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How to Be Successful, Cobra Effects, & More
The Friday Five: Episode LVIII
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Today at a Glance:
Quote: The great journey.
Framework: Cobra Effects.
Tweet: Stages of bear markets.
Article: How to be successful.
Podcast: You’re smarter than you think.
“Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.” - Lao Tzu
Great achievements are simply the macro output of thousands of micro inputs.
Small becomes big.
The Cobra Effect
“Show me the incentive and I will show you the outcome.” — Charlie Munger
Well-designed incentives have the power to create great outcomes; poorly-designed incentives have the power to…well…create terrible outcomes.
Goodhart’s Law says that when a measure becomes a target, it ceases to be a good measure. Simply put, if a measure of performance becomes a stated goal, humans tend to optimize for it, regardless of any associated consequences. The measure often loses its value as a measure.
One of the most prominent examples of this in action comes from the story of the British colonists’ cobra eradication efforts in India.
There were too many cobras in India. The British colonists—worried about the dangers of these venomous creatures—devised a plan to reduce the cobra population.
They started offering bounties for cobra heads.
Some savvy locals developed a business model:
Chop of their heads
Turn in cobra heads and collect bounties
The British realized what was happening and ended the policy. Many of the breeders simply released their remaining cobras onto the streets, thereby increasing the population of cobras.
The British viewed cobra heads as a simple measure cobra elimination, so attached an incentive to deliver cobra heads. The result? An incentive designed to reduce the cobra population actually increased it.
Once you internalize this framework, you see it all around you:
Wells Fargo Account Opening Scandal: Senior leadership of the bank viewed new account openings as an easy way to track business growth, so it gave its junior employees target account opening goals. The result? Employees opened millions of fake accounts to hit their targets and Wells Fargo was fined billions for the fraud.
Amazon’s “Hire to Fire” Issue: Amazon believed employee turnover was healthy and had created a culture where the bottom 10% should be scrubbed annually in order to continue to upgrade the talent level of the organization.
To incentivize healthy employee turnover rates, it gave its managers a target rate for annual turnover. The result? Media articles about a “hire-to-fire” practice emerged. Managers had allegedly hired employees they planned to fire in order to meet their turnover targets.
I plan to do more writing on the topic of incentives in the future—stay tuned.
What other examples of the Cobra Effect can you think of? Tag me on Twitter and I’ll be retweeting the best examples in the days ahead.
This was a great thread on the stages of a bear market:
Stage 1—Unwind: It may still feel like the good times, but the seeds of the bad are starting to appear. Mini-narratives of bad times to come are proliferating.
Stage 2—Forced Capitulation: Positive narratives die and negative narratives reign supreme. Deleveraging spirals, layoffs, and company shutdowns.
Stage 3—Bottomless Exhaustion: Long, painful nothingness. No positive narratives or catalysts for improvement. Extended period of darkness.
Interestingly, the seeds of the bull market are often planted at the beginning of Stage 3 and begin to take form during that period.
My perspective is simple: If you can be a buyer when everyone else is a forced seller, you are positioning yourself well for long-term growth and success. Being a buyer can take any number of forms—it can relate to accumulating talent, building new ideas, or creating new opportunities.
During periods of prolonged darkness, this is the playbook:
Default Alive: Make sure your personal situation is “default alive”.
Long-Term Orientation: Play long-term games with long-term people.
Optimism: Realize that dark times never last forever.
Bias for Action: Boldly act on new and exciting opportunities.
If you adopt that playbook, you’ll position yourself for success when we emerge on the other side.
This is a 2019 blog post from Sam Altman that I often re-read. It’s a list of 13 principles for success that’s jam-packed with useful insights and perspectives.
A few of my favorites:
Compound Yourself: You want your life to follow an exponential curve. Always seek to play games that compound. You never want to play games where someone with no experience can compete against you.
Get Good at Sales: I’ve always said that you can get really far in life by just being likable and having the ability to sell. You have to learn to sell—whether you’re fundraising, recruiting talent, trying to land a new job, whatever. If you can sell, you’ll always make it.
Be Hard to Compete With: Play games you are uniquely well-suited to win.
The entire piece is worth reading (and bookmarking).
Why You’re Smarter Than You Think
Phenomenal episode of the Hidden Brain podcast that questions the foundations of our thinking on childhood intelligence.
I have always found it crazy that we start assessing and ranking children based on standardized measures of intelligence at such a young age. This episode challenges the notion of what we have societally deemed to be “smart” and proposes several new and more expansive ways of thinking about human potential.
Great listen—particularly for anyone interested in the future of education.
Where It Happens Podcast
Predicting the Future of Web3
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