Tag: Interviews

Daniel Kahneman in Conversation with Michael Mauboussin on Intuition, Causality, Loss Aversion and More

Ever want to be the fly on the wall for a fascinating conversation. Well, here's your chance. Santa Fe Institute Board of Trustees Chair Michael Mauboussin interviews Nobel Prize winner Daniel Kahneman. The wide-ranging conversation talks about disciplined intuition, causality, base rates, loss aversion and so much more. You don't want to miss this.

Here's an excerpt from Kahneman I think you'll enjoy. You can read the entire transcript here.

The Sources of Power is a very eloquent book on expert intuition with magnificent examples, and so he is really quite hostile to my point of view, basically.

We spent years working on that, on the question of when can intuitions be trusted? What's the boundary between trustworthy and untrustworthy intuitions?

I would summarize the answer as saying there is one thing you should not do. People's confidence in their intuition is not a good guide to their validity. Confidence is something else entirely, and maybe we can talk about confidence separately later, but confidence is not it.

What there is, if you want to know whether you can trust intuition, it really is like deciding on a painting, whether it's genuine or not. You can look at the painting all you want, but asking about the provenance is usually the best guide about whether a painting is genuine or not.

Similarly for expertise and intuition, you have to ask not how happy the individual is with his or her own intuitions, but first of all, you have to ask about the domain. Is the domain one where there is enough regularity to support intuitions? That's true in some medical domains, it certainly is true in chess, it is probably not true in stock picking, and so there are domains in which intuition can develop and others in which it cannot. Then you have to ask whether, if it's a good domain, one in which there are regularities that can be picked up by the limited human learning machine. If there are regularities, did the individual have an opportunity to learn those regularities? That primarily has to do with the quality of the feedback.

Those are the questions that I think should be asked, so there is a wide domain where intuitions can be trusted, and they should be trusted, and in a way, we have no option but to trust them because most of the time, we have to rely on intuition because it takes too long to do anything else.

Then there is a wide domain where people have equal confidence but are not to be trusted, and that may be another essential point about expertise. People typically do not know the limits of their expertise, and that certainly is true in the domain of finances, of financial analysis and financial knowledge. There is no question that people who advise others about finances have expertise about finance that their advisees do not have. They know how to look at balance sheets, they understand what happens in conversations with analysts.

There is a great deal that they know, but they do not really know what is going to happen to a particular stock next year. They don't know that, that is one of the typical things about expert intuition in that we know domains where we have it, there are domains where we don't, but we feel the same confidence and we do not know the limits of our expertise, and that sometimes is quite dangerous.


The Single Best Interview Question You Can Ask

In Peter Thiel's book, Zero to One: Notes on Startups, or How to Build the Future — more of an exercise in thinking about the questions you must ask to move from zero to one — there is a great section on the single best interview question you can ask someone.

Whenever Peter Thiel interviews someone he likes to ask the following question: “What important truth do very few people agree with you on?

This question sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon. And it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius.

The most common answers, according to Thiel, are “Our educational system is broken and urgently needs to be fixed.” “America is exceptional.” “There is no God.”

These are bad answers.

The first and the second statements might be true, but many people already agree with them. The third statement simply takes one side in a familiar debate. A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x.”


What does this contrarian question have to do with the future? In the most minimal sense, the future is simply the set of all moments yet to come.

We hope for progress when we think about the future. To Thiel, that progress takes place in two ways.

Horizontal or extensive progress means copying things that work— going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things— going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done. If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress.

best interview question peter thiel

At the macro level, the single word for horizontal progress is globalization— taking things that work somewhere and making them work everywhere. … The single word for vertical, 0 to 1 progress, is technology. … Because globalization and technology are different modes of progress, it’s possible to have both, either, or neither at the same time.

Peter Thiel
Here is Thiel's answer to his own question:

My own answer to the contrarian question is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more. Without technological change, if China doubles its energy production over the next two decades, it will also double its air pollution. If every one of India’s hundreds of millions of households were to live the way Americans already do— using only today’s tools— the result would be environmentally catastrophic. Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resources, globalization without new technology is unsustainable.

Edward Hess, Interview No. 6

This interview with Ed Hess is full of amazing insights but I don’t know if you’ll read it because a) it’s long and we live in a world of increasingly short attention spans and b) it’s an actual conversation, the responses can be hard to follow and you might have to dig a little for clarity. If you’re willing to put in the work, however, I think you’ll come away from this more knowledgeable.

Ed is the author of the best book I've ever read on learning, Learn or Die: Using Science to Build a Leading-Edge Learning Organization.



I loved your book, so I'm really excited to do this interview with you. I thought it was the best book that I've read on the subject of learning.


… In researching and writing the book, it was also a transformative process for me in the sense of what I learned and had to come to grips with, even though I'd had a very successful educational business, academic life.

The last five years of working on that book were eye-opening, mind-boggling and humbling.


I have so many questions for you. First off, thank you so much for your generosity in giving this interview, I really appreciate your time.

Let's talk briefly about your forthcoming book, called, “Learn or Die.” Can you give us an overview of the book and why you felt compelled to write it?


Yes, the book really has two important purposes in answering two questions.

Based on the science of learning and everything the research over the last 20, 25 years has shown, how does one become a better and faster learner, and how does one build a team or an organization that continuously learns better and faster than the competition?

Why is that so important? We live in a very globalized world that's driven by technology, and the projected technology advances over the next 10 years are going to be really metamorphic.

We live in a time of high velocity change. Change requires human and organizational adaptation, and that means it requires learning. I've come to the conclusion that continually learning better and faster than the competition may be the only sustainable competitive advantage individually and organizationally.

Especially in the business world, the next business revolution is going to be a learning revolution. That's why I feel passionately about the book and its purpose, but also the timing of it. Our context demands that we bring the science of learning into our lives, individually, into an organizational life.


What do you mean by the next revolution in business is going to be a learning revolution?


Business is going to be continually transformed by technology, and artificial intelligence, smart robots and nanotechnology, the Internet of things, 3-D printing. All of this is going to be a huge impact on how business is done, and who does business.

The business of the very near future, in 10 years, if you look how a business is going to be staffed, it's going to be some combination of smart robots, smart machines and humans. The human component of it has got to be able to perform or do things differently, or do things better, or do things that machines can't do.

If you think about that, what is that? That is critical thinking, innovative thinking, emotional and social high engagement with other humans.

If you think about those activities, they're fundamentally learning activities. We're continually learning, so I think whether you're an operationally excellent business model or an innovating business model or a combination, learning underlies both. Operational excellence can't get better, faster and cheaper unless you change.

Underlying change is trying new things and seeing if they work in adapting and learning. The innovation basically comes as you well know, you're an expert in it, comes from integrating experimental learning.

Learning is integral now in business, but it's not emphasized in organizations. If you will, are not resigned in general to maximize or optimize human learning. That will be the focus of many companies. You see that right now in some leading edge companies such as Pixar, WL Gore, largest hedge fund in the world Bridgewater Associates.


.. you have this contradiction. On one hand, you have organizations that need to compete in this ultra competitive world where competitive advantage is eroding and you need to be operationally more excellent than your competitors. Then on the other hand, you have to innovate and innovation is failure and it involves more money sometimes, and it involves trying and experimenting on things. Those two things seem in conflict with one another.


They are in conflict, they're in, if you will, 99 percent defect free. … These innovation experiments fail about 90 percent of the time.

You are quite correct, they're in direct conflict. How do you basically create an environment where you, in fact can be engaged in both, but use different processes and different tolerances for failure?

Your question is a great question because over the last seven years I've spent a lot of time teaching executives and companies and consulting with companies that have been dealing with this question.

My answer to that also led to the importance of this book, my answer that I wrote about in my last book that I did with Professor Jeanne Liedtka, “The Physics of Business Growth”, I put forth a theory or rationalization if you will, that the way to unify operational excellence and innovation in an organization is to have a learning culture, because learning underlies operational excellence and it underlies innovation.

That's why I put in my book the chapter on UPS which is a world class operationally excellent company, so readers could compare how they create that environment of constructive dissatisfaction in high employee engagement.

Relate that, if you will, to IDEO, WL Gore, Bridgewater, just underlying the differences is, is having different processes.

You have different processes, but also the difference is having a different tolerance for failure and being able to give people permission to live that innovation, et cetera.

Underlying both operational excellence and innovation is the two foundational beliefs, or the two foundational processes. Number one, underlying innovation and operational excellence, go back to root cause analysis or the five why's. Unpacking assumptions, good digging, the why, why, why, is underlying both processes.

Going all the way back, if you will, to the Toyota method, underlying both processes is the fact that mistakes are to be illuminated. Stop the line, pull the cord, Toyota. Mistakes are to be illuminated, and mistakes are opportunities to improve, or opportunities to learn.

