Think better

The more I reflect on Daniel Kahneman’s book Thinking Fast and Slow the more I realize just how brilliant it is. 

It’s a very well-written, impeccably organized, and astoundingly researched catalog of how our human brain makes decisions, with a focus on the most common ways it fails. Each chapter feels like it could be a book on its own, and the ideas seem to be just the very first of amazing (and sometimes scary) insights into how our brains work. 

I understand more by writing so I’ve written down here the key principles or ideas in the book.

1. You think in two distinct ways: quick and effortless, called System 1, and slow and demanding, called System 2.

System 1 is automatic and quick; your default mode. System 2 is what is typically thought of as “thinking,” where you’re actively engaging in mental activities that require effort. System 2 is a limited resource. Imagine multiplying 17 x 24 while making a left turn in heavy traffic. For another example of System 2 failing when taxed, check out The Gorilla Test. 

2. System 1 tends to dominate your thinking because System 2 requires effort. 

In other words, you tend not to “think” as often as you think you do. 

3. System 2 is a limited resource, and consuming it can have consequences, often related to self-control.

Self-control and cognitive effort are forms of mental work. Let’s call using System 2 in a taxing way “thinking hard”—anything that requires you to actively engage a demanding cognitive task. If you think hard, occupying System 2, System 1 has more influence on your behavior. 

People who are cognitively busy are also more likely to make selfish choices, use sexist language, and make superficial judgments in social situations. 

Kahneman highlights the work of the psychologist Roy Baumeister that “all variants of voluntary effort—cognitive, emotional, or physical—draw at least partly on a shared pool of mental energy.”

If you have to work hard at something, you are less able to exert self-control at something else that follows, an effect known as ego depletion .

Baumeister also discovered that hard thinking led the nervous system to consume large amounts of glucose and showed that consuming sugary drinks could undo some of ego depletion.

4. People vary in their ability to counter the quick, intuitive thoughts emerging from System 1.

Quickly answer the following: A bat and ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?

If you said 10 cents, you let System 1 fool you. If you said 5 cents, you engaged System 2, overriding the intuitive answer System 1 threw out. 

Another one: Does the conclusion follow from the premises for the following? All roses are flowers. Some flowers fade quickly. Therefore some roses fade quickly. 

The answer is no. If you said yes, which seems to make sense, System 1 fooled you. 

Kahneman makes a very important point with these tests. Having administered the test to Ivy League students, he points out that many failed the test. Fifty percent of students at Harvard, MIT, and Princeton failed the bat/ball question, and a large majority of college students failed the rose question. These students certainly can answer the questions but for some reason choose not to engage with them properly. 

The ease with which they are satisfied enough to stop thinking is rather troubling. “Lazy” is a harsh judgment about the self-monitoring of these young people and their System 2, but it does not seem to be unfair. Those who avoid the sin of intellectual sloth could be called “engaged.” They are more alert, more intellectually active, less willing to be satisfied with superficially attractive answers, more skeptical about their intuitions.

Kahneman points out work done by Keith Stanovich and Richard West who argued that intelligence is distinct from the ability to avoid biases of judgment, which they call rationality. 

5. Your brain is very susceptible to ideas and behavior because of its tendency to associate ideas without your realizing.

A key concept is the association of ideas. One idea activates other ideas in your mind. 

An idea that has been activated does not merely evoke one other idea. It activates many ideas, which in turn activate others. Furthermore, only a few of the activated ideas will register in consciousness; most of the work of associative thinking is silent, hidden from our conscious selves. 

Association can work in unusual ways. One experiment exposed subjects to words associated with the elderly (e.g., Florida, forgetful, bald, gray, wrinkle) and found that the subjects exposed to those words then walked down the hallway much more slowly than those that hadn’t been exposed.

This effect can also work in reverse. When subjects were asked to walk around a room at a third of their normal pace, they were much more likely to recognize words related to old age. Their minds were primed for old age.

Reciprocal priming effects tend to produce a coherent reaction: if you were primed to think of old age, you would tend to act old, and acting old would reinforce the thought of old age.

