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00:00:00.000 | A quick word from our sponsor today.

00:00:01.680 | Hello and welcome to another episode of All the Hacks,

00:00:06.480 | a show about upgrading your life, money and travel all while spending less and saving more.

00:00:10.600 | I'm Chris Hutchins, and I'm excited to have you on my journey

00:00:13.200 | to optimize my own life by sitting down each week with the world's best experts

00:00:16.920 | to learn the strategies, tactics and frameworks that shape their success.

00:00:20.400 | Today, I'm talking with Annie Duke, a former professional poker player

00:00:23.920 | turned bestselling author and what I'll call a professional decision maker.

00:00:28.200 | Her 2018 bestseller, Thinking in Bets, Making Smarter Decisions

00:00:32.000 | When You Don't Have All the Facts, explored how life is more like poker than chess

00:00:35.800 | and has helped countless people make better decisions.

00:00:38.360 | And her latest book, Quit, The Power of Knowing When to Walk Away,

00:00:41.680 | is all about learning to quit well, which is a skill that can not only be learned,

00:00:45.760 | but that should be learned and practiced by just about everyone.

00:00:48.760 | We're going to talk about making good decisions, getting better at quitting,

00:00:51.680 | but more specifically, why learning the difference between luck

00:00:55.160 | and the quality of your decisions is so important and how that can improve

00:00:58.760 | your life and your career.

00:01:00.400 | Why just looking at the outcome of decisions isn't enough.

00:01:02.840 | What forces work against good quitting behavior and why so many people

00:01:06.720 | struggle with the decision to walk away?

00:01:08.840 | How to use kill criteria to determine when to quit a project,

00:01:11.680 | a job or some other endeavor and a lot more.

00:01:14.080 | So let's get going.

00:01:15.280 | Annie, welcome to the show.

00:01:18.280 | Thanks for being here.

00:01:19.360 | Thanks for having me.

00:01:21.160 | You say there are only two factors in how life turns out.

00:01:23.560 | Luck and the quality of your decisions.

00:01:25.520 | You don't have control over luck,

00:01:27.080 | but you do have control over the quality of the decisions you make.

00:01:29.560 | How can people tell the difference between the two and more importantly,

00:01:32.640 | improve the quality of the decisions they make?

00:01:35.120 | Yeah, so that's like the sixty four thousand dollar question.

00:01:37.680 | So let's just first of all say, like when you make a decision,

00:01:40.520 | there's two forces that are going to influence

00:01:43.440 | that outcome of the decision, right?

00:01:46.120 | One is luck and one is the quality of the decision itself.

00:01:50.280 | Now, luck is a form of uncertainty that exerts itself on the outcome, right?

00:01:55.360 | So I could make a choice that's going to work out ninety five percent of the time.

00:01:59.840 | That means by definition, five percent of the time

00:02:02.880 | I'm going to observe a bad outcome and I have no control

00:02:06.840 | over when I'm going to observe that five percent.

00:02:08.760 | What's important to good decision making is to accept

00:02:13.360 | that luck exists and try to see it clearly.

00:02:16.360 | So what we want to do is know that this is a ninety five percent

00:02:20.360 | to five percent good to bad ratio on the outcomes

00:02:24.120 | that I could see and not believe something else.

00:02:26.480 | So if we forecast that it will work out ninety five percent of the time,

00:02:30.360 | but it's actually only going to work out sixty five percent of the time,

00:02:33.720 | that would be a problem.

00:02:35.200 | So it's not about like controlling luck because you can't definitionally.

00:02:38.840 | It's about being able to forecast appropriately

00:02:42.120 | how luck might exert its influence, what the influence of luck on the outcome

00:02:46.280 | might be.

00:02:47.240 | And we know from a lot of work in cognitive bias, for example,

00:02:50.120 | that there's all sorts of different ways in which we don't see luck very well.

00:02:53.840 | The illusion of control.

00:02:55.000 | We think we have more control

00:02:56.000 | over the way that things are going to turn out than we do actually.

00:02:58.840 | Or over optimism and overconfidence, for example, are ways in which we will

00:03:03.000 | just sort of misassign the probabilities of different outcomes

00:03:06.040 | that might occur in the future.

00:03:07.480 | So that's the luck side.

00:03:09.080 | So part of a good quality decision is to be a good forecaster of these things,

00:03:14.080 | to start to see the outcomes in the way that they actually are true to reality,

00:03:19.080 | what ground truth actually is, as opposed to what our brains

00:03:22.480 | sort of think they are.

00:03:24.080 | So that's piece number one.

00:03:26.440 | Piece number two, the other form of uncertainty

00:03:28.880 | that is going to exert itself on the quality of the outcome

00:03:33.200 | that we might observe, and in fact, the quality of the decision

00:03:35.840 | that we're making is just hidden information.

00:03:38.880 | So for most things that we're deciding about, we know very little

00:03:43.080 | in comparison to all there is to be known.

00:03:45.440 | The stuff we know fits on like the head of a pin.

00:03:48.120 | The stuff we don't know is like the size of the whole universe.

00:03:51.200 | I'm sure you've had that feeling, Chris, of saying, I wish I knew then

00:03:54.760 | what I know now all the time.

00:03:57.400 | Right. So that's just hidden information.

00:04:01.000 | You're just sort of seeing the influence of hidden information

00:04:03.680 | that you sort of realize, if I knew then what I know now,

00:04:07.120 | I may have made a different choice.

00:04:09.120 | Why? Because when we're thinking about those forecasts that we make, right?

00:04:12.280 | I'm considering a decision

00:04:14.560 | and I'm thinking about what the possible outcomes are.

00:04:17.600 | Each of those outcomes has a payoff associated with it.

00:04:21.040 | Each of those outcomes has a probability associated with it.

00:04:24.400 | So when we think about our beliefs, the things that we believe to be true,

00:04:29.360 | they're determining for us how we think any option

00:04:33.600 | that we're considering might turn out right.

00:04:35.800 | What we believe to be true of the world is going to influence

00:04:38.880 | what we think the possible outcomes are of any decision

00:04:41.840 | that we might be considering, what the payoffs are associated with those

00:04:45.560 | and what the probability of those are.

00:04:47.120 | And in fact, our beliefs are going to inform other things as well,

00:04:50.960 | like what options we might actually consider.

00:04:54.200 | We're usually considering more than one options.

00:04:56.960 | They're going to inform what we think our goals are.

00:04:59.280 | What is the point that we want to be heading toward?

00:05:01.360 | So beliefs change over time, not as much as they should,

00:05:05.760 | but they do change over time.

00:05:07.560 | And those beliefs are always going to be imperfect.

00:05:09.800 | There's always going to be inaccuracies in the things that we believe

00:05:12.600 | because we're partially behind the veil of ignorance.

00:05:16.520 | We don't know a whole lot.

00:05:18.040 | So that's the second way in which we can think about

00:05:20.640 | how do we actually improve the forecast?

00:05:22.760 | We can consider from the option that we're making a decision

00:05:25.920 | about going forward, seeing the luck very clearly.

00:05:28.960 | But then we can take a step back and say, well, if beliefs are at the center

00:05:32.920 | of that, they're the foundation, really, of every decision we make.

00:05:36.440 | That's a place that we can really start to focus our energy

00:05:39.480 | on improving the quality of the beliefs that we have.

00:05:42.720 | Is there a common decision you think people make

00:05:45.800 | where this kind of really comes to life?

00:05:47.440 | Well, it's like every decision,

00:05:48.720 | but one of the ones that I love to think about is hiring.

00:05:52.360 | In hiring, we can see all sorts of different things at play,

00:05:57.320 | but we can see a basic decision.

00:05:59.080 | You have some idea of what your goal is, what you want to hire for,

00:06:03.080 | what your values are, so that's going to be the rec, the job description.

00:06:07.640 | But that's going to have to do with things like who's the person

00:06:09.920 | that you think is going to be right for the role?

00:06:12.040 | What's the role that you think you need to be hiring for?

00:06:15.000 | Which is sometimes not explored enough.

00:06:18.240 | Then you get lots of resumes in and you start to try to fit

00:06:23.080 | the resumes to what you think that you want.

00:06:25.360 | And those are different options that you're considering,

00:06:27.360 | different people that you're thinking about hiring.

00:06:30.200 | There's other options you're considering, like what's the comp going to be?

00:06:33.200 | What's going to be the balance of, say, equity to cash?

00:06:36.560 | The balance of guaranteed comp versus bonus, things like that.

00:06:41.960 | But we'll put those aside and just think of the options,

00:06:44.000 | which are the people that you're considering hiring into the role.

00:06:47.000 | And then for any of those people that you're considering,

00:06:49.560 | whether you know it or not, you're thinking about

00:06:52.520 | what are the chances this person is going to work out?

00:06:54.600 | What's the chances they're not?

00:06:56.560 | Now, we don't often do that explicitly,

00:06:58.960 | but it's an implicit in any decision that we make.

00:07:01.600 | And there's a lot of luck that influences the outcome.

00:07:03.840 | So let's think about that and the hidden information.

00:07:06.600 | In terms of the hidden information,

00:07:07.960 | as you're considering each of those people to fill the open rack.

00:07:11.560 | Well, OK, you have a CV.

00:07:14.200 | You have a few references and a couple of interviews.

00:07:19.520 | They haven't worked at your company for a long time.

00:07:23.600 | You don't really know if they're going to be a good fit.

00:07:26.520 | You don't know really what their work ethic is.

00:07:29.440 | You have a little bit of idea, but you don't really find out

00:07:32.920 | most of the things that you would want to know

00:07:34.880 | until after you've decided whether to hire them or not.

00:07:37.680 | And separate from that, all the people that you say no to,

00:07:41.480 | you have no idea how they would have turned out.

00:07:43.880 | So we can see this hidden information problem.

00:07:46.760 | I sort of say like with hiring, it's kind of like marrying someone

00:07:49.600 | after a couple of dates and two friends telling you they're cool.

00:07:52.520 | People do that, by the way.

00:07:54.440 | And what do we all think when they do that?

00:07:56.240 | Wow, you're kind of nuts.

00:07:58.440 | You know, when they're like, oh, I'm in love.

00:08:00.080 | And your first date was a week ago.

00:08:01.560 | You're heading to Vegas, really?

00:08:03.600 | But that's kind of what hiring is.

00:08:05.240 | It's like eloping to Vegas after a week

00:08:07.480 | because of the hidden information.

00:08:09.640 | And then what happens is that you find things out after the fact and you say,

00:08:12.680 | I wish I had known that before I hired them.

00:08:14.240 | And then in terms of luck, when you hire anybody,

00:08:17.120 | the probability of the person working out, it depends on sort of

00:08:19.800 | how you cut the data, is around 50/50.

00:08:23.480 | And that's just a lot of luck, right?

00:08:25.880 | You sort of think they're going to be a fit.

00:08:27.320 | Do they turn out to be a fit?

00:08:28.800 | Does something happen in their personal life

00:08:30.600 | like after you hire them that you couldn't have known about beforehand?

00:08:33.680 | So and so forth.

00:08:34.920 | It's just a very kind of noisy decision.

00:08:37.680 | Now, you can do things to improve the quality of the decision,

00:08:40.480 | to increase the probability of getting a good outcome

00:08:43.280 | to somewhere between 60 and 65 percent.

00:08:45.520 | But that's about as far as you can push it.

00:08:47.400 | It's just too uncertain.

00:08:48.880 | So hiring is one of those places where it's like super clear

00:08:51.400 | that you can see the problems with this kind of decision making.