Yes, they're in direct conflict. But if you really dig deeper and use learning as the unifier, I believe you can make a compelling argument that they can and they do exist in some organizations, but they can exist in more organizations if you use learning as the environment. Does that make any sense to you?


Yeah, totally. Do you think that organizations have this conflict with incentives, whereby a learning organization sounds great, but it's going to take a while to set up, and I know that in the meantime, I'm measured on these very short term quantitative objectives, which are usually oriented towards fewer defects, less variance and things like that?

Although people would agree that we want to set up a learning culture, and if you sat everybody in an organization in the room, they'd all say yes. Why doesn't that ever happen, then? What are the impediments to enacting that?


Another good question, and a complex question. Let me approach it this way. A learning culture is only one part of the proposal. That's why I write and emphasize a learning system.

As you know from reading my book, I'm very behavioral-oriented. I start with what behaviors we want to drive and say, let's create a system that's going to drive those behaviors, and what are the parts of the system — it's culture, leadership behaviors, measurements, rewards, processes, HR policies.

If you go back to it, putting in a culture is not enough unless you define the behaviors you're trying to get, and unless you measure and reward. If you want to measure and reward learning behaviors, if you want to put them in, it's more complex.

You're an expert, so I know you weren't saying this, but I talk to business people. The easy way is to go, quote, “put in a culture,” and talk about it. Nothing really changes with talk. You're back to those two business maxims. You get what you measure, and if you measure and reward it, you really get a lot of it.

You've got to start at the bottom and say, “What type of behavioral changes are we trying to get here?” It's interesting, and that's why the Intuit story is in the book.

You take Intuit and look at, and they've been now on an over seven-year journey. Really putting in a learning culture in the sense of making experimentation, and small, fast, cheap experiments their basic business model, but also empowering line employees to do experiments even if their bosses don't like the experiments.

It's been a huge success, but the reason it's been a huge success is a couple of things. They got leadership involved, and they focused on changing leadership behaviors and leadership mindsets about learning, and about power and hierarchy.

If you look at a lot of great learning organizations, whether it is Intuit, or the ones I always talk about, Pixar, IDEO, WL Gore, Bridgewater, UPS, there's always hierarchy. But hierarchy as an elitism, is de-emphasized, and there is a real push for highly engaging employees and leadership humility, and intellectual humility.

What you're really talking about here, if you think about the book, is changing the organizational mental model. To do that, you've got to change leaders' mental models. Basically, in order for change to occur in the company, you've got to have leaders model the behaviors you want.

If you think about in my book, when I have the high performance learning organization checklists that I put in the book, the first thing on the checklist. Does the CEO own the learning culture and walk the talk? The second thing, has the organization put in place culture, structured leadership behaviors, HR policies, measurement and rewards to enable and promote learning behaviors?

If you don't approach it from a package, your next question is, “Well, it's very hard to do this.” Yes, and that's why you've got to start small in the sense you can't roll out 22 behaviors. You've got to start small and figure out and prioritize what you are really going to start working on.

What Intuit started working on was, “Let's use experimentation as a way to change the culture and change the behaviors, and basically teach learning, teach exploration, teach root cause analysis, teach stress testing of ideas, and devaluing real power and hierarchy.”


I think that's key. A lot of times, organizations want to implement something, so they come in and they take the whole package, and they try to implement it. It's a lot easier to start with something small, but only, in my mind, if you have an understanding of why that works somewhere else.


The other thing we have to take into account is the context of, at least in the United States, the public markets and the obsession with short-termism and quarterly earnings, and the high volatility of the public markets in the United States with the average tenure of public CEOs being less than five years, the high turnover of share ownership and the volatility of corporate existence, the short lifespan of organizations today.

If you think about it and look at where the great learning and innovation is going on, they're going into where it's happening the easiest, if you will. It's private companies, or it's public companies that have dual classes of stock, where the founders or founder's family have the control positions, voting control or strong voting positions in a sense to be able to ward off the immense pressures of short-termism in our capital markets.

That's why I write in the epilogue that if we really want innovation, you really want more learning, sometimes the untouched has got to basically enable it, too.


I've always thought that was one reason for Berkshire Hathaway's remarkable success: the fact that Warren and Charlie controlled 40 percent of the stock for a long period of time. They were able to take these counterculture or counter-organizational moves where they would sit with cash for a long period of time and not do anything. There was no activist that could take charge of the company and force them to pay a dividend. They set their incentives up, even without that dual class of shareholders, to do that.




Let's go to the book for a second. What is learning, and does it change as we get older?


That's an interesting question. If you define learning as the incorporation of experience and conflicting data into your existing mental models, or learning is the transformation, enhancement of your mental models.

The older you get, and the more successful you are…This is not science. This is a hypothesis. The more successful you are and the older you get, changing your mental models, being open-minded, slowing down your thinking and subjecting it to stress testing by other people.

Is it human for it to get harder? Probably. I haven't done a lot of research into the age issue. There is tangential research which basically shows that arrogance is a huge inhibitor to learning. Arrogance comes also from success in positional authority.

Let me give you an example that's very interesting. My two young granddaughters, when they were three and five, we would have conversations where the word they used the most often was why. In fact, I remember a conversation where with the youngest one, when I asked her a question, I said, “Could you please not answer everything with why?” Her answer was, “Why?”

They're 8 and 10 now, and they rarely use the word why. If you think about what happens as we go into the education system, as we age and go into the workforce, instead of being about curiosity and questioning, the whole system changes to being about being right, getting good grades, not making mistakes.

All of this is part of the answer to your question. In most organizations, you become successful for doing something very, very well. Therefore, you become really focused on avoiding mistakes and avoiding taking risk, and not losing what you have. All of that builds up, makes learning hard.


That relates to one of the stories you tell in the book, which was during the first 20 years of work experience, you became an expert at what you call speedy thinking. You were right often enough to prosper and didn't think much about thinking.

You even mention that the speed of your thinking was a competitive advantage. You thought you were a good thinker and you thought you had all the right answers but then something happened …


A couple of things happened all at the same time. One involved my emotional intelligence, and one involved, if you will, my first big business failure. The third involved, if you will, being in the final two slots for a wonderful CEO position, and being told that I was not getting it, and the reason why (Hess elaborates on this in the book). It was a combination. Two of the events, my first big business failure and the emotional event, happened in the same week.

In a nutshell, I evolved my first 20 years in the business world as a highly effective, I will call it machine, in the sense that I was very successful. I had great teams, but I always told my teams that, “Look, we're going to do things right. We never cross the line. I will never ask you to do something that I wouldn't do. We're going to be high performance, but I don't have a lot of time for chitchat. You perform for me. I'll take care of you. I'll get you development. I'll get you training. I'll get you promoted. I'll help you go to wherever you want. That's the quid pro quo. You perform well. I'll help you be all you can be.”

It's very similar to what Reid Hoffman writes in “Alliance.” I don't have time for chitchat. Shane, don't bring your personal life to work. I hope things are well with you, but football, kids, family…Let's just work.

Emotionally, I became very focused on and consumed by getting things done and stress at home and in my marriage. I was not a good listener. I wasn't empathetic. My wife wanted to talk a lot of things out, and I kept wanting to interrupt, and let's get to the bottom line and solve the problem. She was very interested in the process, and being listened to and respected as to how she was thinking through it and all of this.

That led to such unhappiness on her part that she told me one morning at breakfast that she needed a separation. I'm not sure this was in the book, but it is true. I teach this, I tell students this. I heard her. It was upsetting, but I said to her…It's embarrassing to admit this, but I did. This just tells you how bad I was, how much work I really needed.

I said to her, “This is very important, but I've got a couple of meetings. Can we talk about it when I get home?” Instead of saying, “We'll pick up the phone and cancel those meetings, delay those meetings and have a conversation.” I in effect told her my meetings were more important than her wanting to talk about needing a separation. I came home that night, and she was gone. That was huge.

Later that afternoon, I got a call from my brother. We had invested some money in a company. Basically, the call was that something's gone wrong, I need a million dollars. I in effect lost my first million in business. That was a time that a million dollars was a lot of money in the business world. It's a lot of money to me and every individual today.

In one day, I took my first business loss, and I thought I was really good in business, and I took a huge human loss. Both of which I had to learn from, which I did. As I write in the book, my wife and I reconciled. We'll celebrate next month our 33rd year of marriage.

I'm still a work in progress. It took a huge wakeup call for me to slow down and begin the process of being emotionally engaged, suspending judgment, learning to be intellectually humble. That also along the way led me to start being much more open to stress testing my thinking.

