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The agent’s self-interest can trump the principal’s interests.
Disclosure laws and the increase in open information via the internet can reduce the effects of asymmetric information.
When you try to incentivize behavior by setting a measurable target, people focus primarily on achieving that measure, often in ways you didn’t intend. Most importantly, their focus on the measure may not correlate to the behavior you hoped to promote.
In fact, there is a mental model for this more specific situation, called the cobra effect, describing when an attempted solution actually makes the problem worse. This model gets its name from a situation involving actual cobras. When the British were governing India, they were concerned about the number of these deadly snakes, and so they started offering a monetary reward for every snake brought to them. Initially the policy worked well, and the cobra population decreased. But soon, local entrepreneurs started breeding cobras just to collect the bounties. After the government found out and
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Whenever you create an incentive structure, you must heed Goodhart’s law and watch out for perverse incentives, lest you be overrun by cobras and rats!
You should align the outcome you desire as closely as possible with the incentives you provide. You should expect people generally to act in their own perceived self-interest, and so you want to be sure this perceived self-interest directly supports your goals.
The software industry has a name for the consequences of short-termism: technical debt. The idea comes from writing code: if you prioritize short-term code fixes, or “hacks,” over long-term, well-designed code and processes, then you accumulate debt that will eventually have to be paid down by future code rewrites and refactors.
On an individual level, the precautionary principle instructs you to take pause when an action could possibly cause you significant personal harm.
The model perfect is the enemy of good drives home this point—if you wait for the perfect decision, or perfect anything, really, you may be waiting a long time indeed.
There is a natural conflict between the desire to make decisions quickly and the feeling that you need to accumulate more information to be sure you are making the right choice. You can deal with this conflict by categorizing decisions as either reversible decisions or irreversible decisions.
Some decisions are consequential and irreversible or nearly irreversible—one-way doors—and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before ….
In the context of seeking romantic relationships, people are often reminded that there are “plenty of fish in the sea.” With so many fish, this can leave you to question how you will know when you have found “the one.” Similarly, you might be left questioning whether a past partner was “the one that got away.”
consider heeding Murphy’s law: Anything that can go wrong, will go wrong. It’s named after aerospace engineer Edward Murphy, from his remarks after his measurement devices failed to perform as expected. It was intended as a defensive suggestion, to remind you to be prepared and to have a plan for when things go wrong.
If you know your north star, you can point your actions toward your desired long-term future. Without a north star, you can be easily “lost at sea,” susceptible to the unintended consequences of short-termism
“People often overestimate what will happen in the next two years and underestimate what will happen in the next ten.”
That is, don’t underestimate how far emerging competitors can advance or how much technology can change in ten years. Think of how Netflix progressed in a decade from a tiny niche to disrupting the entire cable-television industry.
In his 1957 book Parkinson’s Law, Parkinson presents an example of a budget committee considering an atomic reactor and a bike shed, offering that “the time spent on any item of the agenda will be in inverse proportion to the sum involved.” The committee members are reluctant to deeply discuss all of the complicated aspects of the atomic reactor decision because it is challenging and esoteric. By contrast, everyone wants to weigh in with their opinion on the bike shed decision because it is easy and familiar relative to the reactor, even though it is also relatively unimportant. This
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Life and business can be thought of as just a series of such choices. These opportunity-cost models will help you consistently make better choices about what to work on, where to live, and whom to partner with. Generally, you want to choose things that have higher value than their opportunity costs, the best of all the alternatives in front of you.
For example, if you want to improve the effectiveness of a web page, focus on the headline and leading image, often referred to as the “hero section.” This is the first thing visitors will see, and the only thing many of them will read. The hero section is also what will be shared on social media. Small changes to this section—use of a catchier turn of phrase or a more engaging image—are simple, but have potential for a large effect.
One reason why people procrastinate so much is present bias, which is the tendency to overvalue near-term rewards in the present over making incremental progress on long-term goals (see short-termism in Chapter 2). It’s really easy to find reasons on any given day to skip going to the gym (too much work, bad sleep, feeling sick/sore, etc.), but if you do this too often, you’ll never reach your long-term fitness goals.
In personal situations, most people discount the future implicitly at relatively high discount rates. And they do so in a manner that is not actually fixed over time, which is called hyperbolic discounting. In other words, people really, really value instant gratification over delayed gratification, and this preference plays a central role in procrastination, along with other areas of life where people struggle with self-control, such as dieting, addiction, etc. When you’re on a diet, it’s hard to avoid the pull of that donut in the office. That’s because you get the short-term donut payoff
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You must strive to keep these feelings of regret in mind as motivation to stay focused on the long-term benefits of your actions, viewing your present efforts as incremental progress toward your goals. In that way you can attempt to counteract your inherent present bias and resulting procrastination tendencies.
By putting deep-work blocks of time into your calendar, you can prevent yourself by default from booking this time with meetings since it is already committed.
Hofstadter’s law: It always takes longer than you expect, even when you take into
Tom Cargill was credited (in the September 1985 Communications of the ACM) for the similar ninety-ninety rule from his time programming at Bell Labs in the 1980s: The first 90 percent of the code accounts for the first 90 percent of the development time. The remaining 10 percent of the code accounts for the other 90 percent of the development time.
and periodically questioning what constitutes “done” can save you from wasted effort.
When it comes to losses in particular, you need to acknowledge that they’ve already happened: you’ve already spent the resources on the project to date. When you allow these irrecoverable costs to cloud your decision making, you are falling victim to the sunk-cost fallacy. The costs of the project so far, including your time spent, have already been sunk. You can’t get them back.
