Buyology: Truth and Lies About Why We Buy by Martin Lindstrom is a fun, eye-opening book. It explores the field of neural marketing, which is a mix of marketing, behavioral economics, and cognitive science (think commercials + FMRI’s).

It uses an adventure-like narrative to describe some of the procedures and has some fun little tidbits in it, like how car commercials were virtual clones (you could swap one for another without brand/product recognition), yet the mini-cooper stood out because it activated the cute facial recognition part of our brains. Maybe I’m not the only one who sees headlights as eyes and grills as mouths.

The key points for me were:
- If one brand’s presence dominates a show, side advertisers may be wasting their money
- Rituals can make a product stick
- Little details, like headquarters listed make huge differences
- Non-important or non-existent magic mystery elements sell!
- Breakable brands are more likely to succeed
- Sex and religion in advertising aren’t always the best policy
- Associated messages (truly subliminal ones) are extremely powerful

The biggest question I had with it was if there was research done on how the warning labels and anti-smoking commercials impact non-smokers. While the book shows the counterproductive impact on those who are addicted, I wonder how they impact potential consumers who are not addicted.

You believe all swans are white. Each time you see a white swan, it’s just confirmation of your belief. People can see millions of white swans, but it only takes one black swan to prove everything wrong.

I first heard of this book on Talk of the Nation’s Interview with Taleb, it stayed in my mind throughout my adventures in Thailand, and upon my return I finally got my hands on a copy and fell in love with it.

Here are some of the topics covered (not a complete nor ordered list, nor exact quotes, just general highlights of parts I loved):

1. Mundanistan vs Extremistan: Take a 10,000 people to a stadium. No matter how fat one guy is, he’s not going to change the average weight by any noticeable amount. Same with height. Same with age. Now imagine you’re measuring net worth. A guy like Bill Gates will blow the average out of the stadium. Measures like height, weight, etc are from Mundanistan. Measures like net worth, people killed in a war or by a disease, the impact of a new invention etc, are from Extremistan. Averages and standard deviations and predictions can fail in Extremistan. For the most part…. we live in Extremistan… and we shouldn’t depend on Mundanistan prediction methods on things that can have huge impacts on our lives.

2. Silent Evidence: “These souls prayed to the gods and were saved.” “What about those who weren’t?” Most interesting professions, like writing or trading etc have huge cemeteries. When we look at the winning record of associates at a firm, or books sales, or even the stock picks of the latest hot fund, there’s a lot we don’t see. What about all the guys who are fired each year? What about all the authors who fail? What about all the companies that went bust and were replaced? Or the funds that were hot that no longer are? We often read books by successful CEOs listing the qualities they think made them get there (I’m particularly guilty), but we don’t see the thousands who have those same qualities who failed.

3. The Ludic Fallacy: Mistaking the map for the terrain. Best illustrated with the help of Fat Tony.

Thought experiment at a bar (this isn’t an exact quote, sounded much better in the book):
Taleb: I tossed a fair coin 99 times and got heads each time. What are my odds of heads on the next toss?
Dr. John (the actuary): 50/50.
Fat Tony: At least 99 to 1.
Dr. John: But why? The previous tosses have nothing to do with the next one.
Fat Tony: You’re either full of crap or a pure sucker to buy that fifty percent business. The coin’s gotta be loaded.

In other words: it’s more likely there’s something wrong with the assumption of fair play than a fair coin landing 99 times in a row on heads.

Further examples of this are in how we deal with probability. Most people think of probability as chances in dice and card games, but as one example points out: what were some of the biggest losses a casino had to deal with? A tiger attack on one of the Casino’s top performers, a pissed off contractor trying to dynamite the foundation columns, an employee filing papers that needed to be filed with IRS only in files in his own desk, and a kidnapping of the owner’s daughter. Think outside the box. There are many more things we don’t know than we know.

4. Induction: Don’t be the turkey!
Turkey wakes up every morning and gets fed and cared for by humans. It’s been true for 999 days. But on the 1000th day, there’s a very unpleasant surprise. Induction can be deadly.

5. Ties and Mice and Experts
Just because someone speaks with authority, has a suit on, and has a fancy position doesn’t mean you should trust him (or her). Next time you deal with a self-assured expert (political analyst, fancy academic, economist, etc) imagine dropping a mouse down his shirt and seeing his reaction. I was crying from laughter during the first detailed elaboration.

6. Survival Bias: Why didn’t the Plague kill more people? Because we’re still here. If it did, we wouldn’t be here asking. Casanova had his lucky star that he believed helped him back up. How could he bounce back so many times? Well, he might have, but thousands of other Casanova’s didn’t. You’re not hearing from them. Sitting next to a guy at a Casino, who just won some 1 to 100,000 prize. “It has to be destiny. I mean look at the chances.” Yeah, look at them, there were 999,999 others who failed. Don’t ask how could it be that you got here, but think of all the minor things that could have made you not be here. (Similar to 2. Silent evidence.. they’re all inter-related)

7. Butterflies and Chaos and Discoveries: They cleaned all the bird poop off the satellite, but the noise was still there. Turns out those noises were from the birth of the universe. They were just getting rid of bird crap. The guys that deduced those signals should exist had to read about the noise from the paper. Ditto for penicillin, another accident. Heck, ditto for Columbus and America. Big discoveries often happen when people are looking for something else. The weather simulator gave completely different results for the same input. A bug? No, it was from rounding some really small, super-tiny, unimportant number. The so-called butterfly causing a hurricane… two years later. But here’s the thing, this is not an invitation to analyze butterflies! The point is, in highly complex systems, minor measurements can completely change the results. The whole point is it’s extremely difficult to predict.

