David McRaney on EconTalk

Episode description:

To the Founding Fathers it was free libraries. To the 19th century rationalist philosophers it was a system of public schools. Today it’s access to the internet. Since its beginnings, Americans have believed that if facts and information were available to all, a democratic utopia would prevail. But missing from these well-intentioned efforts, says author and journalist David McRaney, is the awareness that people’s opinions are unrelated to their knowledge and intelligence. In fact, he explains, the better educated we become, the better we are at rationalizing what we already believe. Listen as the author of How Minds Change speaks with EconTalk host Russ Roberts about why it’s so hard to change someone’s mind, the best way to make it happen (if you absolutely must), and why teens are hard-wired not to take good advice from older people even if they are actually wiser.

Link: https://www.econtalk.org/david-mcraney-on-how-minds-change/

I think the best teaser for the interview occurred during the interview when McRaney says:

The incepting point of this book was someone in a lecture came up to me and asked about their father who had slipped into a conspiracy theory and they said, ‘What can I do about that?’

And, I told them, ‘Nothing.’ They said, ‘How do I change his mind?’ I said, ‘You can’t.’ And, I really felt, the second I said it, that: I don’t know enough about this to say something like that. I don’t even know if I believe what I just said, but I know one thing I don’t like this attitude I have about this issue. I should at least learn more about it.

And, if I was in that same situation today, I would actually be able to say, ‘Oh, here’s what you should do. Here’s what you should say.’ I no longer believe anyone is unreachable. I no longer believe anyone is unpersuadable.

In conversations that don’t work out the way we think,  we blame the other side. We say, ‘They’re dumb. They’re mean. They’re evil. They’re ignorant. They are unreachable, unchangeable, stuck in their ways.’ These are all things that we are using to forgive ourselves for failing.

My selected excerpts:

Motivated reasoning for social acceptance

Reasoning, psychologically speaking is just coming up with reasons for what you think, feel, and believe. And, those reasons are motivated by a desire to–a drive–to be considered trustworthy to your peers.

So, not only are you driven to come up with reasons for what you think you’re going to believe, you want them to be plausible. And, plausible, in this sense is: ‘What would your most trusted peers, your social network think?’ ‘Oh, yeah. That’s a reasonable way to see that.’

[Kris: For example, a quant might not respect reasoning that comes from intuition which they might see as excessively prone to bias whereas someone with a lot of experience might night trust the numbers for some unconscious pattern-matching reasons. The irony is both people recognize the intuitive approach is just pattern-matching but the quant thinks this is untrustworthy and the discretionary trader thinks it is.

I’d add another observation — the criteria for sense-making might be entirely context-dependent. Maybe the quant gets acupuncture when they go home. Our standards for epistemology vary depending on our expertise. The religious doctor doesn’t just pray for their patient.]

The process of radicalization

You feel something happens in the world that gives you this a negative emotion. Some anxiety starts to come up. It could be for really good reasons, but it could also be because you have some sort of prejudice or some sort of political bias.

So, then you do that thing. You go, ‘Hmm. Let me search for evidence that justifies the anxiety that I’m feeling.’ 

And, when you do that, online, you absolutely will find something that suggests your anxiety was justified.

And, you also might find people talking about that. And, you might end up wanting to talk with them about that. You might end up spending a lot of time talking with them.

And slowly you can radicalize yourself. You can cultivate yourself–cultivize yourself–and by, you start snipping your connections away from people who don’t share the attitudes being expressed in that community and you start strengthening the connections you do have with those.

And, now all of a sudden, you’re in a group. You’re in a community. And, the great sociologist Brooke Harrington told me that, if there was an E=mc2 [energy equals mass times the square of the speed of light, Einstein’s Equation] of Social Science, it would be: the fear of social death is greater than the fear of physical death. And, if your reputation is on the line, if the ship is going down, you’ll put your reputation in the lifeboat and you’ll let your body go to the bottom of the ocean.

We saw that with a lot of reactions to COVID [coronavirus disease]. As soon as the issue became politicized, as soon as it became a signal–a badge of loyalty or a mark of shame to wear a mask or to get vaccinated–as soon as it became an issue of ‘Will my trusted peers think poorly if I do this thing or think this thing or express this feeling or attitude or belief,’ people were willing to go to their deathbed over something that was previously just neutral.


[Kris: calling all reflexive contrarians!]

This is a concept that has been studied extensively in the context of clinical therapy.

They would come to the therapist and the therapist would say, ‘Well, you know what’s your real problem is. You should be doing this.’ Or, ‘I don’t know if you’ve noticed, but you don’t do this very much. You should do this.’..All that feels pretty good. They now call that in psychology the “writing reflex”. And, we’ve all felt that whereas someone is saying something and you’re like, ‘Oh, I have the advice for them. I know what to tell that person.’

But, you also have also experienced this other thing that happens, and this seems to be something that’s universal to human beings across all cultures. It’s just something that the brain that we’re issued at birth, it’s something that’s a feature of human thinking, rationality, psychology. Human brains do this. It’s called reactance. In the psychological parlance, they’ll say something along the lines of, you feel motivationally aroused to remove the influence of the attitude object, which just means: ‘You made me feel a feeling I don’t like and I want it to go away. So, I’m going to push you away,’ or ‘I’m going to disengage.’

What is the feeling that’s causing the motivational arousal? It’s the sense that your agency is under threat–your autonomy is under threat. It’s the ‘Unhand me, you fools,’ feeling. You’ve all felt this. If you’ve ever been a teenager or you’ve ever spoken to a teenager, you know what I’m talking about…”You shouldn’t do this. You should study more.”‘ This is good advice that the person when they’re 35 will go, ‘Man, my parents were right about that.’

But, in that moment it’s just the fact that you’re saying, ‘I have a thing in my head that should be in your head and I want it to be in your head.’

And, oddly enough, it’s the want that creates the reactance. The person’s feeling that you have approached them in some way and said, ‘I want you to think, feel, or believe, or act in a certain way that you’re not doing right now,’ and it feels coercive. It feels like they’d come at you and they’re threatening you. They’ve got a knife in their hand, and they’re saying, ‘Walk this way.’ That’s what it feels like.

We just, at a visceral level, will react by saying ‘no thanks’ to that, and we’ll push against it.

Basically, what you’re saying is ‘I have a goal and I’m not even concerned with what your goal is. This is the goal that I want you to go toward.’ Then they say, ‘Oh yeah, well, no. How about I don’t do that? I want you to stop talking to me that way.’ Well, now you feel reactance, because you’re like, ‘Oh, you’re telling me how to talk to you? How about I double down?’

And, then you enter into a horrible feedback loop.

This happened so often in therapeutic frameworks that they’re like, ‘We should really develop a way to stop doing that.’ Because what started happening was people would come in wanting to extinguish a behavior and then they would leave therapy more likely to engage in the behavior than if they had never seen a therapist because something along the lines of: they had these arguments for and arguments against. So, they were at a state of ambivalence when they arrived, but they wanted a little bit more in energy on the side of ‘Let’s not do the thing anymore.’ But, because of that, they counter-argued with the therapist. They generated counter-arguments inside of them that put more weight on the side of continuing to do the thing. So, they walked away with more arguments for than against than when they walked in.

This is also what happens when we have a conversation with someone where we disagree on an issue. Very often, if we create that feedback loop, they will walk away with more arguments in their mind than they had coming in to continue believing or feeling in the way they had before we had the conversation.

What I want to emphasize here is you can be very much correct. The facts can be on your side. You can be really trying to reduce actual harm in this world. You can have the moral high ground, and you can be dealing with a person whose intent, they’re, like, their action and behavior, their political stance harms you. They may even hate you.

So, what I’m saying is you can be on the right side of all of this, however you want to define the word right–you can be on the correct side of all those things. And yet, if you generate reactance from the other person to what we’re talking about, you will not be able to change their mind. You lose out.

And, it’s a very difficult thing to offer a person the space and give them the respect that would avoid reactance when you are dealing with a person that you feel like doesn’t deserve that treatment from you.

Shaming will cause the same defenses to kick in

If you say something that is interpreted–you may not mean to come across this way, but if it can be interpreted as, ‘You should be ashamed for what you believe. You should be ashamed for what you feel. You should be ashamed for that value or that intent to behave,’ even if I’m putting my hand at the side of my mouth. Even if they should be ashamed. If you communicate it that way, then you’re going to activate the person’s fear of ostracism. And there’s nothing more–like we said, there’s nothing more fearful for a social crime made than the suggestion that they may be ostracized. So, if you tell them they ought to be ashamed for feeling that way, it’s going to cause them to feel very viscerally upset and angry, and they’re going to push away from the conversation.

Unblocking the discussion

 All you have to do is get out of the debate frame with the other person. Don’t make this feel like, ‘I need to win and you need to lose. I am and you are wrong.’ Just get out of that frame.

And, the easiest way to get out of that frame is to, first of all, say something along the lines of–instead of saying, ‘I want to show you what you ought to think, feel, and believe,’ you say, ‘Hmmm. You seem to know a lot about this issue and you seem to care about it a lot. You seem to see that these problems are problems. I’m wondering, given what you know, I wonder how it is that–because I look at a lot of this stuff, too. I wonder why we disagree on this issue? It’s really curious to me. I would love to talk to you a little bit more about that. I wonder if we could look at this issue and see what is it we disagree on here?’

What you want to do in that frame is give the other person a chance to feel like, instead of being face to face, you’re going to go shoulder to shoulder, and we’re going to–instead of looking at each other as obstacles, we’re going to turn and face in the same direction and look at the problem at hand, the goal at hand, the issue at hand. And, we’re going to collaborate now. We’re going to work together and say: Well, you’ve got your side of things, and your views, and your experiences, I’ve got mine. I bet if we joined forces, we could get to an even deeper truth on this or higher truth or a solution that works well for both of us.

You don’t even have to put it in those words. That’s another thing we have an innate inclination for which is, ‘Oh wow, we get to snap together and work together on a problem.’ You can frame things that way with just a slight change in approach and language and you will escape the debate frame that leads to reactance; and it’s much more fruitful.

Specific approaches that work

The thing that was most surprising in all that was discovering that there were all these different organizations that had said, ‘Okay. Well, what do we do about this?’ And, they started A/B testing conversation techniques. I found deep canvasing, and street epistemology, and smart politics, and then all the therapeutic models that I mentioned–motivational interviewing and cognitive behavioral therapy. And, on and on and on. There’s so many.

And, the thing that was most surprising was: Most of them had never heard of each other, never seen each other’s work. Many of them, the majority of them weren’t aware of the–if they weren’t in therapeutic domains–they weren’t aware of the science that would support what they were up to. Yet, independently, they all came up with pretty much the exact same technique. And, if you put it in a step-by-step order, it’s almost in the exact same order every time, too.

That seems to me like something almost in the world of physics or chemistry, and that if you were to build an airplane–the first person to build an airplane, it was always going to look like an airplane. It doesn’t matter where they built it. It doesn’t matter what culture they were from. It doesn’t matter how old they were, what they looked like, what they knew about anything. Airplanes have to look like airplanes because physics works like physics on the planet Earth.

Conversational techniques that actually shift attitudes and open people up to different perspectives, that get past resistance, all pretty much work the same way because brains resist for universal reasons and brains work in a very particular way.

Diving into street epistemology


Street epistemology came out of the world of the angry atheists and the militant agnostics who were having their own reaction to getting online and meeting each other. And, they’ve gone through several phases of growth and evolution themselves where they have schismed off. And, there’s some who are still very angry and there are some who are much more humanistic and empathetic.

And, within all of that, there was this movement that came about where they wanted to know, like, ‘How do we talk to people in a way that could avoid the angry pushback that we so often get when we speak with people who are not in our subculture or do not see or have our same theistic or atheistic views?’

And, they did the same thing that people did in deep canvasing. They went out. They had conversations with people. They recorded those conversations. They shared them with other people in the group. And, when something seemed to work well or get them closer to having a good conversation, they kept it. Anything that made it go the other way, they threw it away. And, through thousands of A/B-tested conversations, they started to zero in on something that worked.

And, now they’ve expanded it to: this can be applied to anything. You don’t have to be in their sub-community or have their theistic views to use it.

In the book, I talk about how there are techniques that work well on politics, techniques that work well on attitudes and values. And, then this one specifically works best with fact-based claims, things like, ‘Is the earth flat?’

How it works

It’s a stepwise method for having the conversation that we all should be having on any issue. Without going through an hour of trying to go through all the steps, I’ll give you sort of the quick version of that, which is: You open with a lot of the stuff we’ve talked about before–you open by establishing rapport. That’s that assuring the other person you’re not out to shame them. Assuring the other person, you’re not even there to change their mind. What you are there is to explore their reasoning. You ask them, ‘I would love to have a conversation with you in which we explore your reasoning on a topic and see what your views are and understand it better.’ Maybe: ‘You might shift, but you will have a deeper understanding of what we’re talking about.’ However, you want to frame it. Use your own language. You’re telling a person you’re going listen. And, most people will take you up on that offer.

I’m doing it right now. You asked if I would talk about something; you said you would listen; and I’m doing that right now. The podcast world depends on the fact that we’re all very willing to tell people what we think and feel about things.

So, give people that opportunity. You open the space for it. In this method, you ask for a claim. You ask for a very specific claim. It could be: Is the earth round or flat? And, then the person tells you–and then you repeat back the claim in the other person’s words. You make sure that you’re always using the other person’s words, because the big lesson in all of these techniques is that you are in their head, not yours.

You stay on their side. And, your job is to hold space for the other person to non-judgmentally listen and give them a chance to have a safety net, to metacognate and introspect.

And so you repeat the claim back to them. If they have definitions for terms, you ask for them; and you use their definitions, not yours. Like, if they say ‘the government,’ don’t assume that they’re talking about something from a civics textbook the way you look at it. They might be thinking of a group of reptiles in a round room talking about how they’re going to divide the country up to play golf. They have a different view of it. Let them–use their definitions.

And, then this is the big moment–and this is true across all of the conversation techniques. They all open in a pretty similar way with this space-creating moment. And, then they move to this thing that is magic.

It is asking the other person on a scale from zero to 10, or one to 100. The scale is a great way to get out of the debate frame and to assure the other person that this is not going to be a binary, right/wrong, black-and-white view of things. And, it even will work with the movie example you gave earlier, which is like, ‘Hey, Top Gun Maverick, what did you think of it?’ A person will say, ‘I loved it.’ That’s a very, like, black, white binary abstract. ‘Oh yeah? What would you give it on a scale from zero to 10?’

There is a moment when you ask a person a question like that, where they’ll go, ‘Oh, well,–that moment is, when they pop into that metacognating frame; and it could be like, ‘What did you think of this talk?’ ‘Loved it.’ ‘What would you give it on a scale of one to 10?’ ‘Oh, well–.’ That moment is what you’re looking for on any conversation topic.

