Paul Giannamore: Close your eyes and imagine yourself seeing a lucky dwarf. Quickly, between the number 1 and 10, choose a number out of gut reaction. The first number that comes to your mind, choose and don't say it out loud and just hold it.
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Paul Giannamore: PB, we're going to have to get more consistent here with The Buzz between me being in the Arabian Gulf and being out in Arizona and you, yourself, being on the road. We have shit the bed on getting episodes out and we're not going to do that anymore. I'm still suffering from jet lag. It was a twelve-hour Delta for me from the Middle East to Arizona. It's flattering that so many folks miss it and we'll make sure that we do a better job going forward.
Patrick Baldwin: Flattering? I don't want to hear the whining. Come on, Paul.
Paul Giannamore: You deserve it, Patrick. Please, track Patrick down with any questions and concerns.
Patrick Baldwin: Paul, you were at AzPPO. I missed it in 2024. Cameron went my place, did a wonderful job, got to meet a lot of clients, and had a great time out there. It has been busy with travel over here. I want to say, I got a sneak peek. Dylan was out there filming. You did two of the keynotes at AzPPO. Wonderful conference and love the people out there. What is coming out soon on Potomac TV is incredible and I can't wait for that to get shared on Potomac.tv.
Paul Giannamore: By the time this episode goes out, Dylan should have at least the two sessions that I did online. Of course, we sat down in Tommy Mello’s $12 million brand-new home. The motif of that was like a 14-year-old boy wins lottery because he had all sorts of crazy toys. We sat down in his living room, we filled a Potomac TV episode off the record, and then he had a private chef there that made us, I kid you not when I say this, the best steak that I've had in the better part of a decade. That's how good this was. This guy was good. The Mexican showed up right for dinner.
Patrick Baldwin: I was going to say, in ruined by your company.
Paul Giannamore: We got done with the session and then as soon as we were done, the Mexican came storming in the door, he went right to the fridge, grabbed himself a beer, sat down, and ate food.
Patrick Baldwin: Poor Tommy, for everything he's built in his life just to get ruined in a moment's notice.
Paul Giannamore: It was entertaining and I hope we got footage of the dinner because it was certainly outstanding. That stuff should start popping up here. If you are not a subscriber of Potomac TV, go to Potomac.tv, subscribe, and you'll get notifications when that comes out. The AzPPO folks put on a great show. It was extremely well-organized and had a lot of great people there. Overall, I was extremely impressed. It was consistent with your thoughts from 2023. I would say, if you are in a Western state, if you're from Texas to California, Texas is not West but it's close enough, you can shoot to AZ in a couple hours.
If you're in the Southwest region, that's a show worth going to. They had great speakers. They had a great exhibition hall. Even the food there, I maybe had a quick couple of bites or two. I was mainly going outside for meetings but I did stop by the food area and took a couple of bites. As you know, we tend to judge shows and conferences by the quality of food provided. I would say that wasn't WorkWave-quality. WorkWave has some tasty morsels as far as shows go but it was definitely edible. It’s not bad.
Patrick Baldwin: I love it. I'm laughing because we're talking about food again.
Paul Giannamore: I also dined. I had a great meal with a FRAXN client out there. Those guys are doing close to $20 million in revenue. I got an opportunity to spend some time. I did a little bit of investigative journalism myself on FRAXN clients because there were probably a dozen of them out there. I got an opportunity to spend some time with Cam. The direct feedback that I heard was phenomenal. I was pulled aside on multiple occasions with folks asking me to take a look at some numbers and answer some questions, which I happily did.
I will tell you that the reports are super pristine, clean, and easy to understand. The integrity of the data is great. You guys keep it up over there on FRAXN because very quickly, you guys are making this the premier bookkeeping accounting shop not only in pest control but in allied industries. I was impressed with what I saw. By the way, the Mexican was with me and, of course, he asked some of these guys how much Fat Pat, Cameron, and the FRAXN crew sucks at life. According to them, none of you guys suck, and you guys are awesome so congratulations.
Patrick Baldwin: No. Only I suck. I appreciate it. It's definitely rewarding seeing the messages that come across of people that are enjoying FRAXN, it makes everything worth it. I did want to remind, we've got that Ask Me Anything, I’m excited about that, coming up April 23rd, 2024. Now, there's a date. If you're on FRAXN, get an opportunity here to get connected with Potomac. You're going to run through someone's financials. We'll know who it is but no one else will know who it is and walk through like your point of view on that.
Paul Giannamore: It'll be my first Ask Me Anything call for FRAXN and it will not be publicized so it'll be uncensored. I'm thinking about bringing the Mexican into this one.
