Tag Archives: Learning

Misbehaving: The Making of Behavioral Economics – Richard Thaler

“My only advice for reading the book is stop reading when it is no longer fun.” – Thaler, Misbehaving

Economics is tremendously influential today, perhaps with some justification. Unlike many social sciences, it works from a single unified body of theory, based on the idea that people optimize. Paired with the mathematical tools of constrained optimization and equilibrium, that cohesiveness has given it significant strength. It isn’t correct, of course, but it’s a useful model, and empirical research doesn’t depend on it anyway. Thaler, however, has championed the push to expand theoretical models to include other factors, enriching the models and leading to behavioural economics.

Dick Thaler is a past president of the American Economics Association, a professor of behavioural economics at the University of Chicago, and an all-around swell guy (really – I’ve seen him speak, and he seemed great). Nudge, a previous book of his, has been a huge bestseller and tremendously influential in governments around the world. Misbehaving is less directly applicable, but just as well written and, for me at least, just as interesting.

Misbehaving tells the story of the history of behavioural economics, which conveniently for Thaler is also basically a biography of him. The book provides a solid introduction to behavioural econ, though perhaps not as thorough as Thinking Fast and Slow, but has the added advantage of also providing a great summary of the history of economics more generally, since at each stage it contrasts behavioural and typical economics.

Whether you’re wondering why people don’t sell wine that has appreciated in value, even if they wouldn’t buy such expensive wine, why people pay more for beer when it’s sold at a resort, or even if you have questions that don’t involve alcohol, Misbehaving is a great book. It will be more entertaining if you know a bit of economics already, but even if you don’t, I think it’s a great introduction to the field and to how the field has evolved in the past 40 years. Plus, behavioural economics is awesome!

Influence – Robert Cialdini

“Because technology can evolve much faster than we can, our natural capacity to process information is likely to be increasingly inadequate to handle the surfeit of change, choice, and challenge that is characteristic of modern life…When making a decision, we will less frequently enjoy the luxury of a fully considered analysis of the total situation but will revert increasingly to a focus on a single, usually reliable feature of it…The problem comes when something causes the normally trustworthy cues to counsel us poorly, to lead us to erroneous actions and wrongheaded decisions…If, as seems true, the frequency of shortcut response is increasing with the pace and form of modern life, we can be sure that the frequency of this trickery is destined to increase as well.”

Attractive candidates in Canadian Federal elections have received 2.5 times as many votes as unattractive candidates, a fact that presumably makes Justin Trudeau rub his hands with glee. Better yet, despite such evidence, 73% of Canadians denied any possibility that physical attractiveness affects their votes. We don’t understand our own biases well, and they make a huge difference to our behaviour. That makes them fascinating and also extremely important.

Cialdini lists 6 factors that influence our behaviour: consistency, reciprocation, social proof, authority, liking, and scarcity. These explain why we buy what we do, how we vote, how Chinese POW camps worked, why giving people electric shocks or hazing them to join a group makes them value the group more, how to fundraise, why we say we won, referring to a sports team, while they lost, why banning cleaning products containing phosphates increased how effect people believed them to be, and many, many, many other factors.

Influence has been on my list for a while, and I’ve only just gotten around to reading it. I shouldn’t have taken so long: I can’t recommend this book highly enough. It’s the best guide to behavioural economics I’ve read, written when behavioural economics wasn’t much more than a dream in the minds of people like Kahneman, Tversky, and Thaler. It’s fascinating and feels almost comprehensive in its discussion of the factors that influence our behaviour, and provides useful, insightful examples and commentary. My only complaint is that each section ends with a discussion of how to avoid the bias, and it does feel a bit out of date: using modern terminology, he basically just advises us to engage system 2 each time. Still, well worth the read, and definitely a classic.

The Procrastination Equation – Piers Steel

Procrastination = Expectancy*Value ⁄ Impulsiveness*Delay

As a loyal reader, I’m sure you never procrastinate anything. For those of us in less lucky circumstances, however (no more than 95% of the world, I’m sure), procrastination is ever-present. The average American employee sends 77 texts per day: the total cost of responding to those annoying pop-up email notifications while at work uses up – per person – about a month of productivity a year. Some distractions may be unavoidable, but good workspace design, careful planning, and removing access to easy temptations can make a big difference.

Piers Steel introduces what he calls the procrastination equation: the greater the expected value of the activity (probability of occurrence*value of the activity), the less likely we are to procrastinate, while the more impulsive we or our environment is, and the longer the delay until the results are felt, the more we do.