An amazing experiment: Subjects were asked to listen to a message through headphones and told that they were testing the quality of the audio equipment by moving their heads repeatedly to check for distortion. Half were told to nod their heads up and down; the other half to shake their heads side to side. The half that nodded was much more likely to accept the message they heard than the half that shook their head. 

The chapter (Chapter 4, “The Associative Machine”) is among the best. Kahneman goes on to list experiment after experiment with amazing outcomes.

6. How easy (or not) it is for you to mentally process something can have unusual effects.

Kahneman paints the picture of a dial in your head with “easy” on one end and “strained” on the other that measures the extent to which things are going well or not. If things are going well and there are no threats, System 1 can stay in control. If not, as the dial increasingly moves to “strained,” that means System 2 needs to jump in. 

Reading a sentence in clear font pushes the dial to cognitive ease. Same with an idea you’e heard before or been prepped for in some way before (i.e., one that has been primed). Same with hearing a speaker when you’re in a good mood. All cognitive ease.

Conversely, poor font, faint colors, difficult wording, or a bad mood lead to cognitive strain.

What’s surprising, though, is the effect this has on your thinking:

The various causes of ease or strain have interchangeable effects. When you are in a state of cognitive ease, you are probably in a good mood, like what you see, believe what you hear, trust your intuitions, and feel that the current situation is comfortably familiar. You are also likely to be relatively causal and superficial in your thinking. When you feel strained, you are more likely to be vigilant and suspicious, invest more effort in what you are doing, feel less comfortable, and make fewer errors, but you are also less intuitive and less creative than usual.

In a sense, the entire brand advertising industry rests on this idea. Familiarity leads to pleasurable feelings. Kahneman describes an experiment by the psychologist Robert Zajonc on what is known as the mere exposure effect. 

For a period of a few weeks, Zajonc ran an ad on the front page of the student papers at the University of Michigan and Michigan State University. The words themselves were nonsense and Turkish-sounding (to make them foreign and unusual): kadirga, saricik, biwonjni, nansoma, and iktitaf. The extent to which the words were shown was varied. One was shown only once, and other others were shown, two, five, ten, or twenty-five times.

Kahneman:

The results were spectacular: the words that were presented more frequently were rated much more favorably than the words that had been shown only once or twice.

7. Our brains are hardwired to see causality, even where there may be none.

Kahneman describes research done by the psychologist Albert Michotte:

Michotte…argued that we see causality, just as directly as we see color. To make his point, he created episodes in which a black square drawn in paper is seen in motion; it comes into contact with another square, which immediately begins to move. The observers know that there is no real physical contact, but they nevertheless have a powerful “illusion of causality.” If the second object starts moving instantly, they describe it as having been “launched” by the first. Experiments have shown that six-month-old infants see the sequence of events as a cause-effect scenario, and they indicate surprise when the sequence is altered. We are evidently ready from birth to have impressions of causality, which do not depend on reasoning about patterns of causation. They are products of system 1.

Kahneman points out that this element of our psychology is incredibly significant:

The prominence of causal intuitions is a recurrent theme in this book because people are prone to apply causal thinking inappropriately, to situations that require statistical reasoning. Statistical thinking derives conclusions about individual cases from properties of categories and ensembles. Unfortunately, System 1 does not have the capability for this mode of reasoning; System 2 can learn to think statistically, but few people receive the necessary training.

8. You have a bias to believe and confirm. 

Whitefish eat candy.

Kahneman offers that phrase as an example of how our brains, in order to unbelieve something, have to first believe it. When we read that statement, the associative machinery in our brain that automatically makes connections began to associate the two ideas. System 1 kicked in, tying the two ideas together and making us believe them for a short time, before System 2 allowed us to unbelieve the idea. 

Kahneman also details experiments by the psychologist Daniel Gilbert that show how if System 2 is taxed, we’ll believe more of these nonsensical statements, concluding: “The moral is significant: when System 2 is otherwise engaged, we will believe almost anything.”

[As a side note here, it’s worth mentioning another book that blew my mind: But Wait…There’s More by Remy Stern, which details the $100 billion—yes, $100 BILLION—infomercial industry. The relevant aspect here outlined by Stern is that these infomercials often sell products with no value at all at high prices because the commercials catch people when they’re tired and vulnerable.]