00:08:53.920 | Investing is another.

00:08:55.640 | But there's obviously a huge influence of luck

00:08:57.800 | on the way that your investments turn out.

00:08:59.320 | Just look at the pandemic.

00:09:00.360 | Nobody had control over that.

00:09:02.200 | And it had all sorts of effects on the stock market supply chain issues,

00:09:06.040 | which I don't control.

00:09:07.520 | What are those things?

00:09:08.560 | You said there are a few things you can do.

00:09:10.000 | I now feel like I totally get why the decision might be outside of my control.

00:09:15.200 | But it seems like there's a part of it that is in your control.

00:09:17.480 | Oh, there is.

00:09:19.400 | So the first thing you can do is make yourself familiar

00:09:21.760 | with a concept called base rates.

00:09:23.960 | This is really important.

00:09:24.880 | So if we go to that first thing that I said,

00:09:27.080 | that we're not very good at understanding

00:09:28.840 | what the probability of any event occurring is, know your base rates.

00:09:32.040 | A base rate is how often something occurs

00:09:34.120 | in a situation similar to the one that you're considering.

00:09:36.800 | Simple. All right.

00:09:38.920 | So I'll give you a really simple example of a base rate.

00:09:42.600 | So let's just take your morning routine, right?

00:09:45.520 | You're trying to decide when to wake up.

00:09:48.440 | Because you need to decide how long does it take me to get ready in the morning

00:09:52.040 | so that I know when I need to get into my car in order to get to work on time.

00:09:56.240 | So this is something that people do, you know, every morning,

00:09:59.560 | at least before the pandemic, before we're all online.

00:10:01.920 | There's a whole bunch of base rates involved in there, right?

00:10:04.040 | So one is how long does it, on average, take me to get ready?

00:10:07.760 | OK, so I could figure that out.

00:10:11.280 | I could track that for you over a certain period of time

00:10:14.480 | and figure out, on average, how long it takes you to get ready.

00:10:17.320 | I could even figure out a lower bound and an upper bound.

00:10:19.600 | That's going to tell you sort of like something about risk.

00:10:22.400 | What's the volatility?

00:10:23.520 | And then you can sort of figure out for yourself how much risk you want to take on,

00:10:26.920 | like how important is it for you to get to where you're going exactly on time?

00:10:31.040 | You would want to be at sort of account for the upper bound

00:10:34.280 | of how long it takes you to get ready.

00:10:35.720 | If you have some slack in there,

00:10:37.560 | you could account for the lower bound of how long it takes you to get ready.

00:10:40.800 | But we can figure out, on average, how long does it take you to get ready?

00:10:43.800 | And in fact, when you're deciding when to set your alarm,

00:10:46.560 | that's included in your decision, just not explicitly, right?

00:10:50.640 | Then when we think about, OK, I've got to get in my car

00:10:53.680 | and figure out when do I need to be in my car in order to go to work?

00:10:57.760 | That's another base rate that we're considering, which is, on average,

00:11:00.640 | how long does it take me to get to work on the route that I'm considering taking?

00:11:04.520 | So that's for you personally.

00:11:06.680 | We could figure out those base rates.

00:11:08.400 | But there's all sorts of base rates in the world as well.

00:11:10.560 | I gave you one just a second ago, depending on how you cut the data,

00:11:13.720 | your chances of successful hire are about 50/50.

00:11:16.880 | That's a base rate.

00:11:18.560 | So when I'm sitting here thinking in what we talked about,

00:11:21.600 | like being overoptimistic, illusion of control, overconfidence,

00:11:25.720 | those kinds of things, when I'm saying I'm a great person at hiring,

00:11:29.120 | when I talk to someone, I can look into their eyes

00:11:32.240 | and I can figure out whether they're going to be a good fit or not.

00:11:36.160 | And I'm great at this.

00:11:38.080 | So you say to me, well, what do you think the probability is

00:11:41.000 | when you hire for this role that it's going to work out?

00:11:43.240 | And I say, oh, I think it's going to work out 90% of the time.

00:11:46.640 | Well, that's too far away from the base rate to be sane.

00:11:51.200 | So what base rates do is they give us a starting point

00:11:54.840 | for the forecast that we're going to make, that forecast of what's

00:11:57.280 | the probability that things will work out one way or another.

00:12:00.360 | And if I know that the base rate is about 50/50 and I'm estimating

00:12:04.760 | that I'm going to successfully hire 90% of the time,

00:12:09.600 | I need to discipline myself to that base rate.

00:12:12.160 | Now, maybe I am better than the average bear.

00:12:14.760 | But I can't be that much better than the average bear.

00:12:18.880 | Right. That's the thing.

00:12:20.800 | So maybe I can say, oh, I'm great, I'll be 60%.

00:12:23.600 | But notice how far that is away from 90%.

00:12:26.240 | So it's just disciplining you to the base right now.

00:12:28.400 | I actually do research on this with Phil Tetlock, who wrote Super Forecasting,

00:12:32.160 | along with his collaborator and wife, Barb Mellors.

00:12:34.680 | And this is the single most important thing we found in getting people

00:12:38.160 | to be better estimators of probabilities and outcomes in the future

00:12:42.080 | is to teach them about race rates and start to discipline their guests,

00:12:44.840 | give them that starting point of a base rate.

00:12:47.520 | So that's the first thing that you can do for anything you're considering.

00:12:50.160 | Try to figure out what's the base rate, what's the appropriate reference class.

00:12:53.960 | So if I want to figure out how long it's going to take me to get to work

00:12:56.840 | and I live in Philadelphia,

00:12:58.400 | I shouldn't ask how long it takes people to get to work in Cincinnati.

00:13:01.440 | It doesn't have anything to do with me.

00:13:02.800 | So you want to get the right group that you're comparing to.

00:13:05.240 | If I'm thinking about hiring, I could look at averages for all hires.

00:13:09.480 | But if, say, a SaaS startup, I can look at average turnover at SaaS startups.

00:13:14.520 | Right. And that gives me a really good base rate to start from.

00:13:17.800 | So that's piece number one is know your base rate.

00:13:20.120 | So that has to do with seeing that look really clearly.

00:13:22.640 | Piece number two is improve the quality of the information that you're getting.

00:13:26.840 | And the way to do that, honestly, the best way that you can do that

00:13:30.680 | is to start gathering independent viewpoints on the problem that you're considering.

00:13:35.400 | OK, so we can go back to the hiring example.

00:13:38.360 | When you're thinking about creating the job description,

00:13:41.800 | figure out a group of people that are going to be on the hiring committee

00:13:46.280 | and are appropriate to be giving input into what you think that role requires.

00:13:50.120 | So let's say we're talking about like a C-level executive.

00:13:52.840 | Let's say it's like a CRO.

00:13:54.640 | We would want the CMO to be involved, certainly the CEO.

00:13:59.280 | You may want the chief product officer involved.

00:14:01.760 | You want customer success involved.

00:14:03.640 | You want people who are doing enablement, so on and so forth.

00:14:06.080 | So you want to get the people who are sort of like in that function

00:14:08.720 | and then the other leaders that person is going to be interacting with.

00:14:11.800 | So you figure out who the people are that you think should give input on this.

00:14:15.600 | And when it's a personal decision, let's say I'm trying to decide

00:14:18.560 | if I should buy a house, do I build a group of people that I get feedback from?

00:14:23.560 | Or how do you apply that to a normal, non-professional decision

00:14:27.000 | where there's teams involved?

00:14:28.720 | Yes, 100%, you should find people that you get opinions from.

00:14:33.200 | But here's the really important thing.

00:14:34.920 | You need to ask them independently and asynchronously.

00:14:39.160 | For C-level, you would do a little more work, write a job description,

00:14:42.360 | describe this person to a recruiter,

00:14:45.240 | and you're asking them to do this all independently.

00:14:47.160 | What are the near term challenges, near term opportunities,

00:14:50.200 | far term challenges, things like that.

00:14:52.080 | So you're just asking for tell me independently

00:14:55.320 | what you think this role should be.

00:14:57.280 | Now, why are you asking them independently?

00:14:58.960 | Because otherwise they're going to influence each other.

00:15:00.800 | OK, so when you're asking for your own self,

00:15:03.080 | you want to use that same principle of how do I get independent information?

00:15:07.520 | And that's to say you give them a bunch of facts.

00:15:10.960 | I'm thinking about buying a house.

00:15:13.840 | I assume you're currently renting in that case.

00:15:15.760 | I'm currently renting.

00:15:16.880 | This is the location I rent in.

00:15:18.840 | This is how much money I pay and rent in utilities.

00:15:23.080 | This is how much I'm making.

00:15:25.160 | This is the estimate that I have of my job stability.

00:15:27.960 | Here's the area that I'm thinking about buying in.

00:15:31.360 | Whatever you give them the facts.

00:15:33.760 | Now, notice nowhere have I said, but here's my concern.

00:15:37.160 | Like renting gives me all sorts of flexibility.

00:15:40.480 | If I get a house, then I'm kind of tied down to that house.

00:15:43.560 | And what if I don't like it?

00:15:45.280 | And I'm thinking that maybe given the percentage of my total net worth

00:15:51.120 | that I would have to put into the house, it's too much,

00:15:53.120 | which is the way that I would normally ask.

00:15:54.920 | Like if you're sort of left to your own devices, that's the way you ask things.

00:15:57.800 | In the simplest sense of if I say to you, I thought Queen's Gambit

00:16:01.600 | was such a great show, what did you think?

00:16:04.120 | You've done that before.

00:16:06.040 | We all do that. Right.

00:16:07.400 | Instead, what you want to say is, did you watch Queen's Gambit?

00:16:11.040 | And you say, yes, I assume. Yes.

00:16:13.360 | And then I say, what did you think of it?

00:16:16.320 | And I completely withhold my opinion from you.

00:16:18.640 | Now, this is really hard to do.

00:16:21.560 | It's incredibly unnatural.

00:16:23.200 | We think about our opinion as being important data for the other person to have.

00:16:28.080 | But the issue is that the opinion that I'm about to offer you

00:16:31.920 | is actually the information that I'm trying to get from you.

00:16:34.520 | So if I give you my opinion first,

00:16:38.280 | I'm not going to get your opinion in a way that's actually going to be helpful for me.

00:16:42.560 | So instead, what I want to do is just offer you up the facts

00:16:46.160 | that you need in order to give me a good opinion

00:16:49.000 | and then just get your opinion back in a uncontaminated way.

00:16:53.200 | So when I say I'm currently renting and this is how much my rent is

00:16:57.040 | and this is my family situation and this is how much money I have saved

00:17:00.800 | and this how much I make and I'm thinking about buying a house,

00:17:05.760 | I would just love your opinion on that.

00:17:08.080 | Tell me what you know. Tell me what you think.

00:17:10.720 | Right. So I've given you the facts that you need,

00:17:12.880 | and now you can tell me all sorts of things about what you think.

00:17:16.040 | And what you want to do is get a good range of people

00:17:19.120 | who have kind of differing schools of thought, if possible,

00:17:22.440 | and find out what they think and then explore that.

00:17:25.280 | And then you'll have collected all the data.

00:17:28.120 | You can go back to them and say, well, I had another opinion

00:17:32.000 | that was kind of saying this.

00:17:33.520 | I'd love to hear what you think about that.

00:17:35.680 | But you've allowed them to express themselves in a way

00:17:38.360 | where they don't have to disagree with you.