Patrick Baldwin: We'll start with a low bar and we'll take it up from there.
Paul Giannamore: We'll need to have an official disclaimer form signed if I do that.
Patrick Baldwin: A waiver.
Paul Giannamore: I'm giving a strong consideration.
Patrick Baldwin: Cool. While you were at AzPPO, you know this now, Daniel Kahneman, the author of Thinking, Fast and Slow, passed away. I might've been the one that told you that or broke the news.
Paul Giannamore: You did, as a matter of fact.
Patrick Baldwin: In light of that, we had a listener come in. I know a lot of listeners have said, “You missed The Buzz. Where have you been?” All that stuff. Here, we have a listener request. Daniel writes, “Your episode on Dunning-Kruger was excellent. With the passing of Daniel Kahneman, whom Paul has referenced a handful of times, an episode of lessons learned from him from Paul would be highly engaging.” Here we go.
Paul Giannamore: As you well know, I have referenced Kahneman and Tversky tons of times. I've learned a tremendous amount from them not only from Kahneman's book, Thinking, Fast and Slow, but also from some of their earlier papers, the 1982 Judgment under Uncertainty paper for which they won the Nobel Prize. They've had a big impact on my life, particularly how it affects negotiations. A lot of the stuff they talk about is helpful for the businessman and woman in general. You tried to read Thinking, Fast and Slow how many times now?
Patrick Baldwin: I've started it twice, paperback and Kindle. It's hard. It's heavy.
Paul Giannamore: It's not an easy book. It's a book to be read a dozen times. It's a book to be read over a long period of time. You almost have to break it down chapter by chapter because it's heavy reading. If you're like me, there's a bibliography with a plethora of scholarly references, and I've got all sorts of subscriptions that I get online and I pull up the scholarly papers and I read those because I want to read about the experiments and so on and so forth. That book was published in 2011 and I got it shortly after it came out. I've read it multiple times and I still read it every year. As you remember, when I was out at Power, I had it in my bag because it's something that I referenced quite a bit.
Patrick Baldwin: I found that out not because I was digging through your bag but because at the conference, someone's like, “Paul, what do you read? What kind of books do you read?”
Paul Giannamore: I pulled it out and said, “I happen to be reading this now.”
Patrick Baldwin: You told me I should read it and we would, one day, do an episode about it. You've been waiting for me to read it. Fortunately, Daniel comes to the rescue here with his question. Maybe this is it. Maybe I'll finally read it. Who knows?
Paul Giannamore: The hardcover copy of that book, which I've got here, is 500 pages. It's a fat book. It would take us forever to go through all of the chapters. There are 500 pages and 38 chapters. When I think about a lot of Kahneman's research from the early years, he just passed away, so we're doing this episode now because he just passed away, three weeks past his 90th birthday. He lived in New York city. His second wife had passed away in 2018. When he died, he was living with the widow of Amos Tversky, who was his partner for decades. Fortunately, Amos wasn't around when Kahneman won the Nobel Prize because they don't give the Nobel Prize to dead people.
To kick this off, PB, we can talk about some things that are very high level. I tend to focus on this stuff from a negotiation’s perspective, which is where I spend almost every minute of my day. For the businessman and woman in general, there are a lot of things to learn from it. When I think about some very basic early research stuff that Amos and Kahneman did, I start to think about priming and associated activation. Should we do a little bit of an experiment on ourselves here, Patrick?
Patrick Baldwin: Yeah, please.
Paul Giannamore: I want you to think about a lucky dwarf. Close your eyes and imagine yourself seeing a lucky dwarf. Quickly, between the number 1 and 10, choose a number out of gut reaction. The first number that comes to your mind, choose, don't say it out loud, and just hold it.
Patrick Baldwin: Got it.
Paul Giannamore: I saw this experiment in a speech many years ago. I can't remember who it was. I think it may have been Nick Kolenda who did it. Patrick, you're laughing over there.
Patrick Baldwin: We were talking about dwarfs, Paul.
Paul Giannamore: We were talking about angry dwarfs. Now, I'm talking about lucky dwarfs. You out there who I would imagine probably went through this experiment as you're listening, I would say that, more likely than not, you thought of the number seven.
Patrick Baldwin: Same here.
Paul Giannamore: Did you think of the number seven?
Patrick Baldwin: It was seven. Yes, sir.
Paul Giannamore: Do you know why that is?
Patrick Baldwin: Seven, we think of lucky. Lucky seven.
Paul Giannamore: Seven dwarfs. That's just the concept of what we call priming. Your brain has a schema, which is a node, so to speak, and it effectively ties together very similar ideas. You can be primed for the color orange and it'll make you think about things that are related to orange. In scientific experiments, Kahneman talks about it in the book, they primed people for the word Florida. In the experiment, of course, priming people for the word Florida made folks think of old people. There are a lot of experiments where the test subjects are primed for various different words.
