Book Review: Misbehaving

misbehavingRichard Thaler is known as the father of behavioral economics, and he did his work at the same time as Daniel Kahneman, who gained fame for his work on the same topic as a psychologist. Prior to his papers, economists tended to think that people always acted rationally. Economists would never predict that people would be happy when the bowl of almonds that people were munching right before dinner was taken away, so that their appetite wouldn’t be spoiled. Economists thought that people always acted rationally. Thaler came up with point after point where he realized that that wasn’t true. This book is a story about how he came to realize how irrational we are, and how he slowly proved it, to the chagrin of leading economists of the day.

Note for example how most people respond to extra costs when using a credit card. Paying more is thought of as a surcharge, which is rather disliked. But if it’s a cash discount you’re giving up (with the same effect), then you think of it as just a small opportunity cost for the convenience. Rationally they’re identical, but psychologically, they’re different.

As Thaler tried to convince economists of his ideas, he hit lots of roadblocks. They were used to papers published with real world, or laboratory results, and he had been experimenting with simple survey data. Critics said that in the real world, people wouldn’t make mistakes.

He discovered the endowment effect, which is where you value something more greatly because you have it. You might never buy a $100 bottle of wine, but if one you bought went up in value, you’d never sell it…

He found an irrationality called the transactional utility effect. Utility is defined as the benefit you get out of a transaction. If you buy a watch for $20, it’s because you expect to get more value out of it than other uses of $20. Maybe you’d get $50 of value, but luckily it only costs $20. Transactional utility, is when you get value out of the transaction itself, rather than the item obtained, such as being excited about finding some jeans at 50% off. Transactional utility is negative when you’re getting gouged, and positive when you find a great sale.

He found that people are risk seeking when it comes to losses (we want to avoid sure losses) and risk averse when it comes to gains (we would rather have money in hand, than a chance for more). The “breakeven effect” is where you take extra risk to claw back losses. “House money effect” is where you are more risk seeking when you’ve recently been gifted or won some money.

The “status quo effect” is where you need to be convinced to change your current situation. Personally, I think that’s a good one, because you could imagine the extra transactions people would make if any time they like a house or whatever marginally better, they would just change? Seems applicable to employment and social memberships as well.

He wrote Anomalies for the Journal of Economic Perspectives, which also carried a brain teaser column, which is interesting.

He tells stories about professors who got caught up on analyzing office size square footage in a new building instead of other niceties. And NFL teams who overwhelmingly favor high draft picks and the current year over the next year despite plenty of evidence to the contrary.

Other stories are about how Palm and Shell stock both had episodes where the same stock was effectively trading at vastly different prices.

When trying to convince people to respond to mailings, the phrase “most people pay and you are one of the few delinquent” was the most helpful in getting responses.

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Book Review: The Case Against Sugar

The Case Against Sugar by Gary TaubesThe Case Against Sugar – by Gary Taubes

This is the 3rd Gary Taubes book that I’ve read about pretty much the exact same thing: Don’t eat carbs! I personally liked Good Calories, Bad Calories more than Why We Get Fat: And What to Do About It, but they were both pretty good. I’m imagining that if you haven’t read any, that this would be the one to read. The evidence against sugar exists, is routinely ignored, but it’s still pretty much as weak as all the rest of our nutrition science. It’s amazing they can’t make strong recommendations about anything.
The book goes into the history of how people used to think that sugar was healthy, and just as people were realizing it was likely linked to diabetes, the sugar industry started lobbying, and all of a sudden fat becomes the cause of all our problems.
Did you know they did 2 large studies to prove fat was bad for you, and the study could not? Yet no one gave up on the hypothesis. They just continued pushing a low-fat diet, and assuming their studies were just imperfect. The public and media presumably demanded answers, and so scientists guessed.
Well according to Taubes, sugar is more associated with diabetes, cancer, obesity, and heart disease than saturated fat. We still need more research on it though.
Our sugar intake has gone from 20 lbs per year to 100 lbs per year over the last 100 years, and yet it’s not the prime suspect for all of our modern diseases. Well I’m sure trying to eat less now.

Taubes’ writing was a little tedious and there were many facts that just don’t lend themselves to an audiobook. I probably would have skimmed a few sections if I were reading. The narrative could have been made a little clearer, and I would have liked to learn more about what’s happening in the area now. Honestly, I’m not sure why he wrote this given his other books. He nearly could have just retitled his other book. It is a better title…

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Book Review: Leaders Eat Last

Leaders Eat Last: Why Some Teams Pull Together and Others Don’t by Simon Sinek

leaders-eat-last-coverI didn’t really enjoy this book about leadership by Sinek. I get the feeling that he wants to rid the world of bad leaders, but doesn’t know how to do it other than sharing anecdotes of good and bad leadership and hoping you’ll choose wisely.

Some key points that I got out of the book:

Work-life balance is as much about safety and security (and comfort I would say) in the workplace as about the hours that you spend there.
Human beings are wired to want to help people.
Leadership is not about being right all the time. It is a responsibility that hinges almost entirely on character. All we need are leaders who give us a good reason to commit ourselves to each other.
Zen Buddhist saying: “How you do anything is how you do everything.”

