The Hutch Report

The 4 Cryptocurrency Opinions To Avoid

By | Cryptocurrency, Money, Psychology, Technology

The level of trading activity in Bitcoin and other cryptocurrencies has begun to attract the attention of the general public. It seems to be everybody’s favorite subject these days. Discussion and debates about Bitcoin are raging at dinner tables across the nation and around the world. In addition, the number of articles outlining Bitcoin’s future trajectory have increased daily. In spite of the number of financial media channels having previously written it off as a mania, now provide its viewers the latest daily quotes.

It is not so much the promise of this new peer-to-peer technology that operates with no central authority or banks. Nor is it interest in the fact that a collective network carries out the issuance of bitcoins and manages the transactions that have captured the attention of the public. There are a number of early adoptors who have become extremely rich off of the increase in value of Bitcoin and the so called alt-coin market. It is the dream of quick riches that is really driving the interest.

Whenever a technology begins to reach fever pitch, as we are seeing with cryptocurrencies,  a large number of self-proclaimed experts begin to appear. They are suddenly gifted with incredible prediction power. They know where the price will be in 3, 5, 10 and even 20 years. They happen to know that no government will be able to control it or stop it. They seem to know that it will eventually take over the world as the primary form of currency for all transactions.

However, these are not the only voices being heard from the rooftops. There are also those with equally impressive predictive powers. Those that seem to know where the top is. The point where Bitcoin ceases to move up, reverses and begins its long slide back towards where it began. Those  that seem to know that no solutions will ever be found to the current technological challenges that a decentralized digital currency currently faces. Those that seem to know that cryptocurrencies will never be a replacement for the platform of fiat currencies on which our economies currently function. They seem to understand all the weaknesses of these digital currencies and where their limits are.

Nassim Nicholas Taleb, author of “The Black Swan,” presents a convincing case on our inability to predict events with hard-edged analysis. At the same time he stresses to protect yourself from highly improbable events. Therefore, the first thing that should be done is to avoid the following 4 outspoken opinionated groups on the subject of Bitcoin. These groups are all supporting their own interests, which don’t always coincide with the interests of the individual.

1) The Financialists

The Central Bankers and their affiliate bankers around the world see themselves as the guardians of the global economy. In addition to providing a variety of services to the public that enable the economy to function rather smoothly on a daily basis, banks are still for-profit institutions and their principle goal is to generate profits. This is often done by way of complicated products with unsusual naming conventions. They control the money transfer and credit system, therefore, they weild a large amount of control towards the stability of the system. For this reason, they will not tolerate any outside technology that threatens their position. The initial reactions to Bitcoin were that of a pure fad. Further analysis sees them now trying to discover ways to regulate it, or create their own digital currency where they have the full control to profit from it. Their opinions are changing daily based on their confidence in how to manage its evolution. They are worried and rightly so as the initial concept of a decentralized digital currency would make many of their services redundant.

2) The Technologists

Bitcoin and the blockchain are based on technology. They have, not surprisingly, attracted the attention of the technology and developer community. They believe because it is based on technology, and they understand technology that it provides them with more powerful forsight. Once the value of Bitcoin began to rise, the startup community began to move into action and started developing a variety of ideas such as wallets, new exchanges, a variety of platforms etc. It has now become the hot area to be involved in. So hot that public companies that have nothing to do with Bitcoin or the blockchain have changed their names to incorporate the term blockchain only to see their shares rise immediately. The technologist are on a crusade and want you to join the crusade. However, it is wise not to forget that at one point there was once a product called a Betamax cassette which was superior to the competing VHS cassette only to lose out and be banished to history. Apple computer produced a much higher quality product and software than the PC and Microsoft option at the time. Apple computer only managed to acquire 5% of the PC market, much to the surprise of the followers who understood the value behind the technology.

3) The Evangelists

The leader of this group and one of the most vocal has been Andreas Antonopoulos. Antonopoulos became involved with Bitcoin in 2012. He has written two books on the subject, describing in detail the technical rules governing Bitcoin in a way that a novice could understand, and has given more than 200 talks (many of them free) about Bitcoin. Antonopoulos obtained his degree in Computer Science and Data Communications and Distributed Systems from University College London. With his help the Bitcoin evangelists have an ever increasing choir. Some of them understand the technology and find its possibilities fascinating. There are the bandwagon jumpers who want to join the club and fit in with the “cool crowd.” There are those that see it as a great way to transfer money around without the peering eye of the government, or truly a new medium of exchange not governed by any central authority.

Then there are also those who have dreams of striking it rich. Ironically, Antonopoulos, after having spent the last five years of his life traversing the globe and educating people about Bitcoin found himself not only NOT taking advantage of the run up but found himself in debt, until a wrath of Bitcoin evangelists donated to his cause. This came just at the moment when he was questioning what he was doing it all for.

4) The Governmentalists

Governments are the farthest from being Bitcoin advocates. This is not because they don’t believe in digital currencies. In fact, they would garner more control by ridding the economy of hard currency and make everything digital. This would enable them to gain tighter control of the money supply or increse their efficiency of tax collecting. What they don’t appreciate is loss of control. The idea of a collective decentralized managing transactions and digital currency issuance is an idea that they will never accept. Why? They require a centralised authority (which is them). We wrote about the ways in which governments could shutdown cryptocurrencies. It is, therefore, no surpise that they are fighting vehemently against the idea.

So who should you listen to? This is one of those situations where you must truly take matters into your own hands. You have to acquire the knowledge necessary, educate yourself and decide for yourself how this new system of digital currency could affect you personally. This means choosing your information sources carefully. If you do listen to any of these groups, be cynical and don’t take what they say at face value. Double check and do your own research. Depending on who you speak to, you will be labelled as blind if you don’t buy into it or labelled as an idiot if you do. In the end, it is the market as a whole who will ultimately decide the fate of cryptocurrencies.

The “Follow Back” Button on Twitter – Who Benefits?

By | Business, Marketing, Psychology

John Harper lives in Pine Village, Indiana.  It is a beautiful little town with lots of friendly folk who are always willing to help their neighbors or visitors in need. The population is only 217 so John knows just about everybody in town and everybody knows John.

John works at a local factory and although he enjoys his job and being with his fellow workers John has always had dreams of having a bit more. He has always had the desire to be an entrepreneur and reap the financial rewards of being his own boss. After years of being at the factory, one day the opportunity presented itself. John jumped at the chance, left his job and set his plan to put his dreams in action.

John took his savings and started a small business selling jean jackets. John stated, “I mean, everybody wears them around here, what better business to start!” He opened his shop on the main street of town. Soon everybody knew about John’s shop and was stopping by to say hello. They, of course, wanted to help out the best they could so they purchased something from John. Right off the bat, the shop was doing great sales. Jean jackets were popular in Indiana since there were a lot of farmers and that is what they like to wear. Most people in the town could be seen wearing John’s jean jackets.

After a few weeks, sales suddenly slowed to a drip. After a quick analysis of the situation John suddenly realized the problem. The main reason was that jean jackets are quite durable. Once you purchase one you can wear if for quite a while before it wears out and needs replacing. Remember the population of Pine Village was only 217 so John quickly realised he needed to go outside of Pine Village and even Indiana if he wanted to seize the chance of selling more jean jackets and grow his business.

