I’ve been reading on choice architecture and two key books have been Thinking Fast & Slow by Daniel Khaneman and Nudge by Richard Thaler & Cass Sunstein.
As a student, nobel prize winning economist Richard Thaler, kept a record of anomalies he encountered that the generally accepted model for rational economic behavior couldn’t explain.
This thought runs parallel to how Peter Thiel views secrets and their role in creating valuable business. In Zero to One he says, “Great companies can be built on open but unsuspected secrets about how the world works.”
This journaling of anomalies is something you can also do to identify opportunities that could come in the form of business ideas, trades in equity, asset or debt markets and dissertations.
Buy a premium notebook and record outliers, anomalies, counter-examples and things with “fuzzy” explanations (this one is a Moleskin) that you encounter throughout your life.
The notebook gives you incentive to actually record what you come across (its priced at a high premium – so you’ll want to use it), but also your structured thoughts are valuable and hand written notes although inefficient are relatively easy to secure
Consider a loud or distinct color because your notes might be a little loud or distinct by design.
There may be opportunities in taking a counterparty position to status quo thought/ or the perceived zeitgeist.
Figure out if there are actors that have miscalculated odds, and if so available methods that you have at your disposal to take the counterparty position.
This can include your own time (being the least costly method when thinking of direct cost), your own capital, or leveraging your capital or your network to access other people’s time and other people’s capital.
If you are on to something and have:
- accessed risk & P&L and
- thoughtfully designed your business model for taking your position
then there’s a chance you may profit wildly.
How do you identify and investigate anomalies?
- anomalies: (outcomes that vary significantly (they could be good or bad) from what the zeitgeist would predict),
- “fuzzy” explanations: an answer that is essentially a placeholder and has little substance
Where can you find them?
- Your own previous experience
- Historical examples
- Speaking to those closest to a problem, speaking to decision makers, & other stakeholders then looking for divergence
- Counter examples that prove the status quo wrong entirely
- Limits, special cases, behavior at margins and behavior at extremes
Define the Perceived Zeitgeist
Put the status quo/zeitgeist/generally accepted answer in as few words as possible to describe the thought, but be precise.
Many times you might see the anomaly first, before you phrase the generally accepted belief.
I want to run through a few examples, that may be slight more obvious.
Example 1: Eating 3 Meals a Day
Today many people eat 3 meals a day and accept this as the societal default way to eat
There’s a historical counter example, the Romans ate 1 meal a day.
Today some people practice intermittent fasting and some athletes eat more than 3 meals a day.
Intermittent fasting is relatively low risk to try for yourself, there’s potential benefit in health or time saving.
Example 2: Humor and Media
In the Simpsons episode Bart After Dark (Season 8 Episode 5), Bart gets a job at a Burlesque Theater.
This is an example of what Thiel would call a secret about people. Notice that there is a difference between what society say it wants and what society actually does.
There’s business implications for: nightlife, entertainment, dating, etc. I’ll leave that up to you to think through further.
Reductio ad Absurdum
As a brief side note: some comedians and humorists have a special ability for identifying anomalies because sometimes contradictions (or reductio ad absurdum) can be funny.
I’m not talking about visual gags, hyperbole, slapstick or salacious humor or things generally said in poor taste.
You can still be funny and remain a gentleman, gentlewoman or gentleperson with reductio ad absurdum.
Get yourself a journal and start writing down anomalies, contradictions and counter-examples.
You’ll understand your own thoughts better, you’ll understand general consensus and zeitgeist better and you can direct your research into business ideas, trade opportunities and dissertations.