Another one that he references, and I'm going off a memory on a lot of this, is priming for mother primes people for motivation. For example, when you think about your mother, you're trying to impress your mother, you're primed for motivation. Those of you who are more interested can of course read the book. Effectively, what happens is you've got a schema in the mind and we call this associated activation. When you activate a certain schema, we've activated the schema for seven in your mind, your brain is able to more process the number seven with cognitive ease or processing fluency as it's called in the scientific data.
Priming is an extremely helpful process, particularly when it comes to negotiations. We've talked before about the anchoring effect. The anchoring effect works in two broad pathways, it acts from priming and also anchoring and adjustment. We'll talk about that for a little bit. The main premise of this book, Thinking, Fast and Slow, is that he breaks down two cognitive processes in the brain and he calls them System 1 and System 2. They're not discrete systems but System 1 is that automatic subconscious, your mind thinks super quick, and comes up with a determination.
Whereas System 2, if you'll recall, Patrick, is more of a deliberate conscious mental discussion where your mind is actively involved in thinking through something. The book largely focuses on heuristics, which are simplifications that System 1 in the mind makes in order to come to rapid conclusions. When we talk about anchoring, there's a whole chapter on anchoring. For me, anchoring is an important process.
You missed the AzPPO discussion but maybe by the time this episode is out, we'll have the AzPPO sessions. I did the two keynotes on both days. The first day, I focused on the sell-side process and I made this distinction between a negotiated sale and an auction. We ran a few different scientific experiments, so to speak, for the crowd.
For example, I auctioned off a jar of coins. Why I did that was I wanted to demonstrate how a single bid or a single round-sealed bid auction works. When I did that, I anchored. There were maybe 400 or 500 people in the crowd. For example, I'm going to sell this jar of coins. Real money is going to change hands. Everyone in the audience is going to bid on this jar of coins. For example, if there's $40 in the jar and you bid $45, you owe me $5. If you bid $35, then you're going to end up netting out $5.
I anchored the $40, the thing ultimately sold for $39.50 or thereabouts. It was $39 and change, you'll see that in the video, because I anchored to $40. There was actually only $22.50 in the jar. I wasn't trying to demonstrate anchoring. That was an original experiment run by professor Thaler on the Winner's Curse, which is basically the concept that whoever wins at an auction ends up ultimately paying more than the item is worth.
Anchoring, of course, is an important concept in negotiation and that works through System 1 and System 2. System one, you're priming, and you're getting the mind thinking of things so you're priming for a particular number. Through System 2, which is more of a deliberate thought process, there's an anchor and adjustment so you're causing somebody to anchor from the number that you establish.
Patrick Baldwin: Did you walk away with $17?
Paul Giannamore: I got so caught up in the discussion that I lost track of the jar and the experiment went bust. We moved on. I don't even know what happened to the jar.
Patrick Baldwin: I'm sure the Mexican ended up with it. He always wins.
Paul Giannamore: A little bit of beer money for him.
Patrick Baldwin: That's very little beer money for him. You anchored on the $40. How would you anchor $40? What does that opening line even sound like?
Paul Giannamore: I said, “For example, let's say there's $40 in this jark, you bid $45, and you pay me $5.” That was an anchor.
Patrick Baldwin: You're saying, in the audience, System 1, everyone's System 1 is running to hearing $40? System 2 is then beginning to process, “Is it $40? Is it more? Is it less?”
Paul Giannamore: I'm certainly not an expert in this but I tend to think that when you're having those sorts of discussions, it's less System 1 priming and more related to anchoring and adjustment. Now, the bogey out there is $40 and they're anchoring from that.
Patrick Baldwin: That'll be a fun one to see on Potomac TV.
Paul Giannamore: To give you a quick example here from the book, the Florida Effect involves two stages of priming. First, the set of words primes thoughts of old age, though the word old is never mentioned. Second, these thoughts prime behavior, walking slowly, which is associated with old age. All this happens without awareness. When students were primed for the word Florida, they use a control group that's primed for something else and then they had a group primed for Florida.
As Bargh, the researcher predicted, the young people who had fashion sentences from words with elderly theme walked down the hallway significantly more slowly than others. There were physical manifestations of this. When they were primed with the word Florida, you think of the elderly, they left the test walking more slowly than the other group. I don't remember what the other group was primed for but it certainly wasn't that.