00:17:40.600 | They don't know what you already think,

00:17:42.400 | because mostly when we're having conversations,

00:17:44.200 | we're just trying to affirm the other person.

00:17:46.080 | So even if I did disagree with you or you disagreed with me

00:17:51.080 | and you thought the Queen's Gambit was a terrible show,

00:17:53.280 | you would say it in a super nice way instead of me just saying,

00:17:56.520 | what do you think of the Queen's Gambit?

00:17:57.840 | And you're like, oh, that's horrible.

00:17:59.400 | It's much more stressful on the other side.

00:18:00.920 | Someone asks you a question with no opinion.

00:18:02.520 | You're like, oh, I don't know what to say.

00:18:03.960 | I don't want to offend.

00:18:05.400 | You have to give people permission to do that.

00:18:07.080 | Say, look, I'm really trying to just get your opinion here.

00:18:09.040 | So I'm not going to tell you what I think.

00:18:11.040 | And I'm not going to be offended by your response.

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00:21:08.640 | - So understanding the base rates

00:21:10.640 | so you have a sense of what you're expecting,

00:21:12.360 | which I guess we can get into how that might affect

00:21:15.200 | resulting in the future, knowing that you had an opinion

00:21:18.080 | and you weren't as far off

00:21:19.560 | and you don't judge your decision incorrectly.

00:21:21.480 | And then asking people with a more objective manner

00:21:24.840 | to get their feedback,

00:21:26.360 | any other big things to make a better decision?

00:21:30.280 | - As much as possible, try to write things down

00:21:34.000 | that you're deciding about.

00:21:35.760 | Get other people, trusted advisors,

00:21:38.280 | particularly people who have different points of view

00:21:39.920 | with you are really important.

00:21:42.040 | Here's a really important one, you have to give permission.

00:21:45.040 | So when we're trying to seek information from other people,

00:21:50.280 | we think that permission is implied

00:21:52.240 | for them to say whatever to us,

00:21:54.880 | but we have to actually offer that permission

00:21:57.280 | and they have to be willing to give it to us.

00:21:59.400 | I'm sure this has happened to you.

00:22:01.880 | You fire someone or you break up with somebody or whatever.

00:22:05.840 | And as soon as you do that,

00:22:07.960 | you have a whole bunch of friends who say,

00:22:09.920 | "Oh, I'm so glad you did that.

00:22:11.160 | "I thought you should have done that like six months ago."

00:22:14.320 | Has that one happened to you?

00:22:16.120 | - Well, that one hasn't 'cause my wife and I

00:22:18.720 | started dating, oh gosh, 2004.

00:22:20.760 | So it's been a long time since I've had that conversation.

00:22:23.960 | I'm sure it has.

00:22:24.880 | - Or you fire someone or you quit your job or--

00:22:28.120 | - Yeah, for sure. - Whatever.

00:22:29.520 | And people say,

00:22:30.360 | "I bet you might've said it to somebody when they break up.

00:22:32.840 | "Like, oh, I'm so happy 'cause really,

00:22:34.800 | "wish you would've done that sooner."

00:22:36.600 | So this is like a really common thing that happens.

00:22:39.080 | "Oh, I'm so happy you quit your job.

00:22:40.640 | "Like you were so miserable every single day.

00:22:42.400 | "I knew you should have done that like a long time ago."

00:22:45.200 | And your thought when people say that to you is,

00:22:48.240 | "Okay, but like, why didn't you tell me?"

00:22:50.880 | And the answer is because

00:22:51.800 | there wasn't any explicit permission given.

00:22:54.760 | So in order to really find out what somebody thinks,

00:22:57.920 | you have to give them permission to say what they think.

00:23:00.400 | - I saw this so much in venture capital

00:23:02.600 | that I would be in meetings with other investors

00:23:05.320 | and they'd give feedback to founders saying,

00:23:07.120 | "Oh, I think it's pretty good, but it's not a good fit."

00:23:09.680 | And then after they'd turn to me and be like,

00:23:10.960 | "God, that company's horrible, it's terrible."

00:23:12.960 | - Right. - I was like,

00:23:13.800 | "We should have just told them that."

00:23:14.640 | And I think everyone feels bad telling them that.

00:23:18.360 | And now every time someone asks me for feedback

00:23:20.840 | on their startup, I'm like,

00:23:21.680 | "How honest do you want me to be?"

00:23:23.080 | Like, you want me to tell you to quit?

00:23:25.200 | So I guess if you're on the other side,

00:23:26.560 | you can also invite someone to invite you

00:23:30.640 | to be more honest and give critical feedback.

00:23:32.880 | - I actually do that with my friends.

00:23:34.240 | I'm like, "Are we having a conversation

00:23:35.920 | where you want advice

00:23:36.840 | or where you're just offloading your emotions?"

00:23:39.840 | 'Cause I wanna know, right?

00:23:41.800 | Because sometimes they don't really want your advice.

00:23:44.640 | I think that's just really important.

00:23:45.960 | I think Ron Conway, who founded SV Angel,

00:23:48.920 | is such a good example of doing this really well,

00:23:51.320 | being a very good decision coach to somebody.

00:23:53.680 | So he would actually tell the companies

00:23:55.800 | what he thought of them.

00:23:56.760 | But he would sit down and he'd basically say,

00:23:58.480 | "I think we could admit this isn't working."

00:24:00.720 | As opposed to, "Eh, it seems pretty good.

00:24:03.040 | Just keep going."

00:24:04.240 | He'd be like, "Look, it's not working."

00:24:05.560 | Invariably, the founders would push back on him

00:24:08.960 | and say, "No, but I know we can turn it around."

00:24:10.680 | So it wasn't so much disagreement that it wasn't working,

00:24:12.720 | 'cause I think everybody knows

00:24:13.720 | when things aren't working very well,

00:24:15.400 | but it was always, "No, but we can turn it around."

00:24:17.640 | So he was trying to coach them into letting go.

00:24:21.240 | And founders are gritty by nature.

00:24:23.600 | Of course they don't wanna let go.

00:24:25.360 | So when they said, "No, but I think I can turn it around,"

00:24:28.200 | his tactic was not to disagree with them,

00:24:31.240 | which I think would have just caused a rift,

00:24:33.000 | but to say, "Okay, tell me exactly

00:24:35.800 | what turning it around looks like.

00:24:37.400 | Let's think about the next two months.

00:24:38.960 | You're saying you're gonna turn this around.

00:24:40.960 | What exactly does that look like?"

00:24:42.440 | And try to figure out what those benchmarks are.

00:24:44.240 | Now, he would sit down and do that with the founder

00:24:46.120 | so that the founder now owned that,

00:24:48.520 | sort of along with Ron Conway.

00:24:50.680 | And this is a really good trick for decision-making,

00:24:52.880 | is that often your decision-making is at its worst

00:24:55.960 | when you're trying to make the decision right then,

00:24:58.040 | like when you're actually facing the decision down.

00:25:00.240 | And this is something that really improves decision quality

00:25:02.520 | is to think in advance.

00:25:04.160 | As much as possible, do advanced planning on your decisions.

00:25:06.840 | It's much more efficient.

00:25:08.080 | It creates much better decisions.

00:25:09.360 | So that's essentially what he's doing in this moment.

00:25:11.680 | He's saying, "Let's think about two months from now,

00:25:13.280 | or three months from now, the end of the next quarter.

00:25:16.000 | Let's think about what this is gonna look like

00:25:17.720 | when you've turned it around."

00:25:19.040 | And then basically just set a set of benchmarks.

00:25:22.160 | And then in three months, you can sit down with them

00:25:24.360 | and say, "But you haven't hit them."

00:25:26.960 | And we agreed that's what it looked like.

00:25:28.480 | And that actually makes those decisions a lot cleaner.

00:25:31.480 | And you can do that with your personal decisions as well.

00:25:34.800 | We're all in these situations,

00:25:35.880 | like you have a relationship where it's just not going well,

00:25:39.080 | but you feel like you can turn it around.

00:25:40.920 | You feel like you have so much time invested

00:25:42.840 | and you do love the person, but you're unhappy.

00:25:45.200 | You can make it change.

00:25:47.240 | At that moment, say,

00:25:48.640 | "How long am I willing to tolerate the status quo?"

00:25:52.040 | The way that the relationship is right now or worse.

00:25:56.200 | What do I need to do, do I think,

00:25:58.320 | in order to turn this around?

00:25:59.760 | And then however long that is

00:26:01.520 | that you're willing to tolerate the status quo,

00:26:03.960 | figure out at the end of that time period,

00:26:06.280 | say it's six months, what does change look like?

00:26:10.240 | What will it look like

00:26:11.320 | when things have actually turned around here?

00:26:13.680 | You can do this for a job, a job that you're miserable in.

00:26:16.720 | What do I need to do?

00:26:17.640 | What will it look like that it's actually turned around?

00:26:19.680 | What will have changed?

00:26:21.040 | And the reason that you need to do that

00:26:23.000 | is because when you're actually facing down the decision,

00:26:25.880 | that's when you're most likely

00:26:27.120 | to be rationalizing things away.

00:26:29.080 | That's when your forecasts are gonna be really inaccurate.

00:26:32.160 | That's when the things that you want to be true of the world

00:26:35.760 | are going to influence your actions the most.

00:26:39.440 | It's when everything kind of goes to crap.

00:26:42.880 | And the way that I try to put it to people

00:26:44.760 | to get them to understand this

00:26:45.880 | is that you can say all you want

00:26:47.920 | that you don't wanna eat sugar,

00:26:49.000 | but when there's a cupcake right in front of you,

00:26:50.800 | it's really hard to say no.

00:26:52.760 | And that's true not just of like cupcakes

00:26:54.880 | or pizza or whatever,

00:26:56.280 | you know, it's sitting right in front of you.

00:26:57.720 | It's also true when you're facing a breakup

00:27:01.640 | or you're facing having to fire an employee,

00:27:04.520 | which isn't fun,

00:27:06.400 | or you're facing wanting to quit your job

00:27:10.080 | or break up with a friend or whatever.

00:27:13.360 | These things are very hard to do

00:27:15.160 | because it's that moment where we're worried

00:27:17.240 | about all the time we've put into something.

00:27:19.160 | It's that moment where you go from in a state of failing

00:27:23.040 | to having failed.

00:27:25.200 | Because as long as you keep going,

00:27:26.760 | you might turn it around

00:27:27.840 | and not have to actually sort of put that failure

00:27:30.960 | on the books.

00:27:32.320 | Like if you buy a stock and you bought it at 50

00:27:34.480 | and it goes to 30,

00:27:35.400 | as long as you hold, you could get back to 50.

00:27:37.560 | - But selling now is accepting that.

00:27:39.760 | - It's accepting that.

00:27:40.880 | And that's really hard for us.

00:27:42.240 | So that's why we want to think about both,

00:27:45.880 | how do we ask for permission for people

00:27:48.880 | to tell us the truth?

00:27:50.920 | How do we explicitly ask people if they want the truth?

00:27:55.480 | So we need to have both of those things going on.

00:27:58.280 | And then how do we also figure out

00:28:00.480 | how the person can receive the truth?

00:28:03.160 | And that's true whether we're coaching somebody else

00:28:06.200 | or we're thinking about how we can do this for ourselves.

00:28:08.920 | And one of the best ways for us to receive the truth

00:28:12.040 | is for us to think about the truth

00:28:13.480 | as something in the future.

00:28:15.240 | - So in the investment example,

00:28:17.080 | this is a very common thing.