John came to the brilliant idea of sending out a flyer with a bold message saying, “I will come to see your shop, if you come and see mine.” John thought that if these shop owners came to visit they would see the quality of John’s Jean Jackets and want to buy them. John sent this out to jewellery stores, grocery stores, hobby stores, banks, lawyers offices etc. He sent the flyers out to every business he could think of.

After a few days some replys came trickling in. “Sure John, come and check out our shop and we will come and check out yours.” You see, these stores were thinking, “If John comes to visit our shop he is going to see our quality products and services and buy from us.” Soon John was spending most of his time visiting fish stores, furniture stores, gift shops etc. In return, these people came to visit John’s shop.  There was one big problem. John didn’t need any furniture or gifts so he never purchased anything from the shops that he visited.

John’s shop in return got lots of visitors from the fish guy, the bank clerk, the grocery clerk etc. However, there was another problem. None of the visitors bought anything from John’s shop. They liked it, and sometimes complimented him on it but there were no purchases. John began to get worried because in spite of the shop being so popular and having people come and go all day long, there were no sales. Eventually John did get a couple of sales from a few farmers that lived a few hours away in another county but nothing that could help sustain the business.

After a year, John’s store had thousands and thousands of followers but no sales. John didn’t purchase from anybody else because he had no money left seeing that his business was not doing well.

After wasting all his time and effort visiting other stores outside of town and entertaining those that came to visit him John eventually went into bankruptcy. The store was hugely popular but couldn’t make a dime. John ended back at the factory.

A few months later, all the guys at the factory started opening up Twitter accounts, as Twitter started to become hugely popular, so John did the same so he could stay in contact with all his pals. As he read his Twitter feed from day to day he decided to follow a few other accounts of people that he admired in addition to some news feeds that he found interesting.

Then one day a strange thing happened. John began to have a bunch of people follow him with the request that John follow them back. John shut down his computer and began to laugh. He realised his time might be better spent hanging with the local town folk.

The Hutch Report

Performance: What does it take?

By | Psychology

Perform. This is something we all must do. This article examines, at a high level, what it takes to perform well and what differentiates those that perform exceptionally well. Performance is most typically associated with actors or musicians, athletes, or other top talents. But, it is something we all must do. Every day. Actors play a role. We all play multiple roles on any given day. Actors are given accolades when they succeed or deliver a powerful performance in a role. Likewise, when any one of us can perform any of our roles well it also usually leads to rewards. These rewards can be material or even more importantly the non-material, inner rewards.

While of course it is great to earn more money, win prizes, win accolades from our friends, those are fleeting rewards. The more fundamental and powerful rewards are the changes that happen within us. These changes can be subtle. Some examples are increased confidence in ourselves, the satisfaction of having confronted personal challenges, of pushing ourselves to grow. Even if we do not get the material or external rewards, or people laugh in our face, insult us or mock or make fun of us, if we are rooted on what really matters to us in our performance this will allow us to motor on through, to pick ourselves up, dust ourselves off and get back on the proverbial horse.

Actors, athletes, musicians and other public performers often have relatively clearly defined roles. And they often have the luxury, once they get to a certain level, to be able to focus specific time training to improve and deliver their performance. It becomes a virtuous cycle of success. In his book, Outliers, which was first published in 2008, Malcom Gladwell contends that practice is a key indicator of performance. A widely quoted and restated premise in the book is that ten thousand hours of practice in a particular field will enable the practitioner to become a world-class expert in that field. Gladwell holds out examples of the Beatles, who before becoming huge had spent over ten thousand hours touring in Germany, or Bill Gates who had early access to computers as an adolescent and teenager. While clearly it is a great advantage if one has tons of time to practice for a certain role it is not the whole story.  Certainly, the folks cited in Gladwell’s book are successful  outliers that benefited through tons of “practice” time. So, can anyone of us become an outlier through ten thousand hours of deliberate practice? It turns out, not really. This theory has now been largely debunked in a 2014 research study conducted by Princeton University, Michigan State University, and Rice University.

The abstract from that university study reads:

“More than 20 years ago, researchers proposed that individual differences in performance in such domains as music, sports, and games largely reflect individual differences in amount of deliberate practice, which was defined as engagement in structured activities created specifically to improve performance in a domain. This view is a frequent topic of popular-science writing—but is it supported by empirical evidence? To answer this question, we conducted a meta-analysis covering all major domains in which deliberate practice has been investigated. We found that deliberate practice explained 26% of the variance in performance for games, 21% for music, 18% for sports, 4% for education, and less than 1% for professions. We conclude that deliberate practice is important, but not as important as has been argued.”

While there are clearly statistical benefits for practice, particularly in games, sports and music, practice is not the only pillar for success and even less so in education and professions. So if we want to continue improving our games, sports, music or other specific skills, for example public speaking, writing … by all means we should continue to put in the work and practice. You don’t get results without putting in the work, except when playing the lottery. While “hope” is great and good to have, “hope” itself is not a great strategy for success.

So, if it is more than just practice to succeed, particularly in education and other professions, what do those that perform well do better or differently than the others?

About education, I have an intelligent teenager who is struggling in highschool. Like any good parent, I did a bit of googling to see what the Internet had to say about how to help your kid and what do successful students do that is different. Are they just more intelligent? While of course being intelligent does not hurt, thankfully even those of us with average intelligence can be successful students. I stumbled across this Ted Talk which discusses research that was done among UK students to determine what methods the successful students in this group exhibit that helps them be successful, more successful than their peers.  The two main takeaways that I took out of this are that two important items are a) good comprehensive scheduling habits and b) practicing on test questions. These were two of the most important elements of behavior exhibited by successful students. Comprehensive scheduling means scheduling everything ahead, not just classes and revising for tests, but also scheduling in breaks and fun activities. Memorization is also important, however, more important was how to use and deploy the memorized information, hence using practice exam questions to study proves to be a key for success on developing a good understanding of the material being studied. Implementing this so far with my teenager has not been easy. For example, when asked to start planning, the initial plan and schedule was not very detailed. It would just say study at 7pm, relax at 8pm. So we hit upon the idea of planning in reverse. In order to get to a better level of detail and view on how time was being spent on which specific activities, we found it was easier to start by simply writing down the time for activities retrospectively. This approach seems to have served as a good stepping stone to learning how to develop a good forward-looking plan and schedule. Thinking in advance about what you want to do, planning when you are going to do it are two very powerful techniques for any endeavor whether it is in school or anything else.

A book that greatly resonated with me when I was beginning my career in the business world was The Corporate Athlete by Jack Groppel. Maybe this sounds a bit corny or smacks of new-ageism, but it really brought home the fact that in order to really perform any role well – parenting, investing, writing, working, bitcoin speculation  etc – the basic foundation needs to be in place for mind, body, and spirit. It comes down to basics, eating right, exercise, sleep, and mental and spiritual preparation. By spiritual I do not necessarily mean religious, but more strengthening one’s inner spirit through, for example, mindful mediation and increasing will power as discussed in our earlier article The Will Power Battery.

Thirty some odd years later, I am still striving towards that goal as a north star of getting everything in balance, and still going through ups and downs, not always doing what is good for me even though I know better. Here is a handy list that can be used as a great set of reminders that came across my Twitter feed from Vala Afshar (@ValaAfshar), currently as of this writing, the Chief Digital Evangelist at Salesforce.