Priming, of course, can be extremely beneficial in a lot of ways, particularly with negotiations. Priming, an associated activation according to Kahneman, activates many ideas which in turn activates others. Furthermore, only a few of the activated ideas will register in consciousness. Most of the work of associated thinking is silent, hidden from our conscious selves. The notion that we have limited access to the working of our mind is difficult to accept because. Naturally, it is an alien experience but it is true. You know far less about yourself than you feel you do.
You and I are having a negotiation on a topic. Before we actually get into controlled auctions and positional bargaining and all sorts of other jazz that goes along with traditional negotiation topics, I can begin to prime you to be open-minded to my proposal by literally priming you to be open-minded. I can use words like open-mindedness and flexibility. It opens up the associations in the brain with open-mindedness and flexibility.
You can begin to have discussions before you make requests by priming the mind to be more open-minded and flexible and you do that literally by talking about it. It's a very subconscious effect. Kahneman talks about this a little bit in the book. It's when you start to dig into a lot of the research papers that he references to understand how this is done in psychological experiments. It's a very powerful tool in negotiation.
Patrick Baldwin: Does it, at some point, become manipulative? Is it always manipulative?
Paul Giannamore: How would it be manipulative?
Patrick Baldwin: If you want someone to be open-minded and then you're dropping these words of open mindedness, it feels like maybe it's a control thing or maybe not. You're using your knowledge to your benefit.
Paul Giannamore: You could have all sorts of discussions prior to making your request about even giving examples in which certain folks were open-minded so you could tell stories and talk about past transactions. The other side saw a value in X, Y, and Z, extended flexibility was willing to step up, did not argue this point. You can have these sorts of discussions, which primes the schema in the brain through associated activation, which, all of a sudden, now makes you think you're more open-minded because you've primed that aspect.
You can think about times, historically, where you've been open-minded. I've seen even talking about situations whereby, historically, Patrick, you may have not done something but you decided to go against your own initial judgment. You were open-minded, you went ahead and did it, you took a risk, and it worked out for you.
Patrick Baldwin: I was wondering if that also plays an anchoring, like, “Here's a precedent.” I don't know if anchoring has to be quantitative, numerical, but if it's like, “In the past, this is something that happened.”
Paul Giannamore: Certainly. If we talk about anchoring, for a second, let's go to the anchoring chapter.
Patrick Baldwin: This is a lot easier than me reading the book, Pail. Just saying. Thank you.
Paul Giannamore: You're talking a little bit about what's referred to as associative coherence. If I look in chapter on anchoring on page 123 in the original hardbound, it says, “German psychologists Thomas Mussweiler and Fritz Strack offered the most compelling demonstration of the role of associated coherence in anchoring. In one experiment, they asked an anchoring question about temperature, ‘Is the annual mean temperature in Germany higher or lower than twenty degrees, which is 68 degrees Fahrenheit. Or is the annual mean temperature in Germany higher or lower than five degrees C, which is 41 degrees F.’”
They said, “Is it higher or lower than 20 or higher or lower than 5?” “All participants were then briefly shown words that they were asked to identify. The researchers found that the 68 degrees Fahrenheit made it easier to recognize summer words like sun and beach. The 40 F, 40 degrees Fahrenheit, facilitated winter words like frost and ski. The selective activation of compatible memories explains anchoring. The high and the low numbers activate different sets of ideas in the memory. The estimates of annual temperature draw on these biased samples of ideas and are therefore biased as well.”
“In another elegant study in the same vein, participants were asked about the average price of German cars. A higher anchor selectively primed the names of luxury brands such as Mercedes and Audi, whereas the lower anchor primed brands associated with mass market cars, such as Volkswagen. We saw earlier that any prime will work to evoke information that is compatible with it. Suggestion and anchoring are both explained by the same automatic operation of System 1.”
You can use anchors to prime for things. We talked about the temperature. A higher temperature primes people for summer thoughts. You're thinking about a warmer temperature, that's the average. What's the average temperature? It's warmer. All of a sudden, the mind is thinking about summer-related terms versus cold and that's called associated coherence and that's part of associated activation of schema within the mind. That's associated activation and anchoring.
I'm going to do a lot of tying this to negotiations but it's probably helpful to folks in certain ways because it can be used in a variety of different contexts. A huge portion of this book is dedicated to cognitive biases and heuristics and heuristics are basically mental models that allow us to shortcut and make quick snap decisions. One cognitive bias that I think often about is that of representativeness. Let's do a little bit of an experiment, you and I.
Patrick Baldwin: I like this experiment stuff. This is fun.
Paul Giannamore: You see a person reading the New York Times on the subway. Which of the following is a better bet about the reading stranger? One, she has a PhD. Two, she does not have a college degree. Let's repeat that, she's on the subway reading the New York times, what one explains her better? She has a PhD or she does not have a college degree?
