Shane Parrish is the founder and author of the Farnam Street blog, which has been featured in Forbes, the Wall Street Journal, the Financial Times, and much more. It's one of my personal favorite blogs and an incredible resource dedicated to making you smarter every day by mastering the best of what others have already figured out. Shane, welcome to The Science of Success.
Shane: Thanks for having me, Matt. I'm excited to be on.
Matt: We're super excited to have you on here. So, for listeners who might not be familiar, tell us a little bit about what is Farnam Street and what do you talk about on the blog.
Shane: Oh, there's so many ways to describe it, but a friend of mine put it best when they said it was an online intellectual hub for people who are rediscovering their curiosity and want to be better, in a non-self help-y way, but want to be better at solving problems, removing blind spots, exploring life. I think that about encapsulates the blog. We talk about everything from art and philosophy to the science of decision making to what it means to live a meaningful life to what it means to be a good friend, and how you can go about doing that and how you can learn from other people, and not only learn from other people but learn from their mistakes. I'm very open about some of the mistakes that I've made about being a good friend, and some of the decisions I've made have factored into how we think about decision making. So, I think that it's just an online intellectual resource for people who are consistently looking to gain an edge over somebody else.
Matt: And how did you initially become interested in this subject?
Shane: Oh, it started back with my MBA, and it wasn't really anything that I thought would turn into what it has become today. Originally, when I started my MBA, I was focused on doing my homework and passing and all of this stuff and getting good grades, and all of a sudden it became pretty apparent to me that a lot of the schools—and I won't mention names—have become check cashing institutes, where somebody, usually a corporate sponsor, sponsors an employees to go get an MBA, and the schools have a large incentive to allow those people to get MBAs. So, what happens in between is almost irrelevant, as long as those people get MBAs and the school gets a big check. The learning became secondary, and so I took it upon myself originally to start learning on my own, and then this is the manifestation of that. Like I said, it was never intended to be what it is today. It's a lot of luck, a lot of happenstance, a passionate group of 80,000 readers, and it's kind of taken off from there.
Matt: So, kind of the tagline of the subheading for the blog is Mastering the Best of What Other People Have Figured out.
Shane: Yeah. I mean, I'm not smart enough to figure out everything myself, so how do we learn? We learn a lot through reading. We learn a lot through experience. But there's only so many things that I can experience in life, so I want to try to learn from mistakes of others, the epiphanies of others, the insights of others, and that'll give me kind of a cumulative advantage over a long period of time, in terms of the knowledge that I can accumulate and how I apply that to problems.
Matt: You know, that's an interesting... When you say cumulative knowledge, I've heard an analogy before that it's almost like compound interest. You know, when you start to read, you kind of build this knowledge base and this framework that you can continually sort of layer knew knowledge into. It's like, someone can't just read two or three books that you read recently and catch up to where you were before.
Shane: Yeah, definitely, and it depends on what you're learning and what you're reading, right? I mean, all of that factors in. There's almost a half life to knowledge, and you want to learn if you're going to apply yourself, and you have an opportunity cost to your time. You want to start learning things that either change slowly over time or don't change at all. Unless you're in a niche field where you have to keep up with the latest neuroscience or research in a particular field, it makes more sense to apply yourself broadly to things that change slowly over time, and then use those tools to reduce your blind spots when making decisions, when connecting new things for creativity and innovation and solving problems, and then also for how to live a meaningful life.
Matt: That's a great point. The idea of mastering or focusing on things that change slowly or don't change at all. What would you say are some kind of types of knowledge that would fall into that category?
Shane: Well, I mean, if you look back in history, we have this big bucket of time, right? We have psychology, which everybody thinks is this great knowledge to have, but it's fairly recent that we've discovered these heuristics and biases. But physics has been around for a long time and chemistry's been around for a long time, and these laws don't change much over time. I mean, our heuristics and biases are important to understand, but you also want to merge them with other ideas. And I think that where people go astray is when you go to the bookstore and you pick up the bestselling book, and we have every incentive to pick up... I call them pop psychology books, but the pop psychology book of the day, because we feel educated, we feel like we're learning something, we feel like we're moving forward, and it's on a subject that's usually topical, that's in the news, and then what happens inevitably over time is those books disappear and the study either gets disproven or there's contrary evidence. It doesn't end up being knowledge, so you end up spending your time, whether you believe it or not, you spend your time entertaining yourself. And I think it's great to entertain yourself. You just need to be aware of when you're reading for entertainment, when you're reading for knowledge, when you're reading for information, and the way that you approach those subjects should differ. And your goals, in terms of how you get better throughout your career or what you want to do is also... will lead you to different sources of information.
Matt: I love the idea of focusing on kind of going back to the hard sciences, and that's something that someone who I know you're a big fan of and I'm a big fan of, Charlie Munger, talks about a lot. Kind of, you know, focusing or thinking about biology, physics, really those core fundamentals, and then branching out more and more into kind of the things that are built on top of that.
Shane: Yeah. Munger is the source of a lot of inspiration for me, in terms of just the way that he approaches problems, and when you think about the world, it is multi-disciplinary. So, if you don't understand the big ideas from other disciplines, how can you synthesize reality? How can you remove your blind spots and how can you gain an edge or make better decisions that other people miss if you don't understand those big ideas from different disciplines? And these ideas are understood at different levels and you hone them over time. It's not something that you just conceptually grab. You write a chapter on physics one night and you understand gravity. It's something that you develop over a long period of time, and you hone those ideas. And I think that when you encounter new information, you start mapping it to what you already know, and this is where Munger's concept of the latticework of mental models comes in, where you start saying, "Oh..." You start seeing people make decision making errors and you can say, oh, that's confirmation bias, oh, that's anchoring bias. That's great. It gives you insight. But those are heuristics. Those are great. But it also gives you insight into, oh, well, they're operating outside their circle of competence. I'm operating in a complex adapted system. There's supply and demand effects here, and then when you kind of go through this mental list of models that you have in your head from other disciplines, including ecology, investing business, heuristics in terms of psychology and mathematics, statistics, chemistry, physics, you can usually gather in your mind mentally the variables that will control the situation. Right? Momentum is an incredible variable that people underestimate a lot of the time. That's a concept from physics. Statistics, in terms of sample size and distribution and mean and medium, and understanding the difference between those things enables you to make better decisions, and it enables you... More importantly, it enables you to reduce your blind spots, which I guess, in the end, is how we make better decisions. We all have a certain aperture onto the world, and that aperture is not a 360 degree, almost holographic view of what the problem is. But by reducing our blind spots, we come to a more complete knowledge of the situation, and that knowledge enables us to make better decisions, avoid stupidity, which is also an important outcome, and then go forward.
