The Wisdom Wall

“And then all of a sudden you have a salesperson who's closing a hundred percent of their sales. And by the way, if you can't change that, you should fire them.”

“when you're approaching a problem, you want to think about what are the bottlenecks? What's the really hard thing that needs to happen in order for me to be able to unlock this problem? And that's the thing that you're supposed to go after first. You're not supposed to build the pedestals.”

“One of the things that doesn't help, and I think this is very, very important for financial professionals to hear, is one of the things that does not help is saying, just treat the decision like it's fresh.”

“I might argue that people are successful at things they stuck to, which is actually very different than if you stick to something, you'll be successful.”

“the goal of a really good group meeting is not to agree. And we think that the goal is agreement. We think that everybody has to walk out of that room on the same page. The goal of a great group meeting, rather, should be to inform, which is very different. So it should be okay that you allow that divergence of opinion…”

“particularly when people are very successful, it's particularly uncomfortable for them to imagine that there might be a ways that they could really improve their decision process. And I think that the reason is that then there's all of a sudden you open up a counterfactual world where maybe they did even better. And in…”

“They're better at spinning the data to fit their beliefs because they're better with data. Like, who do you put in a spin room? The dumb guy or the smart guy? No, you put the smart guy so that he can data mine for you.”

“Unless you're willing to examine both sides of the world, how can you actually be process-oriented, right? Then you're really just outcome-oriented with a bunch of process language wrapping around it, which is why I go back to this problem of being smart makes it worse. Because when you're smart, you're really good at…”

“I think that everybody has a need to be liked and respected, but there's a time and a place for that, and when you're sitting across the table from an opponent, it is not in any way, shape, or form to your advantage to be, prove that you should be liked and respected. As much as it doesn't feel good when someone says…”

“It's actually correlated with how smart you are, and it's correlated in the bad way. So the smarter you are, the better you are at kind of slicing and dicing this data to support whatever your prior is.”

“we think of grit as a virtue and quit as a vice, but that's not true. They're the exact same decision. By definition, if you choose to stick to something, you're choosing not to quit it. And if you choose to quit something, You're choosing not to stick with it. And we need to understand that all the skill is telling…”

“We don't see people who quit. That's sort of the best case scenario, or we see them as quitters, which is an insult. And the heroes of the story are people who had the exact same information, As these three climbers, and yet continued on even so to great disaster.”

“on the buy side, you're getting constant feedback, because the position's on your book, so you can see it tick up and down every single day. You have some thesis about what the fundamentals are going to look like, and every day you can compare your thesis to how the world is actually unfolding. So on the buy side, it's…”

“Except waste should not be a backward looking problem. It should be a forward looking one.”

“What generally happens is that the decisions that come out of a group process are, are not really necessarily better. It's just that you have much more confidence in them because you have this perception that group decision making is higher quality. And that's actually a really bad combination. Just more confidence in…”

“So the way I think about the difference between complicated and complex would, would actually be the difference between chess and poker. So a complicated decision is one that's hard. It's got a lot of levels. It's very deep, but there is a solution. So whatever, uh, ground truth is, is totally discoverable and it's…”

“And one of the things that I think that we have problems with as decision makers is that we think things are complicated when they're actually complex. We treat things as solvable and knowable when they're actually not, and we aren't very accepting of the idea that there's a lot of uncertainty in almost every decision…”

“There's just this true thing about hedges, which is the earlier you get to them, which necessarily means when you're the most uncertain, That's when they are the cheapest to put on.”

“over time, the market's going to be efficient, and for you to think that you could pick out the very little places where it's inefficient against the people who are literally spending their lives doing it is a folly that other people get trapped in.”

“And despite the fact that when I was in graduate school, I was taught that learning occurs when there's lots of feedback tied closely in time to decisions and actions, I realized, well, poker really tells you that's not true, because people don't play poker very well, but there's a lot of feedback.”

“So if we make a pact between the two of us, That you're going to watch my bias, and I'm going to watch your bias, and now we can form kind of a decision group together where we make rules about what the interaction is supposed to be. You can set me straight. I can set you straight, and now we can have a commitment to…”

“Generally, dissent is not well represented, and so in some ways, a group can actually be worse than an individual if the thought style is confirmatory.”

