Library / Behavioural Finance
Date of review: October 2021
Book author: Julia Galef
Вook published: 2021
Book author: Julia Galef
Вook published: 2021
The Scout Mindset: Why Some People See Things Clearly and Others Don't by Julia Galef (2021)
The book discusses how to make better decisions, judgements in life. It complements other must-reads (in my view) such as books by Daniel Kahneman, Philip Tetlock, Anne Duke, Nate Silver, Howard Marks and a few others.
We should see the reality as it is (like scouts) as opposed to how we see it on our maps (soldiers)
This is the central message of the book. The main question the author tries to answer is what makes us ignore facts and make or stick with sub optimal decisions. The answer is that we often get defensive trying to protect our views as beliefs, values and identity rather than seeking the truth.
One drawback of the book is that it is a little repetitive at times and could have been shorter but easy to read, though with quite a few practical tools.
One drawback of the book is that it is a little repetitive at times and could have been shorter but easy to read, though with quite a few practical tools.
Below I mostly quote the author directly with a few of my personal comments
"Life is made up of judgment calls, and the more you can avoid distorting your perception of reality, the better your judgment will be. Scout mindset is what keeps you from fooling yourself on tough questions that people tend to rationalise about, such as: Do I need to get tested for that medical condition? Is it time to cut my losses, or would that be giving up too early?"
"Scout mindset is what prompts us to question our assumptions and stress-test our plans. Whether you're proposing a new product feature or a military manoeuvre, asking yourself, "What are the most likely ways this could fail?" allows you to strengthen your plan against those possibilities in advance. If you're a doctor, that means considering alternate diagnoses before settling on your initial guess".
"Scout mindset is what prompts us to question our assumptions and stress-test our plans. Whether you're proposing a new product feature or a military manoeuvre, asking yourself, "What are the most likely ways this could fail?" allows you to strengthen your plan against those possibilities in advance. If you're a doctor, that means considering alternate diagnoses before settling on your initial guess".
Key attributes of Soldier mindset
- Decide what to believe by asking "Can I believe this?" or "Must I believe this?" depending on your motives.
- Seek out evidence to fortify and defend your beliefs.
- Related concepts: Directionally motivated reasoning, rationalising, denial, self-deception, wishful thinking.
In reality, nobody is a perfect scout, just as nobody is a pure soldier. We fluctuate between mindsets from day to day and from one context to the next.
A trader might be especially scout-like at work, happy to test their own assumptions and discover they were wrong about the market . . . and then come home and be a soldier in their personal life, unwilling to acknowledge problems in their marriage or consider the possibility that they might be wrong.
6 reasons for motivated reasoning, the first three are emotional, while the last three - social
1. Comfort - avoiding unpleasant emotions like fear, stress, and regret.
"Everything happens for the best. People get what's coming to them".
If you're struggling to keep your head above water in a difficult class, it can be tempting to conclude, "This is pointless, I'm never going to do well enough to bring my grade up." The moment of giving up offers a rush of sweet relief. Or you might decide that there's no point in preparing for a potential future disaster like an earthquake or tsunami, so you don't have to think about it.
If you're struggling to keep your head above water in a difficult class, it can be tempting to conclude, "This is pointless, I'm never going to do well enough to bring my grade up." The moment of giving up offers a rush of sweet relief. Or you might decide that there's no point in preparing for a potential future disaster like an earthquake or tsunami, so you don't have to think about it.
2. Self-Esteem - feeling good about ourselves.
Your self-image shapes even your most fundamental beliefs about how the world works. Poorer people are more likely to believe that luck plays a big role in life, while wealthier people tend to credit hard work and talent alone.
Motivated reasoning for the sake of self-esteem doesn't always mean believing that you're brilliant and talented and everyone likes you. Psychologists make a distinction between self-enhancement, which means boosting your ego with positive beliefs, and self-protection, which means avoiding blows to your ego. For the sake of self-protection, you might err on the side of assuming the worst about yourself.