We’d love to hear from you and any of our readers on what their path has been, what struggles they have faced or are facing and how they are working on overcoming them.

The Hutch Report

Bitcoin and the Bandwagon

By | Cryptocurrency, Money, Psychology

Bitcoin and the blockchain have been around since 2008 when the elusive Satoshi Nakamoto presented his/her white-paper to the world outlining its structure. Since its core is based on cryptography and mathematics, in the beginning it only attracted the attention of those in that area of research. However, because it was proposing a new medium of exchange that could not be altered and promised anonymity, the dark side of commerce quickly joined in. From here, the value of Bitcoin has begun to increase, as has the attention. After 9 years in existence, the mainstream media has begun to chime in and before you know it, Bitcoin charts and quotes have been all over the news.

The other day, my father-in-law asked me if I heard about the action in Bitcoin. He used the term as loosely as he would “Google search,” however I knew that his understanding of what Bitcoin actually was, was severely limited. My neighbor stopped to chat and told me her son (15 years old) was having a friend over. I said, “To watch a movie?” and she told me, “No, to trade Bitcoin.” She had provided her son with a few hundred dollars to trade! Last night I was in a restaurant in town that I know very well. It is a small place with the tiniest kitchen. I popped my head in to say hello to the chef. The first thing he said to me was, “Hey, did you buy any Bitcoin lately?” At that moment I realized the wagon was getting very full.

The chance that people begin to adopt certain ideas or choices tends to increase when they realize that other people have adopted similar ideas and choices. This is a human cognitive bias known as the “Bandwagon Effect.”

In 1848, Dan Rice, at the time a famous and popular circus clown, decided to use his bandwagon (a wagon that carried a band during parades) and its music to gain attention for his political campaign appearances. His campaign became more and more successful and this obviously attracted the attention of other politicians who fought for a seat on the bandwagon, hoping to be associated with his success. Bandwagons eventually became a standard centrepiece in political campaigns and the phrase “jump on the bandwagon” was born.

It is a powerful principle that is used constantly in marketing. The concept describes how the increasing popularity of a product or phenomenon will encourage more people to “jump on the bandwagon.” We see it everywhere. #America’s No 1 choice, #the fastest selling product, #most wished for, #most gifted or the myriad of top 10 lists that we see everyday.

The tendency to follow the actions or beliefs of others occurs because individuals directly prefer to conform, or because individuals derive information from others. Normally, when an individual makes a “rational choice” (see our article on the Rational Price here), it is based on the information they compile from various sources with which to come to a decision. However, as information cascades, or when people start passing on information they assume to be true, but cannot know to be true, based on information on what other users are doing, they will ignore their personal information signals and follow the behaviour of others.

The phenonmenon of Bitcoin and cryptocurrencies does not stop with the bandwagon effect. The speed at which it is moving, where fortunes are being made and lost in the most unlikely areas of society has stirred a variety of other cognitive biases into action.

Closely related to the bandwagon effect, and becoming clearly evident in the cryptocurrency mania, is the “fear of missing out” or FOMO. The fear of missing out is a type of motivation that is described as a drive not to miss current or future opportunities. It’s associated with a fear of missing chances for competitive advantage, rewarding experiences or financial opportunity gains. It is considered a common and strong form of motivation that can explain a wide range of human behaviors. However, as with other similar biases,  the fear of missing out can result in excessive or compulsive behaviour and poor decisions.

Robert Cialdini, author of the widely popular Influence: The Psychology Of Persuasion, popularized the term “Social Proof.” The Social Proof Theory, affirms that a person who does not know what the proper behavior for a certain situation is, will look to other people to imitate what they are doing and to provide guidance for his actions. Uncertainty is the fuel that activates and feeds the mechanisms of social proof. This is especially fitting in the case of cryptocurrencies, as the technology and mathematics behind them is not so simple for the average person to immediately grasp. Therefore, social proof becomes more influential when the surrounding people are perceived as particularly knowledgeable about a situation or are even just slightly more familiar with the situation than the observer is.

As the price of Bitcoin and a thousand other cryptocurrencies have risen to lofty levels, so has the debate around what cryptocurrencies respresent.  Are they a medium of exchange? Do they have true value? Do you have to pay taxes on gains? Are they something else other than a tool for speculation? This debate has come to just about every financial media news outlet; CNBC, FOX, Bloomberg or CNN Money where they present daily their panels of financial experts. So where better to gain an understanding about cryptocurrencies.

The trap that many viewers are falling into is known as the “Authority Bias.” The Authority Bias is a where you defer to any position of authority to either dismiss or confirm evidence. The thought process follows the following reasoning pattern: Person X is an authority in a particular field. Person X says something about a  topic in their respective field. Person X is probably correct because they’re an expert. Because of this reasoning, the Authority Bias maintains that if you don’t know something better yourself you will likely trust the advice or information from someone who is considered an expert in that field.

The Hutch Report has been following Bitcoin and other cryptocurrencies for a while now. We recently completed our current feature report related to Gold Backed Cryptocurrencies, which can be downloaded here. We don’t profess to be experts regarding this technology but we do follow it with interest. We believe that, although a large number of opinions exist about where all these cryptocurrencies will be in the future, nobody really knows. Nobody is even certain about true identity of the originator, Satoshi Nakamoto.

We are currently living in unchartered territory so it is up to each individual to protect themselves, keep their bias in check. Don’t blindly follow and do your best to inform yourselves.

The Hutch Report

The Omnipotent Leader

By | Politics, Psychology

What is it that prevents people from admitting mistakes, feeling superior to all those around them, feeling as if their actions are above the law, the inability to feel that their actions are responsible for someone else’s misery? We have all worked with people who have varying degrees of the unshakeable belief that they can do no wrong. In our incredibly complex world, there are leaders and professionals that are absolutely convinced that they understand how the world works and how to solve problems in spite of the fact that time after time they are proven wrong. (You can read more about this in our piece “The Illusion of Understanding.”)

In 2009, at the height of the financial crisis, many wall street CEOs were put under the spot light as the leaders of the largest financial firms were brought before congress for questioning. However, in spite of the damning evidence put before them concerning the damage inflicted on the economy and individuals by these firms, the leaders seemed to feel removed from any or all responsibility. An example of this was made during an interview with the Times of London, where Lloyd Blankfein, CEO of Goldman Sachs was quoted as saying that Goldman Sachs was merely “doing God’s work.” Obviously admitting to understanding the agenda of a higher power greater than ours and professing to be part of it immediately places you in an obviously very privileged position.

Though not officially labeled a personality disorder, the God Complex is very similar to the Narcissistic Personality Disorder. The God Complex is a psychological illusion. The first person to use the term God Complex was Ernest Jones (1913–51). His description, at least in the contents page of Essays in Applied Psycho-Analysis, described the God Complex as belief that one is a god. It suggests a personality flaw in human beings, especially those with great power, who see themselves to be omniscient and omnipotent, and treat others as mere mortals. However, one does not have to be in a position of power to exhibit these traits. There are numerous examples of people displaying these personalities in the workplace which you have most likely encountered.

The God Complex tends to show up amongst a variety of professions, although, some professions are more likely to cause a God Complex than others, as they involve one person exerting a lot of influence on a large number of people. These professions include among others: Doctors, Politicians, Bureaucrats and Celebrities.