Patrick Baldwin: PhD.
Paul Giannamore: What does Kahneman say about that? He says, “Representativeness would tell you to bet on the PhD but this is not necessarily wise. You should seriously consider the second alternative because many more non-graduates than PhDs ride the New York subways. If you must guess whether a woman who is described as a shy poetry lover studying Chinese literature or business administration, you should opt for the latter.” There's effectively more non-PhDs riding the subway, so on and so forth.
Representativeness is just like the fact that if you saw a seven-foot-tall dude and you were told he plays a sport, you would certainly bet on the fact that he plays basketball but that's not always the case. At the end of the chapter, he has a few quotes here and this has stuck with me hardcore for many years and I use it to my advantage.
He says, “The lawn is well-trimmed, the receptionist looks competent, and the furniture is attractive but this doesn't mean it is a well-managed company. I hope the board does not go by representativeness.” There are a lot of things that you can do to create a representativeness bias in the minds of the observer. I often tell people when they're selling their businesses to make sure that everything is spick and span cleaned orderly. You've heard me say this before and you heard me say this to you.
Patrick Baldwin: That rings a bell, sure does.
Paul Giannamore: There's a representative bias there and it's very powerful.
Patrick Baldwin: Like, “Do we have to go put up an OSHA poster?” We were so concerned about safety posters, definitely missed the boat on why you were telling us to clean up.
Paul Giannamore: That, my friend, is why. The experience of familiarity has a simple but powerful quality of past-ness that seems to indicate that it is a direct reflection of prior experience. We talk about the concept of cognitive ease. When you think about cognitive ease, anything that makes it easier for the associative machine to run smoothly will also bias beliefs.
A reliable way to make people believe in falsehoods is frequent repetition because familiarity is not easily distinguished from the truth. You repeat it over and over and, effectively, the mind tends to believe things that it can easily grasp and the more that it hears something, the easier it is to increase cognitive fluency. From that, are you familiar with the mirror exposure effect?
Patrick Baldwin: No.
Paul Giannamore: There was a guy named Zajonc, a Polish name, and he did a lot of experiments on what's called the mirror exposure effect. People tend to like people that they've had a lot of exposure to, even if it's for like a thousandth of a second and their conscious mind doesn't even recognize the fact that they're seeing this. They have all these sorts of experiments where they've flashed names of companies that are very difficult to pronounce. They flashed them on screens. People were not even consciously aware that they were looking at them.
A month later, when they tested them in surveys, they picked out the companies that they had been exposed to more frequently than others. The girl in the coffee shop that sees you every single morning is more likely to fancy you than somebody you just meet on the street because of the mere exposure effect.
Patrick Baldwin: I'd stick with my Keurig. Thank you. No coffee shops in my future.
Paul Giannamore: Perhaps even the young man at the coffee shop fancies you more. I don't know. I'm just saying there's some power in the mirror exposure effect.
Patrick Baldwin: Is this subliminal messaging?
Paul Giannamore: The science behind it again is if something is repeated to you, whether visually or audibly or what have you, it becomes way easier for the brain to process it. It's familiar. The brain associates processing fluency with liking.
Patrick Baldwin: Things that you’ve just said, this one included, I'm taking to the day-to-day operations like sales. When someone calls in and is asking for service and then I'm offering them quarterly service and they settle for a one-time service and then the technician shows up or the salesperson shows up and then he's selling them, bundled service as opposed to one-time service. I wonder if there's a direct correlation there. For me, it was just another ad but I wonder if there's, maybe I'm stretching this too far, a likeness. Now, I'm hearing it over and over. Maybe they're more often to stop letting us annoy them or if there's actually a likeness there.
Paul Giannamore: If you read research on advertising, studies that are done on advertising, the constant but mere exposure to a particular brand over time creates likin-ness. It makes a consumer like the brand because it's familiar to the brain. It's very easy to process. The ease of processing is associated with liking.
Patrick Baldwin: That's why our waitress apologized for having Pepsi. In Texas, we see coke all the time.
Paul Giannamore: Perhaps that's the case.
Patrick Baldwin: Earlier, you were talking about the cleanliness of an office and I'm thinking about the cleanliness of a truck or the cleanliness of an office you're talking about for the board. If you're bringing someone in to hire them, showing them representativeness was the word that you used, if the office is orderly and clean, then it's representing the business that way. If your service vehicle is out and it's clean on the road, that has no real direct correlation to how good the service is but you're representing the company in a different way.
Paul Giannamore: People often confuse that with the Halo Effect. Have you heard of the Halo Effect?
Patrick Baldwin: Yes, I have. It's in this part of the book.
