Beware of the down slope

Have you had a weekend vacation destroy your carefully cultivated diet or a regular exercise regimen?

Have you noticed how if it takes 40 days to build a good habit, it takes merely 4 days to build a bad one?

Sustaining a good habit is always an uphill climb. The gradient becomes less steep with time, but it continues to remain. A bad habit, on the other hand, is a downward slope that gets steeper with each day.

The taxi-driver thumb rule

Cab drivers in urban India have a reputation for being terrible drivers. They cut people off and veer across lanes to take turns, while honking as if their life depended on the incessant noise.

But this isn’t true of cab drivers everywhere. It is common wisdom in London that it is safest to step into a pedestrian crossing when a black-cab driver approaches it. Getting a black-cab driving license is incredibly difficult, and even minor traffic violations get the drivers in trouble with the licensing authorities. That is why these drivers are among the safest drivers in London.

Taxi-drivers are the most representative drivers in a particular road system. They spend the most amount of time on the road. They have their skin in the game. They are also experts in picking up on the norms and figuring out what works. If they are rewarded for honking and throwing their weight around, they would do that. If they are punished for these actions, they would try something else and eventually figure out whatever works.

The taxi-driver thumb rule serves as a measure of how well a road system is designed. It is also true that an Indian taxi drivers performs one of the world’s hardest jobs – spending 12 hours a day on a road system that is as chaotic, dangerous and emotionally draining. In a particular road system, the better behaved the cabs are, the better is its systemic design.

Who are the taxi-drivers of your system?

Ignore the daily analysts

Investors ought to avoid the daily analysts on news channels. Yes – the ones we see on TV. This is because they play different games. While analysts are rewarded for being right, investors earn or lose money based on how right they are. Let me illustrate the difference.

Consider a stock that observes the following movement in one week. Let us assume that both the analyst and the investor are “bullish” on the stock during this period.

Day 0: Rs 1000
Day 1: Rs 1010
Day 2: Rs 1017
Day 3: Rs 1024
Day 4: Rs 1020
Day 5: Rs 1060
Day 6: Rs 1064
Day 7: Rs 970

Based on the prices from the previous day, the stock price rises on 5 days out of 7. The analyst was right on about 70% of the days. The investor, though, is more concerned with net losses or gains. Since the closing price on day 7 was 970, she stands to lose Rs 30 per share. Besides, it is quite common for a stock to display a small upward trend over a long period to only to fall suddenly at the outbreak of bad-news or events beyond anybody’s control.

Be wary of taking advice from any professional whose incentives are not aligned with yours.

Separating science from scientists

Science is great, but individual scientists are dangerous – Nassim Taleb

Lord Kelvin is one of the most prodigious scientists to walk the earth. Kelvin was admitted to the Glasgow University at the age of ten, and since the age of twenty-two, he held a professorship in natural philosophy. He wrote 661 papers and gathered 69 patents. Among others, his contributions include:
– Inventing refrigeration
– Devising the scale of absolute temperature
– Enabling telegrams to be sent across oceans
– Inventing a modern mariner’s compass

The one shortcoming in his otherwise illustrious career was his inability to calculate the age of the Earth. Kelvin spent much of the second half of his career engaged with this question, but never came anywhere near the right answer. His first estimate was 98 million years, while admitting it could be as low as 20 million or as high as 400 million.  Through the course of his life, Kelvin became more assertive about his estimates. He revised the maximum number downwards from 400 million years to 100 million. Later, he put the number at 50 million years, and finally in 1897, about 10 years before his death, he asserted that the Earth was, at most, 24 million years old. Alas, he was far too wrong. Today, we know the Earth to be about 4500 million years old.

In 1904, a brilliant young scientist from New Zealand called Ernest Rutherford made a landmark finding. He presented new evidence to Lord Kelvin that a sample of uranium he had analysed was 700 million years old – way older than Kelvin’s estimate for the age of the Earth. Knowing that he was in the presence of a scientific giant, Rutherford was tactful and respectful in getting this message across. Lord Kelvin beamed at his presentation, but was unmoved by its argument. To his dying day, Kelvin didn’t believe the revised figures and went to his grave with the assumption that his most important contribution to science was his work on finding the age of the Earth.