The very valuable thing I got out of the book was the example letter of what Bank of America should have said when they revoked a terrible fee policy after customer backlash. The actual letter announcing the change was terrible, and his was actually quite refreshing. BofA acted like they didn’t do anything wrong, and the customers just couldn’t see how great the new fees were. You may as well own up to your mistakes. You might just gain trust instead of losing it.

I felt like there was a anti-big-business tone to the book that was rather annoying because there was no suggestion about how to overcome the issues inherent in large bureaucracies, business or governmental.

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Book Review: Habit

This great book about habits really got me thinking about how much of life is spent on auto-pilot. From our morning routine, to driving, to playing our favorite sport, we actually have to think relatively little about a lot of things. And so as I teach my kids, or coach a baseball team, it’s easy to see how overwhelming it can be for them, when it can be so thoughtless for me.

Duhigg starts by covering advertising and how important it is to find a cue to get people to want to use your product. He called it the secret to advertising. He tells about Febreeze, and how they thought it would be so easy to sell the odor eliminator to people who needed it. But it nearly failed. There was no cue, since they were accustomed to the smells. Then they realized they could sell it to people who didn’t necessarily need it, but wanted a fresh scent when they finished cleaning. They added scents, and it became the thing people did, and the smell people craved when they finished cleaning.

Similarly, Pepsodent succeeded as the first popular toothpaste by adding mint, and getting people to crave the minty breath feeling.

The aluminum company, Alcoa, created a keystone habit around safety in their plants, and ingrained it in their culture. Their plant managers were required to report safety violations within 24 hours so that others could learn from their mistakes. Having such a visible requirement made it easy to later identify those who didn’t buy into the culture, and who were later fired. The 2 interesting side effects around safety were that executives were in more regular communication with each other, and workers were empowered to make suggestions, which they saw implemented, including in areas other than safety. Alcoa preformed exceptionally after making this transition.

There were also some tips about how to sell a new habit, by wrapping it in something that is already familiar. Selling liver by using it in a food already eaten–meatloaf. Making targeted ads (pregnancy) feel less creepy, by throwing in other random ads. Put new songs in between hits to make them popular.

There was a discussion of the civil rights movements for Blacks. Movements don’t emerge because everyone suddenly decides to face the same direction at once. They rely on social patterns that begin as the habits of friendship, and grow through habits of communities, and are sustained by new habits that change the participant’s sense of self. Rosa Parks had social connections to Martin Luther King Jr, who was able to influence the community.

There are certain triggers for habits: location, time, emotional state, people, preceding action. When wanting to change a bad habit, ask yourself, What reward are you craving?

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Book Review: Shoe Dog

Shoe Dog: A Memoir by the Creator of Nike

Image result for shoe dog book

This was one of the most interesting and enjoyable company biographies I’ve ever read. I listened to it with kids in the car, and it was even engaging and interesting for them. Thanks for keeping it clean Phil! Phil Knight founder of Nike covers its beginnings, which started as a tiny importer of Japanese shoes, as globalization was just starting to catch on. It grew by the seat of its pants through years of struggle and pain, to become the household name that it is today. Phil’s determination to push ahead and believe in the company through all the trials is so inspiring.

Like books, sports give people a sense of having lived other lives, of taking part in other people’s victories. And defeats. When sports are at their best, the spirit of the fan merges with the spirit of the athlete.

I struggled to give it 5 stars, because the last half is only 4 stars, but the first half is perhaps among the best writing I’ve read, and that along makes it worth the read.

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Book Review: The Hard Thing About Hard Things

The Hard Thing About Hard Things: Building a business when there are no easy answers by Ben Horowitz

This is a good book about the hard things about starting your own business. It covers strategy, logistics, buyouts, management, and is useful for entrepreneurs and executives in general.

The main theme of the book, if there is one, is how hard it is to build a company. He felt like his business was in war-time basically all the time. It was like jumping from one disaster to another. He also emphasized that there were no rules for being a CEO. No on was born to be CEO. Everyone makes it up as they go along. It’s a pretty refreshing take for an executive. The following are some interesting takeaways from the book.

Hire for strengths rather than lack of weaknesses. This parallels the themes of Buckingham’s management books I’ve been reading. Still have a few more reviews to write there. I’m totally into the strengths-based management and interviewing though.

Trust is crucial. If I trust you completely, then I need no explanation of your actions. Otherwise you end up spending time explaining yourself and doubting.

Training. Start training employees immediately on the fundamentals of your business, including architecture. Consider a weeklong camp. One of the side benefits is that it dramatically improves your company culture. Management training is the next most important training, which includes how to write a performance review, how often to do one-on-one meetings and what to do in them.

Metrics. Ensure that the metrics you track focus on the real goal and not some secondary nice-to-have goal. Otherwise, you’ll end up with an unintended consequence of sacrificing the primary for the secondary. For example, if you track predictability, you may sacrifice overall sales to achieve predictability.

Ambition. Management needs to have ambition for their product, or company mission, not for their careers. Otherwise the focus is in the wrong place.

