Still, in all of these places, sex work did not disappear. In the case of China, “the communists were successful in forcing sex work underground, which only resulted in fewer rights for those selling sex.”8 Sex work did not disappear, because the demand for it didn’t go away. In the case of Italy, “by the mid-fourteenth century, Italy’s enthusiasm to eradicate sex for sale had been replaced with a grudging realization that this was just not going to work. Faced with the futility of abolition, a policy of legalized, municipally regulated prostitution was introduced.”9 Italy went back to regulating the supply side with restriction and stigma.
+
+In rare instances, countries have tried to deal with the health aspects of sex work by placing constraints on the demand side. In the late nineteenth century, the British Army “initially tried to control rates of venereal disease by mandating regular examinations of [its] men, but this proved to be very demoralizing and deeply unpopular.” Similarly, during World War II, “even the American war office realized that attempting to enforce abstinence simply did not work, and instead issued all serving men with condoms and launched a safe sex campaign, largely stigmatizing ‘fast women’ and ‘goodtime girls.’ ”10 Faced with the inability to regulate demand, these
+
+---
+
+militaries fell back on targeting the supply side with regulations (approved brothels) and stigma.
+
+The majority of the time, then, attempts to regulate the sex industry have centered on the supply side. But because demand cannot be regulated, these supply-side interventions have had little to no impact on the volume of the sex trade itself. Regardless of social norms or legislative preferences, “no attempt to abolish or control either the selling or buying of sex in our collective history has worked. All that happens when either the provider or the client is criminalized is that sex work is forced underground, creating opportunities for exploitation and abuse without recourse to legal protection.” The reason is simply that supply is created to meet demand.
+
+This example demonstrates how difficult regulation can be when one can tackle only one side of the supply-and-demand relationship. It also shows how powerful demand can be, as it easily creates large, robust markets outside of traditional governance structures.
+
+# Out of Thin Air
+
+Invention is the mother of necessity.
+
+—THORSTEIN VEBLEN
+
+Demand is not always a binary. Beyond whether you want something or not, how much of it you want forms your demand. You may prefer coffee and thus not have any demand for other caffeinated beverages. But among coffee drinkers there is a range of demand: How many cups a day? Black, or with sugar and cream? Americano? Espresso? Demand can get quite complex.
+
+A company that can provide you with one cup of black coffee per day is not going to be as competitive as one that can provide more options and higher quantities. But if all you know is the one cup you can get at your
+
+---
+
+local diner, how do you know you could live a life where you drink seven macchiatos a day? You aren’t ever going to demand that. But a company that can supply those macchiatos has a lot to gain by convincing you that you should.
+
+# 1. The Shift in Automotive Demand
+
+In the history of creating demand to encourage consumption beyond what anyone reasonably needs, the gold star goes to General Motors, which was able to shift automotive demand from a binary (car: yes or no?) to a continuous desire to have the newest car. When cars first hit the roads, it was Ford that was the industry leader. Ford developed mass production techniques that allowed the company to build more cars more cheaply, filling the binary demand for cars with the Model T. Model Ts were all the same, available in one color—black—from 1914 to 1925, and their design didn’t change for years. These characteristics allowed for extremely efficient production. Car ownership had been possible for only a few decades, and Ford and the Model T filled the early demand better than anyone else.
+
+# 1.1 GM's Strategy
+
+If it wanted to stay in business, GM had to figure out a way to compete. Instead of trying to outdo Ford in fulfilling initial ownership demand, Alfred P. Sloan, president of GM, decided to target people who already owned cars. He created demand by “getting existing car owners to upgrade.” Convincing people to want more of what they already had led to the birth of the car model year. “The GM president believed the company’s future depended on its ability to deliver a new look for each of its lines every year,” writes William Knoedelseder in his book Fins, “thereby enticing people to trade in last year’s model for this year’s new and improved version.”
+
+# 1.2 The Cost of New Models
+
+New models are not new cars. To put a brand-new car into a production line is significantly more expensive than simply changing the visual design elements. As Knoedelseder points out, “It didn’t take an automotive genius to see that restyling a car was cheaper than reengineering it.” For the most part, a new model of an existing car was relatively unchanged under the hood. People were essentially buying the same car; the only difference was in how it looked.
+
+---
+
+At the same time, in order for you to recognize that your neighbor has just purchased the latest Cadillac, it can’t be drastically different from the one sitting in your driveway that you bought two years ago. Increasing demand for visually updated cars “would only work if the cars were styled in a way that people found alluring, changing enough to make each year’s new model look distinctive, while also maintaining continuity with previous models and avoiding radical changes that might deter buyers.”
+
+GM’s head of design, Harley Earl, implemented a schedule of change, following the direction of Sloan to “stimulate the public’s appetite for new GM models without rendering the older models unpalatable in comparison.” To maintain the demand for new styles rather than, say, new capabilities, “Harley developed an ingenious process for delivering gradual, carefully planned change. He introduced major styling innovations…in the Cadillac, then passed them down in succeeding years to the less expensive makes.” This way, the higher-end products always had the possibility of attainment. The more often you traded in, the more often you could increase your status. The styling updates could give the owner of a new Chevrolet more cachet than an owner of an old Cadillac.
+
+Earl’s design cycles were precise. The design teams operated on a three-year cycle: Year One—new model; Year Two—facelift and freshen up; Year Three—restyle fenders, deck, and hood. “As a result, every GM sedan, coupe, convertible, and station wagon looked new and different every year,” writes Knoedelseder. And every year, thousands of people lined up to trade in their old models.
+
+What’s remarkable about this story is the idea of creating demand for a new version of something that offered no real increased value. The new model years didn’t work better; they didn’t run faster or have better performance. They just looked different. Buying a car one model year different from your own cost you money in exchange for no benefit other than a psychological one.
+
+In explaining the ethos of GM car designers, Earl once said, “Our big job is to hasten obsolescence. Since 1934, the average car ownership span
+
+---
+
+has gone from five years to two years. When it is one year, we will have a perfect score.”20
+
+Sure, over time, car performance has improved. But GM helped condition people to not wait for technology to develop or functionality to fundamentally change. People trading in their new cars so often because of the availability of a different front grille or paint options meant that engineering could move much more slowly.
+
+It’s possible that GM’s reliance on style to drive sales contributed to its eventual significant loss of market share. Although some in the company wanted to make drastically different cars in the wake of World War II— notably, smaller ones, like those available in Europe—GM’s management stayed committed to the trends it had created: more chrome, more flash, more accessories, ubiquitous fins. The success of American Motors, and then of Volkswagen, in selling smaller cars with limited style changes thus came as a surprise to the company.
+
+In the mid-1950s, “industry writers and critics [began] questioning the practice of annual model change.”21 It started to look less like innovation and more like manipulation. Admittedly, this is a tough line to navigate. Companies exist to make a profit; without profits, they die. But demand cannot grow forever. Buying a new car every year may be effective in terms of short-term profit, but it’s inefficient in terms of resource consumption. If everyone buys a new car every year, what happens to all the used ones? And, as we now well understand, the resources needed to manufacture cars are finite. There is no world where a company can make a new car for every person on the planet every year forever. For every action, there is a reaction.
+
+There is no doubt, however, that GM’s development of the model year and its impact on the demand for cars was pivotal in terms of how products are marketed. They helped create the world of the upgrade, where the question “Does it still work?” is less important than “Does it still look good?” and “What am I signaling about my status by owning it?”
+
+---
+
+# Conclusion
+
+Supply and demand are the push and pull determining availability and price. Their dance is never-ending. A sudden shortage can send prices soaring; a new discovery can send them crashing.
+
+But supply and demand aren’t just about price; they’re also about allocation. They determine who gets what, and how much of it. When supply is low and demand is high, resources flow to those who are willing and able to pay the most.
+
+Markets react to supply and demand. When demand exceeds supply, it encourages investment by companies to create substitutes or more supply. On the other hand, when supply exceeds demand, it discourages investment until a profitable balance is restored.
+
+Economic cycles are driven as much by human nature as by resources. When profits are flowing, it encourages overconfidence, greed, and complacency. When profits are nowhere to be found, it encourages fear, savings, and ruthless efficiency.
+
+As individuals, we’re all part of this dance. Every choice we make as consumers and every decision we make as producers shapes the contours of supply and demand. We are the market, collectively determining what has value and what doesn’t.
+
+Next time you’re at the store, or negotiating a salary, or launching a product, remember the forces at play. You’re not just a passive participant but an active agent in the dance of supply and demand. Your choices matter. Make them wisely.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Game Theory
+
+ECONOMIC ACTIVITY IS PRIMARILY BASED on the decisions made by individual actors and the ways their decisions impact other parties. Game theory is a mathematical means of modeling how different decisions made by agents lead to different outcomes, with particular focus on interactions and how they lead to benefits (payouts). The field is useful for understanding economics, but it can also be applied to other fields such as biology, military strategy, and psychology.
+
+From a single mathematical model of a game, we can draw insights about a wide range of real-world situations wherein people seek the best possible payouts for themselves. Games aren’t predictive, but they can help us see the mathematical underpinnings of our decisions, stripped of distracting detail.
+
+---
+
+Optimization
+Perfecting the possible.
+                   OceanofPDF.com
+
+---
+
+The most important optimization is to do the right thing. A close second is to do the thing right.
+
+—JON BENTLEY
+
+---
+
+If economics is defined as the study of how people allocate scarce resources, optimization is crucial for considering how and why we make allocation decisions. Optimization is like finding the best way to pack your luggage so that everything fits. In economics, it’s about making the best use of resources, like time or money, so you get the biggest benefit or profit with the least waste. It’s all about achieving the smartest balance for the best result.
+
+Many economic theories assume that people will always seek to gain the maximum possible benefit from deploying their resources. It is a fundamental assumption to understanding economic behavior that people “do the best for themselves given how much money they have and how much things cost.” Of course, everyone has a different optimization formula, because everyone places different values on things. And we’re never optimizing in only one dimension. We may want to make sure we get a certain value when we spend money, but not at the expense of the poor use of a portion of our time. That balance, however, is subjective: for some people, spending an hour to save a dollar is a valuable use of their time, while others would rather forgo the dollar than lose an hour in which they could pursue other activities. Companies also optimize in multiple dimensions. Yes, they tend to seek to use resources in a way that maximizes their profits, but they often also simultaneously seek to optimize factors like employee satisfaction or brand reputation.
+
+The concept of optimization comes up in many different fields, because in all areas there is something we want to optimize. Businesses want to optimize their supply chains; coders want to optimize their algorithms. There are also many explorations of optimization in mathematics, which usually seek to describe how one can optimize in a particular situation (we covered one of them in the global and local maxima chapter of The Great).
+
+---
+
+Mental Models, volume 3). In biology, as well, we can trace through evolution how different species have optimized for their environment.
+
+Some economists postulate that the economy, far from ever being in or even nearing equilibrium, is itself an evolutionary system.3 For businesses to survive the evolutionary pressures the economic system places on them, they must be able to adapt. When we consider optimization using an evolutionary model, we immediately see a dynamic component: you don’t reach optimal capacity, then stop. Optimization requires ongoing experimentation and adjustment. It always involves risk, because the environment isn’t static and there are always new combinations to try. Optimization is not like choosing from a menu with all options defined, available, and constant. There are also temporal divisions within the concept—short-term and long-term optimization—and they often require taking different paths.
+
+It’s worth it, here, to dive deeper into the idea of optimization in biological evolution, because there are clear parallels to economic actors. If evolution would eventually produce organisms perfectly optimized to their environment, then why do species go extinct? Although there are multiple reasons for extinction of species, one is an inability to adapt when the environment changes. Say a species of insect has developed a feature that allows it to be the only one to drink the nectar of a certain flower. This strategy is so successful that the insect consumes nothing else. If that flower dies off because it can’t survive the increasing global temperatures caused by climate change, then that insect species will very likely die off as well. When the environment is stable, being the only one to access a food source is great—you have no competition. But when the environment changes, that optimization becomes a liability.
+
+Companies face an analogous conundrum. If they optimize for the current environment and are successful, they could corner a market and have great success. But when the environment inevitably changes, they may not be able to adapt, because the market for the products and capabilities they’ve developed has disappeared. For companies to adapt and evolve, they need to keep some options open. But keeping options open means
+
+---
+
+diverting resources away from immediate needs—choosing to optimize not for the moment but instead for the ability to stay around and play the long game. As Eric D. Beinhocker explains, for businesses, there is a constant tension between “how much should be invested in executing for today versus adapting for tomorrow.”
+
+When it comes to individual choice, we all have our own optimization criteria. And this changes over time. What’s important to us now may not be important to us ten years from now.
+
+Knowing that our needs and desires change can inform our evaluation of what is optimal. For example, spending a lot of money on a fancy car might be optimal today because of the associated status boost you receive, but spending more than necessary on cars may lead to a narrower range of choices when you need to move into a retirement home several years from now. So, factoring my optimal retirement into how I optimize today will inevitably lead to different choices in how I spend my resources.
+
+Furthermore, in a novel economic situation, we cannot predict what might be optimal. We have to experiment and frequently try multiple optimization formulas. Like companies, we also have to take risks, because our environment changes. When we take the concepts behind optimization in evolution and apply them analogously to the much smaller timescales of our lives, we see that seeking the optimal contains the necessity of ongoing adjustment in reaction to environmental changes. Our optimization formulas usually change when we have kids or switch careers. We are also likely to update them in response to situations like recessions, pandemics, and wars.
+
+Our optimization efforts involve trade-offs 100 percent of the time. We do not get everything we want. We exchange our incomes for goods and our time for experiences, and we negotiate all of these decisions within a complex web of billions of other people who are pursuing their own optimization formulas. One way to think about optimization is that, as Beinhocker writes, “human beings will seek their maximum happiness state within the constraints of their finite resources and will trade their way to get there.”
+
+---
+
+Because we all have different optimization formulas, it’s very hard to evaluate others’ choices. Beware of judging others for making suboptimal decisions if you don’t know what they’re optimizing for. If you saw the world the way they see it, you might make the same choices they are making.
+
+A final note on optimization is that exercising choice presupposes having those choices, which isn’t always true. Not all economic agents have the same choices available to them, even if they have the same amount of money. Culture, laws, and social norms have a huge impact on the range of options for optimization.
+
+The set of choices that individual and collective agents face, however, is far more complex than that implied by economic models of utility maximization that assumes perfect information, exogenously given preferences, and sovereign self-interest.
+
+—NANCY FOLBRE
+
+# The Foundations for Optimization
+
+In evolutionary systems, history matters; where you can go in the future depends on where you have been in the past.
+
+—ERIC D. BEINHOCKER
+
+You can only optimize based on your foundation. When trying to optimize your purchases, for example, you can only use the money you have to buy what’s available. If you’re currently employed in the service industry, and it collapses, you can’t just go be a carpenter tomorrow to better optimize for the changing job market. Some training will be necessary, because you don’t have the foundation for carpentry. Thus there are constraints on optimization.
+
+---
+
+In The Bare Bones, paleobiologist Matthew F. Bonnan charts vertebrate evolution. A critical point in the eventual evolution of humans was when vertebrates left the ocean to explore land. In order to be successful on land, extensive evolution of the vertebrate skeleton first had to take place. Consider that “water is eight hundred times denser than air…. On land, gravity is a much more powerful force…. Resisting gravity and moving under its force led to selection of fewer, sturdier bones and strengthening of the skeleton.”8 The changes were numerous. Some vertebrates developed longer snouts or more dexterous tongues, and necks evolved for the first time. New joints developed to support the spine, so it didn’t get pulled down in the middle by gravity in animals walking on all fours. Eyes dry out on land, so evolution produced and selected for tear ducts and eyelids. There were changes for breathing in the atmosphere and to help creatures better cope with a greater daily range of temperatures.9
+
+The most fascinating part of this process, however, is that evolution could only work with what it already had in existing vertebrates. Animals slowly optimized to function on land, but that optimization was achieved by evolving from the foundation they had developed in the water.
+
+Here is a great example. Sound travels more slowly and over shorter distances, and loses intensity faster, on land. So for the vertebrate species coming out of the ocean, “a way must be found to convert the high-frequency vibrations of the eardrum into pieces strong enough to overcome the viscous fluid of the inner ear.” Modern tetrapods (land vertebrates) solved the problem by adapting a part they already had, the hyomandibula, into a sound transducer through a complex process of adaptation in skull structure.10
+
+If you were designing a land vertebrate from scratch to be optimally suited to its environment, would you choose and organize these parts in this way to produce sound for the brain? With a total blank slate, probably not. There are likely more effective and powerful structures you would use. But evolution is a process of continual optimization that can only work from what it’s already got.
+
+---
+
+The concept of being constrained by your existing foundation applies to companies as well. That doesn’t mean that companies have to keep producing the same goods or services in perpetuity, but it does mean that they evolve from their existing infrastructure. A company that prints books today cannot make vaccines tomorrow. It can, however, look at what it currently has and identify what and how to evolve to optimize its business in a changing environment.
+
+One company that has experienced and worked within the constraints of an existing foundation is Nintendo. An incredibly successful Japanese company, Nintendo is an example of how ongoing attempts to optimize are constrained by your immediate past.
+
+Nintendo started in 1889 as a shop that manufactured and sold playing cards decorated with colorful flowers to gamblers. Within five years, writes Jeff Ryan, it “had craftily shifted over to the toy market to capitalize on [its] existing distribution route for cards.”11 When longtime president Hiroshi Yamauchi took over from his grandfather, in 1949, he “tried out various new business models—rice, taxicabs, ‘love hotels’ rentable by the hour. None clicked until he decided to utilize his network of card and toy shops.”12 Nintendo found it easier to optimize using the foundation it already had.
+
+Later, Nintendo built on its gaming foundation. It developed arcade games and small, portable electronic games that could run off watch batteries. It was very successful in Japan in both of these endeavors. In the early 1980s, Nintendo wanted to grow further by breaking into the lucrative American market. It started with what it knew, what it was already good at: arcade games. The first, and soon massively successful, Nintendo game in the United States was Donkey Kong. Early Donkey Kong arcade games were actually a rewire of a bunch of old shooter games that Nintendo couldn’t sell, which were repurposed and reprogrammed. Donkey Kong was everywhere, and it gave Nintendo a solid presence in the United States.13
+
+Donkey Kong is notable in the story of Nintendo for another reason, though. The game included the first appearance of the Mario character—albeit not with all the details that would come later. But Donkey Kong set
+
+---
+
+The foundation, the beginning of Mario’s becoming the Nintendo mascot. He began to appear as a side character in many Nintendo games and eventually became a critical component of Nintendo’s first home gaming system, the Nintendo Entertainment System (NES).
+
+Going forward, Nintendo found it hard to break away from its foundation. For example, the company tried a couple of educational games, but “after swinging 0 for 2, Nintendo gave up on the NES being a learning machine.”14 There was no technical reason for the games’ failure. The NES was technically a computer, and computers are now a ubiquitous part of learning. But Nintendo was constrained by its “games as entertainment” foundation. People saw their function as games and didn’t support the attempt at education. In a sense, the consumer performed a natural selection function and did not select for any of Nintendo’s attempts at something different.
+
+In the quest to optimize, foundations can be both a burden and a source of opportunity. For Nintendo, the gaming image restricted the company in terms of developing new product lines, but it allowed them to define the key electronic gaming experience: fun. Nintendo is still a very successful company, continually figuring out how to leverage its heritage and capabilities to entertain people. Building on what you already have, evolving from there, is one way to optimize.
+
+---
+
+# Utility
+
+All men know the utility of useful things; but they do not know the utility of futility.
+
+—ZHUANGZI15
+
+In economics, utility is defined as the underlying reason for a person’s choice. Jeremy Bentham coined the term and argued that “the pursuit of self-interest [is] a rational activity based on a calculus of pleasure and pain.” It is this calculus that he aimed to cover with the concept of utility.16 Utility, then, is a broad, general concept that aims to capture why people make the choices they do in how they buy.
+
+There is thus a relationship between utility and value, in two ways. First, a product or service’s utility is what makes it worth paying for (i.e., gives it value). As Karl Marx put it, “Nothing can have value without being an object of utility.”17 Second, something’s utility is tied to what we value and varies from person to person.
+
+To the first point, regarding quantifiable economic value, something’s utility indicates what people might be willing to spend on it. Utility is directly related to how much things cost—or, as Thomas Edison put it, “Anything that won’t sell, I don’t want to invent. Its sale is proof of utility, and utility is success.”18 If people are willing to allocate some of their finite money for what you sell, then by definition, they expect it to maximize the utility of their expenditure.
+
+The usefulness of additional units of any good tends to vary with scale. Marginal utility allows us to understand the value of one additional unit, and in most practical areas of life, that utility diminishes at some point. On the other hand, in some cases, additional units are subject to a critical point where the utility function jumps discreetly up or down. As an example, giving water to a thirsty man has diminishing marginal utility with each additional unit and can eventually kill him with enough units. Utility as traditionally conceived thus contains its own end. As Eric Beinhocker writes, “Diminishing marginal utility keeps consumers from consuming an infinite quantity of donuts.”19
+
+It becomes trickier when we start thinking about something’s utility in terms of what we value. For example, why do I choose tea over coffee? Because tea has higher utility for me. This utility can be explained in a number of ways and is
+
+---
+
+Usually a combination of many factors. Maybe tea is cheaper, so I can afford more of it. Maybe the pleasure I get from the first sip in the morning is one of the best moments of my day. Maybe drinking tea is an activity I can do with others who have similar tastes. All of these reasons add up to me placing a higher value on tea than coffee. Given the choice between the two, I will choose tea due to its higher utility for me.
+
+However, our perception of utility is also influenced by what society considers useful or valuable. While some expenditures are survival necessities, if you’re reading this, you probably have income to allocate on the basis of different kinds of utility, such as how it reinforces your identity. Utility, then, is also influenced by marketing, which is often about connecting intangible benefits to products. My tea drinking may be influenced by cultural stereotypes that suggest intellectual people drink tea (if I consider myself an intellectual) or persuasive advertisements that convince me I will have anything from more energy every day to less of a negative impact on the environment (if I value those things).
+
+One common criticism of utility is that it is too broad a term to have real explanatory powers. Julie Nelson discusses the limitations of utility by saying that in traditional economics, the utility one gets from having children is comparable to the utility one gets from eating ice cream. Juxtaposed like this, it seems absurd to treat utility as a simple unit of measurement. “People in households act from a variety of motives and are organized in a variety of complex ways,” Nelson writes. “People face real dilemmas in their choices about where to work, what to purchase, how to form their families, and how to participate in public decisions. ” Often, the decision leading to the most utility isn’t clear, and really, the things that provide us utility are often complex and unique to us.
+
+Therefore, when considering utility and the associated light it shines on value, we need to remember that not all of the things that satisfy our wants have a price tag or even can be priced.
+
+---
+
+# The Tools of Optimization
+
+If optimization is “the action of making the best or most effective use of a situation or resource,” then an obvious question is, How do you know what you’re doing is most effective? You need some way to measure.
+
+Measurement comes in many forms. It can be something as informal as reflecting on two different experiences and evaluating which one felt better. Most often, measurement means statistics: investing with firm A brought 5 percent returns, while with firm B the returns were 7 percent. Maybe shopping at grocery store X is about fifty dollars cheaper per week than grocery store Y, or commuting on route 1 is ten minutes faster than route 2. If we only have four free hours in a day, we may want to spend a maximum of only one of them at the gym. The truth is, we tend to optimize only what we can measure. It stands to reason, then, that what we optimize for is influenced by the tools of measurement we have.
+
+When humans first started spreading around the planet, there was no clock time. We experienced the arrow of time through occurrences such as the setting and rising of the sun and the growth of children. But there was no concept of looking up at the sky and saying that it was 3:00 p.m. and that the sun would be setting in four hours and forty-five minutes. It’s hard to know what optimization looked like for early humans, but making the most effective use of resources possibly was measured in ways such as, “Does everyone in the group have enough food?” or “Is this location close enough to water sources that I can be back in my shelter before dark?” Making the most out of one’s day was measured by the likelihood of survival.
+
+The invention of clock time led to, among other things, a new vector for optimization. We could now know how many hours were available to us every day, we could measure how many of those hours we spent farming or praying, and we could watch their passage no matter what we were doing. The passage of time ceased to be something that happened in the background. It was codified into clock time and had great impact on how we organized our day.
+
+---
+
+In Verona, in the year 507 CE, the Gothic leader Theodoric erected a large tower just outside the city walls that housed a water clock. Set to the sun, this was an acoustic clock that auditorily announced the passage of time to the citizens of the city. In *About Time*, David Rooney writes, “Theodoric himself explained the purpose of the clock: to let the people of Verona ‘distinguish the various hours of the day and thus decide how best to occupy every moment.’” The clock helped the people of Verona optimize their time by reminding them of the pace at which it was passing.
+
+Now, humans could know how much time they were spending on any particular activity. Instead of, say, the question of farming wheat versus cows being evaluated solely on survival measures, with the advent of clock time it was possible to measure precisely how long each activity took and to compare the time investment involved with the outputs produced.
+
+Clock time allowed us to measure our productivity in more precise units. Thus, it also became a feedback mechanism, notifying us when our productivity had increased or decreased.
+
+Once time could be measured, that measurement was here to stay. Clocks got smaller, cheaper, and more ubiquitous, until people could have personal timekeepers of their own. Awareness of clock time became part of life, so much so that most of us probably don’t think about it anymore. However, fundamental inventions that change how society is organized tend to have unplanned effects. In this case, “with clocks always in view, we started buying into the idea that time could be wasted.”
+
+This shouldn’t surprise us. After all, “deciding how best to occupy every moment” of time means that some occupations are deemed better than others. And being able to measure how long it takes us to do anything means that some occupations are more efficient than others. So if it’s possible to be productive with our time, that suggests it’s also possible to be unproductive with our time.
+
+Notions of productivity tend to be culturally and socially driven. The phrase “time is money” became famous after it was used by Benjamin Franklin in 1748. One way to determine productivity was to measure how much money you were making in a given unit of time; an activity that
+
+---
+
+made you one dollar in an hour was more productive that one that made you nothing. Other thinkers spoke more about how much one saved per unit of time. For example, Rooney notes, some thought that “by carefully measuring and using the time that had been given to us—by being disciplined, by restraining our excesses—we would be living virtuously.”24 In both cases, how time was considered best spent reflected what was most valued.
+
+Clock time didn’t standardize time’s value; it only helped us measure it. This continues to be a conundrum that is resolved differently depending on the interpretation of how best to use clock time, an interpretation that’s usually culturally inflected. For some people, a walk in a forest is a waste of time that could be spent producing something useful; for others, walking in nature is a valuable use of time that makes life more meaningful.
+
+As clock time became more and more precise—able to be measured in minutes, then seconds, then nanoseconds—more options for optimization opened up. Global positioning systems (GPS) are essentially satellite clock systems that allow us to optimize our driving routes. Fitness watches provide all sorts of data measured over time (steps, sleep, heartbeats) that gives us the information to fine-tune our days to optimize whichever health vector we choose.
+
+Right from the first sundials through hourglasses, pocket watches, and atomic clocks, embedded within the notion of clock time is precision. As clocks have developed, our ability to mark time has become more precise. One way we’ve used that precision is to measure more and more of what we’ve done, to optimize what we’re going to do.
+
+Clock time is now so ubiquitous that most of us never go for very long without knowing what time it is. Clock time is what tells us when to start work, to pick up our kids from school, to meet friends. In many cases, it’s also what tells us when to eat and sleep. Clock time structures our days, and there is no longer any way of getting away from it. Planes fly, stock trades get processed, billions of deliveries get made, all because of clock time. Even many of our laws are based on clock time. The synchronization needed for our world to work depends on standardized clock time.
+
+---
+
+Because it’s so available, clock time is a go-to measurement when we want to optimize: we know we’re better at something because we can do it faster or because we see rising outputs in a certain time frame. Even spending time with people we love becomes optimizable by the very notion that we can track the time we spend. There is no value judgment here about clock time being a tool for optimization. Most of us make allocation decisions every day; better tools help us make better decisions. But sometimes, it’s just as important to remember that just because you can measure something doesn’t mean you need to optimize it. Some of the most valuable things in life are intangible.
+
+# Conclusion
+
+Optimization is about making the most of what you have. It’s like solving a puzzle in a clever way, finding a trick to skip steps and get to the answer faster.
+
+In a world of scarcity, optimization is powerful. It allows us to make the most of our limited resources, whether that’s time, money, or energy. But like any tool, it’s only as good as the hand that wields it. Used wisely, optimization unlocks hidden potential and drives extraordinary results. Used poorly, it leads to wasted effort and missed opportunities.
+
+Optimization often works for you until it doesn’t. It’s like the student who writes the answer but doesn’t show their work. Knowing when to use it, when to let it go, and when to avoid it entirely can give you a key advantage.
+
+OceanofPDF.com
+
+---
+
+# Trade-offs
+
+Reward
+
+2
+
+The cost of a benefit.
+
+OceanofPDF.com
+
+---
+
+Economics teaches you that making a choice means giving up something.
+
+—RUSS ROBERTS
+
+---
+
+Everything is a trade-off. To allocate scarce resources and meet our needs, we must make trade-offs. Choosing one course of action means giving up numerous things. Going to a party with one friend means you can’t go to the movies with another on the same night.
+
+A trade-off is any situation where making a choice means we must forgo something else, usually some kind of benefit or possible opportunity. Investors trade off risk and reward. Doctors balance a drug’s potential to help with the possible harm of its side effects. Parents choose between their kids’ momentary happiness and their long-term well-being. Customer service departments in fast-growing companies must make trade-offs between hiring new employees fast enough to keep up with the growing demand for support and taking the time to train everyone to handle support requests appropriately. Students face trade-offs between continuing their studies and getting a job. Whatever you spend your days doing, it involves trade-offs.
+
+For example, buying unassembled furniture is usually much, much cheaper than buying premade. The company producing it can ship far more items in the same space and doesn’t need to pay for labor or machinery to put it together. Also, for the consumer, it can sometimes be taken apart for transportation when moving house, again resulting in cost savings. The trade-off is that you need to spend time building it yourself and deal with associated risks, like striking your thumb with a hammer or spending an hour figuring out where to put that last screw.
+
+All choices mean making trade-offs because they involve finite resources. We make trade-offs based on what we value the most. Someone with lots of free time but scarce funds may prefer unassembled furniture because it’s the best way of allocating their resources; someone with more
+
+---
+
+money but less time may opt for premade because it’s the best use of what is available to them.
+
+We also make trade-offs based on alternatives and opportunity cost. Someone who moves to the suburbs to save money increases their commute time. If the alternative use of the time spent commuting would be to earn significantly more money, it could be a very expensive move indeed.
+
+Given that our time is finite, the opportunity cost of your time should increase every year. When you are young, it might make sense to trade time for money by moving to the suburbs or assembling furniture, but as you get older, these trade-offs become more expensive.
+
+The optimal course of action is to choose the path with the greatest net present value—after considering all things, whether they are seen or foreseen. Making trade-offs involves opportunity cost.
+
+OceanofPDF.com
+
+---
+
+# Opportunity Cost
+
+Trade-offs go hand in hand with the concept of opportunity cost. Every yes is also a no to something else. The opportunity cost of a decision is the potential benefit of the best forgone alternative choice. Every choice we make, every action we take, comes with an unseen price tag: the value of the opportunities we forgo. Sometimes those opportunities are immediate and sometimes they are in the future. Sometimes they are easy to quantify and sometimes they are hard to quantify.
+
+Opportunity costs are often invisible. We see what we choose but not what we lose. Opportunity cost may be financial, but not always; it can include more nebulous costs like satisfaction or love. Consequently, opportunity costs are often hard or impossible to measure. It takes a disciplined mind to weigh unseen costs against visible ones.
+
+Opportunity cost is the ghost of the path not taken. As Robert Frost so poignantly illustrates in “The Road Not Taken,” we can never truly know what might have happened if we took a different option. This is the core challenge of factoring in opportunity cost to our decisions. For instance, a chain coffee company may face a choice between developing a new product to release or improving its existing products. If it funnels time, money, and other resources into the new product—say, a fizzy iced coffee—the venture may be a great success. Or, the new product may distract from the company’s existing offerings, and the company may lose customers who switch to other brands that continually improve their coffees. But whichever path the company takes, it cannot know for sure what the outcome of other available choices might have been.
+
+We can make better choices by learning to consider opportunity costs. Often, we choose things without evaluating them against the best possible alternative. While we can’t perfectly weigh up every detail of our lives, a general awareness of opportunity costs can highlight the notion that some things are far more expensive than they seem.
+
+Opportunity costs invite us to consider the full implications of our choices, to weigh the trade-offs with eyes wide open. They’re a reminder that life is a series of forks in the road, and every step we take is a step not taken on another path.
+
+---
+
+Changes in the associated trade-offs of a particular decision can lead to large-scale changes in groups of people. For example, over the last century, more employment opportunities have become open to women in many countries. This is believed to be one reason for dropping birth rates; time spent caring for children now carries greater opportunity costs for women due to the forgone income.2
+
+If we don’t know what we value the most, we can’t be sure we’re getting the most out of the scarce resources we have available, like our time and money. When we know what we value and what we want to get out of life, we can pick the paths that offer the most of what we want. The irony here is that those who know how to make trade-offs can get so much more out of life than those who try to get everything. When we look at other people, we often end up getting the impression that they are managing to do everything: they are fantastic parents, their relationships are novel-worthy, they look amazing, their careers are epic, they get enough sleep, and they feel good all the time. This, however, is usually far from true. We’re just not seeing the hidden trade-offs they’re making.
+
+Trade-offs can take awhile to become apparent; they sometimes only show up in the long term. Someone who eats a chocolate bar today will not become unhealthy tomorrow. Someone who eats a chocolate bar every day, however, will eventually see effects on their health. Just because the consequences do not happen immediately does not mean they don’t happen. We also see this in complex adaptive systems: try to optimize one area, and there’s likely to be a price elsewhere. Sometimes it’s an obvious negative equation, as when steroid abuse leads to organ damage or when a fancy house masks crippling debt. But often, trade-offs are hard to evaluate. Choosing monogamy means you forgo other romantic partners, and many parents sacrifice career advancement to raise their kids. We all have to make sacrifices to be able to invest in what is important to us. Trade-offs imply that to get really great at a few things, you have to accept being mediocre at a lot more. Picture a dog pleading for someone to throw its toy but not wanting to let go of it in the first place. That’s a good representation of wanting to attain something without paying the price for it.
+
+---
+
+Each of the myriad decisions we make on a daily basis involves trade-offs. If we don’t consider them, we easily find ourselves stuck in situations where we’re forgoing things we’d rather prioritize. We end up lamenting what we’re missing out on against our will, unsure how this happened. But if we first consider the trade-offs associated with the decisions we make, we can end up with far more satisfying choices. According to Paul Dolan, professor of behavioral science at the London School of Economics, “The fundamental reason why most of us aren’t as happy as we could be is that we allocate attention in ways that are often at odds with experiencing as much purpose and pleasure as we could.”
+
+Although all choices in how to spend a resource, be it time or money or something else, involve trade-offs, there are certain factors that influence how and whether we evaluate those trade-offs. In their book Scarcity, Sendhil Mullainathan and Eldar Shafir argue that it is critical to put trade-offs in the context of slack. Slack is simply having enough of a resource that you can easily handle an unexpected demand on it. Having slack in your income means that you can easily absorb emergency expenses such as a new car battery or roof repair. The more slack we have in resources, the less critical trade-offs appear in our calculations.
+
+Trade-offs are thus relative to the overall amount of a resource we have. For someone with a lot of income slack, spending ten dollars on a latte is no big deal. Yes, technically, there is a trade-off, because that ten dollars now cannot be spent on something else, but the person still has enough money to buy much of what they want. As Mullainathan and Shafir explain, “With slack, we do not feel compelled to question how really useful an item will be…. Since slack frees us from trade-offs, it licenses us to buy items that on their own, devoid of any other considerations, have some appeal.”
+
+However, to someone with no income slack, considering the trade-offs involved in spending ten dollars on that latte is much more critical. It may very well be a choice between that latte and dinner.
+
+A general awareness of the existence of trade-offs can highlight that some things in life are more expensive than they seem. Getting what you want can be a matter of being good at knowing what to give up.
+
+---
+
+# Trade-offs Are Everywhere
+
+If you look around the world and consider the decisions that people have to make, you will see trade-offs everywhere. It’s very rare that we are in situations of such total resource abundance that making one choice will not take some other choice off the table.
+
+Consider designing a building—a situation that is fraught with trade-offs. All construction must consider trade-offs, because there is no way any particular building can have and be everything everyone wants. We must answer questions like: Who are we designing for? What is the purpose of the building? What kind of functionality does it need to have, now and in the future? These kinds of questions will force us to make choices, some of which take away other options. For example, durability and cost are often two competing parameters. “If we make the structure too weak, we may save weight and money, but then the chance of the thing breaking too soon will become unacceptably high,” writes J. E. Gordon in Structures. On the other hand, “if we make a structure so strong that, in human terms, it is likely to last ‘forever’—which is what the public would like—then it will probably be too heavy and expensive.” The useful trade-off is: cheap enough to get built now, durable enough to last some useful amount of time. We make, for example, a wood-frame house so that it is affordable for more people immediately, but we trade off the durability to have it last for untold generations.
+
+Some people still build stone houses, bunkers, and other dwellings that are meant to last beyond a couple of generations. People evaluate trade-offs differently, so although trade-offs are often objective (such as certain materials impacting the amount of time a building is likely to be usable), they can sometimes be subjective (such as the value of living close to work or family, or buying in an older building that has historic appeal). When it comes to buildings, “There are no ‘optimal’ solutions applicable to all projects. Solutions can only satisfy certain people at certain times.” That’s why all houses aren’t the same. We all weigh each decision factor in construction uniquely, in accordance with our needs, resources, and desires.
+
+---
+
+Let’s break down cost versus longevity in construction a little more.
+
+Bundled in with the idea of longevity is adaptability: Can your building adapt with the times? In a practical context, answering this question might require looking at something like occupant capacity. If we are designing an office building for today, and our organization has one thousand employees, should we design for exactly that amount? What if we grow? What if a recession hits? How adaptable can we be without creating too much waste or driving up the initial cost too much? If we design for two thousand employees, there’s going to be a lot of empty space at the beginning, unless we can figure out some productive but temporary uses for it. But then we have to design for those too.
+
+The number of trade-offs we have to make in a situation like this can seem overwhelming. So, another lesson about trade-offs is to not consider them so extensively that we get into analysis paralysis.
+
+Take adaptability in building construction. Some factors are likely to make a building more adaptable, such as space that can be reconfigured and materials that will withstand a range of environmental changes. Adaptability, though, does not need to be (and cannot entirely be) planned. We humans are fairly adaptable ourselves, and if the structure is still standing and its condition is sound, we’ll probably be able to find a use for it. The Parthenon started as a temple to the goddess Athena. In its 2,500-year history, it has been a church, a mosque, and a storehouse for munitions. None of these uses was intended by its original designers, but the Parthenon has proved highly adaptable.
+
+This discussion of adaptability leads us to another complexity of trade-offs: they are not always easy to identify and quantify. The costs of one material versus another are clear, but the trade-offs between functionality and enjoyment of a space are less so. Furthermore, any built structure is “highly contextual, responding to constraints specific to geographic location, built environment, the immediate site, occupant characteristics, and the availability of resources.” Thus, trade-offs are not two-dimensional; often many dimensions have to be considered. If we innovate in a building’s design to keep future costs down or increase future
+
+---
+
+adaptability, what effect do we have not only on structural utility but on ongoing maintenance? A great design may cost less in the building phase but require expensive upkeep. Certain functions may be sustainable but impact the enjoyability of the environment or limit the building’s potential uses.
+
+It is therefore important to realize that in reality, trade-offs are not usually a simple “item A or B but not both” equation. They tend to be more complex: If this, then not that, so then this other thing, which means maybe more or less of the original, plus something new that reduces the ability to do something else later on…maybe. If all these other variables stay consistent, which they won’t. (Possible throwing up of hands at this point.)
+
+But we can’t let ourselves get upset by the trade-offs we have to negotiate, because trade-offs provide us with variety. Think of it this way: if a building could have everything we wanted, optimized along all possible parameters so that nothing required sacrifice or compromise, then all buildings would be the same. Each building, by virtue of being everything to everyone, would be no different from the one beside it, which also had to make no trade-offs.
+
+It’s trade-offs that give us difference, including cityscapes with tall skyscrapers made of steel and glass next to stone churches and three-story brick buildings. They are what give us log cabins and wrap-around porches and treehouses and the odd geodesic dome. Each building is designed to meet the needs of people who have a unique perspective on what trade-offs they are willing to make in environments with local parameters that influence what those trade-offs look like.
+
+Using trade-offs as a model shows us that they can operate on many variables simultaneously, and it is impossible to get away from them. But thinking about trade-offs also shows that there is a reason to embrace them, for they are responsible for a lot of the variety in our world. Abundance does not just allow us to buy more goods. It affords us the luxury of packing poorly, the luxury of not having to think, as well as the luxury of not minding mistakes.
+
+---
+
+# SENDHIL MULLAINATHAN AND ELDAR SHAFIR
+
+# No Paths without Challenges
+
+True trade-offs cannot be mitigated by careful planning. They are factors where no amount of wheeling and dealing will let you have both. “For something to be called a trade-off, we should have evidence that it is at least difficult, if not impossible, to increase one thing without decreasing another.” You increase your donut consumption, you decrease your cholesterol health. The trade-off for the pleasure you get from donuts is less healthy cholesterol levels. Going for improved cholesterol means trading off the satisfaction and enjoyment of eating a donut. If you love eating donuts, trade-offs with your health must be navigated. You cannot have both good cholesterol and a serious donut habit.
+
+When it comes to situations with trade-offs that must be considered, chosen, and lived with, one that has impacted humans since the dawn of the species is migration. Ever since the first Homo sapiens decided to leave the Great Rift Valley, every year, some human, somewhere, calculates the trade-offs involved in leaving home and trying to make a life somewhere new.
+
+Although the particulars change and are unique in every circumstance, deciding whether to migrate involves trying to figure out the trade-offs between staying and going. What are we giving up, and what are we gaining? Do we think the net gain will be worth it? Because we are looking at migration through the lens of trade-offs, here we are not going to examine forced migration but rather those situations that involve some choice on the part of the people doing the migrating.
+
+Given that humans have been moving around forever, obviously sometimes there is a net gain to moving. Harder to find are statistics regarding how many people consider emigrating but don’t, but we can assume there are just as many of those. Why? Because migration is rarely, if ever, a win on every front. Something is always lost in the leaving, whether it’s a physical home, career status, or people who share your memories.
+
+---
+
+Immigrants always have to sacrifice something when they choose to move. What’s really incredible is how often those sacrifices are deemed worth it.
+
+# 1. Why do people immigrate?
+
+There are, of course, many different, complex reasons, but at the core there is the idea that something “there” is better than what’s “here.” In the anthology Alien Nation, Dr. Hisla Bates, who left Guyana for the United States when she was six, says, “I think that’s the story of most immigrants—they leave their home and places they love, they leave family members behind, and that doesn’t make sense to a lot of people. They do it because they want a better future for their children and grandchildren.”
+
+For most migrants, it’s not that everything they leave behind is terrible, nor that everything they’re going toward is great. The potential of the new place simply outweighs the value of what they’re leaving behind. It’s important to acknowledge that the trade-offs involved don’t have objective value, so another person in the same position might make a different choice. Such is the nature of trade-offs.
+
+# 2. The choice for migrants
+
+Sometimes, the choice for migrants is between two dismal circumstances. Writing about German migrant workers with the Dutch East India Company in the seventeenth and eighteenth centuries, the authors of The Age of Migration write, “The mortality of these migrant workers through shipwreck, warfare, and tropical illness was very high, but service in the colonies was often the only chance to escape from poverty.”
+
+Leaving for economic reasons is a common migration story, but people also migrate to escape violence, persecution, or situations in which there is no hope for autonomy and freedom.
+
+# 3. The uncertainty of migration
+
+No matter what the situation we are leaving may be, there are usually very few guarantees in the place we are going. The life we are living contains known quantities. The life we embark on is full of unknowns, suppositions, desires, and hopes. The new place might be a lot better, worse, or only slightly improved. Is marginal improvement in terms of safety or income worth being alone and isolated, away from family and everything that is familiar? The uncertainty of the possible payoff is what makes the trade-offs of migration hard to evaluate.
+
+---
+
+Not all migration is permanent. Some people migrate with the intention of making enough money to eventually return home and improve their situation there. Other motivations for migration could be education, marriage, or adventure. In terms of permanent relocation, family reunion is a huge factor in why many people choose to migrate.
+
+As varied as their reasons for migration are, most migrants know that it’s unlikely to be all sunshine and rainbows in the new place. There are often many challenges, ranging from learning a new language to making new friends. In addition, “many migrants discover that they can only enter the labor market at the bottom, and that it is hard to move up the ladder later.” There are many engineers driving taxis in New York and many doctors working delivery jobs in Toronto.
+
+Migrant experiences in different countries are by no means standard, and part of the decision of migrating is carefully considering which country might be the best choice. Do you know people there? How hard is it to get citizenship? What programs does the country have for newcomers that may offer the best chance of success? There are trade-offs that must be considered within the choice of where to migrate to. For example, “A research project carried out in six European countries emphasized the varying experience of migrants. They had lower unemployment levels but less qualified jobs in Southern European countries, while they tended to have more qualified jobs but a higher risk of unemployment in Northwestern Europe.”
+
+Deciding whether to migrate, to pick up and move somewhere new, is an emotional calculation. Leaving family, or considering professional opportunities for our children—these are personal evaluations that pull in our fears and hopes. The emotional content of many of the factors migrants consider means that the optimal trade-off is neither obvious to outsiders nor the same for everyone. Journalist Mazin Sidahmed, whose family fled Sudan when he was eighteen months old, says of immigrating, “In a search for prosperity, we sacrificed stability. Moving from city to city, from country to country building resilience but leaving pieces of ourselves behind.”