Writing this book took all of that even to a much, much higher level. Researching and writing the book made me realize that I can even be a better thinker. Into the last three years, I think I have made the most progress I have made in my life in quieting my ego and being much more open-minded and changing my language.

On daily basis thinking about how I'm thinking, and thinking about how I'm relating, and trying to improve on a daily basis how I think and how I relate, and how I engage in learning conversations. Longwinded answer. As my little granddaughter would say, TMI, too much information. [laughs]


Not at all. That's a very personal story, and it clearly had a major impact on your life. When I hear you tell it again, I wonder how you changed. You come to this moment where you realized something needed to change and you created it but what did this process look like? How did you go about slowing down and evaluating your thinking, and listening more to other people, and being more humble? How did you bring about this change? I imagine it didn't happen overnight.


No, it takes years. The first thing it took, I realized that I needed, just as I write in my book, and just as Daniel Kahneman has written, it is very, very hard for anyone to, if you will, evaluate or be critical of one's own thinking. That's why all of this learning stuff is a team activity that I write.

I sat back and I said, “Hmm, I need some help.” In my normal anal-compulsive way, I spoke to a lot of people, and a lot of executive recruiters that I trusted, and a lot of executives, and found a person who everyone agreed was one of the best executive coaches, and was trained. She was a psychologist, psychiatrist, and executive coach. She was a graduate of Columbia Medical School.

I went to her and explained my issue. She basically helped me understand where all of this came from. As I write in my book, it all came from back to my elementary school days.

In my elementary school days, I learned to be the person who sits in the first row. I was a kid that was most likely to succeed and all that kind of crap. I was a kid that sat on the first row, and was the first one waving his hand to answer the teacher's questions. I performed for gold stars and A's.

All of that started, but understanding that and understanding that behavior, and understanding my niche, too, and the home environment in which I grew up, which I write about in another part of my book, where I'm very thankful to my parents.

I had loving parents who sacrificed, and made really everything possible in my life, but my home environment was not a real emotional environment. I never remember either my mother or father ever saying they loved me. I never remember being hugged or anything.

That happens to a lot of kids, but it was just saying emotions were not on the table. It was what did you do, and I earned love and respect at home by getting A's, by performing. I became a high performer, and all of that carries.

Understanding all of that goes back to what happened. My counseling sessions basically is what my friend Robert Kegan from Harvard in “We Need to Change” writes about, and I talk about his miscellaneous book in my book. I had to basically get down and unpack my mental model that was underlying why I was performing this way, because I was performing that way because it was producing good results for me.

Underlying that was a big assumption that if I wasn't the first one with the answer, if I didn't interrupt my wife and solve the problem, she wouldn't love me. I defined that as helping. She defined that as disrespect. What I had to learn was that by listening and humble inquiry, instead of solving problems, I had to learn that if I don't have the answer, I had to learn that saying I don't know. I had to learn by quieting myself.

I had to learn, and that takes time. I had to learn through experience that I still could be successful doing those things. In fact, I would be more successful. I wrote about that in my book. That when I started changing in my workplace and putting in new behaviors, the amazing thing is that my team performance went off the charts. It went from high to supersonic.

It was amazing, because all of a sudden, it was like I released something inside of people. They felt more cared about and more engaged. The same thing happened in my personal relationships and friendships. The answer to your question is no. It's never over. I'm working on it. This all began for me, this huge transformation, in 1988, '89. This is umpteen years later. It's 16 years later, and I'm still a work in progress.

You're a great learner. If you look at what you do and the service you provide to the world, you're out there. You are curious. You're out there, and you're testing and you're critiquing and you're learning. The fact is that if we were to talk 20 years from now, you would be a different person in many ways than you are today.


I hope so. I think we all evolve into what we're learning and focusing on. Like you said, what gets measured gets done a lot of the time. When you start really critically evaluating yourself in the context of your goals and objectives and how other people feel, you subjectively start to measure that. That's one way that you can change.

You talk in your book about metacognition, which is the process of managing how we think, and focusing on that helps us understand what strategies are likely to be effective in various circumstances.

How do we consciously recognize situations where we need to move from maybe a habit and system one thinking to system two thinking, which is more reflective?

A great example would be your conversation with your wife that morning at the table. How do you in the moment grasp that your default is to say, “Oh, can we reschedule this conversation for later,” and move to, “No, this is really more important,” which is thoughtful? You're moving from an immediate habitual response. How do we go about doing that?


There is no easy answer. There are some ways to approach it. If you can start with the whole area and the research that's being done in mind focus, and the ability, if you will, to — this even goes back to work at MIT, and the Shine and Humble Inquiry, and the work of Isaacs in dialogue — the ability to be in the moment in a conversation, and to slow down and assess.

If you go back also to the Bridgewater chapter and think about how they start a meeting, they start a meeting by defining the purpose of the meeting, what type of meeting it is and what process is going to be used in the meeting vis-a-vis the conversation or the discussion.

If you're in a one on one situation, you can do that. When you go into a business meeting, you're not in charge. But you can do that to yourself. A tool that I have found helpful that I talk about in the book and it's not unique. It's not innovative. It's called mental rehearsal, and mental replay.

What I did back when I was in the real world, I would look at my day and, if you will, visualize my day before my day started. Take 15, 20 minutes and think about what was on my calendar, and think about what type of meeting that was going to be.

To think about, if you will, if you have more meetings which are relating, what my objectives were and who I wanted to get involved, and who I wanted to hear from, and prime myself for slowing down and letting the process evolve. Not chaos, but having a mental game plan. Not controlling, but a mental thinking game plan as to how to approach it.

Most importantly, the thing that helped me for years was what I call mental replay. On the way home or in a quiet time that evening, actually closing my eyes and replaying key meetings, and basically grading myself, and writing down. I didn't call it a journal. I kept a legal pad, but it's like a journal. Writing down what I did, what I would do differently, and how I could improve.

It's interesting. For years, I would basically grade myself. Not only subjectively, but looking at the results of my behavior, other people's behaviors, other people's reactions. If you think about it, you can tell from my book and you can tell from my talk, I'm really big on trying to look at something from various angles.

If you really go look, if you go back to the Bridgewater case and Ray Dalio, there's a unique individual who built the largest and arguably most successful hedge fund in the world. If you go back to his methodology from the time he started his business in his apartment in New York, he wrote down each day his decision about each trade, why he made that trade, and what were his assumptions, and he wrote down the results. The thing about it is he was using thinking rehearsal, or mental rehearsal.

You've got to have some processes that slow you down to where you're thinking about how you think, and thinking about how you relate. Just saying that you're going to do it is not enough. Good intent is not enough. It works, and everybody that I've worked with or talked with that has tried some of these techniques in my book, they work.

If you go to Gary Klein's work and his visualization on his tool, if you will, that he puts out, how experts make decisions, and the examples that I use in the book of the fire chief, you go in. You assess. You recognize. You come up with a conclusion, but you train yourself to stop. Is there anything in the environment, anything in the context that is different, unusual, an aberration? Anything that I notice that may require some modification?

You're doing that, if you will, cognitively. But also, if you will, the emotional or the intuitive reaction. You build in this, “Stop, reflect.” It could be less than a minute. It could be two minutes, reflect time. You stop the autopilot.

Again, the questions you ask are very good. It's very hard to answer in 30 seconds, or even a few minutes.


That's kind of incredible. It sounds like you come up with a process by which you systemize these gates almost, where you slow down just for a second to double check what you're doing. That's really fascinating.


The other thing I can't stress enough is the mental rehearsal, and keeping the journal. Just by doing that, grading yourself in the sense of, “Where can I improve? What happened today? What would I do differently in how I think? What would I do differently in that conversation as to how I relate?”

Over years of doing this, it comes back to, at least for me, to two related things, intellectual humility and quieting my ego. Because if I can quiet my ego, I can listen better. I can be more empathetic. I do suspend judgment. I can inquire. I can actively consider other views. Much of this is a discipline. Much of this is psychological.


Speaking of psychology, one interesting thing from your book was that you spent time in these learning cultures, or models of various aspects of what you talked about for your book.

You said high performance learning organizations are a function of the right people, the right processes, and the right environment.

Then you went out to these workplaces and you sat in them, and you immersed yourself in these cultures.

What I found the most interesting was the Bridgewater experience, where you went and spent several days at this company that is incredibly unique and so different from anything I've ever read about before.

Can you share some of your experience with us?


It is very unique, and it is different. Not only did I go and spend time inside, but what was interesting also was the prep time.

When I was talking with Ray Dalio about doing this, he very up front said, “I'm going to lay out one condition.” I said, “OK, what is it?” He said, “I want you to agree to take the role of a new recruit coming to join Bridgewater as an employee. I'm going to send you a Bridgewater iPad, and you will basically watch over 10 hours of various films and answer questions, and get graded on your questions, to immerse yourself before you come in having some understanding of the Bridgewater way.”