Matt: So, backing up slightly, can you kind of define or dig in a little bit more on the concept of mental models? It's something that we've mentioned briefly on the podcast, but some listeners may not be familiar with it.
Shane: So, in my mind, I mean, there's two types of mental models. There's the psychological mental models, which are how we deceive ourselves, and those would be kind of like the heuristics that are popular today. There's availability. There's confirmation bias. There's anchoring bias, hindsight, overconfidence, and so on and so forth. And then there's kind of like the time simulations, and these are also heuristics, which are important to understand in some senses, right, where there's gravity. If I drop a pen, I know what's going to happen, but I'm simulating time. So, understanding that and understanding feedback loops and redundancies and margin of safety and the prisoner's dilemma and understanding how these things play out over time enables us to fast forward through time and see the most probably outcome when we're making a decision. Doesn't mean it's a guaranteed outcome. I mean, there are some things that are pretty guaranteed, like gravity, but it gives us a better aperture into the problem that we're trying to solve and also enables us to recognize intuitively that there's other outcomes that are maybe less probably but still possible.
Matt: So, can you think of an example of applying some of these mental models in a challenge or problem that you've faced recently?
Shane: Well, one of the mental models that we use a lot if circle of competence, and circle of competence enables you to, just knowing where you're competent and where you incompetent enables you to make a better decision. I'll give you a kind of high level overview of how that works. If you're accurate in your circle of competence and you keep, say, a decision journal or something like that, you'll be able to hone that over time and you'll be like, well, when this type of decision comes up, like an investment decision in an airline company, I have a really high batting average. I would say that's within my circle of competence. But we all can't sit back like Charlie Munger or Warren Buffet and basically for the fat pitch that's within our circle of competence. Most of us have this pragmatic reality where we have to make decisions outside of our circle of competence. But if you recognize that you're outside of your circle of competence, you approach the decision in a different way. What I mean by that is now you start, instead of becoming overconfident, you start recognizing that other people's opinions may be valuable. Instead of thinking that you have all the information, you start seeking disconfirming evidence to the belief that you hold because you know you're not operating within the circle of competence. So, just a knowledge of a circle of competence and where you make good decisions and where that boundary is enables you to proceed in an area outside of your circle of competence and still make better decisions than you would have otherwise.
Matt: And in that example, circle of competence is essentially one quote-unquote "mental model" in the toolbox, right? The goal is essentially to build a toolbox of tens, if not hundreds, of potential models that you have kind of deeply internalized in a way that it's almost intuitive, so that when you encounter a problem, you can naturally kind of pluck the four or five most appropriate models for understanding that particular situation.
Shane: So, I think about it like you're a craftsman, right, and you show up to the job, and if you have a hammer, there's a limited set of problems you can solve. There's a limited amount of creativity that you can have with raw materials. The more tools you have, and the tools and the knowledge industry happen to be sometimes mental models, and sometimes they're very niche, you don't always need to be a broad, generalist thinker. Oftentimes, the most rewarding professions, like neurosurgery or lawyers, tend to be very niche in terms of how they think about the world and the problems that they try to solve. The rest of us have to operate in a lot of ambiguity in the sense of, we're solving problems that may not be as narrowly defined. We may not be in such a niche where we studied it for 15 or 16 years and we have to get on this treadmill to kind of keep up with it, but we're solving general business problems, and then the problem becomes how do you solve those problems better? How do I become better at my job? How do I become more valuable as an employee, as a knowledge worker? And I think the answer to that is acquiring more tools to solve different problems, but, more importantly, by solving different problems, you're often avoiding different problems. We teach a course on productivity, and one of the biggest sources of productivity that really not a lot of people think about and is very counter-intuitive is that the best way to be more productive is actually to make better decisions, because when you think about how most of us spend our days, we're spending so much time just fixing mistakes and solving problems that we've created by rushing our decisions, by not thinking about them, by not doing something that we could have done to change the outcome. So, the best way to get free time is to make better initial decisions. And when you think about that, it makes a lot of sense, but most people don't frame it that way. So, if you want to start making better decisions, one of the best ways to go about that is to understand the problem, and one of the best ways to understand the problem and understand reality is to be able to synthesize it. You want to be able to look at the problem from a three dimensional point of view. And if reality isn't multi-disciplinary, then I don't know what it is.
Matt: And when you say reality is multi-disciplinary, can you elaborate on that so that listeners who might not be as familiar with Munger and his conception of worldly wisdom know what you're talking about?
Shane: Yeah. I think you can't just look at one background. Like, if you have a psychology degree, the world isn't only psychology, right? It's also physics. It's also ma. It's biology. All of these things factor into most of the problems that we look at, and our goal, as a decision maker in an organization, not only do we want to make more effective decisions, we want to recognize when we're making decisions outside of our circle of competence, or that multiple disciplines might factor into. Psychology's great in terms of corporate decision making, but it may underplay supply and demand. It may underplay switching costs. If you don't have a grasp of these concepts and you don't have an intuitive mature about how to handle them or how to structure them in your mind, then you become what Munger says is the one-legged man in an ass-kicking contest. You're handicapped in life. And then people will run circles around you, and that may be fine and that may not be fine, and that all depends on your makeup and what you kind of want to achieve and how you want to live your life.
Matt: And I think in many ways, economics is a field that's often criticized for failing to understand or take into account the implications of other disciplines, with the example I know... I think there's a psychology book where they talk about the difference between econs and people, where it's what an economist would say how someone would behave and how they actually behave in the real world.
