A new story from a16z



Hi, everyone. Welcome to six z podcast. I'm subtle and today Marc Inari doing another one of our book, author episodes were interviewing any Duke who's a professional poker player and World Series champ. And is the author of thinking in bets which is just out in paperback today the subtitle of the book is making smarter decisions. When you don't have all the facts, which actually applies to startups and companies of all sizes and ages, quite frankly, I mean, basically any business or new product line operating under conditions of great uncertainty, which I'd argue is my definition of a startup and innovation. So that will be the frame for this episode, and he's also working on her next book right now and founded how I decide dot org, which brings together various stakeholders to create a national education movement around decision education empowering students to also be better decision makers. So anyway, Mark, and I interview her about all sorts of things in and beyond her book going from investing to business to life, but any begins with a thought experiment, even though neither of us really know that much about football. So what I'd love to do is kind of. Throw a dot experiment at you guys. So that we can have a discussion about this. So I know you guys don't know a lot about football. But this one's pretty easy. You're gonna be able to feel this one which is do the start experiment p Carol calls for marshawn Lynch taxi run the ball. So we're we're betting on someone. We know is really good. Well, they're all really good. But we're betting on the play that everybody's expected default. This is rational the assumed rational thing to do. Right. So he has Russell Wilson handed off to marshawn Lynch marshawn Lynch goes to barrel through the line. He fails. Now, they call the time out. So now, they stopped the clock. They get another play now. And the hand the ball off to marshawn Lynch what everybody expects marshawn Lynch again attempts to get through that line. And he fails end of game patriots went my question to you is are the headlines. The next day that worse call in Super Bowl history. Is Chris Collins were saying, I can't believe the call. I can't believe the call or. Is he saying something more like that's why the patriots are so good? They're line is so great. That's the patriots line that we've come to see this whole season. This will seal Bella Czech's place in history. It would have all been about the patriots. So let's sort of divide things into like, we can either say the outcomes are due to skill or luck and lock in. This particular case is going to be anything that has nothing to do with p Carol, and we can agree that the patriots line doesn't have anything to do with Pete Carol. Bella check doesn't have anything to do with Pete Carroll. Tom Brady doesn't have anything to do with Pete Carroll as their ceiling their fifth Super Bowl victory. So what we can see there's two different routes to failure here. One route to failure you get resulting. And basically what resulting is is that retrospectively once you have the outcome of a decision once there's a result. It's really really hard to work backwards from that single outcome to try to figure out what the decision quality is. This is just very hard for us to do. They say, oh my gosh the outcome. Was so bad this. This is clearly I'm going to put that right into the skill bucket. This is because of Pete Carroll's on doing. But in the other case, they're like, oh, you know, there's uncertainty. What could you do weird? Right. Okay. So you can kind of take that you can say a ha now, we can sort of understand some things like, for example, people have complained for a very long time that in the NFL they have been very very slow to adopt. What the analytic say that you should be adopting. Right. And even though now we've got some movement on fourth down calls when are you going for two point conversions and things like that? They're still nowhere close to where they're supposed to be. Don't make the plays correspond to the statistical probability is in fact, the analytic so that if you're on your own one yard line and its fourth down, you should go for it. No matter what the reason for that is if you kick it you're only Bill to kick to midfield. So the other team has basically almost guaranteed three points. Anyway. So you're supposed to just try to get the try to get the yards. Like when have you ever seen a team on their own one yard line hunt? Fourth down be like, yeah. Let's go for it. That does not happen. Okay. So we know that they've been like super slow to do what the analysts say is is correct. And so you sit here, and you go why is that? And that thought experiment really tells you why because we're all human beings. We all understand that there are certain times when we don't allow uncertainty to bubble up to the surface as they explanation, and there are certain times than we do. And it seems to be that we do when we have this kind of consensus around the decision. There's other ways we got there. And so okay, if I'm a human decision maker, I'm going to. Choose the path where I don't get yelled at. Yeah. Exactly. So basically, we can kind of walk back, and we can say we allowing the uncertainty to bubble to surface. And this is going to be the first step to kind of understanding what really slows innovation down, what really slows adoption of of what we might know is good decision making because we have conflicting interests right making the best decision for the long run or making the best decision to keep us out of a room where we're we're getting judge or possibly fired. So can let me propose the framework that I use to the methods to see if you agree with it. So it'd be two by two grid, and it's consensus versus not consensus, and it's right versus wrong. And the way we think about it. At least our business is basically consensus right is fine consensus consensus right is fine. In fact, generally, you could call genius. Yes. Consensus wrong is fine. Because you you just have ever, you know, this is the same