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2018-01-22T06:03:08.870Z
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“Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we're trying to do. It's imperfect but that's what it's all about.”— Warren Buffett

You can train your brain to think like CEOs, professional poker players, investors, and others who make tricky decisions in an uncertain world by weighing probabilities.

All decisions involve potential tradeoffs and opportunity costs. The question is, how can we make the best possible choices when the factors involved are often so complicated and confusing? How can we determine which statistics and metrics are worth paying attention to? How do we think about averages?

Expected value is one of the simplest tools you can use to think better. While not a natural way of thinking for most people, it instantly turns the world into shades of grey by forcing us to weigh probabilities and outcomes. Once we've mastered it, our decisions become supercharged. We know which risks to take, when to quit projects, when to go all in, and more.

Expected value refers to the long-run average of a random variable.

If you flip a fair coin ten times, the heads-to-tails ratio will probably not be exactly equal. If you flip it one hundred times, the ratio will be closer to 50:50, though again not exactly. But for a very large number of iterations, you can expect heads to come up half the time and tails the other half. The law of...

Complexity bias is a logical fallacy that leads us to give undue credence to complex concepts.

Faced with two competing hypotheses, we are likely to choose the most complex one. That’s usually the option with the most assumptions and regressions. As a result, when we need to solve a problem, we may ignore simple solutions — thinking “that will never work” — and instead favor complex ones.

To understand complexity bias, we need first to establish the meaning of three key terms associated with it: complexity, simplicity, and chaos.

Complexity, like pornography, is hard to define when we’re put on the spot, although most of us recognize it when we see it. The Cambridge Dictionary defines complexity as “the state of having many parts and being difficult to understand or find an answer to.” The definition of simplicity is the inverse: “something [that] is easy to understand or do.” Chaos is defined as “a state of total confusion with no order.”

“Life is really simple, but we insist on making it complicated.”— Confucius

Complex systems contain individual parts that combine to form a collective that often can’t be predicted from its components. Consider humans. We are complex systems. We’re made of about 100 trillion cells and yet we are so much more than the aggregation of our cells. You’d never predict what we’re like or who we are from looking at our cells.

Complexity bias is our tendency to look at something that is easy to understand, or look at it when...

Whether you’re buying a car, requesting a raise at work, or just deciding where to eat out with your spouse or partner, your negotiating skills will determine how pleased you are with the outcome.

Today, we have the special opportunity to learn some of the most effective tactics and strategies from a true master, Chris Voss.

Chris is the former lead international kidnapping negotiator for the FBI and author of the excellent book, Never Split the Difference: Negotiating As Though Your Life Depended On It.

In this fascinating conversation, Chris shares how you can use the same techniques that have been field tested in some of the most high-stakes, pressure cooker situations, in your daily life.

If you want to become a better haggler, a better communicator, or a better listener, don’t miss this episode. It’s packed with actionable insights you can start using today to be more persuasive and grab hold of more of what you want in life.

Here are just a few things we cover:

  • What it really takes to be great at negotiating (most people approach it all wrong)
  • How to keep your emotions in check in a negotiation
  • The three different voices you use to connect with your counterpart and put them at ease
  • How many of us “take ourselves hostage” in a negotiation and ruin it before it starts
  • The biggest time-waster (and profit-killer) that plagues so many negotiations
  • The main problems with traditional...

Here's an interesting passage from Anne Lamott, found in Bird by Bird: Some Instructions on Writing and Life, that requires some consideration.

You get your intuition back when you make space for it, when you stop the chattering of the rational mind. The rational mind doesn't nourish you. You assume that it gives you the truth, because the rational mind is the golden calf that this culture worships, but this is not true. Rationality squeezes out much that is rich and juicy and fascinating.

While this may seem counter to the cultural message that intuition is bad, I don't believe that is the case.

The great French mathematician Henri Poincaré said something adding to our understanding of the roles that both rationality and intuition play in discovery: “It is through science that we prove, but through intuition that we discover.”

Furthering our understanding, I ran across a quote by Steve Jobs on the same topic: “Intuition is a very powerful thing, more powerful than intellect, in my opinion.” The source of that quote is Walter Isaacson's biography of Jobs:

The people in the Indian countryside don’t use their intellect like we do, they use their intuition instead, and the intuition is far more developed than in the rest of the world… Intuition is a very powerful thing, more powerful than intellect, in my opinion. That’s had a big impact on my work.