[Kris: this is similar to asking someone to bet on their claim or handicap an outcome — the thinking switches from emotional to deliberate]

And you ask them, ‘What would you put it on a scale from one to 10, or zero to 10, or one to 100?’ Whatever they tell you, ask, ‘Why does that number feel right to you?’

This will encourage the other person to engage in reasoning–motivated reasoning most often. And, you let them do it. Let them do it the way they could do it. They’re going to come up with reasons that seem plausible for that position. But, what’s likely is that they’ve never done this. Not in this sort of like, ‘Please, present your reasoning to me’ kind of way.

It’s marvelous to witness a person saying–well, if they’re talking about Top Gun Maverick, they’ll have to start thinking, ‘Why do I have this emotion? Why was that so quick–why was it just like–it popped right in my head. What caused that to happen?’ And, they start coming up with reasons why that could be. Most of these are exploratory and they’re definitely going to be justifications and rationalizations.

Then, if you are actively hoping to get the person to see things closer to your perspective, if you’ve already done this for yourself and you know where you’re at on the number scale, ask the person how come they’re not in the other direction that you–appropriate to the issue. So, if I feel like–if a person says–if I say, ‘Is the earth flat?’ And, they say, ‘Absolutely.’ And, I say, ‘How certain are you of that from a scale from zero to 10?’ They say, ‘I’m probably a seven.’

Well, what you would ask is–first, you’d ask, ‘Why a seven?’ The next thing you’d ask–and this comes from motivational interviewing–is, ‘How come you didn’t say eight? How come you didn’t say nine?’ Because you’re asking how come they didn’t go all the way to 100% confidence. And, they must, on their own at that moment, generate their own counter-arguments against their position. But, you didn’t do that. No reactance. You’re not telling them what to think, feel. You’re not giving them your counter-arguments. It’s not your reasoning. They have to generate reasoning that counter-argues their position that will be new, that will be fresh, and that’ll be added to the collection of counterarguments in their mind. And, it will affect how they see things going forward.

With street epistemology, it’s more about just getting the person to examine: are they using a good epistemology to vet what they think and feel? So, after you have done all of these things with the number scales, you’d ask them what method that they used to judge the quality of those reasons that they presented. And, then you just stay in that space for the rest of the conversation as long as they’re willing to do it, and continue to listen and summarize and repeat and wish them well. And, try to make it so that you can have more than one conversation.

People do experience 180s in these moments sometimes. But, usually what happens is it’s by degrees, by increments. And, at the end of the day, the street epistemology people, they’ll tell you, ‘We’re not interested in changing people’s minds. We want people to just be critical thinkers. We want them to have more robust epistemologies.’ Which is sort of an even deeper way of changing a person’s mind. Getting a person to change their epistemological approach to the world is even more powerful than getting them to change just one belief, or attitude, or value.

Cognitive Empathy

This is a huge complex idea, but I think it all kind of plays into what we’ve been talking about previously, which is that sense of naive realism, where you just think that: ‘All people have to do is see the things that I’ve seen and they’ll naturally agree with the things that I think,’ if you don’t believe.

And it just takes–what it shows is a complete lack of cognitive empathy that other people come from completely different priors and experiences and social influences that affect the way they see–the way they form their beliefs–but also the way they interpret evidence.

An example of empathy failure:

I’ve seen this recently with a lot of these political ads that I’m seeing come across social media for places that I don’t live where they keep making these–I saw one today where someone was, like–they were in, like, the Midwest and they had these two people trying to survive in the desert. And, one of them is doing everything right because they’re a cowboy and they understand how to survive in the wilderness. And, the other one is a Senator who has no idea how to survive in the wilderness. But, the cowboy dies on Day 2 from a heart attack, because he doesn’t have good healthcare; and the Senator lives, because he’s got great healthcare, the Senator.

And the whole idea of the ad is: See. Senators have the healthcare that you don’t get to have. And, even though you’re a good, rugged individual who lives out there in the wilderness, who can survive in the wilderness, they’ll out-survive you because they’re taking away the healthcare you need.

That seems like a great political ad because it focuses on the identity of the individual that you’re approaching. But, that is an awful political ad based off of everything that I’ve learned in this domain, because it only feels like a great political ad to people on the Left–to liberals. It feels like a great ad for people who already have the values to which that makes you angry about that. It’s the inability to see that you can’t make an argument from your moral framework to a person who is in a different moral framework and expect it to land. You have to actually couch the argument in that person’s moral framework and their values. [ie “Moral Reframing”]

Lessons from Game Designer Raph Koster

I am going to be reading game designer Raph Koster’s book Theory of Fun pretty soon. For a preview, I listened to an old interview on the Think Like A Game Designer podcast with Justin Gary.

Link: https://www.thinklikeagamedesigner.com/podcast/2018/10/25/think-like-a-game-designer-5-raph-koster

Raph’s 25-year-old blog is a monument to design knowledge — it includes his writing, talks, and links to projects.

Raph is a creative force of nature. And this interview gets behind the madness. As always with my recaps, this is just what I wanted to write down for my own future reference but so much more is covered (there’s an especially great section about the use of simulations)

The Studio | London Art Classes

Ideating from scratch

When designing a game Raph will have a starting point. On one end of the spectrum might be a particular loop or mechanic the game hinges on. At the other end of the spectrum, he might start with the type of experience he’s looking to design. His approach to tabletop games tends to start with the mechanics and for video games from the experience. I excerpted the following because he decomposes the act of swimming into game mechanics off the top of his head in the interview. It was a neat example of how native this thinking clearly has become for him:

In my board game work, I find myself biased towards the mechanical. It’s unusual for me to start from the other end of the board games. But in video games, I often start from the experiential end. My goal is to establish what I know at one end and then use it to jump to the other end to draw conclusions. For example, if I start from the experiential end and I want to make a game about swimming, I think about the experience of swimming for me. There are different strokes. There’s the fear of drowning when you start to learn. Rhythm is crucial to swimming, as is breath management. The concept of a breath might be a resource. It could be something consumed periodically, but there might also be an exhaustion meter that decreases over time, limiting your breath. Different strokes might have different breath expenditures. If I decide to create a tabletop game, I think mechanically. I could set up a board with a race structure appropriate for swimming, perhaps with themes like sharks chasing or diving challenges. I’d play a game of resource management to get the necessary strokes, maybe using cards or tokens. If I were designing a digital game, I’d focus on rhythm, possibly incorporating a timing aspect and still manage resources of breadth and endurance. Different strokes would offer varied trade-offs. My aim is to establish two foundational ideas and move inward, paying attention to both. Ideally, they meet in the middle. If I have an abstract idea, like a deck of cards that “moves” me, I might not end up with a swimming game. It could fit another context but remain mathematically sound. It could be rules for moving cavalry in a supply chain. It’s crucial to consider both ends because it helps generate ideas that lead to a cohesive design.

Having a wide array of influences and skills

I’m always fascinated by and strive to understand the universal principles that apply to the creative process. It doesn’t matter whether you’re making games, poetry, art, or a movie, I believe there are common threads in how you approach creative work. You have such a polymath background, maybe you can speak to that.

My education and background is eclectic, with a consistent focus on the arts. I took studio art classes beyond the college level and I’m a musician. I play multiple instruments and studied music theory and composition in college. Interestingly, the one thing I do but never formally studied is programming. I have a Master of Fine Arts in Creative Writing and draw on all of these disciplines regularly. It’s challenging for me to imagine not being a jack of all trades or how I’d approach games if I weren’t integrating all these skills. I also frequently use Excel. A primary reason I enjoy game design is because it allows me to utilize various skills in one project.

Getting better — what does it mean to practice?

What’s the equivalent of “practicing scales” for other creative work?

I consider the practice of all those things I do as being very similar. I use the same habits for all of them. I made a list of them once in a blog post, which I think was called “practicing the creativity habit“. First was, whatever the activity is, do it regularly and make it a habit. So part of that is having the tools near you at all times. In the room I work out of, there are about 20 musical instruments within five feet, a complete art studio, a recording studio, and a game design reference shelf. Not actual games, but books about games, economics, interface design, and other topics related to games. For board games, I have a prototype kit with hundreds of dice, wooden bits of different shapes, and about 30 or 40 different decks of cards. The first thing is to make it a habit. Second, have the tools close at hand always.Third, give yourself constraints. I try to do that regularly. If it’s guitar, I might find five jazz chords and learn them, then write a song using those chords until I understand them. I picked up this habit from studying art and poetry. There are traditional poetic forms like sonnets, Villanelles, and haikus. In a writing workshop, we set ourselves the challenge of writing a poem using every single traditional form. In game design, it would be trying different game types. I haven’t succeeded at it for games, but that’s not the point. It’s about understanding design patterns. This approach applies to everything I work with, be it music composition, writing, or drawing. It’s a common underlying principle. It’s like working out — you need to rotate through the different muscle groups. 

Intuition is pattern-matching against experience subconsciously

This is illustrated by an example from one of the cognitive science books on my shelf: the firefighter intuitively knows a structure is going to collapse. If you ask them why, they often have trouble explaining. I believe the process of conducting formal analysis of numerous games or seeking NP hard problem categories or compiling a pattern library and trying to internalize it helps strengthen our intuition. The exercise of building games around patterns serves as practice for honing this intuition. I may not always explain why I opt out of a conflict early, but I just intuitively sense it won’t work. The key is recognizing this earlier. I still believe 90% of ideas are shit but now, I discard them even before jotting them down, often when they’re just scribbles.

Nuance about the role of games in education

The changes over the years have involved the “chocolate covered broccoli” concept, where something fun is wrapped around an academic task. It’s clear this approach wasn’t effective. We’ve come to understand that games teach in specific ways that are well-suited for certain subjects but not for others. Games motivate players best through intrinsic motivation. Players choose to learn and take on tasks because they want to, with the game guiding their objective. For instance, instead of making a game to directly teach math, you create a game where players have a goal they wish to achieve. This might lead them to discover that understanding a certain type of math is the solution. They then learn it out of their own motivation. This is a realization that educational game design has recognized over time. As for games with broader themes, they can reflect social structures, human interactions, economics, politics, and other vast topics. While there’s an abundance of narrative-driven or viewpoint-based games out there, game systems can be informative as well. For instance, Sim City faced criticism for presenting an overly optimistic view of public transit and its associated challenges.

You can bias your game systems to convey specific lessons. It’s important to recognize that your game systems inherently teach lessons, intended or not.

Game-playing trains your “systems thinking”

Finding real world systems and abstracting them or boiling them down to their essence isn’t actually a very common skill. Games can teach people how to do this. The idea involves setting constraints, modeling real systems, and allowing people to experience them within a game context to understand them deeply. It provides an opportunity for individuals to experiment with these systems, unlike in real life where, for example, you only get one shot at lifetime earnings. Playing a game that emulates this system offers lessons. This is applicable to various scenarios, such as political engagement. There should be games that allow players to experiment with political engagement methods, helping them discern more effective strategies. This principle holds true in many areas.

Kris here…yea, I’ve made this point repeatedly over the years.

In Let Your Kids Play Boardgames I said this of the game Quacks of Quedlinburg:

Quacks is a bit like a deck builder. It’s known as a bag builder but with a don’t-bust-press-your-luck mechanic. To most of you, that means nothing but for the remaining, you should know this an outstanding game. It’s fun, and while seasoned gamers won’t like this necessarily, it has enough luck to allow a first grader to compete with an adult. I found myself thinking quite a bit about the value of the “options” (they’re actually chips representing ingredients in a potion recipe) in the game and their respective costs. The concepts of theta, volatility, and vega would be visible to someone with a finance background if they looked past the game skin.  An engineer would see this game as a very pure simulation (most likely AI) based problem especially since the game has no trading interactions.

In Practice Second Gear Thinking I write:

We must identify second-order effects. In the options world, the “greeks” are sensitivities. Delta is the option’s sensitivity to the underlying. Gamma is a second-order sensitivity that describes how an option’s delta changes with respect to the underlying.

But this topic is everywhere. If a company sells more widgets it makes more profit. But second-order effects mean attracting more competition or saturating a market. Every satisfied customer is one less customer that needs satisfying. So if I build a model of profitability based on units sold, when does the function inflect? When does opportunity fade into unsold inventory?

A fun way to think about second-order sensitivities is playing “engine builder” boardgames like Dominion or Wingspan where synergies between your cards lower the marginal costs of later actions2. In essence, the cards have gamma based on how you stack them. Every time I use a card it might increase my odds of winning by X. That’s the delta or “benefit per use”. But the delta itself increases with synergy, so as the game progresses, you get more delta or benefit/use ratio, from the same card

In Greeks Are Everywhere I write:

One of the reasons I like boardgames is they are filled with greeks. There are underlying economic or mathematical sensitivities that are obscured by a theme. Chess has a thin veneer of a war theme stretched over its abstraction. Other games like Settlers of Catan or Bohnanza (a trading game hiding under a bean farming theme) have more pronounced stories but as with any game, when you sit down you are trying to reduce the game to its hidden abstractions and mechanics.

The objective is to use the least resources (whether those are turns/actions, physical resources, money, etc) to maximize the value of your decisions. Mapping those values to a strategy to satisfy the win conditions is similar to investing or building a successful business as an entrepreneur. You allocate constrained resources to generate the highest return, best-risk adjusted return, smallest loss…whatever your objective is.

Games have mine a variety of mechanics (awesome list here) just as there are many types of business models. Both game mechanics and business models ebb and flow in popularity. With games, it’s often just chasing the fashion of a recent hit that has captivated the nerds. With businesses, the popularity of models will oscillate (or be born) in the context of new technology or legal environments.

In both business and games, you are constructing mental accounting frameworks to understand how a dollar or point flows through the system. On the surface, Monopoly is about real estate, but un-skinned it’s a dice game with expected values that derive from probabilities of landing on certain spaces times the payoffs associated with the spaces. The highest value properties in this accounting system are the orange properties (ie Tennessee Ave) and red properties (ie Kentucky). Why? Because the jail space is a sink in an “attractor landscape” while the rents are high enough to kneecap opponents. Throw in cards like “advance to nearest utility”, “advance to St. Charles Place”, and “Illinois Ave” and the chance to land on those spaces over the course of a game more than offsets the Boardwalk haymaker even with the Boardwalk card in the deck.

In deck-building games like Dominion, you are reducing the problem to “create a high-velocity deck of synergistic combos”. Until you recognize this, the opponent who burns their single coin cards looks like a kamikaze pilot. But as the game progresses, the compounding effects of the short, efficient deck creates runaway value. You will give up before the game is over, eager to start again with X-ray vision to see through the theme and into the underlying greeks.