00:28:18.440 | I have some stock and I know I should probably sell it now.

00:28:21.800 | I wanna make sure it goes up.

00:28:23.320 | In advance, obviously it would have been great

00:28:24.960 | if I had said, you know what?

00:28:26.000 | If this gets to this point, I'm gonna sell it.

00:28:28.280 | And you could even go as far as to set up the order

00:28:30.560 | so that you force yourself to do it.

00:28:31.960 | - Yes, you can put in a stop loss order.

00:28:33.600 | - But let's say I didn't do that.

00:28:34.880 | How do we get past that point?

00:28:36.680 | What can you tell someone or coach someone through it?

00:28:39.040 | - Just do it now.

00:28:40.160 | - Sometimes that's hard to just do it.

00:28:41.400 | - No, no, I don't mean sell it now.

00:28:43.000 | Put in the order now.

00:28:44.480 | But let's say I'm in the moment.

00:28:46.400 | - What does it need to be trading at in a week?

00:28:48.400 | - So you're saying if you're worried now,

00:28:50.720 | then set it for a week from now.

00:28:52.200 | Don't try to make the decision today.

00:28:54.520 | Try to make a smaller future decision

00:28:56.720 | even though you're dealing with it in the present.

00:28:58.720 | - So look, in an ideal world, you would do it right now.

00:29:01.280 | And one of the ways that you can get to doing it right now

00:29:04.600 | is to ask yourself what you could do with that $30.

00:29:08.760 | So this is a helpful tool.

00:29:11.760 | So you bought it at 50, it's now at 30.

00:29:14.520 | You don't want to sell it

00:29:16.040 | because you're worried about losing the $20.

00:29:20.120 | But that $20 is already lost.

00:29:22.880 | So this is something called the sunk cost fallacy.

00:29:25.040 | It's not just about stocks.

00:29:26.520 | It's about I'm in a job and I wanna quit,

00:29:28.640 | but what about all the time and effort I've put into the job

00:29:31.840 | and the onboarding and the training,

00:29:33.240 | and then I'll have just wasted all of that.

00:29:36.360 | It's true of relationships.

00:29:38.360 | It's true of employees that we've hired.

00:29:39.880 | So it's basically true of everything, right?

00:29:42.480 | It's true if you buy a concert ticket,

00:29:45.120 | you've now paid for the concert ticket,

00:29:47.280 | there's planning that's gone involved.

00:29:49.120 | When it's freezing cold and the driving conditions

00:29:53.200 | aren't even safe for you to go to the concert,

00:29:55.080 | you still go because you don't wanna have wasted the ticket,

00:29:57.480 | even though it's a ridiculous decision to go.

00:30:00.240 | Okay, so we know that this is a problem.

00:30:02.360 | So one of the things to do is to shift the frame.

00:30:05.440 | And instead of saying, but I don't wanna lose my $20,

00:30:07.880 | say, what could I do with that $30?

00:30:10.440 | So that can be helpful in the moment

00:30:11.960 | because what that does is it focuses you

00:30:13.920 | on the opportunity cost of the capital

00:30:16.360 | or the opportunity cost of your time, so on and so forth.

00:30:19.400 | Like, what could I use that $30 for?

00:30:21.520 | What could I use this time for?

00:30:23.640 | - That assumes that you've made the decision

00:30:25.640 | that you know you need to sell it,

00:30:26.760 | you're just struggling with it.

00:30:28.240 | Let's say you work at Google

00:30:29.200 | and you have a ton of Google stock.

00:30:30.560 | And I would often tell people as a financial advisor,

00:30:32.880 | I'd say, you probably don't want all of your money

00:30:34.560 | tied in the same company.

00:30:36.280 | And people would say, okay, well,

00:30:37.680 | I'm trying to figure out if I should sell it.

00:30:38.920 | And I would ask them, well, let's pretend there was a mistake

00:30:42.000 | and it all got sold.

00:30:43.040 | Would you wanna buy it all?

00:30:44.640 | And you said in the book

00:30:45.480 | that that kind of Jedi mind trick doesn't really work.

00:30:48.000 | - No. - So I'm very curious

00:30:49.120 | what we should do instead, or maybe why it doesn't work.

00:30:51.960 | - There's two things that you can do instead.

00:30:54.080 | One is advanced planning

00:30:56.080 | combined with a pre-commitment contract.

00:30:58.120 | So essentially you wanna set up kill criteria.

00:31:00.200 | What could I observe in the future

00:31:01.680 | that would make me want to sell this?

00:31:03.960 | Sometimes you'll discover,

00:31:05.160 | oh, that's the state of the world today, and you may sell.

00:31:08.280 | But just saying like, if I were fresh to this decision,

00:31:12.440 | what would I do doesn't really help you.

00:31:14.440 | So the first thing is that you can do this advanced planning.

00:31:17.680 | You can set kill criteria,

00:31:18.840 | just what we've been talking about.

00:31:20.520 | What are the signals that I'm gonna see in the future

00:31:22.480 | that would tell me that I should walk away?

00:31:25.160 | And this is actually gonna get you to walk away sooner.

00:31:27.920 | You won't be perfect, but it will help you do it.

00:31:30.960 | So if you talk about like a stop loss order, for example,

00:31:33.240 | people cancel them all the time.

00:31:35.080 | But the thing is not everybody does.

00:31:37.560 | And I might cancel some stop loss orders, but not others.

00:31:40.440 | And that means at least I'm selling some things sooner

00:31:43.320 | than I otherwise would have.

00:31:45.120 | So that's good.

00:31:46.200 | So a little bit of progress goes a long way,

00:31:48.280 | but we wanna always be thinking about kill criteria.

00:31:50.760 | So that's like, I'm so miserable in my job,

00:31:53.640 | but I don't wanna quit

00:31:55.200 | because maybe I have equity in it or whatever,

00:31:57.680 | but it's like the cost benefit

00:31:59.600 | doesn't look good to me right now.

00:32:01.040 | What would have to happen

00:32:02.640 | over the next three months in my work

00:32:05.000 | that would tell me that I've turned things around?

00:32:07.200 | What would I see that would tell me things are still bad?

00:32:09.840 | Write that list of things down

00:32:11.520 | and commit to an action

00:32:13.560 | associated with any of those things.

00:32:15.680 | I think one of the simplest examples of a kill criteria

00:32:18.360 | is when people mountain climb,

00:32:19.720 | there's something called the turnaround time.

00:32:22.160 | So when you're climbing Everest,

00:32:23.360 | they have turnaround times for each day's climb.

00:32:25.680 | So there's base camp one, two, three, and four.

00:32:28.960 | Four is when you would actually head toward the summit,

00:32:31.600 | but you have to sort of go up and down

00:32:33.160 | in between those camps

00:32:34.040 | in order to get acclimated to the altitude.

00:32:36.200 | And for any climb that you do on the day,

00:32:38.400 | including summit day, they have a turnaround time,

00:32:40.400 | which is set because they don't want you

00:32:42.240 | to descend in darkness.

00:32:43.800 | So for example, on summit day,

00:32:46.440 | when you leave camp four, the turnaround time is 1 p.m.

00:32:50.000 | And what that means is that

00:32:51.440 | if I'm not at a certain point at 1 p.m.,

00:32:55.000 | then I must turn around.

00:32:56.720 | Now, why do you set those times?

00:32:58.800 | Well, because of summit fever, right?

00:33:01.640 | Because we know that people will continue

00:33:03.480 | in very bad circumstances up to the summit,

00:33:07.320 | even when visibility is bad

00:33:08.920 | or the climbing conditions aren't good

00:33:10.520 | or there's a snowstorm,

00:33:11.640 | there's famous books written about it.

00:33:13.760 | John Krakauer, "Into Thin Air,"

00:33:16.160 | talking about a year when a whole bunch of people

00:33:18.480 | got injured and like four people died

00:33:21.040 | because they just continued up to the summit.

00:33:22.680 | So those turnaround times are meant

00:33:24.200 | to make it much more likely

00:33:25.400 | that you're actually gonna turn around

00:33:27.720 | when it's no longer safe to be climbing,

00:33:30.320 | knowing that when you're facing that decision down,

00:33:33.040 | you're not gonna be particularly good at it.

00:33:34.920 | So that's piece number one is think in advance

00:33:37.600 | and set turnaround times for yourself, basically.

00:33:41.080 | Thing number two is get a good coach.

00:33:43.960 | So when you're coaching people about Google

00:33:47.160 | and their stock,

00:33:48.640 | you're giving them an outside perspective

00:33:50.720 | that's more likely to get them to do it today.

00:33:53.880 | So notice they're not saying for themselves,

00:33:56.160 | "What would I do in this situation?"

00:33:58.080 | That's not really the important thing

00:33:59.760 | that's going on there.

00:34:01.240 | The important thing is they're getting

00:34:02.440 | somebody's perspective who's been there, done that,

00:34:05.120 | who kind of thinks about equity,

00:34:06.760 | who's offering them a perspective that's really important,

00:34:10.280 | where they're getting advice

00:34:12.560 | that would be similar to the advice

00:34:14.120 | they would give somebody

00:34:15.040 | if they could get out of their own head.

00:34:17.080 | So that is really helpful,

00:34:19.760 | is to get yourself a quitting coach,

00:34:21.720 | which is what you're saying to them there, right?

00:34:24.760 | So that's offering them that perspective

00:34:26.680 | that allows them also to sort of get out of the moment.

00:34:29.400 | What Daniel Kahneman says, the Nobel laureate is,

00:34:31.720 | "Don't make a decision when you're in it."

00:34:33.920 | Okay, so notice both of these things

00:34:35.680 | are trying to get you to not be in it.

00:34:38.360 | One is to get you to think about the future.

00:34:40.120 | The other is to have somebody looking in from the outside

00:34:43.040 | 'cause they're not in it,

00:34:44.360 | to see the way it looks to somebody else.

00:34:47.600 | Or we could think about it a different way,

00:34:49.200 | the way it would look

00:34:50.040 | if you were standing in their shoes.

00:34:51.920 | Now, the best thing to do is to combine the two,

00:34:55.560 | which is what Ron Conway does.

00:34:58.360 | So he acts as a quitting coach.

00:35:00.040 | He tells them, "Things aren't really working out here,

00:35:03.360 | or I think this would be a good decision."

00:35:05.240 | But when they disagree, he then turns to kill criteria

00:35:08.120 | and coaches them through that.

00:35:09.880 | - Is there something to look for in a good quitting coach,

00:35:13.000 | like a particular profile of a friend or a colleague?

00:35:16.320 | - Yeah, I love the way that Kahneman put it to me,

00:35:19.960 | "Find somebody who loves you,

00:35:21.760 | but doesn't care much about hurt feelings in the moment."

00:35:24.640 | So his quitting coach is Richard Thaler.

00:35:28.160 | He has a Nobel Laureate for his quitting coach.

00:35:30.520 | - Most people listening don't have that luxury.

00:35:32.840 | - No, I don't.

00:35:34.640 | But what's he saying there?

00:35:35.480 | "Find someone who loves you,

00:35:36.440 | but doesn't care much about hurt feelings in the moment."

00:35:38.440 | You need someone who really has your best interest at heart.

00:35:41.640 | This is really important.

00:35:42.760 | - To be clear, it's not your hype person.

00:35:44.440 | It's not the person you call

00:35:45.720 | who's always pumping you up and giving you compliments.

00:35:48.360 | It's almost like the exact opposite of that.

