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 Less Wrong, just like when you started reading this. Little-known fact: In a random sample of catastrophic losers, the vast majority did not read Feeling Rational. You too can learn from their mistake!

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  1. Fiscal Musings

    This is a great perspective, but I still think there is much to learn from great successes. I would say to learn from both successes and failures.

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  3. Don

    I think learning from both failures and successes can be helpful. But nothing is more helpful than getting started in the direction you want to go in. If I’ve learned anything from I Will Teach You To Be Rich, it’s the importance of taking action.

  4. Dereque

    This sounds defeatist at best. While Cognitive Psychology *has* demonstrated that we tend to overestimate our skills and competencies, it’s also shown that those who don’t tend to take less action and tend to do less well in life.

    Being proactive, designing goals/dreams, and chasing them with vigor does require a healthy dose of hope and idealism, and those aren’t bad things as long as we’re willing to accept the risks and the possibility of failure.

    I think the writer of this (guest) post seems to ignore the fact that most people who are reading about Warren Buffett don’t expect (or hope) to become billionaires. Likewise, I don’t think most people who are stuck in unfavorable working circumstances start reading books and entertaining fantasies about becoming the next Howard Schultz. If they *do* decide to change their situation (and many people don’t) they probably will take a much less sensationalistic approach than the one that this author assumes such persons often take.

    I agree that many personal finance/investing books are overboard in their presentation of material which is designed to fuel you with dreams of super-wealth. But it’s also true that there is a lot of sound, interesting information out there that has (probably) changed the way people think about their lives, their money, and their goals in a positive manner.

  5. Duane Gran

    The advice is good, but I’m trying to reconcile this with another viewpoint: Most people have just enough ambition to not fail, but not enough to succeed. Many people are paralyzed by a fear of failure.

    Maybe the author believes that the focus on success stories in a way feeds off the fear of failure, as it is easier to imagine oneself replicating a success story than to reflect on how a failure story may explain one’s mediocrity.

  6. 7million7years

    Robert Kiyosaki (Rich Dafd, Poor Dad) taught me the real difference between an asset and a liability.

    Michael Gerber (E-Myth Revisited) taught me how to create my life’s purpose; how to turn that into The Number, and how to run my businesses.

    The Richest Man in Babylon taught me about paying myself first, the power of compounding, and more.

    Every book (and blog) I read still teaches me something …

  7. MyNameIsMatt

    @Dereque, I wouldn’t call the post defeatist just realistic and pragmatic. Idealism is still a major part of successful people, but personally, I find this post extremely refreshing because I’m sick of all the idealism that gets thrown around most topics.

    Eliezer removes some of the sexy, and adds a little wisdom much like Ramit does when he posts. Everyone likes to focus on the sexy side of finances, entrepreneurship, business, etc., but that seems to lead lots of people into the ground. Enthusiasm is easy, idealism is easy, follow through is hard, execution is hard, and both require commitment and dedication which tend to get lost in the sexiness of a topic.

    I meet more people with enthusiasm and idealism than I do with actual success from execution and follow through. From my own entrepreneurial adventures, I’ve found that everyone is willing to share their opinion, eager to find a way to attach themselves to an idea, but few to none are willing to push the rock up the hill. Those people could use a little of what Eliezer talks about.

  8. John Wayne's Kid

    In each stock transaction, there has to be someone to take the opposite position. This is especially clear in the future’s market. People got rich in the stock market, real estate market, futures, etc. because some one was selling when they were buying or buying when they were selling. As long as that happens, which will be always, there will be winners and loosers. What made Warren Buffett and others great is that they had the vision to buy when they needed to and sell when they needed to. That gut instinct can be refined, but rarely taught.

  9. Honza

    Of course there is no “guide” to becoming superstar. I do like success stories, though. I think that the most important lesson you can learn from those is how successful people think, what do they believe in, …
    You see that it’s hard work, clear goal, and such things that helped them to get where they wanted to be. You cannot replicate their actions, you can get to know their mindset, though. That’s what counts. Also you often get a lot of inspiration and motivation from such books.

    Learning from your and other mistakes is essential but I also believe that thinking too much about losing, even if it means thinking about how not to lose, is not good.

  10. Chris

    I was hoping to see something a more about the psychological impact of losing (or the fear of losing) than cognitive dissonance. The problem with telling people that they should learn to stop sucking at life rather than how to be great is that it implies that the speaker believes that the audience is, indeed, sucking at life.

    It’s probably a true assumption almost any time you address a largish sort of audience, yet I can only read and listen on an individual level. And, frankly, I’m a little annoyed that you assume that I’m so incompetent. I reiterate: I understand that you aren’t talking to me, specifically. Nevertheless, Eliezer, you come off like an ass.

    I criticize only because I think your tone could use a little work. After all, two-thirds of all the jerks in the world think that they’re pretty nice, helpful people.

  11. Ben

    I think it’s good to have some balance to the many posts/books/articles which say “you too can be rich/a superstar etc”.

    It does seem that many (especially younger) people these days seem to believe that just by wanting something a lot, they WILL get it. Just watch some of the reality shows like “American Idol” to see this kind of thinking in action.

    The other thing to bear in mind about books written about or by business or financial superstars, is that they are generally written with the benefit of hindsight. Can they still remember their exact motivations and thinking behind some transation from years or decades ago? Maybe they were just lucky at the time, and have subsequently fit the deal into their current way of thinking.

    I do think “luck” does have a big part to play in success, though you still need hard work, perseverance and belief to take advantage of that luck IF it appears, and if you spot it.

    (And “luck”, to me, is really short-hand way of describing being in the right place at the right time, with the right product, and the right customer on the other end of the transaction. But even when all that happens, you still might not see the opportunity, or you might fumble it!)

  12. RT Wolf

    My favourite person on this topic is Charlie Munger, long-time partner of Warren Buffett. You can find his “24 Standard Causes of Human Misjudgement” speech here:

    I realize that some of what he talks about me seem rambling or hard to understand if you’re not previously familiar with him, but I assure you, it is well worth your time to figure him out. He is a very wise man and I don’t know many wise folk that are alive. Most wise folk just seem to be dead. Maybe its a prerequisite. One of the things Munger suggests is also that you can get quite successful by simply not making some of these very systematic errors.

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  14. JaM

    The wisdom of the prudent is to give thought to their ways,
    but the folly of fools is deception. Prov 14:8