8. Diaries and Noise:
Instead of rebuilding memory and answers to suit events, keep a diary, with your predictions and analysis. Much more humbling. Interestingly, regarding news and info (and going well with Ferris’ low information diet): more information can hurt your performance. Take a fire hydrant and blur it. Now unblur it in a number of steps, say 20 for Group 1, and 10 (corresponding to each second unblur) of the previous group. If we stop at each common unblur and ask both groups if they recognize it, the group with just 10 steps would see it at an earlier step than the group with 20. More data, slower recognition. Ditto for investing, perhaps computers can run on nanosecond algorithms however, for people, this can create a lot of confusion, stress, and wasted effort. In addition to being blinded, we’re wired to make connections and see stories. They make memory doable, but the “because” isn’t a fact. Niederhoffer also stressed this in his books (Education of a Speculator, Practical Speculation) in regards to financial news headlines. Interestingly enough, he also avoids the news… except for the National Inquirer.

9. Anti-Platonicity: I whine about categories enough. The book does too.

10. More more and more:
These are just a few of the things covered in the book, others include fractals, a simple overview of black swan investing strategy (only minor but very interesting), surprising praise of army analysts, wonderful treatment of self-confident academics and professionals and high brow opera culture, anecdotes, scientific and philosophical references, different modes of reasoning, exposing oneself to opportunities, linguistic mistakes that cost us bigtime! All told in a down to earth, understandable, funny, very funny voice.

This should be required reading before entering college. It could help raise many interesting questions. The induction part, actually highlights a really interesting point in writing persuasive essays on standardized tests (my favorite subject to teach)… using single examples, the narrative, isn’t the logical/scientific way to prove stuff… although it’s very effective for its given purposes (getting into college, getting a higher score… or to get viewers for news-stories news headlines).

I actually didn’t read the book, I listened to it… twice. It’s the perfect journey book, on drives from SF to SJ, I sometimes ended up sitting in the car minutes after arriving to get the last morsel from the chapter. Some neat books that gave background to this read: Niederhoffer’s Education of a Speculator and Practical Speculation, Ariely’s Predictably Irrational, and Tim Ferriss’s The 4-Hour Workweek. I think the direct link between the interview and getting the books was probably from Daily Speculations. In any case, The Black Swan is a must read, a book that can change the way you see the world.

Two articles worth reading:
Blowing Up: How Nassim Taleb turned the inevitability of disaster into an investment strategy (2002)
Nassim Nicholas Taleb: the prophet of boom and doom (2008)

I especially appreciate the sheets you can download from his website (fourhourworkweek.com) and high speed push toward efficiency and figuring out what you really want… ie. not a sum of money… but what you’d actually do with it. It was really surprising when I asked quite a few people what they would do if they had all the money and time they wanted that they really had no clue. They never thought beyond the money/time part. What Timothy Ferriss does is make you ask the right questions and take the necessary steps before it’s too late. Lifestyle design should be a required subject.

The part on glamor professions really hits a point. Thousands of people in lower positions competing for a very few spots. Those that make it, do very well, those are the ones seen, but most people don’t make it. If instead people went for a different goal, they could significantly increase their chances for success, or at the very least increase their standard of living while they try to achieve it. I also like how many events could be equally well or better “explained” by influences completely different than those that come to mind. Crime rate drops in a city with new police policies. Everyone cheers the mayor. Crime drops across the nation, regardless of policies. Was it because of the new policies? Was it due to some other event? Interesting question is how can we test these explanations.

The book has a website too: whomovedmycheese.com

The things I love most about the book are:
1. It has a common sense formula
2. It explains why it’s common sense
3. It has easy action steps

My only issue with the formula is that you have to switch stocks in one year cycles, however, perhaps if a stock maintains its ratios it could be kept again. The stats on returns are amazing, but even better is that the formula isn’t just random, it actually makes sense.

Basically the secret of the book is this: buy companies that have a high ratio of earnings to capital invested (ie. if two businesses both cost 500k to start and one makes 250k and the other makes 100k a year… which is a better investment?) and to buy companies that have a higher earnings yield (ie. if two companies both sell shares at 10 dollars, but one company earns 1 dollar for that share and the other company earns 2.50 for its share… which is a better investment?).

The coolest thing is that there’s a website that helps you find such companies: MagicFormulaInvesting.com.

Even if this book took a week to get through (it only takes an hour or so) The Little Book That Beats the Market is definitely worth your time.

Here’s a more detailed review.

His time management tips are amazing. I especially love the one about procrastinating on what’s not important. It’s such a powerful tool. I also like the whole “eat that frog” idea and the focusing techniques. Aside from Rich Dad, Poor Dad (which isn’t really a coaching book as much as an eye opener) I think this is fastest impact couching program I’ve listened too.

He also gave some really good tips about time and money. I really like the one about figuring out what you get paid per hour and what you would like to get paid and raising the value of your hourly contributions to that. I also like the one about taking a month to delay making any big spending decision.

Speaking of which, I might have made a mistake, but it’s a “mistake” that lets me listen to these tapes. =)

The Psychology of Achievement: Develop the Top Achiever’s Mindset
Million Dollar Habits: Proven Power Practices to Double and Triple Your Income
Master Strategies for Higher Achievement : Set Your Goals and Reach Them – Fast!

While the style and structure seem best for paper (not easily memorizable) there are some really nice insights in the tape. Among them, what are seven habits of ineffective individuals: not taking responsibility, not putting first things first, over-committing, etc.

The book also stressed the same point that Robins’ book. Realizing that you have the ability to control your response. Then growing from there. The saying no to unnecessary commitments and taking time to write a mission statement parts are aslo really important.

Overall this is a nice quick listen, hard to orient at times, but because it’s so short, it’s not that big a problem.