Motivated reasoning for the sake of self-esteem doesn't always mean believing that you're brilliant and talented and everyone likes you. Psychologists make a distinction between self-enhancement, which means boosting your ego with positive beliefs, and self-protection, which means avoiding blows to your ego. For the sake of self-protection, you might err on the side of assuming the worst about yourself.
3. Morale - motivating ourselves to do hard things.
Believing in the success of your venture to stay positive and maintain motivation while ignoring the baseline odds (statistical evidence that most new businesses fail).
4. Persuasion - convincing ourselves so we can persuade others.
This is common among politicians but also among other professions.
5. Image - choosing beliefs that make us look good.
Just as there are fashions in clothing, so, too, are there fashions in ideas. When an idea like "socialism is better than capitalism" or "machine learning is going to change the world" begins to gain currency in your social circles, you might be motivated to adopt it as well in order to remain fashionable.
6. Belonging - fitting into your social groups.
Not questioning consensus views/assumptions, associating yourselves with a particular group and all its beliefs.
Other reasons we stick to irrational beliefs (ignoring the truth)
- Present bias - we overvalue the pleasure of self-deception.
- We underestimate the benefits of Scout Mindset.
- We overestimate social costs. Over 60% of patients, respectively, admitted to withholding information from their doctor about important things, such as whether they were regularly taking their medication or whether they understood their doctor's instructions. The reason - most people want their doctor to think highly of them.
Signs that you have a Scout Mindset
1
Telling others when they are right, not just admitting to yourself when you were wrong.
2
Responding positively to criticism, not just thinking that you do it but actually doing it. Examine your track record. Are there examples of criticism you've acted upon? Have you rewarded a critic (for example, by promoting him)? Do you go out of your way to make it easier for other people to criticise you?
3
Willing to prove yourself you were wrong.
4
Do you take precautions to avoid fooling yourself? For example, when you launch a new project at work, do you decide ahead of time what will count as a success and what will count as a failure, so you're not tempted to move the goalposts later?
5
Do you have good critics? Can you name people who are critical of your beliefs, profession, or life choices who you consider thoughtful, even if you believe they're wrong? Or can you at least name reasons why someone might disagree with you that you would consider reasonable (even if you don't happen to know of specific people who hold those views)?
Practical tips for developing a Scout Mindset
1. Double standard test - do I apply the same criteria to all situations, pleasant and unpleasant or am I more critical of strangers/opponents and less of myself / friends?
2. Outsider test - imagine you are an outsider looking at a situation, what this outsider would do? It helps to get a fresh, unbiased perspective.
3. Conformity test - do I make a decision just because I follow others?
4. The selective sceptic test. Ignoring critics from opponents/people you dislike.
5. The status quo bias test A motivation to defend whatever situation happens to be the status quo. A leading theory for why we're biased in favour of the status quo is that we're loss averse: the pain we feel from a loss outweighs the pleasure we feel from a similar-size gain. That makes us reluctant to change our situation because even if the change would make us better off overall, we fixate more on what we'll be losing than what we'll be gaining.
2. Outsider test - imagine you are an outsider looking at a situation, what this outsider would do? It helps to get a fresh, unbiased perspective.
3. Conformity test - do I make a decision just because I follow others?
4. The selective sceptic test. Ignoring critics from opponents/people you dislike.
5. The status quo bias test A motivation to defend whatever situation happens to be the status quo. A leading theory for why we're biased in favour of the status quo is that we're loss averse: the pain we feel from a loss outweighs the pleasure we feel from a similar-size gain. That makes us reluctant to change our situation because even if the change would make us better off overall, we fixate more on what we'll be losing than what we'll be gaining.
Your ability to see clearly is precious, and you should be reluctant to sacrifice it in exchange for emotional comfort
Source: Drawing by my daughter Diana
The difference between making a claim and making a bet, the former is just a statement that you may not believe strongly. To become better at Scout Mindset, try making statements like you make bets bearing full downside from your decisions.