+
+---
+
+Writer Kay Iguh, a native of Nigeria who immigrated to the United States, explains that for an immigrant, “in building a future, you dismantle a past.”15 Many migrants speak of never quite feeling at home in their new countries but also not quite fitting in when they return to their country of origin, even if just for a visit. One of the trade-offs, then, is potentially never feeling a sense of complete belonging again.
+
+Outcomes of migration for immigrants are just as varied as their reasons for migrating. Some integrate well into their new country, finding a stable income and other measures of success. Others don’t find work easily and struggle to survive. Some decide the trade-offs aren’t worth it and go home. Others end up being deported.
+
+Migration remains a popular choice globally. Every year, millions of people make thoughtful calculations regarding the trade-offs involved and decide to move. The point of looking at migration through the lens of trade-offs is to demonstrate that trade-offs cannot always be resolved with more time or more money, nor are they all always known in advance. There are many situations in life in which trade-offs exist and will impact your outcomes—when you can’t have your cake and eat it too.
+
+# Conclusion
+
+Life is full of trade-offs. Every choice has a cost. When you say yes to one thing, you say no to others. This is how the world works. It’s like gravity. You can’t escape it.
+
+Opportunity cost is what you give up when you make a choice. It’s the thing you can’t have because you picked something else. Say you have a free evening. You can work on your startup or go to a movie. If you work, you miss the fun. If you go to the movie, you miss the chance to make progress.
+
+Every choice has an opportunity cost because every time you say yes to something, you’re implicitly saying no to a bunch of other things. You need to know your opportunity costs. This helps you make good trade-offs.
+
+---
+
+A trade-off is giving up one thing in order to get something else. It’s choosing between options. Each has good and bad points. Trade-offs are about priorities. When you make something, you face trade-offs. If you want it fast, you might lose some features. If you want it cheap, you might use lower-quality materials.
+
+In life, we face trade-offs all the time. Do you take the high-paying job with long hours? Or the low-paying one with more free time? Do you spend money now or save for later?
+
+Making good trade-offs is about weighing the opportunity costs and benefits of each option and choosing the one that aligns best with your goals and values. It’s not always easy, but being conscious of the trade-offs you’re making can help you make better decisions.
+
+Wisdom is anticipating the consequences of your choices. In life and business, success is about making good trade-offs. It’s not about having it all. It’s about having what matters most. We all value different things. That’s what makes life rich.
+
+Opportunity cost is what you give up when you make a choice; trade-offs are the balancing acts you perform when deciding between competing options. They’re two sides of the same coin—whenever you make a trade-off, you’re incurring an opportunity cost for the option you didn’t choose. The key in both cases is to be thoughtful and intentional about your choices.
+
+---
+
+# Specialization
+
+Focus is key.
+
+OceanofPDF.com
+
+---
+
+Warren and I avoid doing anything that someone else at Berkshire can do better.
+
+—CHARLIE MUNGER
+
+---
+
+If you try to do everything, it’s hard to do anything well. As economies develop, people’s livelihoods become increasingly specialized. Greater division of labor tends to lead to increased efficiency and lower costs.
+
+“Specialization” is when a person, group, or nation focuses on producing a particular good or service, intending to be able to do it in less time, at a higher quality, and/or at a lower cost. For an individual, it’s microeconomic specialization; for a nation, it’s macroeconomic specialization. Specialization in one thing involves a trade-off because it means not specializing in something else.
+
+“What do you want to do when you grow up?” is a common question people ask children. Whatever the answer, it’s expected to be something specific—not “whatever mixture of skills I need to survive.” The reason for choosing a specific job is that specializing in our careers is the norm. Most people choose a particular area to work in and study or train accordingly; then, they get steadily better at that work over time, building up resources like contacts or respect within a field.
+
+Adam Smith famously summarized the benefits of the division of labor in *The Wealth of Nations* when he described a pin factory. A single, untrained worker could never manage to make even twenty pins a day and would be more likely to complete just one. But the pin factory’s productivity increases by several orders of magnitude if several workers each take on one part of the process. Then, ten workers can make 48,000 pins a day. One worker draws out the metal wire, another makes it straight, another cuts it into lengths, and so on. No one involved needs much training or skill. And the more the labor is divided up, the greater the overall production per person. Smith also believed that there is a direct correlation between how economically developed a country is and how specialized the...
+
+---
+
+typical job within it is, with this relationship being a feedback loop, both a cause and an effect.2
+
+How many of the objects you touch on an average day did you make yourself? There’s a good chance the answer is zero—or at best just a few. Yet this is a recent development in human history. Most of the people to have ever lived made most of their possessions themselves, or owned things that were made by people they knew personally. And if you’ve ever learned how to make yourself a dress or a table or a wooden spoon, you can appreciate the sheer range of skills required for each item.
+
+It’s worth noting that specialization, as in Smith’s pin factory, has been criticized as creating work that is boring and mind-numbing. Specialization also creates a sense of alienation from the products of our labor, because we don’t see them consumed, and from the labor of others, because we don’t see them produce what we consume. So there is a balance between the benefits we receive from being able to specialize (more variety and cheaper goods) and the sometimes unappealing conditions that extreme specialization produces. There is no doubt, however, that on balance, specialization has maximized the effectiveness of the resources we have and was a critical component of the significant, though uneven, rise in global living standards over the last two hundred years.
+
+Specialization goes hand in hand with trade; the two create a feedback loop. Eric D. Beinhocker writes that “one of the great benefits of trade is that it enables specialization”3—you can’t specialize if you can’t trade for the other things you need but don’t produce. Specialization, in turn, reinforces trade: once you specialize, you can produce goods that you don’t need for yourself, making them available for trade.
+
+We must remember, however, that solving problems often leads to new ones. One of the aspects of increased specialization that must be managed is that it leads to increased coordination costs and requires ever more effort to avoid cascading failures. In his book Human Capital, economist Gary S. Becker states, “The cost of coordinating a group of complementary specialized workers grows as the number of specialists increases.”4 It’s much easier to organize the work and exchange of a small group in, say, a
+
+---
+
+kitchen—where the chef, sous-chef, pastry chef, line cook, and dishwasher can all figure out how to adjust their actions to complement the others’ roles —than to map out the most effective intersections in a multinational organization.
+
+The increased interdependence created by specialization is both a benefit—it encourages cooperation—and a cost, as it results in vulnerability. The more you need others to do what you can’t do yourself, the more you need to produce something yourself that others need. But the problem is obvious: your inability to produce everything you need creates a dependency. If your needs stop being produced by others, you’re in trouble. At the extreme of this problem come cascading failures: you can’t meet your needs, so you stop producing your specialization. Those who rely on you are thus themselves jeopardized. If a society has too many gaps, in terms of requirements that can’t be produced, the result is widespread instability.
+
+Specialization also requires trust. The more specialized people’s jobs become, the more specialists are required to bridge communication gaps. When trust isn’t possible, because people don’t personally know one another, specialization also requires legal frameworks and enforcement mechanisms.
+
+Overspecialization leads to poor nonsense detection. The more narrow our own focus is, the harder it can be to know if someone else is being honest or even knows what they’re talking about. Overspecialization can also lead people to put up barriers to protect their specialization, such as by requiring expensive licenses to practice the skill. Indeed, specialists may be incentivized to exaggerate how distinct their knowledge is in order to protect their advantage.
+
+Consequently, the mental model of specialization illustrates the value of cooperation. We’re usually better off doing what we do best and working with someone else for the rest. We just have to be mindful of the vulnerabilities that specialization creates and not put ourselves in a position where we can’t adapt if we need to.
+
+---
+
+The more complicated the whole structure becomes, the more important it is that each element fits in its appropriate place.
+
+—FRIEDRICH A. HAYEK
+
+# Computers to Programmers
+
+There is a path-dependent element to specialization: if and how you adapt to changing circumstances depends a lot on the skills and abilities you had before the changes. If world events lead to a demand for a new kind of medical specialty, chances are the people developing that specialization will already have experience in the medical field. It’s less likely that your new medical specialist will have previously worked as a lawyer.
+
+One of the most interesting things about specialization is that although we can reasonably predict it is going to occur, as new technologies develop and new events impact our environment, we don’t know exactly where those lines of specialization are going to be drawn.
+
+If we think back to Adam Smith’s pin factory, it seems fairly easy now to identify various needed job specialties. But that’s because we know how pins are made, and we also know the general components a business needs to operate and be successful. We can imagine there is someone to punch a hole in the metal and someone to scoop a set amount of pins into a box. We also acknowledge there is likely a sales team to find customers for the pins, and someone in accounting to track the money coming in and money going out.
+
+But on the front end of development, when a technology is both new and disruptive, it’s not easy to see how specializations will fall out. These unknowns create opportunities—and the people who get there first can have a lot of impact, as the skills and knowledge they have end up shaping development.
+
+Using specialization as a model can show you how it can grow from the bottom up. Instead of thinking of specialization as top-down—wherein you
+
+---
+
+identify in advance the roles you need—you can use the model to remain flexible. It can show us how to take advantage of the opportunities that present themselves when people address new problems using previous experiences, making nonobvious connections to spur development.
+
+# 1. Historical Context
+
+In the 1940s, women were employed in significant numbers in many countries to do mathematical calculations. They worked for government agencies, universities, and in support of the war effort as computers. They computed data.
+
+# 2. Advancements During World War II
+
+During World War II, significant advancements were made in the engineering of hardware that could process information faster than humans. One of these machines was ENIAC—the Electronic Numerical Integrator and Computer—located at the University of Pennsylvania’s Moore School of Electrical Engineering. It was a giant machine made up of about 18,000 vacuum tubes, each with switches to communicate electrical pulses and signals. When a new problem came in for the computer to crunch through, the links between the tubes and switches had to be adjusted.6
+
+# 3. The Distinction Between Hardware and Software
+
+Nowadays, most of us are familiar with the distinction between hardware and software, the difference between constructing the machine and programming the code that runs on it. But when these first computers came on the scene, this distinction wasn’t so obvious. In her book Broad Band, Claire L. Evans explains, “The distinction between hardware and software at that time was blurry, even nonexistent: every calculation called for switches to be flipped, cables to be patched.”7
+
+# 4. The ENIAC Six
+
+The men who designed and built the ENIAC, John Mauchly and J. Presper Eckert Jr., were brilliant at constructing hardware. But once the ENIAC was up and running, the day-to-day programming, which included adjusting the connections based on the problem sets to be solved, fell to a team of women. “Six women handled the time-consuming and intellectually demanding job of readying mathematical problems for the computer, plugging them in, the executing, debugging, and executing again to achieve the final results.” Called “the ENIAC Six,” Kathleen McNulty, Betty Jean Jennings, Elizabeth “Betty” Snyder, Marlyn Wescoff, Frances Bilas, and Ruth Lichterman had all worked as computers at the Moore School. It was
+
+---
+
+their experience as human computers that gave them the opportunity to work on the new machine computers.8
+
+It was, in a lot of ways, a good fit. Not only did the women possess the skills and experience to tackle the development of what was essentially computer programming, but because it was seen as an offshoot of work they already did, it was socially acceptable as well. “Nobody thought much of assigning women to this job,” Evans writes. “It seemed only natural that the human computers should train their own replacements. Further, the ENIAC looked like a telephone switchboard, reinforcing the assumption that its ‘operators’ should be women.”9
+
+These women effectively became some of the first computer programmers in the world. It was not an easy task, partly because the concept itself was so new. “Programming, the six learned, would not be a desk job. The women would stand inside of the ENIAC to ‘plug in’ each problem, stringing the units together in sequences using hundreds of cables and some three thousand switches. There were no instructions to read, no courses to take.”10
+
+So the women wrote the instructions and developed the courses for those who would come after. Their work was part of the early efforts that led to the specialization of programming. When the machines were first built, no one knew that the skills to build them and the skills to instruct them were completely different and would lead to two specializations. Women were able to participate at the beginning due to their former employment as human computers, and their experiences influenced how programming would develop. Evans explains that many of the early female programmers saw the necessity of creating a programming language that would be accessible, one that people could learn and would be easy to use. Other early programmers—most notably Grace Hopper, another woman with a mathematics background—pushed for the development of standards in programming language. Hopper also coded the world’s first compilers, instructions that let the machines do some data processing on their own.11
+
+Evans writes, “Hardware may be static, but software makes all the difference. And although it took some time
+
+---
+
+to settle in, that truth came with a corollary: those who write the software make all the difference too.”
+
+# The story of the early female computer programmers
+
+is a valuable one to consider through the lens of specialization. Diving into some of the details, we can see first the path-dependent component that often characterizes much specialization: human computers, essentially working as data processors, were on the right path to apply their experience to the new world of machine computing. The work they did made them a logical fit to take on the operation of computers.
+
+The experience they brought with them influenced how programming developed. The specialization did not come about overnight, and it would be years before programming was its own specialty, with required education. But that is one very useful insight about specialization: it’s not always possible to know, at the outset of something new, how specializations will break out. Often how the lines are drawn has a lot to do with the past experiences of those working on the new problem set in the early years. Allowing for a more evolutionary-type process can take development to places impossible to imagine at the outset.
+
+---
+
+# Comparative Advantage
+
+All competitive advantage is temporary. Some advantages last longer than others, but all sources of advantage have a finite shelf life.
+
+—ERIC D. BEINHOCKER
+
+The principle of comparative advantage, also known as the Ricardo principle, states that as long as one party in an exchange has a higher opportunity cost for producing something than the other, it makes sense for each to specialize and trade. This holds true even if one party is better at everything else. Economist David Ricardo first put the concept into words in the eighteenth century, and it remains a powerful argument for unrestricted international trade. In theory, the most efficient global economy would be one where every country specializes and produces the goods it is best at compared to everyone else.
+
+Some economists have debated whether the principle of comparative advantage and associated free trade is really always that mutually beneficial for both parties. Raúl Prebisch argued that trade between two countries with disparate wealth can actually limit growth for the poorer nation and reinforce the wealth of the richer nation. The poor country becomes even poorer if it specializes, because poor countries usually export primary products, like food, and wealthy countries usually export secondary products, like manufactured goods.
+
+Often, specialization is a consequence of the resources available in a particular country. That country can focus on producing goods related to its resources, then sell them to the rest of the world. Countries with an abundance of valuable natural resources can get locked into a cycle of selling those resources in their unprocessed form to other nations, which then process them and resell at a high markup.
+
+Why does trading in these circumstances reinforce income disparity between the two countries? Niall Kishtainy summarizes Prebisch’s reasoning:
+
+When the economy of a poor country grows, its demand for the cars that it imports from rich countries rises. But when a rich country grows, the country’s demand for the sugar that it imports from poor countries rises much more slowly.
+
+---
+
+In consequence, the price of cars rises faster than the price of sugar: the poor country’s “terms of trade” worsen.14
+
+The solution proposed is for the poorer country to diversify, protecting homegrown industries as they develop while creating incentives to make sure that development will allow them to compete internationally—much as the United States did early in its nationhood, and countries like Japan and South Korea did in the latter half of the twentieth century.
+
+Nancy Folbre also cautions readers when taking the thought experiment of comparative advantage and applying it in the real world. Even in Ricardo’s time, the reality of trade rarely fit the theory. She writes of Ricardo:
+
+While his reasoning was correct, it was incomplete. All else equal, free trade could make everyone better off. But little else was equal. Countries could use their military power to force trade on their own terms, as the British did in India—where they virtually prohibited handloom weaving, and in China—where they sent their battleships to expand the opium trade.15
+
+Comparative advantage suggests that specialization and free trade can offer real advantages, because no one country can be good at everything forever. But it really only works in terms of creating mutual prosperity when the advantages aren’t exploited.
+
+Modern expertise comes partly at the expense of narrowness, and of ignorance about what other people do.
+
+—GARY S. BECKER16
+
+---
+
+# The Best Teams
+
+Specialization requires trust. You pursue your specialization each day because you trust that others are pursuing theirs. When you need something that you can’t produce on your own, you trust that it will be there, available to you to trade for.
+
+Sports teams function the same way. Everyone on the team is free to specialize because they know that everyone else on the team, in pursuing their own specialties, is covering all the elements needed to perform.
+
+On professional hockey teams, there are multiple layers of specialization. First, players have different roles on the team; at a macro level, these are forwards, defense, and goalie. But not all forwards are the same; neither are defensive players. They all have different skills, capabilities, and strengths that impact the precise role they are expected to play. Depending on elements such as which way they shoot the puck, how big they are, and with whom they have chemistry, players might be assigned to play right wing or left defense on a particular line.
+
+There is also specialization that occurs on the ice. This specialization is more fluid, because it reacts to the real-time events happening in the game. It’s not very useful to have five players chasing after the puck. Instead, one player will go after the puck, and the other four players on the team will try to anticipate the best position to be in for what comes next. To do that—to know where you should best go based on where it’s best for your teammates to be going based on their skills and strengths, and knowing they have the same expectation of you—requires an incredible amount of trust.
+
+The National Hockey League championship trophy is called the Stanley Cup. The oldest North American sports trophy, the cup is awarded to the team that wins a best-of-seven series, after four rounds of playoffs. Wayne Gretzky, one of the best to ever play ice hockey, says, “If you ask anybody who’s won the Stanley Cup, he will tell you it’s the ultimate team accomplishment. Everybody has to participate…. Every guy on the team has to play his heart out to win.” One or two superstars isn’t going to
+
+---
+
+win a team a Stanley Cup. There’s too much going on in a game of hockey for it to come down to the performance of one player.
+
+Some people might say that the goalie is the one player whose individual performance can make or break a game or playoff series. But this isn’t true. Hockey requires both defense and offense; even if your goalie has an amazing night and stops every shot, someone on your team has to score in order for your team to win. Plus, good hockey from your team means fewer shots on goal by the other team. The chances of a win increase when the number of shots you ask the goalie to stop decreases.
+
+Mark Messier, another hall of fame hockey player, has said, “Every player on your team, man for man, is valuable.” Gretzky agrees: “From your top player to your bottom player, all have to be pulling together.”18 In 99: Stories of the Game, Gretzky tells the story of the winning goal in the 1987 Canada Cup, in which the Canadians were playing the Russians. Mario Lemieux scored the winning goal off a Gretzky pass. But Gretzky talks about what else was happening on the ice to make that goal possible: “It wasn’t so much what Mario and I did. Had Larry [Murphy] not gone to the net and had Dale [Hawerchuk] not taken the backchecker out, we may never have scored.”19 Figuring out how to win means figuring out where you should be on the ice—and it’s not always in front of the net, trying to score. It’s more about what you can do to give your team the best chance of scoring. And that’s about knowing your role and what your teammates expect of you.
+
+In a hockey game, trust is paramount, because there isn’t time on the ice to hash out what everyone should be doing. “In hockey,” Gretzky explains, “there is so much going on, so fast, that even the most skilled player is going on instinct.”20 To build the instinct needed to execute well, specialization is required. You focus on the elements required of you. If you’re on defense, you clear the puck out of your zone, knowing that one of your forwards will be in position to receive it. If you’re a center, you build chemistry with your linemates to increase your scoring chances and you don’t worry about stopping the puck from going in the net. You focus on
+
+---
+
+executing your specialization flawlessly and trust that everyone else on your team is doing the same.
+
+To be really successful, that trust has to be organization wide. “If you consider the most successful organization in every team sport…there’s a defined culture that runs through every part of them. Trust, teamwork, accountability, sacrifice. They put in place the pieces that follow the culture and they live within it.” In hockey, trust on the ice is reflective of trust off the ice. The players trust one another because they trust the system they are playing in.
+
+Hayley Wickenheiser, five-time Olympic medalist and member of the Hockey Hall of Fame, explains that it’s ineffective to become an expert in every aspect of the game, because you have to get really great at what you’re meant to do. That means sacrificing expertise in the things everyone else does. “When I was playing,” she says, “I focused on offense. I knew what my responsibilities were in the defensive zone, but I didn’t focus on what was required of goalies and defensemen.”
+
+Most of us work in teams, and most of us specialize. Letting go of trying to be perfect at everything is how we really take advantage of the power of specialization. Wickenheiser also explains the value of knowing how you can best contribute when she talks about her endeavors off the ice. In speaking about her work in business, she says, “I am careful to hire people smarter than me who have expertise that I don’t, and I trust them to do the work—the same way I trusted the defense to protect our zone.”
+
+Succeeding as a team, in hockey or otherwise, means being great at your specialization and trusting the other team members to be great at theirs.
+
+That’s one thing that every good team has in common—everyone has a role.
+
+—WAYNE GRETZKY
+
+---
+
+# Conclusion
+
+Specialization is a trade-off: pursuing one course means not pursuing another. It’s narrowing your focus to broaden your impact. In a world of infinite knowledge and finite time, specialization is the key to unlocking mastery. It’s about going deep, not wide.
+
+Specialization has risks. If the world changes, what was once a valuable specialty can become obsolete. And yet, we need specialists. You wouldn’t want a generalist doing your brain surgery or a root canal.
+
+Here’s the catch: the more you specialize, the more you see how much other fields can teach you. The most exciting finds often happen at the edges between areas of knowledge. The trick is to specialize without getting stuck. To go deep, but also reach out.
+
+In the end, specialization is about where you spend your time and effort. It’s how you stand out. It’s choosing to be great at one thing instead of okay at many.
+
+OceanofPDF.com
+
+---
+
+# Interdependence
+
+Mutual reliance, intertwined fates.
+
+OceanofPDF.com
+
+---
+
+It is not the similarity or dissimilarity of individuals that constitutes a group, but interdependence of fate.
+
+—KURT LEWIN
+
+---
+
+Specialization leads to interdependence. The two models are closely related, enough insight to consider them separately. The more specialized an individual, company, nation, or other group is, the more reliant it must be on other specialists to meet its needs. We can’t do everything on our own. We are all dependent on one another, in webs of various sizes and complexity. It’s like playing a game where everyone needs one another to win. These interdependencies create both opportunities and challenges.
+
+As economies become more specialized, complex networks form among economic agents. In a famous 1958 essay, “I, Pencil,” Leonard E. Read encapsulated the astonishing interdependence of the world by positing that no one on earth knows how to make a pencil from start to finish.2 Even such a simple device, Read wrote, involves numerous specialists: loggers to harvest the wood, workers in a sawmill to cut it, designers of machines used to work the wood, and so on.
+
+Read’s essay was intended to illustrate the concept of economic interdependence: how individuals, companies, and nations all become dependent on one another, forming complex trade networks. Global economic interdependence is considered beneficial for giving people more opportunities, disincentivizing war, and improving standards of living by reducing the cost of goods and services. If we all had to produce the ingredients to make a chicken sandwich ourselves, few people would be eating them. If we value our ability to buy chicken and buns, we will stay on friendly terms with at least two producers of each. The jobs we create in bringing together dozens of specialties to make and sell a chicken sandwich increase both the diversity of jobs available and the places in which people can do them.
+
+---
+
+There are a couple of downsides to economic interdependence. The first is that it can lead to dependencies that can be manipulated. If a country is dependent on another country for something it needs, it may be forced to tolerate bad behavior, not to intervene in the other country’s affairs, and to bow to demands to keep the relationship going.
+
+In addition, if one part of a supply chain breaks down (such as if one country faces a natural disaster or war), it can be difficult or impossible to find alternatives. This means that catastrophes now have more of a global impact. When the Chūetsu offshore earthquake struck Japan on July 16, 2007, Riken Corporation, an automobile parts manufacturer, suffered serious damage and briefly shut down production. Riken held a very large market share in the production of piston rings, which are necessary for the production of cars. Since most Japanese auto manufacturers use just-in-time inventory (meaning they carry no additional stock on hand), they were dependent on Riken’s consistent production. When Riken stopped sending piston rings, they also had to shut car production down.
+
+When everything works, interdependence works well. When things don’t go as planned, however, interdependence shuts everything down. When you’re dependent on it, the failure of even the smallest part can shut down an entire industry.
+
+Interdependence can also lead to cascading effects. In the 1950s, Kenneth Arrow and Gérard Debreu looked at the far-reaching and nonobvious ripples that interdependence can produce in an economy.3 For example, Arrow traced some of the cascading effects when new oil fields were discovered in the 1930s. First, oil prices went down all over, and because none of us collect and refine our own oil, there was widespread reaction to the windfall our dependency created. Homes started to heat with oil instead of coal. Great; it’s cheaper! But then employment in coal mines fell, and the price of steel went up as because coal became more expensive. We drove our cars more. Railway usage declined. Highways grew. Towns caught in the wrong location or dependent on the wrong resource stagnated or died out, while other towns boomed. New oil produced effects that cascaded far outside the oil industry.
+
+---
+
+Another note on interdependence is that we can only appreciate the ripple effects our actions might create if we’re honest about where we are truly dependent. Historically, economics has only focused on goods and services that are exchanged for money. The field has not been great about acknowledging, for example, how the whole economic system is dependent on the unpaid labor performed in the home, mostly by women. Although that is starting to change, the legacy of early economists such as Alfred Marshall, who argued against counting work in the home as part of the economic equation of a country, means that some dependencies are still overlooked.
+
+The mental model of interdependence teaches us that problems can be enmeshed in a way that prevents them from being solved separately. It also demonstrates that being mindful about our interdependencies can reveal to us how to leverage them for mutual benefit.
+
+OceanofPDF.com
+
+---
+
+# Coordination Failures
+
+In game theory, a coordination game is one where players get the best possible payoff by all doing the same thing. If one player chooses a different strategy, they get a diminished payoff, and the other player usually gets an increased payoff.
+
+When all players are carrying out a strategy from which they have no incentive to deviate, this is called the Nash equilibrium: given the strategy chosen by the other player(s), no player could improve their payoff by changing their strategy. However, a game can have multiple Nash equilibria with different payoffs. In real-world terms, this means there are multiple different choices everyone could make, some better than others, but all only working if they are unanimous. If everyone is already making the same suboptimal choice, it can be difficult to change anything.
+
+Many of the major problems around us are coordination failures. They are solvable only if everyone can agree to do the same thing at the same time. Faced with multiple Nash equilibria, we do not necessarily choose the best one overall. We choose what makes sense given the existing incentives, which often discourage us from challenging the status quo. It often makes most sense to do what everyone else is doing, whether that’s driving on the left side of the road, wearing a suit to a job interview, or keeping your country’s nuclear arsenal stocked up.
+
+---
+
+# Building Interdependency for Group Cohesion
+
+Interdependence can be a good thing. One theory is that interdependence can be advantageous because it creates a need to remain on good terms, creating a more integrated and peaceful world. If your fortunes are tied up in the fortunes of everyone else, why bother fighting? Hurting you will ultimately result in hurting myself. Interdependence creates incentives for us to work together to pursue actions of mutual benefit.
+
+In her book The Old Way, Elizabeth Marshall Thomas details the lives of the Ju/wa people in the Nyae Nyae area of Africa, now straddling the border of Botswana and Namibia. In the 1950s, Thomas and her family lived with and chronicled the lives of a group of Ju/wa people, some of the last humans on earth who maintained an ancient hunter-gatherer lifestyle.
+
+Thomas makes it clear that among the Ju/wa, group cohesion was critical for survival. It was not an environment where anyone could go it alone—and, realistically, that’s true of all human environments. We need one another. Even someone living off the grid in a forest is still dependent on other people to make the supplies they buy.
+
+For the Ju/wa, interdependence was a survival tool. The more they were connected with one another, the more they shared resources with one another. Resources in that part of Africa, like water and meat, could be hard to come by. Being able to rely on receiving resources from a variety of people within the larger group was often the difference between life and death. Thomas describes the Ju/wa people as having a fear of marginalization and exclusion, because being all alone suggested both a deathlike state and a lack of support in times of trouble.
+
+Some bonds of interdependence are natural, such as those commonly found between parents and children. Close kin relationships may have to be nurtured but often have a natural foundation as well. But developing connections outside the immediate family group isn’t as automatic. One of the ways the Ju/wa people created and nurtured these connections was
+
+---
+
+through sharing. “Sharing,” Thomas says, “was perhaps the most important element in the social fabric. Fear that others would not share was the constant preoccupation of many people.” Sharing was critical to survival, not because it increased access to resources but because it reduced anxiety and created a social network. In the challenging environment of the Kalahari Desert, “the goodwill of the group was one’s most valuable asset.”
+
+One of the sharing mechanisms Thomas describes is that of xaro, the practice of giving gifts. Xaro was practiced widely, and gifts would travel hundreds of kilometers as they passed from hand to hand. Rules included the fact that you could never refuse a gift, and that receiving one obligated you to make a gift in return. Critical to the system was that the reciprocation was spread out, so it was clear the gift was not meant to be a trade and that it came from the heart.
+
+Thomas explains, “Almost every object in Nyae Nyae was subject to xaro, and…almost every person had a set of partners with whom he or she exchanged gifts. Thus xaro was one of the most powerful bonds within the social fabric, because a xaro partnership could last for life.”
+
+The dispersed populations of groups of Ju/wa people meant that xaro was a significant time investment, far more involved than dropping a cake off at your neighbor’s. “The average man or woman had fifteen xaro partners…and spent three or four months a year visiting these partners.”
+
+Thus, xaro was an investment of time and energy in a life in which resources could sometimes be limited. But investing in xaro, versus, say, investing in more gathering of nuts, was valuable over a longer time horizon. If those nuts were ever not available to you at all, your xaro partners, primed by years of giving, would gladly step in and help you out.
+
+Thus, xaro provided widespread benefits on multiple fronts. As Thomas explains, it increased the resources available to each person, it was a method of transmitting information, it gave people social options so they weren’t confined to socializing with the same people all the time, and it “spread happiness and decreased jealousy and ill will.”
+
+---
+
+Xaro ensured that no person needed to suffer from loneliness and isolation. By increasing unity and creating and maintaining bonds, “xaro strengthened the social fabric.”
+
+# 2. The Ju/wa's Practice of Interdependence
+
+The Ju/wa had another practice that increased their interdependence. Hunting was an integral and well-respected part of Ju/wasi life. The meat it provided was tasty, nutritious, and life-giving. Hunting itself was prestigious, and a man’s ability to marry was directly tied to his ability to hunt. Thus, hunting could have easily become a source of exploitable power, as not everyone was able to hunt big game.
+
+The Ju/wa people developed a system to distribute the power and prestige that came with hunting. Thomas says, “When dividing big game, the hunter did not distribute the meat. That role belonged to the person who provided the arrow that actually killed the antelope.” She further explains, “By the Ju/wa system, anyone could own an arrow or arrows (although only the hunters used them).” This practice meant that anyone “who had little chance of ever being much of a hunter could give an arrow to a hunter and become the distributor of important meat.” The practice of providing arrows to hunters was widespread.
+
+# 3. The Role of Sharing in Hunting
+
+Why do this? Why would a hunter do all the work, without being given the power of sharing meat? Similar to xaro, this system of interdependency strengthened the social fabric by minimizing opportunity for resentment and conflict. Thomas says, “Without the formal system of sharing, the same people, the strongest people, would always be distributors, and over time, unfairness would emerge.” That unfairness could undermine the stability of the whole society.
+
+# 4. Conclusion
+
+This story of the practices of the Ju/wa people provides a different way of using interdependence as a model. Frequently, we think of interdependence as a by-product of specialization, and it often is. But the story of the Ju/wa shows that sometimes, interdependence can be used deliberately to promote benefits—in this case, increased social cohesion.
+
+---
+
+# Conclusion
+
+Interdependence is the web that ties us all together. It’s the recognition that no person, no company, no country is an island. We’re all connected, all reliant on one another in countless ways, big and small. Interdependence is the reality that underlies the illusion of self-sufficiency. No one is entirely self-made.
+
+Interdependence can be both a vulnerability and a strength. When we recognize our interdependencies, we can leverage them for mutual benefit. We can form alliances, partnerships, ecosystems. We can create value that no single entity could create alone. Interdependence is the foundation of synergy, the alchemy of the whole being greater than the sum of its parts. On the other hand, if we are dependent on others for something critical, it can leave us exposed if they fail to deliver. It’s easy to be a good partner when things are going well. But you want to be careful upon whom you are dependent in a crisis.
+
+Interdependence isn’t just a macro concept. It’s deeply personal. We’re all interdependent with our families, our friends, our communities. We rely on one another for support, for love, for meaning. Interdependence is the fabric of our social lives.
+
+OceanofPDF.com
+
+---
+
+# Efficiency
+
+Maximum output, minimum waste.
+
+OceanofPDF.com
+
+---
+
+Markets weed out inefficient processes, but only when no one has sufficient power to manipulate them.
+
+—HA-JOON CHANG
+
+---
+
+Efficiency is the optimal path toward achieving your end. In a video game, if your goal was to get the maximum points possible, efficiency would be earning those points in the least time, so nothing was wasted.
+
+In economics, “efficiency” refers to how well resources are distributed. Economic theory suggests an economy is fully efficient if there is no way to reallocate resources without any loss of benefit. If we can make one person better off without hurting anyone, then the existing market is not efficient. The greater the gap between perfect efficiency and reality, the less well we consider an economy to function. When a good or service is inefficiently allocated, economists call it a “market failure.”
+
+Sometimes called Pareto efficiency (in a nod to Vilfredo Pareto, who first conceptualized this type of market efficiency), this conception of efficiency rests on the idea that there should be no wasted resources in an economy.2 Wasted resources hurt everyone: they drive up prices for consumers (because businesses have to make more per transaction to compensate for the goods that don’t get sold) and costs for producers (because they spend money making products that no one buys).
+
+Within a hypothetical efficient economy, companies earn the highest possible revenue at the lowest possible cost. Consumers receive the greatest possible quality in what they demand at the lowest possible cost—the cost closest to what they are willing to pay. Whoever wants a good most gets it. All needs get met.
+
+Through the interplay of supply and demand, the goal of a market economy is for suppliers and consumers to reach a point that is desirable for everyone, where all consumers have the best possible living standards and all firms are as profitable as possible. Realistically, this is an impossible state for any economy to achieve or maintain. Efficiency is more often a question of degrees.
+
+---
+
+It’s important to note that efficiency is not a moral judgment, as there are many different distributions that would qualify an economy as Pareto efficient. In an efficient economy, not all people have everything they want or have perfect lives, nor are all firms infinitely profitable. Efficient economies may have a majority of their resources allocated to a small percentage of people. Pareto efficiency says nothing about fairness or equity—it is a theoretical aim for an idealized market scenario.
+
+Maintaining efficiency is inherently tricky. Again, if we were to conduct a thought experiment to imagine a simple market where Pareto efficiency is possible, it would do no good to confine our experiment to a world that doesn’t change, because such a world doesn’t exist. So, in our little efficient market, we can imagine a severe drought that destroys all the apple trees. I was perfectly happy with my access to apples before the drought, but now there aren’t any. I need fruit, so where do I get it? If I take fruit from you, you’re going to be unhappy, so I need to look for a market that has a surplus right now, maybe of oranges. But what if I don’t like oranges? Can we all make adjustments in our fruit consumption to get back to Pareto efficiency?
+
+As this quick thought experiment demonstrates, efficiency is not a static state that, once achieved, can be perpetuated forever. The world is dynamic, and adjustments have to be made. If we want to maintain an efficient state that we’ve stumbled across, it’s going to take some work—and it will still end eventually.
+
+What hinders Pareto efficiency in an economy? Markets become more efficient through the spread of information, allowing people to make better decisions about what to demand or supply. No single economic agent can know all of the information that might be relevant to their activities, but the more we amalgamate knowledge in markets, the more we can see by considering them as a whole. We have to be careful, when we think we’re making something more efficient, that we’re not removing valuable sources of information. Markets work because there is a plurality of views, which cancels out anomalous ones.
+
+---
+
+The Internet moves us closer to “perfect information” on markets. Individuals and companies alike can buy and sell across borders and jurisdictions wherever they find the best match of supply and demand.
+
+—MILTON FRIEDMAN
+
+Another challenge to Pareto efficiency is the actual economic practices of humans. If we were to expand our thought experiment and imagine a nicely efficient economy, we might suppose that enough food is produced for people to eat what they need for a satisfying life. There are enough shoes and coats, and nothing goes to a landfill because it can’t get sold. Everyone has the ability to purchase what they need, because a company somewhere has produced it. What we probably wouldn’t imagine is an efficient economy that doesn’t meet some people’s needs because there’s more profit to be made in filling other people’s wants.
+
+Humans don’t just buy what is needed; we also purchase what we want. Sometimes we want to show off. The problem with this type of signaling, however, is that it can lead to a reinforcing feedback loop that challenges the drive for efficiency. Thorstein Veblen, he of the Veblen goods (see sidebar), called it “conspicuous consumption” and considered it a waste. He thought that it “diverts economic energy from the production of what people really need into what they can show off with.” An efficient market thus may also be one that meets the economic desires of the segment of consumers who are only about signaling value via the wealth they can display.
+
+Economic efficiency, then, is about not only the binary of waste or no waste but also the range of options to achieve efficiency. As a model, it helps us consider where we can improve at getting people what they need as well as consider what is really involved in maintaining an environment where the actions of one group don’t make anyone else worse off.
+
+---
+
+# Veblen Goods and Giffen Goods
+
+Veblen goods are items that are perceived as more desirable because they have a high price, even if it involves unnecessary markup. The higher price makes the item a signal of wealth and prestige, which people wish to show off. Thorstein Veblen discussed the concept of goods that typically have minimal practical use and little additional practical value compared to cheaper versions of the same thing in his book *The Theory of the Leisure Class*. He suggested that being expensive makes these goods a meaningful signal of wealth, because only a person with income to spare can access them. Because being wealthy is often considered something worth signaling, Veblen goods don’t follow the usual model of supply and demand. Higher prices don’t temper demand but instead drive it higher because people are paying for the signal more than the product.
+
+Giffen goods (named after Scottish economist Sir Robert Giffen) are an overlapping, though distinct, concept. They include any product for which demand increases as the price does but that is not purchased as a status symbol. For example, if the price of a basic staple like bread increases in a region where poor people heavily rely on bread as a staple of their diet, they may end up purchasing more bread instead of less. While counterintuitive, this situation can happen because the rise in bread prices renders these consumers unable to afford other food with a higher nutritional content, so they buy more of the cheaper food to maintain their caloric intake. As a result, the demand for bread increases as the price increases, which is characteristic of a Giffen good.
+
+In economics, there are always exceptions to any rule—even seemingly inviolable ones like “demand always decreases as price increases.”
+
+---
+
+# Keeping Everyone Happy
+
+One of the basic ideas underpinning the concept of economic efficiency is that an efficient market exists when it is impossible to make someone better off without making someone else worse off. So, if you and I are the only two people in a market in which a hundred oranges are available, and I have sixty and you have thirty, that market isn’t economically efficient. There are ten unsold oranges, and you can get more oranges without impacting me at all. However, if I have ninety-nine oranges and you have one, despite the lopsided distribution, the market is economically efficient. All oranges available for sale have been bought. You cannot improve your share without making me worse off.
+
+Thus, economic efficiency doesn’t necessarily equate with fair or even logical distribution. Having an efficient market might produce undesirable outcomes. So, what can we learn by using efficiency as a model? The truth is, the world is full of situations that might not be the best for everyone, but there is no obvious way of fixing them without some people becoming worse off. Sometimes, that’s okay. Really, it shouldn’t be a hardship for me to give up ten oranges, going down to eighty-nine so you can have eleven. But sometimes it’s desirable to maintain the status quo: by ensuring that no one loses, in a sense, everyone wins.
+
+Using economic efficiency as a metaphorical lens, let’s explore how maintaining the status quo in order to not make anyone worse off worked in the Mexican comic book industry from about 1940 to 1970.
+
+The comic book industry in Mexico started in the late 1930s. By the mid-1940s, comic books were immensely popular, widely consumed and shared by Mexicans from a variety of backgrounds. Mexican comic books were very different from the typical American comic book. As Anne Rubenstein describes in *Bad Language, Naked Ladies, and Other Threats to the Nation*, comic books in Mexico did not focus on superheroes and were not primarily consumed by young men. The stories featured regular Mexicans, often in melodramatic situations, navigating the exaggerated.
+
+---
+
+complexities and challenges of a Mexican culture that was quickly modernizing. Each comic book contained multiple stories, some of which would go on for years. The books contained contests, letters from readers, some reproductions of American comics, and artwork. Comics were read by Mexicans of all ages and economic backgrounds.
+
+However, not all Mexicans were comfortable with the content of the comics. Some people felt they were indecent and immoral, a corruptive influence on readers. Rubenstein explains that the development of comic books occurred against a backdrop of large changes taking place in Mexico, including movement from rural to urban areas, expanded education and literacy, increased work opportunities for women, and a modernizing communications and transportation infrastructure. As such, comics often contained stories that were at odds with perceived traditional experiences and values.
+
+Not surprisingly, groups of protestors organized to demand the government exert more control over the content of comic books. Some, like the Catholic church, wanted an outright ban on comic books because of their immoral subject matter, especially concerning premarital sex. But there were also groups that wanted to ban comic books because they felt the books encouraged a breakdown of family values and were thus a threat to national unity. Still others resisted comic books because the borrowed American content was seen as a form of cultural imperialism that would negatively impact the development of Mexican culture.
+
+In response, the Mexican government created a commission charged with overseeing and approving comic book content. However, the design of the commission was not an unqualified win for those who opposed comic books. Rubenstein explains that when designing the commission, “the government acted in an attempt to satisfy both supporters and opponents of mass media…. The new Commission had no clear powers of enforcement: it could levy fines, but not require that the judiciary collect them; it could ask that publishers submit to interviews, or even be arrested, but could not compel the police to make these arrests.”
+
+---
+
+The commission functioned as a government-sanctioned mediator with those who wanted to ban comic books or at least substantially change their content. The way the government designed and supported the commission through the years ensured that the efforts of protestors “were met with just enough success to prevent them from giving up, but not nearly enough to satisfy them.”7
+
+This commission was the principal tool the government used to make sure there were no outright losers in the debate on comic books. Publishers could still publish. The Mexican public could still consume comic books. And those who heavily opposed the comics had a place where they could go to vent their frustrations and have the assurance the problem was being dealt with.
+
+The situation was a tricky one for the government to navigate. Some of the opponents of comic books were quite powerful, such as the Catholic church. And there were enough individuals disgusted by the content of comic books that to ignore the issue completely could have been destabilizing for the government.
+
+On the other hand, comic book publishers were powerful economic agents in Mexico. They also often owned newspapers and were thus in a position to offer direct and visible support to politicians. Comic books were an important source of revenue for thousands of vendors, since they sold by the millions. There was clearly a large audience for them.
+
+The commission became the government’s way of maintaining a balance among all the opposing factions, ensuring that no one completely lost out. It is in this sense that the model of economic efficiency provides some insight: among all the interested parties in the comic book economy, it was impossible to make someone better off without making someone else worse off. To heavily censor or ban comic books would hurt publishers and vendors and have a negative economic impact on the state. But not to acknowledge the many people who opposed comic books’ content by giving comic book publishers free and unsupervised rein would hurt them and, by extension, undermine the government by eroding their support for it.
+
+---
+
+In the end, more than thirty years of protest did relatively little to change the comic book industry. The commission, as a vehicle of the government, did an excellent job maintaining an environment where everyone could pursue their desired ends without making anyone else worse off.
+
+# Equalizing Spaces
+
+Economic efficiency requires widespread access to and sharing of information. People can’t make good economic decisions if they don’t have a sense of what is happening in the economy, and economies are often so large that one person cannot have firsthand knowledge of everything going on. So, people share information. They talk about what they paid for their house. They talk about how the harvest went on their cousin’s farm. They talk about how hard the blacksmith is working to keep up with demand. Gossip seems frivolous, but it enables more efficient decision making.
+
+Considering the role information plays in economic efficiency is a great lens to use to evaluate how information sharing might impact efficiency in other situations. Common spaces, such as bars and coffeehouses, have played a large role in the economics and politics of societies, such as by enabling protest movements or organization for political change, because the sharing of information increases when there is an environment that facilitates exchange.
+
+Why would places where people go to drink in their limited leisure time play such a role? Historically, taverns and similar establishments were the only places where people of varying social ranks would frequently mix and be free to express their opinions. Therefore, varying ideas would develop and spread in these spaces.
+
+In his 1989 book The Great Good Place, Ray Oldenburg wrote about “third places,” places that are neither home nor work where we can go to experience companionship and community. A third place is “neutral ground” and “a leveler” where “the main activity is conversation.” No one
+
+---
+
+is in charge, and “those gathered are on equal footing.”8 Third places produce a dynamism that is often absent in other places because of the diversity of the people gathered. In the other places where we spend time—including home, work, and places of worship—we are much more likely to be surrounded by people similar to ourselves. Third places offer the opportunity that comes with exposure to different lives and lifestyles.
+
+Taverns and pubs were the original third places. Groups could congregate, strangers were welcome, and as long as you could pay for your drinks, you could stay as long as you wanted. There were no restrictions on who could talk to whom. “The common people enjoyed a freedom of speech and action in their drinking places that was denied to them elsewhere,” Author Iain Gately explains, “and these institutions became the nucleus of a popular culture.”9
+
+Taverns were all over the colonies of the United States, with some places achieving a ratio of one drinking establishment for every twenty-five men. Given that many early settlers were Puritans, there was some unease about the ubiquity of drinking establishments, but “most colonists, however, continued to reconcile the use of drink…with the patterns of fellowship so vital to the conduct of everything from the transmission of news to the execution of business transactions.”10
+
+In early American society, the benefits of the information-sharing service the taverns provided outweighed the potential negatives of drinking itself. Information about what was happening, to whom, and where, helped the economy to run, culture to develop, and perhaps most critically, political change to incubate.
+
+With very little limit on what information could be shared and which ideas explored, taverns opened up all sorts of possibilities. In the American colonies, taverns, as Steven Johnson argues, “were the seedbeds of the rebellion that would ultimately become the Revolutionary War.”11 Where else could people from all walks of life discuss and collaborate on such a sensitive topic? The tavern provided the only space that allowed for that.
