Category: books

books, personal

Externalization of Blame and Risk, and its Consequences

Rahul R

Externalization of Blame (and therefore Risk) can be explained simply as follows – 

Claim credit when things go right. 

Blame the failures on luck.

This is the central theme of Taleb’s new book – Skin in the Game – or avoiding asymmetry between risk and reward.  

Naive actors – I’m sure most people (including me) have done this at some point in their lives because it’s the easy way out and the ego remains unscathed. I’ll make my case for why this should be avoided at the end of this piece. 

Evil actors – In other cases, systems are gamed such that there is asymmetry between risks and rewards.

Let’s look at some of the consequences of this seemingly innocuous phenomenon that is pervasive in society, in organizations and in our personal lives.

An example from Skin in the Game that highlights this asymmetry at the societal level – 

“The Bob Rubin trade? Robert Rubin, a former secretary of the United States Treasury, one of those who sign their names on the banknote you just used to pay for coffee, collected more than $120 million in compensation from Citibank in the decade preceding the crash of 2008. When the bank, literally insolvent, was rescued by the taxpayer, he didn’t write any check – he invoked uncertainty as an excuse. Heads he wins, tails he shouts ‘Black Swan’ [1].”

[1] A Black Swan event has the following attributes – “First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact … Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.” 

An example from The Gervais Principle  and Taleb’s book explains why organizations that fail to appropriate full blame eventually die –

“… Employees accept blame but only in inverse proportion to their self-perceived status. Due to the murkiness of collective responsibility … self-perceived status is the only available basis for dividing up blame or credit. If everybody believes they are above average (Lake Wobegon Effect [2]), they will assign more blame to others and less to themselves, and convince themselves that their partitioning of the blame is fair. 
If each person’s culpability for a failure is taken at their own evaluation, you will have a net-deficit in the total accounted-for-blame. Conversely, with a success, the sum of self-perceived credit attributions is greater than the credit actually available to go around…”
Blame that goes unaccounted for accumulates as organizational dark matter eventually leading to a blowup. (paraphrased) 
– Venkatesh Rao, The Gervais Principle. 

“But not to worry, if we do not decentralize and distribute responsibility (of blame) it will happen by itself, the hard way: a system that does not have a mechanism of skin in the game, with a buildup of imbalances, will eventually blow-up and self-repair that way. If it survives.”
– Taleb, Skin in the Game

[2] The Lake Wobegone Effect – a slight (but interesting) diversion here. 

The Lake Wobegon effect, a natural human tendency to overestimate one’s capabilities, was coined by Professor David G Myers in honor of the fictional town. The characterization of the fictional location, where “all the women are strong, all the men are good looking, and all the children are above average,” has been used to describe a real and pervasive human tendency to overestimate one’s achievements and capabilities in relation to others. There’s considerable research that shows self-reported averages are higher than actual averages – exam scores, height, income, the whole gamut. Everyone likes to believe they are “special”. 

And finally, at the personal level, absence of skin in the game, evading personal responsibility, or externalizing risk and blame, is one of the main reasons why we don’t grow as individuals. 

It is easy to shrug off responsibility and claim it was bad luck, but the real learning lies in accepting and examining why things went wrong. 

I know of only one organization that has tried doing this at the organizational level – Ray Dalio’s Bridgewater Associates where brutal honesty and radical transparency reigns. It’s manifestation – Baseball Cards for each employee. Whether this is sustainable in the long run remains to be seen. 

The key takeaway here is that accept reality as it is and move on. Avoid delusions, stories concocted by the mind, hidden risks, that will blow up in your face someday. 

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books, personal, Psychology

The Hidden Cost of Mild Embarrassment

Rahul R

I recently finished reading The Undoing Project – the story of Daniel Kanheman and Amos Tversky (two Israeli psychologists who changed how we think about our decision making). It is a gripping read that highlights the stark contrast between the two personalities and how it gave rise to one of the most important collaborations in recent history, one that I would recommend people read after they’ve finished reading Thinking, Fast and Slow. 

A quote from Amos in the book that made me reflect hard on the kind of life I’ve lived – 

“Amos thought people paid an enormous price to avoid mild embarrassment,’ said his friend Avishai Margalit, ‘and he himself decided very early on it was not worth it.”

I’ve had anxiety for as long as I can remember and it has dictated a significant portion of how I have conducted myself both in public and private. This is something I’ve observed in friends with anxiety too, so maybe people who suffer from it will also be able to relate to this. (I try to avoid discussing personal strengths and weaknesses unless absolutely necessary, as in this case. It just adds some credibility and gives context to how the idea came to be).

My daily behavior – things such as asking questions in class or choosing to wear jeans over shorts or simply talking to people were all determined by one thing – to avoid drawing any attention to myself and avoiding embarrassment at all cost. I can think of a few more – not having the guts to cold call and email people for a second year internship, not asking for help from friends and seniors for the fear of being judged and embarrassed. The list goes on. 

What I was missing however when going through life was the cost. The cost of avoiding mild embarrassment. More importantly, the hidden cost associated with choosing not to put myself out there which could’ve led to good things. Let me explain. 

Nassim Taleb in his book Black Swan defines a Black Swan as follows: 

“An event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact…. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”

Anxious people like myself and many others live by the avoidance principle. It’s just that this tendency is exaggerated in people who suffer from anxiety. What they fail to realize is that they’re missing out on opportunities – some of them Black Swans. These don’t come often and they have the potential to make a huge change to your life trajectory. 

Lesson – Put yourself out there. Even if that means being subjected to slight embarrassment at times. 