Shane: Yeah. I don't think I know enough about the discipline of economics on that level to comment on what the economists think. I think there are economists out there who think in a very multi-disciplinary manner. Greg Mankiw from Harvard, I think, would be one of those people who think that way, and Munger has pointed out that his textbook thinks about economic problems in a multi-disciplinary way. I think his criticism was he doesn't actually point out that he's thinking about them in a multi-disciplinary way, and I think there's a lot of lessons that the rest of us, especially those of us who operate in mid- to large-sized corporations, can learn from business, about the time value of money and investment returns and marginal costs, and most importantly, probably, opportunity costs, which is a lesson that all of us can learn in the sense of you life one life and you can trade time for money and that's fine, and you can also trade money for time, and Buffet has a great quote where he said the rich... I forget the exact words, but the rich are always trading money for time, whereas the poor are trading time for money. And when we think about that, that comes down to opportunity cost, and most of us... Say, for example, you live in the suburbs or you live somewhere where you have a long commute. Most of us view that as a cheaper way to live. But do we factor in—and the important question is, do you think about—the time it takes to commute? Do you think about the two, maybe the two and a half hours a day you're spending in the car, and how do you value that time? And when you start factoring that in, it kind of changes the dynamics of what you're thinking about in terms of cost and value. Example would be reading. If you're reading something, you're not reading something else. So, if you're reading Gawker, whatever, Buzzfeed... I don't even follow most of the media today, but if you're reading the latest news, that's great. It's keeping you up to date on current events but it means you're not reading something that's enduring that doesn't change. So, there is an opportunity cost to everything we do. If you go to lunch with a friend, maybe you value that a lot, which I do, personally, and if you sit and do nothing but read the newspaper, you value that, and it becomes just knowing what's valuable to you and knowing how it helps you achieve the goals that you're trying to achieve or how it entertains you or gives you some sort of down time, which is also an important cost. But there is an opportunity cost to everything, and I think people underestimate how important that concept is to grasp, right. While you're watching Netflix, you're not doing something else. And if somebody else is doing something else that makes them better, more valuable, or more knowledgeable, eventually, over time, you're going to lose the edge that you have. And I think that's important to realize.
Matt: I definitely have the same sort of perspective about most news, most current events. I barely read any sort of news sources. Mostly what I read are blogs like Farnam Street or things that really talk much more deeply about, to use the phrase that you use, things that don't change over time, right? You know, you can fill your head with a bunch of news. Six months later, most of that stuff is irrelevant. Whereas if you fill your head with these mental models...
Shane: When you think about how we consume information, most people—and I'm generalizing here—are consuming articles, like ten ways to get promoted at work or whatever the clickbait headline of the day is. And what's really funny is I've talked to some of my friends who are like this, and they love it. They do it for entertainment. That's great. But they're often, like, "You know what's really interesting is I click on the same article two days in a row and it's just got a different headline, but I don't really recognize that I'm reading the same article until the last paragraph, when something kind of jumps out at me." So, they're going through these 800 to 1,500 word articles and they're not actually remembering that they read it yesterday. So, what are they doing? I mean, that's just a form of entertainment at that point. And then anybody who's promising the world is not going to deliver that. There's now four steps you can take to guarantee your employment. There's no six ways to negotiate with your boss to get a raise. I mean, there's tips and there's tricks and there's probability involved, in terms of, well, if you employ this, and I know one person who teaches about how to get a raise at work, and one of the main factors that he's giving people is the courage to ask for a raise. But he's not actually giving them a tool that they develop, right? He's basically saying you need to ask for a raise, and a lot of them get a raise when they go and ask for a raise. And that's fine, but what is he teaching them, long-term? Maybe it's self-sufficiency and maybe it's that I can ask for things I want. We want to teach people things that don't change over time that apply to a wide variety of problems, from everything from innovation to decision making. I mean, we factor into corporate mergers and acquisitions. We can set it in SEC filings. There's a whole bunch of stuff that we want Farnam Street to be, but it really boils down to giving you more tools that you can use over a year, over two years, over three years that enable you to be better at whatever it is you want to be better at, and part of that is just recognizing when you're reading things for entertainment or information and when you're reading things for knowledge, and when you're reading things for knowledge, you want to slow down. When you're reading things for entertainment, you might want to speed up. But it's not to say that one is better than the other. I don't think we're making that decision for people. We're just giving them an alternative.
Matt: You know, it's funny you mentioned the story about somebody reading the same article and not realizing it. One of the things that we talk a lot about on the podcast and that I'm a big fan of is meditation, and it may not be for everyone, but one of the beautiful things about meditation is that it kind of gives you that inner dialogue to sort of check your thoughts and be like, hey, what's happening, right? So, if you start... Sometimes I'll get sucked into a loop of reading a bunch of stuff on Reddit or something like that, and then my mind will kick and be like, what are you doing? Pull out of this dopamine loop. And I'll pull out and be like, all right, I gotta stop doing that.
Shane: Yeah, but that comes back to a feedback loop, which is also an important concept from engineering, right. So, the mental model is that you've created this either intentional or unintentional feedback loop that enables you when you go astray or do something you're not wanting to be doing to just check in and be present, right? We all make decisions. It's whether we make them consciously or unconsciously, and a lot of us just spend that time, I would say, unconsciously, which is fine. But you've enabled yourself to kind of be like, oh, is this how I want to spend my time? And that feedback loop enables you to make different decisions about consuming information. It might mean that you go back to Reddit and you start reading more, and it might mean that you're like, what the hell am I doing? I want to do something else and I want to spend my time differently. But just that in and of itself, that feedback loop, that mechanism to kind of switch from unconscious to conscious is one of the most incredibly valuable things you can have. And I would say meditation probably is the foundation for much of what I do. I don't meditate every day, but I do meditate on a regular basis, and it enables me to structure my time better and it enables me to clear my mind and have moments in my mind that are device-free, that are quiet, that are calm, that are soothing, and it's made me respond to situations in a different manner than I would have in the past, where I might have made more anxiety or stress about a certain situation. Now it's enabled me, I would say, to become more stoic about it and just accept the world for the way that it is, instead of pushing back against things that I think are unfair or unjust and just accepting that that's the way it is, and that is unproductive energy and my mind would get clouded with some of the stuff like that, before I started meditating, before I started yoga, and now it's become a lot more clear in terms of the path that works for me.