+
+---
+
+kind of exchange. This is not to say that all taverns promote political unrest and produce political changes. But information is always shared within a context, and in the colonies, that context was “a decisive independent streak [that] ran through the tavern culture…many taverns were used by British smugglers trying to evade British taxes.”12
+
+Johnson is careful to note that taverns didn’t cause the American Revolution. But, he says, change that one variable, and the buildup to the War of Independence has to, at the very least, unfold along a different path, since so much of the debate and communication around it relied on the semipublic exchanges of the tavern, a space where seditious thought could be shared, but also kept secret.13
+
+Places like taverns and pubs enable people to make full use of the information they have because, in those settings, it becomes common knowledge. People both know the information and know that others know it. Information around collective action can be used fully only if people know it’s common knowledge, because then there is less risk to individuals taking action. If you want to empower people, make it easier for them to share and aggregate information.
+
+# Conclusion
+
+Efficiency is about getting the most done with the least waste. It’s not always about finding the perfect answer, but the one that works well enough without too much fuss. Efficiency matters because in real life, you never have all the time or resources you want. You have to make do with what you’ve got.
+
+But efficiency isn’t just about speed. It’s also about effectiveness and doing the right things. There’s no point in doing something fast if it’s not worth doing. True efficiency is about focusing on what matters most. It’s about saying no to the small stuff so you can say yes to the big stuff. Like everything, efficiency has its limits. There’s a point of diminishing returns, a threshold beyond which further optimization yields little gain.
+
+---
+
+The key is to find the sweet spot, the point of maximum efficiency before the costs start to outweigh the benefits.
+
+Efficiency works until it doesn’t. The more perfectly efficient a system, the more vulnerable it becomes to any change. While the idea can be hard to appreciate, maximal efficiency in the short term rarely leads to maximum long-term efficiency. A common benefit that gets eroded in the quest for efficiency is a margin of safety. Through the lens of efficiency, the opportunity cost of holding something like extra cash, inventory, or even people may come to be seen as too high. However, excess cash, inventory, and people can become more valuable with supply shocks or other changes in the environment. Inefficiency in the short run is often very efficient in the long run when it leaves you better able to adapt to an uncertain world.
+
+In a world of trade-offs, efficiency is a balancing act. It’s about making the most of what you have, but also leaving room for what you might need. It’s about being prepared for the future, not just optimized for the present.
+
+---
+
+# Debt
+
+Borrowing against the future.
+
+OceanofPDF.com
+
+---
+
+Debt defines your future, and when your future is defined, hope begins to die.
+
+—KENT NERBURN
+
+---
+
+The benefits of debt are visible, but its liabilities are often hidden. Taking on debt is borrowing something to use now, usually money, that must be paid back in the future. We have an intuitive sense of debt beyond straight financial transactions: If we don’t get enough sleep or eat enough, we say that we have a sleep debt or caloric debt, which our bodies nudge us to repay. When someone helps us, we may feel a “debt of gratitude,” the need to help them in return.
+
+The total cost of repaying financial debt tends to be higher than what was initially borrowed. Lenders charge interest to compensate them for the risk of nonrepayment. If the interest rate is too high, it can lead a debt to grow faster than is possible for it to be paid off. Another downside of debt is that we tend to value future expenses differently from immediate ones and may spend more if we can pay later.2
+
+A default occurs when a person or an entity fails to pay off a debt. If an asset for which someone owes money suddenly loses value, and the remaining debt is greater than that asset’s current value, a debtor may make a deliberate choice to default, regardless of whether they can pay or not. If a person, company, government, or other group accrues a level of debt beyond their ability to ever pay back, they can, in most countries, declare bankruptcy.
+
+Debt is inevitably a complex, sensitive topic. While most people tend to generally believe that what’s borrowed should be repaid, there are numerous situations where things aren’t that simple. For example, “odious debt” is debt accrued by a government regime that acted so far out of the interests of its nation that it is considered a personal debt of that regime rather than of the nation. In some cases, international legal frameworks may decide that odious debt does not need to be repaid by the people of that country, because the money should not have been lent to a repressive and
+
+---
+
+corrupt regime in the first place.3 The concept of odiousness highlights how debt can serve as an instrument of control.
+
+Interestingly, according to economist Michael Hudson, “Nowhere in antiquity do we find governments become chronic debtors. Debts were owed to them, not by them.”4 It is, however, currently the norm for countries to issue debt for various purposes. When countries take on debt, it is referred to as “public debt,” since the public is ultimately responsible for paying back the debt, and not all public debt is odious. It’s another sensitive topic, for sure, but debt has been employed by countries in the past to develop public infrastructure that facilitates economic growth, such as banking and transportation systems, and to successfully defend themselves against invasion. The general idea behind public debt is that the money is used to develop infrastructure, so that the economy grows and the future revenue generated by that infrastructure (either directly or indirectly) will be greater than the debt incurred.
+
+The Meiji government in Japan, circa 1873, is considered an example of the benefits of public debt.5 The Meiji governed during the transition from the country’s traditional samurai culture to the beginnings of what became modern Japan. They borrowed to create a central bank, a commercial banking system, and railroads, and to fight a war. They were able to successfully defend themselves while simultaneously building a financial and transportation infrastructure that spurred development and economic growth. They were also able to pay back the original debt within thirty years.
+
+Debt both enables and requires us to do things that wouldn’t otherwise be possible. Yuval Harari writes in Money that the European colonization of other countries was enabled by the creation of a banking system that provided credit. Harari says, “This was the magic circle of imperial capitalism: credit financed new discoveries, discoveries led to colonies, colonies provided profits, profits built trust, and trust translated into more credit.”6 Of course, just because something is possible doesn’t mean it’s good or even necessary.
+
+---
+
+But borrowing now with the intent to pay back in the future is still often advantageous if it allows us to build assets with greater value later on. For example, a loan to pay for a university degree that increases your income after graduation is generally considered good debt.
+
+# Debt
+
+Debt, as a model, prompts us to consider whether the actions we will have to undertake in the future to compensate for what we do now are worth it.
+
+# Future Costs
+
+The core premise of debt is that someone pays for something in the present by borrowing. To have what I want now, you give me money, and I commit to repayment later. Debt is undesirable when the cost of repayment exceeds the value gained by the present expenditure.
+
+Sometimes our current needs seem so great that they blind us to the invisible reality of the cost of repayment. The use of land mines is an example of how borrowing to address a current perceived need can cost us more than we can ever repay.
+
+Land mines have been used in war for centuries, but as with all weapons, the technology was subject to ongoing development. Modern land mines began to be deployed in large quantities during World War II. The contemporary image of a land mine is of a small explosive device buried in a field that detonates when pressured by a foot or wheel. The resulting explosion kills or maims the person who stepped on the device, or blows up the vehicle. The use of land mines in an active battle follows a simple logic: you place them in an area that you then manipulate your adversary into crossing. The result: a bunch of adversaries are blown up and removed from the fight. Land mines are relatively cheap compared to a lot of other weaponry. Although they are sold commercially by weapons manufacturers, they also can be easily improvised in local, small-scale settings.
+
+If you know your enemy will be taking a particular path or occupying a certain territory, the use of land mines might appear to make immediate
+
+---
+
+You can cause a lot of harm for very little cost. The problem with land mines is that using them now requires repayment in the future. They may help win the battle, but they essentially make it harder to win the war. Why? Because the cost of repayment is often more than can be gained from the immediate benefits of using them.
+
+There are two types of debt created when land mines are used. The first is short-term debt. Using land mines in a war may seem like a great idea, until you consider that your adversary is likely using them too. That means each new territory you find yourself in that the adversary has previously occupied must be treated as if it contains land mines. This is a serious problem.
+
+As one account by a United States military veteran describing the reality of land mines in war explains, “When someone stepped on a land mine and set it off, often everyone around him would freeze for fear of stepping on land mines themselves.” This is a reasonable fear and one that incurs costly delays. Furthermore, “it’s harder to get mine victims off the battlefield, and they generally need more blood, more surgery, and more resources than those with other types of combat injuries, which can overwhelm military medical teams.”7 Thus, using land mines creates a debt that must be repaid out of future resources.
+
+The second type of debt created by land mines is a long-term debt. Using them creates a global obligation of repayment over decades, if not centuries. Using land mines leads directly to civilian deaths, they restrict the movement of humanitarian aid, and they limit postwar recovery and development. Jody Williams won the Nobel Peace Prize in 1997 for her work leading the campaign to ban land mines. She explains in her memoir:
+
+Land mines violate the important provisions of international law: proportionality and distinction…. The effect of land mines is disproportionate, which means the long-term impact of the weapon on civilians outweighs the benefit to the military of using it…. The violation of distinction is obvious because, by land
+
+---
+
+mines’ very nature, they are indiscriminate. No land mine can tell the difference between a civilian and a soldier.8
+
+Describing the experience of the nation of Vietnam after the Vietnam War, Jody Williams explains:
+
+The war was over, but land mines hadn’t gone home with the soldiers like guns and other weapons. Once in the ground, they waited in deadly silence until the unsuspecting stepped on them or picked them up. Then the mine exploded, shattering not only the individual, but also the victim’s family and community.9
+
+After a war, most of the victims of land mines are civilians: farmers trying to grow crops, women going to rivers to get water, kids playing. Dealing with land mines thus consumes an incredible amount of resources. It costs money to try to clean them all up. It costs money to treat the wounded. There is a loss of productivity, because land can’t be farmed or otherwise utilized, land mine survivors cannot contribute to society at full capacity, and those who are killed cannot contribute at all. There is emotional trauma and negative social impact. Development slows or stagnates. Winning a war is all about neutralizing a threat, but the legacy of land mines means that threat often grows. No one looks favorably upon the country that causes such negative long-term consequences.
+
+Under international law, any use of land mines is supposed to be mapped so they can later be removed, but the reality is the maps are rarely created and the cleanup is almost never done. Although 164 countries have signed the treaty to ban land mines, there are still a handful that have not. In addition, land mines are often used by nongovernmental groups.10
+
+The United Nations website says, “The presence of land mines continues to impede social and economic development.”11 According to a BBC news video, as of 2016, there were approximately 110 million antipersonnel land mines still underground in about sixty countries, and one person was being killed or maimed by them every hour.12
+
+---
+
+Although not an example of debt in the traditional monetary sense, using debt as a lens to look at land mines helps us consider the long-term costs of our actions. Debt as a model prompts us to consider whether we can afford the cost of making right those wrong actions we embark on today.
+
+OceanofPDF.com
+
+---
+
+# Debt Forgiveness in Ancient Societies
+
+Most of us think of debt as something that must be repaid. After all, you decided to borrow the money; you should have to deal with the consequences. However, historically, there has been an awareness that there are different types of debt, some of which are regarded as corrosive to social functioning.
+
+As economist Michael Hudson explains, in many different Bronze Age societies in the Near East, including Babylonia and Assyria, rulers often practiced widespread debt forgiveness. Records of such practices “have been excavated in Lagash, Assur, Isin, Larsa, Babylon and other Near Eastern cities as far west as Asia Minor.”
+
+Debt cancellation was not for all debts, such as those incurred by merchants for capital growth purposes or by wealthy landowners for their townhomes. Rulers forgave the debts of the agrarian population and aimed for nothing “above the basic subsistence needs of citizens…. The aim was not equality as such, but the assurance of self-supporting land and production for the citizenry.”
+
+Hudson continues, “Rulers sought to check the economic power of wealthy creditors, military leaders or local administrators from concentrating land in their own hands and taking the crop surplus for themselves at the expense of the tax collector.”
+
+Why would rulers do this? Essentially, to be able to continue their rule. Hudson writes, “When harvests failed as a result of drought, flood or pests, there was not enough crop surplus to pay agrarian debts. In such cases rulers canceled debts owed above all to themselves and their officials, and increasingly to private creditors as well. The palace had little interest in seeing these creditors force debtors into bondage.”
+
+It was better to have a loyal population that could feed itself than one indebted and indentured to a small, wealthy class, for two reasons. One, rulers needed a free population to join the army or to help build public infrastructure, such as temples and city walls, when called upon. Two, a population that was in debt bondage to anyone other than the ruler would be a threat to their rule. Thus, as Hudson argues, “For thousands of years, economic polarization was reversed by canceling debts and restoring land tenure to smallholders who...
+
+---
+
+cultivated the land, fought in the army, paid taxes and/or performed corvée labor duties (what we would now call public works projects).”17
+
+Canceling debts so that people could continue to survive, pay taxes, and fight for the military was a strategic move on the part of the ruler. It acknowledged that not all debt is a result of uncontrolled spending; sometimes natural events such as droughts and challenges such as war put excessive strain on populations.
+
+Debt forgiveness by rulers faded away during the Roman Empire. In this period, instead of protecting debtors from losing their property and livelihoods, governments began protecting creditors from loss. The general attitude toward debt became more like what we’re familiar with today: “Moral blame is placed on debtors, as if their arrears are a personal choice rather than stemming from economic strains that compel them to run into debt simply to survive.”18
+
+But not recognizing the different kinds of debt and their potential impacts on the stability of leadership can have negative consequences. According to Roman historians, including Livy and Plutarch, “Classical antiquity [was] destroyed mainly by creditors using interest-bearing debt to impoverish and disenfranchise the population. Barbarians always stood at the gates, but only as societies weakened internally were their inventions successful.”19
+
+---
+
+# Conclusion
+
+Debt is a double-edged sword. It’s a powerful tool that can help you grow a business, buy a home, or seize an opportunity. But it’s also a chain that can bind your future or destroy you.
+
+When debt spirals out of control, it quickly turns dreams into nightmares.
+
+Debt isn’t just about money. It can be a favor you owe, a social obligation, or anything that creates a future obligation. We even have sleep debt.
+
+It can be hard to appreciate just how fragile debt makes you. It’s a bit like driving across a huge desert without a spare tire. If everything goes just perfectly, you will reach the other side, but the smallest hiccup will leave you stranded and desperate.
+
+Use debt wisely. Respect its power, but fear its edge. Remember, the more you borrow, the less room you have to weather life’s storms.
+
+While debt might seem cheap in the moment, the future often proves it to be more expensive than we imagined. The more you borrow, the less room you have to deal with uncertainty.
+
+Debt can give you leverage, but it can also take away your freedom. Respect its power but fear its edge.
+
+OceanofPDF.com
+
+---
+
+# Monopoly and Competition
+
+# Omniquil
+
+20mg Tablets
+
+Monopolistic might, competitive fight.
+
+OceanofPDF.com
+
+---
+
+Nature hates monopolies and exceptions. The waves of the sea do not more speedily seek a level from their loftiest tossing, than the varieties of condition tend to equalize themselves. There is always some leveling circumstance that puts down the overbearing, the strong, the rich, the fortunate, substantially on the same ground with all others.
+
+—RALPH WALDO EMERSON
+
+---
+
+Markets become efficient through competition. Buyers compete to get the goods and services they want at the lowest possible prices. Sellers compete to sell at the highest possible prices. In a monopoly, a single company controls a market; there is no competition. Imagine a bridge that crosses a body of water, with no alternative. If you want to cross, you must use the bridge.
+
+When there is competition in a market, consumers are free to choose the best providers and firms compete to serve consumers. Monopolies are often considered harmful because they interfere with this process, letting monopolists set prices higher than they could if they had real competitors. That’s why many countries try to prevent monopolies.
+
+What is more common is oligopolies—markets with only a small number of competitors and limited room for new entrants. Markets tend to favor unequal distribution of market share and profits, with a few leaders emerging in any industry—what’s known as a “winner-takes-all market.” Winner-takes-all markets are hard to disrupt, and they suppress the entry of new players by locking in market share for leading players. When we say a market is “winner-takes-all,” what we mean is that a single company receives most available profits. A few others have at best a modest share. The rest fight over a minuscule remnant and tend not to survive long.
+
+Monopolies can be positive, though, when significant investment needs to be made to develop and supply a product in the first place.2 One example is utility companies. It costs a lot to create the infrastructure needed to provide sewage treatment or electricity. Giving a company a monopoly for service to an entire city justifies the initial upfront investment required and increases the possibility the resulting infrastructure will have a certain longevity.
+
+---
+
+This type of monopoly often develops into a natural monopoly, which occurs when an industry has steep barriers to entry. These barriers—such as significant physical infrastructure requirements—make it daunting for new competitors to take on established players that are already operating at a large scale. When natural monopolies of providers of essential goods or services occur, governments may intervene to ensure prices remain affordable. With restrictions on prices in place, a natural monopoly can continue to benefit consumers, especially with an undifferentiated product, by reducing the overall cost of required infrastructure.
+
+Sometimes, markets have mechanisms in place to deliberately create temporary monopolies, to incentivize desirable economic activity. Economist Joseph Schumpeter believed that “monopolies were especially important for bringing about innovation because they give entrepreneurs big rewards for the risky activity of trying to create new things.” For example, pharmaceutical companies typically receive exclusive rights to sell newly developed drugs for a few years, allowing them to set high prices to recoup the costs of research and development. Although this may initially restrict access, in the long run, pharmaceutical patents are intended to incentivize the development of drugs that would otherwise be unprofitable to create.
+
+We can use the mental model of market monopolies to help us understand many situations involving unequal distributions: Most of the books sold each year are written by a handful of authors. Most internet traffic goes to a few websites. The top 100 websites get more traffic than ranks 101 to 999 combined. Most citations in any field refer to the same few papers and researchers. Most clicks on Google searches are on the first result. Each of these is an instance of a winner-takes-all market.
+
+Monopolies can perpetuate themselves; sometimes things are famous for being famous or popular because they’re popular. Robert H. Frank writes of such things in Success and Luck: “Although we often try to explain their success by scrutinising their objective qualities, they are in fact often no more special than many of their less renowned counterparts….
+
+---
+
+Success often results from positive feedback loops that amplify tiny initial variations into enormous differences in final outcomes.”5
+
+# Extreme Monopoly
+
+People tend not to like monopolies. A monopoly means you don’t have a choice of who to buy from. And that feels threatening, because if there’s only one seller, they have power over you.
+
+Monopolies can also be scary because of the lack of competition inherent in the model. In some monopolies, the barriers to entry are so high that no one can compete by bringing different goods or services to market. Saying we can’t compete seems unnatural; the entire history of humanity is predicated on some humans, some of the time, coming up with better, more effective ways of doing things. Monopoly can discourage us from doing what really comes quite naturally.
+
+So, let’s explore what an extreme monopoly might look like. If a monopoly is characterized by lack of competition and therefore being the sole option for consumers, then we can consider totalitarian governments as a monopoly.
+
+Here, we will look at two leadership periods in the twentieth century that are generally considered to be totalitarian: the Soviet Union under Joseph Stalin and Germany under Adolf Hitler. The particulars of each regime are not as important here as what the general aims of each leader were. Neither achieved an absolute global monopoly, but we’re going to use the lens of monopoly to look at totalitarianism in theory, with examples from the Soviet Union and Nazi Germany to provide context.
+
+# First, what is totalitarianism?
+
+Totalitarianism is an all-encompassing system of rule. In the words of historian Stephen J. Lee, “Totalitarian regimes possessed a distinctive ideology which formed a body of doctrine
+
+---
+
+covering all vital parts of man’s existence.”6 These types of governments enlarge the state so that it covers absolutely everything. Nothing exists that is not under the purview of the state.
+
+Totalitarian leaders try to achieve a monopoly on all functions of society and all relationships between people by eroding anything that they do not control. “Totalitarianism is at bottom simply the internal invasion by the state of its civil society,” writes Robert Nisbet. “It represents the desire to subjugate, and where possible exterminate, the groups, associations, statuses, and roles that are the building blocks of a civil society and, ideally, to replace them all by relationships entirely of the state’s creation.”7
+
+Therefore, totalitarian leaders undermine and eliminate groups like churches and unions, and replace remaining ones like schools and sports clubs with ones that are creations of the totalitarian state.
+
+To achieve the complete destruction of civil society and the construction of a society completely controlled by the leader, totalitarian states are thought to have some commonly defining characteristics. Carl Friedrich and Zbigniew Brzezinski define that totalitarian state as having “a combination of an ideology, a single party typically led by one man, a terroristic police, a communications monopoly, a weapons monopoly, and a centrally directed economy.”8 In short, there is no aspect of day-to-day existence that a totalitarian leader is not involved in.
+
+Humans are social creatures. We’re biologically wired to participate in groups. The type and intensity of participation varies from person to person, but it’s hard to imagine someone living completely alone, without being even a loose member of a group such as a family or work team, or part of a community of people with likeminded interests. Thus, totalitarianism must work hard to undermine and pervert our natural tendencies.
+
+In her book The Origins of Totalitarianism, Hannah Arendt offers insight into how totalitarian states pursue their goals. One requirement is that they are run by a leader who has “absolute monopoly of power and authority,” which means that the leader has “a monopoly of responsibility for everything which is being done.”9 No subordinate acts of their own free will; instead, they implement the desires of the leader.
+
+---
+
+There are a few techniques that remove the ability of anyone but the leader to act. One is the duplication of offices. One of Hitler’s more effective totalitarian techniques was to have multiple, overlapping organizations whose aims were vague and conflicting, so that everyone had to look to him for leadership. Another is an ongoing and random purging of people from positions. Stalin killed thousands of workers in deliberate purges of state organizations, so that no cliques or challenges to his power could develop.
+
+The terror of elimination based on random and arbitrary factors is also a means of undermining the strength and independence of the general population. Arendt writes often of totalitarianism seeking to “atomize” people to achieve control; atomization means “to deprive of meaningful ties to others.”10 When your actions have no impact on your experience, when you could be shot just as easily for what you did not do as for what you did, your ability to trust others and build social ties collapses. Random terror is thus a means of preventing the development of any credible alternative to the totalitarian state.
+
+The problem with totalitarianism as a monopoly is that it goes against how the world works. The arbitrary use of terror may dull a population and inject suspicion into all social relationships, but it cannot eliminate the human propensity to create and seek out alternatives. Arendt writes that “total power can be achieved and safeguarded only in a world of conditioned reflexes, of marionettes without the slightest trace of spontaneity.”11 It’s hard if not impossible to imagine a world in which all humans have lost the ability to be spontaneous, to have original thoughts, and to form connections with one another. Totalitarian regimes want a monopoly on history and the path to the future. However, to achieve this, they require a monopoly on thought, which is not possible.
+
+In the desire to isolate people to control them, totalitarian regimes may also sow the seeds of their own failure. Regardless of one’s ideology, societies need to have certain attributes in order to function. They must be able, at a minimum, to feed, clothe, and shelter their populations. But the tactic of “constant removal, demotion, and promotion makes reliable
+
+---
+
+teamwork impossible and prevents the development of experience.”
+
+Without experience, all challenges are new. The same mistakes can be made over and over. There is no ability of a population to adapt to change.
+
+The truth is, no one person can have everything figured out or know the best course of action in all circumstances. Stalin couldn’t feed the Soviet population and created famines. Hitler destroyed the economic functioning of Germany to pursue terror-based ideological ends. Arendt explains:
+
+The reason why the ingenious devices of totalitarian rule, with their absolute and unsurpassed concentration of power in the hands of a single man, were never tried out before, is that no ordinary tyrant was ever mad enough to discard all limited and local interests—economic, national, human, military—in favor of a purely fictitious reality in some indefinite, distant future.
+
+Arendt’s comment leads us to the problems inherent in a total monopoly: Life develops. Evolution happens. Environments change. Positive response—even if we define that simply as survival—requires people who can think independently and creatively interact with the challenges presented to them.
+
+Totalitarianism seems to see the world as a giant machine, with all its parts identified and in place. Therefore, the logic goes, if the leader has control over everyone, they have control over the machine and can keep it running in perpetuity. But the earth is not a machine. Evolution is not predictable. We evolved the traits we did to survive and flourish in our ever-changing environment. To seek to eliminate those traits is to render useless the very capabilities we need to survive.
+
+# Conclusion
+
+Monopoly and competition are the yin and yang of the business world. They’re the opposing forces that shape the landscape of every market, the
+
+---
+
+Tides that lift and sink the fortunes of every firm. To understand business, you must understand the dance between these poles.
+
+# 1. Competition
+
+Competition is the default state of the market. It’s the Darwinian struggle where many firms vie for the same customers and resources. In a competitive market, no one firm has the power to set prices or dictate terms. They’re price takers, not price makers. They survive by being efficient, delivering value, and innovating.
+
+# 2. Monopoly
+
+If competition is the natural state, monopoly is the entrepreneur’s dream. A monopoly dominates a market so completely that it becomes the market. Think of the only bridge that crosses a river. But monopolies inevitably sow the seeds of their own destruction. The question is how long they will last.
+
+# 3. The Balance
+
+We need both monopoly and competition. Competition keeps firms honest and drives innovation. But we also need monopolies’ deep pockets to fund big visions and moon shots. The ideal is a balance: enough competition to check monopolies, but enough monopoly to reward innovation.
+
+---
+
+# SUPPORTING IDEA:
+
+# Externalities
+
+EXTERNALITIES ARE ONE FORM OF market failure. They occur when someone either incurs a cost or receives a benefit without being compensated for or paying for it. Externalities, whether positive or negative, are inefficient because scarce resources are not being used in a way that confers the most utility. However, externalities are difficult to prevent and are consequently an accepted part of markets.
+
+When costs spill over from one party to another, the solution is to create additional costs for the party causing the externality. But the cost must be at the margins, not the average. This means that the party responsible must pay for each additional unit of externality they cause.
+
+For example, charging people each time they drive in the center of a city is more effective than charging a flat fee for driving in a city. This is because, subconsciously or not, people tend to aim to get their money’s worth when they pay a flat fee. Each additional trip costs them nothing extra. But paying per trip makes the cost much more obvious.
+
+An example of a positive externality is vaccines. Each person who gets vaccinated benefits other people who are unable to do the same, such as those with serious immune system deficiencies. Those who benefit do not pay for that. For that reason, vaccines against common diseases are often made free or cheap to obtain.
+
+---
+
+# Creative Destruction
+
+# How the mighty fall.
+
+OceanofPDF.com
+
+---
+
+Yet technological creativity as an economic phenomenon does not require the creation of totally new knowledge: innovation does not require invention. Borrowing, extending, and adapting will increase the supply of goods and services just as well.
+
+—JOEL MONKYR
+
+---
+
+M ost of us can easily recognize that change is constant. In our lives, we never get to a plateau where we can stop and never do anything different from that point onward. Our circumstances change. New challenges present themselves. And the world around us is always evolving.
+
+Joseph Schumpeter describes the process through which the old order crumbles to make way for something better as “creative destruction.” In *Capitalism, Socialism, and Democracy*, Schumpeter writes:
+
+The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.
+
+Other economists have since referred to it as “Schumpeter’s gale,” comparing it to a wind sweeping across the land. Creative destruction captures an evolutionary process, and we are going to use that broader context, expanding beyond Schumpeter’s original concept, in this chapter. In volume 2 of *The Great Mental Models*, we looked at natural selection as a mental model. Traits that make an organism more likely to survive long enough to reproduce are passed on. The organisms that are best suited to their environment survive. It’s a constant process of adaptation and improvement.
+
+Revisiting the concept of evolution can help us understand creative destruction better. Any economy is an evolutionary system: the market is the ecosystem; the firms within it are the living things. Even if a company is
+
+---
+
+doing fine and meeting the needs of its customers, a new one may come along that is more efficient in some way and able to do more for customers. A population of a species that can obtain enough food with less energy expended is likely to usurp one that requires more energy. In the same way, a company that can provide a service at a lower cost is likely to survive over one providing the same service for more money. In any evolutionary process, whoever survives, wins.
+
+In an evolutionary economy, technology can be thought of as mutation. As in nature, not all mutations are beneficial, and not all of them stick around. But some provide such an advantage that they are reproduced throughout a population and become the new norm. Schumpeter emphasized the role of the entrepreneur in creating technological innovations and establishing them in the market, asserting that they are the disruptive force that both initiates change and capitalizes on it. But an updated understanding of the economy as an evolutionary system doesn’t require such a defined role. Entrepreneurs are just one of many sources of change and development. Anyone can produce a change that impacts the system.
+
+Creative destruction rests on the understanding that there are always better ways of doing things, and it’s more effective technology that can really propel overall advancement. It also acknowledges, similar to the biological world, that economies must always respond and adapt to broader global trends and changes.
+
+Even if creative destruction proves beneficial overall, it leaves chaos in its wake. People lose their jobs and may need to retrain, at great financial and psychological cost. Companies go bankrupt, and local economies can suffer. New technology may carry health or environmental risks. The number of available jobs may fall, or wages may drop. Schumpeter himself advised that when it comes to new technologies, or even capitalism itself, “you can only begin to reckon its achievements in the long run.”3 This thinking also resonates with the biological analogy: not all change benefits all individuals and species.
+
+---
+
+History is usually written by the victors. The history of technology tends to tell of improvement and progress, but these advances always come at a price. All leaps forward leave some people behind. With the benefit of hindsight, we easily forget the extensive periods of unease, confusion, and suffering that accompany technological progress. Even though we can appreciate overall gains that occurred in the past, when it’s happening around us in real time, we may be less amenable.
+
+Technology is always moving the goalposts for economics. Creative destruction tends to wipe out existing wealth, turning it into the raw material for new forms. For societies to remain creative, the forces pushing new ideas forward must be stronger than those protecting the established order. There never was a “good old days.” The economy—and by extension the world—is always shifting due to changes in technology. If we try to stop creative destruction, we are essentially trying to stop evolution, an impossible task.
+
+Using creative destruction as a model calls us to explore how to let go of our entrenched ideas and make way for new ideas. It also asks us to acknowledge that there are always better ways of doing things and we are always in a position of discovering and trying to implement them.
+
+# The Evolution of the Law
+
+Evolution doesn’t end; it keeps churning. And occasionally, a mutation occurs that spreads through a population and has a massive impact on all parts of the surrounding environment. This effect of a mutation is similar to what Schumpeter describes with the term “creative destruction”: society is just chugging along, and then the car or the internet gets invented and spreads through society, and large changes occur that ripple outward. These technological “mutations” occur in part because there are always different ways things could be done, and some people are always working to explore what could be.
+
+---
+
+It’s not only technology that produces change but also new ways of thinking. New ideas spread through populations and can cause significant structural shifts. One important component of creative destruction as a model is to see that it always keeps on going. Although Schumpeter was enthusiastic about the positive impact of creative destruction, he was more pessimistic about growth eventually stagnating and capitalism collapsing, because he worried creative destruction would become a codified process and thus stop being creative. This eventuality is, however, unlikely. A broader definition of creative destruction, beyond the activities of lone entrepreneurs, allows us to see that there will always be new ideas that shake up the status quo.
+
+Exploring the history of law highlights how creative destruction lacks an endpoint; there is no state we achieve in which there is nothing left to improve or innovate. We just keep going, moving along from where we are to somewhere we think we might want to be.
+
+For much of human history, we existed in groups without laws. We had norms that were enforced by the group, but no independent, codified laws as we understand them now. As our groups started to grow, as we got rulers and cities and empires, there came the idea in some places to compile a set of laws to be enforced by a class of people under the direction of the ruler. The birth of the law likely arose in the Near East, in city-states with large groups of people who weren’t connected as kin.
+
+# First, what is the difference between rules and laws?
+
+���Rules and commands take on legal force only when they meet basic formal requirements,” writes law professor David M. Beatty. For example, “They must be general, transparent, and prospective.” Laws are not arbitrary, nor can they change on a whim. For something to qualify as a law, it has to be developed or modified according to procedures that are set out in advance.
+
+# Second, what is the point of having laws?
+
+“The purpose of law is to encourage people to behave respectfully toward one another and to settle their conflicts peacefully.” This goes a long way toward explaining why laws first evolved in large city-states: The more people in one place, the
+
+---
+
+more chances for conflict. The more unchecked conflict, the more unrest. The more unrest, the weaker the power of the ruler.
+
+So, back to our evolution. One of the earliest legal codes in these city-states was that of Hammurabi, the king of Babylon from roughly 1790 to 1750 BCE. The Code of Hammurabi, as it is called, was easy for the average person to read and was posted publicly where all could access it. It does not lay out general rules but instead is a series of examples of something that happened and what the consequence was. For example, instead of saying “arson is prohibited,” it would say something like, “If a man burns down his neighbor’s house, then he is burned to death.”
+
+One key feature of the code was that “it was likely intended more as a teaching tool illustrating proper behavior in specific situations rather than as a binding precedent in future cases. It provided judges and juries with guidance rather than hard-and-fast rules.”6 There was thus an interpretive element, necessitating a legal structure to accompany the code.
+
+The Code of Hammurabi provided the model for how legal codes were developed and implemented all over the region. There were variations, for sure, but the idea of the rule of law had come into being and would evolve from there. From its beginnings in the Near East, the idea of having a legal code, of a group of people adhering to a system of laws, began to spread.
+
+There are more innovations to the rule of law than we can cover here. But a few more milestones demonstrate the process of creative destruction in the evolution of the rule of law, whereby powerful new ideas fundamentally altered the way societies organized and developed.
+
+Over a thousand years later, a new idea about the law came out of ancient Greece: the concept that laws were considered legitimate by the agreement of the people who adhered to them. Previously, under Hammurabi and those with similar codes, laws were justified by relating them to divine authority that came through the society’s leadership. In ancient Greece, however, polymath and reformer Solon argued that society would be better served if people were responsible for the law. Beatty explains:
+
+---
+
+By any measure, making the people guardians of the law was a bold decision. It was unlike anything that had been tried before. In creating the jury courts and giving them the power to overturn the decision of the magistrates, the people were able to determine the force of the law and to say what it actually meant.7
+
+Now, as with creative destruction in its conventional sense, just because something is new and useful doesn’t mean its uptake will be widespread and immediate. Leonardo da Vinci conceived of mechanisms for flying machines more than five hundred years before they entered widespread use. The ancient Greeks encountered political turmoil and their circumstances changed, but the idea of a rule of law that could be bottom-up instead of top-down was now out there, and eventually it became a standard component of many legal systems. Most importantly, in terms of creative destruction and the idea that “the waves it creates never die down,”8 legitimizing the idea that people can and should be involved with the rules that govern them is a cornerstone of democracy. And democracy, too, got its ideological foundation in ancient Greece.
+
+Another big idea that appeared as the rule of law evolved was that rulers were also bound by the law. Early legal codes were part of a system of governance ultimately enforced by a ruler. As such, the law was part of the ruler’s power, a tool of the state; laws did not exist higher than rulers. As time went on, laws were practiced and systems evolved. More and more, legal analysis started to argue for rulers being required to adhere to the same laws as their people. Schumpeter said that “capitalism is nothing but the constant change caused by restless entrepreneurs.”9 We might say that the rule of law is nothing but the constant change caused by restless legal analysis and application.
+
+To be fair, rulers did not naturally and easily embrace the idea that they were bound by their own legal systems. But this big idea persisted. It was argued for by the ancient Greeks, encoded in systems such as sharia law, defended by jurists in seventeenth-century England, and became a core pillar of the American constitution in 1787. Now, for a society to be
+
+---
+
+considered a rule-of-law state, everyone in the state—including the leadership—must be bound by the law, and there must be a mechanism to enforce that compliance. No one is above the rules—another idea that rippled out, causing social change.
+
+The law is constantly moving; it has no endpoint. It will always be changing and evolving. There will always be different ways of having, organizing, and interpreting the rule of law. Some will be better or more popular and become part of the idea’s evolutionary story.
+
+Creative destruction as a lens shows us that occasionally, a powerful idea comes along that instigates widespread change. These moments of creative destruction are inevitable. There will always be people trying to figure out a better way of doing things. Creative destruction can be hard to use as a model because the mechanism reveals itself best when one can take a long look over history. What’s most useful is the notion of new ideas causing fundamental changes in the way we live and organize ourselves. Prepare for a world that is going to change and don’t be afraid to contribute.
+
+# The End of “Clovis First”
+
+Old orders crumble all the time: Gunpowder gets invented, and warfare changes. The telegraph comes along and revolutionizes how business gets done. Looking back over the history of technology, it’s easy to see how some technologies fundamentally altered the way a lot of our societies operated.
+
+It’s equally easy to see how not everyone embraces change immediately. Often, technology must be further developed and refined until it is useful enough and cheap enough to be available to everyone. In those cases, we can understand the lack of instantaneous, overnight adoption. But when something comes along that threatens the existing order, resistance can persist for a while regardless of a technology’s availability. The famous story of Ned Ludd and his Luddites trying to stop automation in the textile industry comes to mind. We should not, however, look back at people like
+
+---
+
+Ned Ludd and shake our heads with pity, as if to say, Poor souls; automation made everyone’s life better in the long run, or Boy, were they on the wrong side of history. A more pertinent lesson is to understand people’s natural resistance to change when they don’t see themselves as having a place in the new world order that is on the horizon.
+
+Creative destruction wreaks havoc. People get displaced. Fortunes are lost. Entire ways of living get disrupted, and some even become obsolete. The model of creative destruction thus can also be used to help us understand resistance to new ideas.
+
+Science is a field that has its moments of creative destruction. The world is understood to work a certain way—say, everyone believes the sun revolves around the earth—and then, boom! New information is discovered, and the old order crumbles. We change our thinking and now understand that the earth revolves around the sun. These creative-destruction-type moments in science are like the idea of paradigm shifts that Thomas S. Kuhn wrote about in *The Structure of Scientific Revolutions*.
+
+In the science textbooks we read in schools, you’ll find what Kuhn called “normal science”: “research firmly based upon one or more past scientific achievements, achievements that some particular scientific community acknowledges for a time as supplying the foundation for its further practice.”10 The material of normal science is what Kuhn called a “paradigm.” Looking at a particular field at a particular time, its paradigm should be simple to identify. An example of a paradigm is Newtonian physics, which is based on the three laws of motion. Once a field has a paradigm, normal science progresses along a predictable path for a while.
+
+However, at a certain point in normal science, something goes wrong. An anomaly emerges—a phenomenon that contradicts the existing paradigm. It is this departure from what is expected that engenders the moment of creative destruction and that ultimately leads science to advance. At first, researchers often assume an anomaly is a mistake. When it proves repeatable, they may ignore or work around it, sometimes for long periods of time, expecting it to be resolved.
+
+---
+
+Paradigms are always imperfect, and therefore some anomalies are not unexpected. But unless there is a crisis, there is no reason to question a paradigm. Because individual scientists are reluctant to shake the foundations of their work, they are commonly able to deal with anomalies without being deterred. They may not even notice anomalies that later become significant.
+
+However, during a period of scientific crisis, resolving the anomaly becomes the focus of the field. Many of the most talented researchers will devote themselves to it. Due to all the focus on this one subject, it will seem to grow in size. Once an anomaly proves insurmountable, one thing becomes apparent: the existing paradigm must be wrong. Attempts to resolve the anomaly begin to deviate away from the paradigm. It is time to replace the paradigm with a new one—only when a replacement emerges will scientists relinquish the old one, for science cannot exist without a paradigm. The unresolvable anomaly kicks off the gale of creative destruction.
+
+The transition from the old order to a new paradigm is a scientific revolution. The resolution of scientific revolutions is always a gradual, slow process; it can take centuries. The field as a whole cannot, in one sweep, abandon the old paradigm. Therefore, two paradigms may coexist for a time, as Einstein’s and Newton’s did. At first, only a few people are convinced of a new paradigm. Early adopters work to improve the paradigm, making it more persuasive. This attracts other scientists, who in turn improve the paradigm further. Eventually, this feedback loop converts all but a few holdouts, who depart from the path of the developing science. Once enough time has passed, they die off or leave the field, and the new paradigm fully takes over.11
+
+The Clovis theory of the migration of humans to the Western Hemisphere is a great example of the tension and struggle of a paradigm shift in science. In the 1930s, bones that were found in the desert near the village of Clovis, New Mexico, were determined to be human. This set off a flurry of activity, and soon, human artifacts similar to those at Clovis were found in multiple places in what is now North America. Carbon dating in
+
+---
+
+The 1950s determined these artifacts were between 13,500 and 12,900 years old; the humans associated with these artifacts came to be called the Clovis people. Because no earlier human artifacts had been found at the time, archaeologists proclaimed the Clovis people to be the oldest North Americans.
+
+How did they get here? Well, right around the time the artifacts dated from, there was a land bridge over Beringia, connecting what is now Russia and Alaska. So, it was decided, these Clovis people walked over from Asia. They walked right down through Canada, which at the time was covered by two giant ice sheets except for one small path through what is now Alberta. These early humans got through this narrow passage, spread all over the rest of the continent, and made it down to what is now Chile. They also killed everything along the way, which is why we don’t have mastodons or saber-toothed cats anymore.
+
+This theory was plausible—considering the data available, it offered an explanation for what might have happened. Archaeologists bought into it hard. It was taught in schools. It became what Thomas Kuhn called a paradigm. Like all scientific paradigms, work continued to refine and develop the theory, filling in holes and making it more robust.
+
+Then the anomalies started showing up. Soon, bones were being excavated all over the Americas that were older than the window provided by the land tunnel through the ice sheets covering what is now Canada. For example, human bones have been found in southern Chile that date to 18,500 to 14,500 years old, and others that possibly go back to 33,000 years before present (BP). Archaeological finds in the Yukon date human presence there to at least 24,000 years BP. More and more precise dating “has challenged our understanding of the human past and supported the rewriting of early human history on a global scale.” Dealing with these anomalies was a textbook example of Kuhn’s idea of replacing an old paradigm with a new one.
+
+Widespread resistance occurred in the archaeological community. The “Clovis first” believers attacked the reputations, skills, and credibility of those uncovering older bones. Many scientists were marginalized and had
+
+---
+
+to fight to maintain their careers. “There are very few recorded archaeological sites in the published literature that date to over 100,000 years BP in the Americas. This is due in part to bias and denial in the field over the last one hundred years. Those few archaeologists who did report on earlier than 12,000-year-old sites faced overly aggressive critiques and ostracism.”
+
+It’s the lens of creative destruction that can help us understand what happened. The new science coming in meant those who had argued for the Clovis people being the first in North America were wrong. And being wrong meant they were unlikely, like the Luddites, to have a place in the new order that was forming. So, they fought to keep it at bay. You might think this reaction inappropriate for a discipline that is meant to constantly discover what we do not know, that is based on the premise that you can never prove a theory right, only wrong. But when you’ve invested your time and reputation into a theory that is about to be dismantled, it’s hard to remember the principles you’re supposed to be working under.
+
+In reality, the new theories of human migration weren’t such an intellectual stretch. As archaeologist Paulette F. C. Steeves explains:
+
+Since the environmental history shows that a viable landmass area was available for most of the last 100,000 years and for a greater part of the last 64 million years, one has to question why discussions have not traditionally mentioned the possibilities of earlier hominin migrations to the Western Hemisphere.
+
+Still, today, there remain archaeologists who adamantly deny pre-Clovis hominid habitation of the Western Hemisphere. And still, in the face of these denials, the evidence for older occupation of the Americas continues to mount. Geologists have demonstrated that the ice-free corridor that humans apparently walked through was actually inhospitable. Bones from Clovis people have not been found in the corridor. The extinction of the large mammals on the continent seems to predate the Clovis timing. And
+
+---
+
+within Clovis sites, there is evidence for only minimal hunting, suggesting that humans were not responsible for the mass extinctions that occurred.17
+
+“The ultimate demise of the Clovis dogma was inevitable,” Charles C. Mann quotes historian David Henige saying in his book 1491. “Archaeologists are always dating something to five thousand years ago then saying that this must be the first time it occurred because they haven’t found any earlier examples. And then, incredibly, they defend this idea to the death.”18
+
+But the lens of creative destruction reveals this stance to be not so incredible after all. No one wants to get left behind as the waves of change push out the old order.
+
+However, science is built on learning more. “No one should expect that archaeological theories of early human habitation anywhere in the world will not change.”19
+
+Beyond archaeology, science as a whole will always have to contend with waves of creative destruction. “Archaeological goals are to study the human past; however, it is evident that we cannot possibly understand anything if we deny it exists before we even look for it.”20
+
+This explains why creative destruction, or Thomas Kuhn’s paradigm changes, are part of science: at its core, science is full of people who go looking for new things. And sometimes, those new things fundamentally change our understanding of our universe.
+
+# Conclusion
+
+Creative destruction is the engine of progress in a capitalist economy. It’s the process by which new innovations replace old ones, the cycle of birth and death that keeps an economy vibrant. It’s the embodiment of the old adage: The only constant is change.
+
+In a dynamic economy, nothing is sacred. Every industry, company, and way of doing things can be disrupted by newer, better ideas. The smartphone replaced the flip phone, online streaming replaced movie rental stores, cars replaced horses.
+
+---
+
+While creative destruction can be painful for individual companies, it’s essential for the health of the overall economy. It prevents stagnation and ensures resources are always put to their most productive use. Without creative destruction, we’d still be riding horses and renting VHS tapes.
+
+On one hand, creative destruction is the opportunity you’re looking for—the chance to disrupt an incumbent, to build something new and better. But on the other hand, it’s the threat you’re always guarding against—the possibility that you will be disrupted by the next big thing.
+
+Creative destruction isn’t just about business; it’s a metaphor for life. We are all subject to change, to the constant cycle of endings and beginnings. The key is to not cling too tightly to the old, but to embrace the possibilities of the new.
+
+OceanofPDF.com
+
+---
+
+# Gresham’s Law
+
+Incentives matter.
+
+OceanofPDF.com
+
+---
+
+If the intrinsic values of coins are different it will become a source of profit for the wicked to collect the small (bad) coins and exchange them (for good money) and then they will take them to another country and shift the small (bad) money of that country (to this country).
+
+—IBN TAYMIYYAH
+
+---
+
+Gresham’s law is the economic principle that bad money will always drive out good money. In practice, this means that if legal coins have a varying metal value, people will tend to spend the cheaper ones and hoard the more valuable ones.
+
+In historical situations in which Gresham’s law was observed, coins with different perceived values led to currencies becoming unreliable as a medium of exchange. People started to regard the coins as a store of value equal to their metal content versus their face value as legal tender and either saved them or, if the metal was worth more overseas, exported them.