9. You have a tendency to either fully like or dislike someone or something.

Kahneman points out that if you like the president’s politics, you likely feel positively about his voice and appearance as well.

He gives the example of you meeting someone named Joan at a party and having a pleasant conversation with them. You’ll later think of them as someone generous, when asked about their likelihood to contribute to a charity. In fact, you don’t know that they’re generous. But you know you like her. You also know you like generous people. Therefore, you conclude Joan is probably generous—and, in fact, like her more after you’re asked the question about her generosity because you added generosity to her list of pleasant qualities. 

Kahneman describes an experiment by the psychologist Solomon Asch. 

What do you think of Alan and Ben?

Alan: intelligent—industrious—impulsive—critical—stubborn—envious

Ben: envious—stubborn—critical—impulsive—industrious—intelligent

More specifically: whom do you view more favorably? Most people say Alan. But notice that they have the same qualities, just presented in the opposite sequence. For Alan, you minimize the negative qualities or attribute them in such a way that they are positive (e.g., “Alan’s stubborn because he’s so intelligent”).

Kahneman goes on to tie this tendency to evaluations and group discussions. You want independent judgments of things, where errors can be decorrelated. For example, when he graded tests, he used to grade one student’s essays from start to finish. But he found he let his first grades influence the later grades so he switched to blindly grading one question for all students at a time. He also suggests that at meetings in which an important issue has to be discussed that all participants write down a brief summary of their position ahead of time. 

10. You tend to think that what you see is all there is.

Kahneman comes back to the idea of associative memory frequently, with one of its key features being that it only represents active ideas. In other words, your brain automatically (via System 1) activates many, many ideas when it encounters something. But anything that isn’t activated is completely ignored in that unconscious process.

Kahneman: “System 1 excels at constructing the best possible story that incorporates ideas currently activated, but it does not (cannot) allow for information it does not have.” … “When information is scarce, which is a common occurrence, System 1 operates as a machine for jumping to conclusions.”

Kahneman touches upon a key idea: “The measure of success for System 1 is the coherence of the story it manages to create. The amount and quality of the data on which the story is based are largely irrelevant.” In other words, System 1 is a horrible analyst.”

System 2 can override this, of course, but its important to realize that this is happening. “System 1 is expected to influence even the more careful decisions. Its input never ceases.”

This idea is so central that Kahneman came up with the abbreviation WYSIATI: what you see is all there is.

System 1 uses a series of shortcuts to lead you to make a judgment: basic assessments, sets and prototypes, intensity matching, and mental shotgun.

[To add detail]

You have a tendency to answer an easier question when presented with a harder question.

[To add detail]

(As you can see, this is still in progress. Stay tuned!)

Questions

Jason Fried at the 37signals blog Signal v. Noise spent some time speaking with Clayton Christensen and kindly shared some of what he learned. 

Christensen described an orientation to learning as follows:

Questions are places in your mind where answers fit. If you haven’t asked the question, the answer has nowhere to go. It hits your mind and bounces right off. You have to ask the question—you have to want to know—in order to open up the space for the answer to fit.

I wrote in my last post about how we can miss things if we’re not looking for them. There’s a popular test that demonstrates this shortcoming of our brains in a fairly dramatic manner.

If we accept this shortcoming, then we also have to accept the fact that those who have an entirely different mindset than us will see things we completely miss. Specifically, entrepreneurs approaching investors are often rightly frustrated that the investor “just doesn’t get it.” A feature can seem insignificant to someone that is seeing it for the first time.

Yet, the entrepreneur that has been immersed in the end user’s world is thinking: You don’t get it! It seems minor, but once you peel the onion back and get to the heart of the customer’s problem, this solves it! It’s an elegant, perfect solution, and we’re sitting on a gold mine here. 

And there you have an impasse.

Part of the solution is having folks come to the table with a common knowledge base. In fact, “knowledge” is not even the right word—perhaps “empathy” base: a common sensitivity to the customer problem being addressed.