He said, “In addition, to help you prepare, I'm going to send you lots of other stuff that, da-da-da.” It was a structured and planned immersion. It's a fascinating place. It vets wonderful people.

You know from my book they allowed me to use quotes and tell their stories. They're stories that made for change. Genders can sometimes change, too. They're very compelling stories about how this transformation took place, what Ray calls getting to the other side.

It's somewhat also analogous to my studies with the United States Marine Corps. As I write in the book, I had the Marine Corps transformation process, where a general once phrased it this way to me. He says, “Take very average people and put them in the most difficult environments and they perform consistently exceptionally well.”

Why? Because of how they, if you will, how they're trained to think, behave, and the values. When you look at Bridgewater and you look at any organization – whether it's UPS or someone like W. L. Gore or Pixar – all four of those organizations and the Navy SEALS or the Marine Corps or the Special Forces or the US Army, they all have strong cultures and they all have strong process. They all have a similar, what I call leadership model that is very, very humanistic and people-oriented. I do a lot of this inside companies.

You know. You've been around the block, too. There's a lot of people who talk the talk that don't walk the walk. I had read Bridgewater's management principles. I'd used them in my classroom for a couple of years and got a surprising negativity about it all from my students. That also happened when they were used in the Harvard class, which only piqued my interest.

When I went in there and saw it, sat in meetings, and watched the process happen, where people's thinking was challenged and there were in-sync conversations which were trying to get to the bottom of why certain things were not working, whether it was a process or whether it was a thinking pattern or whether whatever.

Watching that happen, what he writes and what I write is the reality of what they get. The interesting thing is the transformation process. If you think about a firm like Bridgewater, it hires very, very bright people who were then, generally speaking, very successful in school and very successful in extracurricular activities their entire educational life, and are nice people and know how to get along with other people.

They come in there and … it's the first negative feedback they'd ever received in their life.

How do people change their mental model of what being smart is and change their mental model about mistakes and their emotional defensiveness to, in effect, protect their ego. That's what it's all about.

It's fascinating. Many of the places I've studied and got involved in, each of them are different. Gallo has built a learning system. It's got a culture. It's got processes, measurements are lower, et cetera, all designed to mitigate…our natural inclination for System 1 thinking and System 1 conversations.

Defend, deny, deflect, protect the ego…The thing that I find amazing is that I think that if you close your eyes and think of 2025, 2030, you think of an operationally excellent company going to be set primarily by smart robots, smart machines with a small human contingent that have got to be the big thinkers. Modelled inside that company of the future is going to be something similar to what the model is in Bridgewater.


Can you walk me through a meeting at Bridgewater where they make decisions? How is it different? What is the structure by which they organize those meetings? How do they seek dissenting views and how do they challenge one another?


I'll refer you also…to my book. I will just say, please look at that to be specific, because off the top of my head, I may not use the exact words they use…First, who's in charge of the meeting? What person is responsible for the meeting? Then, what's the purpose of the meeting? Is it a view, is it a debate? Is it to find and discuss a problem and figure out what the root cause is? What's the purpose?

Then as they go through, depending on what the purpose of the meeting is, if it's a review, someone states what they believe the issue is and where are we not in synch? Because at the end of every meeting and at the end of every review that had happened previous to that meeting, there's agreement on the action to be taken and a responsible party is assigned.

If something still is not working, you go back to what was agreed. Who is the responsible party? What was done? What were the results? Why is it not working? Is it a process issue or is it a people issue? If it's a process issue, then they go down a certain line of thinking. Is it a people issue? What is the issue? Is it a skill issue or is it a capability or a mindset issue?

If you think about it, it's a very continuous drill-down, what I call peeling back the artichoke to get to the heart of the problem. People who are in the meeting, everyone has permission to speak freely.

All conversations that I watched on the films and that I've viewed I would say were respectful and in their own way compassionate, in the sense that everyone at the table had been at the receiving end of it and knew they were going to be on the receiving end of it because it's part of the daily grind.

There's empathy and compassion. There was no raised voices. There's no personal stuff. Was it comfortable for everyone all the time? No, it's not. Is it hard? Is it hard to push and push people to get to the bottom of things? It's hard to be the pusher and it's hard to be the pushee. It takes a real belief in the power of what happens.

When you talk to people that have been there, like for 10 years, and talk to them…I remember speaking with a gentleman who's very successful there. A quiet person, more a quant than a client relationship person. A quiet person. I started talking to him about it, difficulty in learning and was he comfortable with this?

He said, “You never truly get comfortable.” He said, “But it's so powerful in how it's transformed my life.” I said, “If you had to describe in one word your 10 years here at Bridgewater, what would it be?” He said — this was very surprising to me, in the sense that this was a quant guy — he said to me, “Love.” I said, “Excuse me?” He says, “Love. Love. I love this place, and I love the people I work with.” I looked at him, and he says, “You're surprised?” I said, “Yes, because you don't seem like a touchy feely person.”

He said, “I'm not. I truly love this place.” That was fascinating to me. I spoke to another person who was also a superstar there. I watched her really have a very difficult time in the meeting where they were getting to the bottom of why one of her teams were not performing. It really had to do with her leadership style. It was…


Tough to watch?


Yeah. I felt for the people doing the pushing in her. She said, “Look, I need to think about this. I don't know the answer, so let's take a break and, let's get back.” They came back. All this was films I watched. When I met her I said, “Can we talk about these films?” She said, “Yes.”

We talked about it, and I said, “What does all this mean to you in your life?” She said to me, “In being pushed to think more deeply, in being pushed to be more critical about how I think and how I relate has made me a much better mother. It also has changed me in terms of how I view my children's mistakes.”

We were going on. She's the one who gave me the quote in the book that the purpose of the whole system at Bridgewater is to overcome our humanness in a humane way. In other words, to help us view our natural proclivities for system one, ego defenses, but in a humane way.

The other thing that was fascinating at Bridgewater was how open everyone truly is. I would have people sit there and tell me that they think they probably have peaked at Bridgewater. They need to grow, and they don't see the opportunity. I say, “Well, gosh, what have you done about this?”

They say, “Oh, I talk to Ray about it. Yeah, I talked to Ray for two years about it.” I said, “You've actually told Ray that you're thinking of leaving?” They said, “I've actually told Ray that I'm not only thinking I'm looking, but I'd really like to stay if we can make something work where I can grow.” I said, “What did he say?”

He says, “I respect that. Let's try and see, because I want you to stay and grow. But, also, I want you to grow. If you can grow somewhere better, we'll help you get there.” It was like, “Wow.” I can remember two or three young people. It's amazing. I asked to meet with lots of different people. Young people. Senior people.

I remember having lunch with three young people. We were having lunch. They have different lunch areas and cafes. It's all catered every day. It was awesome sushi. I'm sitting there with these three guys. We're sitting outside. The environment is very tranquil. It's along a river. A small river. Trees.

We're sitting there. I asked the three guys…They know who I am, and why I'm there and all this kind of stuff. “Where would you like to start?” Everyone at Bridgewater has a big burden. A big personal issue they're working on. I had only met these guys three minutes, five minutes. The guy says, “I want to tell you what my big burden is.”

They go around the table. They basically lay out what their big issue is they're trying to work on personally. It's like, “Wow.” They're looking at me, and I can see it in their eyes and feel it. They want reciprocity. “OK, Ed. What's your big burden?” I sense that, and I volunteer it. Those then set up a wonderful, open conversation.

Think about that. How many times have you gone into a new environment and somebody…First, they're young. They know I'm there because of Ray. The first thing they want to talk about is their vulnerability. I'm talking about a hedge fund. I'm talking about a money machine.

I'm not talking about going into an…educational environment or a social environment. It's little things like that that gave me the feeling and also the data that this place is different.


It struck me when I was reading that chapter that the common refrain in most organizations is pick your battles, but it seemed like nothing was too small in Bridgewater to pick apart and tease apart and try to understand.


Correct. The other thing that's common in organizations is not only pick your battles but pick your time to raise the battle. There are no battles too small and right now is the time. I was in meetings that had purpose A. In this particular meeting I'm referring to there's probably 12 senior executives in the room. The meeting was scheduled to last 45 minutes.

The meeting at the end of 40 minutes was over, and Ray says, “Before we leave.” He looked at person X and said, “We've got an open issue. I'd like to get to the bottom of this. I'd like for us to get in sync.” Some of them had knowledge of it, but everyone else…The meeting was supposed to last only five more minutes, because everyone's got another…

There was a 45 minute discussion of that in sync issue. Afterwards, I asked Ray. I said, “Ray, why'd you do it then?” He said, “You can't let things slide, and it was my fault I'm not getting back to it sooner, because I've been travelling. But, I had the responsible parties, the necessary parties.” He says it in that chapter. You don't put things off. You deal with them directly, honestly, openly.

