Tuesday, August 14, 2018

Changing habits

Before reading this, you should see mental models and new habits.

The most important rule of habit change

The most important rule about changing habits is that you cannot remove your existing habits. Each repetitive action compounds in your brains. After you have done enough repetitions, habits are formed. After they are formed, a positive feedback loop strengthens it by repeating the action all over again. The longer your feedback loop has worked, the longer it takes to change the existing habit. It also means that the longer you have had a habit, the harder it is to change it.

Four components of habit change

It is possible for you to understand how to change habits only after you understand how to create new ones. Changing a habit is much harder than creating a new one. Your habits are your paths of least resistancepaths of least resistance. Changing them requires lots of effort. What I really mean about changing a habit is to change your routine and what you associate as a prize. Triggers are normally much less important than two other components of the habits. Sometimes you can think that routines and prizes are self-evident, but you may be wrong. There are four components or steps in changing the habits:

  1. Identifying a routine
  2. Experimenting with prizes
  3. Isolating a trigger
  4. Making a plan

The first part is the easiest. You have to identify a routine of the habit you want to change. For example, you want to buy less crap when you go to a grocery store. Routines are easy to identify. These steps are obvious for most people. And I am sure they are easy for you too. I am sure you have many habits you want to change, but you should proceed cautiously. If you have never succeeded before, focus on one habit first.

Experimenting with prizes is necessary. It is not easy to notice what the real prize actually is. It is easier to notice what you associate for a prize. Prizes can be anything from short-time feelings to hormone-changes in your body. For example, eating something sweet when you are tired can increase your blood-glucose level for a short-term. After a while, you need to eat another sweet. This goes on and on and your eating habits are not good. There is no easy way to find out what your real prize is. You may need to have some help from your loved ones or your friends. You should probably keep a diary about routines and emotions that occur right after them to find out what is the real prize you desire. You can also tell your emotions for your helping hand, whoever that is. You should do this as long as you have found out what the real prize is.

You should isolate the trigger after finding a real prize. Triggers have common denominators. They can be linked to locations, people you are with, emotional or physical states, or actions. Triggers can also be combinations of them all. The best way to isolate a trigger is to keep a diary or write notes for your habit you want to change. Lets keep things simple and use ”Joe” buying sweets as an example. Notes could look like this after some note-taking:

  • Location (In front of your grocery store)
  • Company (Alone)
  • Emotional/Physical state (Hunger and feeling tired)
  • Time (5 or 6 PM.)
  • Previous action (Standing in a full bus)

Note-taking should be repeated until you have isolated the trigger. This is easier said than done. And not all the things that feel and look like triggers are them. You may find more common things in situations where your bad habits rule than necessary. All the common things do not belong to a trigger for a bad habit.

After you have identified a routine, experimented with prizes, and isolated the trigger, you have to make a plan to change your habit. You have to make a plan that has a trigger, routine, and a prize. Joe´s plan looks like this: When he is in front of his grocery store at 5PM, alone, and is hungry and feels tired after standing in a full bus for half an our after leaving his work (trigger) he goes inside the grocery store and buys a healthy snack with his other healthy groceries, instead of buying sweets like he normally does (changed routine). This is best achieved by changing his route in a way that sweets are least available and healthy snacks are most available for his senses. He does this to get a prize, which is a normal blood glucose level (association changed about the prize). This plan should be executed all over again, until the habit has changed.

The longer you have had a habit, the longer it takes to change one. Sometimes change takes even up to six months. You should also expect failures in the process and plan how to react to them. Failures are not disasters, they provide much needed feedback. It is actually more probable that you will fail at least once than getting a complete success once and for all. Everything should be made as simple as possible. You should focus on the next step all the time without thinking. When you start, you should focus on the first step. Try forgetting the real goal. After you have failed the first time, focus on the next step again.

About timing

Timing matters. It matters when you establish a new habit, but it is even more important in changing habits. Sometimes you have to change your bad habits instantaneously. When you have a time to make a plan and change your habit, you should also think about the right moment to change it. The most common way to start changing a habit is to make a new year´s resolution. When it comes to timing, it is possibly the worst time to start changing habits. Resolutions are not by themselves bad things. If your resolution is based on the assumption that you start executing it 1st of January, then it is probably the worst time to start the change.

