Biases

Be Smart by Not Being Stupid

December 12, 2022 By Nagesh Belludi Leave a Comment

No superhuman ability is usually required to dodge the many foolish choices to which we’re prone. A few basic rules are all that’s needed to shield you, if not from all errors, from silly errors.

Charlie Munger often emphasizes that minimizing mistakes may be one of the least appreciated tricks in successful investing. He has reputedly credited much of Berkshire Hathaway’s success to consistently avoiding stupidity. “It is remarkable how much long-term advantage we have gotten by trying to be consistently not stupid instead of trying to be very intelligent.” And, “I think part of the popularity of Berkshire Hathaway is that we look like people who have found a trick. It’s not brilliance. It’s just avoiding stupidity.” They’ve avoided investing in situations they don’t understand or summon experience.

As a policy, avoiding stupidity in investing shouldn’t mean avoiding risk wholly; instead, it’s taking on risk only when there’s a fair chance that you’ll be adequately rewarded for assuming that risk.

Idea for Impact: Tune out stupidity. Becoming successful in life isn’t always about what you do but what you don’t do. In other words, improving decision quality is often more about decreasing your chances of failure than increasing your chances of success.

The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline

August 11, 2022 By Nagesh Belludi 1 Comment

When Spirit Airlines pivoted to competing on price in the late 2000s, it quickly gained a reputation not only for operational inefficiencies but also for its in-your-face, take-it-or-leave attitude towards customer service.

Where other airlines charged by-the-package fares for the flight experience, Spirit pared back service and introduced an a la carte pricing model. Charging for the “ancillaries”—i.e., everything optional, including water—allowed Spirit to keep ticket prices down and appeal to price-sensitive travelers willing to sacrifice the usual amenities for a lower ticket price.

In the ensuing years, the unconventionality of this business model did not go down well with customers. Much of the flying public’s frustration with Spirit had to do with Loss Aversion. That’s the notion that the emotional disappointment of a loss is more extreme than the joy of a comparable gain. If finding a cheaper fare on Spirit felt delightful, giving up some—or all—of the savings to purchase ancillaries and surrender the savings felt utterly miserable.

Passengers felt ripped off by these seemingly hidden fees, especially when the true cost of flying Spirit ended up greater than what the initial ticket price led them to believe.

Spirit became quickly convinced that there was a perception problem—its customers didn’t fully understand how its fares work. Particularly, first-time customers blindly presumed that Spirit Airlines works the same way as other airlines. In reality, there were no hidden or excessive fees, and passengers could only pay for what they need or want. In 2014, the airline introduced its “Spirit 101” campaign to educate customers and alter their perceptions. With time and the increased adaptation of the “Basic Fare” model and curtailed customer service by every other airline, passengers’ expectations have since been right-sized. Spirit Airlines has come a long way, and its customer service has improved vastly.

Further studies on loss aversion have shown that a cascade of successive fees is worse than the cumulative: i.e., three ancillary fees that add up to, say, $70, feel a lot worse than a single $70 fee. Appropriately, Spirit offers a “Bundle it Combo” package.

Sometimes a Conflict is All About the Process

July 27, 2022 By Nagesh Belludi Leave a Comment

There’s a considerable difference between a “decision conflict” and a “process conflict,” and it’s necessary to disentangle the two.

A decision conflict is about a choice or another to be made. But a process conflict is about the approach, e.g., where making a choice has lacked rigorous deliberation (haste, a lack of participation from essential stakeholders, contempt for shared priorities, lack of attention to the tradeoffs, and so forth.) A sound decision has ensued from a meticulous-enough thought process, even if the decision emerges to be defective in the fullness of time.

Idea for Impact: Worry about bad decision processes. Make the “how” the anchor for your decision-making process. Improving the quality of decisions is developing better frameworks for making those decisions.

Stop Stigmatizing All Cultural ‘Appropriation’

July 21, 2022 By Nagesh Belludi Leave a Comment

From The Telegraph over the weekend: a Leeds-based “woke dance school,” the Northern School of Contemporary Dance, “drops ballet from auditions as it is ‘white’ and ‘elitist'” as it “reviews ballet art form as part of a diversity drive.”

Many other performance arts are rooted in other cultural traditions, so should we expect that white folk refrains from performing those because that would be cultural appropriation? Shun yoga, not wear cornrow, and drop taco nights?

Should everyone else avoid trains, cars, computers, and much else because they’re white European originations?