[If the link between games and business raises an antenna, you have to listen to Reid Hoffman explain it to Tyler Cowen!]

Advice for aspiring game designers [Kris: I think much of this applies to anyone whose job is to communicate — which is basically everyone]

The first piece of advice is to make games. I understand many are familiar with this advice, but it’s valid: make a multitude of games and practice consistently. The second piece of advice, especially for aspiring game designers, is to become intellectually curious. I haven’t met any outstanding game designers who aren’t. Be a voracious reader and be open to exploring different fields. Be genuinely curious. These two traits alone can take you a long way in the game design world.

Well, ok. But, given Raph’s background, it seems incomplete for me to not quote uber-successful game designer Sadie Green’s character in the novel Tomorrow, Tomorrow, and Tomorrow responding to a rando who asks her “How did you get into making video games?”

Sadie hated answering this question, especially after a person had told her that he hadn’t heard of Ichigo. “Well, I learned to program computers in middle school. I got an eight hundred on my math SAT, won a Westinghouse and a Leipzig. And then I went to MIT, which by the way is highly competitive, even for a lowly female like myself, and studied computer science. At MIT, I learned four or five more programming languages and studied psychology, with an emphasis on Judic techniques and persuasive designs, and English, including narrative structures, the classics, and the history of interactive storytelling. Got myself a great mentor. Regrettably made him my boyfriend. Suffice it to say, I was young. And then I dropped out of school for a time to make a game because my best frenemy wanted me to. That game became the game you never heard of but yeah, it sold around two and a half million copies, just in the US, soooo…”. Instead, she said, “I like to play games a lot, so I thought I’d see if I could make them”.

Specific content recommendations

Jerry Seinfeld Chats With Tim Ferris

This Seinfeld/Ferris interview is great:

Jerry Seinfeld — A Comedy Legend’s Systems, Routines, and Methods for Success (#485)

There are good notes here and I’ll list my favorite lessons despite the feeling that you should really take the whole thing in bc the delivery is as good as the lessons.

  1. He writes every day like a job. Jack White (another artist I’m a big fan of has a similar view). Inspiration comes from perspiration kinda thing. It’s not “eureka” moments. Writing sessions should not be open-ended, that’s torture. You should have an end time to reward yourself.

  2. The key to writing is learning to switch between these two states: When you are writing, treat yourself as a baby in need of care and love. Acknowledge that creating/writing is the most difficult thing in the world. The day after, you become a ruthless critic It’s 95% re-write.
  3. Writing sessions feel very hard, but he knew he had to do it anyway (and realized this at a young age). Jerry attributes his success to his ability to stick with it. Today he’s so used to the frustration he doesn’t even notice it.
  4. For Jerry, there can be no failure in going up on stage. Even if for him it’s a 4 out of 10 show, he still counts it as a win. This is part of nurturing and rewarding yourself as a creative.
  5. “Never talk to anyone about what you wrote that day. You have to wait 24 hours to ever say anything, because you never want to take away that wonderful, happy feeling that you did that very difficult thing that you tried to do, that you sat down and wrote…Have you ever heard you never tell people the name that you’re going to give the baby — until it’s born? Bc they’re going to react, and the reaction is going to have a color. And if you’ve decided that’s going to be the baby’s name, you don’t want to know what they think”
  6. Mind and body are intertwined deeply. Exercise is the closest thing we have to a panacea. The stress from weight training makes your nervous system more resilient. We need to be properly exerted. “a tired dog is a happy dog”
  7. Weight-training builds your constitution. “You’re deteriorating. You’re just trying to bend that curve a little bit. I’m 66. I shouldn’t be performing at this level at 66. I should be over. So you have to cheat the biology.”
  8. Repetition & systems “It’s like you’ve got to treat your brain like a dog you just got. The mind is infinite in wisdom. The brain is a stupid, little dog that is easily trained. Do not confuse the mind with the brain. The brain is easy to master. You just have to confine it.” Systemization is needed to harness talent:Image
  9. He measures and gamifies to direct his progress. But not on the creation process:Image
  10. Jerry is confrontational so he doesn’t let things fester. “I feel like if you break the human struggle down to one word, it’s confront. And so, I kind of approach everything that way.”

  11. Survival is success. And if he could have a billboard it was say: Just Work


  12. If Jerry could pass along something to his kids it would be ethics and boldness

A Few Excerpts from Dan Carlin on Lex Friedman

I recently listened to my first episode of Dan Carlin’s Hardcore History — a tour of the transatlantic slave trade entitled: Human Resources. Dan’s story-telling and research shine in this nearly 6-hour episode. He deserves all the accolades he gets. The style, quality and nuance of his work is well-advertised, I’m just late to the party. He immediately jumped into my favorite creators.

As a fan of the Founder’s podcast I found an interview with its host David Senra to be as compelling if not more than the books he highlights (a high bar), so I decided to hunt down interviews with Carlin. The first one I clicked on with Lex Friedman did not disappoint. I include 4 excerpts that stood out to me but most of the interview was enlightening and wide-ranging so I wouldn’t stop at these excerpts.

3+ hour interview (Lex Friedman on YouTube)

I used GPT-4 to clean up sections of this transcript: https://www.happyscribe.com/public/lex-fridman-podcast-artificial-intelligence-ai/136-dan-carlin-hardcore-history

An example of how propaganda can scramble your beliefs in a way that creates collective distortions that are hard to see

[Carlin is a war historian and while he admits to his bias towards individualistic ideals “I’m famously one of those people who buys in to the ideas of traditional Americanism”, his characteristic nuance is well-displayed in his deep skepticm of the “military industrial complex” and how its inclination towards self-preservation as an institution often exerts undue influence in when America looks at its menu of choices]

“Many people living today seem to think that patriotism requires a belief in a strong military and all the features we have in the present. However, this is a departure from traditional Americanism, which viewed such elements with suspicion during the first hundred years of the republic. They saw them as foes to the very values that Americans celebrated. The question arises, how could freedom, liberty, and individualistic expression thrive with an overarching military always engaged in warfare?

The founders of this country examined examples such as Europe and concluded that standing militaries or armies were the enemy of liberty. Today, we have a standing army deeply woven into our society. If one could go back in time and converse with John Quincy Adams, an early president of the United States, and reveal our current situation, he would likely find it terrible and dreadful.

Somewhere in our history, Americans seemed to have strayed from their path and forgotten their founding principles. We have successfully combined the modern military-industrial complex with the traditional benefits of the American system and ideology, so much so that they have become entangled in our thought process. Just one hundred and fifty years ago, they were seen as polar opposites and a threat to each other. When discussions arise about the love of the nation, I harbor suspicion towards such sentiments.

I am wary of government and strive hard not to fall prey to manipulation. I perceive a substantial part of what they do as manipulation and propaganda. Therefore, I believe a healthy skepticism of the nation-state aligns perfectly with traditional Americanism.”

The problem with dictators or strongmen even if they are wise and benevolent

“The challenge in a system such as a strongman system is the question of succession. When you have someone who can control and navigate the ship during a violent storm, if you’re not establishing a system that can function without you, then the severe instability and the dreadful future that you justify the strongman for is only postponed. Unless he’s actively building the system that will survive him and allow successors to carry on his work, you’ve merely created temporary stability. It’s the same problem that occurs in a monarchy.

In a monarchy, you have a king who might be good or perceived as good, but he will eventually hand over his duties to someone else. However, the system doesn’t guarantee a smooth transition because no one has really worked on it. For instance, you would need to inform me if Putin is establishing a system that can survive him and that will maintain the stability that the Russian people appreciate him for, even after he’s no longer in power.

If the oligarchs simply assume control afterward, one could argue that there were 20 good years of stability. However, if we consider the metaphor of a ship of state, the person steering the ship, from the Russian perspective, may have done an excellent job, but the challenges still exist and he won’t be in command indefinitely.

Therefore, it seems logical to assume that his responsibility is to ensure there’s a successor who can continue to steer the ship for the Russian people after he’s no longer there.”

Lex asks how we will “destroy ourselves”. Carlin gives a framework for handicapping what calamity will undo us.

Lex: If you were to wager on the method in which human civilization collapses, rendering the result unrecognizable as progress, what would be your prediction? Nuclear weapons? A societal breakdown through traditional war? Engineered pandemics, nanotechnology, artificial intelligence, or something we haven’t anticipated? Do you perceive a way humans might self-destruct or might we endure indefinitely?

My perspective is primarily influenced by our ability to unite and focus collectively. This informs my estimates of the likelihood of one outcome versus another.

Consider the ’62 Cuban missile crisis. We faced the potential of nuclear war head-on. That, in my view, is a hopeful moment. It was one of the few instances in our history where nuclear war seemed almost certain. Now, I’m no ardent Kennedy admirer, despite growing up during a time when he was almost revered, especially among Democrats. However, I believe John F. Kennedy, acting alone, likely made decisions that spared the lives of over a hundred million people, countering those around him who preferred the path leading to disaster.

Reviewing that now, a betting person would have predicted otherwise. This rarity underpins our discussions about the world’s end. The power to prevent catastrophe was in the hands of a single individual, rather than a collective.

I trust people at an individual level, but when we unite, we often resemble a herd, degrading to the lowest common denominator. This situation allowed the high ethical principles of one human to dictate the course of events.

When we must act collectively, I become more pessimistic. Consider our treatment of the planet. Our discussions predominantly center around climate change, which I believe is too narrow a focus. I become frustrated when we debate whether it’s occurring and if humans are responsible. Just consider the trash. Disregard climate for a moment; we’re harming the planet simply through neglect. Making the necessary changes to rectify this would necessitate collective sacrifice, requiring a significant consensus. If we need around eighty-five percent agreement worldwide, the task becomes daunting. It’s no longer about one person like John F. Kennedy making a single decisive move. Therefore, from a betting perspective, this seems the most likely scenario for our downfall as it demands a massive collective action.

Current systems may not even be in place to manage this. We would need the cooperation of intergovernmental bodies, now largely discredited, and the national interests of individual countries would need to be overridden. The myriad elements that need to align in a short span of time, where we don’t have centuries to devise solutions, make this scenario the most probable simply because the measures we would need to undertake to avoid it appear the least likely.”

[a later thread that rounds out his thinking on this]

“Returning to our primitive instincts, we are conditioned to address immediate and overwhelming threats. I hold a considerable amount of faith in humanity’s response to imminent danger. If we were facing a cataclysmic event such as a planet-threatening explosion, I believe humanity could muster the necessary strength, empower the right individuals, and make the required sacrifices. However, it’s environmental pollution and climate change that pose a different challenge.

What makes these threats particularly insidious is their slow development. They defy our innate fight or flight mechanisms and contradict our ability to confront immediate dangers. Addressing these problems requires a level of foresight. While some individuals can handle this, the majority are more concerned, understandably so, about immediate threats rather than those looming for the next generation.

Could we engage in a nuclear war? Absolutely. However, there’s sufficient inertia against this due to people’s instinctive understanding. If I, as India, decide to launch an attack against China, it’s clear that we will have 50 million casualties tomorrow. If we suggest that the entire planet’s population could be extinguished in three generations if we don’t act now, the evolutionary trajectory of our species might hinder our response.”

Will the US tear itself apart in a second civil war?

Lex: What’s the way out of this, is there some hope to avoid something, and I hate to use the terminology, but something that looks like a civil war? Not necessarily a war of force, but a division to a level where doesn’t any longer feel like a United States of America with the emphasis on “United”. Is there a way out?

I read a book a while back. George Friedman, the Stratfor guy, wrote it. It was called “The Next Hundred Years”. I remember thinking I didn’t agree with any of it. One of the things he might’ve said in the book was that the United States was going to break up. Something stuck in my memory about that.

Some of the arguments were connected to the differences we had and the fact that those differences are being exploited. We talked about media earlier and the lack of truth. We have a media climate that is incentivized to take the wedges in our society and make them wider. And there’s no countervailing force to help.

There was a memo from a group called Project for a New American Century, and they took it down. But the Wayback Machine online still has it. It happened before 9/11 and spawned many conspiracy theories because it suggested that the United States needs another Pearl Harbor type event. Such events galvanize a country that, without them, is naturally geared towards pulling itself apart. These events act as the countervailing force that otherwise is not there. If that’s true, then we are inclined towards pulling ourselves apart.

The media environment profits from widening those divisions. I was in talk radio, and there were those who used to be upset with me for not playing into this. We would have intense discussions after broadcasts, with program directors emphasizing heat. They wanted heat not for political reasons, but to attract listeners and engagement. Because of the format’s constraints, you don’t have a lot of time. They once told me the audience needs to know your stance on every issue within five minutes of turning on your show. This system is designed to pull us apart for profit.

That’s one example of many in our society that function in that manner. The Project for a New American Century document suggests we’re naturally inclined towards disunity. I think that’s what George Friedman’s book was suggesting, which I disagreed with at the time.

In answer to your question about civil wars, it’s different now. We don’t have a clear geographical division like before. Now, we’re divided within communities, families, and voting districts. So you can’t disengage. We’re stuck with each other.

If there’s a civil war now, it might resemble the late 1960s and early 1970s with bombings and domestic terrorism. You don’t even need a large chunk of the country pulling apart 10 percent of people who think it’s it’s the end times can do the damage, just like we talked about terrorism before and a can of gas and a big lighter. 

Terrorism doesn’t need a particular origin or agenda. It could be someone upset about election results. If we’re looking at probabilities, everyone has to behave for society to work. Only a few need to act out for things to go sideways. For every action, there is a reaction, all they have to do is start the retribution cycle. And there’s an escalation. It creates a momentum of its own, which leads fundamentally, if you follow the chain of events down there to some form of dictatorial government as the only way to create stability. You want to destroy the republic and have a dictator? That’s how you do it. And there are parallels to Nazi Germany, the burning of the Reichstag, etc.

Gabriel Leydon’s “Purple Pills” From His Invest Like The Best Interview

Video game designer Gabriele Leydon went on Invest Like The Best and dropped deeply provocative bits about what I might describe as design and gamification as a response to a future that has thus far proved disappointing or alienating. I don’t know how much of it I agree with it though I’ll admit I have had similar thoughts (and a few essays sitting in my drafts on the topic) with respect to financialization. I’d describe listening to this as Patrick interviewing the Ben Hunt of video games. If there’s something I’d probably disagree with most it’s the pastoral sense that the frontier seemed somehow more accessible to the common man 100 years ago beckoning people to go West for opportunity. There are frontiers, and they are always crushing by the standards of their time. I think a lot about the stories of cab-driving immigrants and have a sense that they are deeply courageous and today’s modern day pioneers, leaving all that is familiar behind (and probably why the success of immigrants in the US shouldn’t be surprising. They are built different). The definition of frontier is context-dependent. Still, I really enjoyed listening to this interview and any disagreement I’d have is well worth the brain food Gabriele serves. Patrick does a great job as usual asking questions.

episode link

These notes are just pulled from the transcript and a (lightly edited) snippet of what I wanted to refer back to. It’s not a summary. All emphasis is mine.