Western rational thought is not an innate human characteristic, it is learned and it is the great achievement of Western...

Here's a look at the most popular articles we wrote this year, including what really separates amateurs and professionals, a system for remembering what you read, the powerful interviews of Naval Ravikant, Ray Dalio, and Rory Sutherland, how we abuse time, and so much more.

***

1. The Difference Between Amateurs and Professionals — There are a host of other differences, but they can effectively be boiled down to two things: fear and reality. Amateurs believe that the world should work the way they want it to. Professionals realize that they have to work with the world as they find it. Amateurs are scared — scared to be vulnerable and honest with themselves. Professionals feel like they are capable of handling almost anything.

2. How to Remember What You Read — Why is it that some people seem to be able to read a book once and remember every detail of it for life, while others struggle to recall even the title a few days after putting down a book? The answer is simple but not easy. It's not what they read. It's how they read.

3. Naval Ravikant on Reading, Happiness, Systems for Decision Making, Habits, Honesty and More — In this wide-ranging interview, we talk about reading, habits, decision-making, mental models, and life. Just a heads up, this is the longest podcast I’ve ever done. While it felt like only thirty minutes, our conversation lasted over two hours!

4. The Difference Between Open-Minded and Closed-Minded People — The rate...

Most public companies issue an annual letter to shareholders. These letters present an opportunity for the people entrusted to run the company on behalf of the shareholders to communicate with the people who own the company. In 2015, I started a similar tradition at Farnam Street.

To a large extent, I consider you the owners of Farnam Street, but you trust me with something far more valuable than money: time. For all of us, time is finite. Reading Farnam Street means you’re not doing something else. My job is to make sure your investment is getting an above-average return.

***

In almost every reader-related metric, 2017 was a record year.

Readership increased over 40%, which was decent. We surpassed 155,000 subscribers to our weekly newsletter, Brain Food. Tempering this excitement is the fact that email open rates dipped slightly. (We’ve reached the limits of our current mail provider and will be transitioning at some point, likely in Q1 or early Q2, to another provider. For readers, the transition should be seamless.)

Last year I wrote about how most sites try to hijack your animal responses by using outrage to acquire traffic. We’ve never set out to consciously “acquire” an audience. Our readers tell their friends, family members, and co-workers and we grow slowly. I’m okay with that. I write for the million “me’s” out there.

Visitors continued to spend more time on the site (a good proxy for how interested people are in the content). The bounce rate (a fancy phrase...

“History is written by the winners” is the popular view. But your winner may not be my winner. A lot depends on the narrative you are trying to build.

History is rewritten all the time.

Sometimes it is rewritten because new information has come to light, perhaps from an archeological find or previously classified documents. When this happens, it is exciting. We joyfully anticipate that more information will deepen our understanding.

But rewriting frequently happens in the service of building a cultural or national narrative. We highlight bits of the past that support our perceived identities and willfully ignore the details that don’t fit. We like our history uncomplicated. It’s hard for us to understand our groups or our countries, and by extension ourselves, as both good and not-good at the same time.

Culture is collective memory. It’s the interwoven stories that we use to explain who we are as nations, organizations, or just loosely formed groups.

Many of us belong to multiple cultural groups, but only one national group. Margaret MacMillan, in The Uses and Abuses of History, explains that “Collective memory is more about the present than the past because it is integral to how the group sees itself.” And “while collective memory is usually grounded in fact, it need not be.”

We have seen how people justify all kinds of mistakes to preserve the personal narratives they are invested in, and groups also engage in this behavior. Countries rewrite their histories, from the textbook up, to support how they see...

The quality of your outcome depends on the quality of your questions. Through asking the right questions we can spark innovation and creativity, gain deeper knowledge in the topics that are most important to us, and propel us forward in our personal and professional pursuits.

Yet very few of us do it well — if we do it at all.

My guest on the podcast today is Warren Berger — journalist, speaker, best selling author, and self-proclaimed questionologist.

His insightful book, A More Beautiful Question, shows how the world’s leading innovators, education leaders, creative thinkers, and red-hot start-ups ask game-changing questions to nurture creativity, solve problems, and create new possibilities.

In this episode, we discuss the importance of asking the right questions, why they’re critical to your success, and how you may be one great question away from a major breakthrough.