+
+At its heart though, Gresham’s law is about the consequences of asymmetry—specifically, when asymmetry isn’t supposed to be there but is, like when the value of two coins is legally supposed to be equal, but people behave as if the coins have different values. Asymmetry can lead to a breakdown in trust, such as no one trusting the value of the currency they are exchanging—which is a problem, because human systems run on trust.
+
+You can also apply Gresham’s law to lending: bad lending drives out good lending. This caused the 1980s savings and loan crisis as well as amplified the great financial crisis of 2008. A borrower has an incentive to deal with the counterparty that has the fewest restrictions and the best terms, which leads to a gradual reduction of lending standards in the entire industry. The few companies that refuse to partake by lowering their standards make fewer loans and are, at least temporarily, punished as their share price goes down.
+
+Gresham’s law takes its name from the English merchant and financier Sir Thomas Gresham. As an advisor to Queen Elizabeth I of England, Gresham critiqued Henry VIII’s decision to debase the English currency by using an alloy that contained 40 percent base metals instead of pure silver. While Gresham didn’t codify the consequence of this action as a law, nor
+
+---
+
+was he the first to notice it, his name was later attached to the principle by
+economist Henry Dunning Macleod, in 1858.
+                           OceanofPDF.com
+
+---
+
+# I’s Law
+
+The inverse of Gresham’s law is I’s law. In the absence of legal tender laws, the opposite occurs: good money drives out the bad. For example, in a new state that issues its own currency, people may prefer to receive payments in the form of an older and therefore seemingly more reliable currency from abroad. Even if this practice is illegal, if legal tender laws are sufficiently difficult to enforce, the imported currency predominates.
+
+---
+
+One of the problems that Gresham’s law highlights is the potential for market failure if supposedly equal values skew too asymmetrical. At first you may think, What’s the big deal if I’m keeping the good coins under the mattress at home and just spending the bad ones? But what if you don’t have any bad coins on the day you need to buy groceries? You certainly aren’t going to use your good ones, as they can only buy you the same amount as the bad coins. So you don’t go shopping. You don’t participate in the market until you can get ahold of some bad coins. The market then becomes distorted, because the prices of goods don’t line up with the value of all the coins, both good and bad, that could be used to pay for them.
+
+The mental model of Gresham’s law highlights how asymmetrical value in entities that are supposed to be equal creates a feedback loop that reinforces all kinds of bad behavior and eventually drives out good behavior. Although the original coinage problem tends not to occur now that currency is generally not made of precious metals, it remains a useful concept for understanding human behavior. It can apply to any situation where there is asymmetry.
+
+The asymmetry needed for Gresham’s law to play out doesn’t have to be just in the value of the commodities. It can also occur in the information we have about those commodities. Perhaps the best summary of the impacts of information asymmetry on market interactions comes from George A. Akerlof’s influential 1970 paper, “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.” Akerlof considered the role of information asymmetry in the used-car market. Prior to Akerlof, this type of transaction would have been considered fairly symmetrical—I want to buy a car, and you have a car to sell. We both have the same information about what cars are and what they do. Our needs match. It’s a fairly straightforward, even exchange.
+
+But Akerlof pointed out that sellers of used cars have far more information than do buyers. There’s an endless list of things that could be wrong with a car, and it’s difficult for a buyer to know if the seller is hiding anything. The information available to each party in the transaction is actually very asymmetrical. Akerlof illustrated how the used-car market
+
+---
+
+could reach the point of failure, with bad cars driving out the good, by using a thought experiment. Imagine there are two types of cars: peaches (ones without hidden problems) and lemons (ones with serious hidden problems). Buyers are willing to pay a thousand dollars for a peach and five hundred dollars for a lemon. Sellers are happy to sell both for those prices.
+
+If a buyer can accurately distinguish between a peach and a lemon, they will pay the appropriate price for each. But what happens if they cannot distinguish between the two? In that case, they might only be willing to pay $750 for any car. Unable to make a profit, sellers will stop offering peaches. Buyers will realize this and stop paying more than $500 for any car. In the long run, the market fails because there are no good cars available. Sellers can’t make a living, and buyers can’t get good-quality cars. The lemons have driven out the peaches—the bad money has driven out the good.
+
+Gresham’s law demonstrates that we are less likely to participate in transactions if we feel there is too much asymmetry. It makes us feel as if we’re getting ripped off because we can’t verify that we’re not. Even if having more good coins or knowing more than the other party in a transaction can give us an edge in the short term, in the long run, everyone loses out. Excessive asymmetry negatively impacts trust, which deters engagement. We’re less likely to want to do business with one another. The more symmetrical our information, the higher the chance of developing trust, an essential component of any market.
+
+Once a critical mass of people engage in a particular “bad behavior” without oversight or the right incentives, they can end up making “good behavior” not worthwhile for anyone. If we are hoarding the good coins, we can bet everyone else is.
+
+# It Can Always Get Worse
+
+There is bad behavior going on all of the time; there’s always someone trying to sell a lemon as a peach. A little bad behavior is to be expected, and there is usually enough counteracting good behavior to preserve our trust in
+
+---
+
+whatever market we are engaging in. Using Gresham’s law as a model is not as much about trying to understand when situations go from good to bad as about understanding when they go from functioning to nonfunctioning. How asymmetrical can the information get before trust breaks down completely? And do we really understand what happens when a group of people no longer trust each other?
+
+# 1. The Kingston Penitentiary Riot
+
+In April 1971, a riot broke out at Canada’s most notorious prison, the Kingston Penitentiary. The riot started out as a mostly peaceful protest against the treatment of prisoners and the conditions inside the penitentiary, which was by that time more than a hundred years old. Built on the water, it was damp and structurally degraded. It was also overcrowded, housing 50 percent more prisoners than it was supposed to. Inmates were housed together regardless of the severity of their crimes, and the institution was understaffed. In January of that year, the warden had written a letter to his government supervisors stating, “There is a high degree of tension at Kingston Penitentiary at this time. In fact it appears to be almost at the point of explosion.”
+
+And explode it did. Writer and producer Catherine Fogarty tells the story in her book Murder on the Inside. Led initially by inmate Billy Knight, who instigated the riot by coordinating a surprise attack on the guards when a group of inmates was being led around the cell block, the riot took over the prison. The stated intention of those instigating the riot was to bring awareness to their appalling living conditions. Knight told warden Arthur Jarvis that no one wanted anyone to get hurt. Speaking to the inmates under the central dome where most of them could congregate, he “continued to stress the need for nonviolence.”
+
+This being a prison riot, the idea of nonviolence needs a bit of explanation, because in the hours immediately following the takeover of the cell block building of the prison, there was certainly a lot of property damage. Windows were smashed, and furniture was ripped out of cells and piled in common areas. Pipes were broken, and the cell block was vandalized. But there was relatively little violence toward any person. The prisoners did not fight much among themselves; most importantly, a group
+
+---
+
+of about thirty of them took it upon themselves to protect the six guards who had been taken hostage. The leaders of this small group recognized that “any chance of getting out of the riot alive would be gone if the guards were killed. They were their only insurance against an all-out attack.”5
+
+The leaders of the riot didn’t want to deal directly with the prison or government administration, so they demanded the creation of a citizens’ group to act as an intermediary between the two sides. Just as the negotiating got underway, another problem was brewing. In a prison social hierarchy, sex offenders and informants are on the lowest rung. In the Kingston Penitentiary in 1971, these two groups were separated from the general prison population. When the riot broke out, a couple of inmates used the opportunity to stage an attack on these “undesirables.” At that point, however, there was enough trust in the goals of the riot to prevent the proliferation of that kind of violence. When Knight found out about the attack, he “was furious. He called for a general assembly in the dome area. Visibly shaken, he told the inmates the attack on [one of the undesirables] was precisely the sort of thing they didn’t want to happen. It made the inmates look like animals and would seriously jeopardize their chances of negotiating with the administration.”6
+
+So the instigators backed off, and the undesirables were left alone for the moment.
+
+So, right from the beginning there was tension among the rioting inmates. Knight and the small group he led were focused on drawing attention to prison conditions; the riot was just a way of getting the message out. But there was another small group who saw the takeover of the prison as an opportunity for revenge and the redress of old grievances. And then there was the large chunk in the middle, who certainly didn’t want to die for the cause of change but who were nonetheless nursing frustration and anger at the way the system had treated them. At the beginning, most inmates supported Knight, which kept the violence in check. But over time, the trust the inmates had in Knight began to erode.
+
+A huge contributor to the breakdown of trust was the asymmetrical information environment. First, Kingston Penitentiary wasn’t a high-trust environment to begin with. Inmates did not trust guards or the government.
+
+---
+
+administration, nor did they often trust one another. Second, the citizen intermediaries made it harder for accurate information to flow among all parties. These volunteer citizen negotiators did an amazing job, but ultimately they could not speak for the government, though they were nonetheless seen as the face of bad news. Third, the inmates had access to radios and television, and so also received whatever information the media was putting out, accurate or not.
+
+Compounding the issue even further was the fact that the military had been called in and was surrounding the prison. Between inmate worries and media speculation, the presence of the military suggested that a peaceful resolution to the riot was not a government priority. Without any information to offer an alternative explanation for the military presence, behavior within the prison walls began to change.
+
+Gradually, Billy Knight began to lose credibility with the other inmates. Stepping into the void was inmate Barrie MacKenzie. He had been keeping the guards safe, but he “knew the situation was becoming more volatile and the lives of their hostages were in danger. If more inmates go onside with the rebels he had just confronted, they could soon be outnumbered and outpowered.” If the bad behavior completely drove out the good, there was a chance that everyone in the cell block was going to die.
+
+The inmates received information regarding the negotiations to end the riot via the four to five prisoners who met with the citizens’ committee. They had but one small channel to balance the reams of unvalidated information they were receiving from the media.
+
+The inmate leaders released one hostage “as an act of diplomacy and to dispel some of the ugly rumours being fed to the media by guards on the outside.” These rumors were particularly problematic because they made the already volatile situation worse, and the prisoners had no channel by which to counteract them.
+
+Bad behavior was thus on the rise. “Rumours were flying and distrust was building. Fights were breaking out and inmates were showing up at the prison hospital with injuries inflicted on one another.”
+
+---
+
+The information asymmetry continued to worsen. The inmate group reached an agreement with the citizens’ group, only to hear the government lie about the progress to the media. “The inmates had indeed heard the Solicitor General on the radio saying he was not prepared to negotiate with the rioters. They were fed up with being jerked around. They weren’t being told the truth.”10 The government had all the accurate information. The citizens’ committee had some. The inmate leaders had a little. And the rest of the inmates had almost none. Furthermore, the government would not let the citizens’ committee communicate directly with the media to counter any rumors. The complete information asymmetry finally led to a total trust breakdown. The bad behavior escalated and almost completely drove out the good.
+
+The prisoners began to fight one another over food and blankets. The prison infrastructure was completely destroyed. A group of inmates went after the undesirables; they assaulted all of them and murdered two.11 The dream of a peaceful protest to change prison conditions came to an end.
+
+# Why did the situation not end in total disaster?
+
+At least partial credit was given to Barrie MacKenzie and the mutual trust he established with citizens’ committee member Ron Haggart. Because these two men could communicate with each other, some accurate information was able to flow, allowing for the eventual release of the hostages and the peaceful surrender of all the inmates. The citizens’ committee heavily criticized the government for the way it handled the riot, specifically calling out the lack of communication of accurate information and how it almost led to the deaths of the prisoners, the hostages, and anyone else caught in the crossfire.
+
+# It Can Happen to Anyone
+
+Implicit in Gresham’s law is the idea that “everyone is doing it.” Money doesn’t circulate on its own; bad money drives out the good money because
+
+---
+
+everyone is spending the bad and hoarding the good. It’s ultimately human behavior that leads to the breakdown.
+
+One of the most important takeaways from using Gresham’s law as a model is to understand that each one of us can become a person who hoards the good money. Despite our intentions, or even our values, we all have the potential to succumb to bad behavior. Why? Because we may think it is the only way to participate in the system.
+
+In 2012, a scandal shook the world of professional bike racing when it was revealed that doping was widespread and had been for years. Racers were stripped of their titles, championships, and medals. The entire credibility of the sport was undermined.
+
+One person taking performance-enhancing drugs is likely to be an individual issue. Everyone who competes at the highest level taking performance-enhancing drugs suggests a systemic issue. It’s safe to say that very few athletes commence competitive sport with the desire to dope. Doping has health risks and career risks, and deep down you’re always going to know you aren’t really the best purely because of your skill. So how does it happen that the bad behavior drives out the good?
+
+In the book The Secret Race: Inside the Hidden World of the Tour de France, authors Tyler Hamilton and Daniel Coyle quote cyclist George Hincapie as saying: “Early in my professional career, it became clear to me that, given the widespread use of performance enhancing drugs by cyclists at the top of the profession, it was not possible to compete at the highest level without them.”
+
+Tyler Hamilton (himself an elite cyclist) describes races early in his career when he was racing clean, doing everything right, pushing his body through incredible pain, and yet watching other riders easily pass him. For years, he watched others dope, watched drugs like erythropoietin (EPO) be passed out by team doctors. He describes the moment in 1997 when he decided to join them:
+
+After the race, I felt a new level of frustration as I watched the white bags get handed out. Now I could measure the injustice…. I
+
+---
+
+could count the number of seconds those white bags contained. I could see the gap between who I was and who I could be. Who I was supposed to be. This was bullshit. This was not fair. In that moment, the future became clear. Unless something changed, I was done.13
+
+# Doping in Cycling
+
+Doping in cycling was, at that time, systemic. Athletes had to get their drugs from somewhere. A few doctors would supply dozens of athletes. Elaborate clandestine operations would be conducted involving athletes, team managers, and support staff to get the right injection to an athlete at the right time.
+
+Drugs, along with other means of cheating such as blood transfusions, were used both during training and races. Such shortcuts are most useful at certain points in races that take place over days, and trying to avoid getting caught takes a lot of planning. Racers needed to know, down to the hour, when they were clean and when they were not.
+
+They were, however, still operating within a system that offered some predictability. Racers were going to get tested, and tests were much more likely at certain times than at others. The mechanisms trying to enforce the good behavior weren’t strong enough to discourage the bad behavior. Cyclist Bernhard Kohl said, “I was tested two hundred times during my career, and one hundred times I had drugs in my body. I was caught, but ninety-nine other times I wasn’t. Riders think they can get away with doping because most of the time they do.”14
+
+Hamilton explains that doping was so pervasive, figuring out how to dope better and what the next new drug might be were part of an athlete’s regimen. “The rewards were too big, the punishments too mild, so the hunt for the next magical product was too tempting.” When a new drug or new doping technique came out, everyone jumped on it. “My choice was simple,” Hamilton says regarding when he was first approached about a new freezing technique for blood transfusions, “because it wasn’t really a choice. I could either let my rivals use the new freezer while I fell behind, or I could join the club.”15
+
+---
+
+To be fair, some riders chose not to dope. Those riders, however, did not win the big, multiday races like the Tour de France. For the most successful cyclists, the bad behavior of doping was institutionalized. It was part of the sport. No one felt like they were behaving badly. Author Daniel Coyle, who wrote with Tyler Hamilton, explains it this way:
+
+Cycling history contains zero examples of high-level racers who, having tested positive from doping, offered an immediate and complete confession…. Part of the reason is legal, but the larger part seems to be psychological: they don’t feel like they’ve done anything wrong, so there’s nothing to confess.
+
+Such is the nature of widespread bad behavior. If everyone’s doing it, how bad can it be? Isn’t it simply the way things are?
+
+Dr. Michael Ashenden, an Australian scientist who helped develop tests to detect certain forms of doping, admits, “Now I see [the athletes are] put in an impossible situation. If I had been put in their situation, I would do what they did.” The system that existed around professional cycling effectively removed all incentives for good behavior. Thus, the bad behavior could completely drive out the good.
+
+After the scandal broke and the evidence piled up and previous cycling winners were stripped of titles and made to pay back sponsorship money, the sport began to change. It wasn’t easy; it required years of investigations and depositions and confessions and corroboration in many countries. But gradually, enough consequences were levied and changes made that the system once again had a place for good behavior.
+
+Tyler Hamilton, who actively participated in shining a light into the dark corners of the sport of cycling, makes an interesting point: “I’m happy to see my sport cleaning itself up over the past few years. It’s far from 100 percent clean—I don’t think that’s possible, as long as you’re dealing with human beings who want to win—but it’s significantly better and slower.” There’s always going to be bad behavior. What we really want
+
+---
+
+is to not have so much of it that positive actions aren’t possible. That means creating a system that supports and reinforces good behavior.
+
+For Hamilton, part of his purpose in telling his story is so that “people might focus their energy on the real challenge: creating a culture that tips people away from doping.”19 This sentiment moves beyond cycling specifically to a need we can all identify with. We need to look at the systems in which we live, work, and play and make sure we participate in creating a culture that doesn’t allow bad behavior to drive out the good.
+
+# Conclusion
+
+Gresham’s Law states that bad money drives out good. But it’s not just about currency. The principle applies anytime there are two competing versions of something, one perceived as high quality and the other as low quality.
+
+In a sense, Gresham’s Law is the dark side of human nature. We’re wired to optimize for the short term, to get the most value for the least effort. If we can pass off the less valuable thing and keep the more valuable one, we will. Without consequences, bad behavior drives out good. Bad lending drives out good lending. Bad morals drive out good morals. Overcoming this requires constant effort.
+
+In the short run, bad often drives out good. But in the long run, true value wins out.
+
+OceanofPDF.com
+
+---
+
+# Bubbles
+
+Don’t get caught holding the bag.
+
+OceanofPDF.com
+
+---
+
+Just what is a speculative bubble? The Oxford English Dictionary defines a bubble as “anything fragile, unsubstantial, empty, or worthless; a deceptive show. From 17th c. onwards often applied to delusive commercial or financial schemes.” The problem is that words like show and scheme suggest a deliberate creation, rather than a widespread social phenomenon that is not directed by any central impresario.
+
+—JOHN KENNETH GALBRAITH
+
+---
+
+Bubbles are an emergent property of markets, tending to have no single clear cause or to be underpinned by deliberate fraud. A financial bubble occurs when the price of an asset increases an enormous (even exponential) amount in a short time due to buyers expecting continued price increases.
+
+As with anything, the price of an asset, such as a stock, is set by supply and demand. The more people expect to be able to profit by speculating in the asset, the higher the demand, and the more the price rises. However, sustained price increases are not what makes a bubble. To be a bubble, it needs to eventually pop. Once people stop expecting further price increases —which tends to mean they expect the price to drop, not just stay the same —they rush to sell, to avoid losing money. Supply suddenly soars, demand vanishes, and prices plummet, causing even more investors to flee.
+
+During the early stages of a bubble, many fortunes are made. But as knowledge about sharply rising prices spreads, more people enter the bubble on less favorable terms. Often, bubbles become truly divorced from reality once growing numbers of people who are far outside their circle of competence (a model we discussed in volume 1) start buying. People end up buying on the mistaken assumption that the immediate past is an accurate picture of the immediate future; there is a “contagious optimism, seemingly impervious to facts, that often takes hold when prices are rising.” People don’t understand the economics of what they are buying; they just don’t want to miss out on the gold rush.
+
+Beware of competing with those who have different time horizons to you.
+
+—MORGAN HOUSEL
+
+---
+
+Even those who call out the bubble can get caught up in the excitement. “As a bubble expands, some skeptics begin to disregard their own judgment because they feel that everyone else simply couldn’t be wrong.” Basically, it’s really hard to sit on the sidelines while it seems that everyone else around you is making tons of money with minimal effort. However, any change in behavior by previous naysayers just serves to amplify the bubble, pushing it to its breaking point. Because “over time, the quality of information that can be gleaned from the behavior of others becomes worse and worse,” a social proof situation is created, wherein it feels almost irresponsible not to jump on the bandwagon.
+
+When bubbles pop, which they always do, later entrants into that market are worse off. Many people find themselves holding “assets” that are now worth less than they paid for them. Irrational human behavior is a direct contributor to the life cycle of a bubble. Thus, they are partly a social phenomenon, with analogous applications outside of economics. Think of fashion trends: Every generation has to contend with a new look or style of clothing that appears out of nowhere and that, within months, everyone seems to be wearing. Then, one day, somehow that trend is no longer cool, and we’re stuck with high-priced items that we no longer want to wear.
+
+A couple of lessons you can learn about bubbles are, first, that your assumptions about the future influence your future and, second, that success can sow the seeds of failure. When you assume a good time is going to carry on indefinitely, you make decisions that can have far-ranging impacts on your lifestyle down the road. And when it comes to successful products, making something ubiquitous is not the same as making it indispensable.
+
+Bubbles—however much we try to understand them—are not going away any time soon. In fact, there is a good argument to be made that in many ways, cyclical patterns drive development. Whether bubbles are necessary is subjective, but they certainly encourage investment. A short burst of wild speculation can be beneficial in the long run; if enough people are throwing spaghetti at a wall, some of it has to stick. A wide spectrum of
+
+---
+
+ideas enables us to identify a healthy middle ground. Innovation and development can be impossible without an early dose of overconfidence. As anthropologist Clifford Geertz writes in the essay “Thick Description,” sometimes a new idea arrives in the intellectual landscape, and people try to use it to solve all problems in their fields. They try applying it to everything. This burst of attention teaches us a lot about the idea and its limitations. Over time, we develop a narrower definition of it, which gives it long-term usefulness as a theory.
+
+# The life cycle of a bubble
+
+The life cycle of a bubble and the factors that contribute to its expansion and disintegration are what makes this model so useful. How to harness the exuberance, and not mistake it for a new, persistent state of affairs, is what we want to understand better by using this model as a lens.
+
+# Good Intentions, Bad Results
+
+Good intentions and wishful thinking do not make a sound platform for investment. Whether we are investing our money, time, or reputation, it pays to be mindful of the information that underpins the structure in which we’re investing. How reliable is the information? And thus, how much can we bet on it?
+
+Bubbles can form and pop quickly. In the late 1990s, the dot-com bubble illustrated the perils of investing based on optimism rather than solid information. Eager to capitalize on the new economy, investors started pouring money into any company associated with the concept of “dot-com.” The allure was based on a widespread belief that the internet would revolutionize business, providing new economic opportunities to those previously left out, and that absolutely any investment in this space would yield high returns. This enthusiasm led to a frenzy of overvalued stock prices as the demand for internet-company shares skyrocketed, with investors often disregarding traditional financial metrics such as profit and revenue.
+
+---
+
+The intention was to be part of a groundbreaking shift in the economy that would benefit the entire world. However, much of the information fueling this investment boom was unreliable and built on expectations of future growth with little evidence to back it up. In reality, many startups operated under untested business models. Their share price went up because the story they told was one of promise and hope. A few notable investors, including Warren Buffett, who opted not to participate in the bubble were cast as old and out of touch.
+
+For a while, speculators bought the story, hoping there would be a greater fool later. As the results started to come in, and the underlying economic reality emerged, investors realized they could not be the one still at the ball when the clock struck midnight, and everyone wanted to exit all at once, causing a dramatic market correction. The resulting collapse wiped out vast amounts of wealth and underscored the importance of basing investment decisions on solid, reliable data, not hype.
+
+What we can learn from this story is that investing in something with a shaky foundation comes with a big caution sign. Until that foundation is solidified by facts, we are taking a huge risk with our money, time, or reputation by investing in it. Structures built on the wishful thinking of others are ephemeral. Recognizing bubbles is a skill worth developing, because bubbles, by definition, always pop.
+
+OceanofPDF.com
+
+---
+
+# Keynesian Beauty Contests
+
+When people speculate—meaning they purchase an asset intending to resell it later at a higher price—they engage in a Keynesian beauty contest. This involves assessing the price of something based on ever more elaborate estimations of other people’s estimations of its value. Economist John Maynard Keynes used the metaphor of a beauty contest to explain how stock prices are set.7 He asked readers to imagine a contest where entrants must choose six faces out of a hundred; those who pick the faces chosen by the most other people win.
+
+Keynes believed stocks are priced not according to their intrinsic value but according to investors’ perceptions of other investors’ perceptions of their value. The reality is that, barring illegal insider trading, most investors have access to pretty much the same information. Predicting prices is less a matter of understanding a stock’s value and more a matter of predicting how other people will react to the same information. First-order thinking is not enough. Second-order thinking—the act of thinking of the consequences of consequences—is necessary for useful predictions. (For more on second-order thinking, see volume 1 of The Great Mental Models.) In a Keynesian beauty contest, the more levels someone can think ahead to, the more accurate their decisions will be.
+
+The Keynesian beauty contest contradicts the idea of markets as rational, with stocks priced per their intrinsic value. Consequently, it provides a means of understanding irrational behavior, like that which creates economic bubbles. If prices are rising fast, investors may think other investors will think they will keep rising and therefore may keep buying. This leads to out-of-control pricing. While Keynes only talked about stocks, the same concept applies in almost any asset market and is especially true now that markets are more accessible to nonprofessionals.
+
+---
+
+# A Bubble in Space
+
+When we think of a bubble, we might go to a classic like the Dutch tulip mania in the seventeenth century. Or we might think of something more recent, like the dot-com bubble of the late 1990s. But we probably wouldn’t think of NASA’s Apollo space program in the mid-twentieth century. After all, it put men on the moon—repeatedly. Everyone was on board, from the man in the street to the scientists in the labs to the president of the United States, and it succeeded spectacularly, right? Well, yes and no. The Apollo program, even by NASA’s own reckoning, was a bubble that allowed for huge innovation and investment before collapsing.
+
+To set the stage: In the early 1960s, the United States and the Soviet Union were deep into the Cold War, and tensions were high. In 1957, the Soviets had launched Sputnik, the first human-built satellite, into orbit. Then, in April 1961, they announced that Yuri Gagarin had become the first man to orbit Earth. Given the tensions between the two countries, the White House knew that the Soviets could not be seen to be winning the space race—and, by proxy, the Cold War. And so, President John F. Kennedy announced in May 1961 that the United States would land a man on the moon and return him safely to Earth.8
+
+“The clarity of the goal, the amount of political support, the safety culture, the funding provided, and the prestige gained were far beyond all other human space programs,” according to a NASA presentation. “The political will to go to the moon was so great because it was a response to the challenge of the Soviets, the cold war, missile race, and space race.”9 The political will was so great, in fact, that it completely overrode the will of almost everyone else—including the public and the scientific community. Polls of American citizens showed that they thought the money could be spent better elsewhere, and scientists thought that robotic space exploration would have a far better return on investment than sending humans into space. As the space race kicked into high gear, public opinion
+
+---
+
+swung wildly throughout the 1960s from disdain to enthusiasm. In 1962, the press was almost uniformly on board with the program, but by 1963, reporting had become more skeptical. “Among scientists, the initial enchantment had faded before the mounting costs and they feared the heavy drain on other fields of scientific endeavor.” But by 1964, more than three quarters of American were saying that the Apollo program should continue apace or even move faster. Then, the fickle public-opinion pendulum swung back again, due to what author Neil Maher called “NASA fatigue,” with nearly half of those polled saying spending on space exploration should be cut.
+
+While scientists worried that spending on the space race would suck up funds that could be used for other research, the public wondered why its taxes could fund sending a handful of men to the moon when people on Earth were starving, unhoused, and lacking healthcare. Poet and musician Gil Scott-Heron famously encapsulated this sentiment in his piece “Whitey on the Moon.”
+
+So, the Apollo program was controversial, but it had the force of the White House and the threat of the Cold War propelling it forward. Enormous amounts of money and time were invested, and some of the solutions to space-exploration problems became well-known inventions that were then popularized back on Earth, like cordless vacuums and the reflective thermal blankets given to runners at the end of marathons.
+
+And then came the big event: on July 19, 1969, “an estimated 600 million people—one-fifth of the world’s population” watched the Apollo 13 mission land on the moon. In this moment, almost everyone in the United States and many around the globe were firmly in favor of the American space program. It was an incredible achievement that further expanded the bounds of humanity’s limits and justified its cost in time and dollars. It was also a decisive win against the Soviet Union in the Cold War.
+
+But as soon as the lunar lander touched down, and the American people had a chance to come down off their infusion of patriotism and scientific wonder, the bubble burst. “It was one of the most exceptional and costly projects ever undertaken by the United States, and thus constitutes an
+
+---
+
+excellent example of how bubbles function from within,” according to one analysis. Undertaking this program posed a huge political, monetary, and of course safety risk. While the pendulum of public and scientific support swung back and forth throughout the 1960s, by the end of the decade, there was a kind of wild-eyed enthusiasm for the Apollo program. But the enthusiasm did not last. There have been other human space exploration programs since, including the shuttle missions of the 1980s and ’90s, but they did not sustain the investment—in dollars or in hearts and minds—that the Apollo missions were able to create as that midcentury bubble grew. “As expected from our hypothesis on bubbles, it led to innumerable technological innovations, and scientific advances, but many of them at a cost documented to be disproportionate compared with the returns.”15
+
+The lesson to be learned from this model of creativity isn’t that bubbles are necessarily bad. They have their uses. When the Apollo bubble popped, it did so in a halo of glory, and though it was an expensive mission, it did lead to incredible advances. That kind of investment isn’t sustainable, though. If we use the excitement generated by an innovative and potentially risky idea to drive investment and innovation, then bubbles can foster outsize amounts of creativity. However, it’s crucial to keep an eye on the bubble and note when it’s about to pop.
+
+# Conclusion
+
+Bubbles are a natural by-product of human nature. They happen when collective enthusiasm for an asset runs far ahead of its fundamental value. It’s the moment when the market becomes untethered from reality, when prices are driven not by sober calculation but by mass delusion.
+
+Bubbles are a fascinating study in human psychology. They’re driven by greed and FOMO (fear of missing out). No one wants to be the sucker who sits on the sidelines while everyone else gets rich. But there’s also an element of genuine belief, of conviction that this time is different, that the old rules no longer apply.
+
+---
+
+While ultimately destructive, bubbles also serve a function. They’re the market’s way of exploring new frontiers, of testing new possibilities. Many of the innovations we take for granted today—from cars to computers to the internet itself—were once the subject of speculative manias. Bubbles fund the infrastructure for future revolutions, even as they leave a trail of financial wreckage in their wake.
+
+Bubbles are a reminder that markets are human constructs, driven by human emotions and beliefs. They’re a mirror held up to our collective hopes, dreams, and delusions. The next time you catch yourself saying “this time is different,” remember that all bubbles pop eventually.
+
+Like a balloon that can only expand so far, bubbles eventually burst, and the game ends abruptly, without warning. Keeping yourself grounded in value and economic reality, not in story or hype, is key to standing alone as a bubble expands.
+
+OceanofPDF.com
+
+---
+
+# ART
+
+Art evokes the mystery without which the world would not exist.
+
+— RENÉ MAGRITTE1
+
+OceanofPDF.com
+
+---
+
+# Audience
+
+# Who is it for?
+
+OceanofPDF.com
+
+---
+
+Write to please just one person. If you open a window and make love to the world, so to speak, your story will get pneumonia.
+
+—KURT VONNEGUT
+
+---
+
+The concept of an audience helps us explore the interaction between what we do and how it is experienced. The relationship between the audience and the artist is a crucial aspect of art. Both parties engage in a mutual exchange that shapes the overall experience of the work. Iris Murdoch explains, “this…is one of the deep attractions of art, that it gathers together the personality of the creator and the personality of the reader or spectator into a sense of unified significance which may, of course, be very momentary.”
+
+Anticipating the audience greatly impacts what an artist produces. The audience is both the group for which the artist creates their work and the group that chooses to consume it. Although works of art may appeal to unexpected groups, artists tend to have a specific group of people in mind when creating, and they target their work toward what that audience is likely to enjoy and engage with. This means that when we encounter art we like, it may have been specifically created for people like us.
+
+The audience also impacts the artist. Anticipating the audience can impact how art is developed. For example, when developing a piece of theater, the artist may need to consider whether the audience is likely to describe what they’ve seen or heard, and how they will engage with the performance, and adjust accordingly.
+
+Theatre must always be living in that dangerous moment of the unexpected; quite how is this audience going to respond? Is it indeed going to respond at all? Probably it won’t; we’ve had experiences where people have just fallen asleep. What do you do in that situation? You’ve got to go through those two hours; how do you wake this person up?
+
+—JATINDER VERMA
+
+---
+
+Audiences vary greatly in size and diversity. They can be one person or thousands of people; they can encompass one culture or many. Furthermore, audience engagement with art falls along a spectrum from a solo experience to a shared experience, wherein the audience participates in the art together. No two people experience art in the same way, and no one person experiences art the same way twice. It often happens that you read a book as a child and have vivid memories of the story and the tears running down your face. However, when you return to the same work as an adult, you read the same words and realize they have no impact on you anymore. You’re a different person as an adult than you were as a child. As Heraclitus is credited with saying, “You could not step twice into the same river.”
+
+I reflected that public art looks futile without its power source: a crowd. —PETER SCHJELDAHL
+
+Engaging in art is a work of collaboration with the artist and, sometimes, even the audience. Reactions can be contagious. We participate in some forms of art as part of a group, and at least some of our reaction to these types of experiences is influenced by the group’s responses: When one person starts to clap, we do the same. When someone starts to laugh, so do we.
+
+The collective experience of theater and music has long served a purpose beyond mere aesthetic pleasure. These art forms have traditionally been performed for groups, to provide a platform for broader social, cultural, and political commentary. Philip Ball, in The Music Instinct, explains, “Music commonly happens in places and contexts in which it creates social cohesion, for example in religions and ritual or in dance and communal singing.”
+
+Audiences both shape and are shaped by the art they consume; “we transform what we look at.” The feedback of the audience—their responses, their buying habits, and so on—impacts how artists work.
+
+---
+
+dialogue always exists, with information going both ways. The work changes the audience, modifying how they perceive the world and setting the tone for what they might consume in the future.
+
+Music is not a series of acoustic facts. *[It] emerges from a collaboration in which the listener too plays an active part.* —PHILIP BALL8
+
+Some artists extensively study their audience to cater every detail of their work to them. Taken too far, this consideration can change the artist as they pander to the whims of the crowd. Other artists are less concerned with the public’s reception and choose to create what they wish and hope it finds an audience. The prolific writer John Updike once claimed that when he wrote his books, he liked to imagine them being found—old and battered, with their dust jackets missing—on a library shelf by a teenage boy somewhere east of Kansas. To him, the reviews and the book shops were secondary to that very particular audience member he envisioned.9
+
+# Audience Categorization
+
+There are two main ways to categorize audiences: by who they are (demographics) and by what they like (preferences). Audience demographics include factors like age, gender, socioeconomic status, occupation, location, and so on. Audience preferences cover whatever it is people enjoy in a work of art. So, an artist might target their work at people over age thirty with corporate jobs, or they may target people who enjoy fast-paced romantic fiction.
+
+Artists frequently ask themselves, Who will pay for my creation? Thus, a consideration for some artists is creating art that will sell. In nineteenth-century Europe, there was a type of theater piece called the “well-made play.” The best of the genre were well written and carefully plotted, but they were designed first and foremost to be entertaining. The plots were logical and the resolutions satisfying. Although they were sometimes attacked for being simplistic and saccharine, Neil Grant says, in History of
+
+---
+
+Theatre, “Not all the practitioners of the ‘well-made play’ were artistically or socially worthless and, even if they did set their sights firmly on filling seats—and tills—they were hardly the first, or last, writers whose ambition was to give the audience what it liked.”10 One can view this notion of meeting demand as practical. Without an audience—and its associated money—to sustain an artist, it can become economically prohibitive to make art.
+
+Throughout the centuries, art has been consumed by vastly different audiences. Sometimes it has been more like a public good shared freely among a group of people. Often, however, artists were looking for payment of some sort, and the art itself would be heavily influenced by who was doing the paying. The way you captivate someone on the street versus in a theater is different. Materials, such as paint, could be very expensive, and so the portrait of a wealthy patron might be imaginatively flattering versus technically realistic. And for centuries, artists created without the benefit of copyright protection, so being clearly and widely associated with a work was paramount.
+
+Creating for someone influences what you create. Performing to someone can make us better, since knowing that we are being watched can help us focus.11
+
+Once you start looking for audiences, you start to see them everywhere. There are two types of audiences: direct and indirect. Direct audiences allow for the creator and the consumer of a work to interact in a permissionless way. Indirect audiences, on the other hand, require a filter. Filters can be people, technology, or even culture. With an indirect audience, you need permission from someone, or something, to reach them. Depending on the message, these filters have the power to amplify or cancel it.
+
+The well-meaning mother is constantly frustrated by the inability of her child to answer questions like “What did you do today?” (to which the answer is usually a muttered “Nothing”—a cover for “I don’t know how to tell a good story about it).
+
+---
+
+how to impose story shape on the events”). To tell stories, you have to hear stories, and you have to have an audience to hear the stories you can tell. —SARA MAITLAND
+
+# Influencing Your Audience
+
+An audience might influence an original artistic creation if the artist has a specific audience in mind. It might also influence art in progress if people protest against a sculpture or heckle performers. Artists know their art is going to confront an audience eventually, so knowing who that audience is likely to be impacts what an artist develops.
+
+If you want to sell art, you must craft it so that someone is willing to buy it—to pay for that portrait or those tickets to see your show. You can surprise your audience and throw a lot of extras into the expected package, but success requires an element of knowing what an audience desires and being able to deliver it. Not all artists give audiences what they want. Some provoke or challenge; some want to make people uncomfortable or thoughtful. But still, designing for a specific reaction means knowing your audience well enough to anticipate what will have the desired outcome.
+
+The value of knowing an audience is not relevant only for artists. Trial lawyers know that figuring out how to most effectively communicate with an audience—a judge, a jury—is critical. Clarence Darrow was an American attorney who handled the defense in some of the most sensational and impactful trials in US legal history. It would be impossible to cover all these cases, so here we’re just going to focus on how he handled his audience in three of them.
+
+The first was the case of Leopold and Loeb. Richard Loeb and Nathan Leopold Jr., eighteen and nineteen years old at the time, were being tried for the brutal killing of fourteen-year-old Bobby Franks. Both killers had confessed to the crime. Neither their guilt nor their total lack of remorse was in doubt. The well-off families of the defendants hired Darrow to do one thing: keep their boys from receiving the death penalty.
+
+---
+
+When Darrow argued a case, part of the reason he was so persuasive was because he genuinely believed what he was arguing. In the case of Leopold and Loeb, Darrow thought that sentencing the boys to death would be a miscarriage of justice, both because they were too young and because capital punishment should not be used in a just and fair state.13
+
+First, Darrow considered who would most likely be persuaded by the arguments he would make against capital punishment in this case. He decided that his best bet was to convince the judge, John Caverly, instead of a jury. Given the media coverage and both Leopold’s and Loeb’s incendiary statements regarding the murder, Darrow felt going in front of a jury was too risky. So, he instructed the defendants to plead guilty, and Darrow focused his efforts on the sentencing.
+
+As John A. Farrell wrote in his biography of Clarence Darrow, Darrow developed his argument knowing that he “spoke to three distinct audiences.”14 The first, and most important, was the judge. He had to give Caverly a compelling legal reason to not give the death penalty. Darrow also spoke to America at large, seeking to put this trial in the broader context of the evil of capital punishment. The third “and final audience was Chicago. Darrow wanted to touch Caverly’s heart, but he knew the judge was a politician and that this speech must move public opinion.”15
+
+So when Darrow spoke in the courtroom, he knew he had to convince more than just the man seated behind the bench; his audience was far larger. His argument couldn’t be overly complicated or technical. He had to appeal to values and engage emotion if he was going to win over the larger public audience of Chicago—and America. According to those in the courtroom, despite Darrow’s speaking for hours at a time, “the crowd stayed with him, listening to every word.”16
+
+Farrell writes, “Darrow was, in retrospect, a uniquely apt lawyer for Leopold and Loeb. He had the audacity to treat judges and juries to original sermons on an intellectual plane far higher than the usual courtroom wrangling, and to do so in a captivating way.” By the time he was done arguing for mercy for Leopold and Loeb, “women in the audience—
+
+---
+
+including Judge Caverly’s wife and sister—wept. The defendants had stopped laughing; he had touched even their cold souls.”
+
+Darrow read his audience well. The papers were supportive of Darrow and uncritical in their coverage of his arguments. Darrow gave Caverly an out by focusing on the fact that no one so young had ever been given the death penalty in Illinois. So, in the end, “Darrow had read Caverly correctly. Precedent was the key.” Loeb and Leopold were given life sentences. Darrow had done his job.
+
+Clarence Darrow “believed that the outcomes of trials rested on such elemental factors as likability.” In his next major trial, defending John Scopes’s right to teach evolution in his science class in a school in Tennessee, Darrow again spent time considering how best to reach his audience. Although the trial would be publicly broadcast on the radio and reported across America, the jury would be composed of people from around Dayton, Tennessee. Those were the people Darrow most needed to connect with.
+
+When Darrow first arrived, “he went to work wooing the locals.” He spent time learning about the town and how its residents thought about the particulars of the issue of teaching evolution in schools. During the trial, his delivery was accessible. He spoke clearly and eloquently, presenting himself as a man just trying to do what was right. Every day, the courtroom was packed, and when Darrow spoke, “the audience was mesmerized. The only sound, aside from his voice, was the clicking of the telegraph keys that were carrying his speech to millions of Americans.”
+
+The prosecution in the case was led by former US secretary of state William Jennings Bryan. Darrow got Bryan to take the stand—a highly unusual move, but one Bryan accepted because he wanted to best Darrow in the argument. Darrow then got Bryan to admit parts of the Bible could not be taken literally, that God could have taken millennia to create the world, and that evolution could thus be an act of God. The faith of the jury in the mutual exclusivity of Christianity and evolution was destroyed.
+
+While the Scopes trial was a legal defeat for Darrow and Scopes, it brought significant attention to the issue of teaching evolution and helped
+
+---
+
+shape public opinion on the matter. The trial is considered a landmark event in the history of the American legal system and the debate over the separation of church and state.
+
+In one of the final cases of his career, Darrow defended brothers Ossian and Henry Sweet, plus nine other black men, charged with the murder of a white man in Detroit. The killing had happened while the Sweets were being mobbed in their home, and thus, Darrow felt, was ultimately an act of self-defense. Darrow’s main argument, while covering the history of race relations in America, was primarily about a person’s right to defend themselves when under attack: the Sweets had been in their home. They were not provoking anyone. Everyone has the right to feel safe in their home, and thus the Sweets were well within their rights to stop anyone they didn’t want to come in from entering. Darrow knew that the jury already believed this to be true for white people. His job was to make them accept that blacks had the same rights as well.
+
+Journalist Jo Gorman, who attended the trial, wrote of Darrow’s closing argument, “His voice went on and on, always interesting, always fascinating, always holding the attention of judge, jurors, and audience.” He spoke to the jury for almost seven hours, and “it was wonderful,” Gorman wrote. “Eloquent. Logical. People wept and jurors were moved.”
+
+Again, Darrow read his audience correctly. He framed his arguments in terms that resonated with them and constantly adjusted his delivery to keep their attention. In the end, all nine defendants were found not guilty.
+
+Using the audience model as a lens helps us see that we are often performing. While we may not be up on a stage, someone is always watching.
+
+At its most basic, an audience can be understood as at least one person we’re trying to communicate with. How we do that—through the words we choose, our tone, our body language, our medium, and more—often means the difference between a successful outcome and failure.
+
+Thinking about how we reach, persuade, and build our audience is a powerful form of leverage.
+
+---
+
+# Conclusion
+
+The audience is the invisible participant in every work of art. They are the eyes that see, the ears that hear, the minds that interpret. Without an audience, art is like a tree falling in an empty forest—it may make a sound, but does it really matter? The audience is what gives art its meaning, its purpose, its very existence.
+
+But the audience is not a passive. They bring their own experiences, their own perspectives, their own biases to the encounter. A painting of a sunset may evoke feelings of peace and beauty for one person and feelings of melancholy and loss for another. The artwork is the same, but the audience is different, and so the meaning is different. In this sense, the audience is a cocreator of the art.
+
+This is why great artists are often obsessed with their audience. They aren’t just creating for themselves—they are creating for the imagined eyes and minds that will encounter their work. They are trying to anticipate reactions, to provoke thoughts, to shape experiences. The audience is their silent collaborator and their ultimate judge.
+
+But here’s the paradox: the more an artist focuses on the audience, the more they risk losing their authentic voice. If you’re constantly trying to anticipate what people will like, you end up creating something bland and generic. The true artist must walk a tightrope—respecting the audience but not pandering to them. Creating something that communicates but also something that is true to their own vision.
+
+In a world where so much can be faked, the audience is something real. You can fake likes, followers, and reviews, but you can’t fake the genuine human experience of engaging with art. The spontaneous laughter, the unexpected tear, the long, thoughtful silence—these are the honest reactions that both the audience and the artists live for.
+
+Never forget your audience, but never let them dictate your creation. And always remember: in a world of illusions, the audience is your anchor.
+
+OceanofPDF.com
+
+---
+
+# Genre
+
+Form shapes expectation.
+
+OceanofPDF.com
+
+---
+
+I am more and more convinced that literature is made up of works, genres, schools, discussions, problems, collective work in order to solve certain problems.
+
+—ITALO CALVINO
+
+---
+
+Genre as a model helps us understand both the benefits and pitfalls of grouping things together. Noticing similarities helps us make connections and process the world more effectively. But being too rigid in our classifications means we miss out on opportunities for new combinations and the insights they bring. There is a sweet spot to genre, and using it as a model shows us how to explore the power inherent in multiple types of connections.
+
+Genre is an easy concept to grasp but a much harder one to apply. The Oxford English Dictionary definition is “a particular style or category of works of art; esp. a type of literary work characterized by a particular form, style, or purpose.”
+
+To define the genre of an artistic work, we have to approach it from many different angles. Art critics use genre to describe categories of artworks, such as film noir, jazz, science fiction, and still life. Literature scholars use it to describe categories of text, such as biography, nonfiction, and newspaper editorial.
+
+Early uses of the term, which we find in Aristotle’s Poetics, merely divided artistic creations that used words into large buckets like “drama” and “lyric poetry.” So, in this conception, a novel is a genre of writing product, and a mystery novel a genre of story.