A Dark Interpretation of Our Obsession With Stories and Design

Patrick: I know you’re going to restrain yourself, but we’ll do our best. The first red pill of the discussion is around the topic of design. There’s a huge emphasis on design right now, and I think you’ve got an interesting take on what an emphasis on design means about where we are in capitalism. What are your thoughts on the importance of design or what it might mean?

Gabriel: There’s this pattern where when things are innovative, nobody really cares what they look like. If I made up a teleport machine and it was the size of an arena and it was covered in slime and smelled really bad or something nobody would care. There’d be a line around the block. Everybody would just jump in and they would think it’s the greatest thing ever. But over time we kind of would make it smaller, and then the artists would come in and try to make it look nicer and feel better. And once you kind of get to that design phase, where Silicon Valley’s been for about 10 years, there’s only so much you can do to make something look better.

If you remember 5 years ago, everybody was talking about delighting their users, and delighting is “We don’t have any more ideas. So we’re just going to feel a little bit better because we’re out of ideas. So now we’re going to just delight you.” The game design stuff is, “we don’t know how to make this look better, so now we’re just going to tap into your human condition of biology and psychology to make our products better. Because we don’t know how to make them more innovative, we don’t know how to make them better looking, but we can add levels and achievements.”

How that presents itself is all of a sudden you’re getting achievements for buying erectile dysfunction pills from Hims. You buy extra orders of minoxidil to max out your Hims account. That’s what we’re seeing…You see this kind of talk about everything becoming a video game, but I actually see it as a bad sign. We’re basically running out of new ideas. The economy is just becoming more and more psychological and it’s less about innovation and more about understanding your condition as a person and then building a product around biological and psychological reflexes rather than a teleport machine that can move you around the world.

Patrick: It reminds me of that Neil Postman book, Amusing Ourselves to Death [Kris: I’m coincidentally about to start this book], that Huxley’s version of the future was more accurate than Orwell’s.

Gabriel: I think it’s because when people think about capitalism, they think about the early 1900s. They think about cars and radios and TVs and microwaves and it almost never ends. And I think it peaks in the ’60s and the ’70s with all that futurism. The futuristic art, flying cars, and skyscrapers. And that’s the same time we go off the gold standard and there was this infinite optimism around money printing and innovation basically. And we could just print as much as we want because we’re going to be immortal space beings, zapping around the galaxy. So who cares?

That didn’t happen. So when the innovation growth didn’t really match the expectation, it’s just like things just start getting designed, they start moving towards the design phase, and then eventually a gamification phase, like what you’re seeing in the financial markets and software and pretty much everything.

I’m not a big person on late-stage capitalism. Capitalism is just a human condition. What does that even mean? I think it’s more like we just don’t know what to do anymore. So we’re just going to add levels to the stuff that we already know how to do. And there’s a lot of margin in it too. So it’d be, it’s like a big gravity well where it’s like, “Well, we can just take the existing stuff and add achievements to it and we’ll sell more pills.”

There’s also another part of it in Silicon Valley where … And you’re a VC, so has anybody ever tried to pitch you a video game? Do you understand it at all?

Patrick: What did you learn about the reasons why people will pay? Famously in free to play there’s this crazy power law of who pays and how much. And the 0.1% of the players, I don’t know what it is. Some crazy high percentage of the revenue. So maybe a better way of asking the question is like, what have you learned about what characterizes that willingness to spend?

Gabriel: We’re tribal people by nature. And when I say tribe, I don’t just mean your culture. I also mean the size. Tribes tend to be pretty small. If you look at early America and people say, go West and land of opportunities. What does land of opportunity mean? It means if I’m a blacksmith and I’m the only blacksmith around for 100 miles, it doesn’t matter if I’m the world’s best at making horseshoes or not. I’m the only one around. So, that’s my land of opportunity. I could just keep going West essentially, and there’ll be less and less people, and I’ll have more and more of an opportunity to become important to the community that I’m in.

And we’re in this age of hyper-competition. We have these social networks, forums, and chat rooms, clubhouses, whatever, where we have essentially this real-time leaderboard of who matters and who doesn’t. So when you say that 1% of spenders, that group is even smaller with who matters online.

So the answer is that the world has become so soul-crushingly competitive. Being good at something doesn’t matter anymore — you have to be the best. If you make horseshoes, doesn’t matter if you’re good at it, I’ll just order it for someone else and it’ll arrive in two days. And you better be cheap, because if not I’ll wait a week and get it from China.

So we’re in this hyper state of competition, that makes people feel like they don’t matter. Because they don’t. They actually really don’t, and everybody knows it. That’s the honest truth. So you end up with these online communities with a seductive and simple way to belong to something, where these things actually reward time spent, rather than skill. So if I just spend more time, I’ll be more important. You see that a lot on social networking, they’re all designed that way. Spend more time, you’ll matter more. You see so much like online activism, for example. Online activism that you would never see in person because all I got to do is post something, or whatever. And they matter because they’ll get lots of likes, they’ll get lots of retweets.

You get the culture and then the counterculture. And they’re both essentially the same thing, like one side saying thing because that’s the thing to say. The other side is saying the opposite because that’s the opposite to say. And both sides get a lot of likes. Video games give more structure to that than Twitter does. A lot more structure. They could have levels, and Kings, and Queens, and weapons, and kingdoms, and whatever you want, you just make it up. So you get more structure. And the video games become a place to get lost in because they have so much structure. That’s what I did. And I loved it. And for me it was really important to me, because before that I was just like, what’s the point? I don’t even know what the point of my life was basically. It’s like, you’re working at Target, and Dave & Buster’s, and whatever, and you’re not going to college, what else do you have? That’s what I had. And I think that’s what made me understand it. There’s just too much competition, and people need environments to excel in. This whole hyper-globalization thing just crushes souls because they can’t excel. And they know it. Everybody’s like, robots are going to replace you. And AI is going to replace you, and you got to go eat bugs and go live in a box. It’s so funny, I talk to these AI guys in Silicon Valley. They’re all trying to make God versions of themselves. They always say to the game developers “We need you.” Because what are people going to do when my God AI thing works?

It’s so sick. It really is sick, like they know what they’re doing. They know exactly what is going to happen. And they’re looking at the game designers like, well maybe you’ll distract everybody. Maybe everybody will just be distracted as the whole world collapses around them. Like every person in AI, every single person in AI, every single one. They’re all, “We’re going to need VR.”

I wish they would be more honest in public about it. Because they all say it. I think this game design worldwide takeover is partly because the innovators think that’s what should happen. And also because they don’t know what else to do.

Patrick: Give me one more thing at least. One more what I would call purple pill. Something not too inflammatory. Something you think that is true about the world that people wouldn’t like to hear.

Gabriel: I think we need AI more than we think. I think that we’re at an IQ limit and the reason why innovation feels like it’s slowing down is because we can’t do it. We just literally, physically can’t do it. And there may be an exit ramp through AI, but it’s not exactly clear that we can do that either.

I really think that the 60s and 70s futurism is the reason why we’re suffering so much today. Because there was no reason to not print money, to not full-on inflationary mindset and everything because we were going to live in paradise. We were going to be on the moon. We’ll be able to pay all this back, there’s no problem. And then financialization happened, and gamification of financialization happened because that was easier and it worked. But it’s not better. Innovation is better. It’s clearly better. If I make a teleport machine, I don’t need to make a video game, I don’t need to have levels and achievements. It doesn’t need to look nice. It doesn’t need any of those things. It’s just is what it is and everybody wants one. That is better. That’s the only way to really have prosperity. And this design/now gamification is a symptom of the limits of our minds. So instead of doing things in the physical world, we’re doing things in the psychological world now, and that may be permanent. And I hope that’s not true, but more and more of the economy is going into this exploit, automation, high-frequency trading, that kind of thinking. And it’s not rockets to Mars.

We’ve gotten to the point where we look at the two richest men… Like we used to have the Wright brothers, these two guys trying to make an airplane, they’re in the middle of nowhere, who are these guys like? Now we look to the two richest men in the world to solve our most difficult problems. The regular person has no chance in participating in the future of the economy now. The only people who have the chance [appear to be these rich people], “I hope Bill Gates figures out solar panels.” And the regular people are just kind of looking up to them saying, “Well, I don’t know what to do.” And I think the reality is the rich guys don’t know what to do either. We got the rockets going. Those are cool. And we’re making some incremental innovations. There’s been some really important things like crypto. So it’s not hopeless. It’s just not what we thought was going to happen. The dislocation between the economy and the reality of innovation is that the economy moved way ahead of innovation, under false expectations that we would be able to keep innovating at an exponential rate.

I think there’s a fear that we know that we can’t. So then you’re staring at deflation, like a reset, essentially. We’ve got too much of everything and there’s not enough innovation to pay this back. It doesn’t exist so we got to abandon ship basically. That’s pretty bad. But from my lens, from my point of view, it’s why gaming is becoming so important. It’s because we don’t have the teleport machine and we need one. And if we had teleport machines, nobody would be playing games.

Something More Uplifting: A Qualitative Screen For A Promising Investment

Patrick: Does the idea, I’ll call it the gooey teleportation principle or something, is this also an investing principle? You should look for stuff that has terrible design or is breaking?

Gabriel: NFTs are important the same way the App Store was important. Meaning that at the beginning of the App Store, everything was broken. It took like three months to get an app approved. Just crazy stuff. It was a real nightmare. And it was growing like crazy. That’s what you want. You want environment that’s completely broken. There’s like a couple spaces still in the innovation phase and crypto is clearly one of them.

You always hear these VCs who don’t know what they’re talking about. They go, “You know what crypto needs, it needs a good UI.” I’m like, “Oh my God, just stop. Like stop it.” It’s innovative, it doesn’t need that. It’s still growing despite that. If we get to the phase where all crypto can do is add UI, it’s over. That’s it. Right? Then it’s just a matter of who’s got more DAU at that point, and it’s over.

So crypto is a good example of something that’s still really deep in the innovation phase. It’s not everything, but crypto will eventually turn into a game too. It’s obvious. It’s kind of got elements like that. But my favorite stuff is you go to the websites, they look terrible. You ever noticed that? If you look at this DeFi projects, it’s like the worst looking website you’ve ever seen. That’s a good thing. That’s what I want. I want it to look terrible like it’s crashing all the time, and it’s just growing. That’s the sign. Because when you clean it up, when you do put the good UI in, and you do gamify it, it will be 100x bigger. If you’re 10 years deep and still looks terrible and still growing like crazy, that’s all you need to know.

VC is right that when it does get cleaned up, it’s going to be bigger. But that’s not what you’re looking for. You’re actually looking for it being a mess and it’s still growing.

Put all your money there. Anything that’s just growing like crazy and totally broken, just put all your money there because obviously when it gets fixed, it’s going to be better. And there are tons of examples of this. There’s like the MySpace/Facebook example, right? They both had the broken but working thing, but MySpace couldn’t fix itself fast enough. So that’s kind of the bet. But if I didn’t know the future, I’d go, “Yeah, put all your money in MySpace.” I mean it’s growing and it’s like totally broken all the time. That’s where I would look at the risk. I think you kind of have to be an entrepreneur to even understand that. But that’s how I look at it, where’s the space that’s just totally screwed up and it’s still working? That’s what you want to be involved in.

Sal Khan On The Finding Mastery Podcast

My personal notes from Sal Khan’s interview with Michael Gervais on the Finding Mastery podcast.

Link: https://findingmastery.net/sal-khan/

How did Sal mentally manage the risk of non-venture backed entrepreneurship?

Early on in the Khan Academy journey, even when, let’s go back to 2004 2005, I started tutoring my cousin’s 2005, I started writing software for them. That’s when I got the domain name Khan Academy. And I started writing software for my cousins. And I said, “Hey, if it’s just my cousins who are using it, it’s worth doing this, it’s helping them”. But obviously, as you start writing software you’re like, but maybe people who are not my cousins could use it. But I kept trying to keep myself from getting too attached to the big ambition, just saying, hey, just put one foot in front of the other, but keep the door open to the big ambition. I didn’t want to close that door either…

Even before I had quit my job, I would show my friends, “Hey, I’ve got this hobby. I’m tutoring my cousins.” My friends, out here in Silicon Valley, their natural inclination is “why are you doing this?” And I’m like, “oh, because it’s helping my cousins.” They’d ask, “How are you going to monetize this? I don’t see the business plan. Someone else’s is doing what you’re doing.”

I’m like, no, no, no, this isn’t a business. This isn’t anything. I’m doing it because it’s helping my cousins. And hey, if it helps other people, great. So that was one form of protection.

Dealing with cynics — who do you need to convince and what evidence do you hold?

Even today, when I encounter cynics, the first thing I say is, “Sal, don’t be defensive, there might be something in what they’re saying”. You don’t want to be delusional and ignore good feedback. But at the same time, you also have to remind yourself: you don’t have to convince this person.

We always want to impress our friends and convince them that what we’re doing is a good idea. But I don’t have to convince them. That’s the first somewhat liberating thing. And then what made me not question myself too much, I said, “Okay, so what evidence do you have?” This is a friend who’s smart, I respect their opinion, but what evidence do I have?

Well, I did transform several of my cousins’ lives. I was already getting letters from people who I didn’t know around the world about how it had transformed them in some way, shape, or form or their children.

Look, my well-intentioned friend is probably trying to save me from “wasting time” or getting distracted, but they haven’t even tried it out. They just did classic MBA-type thinking of “Well, I heard some other companies are making educational videos and doing software that creates questions. You’re like the 10th person to do this, so what makes you think…”. That’s their natural, competitive analysis type of thing.

I think there’s probably a lot of people who want to do entrepreneurial things. And when they meet a friend who’s doing something entrepreneurial, part of their brain wants to help the friend and wants to be constructive for the friend, part of their brain wants to help their friend. If they think their friend is going down the wrong angle, maybe protecting them from that a little bit. But some of it is also protecting their choices. “I’ve always wanted to be an entrepreneur, but I’ve been afraid to and now my friend is doing it…maybe it’s comfortable if I convince him to stop doing it, and do what I’m doing.”

The main thing is just what just keep reminding yourself, “Why are you doing it? What gives you confidence?” And remembering “Who do you really need to convince? And who do you not really have to convince?”

Where did Sal learn to focus on evidence and focusing on who he needed to convince?

He lightly responds: Probably is a coping mechanism for a bunch of things that happen in life…I’ve been described by even some of our early board members as a “pleaser”. Like I want people to say, “Good job.” [Me: Oh man, this hits hard]

I think I realized in my life you’re never going to win trying to please everybody. Trying to convince people, getting defensive about things, you just don’t feel good about yourself. 