Habit change requires an enormous amount of conscious effort in the beginning. Your willpower is at its lowest level after a new year eve´s party. You will feel tired and you possibly have a bad hangover. Changing your habit then becomes basically impossible. Your first failure occurs and you give up before you have even started. You should start changing your habit when you feel sharp and have recovered from emotional and physical stress. For example, you can start it on vacation. You should always consider the best option for yourself for starting the change. It can also depend on the habit. You cannot change a habit, when it doesn´t normally occur. This might seem like no-brainer to you, but maybe it is better to mention it.

There are only few important mental models to introduce. For the next months I will probably focus on giving more in depth view about how they work in real life and how these models interact in real life applications.

Sources:

The Power of Habit, Charles Duhigg
Stick With It, Sean Young


-TT

Tuesday, July 31, 2018

Next text will be published after a fortnight

Hey all.

I have been on vacation. The next text in the blog will appear after a fortnight.

I will also continue my best investing lessons blog in the next week.

I wish you nice summer days!

-TT

Tuesday, June 26, 2018

Antifragile

Definition

Antifragile can be defined as ”a thing improving from volatility, randomness, uncertainty, disorder, errors, and stressors.”

Fragile, robust, and antifragile

Fragile is pretty simple. Anything that brakes from volatility, randomness, uncertainty, disorder, and stressors. When you think about the inverse of fragile, you think about robustness, or resilient. Robust and resilient things do not break from the aforementioned things, but they won´t get any better. Antifragile gets better. There are many antifragile systems, like evolution, capitalism to some extent when it is left alone, technological innovation, good recipes, and even your own existence. These things change with time. You can see antifragile things everywhere, in your body, and in the nature, etc. There is a simple way of thinking about antifragility of things: Anything that can have bigger gains from upside than downside from random events, volatility, etc.

Antifragile systems become fragile if volatility, stressors, uncertainty, and disorder are denied from them. They weaken and die. Just watching what happens is a better solution for problems in antifragile systems. They will get stronger. These things thrive with right amount of stressors, and disorder. You have to remember that many stressors and too much disorder will break even antifragile systems. For example, your bones like small jumps, but jumping from ten meters will break them. Bureaucrats, central bankers, and academics want to change antifragile systems, but they cause more harm. This top-down approach only make these systems worse. Bottom-up approach would be much better.

How to spot fragile/antifragile things

Fragile things have one interesting mathematical property. Their damage accelerates, when it is measured. For example, you have a highway in which there are 20,000 cars moving every day on average. The travel time through this road is 30 minutes. When there are 25,000 cars moving, travel times increases to 40 minutes. If the amount of cars is 30,000, then your travel time gets to 60 minutes. This is a sign of fragility of the highway. These kind of nonlinearities are signs of either fragility or antifragility. You have to find a way to limit the downside and maximize the upside. For example, you want to try make some small changes to get big outcomes. These small errors do not have less cost than the possible upside. You don´t have to be right so often. Power laws have positive effects on antifragile things and negative for the fragile.

Antifragile things have also stood the test of time. It is actually the most important sign of antifragility. Things or ideas that have been working for thousands or hundreds of years are antifragile with a high probability. It doesn´t mean that they won´t eventually break or become useless. Considering this phenomenon, there is a Lindy effect. It says that it is probable that an idea that has survived x amount of years will probably survive another x amount of years. For example, tablets have been in use for thousands of years. First they were made from stone, and now they are made from many other materials. The idea is still pretty much the same, only different ways of using a tablet have grown. It is probable that they will be here much longer.

Life on earth is one of the best examples of antifragile systems

This planet has had life even for billions of years. It is not depended on the bureaucrats or academics, or other humans. It will probably have life after humans have disappeared on earth. It is not dependent on people. It has never been and never will. Life on earth aggressively destroys, replaces, selects, and changes. It is hard to prove that antifragility is a characteristic of mother nature, but you should have no suspicions about it. It has survived different catastrophes like earthquakes, asteroids, etc. It has also evolved to more intellectual life forms like humans. In the long run, life gets better on earth, even though it will have its ups and downs.

Mother nature is not fully efficient. There is some slack or redundancy in its systems. For example, humans have two kidneys instead of one that is necessary, etc. When a system´s efficiency is fully tuned up, it becomes fragile. It will eventually break. Many man-made systems are fragile. Mother nature is the opposite. Systems become antifragile also, when some of the components can break. And when the opposite is true, systems are fragile. For example, a restaurant business is antifragile, because when some restaurant goes bankrupt, another better one comes along. Banking systems is fragile, because some of the banks are too big to fail. And then the whole system goes bust. Life on earth also gets better, when some genes are not recreated.