Special technique by psychologist Douglas Hubbard: when you need to decide on something (e.g. Self-driving cars will be on mass roads from 2025), you can imagine you win $10,000 if you are right. Alternatively, you can pick a red ball from a black box with four balls where all but one ball are white. Would you rather make a ball bet, in which case you are facing a 25% chance. This implies that your own belief in Self-driving cars by 2025 is less than 25%.
You can then imagine making a "ball bet" with 10 balls in the box. You can adjust the number of balls to broadly match your confidence in betting on Self-driving cars.
For Scout Mindsets, it is important to distinguish your different levels of confidence, not just 100%, 0% and 50% like maybe.
Using the right copying strategy. When facing adversity, better to use a technique that does not impact your judgement, like taking a deep breath and counting to 10 (or deferring the decision to the next day), self-deceiving strategies (e.g. 'Everything will be fine') are much more dangerous.
Other good strategies - Notice how far you have come in life, project etc.; Remember you cannot do more than 100x your best performance; Focus on a different goal (Do I really want to be the world's best MMA fighter?); Focus on the silver lining (in accepting the truth); Make a plan (think about what it takes to make the 'right' decision, maybe it is not too bad in the end); Don't forget that it could have been worse.
Your ability to see clearly is precious, and you should be reluctant to sacrifice it in exchange for emotional comfort.
The key is to understand that each individual decision (bet) in life can lead to negative outcomes (you cannot win all the time), but as long as gains outweigh losses and you can make many bets in life - you will keep making progress. Imagine a volatile curvy line that goes up and down but overall moves from the lower left side of the chart to the upper right. That could be the trajectory of a successful person making risky decisions, but that is worth taking.
For example, there is a 10% chance that you succeed in this venture, and the payoff is $100,000,000. Eventually, you would gain $10,000,000, but 9 out of 10 times, you could be losing.
Special technique by psychologist Douglas Hubbard: when you need to decide on something (e.g. Self-driving cars will be on mass roads from 2025), you can imagine you win $10,000 if you are right. Alternatively, you can pick a red ball from a black box with four balls where all but one ball are white. Would you rather make a ball bet, in which case you are facing a 25% chance. This implies that your own belief in Self-driving cars by 2025 is less than 25%.
You can then imagine making a "ball bet" with 10 balls in the box. You can adjust the number of balls to broadly match your confidence in betting on Self-driving cars.
For Scout Mindsets, it is important to distinguish your different levels of confidence, not just 100%, 0% and 50% like maybe.
Using the right copying strategy. When facing adversity, better to use a technique that does not impact your judgement, like taking a deep breath and counting to 10 (or deferring the decision to the next day), self-deceiving strategies (e.g. 'Everything will be fine') are much more dangerous.
Other good strategies - Notice how far you have come in life, project etc.; Remember you cannot do more than 100x your best performance; Focus on a different goal (Do I really want to be the world's best MMA fighter?); Focus on the silver lining (in accepting the truth); Make a plan (think about what it takes to make the 'right' decision, maybe it is not too bad in the end); Don't forget that it could have been worse.
Your ability to see clearly is precious, and you should be reluctant to sacrifice it in exchange for emotional comfort.
The key is to understand that each individual decision (bet) in life can lead to negative outcomes (you cannot win all the time), but as long as gains outweigh losses and you can make many bets in life - you will keep making progress. Imagine a volatile curvy line that goes up and down but overall moves from the lower left side of the chart to the upper right. That could be the trajectory of a successful person making risky decisions, but that is worth taking.
For example, there is a 10% chance that you succeed in this venture, and the payoff is $100,000,000. Eventually, you would gain $10,000,000, but 9 out of 10 times, you could be losing.