00:35:51.080 | - Someone who really cares about how you do in life,

00:35:54.920 | who really is rooting for you,

00:35:57.440 | but isn't concerned about hurt feelings in the moment.

00:36:02.120 | Because why don't we tell somebody the things that we see?

00:36:05.360 | Because we're afraid they'll be sad, right?

00:36:08.120 | Who wants to deliver the news to somebody

00:36:10.160 | when you're talking about the VCs who are like,

00:36:12.720 | "Yeah, it's pretty good.

00:36:13.680 | I think you're getting there with the product market fit."

00:36:15.840 | And then the person walks out of the room

00:36:18.080 | and they're like, "That's just a dead company walking."

00:36:21.360 | Right?

00:36:22.200 | And it's like, "Oh, hold on.

00:36:23.040 | Why didn't you tell them?

00:36:23.880 | Because they don't want to hurt their feelings.

00:36:25.520 | They don't want to be like the Debbie Downer character

00:36:28.240 | from "SNL."

00:36:30.000 | But the problem is they're doing a tremendous amount

00:36:32.120 | of harm to those founders, right?

00:36:34.200 | That's the problem is we think that we're sparing them harm.

00:36:38.640 | We think that we're being kind

00:36:40.120 | by not telling them the truth right now.

00:36:42.680 | But what we're actually doing is harming them

00:36:45.240 | because the founders aren't getting feedback

00:36:47.280 | that they need to get, right?

00:36:49.200 | So there's all sorts of things

00:36:50.680 | that could come from that feedback.

00:36:52.360 | One is they could stop.

00:36:55.200 | They could return the capital to the investors.

00:36:57.400 | That's a good thing.

00:36:58.240 | That's capital that can be used for other opportunities

00:37:01.080 | that might be better, right?

00:37:03.440 | They can free up their time.

00:37:05.480 | Anybody who's a founder is, for the most part,

00:37:09.040 | super smart, super driven, really gritty, right?

00:37:13.600 | And their time is incredibly valuable.

00:37:16.760 | And if they're spending time on something

00:37:18.600 | that isn't worth that time,

00:37:21.800 | then you are doing them harm by not letting them know that,

00:37:24.720 | so they could switch and turn their attention

00:37:27.360 | to something better,

00:37:29.040 | something more worth their time and their brainpower.

00:37:32.760 | And then the other thing is that it's a real disservice

00:37:35.640 | to their employees

00:37:37.640 | because the people who are working at a startup

00:37:39.600 | are generally working for very low cash comp,

00:37:42.200 | but lots of equity.

00:37:43.600 | So once you determine that the equity isn't worth their time,

00:37:46.800 | you ought to free them up.

00:37:49.080 | And what's interesting is that founders will often say,

00:37:52.480 | "I owe it to my employees to keep going."

00:37:55.160 | And it's like, no, but once you've decided

00:37:57.480 | that the equity isn't worth their time,

00:37:59.040 | you owe it to them to let them go

00:38:00.720 | so that they can go spend their time on something

00:38:03.040 | that might actually be world-changing,

00:38:04.680 | where the equity might really matter.

00:38:07.320 | 'Cause there's only two reasons

00:38:08.640 | that people are willing to do this

00:38:09.960 | because they wanna change the world

00:38:11.280 | or they think the equity is gonna be worth a lot, or both.

00:38:14.920 | So once you've figured out

00:38:15.800 | that none of those things are true, let them go.

00:38:17.960 | So when the VC is trying to spare their feelings,

00:38:21.640 | look at all the harm that's coming from that.

00:38:24.400 | You're allowing someone to be a dead company walking

00:38:27.680 | for however long until they can't raise another round.

00:38:31.640 | That's months and months, sometimes years,

00:38:34.640 | that you're trapping people in a losing endeavor

00:38:36.800 | when you see something else.

00:38:38.440 | And so when you're looking for a quitting coach,

00:38:40.800 | this has to do with, first of all, that permission giving.

00:38:42.920 | You have to be clear with the person

00:38:44.600 | that you want to hear the truth.

00:38:46.000 | And then you need to go find someone

00:38:48.160 | who really has your long-term best interest at heart,

00:38:51.000 | is willing to say the hard things to you

00:38:53.120 | because they love you.

00:38:54.400 | - I have a few people like that, for some decisions.

00:38:57.800 | And then for others, it's a little tough.

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00:41:17.520 | I just wanna thank you quick for listening to

00:41:21.440 | and supporting the show.

00:41:22.920 | Your support is what keeps this show going.

00:41:25.760 | To get all of the URLs, codes, deals,

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00:41:36.960 | I briefly wanna go back in time

00:41:38.880 | to talk about base rates for a second,

00:41:42.520 | 'cause I just thought it was-

00:41:43.360 | - Okay, 'cause I love base rates.

00:41:44.440 | It's like my favorite topic, for real.

00:41:46.280 | - When I think about base rates,

00:41:47.520 | it reminds me of the whole premise of thinking in bets,

00:41:50.200 | which really brought to life

00:41:51.440 | the idea of asking someone to want to bet.

00:41:53.160 | We think of these beliefs,

00:41:54.400 | we have these ideas that we think are so certain

00:41:56.320 | and we're so confident,

00:41:57.160 | I'm gonna hire someone, they're gonna be the best,

00:41:58.800 | is really just thinking about everything in life as a bet

00:42:01.540 | and challenging yourself to put certainties around things,

00:42:04.560 | even mundane, silly decisions.

00:42:07.080 | The best way to rewire how this all works in your head?

00:42:10.220 | - Oh, I think so, absolutely.

00:42:11.840 | So, here's the thing.

00:42:12.720 | When I say, "Do you want to bet?"

00:42:14.680 | All I'm doing is making you examine the assumptions

00:42:18.520 | that are going into your statement.

00:42:19.800 | Listen, I know this person's gonna work out.

00:42:21.920 | I'm like 90% sure.

00:42:23.240 | Do you want to bet?

00:42:24.080 | - One for my wife and I is always

00:42:25.480 | just like remembering something.

00:42:26.640 | I'm like, I'm totally sure that our daughter's preschool

00:42:29.720 | is starting next week.

00:42:30.880 | - Do you want to bet?

00:42:31.720 | - My wife didn't ask that, but if she had,

00:42:33.240 | I would've been like, "Oh, I don't know if I wanna put

00:42:35.280 | all my money on the line."

00:42:37.360 | - Because what it makes you think about is,

00:42:38.820 | there's a couple things.

00:42:39.660 | Well, what does the person who's betting me

00:42:41.480 | know that I don't know?

00:42:42.520 | So, in some sense, when I say, "Want to bet?"

00:42:44.160 | I'm acting a little bit as a coach to you.

00:42:46.720 | 'Cause I'm telling you that I have a perspective

00:42:48.720 | that is different from yours.

00:42:49.800 | If I'm willing to bet, that means that I'm saying

00:42:52.380 | that I believe something different than you.

00:42:54.240 | So, it's automatically making you start to think like,

00:42:56.800 | "Well, what's a different way to look at this?"

00:42:58.600 | And then you have to start examining like,

00:43:00.360 | "Well, exactly how sure am I of this?"

00:43:03.360 | My husband and I talk like this all the time.

00:43:06.360 | Generally, where it's like, "Well, what's the price?"

00:43:08.980 | That's what we end up doing,

00:43:09.860 | which is just a way to say, "What's the probability?"

00:43:11.820 | We don't think about bets as just dollar for dollar.

00:43:15.060 | Let's say that it's an election.

00:43:16.660 | I live in Pennsylvania.

00:43:17.660 | So, let's say you say like, "I'm sure John Fetterman's

00:43:20.560 | gonna win the election."

00:43:21.480 | And someone says, "Want to bet?"

00:43:22.760 | You could immediately say, "Yes."

00:43:24.000 | But then the response would be, "Well, what's the price?

00:43:26.260 | Are you willing to lay me a price?

00:43:27.660 | Are you giving me a price?"

00:43:28.980 | As an example, if I say to you,

00:43:30.400 | "I'll bet $10 for every dollar that you bet,"

00:43:33.620 | I'm telling you that I'm very certain that I'm right.

00:43:36.820 | 'Cause I'm risking a lot compared to what I can win.

00:43:39.380 | But if I say, "No, no, no, no, no."

00:43:41.060 | If I say I'm 90% sure of something,

00:43:42.940 | I should be willing to lay you nine to one.

00:43:45.860 | $9 for every one.

00:43:47.360 | But as soon as I'm like, "Okay, I'll take the nine to one."

00:43:50.780 | And I go, "Wait, no.

00:43:53.060 | No, no, no, no."

00:43:54.100 | Like even money.

00:43:55.420 | Then what I'm saying is actually, I think it's 50/50.

00:43:57.920 | And I wasn't really thinking about it.

00:43:59.580 | It's like a good way to be like interacting.

00:44:03.180 | I can tell you that I do this with little things

00:44:05.280 | and big things and whatever.

00:44:06.780 | It's actually kind of fun.

00:44:08.060 | Once you start like, "Well, what price do you wanna lay?"

00:44:10.340 | And we always bet a dollar.

00:44:12.060 | And it's really fun.

00:44:13.620 | But I think that the thing that's really important

00:44:16.060 | about the betting,

00:44:17.580 | and this is so crucial to good decision-making,

00:44:20.700 | is that it forces you to make the things

00:44:24.860 | that are implicit in the decision you're making explicit.

00:44:28.000 | The simplest example is one of the things

00:44:32.560 | that is always implicit in the decision you're making

00:44:35.560 | is your forecast of the probability

00:44:38.680 | of different things occurring.

00:44:39.640 | In other words, whether you know it or not,

00:44:42.340 | base rates are part of the decision-making.

00:44:46.340 | So when I say to you,

00:44:49.160 | "I'm gonna meet you for dinner at seven o'clock.

00:44:53.880 | And I promise I'll be on time."

00:44:56.160 | And you say, "Wanna bet?"

00:44:58.000 | Implied in that is that I must have a tendency to be late.

00:45:02.640 | And the question is,

00:45:03.480 | "How much of a tendency do I have to be late?

00:45:05.400 | And how willing am I to say to you,

00:45:07.200 | "Yes, I'll bet you that I'm gonna be on time."

00:45:10.600 | When I say things like that and then you bet back,

00:45:12.960 | those are all things that have to do with base rates.

00:45:15.720 | You could say something like,

00:45:16.880 | "I know the stock market is gonna go up this year."

00:45:20.180 | Well, that's a prediction of the future.

00:45:21.800 | And if I know the base rates, I may bet you on that.

00:45:24.600 | Depending on what you're willing to lay me, right?

00:45:27.520 | 'Cause the stock market goes up actually somewhere

00:45:29.200 | between like, it depends on how you measure it,

00:45:30.840 | 65 and 75% of the years, it will go up.

00:45:33.880 | So if you say, "I'm 100% sure it's gonna go up this year."

00:45:36.320 | I might bet you.

00:45:37.360 | - And I would take that bet

00:45:38.400 | because there are actually options out there I could use

00:45:41.160 | to arbitrage your confidence.

00:45:44.520 | - That is true.

00:45:45.960 | That is very true.

00:45:47.200 | But I'm not involved in the arbitrage.

00:45:48.920 | So you can hedge away.

00:45:50.160 | I'm just gonna take my bet.

00:45:52.040 | And then maybe I'll hedge it as well.

00:45:53.760 | But the point being that when somebody says, "Wanna bet?"

00:45:57.560 | It's like, when you say, "I think this person I'm gonna hire

00:46:00.120 | "is gonna work out 90% of the time and I bet you."