How to become less fragile

You cannot really become antifragile. You will eventually break and die. You can only become less fragile, however, your genes are another thing. Let´s forget the genes and focus on think how you become less fragile. I have to remind that most of the things mentioned below come with opportunity costs of becoming less efficient. Here are some things you can do:

  • Decrease the amount of your long term stressors and increase the amount of short-term stressors. Do the latter in random moments if possible.
  • Believe in ideas that have survived centuries or millennia like the most important mental models I have introduced. Do not believe the new ideas unless you are completely sure they are better.
  • Favor the natural over man-made
  • Keep things simple. Do not add complexity, unless it is unavoidable.
  • Listen to your grandmother´s advice instead of younger people. There is a proof that she has survived many bad events. 
  • Have many sources of income
  • Have some extra cash
  • Invest most of your money in fool-proof securities like U.S. Bonds and the small part of your money for a diversified portfolio of asymmetric expected payoffs.
-TT

Tuesday, June 19, 2018

Scarcity/Abundance

Definitions

Scarcity principle can be defined as ”You put more value to the things that are limited.” Abundance principle is basically the inverse of scarcity and can be defined as ”You put less value to the things that are in excess.”

Basics of scarcity and abundance

When the availability of something is limited, it becomes more valuable. When things are the least available, they are the most desirable. If a thing is scarce or it becomes scarcer, it has more value to people. For example, sometimes a mild defect makes some collectibles more valuable compared to original ones. Large amounts of similar collectibles make all of them a lot less valuable or desired. Scarcity principle is not just about material things. It relates to information, knowledge, and communication. Same works with abundance too. They also relate to each other. When things are abundant and they become scarce the reaction to scarcity is even stronger than scarcity working by itself. People who have nothing are not likely to revolt against the government. People who have something that is taken away, because of the government, are more likely to revolt.

The power of the scarcity principle comes from the two major sources. First, people have a tendency to try to find short-cuts. Saving energy is the most important task of your brains and body. You know that things are typically better when they are harder to acquire. You associate scarcity with quality. And you are most likely to be right, but not always. The other main source of power within the principle is that when a thing becomes less available, your lose freedom to make choices. The power of this source is the strongest, when you have lost your freedom to choose. Then, you start finding a way to get your freedom to choose back. Banning something or censorship both increases a desire to have something. When something is prohibited, its desirability increases via losing a freedom to choose. When it comes to the abundance, the first source is the same, the desire for short-cuts and the second source, is a bit different. It is too easy to choose.

Combination of rarity and competition drives our desires for something to new levels. Lots of people and scarce items create unwanted consequences. Advertisers can sell their products by showing how many other people are interested in their items. If you really want to sell something, try to sell it by having all the people who are interested in it at the sample place at the same time. You definitely do not want to create an image that you have plentiful of those items to sell and no competition.

How to use/avoid effects of scarcity and abundance

It is better to have scarce resources up to some point, when you want to achieve something. Whether it is about time, money, physical labor or some other type of resource. Putting a deadline that is tight is better than having unlimited amount of time to do something. The most probable thing that happens is that you start doing things later. You should put enough time that it is possible to do something rather than waiting for a very likely failure. When it comes to money or physical labor, most solutions are focused on adding resources, instead of doing things better. This is especially typical for politicians. Coping with scarcity do not belong to their vocabularies. It is easy to use other people´s money as a leverage to get what you or your financier want and think they are abundant.

According to Robert Cialdini, a typical reaction to scarcity is a physical agitation. When you see something become less available, your ability to think diminishes. Physical agitation is a sign that you need to think why you want to have it. Most often you just want to own it. You want to use it. If this is the reason, you should remember that limited availability does not really make it better. You should always be reflecting on how you feel about things. There should be an emotional arousal as a first sign. You should calm yourself and pursue a rational state of mind. After calming down, you should ask yourself why do you want to have it? In case of an abundance, you will feel indifference. You do not really care if you use some item or lose it. The speed of getting rid of things increases. For example, you will use toilet paper faster, when you have bought a large amount of it.

All in all, optimizing the amount of resources is hard. Having enough scarcity, but not too much is not easy. There has to be some slack. Everything cannot have maximum efficiency, because whe things go wrong at that point, shit hits the fan and big failures happen.

Sources:

Influence, Robert B. Cialdini
Pre-Suasion, Robert B. Cialdini

-TT

Tuesday, June 5, 2018

Authority misinfluence tendency

Definitions

An authority can be defined as ”The power or right to give orders, make decisions, and enforce obedience.” or as ”A person or organization having political or administrative power and control.”