The German physicist Max Planck said that science advances one funeral at a time. Pierre Azoulay and his colleagues recently investigated this assumption and found it to be true based on publications made in a field, and their likelihood to be cited. “The loss of a luminary,” they write, “provides an opportunity for fields to evolve in new directions that advance the frontier of knowledge.”

Although science itself is a field that is dedicated to the impartial and unequivocal pursuit of rational truth, the scientists who further it are human. And with humans, scientific or not, the emotional tail wags the rational dog. Therefore, in our worlds of emotional human decision makers, we need systems like the scientific method to ensure that the pursuit of the truth is not forestalled by our tendency to hold on to our truth.

The problem with “priorities”

The word “priority” appeared as a noun in the English language as far back as the 1400’s in the singular form. It stayed only in the singular form for 500 years thereafter. Only in the 1900’s, did we start using the word “priorities”.

Just think about the word “priority”. It denotes whatever is prior, or first. In an ordered set, there can only ever be one first item. And yet, in the modern world, we wish to bend this reality and have “priorities” – more than one first items. It stems from our misconception that we can get everything done, all at once.

Try asking yourself every now and then – “what is the most important thing in this very moment?”. Do you have more than one answer? Do you have the priorities problem?

Inspiration: Essentialism – Greg McKeown

The behavioural case against daily trading

It is popular wisdom that daily trading in the stock market is dangerous. Here’s some perspective on why it is quite incompatible with how our brains work.

Firstly, let us model a good stock in simple terms. Let us say that this stock costs Rs 1000, and has a 51% chance of going up by Rs 10, and a 49% chance of falling by Rs 10 every single day. On a daily basis, the stock is likely to fluctuate up and down in the following fashion

Day 0: 1000
Day 1: 990
Day 2: 1000
Day 3: 1010
Day 4: 1020
Day 5: 1010
and so on….

Further, within each day, the stock goes up and down on in intervals that are random.

Now let us see what happens if we purchase this stock and leave it alone for a year (without looking at the daily price). Assuming that the market is open for 250 days a year, if that stock is left alone, the expected value of that stock at the end of one year is:

1000 + 250 x 10 x (0.51 -0.49) = 1500 Rs

Even with a meager spread of 2% (51% – 49%), this stock would yield substantial returns (50%) at the end of a year – more than most good stocks. Funnily enough, the daily series that we see above converges to the same result if the stock is left alone for a year.

But here is the catch. Our brains are loss averse. We are hurt more by losses than by gains. We are, on average, twice as likely to be hurt by losses than by gains of equal amounts. In other words, a stock needs to gain Rs 20 to offset the pain we feel when it loses Rs 10.

When we look at the series of stock prices above and see the stock going below the reference price of Rs 1000 (which can often happen) or if we see the stock losing money on three subsequent days (there’s a ~12% chance of this happening), the daily trader is likely to intervene and make changes to the portfolio. With hourly and minutely tracking in our connected world, this problem only grows even stronger. Needless to say, our interventions to our portfolio resets the annual equation we have mentioned above, which works only if the stock is left undisturbed even during periods of down-time.

As paradoxical as that might seem, our behaviour makes it beneficial to invest in a bunch of stocks and forget about them for long periods than to respond to daily fluctuations in the market. This strategy pays off even without considering the additional investment of time and emotional stress that is involved in daily trading. In other words, the human psyche does not set us up for success with trading on a daily basis.

It is true that traders can steel their nerves against daily fluctuations in the market and respond to them without much emotion. But even for professionals, doing that is much harder than it sounds. As for casual investors in the stock market, it is far more beneficial to buy some stocks and stay away from market prices or the constant noise from business channels for extended periods.

Inspiration: Fooled by Randomness – Nassim Taleb

No. 600 – An ode to constraints

The word “constraint” is synonymous with difficulties. It reminds us of restrictions, limits, prohibitions and curtailment of freedom.

To make a commitment to write one blog post a day is severely constrained. It implies that I cannot spend more than a limited amount of time on each idea. My posts seldom exceed 300 words. I cannot support several of my beliefs with carefully researched facts. I cannot attach an image or a sketch to go with every post. I am also forced to have something to say every single day and hit the publish button, even if my mind screams out that the post isn’t “worthy”.