00:46:02.760 | It makes you actually go through and start thinking,

00:46:04.660 | "Well, wait a minute, why do I believe that?"

00:46:07.560 | You know, remember one of the things that we wanna do

00:46:09.360 | in order to improve decision-making

00:46:11.500 | is to start thinking about what's the quality

00:46:14.240 | of the beliefs that we have

00:46:15.180 | that go into any decision that we're making.

00:46:17.640 | And part of that is making the implicit explicit.

00:46:21.720 | And this is one of the things

00:46:23.040 | that's so incredibly important.

00:46:25.480 | I mean, even talking about a hiring example

00:46:27.480 | where you send out to a bunch of people,

00:46:29.120 | what do you think the job description should be?

00:46:31.320 | What do you think the person,

00:46:33.000 | if you were describing them to a recruiter,

00:46:35.160 | and you're getting that all independently,

00:46:37.920 | what you're finding out is in an explicit way,

00:46:40.840 | when they would otherwise just go and interview somebody,

00:46:43.300 | what are the things that they think are important

00:46:45.260 | for filling this role?

00:46:46.440 | And now you've made that explicit in a way

00:46:48.400 | that you can, first of all, examine it,

00:46:50.080 | which is incredibly important, right?

00:46:52.400 | We have to be able to examine our decisions.

00:46:54.500 | And that means that we have to actually make all this stuff

00:46:57.880 | that's sort of in our gut explicit in a way

00:47:00.700 | where you can examine it like an object.

00:47:03.280 | You can walk around it, you can have discussions about it.

00:47:06.620 | I can see that you have a different perspective.

00:47:08.760 | And when we see that we have a dispersion of opinion,

00:47:11.720 | we can sort of dive into that dispersion

00:47:14.120 | to see where the gaps are,

00:47:15.320 | to see why you believe something different

00:47:17.280 | about the world than I do.

00:47:18.880 | And this is the way that we start to learn really fast.

00:47:22.480 | It's the way that we start to get our decisions

00:47:25.020 | to be much more accurate.

00:47:26.480 | But there's a side effect of making things explicit,

00:47:29.840 | which is that it allows us to close feedback loops

00:47:32.160 | a lot better.

00:47:33.520 | So now, when we do actually start

00:47:35.400 | to get some sort of set of outcomes,

00:47:37.120 | when we see an outcome, we can actually now go back

00:47:39.780 | and say, what did I believe at the time

00:47:41.780 | when I made this decision?

00:47:44.960 | And we can understand, here were my beliefs at the time,

00:47:48.480 | here's what I found out after the fact, right?

00:47:52.680 | Let me go back and figure out,

00:47:54.640 | did I already have these outcomes

00:47:56.640 | in my set of possibilities?

00:47:58.520 | Do I feel like I had the probabilities right

00:48:00.920 | that those were gonna occur?

00:48:02.160 | Was there stuff that I learned after the fact

00:48:04.240 | that I didn't know beforehand?

00:48:05.900 | Could I have known it beforehand?

00:48:08.160 | Could I know it going forward?

00:48:10.440 | As an example, if I'm just thinking about

00:48:12.420 | when should I leave for work?

00:48:14.480 | I wouldn't write this down

00:48:15.980 | 'cause it's a more mundane decision,

00:48:18.080 | but I'm actually explicitly thinking about

00:48:20.240 | when should I leave for work?

00:48:21.160 | How long do I think it's gonna take for me to be here?

00:48:23.200 | How bad is it if I'm late?

00:48:25.100 | And I decide in an explicit way,

00:48:29.200 | it's not very bad if I'm late today.

00:48:30.880 | I don't really have any important meetings

00:48:32.840 | for the first like hour and a half of the morning.

00:48:35.660 | So I've got a little bit of leeway.

00:48:37.580 | So I'm really gonna leave

00:48:40.200 | according to what the average time it is

00:48:41.960 | for me to get to work.

00:48:43.680 | So now I go and there's some huge accident on the highway

00:48:46.960 | and I ended up being like 45 minutes late to work, okay?

00:48:50.720 | So do we look back on that and say that was a mistake?

00:48:54.460 | Which is what we have a tendency to do.

00:48:56.200 | Do we look back and say that was so stupid?

00:48:57.800 | Why did I leave so late?

00:48:59.260 | Well, in this particular case,

00:49:00.380 | it wouldn't make sense to do that

00:49:01.560 | because you took it into account.

00:49:03.940 | You sort of knew there's some possibility

00:49:05.680 | of bad things happening on the road.

00:49:07.020 | You don't really have control over

00:49:08.240 | whether there's an accident on the road or not.

00:49:10.860 | And you had a lot of leeway

00:49:12.320 | because it wasn't a big deal if you were late that morning.

00:49:15.440 | So you took all of that into account

00:49:17.220 | and then a bad thing happened,

00:49:18.440 | but that doesn't mean that the decision

00:49:20.880 | was bad to take that risk on.

00:49:23.000 | Whereas if I'm deciding to leave for the airport,

00:49:25.780 | I may say, well, I can't miss my flight.

00:49:29.120 | This is the only flight that they have today

00:49:31.240 | to the location I'm going.

00:49:32.440 | So now you may leave a lot of time

00:49:34.120 | for just that type of thing like bad traffic or an accident.

00:49:38.720 | So what are you sacrificing for that?

00:49:40.760 | Well, you may end up spending an extra hour

00:49:42.520 | hanging out in the airport,

00:49:44.000 | but you make sure that you get to your plane on time.

00:49:47.100 | Now, just as in the reverse case,

00:49:49.360 | when there is no traffic and the roads are totally clear

00:49:52.780 | and you get to the airport an hour early

00:49:54.560 | and you find yourself sitting around bored

00:49:57.460 | in an airport lounge,

00:49:59.000 | you also shouldn't think it was a mistake.

00:50:01.880 | Because in an explicit way,

00:50:03.160 | you thought about what your risk tolerance was.

00:50:05.320 | You thought about the base rates,

00:50:06.920 | how long it could take you to get to work.

00:50:09.440 | And you took that all into account

00:50:11.840 | when you made the decision.

00:50:13.800 | And this is what we need ultimately

00:50:15.400 | in order to be good decision makers.

00:50:17.600 | - If you think about in advance,

00:50:19.020 | the likelihood of the outcome happening,

00:50:21.100 | that makes it much easier to reflect on it.

00:50:23.880 | This happened to me in a situation,

00:50:26.240 | I won't go into the details of it

00:50:27.440 | 'cause it could go down a rabbit hole,

00:50:28.520 | but we were trying to do something tax efficiently

00:50:30.480 | when we were buying a home

00:50:31.420 | and it involved taking some money out of the market.

00:50:33.720 | And I was like, okay,

00:50:34.560 | we're gonna have to take a good chunk of our investments

00:50:36.720 | out of the market for about 60 days.

00:50:40.440 | And data showed about what the return on average

00:50:43.720 | is for 60 days.

00:50:44.960 | And so we knew about what we thought

00:50:46.880 | we would lose out in those 60 days.

00:50:48.960 | And we knew the upside of going through this entire process

00:50:51.680 | to buy the house in this specific way.

00:50:53.720 | And the only X factor was that in those 60 days

00:50:57.920 | was our last presidential election.

00:50:59.560 | So we were like, oh, we were a little anxious about this,

00:51:01.520 | this thing that could really move the markets.

00:51:03.560 | At the end of the day,

00:51:04.600 | I think time will tell if we stay in this house

00:51:07.400 | for more than like seven years, it was a good decision.

00:51:09.680 | But if we don't, I still think it was a good decision.

00:51:12.680 | And even the wording I just used is probably wrong.

00:51:15.240 | If we stay in this house for seven years,

00:51:17.160 | it will have been the optimal outcome.

00:51:19.800 | But no matter what, it was the right decision.

00:51:22.320 | And I just have to keep harping on myself

00:51:24.280 | when people say, oh, is that a bummer?

00:51:25.640 | You know, you might've lost out.

00:51:26.680 | It's like, well, I made the best decision

00:51:28.760 | with the information I had at the time.

00:51:30.680 | And I can feel good about that as hard as it is.

00:51:33.000 | - I don't know if you have any tips

00:51:33.880 | for getting over that emotional angst of like,

00:51:36.200 | it's really easy to know you made the right decision,

00:51:38.080 | but if the right decision made you lose money,

00:51:40.200 | it's still hard to deal with that.

00:51:42.160 | - The other thing is I assume

00:51:43.320 | that you took that into account.

00:51:44.440 | There are base rates

00:51:45.280 | for how long people stay in their homes as well, right?

00:51:48.040 | So you can say like, in the worst case scenario,

00:51:50.560 | this is how long we would have to be in the house.

00:51:52.360 | What do we think the probability is

00:51:53.720 | that we'd be in the house this long?

00:51:55.200 | In the best case scenario, this is how long we,

00:51:57.400 | you know, so you take all of that into account.

00:51:59.080 | One of the things that I do, again,

00:52:00.700 | is to always change the frame.

00:52:02.160 | Well, how would I feel if it had worked out?

00:52:04.040 | I guess in the last presidential election,

00:52:05.720 | there's other factors, but just from a financial standpoint,

00:52:08.620 | how would I feel if it worked out?

00:52:10.500 | One of the things that I always try to think about is,

00:52:13.920 | oh, but those things go my way a lot too.

00:52:17.040 | I'll take a really simple example

00:52:18.960 | where I play tennis a lot

00:52:21.240 | and a ball hits the net court a lot.

00:52:23.680 | And sometimes it plops over to the other side of the court.

00:52:28.720 | And sometimes it plops over to your side of the court.

00:52:31.560 | And this can be on very big points that this happens.

00:52:35.320 | And when it plops back over to your side of the court,

00:52:38.000 | you're super sad and you feel like you're really unlucky.

00:52:41.580 | But then what I say to myself is,

00:52:43.880 | but it's gone the other way for me

00:52:45.280 | at really important times as well.

00:52:47.500 | So I try to always remember that.

00:52:49.400 | And the question then I try to focus on is,

00:52:52.560 | did I pick the right shot?

00:52:54.680 | Should I have done something

00:52:56.360 | which was gonna have more clearance over the net?

00:52:58.920 | Then I start to think about, was it the right choice?

00:53:01.880 | I try to get back to the decision itself

00:53:04.200 | as opposed to just the outcome.

00:53:06.200 | And we do this all the time.

00:53:08.200 | You're talking about a pretty high stakes decision

00:53:10.400 | that has to do with financial planning in-house,

00:53:12.440 | but you're taking equal risk by taking it out of the market.

00:53:14.840 | And the thing is that you weren't taking it out of the market

00:53:16.800 | because you were guessing the outcome

00:53:18.720 | of the presidential election.

00:53:20.260 | Now that I would say, that's not so smart.

00:53:22.800 | We just know that from the base rates,

00:53:24.480 | trying to time the market doesn't really work out

00:53:26.680 | for people very much.

00:53:28.020 | But you're taking it out for a different reason

00:53:30.040 | where you understand what the risks are,

00:53:31.680 | that sometimes it's gonna go up,

00:53:33.600 | sometimes it's gonna go down.

00:53:35.260 | You understand how long you would have to stay in your house

00:53:38.920 | in order for it to be a reasonable decision,

00:53:41.500 | so on and so forth.

00:53:42.840 | And you decided that you were willing to take on that risk.

00:53:46.000 | I don't have any issues with that.