I’m still working on it. I have a lot of ideas. I do try to share them with people who I really respect. And when they immediately get in the devil’s advocate position or the cynical side, I do get a little defensive if I’m honest. But I I’ve been working on myself.  “Okay, I don’t have to convince them, there’s probably some truth in what they’re saying, I should process it.”

And you know, also some of it’s on me. I realized that when I get excited about an idea, I go into “sell mode” almost immediately, like “this is all the reasons why it’s good, isn’t this exciting?…” And that almost automatically puts people into that devil’s advocate position. “But what about this? What about that?” And so now when I introduce ideas, I’m going against my stereotype, where I’m showing that I’m also looking at the risks and how this could go wrong.

Half the time, the next morning, I wake up, I’m like, “Yeah, they were kind of right.” But sometimes I’m like, “No, I still have evidence that this was worth this is worth pursuing.”

How did Sal frame the decision to leave the hedge fund path to start Khan Academy?

There were some basic mechanical, left-brain considerations.

Did I save up enough money?  I was an analyst at a hedge fund, I wasn’t a hedge fund manager. So I was able to save up some money, essentially a healthy downpayment for our house in Silicon Valley. We were saving up for, you know, several hundreds of thousands of dollars not like independently wealthy money. We don’t have big expenses. My wife and I grew up quite poor so we know how to economize.  That was a mechanical thing.

Even more was the opportunity cost of the [hedge fund] career. Every year your income is accelerating. In five or six years, I could be making what my boss was making,  what could have been in the millions of dollars every year. And that’s a real big opportunity cost to give up for something that’s unproven. That’s where a little bit of the heart came in. I just told myself “Well, what is the life that you want? And the life that I want is a healthy, happy family. But I really told myself, if I had a nice 2000 square foot house, which was the house that we were renting, and we later were able to buy — a four bedroom house with you know two cars in the driveway. We’re able to go on vacations, go to restaurants every now and I’m able to support my kids through college. That’s all I want, financially, really. And if I’m able to do that then also get to work on something that, every morning, I wake up and I’m inspired to work on, I get to work on an interesting problem, and I feel like I have a sense of purpose then I consider myself the luckiest person on the planet. I’m not saying this now just to sound you know anything, that’s literally what I told myself. I’m like, if you are able to have that lifestyle, that’s a really good life. And so that liberated me a little bit from the golden handcuffs.

A lot of times when I’m making some of these decisions like even “what Khan Academy should be” I do go a little bit into what inspires me. We have one life to live. If you have a shot of being able to live your life as a protagonist in a movie, live your life as a protagonist in a science fiction book, go for it! [Me: this is the type of thinking that doesn’t show up in a spreadsheet. This is an example of how “accounting” fails us…not everything that matters can be measured and vice versa]

He fills in the details:

Even in the early days, there were a lot of VCs who reached out who wanted to write a check and Khan Academy be a for-profit, and it was tempting. But then when we start talking about monetization, and how you’re going to exit and all that I was like, “Oh, this isn’t what I want to do I want to”

Then I thought about what is the homerun is for a for-profit. And then what’s a homerun for a non-profit. A homerun for a for-profit, we all know those stories quite well. But I was also thinking, “How’s it going to change the world? And how’s that going to change me?”

And then I thought about a home run as a non-profit. I’m like, “What if Khan Academy can be the next Smithsonian, the next Oxford, or the next, whatever. In some ways, it’s bigger than all of those because even in 2009, when I was thinking about these things, it had bigger reach than some of these hundreds-of-year-old institutions. And we were, there’s no reason why we couldn’t grow another 100 fold or not 1000 fold from there. So for me, it was like, “Wow, maybe it’s worth swinging for the even higher fence.” That’s a hard thing. The head kicks in and says, “Okay, is that at all reasonable?” And as ridiculous as it sounds, it isn’t unreasonable. If you just extrapolate the growth, if you just look at what Internet technologies allow us to do, if you just think about the scale of other people on the internet, for the most part for-profits…Google scale would have seemed like science fiction 30 years ago for what it does. But it’s not. And so couldn’t Khan Academy be that same thing, but as a social institution?

Did he share this thinking with others?

Going back to our earlier, I’ve realized that there’s certain contexts where you’re this type of conversation is going to be welcome. But the conversations where I’m talking to my friend who’s talking about how you’re going to monetize this, he’s not going to be in a headspace where I’m like, Well, what do you really want out of your life? And what do I really want in my life?

And do I need his approval for me to be able to do it? Now, I did talk about this with my wife, and I kind of do need her approval because this is “how do we want to live our life”.

Healthy and unhealthy “imposter syndrome”

I think some of that impostor syndrome, I actually want to retain. I never want to forget how, like, there, there was a time not too long ago that I would pass on the organic produce. I think it lets you just appreciate the world a little bit. And we all know about hedonic adaptation and the hedonic treadmill. I don’t claim that I’m immune so I don’t want to sound like I’m some guru here. I live in Silicon Valley. We live in that same house, and a lot of our friends have now moved into houses that are multiple of the size of our house. Every now and then it’s “maybe it would be nice to have two saunas.” But I always remind myself, “well imagine their electricity bill, or like, the gardening bill or the water bill or whatever.” But, yeah, I think it’s healthy imposter syndrome.

A healthy one keeps you grounded, allows you to enjoy it a little bit. Like every now and then I get invited to meetings with people or conferences with people, where both healthy and unhealthy impostor syndrome could be at play. The healthy imposter syndrome says  “Wow, you get to meet your childhood hero, or someone that you thought you could only read books about, and you’re meeting this person, and they are interested in what you have to say, and they’re supporting Khan Academy.” That’s kind of fun. I don’t know if that’s impostor syndrome, or that’s just remembering yourself when you’re younger. And you’re like, “Wow, how is little Sal in this meeting right now? That’s kind of wild.”

The little less healthy imposter syndrome is that if that goes to an extreme, where like there’s a discussion and I’m like “Who am I to say something?”

There, I try to remind myself that everyone here is literally just a person, like everyone here. And that’s another, I guess, coping mechanism. I just treat everyone as if they’re my childhood friend. And there’s something of a self-fulfilling prophecy there as long you’re respectful. Some people who have been great supporters of Khan Academy are household names — I’m gonna treat them as my friend. And I think they appreciate that too, because so many other people treat them with such reverence, and I respect them a ton, but I get to joke around with them a little bit. And that’s how I deal with that other potential imposter syndrome.

A resonant story: college can give you a safe space to explore things you have suppressed because you grew up perhaps in a narrow place

MIT was like heaven for me. I think when you are in high school in a fairly mainstream high school, you have to suppress certain instincts. You have to suppress how much you get excited about learning certain things so you don’t get beat up, you don’t get ostracized.

Why Sal wanted to dedicate himself to education

  1. First, I’ve always enjoyed teaching. Multiple times in my life, either informally, even when I was very young, I found that I had a knack for it. In a lot of cases where a classmate might be struggling to understand what’s in a textbook or a teacher,  and I’m like, “Oh, this is how I think about it”. And my friend was like, “Oh, man, that’s so cool. Yeah, that makes all the sense in the world”. I guess I have a knack for this thing. So that kind of built confidence in my ability to do that. [Me: importance of knowing yourself in helping determine what you should be doing!]I was the president of the math club and one of the things we did was math tutoring.  We created such a legitimate program that the school then made it a formal part of the school. It made anyone who had below a certain grade in any of their math classes go to this math tutoring, that I was essentially running with a bunch of other students who are in this club. And I saw time and time again, a lot of students who were struggling, barely passing a course, or thought they hated math, if they just had the opportunity, the incentive to fill in gaps, had things explained to them the right way, a chance to practice, they were off to the races. Some of them joined the math Honor Society. A month ago, they were about to fail their algebra class, and now they’re going to math competitions with us, because they started to get excited about it. So that also gave me confidence.And that’s all about mastery learning. The opportunity, incentive to fill in any gaps to finish any unfinished learning.
  2. The other thread is I think every young person who’s even vaguely idealistic, and I think this is all young people, look at the world and say, “Oh, there’s so many problems in the world. How do you solve it?” You think about climate, you think about inequality, think about whatever you pick, you pick the issue. Conflicts, when you really keep peeling the onion, it’s just what’s going on in people’s heads. Everything else is almost just a side effect of what’s going on in people’s heads. Okay, so then we got to change what goes on inside people’s heads or improve or remodeler? Well, what does that? Education. Education is the single highest leverage point.

A quote pulled from Sal’s writing:

If you believe in trying to make the best of the finite number of years we have on this planet, while not making anyone worse think that pride and self righteousness are the cause of most conflict and negativity, and are humbled by the vastness and mystery of the universe, then I’m the same religion as you.

What is the state of education today?

The good news

If I compare the State of the Union of education to what it was 250 years ago, it’s awesome. 250 years ago, even in more literate countries, 30-40% of the of the population was functionally illiterate. Free public school, or at least a high-quality public school was not a mainstream thing as recent as even 30, 40 or 50 years ago. Because of things like segregation even in places like the US, you did not have respectable access to education. I think it’s still not perfect, and there’s still a lot of inequality but for the most literacy rates are much, much better than they were for most of human history. Even in the last 10 years, as I’ve been on this journey, things like access to technology, to the internet, to high-quality instructional materials, etc. That’s all actually gotten better, even in the last 15 years.

The bad news

Even in affluent neighborhoods or fancy prep schools, you still have a model where a lot of kids are still falling through the cracks. And those are the places where they’re not resource-constrained. Imagine in the places where they are resource constrained. I mean, there are still schools, my school in fact, which is a suburb of New Orleans which was pretty mainstream, it wasn’t a gold-plated school by any stretch of the imagination. It was a normal Louisiana public school. But I remember even when I was growing up, there were schools in New Orleans and kind of urban corridors that didn’t have air conditioning. Can you imagine not having air conditioning in New Orleans?

The disappointing news

Let’s just assume that you have all the resources…the model of education is not mastery-based. Kids are moved ahead at a fixed pace. They cover some material, they get a test, some kids get 100 on it, some kids get a 90, some kids get a 70 on it, even though that student didn’t know 30% of the material that happened to be on the test, the whole class will move on to the next concept, and then build on those gaps. And then the next concepts are going to be that much harder to learn. And then those gaps just keep accumulating. [Me: In my own tutoring I see this at the elementary level. Kids that are 2 to 3 grades behind. There’s no concept of being left back. Just push them through the system]
At some point, kids hit a wall. It hits their self-esteem, they’re not able to move any further. And this isn’t theoretical, you just look at the graduates of a fancy prep school, it’s happening. It’s definitely happening on a nationwide basis. So I think that is the biggest problem.

60% of kids who to 2-year colleges and about 30% of the kids who go to 4-year colleges (and college-bound kids are in the top half of already) exhibit giant gaps in learning, many unable to learn algebra yet — a 9th grade course. The majority of kids attending college would need to go back to middle school-level learning to fill in gaps.

On American universities

American higher education is the envy of the world. Our research is the best in the world.  American universities have very nice facilities, and they have very nice programs. So what are the problems?

  1. They’re very expensive. Partially because of the landscaping and the facilities and the programs that they have.
  2. They can be very rigid. What’s magical about four years, whether you’re gonna be a software engineer, or art historian? It’s always 4 years. Clearly no one has said “Let me just work on the stuff that you need to learn. And not just to learn to be that career, but like learn to be a human being or participate in democracy.” The opportunity cost isn’t just in dollars, although those are significant. It’s also in lost time, the fact that in the US to become a working doctor, and I observed this with my wife, and she’s not even a surgeon,  You have to keep going even as a rheumatologist. She was 32 before she was really a rheumatologist and she never took a break since kindergarten. You’re losing a lot of talent that could help serve a more diverse community because they were the ones that said, “Hey, I gotta get a job fast. I can’t sit in school until I’m 32 years old, or 35 years old to become a surgeon or a professor or whatever else.” Those are the problems that I think we need to address.

On the stress of college admissions

I actually think our system is culturally broken in a lot of ways. There’s always been a Lord of the Flies aspect. I remember reading that book in middle school, I’m like, okay, yeah, you just described the locker room or the playground — bully or be bullied. Unfortunately, it’s part of the culture and in many cases, it happens more in some of the more affluent neighborhoods, the stress and anxiety. Here in Silicon Valley, Palo Alto, I can’t afford to live in those neighborhoods that go into those high schools — they have the highest suicide rates in the country. I talk to educators there. The stress, the anxiety, the depression, there is off the charts. So that’s another thing. Talk to anyone in higher education. Roughly a third of all students are in some way dealing with some of these things. 

What is the university tuition actually buying?

Universities study everything, except some very obvious questions, like what you just asked, “What are you paying for?”You can conduct a very simple study here. Go to the upcoming Harvard graduation, and go to some kids who have some debt, “Hey, graduate, I will pay your $200,000 right now, whatever, however much debt you have, you get to keep all the knowledge you got from Harvard and all of the experiences, but you can never tell anyone that you went to Harvard University, will you take it?” I’m guessing very few people will.

On the other hand, if I were to go to a lot of people, and say, “You can pay $200,000 right now and the whole world will think that you have gone to Harvard for the rest of your life. There’s no way of proving it. You get no new knowledge.” A lot of people will take you up on that. So I think that tells you something about what people might be paying for.

I do think there are other things. Like if I offer you $200,000 but all your memories of the great conversations and friendships go away. That also would be hard for people to take. And look, I think the knowledge matters as well. But I do think the credential and the brand and the halo is a big, big, big piece of it. You absolutely can learn some of the more tangible skills at a lower cost alternative or even online.

And for the experiential, maybe the less tangible skills. You also could learn in other ways.  Some people say, “Oh, well, it’s just an important coming-of-age experience, you learn how to learn.” I don’t disagree with that. That happened to me in college. I had a great college experience. I met some of the best friends in my life, I met my wife in college. But I could imagine other coming-of-age experiences that are just as powerful. The military is one. I could imagine traveling through Europe with a cohort of students while we get jobs while we do online learning at the same time. I imagine doing internships and co-ops I’m learning, whether it’s in person or online, and getting work experience. And if I’m able to have a cohort of people my own age, that could be a great coming-of-age experience.

A not-so-great coming-of-age experience that I’ve seen happen, including people in my own family, is you have this great experience, and then you hit reality. You’re 21 years old, you’re no longer living on the well-groomed Country Club of a fancy university you attended. You have $200,000 of debt or more. You realize that in that economic seminar at the Ivy League school they treat you like you’re going to be the Federal Reserve Chairman but that’s not how the world is treating you now. You’re having trouble getting that job in economics. And if you do, it’s not paying you enough to pontificate about interest rates. We have to think a little bit more holistically outside of even just those four years.

