How To Not Lose
Eliezer Yudkowsky joins us from Overcoming Bias, an econblog devoted to human rationality and the cognitive psychology of mistakes. And if you think that’s interesting, you should see his day job.
Everyone thinks they can win.
Cognitive psychologists call it the Lake Woebegone effect, after the fictional town where “All the women are strong, all the men are good-looking, and all the children are above average.”
Four-fifths of drivers think they’re in the top third. Half of all sociologists expect to someday be among the top ten leaders in the field. Not a single US state will admit to test scores are below the national average.
Am I going to tell you that you’re not as good as you think you are? Well, maybe you are that good – I don’t know, I haven’t met you. That’s not the point I aim to make; not today, anyway.
But think, for a moment, about all the self-help books out there that can tell you – yes you – how you too can be amazingly successful if you just use their simple technique. Think about the stock-market investing books that promise that you, yes you, can be the next Warren Buffet. Or the entrepreneurial books, written by some fellow who cashed out back in the dot-com era, about how you yes you can be the next Bill Gates or Larry Page. And then there’s the gigantic industry in business books, telling every barista how to run the next Starbucks, and every janitor how to be the best CEO in the Fortune 500.
I call these books as “financial pornography”. And the information in them is, by and large, useless if you want to succeed in life.
It seems to me that every profession has a different way to be smart. A hedge-fund trader isn’t the same kind of smart as a research biologist. A corporate CEO isn’t the same kind of smart as a blogger.
On the other hand, the ways of being stupid verge on human universals. Casey Serin, a 24-year-old programmer with no experience in real estate, got himself $2.2 million into debt by lying on mortgage applications to purchase 8 houses in 8 different states. And that’s not even the sad part; the sad part is that afterward, he refused to give up. He went on spending money on real-estate seminars, and tried to take out a mortgage on a 9th house. He hadn’t failed, he’d just had a learning experience.
A good many CEOs could stand to learn from Casey Serin. It’s called the “sunk cost fallacy” in the literature – the tendency to throw good money after bad, because that way, you don’t have to admit you lost. When Lockheed finally abandoned the thirteen-year-old Tristar L1011 program, into which it had previously sunk $2.5 billion, its stock jumped seven and three-fourths points the day after the announcement.
Can you think of any politicians pouring more and more effort into a failing effort so that they don’t have to admit failure? That was the Vietnam War in a nutshell. Casey Serin has something to teach Senators and Presidents.
How about stock traders riding a losing investment into oblivion? There are people out there who used to trade billions of dollars, who could’ve stood to learn from Casey Serin.
The sad truth is that Warren Buffet can’t teach you how to be Warren Buffet. That kind of extraordinary success is extraordinary precisely because it can’t be taught. All those books of financial pornography about the superstars… ya know, if it was that simple, everyone really would be doing it.
There are winning tricks that everyone can use, yes. There’s “do repeatable experiments to test your beliefs” – an amazingly powerful technique called “science” that was successfully taught to others, hence modern civilization. There’s “invest your money to make more money” – you may not beat the market like Warren Buffet, but if you think about a whole civilization practicing that rule, we do better nowadays than historical societies with no banks or stock markets.
But the fact that there are a lot more scientists than Warren Buffets, should tip you off that Warren Buffet’s trick isn’t as easy to teach as the experimental method.
The really valuable information in life tends to be about how to not lose, rather than how to be a superstar. You’ve got more to learn from meditating on Casey Serin than from reading about Bill Gates. If you’re stuck in a lousy job, being mistreated and underpaid, you ain’t gettin’ out of there by founding the next Microsoft, no matter how hard you study the life of William Henry Gates III; but Casey Serin might teach you how to admit your damn mistakes and cut your damn losses.
But that kind of truth can be uncomfortable to face. It’s a lot easier to sell financial pornography, pleasant fantasies about how you yes you can be the next superstar, than to sell the truth: that you yes you are screwing up, big time, and need to change your ways.
Yes, I know someone has to be the next superstar. But the point is, they aren’t going to get there by reading financial pornography. And another thing: never think you can be a superstar without a lot of effort. You probably can’t beat the market at all – but you’re certainly not going to systematically beat the stock market in your off hours, without devoting your whole professional life to being a Super Investor. Indeed, one of the standard ways to Fail, which you can learn to avoid with only a small time investment, is thinking that you can cherry-pick the stock market.
Forget the pleasant fantasies, and study the history of catastrophe. Every time you read online about an Epic Failure, ask yourself, “What am I doing that’s like that?”
Want to be a great CEO? Don’t read about Microsoft, read about Enron – it’ll teach you something even if you never start your own company.
You can even study the systematic cognitive science of human error.
And maybe then you’ll get a chance to win – or more likely, live nicely but not as a superstar – but first, you have to not lose.
Eliezer Yudkowsky is still blogging at Overcoming Bias, just like when you started reading this. Little-known fact: In a random sample of catastrophic losers, the vast majority did not read Overcoming Bias. You too can learn from their mistake!