Titles, appearances and status symbols

Authorities and their appearance can be divided into three different groups: titles, outer appearance, and status items. One person can be an authority through all the combinations of these groups or with just one of them. Would you believe someone with a bachelor of science in some discipline or a PhD of the same subject? It is harder to dispute someone with a big and fancy title even though he can be wrong as well. Clothes, looks, and other aspects of appearance are effective too. Uniforms, expensive clothes, and handsome or beautiful people look more like authorities than ugly people with old and torn clothes have more authorative power. The latter people are actually more likely to be the ones who are not listened to. Some items can be associated for authoritative items. For example, expensive watches, cars, and other luxury items help people to deliver their messages. There is no guarantee that any of the three characteristics mean that a person is a believable authority.

Real authorities and pseudoexperts

It is not easy to distinguish all the pseudoexperts from the real authorities you should listen to. You can simplify things by putting experts to two different categories. Things that move and require knowledge and are uncertain normally do not have experts. And things that do not move tend to have some experts. You can put the next professions into category in which there are no experts according to psychologist James Shanteau: stockbrokers, clinical psychologists, college admission officers, personnel, court judges, counsilors, intelligence analysts, financial forecasters, finance professors, etc. You can put the next professions into category in which there are some experts: livestock judges, astronomers, test pilots, soil judges, chess masters, physicists, mathematicians who do not work with empirical problems, accountants, and insurance analysts.

The best way to separate real authorities and fools with fancy titles is to check their personal track record. You should find out that these real authorities have managed to deliver better results than others for decades. They are not one hit wonders. All this personal success should be measurable with concrete terms. For example, investors who have managed to beat indices cumulatively for a clear margin for decades or venture capitalists who have helped many companies to achieve huge successes. You also have to remember that these people are experts only in their prospective domains. They are not experts in other things.

There are many pseudoexperts that disguise themselves as experts. They have many usual characteristics. They focus more on appearance than substance, they use professional jargon to explain things instead of using the language everybody can understand, they do not only talk jargon, but they complicate things too much or they explain big results with a single factor, they transfer risks to their clients and take big part of the results for themselves without having any skin in the game, and they are cherished or rewarded by the fools like themselves.

Being an authority figure

Most adults are some kind of authority figures to some kids. If you are a teacher, a parent, a police, or a priest you are likely to be an authority figure to some child. And there is a responsibility to act like one. Actions speak lot louder than words. All people have mirror neurons in their brains. They fire when a person acts and when the same person observes the action performed by another. They are constantly working. When you do something, child´s mirror neurons observe your behavior and can learn from it. When you decide to give an order your child to do something or stop doing something, the frequency is not enough to teach him/her so much. You shouldn´t tell them anything without showing an example. If you want to teach your child to use their smartphones less, you should use less yourself. It is the most effective way of doing it. Giving an order to stop doing something is not that effective. Your child wants to be like you, you should behave they you want them to behave. If you want your children to be better persons, you should be a better person too.

Sources:

The Black Swan, Nassim Taleb
Influence The Psychology of Persuasion, Robert Cialdini
Poor Charlie´s Almanack, Peter Kaufman

Next text will be published abou 19th of June,

-TT 


Tuesday, May 29, 2018

Communication systems

Definitions

Communication system or a process can be defined as ”The transmission of information from the source of information to the user of information.” or as ”The facility consisting of the physical plants and equipment for disseminating information.”

Main components of the communication system

A communication system has five main components:

  1. An information source. It provides a message or many of them.
  2. A transmitter. It transforms the message to a signal.
  3. A communication channel. It is the medium that is used to move the signal from transmitter to a receiver.
  4. A receiver. It reconstructs the signal back into a message.
  5. The destination. It is the person for whom the message was intended to send.

In addition to these five components there are many less important ones like filters and amplifiers. There can also be many components such as transmitters, channels and receivers between the original information source and the destination. Communications systems are not perfect. There can be noise that creates distortions at any point between the source and the destination. You should never assume that there are no distortions. Transmitter can incorrectly change the message, communication channel can create noise by having too many signals moving through it at the same time, and receiver can incorrectly process the signal, which can lead to errors at the destination. The more components there are between the original source and the last destination, the more probable are the errors. This is one reason why you need some filtering for the message. Filters can be put anywhere in the system.