And yet, if I hadn’t embraced this constraint 600 days ago, I wouldn’t be here 600 posts later. While constraints eliminate several possibilities, they often serve as conduits for creativity. As they do in Sonnets and Haiku.

600 posts in, I am grateful for the constraints that have served me so well.

Between 0 to 100

Every hour of sound sleep yields more than two hours of productive work the next day.

Any athlete will tell you about the value of interval training, where she alternates between a slow and fast heart-rate.

Breaks and vacations help us recharge, making us more productive and effective when we go back to our jobs.

It is easy to forget how rest and high performance are intertwined in a virtuous relationship. Our ability to go to 100 is a function of whether we can go to 0 every now and then.

The cost of options

It takes more time to decide what to eat from a longer restaurant menu.

When a supermarket stocks 25-30 varieties of jam instead of 6, jam sales go down.

The hardest problem with online dating is to keep from thinking, “What if I had chosen that other person?” and “Could there be somebody better in the market?”.

The more options we have, the stronger the voice in our head that says “What if?”.

Slippery slopes

Seeking funding as an entrepreneur is a slippery slope. Once a start-up secures funding, it grows like a fire that consumes fuel at an increasing rate. Before long, it would need to seek more funding.

Eating cookies is a slippery slope. Eating one cookie triggers a craving for the next one, and before we know it, five cookies disappear from the kitchen counter. The act of eating the first cookie, in practice, includes taking a bite of the second cookie too.

Playing a game of rapid chess online is a slippery slope. Winning a game leaves the player feeling as if he hasn’t been challenged enough. Losing a game gives him an urge to come back strong and finish on a winning note. Either way, he is tempted to push the button to start another game after the first one.

When we decide to do something, what are we actually signing up for? Factor in the gradient of the slippery slope.

What is that sign for?

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We see this sign on all airplane toilets. What is that sign for?

For years, I thought that sign served no purpose. I haven’t really seen people wipe those basins – whenever I walk into the toilet, they are invariably wet. Besides, I don’t care if my wash basin has a few drops of water sticking to it. But could there be more to that sign? What does it say between those lines?

Look at the wording. “As a courtesy to the next passenger…”, reminds us that several other people use the toilet as well. “…may we suggest…” isn’t a sermon – it’s a request. And here’s the best part. While the sign points to the wash basin, it sets a certain standard for how clean the entire toilet ought to be. In the subtlest of ways, it hints at the cleanliness of the toilet bowl, toilet seat and the space that surrounds it. Moreover, the sign’s positioning is clever because it is usually the last thing people see before they exit.

The standard aircraft toilet was surely designed by people with deep insight into human behaviour. The light that gets brighter when the door is locked is stuff of genius. The tap lets out a fine spray, ensuring that water is conserved and does not gush out to spill on the floor.

The best way to get people to behave well is through great design and clever nudges.

The age of idealism

“It will never work in the real world”.

Growing up, I heard this statement everywhere. Several of my friends had branded me as an “idealist”, by which they implied that my ideas were disconnected with reality. By and by, I started believing them. I went from being on the receiving end of that statement to saying it to other people whose ideas I had decided were too good to be real.

But the only way to find out if something would work is to get it out into the world and see what happens. There is no other way of definitively striking down any idea, no matter how crazy or idealistic it seems. And most people making that statement above haven’t tested your idea in the real world. They might have tested a similar idea, but that often doesn’t count.

We are fortunate to live in times where testing crazy ideas has been never easier. The internet is the idealist’s dream – a playground where she can test a wide variety of ideas. A couple of people struggling to make rent wanted to test if they could convince people to host strangers on their living room couches or their extra bedroom. Today, there is AirBnB. A radio host wished to test if his commentaries on the politics of Genghis Khan’s empire would gather a steady following. Enter, the Hardcore History podcast. One nerd (or two) held the wacky belief that perfect strangers would compile and curate the best encyclopedia there has ever been. The internet humoured them and Wikipedia was born.

We live in the era of idealism. Behind every successful business model is an idealist who dreamed of doing things a different way. Today, it is possible to test those ideas out with a few lines of code. So don’t believe anybody who tells you that something won’t work in the real world. Let the real world have its say.