One of the most amazing things, and I think I write about in the chapter, is when I was doing the book, one of my editors said, “All this sounds good, but it's just one way, top-down.” I told her the story and how I read an email, when I was doing my research, an email that went from a, I would say, mid-level person who happened to be part of a small team — I don't know if it's five or six people — who had a big client, big meeting that Ray attended. This was an email. Everything at Bridgewater, every communication, every review, every performance, everything about everybody is public record.

If you went to work for Bridgewater, you could go on your little iPad and look and see every grade that Ray Dalio or Bob Prince or any individual. Every grade, everything about their performance, their measurements, their test scores, et cetera, et cetera. You could watch every film of every senior management executive meeting. We film everything. It's totally transparent.

This gentleman puts it in the system and I read it. The substance of the email basically said, “Dear Ray, in our meeting yesterday with client so-and-so, your performance was disappointing and, quite frankly, embarrassing to the team.”


I remember that.


“It was this, this, and this.” How many places can you be that truthful with the CEO? He's not CEO, technically. He's the founder.


Not many.


Not many, at all. I read Ray's response. “Dear So-and-So, thank you for bringing this to my attention. You are right. I was not on top of my game. I let the team down, and I apologize to the team and your organization. I need to work on these things. I will not let this happen again.”


That's remarkable. How often does that happen? Not only does an employee have the guts, and I guess in this place it's cultural, but the chutzpah to send a message like that and speak so directly to the founder or CEO …Psychologically, within your organization, that is such a hard thing to do, and then have the type of response that not only encourages, but agrees with, and immediately admits a mistake.


Right. If you look at the culture, and every organization does it differently. You look at what Pixar has created. That could occur in Pixar. You look at what WL Gore has created. That could occur in WL Gore. If you look at what Intuit's trying to do by “It's time to bury Caesar,” in devaluing positional power and “empowering employees,” trying to have conversations about the business issues and experiments and everything. That's what Intuit's trying to move towards. If you think, you go to UPS, the UPS culture of constructive dissatisfaction and the devaluing of perks, no corporate jets. The whole culture.

If you think about it, and you go back and you look through the some of the high-performance organizational research that I cite in the book, you could go back all the way to confronting the Google facts. I got some nice stuff in it. You see some consistencies. They're different degrees.

They're different degrees, but underlying all of this is, if you will, a leadership openness to subject themselves to the same rigor and review as everyone else. The message that sends, and the vulnerability, if you think about it, goes back to McGregor….The all-knowing, decisive, wise leader, quite frankly, has always been hooey.

But it's in the environment today that you live, where this type of thinking and learning is so critical.

In order for it to occur, it takes a humanistic type of environment that basically is, “I state permission to speak freely,” and really, intellectual humility. It goes back to my work and other people's work in looking at high-performance organizations, to what Jim Collins calls “level five leadership” and I call “humble, passionate operators.”

It's funny. Every talk I give to executives, I use the word “humble.” Everybody wants to have a conversation about it, because they disagree that you can be humble. Because the word “humble” means to so many people that you're basically a pushover.

There's this whole concept in the business world that if you're humanistic and engaging with people, you'll come across as soft. People will take advantage of you. That all goes back to Theory X. It's not the case.


I think you proved that.


You can be humanistic and have high standards and high accountability. The companies I write about, every one of them are outstanding performers because they have the highest of standards that they hold themselves to. There is no softness in standards. There's a human element. Nobody can go put in the Bridgewater way. Nobody can go put in the WL Gore ways. You've got to create your own way that's consistent with the leadership team. If people criticize Bridgewater's culture, and UPS, but WL Gore will tell you the same thing that Bridgewater will tell you. It takes people longer than a year to adjust to working in the WL Gore environment, when they come in from the outside world, because our whole philosophy of engagement and collaboration and openness.

It's not the same as Bridgewater. What's fascinating is all these great companies will tell you, “We are not for everyone.”


I'm conscious of the fact we're way over time. Ed, I want to thank you so much for your time. This was a fascinating conversation.


No problem. I enjoyed talking with you. I like your work. …


If you liked this interview, do yourself a favor and pick up a copy of Ed's book Learn or Die: Using Science to Build a Leading-Edge Learning Organization.

An FBI Agent Reveals 5 Steps To Gaining Anyone’s Trust

I had an opportunity to ask Robin Dreeke a few questions. Robin is in charge of the Federal Bureau of Investigation’s elite Counterintelligence Behavioral Analysis Program and the author of It’s Not All About Me.

Robin combines science and years of work in the field to offer practical tips to build rapport and establish trust. In this brief interview he discusses building relationships, how to approach someone you don't know and ask for a favor, and the keys to establishing trust.

A lot of people are interested in strengthening and furthering relationships. How can people do this?

This is the most important aspect of everything we do in life. I'm going to give some light science behind each of my answers but to me it just explains the subjective simple explanations behind naturally great trusting relationships.

Both anecdotal (evidence) as well as science supports the fact that the greatest happiness is found in positive social interactions and relationships. The simplest answer to this is to “make it all about them.” Our brain rewards us chemically when we are able to talk and share our own views, priorities, and goals with others… long term, short term, etc. Our brain also rewards us when we are unconditionally accepted for who we are as a human being without judgement.

Both of these concepts are genetically coded in each of us (to varying degrees) because of our ancient survival instincts (ego-centrism) as well as our need to belong to groups or a tribe (tribal mentality for survival and resources). When you put these simple concepts together the answer is simple to understand, but oftentimes difficult to execute…. Speak in terms of the other person's interests and priorities and then validate them, their choices, and who they are non-judgmentally. Some people do this naturally, for the rest of us you can build this skill and it eventually becomes second nature.

Trust is a foundation to most situations in life. How can we develop trust? What are the keys?

I can only answer from my own background and experience because trust is a very difficult thing to measure and define and each individual's definition can vary and our brain takes in much more than verbal information when determining trust. For me and what I teach I start with what I said in question one. Trust first starts with a relationship where the other person's brain is rewarding them for the engagement with you by doing what I outlined above.

Part two of my trust process is to understand the other person's goals and keeping their goals and priorities on the top of my list of goals and priorities. By making the other person's goals and priorities yours, trust will develop. Over time (some people faster than others) a need to reciprocate the kindness and relationship will build. In other words, trust is built faster and stronger when there is no personal agenda.

What's the best way to approach someone you don't know and ask them for a favor?

Using sympathy and seeking help is always the best. If you can wrap the help / favor you are looking for around a priority and interest of the individual you are engaging, the odds of success increase. Add social proof (i.e., others around you helping already or signed a petition etc.) and you increase it even more. Again, focus on how you can ask a favor while getting their brain to reward them for doing so.

What are some strategies to build rapport while giving a talk, presentation, or interview?

Ego Suspension / self-deprecating humor… Make it all about them! How is the information you are chatting about going to benefit them? Talk about the great strengths and skills they each have already and that all you hope to do is to have them understand their strengths even better and be able to pass them on to others more effectively if they want to. Validate every question and opinion non-judgmentally. If you don't happen to agree, simply ask “that's a fascinating / insightful/ thoughtful opinion… would you mind helping me understand how you came up with it?” Again, their brain will reward them on multiple levels for this.

I suspect you spend a lot of time trying to figure out if people are manipulating you or the situation? Can you talk about this? How can you tell when people are attempting to manipulate you?

I'll start by saying I don't like the word manipulate. The word tends to objectify people and removes the human being from the equation. When people feel they are objects, trust will not be built. I tend to not think of anyone trying to manipulate me but at times a very self-serving agenda becomes evident. This is what manipulation generally is…. a self-serving agenda where the other person feels used with no reciprocity. When I notice that there may be an overabundance of a self-serving agenda (manipulation) I don't judge the person negatively. I try to explore two areas in order to understand them better. (go back to my first answers here… this process begins to build a relationship and trust :)) I try to understand what their objective is and why that is their objective. What are they trying to achieve, etc. I will also attempt to understand why they felt a certain way of communicating with me would be effective for them in the situation. I tend to ask questions to help them think about how they might be more successful in their objectives using other methods… such as I outlined above. In other words, help them achieve whatever objective with me they had…. because wasn't that their goal after all? :) See… keep it always coming back to them.

If you had to give a crash course in building a relationship with someone, what are the top 5 things people need to do? What carries the bulk of the freight so-to-speak?