Sal’s desire for Khan Academy

We have all the components for school in the cloud so to speak (via Khan, sister orgs and partners, through schoolhouse.world, a free online tutoring initiative) but I don’t think we’re going to be a mainstream use-case. 

I’m doing what I’m doing because I want the whole world to change. I want the people who have access to school for that school to be that much better and personalized. I want for kids not to fall through the cracks and all the associated stress and mental health issues and self-esteem issues. I also want Khan Academy and the related organizations to be like the shadow school system, the strategic education reserve, the shadow safety net, for the world, where if you don’t have school, if your school is crappy, you have, you have a safety net.

Personal resonance and reflection on Sal’s takes

  • When you take risks, cynics will be constant. Sometimes they will be right and sometimes not. But you need to focus on 2 things:
    1. Who do I actually need to convince?
    2. What evidence do I possess that says the risk is worthwhile?
  • When making a decision separate what you need from what you think you want. Then don’t be afraid to chase what inspires you (”a protagonist in your own movie”). I think of it as shedding to build.
  • Imposter syndrome can keep you grounded
  • Sal’s north star is personalized mastery learning because it increases self-esteem and well-being. It’s the maximum leverage point because our largest problems and conflicts stem from what’s in our minds. This is highly adjacent to my own “agency” argument.
  • Sal is courageous because he is trying to demonstrate that there can be a better way. He is consciously trying to be a role model through his actions and while I understand that many believe this is nudgy or righteous thinking I have argued the same point. We are suffering from a lack of healthy models and have settled into a forest of Molochian equilibriums. The “lord of the flies” broken culture around college admissions Sal uses is but a metaphor for what I see everywhere — the type of competition that is unhealthy and eats its own competitors. The people who feel on top now cannot outrun it. If it doesn’t eat them, it will eat their children.

Founders Podcast Reads Stephen King’s On Writing

On the Founders podcast, host David Senra distills stories and lessons from Stephen King’s memoir On Writing. 

Link (with transcript): https://www.joincolossus.com/episodes/24173074/senra-stephen-king-a-memoir-of-the-craft

The following are my notes. They are bits that stand out to me and not a summary. They are for my future reference and of course, shared for anyone else who cares.

Encouragement at the right time

When King was 6, true to his belief that imitation precedes creation, he creates a comic book that’s mostly a copy of one of his favorites. His mother praises him and when he admits it was mostly a copy, somewhat disappointed, she encourages him “Write one of your own. I bet you could do better.”

The feeling this unlocked for him remains to this day:

“I remember an immense feeling of possibility at the idea as if I had been ushered into a vast building filled with closed doors and had been given leave to open any I liked. There were more doors than one person could ever open in a lifetime, I thought, and I still think that.”

No Speed Limits

Capra taught Dr. Seuss to cut all non-essential words. John Gould did the same for Stephen King. All of these people could tell a big story in a single paragraph. But what is especially interesting is that despite formal writing education, they learned this skill from Capra and Gould respectively directly and quickly.

This is my favorite part of the episode because of how he ties this to Derek Sivers’ revelation that there are “no speed limits”. When Sivers was at Berklee College of Music, he meets an alumni, Kimo Williams, who accomplishes what Sivers thinks is impossible — he teaches him 2 years of theory in a few lessons! Some people aren’t used to an environment where excellence is expected:

“Kimo’s high expectations set a new pace for me. He taught me that the standard pace is for chumps, that the system is designed so anyone can keep up. If you’re more driven than most people, you can do way more than anyone expects. And this principle applies to all of life, not just school. Before I met Kimo, I was just a kid who wanted to be a musician doing it casually. Ever since our five lessons, I’ve had no speed limit. I owe every great thing that’s happened in my life to Kimo’s raised expectations. A random meeting and five music lessons showed me that I can do way more than the norm.”

Your job is to recognize when ideas meet

“There is no idea dump, no story central, no island of the buried best sellers. Good story ideas seem to come quite literally from nowhere, sailing at you right out of the empty sky. Two previously unrelated ideas come together and make something new under the sun. Your job isn’t to find these ideas, but to recognize them when they show up.”

On criticism

“If you write or paint or dance or sculpt or sing, someone will try to make you feel lousy about it. That’s all. I’m not editorializing. I’m just trying to give you the facts as I see them.”

Senra: This is going to echo this thing you and I have talked about over and over again, just sometimes critics are right, sometimes they’re wrong. It doesn’t matter. They’re constant.

Good storytelling

“When you write a story, you’re telling yourself the story, he said. When you rewrite, your main job is taking out all the things that are not the story.”

Work precedes inspiration

We get the causation backwards. [This echoes what Jack White says]. I’m going to show up every day. And if I show up every day and I put in the work, the inspiration comes. Akon learned the same lesson from Eminem who works on a schedule. He punches the clock at 5pm even if he’s in the middle of a verse! His approach to creativity was to treat it like a job and to show up every day.

Consistency Over Intensity

How does King write so many books?

“Well, the first thing I do in the morning, I set aside, I’m uninterrupted for many hours at times and I write six pages a day. And I do that every day. And in 60 days, I have 360 pages and that’s about — that’s another book…”It might take me five, six hours whatever time it is, but I do it every day, seven days a week, then in the afternoon”

He has a very set schedule. He writes in the morning. Then he takes a nap. He has lunch, takes a nap. I think he answers letters, stuff like that in the afternoons. Has dinner with his wife, spends time with his family, watches a baseball game, that kind of thing. That’s Stephen King’s schedule.

“Writing — the act of writing poems, stories, essays has a lot more in common with sweeping the floor than you think it does.”

Writing Tips

  • “Put your desk in the corner and every time you sit down there to write, remind yourself why it isn’t in the middle of the room. Life isn’t a support system for art. It’s the other way around.”

  • If you want to be a writer, you must do two things above all others: read a lot and write a lot. There’s no way around these two things that I’m aware of. There’s no shortcut. I’m a slow reader, but I usually get through 70 or 80 books a year, mostly fiction. I don’t read in order to study the craft. I read because I like to read, yet there is a learning process going on… If you don’t have time to read, you don’t have the time or the tools to write. It’s simple as that.”

  • Just because it’s the right work for you doesn’t mean it’s easy but you have to want to do it.
    “For me, not working is the real work….ust because I like doing it, it doesn’t mean it comes easily to me.” He gives us advice, “If you’re stuck, take a break, go get bored…When I’m stuck, I have long periods where I do nothing. I go ride a bike. I listen to music, I go for walks, I don’t work. And then I get this flood from my subconscious that actually helps me solve the problem I’m stuck on.

    “Boredom can be a very good thing for someone in a creative jam. For weeks, I got exactly nowhere in my thinking. It all seemed too hard, too fucking complex. I had run out of too many plotlines and they were in danger of becoming snarled. I circled the problem, again and again, beat my fists on it, knocking my head against it and then one day when I was thinking of nothing, the answer came to me.”

  • Being a writer is a lonely job. Any time you’re doing something difficult, it’s to some degree lonely. You have to be a little off to want to do this. Like, why don’t you just go get a normal job? Like, you’re kind of crazy to want to do something different. “It’s like crossing the Atlantic Ocean in a bathtub. There’s plenty of opportunity for self-doubt.”

    Senra: Formidable are people built in solitude.

    Reminds me of Paul Millerd:

    You’re doing the thing everyone does at the beginning of a solo path — you’re looking to be saved. No company, no other person’s playbook, or metric of success will save you. The only thing that matters is coming back to the thing you are meant to do. You must do it on your terms. Men waste years trying to avoid this.

A closing thought

“Writing isn’t about making money, getting famous, getting dates, getting laid or making friends. In the end, it’s about enriching the lives of those who will read your work and enriching your own life as well. It’s about getting up, getting well, and getting over. Getting happy, okay? Getting happy. Some of this book, perhaps too much, has been about how I learned to do it. Much of it has been about how you can do it better. The rest of it and perhaps the best of it is a permission slip. You can, you should. And if you’re brave enough to start, you will.”

Founders Podcast Reads Ed Thorp’s A Man For All Markets

On the Founders podcast, host David Senra distills stories and lessons from Ed Thorp’s biography A Man For All Markets. 

Link (with transcript): https://www.joincolossus.com/episodes/63171342/senra-ed-thorp-my-personal-blueprint?tab=transcript

A thought before I get to my notes:

Senra’s outstanding podcasts are thoughtful Cliff notes to the biographies of successful business founders. It’s a great series because the same themes keep popping up. The repetition is a great way for having the common threads that bind these founders stick. (In fact, “repetition” itself is such a common theme. Most of the founders are extremely focused, taking a small set of ideas to their logical extremes. There is a focus and lack of distraction. Many founders understand the importance of branding which entails “repetition”. Having your product synonymous with quality, or low cost, or prestige, whatever it is. Repetition is a cornerstone to establishing a brand.)

An oft-repeated theme on Founders is that the subjects are deeply flawed, often miserable. You are warned to not glorify them but instead extract their deep but narrow wisdom, instead of copying their lives. This episode is special because Ed Thorp is the one person, Senra uses as his own personal blueprint.

And I agree. Thorp in his entirety (or at least what we can know from his public action and writing) is an admirable and impressive individual.

I strongly recommend listening to the podcast.

The following are my notes. They are bits that stand out to me and not a summary. They are for my future reference and of course, shared for anyone else who cares.

On mediocre people

“I would learn to avoid them when I could and finesse them when I couldn’t”.

That’s one of the most important sentences in the entire book.

“I would learn to avoid them when I could and finesse them when I couldn’t”.

2 simple guiding questions

If I do this what do I want to happen and if I do this what do I think will happen?

Expect corruption

If there’s a way to make money, the larger the stakes, the more corruption you will find

Ed found patterns of corruption from a young age:

He’s in high school, he realizes, “Hey, the student government is corrupt. It’s just a bunch of the popular kids. Popular kids are not doing anything that can actually help”. He is probably the smartest kid in school. I mean, Ed is no doubt a genius. So he figures out a way. He’s the one leading the charge, and he winds up installing people that think like him in like 13 of the 15 positions. So this made him an enemy. He says, “A couple of the candidates realized I must be behind the change, so they’re doing advertising”.

They’re doing basically a bunch of things to remove people he felt were in unjust positions. “A couple of the candidates realized I must be behind it and spent their campaign speech time attacking me personally”. The social click had always run the student government. They were entitled.

When he starts counting cards he realizes that not only are the casino’s all “mobbed” up to keep people like him out. He was poisoned and later after he gets the gaming commission to send an inspector he learns that the inspector is in the casino’s pocket. It totally backfires, as the inspector is able to fiinger Ed out to the casino whose mobsters cut his car’s brakes to kill him!

Senra compares this to the drug trade in Miami in the 1980s:

There’s a great documentary called Cocaine Cowboys, and in it, they talk about how corrupt the ’80s Miami was. You have a cocaine boom. The richest person in the world at that time was considered to be Pablo Escobar. They’re just printing money. The local Federal Reserve branch in Miami was taking in more in cash than all the other Federal Reserve branches in the United States combined.

And so you have this huge economic incentive. If you’re a drug dealer selling a ton of cocaine, these pesky cops keep catching your guys. They wind up pulling them over, taking drugs, money, essentially costing you an expense, like “I’m losing my product, I’m losing money. So what do you do”? You fill the entire police force up with your people. “So from the outside, it looks like all these cops are there against me, and they’re actually on my team”. And in that documentary, he talks about, “There’s at least 1 graduating class in the 80s, if not more, where every single person, every single new graduate from the police academy was eventually tied to the drug dealers, the cartels, whatever you want to call them” They owned every single cop. And why did they do that? Because they were making tons of money, and money corrupts.

Ed finds Wall Street unsurprisingly more corrupt than the casinos. Bigger stakes:

Eventually, his hedge fund, the East Coast offices, gets raided by the IRS. Rudy Giuliani, who is — this is before he was the Mayor of New York City, he is the lead, what is it, the prosecutor of the Southern District of New York. And this had nothing to do with Ed. Every single thing was wind up being dropped against them. “Rudy Giuliani wanted my partner to give him dirt on Goldman Sachs and Michael Milken. My partner wouldn’t cooperate , so Giuliani raided our office. The trial dragged on for years at a great expense. The government ended up dropping prosecution for most — of most people on most counts”

So it says the case against this hedge fund appears to be a federal prosecution of securities violators. It’s on superficial level, right? To understand why it really happened, you need to go back to the 1970s when first-tier companies could routinely meet their financing needs from Wall Street and the banking community, whereas less established companies had to scramble. Seizing an opportunity to finance them, a young financial innovator named Michael Milken built a capital-raising machine for these companies. This is the invention of junk bonds.

“Filling a gaping need and hungry demand in the business community, Milken’s group became the greatest financing engine in Wall Street history”.

“Such innovation outraged the old” — this is the history lesson, “Such innovation outraged the oldline establishment of corporate America who were initially transfixed like deer in the headlights, as a hoard of entrepreneurs funded with seemingly unlimited junk bonds, began a wave of unfriendly takeovers. Many old firms were vulnerable because the officers and directors had done a poor job of investing the shareholders’ equity. With subpar return on capital, the stocks were cheap. A takeover group could restructure, raise the rate of return, and make such a company considerably more valuable”.

But here’s the thing, the people you’re now attacking are the people they have all the money and the power, and they don’t want you to do this. The officers and directors of America’s big corporations were happy with the way things had been. They had enjoyed their hunting lodges and their private jets. They granted themselves generous salaries, retirement plans, bonuses of cash, stock and stock options, and golden parachutes. All these things were designed by and for themselves and paid for with corporate dollars.

The expenses routinely ratified by a scattered and fragmented shareholder base. Economists call this conflict of interest between management and the shareholders who are the real owners, the agency problem. It continues today. The newcomers were knocking the more vulnerable managers off their horses into the mud. Something had to be done. Government ought to be sympathetic. The old corporate establishment had most of the money, and they were the most politically powerful and influential group in the country. Their Wall Street subdivision might sustain some damage, but one could expect the fall of Michael Milken to release, as it did, a huge honey pot of business to be taken over by everyone else.

The old establishment of financiers were lucky in that prosecutors would find numerous violations of security laws within the Milken group. So he’s not saying that Michael didn’t do anything wrong. His point was that the people that he was overthrowing had sway over with the politicians and used their money in power to say, “Hey, go after that guy, even if we’re doing some of the same shady stuff, okay”?

This is where Ed is going to give us his thinking on this with the — like a story, a metaphor. “It’s like the case of a man who’s been cited 3 times in a single year for driving while intoxicated. His neighbor would also drink and drive but was never pulled over. Who’s the greater criminal? Now, suppose I tell you that the man who did it only 3 times and was apprehended every time, whereas his neighbor did it 100 times and was never caught. How could this happen? What if I tell you that the 2 men are bitter business rivals, and the traffic cops’ boss, the police chief, gets large campaign contributions from the man who gets no traffic citations? Now, who is the greatest criminal”?