+
+The application of the term is thus by no means consistent. As Catharine Abell notes in a paper on genre, “Even as used by critics, the term may pick out categories that appear to classify works on the basis of such diverse features as setting, content, medium, effects, tone, budget, or origins.”
+
+At this point, it is fair to wonder why we should bother with genre at all. If it can refer to so many components of an artwork, then is there really any use in attempting classification? Diving into genre, however, reveals a few of its interesting facets.
+
+---
+
+First, genres change and develop over time. What is horror today is not what was considered horror fifty years ago. Scholars Tzvetan Todorov and Richard M. Berrong write, “A new genre is always the transformation of one or several old genres: by inversion, by displacement, by combination”—which is how we get the space opera or art deco.
+
+Because genres are not static, they are, note Wendy Bishop and David Starkey, “shaped by social forces and by the expectations of different readers (or audiences) during different historical periods.” Novels, for example, are a relatively new genre. The rise of their popularity in the eighteenth century coincided with the growth of a class of people who had both the money and time to spend on entertainment.
+
+We can learn a lot about a society from the genre categories it uses. Blues music is very evocative of a certain time and place in American history, and many of the lyrics are an indirect (or sometimes direct) social commentary. Kabuki theater provides great insight into the cultural history of Japan. Tzvetan Todorov and Richard Berrong argue, “The existence of certain genres in a society and their absence in another reveal a central ideology and enable us to establish it with considerable certainty.”
+
+Humans enjoy categories. The Great Mental Models series is based on the idea of chunking information into models and using them to understand the world better. Chunking information—putting like with like—helps us identify patterns and absorb new information. In this same way, genres are useful to consumers of art. Musicologist Nolan Gasser argues that “genre classifications unquestionably serve a valuable purpose in our understanding of and interaction with music, as with all art forms…. Without genre labels, most of us would have a hard time deciding whether or not to attend a concert or, for that matter, know how to discuss our musical taste.” Although genres are far from absolute in many cases, they allow us to make connections across a variety of categories. We understand both The Age of Innocence, by Edith Wharton, and Pride and Prejudice, by Jane Austin, as writings of manners, and Dawn of the Dead and Get Out as horror movies.
+
+---
+
+Genre helps us to narrow unlimited choices. In a world where seemingly everything ever created is available on demand in seconds, the number of options can overwhelm us (as well as the organizers of art). Picking a genre narrows our choices. If you’ve ever said to yourself, “I feel like watching a comedy tonight,” you’ve used genre to tell yourself what to avoid and, in the process, significantly narrowed your options.
+
+Understanding the greater context that genre offers both helps us understand the particulars of the art and limits what we experience. “A work’s genre affects its evaluation because we evaluate works according to how well they perform the purposes for which they are produced,” writes Catharine Abell. Knowing that A Midsummer Night’s Dream is meant to be a comedy means we look for the humor in a character called Bottom and don’t see that name as a tragedy.
+
+We pick up on a work’s genre through both internal factors, such as the first scene in a movie being set on a spaceship, and external factors, like what the sign above the aisle in a bookstore says. In the words of literature professor Trudier Harris, “Genre is thus an umbrella concept that allows for many disparate, and often related, concepts to be conveniently divided and subdivided,” defining the terms of engagement.
+
+Each genre comes with a set of predictable conventions. Audiences anticipate these conventions when choosing to engage with a particular piece, whether it be a film, book, or painting. Writing specifically about music, Nolan Gasser says, “Hearing a genre label not only produces an instant impression about how a song or artist might sound; it also provides a code whereby artists and fans can build solidarity or division.” It’s easy, though, to apply this thinking to all other arts. Genre is part of the contract between artist and audience.
+
+Some artists feel that genre conventions are too binding and that they stifle creativity. If a romance always has to end happily, after a certain amount of turmoil, then how is an author meant to create something new, authentic, and different? The counterargument is that there are enough genres to cover everything, and a lot of room within each genre. Indeed, sometimes pushing at the boundaries of convention is what makes certain
+
+---
+
+works of art so compelling. Theodor Adorno wrote, “The individual work that simply subordinates itself to a genre does not do justice to it. It is more fruitful if there is a conflict between them.”12 One way to achieve this conflict is to combine multiple genres, as many works of art do: jazzy rock music, historical horror movies, punk ballet dances. Any combination you as an artist can imagine, you can try to execute. Plus, conventions come into play at different points. Even if you don’t want a happily-ever-after romance in your novel, you still need to follow certain conventions to be writing a novel. Freeform text without plot or character can definitely be art, but not a novel.
+
+Neil Gaiman explains, “Genre, it had always seemed to me, was a set of assumptions, a loose contract between the creator and the audience.”13 The genre is the context in which you are operating. It allows us, as the audience, to understand what we’re engaging with. We notice patterns and place them in reference to art we’ve already experienced. When it comes to books, Gaiman says genre is the “points in a story a reader would feel cheated without.”14 It’s easy to argue that this description applies to all art. Engagement with art is active; it’s a choice we make. Genre helps us make that choice so that we don’t feel cheated by the experience.
+
+The last interesting aspect of genre is that, by labeling what something is, genre also tells us what something is not. Jacques Derrida claimed, “As soon as the word ‘genre’ is sounded, as soon as it is heard, as soon as one attempts to conceive it, a limit is drawn. And when a limit is established, norms and interdictions are not far behind.”15 But right behind those imposed limits are artists who are deliberately flouting them: Go to see a zombie movie and end up in a Western. Pick up a novel and find yourself immersed in a memoir. Far from making genre irrelevant, art that steps over the lines helps us see those lines more clearly. “The fact that a work ‘disobeys’ its genre does not make the latter nonexistent; it is tempting to say quite the contrary is true…. The norm becomes visible—lives—only by its transgressions.”16 And eventually, these transgressions can lead to a new genre. Rather than limiting artists, Gaiman suggests that “the
+
+---
+
+advantage of genre as a creator is it gives you something to play to and play against.”
+
+Experiencing the creative interplay of genre can be rewarding for the audience, but it presupposes we understand genre in the first place. “Even when authors are madly mixing genres,” Wendy Bishop and David Starkey explain, “the frisson we feel as one type of writing is juxtaposed with another can only occur when we can identify the different genres.” We don’t need to have all of our expectations met, but we do need to appreciate genre to enjoy when those expectations are being thwarted.
+
+# Every Living Thing
+
+How do you begin to understand yourself and your place in the world? To know what you are, you must know what you are not.
+
+When it comes to your physical body, at first, this seems easy. You are a human; you are not a tiger. Looking around, you can differentiate between pumpkins and roses, flamingos and guinea pigs. Classification seems easy. Scientific classification, however, has a lot in common with genre: start digging, and the edges become blurry.
+
+We have billions of individual microbes, representing at least thousands of species, living on or in each one of us, many of which are critical to our functioning. At what point do they become us? If we can’t live without them, are they separate, or are we just one component of a more complicated genre of being? Or, consider two ants that look alike but reproduce differently, or two beetles that reproduce the same way but look different. Does each difference get its own classification? How different can two organisms be while still belonging to the same group?
+
+Something we learn from genre is that classification becomes a gray area at the margins. As new organisms are discovered, the distinctions become less clear. “The boundaries between organisms are at best fuzzy,” biologist Rob Dunn writes in Every Living Thing, “the boundaries between species more so.”
+
+---
+
+# Why is this all important?
+
+In some ways, to name something is to bring it into existence. Not physical existence, because the thing still physically exists with or without being named. Rather, naming brings something into the collective consciousness. When we discover new organisms, we name them. We give them a place on the map of life. We decide how and where they belong and, in doing so, learn about them.
+
+In his book, Dunn explains, “Every culture known names species, then groups them, and then builds them into knowledge and stories. Naming, and the learning associated with it, is part of what makes us human.”
+
+Historically, this learning has been very practical: We learn what tastes good and what can cause pain or make us sick. We learn what to avoid and what to seek out. And early on, we probably grouped things we encountered based on these types of categories. Instead of “insect” or “bird,” we might have grouped the organisms in our environment based on their propensity to cause us harm.
+
+If we can’t classify something, if we can’t label it and figure out where it belongs, we can’t build relationships between individual units. If every animal and plant was considered only as an individual, the world would be overwhelming. Being able to group trees into the category “maple,” or certain flying insects into the category “wasp,” helps us navigate our world, making decisions about how to interact with it.
+
+One idea the model of genre illuminates is that classification systems are only useful if they function as a common language. If we think about the arts, genres are essential for marketing. How am I going to attract you to my comedy show if we don’t have a way of mutually understanding that comedy is a performance where I’m going to try to make you laugh?
+
+Centuries ago, scientists faced a similar challenge. If the same species had different names in different communities, then scientific investigation wasn’t going to get too far. There would be no way to share information easily about a particular organism if everyone had different names and different ways of categorizing it. Carl Linnaeus started the modern species naming and classification system in the early eighteenth century; he gave us
+
+---
+
+Homo sapiens and Canis lupus. Scientists have been building on and adding to his system ever since. Linnaeus’s system set down not just names but also hierarchical classifications, similar to genres. It established a way of understanding where everything fits.
+
+The challenge is that organisms can relate to one another in multiple ways. Hierarchical classification—whereby every organism is nested under ever larger parent groups—is useful sometimes, such as when making a guess about which tree you might try tapping to make syrup. But we can imagine—say, when trying to contemplate the relationship we have to the bacteria living on or in our bodies—that sometimes those hierarchical classifications set down by Linnaeus aren’t so useful. In the case of our bodily bacteria, a relational classification system might improve our understanding, such as one detailing the genre of symbionts. Does every human host the same bacteria? Is diet relevant? How about geography?
+
+Thus, another insight that the model of genre helps expose is that classifications are only as good as their usefulness. Precision is subservient to function. There are classification guidelines for librarians that get incredibly granular. Urban fantasy or contemporary fantasy? Political thriller versus military thriller? It’s easy to imagine a novel being both, and so the label a book ends up with will be influenced by things like who is doing the labeling and the audience the author already has.
+
+When you go searching for a book to read, sometimes genre is useful. “Historical horror” might lead you to Dracula or The Strange Case of Dr. Jekyll and Mr. Hyde. But let’s say you like books featuring elderly characters, or Ukrainian literature—searching by genre isn’t likely going to be all that useful. When it comes to classifying species, “there are many different rules one could use to distinguish species, and because the category of ‘species’ is subjective, none is right, some are just more practical than others,” writes Dunn.
+
+The lesson here is to not be too rigid with your categories. It’s impossible to be perfectly accurate anyway. Exploring the ways different elements connect can reveal whole new sets of possibilities. Classify for function, but don’t demand only one function.
+
+---
+
+As a lens, genre offers us a common context—a loose blueprint for what to expect. When those expectations are not met, we feel wronged. No one wants to show up expecting a comedy only to find a horror movie. At the same time, genre expectations shape what we see and what we miss. If we think of something as this or that, we tend to see only what we expect and ignore what we don’t.
+
+# Artists and Soldiers
+
+Think of genre in the context of people. We don’t want to pigeonhole or stereotype people—at best, doing so will stifle creativity in your organization, and at worst it can be offensive and damaging. Instead, we want to look at the roles people play.
+
+Our instinct might be to find ways to get people in different roles to work together and cross-pollinate ideas. It’s the same way that the occasional horror-romance, like Pride and Prejudice and Zombies, blends genres to great effect. But the true classics of any genre stick to their own, like Bridgerton as historical romance and Dracula as horror. Let’s look to one of the best-known examples of organizational genres: DARPA.
+
+In the early 1940s, engineer and inventor Vannevar Bush was tasked with bringing the latest in science and technology to the military. The United States hadn’t yet entered World War II, but the government considered it prudent to keep abreast of these things, as well as to supply the nation’s allies in Europe with innovative technologies to help fight the German military. Bush served as an advisor to President Franklin Roosevelt, then as the head of the National Defense Research Committee. In 1941, on the eve of America’s entry into the war, he became chair of the newly formed Office of Scientific Research and Development (OSRD). As author Safi Bahcall writes, the OSRD “would create the opportunity Bush sought for scientists, engineers, and inventors at universities and private labs to explore the bizarre.” The organization would eventually evolve
+
+---
+
+into  DARPA,    the Defense Advanced     Research   Projects Agency  that’s famous today.
+
+As you might expect, the military was not supportive of the OSRD when it was introduced, to put it mildly. Not only did top military brass not want to work with a bunch of eggheaded science nerds hunched over lab tables, they thought the OSRD was going outside the chain of command to usurp the military’s power—and budget—for developing new weapons.
+
+Bush knew that making these two camps work together was going to be like trying to mix oil and water. Think of it, Bahcall says, like ice turning to water: “One molecule can’t transform solid ice into liquid water by yelling at its neighbors to loosen up a little.” Bush’s solution was to create “the unique conditions under which two phases can coexist.”
+
+If the two genres—engineers and military leaders—were allowed to mingle, the military men would have quashed all the scientist’s bizarre, out-of-the-box ideas before they ever got off the ground. The military leaders didn’t realize that all the innovative, yet proven and reliable, weaponry they were using had started as weird projects in the mind of some engineer, who needed time and a lab to work out the kinks. As Bahcall writes, “People responsible for developing high-risk, early-stage ideas (call them ‘artists’) need to be sheltered from the ‘soldiers’ responsible for the already-successful, steady-growth part of an organization.” Keeping the artist genre separate from the soldier genre gives the artists space to develop new ideas, while the soldier genre helps shape that development according to the needs of real-world application.
+
+This dynamic can be seen outside the military too, where efficiency systems like Six Sigma can risk keeping new ideas from growing into their full potential. Efficiency can be a huge help to the “soldiers” in an organization, like those on the factory floor, in the marketing department, or even on the C-suite team. It can enhance cohesiveness across the entire organization. But innovation is rarely an efficient process, involving many false starts and the need for multiple iterations before a product, a plan, or anything else is ready for the soldiers to implement it. The artists’ process
+
+---
+
+can look utterly foolish to the soldiers—until the ideas that work filter outward to those who know how to use them.
+
+Today, Bahcall writes, “DARPA is run like a loose collection of small startups, with no career ladder. A hundred or so program managers each lead one project or field of research. They are granted an extraordinary degree of autonomy and visibility.”24 This structure has brought the world such ideas as the internet (first known as ARPANET) and the first mobile robot—named Shakey—to use AI to navigate a set of rooms.25
+
+Treating both genres as equally important to the process is key for using this model in any organization. The soldiers and the artists both need to know that their contributions are valued. Neither romance nor horror—neither artist nor soldier—is better than each other or any other genre. They fulfill different requirements at different times, and recognizing their strengths while insulating their weaknesses will allow new ideas to flourish and become usable innovations.
+
+# Conclusion
+
+Picture this: you’re browsing a bookstore, scanning the shelves for your next read. You pick up a book with a shadowy figure on the cover, a magnifying glass in hand. Instantly, you know what kind of story awaits you within those pages. This is the power of genre—the unspoken understanding between creator and audience that shapes how we experience art.
+
+But genre is more than just a label; it’s a set of conventions, a understanding between the artist and the audience. When we pick up a mystery novel, we expect a crime, some clues, a detective. When we go to a rock concert, we expect loud guitars, driving rhythms, rebellious attitude. Genre sets the parameters of our experience, even as it gives the artist a foundation to build upon or rebel against.
+
+Think of genre as a game with rules. The rules provide structure, but they also create opportunities for creativity. A sonnet has a strict form—
+
+---
+
+Fourteen lines, a specific rhyme scheme—but within those constraints, poets have found endless ways to express love, loss, joy, and sorrow. The rules of the genre game inspire ingenuity, challenging artists to create something fresh within the familiar.
+
+But genres are not static; they are constantly evolving. Look at the way rock music has transformed over the decades. What began as a rebellious offshoot of blues and country in the 1950s has splintered into countless subgenres, each with its own distinct style and audience. From the psychedelic experimentation of the 1960s to the punk revolution of the ’70s to the grunge explosion of the ’90s, rock has reinvented itself time and again. What was once transgressive becomes mainstream, and new forms emerge to take its place.
+
+Navigating genre is a delicate art. Stick too closely to the conventions and your work may be dismissed as formulaic. Stray too far and you risk losing your audience. The key is to find the sweet spot—honoring the expectations of the genre while also bringing something new and personal to the table.
+
+Ultimately, genre is a tool—a way of framing the conversation between artist and audience. It provides common ground, a starting point for the journey together. But the true power of art lies in the way it can transcend genre, using convention as a springboard to take us places we’ve never been.
+
+OceanofPDF.com
+
+---
+
+Contrast
+Difference defines.
+                   OceanofPDF.com
+
+---
+
+To miraculously hold together contradictions and incompatibilities is a good definition of art.
+
+—FRANK AUERBACH1
+
+---
+
+Contrast has an easy definition, but also a lot of nuances. It is one of the most important and useful concepts to understand and apply in life.
+
+A pickpocket cleverly uses contrast to remove your wristwatch without you noticing. To remove your watch, he needs to touch your wrist and release your watch. Normally you would notice this touch, but while he touches your wrist, he creates a high-contrast touch somewhere else—like bumping into your shoulder. The contrast makes you feel the shoulder touch and ignore the wrist touch.
+
+Contrast is a concept that underpins many techniques in the arts. It’s juxtaposition, the placing of two things together to show how they are different. Often, you can see what something is more clearly in the context of what it is not.
+
+Thus, contrast refers to the arrangement of opposing elements, effects, and/or content. In a painting by Cindy Sherman, Untitled, contrast is displayed on multiple levels, and quickly the viewer finds “the deluxe appearance of beauty and splendor, at first glance, disintegrates, upon a second, into the purely ersatz effect of tatty fabrics and obtrusive makeup.” By displaying and reconciling a spectrum of possibility for an element, contrast creates interest and meaning.
+
+Contrast thus is stimulating and a great way to capture an audience’s attention. Describing a painting by Kitagawa Utamaro, Julian Bell captures the power of contrast when he writes, “the erotic heat comes from the interfaces of patterned and plain, of covered and revealed, of hair and the nape of the neck.”
+
+In visual art, contrast can be achieved by using light and dark colors, smooth and rough textures, and/or large and small shapes, for example. Bell says of the painter Henri Matisse, “He discovered the power of clashing
+
+---
+
+colour extremes—viridians and oranges, violets and lemons—to kickstart oscillations in the eye, pumping out a surplus of radiance.”4 Contrast produces emphasis, demonstrating to the viewer what we want them to look at. Think, for example, of a bright red apple set against a white-and-brown background.
+
+Seeing the juxtaposition of dualities is also a way of telling the story in visual art. In describing a sculpture of the circa 1200 CE bust of a king from Nigeria, Bell explains, “West African cultures tend to pair their images. The pair to this, the king’s outward likeness, would be not the queen’s…but a diminutive upright cylinder, an abstraction poked with eyes—the likeness of the inner, the spiritual man.”5 By viewing these contrasting elements together, we get a sense of the whole meaning behind the depiction of the person.
+
+Contrast is inherent in music as the progression through sound and silence. It is also seen in the pace of the musical notes (a range from fast to slow), their intensity (heavy to light), and their tone (high to low). Margaret Mary Barela explains in “Motion in Musical Time and Rhythm” that in music “tensions fluctuate in duration as well as in importance: driving or dragging, emerging in the foreground, or sinking into the background.”6
+
+In literature, contrast crops up in the juxtaposition of characters of varying intents. At the most basic level, the actions of the protagonist (likely a good person) are contrasted with those of the antagonist (probably a bad person). Authors will often have characters present different aspects of themselves and of humanity in order to highlight those aspects. We notice a character’s virtue—such as a good temperament or intelligence—when they are in a scene with someone who is grumpy or quick to judge, or who doesn’t understand the action of the scene.
+
+Sherlock Holmes appears smart because he puts together the story of a crime faster than the others who are working on the same case (such as Dr. Watson or Inspector Lestrade). In Jane Austen’s novels, the heroines Elizabeth Bennet or Elinor Dashwood spend many scenes in the company of characters who have opposing qualities. Putting Elizabeth in a scene with
+
+---
+
+Caroline Bingley shows the former’s wit and unpretentiousness and the latter’s meanness and snobbery.
+
+Contrast has a couple of different applications in theater. As in literature, it can often be found in the characters in a play. But there is also an element of contrast in staging: lighting is used to create areas of darkness, thus highlighting certain elements on the stage. Ever since the invention of powerful artificial lights, starting with gaslights in the early nineteenth century, performance lighting has become a critical tool in theater staging. The spotlight, which highlights one small area of the stage brightly to contrast with shadows everywhere else, was used as soon as the technology was developed to direct the light on stage. As Neil Grant writes, “Limelight, producing a brilliant, lens-focused light from a calcium flare, was introduced soon after gas. It was used chiefly like a spotlight, to illuminate the main actor—putting him ‘in the limelight.’ ”
+
+A lot of art analysis considers what is happening in the foreground and the background of a work, which is often a type of contrast. In order to have a foreground, there must be a contrasting background. So we can ask: Where is the attention of an audience, reader, or viewer being directed? Where does the artist place emphasis? In paintings, the emphasis might be more literal: one’s attention is often directed to the figure in the foreground. In other types of art, such as literature, foreground is better understood as the characters or situations that are described in the level of detail needed to capture the reader’s focus. In theater, the foreground of both the characters’ qualities that drive the story and the physical setting can be emphasized through lighting and other staging effects. Backgrounds are therefore often designed to help us see the foreground more clearly.
+
+Contrast reminds us that we cannot see everything with perfect clarity all at once. We must focus on something, while the rest recedes from our attention. It also reminds us that we understand things more clearly when they are placed in juxtaposition to different elements.
+
+---
+
+# Contrast as Context
+
+How do you understand visual information? What is the difference between a pretty picture and one that conveys information? One answer is the context created by contrast.
+
+We can often understand what something is in the context of what it is not. The things being considered don’t have to be opposites; even something with several slightly different attributes provides enough contrast to convey information. Designing visual elements to educate or tell an information story is called “data visualization.” A key principle of data visualization is to show comparisons, because only by accessing contrasting information can we begin to understand the story of the data.
+
+In Beautiful Evidence, Edward Tufte explains the logic behind visual representations of data:
+
+The fundamental analytical act in statistical reasoning is to answer the question “Compared with what?” Whether we are evaluating changes over space or time, searching big databases, adjusting and controlling for variables, designing experiments, specifying multiple regressions, or doing just about any kind of evidence-based reasoning, the essential point is to make intelligent and appropriate comparisons. Thus visual displays, if they are to assist thinking, should show comparisons.
+
+Knowing there were one hundred car accidents last year tells you very little. But if these accidents were plotted within a geographical region, you would have a comparison with which to start understanding whether one hundred accidents was a lot for the area. Better yet, if this visualization included accidents over time in the same region, with easy-to-understand elements demonstrating intensity or type of accident, you might begin to form a picture of where the trouble spots are and what to do about them.
+
+One of the classic images in data visualization is John Snow’s plotting of cholera victims in London in 1854. It’s simple but effective. The visual
+
+---
+
+representation is clear and easy for the eye to process. The locations of cholera deaths are plotted geographically, and the contrast between regions of high mortality and low mortality is easily understood. The information conveyed by Snow’s visualization allowed for clear and immediate action to try to remedy the cholera problem.
+
+# 1. The Visual Display of Quantitative Information
+
+Tufte asserts, “Graphical displays should encourage the eye to compare different pieces of data and reveal the data at several levels of detail, from a broad overview to the fine structure.” One of the key ways to accomplish this visual comparison is through contrast. We can only compare different pieces of data if they are sufficiently different to invite comparison.
+
+When approaching data visualizations, Tufte argues that we shouldn’t start with wanting to use a particular image or color. He says, “The first question in constructing analytical displays is…what are the content-reasoning tasks that this display is supposed to help with?” If I am meant to understand the impact of commercial fishing on fish stocks in a certain region, what information do I need to contrast so that I can foster the
+
+---
+
+comparisons that will augment understanding? Data must contrast with something in order for people to understand its context. And we need to have context if we’re going to understand the story of the data. Tufte asserts that “data-rich designs give context and credibility to statistical evidence.12
+
+Providing context requires avoiding clutter. Contrasting data with irrelevant information, designs, or images is useless. And simply making something a different color is not the kind of contrast we’re talking about. According to scholars Tim Riffe, Nikola Sander, and Sebastian Klüsener, “Good visualizations enhance our understanding of the underlying data and grab the reader’s attention without sacrificing truth for beauty”13—essentially, pretty is not the same as engaging. As Tufte stresses, ink should be devoted primarily to the data needed to tell the story. “If the intellectual task is to make comparisons, as it is in nearly all data analysis,” Tufte writes, “then ‘show comparisons’ is the design principle.”14 Contrast information so people have a clear understanding of what something is—and what it is not.
+
+It’s surprising how many people don’t understand how to apply contrast to their advantage. Hot business ideas that are attracting the best and brightest in an industry are seldom the most attractive field to enter. No matter how talented you are, your talent will always be compared with that of your rivals. In a room full of sneezers, it’s hard to stand out. Unpopular fields, in contrast, can offer a better chance to stand out.
+
+# Contrast in the Universe
+
+Sometimes we think of contrast only in the context of opposites, like the colors black and white or the attributes soft and hard. But a contrast doesn’t have to involve a direct opposite to be effective. It could just be an effect that makes enough of a difference in a situation to change the landscape or, if we think of it in terms of thermodynamics, the entropy of an environment.
+
+---
+
+The second law of thermodynamics says that any system will settle into a state of equilibrium. Say there’s a fish tank with a partition in the middle. One side is filled with hot water, and the other with cold. If the partition is removed, the water will reach a state of equilibrium, and the tank will be filled with uniformly lukewarm water.
+
+The physical aspect of any thermodynamic system—in our very basic example, the water in the fish tank, along with its glass sides and the air with which it comes into contact at the surface—is called entropy. As chemist Peter Atkins writes, “We shall identify entropy with disorder: if matter and energy are distributed in a disordered way, as in a gas, then the entropy is high; if the energy and matter are stored in an ordered manner, as in a crystal, then the entropy is low.”15
+
+Atkins then gives another example of entropy at work in the world:
+
+- A quiet library is the metaphor for a system at low temperature, with little disorderly thermal motion. A sneeze corresponds to the transfer of energy as heat. In a quiet library a sudden sneeze is highly disruptive: there is a big increase in disorder, a large increase in entropy.
+- On the other hand, a busy street is a metaphor for a system at high temperature, with a lot of thermal motion. Now the same sneeze will introduce relatively little additional disorder: there is only a small increase in entropy.16
+
+Atkins then goes into quite a bit of math, but for our purposes, the thing to note is the contrast: a sudden sneeze in a low-entropy environment creates high contrast. Everyone will notice, and it changes the “temperature” of the room by adding sound and visuals. People will react to the change because of the high contrast. Out on the street, most people won’t even notice a sneeze. It doesn’t change the “temperature” of an outdoor setting, where there’s already a lot of noise, both audio and visual.
+
+Sometimes, you want to change the entropy of a situation. A sneeze might not be enough to change the “temperature” of a busy street, but a
+
+---
+
+chicken costume might. Or, more practically for many business owners, a sign advertising a sale at your shop or a billboard for your latest movie that stands out from the scenery could provide enough contrast to be noticed.
+
+Using entropy, or contrast, to change the temperature of a system works the other way too. A situation that seems to be teetering on the edge of complete chaos may need to be calmed down. We may not notice a sneeze amid all the other signals we’re receiving on a busy street, but we may be relieved to see a spa or a city park full of trees that brings down the overstimulating temperature of the experience.
+
+There are also plenty of times when we don’t want to change the temperature of a situation. We probably want to remain quiet in the library, along with our fellow readers, as we contribute to the greater project of innovation and research. In that case, we would want to abide by the cultural norms of the library, to earn the respect of our colleagues and to show respect for their studies in return.
+
+As with so many mental models, high and low contrast can both be useful tools. Wisdom comes in assessing any situation and knowing whether contrast—raising or lowering the temperature of the situation—might lead to a breakthrough.
+
+# Conclusion
+
+Contrast is the spice of life and art. It’s the clash of opposites that energizes a work and jolts our senses. Without contrast, the world is bland. With it, the world dances with dark and light, loud and soft, rough and smooth. Contrast makes us notice.
+
+Contrast isn’t just visual. In music, quiet moments make loud ones explosive. Gentle ballads set the stage for crashing anthems. In literature, calm before the storm makes extraordinary events remarkable. Contrast gives art emotional power.
+
+Contrast creates interest and engagement. Our brains are wired to pay attention to changes, to differences. We tune out the monotonous, but we
+
+---
+
+snap to attention when something breaks the pattern. Artists use contrast to manipulate our attention, to direct our focus and shape our experience of the work.
+
+Contrast is a universal principle. Light and dark, hot and cold, life and death—the world is defined by contrasts. Darkness helps us understand light. Winter makes us appreciate spring. Contrast gives meaning to existence.
+
+OceanofPDF.com
+
+---
+
+# Framing
+
+Context shapes meaning.
+
+OceanofPDF.com
+
+---
+
+A good photograph is knowing where to stand.
+
+—ANSEL ADAMS
+
+---
+
+We never see everything. We only engage with a small, often chosen part of the world. Framing helps us identify the constructed frames around the information we receive. The frame decides what we see and miss.
+
+Framing is a fundamental component of all art. Art may imitate life, but it selectively chooses what to portray. What gets included in the book, what gets edited out of the documentary, what is inside the boundaries of the portrait are all examples of framing. Framing conveys the intent, the story, and the focus.
+
+The concept of framing also applies to more than art. One way to understand frames is as the mental constructs we use to make sense of our world. Mental models themselves could be considered a set of frames. Another way to think of framing is as the act of compressing something complicated into what you want people to see. People read Farnam Street (fs.blog) because they find the ideas interesting, timeless, and useful. But how do you position that in a way that can be shared with other people? We frame the idea with the tagline: Mastering the best of what other people have already figured out.
+
+Some frames are specific to different types of art, and it is through these frames that the artist and audience interact. For example, whether we’ve given much thought to them or not, we all have frames for songs, paintings, and novels. Frames, in this sense, can be understood as a set of expectations. We know when we are looking at a sculpture or play, and we know when we are not.
+
+Humans are generally good at figuring out what is meant to be within the frame of an artistic piece. We can easily tell when a character’s aside is directed right at the audience within a play, whereas the crinkling of candy wrappers in the seats around us is not. In describing the Japanese bunraku
+
+---
+
+Puppet tradition, scholar Susanne K. Langer says it is “the most extreme example of such a channeling of audience perception because it asks the audience to ignore the visible presence of all these puppeteers in the act of manipulating a single puppet.”
+
+Framing not only compresses an idea but shapes how you approach it. For example, the frames we have for art also tell us how we’re meant to interact with it. We know that we’re not supposed to talk during a symphony. We also know that we’re meant to suspend our disbelief of events inside the frame of a movie or novel until the full artistic experience unfolds. You don’t usually walk out of a movie just because you’re dropped into the middle of the action in the first scene and have no idea yet what’s going on. Part of the job of the artist, therefore, is to tell their audience what to look at, what to engage with. They need to put into the frame what is needed for a full artistic experience. What exactly is that? How much is required? There are no definite answers.
+
+Art itself often tries to expand our frames, and frames evolve in response to artistic developments. Camille Paglia writes of artist Piet Mondrian, “Mondrian’s lines hypothetically shoot out into infinite space, creating a charged new relationship between a painting and its surroundings. Hence his revolutionary step of discarding the frame, that heavy, ornate golden rim of traditional portable paintings.”
+
+Not all artists want to work within the current framing conventions, but as Erving Goffman points out, “Certainly individuals exhibit considerable resistance to changing their framework of frameworks.” Sometimes, then, we may not like a piece of art not because it isn’t good but because it’s too far outside of our frame for what type of art the piece is supposed to be.
+
+Social sensibilities with regard to how we’re meant to experience art change too. For centuries, theatergoers would throw objects at the actors, interact with them directly, and even get on the stage to become part of the action. Now, in many places, for this same behavior, the stage action would be suspended, and you would be escorted out of the theater, if not arrested.
+
+Normally, though, there is a successful collaboration between artist and audience. The artist gives us all the information we need to engage with the...
+
+---
+
+art, and we accept it. Goffman writes that there is “evidence of the great capacity of audiences to adjust and calibrate in order to get on with getting involved.”5 As audience members, we don’t require a perfect rendering of our expectations in order to participate in the artistic experience.
+
+Art is compression. When you write an email at work or an essay, you’re compressing an idea and framing it for an audience. Compression necessitates choosing what to include and what to leave out. The artist focuses our attention on what they want us to engage with. A movie uses a close-up; a play uses a spotlight. Our eyes stop panning the museum wall when we hit the gilded edge around the painting. When we’re listening to music, we easily distinguish the story of the melody from the embellishments of the harmony.
+
+By choosing what is both in and out of the frame, an artist impacts our historical narratives. Paglia describes how in the painting The Death of Marat, the painter, Jacques-Louis David, “has reworked the scene. Marat is more muscular here than in real life and his raw blisters and scales have been erased,”6 among other changes. It influences what we remember of Marat and so influences how we perceive history to have transpired. Movies are another example of how historical events can be reconfigured by how they are framed by the artist, in this case, the director.
+
+# History as Frame
+
+Historical records are frames. The person or people who compile the record decide what goes in or is left out. Historians consider many different records to produce a cohesive account of an episode or an era, but that account is still a frame. Information is excluded because it is deemed
+
+---
+
+irrelevant, inaccurate, or incendiary—and historical accounts can never factor in information that is unknown or has never been included within a previous frame. Historical records also compress time. By definition, the record of history must be less comprehensive than all the actions, thoughts, emotions, and moments experienced by all the people it covers.
+
+When people frame something, they’re making a statement not about the objective truth but about themselves. Paying attention to the framing of a history is important. Something is always left out. Examining historical records through the lens of framing helps us develop our perspective by actively considering what has been left outside the frame. In her book Empress: The Astonishing Reign of Nur Jahan, Ruby Lal openly confronts the challenges in navigating frames to build an authentic understanding of a subject. Nur Jahan was “the twentieth and favorite wife” of Mughal emperor Jahangir. Married to him in 1611, she quickly rose to an unprecedented level of power for a woman in Mughal society, which is reflected in undisputed biographical details such as her issuing orders, designing gardens and buildings, and having coins struck in her name.7
+
+However, to access an impression of who this woman was beyond these details is challenging because of the way she is framed in the historical record.
+
+There are a few accounts of her reign by her contemporaries. Lal notes, “Some commentators pronounced her cunning and conniving.” Other accounts by European men visiting the region characterized her as “manipulative and mysterious” and “haughty and stubborn.” Their accounts of her explain that it could only be the emperor’s love that gave Nur Jahan her position and power. Consequently, she was regarded as doing anything necessary to keep that love. Lal argues, “Faced with the reality of a de facto woman sovereign, most official observers of Nur’s achievements, instead of acknowledging that she’d earned her position on the strength of her talents, explained it in terms palatable (to them) and conceivable (to them): she was a gold-digger and a schemer.”8
+
+As the years progressed, Nur’s romance with her husband, Jahangir, continued as the main frame of the narrative of her story. Outside of India,
+
+---
+
+“narratives of the royal romance became more extravagant in nineteenth-century British colonial histories that were steeped in the orientalism of the day, embracing exoticized stereotypes of Asia.” Inside the country, the way Nur is framed is equally simplistic. Depicted in many popular films and comics, her story is often reduced to only the romance between her and the emperor, with everything she did and achieved being accomplished due to love. Despite her being a real historical figure, “the narration of her bold military and political endeavors is sketchy and tepid,” and “she is not discussed as a leader.” Even into the late twentieth century, “academics… leaned on love as the explanation for her extraordinary rise rather than attributing it to her talents.” Love became the frame through which Nur Jahan was considered and evaluated.
+
+When we deal with frames, we must ask ourselves what has been left out. In the case of Nur Jahan, if love is the frame through which she has been consistently depicted, then it stands to reason that anything that doesn’t fit that frame might have been omitted. For the early chroniclers, the love between Nur and Jahangir was not the right kind. It wasn’t selfless. Instead, it bewitched the emperor into allowing Nur to have an unprecedented amount of power for a woman. Of course, this may be true. But it’s always suspicious when all of the information that’s been presented perfectly supports the position. Did it all fit together so neatly, or was there more?
+
+Even for more contemporary histories, the elements that don’t relate to love don’t tend to make it into the frame. As Lal writes, “There is no palpable sense of the anger or playfulness we’d expect of a living woman… her raw ambition, her vulnerability as well as her strengths, or the very human way in which she fought to build and preserve her husband’s and her own sovereign rights.”
+
+Nur Jahan’s relationship with her husband isn’t the only element of her life where there seem to be additions made to suit the person telling her story. We all do this—whenever we tell a story, we leave out details that don’t fit what we want to convey. One example of the distortions that frames introduce is in Nur Jahan’s birth story:
+
+---
+
+Besides her parentage and her name, only one thing is certain about Nur Jahan’s birth: She entered the world outside Kandahar in the winter of 1577, on the road to India. During her time as empress and after, in chronicles and legends, several key embellishments were added to the tale. By the eighteenth century, three fascinatingly different versions of her birth story had been published, each revealing a great deal about the teller and his times (the writers were all men), including prevailing attitudes about politics, gender, and religion.12
+
+If we want to be accurate, then what fits inside the frame of Nur Jahan’s birth is quite small: a couple of sentences. But, as is often the case, contents get enlarged in order to direct focus. Later writers of the birth story wanted their readers to get more than just those few facts. They wanted readers to focus on Nur’s mysticism, divine being, and childhood struggles—or the intervention of fate, the notion of destiny, or whatever. In order to accomplish that, they had to augment what was in the frame.
+
+In terms of Nur Jahan’s overall legacy, there are some clear contradictions between how she was officially written about and what survives in historical artifacts. Lal explains, “The official historians of Jahangir’s son’s reign (Shah Jahan) deliberately wrote Nur Jahan’s merits and accomplishments out of Mughal history.”13 She goes on to justify this statement by pointing out elements that could not be written out but that demonstrate Nur did have extraordinary accomplishments to her credit.
+
+Nur was the only Mughal woman to appear on coins, many of which have been found and displayed in museums. Nur also appeared in formal paintings depicting her exercising the powers of state. And there are inscriptions she wrote on monuments that she designed.
+
+How Nur Jahan is depicted throughout history is a lesson that, quite often, history is framed according to the sensibilities of the one doing the framing. Understanding that there is always a frame, always someone who makes decisions on what to capture and what to leave out, is a great life lesson. We are always interacting with framed information.
+
+---
+
+On Caspar David Friedrich: “When human beings appear in his work, it is usually with their backs to us: they are looking at nature and thus directing our gaze.”
+
+On At the Café, by Édouard Manet: “We are positioned almost as if we, like the waitress quaffing beer, were at work—behind a marble bar with glassware and a tap handle partly visible to the right.”
+
+# Updating Our Frames
+
+The way you see something—that is, your framing—emerges from your experience. You are not born with any particular frames; you acquire them. Some are inherited, others are learned. Once you understand something in a certain way, that frame follows you.
+
+We bring our previous understanding to each new situation we are in. How we frame events depends on our sensibilities, our knowledge, and our biases. When new information comes in, we often resist changing our frames because, in effect, we have to admit that we were wrong. It’s both difficult and brave to process and share our changing frames.
+
+When the Vietnam War broke out, Walter Cronkite was the much-trusted anchorman of the CBS Evening News. Cronkite had been a war correspondent during World War II, which shaped how he initially framed the Vietnam situation when reporting on it to the American people. He believed that journalists needed to be objective, but also that “reporters… needed to help the American military win the war, as he had done during WWII with United Press.”
+
+Cronkite was a thoughtful journalist who knew it was critical to be objective, but he began covering the war with the utmost respect for the military position. It’s important to understand that for Cronkite, supporting the American military went hand in hand with telling the truth about what was happening in Vietnam. Because if the Americans were ultimately doing the right thing in Vietnam, then reporting on their activities would help the war effort.
+
+---
+
+Cronkite made sure CBS Evening News put out balanced coverage. He reported on official White House statements, but he also covered actions such as the unnecessary destruction of Cam Ne by US marines. He interviewed members of the American military, yet also aired an interview with President Ho Chi Minh of Vietnam. Cronkite’s frame in the first years of the war appears to have been that of someone who believed the Americans were essentially doing the right thing by being in Vietnam. As his biographer Douglas Brinkley writes, “Even after the Cam Ne incident, Cronkite remained a cautious hawk. He thought the Americans would, in the end, win over the hearts and minds of the Vietnamese people.”17
+
+The Vietnam War was the first US war to be widely televised, and so television broadcasts had a large influence on people’s understanding of the conflict. Media coverage by people like Cronkite—not just government statements—shaped public opinion. By some accounts, a key part of the eventual shift in opinion in opposition to the war was the recognition that there could be discrepancies between the two.18
+
+As the war progressed, Cronkite’s framing in his broadcasts slowly began to change. He visited Vietnam for the first time in 1965 and was exposed to how the on-the-ground reality was far different from the reports put out by the White House. After that visit, he began actively seeking out a variety of sources to continually update and expand his understanding of the situation in Vietnam.19
+
+Up until early 1968, Cronkite was careful to not take a public position on the war. It was his job as a journalist to report on it. But that was getting harder to do with accuracy from his position in the United States.
+
+While the Tet offensive was raging, Cronkite decided he needed to go back to Vietnam. “When Cronkite was a United Press reporter, he learned an important lesson: be your own eyewitness. Worried about the proliferation of unsubstantiated rumors and deliberate misinformation streaming out of Saigon, he believed it was essential to now take in the Vietnamese situation for himself with ‘mind wide open.’”20
+
+So, in 1968, Walter Cronkite went to Vietnam again to see firsthand what was going on.
+
+---
+
+He and his producers decided that it was time for a network documentary on the war in Vietnam and for Cronkite to present an honest assessment—and to take a position on the war.
+
+Writing in Hué 1968, Mark Bowden explains the question Cronkite found himself grappling with: Was it possible that the government line he had been fed, the one he had for years been delivering nightly, was a lie? If so, it was a betrayal both personal and professional; his reputation had been used. It made him angry. If it had happened, he needed to correct it—even if that meant abandoning strict journalistic neutrality, one of his core beliefs. And right away on his visit to Vietnam, Cronkite’s worst suspicions were confirmed.21
+
+The war was a disaster.
+
+Wearing a helmet and flak jacket, interviewing soldiers at outposts, and touring all over South Vietnam, Cronkite chronicled what he was witnessing.22 “After two days Cronkite flew out on a chopper with body bags and wounded marines. He had seen enough to be convinced that he had not been told the truth.”23 He concluded that there was little chance of a good outcome for anyone in Vietnam. Troop morale was in shambles, senior officers appeared to have little understanding of the North Vietnamese, and respect for the chain of command had broken down in multiple places. His experiences had pushed him to update his framing of the Vietnam War and to share that new frame with the American people.
+
+Cronkite went back to the United States and prepared his half-hour “Report from Vietnam.”
+
+On February 27, 1968, CBS aired his damning verdict. Cronkite’s change of opinion was a turning point toward majority dissent. It is worth quoting his conclusion in its entirety:
+
+We have been too often disappointed by the optimism of the American leaders, both in Vietnam and Washington, to have faith any longer in the silver linings they find in the darkest clouds…To say we are closer to victory today is to believe, in the face of the evidence, the optimists who have been wrong in the past.
+
+---
+
+Suggest that we are on the edge of defeat is to yield to unreasonable pessimism. To say that we are mired in stalemate seems the only realistic, yet unsatisfactory conclusion. On the off chance that military and political analysts are right, in the next few months we must test the enemy’s intentions, in case this is indeed his last big gasp before negotiations. But it is increasingly clear to this reporter that the only rational way out then will be to negotiate, not as victors, but as an honorable people who lived up to their pledge to defend democracy, and did the best they could. This is Walter Cronkite. Good night.24
+
+Cronkite’s reporting was balanced and did not outright condemn the war as a mistake. But as Bowden writes, “Cronkite’s cautious pessimism had tremendous impact and made it much harder to dismiss those who opposed the war as ‘hippies’ or un-American. It was hard to imagine an American more conventional and authentic than Walter Cronkite.”25 His broadcast was the tipping point to turning the tide of opinion on both the Vietnam War and, more broadly, the trust that Americans had in their political and military leaders.26
+
+Losing Cronkite’s trust and support was a huge blow for the Johnson administration, which remained committed to the war. His reputation for integrity and his previous support meant that when he decided the White House had been lying about the reality America’s troops were experiencing in Vietnam, he had the ability to change the framing of the war for millions of people:
+
+Cronkite’s nutshell editorial wasn’t radical. Calling the Vietnam war a “stalemate” was a middling position…. But in the harshly polarized environment of early 1968, it placed Cronkite in the dove camp. Cronkite had lent his august name to the antiwar movement and thereby put it into the mainstream.27
+
+---
+
+In March 1966, just 25 percent of Americans viewed Vietnam as a mistake. By August 1968, 53 percent believed it was a mistake, and 60 percent believed this in 1973. In 1965, Gallup asked American adults if they’d ever felt the urge to join a public demonstration, and 90 percent said no. While the polling company didn’t follow up on this survey, in 1990, one quarter of Americans said they wished they’d tried harder to protest against the Vietnam War.28
+
+For someone with Cronkite’s background as a journalist during World War II, the American political and military handling of Vietnam must have been devastating. It is a credit to him that he didn’t let his past blind him to his present. Walter Cronkite thoughtfully and carefully updated his frame, sharing his new understanding via his wide reach on the CBS Evening News. It was not an easy thing to do.
+
+Framing matters to not only how an idea is presented but how it’s received. What you omit and what you include matters. How something is compressed and positioned can make the difference between ten people seeing it and one million.
+
+# Conclusion
+
+Framing is the art of context, the craft of shaping perception. It’s how we present information, the lens we invite others to view the world through. Like a photographer choosing what’s in the frame, we constantly decide what to emphasize, minimize, or leave out. These often unconscious choices profoundly influence how others understand and respond.