Impact outlasts memory

The cave paintings at Ajanta are among the most splendid ancient creations that I have witnessed. About 2000 years after their creation, they continue to adorn the walls of caves in Maharashtra’s Aurangabad district. What also makes them remarkable, is that none of the painters left their names beside those paintings. We may not know who made those paintings, but the impact of those artists outlasts their memory.

Not many of us may know the names of our 8 great-grandparents (yes, each of us have 8 of them). And yet, those people continue to have an impact on us through the genes and the traditions that they have passed on.

What you do is more important than who you are. Who you are maybe forgotten someday, but what you do lives on. What do you choose to leave behind?

Be a culture

We hear about company culture everywhere. Most companies are trying to hustle a culture by writing an elaborate mission statement or by forcing initiatives down their employees’ throats.

“We believe in helping local communities. This Friday is our annual impact day. Let us clean the park, volunteer at pet shelters and teach underprivileged children.”

Yeah, right.

Jason Fried and David Heienemeier Hansson calls company culture a by-product of consistent behaviour. If your company rewards innovation, that would become a part of its culture. If people in your company often lie to clients, that would turn into the culture too, regardless of what the mission statement hung on the wall says.

Company culture isn’t made. It happens.

Companies don’t have cultures. They are cultures.

Don’t build a company culture. Be it. Every single day, and not one day a year.

Inspiration: Rework – Jason Fried and David Heinemeier Hansson

Admitting to a mistake

For every good move in chess, there are innumerable bad ones. And like that typo in the email we send to our boss, one often tends to notice one’s mistake only after having made the move on the board.

The natural reaction to making such a mistake is denial. Players think of ways to try their best to make the bad move work. They try to launch an attack based on that move and lean into the mistake rather than away from it. Alas, doing so often amplifies the mistake, and by the time the player realizes it, they have already lost the position and the game.

Chess players slip after making a bad move due to the sunk cost fallacy. This tendency is natural – research suggests that rats and mice fall prey to it too. Sunk costs make us sit through a bad movie because of having paid for it, or pour more resources into a bad project with the hopes of turning it around. Sunk costs work like quick sand. The more we invest in them, the harder it becomes to turn back.

The first step to escaping the vice-grip of sunk costs is to admit that we have made a mistake. Admitting to a mistake is the hardest part, but is often the best course of action. It might hurt to give up some material or space on the chess board after making a mistake, but by avoiding this we only end up losing even more at a later stage. Besides, in a world that is far more unpredictable than a chessboard, mistakes are normal, and shouldn’t weigh as heavily as they do on our conscience.

It takes humility and practice to admit that one is wrong in the face of sunk costs. Doing so is the first step to liberating ourselves from their strangle hold.

The online review paradox

Have you ever wondered why the top-rated TripAdvisor restaurants in a city are often quite mediocre? They’re are not bad, but they are not the best either.

In general, I have faith in objective, non-anonymous online reviews. They have helped bring trust in a world where most buyers and sellers are strangers. And yet, when it comes to tourist experiences – both with food as well as with “things to do” in a city, I find that the top-rated spots online don’t usually deliver the goods. A recent experience I had illustrates this problem.

I am a pizza snob, and on a recent trip to Edinburgh, I wanted to taste the best pizza in town. Several online reviews pointed me to a restaurant in the center of the city, whereas my local host recommended one that was quite far out. I trusted my host more and took a bus to the pizzeria, only to arrive at 1:30 PM and find out that they weren’t taking orders because they shut at 2 PM. They followed strict timings, and their menu had hardly any choice.

I then took a bus back to the highly recommended restaurant near the city’s center. The restaurant was bustling, had good service and a nice ambiance. Their wide-ranging menu included pizzas, pastas, and several other eats. They were also willing to add or remove toppings on pizzas we ordered. But when I bit into their slice, I noticed how it tasted of familiar mediocrity. Nothing differentiated it from a pie of a popular pizzeria from anywhere else.

Why does this happen? Why do top-rated restaurants online often turn out to be a let-down? In a few cases, this is due to restaurants running an organized scam. But with the rest, a few other factors come into play.

