In the top left cell, people are willing to accept less than the expected value of a gamble to lock in a sure thing. We all know “something” is better than “nothing.”
The possibility effect in the bottom left cell explains why lotteries are popular. Dangle a big enough Powerball number in front of people and ticket buyers will line up, almost indifferent to their odds of winning. A ticket comes with the right to dream.The bottom right cell is where insurance is bought. People are willing to pay much more than expected value for an insurance policy, to eliminate anxiety and purchase peace of mind.
The bottom right cell is where insurance is bought. People are willing to pay much more than expected value for an insurance policy, to eliminate anxiety and purchase peace of mind.
Many difficult situations develop in the top right cell, where people faced with bad options make reckless wagers. Risk taking in this instance can turn a manageable failure into a complete disaster, simply because the thought of taking a large loss is too painful to make the rational decision that it is time to move on. Instead, this is where many companies in structurally challenging industries burn precious assets in wasted attempts to catch up.
What I learned from reading Being Mortal is people with terminal illnesses and making end-of-life decisions are operating in the upper right quadrant. But they tend to think they are operating in the lower left quadrant.
They want to try every aggressive treatment or unapproved drug because of the possibility of a cure. Like all of us, they will overweight the odds. They may be thinking a 1% chance is really a 5 or 10% chance.
Or they may be overestimating how much more life these aggressive treatments may add. It may be only a few months to a year while the patient thinks it may add 5 or more.
By making decisions in the lower left quadrant they are ignoring the effect these aggressive treatments may have on their quality of life. If it extends your life by a year but if it is painful and you can’t continue doing what you love, is it worth it?
There is a reason many Doctors themselves don’t pursue aggressive treatments when faced with terminal illnesses. They know the odds. They know the effects. They focus on their quality of life over the quantity.
Being Mortal is in part a guide for Doctors to redirect patients’ decision-making from the lower-left quadrant to the upper-right quadrant. With a terminal illness, it is a series of tough decisions. Doctor, patient, and the patient’s family need to have open and honest dialogs about their options and decide on the least worst option. The option that doesn’t cause undue suffering, allows the patient to do what they love to do as much as possible, and – most importantly – it allows the patient to remain in control of their life’s story all the way to the end.
I’m pretty sure you chose A. I would. But it’s the irrational choice. The truly rational person would see that choice B offers an expected win value of $950. So why don’t we make that choice? We think of ourselves as rational people but the truth is we make a lot of irrational decisions.
Thinking, Fast and Slow is the bible of Behavioral Economics. It is essentially the story of how we think and the two systems we use to do so. System 1 is fast and pretty accurate but it relies on patterns and heuristics to make decisions. System 2 is our rational system but it is slow to react and it’s lazy. Because System 1 dominates so much of our decision making we are prone to make “irrational” decisions. The biggest driver of irrational errors is our Loss Aversion. We hate losses more than we hate gains. It is why pro-golfers are better at putting for par than they are for birdie. It is why you chose scenario A above.
Knowing our biases and blunders will help us make slightly better decisions. It is very hard to stop our system 1. The true benefit is if you’re making a decision as a group. You can see the system 1 errors other are making and help the group make a better decision.
I can’t recommend this book enough. I’ve read it twice already and I’ll read it again next year.
I’m not trying to be profound. It is a fact of life. Barring an untimely accident, we will also grow old before then. For two events that we know for sure are going to happen, we are extremely ill-prepared for them.
Dr. Atul Gawande’s book Being Mortal is trying to change that. Confronting old age and our mortality is a series of hard questions and choices. Preparing ourselves and discussing these hard choices with our loved ones before they occur alleviates some of the burden and stress when these decisions need to be made. Discussing the hard stuff now makes sure that what you want is implemented. If the hard decision is left to your loved ones to make at the time of an event then they will make a decision from their perspective and under duress.
Being Mortal is not just about the end of life. The book is a great starting point when thinking about elder care. The struggle families have when the role of parent and child are reversed. The good and the bad of nursing homes. And how to allow the elderly to remain in control of their lives.
We will all face these issues as a child and as someone who will get old too. It is an important book to read.