Matt: It's funny that you mentioned stoicism, because we have a whole episode about the idea of accepting reality. The same concept of, it doesn't matter if it's fair, it doesn't matter if it's just. It's all about accept things the way they are so that you can move beyond them.
Shane: Yeah. I mean, Joseph Tussman has this amazing quote, and I think it becomes about this. He says, "What the pupil must learn if he learns anything at all is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and then aligning with those realities. If we do not let the world teach us, it teaches us a lesson." And I think that's one of the most profound things I've come across in a long time, and I think that enables us to think about, am I confronting the world or am I accepting it? And if I'm accepting how it works, that's a bit of a feedback loop into checking what I think and checking my approach to life, and that feedback loop over a long period of time should compound and enable us to better align with reality. It's not something like... You don't go to bed Thursday night and wake up Friday morning and be like, I'm going to align myself with the world. You just start opening your eyes to how the world really works, how it operates, the different outcomes, and understanding that outcomes are not necessarily guaranteed and they're a function of probability, and we all have periods of bad luck, and then you enable that over time to slowly learn to roll with the punches.
Matt: It's amazing that once you've kind of gone down the road of internalizing and really starting to understand many of these different mental models, it's almost like, you know, I'm thinking about... I was in a meeting last week in kind of a sales meeting, and it's amazing how I can just immediately see it's like they're using this bias and they're doing this thing, and it's like you start to kind of build this framework where you can subconsciously just capture that stuff.
Shane: Yeah, totally. And I mean, the flip side to that is biases are biases for a reason. I mean, they work most of the time. They're heuristics because they work 99% of the time. Our goal is to kind of recognize when they're leading us astray, which is why there's frameworks for decision making that enable you to just check and balance that. One of the questions that you should ask yourself is where am I leading myself astray, where am I... I'd be fooling myself. And that's when you kind of check your biases and your heuristics yourself and start thinking about, oh, well, it's a really small sample size. Should I be basing a $500 million merger on two years of track record from this other person? And then just enabling those questions usually generates a better outcome, but not always, right. I mean, you really have to think about this stuff. And when you think about how we structure our days, how we structure our time, most people don't take the time to make good decisions. And what I mean by that is they're not making a conscious choice to make bad decisions. So, just setting themselves up for failure. Think about the... Generalizing again. Think about the modern office worker. They work... Let's say for the sake of argument, they work nine to five. They show up. They've got to drop off the kids first. It's a hectic morning. They get in a little later than they want. It's 8:35. They open up their email. They have a nine o'clock meeting but they've got to go through 30 emails before then, because some people have shown up earlier and they've redirected their time, and then they realize that it's 8:55 and they have a nine o'clock meeting, and they're supposed to make a decision on something, so they pull up the document that's the briefing on the decision they're supposed to make, and they have five minutes. So, what do they do? They read the executive summary and they go to the meeting and they base their decision on the executive summary, which most times will work. It's another kind of heuristic, right? But often it leads us astray, because we don't do the work behind the scenes to understand the decision to understand the dynamics of the problem, to understand things. So, one of the other ways that you can increase productivity, and I guess it leads into making better decisions, is to schedule time to think about the decision. I mean, that's very counter-intuitive. We mention it in our productivity course, which is bewaymoreproductive.com, but it's incredible to me the amount of people who show up to work and just let email dictate their day. And they rely on, I guess, their wits or their spur of the moment judgment to make decisions. And, you know, 90% of the time that's going to work for you, but the 10% of the time it doesn't work for you is going to consume most of your time going forward.
Matt: So, for somebody who's listening right now, what would you say are some concrete things they might be able to do to kind of immediately start improving their ability to make smarter decisions?
Shane: Well, I think one of the things that you can do is, if you're unsure of the path forward, is to invert the problem, right. And to invert the problem means think about what you want to avoid and if you're avoiding those outcomes, you've already come to a better conclusion than you would probably otherwise have. But that's not the best way to make better decisions. I mean, the best way to make decisions is really to understand the problem and understand the dynamics, and part of that is recognizing when you're operating within your circle of competence and when you're not. And if you're the head of an organization, then it's understanding how people learn from each other. You might have... Say you have 100 people in your organization. Somebody's got a circle of competence in X. Somebody's got a circle of competence in Y. Often, the way that we facilitate decision making is in a way that X doesn't learn from Y and Y doesn't learn from X. But eventually, X or Y quits and retires and then the other has to make a decision. But they haven't learned. Even though they worked with the same person for ten or 15 years, they haven't actually learned how they structure decisions, how they think about the variables that govern the decision, what the range of outcomes could be, and how to hone that attention. This becomes really fascinating to me, because I know a lot of investors who, you know, they read everything about a company, which I get. I mean, it makes a lot of sense. But when you really know the variables that you're looking for, you're able to filter the information a lot quicker. When you understand the situation, you know, they could put out 6,000 pages of press releases and documents a year. You don't necessarily need to read every word of it. What you want to look for is, do the variables that I know; what are they; what are they saying; are they indicating that we're on the right track; if yes, all things are probably good. And yeah, you want to see disconfirming evidence. Most of us consume media. This is another interesting and possibly important point about how we consume media. We consume things that tend to reaffirm what we already think instead of consuming things that disconfirm what we think, and if you go back to Charles Darwin, he wasn't... He had this amazing discovery, which is probably some degree of luck and some degree of him being able to disprove himself. So, one of the tools or tricks that he had in his toolkit was, every time something disagreed with him, instead of glossing over it, he paid attention to it. And think about the way that we consume media today. We don't consume media like Charles Darwin. We consume media like, oh, well, if I'm a pro-Trump supporter I'm going to read pro-Trump articles. If I'm a pro-Hillary supporter, I tend to be inundated with pro-Hillary articles or anti-Trump articles, which is really just reinforcing my view. What we really want to do is slow down and come across things that, oh, well, I thought these five variables matter, but this person's saying a different variable matters. Why does that matter? Does it conflict with my view of the world? How does it conflict? Are they right? And then kind of dropping our assumption that we know what's best or dropping the feel-good nature of the media we consume, which is, I agree with you. And, I mean, that feels great. We get probably a dopamine rush from that. We're not alone. Everybody agrees with us. But at the end of the day, as a knowledge worker, you're paid to be right. So, it's not about paid to be feel good. It's paid to be, when am I wrong, recognizing you're wrong, and there's a lot to be said out of scrambling out of problems, right, and recognizing that you're right early and taking course correction, instead of waiting till it's too late.