While great, I don’t think that’s necessary. Acknowledging this dynamic can help solve it. In short, what is significant to those presenting a solution will likely seem insignificant to an outsider—at first. 

Perhaps the right way to proceed is to spend time on the product and features to get a sense of the solution and then start from the beginning, asking the entrepreneur to explain what problem they were trying to solve and the process by which they went about it doing.

Of particular importance are the questions they asked. What were the questions at the outset? What did they learn? How did those questions change? What are the outstanding questions now? In hindsight, what were the most significant questions and subsequent learnings? What do they feel are the most important questions now and what are their hypotheses around those questions?

Throughout, the investor should compare those questions to the questions in his own head. Wherever the entrepreneur presents a question or answer that doesn’t fit with the investor’s own set of questions or prioritized order—that’s the time to stop and discuss. 

Do this in enough detail, and you’ll get a sense of whether you’re moving toward a common base of understanding. To be clear, the investor likely won’t get the same level of conviction in that meeting, but both sides should get a sense of whether he has the potential to get to that level of commitment. 

The key is to focus on the questions and figure out what key questions are different. 

Vision

The video below is a test of your ability to pay attention. Once the video starts, count the passes made by the players in white shirts. Most people get this wrong so pay attention. 

Surprised?

Maybe you saw the gorilla, or you’ve seen this video before. In which case, try this one.

I saw the first video a few years ago, and it blew me away. (I didn’t see the gorilla.) And I’ve thought about it often since in many contexts.

The simple fact that we don’t see what we are not looking for is scary. The answer to a problem or the key to a billion dollar business could literally be staring us in the face, and we might not see it because we just weren’t prepared to receive the answer.

Rose-colored glasses

It’s another reason I believe people have to be polymaths, masters of many things. At least, certainly, entrepreneurs and investors. The world is complicated, subtle, and ever-changing. Competition is fierce. The skill or insight that drove value yesterday may not drive value tomorrow. So you have to be open to insights from different places. You have to be able to see the world through different lenses so that you’re not the proverbial hammer to whom everything is a nail. 

Yet, it’s not enough to just say you’re going to be open to insights. Christensen et al in The Innovator’s DNA explain how the best innovator’s engage in specific behaviors to make sure they see new things and make connections. The book is worth reading because it’s very specific about why those behaviors matter as well as how to develop them.

The book talks about specifically about insights and how to generate them. A related but different angle is finding different ways of thinking, period. What are entire views of the world that are different than your’s that might lead to entirely different conclusions. The word “conclusions” actually is not strong enough because a different viewpoint might lead to MANY different actions that together take you in an entirely different direction. 

Vision in coffee

There’s a related angle that I’ve been wondering about since I read Pour Your Heart Into It, the story of Starbucks as told by its founder Howard Schultz.

When Schultz pursued his idea, the coffee market was unexciting. It was a commodity, largely convenience store or diner sort of experience. Coffee sales were, in fact, declining in this country. Even the original Starbucks founders, the source of Schultz’s initial excitement about the business, didn’t believe in his idea of a coffee shop.

Schultz had a clear vision about what he wanted to create. To be clear, what he initially envisioned wasn’t the Starbucks that ended up emerging, but it was a vision in that general direction. And it was a rich, cohesive vision that he pivoted (adapted) in very thoughtful ways. But it was the vision that helped him “see” what others hadn’t seen, helping him make bold decisions that in their aggregate created a unique, highly profitable, and highly defensible business.

One of those insights was to make employees central to the company. Partners, his term for employees, come even before customers in the mission statement, which is something meaningful to everyone at Starbucks. (Shareholders come last.)

The frontline employees of Starbucks, the baristas, have been central to its success in a number of ways. Their extraordinarily good manner with customers leads to customer loyalty. Low turnover lowers hiring/training costs, further increases loyalty with customers, and creates a pipeline for experienced managers for future stores. The fact that all baristas are similarly well-trained leads to predictable performance with stores, particularly new ones.

And all of that was possible for two reasons. One, Schultz had a vision for a customer experience to which coffee was central but not the only thing—employees and store mattered, too. Two, growing up with a father that had been treated badly by his employers, he envisioned a company that would create value by treating its employees well.