Console Wars is a great book detailing the early history and the rivalry between Sega and Nintendo and the battle for your living room during the 90s. Sega was second fiddle to Nintendo until its U.S. division led by recently hired Tom Kalinske went “rogue” and aggressively took on Nintendo.
I walked away with 4 ideas about growing your business from Tom Kalinske’s efforts to turn Sega of America from a bit player into a powerhouse.
If you’re the upstart you have to be what the big guy isn’t. Be a choice for the consumer. Nintendo’s games and advertising were family friendly. Tom allowed Sega’s games and its characters to be edgier. Sonic the Hedgehog versus Mario.
When you’re the little guy be bold with your marketing and brand imaging. Don’t play it safe. You have nothing to lose. It is the only way to grab some market share from such a dominant competitor.
Substance does matter but a great story matter more. Sega needed quality games and a good console with the Genesis otherwise no one would’ve ever bought them. The Genesis wasn’t as good as the Super Nintendo when you get down to the nuts and bolts but it didn’t really matter. Tom Kalinske and his crew were able to spin a better story and the difference between the Super Nintendo and the Genesis wasn’t noticeable to the average consumer. And it was the story that attracted people to the Sega Genesis.
When running a business and you finally start winning the battle and obtaining success you can’t rest. You have to prepare for the next battle. Your competitors won’t concede; they will get better and more aggressive. Keep your quality high and your story fresh. When you lose focus on this your business will die. After the success of the Sega Genesis, Tom kept pushing for bigger and better but Sega Japan hindered him. Sega Japan killed the deal with Sony to partner on a new system harnessing the power of CDs and 3D graphics. Sega Japan developed the Saturn, a 32-bit console, to fend off Atari’s Jaguar system when the real threats were the upcoming 64-bit system from Nintendo and the Sony Playstation. This was when Tom walked away from Sega. No story could make up for the lack of substance at Sega.
The biggest disruption by technology is where business is corrupt, with a lot of government regulation, and inefficient labor.
If the only labor you offer is a strong back your job is about to be eliminated by a new technology. The productivity gains are too much.
Heavily unionized labor is prime for disruption. Union leaders are inflexible and don’t care about the consumer. Consumers want cost savings and better services. Consumer demand will always trump unions and their leaders.
Heavy government regulation gets in the way of new technology. Politicians think short-term. They think about getting re-elected. Politicians aren’t interested in letting the market push and shape the new technologies.
For brand new technologies to take off you need the visionary, the relentless front-man, the man who stakes his livelihood on it like Malcom McLean and container shipping.
If the market is there take on debt, issue shares, get capital now to get to there first. If you wait too long for your capital to build you will miss the first mover advantage.
You don’t have to have the answer to all your problems with your business. Simply know what your problems are and then higher smart people to solve them.
Experts are poor fortune tellers. They don’t know the future.
Cost cutting in business and in life has to be a focus every day.
Sell a commodity business at its peak cycle and buy it back during the bust.
Disruption by new technology takes a lot longer than people expect. If it is a highly capital intensive business like shipping it will take a very long time.
You’ll have to pardon the brevity of this post. My notes are from a long time ago and they were not that detailed. Just a few bullet points
I couldn’t tell you if it was Andrew Carnegie’s Autobiography or if it was this biography but I’m sure both are very good reads.
The lessons I learned as they apply to business the business world.
Befriend your superiors.
Show them you’re a man of your word.
Accomplish all that you say you will.
Don’t waste opportunities from them.
Impress them with your hard work
Always have capital ready to invest with. You never know when an opportunity to buy something will present itself.
Befriend all those around you. You never know when a personal friend will become a business partner or client.
Always hire the most trusted and most able to serve below you. They’ll make you great.
Have confidence in your ability to sell. Not through high-pressure tactics but through knowledge and character.
Most business is trust in the other person with whom you are partnering with.
My notes only cover his early years has he built his business that eventually would become the behemoth U.S. Steel. I checked the book out from my local library and I couldn’t finish the book before I had to return it.
If you’ve read Andrew Carnegie’s biography or autobiography please share the lessons you learned below in the comments section.