+
+In psychology, framing is a key concept in understanding decision-making. Present the same options in different ways, and people’s choices change. Is it a muffin or a cake? The thing doesn’t change, but its packaging does.
+
+For marketers and advertisers, framing is a potent tool. A car can be framed as a status symbol, an adventure machine, or a sensible family vehicle. A watch can be about punctuality, or it can be about luxury and...
+
+---
+
+prestige. The product stays the same, but the story changes. The right frame makes the ordinary extraordinary.
+
+But framing isn’t just about persuasion. It’s also about understanding, about making sense of the complex world around us. We all carry frames in our minds—mental models of how things work, cultural narratives, personal beliefs. These frames shape how we interpret information, how we explain events, how we imagine possibilities.
+
+Framing’s power lies in its subtlety. Unlike a logical argument, a frame doesn’t need to be explicitly stated to have an effect. It works on an emotional, often subconscious level. A well-crafted frame can make an idea feel intuitive, even inevitable, without the audience quite knowing why.
+
+Framing is the silent partner in every communication, the hidden hand shaping understanding. Like any powerful tool, framing can be used for good or ill. It can illuminate truth, or it can obscure it. It can empower people to see new possibilities, or it can subtly limit their thinking to narrow, predefined channels.
+
+OceanofPDF.com
+
+---
+
+Rhythm
+                             3     2
+      5    ~6                     4
+                                  3
+Pace yourself.
+               OceanofPDF.com
+
+---
+
+Why do we care about rhythm? It connects us to the world. It plays a role in listening, in language, in understanding speech in noisy places, in walking, and even in our feelings toward one another.
+
+—NINA KRAUS
+
+---
+
+Rhythm, in life, is like the beat of your favorite song. It’s the pattern and pace at which things happen. Rhythm synchronizes us, gives us purpose and direction. Once we start looking and listening, we find the world full of rhythms.
+
+In music, rhythm is the element of time. Most people easily identify and anticipate rhythm. Margaret Mary Barela explains, “Our perception of time is an integral part of musical experience. Once our attention is directed to that aspect, we can make comments about our perception of the way time-space has been filled.” To identify the rhythm in a piece of music, we pay attention to the recurring movement of strong and weak notes, and rests or silences.
+
+It is the relation between repetition and difference that allows rhythm to be both produced and perceived.
+
+—SARA ADHITYA
+
+In music, rhythm indicates when notes are played, how long they are played, and the intensity at which they are played. Think about any song you listen to: not all of its notes have the same intensity or pace. Some are louder or are played faster. If every note were played exactly the same way, a song would be very boring to listen to. Musical movement is like a wave, and “it is rhythm that determines the shape of the wave.”
+
+Part of what makes music enjoyable is our ability to anticipate what comes next in a rhythm pattern, but as with incentives, we get a rush from uncertain payoffs when the stakes are low. Therefore, musicians play with both meeting and thwarting our expectations to create particular emotional...
+
+---
+
+effects, such as by changing up the tempo at an unusual moment, or by layering multiple rhythms on top of one another. Too much predictability is boring; too little is disorienting. “It’s not just the stressing of some beats,” writes Philip Ball, “but an asymmetry of events that creates a true sense of rhythm and avoids monotony.”5 If you think of how we speak, versus how we usually depict robots speaking, you can appreciate how a little uncertainty and anticipation can be exciting and engaging.
+
+Thwarted rhythmic expectations in a piece of music wake us up. They make it harder to tune out. Research has demonstrated, as scientist John Powell explains, “we are equally surprised by increases or reductions in loudness (or even sudden silences) [which] shows that it’s the change in pattern which is important. A pattern of sounds makes you expect a continuation of that pattern, and if your expectations are violated, your brain starts paying attention.”6
+
+Although not all music contains rhythm, it’s rare to find music without it. There are examples of pieces of music that are written/designed/developed without a steady pulse underlying them, and so we cannot say that rhythm is a universal component of music. We can, however, appreciate that rhythm underpins the vast majority of the music we listen to and enjoy.
+
+In a musical composition, rhythm is the backbone and thus gives the piece its structure. But although rhythm is ubiquitous, what makes a rhythm is not. There are cultural variations in rhythm patterns and beat perception, and we seem to prefer what we already understand. “What we hear in music is conditioned not only by what sound is actually produced,” Phillip Ball writes, “but also by what sound one’s ear is attuned to and expects.”7
+
+Similar to our daily lives, music need not have only one rhythm. Polyrhythmic music is common in many musical cultures, most notably African drum music, as Powell explains:
+
+One of the oldest African musical genres is drums-only music, which often employs polyrhythms. A polyrhythm is produced when two or more drummers follow different but linked agendas.
+
+---
+
+at the same time, creating complex and interesting effects from a combination of rhythms.8
+
+The broadest generalization which can be made about the rhythmic experience is that it provides for the listener a sense of motion and direction.
+
+—MARGARET MARY BARELA9
+
+Our bodies easily find themselves in tune with rhythms. John Powell explains that scientific studies and our everyday experiences show us that “under the right conditions your heart rate can rise or fall toward the beat of the music you are listening to, and this fools your brain into experiencing the emotion that is appropriate to your new heart rate.”10
+
+Our emotions are easily influenced by rhythm. “The speed of the music gives the clearest indicator of its mood.”11 Generally, fast speeds signify happiness, fear, or anger, while slow speeds indicate tenderness or sadness. We look for other cues in music to figure out the mood the music is trying to convey, but the conventions are far from universal; it’s possible, for example, to have very sad music that moves quickly. Rhythm, however, usually forms our largest impression of the mood of the music. David Byrne suggests that the “happiness” of rhythms can override “melancholy” melodies for many listeners of the tragic lyrics of flamenco and salsa songs.12
+
+Rhythm is not unique to the musical arts. Like all the models from this section of the book, richer insight on where to apply the model in your life comes from first using it as a lens for other arts.
+
+Rhythm impacts the structure of individual works of poetry, dance, and literature. Virginia Woolf asserted, “All writing is nothing but putting words on the backs of rhythm. If they fall off the rhythm, one’s done.”13
+
+When we come across rhythm, we identify it as the base of what we are experiencing. It provides a structure that we can easily pick out and mimic.
+
+---
+
+Therefore, most humans can share an experience of togetherness when listening to rhythms.
+
+Rhythms also form the backdrop to our days, as many elements of our world follow a beat through time. Using rhythm as a model helps us understand what we can change and accomplish by modifying a rhythm. It is because it is thus inborn in us that we can never silence music, any more than we can stop our heart from beating; and it is for this reason too that music is so universal and has the strange and illimitable power of a natural force.
+
+—VIRGINIA WOOLF
+
+# Daily Rhythms
+
+Rhythm is the backdrop to our day. Look at your life through the lens of rhythms and notice how many you encounter. We perform different activities at different frequencies, whether weekly, monthly, or yearly, yet the one with the most impact is arguably the one we repeat most often: the rhythm of our everyday lives.
+
+—SARA ADHITYA
+
+Rhythm is something we experience within our own bodies, as we hear or feel our heartbeats or breath. We identify it in other biological processes, such as our circadian rhythm. We see rhythm in the changing seasons or the pattern of sunrise and sunset—things with which to mark the passage of time. The rhythm of the moon gives us tides. There are rhythms found in the hours of our workday, the flow of transportation, and the activity in a town or city. Margaret Mary Barela argues, “The experience of meter, and rhythm as well, is kinetic. It is organic. We experience flow if we allow ourselves to focus on the kinetic aspect of the musical experience.”
+
+---
+
+Identifying and feeling the multiple rhythms in our day helps us appreciate the kinetic reality of rhythm.
+
+We are probably all familiar with the idea that there is something in us that functions like a clock. We can also see regularly recurring rhythms in plants and animals, as if they too function on a clock. Living things seem to have times for rest and times for eating, rhythms that seem to occur on a regular, daily basis. Our biological clocks tick along in pretty steady, reliable rhythms, and they are internal to us.
+
+Rhythm is thus a fundamental part of all living creatures. Sunlight may modify, or entrain, our circadian rhythm as the periods of darkness and light vary throughout the year. But light does not tell us when to get up. Our bodies are already beginning the process of waking up and being ready to start the day before our eyes register the sun through our lids. “Much of the behaviour of living organisms is anticipatory of regular and predictable daily environmental changes,” write Russell G. Foster and Leon Kreitzman in their book *Rhythms of Life*, “rather than reactive.”17 Foster and Kreitzman cover years of research showing that biological clocks still operate in plants and animals, even if they are separated from external calibration sources.
+
+When you think about it, internal clocks make evolutionary sense. They allow us to prepare for when conditions are optimal.
+
+Humans are the only species that can create our own optimal conditions. If we’re more creative at night, that’s fine, because we’ve invented artificial light sources. If our bodies aren’t well adapted to living in the desert, no problem; we’ve got air conditioning. For every other living thing on the planet, being able to anticipate things like when a food source will be most abundant is critical to survival. Russell and Kreitzman explain, “Organisms mold their lives around the natural rhythms of their environment rather than try and work against it. If the animal or plant in the wild has the means for predicting regular environmental changes, then it can behave in such a way as to exploit the conditions.”18
+
+There is no reason for plants and animals to get away from the rhythms of nature. The rhythms of nature exist and are both strong and consistent:
+
+---
+
+Sunrise. Sunset. The earth will turn and tilt according to schedule, and we will experience both days and years.
+
+But the larger point about biological rhythms means that it may not be so great for humans to completely ignore them. Ultimately, the rhythms of the environment offer some predictability, and “although we may have obscured the natural rhythm that for thousands of years dictated human life, success still comes, just as it did for the ancient Egyptians, from anticipating the future and organizing to meet it.”
+
+In order to anticipate the future, we have to contend with more than naturally occurring rhythms. We also hear and process the rhythms we’ve created. Open your window, and what do you hear? Traffic? Lawnmowers? Construction? Sirens? Navigating through our day means noticing and anticipating the rhythms of traffic or public transportation on our daily commute, the rhythm of people as they walk around buildings or go in and out of stores, when restaurants are open, where entertainment is happening. When it comes to how we live, researcher Sara Adhitya points out in Musical Cities, “the simultaneous presence of such a wide spectrum of rhythms at any given point in time renders urban life a complex, polyrhythmic composition.”
+
+Big cities, towns, suburbs: wherever humans live, there are the rhythms created as we all go about our days.
+
+When we notice the rhythms around us, when we listen to our environment, one result is that we understand what is happening—where cars are, or people. But paying attention to our environment doesn’t only give us a retroactive view. We also use sound information to make inferences about the space we are in, which helps us navigate it better in the immediate future.
+
+There’s a clear connection between how our cities are designed and how we flow through them. Thus, there is a relationship between design and rhythm. For example, Adhitya explains, “Urban designer Jan Gehl observed that streets with uniform, inactive facades (i.e., no openings or activities) motivated people to move past as quickly as possible, whereas a street with varied and active facades encouraged them to stop and linger, filling the
+
+---
+
+street with social life.”21 The two visions of a city street described in this quote confer the idea of two very different rhythms.
+
+There is a sense, then, that the rhythms we encounter on a daily basis might have a huge impact on how we feel and how much we enjoy our day. Adhitya argues, “We must first be able to speak to our internal rhythms in order to generate the urban experiences we desire.”22
+
+Given that the rhythm in music can prompt feelings of sadness or excitement, it stands to reason that the daily rhythms we interact with might have a similar effect. Moving quickly around hundreds of people streaming in different directions produces a different emotional state than moving slowly through a park—not that one is better than the other, but the idea is that the rhythm we are following will impact how we feel.
+
+Understanding where and how rhythm is present in our daily lives can offer us insight for how rhythm influences our day. From the innate rhythms of our biology to the external rhythms of our environment, and all the modifications and additions in between, there is no doubt that rhythm is an inescapable part of living.
+
+Rhythm provokes an expectation, arouses a yearning. If it is interrupted, we feel a shock. Something has been broken. If it continues, we expect something that we cannot identify precisely. Rhythm engenders in us a state of mind that will only be calmed when “something” happens. It puts us in an attitude of waiting. We feel that the rhythm is a moving toward something, even though we may not know what that something is.
+
+—OCTAVIO PAZ23
+
+# Marching in Time
+
+Using rhythm as a lens shows us how prevalent rhythms are in our daily life. However, rhythm’s value as a model also includes providing insight into where we can use rhythm to improve how we work with others. The same rhythm can be experienced by multiple people at the same time. We
+
+---
+
+don’t need years of musical training to recognize a rhythm. This accessibility makes rhythm an easy tool to use to develop group cohesion.
+
+Rhythm is used outside of music to provide structure for activity. For example, it can be used to make types of manual labor, such as rowing or even walking, more efficient. One area where rhythm has been used for centuries to create optimal conditions for group success is in military drill. In many militaries around the world, soldiers at all levels train in a drill.
+
+The Encyclopedia Britannica defines military drill as “preparation of soldiers for performance of their duties in peace and war through the practice of prescribed movements.” Often ceremonial now, drill nonetheless continues to be a valuable component of military training. Moving to a beat helps you anticipate how everyone else in the group is going to move. Knowing how everyone is going to move helps you organize, because you know where everyone is going to be next.
+
+Rhythm offers a way to synchronize people and give them a common bond, no matter how large their individual differences. The Canadian Armed Forces (CAF) Manual of Drill and Ceremonial states that “drill is the basis of all teamwork.” Moving together to a prescribed beat is part of the foundation that future operations build on. The manual asserts that the military practices drill because it “contributes to the operational effectiveness of the CAF by a) ensuring that the CAF efficiently march and maneuver together as one in duty and routine; and b) promoting discipline, alertness, precision, pride, steadiness and the cohesion necessary for success.”—a remarkable set of achievements for an activity that is anchored by rhythm.
+
+The movements in drill happen in time. For example, a standard pause is defined as “the pause between movements of drill. The standard pause for drill at the halt is based on two beats of quick time. The standard pause for drill on the march is the period of time required to take two paces.” The CAF manual notes that drill must be conducted to a specific cadence, with cadence being defined as “the number of beats to the minute.” To that end, drill leaders can use mechanical training aids such as drums or a metronome. Drums, for example, “may be used to beat the time for troops.
+
+---
+
+who are learning to judge correct timings and beat the cadence.”27 The rhythm of drill is very precise. This precision is what allows everyone to synchronize their movements. The American military also uses cadence “to keep soldiers stepping in time while marching or running in formation.” Here too cadence is precisely defined, so there is no ambiguity. It is “the beat, time, or measure of rhythmical motion or activity.”28
+
+The use of drill by militaries goes back millennia and has served critical functions. A US Marine Corps article, “The History of Drill,” states, “Drill has enabled commanders to quickly move their forces from one point to another, mass their forces into a battle formation that afforded maximum firepower, and maneuver those forces as the situation developed.”29 Drill allows groups of soldiers to move together and fight together. It increases one’s ability to react automatically in challenging and changing circumstances. It improves soldiers’ ability to fight together because of the organizational cohesion created through the predictability of movement.
+
+Since “the concept of drill is to train troops over and over until a task is second nature and everyone knows how the whole formation moves at any given time,”30 it’s easy to understand why drill is built on rhythm. Rhythm is easy to follow and usually interpreted in the same way by everyone. It’s also fairly easy to understand why cohesion is so valuable in military teams. The ultimate purpose of a military is to defend the national interest, using force if required. Military units often perform their duties in hostile environments, where the only people they can rely on are the members of their own group. In order to rely on people, you need to trust them. In order to trust others, you need to be able to predict them. And one way to help you predict them is to have them act according to the same instincts as you. Drill provides that foundation.
+
+Drills “show how troops can move as one in a flawlessly timed effort. These unison movements are still important on the battlefield where mistakes can cost lives.”31
+
+Moving to a defined rhythm develops instinct. When you know you need to move to a certain beat, there is no choice. You don’t have to wonder what to do; the movements become automatic. Developing instinctual
+
+---
+
+responses in certain situations is highly valuable for military units. In situations of conflict, automatic reactions are often needed for survival. Beyond inculcating automatic, predictable movements, drill serves another function: it connects team members together. “The esprit de corps that tags along with cadence is visible as soldiers block out their worries and move as one.” Drill de-emphasizes the individual and promotes the unit. To drill effectively, the soldiers must work together as one. Rhythm is the foundation that shapes this whole. In a military unit, as in any other group, the members are unique. Each has different identities and ways of relating to the world. In order to work together effectively, they must find common ground. That is what rhythm provides: a means of working together to achieve a common goal.
+
+When it comes to looking at teamwork through the lens of rhythm, it’s important to remember that the beat is not arbitrary, nor does it continue indefinitely. The rhythm is used for a set amount of time to coordinate a specific set of movements. Eventually, those movements become second nature, and the associated cadence becomes a structure teams can return to over and over, especially in situations where there is little time for analysis. Rhythm helps us react in a way that allows those around us to anticipate our movements. The more we can anticipate where others are headed, the more we feel confident in working together.
+
+# Conclusion
+
+Rhythm is the universe’s heartbeat, the pulse animating life. From our steady heartbeats to the sun’s rise and fall, from crashing waves to swaying trees, rhythm is the pattern underlying existence. It’s the organizing principle bringing order to chaos, the recurring cycle shaping time. In music, rhythm is the foundation, the backbone supporting melody and harmony. Without rhythm, music would be a formless wash of sound, lacking structure and impact. The steady beat of the drum, the driving strum
+
+---
+
+of the guitar, the pulsing throb of the bass—these rhythms grab us on a visceral level, moving our bodies and stirring our souls.
+
+But rhythm isn’t just about regularity, the even spacing of beats. It’s also variation, the interplay of different rhythmic patterns. In jazz, the syncopated rhythms, the unexpected accents, are what give the music its improvisational feel. In classical music, the shifting rhythms, from the stately march to the lively dance, are what convey the emotional arc of the piece.
+
+Rhythm is also a fundamental to language. The cadence of a phrase, the meter of a poem, the rise and fall of a great orator’s speech—these rhythms communicate meaning beyond the literal content of the words. They create their own music, a pattern resonating in the ear and lingering in the mind.
+
+Even in our daily lives, rhythm plays a crucial role. The routines we establish, the habits we cultivate, the cycles of work and rest, of activity and reflection—these rhythms give structure and meaning to our existence. Without rhythm, life would be a formless blur, a ceaseless stream of unrelated moments. Rhythm allows us to make sense of time, to find our place in life’s larger patterns.
+
+OceanofPDF.com
+
+---
+
+# Melody
+
+Tones tell tales.
+
+OceanofPDF.com
+
+---
+
+Music is the melody to which the world is the text.
+
+—ARTHUR SCHOPENHAUER
+
+---
+
+Melody is a useful tool for identifying connections needed to tie various elements together and communicate the whole picture. A song’s melody is often its most memorable and recognizable part—it’s what you sing along to or whistle or hum after the fact. It’s what lives in your memory long after you think you’ve forgotten it, quickly resurfacing whenever you’re confronted with just a couple of notes. Melody is like the first principles of a piece of music: you can change many other aspects, but if the melody is the same, the music is still recognizable.
+
+Nolan Gasser says melody “may be likened to a…human face. Like a face, each melody is unique, with its own character, sharing traits with those related to it and those not.”2
+
+Melody is a succession of notes arranged into a musical phrase. A phrase in music is similar to a phrase in writing—it’s a group of words that make sense together and communicate something but are not a complete sentence. So, a melodic phrase is a group of notes that make sense together and communicate a certain musical idea, but you need multiple phrases to make a melody. Melodies usually contain a small pause between phrases.
+
+Most compositions consist of multiple melodies that repeat. The notes that you hear in a piece of music that form the line through time are the melody: the horizontal presentation of pitch. If notes can be removed, and the song still makes the same sense without them, they are probably not part of the melody but are instead embellishments. What is amazing is that we are good at picking out the melody even in songs we’ve never heard before, regardless of how much else is going on in a song. John Powell writes, “In a harmonized piece of music there are so many possible tunes going on simultaneously that our ability to spot the one the composer had in mind is astonishing.”3 But most of us do it with ease.
+
+---
+
+Being able to assume, predict, and anticipate is central to our ability to perceive a string of notes as a melody. We’re also good at knowing where a melody won’t go, Powell observes: “Even when we can’t forecast the exact note, we can be pretty confident certain notes are unlikely.” Phillip Ball says, “Everything we value in a melody (and in a soccer match) comes from the relationships between the elements that constitute it, and the context we create for them from the knowledge and expectation we bring to the experience of perceiving it.” We like to have a balance between familiarity and surprise.
+
+We process melody the same way we process other types of information: we unconsciously look for patterns. We chunk notes together. We make sense of the notes we are hearing in the context of the notes we’ve just heard. We build up an expectation of what we think we might hear. We also compare what we are hearing to the memories we have of music we’ve heard before.
+
+The four main skills used in identifying melody are similarity, proximity, good continuation, and common fate. Whatever instrument is producing the melody has a distinct sound, so we group together all of the sounds made by that instrument, even if it’s a voice. We follow the sounds through time as the melody progresses. Powell explains, “A tune [melody] is always on its way somewhere,” and our natural pattern-seeking powers help us follow that journey.
+
+Listening to music is actually a very active process. “So when we listen to a melody unfold,” Ball writes, “we hear each note in the light of many remembered things: what the previous note was, whether the melodic contour is going up or down, whether we’ve heard this phrase (or one like it) before in the piece, whether it seems like a response to the previous phrase or a completely new idea.” We keep ahold of what has come before in our minds as we process each note in order to understand the story of that melody.
+
+It is often assumed that musicians composing lyrical music create a melody to match words they have written. But some actually start with the melody, then write lyrics to match. Musician David Byrne says of his
+
+---
+
+process for writing a few of his songs, “I filled page after page with phrases [lyrics] that matched the melodic lines of the verses and choruses, hoping that some of them might complement the feelings the music generated.”8
+
+When a strong connection occurs, the lyrics and the music combine to make the melody memorable—not merely as an intellectual activity, but because of the emotional impact.
+
+We have all experienced the phenomenon of hearing a song and having it instantly remind us of a particular moment of feeling. Experiencing similar feelings too can conjure up that same song. Because melodies are often tied with emotion in our memories, we easily pick songs to set specific moods or relive episodes in our lives upon hearing a line of music.
+
+What we like in terms of melody is often culturally influenced rather than purely a matter of individual taste. Melodies are public, in the sense that large groups of people often have a similar understanding of and attraction to a melody. Music scholar Gino Stefani writes, “Why is a melody truly popular?…Because it is better suited than others for appropriation, in more ways, for more purposes.”9 Whether it’s because a melody is great for selling a variety of products, or because it can conjure up a variety of emotions and feelings that we enjoy having, there are some melodies that have exhibited exceptional staying power.
+
+Melodies thus are something shared among groups of people who are otherwise different; they transcend many disparate identities. The French philosopher Jean-Jacques Rousseau thought that melodies could be used in political organization, that they were a way of having something in common without everyone needing to be the same.
+
+Occasionally, when a melody gets too persistent and haunts us to death, one can fight it with its own weapon; that is, with another melody.
+
+—GINO STEFANI10
+
+---
+
+# Octaves Everywhere
+
+John Newlands, who worked on the *periodic* table, discovered in 1865 that “at every eighth element a distinct repetition of properties occurs”—a pattern which he called the Law of Octaves. Newlands was ridiculed, and his paper on the subject wasn’t accepted. But when his prediction that “missing” elements should therefore exist was later proven to be true, he was recognized as the discoverer of the Periodic Law.
+
+—DAVID BYRNE
+
+---
+
+# How Many Batmans Are There?
+
+We often like something simply because it is familiar. A song may not objectively be that good, but we’ve heard the melody so many times that we’re not challenged when we listen to it. We can easily tap our foot and anticipate what is to come. Recognizable melodies make for easy engagement, which is one reason most unknown bands play at least a few cover songs when they perform on Thursdays at the local bar. Even if we don’t recognize the band, and even if the performance has different elements, the familiarity of popular melodies increases the chances we’ll stay and listen.
+
+Many comic book characters are iconic and, over the years, become familiar much the way melodies do. Regardless of whether we like them, most of us have heard of Batman, Wonder Woman, and Iron Man. Although they appear in movies and television, as well as on countless products, these characters all got their start in comics. And whether Spider-Man is played by Tobey Maguire, Andrew Garfield, or Tom Holland, you go to each franchise reboot knowing the main storyline. The actors change, MJ gets updated, new villains are fought, but the basic Spider-Man melody is still there.
+
+DC Comics was the first company to dominate the market, with characters like Superman and Batman. These superheroes were the protagonists of comic books, visual stories printed on cheap paper and sold at newsstands. Marvel Comics came along in the 1960s, with characters like Spider-Man and Captain America, and gradually took over the lead in terms of sales of comic books. Yet over time, the demands of the medium have led to an underlying, unchanging refrain in the stories about their iconic characters. Right from the early days, in the 1930s and ’40s, there was an expectation from readers of a new comic book every few weeks. The superheroes would have new adventures, and readers, mostly children, would pay a few cents to follow the characters. But the competition that
+
+---
+
+developed between DC and Marvel drove comic book output to incredible heights. In 1962 alone, DC released 343 individual comics.12
+
+The pressure to put out new, visually engaging, and fresh material was intense. Editors were always searching their company’s archives to see which characters they could revive. For example, DC’s the Flash, whose original solo series had been canceled in 1949, came back in 1959 with a new series.13
+
+In the 1960s, DC also revived its Justice League comic, which was another way to meet output demands. Characters in the Justice League, such as Superman and Wonder Woman, had individual series, and then they would work together in the Justice League series—no new characters required.
+
+Marvel used the same strategy of recycling characters. As journalist Reed Tucker describes in his book Slugfest, when an artist fell behind in his work in 1963, “[Stan] Lee was forced to go to plan B. Taking a page from DC’s playbook, Lee tossed together members of the company’s existing superhero roster into one powerful team, just like the Justice League. Using existing characters saved him and artist Jack Kirby from having to come up with brand-new ones and allowed the issues to be completed more quickly so it made it to the printer in time.”14
+
+Publishing deadlines meant that creative teams at both Marvel and DC didn’t always have the space to think up completely new characters. Instead, tight turnarounds could leave an editor succumbing to the availability bias. Tucker tells this story of one attempt at a brand-new character: “Gerber intended Wundarr as an homage to Superman, but in this case the line between homage and simply borrowing everything about Superman to meet your deadline was blurred.”15
+
+To compete in the market, comics needed to be released frequently. One possibility was to take the same characters and insert them into major new plotlines. But if you’re going to give Wonder Woman a new series of comics, you have to keep the elements that make her Wonder Woman. The melody must be maintained. In the 1970s, both DC and Marvel stepped up production demand by starting yearly comic book “event” issues. Events were based around a “big important story that was perceived to matter more
+
+---
+
+than the now-pedestrian yarns that filled the books month after month.” Tucker further explains that “in a few years events would become so frequent that they would begin to lose their cachet. After all, when everything is an event, nothing is.”16
+
+The events drove the phenomenon of character recycling to new levels. Characters normally appear within a series, and each issue of a series is numbered. So, issue #1 in a series would presumably be the first appearance of that character. There was not, however, time for many brand-new characters. In 1990 Marvel launched a “new Spider-Man title—Marvel’s fourth starring the webslinger.”17
+
+There are, by now, quite a few “Spider-Man #1s.” Batman, being almost twenty-five years older than Spider-Man, has been revamped so many times that it’s hard to imagine how else his story can be told. But at the very least we know that he’ll be dressed in black, his real name will be Bruce Wayne, and he’ll have a tortured soul that he only reveals to his long-standing servant. Tucker states, “Titles are started so often with a new #1 that the number has basically lost its currency. Wolverine, Marvel’s popular mutant hero, has had his title restarted three times since 2010 alone.”18
+
+Once in a while, one of the comics companies produces completely original characters in a brand-new storyline. For example, DC released Watchmen in 1986, and its popularity has continued to this day. Tucker writes of this dark comic for an older audience, “DC was playing a longer game, attempting to elevate the medium and have a shelf life longer than four weeks.”19
+
+However, this is the exception, not the norm. Most comics feature characters that we’ve seen many times and that have been revamped continually in order to sell books to an increasingly smaller hard-core audience.
+
+Using the model of melody, we can understand how publishing demands impacted the development of comic book characters and storylines. When you are under a time crunch, you are much more likely to stick with what you know.
+
+---
+
+# Common Elements in Uncommon Groups
+
+A melody is the path of a song, a common element that links all the parts of the song together. Using this model more metaphorically helps us see common elements in groups that might appear to have little in common. The model of melody is one lens through which to appreciate the connections made along the early Silk Road.
+
+The term “Silk Road” refers, despite the name, not to a single path but to a network of east–west exchange that eventually linked the Pacific Ocean with the Mediterranean Sea. Trade along the Silk Road in central Asia started between pastoral and agricultural communities as early as 3000 BCE.20 The routes expanded both westward and eastward; there were offshoots into northern Africa and Europe, as well as north–south spurs at various points. “By the opening of the second millennium BC, a trading route stretched clear across Asia; not a continuous road to be traversed by any one person, but a chain of many trading links, connecting Western Asia and China over a distance of almost 5,000 miles.”21
+
+Thus, the Silk Roads facilitated an incredible number of connections among different cultures and geographies. “These pathways serve as the world’s central nervous system, connecting people and places together,” historian Peter Frankopan suggests in The Silk Roads, “but lying beneath the skin, invisible to the naked eye. Just as anatomy explains how the body functions, understanding these connections allows us to understand how the world works.”22 The links offered by the Silk Road connected people, customs, ideas, goods, and disease.
+
+The Silk Road is so named because one good it transported for centuries was silk. Originating in China and traveling with merchants across vast distances, “silk became an international currency as well as a luxury product.”23 Silk became common, not in the sense that everyone had it (they didn’t, because it was expensive) but in that it was available to anyone with the means to buy it. It became a recognizable commodity from the Pacific to the Mediterranean.
+
+---
+
+Goods like silk were not the only things that traveled the road. “Ideas, themes and stories coursed through the highways, spread by travelers, merchants and pilgrims.”24 Knowledge of the concept of zero and its relevance to mathematics traveled, as did the religions of Judaism, Christianity, Islam, and Buddhism. Ideas like siege warfare and innovations in transportation and agriculture also made their way along the roads, hand in hand with goods like ceramics and precious metals. Frankopan explains, “There was good reason why the cultures, cities and peoples who lived along the Silk Roads developed and advanced: as they traded and exchanged ideas, they learned and borrowed from each other, stimulating further advances in philosophy, the sciences, language and religion.”25
+
+Goods and ideas flowed in both directions along this east–west route. The Silk Road did not support the primacy of any one society; the towns and cities along its routes ebbed and flowed with geopolitical changes and disease. Some, like Kandahar, still exist. Others, like Merv, most of us have never heard of. The Silk Road was a progenitor of constant exchange and change. Accordingly, we can generate some interesting insights when we look at the early Silk Road through the model of melody.
+
+The regions, civilizations, and cities along the Silk Road were far from homogenous. Differences in geography, climate, political organizations, and more meant that travelers would pass through very different environments as they journeyed on the roads. But there would also be constants: goods and ideas that were recognizable wherever they were. Silk and some spices could be found at even the most remote outposts. By about 700 CE, spices from India could be found in Mainz, Germany, and silk has been found in Viking graves. These widespread elements served to create a sort of melody, a way for any traveler along the Silk Road to orient themselves to wherever they were. As Frankopan writes:
+
+For the vast majority of the population in antiquity, horizons were decidedly local—with trade and interaction between people being carried out over short distances. Nevertheless, the webs of communities wove into each other to create a world that was
+
+---
+
+complex, where tastes and ideas were shaped by products, artistic principles and influences thousands of miles apart.26
+
+So, even if you never left your village, you were often still exposed to something that had traveled along the Silk Road.
+
+Thinking about the Silk Road in the context of melody also suggests how interesting it can be to see common elements in disparate settings. Seeing silk in a town thousands of miles from our own can allow us to appreciate the newness around us, because of the anchoring the silk gives us.
+
+In melody, we make sense of the notes we are hearing in the context of the notes we’ve just heard, and we also compare what we are hearing with the memories we have of music we’ve heard before. It is possible to imagine the goods and ideas traveling along the Silk Road functioning in a similar way for the people who came across them; namely, they provided context that facilitated understanding. For example, whomever a traveler saw wearing silk was likely to be in a position of power.
+
+To be fair, exchange along the Silk Road was not at a constant volume. It waxed and waned as fortunes changed and centers of power rose and fell. But as late as around 1000 CE, the value of the routes was still recognized. Frankopan notes, “Merchants could be assured of security wherever they went, regardless of their faith, and regardless of whether there was peace or war.”27 Through tax treaties or local punishments, the movement of goods, and consequently ideas, was supported. Although the perceived value of the Silk Road was largely economic, we can appreciate the social value in having goods and ideas flow over thousands of miles. Trade and exchange can happen only if people can work together to some extent.
+
+The vastness of the Silk Road meant that many people interacted with the network in some capacity. These trade routes were “the largest single network of exchanges on earth before the sixteenth century.”28 Yet this system of exchanges, although providing some commonalities, nonetheless did not produce homogeneity. Historian David Christian notes that what did not travel well on the Silk Roads was accurate geographical and cultural knowledge. One of the reasons for this was that before the end of the
+
+---
+
+Mongol empire in 1368, “very few individuals traveled the length of the Silk Roads.” They were too long, and one might never come home. It was the goods and ideas that flowed all the way along the network.
+
+Different cultures and societies flourished and fell. People stayed different. Yet, Christian observes, “Despite its great diversity, the history of Afro-Eurasia has always preserved an underlying unity, which was expressed in common technologies, styles, cultures, and religions, even disease patterns.” People can work together more easily if, underneath all the local particularities, there are common, recognizable elements. Whether that element was silk or, later, silver, accounting, or paper, the Silk Road facilitated something analogous to the notes of a melody that was easily recognized by anyone who traveled.
+
+# Conclusion
+
+Melody is music’s soul, the ethereal thread weaving through sound’s tapestry. It’s the part of a song that we hum in the shower, the tune that gets stuck in our head and won’t let go. Melody is the musical expression of a fundamental human need: the need to tell a story, to convey an emotion, to connect with others on a level beyond words.
+
+At its core, a melody is simply a sequence of notes, a pattern of pitches and rhythms. But melody’s magic transcends these basic building blocks. A great melody is more than the sum of its parts. It has a shape, a contour, an arc that carries us from one note to the next. It has a sense of inevitability, as if each note is the only possible choice, even as the melody surprises us with its freshness and novelty.
+
+In this sense, melody is a lot like language. As we arrange words infinitely to express different ideas, we arrange notes to express emotions and experiences. A rising melody might convey a sense of hope and aspiration, while a falling melody might suggest sadness or resignation. A melody with large leaps might feel adventurous and daring, while one with small, stepwise motion might feel intimate and confiding.
+
+---
+
+But melody isn’t just about individual expressions. It’s also about communication and connection. When a melody resonates with us, it’s as if the composer is speaking directly to our hearts. We feel understood, validated, less alone. And when we sing or play a melody with others, we create a bond, a shared experience that transcends our individual differences.
+
+This is why melody has such power across cultures and throughout history. From the chants of ancient rituals to the latest pop hits, melody has been a constant in human musical expression. It’s a universal language, requiring no translation or explanation. A beautiful melody can move us regardless of whether we understand the words or know the cultural context.
+
+Of course, not all melodies are equal. Just as there are great works of literature and forgettable pulp novels, there are melodies that stand the test of time and others that quickly fade from memory. The best melodies balance the familiar and the new. They have a memorable shape, a satisfying resolution, a feeling of completeness.
+
+In a world often fragmented and chaotic, melody is a source of unity and coherence, a way of finding beauty and meaning amid the noise.
+
+OceanofPDF.com
+
+---
+
+# Representation
+
+Influence through presentation.
+
+OceanofPDF.com
+
+---
+
+Before human nature can escape from representation in art, it must first escape from the will to represent. That would appear to be no easy matter, either for the caveman or for the Futurist.
+
+—THE AMERICAN MAGAZINE OF ART1
+
+---
+
+To better understand something, we often need to look at the purpose behind it. Representation, as a model, has us looking beyond the surface. Using it as a lens prompts us to remember to consider what we might better understand if we dig a little deeper into why things appear the way they do.
+
+Visual art is the representation of things. Because this is a book about mental models, not art criticism or history, we won’t get more detailed than that. It may be possible to conceive of a painting that contains no representation of any sort. But even a casual perusal of art across time and cultures reveals a world full of paintings and sculptures that contain representations of ideas and things found in the world. We may admire a piece many centuries later because, to our sensibilities, it is beautiful, but fundamental to art is that it contains representations, and in doing so, it often has a purpose. Why did the artist choose to represent this thing rather than that thing? And why in this way, versus another of a thousand ways that thing could be represented?
+
+Representation involves choice, and considering those choices can tell you a lot about the purpose behind the representation. Cave paintings were possibly created to try to influence the outcomes of upcoming hunts. Tomb art was a way of securing prosperity in the afterlife. Church paintings provided spiritual and moral guidance by telling stories from the Bible. Chinese paintings from a certain period were material for meditation. Portraits were commissioned to capture someone’s likeness for posterity. Historical scenes were painted to set down a perspective on a moment in history. Some art is created to express the artist’s personality, or to provide a commentary on a specific social situation, or to expand the definition of art.
+
+Representation is not always literal. Some artists have tried to depict, with detailed exactness, the scene before them, but others choose to
+
+---
+
+represent  the  scene  through  a different  mode.   For  example,  for  the Egyptians, “everything had to be represented from its most characteristic angle,”2 which is why each figure in Egyptian art is depicted simultaneously from different angles (i.e., the head, torso, feet, etc.). For Egyptian artists, art was meant to contain all the forms they considered important. It was not supposed to be a literal representation of what they saw, but rather a representation of what they knew to exist.3 In addition, most of the time, Egyptian art followed a set of rules4—the artists were aiming not to be creative but to create what had already been established as desirable. Thus, it would be a mistake to conclude that ancient Egyptians weren’t very good artists. Rather, how they represented their world tells you a lot about what they valued.
+
+This model reminds us that humans use the same types of maps to represent vastly different territories. Art historian Whitney Davis notes there is a likelihood “that commonality of culture is best defined to begin with as the mutually intelligible use of various representational systems.”5 Most cultures engage in visual representation of some sort, so we can see one another’s art. Problems arise, though, when we fail to appreciate that there are differences in how and why those visual representations come to be, and judge them as if they are a product of our own system. Representation therefore can be a gateway to understanding not only an individual artist but the sensibilities of that artist’s culture.
+
+Consider these examples:
+
+Chinese artists who were influenced by Buddhism and thus wished to provide material for thought and contemplation had no desire to paint a landscape with all of the details it contains. Instead, their representations of mountains and trees were often constructed of few brush strokes, suggesting of the artist, for example, “the awe he must have felt for these majestic peaks.”6
+
+Muslim artists, being in some places and times banned from depicting figures, represented a dream world through shape and color patterns.
+
+---
+
+Later, in places where figures were allowed, the legacy of these patterns still influenced how they represented stories and scenes. Impressionists explored the impact of light on outdoor spaces and physical forms in movement to represent scenes not in photographic detail but the way we experience them. We are not able to notice all details at once; instead we focus on a small area and have only an impression of the rest. Of impressionist paintings, Julian Bell says, “The painter was no longer aiming to represent objects as such, but rather to respond to a temporary pattern of stimuli to the retina.”
+
+Artists must deal with a certain tension in representation, because there is always a difference between what is there and what you see in the context surrounding it. Julian Bell says of later Egyptian art that it “got itself hooked on the tension between nature and the ideal,” and the Greek sculptor Lysippos “spoke of representing men not as they are, but as they appear.”
+
+There is also the challenge presented by constraints imposed by representing things visually. For example, visual art must take into consideration how the eyes work. In describing Night Revels of Han Xizai, a painting by Gu Hongzhong circa 1070, Bell explains, “If everything in the scroll recedes at 45 degrees, then the sequence will read more smoothly as it runs before the eyes. That’s not ‘the way things look,’ ” but it serves the purpose of making the scene easier for the viewer to process and comprehend.
+
+To understand representation in visual art, we need to also consider who was paying for or supporting the creation of the work. Governments, religious institutions, wealthy patrons, gallery owners, the general public—all have impacted what art gets produced and thus what gets represented at various times in history. This explains why, for example, in Western Europe there are a thousand years’ worth of paintings of the Virgin Mary and the birth of Christ: for centuries, the Catholic church was one of the only institutions with the money to commission the art and the space to display it.
+
+---
+
+The famous terra-cotta warriors in Xi’An, China, are another example of the relationship between art and its patron. There are more than six thousand terra-cotta statues in the tomb of the first Qin emperor, who died in 210 BCE. The soldiers were meant to accompany the emperor into the afterlife, and each one was individualized. They are meant to represent, among other things, a real army. As Bell notes, one of the goals here is “representing facts faithfully on an industrial scale.”10 The effort required to produce these individual, lifelike soldiers is reflective of the sensibilities of the society in which they were produced.
+
+Without a doubt, we become used to the representations in art we are most familiar with. When confronted with representations that don’t fit, we are inclined to dismiss them as “not art.” Art historian E. H. Gombrich suggests, “We are all inclined to judge pictures by what we know rather than what we see.”11 It can be hard to put aside everything we’ve absorbed about visual art in order to look at different representations with curiosity. Sometimes the path to appreciation is through the adage, “Less is more.” Julian Bell describes the intentions of painter Mark Rothko, who used very few forms and images, as creating “an art that expanded representation rather than excluded it, giving viewers access to a wider range of emotions.”12
+
+Representation as a model thus helps us understand that liking (or disliking) something and understanding something are two different activities. Regardless of whether you like a particular work of art, looking not only at what is represented but how it is represented is a way of appreciating a perspective that is likely quite different from yours. Understanding that representation is influenced by the context in which it occurs can also offer insights into the cultures and societies that gave rise to that representation.
+
+---
+
+# The Value of Open-source Intelligence
+
+When people think of espionage and the intelligence products it yields, what often comes to mind are clandestine activities and top-secret reports. In the world of spy craft, intelligence is considered information you have to intercept, steal, or smuggle out of enemy territory. In reality, the majority of intelligence is generated from open-source information. Called OSINT, open-source intelligence is that which is freely and publicly available. It is not classified, and it is accessed by more than just government intelligence programs. Everything from newspaper articles and radio broadcasts to technical manuals and, these days, social media posts counts as open-source information. All OSINT that is gathered is processed and analyzed, and it forms the basis of many intelligence agency reports.
+
+Intelligence can be defined, in the words of scholar H. Akin Ünver, as “the methodical collection of high-value information in a way that yields comparative advantage to decision makers.” In the day-to-day world of intelligence, much of that high value comes from the analysis of open-source information. Even in the early days of information collection for intelligence purposes, leaders recognized the value of collecting and analyzing open-source information. In her book Information Hunters, Kathy Peiss states, “The early managers of the CIA believed that 80 percent of intelligence came from foreign publications, radio, and people with general knowledge, although they focused especially on monitoring communication and broadcasting.”
+
+It seems counterintuitive: Why would publicly available information be so valuable for intelligence purposes? After all, if everyone has it, then how can it give any government an edge? The value of open-source information comes in the analysis, and the analysis involves looking for clues to build an understanding of the context surrounding that information. It is in understanding the larger context of OSINT where the real value lies, because understanding context is what allows agencies to process and evaluate all of the information they take in. Akin Ünver argues, “Although an intelligence agency’s capacity is primarily measured by how well it can
+
+---
+
+detect and transmit critical information, its ability to understand and contextualize what is important requires the foreknowledge of what is ‘out there’ and easily available.”15
+
+Think of it this way: If a war suddenly broke out in Spendu and you had no idea where or what Spendu was (a country? an organization?), how would you be able to undertake the analysis for whether and how to respond? A lot of the information you would need would be publicly available on maps, in news reports, and in academic journals. Similarly, how do you know where to look for potential threats to your country if you don’t have a good sense of geopolitical issues? You can learn about those issues in unclassified, open-source products.
+
+When we look at open-source information through the model of representation, we begin to understand how publicly available products can produce unique intelligence reports. What is represented by the information gives clues to the context surrounding that information. Evaluating what an enemy puts out into the world is a great way of understanding them.
+
+Analysis is required to turn open-source information into intelligence. Various sources need to be combined and processed according to organizing principles such as keywords or categories. That way, seemingly disparate content is juxtaposed to reveal trends or themes. During World War II, Peiss writes that scientific periodicals, technical manuals, and industrial directories directly from Axis and occupied countries were studied closely for evidence of enemy troop strength and weaponry, and economic production. Even trivial items could prove meaningful. Society pages might reveal the location of a regiment, and gossip columns “provide clues to scandals which a secret agent would exploit.”16
+
+Open-source information is also useful for assessing foreign policy and devising propaganda campaigns. Essentially, open-source information is a critical means of knowing one’s enemy well enough to be able to craft
+
+---
+
+measures and countermeasures to thwart their agenda and advance your own.
+
+Open-source information can also provide insight on how your measures are working and the effect they’re having on your adversary. In a fascinating anecdote, Peiss relates how music librarian Richard Hill “surveyed the newspaper Deutsche Allgemeine Zeitung, tracing patterns of concert reviews, the presence or absence of certain theaters in the news, last-minute changes in operas, and notices to ticket holders about refunds. From this information, he drew conclusions about the timing, location, and extent of bomb damage in Berlin during the initial phase of Allied air attacks.” This is classic open-source analysis. It’s not about cancellations of arts performances in and of themselves, but what they represent—in this case, the success of Allied bombing.
+
+Open-source intelligence provides context that other types of intelligence production cannot. Clandestine intelligence gathering is, by definition, more narrow and targeted. Without the broader understanding gained from evaluating open-source information, the value of other types of intelligence—let alone the knowledge of where to find them—would be significantly undermined. Akin Ünver notes that open-source intelligence covers “the spectrum of events, actors and roles that determines strategic relativity (i.e., how to define a country’s interests in relation to ongoing events), as well as which assets to deploy to achieve them.”