00:53:47.520 | Now that's not to say

00:53:48.660 | that you wouldn't close the feedback loop

00:53:50.280 | and go back and say, would it have made more sense

00:53:53.880 | for us to wait until the presidential election

00:53:58.280 | had played out?

00:53:59.720 | And the answer to that might've been,

00:54:01.420 | but this is the house that we really want.

00:54:03.460 | We've been looking for a long time

00:54:05.700 | and it's kind of go time, we can't wait.

00:54:08.340 | Okay, none of that sounds bad.

00:54:11.420 | The only thing that would be bad

00:54:12.820 | is I had lots and lots and lots of time to wait

00:54:15.220 | and I didn't need to do this

00:54:16.540 | at a moment of high uncertainty.

00:54:18.780 | Then I would say, well,

00:54:19.620 | maybe we should talk about that issue.

00:54:21.460 | Outside of that, you've thought it through,

00:54:24.480 | but this tendency, like when you said

00:54:26.320 | then it will have been a mistake,

00:54:28.200 | been a bad decision, it's so strong with us.

00:54:31.440 | Let me ask you this.

00:54:32.440 | So you've gone to a restaurant, right?

00:54:34.160 | - Yes.

00:54:35.000 | - And you're looking at the menu

00:54:36.440 | and you're trying to figure out what to order.

00:54:40.220 | Let's say it's a restaurant you've never been to.

00:54:42.760 | So this is really high uncertainty, right?

00:54:44.480 | Like you've never been to this restaurant.

00:54:46.320 | Yeah, it's got good Yelp reviews

00:54:48.320 | and you're trying to figure out what to order

00:54:50.160 | when you narrow it down to a couple of dishes.

00:54:52.420 | And then at some point, you know, you just got to order.

00:54:54.820 | And so you do and you get the food and it's disgusting.

00:54:58.860 | It's like yucky.

00:55:00.700 | What do you immediately say to yourself?

00:55:02.200 | Like, oh, I made such a big mistake.

00:55:03.660 | I should have ordered something else.

00:55:05.400 | - Yep.

00:55:06.400 | - What do you mean you should have ordered something else?

00:55:08.480 | Like you kind of know what your preferences are.

00:55:10.220 | You know what you like.

00:55:11.180 | So what I try to tell people is look,

00:55:13.780 | you know what you know,

00:55:14.620 | there's a whole bunch of stuff you don't know

00:55:15.820 | and then there's a lot of left.

00:55:17.120 | So even with something like ordering off a menu,

00:55:19.920 | I say, just look, here's the deal.

00:55:21.780 | You should just divide the menu up into stuff you like

00:55:24.620 | and stuff you don't like.

00:55:26.300 | It's easy for me, I'm a vegan.

00:55:27.900 | So it's like, what's vegan, what's not vegan?

00:55:29.900 | And so I can divide it up that way.

00:55:31.400 | And then I could do further things

00:55:32.940 | like what has eggplant in it?

00:55:34.900 | And then do that.

00:55:35.900 | And then, you know, I get it narrowed down

00:55:37.540 | to whatever is available for me to eat off the menu.

00:55:40.000 | And then honestly, you should flip a coin.

00:55:42.100 | Like literally just, okay,

00:55:45.980 | here's the things that are in my choice set.

00:55:49.480 | I'm just gonna flip a coin to try to figure it out.

00:55:52.360 | Now, if you're not comfortable doing that,

00:55:54.280 | I'll do this sometimes.

00:55:55.220 | I'll just say to the waiter, you decide.

00:55:57.960 | It's the same thing as flipping a coin.

00:55:59.960 | Here are these two things, surprise me.

00:56:02.060 | - I did an episode with Patrick McGinnis,

00:56:03.860 | who's notable for coining the term FOMO.

00:56:06.460 | And he just looks at his watch.

00:56:07.840 | He comes up with two things.

00:56:08.960 | He says, if the second hand's on the left, it's this.

00:56:11.140 | If it's on the right, it's this.

00:56:12.280 | It's his version of flipping a coin.

00:56:14.380 | - Yeah, or you can just tell the wait person

00:56:16.400 | to just decide for you.

00:56:17.840 | And then you get what you get and it's fine.

00:56:19.940 | But that strategy, so I call it the menu strategy,

00:56:23.240 | is actually a way to make your whole life

00:56:25.140 | much more efficient.

00:56:26.640 | It's like, you're trying to decide what to watch on TV.

00:56:28.720 | Figure out what your choice set is and flip a coin.

00:56:31.060 | The key to doing that is that

00:56:32.860 | when you don't like the thing you're watching, quit it.

00:56:35.300 | This is the thing about this type of strategy.

00:56:37.300 | You have to be willing to abandon it.

00:56:39.160 | The problem is that when we're approaching a decision,

00:56:42.060 | should we start this series?

00:56:44.000 | We think we have to finish the series.

00:56:47.040 | We think we have to finish an episode.

00:56:49.540 | Right, like we think all of these weird things about it.

00:56:51.900 | And so then we get really caught up

00:56:53.380 | in trying to do research.

00:56:54.640 | I just look at Rotten Tomatoes

00:56:55.940 | and look at the things that are high rated

00:56:58.140 | or things that my friends have recommended.

00:57:00.140 | And then I just do it.

00:57:01.220 | And if I don't like it, I stop.

00:57:02.720 | But you have to be able to do the thing

00:57:04.260 | on the back end in order to do it.

00:57:05.580 | But you can do this with everything.

00:57:07.520 | There's two houses that you love

00:57:09.160 | and you can't decide between them.

00:57:10.560 | Okay, if you can't decide between them,

00:57:12.800 | by definition, that means that your forecast

00:57:15.000 | of the probability of you loving either one

00:57:17.300 | and being happy in them is equal.

00:57:19.260 | So flip a coin.

00:57:20.440 | I mean, you can really do it with big decisions.

00:57:23.840 | The difference between a big decision and a small decision

00:57:26.600 | is that the bar for sorting out options

00:57:31.180 | you would consider versus options you wouldn't is higher.

00:57:34.820 | For what you'd order off a menu, it's not that big a deal.

00:57:37.320 | You eat three meals a day, I assume, whatever.

00:57:41.160 | It's a very low bar for getting to a coin flip.

00:57:44.120 | For buying a house, it's a pretty high bar

00:57:46.120 | for getting to a coin flip.

00:57:48.000 | And that's all that you need to think about

00:57:49.720 | is what's the threshold.

00:57:51.400 | That's it.

00:57:52.440 | - I love this idea.

00:57:53.260 | I have an example I've mentioned in the past

00:57:55.000 | of we were going to Greece and we found three hotels

00:57:57.160 | and they were all pretty similar and we were struggling.

00:58:00.000 | We were like, well, does this room look nice in this room?

00:58:02.400 | - Yeah, and it turns into months.

00:58:04.080 | - And the easy answer was like,

00:58:05.380 | once you've gotten to a point

00:58:06.680 | that you're pretty sure all of them would be fine,

00:58:08.880 | just pick one and move on.

00:58:10.160 | But it brings up the bigger question,

00:58:11.480 | which is you've written a couple of books

00:58:12.680 | on decision-making and then you decided

00:58:14.580 | that this one decision of quitting and walking away

00:58:17.840 | was different enough, I assume,

00:58:19.200 | that you wrote an entire another book on it

00:58:21.160 | that just came out.

00:58:22.440 | I'm curious what made quitting such a hard decision?

00:58:26.160 | What characterized it so differently

00:58:27.720 | that it was worth the follow-up to dig into?

00:58:30.120 | - Here's the deal.

00:58:31.160 | What allows us to make decisions under uncertainty

00:58:33.920 | is that we have the option to quit.

00:58:36.040 | Okay, so just basic, right?

00:58:38.480 | Imagine if when you hired someone,

00:58:41.800 | you could never fire them.

00:58:43.360 | How hard of a decision that would be.

00:58:46.840 | Imagine if as soon as you went on a date with somebody,

00:58:50.600 | you had to marry them.

00:58:52.000 | How hard would it be to choose somebody

00:58:54.720 | to go on a date with?

00:58:56.720 | Imagine if you rented an apartment,

00:58:59.120 | you couldn't get out of the lease, like ever.

00:59:02.500 | Like these things would become very difficult.

00:59:05.160 | So decision-making under uncertainty is really hard,

00:59:08.400 | but what allows us to be able to do it,

00:59:10.400 | to be able to choose things when we know so little,

00:59:13.320 | is that when we find out new stuff,

00:59:16.480 | whether it's about the world

00:59:18.080 | or it's about our own preferences,

00:59:19.880 | oh, it turns out I don't like this neighborhood,

00:59:21.880 | whatever, that we can quit.

00:59:23.920 | So it's a really, really, really important decision.

00:59:26.360 | Having this option to quit is incredibly valuable.

00:59:29.400 | But what's interesting is that what the science tells us

00:59:32.940 | is that we're really bad at it.

00:59:35.580 | Obviously, grit is a really, really popular concept.

00:59:38.840 | People think about grit as character-building,

00:59:42.720 | in fact, as almost synonymous with character.

00:59:46.480 | And it's true that grit's really important

00:59:49.120 | for getting you to stick to hard things that are worthwhile.

00:59:51.440 | That's incredibly important, right?

00:59:53.340 | We have to not quit things just 'cause they're hard.

00:59:56.200 | Otherwise, we won't ever be successful at anything,

00:59:58.400 | 'cause anything worth doing is gonna be hard at some point.

01:00:01.340 | So that's for sure true.

01:00:03.240 | And I think everybody should read "Grit,"

01:00:05.080 | and it's a great book, and Angela Duckworth is brilliant.

01:00:08.340 | But I was missing the other side of the conversation,

01:00:11.960 | which is that grit also gets you to stick to hard things

01:00:14.640 | that are not worthwhile.

01:00:16.880 | And that's a really huge problem.

01:00:19.240 | We can't think about grit as a virtue

01:00:20.800 | and quitting as a vice or a character flaw.

01:00:23.440 | I can show you lots of circumstances

01:00:25.080 | where grit is character flaw,

01:00:27.700 | where sticking to something too long is bad,

01:00:30.280 | like Muhammad Ali boxing for years

01:00:32.600 | after he already had symptoms of Parkinson's,

01:00:37.160 | when he was really suffering physically,

01:00:39.000 | he should have walked away from the game.

01:00:41.840 | So we know that it's very context-dependent,

01:00:45.240 | and sometimes quitting is the best thing

01:00:46.840 | that you can ever do.

01:00:48.280 | Like if you're in a job with a toxic boss,

01:00:50.960 | or you're in a toxic relationship,

01:00:53.120 | or you're at the top of Everest,

01:00:55.080 | and it's past the turnaround time,

01:00:56.620 | and there's a snowstorm coming in,

01:00:58.500 | clearly sticking to it is dumb in that situation.

01:01:01.680 | So we need to realize that they're the same decision,

01:01:05.280 | and one is not good and one is not bad.

01:01:07.400 | It's very dependent on context.

01:01:09.200 | And then when you start to look and dive

01:01:11.320 | into the scientific literature,

01:01:14.040 | it turns out that there's just tremendous cognitive forces

01:01:18.240 | that make it very hard for us to walk away from things,

01:01:21.840 | not at the right time anyway.

01:01:23.800 | All the way from sunk costs,

01:01:25.000 | which we've talked about a little,

01:01:26.200 | which is this tendency to stick to things

01:01:28.240 | because you're worried you'll have wasted the time

01:01:30.660 | or the money or whatever that you put into it,

01:01:32.880 | because you wanna get that back.