Should people not be allowed to wear clothing, cultivate hobbies, or pursue careers that aren’t reflective of the culture they were raised in?

Look, works of art incorporating racist clichés and caricatural images (such as in The Nutcracker) should be reassessed with a different consciousness. Appropriation is elastic and ill-defined. Not all cultural appropriation is harmful or exploitative, certainly not innocuous cultural appreciation—where elements of other cultures could be used to pay reverence and highlight the historic oppressions of those cultures. Appropriation is but offensive when what’s being appropriated brings problems to the people to who the cultural artifact belongs.

On embargoing ballet, let’s stop denunciations of white pride where it doesn’t exist before. Let’s not fuel resentment with our shrill accusations and ill-thought overreactions and contribute to the rise of white supremacy.

Idea for Impact: Raise cultural hackles only for a good cause, i.e., when there’s real offense intended. Don’t stigmatize valuable cultural interchange. Delimiting features of cultures is contradictory to our goal of creating a diverse, melting-pot society. E pluribus unum.

What if Something Can’t Be Measured

July 4, 2022 By Nagesh Belludi Leave a Comment

During a September-2021 Airlines Confidential podcast (via Gary Leff’s View from the Wing,) former Spirit Airlines CEO Ben Baldanza told an exciting story about the airline industry’s systematic approach to reckon if potential new routes are economically feasible:

For the most part, airlines rely on data—required and reported by the Bureau of Transportation Statistics—on ticket purchases that show the number of people flying a given route and what price. For example, New Orleans, which is home to one of the largest Honduran populations in the U.S., has not had direct service to Honduras. Spirit Airlines will therefore analyze data from Sabre Market Intelligence for 2019 showing O&D (Origin and Destination) traffic between New Orleans and Honduras.

Sometimes, though, there’s no data on historical demand on a route, such as when Spirit Airlines was considering service to Armenia, Colombia. There hadn’t ever been a U.S. carrier flying into the airport, so there wasn’t available traffic data Spirit could access. Instead, Spirit looked at telephone data and migrant remittance statistics to get a sense of ties between the U.S. and the Latin American city. Spirit studied the frequency with which people were calling friends and relatives and how much money and how frequently money was being remitted as a reliable metric to determine if the new route was viable.

Spirit Airlines relies heavily on leisure bookings, especially visiting friends and relatives (VFR) traffic. In the absence of historical yield data for a route being considered, Spirit used fund transfers to Latin America as a stand-in variable.

A surrogate metric or proxy metric is exactly that—a substitute used in place of a variable of interest when that variable can’t be measured directly or is difficult to measure. For example, per-capita GDP is often a proxy for the standard of living, and the value of a house is a stand-in for the household’s wealth. Freight tonnage is often a proxy for economic activity.

Idea for Impact: Relying on intuition for sound decision-making isn’t sustainable, so folks need a systematic approach to making those decisions. Use meaningful proxy and surrogate metrics in your decisions to help overcome inherent biases with what can’t be measured.

Get Your Priorities Straight

May 28, 2022 By Nagesh Belludi Leave a Comment

Most folks don’t take the time to write down and prioritize their values and goals. That’s the cornerstone of the all time-maximizing strategies.

Without distinct values and priorities, many people devote insufficient time to activities that support their most significant priorities.

No matter your goals, begin by thinking thoroughly about why you are engaging in any activity and what you expect to get out of it. Then be time-conscious. Match your time allocations with these top goals. Deliberately decide if you want to pursue each task required of you. Recall, too, that what you get done, and not time, in and of itself, is the best measure of success.

Why You May Be Overlooking Your Best Talent

April 25, 2022 By Nagesh Belludi Leave a Comment

Many organizations have a hard time articulating their culture. They can’t explain what they mean when they evoke the phrase “culture fit.” Sometimes it’s just an excuse to engage employees better whom managers feel they can personally relate.

Affinity bias is a common tendency to evaluate people like us more positively than others. This bias often affects who gets hired, promoted, or picked for job opportunities. Employees who look like those already in leadership roles are more likely to be recognized for career development, resulting in a lack of representation in senior positions.

This affinity for people who are like ourselves is hard-wired into our brains. Outlawing bias is doomed to fail.

Idea for Impact: If you want to avoid missing your top talent, become conscious of implicit biases. Don’t overlook any preference for like-minded people.

For any role, create a profile that encompasses which combination of hard and soft skills will matter for the role and on the team. Determine what matters and focus on the traits and skills you need.