Research suggests that in the case of several people, the God Complex affected them AFTER being exposed to a lot of power over a period of time. Hence, it is likely that people get this complex after having spent a considerable amount of time in that particular profession. Once you know what this complex is, it is easier to understand why certain people behave the way they do although that doesn’t make them any easier to be around.

With his extreme narcissistic displays, Donald Trump has become the poster child for the God Complex. However, in this particular example, he demonstrated many of the traits associated with the complex well before becoming President. Rather than developing the complex, after having been in a position of power, it was his inflated view of himself that drove him to become President.

As President, Trump now finds himself in good company because in the world of politics the God Complex plays itself out each and every day. In fact, our current political and media culture can be seen as reinforcing the God Complex.

The question is how can problems be solved and solutions found when dealing with opponents that both display the God Complex? Neither side will think about backing down because they both feel superior to the other. The result is pretty much what we have seen play out in the arena of US politics. Rather than concentrating on what is good for the country, both sides are fighting to dismantle the other. It is a dangerous trait to have, as we have seen many nations brought down by leaders with an omnipresent display of the God Complex.

Here are a few extreme examples: Omar al-Bashir—Sudan, Kim Jong-il—North Korea, Robert Mugabe—Zimbabwe (recently dethroned), King Abdullah—Saudi Arabia, Seyed Ali Khamenei—Iran, Bashar al-Assad—Syria, and Nicolás Maduro – Venezuela.

The Hutch Report

The Willpower Battery

By | Psychology

At a recent dinner with family and friends I asked the question, “What is willpower to you?”.  The answers were varied

“A combination of the desire to change something and the motivation to make it happen”

“Being able to overcome an obstacle”

“Facing a hardship and a challenge but having the stamina to work through it”.

“I think there is willpower and there is a won’t-power.”

“Resisting temptation.”

I was surprised to see the passion that had arisen around the table as we carried on the discussion. In retrospect, this is of course a passionate topic. Willpower is fundamental to each and every one of us. Every single one of us struggles with goals and things we want to achieve and also challenges such as addiction, temptation, distraction, procrastination – these are universal human experiences.

A teacher at Stanford and author of “The Willpower Instinct,” Kelly McGonigal states, “I define willpower as the ability to do what matters most, even when it’s difficult or when some part of you doesn’t want to. That begins to capture why it’s so difficult — because everything we think of as requiring willpower is usually a competition between two conflicting selves.”  So, my family and friends were accurate in their definitions.

If we dig even deeper, willpower and self-control have evolved genetically and are linked to our evolution and survival. They must be, otherwise why would we put ourselves in a situation where we are doing what part of us does not want to do? Because the other part knows that it is good for us. And if they are so important to our survival and better well-being why are we sometimes lacking willpower?

People are often confronted with this question every time they sit down to set goals or make resolutions at the end of a year. In his book, The Art of Thinking Clearly, Rolf Dobelli postulates that New Year’s Resolutions do not work due in large part to constant procrastination. I can attest to that personally as I have wanted to sit down and write this article about willpower for sometime now, however, I kept putting it off until I felt that I was in the right “mood”. Finally I owned up to the fact that the right “mood” was not coming. This piece was not going to write itself so the only recourse was to simply sit down and start writing it. In his book, “Do the Work,” author Steven Pressfield calls this the “resistance,” and the only way to break through the resistance is to simply start and “do the work.”

Human routines are stubborn things, which helps explain why 88% of all resolutions end in failure, according to a 2007 survey of over 3,000 people conducted by the British psychologist Richard Wiseman. Bad habits are hard to break–and they’re impossible to break if we try to break them all at once.

Dobelli explains that willpower is like a battery that needs to be charged, a concept widely accepted and recognised by many researchers, teachers, coaches and practitioners of willpower. There are many techniques for mastering and improving willpower based on ensuring that the “willpower battery” is sufficiently charged.

Things that can affect this battery are lack of sleep, being distracted and being under the influence of drugs or alcohol. In a previous article, Infoxication – The Information Pandemic, we highlighted how easy it is for each of us to be distracted, and means of dealing with it in this age of information overload.

Willpower can be trained and strengthened over time however like a muscle it can only exert itself so long before it gives out; it’s an extremely limited mental resource. Scientific and medical research have discovered this muscle to be located in the pre-frontal cortex of the brain (otherwise said, your forehead).

A very famous case from over a century ago demonstrates the link between the pre-frontal cortex and willpower. In 1848, a gentleman named Phineas Gage, 25, was working as a foreman of a crew cutting a railroad bed in Cavendish, Vermont. On September 13, as he was using a tamping iron to pack explosive powder into a hole, the powder detonated. The tamping iron—43 inches long, 1.25 inches in diameter and weighing 13.25 pounds—shot skyward, penetrated Gage’s left cheek, ripped into his brain and exited through his skull, landing several dozen feet away. Essentially destroying a major part of his pre-frontal cortex. Remarkably, Gage survived this horrific ordeal, and by all accounts was conscious and walking within minutes. With the loss of his pre-frontal cortex, he also lost all willpower, all inhibitions and had undergone profound personality changes.

There is an enormous wealth of information available on willpower and guides to success in achieving your goals. We have selected what we thought are some of the best tips and advice and present them in this shortlist below:

(1)    Why?

Focus more on why you want to change rather than what you want to change. Identifying what you want to change is important, but with a large caveat! Simply stating what you want to change is not a recipe for success. Otherwise all of our new year’s resolutions would work. For example, when I start out by stating “I will not eat donuts” usually ends up with my eating some delicious donuts. However, when I focus on the fact that I want to be slimmer, diabetes runs in my family and I do not want to get it … these are much more powerful motivators than just “I will not eat donuts”. A famous mantra that I have heard amongst some friends from Hollywood related to this concept is: “Skinny feels better than that tastes” – which is a powerful reminder of what I want to avoid, i.e the donut. So in summary for this point – focus on what it is you really want and not just specific modes of behavior. If you focus on what you want, your behavior will follow.

(2)    Be aware.

“Know thyself”. Focus on your self-awareness. What are the triggers for why you may engage in behavior you want to minimize or avoid. Are you getting enough sleep? Are you distracted?  Once you identify those triggers, then you can put in place a strategy to avoid ending up in a trigger situation.

(3)    Support.

Surround yourself with likeminded individuals. This is not to say do not listen to folks who don’t think like you or become close minded, but what it does mean is when pursuing a specific goal, your chance of success is greatly increased if you surround yourself with people who have the same or similar goal. Of all the 100’s of tips on succeeding and success this is probably one of the best, if not the best. An interesting article on this topic can be found in the magazine Psychological Science.

(4)    Strengthen

Incorporate mindfulness meditation into your life. Studies have shown that this practice can strengthen the  pre-frontal cortex.  MRI scans show that after an eight-week course of mindfulness practice, the brain’s “fight or flight” center, the amygdala, appears to shrink. The primal region of the brain associated with fear and emotion. As the amygdala shrinks, the pre-frontal cortex – associated with higher order brain functions such as awareness, willpower, concentration and decision-making – becomes thicker.