Building a culture is about how you do things. The door desks at Amazon are a clear statement to employees that Amazon is a frugal company—moreso than any values statement. Facebook’s motto is move fast and break things to ensure that innovation is prioritized. Square emphasizes beautiful design in their products, and also their office space, so you wouldn’t find door desks there.

The book is full of interesting stories, and vague principles like these to think about at your company. Interesting, but not must-read, unless you’re an executive who needs reassurance that you’re not the only one who feels like your nearly drowning.

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Book Review: The One Thing You Need to Know

The One Thing You Need to Know: About Great Managing, Great Leading, and Sustained Individual Success by Marcus Buckingham

I knew I was going to like this book by Marcus Buckingham when right at the beginning he introduced the angle this book would take, which was to find the main “controlling insight” for a few very important areas of business. He defines a controlling insight as the best explanation, which has to apply across a wide range of situations, has to serve as a multiplier (elevating performance from good to great), and has to guide action. Actually, I also knew I was going to like this because because I found an article on Harvard Business Review that covers the management topic. I highly recommend this book for those in management and leadership positions. I found a lot of action items in this so this is a longer, more detailed post.

I love a good data-driven analysis that is carefully crafted into a concise, easy-to-remember phrase to guide action. In a bit of an odd twist, he goes on to explain that the controlling insight into marriages that last is when each spouse tends to rate the other more favorably and generously:

For a lasting marriage, find the most generous explanation for each other’s behavior, and believe it.

The book then goes on to talk about management and leadership. Management is generally concerned with what individuals do, and actually producing a product and meeting goals. Leadership is about setting goals. The one thing that managers need to know is:

Discover what is unique about each person and capitalize on it.

Great managers turn talent into performance. Management is all about the individual, and helping them to succeed. The premise of the book is that talents (as opposed to knowledge and skills) are not learnable. So managers should find out what their employees talents are, and make sure their assignments align well. This will save time, increase accountability, and builds a stronger sense of team.

There are 3 things you need to know about your employees to manage them effectively:

  1. Strengths and Weaknesses. Thinking particularly of talents, not knowledge or skills.
  2. Triggers. What motivation gets them to do their best?
  3. Style of learning. Analyzing, doing, or watching.

Questions to ask employees to understand how they work best:

  1. Strengths: What was the best day at work you’ve had in the last 3 months?
  2. Weaknesses: What was your worst day at work in the last 3 months?
  3. Triggers: What was the best relationship with a manager you’ve ever had?
  4. Triggers: What was the best praise or recognition you’ve ever received?
  5. Learning: When in your career do you think you were learning the most?

A manager’s strongest talent is to coach others toward success. Managers should have 4 basic skills:

  1. Select good people. When interviewing ask open ended questions and if they do the thing you’re looking for often enough, they’ll come up with an example from recent memory.
  2. Define clear expectations: “What do you think you get paid to do?”
  3. Praise
  4. Care

Learn how each employee is different and then learn how each of these differences fit into your overall plan of action.

Marcus’s definition of leadership is that great leaders rally people to a better future. The one thing leaders must know is:

Discover What is Universal and Capitalize on it.

The better you do this, the better you will lead. Note that it tends to be the opposite of a manger, where they need to discover what is unique about each employee. According to researchers, there are 5 universal human needs: security, community, clarity, authority, and respect. The job of a leader is to provide clarity, particularly in the following 4 areas:

  1. Who is our target customer? And it should not be the shareholder. Best Buy had great examples of having each store focus on certain segments, such as “mobile professionals.”
  2. What is our core strength? The book shared examples of “knowledgeable retail staff,” and “the safest work sites.” Even if it’s not true now, it can be a clarifying vision of strength.
  3. What is our core score? A prison system decided to change it metrics from measuring escapees to measuring repeat offenders. Best Buy measures employee engagement with surveys.
  4. What actions can we take today? Direct leadership action sets the tone for other employees. Set up inter-organizational meetings to cut through politics. Strategic actions force employees to become involved in new activities. Symbolic action grabs our attention and gives us focus.

The talent of a great leader is to have optimism and ego. Otherwise you can’t lead people to a better future. If you want to improve your skills, there are 3 prevalent disciplines that will help leaders increase their clarity:

  1. Take time to reflect.
  2. Select your heroes (recognized employees) with great care. They should model behavior you want others to emulate.
  3. Practice. Experiment with word combinations to find clarity.

The final part of the book focuses on how to achieve sustained personal success. He claims that only 20% of people report working in a role where they can do their best work every day. The one thing you need to know to sustain your success is:

Discover what you don’t like doing and stop doing it.

The reason why this is written in negative form, is because you’re constantly having a mix of talents in play in your work. You might like training, but hate public speaking. Well, you’d better not get promoted from curriculum writer to public speaker, despite the fact that you’d still be doing training (your strength). So while it’s pretty easy to find ways to do your strengths, it’s a lot harder to remember to avoid your weaknesses. Every 3 months ask yourself: “What percentage of your day do you spend doing those things you really like to do?” Four tactics that will help you find strengths and avoid weaknesses: Quit the role, tweak the role, seek out the right partners, or find an aspect that brings you strength.

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