1) Learn… about their priorities, goals, and objectives.
2) Place… theirs ahead of yours
3) Allow them to talk…. suspend your own need to talk.
4) Seek their thoughts and opinions.
5) Ego suspension!!! Validate them unconditionally and non-judgmentally for who they are as a human being.

If you haven't already, check out Robin's Ten Techniques for Building Quick Rapport With Anyone.

Michael Mauboussin, Interview No. 4

Michael Mauboussin is the author of numerous books, including More Than You Know: Finding Financial Wisdom in Unconventional Places, Think Twice: Harnessing the Power of Counterintuition, and most recently The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing (a book that found its way to Warren Buffett's desk.)

While Michael is well known in investment circles for his knowledge of biases and clarity of thinking, a lot of others are missing out on his insight. You need no more proof than listening to his interview on my podcast, The Knowledge Project.

His latest book takes a look at how both skill and luck play a role in outcomes — they are, on a continuum. For instance, he believes that basketball is 12% luck whereas hockey is 53% luck. Skill still plays a certain role but talent might mean more in certain places.

As part of my irregular series of interviews, Michael and I talk about what advice he'd offer his younger self today, the definition of luck, decision journals, and how organizations can improve their decisions and more.

Let's get started.

I believe you graduated with a B.A. in Government. How did you end up starting your career as a packaged food analyst?

My first job after college was in a training program at Drexel Burnham Lambert. We had classroom training and rotated through more than a dozen departments in the investment bank. It was during those rotations I realized that I enjoyed research and that it suited my skills reasonably well.

In the early to mid-1980s, Drexel had a great food industry analyst – to this day, I believe he’s the best analyst I’ve ever seen. So I naturally followed him closely. Shortly after I left Drexel, I was able to secure a job as a junior analyst working with two analysts – one following capital goods and the other food, beverage, and tobacco. From there I was able to secure a job as a senior analyst following the packaged food industry at County NatWest. Interestingly, County NatWest had taken over a good chunk of Drexel’s equity business after Drexel went bankrupt. So I was back in a familiar environment.

So I guess the answer has three elements. First, I was exposed to an inspirational analyst. Second, I found research to be an area I greatly enjoyed. And, finally, I was a complete failure at the job for which I was trained—a financial advisor. So failure played a big role as well.

If you could hop on the elevator with your younger self going into your first day on the job, what would you say?

I would probably suggest the motto of the Royal Society – “nullius in verba” – which roughly translates to “take nobody’s word for it.” Basically, the founders were urging their colleagues to avoid deferring to authority and to verify statements by considering facts. They wanted to make sure everyone would think for themselves.

In the world of investing, that means constant learning—which entails constant reading. So I would encourage my younger self to read widely, to constantly learn, and to develop points of view independent of what others say and based on facts. Specifically, I would recommend developing the habit of reading. Constantly ask good questions and seek to answer them.

I noticed you recently moved back to Credit Suisse after a stint at Legg Mason. Can you tell me a little about your job there and how it's different?

Over the years I have been fortunate to have sponsors who have allowed me to do work that is a little off the beaten path. Brady Dougan, now chief executive officer of Credit Suisse, has been one of those people. So when the time came to make a job switch, I was lucky to have a conversation with someone with whom I worked before and who understood the kind of work I do.

My job covers four different parts of the bank, including corporate, investment banking, securities, and the private bank. As I work with talented colleagues in each of these areas, I get to live the firm’s objective of operating as one bank.

My actual research will continue to dwell on four areas. The first is capital markets theory, the attempt to better understand issues of market efficiency. Second is valuation, an area I’ve always been very focused on. Third is competitive strategy analysis—and in particular I’m keen on understanding the intersection of competitive strategy and valuation. Finally, I work on aspects of decision making. How do we make decisions, and what kinds of mistakes are we prone to?

So the types of problems I’m working on will be similar to the past but the constituencies I get to work with are more diverse.

It seems that today, more than ever, people are going to Wall Street with very similar backgrounds. How do you see the impact of this?

For the last few decades Wall Street has attracted a lot of bright people. By and large, the folks I deal with on the Street are smart, thoughtful, and motivated. The key to robust markets and organizations is diversity of thought. And I don’t personally find such diversity greatly lacking.

There are a couple of areas worth watching, though. There does seem to be evidence that hedge funds are increasingly moving into similar positions—often called a “crowded trade.” This was exemplified by the trades of Long-Term Capital Management. Crowded trades can be a big problem.

Somewhat related is the world of quantitative analysis. Many quants read the same papers, use the same data sets, and hence put on similar trades. We’ve seen some hiccups in the quantitative world—August 2007 is a good illustration—and there may well be more to come.

Your most recent book, The Success Equation, points out something that few people seem to consider: that most things in life are a mixture of luck and skill. What's the mental model we can take away from this?

The main point is to think critically about the activity you’re participating in and consider how much luck contributes to the outcome. In some realms it’s negligible, such as a running race. But in others, it’s huge. Once you understand luck’s role, you can understand how to approach the activity more thoughtfully, including how you develop skill and interpret results.

But I can tell you that our minds are horrible at understanding luck. So any mental model has to overcome our natural tendency to think causally—that is, that good outcomes are the result of good skill and bad outcomes reflect bad skill.

You say, convincingly, that we need to accept the presence of luck so that we can understand where it is not a useful teacher. But we often interpret luck as a quality individuals possess, similar to “judgment” or “good instinct,” rather than as simply the expression of statistics in our lives. What are your thoughts about Napoleon's famous question regarding a general being praised to him, “yes, yes, I know he is brilliant. But tell me, is he lucky?”

I have read that Napoleon quotation many times and don’t really know what he was trying to convey. Perhaps the answer lies in how you define luck.

Naturally, in writing a book about luck and skill I had to spend a lot of time trying to define luck. I settled on the idea that luck exists when three conditions are in place: it operates for an individual or organization; it can be good or bad; and it is reasonable to expect a different outcome to occur.

Another similar way to think about it is skill is what’s within your control and luck is what is outside your control. If there’s something you can do to improve your lot, I would call that skill.

Now I don’t want to deny that intuition exists. It does. It just happens to dwell in specific domains and hence is vastly rarer than people think. Specifically, intuition can be developed in activities that are stable and linear. This applies to chess, for example, or many sports. In these activities proper training can develop intuition. But in fields that are unstable and non-linear, all bets are off regarding intuition. The problem is we generally don’t distinguish the activity before considering how good intuition is likely to be.

So to answer the question, I wouldn’t want to bet on anyone who has truly succeeded by dint of luck because luck by definition is unlikely to persist.

You describe creeping determinism, the desire we have to give past events rational causes and thus make them inevitable. It is a myth of control. But we have a huge desire to see control. It seems preferable even to give control to someone else rather than to deny it existed at all. I'm not sure we are psychologically capable of saying that something in the past happened because of a conjunction of events and actions without any overriding intent or plan. What do you think?

This reminds me of something Victor Hugo said: “The mind, like nature, abhors a vacuum.” It is psychologically extremely difficult to attribute something to luck. The reason is that in the left hemisphere of our brains is a part that neuroscientists call the “interpreter.” The job of the interpreter is to create a cause for all the effects it sees. Now in most cases, the cause and effect relationships it comes up with make perfect sense. Throw a rock at a window and the window smashes. No problem.

The key is that the interpreter doesn’t know anything about luck. It didn’t get the memo. So the interpreter creates a story to explain results that are attributable solely to luck. The key is to realize that the interpreter operates in all of our brains all of the time. Almost always, it’s on the mark. But when you’re dealing with realms filled with luck, you can be sure that the interpreter will create a narrative that is powerful and false.

You talk about what happens when companies, for examples, hire stars, and how so very often that proves to be an expensive failure, because so much of the star's success is attributed to the individual him or herself, and the specific context of the star's success is ignored. It seems to me there must be hundreds of case studies that prove this is true, similarly an overwhelming amount of data that supports your thoughts on hiring sports stars on contracts that don't take into account their declining skills. A vast amount of data that supports your views, yet the hiring of stars continues; it must be one of the most quantitatively demonstrably false assumptions in the business and sports world. So why does it continue?

I think there are two related underlying factors. The first is a failure to recognize reversion to the mean. Let’s take sports as an example. If a player has a great year statistically, we can almost always conclude that he was skillful and lucky. He gets bid away by another team based on his terrific results. What happens next? Well, on average his skill may remain stable but his luck will run out. So his performance will revert to the mean. Reversion to the mean is a very subtle concept that most people think they understand but few actually do. Certainly, the aggregate behaviors of people suggest that they don’t understand reversion to the mean.

The second underlying factor is underestimating the role of social context in success. An individual within an organization is not operating independently; she is surrounded by colleagues and an infrastructure that contribute to her outcomes. When high-performing individuals go from one organization to another, the social context changes, and generally that has a negative impact on results.