The Hutch Report

Infoxication – The Information Pandemic

By | Health, Psychology

As a species, our inclination to advance our learning and understanding of the world is natural. Throughout history we have seen some spectacular innovations that have allowed us to document our discoveries for future generations to build upon. In 105 AD, under the Han Dynasty emperor Ho-Ti, a government official in China named Ts’ai Lun was the first to start a paper-making industry. This along with the invention of the printing press saw the exponential growth of information in millions of bound books filling libraries the world over. In the beginning these books were filled with pain stakingly crafted illustrations until the first partially successful photograph of a camera image was made in approximately 1816 by Nicéphore Niépce, using a very small camera of his own making and a piece of paper coated with silver chloride, which darkened where it was exposed to light. The advancements in photography saw the growth of the stock of images documenting everything you could imagine from around the world in all forms as we witnessed life move from black and white to colour.

From the industrial revolution we have moved to the technological revolution that we see today where new digital innovative tools are allowing anybody to create and document life as they see it.   Every day hundreds of millions of people take photos, make videos and send texts. Across the globe businesses collect data on consumer preferences, purchases and trends. Governments regularly collect all sorts of data from census data to incident reports in police departments. Ninety percent of the data in the world today has been created in the last two years alone. Our current output of data is roughly 2.5 quintillion bytes a day.

The number of live websites presenting content (not those that are just parked domain names which account for 75% of all websites) is well over 250 million. Tumblr boasts 101.7 million blogs producing over 44.6 billion blog posts. has over 63 Million blogs, Livejournal reports to have 62.6 million blogs, Weebly states it has over 12 million blogs and Blogster has over 582,754 blogs. Twitter has over 1 Billion registered users, which spend an average of 170 minutes a month using the service.  Add these numbers to those of daily email, Facebook, Linkedin, Instagram, Youtube, Pinterest, Snapchat, Gify, Spotify etc, and you can begin to see how this information explosion is dominating our lives.

The industrial and tecnological revolutions have greatly increased our ability to gather and deliver information, however our brains continue to absorb and process information in pretty much the same way it always done. Torkel Klingberg, author of The Overflowing Brain: Information Overload and the Limits of Working Memory, states “the brains in which we are born today are almost identical to those with which Cro-Magnons were born forty-thousand years ago.

Los Angeles based social psychologist, Susan K. Perry, Ph.D., stated that in spite of our best efforts to process this contant flow of daily information, our brains are limited and can only focus on one thing at a time in depth. The best known limitation is the “magical number” that governs short-term memory: the psychologist Miller (1957) has shown that people can only keep some seven items at once in their working memory. Richard Watson, author of Future Minds, explains that increased exposure to technology which helps us consume information online more quickly means that we engage our brains in deeper thinking less often. Not only can technology and information overload damage our brain, it can make us stupider.

Information overload (also known as infobesity or infoxication) is a term used to describe the difficulty of understanding an issue and effectively making decisions when one has too much information about that issue. Information overload occurs when the amount of input to a system exceeds its processing capacity. One of the first social scientists to notice the negative effects of information overload was the sociologist Georg Simmel (1858–1918), who hypothesized that the overload of sensations in the modern urban world caused city dwellers to become jaded and interfered with their ability to react to new situations. Alvin Toffler sent out a similar warning more than 30 years ago. In his book, Future Shock (Random House, 1971), Toffler presented his theory, named “Future Shock Syndrome,” that the human brain has finite limits on how much information it can absorb and process. If we exceed those limits our brains become overloaded. This means that part of that information will be ignored, forgotten, distorted or otherwise lost.

“Too much information running through my brain,
Too much information driving me insane”

— The Police

The longer people are subjected to information overload, the more negative its effects on physical and mental well-being. Sensationalized stories and information saturizing our daily lives is making it harder to tell what’s actually important. This is having an effect on our ability to make sound decisions. Our reliance on devices and internet connections are causing declines in memory and information retention, increased radiation and eye strain, stress and burn out from speed and volume of information received. Our handwriting skills are beginning to diminish over time. There are signs of increased depression and anxiety levels from constant sheltered living and less exposure to sunlight and our attention spans are becoming shorter.

Francis Paul Heylighen, a Belgian cyberneticist investigating the emergence and evolution of intelligent organization highlights in his paper, Complexity and Information Overload in Society: why increasing efficiency leads to decreasing control, that “the problem of information overload can also be formulated as attention scarcity: it is not so much that there is too much information, but too little time and mental energy to process it. The amount of cognitive effort or attention (Kahneman, 1973) that an individual can give to any issue is limited, and there are in general more issues that demand attention than attention that can be given. Therefore, attention is the true bottleneck, the one scarce resource on which all others depend, and thus the one that is intrinsically most valuable. While ephemeralisation can amplify the availability of any other resource, it cannot augment the total amount of human attention.”

So in order to combat this problem we need to slow down the flow of information to amounts that we are able to pay attention to properly or increase our attention capacity. The obvious answer is to switch off and decrease the amounts of information coming towards us. However, companies such as Facebook, Instagram and Twitter, that produce the platforms that rely on this increasing flow of information, are dependent on their users staying connected. So they are constantly innovating ways of keeping us engaged, making it that much more difficult for us to break free. We highlighted this in the “Social Media Casino.”

Switching off is obviously not an easy task these days but with a bit of will power and a few small changes your life can change for the better.

  • Go on a Break Without Your Phone

Although it is not reasonable to completely live without a smartphone these days, it can nevertheless be very refreshing to take a single weekend away from it once in a while.

  • Scheduled Checks

Consant emails, messages and other interruptions can actually prevent you from being productive and getting work done. Instead of checking your email every five minutes or each time a message comes through, instead turn off all notifications (sounds, vibrations etc.) and check it at set points throughout the day (every two hours perhaps).

  • Take up non-digital activities

Today, many of our activities involve a screen of some sort; watching movies, playing computer games, texting friends or simply surfing the web. Take a break and  simply try taking up some activities that don’t involve a screen. This could include going to the gym, taking long walks, reading a book, sewing, knitting, drawing or playing an instrument.

  • No screen time before bedtime

Probably one of the most effective changes you can make is to simply switch off your smartphone, computer or ipad an hour before bed. These screens are known to increase cortisol in your brain and thereby decrease melatonin and make it much harder to sleep.

  • Mindfulness Meditation

Mindfulness meditation is all about taking control of your attention and focus. A wealth of new research has shown it to be effective at reducing stress and boosting working memory. It enhances our ability to focus and suppress distracting information. Research also supports the notion that mindfulness meditation decreases emotional reactivity. This is the antithesis to information overload and therefore an excellent option.

There is also another school of thought. Psychologist and behavioural neuroscientist Daniel Levitin, author of the book The Organised Mind: Thinking Straight in the Age of Information Overload, says we can regain control over our brains by organising information in a way that optimises our brain’s capacity.

  • Externalise data

Getting information out of your head and into the external world helps you to see it objectively so you can make better decisions. To do this, write down your list of to-dos manually. This will help to encode the information into your brain through the use of muscle memory.

  • Important decisions should be made in the morning.

“Each time you make a decision, it uses some neuro-resources,” says Levitin. The problem is these neuro-resources are used up whether you’re making an insignificant decision or something considerably more important. To avoid neuro depletion, schedule your important decision-making tasks at the beginning of the day in order to maximise your brain’s resources, towards better decision making.