“So I think that when you say results-oriented, you think that you're motivating people to give you good results, and the fact is that you are, but not the right kind. What you're motivating them to do is to choose consensus choices, to stick with the status quo, to choose the lower volatility choice rather than the…”

“When you're trying to vet a decision, don't say what your belief about what the correct answer is. Just leave it out. In the financial world, really deconstruct the trade before you get the result of it.”

“I sort of think about it as stacking irrationalities. Ok, so I know it's irrational to have a loss limit. But that irrationality is a lot less damaging to me in the long run than allowing myself to make these irrational decisions about whether it's a luck or skill issue that's causing me to lose right now so that I…”

“But if someone's too leaned back, if they're taking up too much space, generally you shouldn't believe a thing they're saying. Because people generally aren't like this. It's sort of like purposely trying to look relaxed.”

“In fact, I would argue that most of the skill would go out of poker if you didn't have the option to quit and couldn't get good at exercising. That option.”

“usually if you quit at the moment that it's objectively correct, It will feel like you're quitting way, way, way too early, and that's the thing that we need to watch out for, because as human beings, we just generally stick to things too long”

“So if we think about when you should actually quit, it's when your expected value goes negative.”

“Escalation of commitment, simply put, is like this, we have the intuition that when we get bad news, that we'll stop doing what we're doing. And actually, we don't stop. When we get bad news, we actually double down. We escalate our commitment to the cause.”

“That goals are graded as pass fail. They cause this myopia. Progress along the way doesn't matter. And so that also will stop us from quitting because it gives us a target where if we don't get to the finish line, we failed.”

“Because the hardest thing to quit is who you are, even for Sears.”

“When we develop this set of kill criteria, not only are you more likely to follow it because you're sort of looking for those signals, and we've made some public declarations about how we're supposed to behave toward those, but as a manager, it allows me to manage to the kill criteria and to the win. So this now gives…”

“believing that this thing that you've created is impenetrable to failure is not a really great way to make sure that you succeed, but rather that they needed to be combing over the plans as if they were the rebels to try to figure out if they were to fail, how might that happen?”

“we don't want to confuse the route planning with the destination planning. You figure out where you want to go, and then when you look at a paper map, it's like the power of positive thinking. Oh, look at these clear roads. I'm going to go on this road, and then everything's going to be great, and I'm going to get to…”

“Uncertainty, luck, hidden information, all of the stuff that makes our judgment so subjective, that untethers the quality of outcomes from the quality of decisions, that I can feel having this influence on the way I make decisions.”

“And the paradox of experience is that experience is certainly necessary in order to become a better decision maker. But it's in no way sufficient. And in fact, the paradox is that any individual experience that you might have can actually interfere with learning.”

“Really, the best way to solve this is to not to try to look back and reconstruct all of that, but to actually do that looking forward as you're entering to new decisions.”

“What I try to argue in this book and what I try to give people tools for is that you should never accept that as an answer because there is almost nothing about which you know nothing, number one.”

“The way that you figure out when you can speed up is by really thinking broadly, what's the penalty for being less right? And a little bit more wrong.”

“the longer the time horizon in which the bad outcome is going to have actually had an impact. On whether you are happy, whether you are advancing toward your goals or not, that is going to tell you something about the impact of the decision.”

“So the more often that you're making a similar type decision, you want to go fast because it speeds up your ability to build models that will actually help your decision making going forward in terms of making those things more accurate.”

“But even for higher impact decisions, if it's easy for you to quit and reverse course and get back to another option, then you can actually speed your decision making up simply because there isn't as big a penalty for being wrong.”

“All we've determined is that they're close, and even if we could determine it, it's a bad use of our time. Because they are so close that you're probably going to be kind of about the same happiness either way, at least in expected value, and so you should probably move on to other things that may have a deeper impact…”

“Is there a piece of information that I can find out That would actually make it so that some other option became clearly better than the option that I'm considering. And you'd be surprised. Most of the time the answer is no. In those rare cases when the answer is yes, very often it's too expensive.”

“And we know that when we think about like illusion of control, for example, we think when we're imagining our own success that the role of luck will be less than it actually is.”