He makes a number of good points: he wisely differentiates laziness from procrastination, for example, pointing out that the lazy never want to get a task done, while procrastinators do plan to get it done, just not immediately. I’m not sure I find his central procrastination equation quite satisfying, though: it’s not structural, as an economist would say. Does value mean the reward from doing the activity, or how unpleasant the activity is to do? Does delay mean the delay in reward, or delay until the task needs to be completed? He fudges a number of concepts for the sake of simplicity.

He has some good suggestions, beyond just the usual turning off email notifications. Creating a separate computer user profile with a completely different background and icons for work, for example, can help you reduce access to tempting distractions and clearly delineate when you’re supposed to be working. You can also try to create success spirals, racking up small victories that can inspire you and lend you strength when you face harder tasks. Hardly revolutionary, but a solid addition to an extensive literature on procrastination.

Armageddon in Retrospect – Kurt Vonnegut

I’m traveling for the next two weeks, so no posts from me for a bit. I’ll see what I can do to turn up some Bosnian wisdom, though!

“If anyone here should wind up on a gurney in a lethal-injection facility…here is what your last words should be: ‘This will certainly teach me a lesson.’”

In 1945, Dresden was fire-bombed. The catastrophic attack destroyed essentially the entire (historical) city center, and probably around 25,000 people. It has been controversial ever since, with critics arguing it had little to no military value and was purely attempt to strike terror into the Germans, while defenders suggest it was important to destroying a major rail and communication center. Enough to make anyone anti-war for life.

Vonnegut was there. He was a prisoner of war in the city, surviving because he was locked underground, and was later put to work exhuming corpses from the wreckage. It was an experience that permanently shaped him, including his best-known book, Slaughterhouse-Five. His description of his experience in Armageddon in Retrospect is a striking centerpiece to the book.

Armageddon in Retrospect is a posthumous collection of Vonnegut’s work, with a forward by his son. I’m a big Vonnegut fan, and the twelve pieces within cover a wide range: a letter home after WW2, short stories about trapping a unicorn or making cookbooks as a prisoner of war, even a commencement speech he was due to deliver. They are not, however, what one would call cheerful, and many of them strike a fairly consistent tone.

For that reason, I think I liked it a little less than Cat’s Cradle or Slaughterhouse-Five: the cutting ambiguity and subtlety that Vonnegut is so good at, where you read a light story that gradually evolves deeper layers, isn’t as present. Still good and still well written (his son, in the introduction, suggests Vonnegut somehow had an ‘extra gear’ when it came to language, recalling how his father used to help him with his Latin homework, without being able to speak Latin), but not his best.

Daily Rituals – Mason Currey

“One’s daily routine is also a choice, or a whole series of choices. In the right hands, it can be a finely calibrated mechanism for taking advantage of a range of limited resources: time (the most limited resource of all) as well as willpower, self-discipline, optimism.”

Beethoven believed the perfect cup of coffee had 60 beans in it: he would count them out personally to make sure it was correct. Franklin believed in air baths, sitting in his room naked for an hour, reading or writing, to reinvigorate his constitution. Victor Hugo, in contrast, would give himself ice water baths on his roof, in full view of both passersby and his mistress, who lived a few houses down. B.F. Skinner, practicing what he preached, had a buzzer to get him to start and stop working; Hemingway tracked his daily word output on a chart. Buckminster Fuller was a polyphasic sleeper, napping for thirty minutes every six hours.

There are a couple of lessons you could draw from those daily rituals. One is that most of us aren’t eccentric enough to be famous. Another is that there is a surprisingly large amount of variation in the routines of the successful: some got up early, some slept late. Some worked every waking hour, others would work a few hours and then take the rest of the day off. Some ate little; others ate lots. Some preferred solitude, others company. There are a lot of possible routines that can support a creative and productive lifestyle.

Daily Rituals is a quick and engaging read: Currey has done a great job gathering anecdotes and ideas from various successful authors, artists, and others. The book isn’t long on concrete take-aways, but it’s definitely entertaining and rich with anecdotes for use at cocktails parties. Who doesn’t want to hear about how geniuses did their thing? My only complaint would be the book is heavy towards creative types: not that they aren’t great, of course, but a few more scientists, politicians, and businesspeople might have been of interest to provide contrast. Perhaps in the next one!

The Marshmallow Test – Walter Mischel

“To resist a temptation we have to cool it, distance it from the self, and make it abstract. To take the future into account, we have to heat it, make it imminent and vivid.”