Paul Giannamore: Roughly, the halo effect, let's say there's a particular politician and you really like his policies. If you really like his policies, you're also going to potentially like the way it looks and the way he talks and so on and so forth because there's that particular Halo Effect. Representativeness though is if you take one particular aspect and you misattribute it for others. You look at the very clean truck, the very clean office, and you just assume this has to be a well-run business.
Patrick Baldwin: Will you help me understand what you just said though about how the Halo Effect gets confused with representativeness?
Paul Giannamore: Let me consult Kahneman here. Kahneman on 82, “If you like a president's politics, you probably like his voice and his appearance as well. The tendency to like or dislike everything about a person, including things you have not observed, is known as the Halo Effect. The term has been used in psychology for a century but it has not come into wide use in everyday language.”
“This is a pity because the Halo Effect is a good name for a common bias that plays a large role in shaping our view of people and situations. It is one of the ways that the representation of the world that System 1 generates is simpler and more coherent than the real thing.” You like one thing about a person and that effectively cascades and transcends all other things about a person.”
One of the areas that I think that this book was really helpful to me and I think it could also be helpful to everyone out there is there's a chapter on intuition versus formulas. He even references The Checklist Manifesto. Our buddy, Chase, referenced the old Checklist Manifesto. He talked about hiring. I've talked about this on The Buzz before using algorithms as opposed to using intuitive judgment when you’re making hiring decisions.
The effectiveness and the quality of hires by simply putting together a uniform and consistent checklist of questions that are going to be asked so that you're not subject to a variety of biases like the Halo Effect, for example. You like one particular thing about a candidate and it shades everything else about that candidate.
If you put together a checklist with an algorithm that you've created, he goes on to say, “The surprising success of equal weighting schemes has an important practical implication. It is possible to develop useful algorithms without any prior statistical research. Simple, equally weighted formulas based on the existing statistics or uncommon sense are often very good predictors of significant outcomes.” In a memorable example, Dahl's shows that marital stability is well-predicted by the simple formula, frequency of lovemaking minus frequency of quarrels. You don't want your result to be a negative number.
In this chapter, he talks quite a bit about hiring and tools that you can apply. He says, “Whenever we can replace human judgment by a formula, we should at least consider it. A vast amount of research offers promise. You are much more likely to find the best candidate if you use this procedure than if you do what people normally do in such situations, which is to go into an interview unprepared and to make choices by an overall intuitive judgment, such as, ‘I looked into his eyes and liked what I saw.’ I won't go into all the details in the chapter, it's too much to get into, but I thought that was helpful and it was very helpful to me in thinking about how we do hiring here. By the way, we haven't perfected that.
Patrick Baldwin: You don't have to tell me twice. I know it works for you.
Paul Giannamore: The Mexican was hired before we implemented these policies. I’m just letting everyone know that. I thought it was very beneficial from a business perspective. If you get one nugget out of this book, if you read that chapter, it'll probably change the way you do hiring.
Patrick Baldwin: We like people with similarities so I could easily see those bias when you're doing interviews.
Paul Giannamore: Kahneman and Tversky began their careers really focusing on the study of hedonics. He talks a lot about the distinction between the experiencing self and the remembering self. I can just remember some high-level examples that he uses. You've got a vinyl record that you love. Your favorite music, you put the vinyl record on, and you listen to an hour of the music, it's lovely. At the very end, there's this nasty scratch that just ruins it.
The experiencing-self experienced 60 minutes of music listening ecstasy and 10 seconds of just, “This sucks.” The remembering self though remembers a bad experience. The body or the mind, over time, has a hard time processing time. You could have a 30-year marriage that was largely great but ended horribly. The remembering self remembers it as a bad marriage but the experiencing-self experienced 30 years of really not that bad of a time.
The peak and root, the global retrospective rating was well-predicted by the average of the level of pain reported at the worst moment of experience at its end and then there's duration neglect. This is going to get complicated if you don't have any context here. What we learn from the past is to maximize the qualities of our future memories, not necessarily of our future experience. This is the tyranny of the remembering self. It's difficult to go into this as unprepared as I am but those were fascinating chapters at the very end. It reminds me of the Heath Brothers’ The Power of Moments. Are you familiar with this book?
Patrick Baldwin: No. They have another book.
Paul Giannamore: They have a lot of books. They have Switch, Upstream, and Made to Stick.
Patrick Baldwin: Made to Stick, we've talked about that one.