My writings as a communication system

Lets start from the sources. Most of the sources are the authors of the books I have read or their sources. Sometimes they are interviews of the experts in some other mediums like Youtube. You can also see it otherwise. For example, you can think about the authors as transmitters and their books as the communication channel. And then my mind is the receiver and my laptop is the destination. I create notes from the books of the authors and put them in my laptop. Now my notes are the source, I am the transmitter, and the communication channel is this blog. Your mind is the receiver and you are the final destination who decides what to do with the information I produce. You can see this communication systems having two subsystems with five main components in each as a whole single system.

As you can see, this system is not optimal for understanding mental models. It has too many components. And all of them can create more noise to the system. You could go through all the sources I use by yourself. This would eliminate many unnecessary components. It is not this simple of course. You have to consider the opportunity costs too. Going through all the sources take lots of time. And your time can be more valuable to you than learning more about each of the models. One source of errors is the language. I am not a native English speaker and I cannot copy my sources. This creates some unintended consequences. I can interpret differently things that I am reading and publish something that is not 100% right. The probability of this happening is very close to 100% in the long run. I would appreciate if somebody would tell me, when this happened and give me a reason for it. It would also help other readers.

A communication system is a topic that would require a lot more explaining. But to keep things simple, this text is enough for now.


-TT

Tuesday, May 22, 2018

Leverage

Definition

The leverage can be defined as ”The increased force resulting from the action of a lever.”

Levers are everywhere

Levers are very common. You can probably find many of them in your immediate surroundings, or from your body. For example, think about your hands from your shoulders to your fingers. Think about your shoulder and imagine a tennis ball on it. How far you think you can move it by using your shoulder? Not very far I presume. Now, think about having this same ball on your hand. How many times farther you think you can move the ball? I haven´t measured, but probably your hand is about 10x longer than your shoulder. I am sure you can move the ball more than 10x farther with your hand. This one of the simplest levers.

If you are an employee, you are a one type of lever for your employer. One person cannot deliver all the business for all the clients. The better you are in your job, the bigger the leverage you offer for your employer. And you can ask more money from your services to the employer. The bigger the demand for your skills, the better leverage you have in wage negotiations. To be more exact, the more the employer associates your abilities to value you offer for him, the more money you can ask. All the employees are not paid by their real skills. Getting a feedback while you are practicing is a form of leverage too. A feedback from a coach is the best way to accelerate your development.

And you can also use leverage with things related to money. Your mortgage is a lever for buying a house. Without a bank, you couldn´t buy a house that costs much compared to your income. All the credit cards you use are levers as well. These are not the best ways of using leverage in financial situations. Investing in a business should be a better way of using leverage. Using other people´s money or other resources are good ways of using leverage into your own advantage.

Using leverage is dangerous

Levers can be wonderful tools. But you need to know what you are doing or you will create mostly destruction. For example, using too much dynamite to blow up something, will probably kill the user. To keep things simple, the bigger the leverage, the more dangerous it is to use it. And the bigger the leverage, the more skilled you need to be to use it properly. And sometimes too much leverage destroys everyone, no matter how skilled they are. Be aware about the delays. Sometimes, the effects of using leverage wait in hiding. Systems with self-reinforcing feedback loops and leverage can be lethal. For example, the last financial crash happened very quickly after the negative effects of too much leverage had grown enough. After this point, self-reinforcing feedback loops destroyed many banks and other financial institutes. And their owners and executives had no ways of solving problems.

Leverage points

First, I would like to say that leverage point may not be the best way to define a thing I am introducing. There are situations where using the leverage for pushing something forward gives a lot bigger outcome than the effort. Failure to choose the right point of using leverage gives the opposite result. First, imagine a big rock on a flat ground and a lever to move it. The result is irrelevant. Now imagine a big rock on a big hill on the edge of the major fall and a lever. Most leverage points are not this obvious. Some points you will not notice until you have seen their full effects. And some effects of the leverage points are not understood at all, because you haven´t noticed the point at all. This is the most probable situation.

The more skilled you are in something the better the chance you have to notice these points. Linear effects can be transformed to compounded effects by using the leverage at the right point. When this point of critical mass is reached, things start taking care of themselves. For example, you can buy more ads to sell a product, when it is on the brink of coming popular enough, and getting a massive amount of social proof. You should also try to figure out those leverage points that are producing the biggest negative effects for yourself. If you are in a competitive environment like athletes, you need to be aware of them. Your opponents will surely use them against you if they notice them. 

-TT