In 2013 and 2014, Sesame Street devoted itself to self-regulation. In one episode, the Cookie Monster played the ‘Waiting Game’ – he could have one cookie now, or if he waited, he could have two. During the episode, he learns strategies to help him wait. Sounds a bit familiar? It should – Walter Mischel was a consultant on the show.

Resisting temptation is a pretty useful skill. The classic example is the marshmallow test – children were told they could have one marshmallow now, or if they waited, they could have two later. In the cutest videos ever made, these children wrestle with their willpower, trying to find ways to resist the marshmallow (or chocolate, or whatever, depending on what they found most tempting) and wait for the greater reward.

What helped? Covering the treats so children couldn’t see them made it easier. Children who distracted themselves, or were told to do so beforehand, either by thinking about other things, singing to themselves, or even sleeping, could wait much longer. Focusing on non-tempting aspects of the marshmallow – imagining it as a picture, thinking of it as puffy cloud, etc. — also helped. Thinking about sad things, in contrast, reduced how long the children could wait.

Mischel (who ran the original marshmallow test) argues this captures the difference between ‘hot’ immediate stimuli and ‘cold’ distant stimuli. Hot, tempting things are what we find appealing in the short term, but if asked in the abstract whether we’d prefer one or two marshmallows, we know we’d prefer two. The key to willpower is making hot things seem cold, and/or cold things seem hot. Make punishments and costs immediate, and the benefits seem distant.

I find willpower fascinating, and so am always pleased when the giants in the field write about it. The Marshmallow Test isn’t perfect: it can feel a bit disorganized at time as it tries to cover 50 years of experimental work, and a lot of its content is already in the public eye, the danger of having NYT columns written about you. That said, for an engaging and enlightening look at the willpower field, particularly if you’re new to it, it’s hard to do better than one of its greats!

Increase Your Financial IQ – Robert T. Kiyosaki

“Ultimately, it is not gold, stocks, real estate, hard work, or money that makes you rich – it is what you know about gold, stocks, real estate, hard work, and money that makes you rich.”

I don’t really know if entrepreneurship can be taught. Critics of traditional education argue that if anything, schools teach the opposite: stay safe, give the accepted answer, and you get an A. Do something different, try something new, and you risk failure – even if you succeed, you may still be marked wrong, and at best you do no better than your peers who took the safe path. It’s not clear that’s what life is like.

Of course, I’m also not sure the point of school is to teach entrepreneurship: there are many things I’d like children to learn, and though risk-taking is one of them, citizenship, confidence, and a solid knowledge base on a range of topics that allows them to participate and contribute to modern society – not to mention reading and math – also score highly. Perhaps schools are better trying to teach knowledge, and leave spiritual growth and personal development to other fora, or perhaps there’s a way to fold in learning such things without formally trying to teach them, by including useful experiences and activities.

Either way, I wish people were more financially literate: as regular blog readers will know, for me it’s one of those things that if you don’t grow up with it, it can be hard to catch up later in life, and yet it seems to play a key role in determining financial security and stability.

The Rich Dad Poor Dad series is a titan among financial literacy books, selling millions upon millions of copies. Given my own interest in financial literacy, regular readers will know I often find reading such books interesting. For me though, Financial IQ is not a success, neither entertaining nor particularly informative. It is mostly fairly tired advice that is unlikely to surprise anyone, as well as some odd tangents on the value of the gold standard, which isn’t well linked to the content of the book. Not recommended.

The Wealth Chef – Ann Wilson

“Each and every day wasted on not investing will cost you dearly. Not only will it cost you in terms of the lost impact of compounding, but you’ll also lose the most important thing of all: the opportunity to learn from experience…The sooner you start gaining your 10,000 hours of investor experience, the sooner you’ll have this investing business figured out.”

Financial literacy is hugely important in the modern world, but unless you grew up in a family that talked about money, it can feel overwhelming. I frequently speak to friends who are interested in money and want to get out of debt/invest/save, but simply have no idea where to start. It’s an interesting challenge.

Ann Wilson introduces money through an extended conceit: cooking. There are four wealth flavours (assets, liabilities, income, expenditures) which you need to develop your palate to distinguish, two spices (time and interest rates), and a number of useful kitchen implements (your motivation as a a wealth obsession magnet, income statement as scales). Yeast, of course, is compound interest. The goal is to be a Wealth Chef, not just a cook!

Some first steps: use your last 3 months of bank statements to estimate your expenses, then write up a balance sheet listing all your income generating assets (sadly, your home would not count, and if you’re hoping to retire your job might not either). You are financially free when your generated income is enough to cover all your expenses.

