Think Like A Freak

Think Like A Freak seduces us into rejecting what is normal and conventional and into asking the right questions. By doing so, we will think much smarter.

 

Steven Levitt is an American economist known for his work in the field of crime. He found that in 1996 a decrease in the prison population by one person was equal to an increase in fifteen crimes a year.

Stephen Dubner is an American journalist and was a story editor at The New York Times Magazine.

 

Thesis

The book is a closer look into the original Freakonomics and teaches us how to think like the authors when they came up with the book’s original material. As humans, what we perceive to be reality and truth is often not so, and the book shows how we should look at what people do and not what people say.

Very often our inbuilt biases stop us from seeing objectively and what is obviously the truth. The aim of thinking like a freak aims to strip back those biases and think with more clarity.

Key Themes

What does it mean to think like a freak?

Imagine it’s the World Cup. You’re the last penalty taker and going through to the World Cup Final now depends on you.

What do you want more: To push your team through to the final? Or for people to think good of you?

Most people would say the former.

The goalkeeper (from the statistics published in the book) jumps left 57% of the time and right 41%. This means that there is a 2% chance that the keeper stays in the middle. The goalkeeper may still be able to save a shot down the middle, and if he does then you will be ridiculed and hated. But there is a 7% higher chance of scoring by shooting down the middle than kicking into the corner. So, what do you choose? The better chance to push your team through to the final? Or do you take the worse chance and avoid potential negative public opinion?

This information on penalties is freely available, yet penalty takers very rarely aim down the middle. They fear the same more than wanting their team to win. We can draw similarities to the stock market here; stocks can remain undervalued for long periods of time despite the information being publicly available, but once the price starts to rise everyone wants to buy!

If we are asked how we would behave in a situation that offers our own personal gain or the gain of the greater good, most of us would say the latter. But history shows us we do the former. This doesn’t make us bad people – we are biologically programmed to put our own interests above others.

 

The three hardest words in the English language

Imagine you are asked to listen to a simple story and answer a few questions on it.

“A little girl named Mary goes to the beach with her mother and brother. They drive there in a red car. At the beach they swim, eat some ice cream, play in the sand, and have sandwiches for lunch.”

Here are the questions:

  1. What colour was the car?
  2. Did they have fish and chips for lunch?
  3. Did they listen to music in the car?
  4. Did they drink lemonade with lunch?

Almost all of the children got the first two questions right. What did you answer for questions 3 and 4? Of the children asked, 76% of them answered questions 3 and 4 with a yes or no answer, despite the information not being present.

This is because the three hardest words in the English language are: “I don’t know”.

 

Thinking you know more than you know

Philip Tetlock undertook a study on politics, enlisting 300 experts to make thousands of predictions over the next twenty years. The sobering conclusion of the study was that they thought they knew more than they knew. Tetlock himself remarked that they were not much better than dart-throwing chimps.

A similar study by CXO Advisory Group covered more than 6,000 predictions by stock market experts over several years. Their overall accuracy was 47.4%. Again, the dart-throwing chimp would likely have done just as well – and without the extra fees too!

Paul Krugman wrote that most economist predictions fail because they underestimate the impact of future technologies. Yet he still predicted that “by 2005 it will become clear that the internet’s impact on the economy has been no greater than the fax machine’s”.

We don’t know a lot. We don’t know ourselves too well, either. When asked to rate driving skills, 80% of the study group rated themselves better than the average driver.

There are no consequences when a school child fakes an answer about a story of a trip to the seaside, but in real life it can lead to disaster.

The Iraq War cost (at the time of print) $800 billion, 4,500 American deaths, and over 100,000 Iraqi fatalities. What would have happened if those claiming to “know” about the weapons of mass destruction instead said “they couldn’t be absolutely sure”?

People bluff because there are no consequences. If you say the stock market will triple in two years, no one will remember if it doesn’t. But if it does – you will be revered and even paid for future predictions! In business, by the time anyone realises that you’re bluffing, you’re already well ahead. Nobody wants to look stupid. The incentives to fake it are too strong.

 

Feedback is the key to learning

They key to learning is feedback. The authors met with some executives from a large multinational retailer. They were spending hundreds of millions of dollars per annum on advertising – TV commercials and print circulars in US Sunday newspapers.