Matt: So, how would somebody listening to this start acquiring a lot of these different tools and mental models?
Shane: Reading Farnam Street would be a great example of how to go about it, but I mean, most people go back to reality. Most people aren't going to set aside an hour a day and start going through physics textbooks. They're not going to set aside an hour a day of going through biology textbooks. And most people don't have the time, with kids and family and work, to set aside time to learn on a regular basis, consistent basis. So, the way that you go about it is becoming more open-minded, and one of the ways to become more open-minded is just to read things that disagree with you, and not read them in a critical sense of, oh, that's hogwash, but read them in a sense of, oh, that kind of makes sense. Right? I really want to take a different approach, or, oh, I was wrong, and admitting you're wrong. And you don't have to admit to the world you're wrong, but admitting to yourself you're wrong is a big step in terms of getting better at recognizing the keys to the world. And then recognizing how you consume media. Are you consuming it for opinion? Which I think a lot of people do, right. We want to show up at the water cooler, and we live in a culture where you have to have an opinion on every subject, otherwise you're ignorant and uninformed, which is just ridiculous when you think about it. But in that culture, what it creates is this environment where we read these op-eds, or we read this headline, and that becomes our opinion. We haven't read the article. We haven't thought critically about it. We haven't spent the time doing the work, and yet we formed an opinion on it. And I think that that is contrary to the approach that we want to take, where maybe the way to consume most of the mass media we get is for information. I'm not going to let somebody else do the thinking for me, but they can provide me with the statistics that I need to form my own opinion, or they can provide me a structure for an argument that I will then refute or think about critically, but not one that I will regurgitate without having thought about it. It's okay to say I don't know. And then if you really want a fun exercise and you work in an organization of, I would say, more than ten people, I mean, just keep a tally pad in the last page of your notebook about how many times people say, "I don't know." I mean, I've consulted with organizations big and small, and it almost never comes up. There's almost nobody who's ever said, I have no idea. And that can vary between, "How do you think IBM's doing in their cloud computing space?" to "How do we design this part better?" Everybody has an answer to everything, and once you recognize that, you're like, that's not possible. How can that be the case? There's no way you can understand all of these different things. And then when you recognize that in yourself, it enables you to be more open-minded about other people's opinions, but it's important to probe them. Why are they thinking that? What variables matter to them? Why do those variables matter to them? What would cause them to change their mind? And then when you start thinking about it from another person's point of view, it inevitably creeps into your point of view, and then you start thinking about, what would cause me to change my mind? Why do I think what I do? Where does that information come from that I think this? Is it a headline I read on Twitter? Do I really want to base a decision on that? Do I really want to state an opinion on that? And I think that when you start thinking at that level and that, that enables you to move forward in a way that you're more conscious about what you're consuming, how you're consuming it, and the types of decisions and models that you're adding to your life.
Matt: Going back to the comment you made about how few people say "I don't know", I think it's something that Munger touches on, kind of the idea... It ties in many ways to overconfidence bias. But the fact that often the most wise or the smartest people are the ones who typically are like, "I don't know," and the least informed, most over-confident person is the one who barges in with a very concrete opinion about XYZ.
Shane: Yeah, but when you think about how that manifests itself in an organization, often the organizational psychology is the one that promotes the person who has an opinion and is right, versus... It's not because they're right because they've thought about it necessarily. I mean, they could be right just based on odds. They could be right for the wrong reasons. And the person who says, "I don't know," gets left behind. What I mean by that is saying "I don't know" is an important trait to recognizing and understanding knowledge. That doesn't necessarily make it an important trait to getting promoted, and I think when people start distinguishing, you know, I want to be smarter because I just want to understand the world better and I think that's going to help me live a better life, and that, in and of itself, should, over a long period of time, obviously, aggregate into disproportionate rewards in terms of what you value. Maybe that's promotion. Maybe it's level. Maybe it's quality of life, spending time with your family. And maybe it's other things, and that's fine, and everybody has their own kind of utility value associated with all of this stuff. The flip side is the person who goes in, and let's say it's a coin toss and just says heads four times in a row. Well, they're going to be wrong a lot, but they'll also be right every now and then, and if they get promoted because they're right but for the wrong reasons, you can kind of accept that and it doesn't become this, oh, they're better than I am. It becomes, oh, well, that's just luck, right. They're right for the wrong reasons. That'll eventually catch up to them. And then you also need a feedback loop. Like, when am I right for the wrong reasons and how do I learn from that? And it's that learning and that feedback loop that enables you to compound over time, and most people aren't conscious about learning. They're not conscious about their decisions. They're not conscious about their feedback loop that they employ, so they're not actually getting better at what they're doing. And when you think about driving, driving would be a perfect example. We learn how to drive when we're, you know... It's 16 in Canada. We learn how to drive when we're 16. We probably stopped getting better at driving for all effective purposes when we're, like, 19. And then we spend all this time driving but we're not practicing. We're not getting the feedback we need to be better. We're just kind of recognizing the cues that we've already learned. And I think we do that with decision making. We do it with organizations. We do it with new jobs. We spend maybe the first year, we're getting better at our new job, we're learning about different things, and then all of a sudden we kind of get the hang of it and we stop getting better. We stop the compounding. And when you stop the compounding, that's a really bad thing. What you want to constantly be doing is, like, how can we get better, and challenging yourself. And one of the ways to do that is decision journals and to seek outside feedback. It's to ask people how you can be doing better. It's to ask people to coach you, right. Like, a lot of people have mentors in organizations. How do you think about this? What should I be thinking about? What are the variables that I should be thinking about? How do I structure this? How do I approach this problem? And if you're really open to it and you're not just asking to kind of be a kiss-ass or something like that, then that enables you to get better over time.