In short, he had a vision of the world and a belief system that allowed him to see possibility where others had not.

Where others were focused on improving the profitability of low-priced coffee in the common settings, he saw a premium experience.

Where others saw only whole ground coffee sold for home consumption, he saw a store experience.

Where others saw minimum wage employees as a means to an end in serving coffee, he saw well-paid employees with full benefits that would create multiples of value relative to the added wage and benefit expenses. 

Founders and vision

All of this leads to me believe that the original vision, belief system, and passion of the founder are the key to a ground-breaking business. It literally allows them to see the things other miss. It allows them to create and combine elements to create something that is both valuable and unique. 

If Schultz sat in front of you in 1985 and articulated his vision to you, how would you have known that he was on to something great? There’s a lot of complexity in that answer, not least his intelligence and ability to sell. Yet, I believe the richness of his vision, the passion with which he articulated it, and a belief system were key. In expressing these to you, it would have been a signal that he was an entrepreneur that had a higher-than-average likelihood of creating a groundbreaking business.

Same with new businesses being started today. Investors, spend time talking about an entrepreneur’s vision of the world and their belief system. What are they passionate about? What do they believe that others might not believe? Entrepreneurs, don’t be shy to articulate your vision and belief system. The stronger, richer, more nuanced, the better. You’re already seeing things that others don’t. Help them see those things so that they can help you create something of enduring value. 

Theories

We all have theories. A theory is just a belief about what causes something to happen and why.

Anytime we take a series of actions to achieve some goal, whether large or small, we’re behaving according to some theory. We believe that those actions, as opposed to some other actions, have a better chance of resulting in the outcome we want.

There’s a theory for hitting a baseball and a different theory for hitting a golf ball (and it changes for different situations).

There are theories for curing illnesses and other theories for dealing with recessions. 

There are theories for convincing consumers to buy products, and there are theories for persuading people in an argument. 

The point is, whether you’re explicit about it or not, you run your life on theories. We all form and refine theories as we go along. For most people, this is all they do. They see what has worked and form an implicit theory of cause and effect. Once formed, it’s difficult or impossible for that theory to change. Others, however, think explicitly about the theories and how to improve them. The impact can be staggering.

I somewhat coincidentally stumbled upon four different people writing independently about the same thing: thinking explicitly about theories. The two that were in finance had met with astounding success and had attributed that success to that mode of thinking. This seemed significant to me, and the rationale for doing so made sense as well.

In other words, it would have been a mistake to think that thinking about theories leads to success because a few successful people did so. That would be correlation, not causation—a mistake that good theory, in fact, helps you avoid. Rather, there emerged clear, logical reasons that living life this way made sense and would lead to more success. 

Ray Dalio

Ray Dalio runs Bridgewater Associates, which with $122 billion under management today and having returned 18 percent annually on average for the last 20 years, is the biggest, most successful hedge fund in the world. Not only that, it’s returns are uncorrelated with other hedge funds, which is incredible.

It’s hard to grasp the scale of that achievement. Doing all four of the following together is completely unprecedented: good returns, constant returns, uncorrelated returns, and a very large pool of capital (few hedge funds are larger even than $10 billion).

Dalio is unique in that he writes openly about his thought process. It’s clear when you read his writings that he thinks about the world in fundamental, timeless ways. (The Fed at times turns to him for advice, and he was regularly involved in discussions during the financial crisis.)

His broad ideas are captured in a document titled Principles on Bridgewater’s website. It’s worthwhile reading, even though some have called the ideas “weird” or “cultish.” There’s no doubt that he promotes a strong, unique culture. The strength of the culture and how openly he discusses it can be disconcerting to many.

The most powerful part of the document, however, is in his approach to life, which he explicitly summarizes as:

Truth—more precisely, an accurate understanding of reality—is the essential foundation for producing good outcomes.

He extends that idea into many forms, from a philosophy of self-improvement to mastery of a craft to running an organization.

But the heart of his philosophy is the same: there is an objective way the world works, a fundamental reality, which you can either accept and seek to understand or not. It doesn’t matter whether you do or not, the reality remains. And those who seek to understand it will meet with more success than those that don’t.