This can be a problem (fallacy) when these previous losses influence you to make a bad decision. An instance where sunk costs lead to an escalation of commitment is sometimes called the Concorde fallacy, named after the supersonic jet whose development program was plagued with prohibitive cost overruns and never came close to making a profit. Ask yourself: Is my project like the Concorde? Am I throwing good money after bad when it is better to just walk away?
In Chapter 1, we discussed postmortems, where you analyze project failures so that you can do better next time. But you don’t have to wait until the end of a project—you can also conduct mid-mortems, and occasionally even pre-mortems, where you predict ahead of time where things could go off track.
When starting something new, a good thing to remind yourself is that there is no need to reinvent the wheel. It is unlikely that you are the first person in the world who has faced this task, and, with the ubiquity of self-published experts, you are likely to be able to find a website, blog article, or how-to video on almost any topic. As Benjamin Franklin wrote in The Way to Wealth, “An investment in knowledge pays the best interest.”
Exhaustive searches like this are a type of brute force solution. The term brute force is obviously applicable when referring to an activity that requires literal force, such as chopping down a tree with an ax. However, it is also used to refer to any solution that doesn’t require an intellectually sophisticated method. For example, if you have to address ten envelopes, it can be faster to handwrite them than to print them.
An even better method would consider common passwords, and words or numbers significant to this particular person, such as related birth dates, sports teams, or initials. This is a type of heuristic solution, a trial-and-error solution that is not guaranteed to yield optimal or perfect results, but in many cases is nevertheless very effective.
As a result, web browsers have incorporated more privacy features. For example, in 2017, Apple’s Safari browser introduced a feature called Intelligent Tracking Prevention, which attempts to prevent ads from following you around the internet. However, we expect that Google will not add a feature like this to its Chrome browser, because Google itself is the company tracking you on most sites, since its long-term strategy is to dominate online advertising. Since Google tracks you, it can sell advertisers the ability to follow you around the internet with its ads.
The Shirky principle states, Institutions will try to preserve the problem to which they are the solution. An illustrative example is TurboTax, a U.S. company that makes filing taxes easier, but also lobbies against ideas that would make it easier to file taxes directly with the government. For example, “return-free filing,” a system in which the government would send you a pre-filled form based on information it already has available, would work well for most people.
This, simply, as a rule, tells you why things that have been around for a long time are not “aging” like persons, but “aging” in reverse. Every year that passes without extinction doubles the additional life expectancy. This is an indicator of some robustness. The robustness of an item is proportional to its life!
Culture eats strategy for breakfast. It is a warning that if you embark on a strategy that is in opposition to your organization’s culture, which has much more inertia than even its strategy, it is very unlikely to succeed.
The term center of gravity is used notably in military strategy to describe the heart of an operation. Knowing an opponent’s center of gravity tells you where to attack to inflict the most damage or what pieces of their infrastructure they will defend more than others. The closer to their center of gravity, the more damage you will cause, and the more they will risk defending it. As
The lesson here is, when you know that the concept of critical mass applies to your endeavor, you want to pay special attention to it.
Many global systems, including the economy and weather, are known as chaotic systems. That means that while you can guess which way they are trending, it’s impossible to precisely predict their overall long-term state.
You must continually put energy back into systems to maintain their desired orderly states. If you never put energy into straightening up your workspace, it will get ever messier. The same is true for relationships. To keep the same level of trust with people, you need to keep building on it.
While polarity can be useful, when making comparisons you must be careful to avoid the black-and-white fallacy—thinking that things fall neatly into two groups when they do not. When making decisions, you usually have more than two options. It’s not all black and white. Practically, whenever you are presented with a decision with two options, try to think of more.
People are susceptible to the black-and-white fallacy because of the natural tendency to create us versus them framings, thinking that the only two options are ones that either benefit themselves at the expense of “others,” or vice versa. This tendency arises because you often associate identity and self-esteem with group membership, thereafter creating in-group favoritism and, conversely, out-group bias.
This opens up the possibility for a give-and-take where you give things you value less and take things you value more. As a result, both parties can end up better than they were before, getting things they wanted more and giving things they wanted less.
You run into trouble when you make generalizations based on anecdotal evidence or weigh it more heavily than scientific evidence.
In fact, there is a hilarious site (and book) called Spurious Correlations,
Conditional probability allows us to better estimate probabilities by using this additional information.
While useful in some simple cases, this basic pro-con methodology has significant shortcomings. First, the list presumes there are only two options, when as you just saw there are usually many more. Second, it presents all pros and cons as if they had equal weight. Third, a pro-con list treats each item independently, whereas these factors are often interrelated. A fourth problem is that since the pros are often more obvious than the cons, this disparity can lead to a grass-is-greener mentality, causing you mentally to accentuate the positives (e.g., greener grass) and overlook the negatives.
Running a sensitivity analysis like this can give you an idea of a range of net benefits you can expect under reasonable discount rates. You should similarly run a sensitivity analysis on any input parameter about which you are uncertain so that you can tell how much it influences the outcome.
This model is particularly effective when thinking more systematically about risks, such as risks to a project’s success. Each category deserves its own attention and process:
The sales foot-in-the-door technique follows the same principle, where a mattress salesperson tries to get a “small yes” out of you (asking, for instance, “Do you want to sleep better at night?”), since that makes it more likely they’ll get to a “big yes” (in answer to “Do you want to buy this mattress?”