Matt: There's so many questions I want to ask after that. One of the things that comes to mind immediately, talking about the concept of being right for the wrong reasons, I'm a very avid poker player, and one of the biggest lessons that poker taught me was the difference between winning a hand because you made the right decision or losing a hand even though you made the right decision, and kind of what I think often in poker is called positive expected value thinking, in terms of make the right decision based on the math and then whatever the outcome is, it's irrelevant at that point.
Shane: Yeah. It's not always going to work for you, but you also need to be able to tally that, right, to check your view of the world. So, if you think I made the right decision but I lost and I should have won 80% of the time, you need some sort of feedback that you're not making that same decision and losing all of the time, right. You need some sort of check-in balance that, yeah, 80% of the time I do win when I make that decision. So, yes, it's a good decision, and not just that you have this comfort in, oh, this is what I believe and it was just bad luck. So, you need to actually go a little bit deeper than kind of thinking that way, and poker would be a great example where the odds are pretty well-known and you can go through that structure, but most of the world isn't as structured. It's not as refined as that. So, it becomes more of a, like, where was I off, where was I wrong, and that becomes a very humbling exercise for people, and that humbling-ness is what often creates... or what often leads them to stop the feedback loop, because there's no CEO who wants to admit that he was right for the wrong reasons or she was right for the wrong reasons. But internally, you need that check-in balance in terms of getting better over time, so that you can calibrate yourself, calibrate your circle of competence, and calibrate your decisions and better understand how the world works. It's the only way I know of to improve your ability to make decisions.
Matt: So, going back to the driving example that you used earlier, one of the things that I'm fascinated with and I know you've talked about is the concept of deliberate practice and how you can drive for thousands of hours and never improve versus if you sort of concentrate and do deliberate practice, you can grow and achieve and become better.
Shane: Yeah. I mean, deliberate practice is so important, right. It's about getting better at little things and seeking feedback that's usually immediate, in terms of how you're getting better. One of the best ways to do that—I mean, again, I'll apply it generically to people who work in an organization—is don't just send the report your boss asked you for, but seek feedback and specific feedback, and kind of corner them and be like, "Hey, where could I have done better? Where did I do wrong?" And if they can't give you that feedback, then you're never going to get better at the job that you're in, and if you can get that feedback, it doesn't necessarily make you better at your job, but it makes you better in your boss's eyes. So, it's also filtering that feedback and going, oh, this is what he or she wants versus how I think the world works, but you also want to calibrate that. Why does he or she want that? How do I get better at doing what I'm doing every day? How do I get better at sending emails? I mean, how many of us, just for an example, send an email to schedule an event or a meeting with somebody or a coffee, and we need 30 emails to do that, and we need 30 emails all the time to do that. Why is that? Well, part of the reason is we don't do something simple like, "Hey, here's some proposed dates. Do any of these work for you?" in the first message. Usually, that reduces the number of emails that you need to do that. Well, that's a great feedback mechanism, in terms of getting better. And if you deliberately try different things when you're proposing something that you do commonly throughout the day, like, ten or 20 times, then you can start to get feedback on what works and what doesn't work, and you're almost kind of AB testing things. It's like, it's almost [INAUDIBLE 00:45:58], right. Like, here's my best idea today, but does this other idea work? Does it change my understanding of how people will respond to this? Does it enable me to get to the outcome I want quicker and better and in a win-win way? And, if yes, then let's adopt that. And if not, then I can revert to my old one.
Matt: I think feedback is such an important idea, and one of the ways that people often get tripped up—and, I mean, again, this loops back into a lot of the different cognitive biases—is ego, right, and kind of denying reality or getting caught up in their egos.
Shane: Oh, man. Yeah. I mean, we all have egos. That's incredibly important to recognize. I mean, I don't know a person in the world who doesn't have some sort of ego, especially wrapped up in their opinion on a controversial subject. Adapting to that reality is incredibly important, and recognizing sometimes it serves you and sometimes it doesn't, and it's the same as mental models, right. Sometimes they work and they serve you and they enable you to make better decisions, and sometimes they're wrong, but often we're just coding things into our head that, oh, well, when this happens, do this. But we're not actually saying, well, here are the reasons this happened. Do they exist in this situation? So, applying that mental model won't necessarily work. Ego can become this incredible enemy of seeking wisdom, and I don't have any good ideas, I guess, for how to avoid that from creeping in. I mean, I know people who are naturally very egotistical. I know people who are very naturally the averse to that, but they both have egos. And they're both sensitive in different ways and they both approach the world in different ways. And I think part of it is, if I was forced to comment on it, would be understanding where you are and meeting the world at that place, and then understanding where you want to be and recognizing the path towards that. And ego can be something as small as, I need to give other people on my team a voice, and I'm not always right, and part of that comes back to calibration and feedback loops, and that helps check your ego and helps humble you, in a way, and part of that comes back to saying, sometimes I do need to be the egotistical leader, and by egotistical I mean not that you think you're right, but projecting confidence, and by projecting a path forward. In uncertainty, people will naturally gravitate towards people who take risks, who seem to know what to do, and your job is to not only grasp those risks and those situations and those opportunities and move forward and galvanize your team and kind of push forward, but it's to recognize that you may be wrong. Even if you're not projecting that, it's to recognize that maybe it's wrong, but here's how I will know I'm wrong and here's how I will course correct if I am wrong. You don't necessarily have to tell your team that, but you have to recognize it internally if you want to be the best version of yourself.
Matt: So, one of the tools you touched on earlier was the idea of a decision journal. Can you explain that a little bit and sort of demonstrate or talk about how maybe you use that, or how someone listening could potentially use a decision journal to help improve their decision making?