  • Get organised

Living in a physical environment that is well organized can lessen the burden on your brain. It can be a simple as having a designated place for commonly misplaced items such as keys, glasses, and cellphones. This reduces some of the pressure on your brain to recall things.

  • The myth of multitasking

There has been a lot of debate on the benefits of multitasking and the productivity improvements that come along with it. However, Levitin says multitasking is actually a misnomer because “what we’re actually doing is rapidly shifting our attention from one thing to another. Constantly switching tasks uses up our glucose supply which means the brain will reach a level of fatigue much sooner in the day than if we concentrate on one item at a time with sustained attention.

The amounts of information we produce daily are only going to go up exponentially as we find better and faster ways to produce, transfer and store data. The onus is therefore on each of us to start incorporating some of these practices into our daily lifestyles and at the same time, just try to be a little more conscious and aware of how much time we spend on our smartphones and computers.

By doing so, you may just find you have a little more energy and attention to spend on the non-digital world around you where you can experience it directly rather than through a screen.

The Hutch Report

The Rational Price

By | Marketing, Psychology

Price is all around us and our contemporary society has managed to come up with a myriad of ways to refer to price over the years.  You pay rent for your apartment, a tuition for your education or a fee for your dentist. Airlines, railways, taxis and bus companies all charge you a fare. Local utilitiy companies talk about the rate they charge you and your bank will charge you interest for the money you borrow. The price for taking your car on to the ferry or the price you have to pay to use a highway or a bridge is called a toll. The company that insures your car will charge you a premium. Clubs or societies to which you belong may make a special assessment to pay unusual expenses. Your lawyer will ask you for a retainer to cover his/her services. The price of an management executive is considered a salary, unless you are a salesman, then it may be a commission. A worker will recieve a wage. Finally, income taxes are what we pay for the right to earn money, hence the name tax on income, (although an economist would probably disagree).

Everything that we pay a price for has some kind of utility, or something that will be useful to us. The importance, worth, or usefulness of that something is also considered value (the terms utility and value and used differently among economist so to simplify things I will just refer to value). The price of something is a mechanism that allows us as consumers to make a decision.

Price is probably the most influencing factor for buying because consumers are rational. What makes them rational is the fact that they have limited income as well as a limited budget. An irrational consumer that spends beyond his or her means are quickly pushed into insolvency. Although there are an increasing amount, it can be agreed that the majority still act in a rational manner.

Making a decision on price, however, is not always the easiest thing to do for consumers. Price is not only the amount that customers pay for utilizing a product or having a service. There are a number of psychological factors that impact how they feel.

Companies can sustain themselves in the market if and only if they can make a profit, which totally depends on price. When a company is going to determine the price of a product or service they need to first understand their cost of the product/service offered. No company that prices a product for $5 but cost $10 to produce can survive for long. They need also to think about the rationality of pricing; that might include the product’s quality, availability of the alternatives in the market, types of products and the category of entry into the market. A company’s pricing determination can be incredibly complex and not in the scope of this article.

We want to look at what a consumer is confronted with when making a purchasing decision and how they can improve their ability to make the best decisions with the information available to them. Dan Ariely described how what may seem a simple purchasing decision, is not always so simple for the consumer to make.

“Consider the following situation as an example: You are thirsty, tired, and annoyed and just want a cup of coffee. You see two coffee shops across the street from each another. One is a specialty coffee shop that sells handcrafted, designer coffee and the other is Dunkin’ Donuts which sells standard, decent coffee. The price difference between the two options is $1.75 for your cup-a-joe. Now, how do you decide if the benefit of the handcrafted coffee drink is worth the additional $1.75? What you should do (if you wanted to be rational about it) is consider all of the things that you could buy with that $1.75, now as well as in the future, and decide to buy the expensive coffee only if the difference between the two coffees is more valuable than all of those other possibilities. But of course this computation would take hours, it is incredibly complex, and who even knows all the possible options to consider?”

So what does one do to make the decision? Dan Ariely states that in place of making decisions “correctly” we adopt simple rules or what academics call “heuristics” (heuristics are simple, efficient rules, learned or hard-coded by evolutionary processes, that have been proposed to explain how people make decisions, come to judgments, and solve problems typically when facing complex problems or incomplete information.) Simply put, we will decide what we have always decided. If you have purchased designer coffee in the past and have been content to pay the additional price then you may well do it again, whereby it becomes a habit. However, if your financial situation changes then your purchasing habits will most likely change. It may become a better option to go for the Dunkin` Donut’s coffee and pay a bit less.

By examining these habits, and quitting them when it makes sense to do so, we might actually discover ways in which we could reduce our spending on a long-term basis. Or more to the point, we may discover where we are paying more for less value received or paying less for more value received.

In addition to analysing your current purchasing habits in this way you may want to do some deeper research and discover your true motives for purchasing a service or product in order to establish some better buying habits from this point on.

We make our purchase decisions from a rational point of view or an emotional point of view. However, Professor Baba Shiv of the Graduate School of Stanford Business points out that 90 to 95% of our decisions are made by our emotional brain, even if we think we are being rational the emotional side will always win out. (Clotaire Rapaille goes deeper into this analysis in his brilliant book, “The Culture Code.”)

Below are a few examples of rational purchasing decsions vs. emotional purchasing decisions. You also have to keep in mind that your decisions may be based on a combination of both. However, when you are analyzing the emotional side, it is much more difficult to quantify the value. Companies understand this so they often market to your emotional side. This is why they pay athletes and celebrities millions of dollars to represent their brands. If I purchase a Nike product then it means emotionally I may be in the same class as Roger Federer, but how can I possibly value that emotion? I may have paid $40 too much!!

The price you pay for any product/service all comes down to the individual’s choice. Take a bit of extra time during your next purchase, regardless of the price, and try and discover your true motivation for making the purchase, and if emotional, what value does that mean to you. You may discover something new!

The Hutch Report

The Social Media Casino

By | Health, Psychology, Technology

Something strange is happening in the world of social media. It is starting to feel like we are all part of a grand neuroscience experiment of Pavlovian nature. Classical conditioning (also known as Pavlovian or respondent conditioning) refers to learning procedure in which a biologically potent stimulus (e.g. food) is paired with a previously neutral stimulus (e.g. a bell). It also refers to the learning process that results from this pairing, through which the neutral stimulus comes to elicit a response (e.g. salivation) that is usually similar to the one elicited by the potent stimulus.

Your smartphone buzzes. You can’t just leave it because the curiosity is just too great. Was it an email for me? A text? Did I get a Facebook notification? Or just a phantom vibration? You grab it out of your pocket without hesitation and check the alert.

Pavlov paired food with a bell; we seem to be pairing our human connection with our phone. We may not salivate at each alert, but our brain is certainly responding.

The digital world has become a crowded place. We have one piece of hardware that has essentially become the portal for all our news, communication, entertainment, and utilities. Making up these distribution channels are millions of companies producing the application, content and software.

Their survival is based on their ability to keep us, the users, engaged as often as they can and for as long as they can. So the need for ways to measure “real” online engagement has never been more urgent. To effectively reach consumers in today’s fragmented media landscape, advertisers and publishers need a deeper understanding of which content resonates when, and on what device. Advancements in online advertising analytics can now show if an ad was actually viewed and this capability is pushing many advertisers, publishers and agencies to think beyond clicks and impressions.