And so this kind of echoes Ed’s experience with Bernie Madoff in the SEC when he discovered there’s a ton of people, Ed just being one of them, that knew Madoff was running a Ponzi scheme had told people about it. So he’s asked the question, “Did you ever think you should go to the authorities with this”? And then this is Ed’s response, “Bernie Madoff had been a Chairman of NASDAQ. He was the third biggest market trader in the U.S. He was on all types of committees. He was the establishment. The SEC checked him every year and gave him a rubber stamp of authenticity”.

Ed’s schooling us not on how we think the world works or how we think it should work. He’s telling us how it does work.

[This section was resonant because I’m currently watching the History Channel’s The Men Who Built America series which is littered with stories of corruption…manipulating stock prices, collusion, Carnegie/Rockefeller/JP Morgan buying the 1896 election by supporting pro-industrialist monopolist McKinley over threatening populist William Jennings Bryan. Teddy Roosevelt’s eventual anti-trust campaigns were a direct retaliation on behalf of downtrodden workers. Even the Edison/Morgan vs Tesla/Westinghouse battle over the electricity standard led to Morgan/Edison muscling out Tesla/Westinghouse whose AC technology triumphed by threatening lawsuits they knew Westinghouse could not afford to fight even though Morgan knew he would lose in court]

Share in public

The importance of like putting your work out there, putting your thoughts out there and sharing them because it leads to all these unexpected opportunities. He winds up being like first LP in Citadel as a result of this.

The people that are interested in learning what you’ve learned also happen to be people that are lifelong learners. And those are the kind of people that get themselves involved in very interesting activities in the future. Many of those interesting activities can have a financial benefit to them.


Acknowledgment, applause and honor are welcome and add zest to life, but they are not ends to be pursued”.

“I felt then, as I do now, that what matters in life is what you do and how you do it, the quality of the time you spend and the people you share with”

“Chance and choice”

“Life is a mixture of chance and choice. Chance can be thought of as the cards you dealt in life. Choice is how you play them. I chose to investigate blackjack. As a result, chance offered me a new set of unexpected opportunities”.

Heraclitus, said, “Character is destiny”

“The path I would take was determined by my character, namely what makes me tick”

Voracious consumer of information

A lot of the stuff you’re going to read is not useful, but it’s all the little bits that you pick up that lay the foundation that are actually useful in the future. “Much of what I read was dross, but like a whale filtering the tiny nutritious krill from huge volumes of seawater, I came away with a foundation of knowledge”

Ed and Warren Buffet meet as Buffet starts Berkshire and Ed starts Newport Princeton

As Warren and I talked, the similarities and differences in our approach to investing became clearer to me. He evaluated businesses with the aim of buying shares of them or even the entire company, so cheaply that he had an ample margin of safety to allow for the unknown and the unanticipated. His objective was to outperform the market in the long run, and so he judged himself largely on the performance relative to the market.

“In contrast, I didn’t judge the worth of various businesses. Instead, I compared different securities of the same company with the object of finding relative mispricing from which I would construct a hedged position. Long, they’re relatively undervalued; short, they’re relatively overvalued, from which I could extract a positive return despite stock market ups and downs”.

So his entire life, he operated a market-neutral hedge fund, and I’ll get to more of his numbers and stuff later on. His goal was to accumulate the most money. Warren began to invest while still a child and spent his life doing it remarkably well. My discovery is fitting with my life path as a mathematician and seemed much easier, leaving me largely for you to enjoy my family and pursue my career in the academic world.

And what’s crazy is he’s going to start the world’s first quantitative hedge fund, it’s called Princeton Newport Partners. He’s still working as a professor, for like the first like 10 — even though he’s rich — or he started — like starts to get really rich, like 10 or — I have to know in the book, it’s like a dozen years into it. He’s like, “All right, I can’t do both. I got to finally give up. I’m sad to give up my academic life, but I’m clearly on to something here”. It’s just amazing how long he stuck with it.

So this is the result of — they wind up spending — I think they meant like 2 or 3 times, and this is where he realizes that Warren Buffett is an intelligent fanatic. And so the crazy thing is not only did Ed Thorp make a ton of money, but like I said, he winds up buying Berkshire, starting investing in Berkshire stock. It was like $900 at the point when Ed Thorp starts building position. And then he tries to get other people to buy and he tells them, don’t ever sell this, this will make your family rich…

Impressed by Warren’s mind and his methods as well as his record as an investor, I told Vivian that I believed he would eventually become the richest man in America”. Buffett was an extraordinarily smart evaluator of underpriced companies, so he could compound money much faster than the average investor. He could also continue to rely mainly on his own talent even as his capital grew to an enormous amount. Warren furthermore understood the power of compound interest and clearly planned to apply it over a long time.

The intelligent fanatic is extremely important, and hopefully, you are one in your own business, and if not or you don’t have a desire to, then find somebody who is and let your money ride with that person.

Hiring and management

4 different ideas – one, management by walking around; two, hire for intelligence and enthusiasm over experience; three, hire on a trial basis; and four, talent is expensive and worth every penny.

“Now, I had to learn how to choose and manage employees. Figuring this out for myself, I evolved into the style later dubbed management by walking around. I talked directly to each employee and asked them to do the same with their colleagues. I explained our general plan and direction and indicated what I wanted done by each person, revising roles and tasks based on their feedback”.

“For this to work, I needed people who could follow up without being led by the hand as management time was in short supply. Since much of what we were doing was being invented as we went along and our investment approach was new, I had to teach a unique set of skills. I chose young, smart people just out of university because they were not set in their ways from previous jobs. It is better to teach a young athlete who comes from his sport fresh than to retrain one who has learned bad form, especially in a small organization”.

“It was important that everyone worked well together. I was unable to tell from an interview how a new hire would mesh with our corporate culture. I told everyone that they were temporary for the first 6 months, as we were for them. Sometime during that period, if we mutually agreed, they would become regular employees”.

“In order to attract and keep superior staff, I paid wages and bonuses well above the market rate. This actually saved money because my employees were far more productive than average. The higher compensation limited turnover, which in turn saved time and money otherwise you used to teach my one-of-a-kind investment methodology”.

First LP in Citadel

“What would have Princeton Newport Partners been worth 25 years later? How could I possibly have any idea? Amazingly enough, a market-neutral hedge fund operation was built on the Princeton Newport model, the Citadel Investment Group”.

“It was started in 1990 in Chicago by a former hedge fund manager named Frank Meyer. When he discovered a young quantitative investment prodigy, Ken Griffin, who was then trading options from his Harvard dorm room. I met with Frank and Ken outlining the workings and profit centers of PNP as well as turning over cartons of documents outlining in detail the terms and conditions of all their outstanding warrants and convertible bonds. These were valuable because they were no longer available”.

“Citadel grew from a humble start in 1990 when I became its first limited partner, that’s insane by the way, with a few million dollars and 1 employee, Griffin — with 1 employee, which is Griffin, to a collection of businesses managing $20 billion in capital and having more than 1,000 employees 25 years later. Ken’s net worth in 2015 was estimated at $5.6 billion”. I think today at the time I’m recording this, his net worth is over $20 billion, if I’m not mistaken.

[Really interesting insight that has implications for markets]

Though the institutions of society have difficulty learning from history, individuals can do so.

Why is lifelong learning so important?

“Education has made all the difference for me. Education builds software for your brain. When you’re born, think of yourself as a computer with a basic operating system and not much else. Learning is like adding programs, big and small to this computer. From drawing a face to riding a bicycle to reading or to mastering calculus, you will use these programs to make your way in the world. Much of what I’ve learned came from schools and teachers. Even more valuable, I learned at an early age to teach myself. This paid off later on because there weren’t any courses in how to beat blackjack, build a computer for roulette, or launch a market-neutral hedge fund”…I found that most people don’t understand the probability calculations needed to figure out gambling games or to solve problems in everyday life. I believe that simple probability and statistics should be taught in grades kindergarten through 12.

The best jobs are neither decreed nor degreed, they are creative expressions of continuous learners in free markets.

Notes From An Interview With Serial Entrepreneur Keith Schacht

Link to Founder’s Mindset Podcast episode: https://pod.co/the-founders-mindset/s2-e4

About Keith Schacht:

What are the psychological building blocks that support a serial founder’s journey from ideation to massive growth to acquisition, to building again—and again?

On this special episode of The Founder’s Mindset, Dr Gena Gorlin is joined by serial Silicon Valley entrepreneur Keith Schacht, who has founded and sold 4 technology companies. His latest, Mystery Science, was being used in over half of American elementary schools at the time of its acquisition by Discovery Education. 

Now, he’s working on world-changing venture number 5.

He joins Gena for a candid discussion of how he stays anchored to reality during that elusive, early search for product-market fit; why and when he made the decision to sell his company; and how he approaches starting all over again. Gena and Alice then debrief to explore what other founders can learn from his experience.

These are some of my favorite insights or inspirations from the interview:

Building companies as an instance of building things

As long as I can remember basically, I’ve been interested in starting companies, although I didn’t initially conceptualize it as starting companies. I just I just thought of it as building things. I like to build things and companies ended up being another kind of thing I like to build and a vehicle, for building more things. So I mean, really, when I was in high school, even I discovered the internet and I’m younger than that I discovered programming. But when I discovered the internet, I discovered that people would pay me real money to build things on the internet.

Me: Note that it has nothing to do with making money. In fact, if one’s goal was to just make money you could make the case that entrepreneurship is one of many, and possibly, inferior paths

Keith’s response to the struggle and curveballs native to entrepreneurship

I think it’s not smooth but I just never expected to be smooth so so you’d I don’t get upset when it’s not. So it’s like when you’re off-roading you expect lots of bumps.

An example

An example from my previous company Mystery. I had a very specific idea about something that I thought would be good and it was basically a line of science kits for kids that would help them explore the world.  I remember very specifically the spark of that idea came when I was walking through a toy store. I like toys as a product category. And I noticed that there was a particular aisle like the science toy aisle, and it struck me how familiar it was. There was like a two-liter bottle tornado and a crystal growing kit etc. “Wow, this is a pretty stale product category.” I had a lot of experience building these kinds of toys myself just for fun so I thought it would be a really interesting business opportunity here.

That led to conversations with a friend of mine,  a science teacher at the time. And so we started this business with this sort of clear idea of maybe we’ll do a lot of science kits, but the broader opportunity was helping kids understand the world. My co-founder and I were both new parents and this is a classic case where I was excited about something particular, but I had a conviction about a broad space. And, you know, we quickly tested this particular idea and it turned out to not be a good idea. We built prototypes and put them in the hands of parents. Multiple parents told us how “we’ll do it this weekend” and then we checked them in with them on Monday. “How was it?”

“Oh, we didn’t get to it.”

And then weeks go by. So we pivoted and was like, maybe we’ll do a different idea. And it was a classic example of having strong conviction about sort of a broad area of opportunity and specific ideas but sort of flexible on whether that particular idea was the right one. It was many iterations later before we finally got something so we ended up building — instead of a line of science kits for kids to do a home, we built a set up for digital resources for elementary teachers to use in the classroom to teach science to kids. We solved the real problem for elementary teachers. [He previously gave some background that before high school, general elementary teachers teach science and many find it daunting.]

Keith, without meaning to probably, reveals how his approach actually looks like science

I think one of the most important things at every step of this discovery process is to be really clear on what you know, and what you don’t know. And not to ever confuse the two.

We prototyped a line of science kits and put them in the hands of a bunch of parents. And it’s very easy, after the moment it didn’t work to conclude “Oh, no one wants a line of science kits” or some broad generalization like that. This is too general.

The right way to hold it is “the particular prototype I built, that I put in the hands of the six parents wasn’t used by any of the parents.”

And when you hold the conclusion that way, it leaves the door open to “maybe it was the wrong set of parents, maybe there’s a different group of customers with the exact same product or maybe the idea of lighter physical science kits was a good idea, but those three that we made were bad for a particular set of reasons.”

And so that’s it’s such an important part of the journey. Be really clear on what you know, what you don’t know what to kind of hold those conclusions in the right way.

And I think that’s what makes the journey feel, you know, bumpy and circuitous but not frustrating. It’s just the process of coming to understand the nature of the world and your customers and your idea.

Product-Market Fit

How did we finally know [when we were on to something]? On prototype number six, we had built something that we tried on parents and a number of parents gave we gave it to their kids’ teacher. We thought that was an interesting clue since didn’t immediately jump on elementary teachers at that point. When we did finally decide to build a prototype for teachers. We initially built one for middle school science teachers because we want to help them teach science. That one didn’t work, either. They didn’t use it. I had a friend of a friend who was an elementary teacher and happened to show her one of these prototypes. And she was excited about it. One of the breakthrough moments was she told us about a set of lessons that she needed to teach soon.

We just offered to help her. “So what’s this particular lesson? Okay, well, what if we prepared the following things for you and sent that over within a couple days? Would that be helpful to you?”. And we sort of followed her lead in a really concrete way, like a specific day a specific lesson, a specific problem, and we helped her and that’s that was sort of like big clue number one. She got really excited about what we gave to her use quickly and asked for more.

You’ll know when you have it

Yes, it’s very abstract to tell someone “make something that people want, and you’ll know when they want it.” But I have built things before that people didn’t want and I built things before that people really wanted. You can really see the difference. People use lots of different analogies like “customers actually wanting something from you and pulling it out of your hands instead of you calling them ‘would you like to try this? Oh, sure. I’ll try it. I sent it over. You don’t hear anything for 48 hours. Did you get a chance to try it? Oh, I haven’t gotten to it yet.’

But you can tell what it feels like when you are the one providing the energy to push this product forward versus your customers bringing the energy and sort of pulling it out of you in those early days. Many times Doug, and I would have the conversation. “Is this one what product market fit feels like?” And I would say to him “Oh no, you’ll know.” You could tell the difference. And when we finally got this first elementary teacher who was excited and asking for more, and then we got a few more elementary teachers, I remember Doug remarking “Wow, this feels so different than those other prototypes we built where no one really seemed to care and we got 200 signups, but then no one would use it.”

There’s a meta-discussion linking back to 2 Y Combinator principles:

  • This was an example of “doing things that don’t scale”
  • This is what it looks like to try to build something people actually want.

    It’s so easy to make something you want people to want, but they just don’t want it. Just the other day I got an email from a friend who has built a prototype and wants to show it to me to see what I think. And just based on the email my first reaction after reading this email was”it doesn’t really matter what I think” because I’m not the customer. I wonder if this person has shown it to five customers by now before building the whole thing. And that was my feedback on this. Because so often people miss that step. And so I really don’t care what anyone thinks except the potential customers that we think we’re going to be serving with these particular ideas.