Do you think we make similar mistakes when we promote people in organizations? Specifically, I'm thinking that hiring can get really complicated if you have to look at how long someone has been doing a job, the people they work with, the difficulty of the job itself, there are so many variables at play that it's hard to tease out skill versus luck. How can we get better at this when it comes to promoting people internally?

This can be a challenge. But there’s an interesting angle here. Typically, the lower you are in an organization, the easier it is to measure your skill. That’s because basic functions are generally “algorithmic,” people are executing their jobs based on certain known principles. So outcomes are an accurate reflection of skill.

But as you move up in an organization, luck often plays a bigger role. For example, developing a strategy for a new product is no sure thing—luck can play a large role in shaping the strategy’s success or failure. Said differently, even strategies that are really well thought through will fail some percentage of the time as the result of bad luck.

So as people move up in organizations, it makes sense to pay more attention to the process of decision making than the outcomes alone. For example, I would argue that capital allocation is a CEO’s most important job. And capital allocation is inherently based on process.

So as individuals advance in their careers, their duties often slide towards the luck side of the continuum. Furthermore, you note that fluid intelligence peaks at age 20. What does this say about leadership? If I was to be extreme, I would interpret you as saying that people assume or are given positions of leadership at the very time when they are least fitted to be leaders. For example, the median age of U.S. presidents is 54. That is not an age when I should expect someone to be able to deal well with complex, or unprecedented issues and decisions. I don't consider the corresponding increase in crystallized intelligence to be adequate compensation. And what does this say about leadership development, executive coaching and the like? If I am an executive coach, should I be explaining to my clients that their biggest mistake will be to ignore the overwhelming role luck will play in their success as leaders?

There are a couple of issues here. First, as you mentioned, cognitive performance combines fluid intelligence, which peaks when you are young, and crystallized intelligence, which tends to grow throughout your life. For older people the problem is not that they don’t have the knowledge or wisdom to make good decisions, it’s that they tend to become cognitively lazy and fall back on rules of thumb that served them well in the past. Using terms that Danny Kahneman popularized, they rely more on System 1—fast, automatic, and difficult to train—and less on System 2, which is analytical, slower, and more purposeful. You can overcome this tendency by having others work with you on your decision making, ensuring that you’re looking at the proper options, and considering consequences as completely as possible.

If I were an executive coach, I would try to focus each individual on the facets they can control. Emphasizing what’s in your control allows you to adopt an attitude of equanimity toward luck. You’ve done all that you can, and from there you have to live with the results—good or bad.

I thought you description of Mark Granovetter's research on phase transitions fascinating. But this seems to me to contradict the idea of fundamental attribution error, and in fact, make fundamental attribution a real, existing phenomenon. If we talk about, for example, an organization that is trying to change a common behavior of its executives (say, getting them to stop taking calls or messages on their cellphones when they are in meetings), then it seems to me that if the CEO models this new behavior it has a great likelihood of becoming the norm. If he does not, then the likelihood is nil. So this would be an example of fundamental attribution. Would this not be the same for more complex issues where a specific action or behavior by the leader of the organization would be the cause of phase transition?

I think the common denominator of both of your thoughts is the role of social context. Granovetter’s model emphasizes how small changes in the network structure can lead to disproportionately different outcomes. This is very important for any kind of diffusion process—be it the flu, an idea, a new technology, or a social behavior. The spread of disease provides a vivid example. There are basically two essential parameters in understanding disease propagation: the contagiousness of the disease and the degree of interaction between people in the population. A disease only spreads quickly if contagiousness and interaction are high.

The disease metaphor works pretty well for the diffusion of any innovation or behavior. The main point is that most products, ideas, and diseases fail to propagate. Some of that is a function of the inherent nature of what’s trying to propagate and some is from the network itself.

The fundamental attribution error says that when we observe the behavior of another person—this is especially true for bad behavior—we tend to attribute the behavior more to the individual than to the social context. But both studies and observations in life show that social context is deeply influential in shaping behavior.

Tying this back to your point, I think it’s crucial for leaders to acknowledge two realities. First, they operate in a social context which shapes their behavior. For example, Warren Buffett talks about the “institutional imperative,” which says among other things that a company will mindlessly imitate the behavior of peer companies.

Second, leaders have to recognize that they create a social context for the decisions of their employees. Some social contexts are not conducive to good decisions. For example, if employees feel too much stress, they will shorten the time horizons for their decisions. So an executive may say he or she is thinking for the long term but his or her behavior may be shaping an environment where employees are focused only on the here and now.

When you talk about the qualities that make a statistic useful, do you have any thoughts on organizations that are trying to be more evidence-based and quantitative in how they measure their performance, yet seem to have great trouble in identifying useful statistics? Examples that come to mind would be government departments and agencies, particularly those that do not provide a direct public service. What is the process they organizations should follow to identify what are useful statistics for measuring effectiveness? Government departments and agencies are notorious for confusing luck and skill.

I suggest two simple criteria identifying a useful statistic. First, it should be persistent, or what statisticians call “reliable.” A statistic is persistent if it correlates highly with itself over time, and hence is frequently an indicator of skill. Next, it should be predictive, or what statisticians call “valid.” That is, the statistic correlates highly with what the organization is trying to achieve.

With these two criteria in mind, you can adopt a four-step process for finding useful statistics. Step one is to define your governing objective. What is your organization trying to achieve? Step two is to develop a theory of cause and effect to help identify the drivers of success. Step three is identifying the specific actions that people within the organization can take to serve the governing objective. And step four is to regularly evaluate the statistics to see if they are doing the job.

Naturally, luck plays a role in outcomes almost everywhere you look. But this process of selecting statistics gives you the best chance of properly emphasizing what is in the control of the organization.

To sort of round this interview out, I'd like to talk with you about a subject I suspect you spend a lot of time thinking about: improving decisions in organizations. One of your pieces of advice is to create a decision journal, can you tell me what that looks like to you?

A decision journal is actually very simple to do in principle, but requires some discipline to maintain. The idea is whenever you are making a consequential decision, write down what you decided, why you decided as you did, what you expect to happen, and if you’re so inclined, how you feel mentally and physically. This need not take much time.

The value is that you document your thinking in real time and thus immunize yourself against hindsight bias—the pernicious tendency to think that you knew what was going to happen with more clarity than you actually did. The journal also allows you to audit your decision making process, looking for cases where you may have been right for the wrong reasons or wrong for the right reasons.

I imagine what people record in a decision journal is somewhat personal but can you give me an idea of what sorts of things you note?

Since I make few investment decisions, my journal doesn’t have a lot of the material that an investor would have. What I try to do is keep track of meetings, thoughts, and ideas so that I can return to them over time. What I can promise is that if you keep a journal with some detail, you’ll be surprised at how your views change over time.

People's emotional state has a bearing on how they work. How do you go about accounting for that when making decisions?

Emotional state is enormously important. There is the obvious advice that everyone knows, such as don’t make a consequential decision at a point of high arousal—whether that arousal is positive or negative. We’ve already discussed stress, but I’ll reiterate the point. Too much stress is very debilitating for the process of making good decisions, especially for long-term decisions.

Finally, we all have different personalities and those differences portend strengths and weaknesses. Most great investors are somewhat indifferent about what others think. They feel comfortable following their conviction based on analysis. Investors who are highly attuned to others tend to struggle much more, because they have difficulty being a contrarian.

If there is a single change you could recommend to an organization to improve their decisions, what would it be?

Elizabeth Mannix and Margaret Neale, two well-known psychologists, have a great line in one of their survey papers. They write, “To implement policies and practices that increase diversity of the workforce without understanding how diverse individuals can come together to form effective teams is irresponsible.” I love that. So my answer would be that organizations need to learn how to create and manage diversity within their organizations. Most leaders have no idea how to do that.

Let's end with a variant on my favorite question. You've just taken over a university and are required to pick 3 books for every student to read. What would they be and why?

This is an impossible question to answer!

I’d probably start with The Origin of Species by Charles Darwin. Understanding evolution strikes me as essential to be a good thinker. Naturally, much has come along to fortify Darwin’s ideas, but many of the core ideas are there. Plus, Darwin himself is a wonderful model: hardworking, humble, modest, always learning.

Next I’d go with something very modern, Daniel Kahneman’s Thinking, Fast and Slow. That this is the opus of the man who is likely the greatest living psychologist is reason alone to read it. But my motivation would be that learning how to make good decisions is perhaps the greatest skill you can have in your life. And with some sense of how you are likely to go wrong, perhaps you can increase your odds of getting it right.