Their conclusion was that TV ads were four times more effective, dollar for dollar, than print ads. This was because they had evidence that sales spiked every time they ran the TV ads.

These TV ads were ran on Black Friday, Christmas, and Father’s Day. The company spent millions of dollars to entice people to buy at exactly the same time millions of people were going shopping anyway. There was no way to prove that there was a causality between the ad spend and the sales spike.

The print ads were ran every Sunday for the past twenty years in 250 markets across the US. A randomised control trial (RCT) was suggested over three months where some markets received advertising and some didn’t. The executives refused, as they feared for their jobs, referring to “that kid in Pittsburgh”.

Previously, an interm had forgotten to place the adverts for the Pittsburgh newspapers, and was fired. The company ran no newspaper ads in Pittsburgh for the entire summer. When asked, the executives mentioned that they’d never actually looked at the data. When they did, they found that the ad blackout had not affected Pittsburgh sales at all!

Yet still, the executives refused to conduct more RCTs, despite the fact that the only valuable feedback they had was that the ads don’t work.

 

The wine doesn’t taste right

The Harvard Society of Fellows had an impressive wine cellar. Many of these bottles were over $100, and one young Fellow questioned if it was worth it. He was assured it was.

To test this, he decided to run a blind tasting test with four decanters.

  • Decanter 1 was filled with expensive wine A
  • Decanter 2 was filled with expensive wine B
  • Decanter 3 was filled with cheap wine, $8 from the local liquor store
  • Decanter 4 was filled with expensive wine A

The findings were that, on average, the four decanters received nearly identical ratings. The cheap wine tasted just as good as the expensive ones. More surprisingly – decanter 1 and decanter 2 were judged to be the most different – despite being poured from the same bottle!

 

The Wine Spectator Award of Excellence

Robert Goldstein conducted another wine tasting trial which was double-blind, meaning nobody knew the identity of the wine or its price. 523 wines were used in a study that included 500 people, ranging from wine beginners to sommeliers. The findings showed that, on average, people enjoyed more expensive wines slightly less than the cheaper ones. The experts, around 12% of the samples, did not prefer the cheaper wines, but neither was it clear they preferred the expensive ones.

Goldstein decided to see if the Wine Spectator, the best-known critic in its field, was really as meaningful as it seemed. He wanted to test if you had to have good wine on the wine list to win the award, and also to see if the restaurant actually had to exist.

For the reserve list (usually the restaurant’s best), he chose wines that were rated bad, including 15 wines the Wine Spectator itself had reviewed and rated them “not recommended”.

Goldstein created a fake website, and a fake menu, and sent off the $250 application fee to Wine Spectator with his list of spectacularly poor wines. A few weeks later, he received a call from Wine Spectator to tell him he had won an Award of Excellence.

 

What’s your problem?

Whatever problem that needs to be solved, we need to make sure we are asking the right questions. It’s incredibly important to define the problem, or re-define the problem.

In the autumn of 2000, Kobi was at university studying economics. He lived with his girlfriend, Kumi, and they lived in candlelight as they were down on their money. Kumi heard about an eating content that paid $5,000 and she secretly entered him into the televised competition without him knowing.

Kobi was barely five foot eight but had a good appetite. He had learned about game theory and realised that his only way as an underdog to win the competition would be to outthink them.

The contest had four staged, with each finisher from each stage advancing. By studying amateur stages he realised most competitors went so hard in the early rounds they struggled in the finals. By eating just enough in each stage to advanced, he was able to go big in the last round when it counted. Kobi won the $5,000, and his taste of amateur success had him setting his sights on the professional competitions.

The Nathan’s Famous Fourth of July International Hot Dog Eating Content. The rules were simple, a contestant ate as many hot dogs and buns as they could in 12 minutes. The record was 25 and one-eight. Kobi ate 50 and almost doubled the world record.

How? He experimented and worked out how he could gain an edge. By breaking up the buns, he removed effort and time spent chewing with his mouth. By dunking the buns in water this removed the need to drink and allowed the bun to go down quicker. His sessions were videotaped and experimented again. Kobi won the content for six straight years before another competitor beat him.