It’s a fun way of introducing financial concepts, and judging by her own successful wealth-counselling business, an effective one. Her markets particularly to housewives and other women, which is reasonable – as she points out, at least historically men were frequently the one who managed the money, but in a world of increased equality and divorce, this is nonsense.

I have a few complaints at the margin: Wealth Chef uses 8-10% as a conservative interest rate on savings, for example, which is reflective of the historical return on the stock market but not of most people’s portfolios, which are a balance between equity and bonds. Italso emphasizes the credit score more than I would, though I agree that for people working their way out of debt, it is a useful way of tracking progress. For my tastes, the book also has a few too many exclamation marks, but it adds to the non-confrontational style.

Overall, definitely recommended if you’re intimidated by money and like cooking. If you’re an investment banker, probably not: consider reading guides on how baking cupcakes is like investing instead.

Disclosure: I read it as an advance reader copy. You can read more reviews of The Wealth Chef on Amazon.

College Disrupted – Ryan Craig

“We can no longer afford for higher education to be a slot machine with a few hitting the jackpot and most going home with less money in their pocket and no better off.”

Are you myopic about American higher education? To find out, see if you can name 50 universities in the U.S. that i) don’t have the name of a state in their name and ii) don’t have a division I football or basketball team. Remember that there are 6000 Title IV eligible colleges and universities in the US, so I’m asking you to name less than 1 in 100 of American schools.

Most people can’t. And most people, when they picture a college, think of an 18-22 year old at Harvard. Yet only 29% of America’s students are 18-22 year-olds attending a four year college full time. By comparison, 43% are over 25.

This, says Craig, is symptomatic of a problem in American higher education: that people think that the Ivy Leagues have discovered the only way to teach, and that everywhere else is just an inferior version trying to be like them. Leaving aside whether a school with no endowment can emulate one with $30 billion in the bank, it is this illusion that means many students drop out, take out loans they regret, and are otherwise disappointed by the system. In the top 50 schools, graduation rates are near 90%: for four year colleges overall, they’re 55%, and for 2 year colleges they are 29%.

College Disrupted looks at a range of modern trends in higher education, from technology to unbundling to internationalization, and looks at what education can and should look like in response. The book is choc-full of fascinating ideas and insights, and if some of his predictions are almost certainly wrong, they are all worth thinking about.

His final suggestion is that, appalling as the idea may initially sound, the American education system learn to value diversity, and establish a two-tier system: Harvard and its ilk for the elite students, and cheaper, online and technology-rich credentials for the rest. Not an ideal system, but a more honest one, in which students can get what they pay for, instead of paying enormous tuitions to support faculty who do not benefit them and buildings that do not enhance their learning.

I can’t possibly cover all the interesting ideas College Disrupted does, and I’m not going to try. There are a lot. My only criticism would be the book can sometimes feel disorganized, and a bit hard to take concise lessons away from. Since that’s also true of higher education sometimes, perhaps that’s unsurprising. Regardless, a fascinating and educational book, and well worth the read.

Disclosure: I read College Disrupted as an advance reader copy. You can see Amazon’s reviews of College Disrupted here.

How to Live: A Life of Montaigne – Sarah Bakewell

“The Essays is thus much more than a book. It is a centuries-long conversation between Montaigneand all those who have got to know him: a conversation which changes through history, while starting out afresh almost every time with that cry of ‘How did he know all that about me?’”

Regular readers know I think Montaigne is excellent, and highly recommend him. For some variety, though, I thought I’d try a biography of him. Our writing is shaped by our lives, after all, and so placing an author in the context of his or her life is often useful. For a man like Montaigne, who was fascinated by the world around him, it becomes even more important.

Following Gustave Flaubert’s advice on Montaigne (“Don’t read him as children do, for amusement, nor as the ambitious do, to be instructed. No, read him in order to live.”), Bakewell tries to extract lessons for how to live from both Montaigne’s writings and his life. He lived in a tumultuous time, with frequent civil wars between Catholics and Protestants in France, and Bakewell does well to provide background information that helps deepen and extend Montaigne.

That said, I think the book faces an almost insurmountable challenge: since Montaigne already seeks to explain how to live, the book can often feel like a lesser shadow of the original text. Montaigne’s prose is generally clear and careful already, and so interpretation can feel superfluous. How to Life is well written and interesting, but is unavoidably inferior to the Essays themselves. For a lover of Montaigne, and interesting read, but probably best to read it after, not before, you’ve read Montaigne himself.