mistake. Everybody else. Matthieu alibi? Knock consensus wrong is really bad radioactivity bad. Right. And so and then and then as a concept. Of that. And maybe this consider innovation stuff that that you'll be talking about. But as a consequence of that there are only two scripts for talking about people operating in the non consensus, directions one script. Is there a genius because it went right, and the other is there a complete moron because I went wrong is that does that. That's that's exactly that's exactly right. And I think that the problem here is that what is right and wrong mean in your to buy to wrong, and right is really this just a turn out Weller. Now, this is where we really get into this problem. Because now what people are doing is. They're trying to swat the outcomes away. And they understand just as you said that on that consensus wrong, you will have like a cloak of invisibility over you like you don't have to deal with it. Right. So let's think about other things besides consensus. So consensus is one way to do that, especially when you have like complicated cost benefit analyses going into it. I don't think that people when they're getting a car are actually doing any kind of calculation. About what the cost benefit analysis is to their own productivity versus the danger of something very bad happening to them. Like, what is the society? We've someone's done this calculation. We've all kind of done this together. And so therefore like getting in a car is totally fine. I'm gonna do that. Nobody second guesses anybody. So somebody dies in a car crash. You don't say one of moron for getting in a car know another way that we can get there is through transparency. So if the decision is pretty transparent another way to get there is a status quo. So like good status quo example, they like to give because everybody can understand it is you have to get to a plane, and you're with your significant other in the car, and you go through this every couple so you go your usual route like you go the literally this is the route that you've always gone, and there's some sort of accident. There's bad traffic, you missed the plane, and you're mostly probably comforting each other in the car. It's like what could we do, you know? But then you get in the car, and you announced to your significant other. I've got a great shortcut. So let's take the shortcut to the airport and there's same accident. Whatever. Horrible traffic you missed the flight, and that's like that status quo versus not status quo decision. Right. You're going against what's your and comfortable. It's actually if we go back to the car example, when you look at what the reaction is to a pedestrian dying because of an autonomous vehicle versus because of a human were very very harsh with algorithms, for example, if you if you get in a car accident, and you happen to hit a pedestrian that can say something like, you know, what Mark didn't intend to do that. Because I think that I understand your mind is not such a black box to me. So I feel like I have some insight into what your decision might be in some more allowing some of the uncertainty to bubble up there. But if if this blackbox algorithm makes the decision now all of a sudden, I'm like get these cars off the road never mind that the human mind is a black box itself alert. Right. We have some sort of allusion that I understand sort of what's going on. And they're just like I have an illusion. I understand what's going. On in my own brain. And you can actually see this in some of the language around crashes on Wall Street to when you have a crash that comes from human being selling people say things like the market went down today when it's algorithms they say, it's a flash crash. So now, they're sort of pointing out like this is clearly in the skilled category. It's the algorithms fault. We should really have a discussion about algorithm trading. And whether there should be allowed when obviously the mechanism for the market going down the same either way. So now, if we understand that so it's actually your matrix. Now, we can say well, okay. Human beings, understand what's going to get them in the room and pretty much anybody who's, you know, living and breathing in the top levels of business at this point is going to tell you the process process process. I don't care about your outcomes process process process. But then the only time I ever have like an all hands on deck meeting is when something goes wrong. Let's say you're in a real estate investing group, and so you invested in particular property based on your model and the appraisal comes in ten percent lower than what you expected. Like everybody's in a room. Right. You're having a discussion you're all examining the model you're trying to figure out. But what happens when the appraisal comes in ten percent higher than expected is everyone in the room going. What happened here there is the obvious reality? Which is like we don't get paid a process. We get paid out comes Booker players. You don't get hit impresses you could play out compete on outcome. And so there is a incentive there is. It's not completely motionless. There's also a national. There's a real component. Yeah. So two things one is you have to make it very clear to the people who work for you that you understand the outcomes will come from good process that that's number one. And then number two what you have to do is try to align. The fact that as human beings, we tend to be outcome driven to what you want. In terms of getting getting the an individual's risk to align with the enterprise risk because otherwise you're going to get the CYA behavior. And the other thing is that we want to understand if we have the right assessment of risk. So one of the big problems with the praise coming in ten percent who high there could be that your models. Correct. It could be that you could have just a tail result. But it certainly is a trigger for you to go look and say with their risk in this decision that we didn't

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