When Exaggerations Cross the Line

January 22, 2022 By Nagesh Belludi Leave a Comment

Many myths and urban legends—even politicians’ infuriating rhetoric—aren’t wholly untrue. Rather, they’re exaggerations of claims rooted in a kernel of truth.

Yes, many of us don’t achieve our full intellectual potential. However, that doesn’t suggest that most people use only 10% of our brainpower.

Sure, men and women tend to differ somewhat in their communication styles. However, pop psychologists such as John Gray have taken this gender difference stereotype to an extreme, declaring “men are from Mars” and “women are from Venus.”

Idea for Impact: Exaggeration is part of human nature. Take care to not cross the line from harmless puffery to reckless overstatements.

Let’s Hope She Gets Thrown in the Pokey

November 16, 2021 By Nagesh Belludi 1 Comment

The Elizabeth Holmes-Theranos criminal trial hasn’t been without its share of theatrics.

Yes, Holmes’s massive fraud is obvious. She entranced (read WSJ reporter John Carreyrou’s excellent chronicle, Bad Blood (2018; my summary)) journalists, investors, politicians, and business partners into believing her fantasy science. She may even be responsible for negligent homicide if people died because of her company’s fake test results.

Then again, these sorts of cases generally hang on subtle distinctions between hyperbole and outright dishonesty and whether such deceit was deliberate.

Holmes’s lawyers will argue that she was merely an ambitious entrepreneur who failed to realize her vision but wasn’t a fraudster. Her lawyers will make a case that she is not to be blamed because people took her puffery and exaggeration as factually accurate. At what point do her wishfulness and enthusiasm go from optimism to intentional fraud? That’ll be the critical question.

At any rate, the Theranos verdict is unlikely to deter others from the swagger, self-assurance, hustle, and the “fake it till you make it” ethos that is so endemic to start-up culture. Investors will never cease looking at people and ideas rather than the viability of their work.

Idea for Impact: Don’t be so swayed by story-telling that has a way of making people less objectively observant. Assemble the facts, and ask yourself what truth the facts bear out. Never let yourself be sidetracked by what you wish to believe.

You Can’t Believe Those Scientific Studies You Read About in the Papers

November 11, 2021 By Nagesh Belludi Leave a Comment

Look at the filler articles in the well-being section of your preferred newspaper, and you’ll often luck into health advice with nuance-free mentions of all sorts of scientific studies.

One week, drinking coffee is good for you. Next week it’s harmful. Ditto video games. Swearing makes you look intelligent, but hold your flipping horses … the next day, swearing makes you seem verbally challenged to explain your annoyances respectfully.

Gutter press revelations isn’t only less-than-scientific, but it actually defeats the objectives of science.

In June 2014, the Proceedings of the National Academy of Sciences published an allegedly peer-reviewed paper titled “Female hurricanes are deadlier than male hurricanes.” The study deduced that hurricanes with feminine names generate more casualties supposedly because tacit sexism makes communities take the storms with a feminine name less seriously. The work was discredited as soon as its methods were dissected. Nevertheless, the dubious paper had made its way into media channels across the country because of the believability implied by the influential National Academy of Sciences.

Positive results that make a sensational headline tend to get published readily—especially if they speak to the audiences’ worldviews. In truth, many of these studies are low-quality studies where the variables are latent, and the effects aren’t directly observable and quantifiable, especially in the social sciences. Sadly, with the push to produce ever more papers in academia, peer review doesn’t necessarily corroborate the quality of research nearly so much as it enforces a discipline’s norms.

Idea for Impact: Let’s be skeptical readers. Let’s be better readers.

Let’s subject every claim to the common-sense test: is the claim possible, plausible, probable, and likely? Everything possible isn’t plausible, everything plausible isn’t probable, and everything probable isn’t likely.

Being skeptical does not mean doubting the validity of everything, nor does it mean being cynical. Instead, to be skeptical is to judge the validity of a claim based on objective evidence and understand the assertions’ nuances. Yes, even extraordinary claims can be valid, but the more extraordinary a claim, the more remarkable the evidence to be mobilized.

While we’re on the subject, have you heard about research that found that you could make unsuspecting people believe in anything by merely asserting that it’s been “shown by research?” Now then, the former’s the only research worth believing. Very much so, yes, even without evidence!

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Biases

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Gutter press revelations isn’t only less-than-scientific, but it actually defeats the objectives of science.

Idea for Impact: Let’s be skeptical readers. Let’s be better readers.

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