How to look confident but avoid being self-deceiving
The book also deals with the question of leading while accepting uncertainty. Could Bezos raise new money from investors if he was absolutely open with them about the true probability of success? The answer is yes as long as you are confident in knowing the reality, what needs to be done and that you can put 100% of your best efforts and skills into that.
Two types of confidence - statistical and social. In the first case, you are confident about probabilities, data. In the second, you act to justify that 'you deserve to be there' (self-assurance).
When it comes to the impression you make on other people, being self-assured is more important than expressing numeric certainty ('there is 57% chance we succeed'). Key attributes people look for in 'competent' people based on various studies - per cent time spoken in a group, confident tone, sharing relevant information, posture and relaxed manners. It could be worth working with a public speaking coach or just practising more.
Two types of confidence - statistical and social. In the first case, you are confident about probabilities, data. In the second, you act to justify that 'you deserve to be there' (self-assurance).
When it comes to the impression you make on other people, being self-assured is more important than expressing numeric certainty ('there is 57% chance we succeed'). Key attributes people look for in 'competent' people based on various studies - per cent time spoken in a group, confident tone, sharing relevant information, posture and relaxed manners. It could be worth working with a public speaking coach or just practising more.
Useful tips to coming across confident while dealing with uncertainty (not self-deceiving)
1
Show that uncertainty is justified (Bezos, Musk speaking about chances of success).
2
Give informed estimates. Even if reality is messy and it's impossible to know the right answer with confidence, you can at least be confident in your analysis. Know what is knowable within your sector, drivers and trends and various details - this would allow you to be much more confident.
3
Have a plan. If you are an entrepreneur, having a plan means being able to make a strong case for what you are going to do to make your business a good bet - a bet that you feel confident about making and that other people can feel confident investing in, even though success is not guaranteed. Paint a picture of the world you're trying to create, or why your mission is important, or how your product has helped people without claiming you're guaranteed to succeed.
General conclusions and tips from the final pages of the book
1. The next time you're making a decision, ask yourself what kind of bias could be affecting your judgment in that situation, and then do the relevant thought experiment (e.g., outsider test, conformity test, status quo bias test).
2. When you notice yourself claiming with certainty ("There's no way . . ."), ask yourself how sure you really are.
3. The next time a worry pops into your head, and you're tempted to rationalise it away, instead make a concrete plan for how you would deal with it if it came true.
4. Find an author, media outlet, or other opinion source who holds different views from you but who has a better-than-average shot at changing your mind—someone you find reasonable or with whom you share some common ground.
5. The next time you notice someone else being "irrational," "crazy," or "rude," get curious about why their behaviour might make sense to them.
6. Look for opportunities to update your view at least a little bit. Can you find a caveat or exception to one of your beliefs or a bit of empirical evidence that should make you slightly less confident in your position?
7. Think back to a disagreement you had with someone in the past on which your perspective has since shifted, and reach out to that person to let them know how you've updated your views.
8. Pick a belief you hold strongly and attempt an ideological Turing test of the other side. (Bonus points if you can actually find someone from the other side to judge your attempt.)
2. When you notice yourself claiming with certainty ("There's no way . . ."), ask yourself how sure you really are.
3. The next time a worry pops into your head, and you're tempted to rationalise it away, instead make a concrete plan for how you would deal with it if it came true.
4. Find an author, media outlet, or other opinion source who holds different views from you but who has a better-than-average shot at changing your mind—someone you find reasonable or with whom you share some common ground.
5. The next time you notice someone else being "irrational," "crazy," or "rude," get curious about why their behaviour might make sense to them.
6. Look for opportunities to update your view at least a little bit. Can you find a caveat or exception to one of your beliefs or a bit of empirical evidence that should make you slightly less confident in your position?
7. Think back to a disagreement you had with someone in the past on which your perspective has since shifted, and reach out to that person to let them know how you've updated your views.
8. Pick a belief you hold strongly and attempt an ideological Turing test of the other side. (Bonus points if you can actually find someone from the other side to judge your attempt.)