The competition is fierce because if your attention is focused on SnapChat’s application, it is not focused on the latest content being produced by YouTube. The classic marketing messages such as “we are the most convenient,” or “we provide the most value for your money,” don’t seem to work anymore. Therefore, these companies have researched much deeper into our neural connections in order to manipulate them to affect our behaviour towards their products and services. This research has brought about innovations such as autoplay, endless scroll, reverse chronological timelines, reciprocity,  push notifications and many more.

If you’re an app, how do you keep people hooked? You do what Pavlov did, you provide an intermittent reward, or the promise of a reward, such as push notifications, or a bell when you recieve a message. The average person checks their phone 150 times a day. Think about why we do this? Are we making 150 conscious choices? (You can read more on this in Nir Eyal’s book “Hooked”). Tristan Harris equates it to playing a slot machine, and this is coming from a designer at Google that was responsible for many of them. Here is his view of it:

  • When we pull our phone out of our pocket, we’re playing a slot machine to see what notifications we got.
  • When we pull to refresh our email, we’re playing a slot machine to see what new email we got.
  • When we swipe down our finger to scroll the Instagram feed, we’re playing a slot machine to see what photo comes next.
  • When we swipe faces left/right on dating apps like Tinder, we’re playing a slot machine to see if we got a match.
  • When we tap the # of red notifications, we’re playing a slot machine to what’s underneath.

The psychologist Larry Rosen, talks about the fear of missing out. “We also study a particular type of anxiety connected to feeling a need to constantly check in, and feeling anxious if you can’t do so as often as you like. It is similar to the concept known as FOMO—fear of missing out—but it is not really a fear. Physiologically it looks more like a heightened level of “technological anxiety” that continues to rise until you check in with whatever is making you feel that way, and will abate only to start to rise again and again.”

So, if these are the tools and the elicited reactions, then how is it truly affecting us? The best way to find out is to remove the stimulus (smartphone). What happens to us if we are restricted from checking our smartphones? What happens when our addiction to pulling the slot machine lever is taken away?

Numerous studies have confirmed that people tend to undergo a kind of withdrawal: A research study from Swansea University found that people experienced the psychological symptoms of withdrawal when they stopped using social media (this went for all internet use, not just social media).  It tends to triggers more sadness and less well-being. The more we use social media, the less happy we seem to be.

One study conducted in 2013 found that Facebook use was linked to both less moment-to-moment happiness and less life satisfaction—the more people used Facebook in a day, the more these two variables dropped off.

A study from 2014 found that social media use is linked to greater feelings of social isolation. The team looked at how much people used 11 social media sites, including Facebook, Twitter, Google+, YouTube, LinkedIn, Instagram, Pinterest, Tumblr, Vine, Snapchat and Reddit, and correlated this with their “perceived social isolation.” The results indicated that the more time people spent on these sites, the more socially isolated they perceived themselves to be. Perceived social isolation is one of the worst things for us, mentally and physically.

Research found that an eighth-grader’s risk for depression jumps 27% when he or she frequently uses social media. Kids who use their phones for at least three hours a day are much more likely to be suicidal. And recent research has found the teen suicide rate in the US now eclipses the homicide rate, with smartphones believed to be the driving force.

One of the main benefits believed to have arisen our of social media is its “social” aspect. Our ability to be able to connect with others far and wide. However, it has been discovered that more friends on social media doesn’t necessarily mean you’re more social. A study from 2016, by R. M. Dunbar, Department of Experimental Psychology, University of Oxford, found that more friends on social media doesn’t necessarily mean you have a better social life—there seems to be a cap on the number of friends a person’s brain can handle, and it takes actual social interaction (not virtual) to keep up these friendships. So feeling like you’re being social by being on Facebook doesn’t work. Loneliness is linked to a myriad of health and mental health problems (including early death), getting real social support is important. Virtual friendship time has not been seen to have the therapeutic effect as time with real friends.

How can we protect ourselves and limit the effects?

Although not everything connected with social media is detrimental there should be care in limiting the destructive side effects that it can cause. But what are the options at our disposal to achieving this? We can’t expect it to come from the tech companies as that would equate to shooting themselves in the foot. Their goal is to gain users not lose them. We could turn to the government to regulate the use, however, we are already so regulated in so many areas that dealing with something so widespread as the internet and social media would likely see the same effects that they saw during the prohibition period. That didn’t work out so well. Therefore, the onus is placed on the individual or the family. This takes extremely tough discipline when you are up against an industry that is researching your inner core and how better to manipulate it.

Interviews with Bill Gates, Steve Jobs, and other tech elites have consistently revealed that Silicon Valley parents are strict about technology use. In 2007, Gates, the former CEO of Microsoft, implemented a cap on screen time when his daughter started developing an unhealthy attachment to a video game. He also didn’t let his kids get cell phones until they turned 14. Steve Jobs, who was the CEO of Apple until his death in 2012, revealed in a 2011 New York Times interview that he prohibited his kids from using the newly-released iPad. “We limit how much technology our kids use at home.”

The psychologist Larry Rosen suggest the following:

  • Try to slowly wean yourself off the need to respond automatically to alerts and notifications, particularly while you are working on any task that requires concentration and attention. This can be done by turning off notifications, shutting all browser tabs, putting the phone on silent for a specified amount of time, or even just turning the phone off.
  • Instead of checking your messages when you receive alerts, check them on a time schedule. Alert friends, family and colleagues that you are going on a 30-minute plan (or whatever suits you), only checking messages every 30 minutes.
  • Do not work with technology for more than about 90 minutes at a time. Take short 10-minute breaks and do something that doesn’t use technology to calm and reset your brain. Walking in nature works. So does playing a musical instrument, meditating, exercising, listening to music, and taking a hot bath or shower. You know implicitly what calms your brain.
  • Using technology at night ruins your sleep and the important brain processes that happen while you rest. Remove your phone and other devices that are used close to your face for at least one hour prior to attempting to sleep.

Additionally, Tristan Harris, from a movement he started by the name “Time Well Spent”  suggest making the following changes:

  • Allow notifications from people, not machines

Most notifications are from machines, not actual people. They keep our phones vibrating to lure us back into apps we don’t really need to be in. Visit Settings > Notifications and turn off all notifications except those from real people– apps like WhatsApp, FB Messenger or Messages.

  • Keep the tools, put mindless choices at a distance.

Limit your first page of apps to just tools– things you use for in-and-out tasks like Maps, Camera, Calendar, Notes, or Lyft. Move the rest of your apps off the first page and into folders.

Launch other apps by typing

Swipe down and type the app you want to open instead of leaving bad habits on the home screen. Typing takes just enough effort to pause and ask, “do I really want to do this?”

On Android you can use the Search box on your home screen.

iOS: For best results, turn off Siri Suggestions (Settings > Siri & Search > Siri Suggestions to off)

  • Charge your device outside the bedroom

Get a separate alarm clock in your bedroom, and charge your phone in another room (or on the other side of the room). This way, you can wake up without getting sucked into your phone before you even get out of bed.

The main thing to remember is that nobody is making us respond so quickly, or respond at all to alerts and notifications. Nobody is enslaved to technology. If you practice waiting and not checking your alerts you will find that the anxiety and mental need to check in will abate with time, and then you will be in control of your technology rather than your technology controlling you.