Convenience – Tourists often seek convenience: proximity to the city-center, a menu with plenty of options, flexible timings, custom ingredients and so on. Any chef will tell you how making the best food is inconvenient. With pizzas, the base makes all the difference. The dough needs to be cold fermented over three to five days with a limited amount of yeast – not exactly convenient for a restaurant that caters to an unpredictable tourist crowd. And no. A good chef not let you substitute artichokes with mushrooms despite having 15 items or fewer on the menu.

Risk aversion – A tourist’s time is valuable and she is risk averse. A bad experience at a restaurant can do more to hurt her trip than an average experience. The best restaurants often have limited items on their menu and do not serve the average crowd – they seek out people who have acquired a specific taste. When a tourist visits such a restaurant, with its limited timings and their reluctance to replace artichokes with mushrooms, a few of them are likely to have bad experiences and leave 1-star reviews.

The internet – The online world has blurred the boundaries between the average and the best. In a simpler world, one didn’t really take restaurant recommendations from that tourist from Rome, who visited Berlin once and found a certain Vietnamese restaurant near the city center to serve “the best Pho in town”. Besides, most online reviews are democratic. They average out everybody’s vote equally. But in certain cases, this can be the perfect recipe for mediocrity – experiences that please everybody and end up delighting nobody.

Of course, this phenomenon applies not just to restaurants, but also for the best things to do in a city and so on. To some measure, this pertains to most online reviews, which are mostly left by large masses of average customers.

In effect, if you’re looking to satisfice, if you’re looking for good-enough choice with a small risk of downside, use online reviews. As tourists, most of us understandably wish to do this, and that is why TripAdvisor is so popular.

But if you’re looking for a specific kind of experience, think about the online review paradox.

Start easier

It is difficult to start a car on a steep up-slope. On a geared car, you would have to switch to the most powerful gear and your clutch release has to be timed just right.

It is easier to start a car downhill than uphill. In the western world, it is easier to develop a running or cycling habit during the warm summer months and sustain this momentum into the winter (while the opposite is true near the tropics).  It is easier to develop a reading or a meditation habit during a long vacation than in the midst of one’s routine.

A habit is like a rolling car. The hardest part is getting started. How can we make that easier?

More important than facts

In the age of information and search engines, what could rise above facts?

I’ve been on several walking tours, but Johnnie’s Edinburgh tour stood out. Johnnie made his tour a vivid theatrical experience, reenacting scenes from Scottish medieval history to make them come alive in our eyes. He didn’t choose the most historically significant facts (no mention of William Wallace or King Bruce), but ones that afforded him the best performances (Scotland’s national animal is the unicorn!). Besides, he elicited more laughs on the tour than the average stand-up comedian.

The temple complex at Ħaġar Qim (pronounced hadzar-eem) in Malta dates back to about 3500 BC and is among the most ancient religious sites on earth. Today, a museum welcomes visitors to the site with a 20 minute video that brings it site alive with 3D animation. A nearby display houses several miniature models that let visitors carve flint stone, drag rocks over logs of wood and get a feel for life in that remote era. Despite it being small and rather obscure, I regard it as one of the best museum experiences in the world.

Any historical book on World War I would give you the facts about the effect of the Industrial Revolution on war, trench warfare and how tens of thousands of lives each side lost lost in numerous battle. And yet, way more popular than any of those books is the Hardcore History podcast, where Dan Carlin describes crucial battles from records of the soldiers on the ground. A historian mainly concerns himself with facts. But Carlin would be the first to tell you that he is no historian. He likens himself to a street performer (much like Johnnie) who happens to perform on the internet.

In the 21st century, if you purvey facts for a living, you might have to rethink your profession. But our inability to understand facts will sustain performers and experiences that bring them alive in our eyes.

Prevention

Garbage is most easily segregated at the source of its generation.

A messy cupboard is harder to organize than an empty one.

Hospitals, which cure most deadly diseases, are also hotbeds for antibiotic resistant pathogens*.

Bad information is best filtered out before it reaches our minds.

A disaster prevented is one that is best managed.

*In Germany alone, an estimated 400,000 to 600,000 patients suffer a hospital acquired infection each year; 10,000 to 15,000 of them die