Finally, I’d go with How to Read a Book by Mortimer Adler and Charles Van Doren. (Ed: see the cheat sheet.) This is a guide on how to be effective at what should be one of your most important activities in life: reading.

And I'd recommend you read all of Mauboussin's books, starting with The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing.

(Note: A few of the questions were submitted by a friend of mine: Neil Cruickshank.)

Maria Konnikova, Interview No. 3

Maria Konnikova is the author of Mastermind: How to Think Like Sherlock Holmes. The book takes a deep look at Sherlock Holmes’s methodology to develop the habits of mind that will allow us to mindfully engage the world.

As part of my ongoing, yet irregular, series of interviews with authors and experts, I had the chance to speak with Maria about what we can learn from Sherlock Holmes, our memory attic, decision making, and the perils of multitasking.

* * *


You graduated from Harvard. How did you end up there?


I’d grown up in the Boston area and spent a lot of time around Cambridge and Harvard Square. I’d always loved the feel of the Harvard campus and knew from a relatively young age that I’d like to one day progress from onlooker to actual student. I ended up applying for early admission and getting accepted, so didn’t ever need to weigh relative pros and cons. I never regretted the decision, though. Harvard was every bit as wonderful as it had seemed to my ten-year-old mind.


Why did you write Mastermind?


I wanted to convey what I saw as crucial principles about how we think and how we experience the world to a broader audience than would otherwise read psychology books. I thought that the Sherlock Holmes angle would bring an interesting, integrative and novel perspective to the research—and with any luck, reach a wider audience.


Some would argue that Sherlock Holmes is a fictional character who never solved a real crime. Why should we try to learn from him?


He was real before he was fictional: Dr. Joseph Bell. Bell inspired the character and most of Holmes’s salient features are taken directly from real life. We should try to learn from his principles of thought so that we can become better diagnosticians, in a sense—people who are more aware of the possibilities and limits of both their own minds and those of others around them.


In your research did you read about any of the other great fictional detectives?


Only superficially. I chose Holmes because the inspiration behind him was a real person, and his principles of thought were taken from a very real way of approaching the world. As far as I know, none of the other great sleuths of his time have the same distinction.


You wrote that one of the key qualities that sets Holmes' apart is his mindfulness. What does mindfulness mean?


At its simplest, mindfulness means awareness of the present moment.


How can we improve our own mindfulness? What are the habits of thought we need to cultivate? Is it as simple as just turning off twitter?


Turning off Twitter is a start, but far from the whole story. Yes, we need to stop multitasking and letting our attention be pulled in any and every direction. But on the flip-side, we also need to cultivate our ability to pay attention, to be present, to allow ourselves to really experience our surroundings—and our own thoughts. It’s crazy how often we forget to pay attention to what’s going on inside our own heads and bodies.


What should we avoid if we want to improve our mindfulness?


One word: multitasking. In any form.


You mention that Holmes' offers a process for thinking. Can you elaborate on that?


I mean that his routine and his approach to problems is one that is very clear-cut and that we can strive to emulate. Really, it’s just a version of the scientific method. He always takes the time to think before speaking or acting, to observe and get a feel for the entirety of a person or a question or a situation. Then, he explores it deliberately, with pointed questions and additional observations. He thinks some more—the downtime of not actually doing anything is crucial for him; he always lets things integrate and settle before he moves on. And only then does he act. He also understands the foibles of his own mind better than most of us ever will and strives to constantly take them into consideration so that they don’t cloud his judgment.


How does one ingrain a process into their thinking?


Conscious practice is really the only way. You have to think about doing it and do it, over and over, until it’s second nature.


One thing that characterizes Holmes' way of thinking is a natural skepticism and inquisitiveness. As you write “nothing is taken at face value.” A lot of Organizations, on the other hand, don't seem to value these particular traits. How do you think this translates into organizations and group decision-making?


It’s great for compliance and efficiency, if you count efficiency as length of time it takes to get things done. It’s quite poor for innovation and spotting any flaws in existing processes. If you always do things the way they’ve always been done, you may never discover that there’s a much more effective way to do them.


What is a brain attic?


It’s our mind – or rather, the metaphor that Holmes uses to describe our mind and, more specifically, our memory.


Why is the structure and contents of our memory important to our thought process?


In a way, we are our memories. Our background and experiences color how we perceive each moment, how we interpret each input, how we make each decision. If you and I have different memories and perspectives (as we necessarily do), we will never even see (and, later, recall) the same physical event in the same terms—let alone make the same decision in the same situation.


How does what's already in the attic act as a filter for how we see the world?


This is essentially the same as the last question: it’s our memory, and our memory inherently affects how we view and react to everything.


If I'm just browsing around the Internet mindlessly or, say, sitting in a meeting, are things working their way into my attic?


Yes—but whether or not they stay there, or what form they’ll take, is an entirely different question. If you weren’t really paying attention, you are likely to misremember and conflate things, in the worst case, or fail to remember the particulars, in a better scenario.


How can I become selective about what I let in?


It all goes back to mindfulness. You need to learn to actively pay attention. Your greatest shot at remembering something is at the point of initial encoding, when you first encounter it. Make that memory a strong one.


In the book you talk about the importance of Observation. What does that mean?


Learning to pay attention to everything, with all of our senses. We tend to rely too much on sight, but all of the other senses are equally strong, and sometimes stronger. True observation entails making use of them all.


In the book you mention Marcus Raichle. Can you explain why his work is so important?


Raichle is a pioneer in discovering and explaining how our brain works. He was the first to show us what happens when our minds are not doing much of anything at all—what the brain’s baseline resting state (what he terms the Default Mode Network) is like. That work has inspired a great deal of research in basically every single field of psychology and neuroscience.


You mention that attention is a limited resource. How can it be replenished?


Through rest; through mind breaks and moments of quiet; through food that feeds your brain (as in, you actually have to consume calories); through simple, undervalued sleep.


You mention the work of Yaacov Trope. He argues that psychological distance may be one of the most important factors in terms of improving your thinking and decision making. Can you elaborate on the concept of psychological distance and why it's important?


It’s actually exactly what it sounds like: you need to step away from yourself and the situation. You can do that by mentally distancing yourself or by physically taking a step back. In a way, distancing forces mindfulness. You have to be aware enough to step back, and stepping back in turn forces you to see the big picture, take in details that you would have missed and perspectives that differ from your own.


What are the best activities to distance ourselves?


Honestly, the physical activity is going to differ for everyone. But for psychological distance, a classic distancing mechanism is the so-called “fly-on-the-wall” paradigm: you simply imagine yourself to be a fly on the wall observing yourself in whatever situation you happen to want distance on. And you see what that hypothetical you is feeling and experiencing, and take it from there. It’s a remarkably effective exercise.


What's the difference between active and passive knowledge. And how does that play in?


Active knowledge is what we have at our fingertips and can easily apply in any situation. Passive knowledge, we need to think about and may not be able to put to use immediately: we have to work harder to access it and figure out the specifics. You’ll use your active knowledge much more freely and frequently—it’s a kind of self-reinforcing circle. You use it more because you know it better, and it remains more active because you use it more frequently.


We often have a hard time distinguishing between crucial details and incidental ones. Why is that?


Probably, because we haven’t listened to Sherlock Holmes or Yaacov Trope. We forget the importance of distance, space, and time. Instead, we leap right in – and then, all the details blur together. We can’t see the proverbial forest because we never stopped to figure out that we’re in the woods to begin with.


Changing gears a little… How has writing this book changed the way you think?


It has made me more aware of how often I multitask, and how negatively that affects my thinking, my writing, and basically, all of my interactions. I’m trying to be better about noticing when my attention drifts and forcing it back on track. I also pre-schedule my tweets very, very frequently (yes, my dirty little secret) and turn off the internet for long stretches at a time.


If you could recommend five book that everyone should read tomorrow what would they be and why?


I can’t do that. I usually go through multiple books a week, mostly fiction, and have too many that I feel are absolutely essential. But here are a few that stand out: The Collected Poems of W. H. Auden. I read that over and over, and never fail to learn something new about the world and about myself. I am a huge believer in poetry and its power to stimulate your thinking on a deep, mindful level.

Joseph Brodsky’s “Less Than One,” for a remarkable look at a remarkable mind. It also never fails to stimulate my thinking and imagination.

Alice in Wonderland,” by Lewis Carroll, and “The Complete Tales of Winnie-the-Pooh” by A. A. Milne, because those are two books that you absolutely must re-read as an adult. They’ve taught me more about the world—and about psychology—than almost anything else.

And if you must have something non-fiction (or, non-literary essays, as in Brodsky’s case), anything by Steven Pinker, one of my mentors and a constant source of inspiration to me in everything I write.

Still curious? Read Mastermind: How to Think Like Sherlock Holmes.