Shane: Most people make decisions and they don't get better at making those decisions, and so when you think of an organization, you think about how they're going to go about making decisions. They'll make the same decisions. They'll make them by committee. Nobody's learning from anybody else. Nobody's really accountable for the decision, and nobody's getting better, right. So, you end up reaping... And when people think about, well, why do we keep making the same mistake over and over again? That would be one of the reasons. Nobody wants to be humbled, right. So, nobody really wants to keep an accurate decision journal, and by decision journal... We have a conference called Rethink Decision Making, and we talk about this extensively in there. But what you really want to catalogue, and we've created physical decision journals for participants at our conferences, what we go through is individual decisions. So, you can either share them or not, but what you really want to do is start calibrating yourself, and you want to talk about the situation or context of the decision, the problem that you're facing, or what about it is different. Why is it a problem? The variables that you think will govern the situation. So, there's never one. There's usually multiple. The complications or complexity as you see it, why do you have to think about this? What are the factors that you're considering today as you're making the decisions? You want to talk about the alternatives that were considered and why you didn't choose them, right. There's never one path, and I mean, we've kind of nailed into this view of, oh, you know, the corporate PowerPoint presentation. I can't tell you the amount of boardrooms I've been in where it's like you have these three options or these two options, and it becomes a false duality. I mean, there's way more options than that. We just narrowed them down for simplicity. We need to recognize that that simplicity isn't always what we want, and we do want to dive into these other options. And then you want to kind of explain to yourself the range of outcomes that you see possible in the situation. And the reason that you want to do that is often you're going to have an outcome that is something that you don't see. And you want to assign a probability to those outcomes so that you can start to hone your ability to understand yourself, where you make your decisions, where you make bad decisions, and what type of probability you assigned to the different outcomes. Then you want to talk about what you expect to happen. Like, what is the most probably event, or maybe not the most probable, but there's an intervening factor that you think will lead to a different outcome. But you really want to talk about the reasoning behind it. So, you want to get into your own kind of self-dialogue about why you think this would happen, when you think it'll happen, and the variables, again, tying it back to the variables that you think will govern the situation. And then you also want to keep track of things like the time of day you're making the decision, and the mood you're in when you're making the decision, because you're not always going to be happy and you'll probably recognize that most people make better decisions when they're in a certain type of mood, and that mood might vary by the person. But what I've learned through implementing decision journals at various organizations and with hundreds of people is that the time of day often affects the quality of decision that you're making. We tend to... Again, generalizing, but we tend to make better decisions in the morning than in the afternoon, right, and you can use that for decision theory or depletion of cognitive resources or whatever. We tend to be more mentally alert at the front of the day than at the back of the day, so one of the ways that you can take advantage of that is to structure decisions at the beginning of the day, not the end of the day. That simple fact alone will enable you to make an incremental improvement to the quality of decisions that you're doing. And then importantly, it's not about just keeping track of this. You want to review it, right? You want to go back in six months and be like, how did this decision play out? How did I think it was going to play out? How did it actually play out? And what can I learn from this? Do I need to calibrate myself differently? Did I think I was within my circle of competence and clearly I'm not because something way outside of the probability that I expected happened, or do I think that I'm reasonably right but now I can learn or hone my understanding of this situation differently? And when you think about that on an individual level, you start learning a lot, right. You don't want to use vague or ambiguous wording. You don't want to talk in abstractions. You really want to use concrete wording that you can't deceive yourself with later. You don't want to talk about strategies. You want to be specific about what strategy. You want to be specific about what variables. Because that enables you to learn. But when you think about it, learning on an individual basis is great, but the real value to a corporation is when a CEO or a vice president or somebody high up in the organization enables organizational learning, so that I'm not only learning from myself, now I'm learning from you. If I had access to your decision journal, now all of a sudden I don't necessarily need to make the decisions you're making, but if I had to, I bet you it would be a better decision than if I didn't have access to your thoughts and the variables that you thought, and knowing the outcomes that you achieved with those thoughts. And that will enable us slowly, over time, to make better decisions. Now, better decisions alone aren't enough. The world is always changing, so we need to make better decisions on a relative and absolute basis, but we also need to make slightly better decisions than our competition, and if we can do that and we can do it over a long period of time, well, then eventually we're going to own the industry.
Matt: I love the concept of handicapping all the probabilities and then coming back and reviewing how accurate was my prediction that this was a 20% likelihood, this was an 80% likelihood.
Shane: Oh, yeah. That where most people stop doing it, though, right? So, they'll get an outcome. If they get an outcome they thought would happen, and then at, like, 5% of the time, and it's a decision they've made repeatedly over the last six months, like, say, buying a stock, for example. They'll give up, right. Or, if they get outcomes that they didn't expect, they'll give up. Or, if they get the answer right for the wrong reasons, they'll give up. And by give up, I mean they just stop keeping a decision journal, because it becomes humiliating. And when you think about decisions in corporations, one of my favorite things to do when I'm in a corporation and consulting or helping them is to listen to the people involved in the situation and how everything is always right, right? And how they predicted it. You know, if I work with you for a year, I can quickly figure out that you didn't predict that for the right reasons. You got lucky. And then, just understanding when people are right for the right reasons and when people are right for the wrong reasons, and when people have bad outcomes but they're for the right process, that enables you to surround yourself with people who can challenge you, who will help you make better decisions over a long period of time, and those are the people you really want to work for, right?
Matt: So, changing gears a little bit, what's one kind of piece of homework that you would give to our listeners?