Charlie Munger

Charlie Munger is Vice Chairman of Berkshire Hathaway, which he runs with CEO and Chairman Warren Buffett. Berkshire Hathaway’s groundbreaking successful I probably don’t need to make explicit, but I will anyway: Berkshire Hathaway in 2011 had $143 billion in revenue and total assets of $392 billion. It has grown book value 20 percent per year for the last 44 years. And, of course, Warren Buffett is at varying times the richest man in the world or in the top five.

Munger, in addition to his role at Berkshire Hathaway, has become famous for his view of the world, which came to light in a series of speeches in which he advocates addressing life by building up a store of elementary, worldly wisdom.

In his speech to USC Business School in 1994, he begins:

What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.

You’ve got to have models in your head. And you’ve got to array your experience—both vicarious and direct—on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.

What are the models? Well, the first rule is that you’ve got to have multiple models—because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine.

It’s like the old saying, “To the man with only a hammer, every problem looks like a nail.” And of course, that’s the way the chiropractor goes about practicing medicine. But that’s a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So you’ve got to have multiple models.

And the models have to come from multiple disciplines—because all the wisdom of the world is not to be found in one little academic department. That’s why poetry professors, by and large, are so unwise in a worldly sense. They don’t have enough models in their heads. So you’ve got to have models across a fair array of disciplines.

You may say, “My God, this is already getting way too tough.” But, fortunately, it isn’t that tough—because 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.

Munger goes on to describe those models. He starts off with things like permutations and combinations, which are powerful but that human minds, as a consequence of our evolution, are not naturally equipped to handle. 

And because it’s powerful yet not natural…

…you have to learn in a very usable way this very elementary math and use it routinely in life—just the way if you want to become a golfer, you can’t use the natural swing that broad evolution gave you. You have to learn—to have a certain grip and swing in a different way to realize your full potential as a golfer.

He moves on to psychology:

And then when you get into psychology, of course, it gets very much more complicated. But it’s an ungodly important subject if you’re going to have any worldly wisdom.

And you can demonstrate that point quite simply: There’s not a person in this room viewing the work of a very ordinary professional magician who doesn’t see a lot of things happening that aren’t happening and not see a lot of things happening that are happening.

And the reason why is that the perceptual apparatus of man has shortcuts in it. The brain cannot have unlimited circuitry. So someone who knows how to take advantage of those shortcuts and cause the brain to miscalculate in certain ways can cause you to see things that aren’t there.

Now you get into the cognitive function as distinguished from the perceptual function. And there, you are equally—more than equally in fact—likely to be misled. Again, your brain has a shortage of circuitry and so forth—and it’s taking all kinds of little automatic shortcuts.

So when circumstances combine in certain ways—or more commonly, your fellow man starts acting like the magician and manipulates you on purpose by causing your cognitive dysfunction—you’re a patsy.

And so just as a man working with a tool has to know its limitations, a man working with his cognitive apparatus has to know its limitations. And this knowledge, by the way, can be used to control and motivate other people….

So the most useful and practical part of psychology—which I personally think can be taught to any intelligent person in a week—is ungodly important. And nobody taught it to me by the way. I had to learn it later in life, one piece at a time. And it was fairly laborious. It’s so elementary though that, when it was all over, I felt like a fool.

There’s incredible insight through the speech, and in fact, I think he downplays the power of his view. There are many more mental models that are important than he discusses, and of course, the models vary by field.

Yet, the heart of his message is simple and elegant:

…you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.

Clayton Christensen

Business books have gotten a bad reputation, and in most cases, rightly so.

In his book The Halo Effect Phil Rosenzweig reviews the problem with most business books and the studies they rely upon. In the vast majority of cases, they draw a correlation between characteristics common to successful cases to generalize suggestions for other companies without rigorously articulating a theory.

Christensen doesn’t fall prey to this tendency, which is actually a much broader problem with how our minds view the world. In fact, he explicitly combats this tendency in discussing the foundation of good theory. 

