Escape Pods

For something that is now so ingrained into our culture, only once before have I blogged about podcasts.  That was back in 2020, at the height of the Covid-19 pandemic, when we all craved for new entertainment content.

There are so many more podcasts out there now.  Some are good, some are bad, and some only exist to make money for a producer without any social value.

I don't have time to listen to all of the podcasts I'd like -- there are too many of them, and/or their running time is too long.  (In the same way no movie needs to be longer than two hours, no podcast needs to be longer than 45 minutes.  And this is coming from someone who never listens to the commercials, nor listens at less than 1.5x speed.  To me, an hour-long podcast equals a three hour-long movie, and no one has the time or content to remain interested in that.)

As mentioned in 2020, my main go-to podcasts are those from the Freakonomics Network.  They have several now in addition to the main weekly podcast, including a newer one called The Economics Of Everyday Things.  It's about how some industries work, anything from Girl Scout cookies to car washes to body part sales(?).  Plus, it's always less than 30 minutes long -- see last paragraph.

A longer, similar podcast is called Search Engine, which is a deep-dive on a hodgepodge of topics that we might never think about.

For politics, you can't beat Pod Save America, hosted by the former Obama speechwriting crew.  If you don't lean progressive, a more middle-of-the-road podcast is Hacks On Tap, hosted by former democratic and republican political operatives.  (Mike Murphy, the republican, is as witty as they get.)

On the lighter side, I prefer Conan O'Brien Needs A Friend, in which he interviews mostly other comics.  His shorter fan-interview offshoot, Conan O'Brien Needs A Fan, is also great.  No one is funnier and more likable than Conan.

I know, I know, there are so many more that I'm sure would be great to hear, including some I've never even heard of yet.  (That doesn't include true crime or cold case stories, which I don't care about.)

This is as far as I can go in my current pre-retirement world.

Misbehaving

Almost six years ago, I wrote about my interest in the behavioral sciences, especially behavioral economics and finance.  I further mentioned books I'd read on the topic, notably a book titled Thinking, Fast and Slow by Nobel prize winner Daniel Kahneman.

Since then, I've read many other books related to behavior, including three by former poker player Annie Duke (Thinking In Bets, How To Decide, and Quit), and another by a journalist who became a poker player for a year, Maria Konnikova (The Biggest Bluff).  On the more data driven / less fuzzy side were books by Robert Cialdini (Influence) and another co-authored by Kahneman (Noise).

Now I've just finished a book on this topic that I've enjoyed probably only less than Thinking, Fast and Slow.  It's not a particularly new book (2015) by another Nobel prize winner, Richard Thaler, titled Misbehaving.

Thaler was an early collaborator with Kahneman and his longtime research partner, Amos Tversky.  Misbehaving reviews the early, largely ignored stages of behavioral science, and how it eventually grew to become accepted by all but the most hardcore intellectuals.  

Thaler is more widely known now for a later book he co-authored with Cass Sunstein, called Nudge.  While I also enjoyed reading Nudge (to the point I gifted it to clients), Misbehaving provides many more examples of how people will respond differently to a given set of facts, depending on how those facts are phrased.  This was a prime writing / teaching method of Thinking, Fast and Slow.

Here's one example:

600 people are sick from a disease, and a choice has to be made between two policies:

Would you rather take

A) policy will save 200 people for sure

B) policy will offer a 1/3 chance at saving everyone, but a 2/3 chance of killing everyone

Alternatively, would you rather take

C) policy where 400 people will die for sure

D) policy where there's a 1/3 chance of killing no one but a 2/3 chance of killing everyone

Logic demands that we take either A and C, or B and D, because they are effectively the same thing. But in group tests of this, we don't always do that, because we are not always rational beings.  We also care about things like what seems right, instead of just the logical.

The book reviews the decades-long conflict between the data-only 'econs' and the non-conforming behaviorist 'humans'.  Knowing about this conflict, and the sometimes illogical 'misbehavior' that humans follow, can be a very important advantage to those in a particular field.

Misbehaving has a large section on how this applies within the investing world, so if you're interested in that sort of thing (like me), read it!  Or as I said six years ago, don't read it, and I'll use it to my advantage.

The LOST Loss

I’m a big believer in behavioral science / economics, which is essentially the idea that people are motivated in all facets of life by potential gains or losses, and their calculation of the underlying risk in achieving / suffering those gains and losses.  The gains and losses are often related to money, but can also be based on things like religion, politics, or relationships.