01:01:35.120 | Somehow, like when you hold onto a stock

01:01:37.080 | or you stay in a job or whatever,

01:01:38.720 | there's issues that have to do

01:01:39.840 | with endowment ownership over things.

01:01:41.680 | We value the things that we own

01:01:43.880 | more than the things that we don't,

01:01:45.980 | including our beliefs, by the way.

01:01:48.760 | And we don't like to let go of those things

01:01:51.300 | that have to do with something called sure loss aversion,

01:01:54.400 | which Daniel Kahneman talks about,

01:01:55.960 | which is if you quit, it turns into a realized loss.

01:02:00.600 | And we don't like that.

01:02:02.120 | That doesn't feel good to us.

01:02:04.080 | As Richard Thaler says,

01:02:05.800 | we don't like to close mental accounts in the losses,

01:02:09.400 | so we don't like to close those accounts

01:02:11.280 | and sort of eat that loss.

01:02:13.000 | Even though, obviously, just like a stock portfolio,

01:02:18.000 | our decisions are a portfolio,

01:02:20.680 | our opportunities are a portfolio,

01:02:22.880 | and we ought to be trying to spend our time

01:02:24.600 | on the ones that are going to move us

01:02:26.320 | toward our goals the most,

01:02:27.960 | that are gonna cause us to gain the most ground.

01:02:30.680 | We open an account for a particular thing we're doing,

01:02:34.240 | whether it's a marathon, or climbing Everest,

01:02:36.360 | or a job, or a relationship, or whatever,

01:02:38.780 | and we don't think about that time, that effort,

01:02:41.400 | that all of that is fungible

01:02:42.680 | across all the possible opportunities we have.

01:02:45.480 | Instead, we just think if I quit now,

01:02:47.200 | I won't have hit my goal,

01:02:48.480 | and then I'm gonna be a failure,

01:02:50.360 | and I'm gonna have lost, and so we won't quit.

01:02:53.360 | There's identity, cognitive dissonance, status quo bias.

01:02:56.680 | These are all in the book.

01:02:58.000 | Omission, commission bias.

01:02:59.600 | There's so much stuff that we just carry around with us,

01:03:03.800 | this cognitive debris that makes it really hard

01:03:06.120 | for us to walk away,

01:03:07.800 | and here's the thing why I'm so passionate about this topic,

01:03:11.760 | is that we think that quitting will slow our progress down.

01:03:16.520 | We think it may actually cause us to lose ground,

01:03:20.480 | but that's not true.

01:03:21.880 | When you quit at the right time,

01:03:24.000 | it actually gets you to where you want to go faster,

01:03:27.100 | because it stops you from sticking to something

01:03:29.040 | that isn't actually causing you

01:03:31.040 | to gain ground toward your goal,

01:03:33.080 | and allows you to switch to something

01:03:35.560 | that will allow you to gain ground toward your goal,

01:03:39.200 | and that's the thing that we miss,

01:03:41.200 | because we don't see the other opportunities

01:03:43.400 | that the thing we're doing is stopping us from engaging in,

01:03:47.480 | because there's a cost to that time.

01:03:49.280 | There's a cost to that money that we're spending

01:03:51.040 | on whatever it is that we're into,

01:03:54.080 | or that we're pursuing, the path that we're on,

01:03:57.280 | and we won't let go of it,

01:03:59.040 | because if we haven't reached our goal,

01:04:00.520 | we think we're a failure,

01:04:01.860 | but just like if you sell that stock at 30,

01:04:05.360 | and you lost the $20, so what?

01:04:07.440 | You can put that $30 into other investments

01:04:09.720 | that are actually gonna get you

01:04:10.880 | to financial well-being more quickly,

01:04:14.180 | so holding on to a stock that isn't worthwhile,

01:04:17.120 | because you already lost $20 in it,

01:04:19.640 | is actually slowing your progress down,

01:04:21.880 | because you can't go put those resources

01:04:23.580 | into something that will get you

01:04:24.640 | to financial well-being more quickly,

01:04:26.400 | and that's true whether it's a stock,

01:04:28.040 | or a job, or a relationship, or a race you're running.

01:04:30.800 | I don't really care.

01:04:32.760 | If the world tells you you should quit,

01:04:34.200 | you ought to do that,

01:04:35.560 | because that's the thing that allows us

01:04:37.320 | to decide under uncertainty in the first place,

01:04:39.280 | so let's start exercising that option,

01:04:41.860 | so that we can more efficiently and more quickly

01:04:44.200 | get to where we wanna go.

01:04:46.240 | - I love the Astro Teller example

01:04:48.160 | of the monkey and the pedestal.

01:04:50.000 | Can you just walk people through that?

01:04:52.160 | - We wanna be efficient in the things that we're pursuing,

01:04:54.720 | so we want to get to understand should we continue,

01:04:57.800 | or should we quit as quickly as possible,

01:05:00.280 | so here's a mental model that will help people do that.

01:05:02.860 | It's called Monkeys and Pedestals,

01:05:04.760 | from Astro Teller, as you said, over at X at Google.

01:05:07.600 | Imagine you're trying to train a monkey

01:05:09.600 | to juggle flaming torches

01:05:10.760 | while standing on a pedestal in a town square.

01:05:13.240 | This will be a money-making opportunity.

01:05:15.120 | What's the thing that you should do first?

01:05:16.740 | Should you build the pedestal first,

01:05:18.120 | or should you try to train the monkey

01:05:19.480 | to juggle the flaming torches?

01:05:21.280 | Well, the thing about the pedestal building

01:05:23.640 | is that we've been building pedestals forever.

01:05:25.520 | It doesn't really help you.

01:05:26.640 | It's low-hanging fruit,

01:05:28.760 | but it's not something that's actually gonna help you

01:05:30.840 | to accomplish your goal,

01:05:32.400 | 'cause you could just turn a milk crate upside down, even.

01:05:34.760 | So if you spend time building the pedestal,

01:05:36.940 | it's really kind of wasted time,

01:05:38.660 | because it's not unlocking the bottleneck in the system,

01:05:41.420 | which is can I actually train this monkey

01:05:43.040 | to juggle the flaming torches?

01:05:44.880 | So his point is that when you approach this project,

01:05:47.720 | you should say what are the monkeys, right,

01:05:49.920 | and ask yourself this.

01:05:50.920 | What are the monkeys?

01:05:51.760 | What are the pedestals?

01:05:52.580 | What are the things I know I can accomplish?

01:05:54.000 | What are the things that are gonna unlock the whole system,

01:05:56.440 | but are really hard, and I don't know if we can do it?

01:05:59.600 | And attack those things you don't know first,

01:06:02.280 | and that's gonna do two really important things for you.

01:06:05.000 | One, it's gonna get you to understand

01:06:07.000 | whether you can actually do this thing or not

01:06:09.360 | really quickly, right?

01:06:11.880 | Two, and this is really important,

01:06:13.560 | is it's gonna reduce those sunk costs,

01:06:17.080 | because all that time you spend building pedestals

01:06:20.080 | is time and effort and money

01:06:21.900 | that you're putting into something

01:06:23.660 | that's then gonna cause friction

01:06:25.760 | when you butt up against a monkey that's hard to train.

01:06:29.060 | So train the monkey first.

01:06:31.080 | Now, this is the opposite of the way

01:06:32.680 | that most people do things.

01:06:33.820 | How many times have people approached a project

01:06:35.580 | and said, well, what's the low-hanging fruit?

01:06:38.260 | Let's try to solve for that.

01:06:40.100 | And the problem with the low-hanging fruit

01:06:41.700 | is that those are all pedestals.

01:06:43.340 | Don't do the low-hanging fruit

01:06:44.620 | until you know whether you can actually grow the whole tree.

01:06:47.020 | Can you get to the fruit at the top of the tree?

01:06:49.140 | That's what you really care about.

01:06:50.520 | So I love that mental model.

01:06:52.040 | - I'm gonna link in the show notes.

01:06:53.200 | A friend of mine, Aaron Battalion,

01:06:54.600 | wrote this post about knowns and unknowns.

01:06:56.920 | He pushed me so hard in my last startup.

01:06:58.680 | He was like, figure out what that known unknown is.

01:07:01.280 | What's the thing that you don't know how to do

01:07:03.420 | that you know you don't know how to do?

01:07:04.880 | In his case, ultimately,

01:07:06.900 | the thing that he pushed me to focus on that,

01:07:09.220 | sorry, Aaron, I didn't follow at the beginning,

01:07:11.600 | was the thing that we realized

01:07:12.840 | halfway through running the company was the problem.

01:07:15.240 | And we ended up shutting the company down

01:07:17.100 | with $4 million in the bank

01:07:18.680 | because we realized the thing wasn't going to work

01:07:21.000 | and we didn't wanna keep going.

01:07:22.200 | - And you probably could have done that

01:07:24.240 | with $5 million in the bank.

01:07:26.400 | What AstroTeller's trying to say is like,

01:07:28.440 | look, you're gonna spend some time

01:07:30.080 | trying to solve for the monkey

01:07:31.560 | or figure out if you can solve the monkey or monkeys.

01:07:34.100 | And you might spend $2 million doing that.

01:07:36.540 | But if you can get to that answer in $2 million

01:07:39.600 | instead of $9 million,

01:07:40.920 | again, that's a savings of $7 million,

01:07:43.520 | not a waste of $2 million.

01:07:45.120 | That's why this is such an important mental model

01:07:47.160 | for people to use.

01:07:48.120 | There were a bunch of other great mental models

01:07:50.200 | on all kinds of different aspects of quitting.

01:07:52.600 | Where can people find out more about the book

01:07:55.000 | and everything else you're working on?

01:07:57.160 | - Well, people can always go to AnnieDuke.com.

01:08:00.240 | I have a newsletter.

01:08:01.560 | Lately, it's been a lot about quitting, not surprisingly.

01:08:04.280 | I'm super into the topic, as you can imagine,

01:08:06.680 | or you can tell.

01:08:07.640 | And then Twitter @AnnieDuke.

01:08:09.840 | And then you can obviously buy the book

01:08:11.640 | at any online or physical retailer near you.

01:08:15.680 | - I got an advanced copy, I appreciate that.

01:08:17.880 | I really enjoyed it.

01:08:18.960 | Sometimes I don't get through the whole book

01:08:20.520 | before I talk to someone.

01:08:21.440 | This time I was like staying up late.

01:08:23.440 | My wife's like, "We gotta wake up our kids in the morning."

01:08:25.360 | So I really enjoyed it.

01:08:26.960 | Thank you so much for writing it.

01:08:28.320 | And thanks so much for being here.

01:08:29.800 | - Thank you so much for having me.

01:08:31.520 | - I really hope you enjoyed this episode.

01:08:34.960 | Thank you so much for listening.

01:08:36.760 | If you haven't already left a rating

01:08:38.240 | and a review for the show in Apple Podcasts or Spotify,

01:08:41.640 | I would really appreciate it.

01:08:43.360 | And if you have any feedback on the show,

01:08:44.800 | questions for me, or just wanna say hi,

01:08:47.180 | I'm chris@allthehacks.com or @hutchins on Twitter.

01:08:51.440 | That's it for this week.

01:08:52.520 | I'll see you next week.

01:08:53.720 | (upbeat music)

01:08:56.640 | (bubbles popping)

01:08:59.480 | (bubbles popping)

01:09:02.320 | (bubbles popping)

01:09:05.160 | you