The question of “how do I eat more hot dogs?” was not the right question. “How do I make hot dogs easier to eat?” was the question that led to success.

Kobi also refused to acknowledge the previous world record. He felt it was an artificial barrier. This has been seen in recent experiments, where cyclists have been tricked into improvement by lying to them. When shown a sped up videotape of the cyclists pedalling at their full speed, they were able to go even faster and keep up with their videotape without knowing.

 

Like a bad dye job, the truth is in the roots

By 1994, the stomach ulcer market was worth $8 billion. Given that millions of patients required the constant medical service and the pharmaceutical companies that got rich, nobody was interested in finding a cure. However, in 1981 Australian medical resident Barry Marshall took up a research project which ended up with an unexpected outcome.

All of the patients had bacteria in their stomach, and Marshall tried to cultivate this bacteria. He eventually did, having left the incubator on for three days longer than intended. It was previously undiscovered, and named Helicobacter pylori. Marshall and his partner, Robin Warren, continued to look for this bacteria and realised that all 13 patients with ulcers had the H. pylori bacteria in their stomach.  They came to the conclusion that this bacteria actually caused stomach ulcers. To test this, Marshall ingested the bacteria, and within days developed a stomach ulcer.

The medical community did not like this. They ridiculed him and labelled him crazy, as treating stomach ulcers would remove so much of the recurring revenue that stomach ulcer patients provided. Eventually, people began to accept Marshall and Warren had identified the root cause rather than treating the symptoms, but it took time.

 

Think like a child

It’s much better to think like a child as they aren’t scared to voice ideas. “Free disposal” – coming up with bad ideas and then not acting on them is key. Thinking small, rather than attempting to come up with grandiose solutions can be much more effective. Here’s why:

  1. Small questions are less often asked and investigated.
  2. Big problems are usally a dense mass of small intertweined problems.
  3. Small problems have a much higher chance of being solved.
  4. Thinking big is an exercise in speculation. Thinking small forces us to think precisely.

Three economists decided to test what would happen if the 59% of children who needed glasses but didn’t wear them were given glasses in a small and remote province in China. Rather than thinking about how to improve eductation, they looked at small problems and worked to see what would happen if they resolved them. Within a year, test scores showing that they’d learned 25-50% more than their uncorrected peers.

 

Like giving candy to a baby

If there is one mantra a Freak lives by, it is that people respond to incentives.

Financial incentives work to an extent, but in economics there are declared preferences, and revealed preferences. Often, there is a large gap between the two, as humans won’t ever candidly say what drives them, hence the saying “don’t listen to what people say; watch what they do”.

Robert Cialdini wanted to learn about incentives that would encourage people to use less electricity at home. Four incentives were the subject of the test, these are ranked in order of most important from the answers of subjects.

  • It protects the environment
  • It benefits society
  • It saves money
  • A lot of other people are trying to do it.

Did this match what they did? Not at all close. A series of placards were used with slogans over a certain period of time. Subjects responded to the “a lot of other people are doing it” slogan “join your neighbours” the most with it being a clear winner.

In another case, the United Nations decided to set up an incentive plan to compensate manufacturers for curtailing pollution they released into the atmosphere. Carbon credits could be sold on the open market and were created for destroying carbon. Other pollutants were far more remunerative, such as hydrofluorocarbon-23, a by-product of hydrofluorocarbon-22 which itself is a refrigerant bad for the environment.

The UN hoped that this would convince factories to switch to a greener refrigerant. All that happened is manufacturers actively created more HCF-23 in order to rake in the cash. Once they realised this, they angrily changed the rules, and then once the factories realised this, they dumped all of their HCF-23 into the atmosphere.

The end result was that the UN paid millions of dollars to create additional pollution and caused global greenhouse gas emissions to skyrocket.

 

What do King Solomon and David Lee Roth have in common?

King Solomon, in an attempt to prove his judgement was sound, came up with an interesting solution to  a problem. Two women appeared, each claiming one baby was theirs, and that the other’s had died. He decided that he should take a sword and divide the baby.

The reasoning was that anyone cruel enough to steal someone’s baby would not care about dividing the baby, and the real mother would show themselves by allowing the baby to be given away rather than killed.