+
+The value of all intelligence is produced through analysis of connections and consideration of nuance. Open-source intelligence analysts do not stop at the representation but go deeper by asking, what does that representation tell me about my adversary? In doing so, they give their country a strategic advantage in hostile operations.
+
+# Powerful Women
+
+Most of us are familiar with the game of chess, and most of us probably assume that the way we play it now is the way it’s always been played. In
+
+---
+
+that assumption, however, we would be wrong. Looking at the development of the game—particularly at the role of the queen—demonstrates the symbiotic relationship between how things are and how they are represented.
+
+The earliest known chess sets come from India, circa the sixth century. In these sets, there is no queen. The square beside the king is inhabited by a vizier, a chief counselor to the king. Descriptions of early chess also make note that the vizier is not a very powerful figure, able to only move one diagonal square at a time.
+
+Today, the queen is the most powerful piece on a chessboard, able to move many spaces in any direction, and often a critical component of eventually winning the game. If a pawn manages to make it across the board, it is rewarded by being transformed into another all-powerful queen. No player wants to lose their queen, and she is usually sacrificed only to ensure checkmate.
+
+How this evolution from a weak male support figure to a powerful female warrior next to the king came about is not completely known. But there is a strong correlation between the rise of female power in European monarchies and the development of the chess queen. What cannot be doubted is that the power of the chess queen would likely never have come about if it had no corresponding representation of female power in the societies that played the game.
+
+After its origins in India, chess made its way to Persia and the Arab countries bordering the Mediterranean. “It was only after the Arabs invaded Southern Europe in the eighth century and brought chess with them that the queen appeared on the board,” writes scholar Marilyn Yalom in *Birth of the Chess Queen*. “Around the year 1000 she began to replace the vizier, and by 1200 she could be found all over Western Europe, from Italy to Norway.”
+
+Ultimately, chess is the playing out of a strategic battle among multiple figures who each have a set of powers and roles. It is thus not really surprising that those attributes would reflect elements of the related roles in the social hierarchy in which the game was played. Yalom explains, “When
+
+---
+
+The Arabs carried the game across the Mediterranean into Spain and Sicily, chess began to reflect Western feudal structures and took on a social dimension. In medieval European society, chess was played at multiple levels of social class, and it was one of the few activities men and women could do together. Far from causing upheaval in social dynamics, “the game of chess, adapted to European Christendom, provided the perfect representation of a social order in which everyone was expected to know his or her exact place.”20 It would seem, then, that we can understand a lot about the role of queens in medieval western Europe by reflecting on the development of the chess queen.
+
+The piece’s coming into existence is likely reflective of the role royal women had at the side of their kings. Western Europe at that time was predominantly Christian, and Christianity promoted the idea of monogamous unions for life. A king was not complete without a queen by his side. Furthermore, in the region there was both acceptance of and precedent for women inheriting the regency in their own right; women could become queens by right of birth, not because they had married into the role.
+
+The chess queen was understood as a representation of real-life queens —so much so that there long remained a prohibition in chess against having multiple queens on the board. The current rule of turning a pawn that crosses the board into a queen was unacceptable in medieval times, as the king’s wife “was his only permissible conjugal mate according to Christian doctrine.”21
+
+When the queen first appeared on the chessboard, she had the same powers and range of movement as the original vizier: one diagonal square at a time. By the end of the fifteenth century, she had acquired the power she has today. The growth of the queen’s power on the board might be reflective of the power exercised by European queens in those five hundred years: there was the reign of Urraca, queen of Leon-Castile, from 1109 to 1126; of Constance of Hauteville, queen of Sicily and Holy Roman Empress from 1154 to 1198; of Eleanor of Aquitaine, queen of France from 1137 to 1152 and of England from 1154 to 1189; and of Margaret of
+
+---
+
+Denmark, who ruled in Denmark, Norway, and Sweden from 1387 to 1412. And this is not an exhaustive list. Female rulers were common enough, and they commanded significant power during their reigns. The most powerful female monarch during the late medieval period in Europe, and who had the most influence on how the chessboard queen was perceived, was possibly Isabella I of Castile. Reigning from 1451 to 1504, she fought wars, supported exploration, and significantly grew the power of the Spanish throne. Hers is a mixed legacy, as it also includes funding the exploitation of the Americas and the Spanish Inquisition. But we can appreciate that in her time, there was no European queen as powerful.
+
+Yalom writes that it is not surprising that the chess queen achieved the height of her powers during Isabella’s reign. “In 1497 when Isabella of Castile reigned over Spain…a Spanish book recognized that the chess queen had become the most potent piece on the board.” Able to move in any direction over multiple squares, the queen is the strongest piece in the game. Without her, many players feel they have no chance to capture the opponent’s king.
+
+Was the chess queen given her powers as an homage to Isabella? We will likely never know. But it’s possible. “A militant queen more powerful than her husband had arisen in Castille; why not on the chessboard as well? This may have been the thinking of those players from Valencia who endowed the chess queen with her extended range of motion. Yet it is just as likely that those Valencian players unconsciously redesigned the queen on the model of the all-powerful Isabella.” However it happened, one element is certain: the appearance of the chess queen and her growth in power reflected the role of female rulers in European society.
+
+The chess queen’s rise was not smooth, and as her powers grew, so did the vitriol hurled against her. For some medieval male writers, criticism of moves of the chess queen was used as an analogy to attack all women. Her power, relative to the king’s, the bishop’s, and the knight’s, was a threat. What she represented made some people uncomfortable, for if her power
+
+---
+
+could both grow and be asserted, what did that say about the real female rulers of the world?
+
+Representation is thus a useful model for considering the development of the chess queen. Games, like art, often represent norms, ideas, and ideals of the society they are a part of. They may reflect who we are or who we want to be. “The reality of female rule,” Yalom explains, “was undoubtedly entwined with the emergence and evolution of the chess queen. In time, the chess queen would become the quintessential metaphor for female power in the Western World.”24
+
+# Conclusion
+
+Representation is the mental shorthand we use to navigate the complexities of reality, the symbols and images we use to communicate our thoughts and experiences. Representation is how we construct meaning, how we bridge the gap between the raw data of our senses and the narratives we tell about ourselves and our world.
+
+At its core, representation is about standing in for something else. A word stands in for an object or concept, a map for a territory, a musical note for a sound. We use representations because we can’t hold the entirety of reality in our minds at once. We need abstractions, simplifications, models that we can manipulate and reason about.
+
+But representation is not neutral. Every representation is an interpretation, a way of framing reality that highlights some aspects and obscures others. An emoji might represent a feeling, but it doesn’t show the lived experience that causes that feeling. In this sense, representation is always a kind of distortion. It’s a lens that shapes how we see the world, for better or worse. A good representation can illuminate hidden truths, help us see patterns and connections that we might otherwise miss. But a bad representation can mislead us, reinforce stereotypes and prejudices, limit our ability to imagine alternatives.
+
+---
+
+Representation is not just about mirroring reality; it’s also about shaping it. The representations we create and consume have the power to influence how we think and act, to change the very world they purport to describe. A powerful piece of art can shift cultural attitudes, a persuasive political narrative can sway elections, a compelling scientific model can guide research and policy. In this way, representation is a kind of feedback loop. We create representations based on our understanding of reality, but those representations in turn shape our understanding, which influences the representations we create next. It’s a constant dance between map and territory, between symbol and referent.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Balance
+
+To set all in equilibrium is well; to put all in harmony is better.
+
+—VICTOR HUGO
+
+WHETHER WE REALIZE IT OR NOT, we are constantly in search of and appreciate balance—the arrangement of elements in a way that feels beautiful, stable, and harmonious. Balance is when things come together just right.
+
+Balance in visual art refers to the use of artistic elements such as line, texture, color, space, and form in the creation of artworks in a way that renders visual stability. Balance in visual art can also be conceptualized as harmony. There is no prescription or formula for what makes a work balanced and therefore harmonious.
+
+Looking at sketches that artists have done before painting the final “great work”
+
+---
+
+demonstrates the need for ongoing experimentation in order to have the result be “just so.” E. H. Gombrich says of one of Raphael’s series of sketches before the final painting, “What he tried again and again to get was the right balance between the figures, the right relationship which would make the most harmonious whole.”26
+
+Balance is not easily definable. In two-dimensional art, balance often involves using the space in a way that renders the entire piece easily observable. In three-dimensional art, balance is more obvious—if an object, such as a sculpture, can’t stand up to display as desired, it is not balanced. However, balance is more than just the ability to stand, and thus sculpture too often displays a visual balance.
+
+We use the concept of balance in more areas than art. A balanced diet is one in which less nutritious foods are offset by more nutritious ones. Work-life balance is when someone can even out the time and energy they give to work and nonwork activities, like socializing or exercising. A balanced view of something is one that considers multiple opinions on it. We have an intuitive sense of balance as something important and necessary.
+
+Visual artists need to consider the balance of left to right, of up to down, of foreground to background. They can use elements such as color, shading, or forms to achieve the harmonious effect they are aiming for. Artists sometimes need to compromise among competing goals, such as painting all of what they see, accurate rendering of all the details, or emphasis on a particular motif or story. “The suggestion of space and the faithful imitation of reality must not be allowed to destroy the balance of the composition” was a statement written by Gombrich in reference to one particular piece, but it highlights various challenges an artist may face when trying to create something that feels balanced.27
+
+Visual artists can achieve balance using various techniques but must always contend with the human preference for symmetry. As humans, we find something about symmetry inherently attractive and appealing. It is believed that the more symmetrical a person’s face is, the more attractive people are likely to find them on average. Biologists believe that, for our ancestors, facial symmetry may have signaled overall health and, consequently, genetic fitness. This meant someone with a symmetrical face was likely to be a good choice as a mate.28
+
+Our attraction to symmetry extends far beyond faces. Research indicates that symmetrical text, like the balanced columns of The New Yorker, may aid us in paying attention to what we read.29 We find it easier to cognitively process what is symmetrical.30
+
+Many of the objects in nature we find most beautiful, such as flowers or shells, have an element of symmetry. Indeed, symmetry is encoded within our bodies. Most of our organs are bilaterally symmetrical, and there is fossil evidence showing that animals have been built this way for at least the last five hundred million years.31 There might then be a survival benefit to this kind of balance.
+
+When it comes to art, we don’t require perfect and obvious symmetry, such as the same forms repeated on both the left and right sides of a painting. Artists use
+
+---
+
+asymmetry all the time, and thus we can be attracted to a variety of visual arrangements. But the way all of the elements of an artwork are brought together is what creates a feeling of harmony or engagement: the forms may be stacked to one side, but the shading balances them out, or the lines are arranged to offset the clusters of color.
+
+# 1. Life is the pursuit of balance.
+
+Anybody who has ever tried to arrange a bunch of flowers, to shuffle and shift the colours, to add a little here and take away there, has experienced this strange sensation of balancing forms and colours without being able to tell exactly what kind of harmony it is he is trying to achieve.
+
+—E. H. GOMBRICH
+
+What is perceived as balanced and harmonious in a work of art is not universal. The experience of art is heavily influenced by cultural sensibilities and personal preference. Thus, one way to present art is to more actively engage the viewer in applying themselves to an appreciation of the piece. Julian Bell says of Tableau I: with Red, Black, Blue and Yellow that artist Piet Mondrian “was asking the eye to focus on its own capacity to judge relations and balances, and on its own desire for clarity.”
+
+The art critic Peter Schjeldahl says of another Mondrian piece, “We intuitively gauge weights and tensions that constitute the picture’s stability. Epiphany happens when you grasp how finely calibrated the stability is, poised at a breaking point.”
+
+There are many ways to create a visually appealing work of art. But the more you learn, the easier it becomes to know when something is as good as it can be. When harmony is achieved, everything feels right.
+
+The power is in the balance: we are our injuries, as much as we are our successes.
+
+—BARBARA KINGSOLVER
+
+OceanofPDF.com
+
+---
+
+# Plot
+
+DBSTILI 61
+
+# ICETHRILLER
+
+Piring
+
+Written 1.8.
+
+Sequence shapes story.
+
+OceanofPDF.com
+
+---
+
+Plot is the knowing of destination.
+
+—ELIZABETH BOWEN
+
+---
+
+Humans love telling and hearing stories. People who can turn buying milk into an interesting adventure are rewarded with our attention. Plot is a story’s road map, guiding you through twists, turns, challenges, and discoveries. A good plot keeps you hooked; a bad one feels like a drag. Organizing events into a plot helps us make sense of them, but we need to watch out for two red flags: first, being swayed by the better of two plots; and second, letting the stories we tell ourselves blind us to new information.
+
+Plot is the chain of connected events that make up a narrative. According to the playwright and novelist Gustav Freytag, causality in the chain of plot events is what lends a story believability and interests the audience in getting to the end. Most relevant to fiction, plots, scholar Marie-Laure Ryan notes, “are heavily dependent on the circulation of information.” Characters learn new things, which prompts them to take certain actions, which move the story through the narrative arc.
+
+# Freytag's Elements of a Plot
+
+1. Exposition (beginning/introduction) brings us into the world of the story, providing a sense of the starting point. It gives the reader context for subsequent events.
+2. Rising action (including conflict, which may be internal, external, or both) begins at the point at which the initial sense of normalcy in the story is disrupted.
+3. Climax tends to be a point of high emotions and lots of action, when you don’t want to put a book down or turn off a film.
+4. Falling action is the stage in a story when the pieces begin to fit together, dilemmas begin to resolve, and questions begin to receive
+
+---
+
+“Resolution” (end/conclusion) will typically tie up all the loose ends of a story and leave the reader with a satisfying sense of completion.
+
+The novelist E. M. Forster, who also thought of plot as a chain of events linked by causality, says in his 1927 work *Aspects of the Novel*, “ ‘The king died and then the queen died’ may be a story, but it is not a plot. However, ‘the king died and then the queen died of grief’ is a plot. The same two events occur, the difference is that one is the result of the other.” The creation of conflict is a key role of a plot, as conflict is the “primary source of narrative interest.”
+
+Plots are used most frequently in novels, movies, and plays, but they can also be found in visual art and dance. We can think of a plot like a skeleton: it provides the base for a structure, but on its own it’s not enough for a story. Characters, setting, emotions, desires, and details are combined with the skeleton of plot to produce a story. Aristotle, writing in *Poetics*, viewed plot as the core component of drama, more crucial than anything else—even than the characters.
+
+Plots are necessary for any story, including true stories, such as a newspaper article or book-length work of nonfiction. While reality might not map onto the same five-part sequence described above, we can still see the narrative structure in “introduction, background, new information, putting it all together, and conclusion.” Even in nonfiction, there is a tendency for writers to create an aha moment, similar to the climax, where the point of their writing becomes clear to the reader. A story can have more than one plot at once, with multiple threads occurring in tandem or intermingling. There may also be subplots, such as a separate sequence of events happening to a supporting character.
+
+Storytellers need to balance placing realistic characters in logical situations in the world they’ve created alongside the extraordinary events of the story. Thus, plots in literature are not meant to mirror reality exactly. There has to be something special, even in nonfiction, that makes this particular plot worth telling.
+
+---
+
+Although the resolution of all plotlines by a story’s end is not required, some kind of resolution is necessary for the plot to be finished. It may take a couple of novels, or a series of movies, but at some point, the audience likes to get to an ending. Some endings are more satisfying than others. Readers generally like resolutions to be the logical outcome of decisions made throughout the story, versus what is called a “deus ex machina” (something brand-new that is dumped into the story strictly to bring about a resolution because the characters, on account of the parameters that have been set up, cannot bring about the resolution themselves).
+
+Not all plots are perfectly constructed. A flaw or inconsistency in a plot is known as a “plot hole” and can ruin an otherwise sound story. Even if we can’t quite articulate how exactly a plot has let us down, plot holes impact our enjoyment of a work of fiction. While plot holes are typically an error, some authors will make a deliberate effort to subvert traditional plot structures; for example, by not supplying a story with a satisfactory ending. As with any deliberate thwarting of artistic principles and conventions, the effect is often jarring for the audience and is more commonly the basis of more modern and rebellious literary movements.
+
+Another way to look at plot is to see that works of literature have two plots. There is the storyline created by the author, in which things happen, but there are also the plots of many of the characters, “who,” as Marie-Laure Ryan explains, “set goals, devise plans, schemes and conspiracies, and try to arrange events to their advantage.” Thus, authors have to be careful when creating characters, so as to not end up with characters who are ill-suited to advancing their plot as it progresses. Each choice made in story writing closes many doors, and a plot will often develop based on the constraints dictated by earlier choices.
+
+A good plot follows a line of causality: things happen for a reason. Life, however, does not always follow the same clear-cut pattern of cause and effect. For this reason, plot is the most useful lens to help counteract narrative bias. Challenging yourself to look at situations through the lens of plot helps you determine whether you’re being led astray by assuming a
+
+---
+
+relationship between events that doesn’t exist. Conversely, this model also
+helps you determine when it is in your interest to craft a better story.
+                             OceanofPDF.com
+
+---
+
+# Chekhov’s Gun and Red Herrings
+
+There’s an old rule of theater that goes, “If there’s a gun on the mantel in Act I, it must go off in Act III.” The reverse is also true.
+
+—STEPHEN KING
+
+The principle of Chekhov’s gun states that everything that appears in a story must serve some overall purpose in the wider plot. Playwright Anton Chekov advised that a gun hanging on the wall in one scene must go off later in the text. Otherwise, its presence is unnecessary.
+
+Distinct from Chekhov’s gun is the importance of foreshadowing, which is when events early in a narrative give clues as to what is going to happen later. What happens early on in a story essentially makes a promise to the audience about what might happen later, so it’s important for a writer to fulfill that promise. However, sometimes an author may deliberately mislead the audience with what seems like a future plot device but in fact goes nowhere. Known as a “red herring,” when this technique is used deliberately, it can be an effective means of keeping an audience on their toes and of challenging their expectations. To surprise readers in an even stronger way, a writer may incorporate a plot twist. This occurs when a plot changes direction, breaking the previous chain of causality.
+
+One of the challenges of the principle of Chekhov’s gun is that in real life, not everything present in one moment is relevant to something that might happen later. In life, there are coincidences and lots of props that don’t matter. Life is not a novel.
+
+---
+
+# Who Told the Better Story?
+
+Humans are narrative creatures. We like listening to stories. We like it when a narrative of events has a beginning, a middle, and an end. What would you find more memorable: a presentation on ice density in various locations around the globe, or a story about the chain of events that led from speculation in a university classroom to a massive multinational effort to collect information on ice to a group of scientists finding information about density that will impact forever how we think about ice density? The vast majority of us would find the latter more memorable. What’s more, we’d probably learn more about ice density along the way.
+
+Plots are essential components of narratives. They link cause and effect throughout a story and, in so doing, provide a structure that we find familiar and comforting: Something happened, and there’s a reason for it. Then it led to these other things, with some twists and tense moments. But eventually we get to The End, where everything makes sense.
+
+One thing we can learn by looking through the lens of plot is that although facts matter, the story you tell with them matters even more. Often, whoever can tell the better story is the one who wins the audience.
+
+Johannes Kepler is on most everyone’s list as one of history’s great scientists. He is remembered for contributing to the sciences of astronomy and optics, and for promoting the value and beauty of scientific investigation. He was a devout Lutheran, a defender of Copernicus, and devoted to the idea of rational inquiry as the main tool for discovering the wonders of God’s universe.
+
+Less well known about Kepler’s life is that in 1615, his mother, Katharina, was accused of witchcraft. It was a serious charge that, for many of those accused, resulted in torture and death. Although the experience of a trial and being jailed for more than a year certainly wasn’t pleasant for her, Katharina Kepler avoided a much worse fate because her son Johannes told a better story than those accusing her.
+
+---
+
+For those accusing Katharina of being a witch, the plot was very simple. There were forty-nine accusations against her, all following a simple cause-and-effect storyline. Scenes like, “She hit the girl’s arm, and the girl’s pain increased by the hour. Now the child was unable to move one finger,” and “Katharina had given her a harmful drink four years previously and she had suffered ‘inhuman’ pains ever since,” characterized the prosecution’s story. They can all be summed up as some version of “Something bad or weird or unexpected happened, and Katharina was in the vicinity at the time, so she must have caused it.”
+
+In the book The Astronomer and the Witch, Ulinka Rublack explains that in the Keplers’ part of Germany at that time (Leonberg, in the duchy of Württemberg), “witchcraft was used to explain misfortunes and… something grave, disorienting, and out of the ordinary in a person’s life.” Although the Lutheran spiritual and legal leadership cautioned against the idea of witches having any real power and taking accusations at face value, sorcery was considered a legitimate explanation for some occurrences.
+
+Katharina’s original accuser was a woman named Ursula Reinbold. In the lead-up to the trial, it was primarily Ursula and her compatriots who encouraged others who had also had run-ins with Katharina to come forward. Each of these witnesses provided a deposition that became part of the public record. “Taken together,” Rublack writes, “all of the depositions provided a mish-mash of contradictory evidence. Katharina appeared hospitable and helpful to some, but pushy and dubious to others.” Not everyone was convinced Katharina was a witch, and “those who were skeptical deployed a clear set of common sense criteria to make causal connections.”
+
+But ultimately, Katharina was not going to be convicted or acquitted by popular vote. It was a group of legal professors in nearby Tübingen who would decide her fate.
+
+Kepler decided he had to take on his mother’s defense, and he was uniquely well suited to the task. His background in mathematics gave him an understanding of logic, and the need to secure patronage throughout his career meant that he had experience generating support and sympathy from
+
+---
+
+an audience.10 Furthermore, his scholarship was based on “using words to resolve rival sets of hypotheses, to analyze motives and causes, and to engage in historical reconstruction.”11 Kepler had already defended the findings of Nicolaus Copernicus against superstition and intellectual inertia. Thus, in many ways, he was the right man for the job of defending Katharina.
+
+First, he questioned his mother in detail “to learn about Leonberg people, their stories and their practices.” He also provided a list of detailed questions to each witness, to gather more precise details of their stories.12 Kepler knew his audience. He knew that the law professors needed to have counterarguments grounded in contemporary legal understanding and logical and verifiable contextual explanation.
+
+And so he began. “To present an effective defense, Kepler now needed to discredit every single witness through legal reasoning. He used particular facts derived from a close investigation of the evidence.” He showed that some people were too young to testify. He exposed discrepancies in testimony. He linked accusations to the rumors started by Reinbold.13
+
+As he systematically refuted the details of the prosecution’s case, he also told the story of the defense. He explained what had come to pass in many of the accusations (sickness, infirmity) within the context of more rational explanations grounded in the scientific knowledge of the day. He replaced the cause and effect attributed to witchcraft with the cause and effect of contemporary science. He offered an alternate, plausible explanation for each of the circumstances that underpinned each of the forty-nine accusations against Katharina. In the end, “every element of seemingly damning testimony was therefore addressed and explained in its wider context—of natural disease, a person’s bias, family quarreling, or simple mishaps.”14
+
+Kepler’s thoughtfully written defense was comprised of dozens of pages submitted to the Tübingen legal professors. Their answer required only one page: Katharina was convicted but would not be tortured. After a final round of threatening from the executioner, during which she steadfastly
+
+---
+
+maintained her innocence, Katharina was essentially sentenced to time served and released into the care of her family.
+
+In the end, Kepler saved his mother’s life because he was able to tell a better story, with a more convincing plot, to the audience that controlled her fate.
+
+# Stories We Tell Ourselves
+
+There are a lot of things now that we likely can’t imagine doing without: electricity, antibiotics, indoor plumbing, anesthetic. When the power goes off for an hour, it’s a nuisance; when it goes off for a week, you’re unable to meet all your commitments and responsibilities. Strep throat isn’t all that terrifying anymore, and neither is surgery to have your appendix removed. Certain technologies and inventions we have completely accepted. They’ve become part of the story of our lives.
+
+History teaches us that technological change is often accompanied by narrative change. Many new inventions mean new ways of doing things, and new ways of doing things can be scary. What if the new way leads to something worse than we’ve got now? Often, before a new invention is fully integrated into society, there is a change in the stories we tell ourselves about what we need and what is good for us.
+
+Nowadays, if you go to the doctor for any even mildly painful procedure, it’s pretty much a given that you’ll be offered some sort of painkiller. Whether it’s something low level, like acetaminophen or acupuncture, or more heavy-duty, like the hugely problematic opiates that are nonetheless a godsend for many, you don’t expect to be left to suffer. Most of us are also not averse to self-medicating with over-the-counter painkillers either. Even if we choose to avoid taking them whenever possible, we have the comfort of knowing we can switch off or lessen most forms of pain, should we wish to.
+
+It’s easy to forget that for most of human history, it wasn’t like this. Up until roughly the mid-nineteenth century, your only option for dealing with
+
+---
+
+Pain would have been learning to grit your teeth and bear it. Maybe you could have gotten drunk, to numb yourself a bit, or used simple remedies like chewing willow bark for a headache. But for the most part, pain was something people had to bear throughout their lives. People had to endure many painful conditions we don’t have to think about anymore, from polio and smallpox in young children to amputations on battlefields and rotten teeth for almost everyone.
+
+Given that physical pain was pretty much inevitable, and considering how much we avoid pain now, you might imagine that discovering effective painkillers was a big priority for medical practitioners and researchers. You might also imagine that anyone who discovered a substance capable of dulling the senses to pain would have been instantly lauded as a hero, and their invention swiftly dispatched to people all over the world. In fact, the opposite is true. Early painkillers were usually met with a blasé reaction and essentially remained recreational for decades before anyone thought to introduce them into a medical setting.
+
+Take the case of nitrous oxide, also known as laughing gas. It was first discovered by chemist and polymath Joseph Priestley in 1772, and chemist Humphry Davy noticed its pain-killing properties in 1800. Davy wrote, “As nitrous oxide appears capable of destroying physical pain, it may probably be used with advantage during surgical operations in which no great effusion of blood takes place.”15 Yet Davy’s comment on the potential benefit of pain relief was a throwaway; he barely saw it as worth including in his notes.
+
+As Joanna Bourke explains in The Story of Pain, there was a significant gap after Davy’s discovery before medical practitioners started to use nitrous oxide during operations;16 the gas remained a recreational drug until the mid- to late nineteenth century.17 It wasn’t until about one hundred years later that it began to be used during medical procedures. The same is true for other painkilling substances, like ether and opiates; they were used recreationally for a long time before the medical establishment took notice.
+
+---
+
+Once nitrous oxide did come into medical use, it took many more years to become widespread, because many patients initially declined to use it. Why didn’t people race to start using nitrous oxide in surgery and the like? Why were patients and doctors so averse to implementing it once its pain-relieving properties were discovered? And why didn’t anyone try to invent anything similar earlier?
+
+One way of understanding the use of painkillers is to look at this story through the lens of plot. Pain historically was part of a social narrative that is very different from the one we have today. Western culture in the nineteenth century and before didn’t have the same societal expectation that everyone was entitled to happiness and a life free from suffering.18
+
+First, as Bourke writes, our attitudes to pain have always been closely connected to our perception of the value of different groups. If pain is integral to what it means to be human, denying that certain people could feel pain was an effective way of dehumanizing them. Doctors believed that a whole laundry list of groups either didn’t feel pain or only felt it in a mild way: soldiers, women, children, the elderly, immigrants, the working classes, slaves, and so on. Even as late as 1939, one medical author was adamant that children could undergo minor surgical procedures without feeling any pain.19 For many doctors, their attitude toward pain medication was wrapped up in their beliefs about certain types of people. If someone couldn’t feel pain because they were somehow less than human, then there was no need to give medication for it.
+
+Second, the way people do things over a period of time often comes to feel normal. As when we analyze a plot, in life, we have expectations of what is going to happen on the way to our anticipated ending. For both doctors and patients, the new story of pain medication felt like it didn’t have the same cause-and-effect elements that had previously defined their genre. Some surgeons, for example, said they disliked operating on silent, unmoving patients; it wasn’t like the good old days of surgery (which included, presumably, the need to be quick and to hold the patient down).
+
+Patients too weren’t immediately sold on the idea of pain-free surgery. The idea of being unconscious disturbed many. People wanted to be aware.
+
+---
+
+and in control during procedures, even major ones. They weren’t sure how things like nitrous oxide worked, so they were naturally suspicious of them. The side effects painkillers cause in most patients added fuel to that fire. People felt that it was unnatural not to feel pain. They were used to it and worried that taking it away would have worse consequences.20
+
+Finally, and perhaps the most important factor of all, was the fact that many people saw pain as something positive. The ability to bear it with grace was the ultimate hallmark of self-control and bravery. Those who underwent painful procedures without complaint were lauded for their courage. Religious beliefs at the time presented the ability to endure extreme pain as a virtue that would help secure a sufferer’s place in heaven. If someone were on their deathbed, coping with agonizing pain was a final chance to earn some extra brownie points and up their chances of getting into heaven.
+
+Pain played a large role in many of the social narratives about bravery, courage, and virtue. Take it away, and now the possible cause-and-effect plot changes: If I don’t experience pain stoically anymore, am I still a good person?
+
+Today, you’re likely to receive nitrous oxide for dental work and some other procedures. You’re not likely to think much of it or even consider refusing it. This shows us that we do, over time, change our narratives. The story of pain has continued. What’s interesting, though, are the consequences of the new narrative. In our current world, pain is not a plot point we seem to want in our stories. The proverbial pendulum has swung too far.
+
+There seems to be a widespread feeling now that humans should be able to go through life without feeling any pain at all. Our ability to finally manage pain seems to have triggered a set of beliefs that associate pain with negative outcomes. Therefore, if we can get rid of pain, we figure we should. Yet pain serves as a biological signal telling us when something is not right. The consequences of trying to eliminate all physical pain can end up leading to far greater negative and unintended consequences.
+
+---
+
+An example of the manifestation of the new narrative that pain is bad is the development of the opioid crisis in the United States. As a result of the belief that no one should have to feel any pain, access to pain medication seemingly became a right.
+
+In the 1980s, the World Health Organization “began advocating more aggressive use of opioids for pain control for anyone who had ‘pain.’ ” Governing agencies in the U.S. began to evaluate doctors and hospitals regarding their control of patients’ pain, and reimbursement of costs became tied to patients’ perception of pain control (not the outcomes of their treatment). The outcome has been an epidemic of addiction, leading many people to turn to illegal opioid drugs once their doctor cuts off their supply, resulting in overdoses, rising crime, and entire communities being torn apart.
+
+There were other factors in the widespread uptake of opioids in the U.S. Major policy decisions were based on flimsy anecdotal evidence of the lack of addictive properties in opioids, and certain pharmaceutical companies lied about the addictiveness of the opioids they sold. These factors, however, played out against the social backdrop of the new belief that allowing patients to experience pain was inhumane.
+
+Most concerningly, there is no real evidence for opioids producing long-term benefit for those with chronic pain. Indeed, more recent research indicates that opioid painkillers can slow the healing of wounds and that their overuse can make it difficult for doctors to assess the severity of a patient’s injuries. The type of pain a patient experiences can offer useful clues to their condition. For instance, it would be expected that the pain someone experiences after surgery would decrease over time. If it doesn’t, that’s a sign that something is going wrong and they should return to their medical practitioner for follow-up care. But if a patient is unable to feel anything at any point, they may not receive this sign.
+
+There is no doubt that strong painkillers are useful in some situations, but we have yet to determine with complete precision what those situations are. Bad science, overprescribing, undereducation, and a lack of clarity about some medicines’ addictive qualities have also led to untold misery.
+
+---
+
+With the current narrative that pain is always bad, it is likely to take us a long time to reach a more nuanced perspective, where we respect both the positives and negatives of physical pain and can manage it in appropriate ways.
+
+The history of pain medication shows us that change in how we do something quite often requires a narrative change. The stories we tell ourselves, the cause-and-effect-based series of understandings that we use to make sense of our world, have a huge impact on the choices we make and how we live our lives.
+
+# Conclusion
+
+Plot is the engine of story, the mechanism propelling characters and events through time. It’s the sequence of causally connected events that leads from the beginning of a narrative to its resolution. Without plot, a story is just disconnected moments, unrelated incidents. With plot, a story becomes a journey, a transformative experience for characters and readers.
+
+At its most basic level, a plot is a series of events connected by cause and effect. Event A leads to Event B, which in turn leads to Event C, and so on until the story reaches its resolution. But a good plot is more than just a linear chain of events. It’s a complex web of actions and reactions, of conflicts and resolutions, of setups and payoffs.
+
+Conflict is the heart of any plot. Without conflict, there is no story, no reason for characters to act or change. Conflict can take many forms—person versus person, person versus nature, person versus society, person versus self. But all conflicts share a fundamental structure: a character wants something but faces obstacles in getting it. The plot is the sequence of events that arise from the character’s attempts to overcome these obstacles and achieve their goal.
+
+But plot is not just about external conflicts and goals. It’s also about the internal journey of the characters, the way they grow and change because of...
+
+---
+
+The events they experience. A good plot presents a character with external challenges and forces them to confront their own flaws, beliefs, and desires. In this sense, plot is a crucible for character. It’s the fire that tests and transforms the protagonist, revealing their true nature and potential. A character who ends a story unchanged, unaffected by the events of the plot, is a character in a story that hasn’t really gone anywhere. The best plots leave characters fundamentally altered, through triumph or tragedy.
+
+Plot is also personal. The most powerful story in the world is the one you tell yourself about the obstacles and challenges in front of you. A positive story doesn’t always ensure success, but a negative one almost guarantees failure.
+
+Once a story takes root, no matter how false, it can be hard to change. This applies to both humanity in general and to each of us individually. Change the story to change the results.
+
+OceanofPDF.com
+
+---
+
+# Character
+
+# Original
+
+# Character!
+
+6
+
+# Heroes and villains.
+
+OceanofPDF.com
+
+---
+
+Watergate is an immensely complicated scandal with a cast of characters as varied as a Tolstoy novel.
+
+—BOB WOODWARD1
+
+---
+
+Characters are who we identify with in a story, influencing our perception of events. The mental model of character helps us identify who is telling the story. Information does not come to us impartially but rather is crafted and shaped by those who provide it. Understanding how those people relate to the larger story being told is invaluable for determining how they have interpreted and packaged the information they are sharing. This model also reminds us that we can become very connected to characters, giving unreal things immense power in the process.
+
+A character is a person, animal, being, creature, or thing with agency in a story. Each has personality, values, quirks, and a story. Just as getting to know someone reveals their hopes, fears, and dreams, understanding a character deeply lets you see the world through their eyes.
+
+Writers use characters to perform actions and speak dialogue that moves the story along a plotline. Compelling characters are usually crucial to a successful novel; it’s much harder for a story to be interesting or a plot to be compelling with boring, flat, inauthentic characters. We normally use the word “character” to refer to fictional beings, but it can also apply to narratives that include real people. Here, we will focus for the most part on the way characters are used in literature, theater, television, and film.
+
+In works of fiction, the reader is usually set up to identify with the protagonist, the character that we follow through the plot. Protagonists do not need to always be good, and readers can easily be made to sympathize with or cheer for characters whom in other circumstances they might consider bad. Protagonists stand in contrast to antagonists, the characters who are in the way of the protagonist reaching their goals. Protagonists require obstacles. These may come in the form of a specific character (a villain), a group of characters who aren’t actively working to oppose the
+
+---
+
+character but enforce social norms that are in the character’s way, or perceived limitations within the protagonist themselves. Often, we can only understand characters by considering them as part of a web woven of their relationships with other characters.
+
+Characters work within plots, but they have their own goals and desires. The gap between what characters want and what is happening in the story drives a lot of the conflict. As audience members, we develop expectations of the characters we encounter. As literature scholar Marie-Laure Ryan explains, “We want the characters to [appear to] be autonomous agents who exercise some degree of control over their own lives, rather than puppets of authorial whimsy.”2 Authors achieve this autonomy by putting characters in a world and then having them react logically based on their personalities. Kurt Vonnegut wrote that one of the eight basic principles of creative writing is to always make every character want something, even if all they want is a glass of water.3 It is that motivation to get what they want that will drive the plot.
+
+Characters can be dynamic or static: they may develop and change throughout the work, or they may remain the same. In general, the protagonist of a work will be dynamic, but the antagonist and supporting characters may be either dynamic or consistent. Events throughout the plot further character development, often as a result of moments of conflict and crisis.4
+
+There are three types of conflict a character may experience, which may be physical, psychological, spiritual, or some combination thereof:
+
+- Character vs. another character (or society)
+- Characters vs. themselves
+- Character vs. nature
+
+Static characters may sometimes exist not truly as fully formed beings but as representations of particular ideas or qualities. Characters who have
+
+---
+
+absolutely no depth and rely on generalizations about types of people are known as “stock characters.” An artist can insert stock characters into their work as a plot device, comfortable in the knowledge that their audience will find them easy to envision, even if they’re not realistic. Stock characters essentially exist as props, perhaps to lend believability to a setting. Their internal world is not of much significance, and their motivations are taken for granted.
+
+An artist may develop a character directly or indirectly: they may directly describe their qualities, personality, appearance, and other details, or they may indirectly give hints as to what the character is like, which the audience can then interpret, such as by describing their actions or how they treat other characters. For instance, a writer could say that a character is rude and entitled, or they could describe the character shouting at waitstaff in a restaurant for getting their order wrong, thereby showing those qualities through the character’s behavior.
+
+Aristotle believed that plot was the most important part of drama, and that an artist could tell a story without characters, but not without a plot. However, for audiences, characters can often seem like the most important part. They are what we tend to remember in the most vivid way. We don’t experience the components of a narrative as separate parts. Without engaging characters, even the most well-crafted plot can become dull. With them, even a weak plot can hold an audience’s attention.
+
+Characters are what engage our emotions. Indeed, characters who show the negative sides of people can have greater resonance than the positive ones. They may not be likable, but they are what we find memorable.
+
+OceanofPDF.com
+
+---
+
+# Archetypes
+
+In works of literature, an archetype is something that recurs again and again in stories throughout history and across cultures. The psychologist Carl Jung believed that archetypes emerge from the collective unconscious of the human race, hence the reason they are almost universal. In addition, Jung believed they show up in our dreams, religion, and art.
+
+The word “archetype” means “original pattern,” using root words from ancient Greek. While writers may use archetypes in new and creative ways, the underlying symbolism remains. Writers continue to use them for a reason: they resonate in powerful ways, and their centrality to our psyches makes them hard to avoid. Each archetype has its own distinctive qualities, features, values, and motivations. However, books with archetypical characters who never really evolve are not stories. Rather, they are usually polemics or morality lessons disguised as stories.
+
+---
+
+# Cults of Personality
+
+In any art that has characters, including novels and films, not all characters will be developed to the same extent. There is often a main character, or small group of main characters, who is the focus of audience attention. They are easy to identify because they are the ones we follow through the course of the story. Main characters are those we become invested in, and by the end of the piece, we hope to see them experience some resolution to whatever conflict we were following them through.
+
+After main characters, there are secondary characters. These characters are necessary to the story in some way; they can do things like further the plot or help develop the main characters. But we know they are secondary because we don’t see much of their inner life. They don’t develop over the course of the action very much, and they don’t get their own story arc. We don’t spend much, if any, time looking at things from their perspective. Secondary characters, however, are important. Without them, the events of the plot could not unfold. The contrast they provide gives us a much richer sense of who our main characters are.
+
+There have been many examples in the twentieth century of political regimes that consolidated and maintained power through storytelling. Not at all focused on truth, these regimes reimagined the past and invented a narrative to justify their actions. Hitler’s Nazi Germany and Stalin’s Communist Russia are two classic examples. Stories need characters, and so the leader of a political regime will cast themselves as the main character, the protagonist, the one trying to save the day by combating the opposition to make everything great for the people. To strengthen the narrative, leaders will add secondary characters to their story—people the leader can use to highlight their own actions in a positive way.
+
+The need for a secondary-character role is one way to understand some instances of cults of personality. According to scholars Thomas A. Wright and Tyler L. Lauer, “The cult of personality phenomenon refers to the idealized, even god-like, public image of an individual consciously shaped...
+
+---
+
+and molded through constant propaganda and media exposure.”5 In history, some leaders have created the cult around themselves, as Hitler did. But there are also many examples of cults being created around historical figures to reinforce the legitimacy of the current leadership. Using the model of character, we will explore one such example here.
+
+# Sun Yat-sen
+
+Sun Yat-sen was a political activist who agitated for regime change in China. Born in 1866, during the reign of the last emperor, Sun worked in various capacities to end the empire and bring in a new political system. He was well known in China as someone who wanted change. Over the years, he aligned with many different people and groups, including Soviet Communists, in his quest to lead China into a new era.6
+
+The Ming empire collapsed in 1911, and there is no doubt Sun contributed to the changing political scene. He did not, however, lead China in any capacity as it transitioned away from being an empire. There were some tumultuous years when China seemed on the path to democracy, but there were also those who wanted to take power for themselves via one-party systems. In 1928, the Nationalist Party took over and led China until Mao Zedong and the Communists replaced them in 1949.
+
+Sun Yat-sen was human. Like all humans, he was complex. He did some good things, like raise awareness of the political alternatives to rule by emperor.7 He also did some awful things, like having political opponents killed. And he had a host of all-too-common foibles. According to Jung Chang, who wrote a book about Sun’s wife Ching-ling and her sisters, Sun was a womanizer who treated his family poorly. He raised money to support a revolution and tried to codify his ideas into a political philosophy. He also used his wife as bait to escape adversaries.8
+
+When Sun died, in 1925, the Nationalist Party was in an ongoing fight to rule China. They were led by Chiang Kai-shek, Sun’s brother-in-law by marriage, who sought to align himself with Sun’s legacy. But first that legacy had to be definitively established. So “the Nationalists began a Lenin-style cult right away. The title of ‘the Father of China’ was used for the first time.”9 The nationalists erected statues of Sun all over the country. They produced propaganda describing Sun as “the liberator of the Chinese
+
+---
+
+nation” and “the greatest man in the 5,000-year history of China.”10 All over the country, “in organizations like schools and offices, people were made to gather once a week to commemorate Sun,” and they built a mausoleum covering 30 million square meters (compared with the 1.7 million-square-meter mausoleum for the last emperor).11
+
+Why did they do all this? Creating a cult of personality around Sun was instrumental to establishing support for the authority of Chiang Kai-shek and the Nationalist Party. As Jung Chang summarizes, “In the ensuing years, especially when the Nationalists conquered China in 1928 and needed Sun’s name to claim legitimacy, the Cult of Sun reached fantastic dimensions.”12
+
+Thomas Wright and Tyler Laurer explain that “the cult of personality perspective focuses on the often shallow, external images that many public figures cultivate to create an idealized and heroic image.”13 Heroes are great. They inspire us. We trust them. They are the people in stories who save the day or die trying. When the nationalists turned Sun into a hero, they stripped him of his complexity and created a character more like a superhero. When Chiang associated himself with this idealized image, he was sharing in the heroics.
+
+Eventually, the nationalists lost leadership of China via revolution to Mao and the Communist Party of China (CCP). The cult of personality around Sun Yat-sen quieted for a while as the Communists settled in, but they too found a need to give Sun a prominent role in their narrative. Even though Sun had had a very uneasy relationship with the Soviets and was never exactly aligned with them, he had worked with them on many occasions.14 Probably because he’d already been branded and memorialized as “the Father of China,” the Communists updated his backstory and brought him in as the kind of supporting character who lends credibility to the actions of the protagonist. In 1956, for the ninetieth anniversary of Sun Yat-sen’s birth, his widow, Ching-ling, “wrote articles about Sun for the People’s Daily, the Party’s mouthpiece. She portrayed Sun as China’s Lenin, saying that the CCP ‘took over his mission’ after he.
+
+---
+
+died.”15 The nationalists, then, were just an aberration, a detour on the path from Sun to Chinese Communism.
+
+More than thirty years later, after the death of Mao, the CCP was still placing the cult of Sun in its narrative. Pulling out such a prominent character from the past continued to be a technique to achieve legitimacy in the present. Writing in 1988, Key Ray Chong and Fang-fu-Luan concluded, “In short, [the CCP] has used and will continue to use Sun Yat-sen as a means to ends, particularly when the country runs into a political or economic crisis.”16
+
+In the end, it’s almost as if Sun Yat-sen became a stock character—someone who no longer has any depth, just a bunch of easily recognizable, simple characteristics, someone whom the audience can easily identify and immediately know what role they are playing.
+
+# Emotional Engagement with Nonliving Things
+
+Many of us have had the experience of being devastated by the death of a fictional character. There we are, going along with the story, following the plot, and before we know it, we are so caught up in what is happening to the characters involved that we begin to feel for them. We are happy when they find resolution and happiness. We are empathetic when they go through struggles that mirror our own. We understand their fears. And we can feel genuine loss when a character we’ve followed and supported and built a connection with dies during the course of a story.
+
+It’s no secret that we can grow emotionally attached to characters. We are capable of caring about what happens to people who aren’t real. For example, authors have been viciously attacked for killing off fan favorites, and an ill-timed character death can cause sales of a series to plummet. It makes sense: caring is part of what keeps us coming back.
+
+Although engaging characters are just one part of a successful story, they are usually the part that has the most powerful effect on us. Understanding that we can engage so deeply with something that isn’t real.
+
+---
+
+helps explain the attachments we form. Using the lens of the character model, we can understand how engaging emotionally with nonliving things can impact choices we make. To explore this concept, let’s take a look at the story of the Barbie doll.
+
+# Barbie: An Icon of Cultural Representation
+
+Barbie is very well known in North American culture. Many of us have had a Barbie or know someone who has had one, and we would be hard-pressed to find someone who hasn’t at least heard of the toy. Since her creation in 1959, Barbie has grown into an icon of cultural representation who inspires countless articles and books that cover a spectrum of analysis. For some, she is a valuable playmate who helps children act out their dreams, creating detailed visions of what they want to achieve. For others, she presents a negative, unattainable vision of womanhood that is detrimental to girls’ self-esteem. Although she is technically a toy doll, using the mental model of character helps us understand the wide-ranging and emotionally charged reactions to Barbie.