Excerpts From Benn Eifert on the Odd Lots Podcast

Link: https://www.bloomberg.com/news/articles/2022-08-01/benn-eifert-on-the-mania-that-was-even-bigger-than-meme-stocks?srnd=oddlots-podcast#xj4y7vzkg

About Benn: Founder of QVR Advisors specializing in option-based strategies

I found the transcript here.

The craziest aspect of the investing mania of the last few years was the role of sophisticated instituitions

Benn: I would say actually I found the sizes of the unsecured loans that very large, and you might have thought sophisticated, investors and credit organizations were giving to Three Arrows Capital, two and a half, you know, two and a half billion dollars for Genesis alone with like no collateral. I mean, you come into this just thinking, look, these are big boys. These are wealthy people who’ve created a tremendous amount of money and they wouldn’t just do completely, obviously crazy stuff like that. And then it turns out that the answer is, of course they do…I think retail gets all of the attention and you know, we can talk about that all day and there’s all kinds of interesting stuff there, but I think people forget that the role of institutional investors in this process and the way that institutional investors start to buy into narratives and start to, you know, start to develop this fear that they’re missing some huge technological revolution, and then do incredibly crazy things in huge size, is almost a more interesting story

 I think a big part of the institutional role in that really came from this huge psychology around private assets and private investments being this fantastic place to be, you know, big sources of innovation, stable returns, because, you know, without mark to market volatility, right, you saw just really in the last few years, you see the formation of VC growth funds, right? So you always used to think of venture capital as, you know, these nerdy, weird engineers doing cool science experiments and backing these early stage companies to do really disruptive stuff.  Whereas growth funds were all about raising mega institutional scale capital at full fees with long lock and plowing that into companies that were already valued at $200 billion and just had a completely different asymmetry to the return profile.

And you had corporates like SoftBank and hybrid public private hedge funds like Tiger, you know, coming in to compete for deals, to get those deals with startups, by saying, ‘look, we have bigger checks and we’re not gonna ask you any annoying questions. We’re not gonna do due due diligence. Like, I want you to sign the term sheet in 24 hours that I just sent you.’ And that was really, you know, alot of that came from, I mean, and I think I had a Twitter post about this, but you know, 2019, 2020, I would go to conferences with big institutional investors. And the only thing that you would hear about was how big asset owners were taking money out of liquid alternatives type of investments and moving them into privates because the returns in privates had been so high and there was such a perception of such limited risk in practice.

The role of narratives and how the ability to spin them about the future can become a gray area or market failure

Benn: Just to be clear, technology itself is not the problem, right? I mean disruptive technological innovation is what drives the world forward. And, you know, Silicon Valley and venture capital plays a really important role in that. And that’s great, but that technology inherently has this characteristic, right? That you’re not selling a current set of cash flows or a well-trodden path of how, you know, that can be valued by people with spreadsheets in some kind of relatively formulaic way. It’s about selling a vision of the future and a vision of what could be and how that can play into future economics and trying to relate that to past innovation. And that’s a very nebulous thing in the end. And it’s something that is inherently susceptible to hype and narrative, particularly when the, I think, as you’ve seen in recent years, particularly when financial markets set up ways for people to get actually paid and to monetize that kind of narrative and hype, right? As opposed to, ‘Hey, I finished building this company and then it becomes a big company. And then I get really rich,’ right?

When it becomes, ‘I sell this vision of a future that’s really disruptive. And then I can issue a token and I can sell it to retail and I can make a billion dollars just by doing that without actually building anything.’ Or similarly, you know, in technology, if I can create a startup that gets valued at $300 billion, and then I can go into the secondary market and I can get liquidity as a founder and sell a lot of my shares to like institutional investors that want to get some, right? And I think that’s the inherent trick with technology is that it is inherently by its nature, much more susceptible to narrative-driven, you know, valuation and narrative-driven thinking.

And that is what it is, right? That’s not something that’s gonna go away, but it’s something that investors, you know, have to be really cautious about how to differentiate. And you get, it’s like the early phases of a technology cycle. You get those nerdy engineers building really cool stuff in the garage, but then the MBAs start to show upright? That’s kind of a classic line in Silicon Valley. And you end up with a lot of huckster types coming in to kind of ride along the wave because there’s so much money involved and that’s where you get the trouble.

[Me: There’s a bit at the end of the podcast that ties back to this in which crypto which is intellectually seated in unfettered free market ideology ironically self-skewers that ideology]

Benn: But crypto, I think at the core of it, crypto really owned and brought to the forefront, this idea that financialization is first, right? And the use cases sort of follow and that you’re supposed to have, it’s this very like pure Chicago Department of Economics, efficient markets idea, right? That like, if everything is priced a priori, the market is sort of all knowing and all seeing and people will identify the things that are gonna work and they’re gonna finance those. And like the world is gonna be utopia. And it’s completely ridiculous.

It, you know, what actually happens in practice is that if you can create a narrative and create a hype cycle around your company and you get the right VC backing and whatever it is, and then you can create money by issuing a token and you can sell it to retail n humongous size and you can make hundreds of millions or billions of dollars for doing absolutely nothing. And that happened over and over and over and over again. And it was sort of institutionalized as a business model by certain venture capital firms that, you know, are big backers of this space. And I think that’s the core issue.

Joe: Well, I forget who made this point, but yes, you might say that crypto has attracted the best and the brightest of the last several years, but if they’re the best and the brightest, they might be the best and the brightest at figuring out how to make life-changing amounts of money in six months, which is not necessarily the foundation of a sound new industry.

Benn: Yeah. You give people really strong financial incentives and it’s really hard to resist, right? It’s easy to obviously point fingers at the most egregious people in the space and Do Kwon, and all these guys, but like if you create a world in which it’s really easy for charismatic hustle-type people to get really rich by scamming people, they’re gonna do that. And you have to expect that, like, that’s just how the world is gonna be. And I think that’s what the incentives that we’ve set up in crypto have really done.

The challenge of separating hype from real change is hard but it’s easier to rule out than rule in

Joe: How do you know who’s just a storyteller in real time versus someone who is actually correctly identifying a new trend because, you know, you mentioned Warren Buffett in the beginning, he was wrong. Not all of the curmudgeons in a certain area, get vindicated in the end, he was wrong to dismiss the Googles and the, you know, the Facebooks in 2010…so in real time, investors really are faced with a tough decision because sometimes the world changes and it can be really hard to disambiguate in real time between who is a huckster, trying to, you know, sell their token or whatever, versus someone who’s identifying a real change that’s happening.

Benn: It’s really, really hard in real time — to your point. And I think that the reason it’s really, really hard is because again, we talked about momentum is a real phenomenon and structural change in the world. And technological change is a real thing, right? And so you have to keep an open mind and you can’t take the curmudgeon approach, right? Where anything that’s new or anything that people are excited about or that’s going up in price sort of must be wrong. And you see a lot of that kind of thinking, kind of behavior. That’s the wrong mental frame, right? I think it’s easier to think about identifying and screening out the stuff that has a lot of red flags and is fairly clearly actually a bunch of hucksters, as opposed to on the margin, solving the Warren Buffett question. Was there a path for Warren Buffett to figure out that Google and Amazon were real things back in 2010, 2012? There there might not have been. I think that identifying red flags of very likely problems.  I mean, I think you get into things like, okay, do we have projections of returns that are way, way above historical equity returns or based on, you know, nonsensical statements like the Cathie Wood one that we talked about, right? GDP growth of 50% because of artificial general intelligence. You can fairly quickly say, ‘okay, I don’t know exactly what’s going on in the world, but like, that’s not real.’

I think another one, and this I think is very important and hits institutions more, but claims of returns significantly exceeding, you know, the risk free rate but with little or no risk. And that’s the one I think that ends up leading to much bigger problems in financial markets and much bigger problems in the global economy, right? Because people with nice suits and ties and very big offices look at an 8% or 9% or 10%, relatively low risk return. And they think about how they can put leverage on that. And they think about how they could have a five year run making really good money and get paid a lot. And that’s incredibly appealing. And that’s actually the nature of a lot of the biggest losses that you saw in crypto and so forth. It wasn’t necessarily folks buying, you know, Dogecoin and losing a catastrophic amount of money. It was people saying, wow, this anchor protocol, this thing yields 20% and there’s like a Harvard professor that wrote the white paper and, you know, there’s all these credible VCs talking about it. And if I can get 20% on that, and then if I can borrow $10 billion to do that, like I can get really rich, really fast…

I think that the things that I always come back to are to really look out for people trying to credibly claim these astronomical return profiles or pretty high returns with very little risk, because you just have to think of it as the world is full of a lot of very smart, very competitive sharks who run very big businesses that really like getting rich. And if there was an opportunity to make 10% or 20% risk-free in front of you, they would’ve already taken that away from you and done it first. And what it means if you see something like that is that it’s not real, you know, and there’s either some kind of fraud or there’s some kind of extraordinary risk that you’re not seeing. You have to be really wary of extrapolation.

You have to really be very skeptical of overly complex investments with non-transparent sources of return, right? Where people are trying to tell you, this is really good, because it’s really smart and it’s really complicated. And I know you don’t totally understand it. And you have to also be ready to recognize the psychological tricks that the investment world plays on you. Again, a lot of these things, it seems like it should be so obvious, but it’s not, right? There’s a lot of laundering of credibility, right? Legitimization of investment schemes by the backing of authoritative people or people you feel like you should trust. Because especially at peak cycle, people are very willing to lend their credibility to, you know, things that are gonna get them paid. You know, think of, again, the Harvard business school, professors writing the white papers for Ponzi schemes, like Anchor. Using social consensus and group psychology to normalize ideas and narratives and to pressure people to stop asking questions, you know, big Twitter mobs telling you you’re an idiot and you’re not gonna make it, right? And then very much so kind of scarcity or immediacy, like, ‘look, you’re gonna miss the boat. You don’t get it. And it’s like time to get on board or miss the boat.’ 

Despite the “money printer goes brrr” meme, low rates are not just a “dial that determines the level of speculation”. Although the narrative effect of the meme itself may have been a contributor

Benn: I think there are a lot of different contributing factors. And I think this is usually how things go. So I would say commentators tend to focus very, very heavily on low interest rates and quantitative easing and so forth. I mean, I think there’s a role for cheap money on the margin, especially in areas like real estate. But I think that really the direct role of low interest rates or QE here is very overstated. I mean, you look at the history of interest rates and quantitative easing geographically around the world for the last 20 years. Japan’s been doing QE for a very long time. I mean, we had low interest rates in the US for a long time. Previous manias weren’t necessarily associated with low interest rates. And one way to think about it is like with tech stocks going up a hundred percent a year and crypto tokens paying 20% yield. Like if you have to pay 3% or 4% to get leverage versus 1%, I mean, it just doesn’t matter if you are in the frame of mind, but like you want to do those kind of investments. I mean, the idea, and I joke about this on Twitter a lot, but yeah, the idea that like the Bitcoin folks would’ve just bought a bunch of Treasuries if Treasuries paid 6% or 7% is, on its face, ridiculous. And they would all tell you that.

It’s much more about the collective perception of relative risk and return and the growth of narratives justifying that perception, and then the broad socialization of more and more people into that perception. I do think where rates and QE comes in is perceptions of the role of cheap money coordinating investor expectations or kind of the ‘money printer go brrrr,’ you know, ‘buy everything’ meme. I think that’s actually important. That’s probably much more important than the direct impact of rates being a little bit lower and being able to get leverage, right? Is the contribution to the narrative that like all of this stuff just has to go up.

And I do think, I come back, you know, ultimately, and you pointed out other phenomena, I do think what has been important when you look specifically at retail options trading and a lot of the aggressive market participation that has showed up over the last few years, I do think the pandemic played a real role. I think that there’s a self-reinforcing dynamic to the social internet aspect to it, right? It’s not just people sitting at home in their brokerage account doing stuff by themselves. They’re increasingly in Discords or on Twitter or in some kind of social group or Reddit’s WallStreetBets. That’s like a community that’s fun where people talk about investing and they teach each other stuff and they, you know, they overcome the activation barrier of like, ‘how do you open a brokerage account? And how do you put money in it? And how do you actually click a button to trade?’ and all this stuff. And like once that’s there and once it’s a fun entertaining social thing, and it has a group gambling component to it, it becomes much easier to kind of get out of control and much longer lasting, right? Then, you know, it has all the power of the engagement, you know, clickbait of the internet associated with it. And I think that was really important.

The froth probably isn’t over

Benn: I think there’s plenty of craziness left. So I think both in crypto and in tech, there are many funky crypto tokens that are down 90%… but whose market cap is still billions and billions of dollars. And you know, they’re just jokes, right? So I think, you know, it’s hard to argue that that stuff doesn’t eventually go to zero. And then within what you would think of as like the ARK basket and, you know, the Goldman Sachs index of speculative software stocks, again, there were a lot of companies that experienced valuations in private markets and sometimes eventually in public markets of $30, $40, $50 billion, that just, it’s very hard to see them ever being worth anything. And a lot of those names are down a lot. They’re down 90%, but they’re still worth $5 billion or $3 billion. The things that have gone down the most are not always the cheapest. Right?

Sometimes they are, but in this case, I think that’s not obvious at all. I think there’s a great Kindleberger quote that the period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and mass panic and crashing, driven by the insiders having exited, but the suckers/outsiders hanging on and hoping for a revival and then finally giving up. And it feels like that’s where we are. Sort of the insiders have been kind of quietly and steadily getting out. There’s apparently still quite a lot of demand, for example to sell shares in the secondary market of startups that are down 90%, right? You’ve got founders that on paper briefly were worth $20 billion, and now they’re worth $2 billion. And they’re like, you know what? That’s still pretty good. I want to see if I can turn that into cold, hard cash.

Are you optimistic that there will be like a cohort of you know, people who maybe got scarred or burned, but also learned some sophisticated stuff that will have a good combination of skills and knowledge coming out of this period?

Benn: I really hope so. I mean, I’ll tell you 10 or 15 years ago, I remember working with a good friend who’s now a VC on ideas for investor education. And how do you get people to even care about financial markets and investing and pay attention? Because back then it was totally impossible to get the young generation to even think about this stuff. And it’s really good that individual investors have gotten interested in investing. And I feel like, you know, sometimes I hope I don’t give the opposite tone, right? Because it’s so easy for people to get tricked and all this kind of stuff. But I think a lot of times people have to learn from their own experience. It’s just really hard. I mean, you know, Hegel said we learn from history that we just can’t learn from history. People have to one way or another go through their own experiences of mistakes and things not going well to really internalize lessons. And what I really hope is that people are able to take hold of those lessons and, you know, stay interested in financial markets and stay interested in investing and learn how to make good decisions as opposed to feeling so scarred by it that they just walk away.