David Lee Roth from Van Halen had a fifty page contract rider. In it, he requested absolutely no brown M&Ms to be left in his M&Ms in the dressing room.

This was deemed to be rock and roll excess, but the logic was that if the local promoter left any brown M&Ms in the dressing room then they had not read the contract rider properly. This would mean the band would need to do a serious line check as many venues were outdated and the band did not want anyone to die due to faulty or careless construction.

 

His Royal Highness wishes to grant you one million dollars

Nigerian scammers often make their emails so dumb that only the most gullible of people respond. They spam emails to as many people as possible, and in an attempt to not waste their time, they want only to most naïve people to respond. Anyone who would even believe for a second that the most ridiculous email they send might actually be true is exactly the person those scammers want to speak to. These emails are brilliant in getting the scammers’ massive garden to weed itself.

 

How to persuade people

Thinking like a freak will occasionally upset someone or perhaps it’ll raise an uncomfortable question. It’s often best to smile and change subject, but if you do want to persuade someone, here’s how:

Understand how hard persuasion will be – and why:

People like being right, and the more invested someone is in their own opinion, the less likely they are going to be to change it in order to save face.

On the other hand, people who haven’t thought much about an issue are equally as difficult to persuade, because it can be hard to get their attention enough to prompt a change.

The first step is to appreciate than an opponent’s opinion is likely to be based less on fact and logic than on ideology and herd thinking.

 

It’s not me; it’s you.

Whenever you try to persuade someone, you are merely the producer of the argument. The consumer has the only vote that counts. If it doesn’t resonate with the recipient, it won’t get anywhere.

 

Don’t pretend your argument is perfect

Panaceas are almost non-existent. There are always costs.

 

Keep the insults to yourself

Negative information weighs more heavily on the brain, and bad is stronger than good in the human psyche. The pain of negative feedback will trump the pleasure from positive feedback in most cases.

 

Why you should tell stories

A good story tells a picture. It uses data to portray magnitude, and the passage of time shows the degree of constancy or change.

Stories appeal to the narcissists in all of us and so we inevitably put ourselves in the characters’ shoes. They are great for capturing attention and as a result good at teaching.

 

The upside of quitting

“Never give in, never give in, never, never, never – in nothing, great or small, large or petty”.

Winston Churchill, 1941. The message was clear. Failure may be an option but quitting is not.

However, in most situations, quitting has a huge benefit to the upside.

Often, we experience things where if we are honest with ourselves, we can see that things are not working out. We don’t quit for three reasons:

 

The stigma of failure

When quitting is seen as failure, it can mean we often progress with projects that we know aren’t a good idea for the sake of appearances.

 

The notion of sunk costs

Richard Dawkins calls this the ‘Concorde effect’ – the British and French governments suspected that the Concorde would not be economically viable but due to the billions they’d spent they continued to throw good money after bad.

Focus on concrete cost and not opportunity cost. Concrete costs are much easier to calculate than the surrender of opportunity elsewhere.

 

Demonising failure

When failure is demonised, people will avoid it all costs. The incentive to therefore lie and avoid it are sometimes too strong.
Sadly, this is exactly what happened on the 28th of January in 1986, when NASA intended to launch the space shuttle Challenger the next morning. The launch had been postponed several times, and had drawn large public interest, mainly because a civilian was on board. Christa McAuliffe, a schoolteacher, would fly to space along with the rest of the crew.

The night before the launch, NASA held a long conference call with engineers from Morton Thiokol, the contracter that built the Challenger’s solid rocket motors. Allan McDonald, one of the senior men, recommended that the launch be postponed again due to the unusually cold weather in Florida. They explained that this could damage the rubber O-rings that stopped hot gases from escaping the shuttle boosters. The O-rings had never been tested at temperatures below 53 degrees and the Florida temperatures were much lower than that.

NASA pushed back on McDonald’s decision to postpone. They asked him to prove that it would definitely fail, which of course he couldn’t do. He refused to sign off on the decision to launch – his boss signed instead.

The launch went ahead, and seventy-three seconds later, Challenger blew up and killed everyone on board. The O-rings failed to prevent hot gases from escaping due to the cold weather.

 

 

 

 

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