You’ll also learn:

  • How Warren manages the constant input and stimulation from online consumption when it’s time to create.
  • The small habits that pack the biggest punch and make the most difference in Warren’s life
  • What makes a question more or less effective
  • How to create a culture where questions are welcome and encouraged
  • Why answering all your kids’ questions may be doing them a disservice — and what to do instead
  • What “collaborative inquiry” is and how to use it to get the most out of your teams in the workplace
  • How Warren transformed one of his most painful failures into one of...
“The biggest deficit that we have in our society and in the world right now is an empathy deficit. We are in great need of people being able to stand in somebody else's shoes and see the world through their eyes.”— Barack Obama

You don’t have to look hard to find quotes expounding the need for more empathy in society. As with Barack Obama’s quote above, we are encouraged to actively build empathy with others — especially those who are different from us. The implicit message in these pleas is that empathy will make us treat each other with more respect and caring and will help reduce violence. But is this true? Does empathy make us appreciate others, help us behave in moral ways, or help us make better decisions?

These are questions Paul Bloom tackles in his book Against Empathy: The Case for Rational Compassion. As the title suggests, Bloom’s book makes a case against empathy as an inherent force for good and takes a closer look at what empathy is (and is not), how empathy works in our brains, how empathy can lead to immoral outcomes despite our best intentions, and how we can improve our ability to have a positive impact by strengthening our intelligence, compassion, self-control, and ability to reason.

To explore these questions, we first need to define what we’re talking about.

What Is Empathy?

Empathy is an often-used word that can mean different things. Bloom quotes one team of empathy researchers who joke that “there...

Consider the daily schedule of famed novelist Haruki Murakami. When he’s working on a novel, he starts his days at 4 am and writes for five or six continuous hours. Once the writing is done, he spends his afternoons running or swimming, and his evenings, reading or listening to music before a 9 pm bedtime. Murakami is known for his strict adherence to this schedule.

In contrast, consider the schedule of entrepreneur, speaker, and writer Gary Vaynerchuk. He describes his day (which begins at 6 am) as being broken into tiny slots, mostly comprising meetings which can be as short as three minutes. He makes calls in between meetings. During the moments between meetings and calls, he posts on just about every social network in existence and records short segments of video or speech. In short, his day, for the most part, involves managing, organizing, and instructing other people, making decisions, planning, and advising.

“How we spend our days is, of course, how we spend our lives. What we do with this hour, and that one, is what we are doing. A schedule defends from chaos and whim. It is a net for catching days. It is a scaffolding on which a worker can stand and labor with both hands at sections of time.”— Annie Dillard, The Writing Life

The numerous articles we have all read about the schedules and routines of successful people like these often miss the point. Getting up at 4 am does not make someone...

It seems that nowadays, aside from religion and politics, one of the most hotly debated topics is that of nutrition.

Should we eat high carb diets? Low carb? High fat? High protein? What about wheat or gluten? Should we eat meat or adopt a vegan diet?

There are as many opinions as there are people — and books, magazines and websites are overflowing with information showing you the “right” way to eat and exercise to lose weight.

But if “eating less and moving more” is all it takes to lose weight and enjoy a healthy lifestyle, why are so many of us fat and getting fatter?

In today’s episode, I chat with Gary Taubes, bestselling author of three books, The Case Against Sugar (2016), Why We Get Fat and What to Do About It (2011) and Good Calories, Bad Calories (2007).

We talk about the sharp rise of obesity and diabetes in America, the structural hurdles to effective nutrition research, and explore the common myth that a calorie is just a calorie.

Here are a few other things you’ll learn in this interview:

  • How diets shifted in the last century, and what impact it’s having on our bodies today.
  • Why a carb isn’t just a carb — and why you should know the difference
  • Is the sugar industry the new Big Tobacco?
  • What role genetics play in our health, and how much is under our control
  • Why humans are...

It started with a simple question:

What book (or books) have you given away to people the most and why?

The email was sent to an interesting subset of people I’ve interacted with over the past year — CEOs, entrepreneurs, best-selling authors, hedge fund managers, and more.

While not everyone replied, and some of those that did preferred not to have attributions to them, I think you’ll find the resulting list contains a lot of gems. One book is over $400. (We ordered that one and will share what we learn.)