I knew when I read The Innovator’s Dilemma that it was powerful, but I couldn’t then tell you exactly why. Partly, it was the depth of the research. His research began by studying eighty-three firms that entered the disk drive industry over the course of seventeen years. Partly, it was the logic. Christensen didn’t stop with obvious answers. He persisted until he articulated theories that rested on timeless human behavior. He also extended the idea into a diverse array of industries and time frames. He welcomed exceptions, realizing they were the key to sharpening the theory.

I understood more, however, when I read The Innovator’s Solution, where in Chapter One, he talks about the characteristics of good theory. (Since most people reading this blog are focused on startups, I’m going to replace “manager” in the following with “entrepreneur” to emphasize the relevance.)

Even though most entrepreneurs don’t think of themselves as being theory driven, they are in reality voracious consumers of theory. Every time entrepreneurs make plans or take action, it is based on a mental model in the back of their heads that leads them to believe that the action being taken will lead to the desired result. The problem is that entrepreneurs are rarely aware of the theories they are using—and they often use the wrong theories for the situation they are in. It is the absence of conscious, trustworthy theories of cause and effect that makes success in building new businesses seem random.

Christensen goes on to articulate a process of building solid theory, one that has been adopted across disciplines.

1. Describe the phenomenon you wish to understand.

2. Classify the phenomenon into categories.

3. Articulate a theory that asserts what causes the phenomenon to occur, and why. (The theory must also show whether and why the same causal mechanism might result in different outcomes, depending on the category or the situation.)

The process is iterative.

As mentioned, a key problem with the way many people build theory is that they generalize from a few observations. In other words, they mistake correlation for causation. Like Dalio, Christensen uses the theory of flight as an example to illustrate how good theory works.

The phenomenon researchers wanted to understand was flight: What allows creatures to fly, and how can we create flight for humans? 

Researchers began categorizing their observations into things that could fly and things that could not. They saw that most of the creatures that could fly had feathers and wings that flapped so an early theory articulated was that creating feathered wings and flapping them would lead to flight. 

They were wrong. It wasn’t until Bernoulli’s study of fluid mechanics that they understood how pressure differentials created by wings caused flight. 

The Innovator’s Solution is filled with great theory about what leads to success in innovation.

K. Anders Ericsson

There’s a final angle here that may not appear to fit in the same mold at first and that’s the idea of deliberate practice, first articulated by psychologist K. Anders Ericsson. Ericsson wrote an article in Harvard Business Review, and other authors built on his ideas in the books The Talent Code and Talent is Overrated. 

Ericsson began by studying memory and found that with training anyone could be made to remember long strings of numbers. Previously, it had been believed that the human mind could only hold seven numbers at a time, that this was a “hardware” problem. Ericsson proved that this was wrong, reliably increasing the capacity to ten times that (and feeling that he had not found the upper limit).

(A fun read is the journalist Joshua Foer’s story of how, having read about this research, he embarked on a journey to improve his memory, detailed in a NYTimes Magazine article and a book.)

From there, Ericsson went on to become the leading researcher in the acquisition of extreme skill. He basically wanted to understand how experts, the leading performers in any field, acquired their skill. Were they born with the skill (i.e., were they naturally talented), or did they acquire it? 

What he found:

Consistently and overwhelmingly, the evidence showed that experts are always made, not born. (Emphasis Ericsson’s.) 

Ericsson goes on to articulate a theory he calls “deliberate practice” of explicitly and consciously improving one’s skills. He goes on to discuss how much of an expert’s skill comes from literally knowing more than others by having seen many more situations from which to draw lessons.

But that’s not all. These experts also saw the world differently. Having seen so many situations, they were able to fit situations into certain frameworks to draw the relevant key pieces of information and implied actions quicker and more reliably than others. 

As with the other approaches, explicitly thinking about performance is key. Whereas Dalio, Christensen, and Munger all focus on thinking, Ericsson expands that skill to other arenas as well, including sports. But the core remains the same: explicitly focus on improving performance. Believing that you’ll improve passively is a pipe dream.

So…

Realize there are timeless, fundamental rules for everything. Going forward, I’m going to write more about using theories as well as specific theories.