“So by imagining in advance what your plan of action is, if there's a downturn, if the downside realizes, you're actually going to tend to be acting more rationally. You're going to be prepared, and that's going to allow you to be more nimble rather than to be reactive.”

“So when we're actually facing a choice, generally that's when we're at our decision-making worst, because that's when the most rationalization can happen.”

“Is make a category decision, hold that strongly, but then have a secondary process that's going on where you're really trying to think about the world and incorporate information in a rational way that will allow you to maybe alter those categories in the longer term as kind of a secondary stream.”

“If you have competencies in a particular type of investing, just straying out of that category is just a really bad idea. If you specialize in REITs, you probably shouldn't be straying out of that unless you have a secondary stream, right? Unless you like hire someone or you create new models or all of that kind of…”

“This is just one of these little ways where when we speak to each other, we may think we're agreeing with each other, because we may both agree that the term real possibility applies to the likelihood of a particular future occurring, but it turns out that we actually don't agree. So now what we can see is sort of this…”

“when you're in a group meeting, a lot of the time is spent on agreement. Oh, you know, Ted, you say something, and then I say, oh, I totally agree with Ted, and let me now say it in my own words, why that's such a smart idea. And then the next person says, yeah, and I have something to add to that. But we've now…”

“if the person is in the role of the sort of person who's pushing back on it, You should kind of be grateful that that person exists because it forces you to be thinking about things from different perspectives. And like I said, it forces you to actually be able to give a rationale for why you believe what you do. You…”

“Because it's very rare that you're going to get to that much certainty and there's diminishing returns as you collect more data. And very often what happens is once you get to kind of a tipping point, it's not so much the quality of your decision is going to get better, but it's that the confidence in your decision…”

“What we know is that we should be favoring time over certainty, so we should be trying to act and putting like a lot of hedges in place and doing things that are a little bit more extreme when we don't have a lot of data, because the one thing that we do know is that the longer you wait, The magnitude of the downside…”

“So it actually behooves you to actually make lots of decisions and do lots of actions In order to get the world to give you the data back so that you actually can find out how the world would respond if you did certain things.”

“At that time, in January, it's very uncertain what the course is going to be here. Is it going to get here? Is there going to be community transfer? There's just all sorts of, like, the range of outcomes is super, super, super wide at this point, so we're really, really uncertain, but that's the time that you can put…”

“We don't like randomness as a species, and so once we know the outcome, it's like we can't go back and kind of reconstruct the The decision tree in any kind of real way, and so what ends up happening is we use the outcome quality as too perfect a signal for decision quality as we're trying to kind of work back into…”

“We can think about any decision we make as a bet. My book is called Thinking in Bets, and so this is obviously the premise of it. So people don't tend to think about their decisions as bets, because they think about bets as confined, like they think about it in the traditional way that we use bet. I mean, I go in a…”

“when you're trying to get high fidelity advice from your team, it's really important actually that you keep your beliefs to yourself as you're trying to work a decision and allow them to sort of speak freely.”

“So I think this idea of doing these premortems are really important because it shifts what it means to be a team player into something where you're willing to explore the way that things can go wrong.”

“What matters to us is that we foresee the landscape much more than that we get a good outcome, right? Because we assume that if we foresee the landscape, and we go through these exercises, and we're willing to do this together, that we're going to end up on the good side of the outcomes much more.”

“if your model is forecasting low, that's as big a problem for your ability to actually allocate your capital in a really smart way as if your forecast is coming in wrong the other way.”

“what I'd been doing in graduate school actually had been incredibly helpful for me in poker and could be helpful in general to understanding how do you make decisions, you know, particularly under conditions of uncertainty.”

“So first of all, I say it's really easy because all decisions are actually bets. It's just a matter of making that explicit.”

“So what Dan Gilbert showed in the nineties was, no, no, no, no, no. It's just like perceptual belief. You hear it, you lodge it as true, and then maybe later on you vet it. So now we believe what we hear.”