Shane: Oh, become self-reflection, right. One thing that I work with people a lot on is just take stock of your day. And I don't mean, you know, a typical Saturday or something. I mean, how do you spend your day? How are you matching your energy to the task? Are you reading newspapers in the morning and matching your best time of the day to a task that may be a low value add for you? Newspapers aren't something to avoid. I mean, everybody works in a different industry. They have different constraints. But if reading the newspaper at 6:00 p.m is going to not make a difference, then reading the newspaper at 7:00 a.m., I would advocate that you maybe need to think about why am I reading it at 7:00 a.m. Is that a habit? What is the most productive use of my time at 7:00 a.m. in the morning? I want to be thinking about something deep, something strategic. I want big chunks of time in terms of how I approach that problem. And I think that that enables you to switch out of automatic mode and it enables you to switch into something conscious, and I don't care about what choices people make. Within reason, obviously. I mean, if they're conscious about those choices. But we usually get into this autopilot and that's how we live our lives, and then we wake up at the end and we recognize that, you know, maybe that wasn't the best approach, or maybe that wasn't the approach that I wanted personally, and those are the decisions where we want to take a different path. Being conscious about those decisions and inserting a moment in the day on a regular basis where you just do five minutes of self-reflection. You can call it meditation. You can call it whatever you want. You can go sit on the toilet, but what you really want to do is just think about, like, what did I do today? What could have been better about today? Where did I waste my time? How do I waste less time in the future? Where could I have been more productive? Where should I have invested more of my time, my thinking energy? And then being aware of how these things interact over a long period of time, so also taking that and thinking about, well, I spent my time on X today. Why was I dealing with X? Not, like, how did I deal with X? And what is the path forward? But why is X an issue? Is it because I made a poor decision in the past? Why did I make a poor decision in the past? Does my environment play a role in that? And start asking yourself questions like that. And then just being open to the response about it. I mean, it's not a dialogue with a friend. You don't have to admit you were wrong to anybody else. You just want to be open to yourself in getting better over time so you're spending less time doing stuff like that, more time doing what you want to do. I don't know if that helps.
Matt: No, that's great. That's super helpful. And I think everybody could take five minutes at the end of their day and kind of reflect on what to place and why.
Shane: Yeah, but nobody does that. Well, I don't mean nobody, but very few people do that on their own volition, and the people that I've helped start it, we do it in an organized and structured way. They almost always continue, and they say it's one of the most helpful things they've ever done.
Matt: What are some books or other resources that you'd recommend for people who want to kind of follow up or dig down on some of the topics we've talked about today?
Shane: I think Peter Bevelin's book Seeking Wisdom is amazing.
Matt: One of my favorite books of all time, by the way. Seeking Wisdom.
Shane: Yeah. Porcelli's Almanac. I mean, we want to get less out of this... and, I mean, I fall into this trap on occasion. Less out of this, I need to read more, and what we want is more about what am I reading and do I understand it and is it worth reading to a level of understanding. I mean, I've met so many people who tell me that they've read Seeking Wisdom or Porcelli's Almanac, but then they do things that would definitely contravene the wisdom in those books. So, reading and understanding are two different things, and we want to apply ourselves to understanding. And if you just read the same book, you know, the people who say... And, I mean, I was one of them back in 2013. I think I read... Or 2014, it was. I read 150 books. I must have started 300. But at the end, I mean, one of the biggest lessons, one of the biggest failings I had, one of the biggest lessons I learned, and this is almost like a big secret, right, is that it's not the number of books you read. I could have read five books over the course of the year and actually improved myself more than reading those 152, because you start losing... When your goal is to read more books, you start losing track of what it is that matters and the understanding that matters and where does that come from. And then reading Porcelli's Almanac, that's not a book you read once and you kind of chuck on a shelf. And reading Seeking Wisdom, you don't read it once and then be like, oh, I got it. It's something that you read, you digest, you try to apply, you read again, you digest, you try to apply. And then through that, you hone your understanding of those ideas, and then you start consuming other information. And you map it and you translate it in your mind to the ideas that you've learned, the structure that you've decided to go for. And I think that, aside from that, I mean, I've moved almost materially to older books. We do a lot fewer newer books than we ever used to, a lot more of the books that have been around a long period of time, because that's usually an indication that they contain some sort of wisdom that's enduring, or they hit on some point that helps us hone our understanding of a topic that is still relevant. Less about the bestsellers, less about the Gawkers, less about the "What is the trend of the day?", more about what changes slowly over time, more about what am I really interested in, more about do I understand my circle of competence, how can I improve that? I think that that is all individual based. There's no ten books I can give everybody to read and they'll walk away satisfied. It's kind of a [INAUDIBLE 01:02:14], right. If you like white wine and I offer a red, that doesn't make a good [INAUDIBLE 01:02:20]. It's all individual-based and customized to you and what you're trying to achieve and where you are.
Matt: I think... I mean, Seeking Wisdom is probably one of the best books I've ever read, and my copy, I think every single page has multiple notes, underlines, highlights. You know, somebody could probably spend a year just digesting that book, or more, easily.
Shane: Oh, totally. I have friend who reread that on a regular basis. You know, honestly, I would say that's a large portion of their success, is that not only do they reread it, but they understand it and they understand the dynamics at play, and then they apply it to life and they become incredibly successful by doing that.
Matt: Well, where can people find you online?
Shane: So, we're at farnhamstreetblog.com. F-A-R-N-A-M Streetblog.com. We do three to four posts a week, covering everything from art and history all the way to philosophy and psychology, and I'm also on Twitter, which is @FarnamStreet. @ F-A-R-N-A-M-S-T-R-E-E-T, and we're on Facebook as well. Or, you can just Google Shane Parrish and Farnam Street crops up as, I think, the number one link on that. And that would be a great way for you to follow along with what we're doing and build your toolkit over time. I would encourage you that if you see an article and you're like, oh, well, I don't agree with this, or I don't want to learn about art, that you give it a week or two. I can't tell you the number of times I've had people go, you know, "A friend of mine sent me your link and I read it for a day and I was like, oh my God, what is this, and then I read it for a week and I was like, oh, this is really interesting, and then I read it for a month and I'm like, oh, I'm addicted to this. I can't actually get away from it. I've started going back and reading all their old posts." Because the topic of the day is not necessarily... I mean, our approach is to give you a broad range of solutions, or tools, if you will, so that you can build better products or solve different problems. Inevitably, we're going to come across something that you don't agree with or that you think is useless, or something you already know. And often, we contradict ourselves, right, and part of that is getting the reader to do the work of understanding that contradiction, and we're not giving you... We're giving you 90% of the solution. We want you to do the 10% on your own. And that 10% is where most of the value comes from, because if I give it to you, you don't actually understand it. It doesn't become part of your life. By you doing the work, then it becomes embedded in what you're doing and how you're approaching things.
Matt: Well, Shane, this has been a great interview, and I really want to say thank you very much for being on here, and I know the listeners are going to love a lot of the stuff that we talked about today.
Shane: Thanks, Matt. Really appreciate it. I'm looking forward to it.