I can hardly say that I’ve managed to incorporate this into my life on a daily basis but acceptance is the first step to recovery, so there’s still hope. 

In essence, the lesson here is not that profound, is it?

It might seem like it boils down to generic advice that people have offered me at times – stop caring about others’ opinions. That’s really easier said than done. 

Most ideas and lessons, such as these are not truly extraordinary in what they have to offer but need to be framed appropriately in order to have the required impact. 

Telling someone to put himself/herself out there without making them realize the opportunity cost of not doing so will never be impactful. 

As always, comments and criticisms appreciated. 🙂

books, Psychology

Jumping to Conclusions

Rahul R

Arguably, one of the best chapters from Thinking, Fast and Slow is the one where Kanheman explains why we tend to jump to conclusions. 

It is a phenomenon that all of us experience on a daily basis when forming opinions about people or issues based on limited information, often clouded by existing beliefs and at times during conversations when we don’t listen properly before engaging. 

Kanheman offers the following insight into why jumping to conclusions can be a double-edged sword. 

“Jumping to conclusions is efficient if the conclusions are likely to be correct and the costs of an occasional mistake acceptable, and if the jump saves much time and effort. Jumping to conclusions is risky when the situation is unfamiliar, the stakes are high, and there is no time to collect more information. These are the circumstances in which intuitive errors are probable, which may be prevented by a deliberate intervention of System 2.” 

The tendency to believe in certain ideas based off on your belief system is an attribute of System 1. The act of unbelieving, so to speak, i.e. refuting the belief is an act of System 2. It has been shown that a busy System 2 means that people are more likely to fall for false information. This effect can be clearly seen as a direct consequence of media-frenzy, where System 2 is fatigued trying to process information from multiple sources, while System 1 is being misled into accepting incorrect news. 

Jumping to conclusions is responsible for a host of other cognitive biases such as the confirmation bias and the halo effect. 

Confirmation bias is the tendency to look for positive evidence that supports an underlying belief while overlooking and rationalizing our dismissal of contrary evidence. It is confirmation bias that often leads to polarization and second order effects that arise from it. 

The learning here is that our primitive minds are susceptible to accepting any information that feeds our existing beliefs. We need to be vigilant and allow for skepticism when considering information, especially when it contrasts with our own beliefs. 

This apocryphal saying attributed to Socrates would be a good way to conclude this blog. 

“The unexamined life is not worth living.”

While there are many interpretations of this statement, the reader is free to form his/her own, keeping in mind its intention of inspiring epistemic humility. 

books, Psychology

Associative Memory

Rahul R

A characteristic feature of System 1 is its ability to conjure up relevant words and imagery whenever you read something or even casually glance at text; it has been observed that even seemingly unrelated words elicit a coherent response in your mind.

Earlier schools of thought considered ideas as a linear sequence of thoughts built on a seed idea but our understanding of how these work has changed radically. It is now believed that ideas act like nodes in a network. Each node activates a bunch of other nodes which in turn activate others, thus triggering a chain reaction. Most of this is silent; meaning it goes unnoticed and not a by-product of conscious effort, hence a System 1 attribute.

Every sentence you read or image you take in gives rise to a response similar to this. Now consider being bombarded by hundreds of different ideas and opinions each starting off a different set of thoughts. It can be tiring. If you’ve wondered why it is so difficult to focus, this is one reason why. It is difficult to tame System 1, which is on all the time and which runs amok every time you have a new idea in your head.

I recently gave my GRE and for those of you who are familiar with it might know that it has a verbal section. The preparation for this section requires you to have decent vocabulary, something that I lacked. Like every other aspirant, I started mugging up words to rectify this. The way I remembered these words was to associate them with either a certain connotation (positive or negative) and then recall its meaning or its usage in a sentence. This is an excellent example of how our associative machinery works. While it was difficult to remember each word and its meaning, looking at the word nonetheless conjured up a unique train of thought in my head.

An extension of this idea of associative memory is that of priming. In essence, different types of words prime us to recall certain ideas over others and this subconsciously affects our decision making and actions.

In Thinking, Fast and Slow, Kanheman discusses the following example to illustrate the effects of priming:

Complete the following word  SO_P

If you’ve recently seen the word EAT, then SOUP will come to you easier but if you’ve seen the word WASH then SOAP would be easier to recall.

It has also been recorded that words influence our actions, although subliminally.

“This remarkable priming phenomenon – the influencing of an action by the idea – is known as the ideomotor effect.”  A reverse linkage has also been observed.

Kanheman says the following about priming effects and why it might affect our sense of self.

“Studies of priming effects have yielded discoveries that threaten our self-image as conscious and autonomous authors of our judgments and choices.”

The takeaway here is that System 1 is prone to priming and performs its associative processes without our being aware of it. This in turn influences our actions, sometimes insidiously. We should factor in priming when making decisions and use System 2 to counter its effects when trying to make a dispassionate decision. There is also potential upside in exploiting the reverse linkage in the ideomotor effect.

Kanheman ends this chapter on this insightful note:

“You have now been introduced to the stranger in you, which may be in control of much of what you do, although you rarely have a glimpse of it. System 1 provides the impressions that often turn into beliefs, and it is the source of the impulses that often become your choices and actions. It offers a tacit interpretation of what happens to you and around you, linking the present with the recent past and with expectations about the near future. It contains the model of the world that instantly evaluates events as normal or surprising. It is the source of your rapid and often precise intuitive judgments. And it does most of this without your conscious awareness of its activities.”