Unfortunately, many times humans do not properly calculate the underlying risk, leading to bad decisions / behavior.   I thought about this again this week, when the residents of my county were asked to vote in favor of voluntarily and regressively taxing themselves via a sales tax increase.

The local option sales tax (LOST) has been around for a while in Iowa, as a way for county localities to raise additional tax revenue by tacking on another 1% to the statewide sales tax.  When it was first introduced around 15 years ago, the idea was to allow counties to use the money solely for school infrastructure improvements over a 10-years taxing period.  As with most new tax ideas, I've hated it from the beginning.

Over several years, every county in Iowa passed a LOST, increasing the total sales tax from 5% to 6%.  And as a result, we have the nicest school infrastructure in the United States.  For real.  I’ve been to most other states, and their school building suck compared to Iowa.  (Of course, there’s absolutely no evidence that nicer bricks and mortar mean smarter kids, but that’s another story.)

But then something happened that was only predictable to those of us with common sense:   The LOST never went away.  In fact, after the school districts mismanaged their budgeted improvements to the tune of millions of dollars, the state decided to simply make the statewide sales tax 6%, and allow another, new LOST for counties to use as they wish.

97 Iowa counties have piled on to this regrettable legislation, leaving only two that have not voted for a new LOST that increased sales taxes from 6% to 7%.  (Note:  That isn't a 1% increase, that’s a 19% increase, a math computation the LOST supporters don’t want anyone to know about.)  My county is one of the remaining two, and this week, after an affluent neighboring suburb passed a LOST a few months ago, my county decided to have another vote.

Which brings me back to behavioral economics.  Why would anyone vote to tax themselves, especially with no explicit guarantee that local government would spend the money on non-essential services?  Yet, it happens quite often – as I mentioned, it recently happened in 97 out of 99 other instances in Iowa.   It’s usually backed with nothing more than a promise that the sales tax it would help to offset some other tax burden (this time it was property taxes) or that it would not be permanent (see above).

My answer is, it’s another matter of not properly calculating the risk.  Many people don’t recognize the cumulative impact of a regressive tax.  They think of it in terms of ‘just an extra penny on the dollar’ rather than a whopping 19% increase on every Average Joe that will probably cost hundreds of dollars a year, and many thousands of dollars over many years.

As in past LOST votes, I voted no, and I’m pleased to day this time it failed (barely).  I’m not against paying for essential government services, but I’m totally against voting to tax myself for undisclosed services I may not need, to be administered by government bureaucrats that haven’t been truthful, and who aren’t good stewards to begin with.

In other words, I’m for properly assessing risk and behaving appropriately. 

Thinking, Fast And Slow

For the past month or so, I've been concentrating on reading books and articles broadly related to behavioral science.  More specifically, I'm interested in how and why people make the decisions they do, with a concentration on macro-economics and finance.

This is a field I've been interested in for some time.  Over the years, I can think of several books I've read that are generally related to behavioral science.  These include the Freakonomics trilogy of books:  Freakonomics, Superfreakonomics, and Think Like A Freak, by economists Steven Levitt and Stephen Dubner.  (In the past year I've also become a regular listener to the Freakonomics podcast, which has kept me interested during thousands of miles of travel.)

I'd also include the books The Tipping Point and Blink by Malcolm Gladwell in that list.  Those books are more about social science, but they provide real insight about way people behave the way they do.

The most recent book I've read is called Thinking, Fast And Slow by Daniel Kahneman, who previously won a Nobel Prize in Economics.  I thought the book would be good, but it was better than good.  It was a tour-de-force about how our brain works, and the many biases that affect it.

How the brain works is basically a matter of two 'systems' that Kahneman called System 1 (instinctive and emotional) and System 2 (deliberative and logical).  But after a few chapters about the science of that, the rest of the book focuses on psychological aspects of thinking -- the cognitive biases.  These include terms / effects like loss aversion, framing, anchoring, overconfidence, and sunk-cost theory.

Once you read about what these biases are and how they affect thinking, it becomes clear how economic / financial decisions (or are they gambles?) are made and why.  This is a good thing to know for me, both personally and professionally.

Thinking, Fast And Slow by Daniel Kahneman.  Read it.  Or don't, then I'll use it to my advantage.