***

“The way I give books away is basically I read a book I get excited about and then get it for like nine people over the next couple weeks and then move onto some other book I'm excited about and start pushing that on everyone. At the moment, I've been giving Sheryl Sandberg and Adam Grant's Option B to a lot of people. Reading it helped me understand what someone mourning a loss is going through better than I ever had before. So the first people I thought of were those I know currently in mourning, and I sent it to most of them. Then I sent it to some other people who are close with the people who are grieving, because it's also very useful (and fascinating) as a guide for how to support someone coping with a loss.”
— Tim Urban, author of Wait But Why

Kennedy and King by Levingston. “The reason I am giving...

Almost 4,000 years ago, King Hammurabi of Babylon, Mesopotamia, laid out one of the first sets of laws.

Hammurabi’s Code is among the oldest translatable writings. It consists of 282 laws, most concerning punishment. Each law takes into account the perpetrator’s status. The code also includes the earliest known construction laws, designed to align the incentives of builder and occupant to ensure that builders created safe homes:

  1. If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.
  2. If it causes the death of the son of the owner of the house, they shall put to death a son of that builder.
  3. If it causes the death of a slave of the owner of the house, he shall give to the owner of the house a slave of equal value.
  4. If it destroys property, he shall restore whatever it destroyed, and because he did not make the house which he builds firm and it collapsed, he shall rebuild the house which collapsed at his own expense.
  5. If a builder builds a house for a man and does not make its construction meet the requirements and a wall falls in, that builder shall strengthen the wall at his own expense.

Hammurabi became ruler of Babylon in 1792 BC and...

“What do you want to be when you grow up?” Do you ever ask kids this question? Did adults ask you this when you were a kid?

Even if you managed to escape this question until high school, then by the time you got there, you were probably expected to be able to answer this question, if only to be able to choose a college and a major. Maybe you took aptitude tests, along with the standard academic tests, in high school. This is when the pressure to go down a path to a job commences. Increasingly, the education system seems to want to reduce the time it takes for us to become productive members of the work force, so instead of exploring more options, we are encouraged to start narrowing them.

Any field you go into, from finance to engineering, requires some degree of specialization. Once you land a job, the process of specialization only amplifies. You become a specialist in certain aspects of the organization you work for.

Then something happens. Maybe your specialty is no longer needed or gets replaced by technology. Or perhaps you get promoted. As you go up the ranks of the organization, your specialty becomes less and less important, and yet the tendency is to hold on to it longer and longer. If it’s the only subject or skill you know better than anything else, you tend to see it everywhere. Even where it doesn’t exist.

Every problem is a nail and you just happen to...

Defining A Power Law

Consider a person who begins weightlifting for the first time.

During their initial sessions, they can lift only a small amount of weight. But as they invest more time, they find that for each training session, their strength increases a surprising amount.

For a while, they make huge improvements. Eventually, however, their progress slows down. At first, they could increase their strength by as much as 10% per session; now it takes months to improve by even 1%. Perhaps they resort to taking performance-enhancing drugs or training more often. Their motivation is sapped and they find themselves getting injured, without any real change in the amount of weight they can lift.

Now, let’s imagine that our frustrated weightlifter decides to take up running instead. Something similar happens. While the first few runs are incredibly difficult, the person’s endurance increases rapidly with the passing of each week, until it levels off and diminishing returns set in again.

Both of these situations are examples of power laws — a relationship between two things in which a change in one thing can lead to a large change in the other, regardless of the initial quantities. In both of our examples, a small investment of time in the beginning of the endeavor leads to a large increase in performance.

Power laws are interesting because they reveal surprising correlations between disparate factors. As a mental model, power laws are versatile, with numerous applications in different fields of knowledge.

If parts of this post look intimidating to non-mathematicians,...

For decades, introversion was looked at as something to overcome, almost like an illness. The way to win in life was through charisma, outspokenness, and self-promotion.

Even now, in an increasingly noisy world, introverts may feel added pressure to take one of two paths: force themselves into more extroverted behavior, or become even more reserved and shrink back to themselves.

My guest Susan Cain says both paths are wrong and in fact, rob the world of the unique contributions introverts make when they choose to be true to themselves.

Susan knows what she’s talking about. A self-proclaimed introvert, she wrote the New York Times bestselling book, Quiet: the Power of Introverts in a World that Can't Stop Talking and delivered one of the most popular TED talks ever delivered, with nearly 18 million views to date.

Whether you consider yourself an extrovert, an introvert, or an ambivert (those lucky bastards in the middle) you’ll find a ton of value in this interview.