+
+# Barbie's Character Development
+
+From the beginning, Barbie was presented to consumers as a character. She wasn’t a generic doll, she was Barbara Millicent Roberts. She was immediately marketed with a backstory: She grew up in Willows, Wisconsin, as the daughter of George and Margaret. Her high-end and unerring fashion sense was no doubt developed when she attended Manhattan International High School. As Tanya Lee Stone argues in her book The Good, the Bad, and the Barbie, “Mattel reinforced the desire in us to make Barbie real by creating a life story for her.” As the brand developed, Barbie received a boyfriend—Ken—and numerous friends and family members who all came with stories that integrated into hers.
+
+# Barbie's Evolution
+
+To augment the realness of Barbie, she is not just a generic doll sold in one way. She has changed with the times and has been portrayed in more than 120 careers. “Encouraging people to think of Barbie as ‘real’ was also paramount to Mattel’s success—cleverly and consciously set up,” Stone says. “One of the reasons people still talk about Barbie by name, instead of calling her a doll, is that she was marketed as a real person from the beginning.” This realness helps explain a lot of the attitudes toward Barbie.
+
+---
+
+For some, Barbie became a friend. She was able to help children act out their dreams and desires. If someone wanted to become a vet, well, their Barbie could take care of her many pets and open a veterinary clinic. Barbie and friends could help budding novelists figure out plot points and character development. Using Barbie to explain schoolwork to younger siblings developed skills for those who wanted to teach in the future. There is thus one view of Barbie that she “almost becomes an empty container to be filled at will by the player or commentator.”19 Playing with Barbie becomes an exercise in experimentation, allowing for things like creativity and social exploration.
+
+On the other end of the spectrum, Barbie has been attacked for being a terrible role model. Some people argue that her inhuman body proportions give girls unhealthy ideals to try to live up to. Author Germaine Greer wrote of Barbie, “With her non-functional body,…and feet so tiny she cannot stand on them, Barbie is unlikely to have been very effective in her career roles as astronaut, vet, or stewardess.”20 And that is true—except Barbie was never a human. She was never an astronaut. She never actually had to walk on those feet. Part of the reason we would even explore Barbie’s limitations as an actual human is because we see her as a character.
+
+Another frequent criticism of Barbie is that no matter what ethnicity she takes on, many feel they can’t see themselves in her. There are many different Barbies: there is Puerto Rican Barbie and Canadian Barbie, Nigerian Barbie and Japanese Barbie. Although some changes are sometimes made to reflect broad physical traits, these different ethnic Barbies still have her standard plastic-toy form. To many, Barbie continues to represent an unattainable physical standard. But as Stone argues, “There is no more one typical representation of an African American, Hispanic, Middle Eastern, Native American, or Asian girl than there is one of a Caucasian girl…. There is no one way for a doll to represent women as a whole. It would be an insurmountable task for any company to do that.”21 It’s our ability to connect with characters that would even have us considering a doll as a role model, as needing to represent a certain lifestyle or set of values.
+
+---
+
+Ultimately, Barbie is a toy. Not even her backstory and marketing can change that, if we really think about it. As Ann Treneman writes, “Every year the company creates yet more cousins and siblings for Barbie, not to mention outfits, pets, nationalities, and careers. If Barbie were real she would have a nervous breakdown about it all, renounce pink for life, and tell her ineffectual boyfriend Ken that it’s all over.”22 What has been created in the Barbie group of products is more than one person could ever have and be.
+
+The idea of Barbie’s realness persists, however. Barbie may not be someone you know, but she is a character that you recognize. And like all good characters, she has engaged us. We care what happens to her. We can be angry with her or sympathetic to her. We can have opinions on who she is. We can be affected by how her life unfolds.
+
+Near the end of her book, Stone asks, “Why does she irritate—even enrage—so many people and attract so many others to leap to her defense? She is just a doll, after all. But she is not just a doll…. It started at the moment of her inception. That very first television commercial, with Barbie as an active companion, plated the illusion in our minds that she was ‘real.’ ”23 The answer to Stone’s question may be found through the lens of the mental model of character. When we turn something into a character—a very natural human tendency—we imbue it with a realness that engages our emotions. That kind of investment, once created, doesn’t go away easily.
+
+# Conclusion
+
+At their core, characters are bundles of traits and motivations, of habits and histories, of strengths and flaws. They are the total of their choices and actions, the product of genetics, choices, and circumstances. But a great character is more than just a list of attributes. A great character is a paradox, a contradiction, a mystery who unfolds over the course of a story.
+
+In many ways, character is destiny. The choices a character makes, the actions they take, flow inevitably from who they are. A cautious, thoughtful...
+
+---
+
+A character will approach a problem differently than an impulsive, emotional one. A character with a strong moral compass will make different decisions than one with a flexible relationship to the truth. Obstacles reveal character.
+
+But character is not static, not a fixed point but a journey. The best characters are the ones who grow and change over the course of a story, who are transformed by the events of the plot and the interactions with other characters. Think of Ebenezer Scrooge, the miserly old man who learns the true meaning of generosity. Easy choices in the moment almost always makes the future harder. Harder choices in the moment often makes the future easier.
+
+Understanding a person’s character allows you to see someone for who they are at their core and step into their shoes. This helps you understand why they make the choices they do, predict their behavior, and empathize with their story. But remember, character is not set in stone. What happened yesterday is over. Today’s obstacles and challenges are nothing more than an opportunity to take a step toward or away from the person you want to be. No single choice satisfies the pursuit, only repeated steps in the right direction.
+
+OceanofPDF.com
+
+---
+
+# Setting
+
+Where the action happens.
+
+OceanofPDF.com
+
+---
+
+Places are never just places in a piece of writing. If they are, the author has failed. Setting is not inert. It is activated by point of view.
+
+—CARMEN MARIA MACHADO1
+
+---
+
+Where something happens influences what happens. Your environment changes your behavior as much as your behavior changes your environment. Too often, we think we can move action to a new location and expect the same result.
+
+# 1. Setting
+
+Setting is the place and time in which a story happens, giving context to the events that are happening and the decisions the characters make. A dark, stormy setting gives a sense of danger or mystery, just as a sunny setting with a cloudless sky gives a sense of beauty and peace. Not only does setting offer hints about what is to come, it influences how we feel.
+
+Novels, plays, and movies all have a setting, even if it can only be described as a vague “on some other planet, sometime in the future.” Nonfiction too has a setting: the time and place in which the events described came to pass. Even in nonfiction that is a collection of facts about a certain subject—say, physics—one would do well to consider the time and place from which the information communicated came. In this latter case, considering the setting can help us avoid assuming the information applies everywhere and forever.
+
+Books, plays, and other works usually contain settings nested within settings. For example, the broad or high-level setting encompasses all subsequent settings: a book set in Berlin in 1975 will contain scenes or chapters that usually have more specific settings, like a guardhouse at Checkpoint Charlie or a one-bedroom apartment overlooking the Tiergarten. These unique settings fit within the broad setting by being consistent with it: if Berlin in 1975 didn’t have horse-drawn carriages, then you can’t have one driving through the Tiergarten while two characters are talking.
+
+Of course, stories can take place in multiple time periods and locations, but each of these will have a logical consistency within the story in terms of.
+
+---
+
+The characters they contain and the specific settings they encompass.
+
+How a story develops is closely intertwined with setting. The choice of setting will determine many of the elements that can be included in the plot and some of the aspects of the characters. For example, setting a story in 1975 will mean the characters can’t use cell phones and the plot can’t be furthered by a character researching something on the internet.
+
+Settings usually have subjective qualities. In the context of a novel, the description of the setting comes from the narrator or characters, and thus tells us a lot about who they are. Often in stories we are shown “the way in which a single physical setting prompts vastly different reactions from different inhabitants,” thereby giving indications of the characters’ personalities and how they might impact the plot. Three characters might describe the local countryside in three different ways, and the depiction of the French Riviera could easily change from book to book.
+
+Setting, far from being a detailed, objective component, is fluid. Setting interacts with character and plot to communicate a story. For example, whether we find a graveyard creepy or sad or something else is heavily influenced by both the characters’ perceptions of it and the action taking place in it.
+
+As with characters, settings too have archetypes. Even if an author sets their story in a city without identifying which specific one, we as readers will associate certain characteristics with the setting. When we imagine cities, we think of them as full of people and the latest technology, fast-paced and demanding. Certain settings thus have what we might call stock elements. A Western can be set in the American West in 1920 or on Tatooine, but probably not in modern downtown Beijing.
+
+Setting places valuable constraints on story development, narrowing the range of choices a storyteller can make. It’s also a factor in the performance of art, whether it be theater, music, or visual arts. You are always constrained by the space you are in. David Byrne says of himself and his fellow musicians, “In a sense, we work backward, either consciously or unconsciously, creating work that fits the venue available to us.” He gives historical examples to explain:
+
+---
+
+On African drum music: “Percussive music carries well outdoors, where people might be both dancing and milling about. The extremely intricate and layered rhythms that are typical of this music don’t get sonically mashed together as they would in, say, a school gymnasium… or a cathedral.” Thus, “the music perfectly fits the place where it is heard, sonically and structurally.”
+
+On the development of classical music: “As time passed, symphonic music came to be performed in larger and larger halls. That musical format, originally conceived for rooms in palaces and the more modest-sized opera halls, was now somewhat unfairly being asked to accommodate more reverberant spaces. Subsequent classical composers therefore wrote music for these new halls, with their new sound, and it was music that emphasized texture, and sometimes employed audio shock and awe in order to reach the back that was now farther away.”
+
+Around 1900, there was a shift in how audiences were expected to behave during a live performance, whether it was a theatrical or musical performance. In short, they were now expected to just sit and watch. Byrne writes, “This exclusionary policy affected the music being written too— since no one was talking, eating, or dancing anymore, the music could have extreme dynamics. Composers knew that every detail would be heard, so very quiet passages could now be written.”
+
+Finally, “In the sixties the most successful pop music began to be performed in basketball arenas and stadiums, which tend to have terrible acoustics—only a narrow range of music works at all in such environments…. The music those bands ended up writing in response— arena rock.”
+
+As a mental model, setting teaches us that where you do something influences what you can do. It also teaches us to think about what’s around us, because our choices and options are always confined by where we are.
+
+---
+
+I would direct a play very differently if the space is different, if the space is deeper, if the space is taller: something begins to happen that is different.
+
+—MARIA IRENE FORNÉS
+
+# Work with What You’ve Got
+
+Settings provide constraints that influence how things develop. We must work with what we have, the materials on hand, and the tools available. Not everything is available everywhere, and the use of setting in the arts teaches us that the place in which our art exists will shape the content of the art.
+
+Cuisines are shaped by the constraints introduced by their settings. For many thousands of years, people ate only what they could grow locally. Plants were chosen as foodstuffs in part as a response to differing amounts of water or daylight. Certain foods grow better in certain soils. The decision about which animals to raise or domesticate was influenced not only by the animals in the territory but also by the ability to grow enough food for the people there to eat.
+
+What we cooked with depended on the materials around us. Clay pots were not found all over the globe, and neither were copper pots. How we prepared foods too was dependent on our settings. What suited our homes best (knowing those homes were also a reaction to setting)—open pits? Ash ovens? And our cuisines, even our modern ones, can trace some of their particulars back to the amount and type of fuel locally available hundreds of years ago.
+
+In the sixteenth century, should you have taken a trip around the wealthy homes in England, you would have invariably eaten roasted meat of some sort. Meat arranged and set close to a blazingly hot open fire, turned continuously for hours (often by young male servants), then brought to the table and carved with special knives, was standard fare for the upper classes. A carver would give you a chunk of meat, which you would then eat with the aid of your personal knife.
+
+---
+
+England had an abundant fuel source in easily harvestable wood and areas for grazing animals in large pasturelands. In Consider the Fork, Bee Wilson explains, “English cooks chose to roast great carcasses by the heat of great fires in part because…the English were abundantly well-endowed with firewood.” English cuisine and cooking culture grew around fuel availability. The abundance of firewood led to the development and refinement of the roasting technique. “The roast beef of England reflected a densely wooded landscape, and the fact that there was plenty of grass for grazing animals. The English could afford to cook entire beasts beside the heat of a fierce fire, throwing on as many logs as it took, until the meat was done to perfection.”10
+
+The open roasting of big English game had a knock-on effect in terms of table utensils and etiquette. For the English, because the cutting of meat came after the cooking, carving meat was part of the dining experience. “The knives at the carver’s disposal were many: large, heavy knives for carving big roast such as stag and oxen; tiny knives for game birds; broad spatula-like serving knives for lifting the meat onto the trencher; and thin, blunt-bladed credence knives for clearing all the crumbs from the tablecloth.”11 Not all cultures developed the use of knives at the table. For some, knifework is mostly done in the kitchen. It was elements in the setting—namely, resource availability in terms of food and fuel—that gave rise to many elements of the dining experience.
+
+The English needed knives at multiple stages, from preparation to consumption, and because various meats maintained their differences up to the moment they were served, with venison having a different texture than mutton, the final meal lent itself to the development of an even wider variety of knives. The English gave knives a place at the table, so that the final step in meat consumption was people doing their own carving.12 English meals are still prepared with the expectation that knives will be on the table as well as in the kitchen. And even though few people in England are roasting whole animals over an open fire, going over to someone’s house for Sunday roast is still a quintessentially English activity.
+
+---
+
+We don’t have to go very far to find numerous examples of the interplay between setting and cuisine. Every culture has started with what’s on hand, then developed technologies and dishes to adjust what they have to what they want: preserving fruits and vegetables for consumption in the months they don’t grow, salting meat to have it available on a more regular basis instead of only after a hunt.
+
+The story of sherbet in the Ottoman Empire follows the classic pattern of adjusting to constraints based on the weather and seasonal food availability. “After water, the principal beverage was sherbet,” writes Priscilla Mary Isin in her book Bountiful Empire. Sherbet, however, was not a single drink. Similar, maybe, to tea in North America today, sherbet was a type of drink that was adjusted based on the weather, where it was served, and who was drinking it.
+
+Sherbet could be served either cold or hot, depending on the season. “Sherbet was chilled with ice in the summer, and in the winter hot spiced sherbets were sold in the streets,” explains Isin. It could warm you up or cool you down. In the age before personal electric icemakers, you might think iced sherbet would have been only for the upper classes. But the transience of the medium actually led to its accessibility. “In hot weather sherbet was chilled using snow collected during the winter,” says Isin. “Shops selling snow were ‘as numerous as butchers,’ and since it melted quickly in hot weather it was sold at a price affordable even by the poor.” Because most everyone could afford some type of sherbet, it became part of many cultural traditions. It was given out at religious feasts and celebrations like weddings. It became part of the ritual of new motherhood. Sherbet was how travelers were traditionally welcomed home.
+
+The only limits on sherbet flavors were what was available and what could be preserved somewhere in the empire. Flavorings included pomegranate, lemon, violet, tamarind, plum, myrtle, fig, lily, mint, honey, rose, bitter orange, winter cherry, apple, quince, and mulberry—and this is not an exhaustive list. If you were poor, you may have only drunk chilled water with a little honey. If you were the sultan or in his entourage, your
+
+---
+
+sherbet might have “luxury ingredients such as coconut, rosewater, musk, and ambergris.”17
+
+Part of the reason sherbet was served year-round is that the ingredients used to make it were preserved when they were fresh. Isin explains that “sherbet mixes in the form of syrups, pastes, or tablets were prepared by Ottoman housewives and confectioners when each fruit or flower was in season.”18 That way, they were available whenever anyone had a craving for quince or mint.
+
+Sherbet spread from the Ottoman Empire all over Europe. In each place, it was adapted to the setting. In Italy, flavors included pistachio, strawberry, and fennel and may have evolved from there into the modern sorbetto. By the time sherbet got to England in the mid-seventeenth century, sugar had replaced the honey, and baking soda was added to give it fizz, to reflect local tastes and easier-to-obtain ingredients.
+
+The lesson here is that our setting impacts us far more than we realize. The conditions it presents and the constraints it contains define the range of choices we can make. Not everything is possible everywhere. As food is shared, it adapts to local constraints and often evolves into new delicacies.
+
+# The First Zero
+
+Setting influences how art is developed and interpreted. Within the context of a piece of art itself, such as a novel or film, it makes no sense to talk of a story without setting. All stories must take place somewhere. Where and when that place is located impacts the story told. As we have seen, settings introduce constraints and parameters that must be respected. Within a story, everything the characters do, every event that carries the plot, must respect the construct of the setting. A setting can be completely made up, but it will still have rules.
+
+Art is also constructed and consumed in a setting. In the arts, setting matters for more than stories. Where people will hear your music can change what you write or how you play. The dialogue you write for the
+
+---
+
+stage is unlikely to be the same dialogue you write for a film, even if both depict the same story. Where people will interact with your art guides choices about the art itself.
+
+Some stories are just not possible in some settings. If there are logical inconsistencies between the plot of a story and where it occurs, your art isn’t going to go very far. People will tune out if it doesn’t make sense. A chase scene set in, say, present-day Tokyo can’t disobey the laws of physics. Art also struggles if the setting it’s consumed in is not the one the artist intended. Trying to look at a painting in dim light or experience a symphony by reading sheet music isn’t going to pan out very well.
+
+Setting is thus very important in art. No art can be separated from its setting. As a mental model, setting reveals how much location matters. Where we do something has great impact on both what we do and how we do it.
+
+The concept of zero is now a ubiquitous component of our understanding. It’s taught in the very first grades, and no math is done without it. Yet despite now being present in all settings, it grew out of a very specific one. The zero is a relative newcomer to the number set, because what it represents is not intuitive to most people. We can easily understand the idea of three deer in a field, but it’s much harder to get our head around the idea that no deer in a field can be represented by a symbol describing the number of deer.
+
+Very few cultures have ever invented the zero. The Mayans had a numerical representation for nothing, but it didn’t develop as part of the number system and was never shared further. It is the ancient Eastern cultures around present-day Cambodia and Indonesia from which our zero came.
+
+A lot of ancient math was done without the zero. Pythagoras’s famous conclusion—that in a right-angled triangle, the square of the hypotenuse is equal to the sum of the squares of the other two sides—was achieved without a zero, as was Euclid’s entire Elements. In Number: The Language of Science, Tobias Dantzig offers as a possible explanation: “The concrete mind of the ancient Greeks could not conceive the void as a number, let
+
+---
+
+alone endow the void with a symbol.” This explanation hints that you must first understand the concept of the void before you can name it.
+
+As mathematician Amir Aczel explains, the key function of a zero is that it grants “the ability of the numbers to cycle so that the same signs could be used over and over again to mean different things.” It was thought that the number zero was invented in the pursuit of ancient commerce. Something was needed as a placeholder; otherwise, 65 would be indistinguishable from 605 or 6,050. The zero represents “no units” of the particular place that it holds. So, for that last number, we have six thousands, no hundreds, five tens, and no singles. However, the zero predates its use in commerce.
+
+The oldest known zero arose in an Indian-influenced culture in what is now Cambodia. “In the ruins of the temple of Trapang Pei at Sambor on Mekong, in 1891 [a French archaeologist] found two stone inscriptions written in Old Khmer.” These were eventually translated by French scholar George Coedès. The zero “was clearly discernible and only slightly different in form from Indian zeros: instead of a circle, it was a dot” on an old stone table Coedès labeled K-127.
+
+In his book Finding Zero, Aczel describes his journey to Cambodia to find K-127 and understand its origins. What he learns propels him to argue for the invention of zero being dependent on the characteristics of the place in which it was invented. He claims that the people who discovered the zero must have had an appreciation of the emptiness that it represented. They were labeling a concept with which they were already familiar.
+
+On his quest to find this zero, Aczel realized that it was far more natural for the zero to first appear in the Far East, rather than in Western or Arab cultures, due to the philosophical and religious understandings prevalent in the region. Western society was, and still is in many ways, a binary culture: Good and evil. Mind and body. You’re either with us or against us, a patriot or a terrorist. Many of us naturally try to fit our world into these binary understandings. If something is “A,” then it cannot be “not A.” The very definition of “A” is that it is not “not A.” A thing cannot be both.
+
+---
+
+Aczel writes that this duality is not universal. He describes the catuskoti, found in early Buddhist logic, that presents four possibilities, instead of two, for any state: that something is, is not, is both, or is neither.22 It may seem hard to grasp, but actually, our world and words are full of events and expressions that defy binary categorization. A dinner at a fancy restaurant may just be average, which is a way of saying it is neither good nor bad. Your child leaving home may be something you consider both great and devastating.
+
+Aczel quotes Buddhist writer Thich Nhat Hanh, writing, “Emptiness is the Middle Way between existent and nonexistent.” Reflecting on this statement, Aczel explains, “I came to believe that I could even read the quoted verses as saying: existence = 1, non-existence = -1, and emptiness = 0. Emptiness was the door from nonexistence to existence, in the same way that zero was the conduit from positive to negative numbers.”23 Innovations are extensions of the world in which they originate. They use pieces of what already exists to build something new. Finding the oldest known zero in present-day Cambodia makes sense if we consider that zero is an innovation on concepts that already existed, like emptiness and the void.
+
+The idea of nothing being something is harder to process in binary thinking. A thing is something and is not nothing. Nothing is, by definition, not something. No thing can be both.
+
+In conversations with a Buddhist monk, Aczel is told, “When we meditate, we count. We close our eyes and are aware only of where we are at the moment and of nothing else. We count breathing in, 1; and we count breathing out, 2; and we go on this way. When we stop counting, that is the void, the number zero, the emptiness.” Aczel concludes, “Here was the intellectual source of the number zero. It came from Buddhist meditation.”24
+
+The zero itself defies binary categorization. It is something and nothing simultaneously. Cambodia circa the sixth century CE had the intellectual elements needed for a zero. It was a setting that produced thinkers who
+
+---
+
+were comfortable with the idea that nothingness was a thing that could be represented.
+
+Since Aczel found the zero in Cambodia, zeros predating that one by a few years have been found in Indonesia. They are artifacts of the Srivijaya empire.25 Srivijaya too was Buddhist and therefore familiar with exploring the concept of the void. When it comes to history, the oldest thing found is only the oldest until the next oldest one is found. We’ll never know if we’ve found the very first zero. But we can be confident that the ideas of the culture of the first zero will include the concept of nothing being something.
+
+# Conclusion
+
+Setting is the stage upon which the drama of story unfolds, the physical and temporal context that shapes and reflects the actions of characters. An active participant in the narrative, setting is a force that can enable or hinder, reveal or conceal, enlighten or deceive. Setting is not just where the story happens, but in a very real sense, it’s why the story happens.
+
+Setting anchors a story in time and place, providing sensory details that make it real. But setting is more than just physical description. It’s also the social, cultural, and historical context that defines the parameters of what is possible and what is permissible for the characters.
+
+A story set in medieval Europe will have different constraints and opportunities than one set in modern-day Tokyo. A character in a small, gossipy village will face different challenges than one in a large, anonymous city. Setting shapes the choices characters make, the conflicts they face, the resolutions they find.
+
+But setting is not just a one-way street, not just the environment acting upon the characters. Characters also act upon and interact with their setting. They navigate its challenges, exploit its opportunities, and leave their mark on its landscape. Every story is a symbiotic relationship between character and setting, a reciprocal exchange of influence and transformation.
+
+---
+
+Setting is the silent force that influences our fate. What we think and do is greatly impacted by our environment. This leads to a powerful and profound point: to change your behavior, change your environment. If you don’t, it will change you.
+
+OceanofPDF.com
+
+---
+
+# SUPPORTING IDEA:
+
+# Subtext
+
+IN ANY WORK OF ART, there are two levels of meaning. There is the meaning the artist is directly giving to the audience, known as the text. Then there is the meaning the artist conveys without outright stating it—the subtext.
+
+Subtext is what we find ourselves intuitively picking up on and understanding, sometimes without quite knowing how.26 We’re good at noticing subtext because it’s often there in speech when we talk to people. We constantly hear people saying things that have a different meaning than the literal one, and we learn to detect it. “What time does this meeting end?” might mean “Is it rude for me to leave now?”
+
+Subtext gives us a much richer experience of a piece of art. By adding more layers, an artist enables their audience to enjoy their work on multiple levels and to revel in the satisfaction of seeing the subtext. It’s usually a deliberate act, but
+
+---
+
+Sometimes a subtext may emerge that the artist did not notice during the creative process, or audiences may pick up on what appears to be subtext but is merely the result of their own interpretation. Subtext may be something that the characters within a work are aware of or something only revealed to the audience.
+
+We can appreciate the use of subtext as the sign of a masterful, skilled artist. It takes great ability to follow Alfred Hitchcock’s maxim “Show, don’t tell.” For instance, the artist Paul Nash served as the official war artist for Britain during part of World War I. During his time on the front and afterward, he produced numerous paintings and drawings inspired by the landscape he had seen. His dark, often surreal works showed little of the typical iconography of war and instead depicted trees, bushes, streams, fields, and the countryside above all else. When people, planes, and weapons appeared, they seemed integrated into their surroundings, usually overshadowed. The subtext was clear: Nash’s devastated landscapes represented his assessment of the impact of war on people. He didn’t directly reveal his opinions, but they were unmistakable. To convey something in a subtle fashion can have far more impact than stating it outright.
+
+When an audience must work a little harder to understand a piece of art, it builds engagement. It makes characters more believable—real people rarely say exactly what they mean all the time. It can turn what looks to be a simple tale on the surface, such as George Orwell’s Animal Farm, into a profound and moving work with lasting impact.
+
+During times of oppression, artists may turn to subtext as a means of conveying messages that would otherwise be censored or cause them to incur personal risks. The subtext of a work of art may be critical of the current regime, and that may be obvious to the audience, but as there is no actual critique present in the work, the creator may not face penalties.
+
+Religious or political subtext is common. For example, Arthur Miller’s play The Crucible is ostensibly about the Salem witch trials of the seventeenth century. But Miller is holding a mirror to America at the time he was writing: in the 1950s, when Senator Joseph McCarthy was aggressively hunting down suspected communists. The subtext of The Crucible is that McCarthyism featured the same paranoia and hysteria as the Salem witch trials. Miller didn’t need to make a direct comparison; he knew the impact his play would have on the audience. Indeed, we can assume that much of The Crucible’s success was a result of the statement it made about current affairs at the time. If Miller had outright criticized McCarthyism, the probable outcome would have been the senator labeling him as a communist and communist sympathizer and attempting to ruin his career. Because subtext is implied and subjective, an oppressive regime may not be able to take it as proof of dissent.
+
+---
+
+# Performance
+
+Break a leg.
+
+---
+
+OceanofPDF.com
+
+---
+
+The essence of performance is that the audience and the performer make the piece together.
+
+—MARINA ABRAMOVIĆ
+
+---
+
+In live performance, the interaction between performers and environment is unique, ensuring that no two performances are alike. As a model, performance teaches us to factor in how engaging with the world can subtly yet profoundly influence our actions.
+
+In theater, performance involves using physical things to tell a story, whether it’s simply human bodies expressing words, or props, or staging. It is making something that exists only in words or imagination come alive. Performance in theater can have a wide variety of components, but it requires at least three elements: actor, space, and audience.
+
+Often, theater consists of the performance of a play with dialogue and sometimes music. But a story is not a requirement of performance. Ancient Greek tragedy was the mainstay of performance for centuries in Western Europe, and the plots of plays such as Oedipus Rex or Antigone carried just as much instruction on human virtues and flaws as they did plot. Noh drama, from Japan, had actors and singers, but “often little or no plot; conflict—the element crucial to Western drama—is absent, and there is no concession to realism.” Antonin Artaud described his Theater of Cruelty in the 1940s, wherein “the audience is, by intention anyway, encompassed in a hallucinatory world, where the rules of time and motion do not exist. Words are less important than action, rhythm, sound and gesture, and behaviour is immune to conventional morality.”
+
+Performance has always had space for improvisation. Sometimes the improv is built right in, such as with commedia dell’arte, which originated in Italy in the sixteenth century. These performances had dialogue, but no script—just “an agreed framework of scenario, and even some memorized speeches that could be adapted according to the way the performance developed.” In places such as seventeenth-century England and Spain, people who paid lower admission stood directly in front of the stage, in an
+
+---
+
+area called the “pit.” If a performance wasn’t captivating, they expressed their displeasure by talking to one another, mocking the story, or “launching missiles at the performers.”5 We can easily imagine an actor improvising some immediate changes in their performance in order to respond to such feedback.
+
+Actors have individual perspectives on a text, which means a performance will be influenced by who is performing. Space too influences how a piece can be performed, simultaneously imposing limits and offering opportunities. The space doesn’t have to be conventional, and not all of the spectators need to be aware that they are watching a piece of theater. For example, theater has been staged in restaurants where there are regular patrons having a meal.
+
+In the long history of theater, there have been many ways the audience engages with the performance. We are now accustomed to a dark, hushed space, where the audience sits in silence as the play unfolds before them. But, given the dynamic nature of performance, it’s easy to understand that this current experience has not always been the case.
+
+In sixteenth-century China, for example, certain forms of theater could go on for many hours, even days, and so watching was combined with eating and drinking. Sixteenth-century Kabuki theater in Japan could also last all day, and thus “the audience would tend to concentrate its attention on the big set-pieces, reserving its eating, drinking, and gossip for the less enthralling parts.”6 It wasn’t until the eighteenth century in France that audience members were officially banished from getting on the stage. Bertolt Brecht, staging his plays from the 1920s into the 1940s, consciously tried to distance the audience from the performance. He called it alienation and used it to create a “new objectivity” in the audience.
+
+Performance thus has a history of being more than entertainment.
+
+The play on its opening night is very different from the play that closes.
+
+—DECLAN DONNELLAN7
+
+---
+
+In live performance, the audience changes for every show. So, in more subtle ways, does the space. Actors responding to each new environment change how they perform and thus change the total experience. So, there is built into performance a dynamic component, as there is continual change in the realization of a piece of theater. Live performance is what makes theater very different from movies. The live element is part of the reason people go to the theater—there is always the possibility of the unexpected for both the audience and the actors.
+
+If a mistake happens on the stage you live with it. If a line has gone or you’ve invented a new move, it’s part of the performance.
+
+—JATINDER VERMA
+
+“The peculiar chemistry engendered by live performance lends it a power…explaining why theater in the past has often fallen foul of authority.” In fourteenth-century England, so-called “Robin Hood” plays, a form of folk theater, were “suppressed as dangerously subversive,” perhaps due to their widespread popularity. The greater the reach, the greater the influence, the larger the potential threat.
+
+Performance is not confined to the theater. Music is regularly performed live and usually sounds very different from a recording of the same piece performed by the same musicians. David Byrne explains, “Many musicians make music influenced by this social aspect of performance; what we write is, in part, based on what the live experience of it may be. And the performing experience for the folks on stage is absolutely as moving as it is for the audience, so we’re writing in the anxious hope of generating a moment for ourselves as much as for the listener.”
+
+Byrne also argues that the live aspect of music is often a critical component of why people love it. More than notes, live music is a full sensory experience. “Hearing a recording of a live performance one has witnessed and enjoyed can prove disappointing. An experience that was
+
+---
+
+auditory, visual, and social has now been reduced to something coming out of stereo speakers or headphones. In performance, sound comes from an infinite number of points—even if the performer is in front of you, the sound is bouncing off walls and ceilings, and that’s part of the experience.”12
+
+# Performance Art
+
+Performance art contains many of the elements of more traditional visual arts but combines them with audience interaction to produce something unique in each performance. When describing the development of her pieces, performance artist Marina Abramović explains that as the artist, she puts the elements together, but embedded into her art is the unknown, as it is impossible to predict how an audience will interact with a particular piece.13
+
+We tend to think of the creation of something as its end: we write the speech or craft the presentation, and that’s the finish line. The model of performance reminds us that things continue to develop when they interact with the world.
+
+The writing starts when you perform.
+
+—ROBERT LEPAGE14
+
+# Performance for Social Change
+
+How could you possibly allow the election of a citizen of a socialist country as pope?
+
+—SOVIET CHAIRMAN OF THE KGB YURI ANDROPOV TO COMMUNIST LEADER OF POLAND WOJCIECH JARUZELSKI15
+
+In 1979, Karol Wojtyla was elected pope of the Roman Catholic Church. Taking the name John Paul II, he was the first non-Italian pope in 455 years.
+
+---
+
+and the first Polish man to hold the title. That year was also the height of an uneasy stalemate in the Cold War; democracy and communism continued to exist uneasily side by side. Nuclear weapons that could obliterate humankind had been developed by both the Americans and the Soviets. Neither side wanted war; neither did they want to relinquish power. Much of the world was caught in the orbit of one side or the other. The general feeling was that both sides would continue to exist, and so the Cold War had become less about winning and more about maintaining the status quo.
+
+The new pope was not on board with maintaining communist power, because it interfered negatively with people’s spiritual lives and purpose. Soviet communism included atheism, ostensibly because people were meant to get everything they needed from the communist state, not a god. There is a clear power dynamic at stake here, because allegiance to any religious community would disperse power away from communist leadership. However, communist regimes were never able to actually eliminate religion from their states, especially in Poland.
+
+Into this power struggle stepped the new pope. John Lewis Gaddis explains in The Cold War, “Wojtyla had been working quietly for years—as priest, archbishop, and cardinal—to preserve, strengthen, and expand the ties between the individual morality of Poles and the universal morality of the Roman Catholic Church.”
+
+The new pope decided his first foreign trip would be to his native Poland. It was the first time a pope would set foot in a communist country. The nine-day visit was a carefully planned set of events in thoughtfully chosen settings that utilized the range of talents of the main performer. Gaddis writes:
+
+The Pope had been an actor before he became a priest, and his triumphant return to Poland in 1979 revealed that he had lost none of his theatrical skills. Few leaders of his era could match him in his ability to use words, gestures, exhortations, rebukes—even jokes—to move the hearts and minds of the millions who saw and
+
+---
+
+heard him. All at once a single individual, through a series of dramatic performances, was changing the course of history.17
+
+The performance began when the pope walked off the plane. He kissed the ground, demonstrating his love for his country and, by extension, the people in it. He performed his opening mass in Warsaw’s Victory Square, which scholar Paul Kengor calls “a symbol of withstanding World War II totalitarianism that was now, with Pope John Paul II’s presence, a symbol of withstanding Cold War totalitarianism.”18
+
+Throughout the trip, the new pope chose his settings deliberately, speaking at shrines and monuments that had memories many Poles associated with the value of both their Catholic religious heritage and religious freedom in general. “He made,” John Cornwell notes, “forty public, highly theatrical appearances in nine days.”19
+
+The trip was a success for John Paul II. It is estimated that more than one-third of the Polish population saw him live at some point. His last mass, on the Krakow Commons, was the largest outdoor gathering in the nation’s history, attracting between two and three million people.20
+
+His next visit to Poland, in 1983, was another series of thoughtfully designed performances. First, there was the content of his masses. This time, he spoke more explicitly about freedom and independence, saying, “The sovereignty of the state is deeply linked to its ability to promote freedom of the nation.”21
+
+Second, he adjusted his words to his settings. Concurrent with the pope’s involvement with Polish political development was a massive labor movement led by Lech Walesa under the title of Solidarity. The group rejected communism and demanded to be able to organize labor unions. Its leaders spent many years in jail as the Polish government tried to brutally suppress the group.
+
+So the pope went to Poznan, the site of communist suppression three decades earlier that had resulted in the deaths of many workers. “Here, he explicitly mentioned the forbidden word Solidarity for the first time on the trip.”22
+
+In the setting of a previous labor uprising, the pope shone a light on the current labor challenges to communism.
+
+# Setting influences
+
+---
+
+performance. The pope’s words had more impact because of the location in which he spoke them.
+
+He also insisted on meeting with the imprisoned Lech Walesa. In doing so, he gave Walesa an opportunity to join him on stage—to share the audience. As a local Polish priest observed at the time, “By meeting with Walesa, the pope showed the whole world, starting with the Communist bosses, that the movement was alive and that the story was by no means over.”23
+
+John Paul II went to Poland again in 1987, his last trip before the implosion of the communist system there. It was another spectacular example of a performance designed to respond to both the setting and the audience. For example, “he addressed a congregation of more than a million faithful near Gdansk, scene of the shipyard strike that had launched the Solidarity movement back in 1980. He declared that ‘as work contributed to the common good, workers had the right to make decisions regarding the problems of the whole society.’ ”24
+
+He spoke to his audience in a language they could easily understand, using symbols and allusions that carried common cultural meanings. He chose settings that reinforced the points he was trying to make. His performances, while ultimately having the same message and goal (religious freedom), were never identical. He adjusted and responded to the particulars of each circumstance to powerful effect. Cornwell describes one gathering outside the Jasna Góra monastery: “The magic he performed was to turn the brooding, potentially violent insurgency into a peaceful but no less determined transformation of consciousness.”25
+
+Reflecting on the legacy of the pope, John Lewis Gaddis writes, “When John Paul II kissed the ground at the Warsaw airport on June 2, 1979, he began the process by which Communism in Poland—and ultimately everywhere else in Europe—would come to an end.”26 He had this incredible impact because of his exceptional ability to communicate, over the three visits, through a series of performances that demonstrated the power of harnessing the dynamic interaction of actor, space, and audience.
+
+---
+
+# Performance as Tool
+
+Willie Sutton was a performer. He studied his audiences and noted all the details of each setting he was going to perform in. Once he figured out what the audience expected to see and what was the most appropriate role for the setting, he’d decide what part he should play. Each time he performed a role, he robbed a bank.
+
+One of the most successful bank robbers of all time, Willie Sutton stole millions of dollars and never killed anyone. His method was not one of aggression or destruction; he didn’t blow up safes or take hostages. He took on roles and played the parts so well that no one could tell he didn’t really belong on the stage.
+
+In Sutton’s case, the dynamics of the setting and the expectations of the audience dictated his performance. Working from the 1920s to the 1950s, in between various prison terms and corresponding escapes, Sutton successfully robbed more than one hundred banks, primarily in New York.
+
+Describing his modus operandi in a biography written by Quentin Reynolds, Sutton explained, “I studied a bank carefully before I robbed it; I studied the habits of the employees and the guards and the cops on the beat…. I rehearsed my men thoroughly in their parts.” All of the study was dedicated to figuring out what part Sutton needed to act to pull off the crime.
+
+Each setting and audience demanded a specific role. Sutton recounts, “By turns I was a Western Union messenger, postman, policeman, and on one job, I was a window cleaner, complete with ladder, belt, and what men in this profession call a squeegee, and varied my facial make-up to suit.” In his performance, Sutton would be whatever the audience was expecting.
+
+How did he do it? First, he learned makeup techniques from dating an actress. He learned how to alter his appearance to make himself look older, or tired, and very different from the wanted posters with his image. Second, he rented uniforms, because “the right uniform was an open sesame that would unlock any door.” He found that most guards saw the uniform and not the face. Finally, he fully committed to the performance. When he put
+
+---
+
+on a policeman’s uniform, he would lecture people about obeying laws. In the uniform of a mailman, writes Andreas Schroeder, “he became a dedicated member of the US Postal Service.” One time, Sutton turned up disguised as the bank manager.
+
+Referring to when he started with his technique, Sutton said, “I was beginning to think of this as a drama, with myself as director and main actor.” And like all good actors, he adjusted as the performance went on, making changes according to the setting and audience. He engaged with his audience to figure out what would motivate them, either to keep quiet or to open the safe. He improvised his script, if direct threats didn’t work, simply by appealing to a bank manager’s sense of responsibility to their staff.
+
+It was because Willie Sutton “considered casing a bank as important as actually robbing it” that he could execute his performances flawlessly. His study of the performance space meant that he was often in and out of a bank within minutes, and he was never caught during a robbery.
+
+Sutton was quite famous during his years as a bank robber. The fact that there was no violence in his crimes made it easy for the public to be enthralled with him. Law enforcement was also grudgingly impressed, admitting that “when it came to planning and executing a bank robbery, the police say that Sutton’s equal never lived.”
+
+Great performances often appear effortless. They come together in a way that captivates the audience, who marvel at the seamlessness of what they have just witnessed. But great performances are supported by great effort. One must understand the limits and opportunities of the space in which the performance will take place. And in order to captivate an audience, one must have a sense of who that audience is. What do they want? And how can the actors interact with the space to get them to buy into the illusion?
+
+Considering the story of Willie Sutton through the lens of performance teaches us how much preparation is needed for things to go off without a hitch. Performers must immerse themselves in the details in order to execute flawlessly. But good performers also know that given the dynamic nature of performance, not everything can be controlled. Thus, preparation
+
+---
+
+is necessary to make sure that if improvisation is needed, the overall illusion is still maintained.
+
+Despite his success, Willie Sutton himself was the first to admit that his life of crime was far from the best life he could have lived. At one point he said, “I’m fifty-one, I’ve spent most of my adult life in prison or in hiding, and I haven’t a penny.”34 Eventually, through studying law in prison, he was able to argue his way out based on time served. His final years were lived modestly, and Willie the Actor died in 1980.
+
+# Conclusion
+
+Performance is the art of the ephemeral, the fleeting moment of creative expression existing only in the here and now. It’s where the boundaries between art and life blur, the artist’s body and actions become the medium, and the audience’s presence and participation become integral.
+
+At its core, performance is about presence, about the immediacy and intimacy of live action. In a world increasingly mediated by screens, live performance asserts the primacy of embodied experience, of the direct encounter between performer and spectator. It’s a reminder that art is not just a thing to be consumed but an event to be lived.
+
+But performance is also about absence, the gaps and spaces between action and interpretation, intention and reception. Unlike a painting or a sculpture, a performance can never be fully captured or contained. It exists only in the memories and testimonies of those who were there, in the ripples and reverberations it sends through the culture. Performance embraces the contingency and open-endedness of the live event, the sense that anything could happen, that meaning is always in the making.
+
+This contingency is both the power and the challenge of performance. It allows for spontaneity and responsiveness, adapting to and incorporating the unpredictable elements of the moment. Yet, it makes performance resistant to the control and perfection other art forms aspire to. A
+
+---
+
+Performance is always a collaboration with chance, a dance with the unknown.
+
+As audience members, we are not just passive observers but active participants in the performance. Our presence, our reactions, our energy all become part of the work. Think of fans transmitting energy to a team to rally them from behind with a few minutes left in the game. Performance invites us to be cocreators, to complete the work through our own interpretations and responses. In so doing, we become part of something larger than ourselves.
+
+When we are fully present in any performance where someone is making themselves vulnerable in the moment, we may just catch a glimpse of the raw, unedited, unpolished essence of what it means to be human.
+
+OceanofPDF.com
+
+---
+
+# Afterthoughts
+
+You’ve read the last book in The Great Mental Models series. Hopefully, you found it insightful. But now what? How do you turn these ideas into real improvements in your life?
+
+Reading is just the first step. To gain wisdom, you have to test what you’ve learned. Mental models aren’t something you can just read about and expect to change your life. You have to use them. Pick a model each week and look at your life through that lens. What’s different? Write down what you notice. Reflect on your experiences using the model, because that’s how you build valuable knowledge. Notice when you make different choices based on the model’s insights. Pay attention to what works and what doesn’t. Learn from your mistakes. Over time, you’ll figure out where each model is most useful.
+
+As you use more models, you’ll start to build a latticework. You’ll see connections and notice that some models work best when paired with others. Eventually, your latticework will be comprehensive enough to use in any situation, reducing your blind spots and preventing problems before they happen. Using mental models is a lifelong journey, and while this may be the last book in the series, the journey has just begun.
+
+To improve our lives, we need to see the world as it is and learn to work with the principles that govern it. Having a diverse set of mental models that reflect how the world works is crucial for making better decisions and living a more meaningful life. Soon, using mental models will be an integral part of your thought process, and you’ll see every situation through the valuable lenses they provide. As The Great Mental Models expands into
+
+---
+
+the world, we will continue to create and update resources on fs.blog/tgmm
+to help you integrate these models into your thinking.
+                           OceanofPDF.com
+
+---
+
+# Acknowledgments
+
+I’m forever indebted to Charlie Munger, Peter D. Kaufman, Warren Buffett, and Peter Bevelin, who, to varying degrees, started me down the path of multidisciplinary thinking. I owe them a huge debt of gratitude.
+
+Thank you to my coauthor, Rhiannon Beaubien, for making this series possible. It’s impossible to overstate her contributions to this volume and the entire series. Without her, you would not be holding this book in your hands. And thank you to Rosie Leizrowice for your support in getting this book started and your willingness to discuss and share ideas.
+
+This series would be lost without our talented illustrator, Marcia Mihotich. Thank you for seeing these words and ideas and bringing them to life in simple and exceptional ways.
+
+While this is a revised volume 4, I wanted to give a special mention to Garvin Hirt and Morgwn Rimel for shaping the creativity of the original version. Working with you both has encouraged me to make things beautiful and timeless. And thank you to Néna Rawdah and our OG editor, Kristen Hall-Geisler, for their willingness to dive in and ensure the material flows and comes together in the end.
+
+The original version of this series would not have been possible without our partnership with Automattic and their incredible CEO, Matt Mullenweg. Thank you to Niki Papadopoulos and the entire team at Portfolio for re-releasing this series and supporting my efforts to make it as beautiful and as timeless as we can.
+
+Thank you to Simon Hørup Eskildsen, Zachary Smith, Paul Ciampa, Devon Anderson, Alex Duncan, Vicky Cosenzo, Laurence Endersen, David Epstein, Ozan Gurcan, Will Bowers, Ran Klein, Sanjay Bakshi, Jeff
+
+---
+
+Annello, Tara Small, Tina Cantrill, Nathan Taggart, Tim Bragassa, Yves Colomb, Rick Jones, Ran Klein, Maria Petrova, and Dr. Gregory P. Moore for taking the time to review books in this series. Your comments and contributions have helped make everything better.
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+Thank you to my sons, Will and Mack, for reminding me to continue to learn and grow along with you. This series was largely written for you and future generations.
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+Thank you to the entire Farnam Street team for your hard work and dedication over the years to bring this series to life.
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+And finally, thanks to you, the reader. I continue to be amazed by how many of you want to take this mental-models journey with me. I hope this book is one you can reference time and again as you seek to better understand the world.
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+Shane
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