Paul Giannamore: This book, by the Heath Brothers, was pretty fascinating, called The Power of Moments. Some of that research ties into Kahneman and Tversky. There was another gentleman, I can't remember his first name, his last name was Slovic, and he was one of the authors on their 1982 paper, Judgment under Uncertainty, which ultimately won the Nobel Prize. He may have been the editor or contributing author to it. He's done a lot of research on these particular topics. Particularly, he's got a handful of cognitive biases to his own name, including what's called the effect heuristic, which is effectively how you think about something.
I forgot his first name but his first name is Paul, surprisingly. The psychologist Paul Slovic has proposed an effect heuristic in which people let their likes and dislikes determine their beliefs about the world. Your political preference determines the arguments that you find compelling. If you like the current health policy, you believe its benefits are substantial and its costs more manageable than the costs of alternatives. If you are a hawk in your attitude toward other nations, you probably think they are relatively weak and likely to submit to your country's will, so on and so forth.
Patrick Baldwin: You like it because his name is Paul. That's part of the whole System 1.
Paul Giannamore: Surprisingly, I didn't remember that. Subconsciously, perhaps that's the case. PB, there are 500 pages in this book. It is a slow read, for sure. As we've seen, you've been working on this for two years.
Patrick Baldwin: A little over a year. Back to business, we think a lot about first impressions because there's something to be said where, at the end of an interaction or conversation, you should conscientiously put effort into, “This is how they're going to remember you.”
Paul Giannamore: 100%.
Patrick Baldwin: That's not often talked about.
Paul Giannamore: That's right. The remembering self often remembers how things end. The experiencing self, of course, has experienced things over time but he talks about duration neglect because, retrospectively, when you're remembering things, you can't remember the duration of something. You don't remember what it was like standing in line for two hours. You're like, “Shit, I wasn't in line for a long time.” You don't remember that actual two hours. That's duration neglect. You definitely remembered highs and lows. It's not just peak end. He talks about, “The neglect of duration combined with the peak and rule causes a bias that favors a short period of intense joy over a long period of moderate happiness.”
Patrick Baldwin: Roller coasters. See why it's taken me so long to read the book? You have to repeat a sentence. It makes you think.
Paul Giannamore: It's not good for processing fluency, Patrick.
Patrick Baldwin: Is a roller coaster the right example? Peak joy?
Paul Giannamore: Yeah.
Patrick Baldwin: Short duration and high-intensity versus longer duration of mediocre.
Paul Giannamore: “Moderate happiness,” as he quoted.
Patrick Baldwin: Unless you don't like roller coasters, then that's totally a horrible example. That's your problem.
Paul Giannamore: Duration neglect makes us prone to accept a long period of mild unpleasantness because the end will be better and it favors giving up an opportunity for a long happy period if it is likely to have a poor ending. To drive the same idea to the point of discomfort, consider the common admonition, don't do it, you will regret it. The advice sounds wise because anticipated regret is the verdict of the remembering self and we are inclined to accept such judgments as final and conclusive.
We should not forget, however, that the perspective of the remembering self is not always correct. An objective observer of the Hedometer profile with the interests of the experiencing self in mind might well offer a different advice. The remembering self's neglect of duration is an exaggerated emphasis on peaks and ends and it's susceptibility to hindsight combined to yield distorted reflections of our actual experience.
When we talk about the peak end rule, PB, it's not just the end but it's also the peak. If you think about peaks and troughs of pain or joy within an experience, we're talking about the remembering mind remembers the peak and also the end. That's what he's talking about when he talks about the peak end rule. Again, this gets rather complicated and you and I are not social scientists. That's the last two chapters. Usually, when I read this again, I usually skip the first couple of chapters and get right into it. Sometimes, I Peter out before I get to the end.
Patrick Baldwin: You skip the hard part and go straight to the harder part.
Paul Giannamore: Exactly.
Patrick Baldwin: Bring it back to negotiating both in your world and also the business owners, what are some takeaways?
Paul Giannamore: He talks a lot about the overconfidence bias and entrepreneurs are, by very nature, extremely overconfident. He talks about the ways that overconfidence can effectively sink your ship and effective ways that you can combat that. He talks about understanding confirmation bias and hindsight bias where we try to make predictions about the future. You often hear somebody say, “I knew that would happen.”
Often, when bad things happen, people always, in retrospect, had a premonition about it. It's very rare that people say, “I really thought those two were going to have a shitty marriage but it turns out that it was fantastic.” You often don't hear people say stuff like that. Why I think that this is an interesting book for a business person is it lays out a variety of cognitive biases that can impact you and your organization and it gives you ways to combat that.
For example, we have the topic of groupthink. You go into a meeting with five of your people, you're going to discuss a key, important topic. Sometimes people are pressured by 1 or 2 more dominant people in the room. They change their opinion. If you've got a key decision that you want to make, you have everyone write it down in advance and put it in an envelope. It's mandatory. You've got to come to the conclusion with your recommendations, write it down, let's put it in an envelope, let's talk about it, and then let's go back to that.