“The problem is that there's all sorts of work that shows that you just don't do step three, and that's where we really get into trouble, is that we hear it, we believe it, and then, like, maybe if we have the timer inclination later, we might do some vetting of it, but we vet it in a way to sort of confirm the belief…”

“So not only do you end up with a richer conversation, but you're more believable as a communicator. So I think it's a little counterintuitive, but our intuition isn't always good. So, I mean, our intuition is that when I hear something, I vet it before I decide whether I believe it. We know that that's not true.…”

“What a bet does is it shifts your idea of what winning means. So winning is now actually having the most accurate representation in the world. And that really comes through the accountability that this idea of betting is, because when you challenged your daughter to a bet, you were holding her accountable to her…”

“other people are actually pretty good at spotting our biases. So in the same way that you sort of naturally recruit people into the process with you when you express things probabilistically, why not do that intentionally and just purposely recruit people into the process with you so that you can form a really good…”

“You actually only need three. You need three because you need two to disagree and one to referee.”

“But what you really Learn when you start thinking about how do you become a really good decision maker is that the best thing that could happen is for past Marty to run into future Marty and have a little discussion, have a little, you know, chit chat about how things are going because our in the moment self is pretty…”

“We're bad at it for a couple of reasons. One is that we generally overestimate our edge. Let's be honest. We think we're better than we are. We also underestimate the vol. I mean, we tend to. So we generally think we need a lot less money than we do, and then we're suddenly surprised that we're broke.”

“So what's good to do is sort of take these kind of physical cues and merge them with the story that they've kind of told you in the past as you've gotten a feel for how they behave in different situations, and that now you can merge together to make some sort of prediction.”

“having a two way door decision, one that you can reverse, or let's call it quit, makes it so that you just have more margin of error On the initial choice.”

“It's the option to say, that date wasn't very good. I don't want to go out on another date with you. That allows us to go out on dates, right? And it's not just dates. It's like we can take a job because maybe if we don't like it, or it turns out the boss is toxic, we can walk away from it.”

“Loss aversion is not wanting to start things for fear of the losses you might incur later. So let's think about loss aversion as something that stops you from starting. Sure loss aversion, as Kahneman says, talks about, is not wanting to turn a loss on paper into a realized loss. So loss aversion stops us from…”

“Basically, it's like, I don't carry with me all the stuff that you carry with you, all the cognitive debris that you carry with you, when you've already made that allocation decision to a particular division. Because I didn't make the original allocation decision. So I don't have the sunk cost associated with it. I'm…”

“If you play Go Fish, you can teach them about probability, and you can teach them game theory and strategy through, like, really simple games like that”

“It's that we form beliefs in a relatively haphazard way, and then those beliefs actually drive the way we process information. So what ends up happening is kind of twofold. One is that we notice information that confirms the beliefs that we already have. So you're looking through Google News, and you're seeing the…”

“Now, notice that in order for you to actually reasonably answer that question, you must go back and look at where you went wrong in the first place, because you can't answer that question without doing that. But I'm not the one making the challenge to you. I'm just asking how you could fix it in the future.”

“when you're emotionally lit up, it's like your brain is shaking, and it shuts down the prefrontal cortex. It shuts down your ability to reason in the same way that a pinball machine just won't work anymore.”

“if we start to think about things as bets, which makes the risk explicit, it forces step three. If we go back to Dan Gilbert's work, it forces that vetting step... So it forces you to start thinking probabilistically. It forces you to start going through that step three process of seeking out information in a much more…”

“when I express things with total certainty, one thing you might do is not tell me what you know about it because you're embarrassed. Because I've said it with such assurance that maybe now you think you're wrong about this whole Citizen Kane thing... But reason number two is even if you're pretty sure that Citizen Kane…”

“whenever you feel like you don't want to share a detail, those are the details you should share. That's a very good rule of thumb. Because it probably means that it's going to cast you in a bad light in some way.”

“Within your company, you can do that through really creating red teams. So you have red team, blue team, that's one way to do it. And notice what's really wonderful about the red team thing in particular is, remember I said we have this team player issue, is that the game for the red team Is to disagree. So you've…”

“To really understand, like, how you think through a problem, what evidence means, how do you interpret evidence, What does it mean to have different disciplines line up to get you the same answer, that consilience and convergence, and how important those are in, like, trying to figure out what the objective truth is?…”