As we explained in our article “The Illusion of Understanding,” if you think that you understand the workings of social media and how it affects you, you probably don’t.

The Hutch Report

The Illusion of Understanding

By | Business, Economics, Psychology

How is it that no matter how much any financial market goes up or down during the day, somebody has an answer as to why? Financial markets are made up of millions of participants making large numbers of investment decisions at any one time. In addition, we now have a large number of computers that have been programmed to trade at incredibly high speeds, even up to the milisecond, and they are making millions of these trades a day. Yet somehow financial media commentators and self proclaimed experts are able to define what it all means, all within the constraints of a 3 minute clip. There are 3 possible explanations why.

I read once where a CNBC regular guest financial commentator disclosed that any guest invited onto the show was not allowed to say “they didn’t know” as an answer to why something was occuring. It was explained that these people were portrayed as experts, and experts were not allowed to not know a fact. If they presented themselves in such a way, they would not be invited back. Since being on television can be great exposure for the individual or the company they work for, they would simply do what was asked of them. You may also have noticed that during times of advancing markets, the financial media programs tend to have a long list of guests that are bullish the markets. In times of declining markets, the long list of guests will be bearish the markets. This will help to reinforce the proper bias regarding explanations for the current state of the market.

The second possible explanation is that the comments reflect the personal motives of these guests. Many of the guests are fund managers or traders and have ulterior motives as to why they see the markets in a certain way. If they, or their employers, happen to manage a large portfolio and are fully invested, it is probably not in their best interest to tell the concerned public that the current markets are unstable and not the smartest place to invest their money. Therefore, they will provide views that support their current positions regardless of whether or not their views explain the questions asked. Since the financial media will present bullish guests during advancing markets it is rare that you will find many with contrarian views and if there are they are most likely supporting their own interests also.

There is also a third possible explanation. There is the possiblity that these experts are victims of “the illusion of understanding,” or known in psychology as the illusion of explanatory depth (IOED).  The illusion of understanding is where people feel they understand the world with far greater detail, coherence, and depth than they really do. They only realise the illusory nature of this belief when they attempt to explain a fact. Opinionated guests on financial media are normally allotted no more than 3 minutes to give their views. For this reason there is hardly enough time to delve into the subject matter in any great detail to where the viewer may become aware that these guests are not able to fully explain themselves. Therefore, they give the illusion of understanding but it is far from clear if they actually do understand the issues they are discussing.

A fact, event or situation that is observed to exist is also known as phenomena. According to R. A. Wilson and F. C. Keil., in their paper, The Shadows and Shallows of Explanation, 1998, we all encounter a vast number of phenomena on a daily basis but only possess a superficial level of understanding of most of these phenomena . In addition to a limited understanding of many everyday domains, people lack an understanding of their own understanding and tend to believe that they are much more skilled in a variety of domains than they actually are (Dunning, Johnson, Ehrlinger, & Kruger, 2003).

Stav Atir and David Dunning of Cornell University, along with Emily Rosenzweig of Tulane University designed a series of experiments testing people’s self-perceived knowledge, comparing it to their actual expertise. The researchers tested 100 individuals, who perceived themselves to be experts in personal finance. They were asked to rate their knowledge of particular financial terms which included three made-up terms (pre-rated stocks, fixed-rate deduction, and annualised credit). They found that 93 per cent of participants claimed knowledge of at least one of those three terms. Stav Atir explained, “The more people believed they knew about finances in general, the more likely they were to over claim knowledge of the fictitious financial terms.” It appears that self-perceived expertise causes people to think they know more than they really do.

These findings are of course not limited to the field of finance alone. They are present in all areas. For example, people may know that a door lock works by inserting a key and turning it, which causes the lock to unlock. This understanding may lead people to believe that they know how a lock works, even though they lack an understanding of the detailed internal mechanisms of the lock. The same can be said regarding everybody’s favorite gadget, the smartphone. The fact that people can download applications, modify the smartphone settings to change the background or a ringtone may give many the impression that they understand how the smartphone works, yet their true understanding of these incredible little computational devices are incredibly shallow.

Charlie Munger, the billionaire business partner of Warren Buffett explained it brilliantly at the USC Law School Commencement speech in 2007:

“I frequently tell the apocryphal story about how Max Planck, after he won the Nobel Prize, went around Germany giving the same standard lecture on the new quantum mechanics. Over time, his chauffeur memorized the lecture and said, “Would you mind, Professor Planck, because it’s so boring to stay in our routine, if I gave the lecture in Munich and you just sat in front wearing my chauffeur’s hat?” Planck said, “Why not?” And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question. The speaker said, “Well I’m surprised that in an advanced city like Munich I get such an elementary question. I’m going to ask my chauffeur to reply.”

Munger told this story in order to highlight the difference between real knowledge (as was the case with Max Planck) and fake knowledge, or the illusion of understanding (as was the case with the chauffeur).

Max Planck

So how are we able to even identify the difference between having real knowledge and our illusion of having real knowledge? How are we able to identify our own limitations or illusions of understanding? A solution was provided by and practised by the great physicist Richard Feynman.

Feynman believed that understanding something is not just about working through advanced mathematics. One must also have a notion that is intuitive enough to explain to an audience that cannot follow the detailed derivation. In other words if you can’t explain it in simple terms then you don’t know it well enough.

Explanations can be useful in helping people to evaluate their own comprehension. When people attempt to generate an explanation for a phenomenon, they not only learn what they know but also become aware of “gaps” in their understanding: those parts of the explanation that are difficult or impossible to generate (Keil, Rozenblit, & Mills, 2004). That is, people are often unaware of what they do not know until they try to explain it.

The Feynman technique of learning was laid out clearly in James Gleick’s 1993 biography, “Genius: The Life and Science of Richard Feynman.”

  1. Pick a topic you want to understand and start studying it. Write down everything you know about the topic on a notebook page, and add to that page every time you learn something new about it.
  2. Pretend to teach your topic to a classroom. Make sure you’re able to explain the topic in simple terms.
  3. Go back to the books when you get stuck. The gaps in your knowledge should be obvious. Revisit problem areas until you can explain the topic fully.
  4. Simplify and use analogies. Repeat the process while simplifying your language and connecting facts with analogies to help strengthen your understanding.

When referring back to the financial media we can now ask ourselves, “how much information that we are provided is actually real knowledge?” The answer, particularly in the case of journalism, is not always so evident as there are many participants with real knowledge, yet they are often concealed by a large number of so called “chauffeurs.”

The founders of RealVision Television recognised this. They realised limitations of a three minute soundbite on the current financial media programs and the tendency for many guests to present the illusion of understanding. So they launched a platform where the guests are given as long as an hour to discuss various financial subjects in detail. Many of their guests use the freedom of the platform to admit they do not always know why certain things are as they are. They do this because they are asked to explain their views and provide educated insights, which often have limitations. This is refreshing because we are not confronted with the illusion of understanding but the quest for understanding and in turn we are presented with a wealth of real knowledge.

Only by forcing yourself to explain does it become apparent how little you understand. Practicing explanations is the best way to fill your information gaps and also the key to form the kinds of memory you need to perform later and avoid presenting the illusion of understanding.