The concept of the postmortem we talked about on prior Buzzes, which is, “Prior to doing this, let's assume that we've already done it and the worst-case scenario has taken place. What would that look like?” There's no paint-by-numbers, like, “Do this and your sales goes up. Here's how to market that. Here's how to manage people.” That's not what this book is about. This book delves into how the human mind thinks and how the human mind is prone to make innocent mistakes just because that's the way we were created.
It goes into a lot of the evolutionary aspects of why, if you think about mere exposure, the more you're exposed to something, the more that you like it, you trust it. Why would that make sense from an evolutionary perspective? 10,000 years ago, if you were roaming the Saharan countryside, if you had a lot of exposure to your other tribespeople, you would like them. If you did not have a lot of exposure to that nasty lion there. He goes into theories of evolutionary development and why the mind thinks the way that it does.
Patrick Baldwin: You've coached me on the Groupthink for some polarizing topics we were dealing with at church. If you go in the room and you're opening it up and all of a sudden, some people are going to dig their heels in staunch and they're going to make their voice heard and now the majority of people are going to just come along that, “Oh yeah, I agree. That's the easy way.” Versus If you come in and it's on writing, then they've had to individually think and provide their own opinion before being swayed by others.
Paul Giannamore: I saw your face light up when I said that. I do remember having that discussion with you and I did not create that out of thin air. That's something I gathered from reading this book these many times and continue to effectively apply it.
Patrick Baldwin: You said you read this once a year.
Paul Giannamore: Yeah.
Patrick Baldwin: I haven't seen how you've marked it up but I know that you've definitely put pen to that thing.
Paul Giannamore: This sucker is marked, PB. Tons of notes and underlining.
Patrick Baldwin: For you, is this a top 10 or 20 book?
Paul Giannamore: This is a top ten. It's had a dramatic impact on the way I think about things. From a negotiation perspective, this was an extremely helpful book. It's one that has to be internalized though. It's not something that you read once. If you really want to learn it, you have to think about it. You have to apply these sorts of things. Not for nothing, there is the rabbit hole. We talked about the notes and bibliography in the end. He provides thousands of references to other books, scholarly articles, research, and experiments. There are a lot of things to look at. As you want to get more granular on those, you can certainly look at the publications of the researchers for the experiments that he references in this book.
Patrick Baldwin: You mentioned that this isn't necessarily the book that you're going to walk away with, “Do A, B, and C and you're going to fix your business,” which we see a lot in pop culture books. You tend to find pop culture books. This is one that's going to make you think. This is definitely a brain exercise more than, “Do this. Follow the system.”
Paul Giannamore: That's right. It's not an exciting narrative. He uses a lot of very big words, many of which I didn't even understand the first time I was reading. It's not an easy book to get through. You're not going to be able to read it on a weekend and show up on Monday and implement all sorts of things in your business but you will think long and hard about how to eliminate groupthink and, “What can I do?”
You'll think about the concept of the postmortem. You'll think about hindsight biases. You'll think about areas in which you're overoptimistic in your own business. What are some things that you can do to limit your own overoptimism? How can you pressure test your ideas? Sometimes, what people don't do enough of is sit down and think.
We have so many listeners on this show that are actually, I would say, brilliant. We have a lot of brilliant listeners. These people do not give themselves enough credit. An important solution for them in their own business is to continue to educate themselves and then sit back and really think through things. Oftentimes, people will listen to a show or read a book and try to implement things quickly. The right anecdote for that is sitting down and putting some deep thought into it. This is a great book to get your mind moving.
Patrick Baldwin: Now, we have a book club, The Boardroom Buzz Book Club. Here we go. I laughed when you said, “Read it over a weekend.” I was like, “Paul, no one can read this over the weekend.”
Paul Giannamore: I've read it over a weekend, Patrick.
Patrick Baldwin: Good for you. You're special.
Paul Giannamore: Those long fourteen-hour flights will help me get it done. That's a good one. I recommend that. I appreciate Daniel writing in, especially considering the recent passing of Daniel Kahneman. This is an honor of him. It's a great body of knowledge.
Patrick Baldwin: Paul, thank you for taking us through Thinking, Fast and Slow. I'm going to go read it, maybe.
Paul Giannamore: PB, I have faith that you'll get through it.
Patrick Baldwin: It was very noncommittal if you heard me say it.
Paul Giannamore: I heard that. Until the next episode, brother.
Patrick Baldwin: See you, man.
Paul Giannamore: Take care.
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