Susan knows what she’s talking about. A self-proclaimed introvert, she wrote the New York Times bestselling book, Quiet: the Power of Introverts in a World that Can't Stop Talking and delivered one of the most popular TED talks ever delivered, with nearly 18 million views to date.

Whether you consider yourself an extrovert, an introvert, or an ambivert (those lucky bastards in the middle) you’ll find a ton of value in...

“But the nature of man is sufficiently revealed for him to know something of himself and sufficiently veiled to leave much impenetrable darkness, a darkness in which he ever gropes, forever in vain, trying to understand himself.”— Alexis de Tocqueville, Democracy in America The Basics

If you could redesign society from scratch, what would it look like?

How would you distribute wealth and power?

Would you make everyone equal or not? How would you define fairness and equality?

And — here’s the kicker — what if you had to make those decisions without knowing who you would be in this new society?

Philosopher John Rawls asked just that in a thought experiment known as “the Veil of Ignorance” in his 1971 book, Theory of Justice.

Like many thought experiments, the Veil of Ignorance could never be carried out in the literal sense, nor should it be. Its purpose is to explore ideas about justice, morality, equality, and social status in a structured manner.

The Veil of Ignorance, a component of social contract theory, allows us to test ideas for fairness.

Behind the Veil of Ignorance, no one knows who they are. They lack clues as to their class, their privileges, their disadvantages, or even their personality. They exist as an impartial group, tasked with designing a new society with its own conception of justice.

As a thought experiment, the Veil of Ignorance is powerful because our usual opinions regarding what is just and unjust are informed by our own experiences. We are shaped by our...

“I cannot remember the books I have read any more than the meals I have eaten; even so, they have made me.”— Ralph Waldo Emerson

Why is it that some people seem to be able to read a book once and remember every detail of it for life, while others struggle to recall even the title a few days after putting down a book?

The answer is simple but not easy.

It's not what they read. It's how they read. Passive readers forget things almost as quickly as they read them. Active readers, on the other hand, retain the bulk of what they read.

There is another difference between these two types of readers: The quantity of reading affects them differently. Passive readers who read a lot are not much further ahead than passive readers who read a little. If you're an active reader, however, things are different.

The more that active readers read, the better they get. They develop a latticework of mental models to hang ideas on, further increasing retention. They learn to differentiate good arguments and structures from bad ones. They make better decisions because they know what fits with the basic structure of how the world works. They avoid problems. The more they read, the more valuable they become. The more they read, the more they know what to look for.

Think back to the books you studied in school. Despite the passage of time, most us remember a lot about them. Even if the details are...

“What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.”— Joseph Tussman

The first thing they always do is tell you what they think. When someone has an opinion about everything, they want to share it with you. They often tout stats and research as if they had an imaginary checklist of facts they need to be able to rattle off to establish themselves as an expert in a field they actually know very little about. Because they have an opinion on everything, they are quick to judge others – for their lack of opinions, for their lack of knowledge, for their lack of outrage … the list goes on.

I'm a firm believer that you can learn something from everyone. Sometimes that effort is more time-consuming than others. People who have opinions about everything barf so much noise that it's hard to find the signal. Your brain has to work overtime to figure out if they did the work to come up with their opinions themselves or if they're simply regurgitating some op-ed in a newspaper. Over time, opinionated people also end up in their own prisons and they try to take you with them.

The problem comes from how we see the world. Our...

Are you in love with your own ideas regardless of how good they are?
Would you like to make better decisions and fewer mistakes?
Would you like to improve the most important relationships in your life?

These are just some of the topics I discuss with my guest, Ray Dalio.

Ray Dalio is the founder of the world’s largest hedge fund, Bridgewater Associates, and is the author of the new book Principles: Life and Work. He is also a leading figure in the world of philanthropy, is an avid supporter of transcendental meditation, and has appeared on Time magazine’s list of the 100 most influential people in the world. His recent TED Talk on the topic of an idea meritocracy has already been viewed over a million times.

Ray gave me over an hour and a half of his time, and I didn’t waste a minute of it. We cover a lot of ground, including:

  • How most people are caught up in the “blizzard” of noise and information, and how Ray learned to operate above it
  • How predicting a financial collapse just before one of the most prosperous eras in US history almost ruined him — and why he’s grateful he was wrong
  • Ray’s meditation practices and a simple exercise you can use to foster more creativity, be more insightful, and eliminate stress
  • The one question Ray started asking himself that instantly improved how he made important decisions
  • Why the...