Last week we used the Seinfeld “Night Guy” bit as an analogy for business analysis. As promised, I just finished Annie Duke’s book, “Thinking in Bets,” so I wanted to share a few more points which she raised based on the same story. FYI – this book was fantastic, and I’m ready for the next edition now. I didn’t want it to end. Speaking of impatience…
“Temporal discounting” is the fancy academic equivalent of “a bird in the hand is worth two in the bush.” As humans, we like our rewards now, not later. We pretty much automatically will discount the value of a later reward compared to something we can have immediately.
When Night Guy stays out late because getting up is Morning Guy’s problem, we see an extreme version of temporal discounting on display. Night Guy’s short term gain is bad for Seinfeld Inc.’s long term success. If Day Guy isn’t going to work because Morning Guy couldn’t wake up, Night Guy isn’t going to have the money to keep going out.
Every division of a company has multiple layers of reward structures. Part of thinking about transactions in a portfolio is grasping the complexity that various incentives introduce. Don’t forget – an incentive isn’t always just a perk/profits/money. For many jobs, it can be as minor as checking a box to get the boss off of your back (or making sure all of the TPS reports have cover pages).
In our analogy, CEO Jerry has to balance those incentive structures for the company’s overall success. What makes Night Guy happy is different from what makes Morning Guy happy. Further, their incentives are different from what makes Seinfeld Inc., the portfolio operating over time, successful. Leaders have to balance that out in search of net-positive overall results.
Duke suggest we use thought experiments like mental time travel to help Night Guy understand what the impacts of his choices are into the future. She introduces Suzy Welch’s concept of the 10/10/10 rule, where you imagine where the decision will leave you in 10 minutes, 10 months, and 10 years.
She also stresses that we focus on being accurate and not just being right. Instead of telling Night Guy that his behavior is bad, we can instead say that we are 80% sure that his behavior will be counterproductive. By hedging with a 20% chance that something good will happen (maybe he meets the love of his life, or finds a new business opportunity – we can’t rule those things out completely), we’re keeping our mind open to new information. See Philip Tetlock’s work, especially his book “Superforecasting” for more on this.
How many bosses have you had that understand it is better to add uncertainty to a decision than to reduce it to absolute certainty? Think carefully of the corporate cultural implications of this one.
This is but a small sample of the wealth of knowledge you’ll find in “Thinking in Bets.” Beyond the Seinfeld MBA we received from the “Night Guy” routine, the topics of how to deal with uncertainty and pragmatically get better over time are perennially in line with our interests here.