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- [00:02]
David Epstein
We think we want more information, but the evidence is it does not improve our decision quality.
- [00:15]
Matt Grier
That was best selling author David Epstein on how less can be more. I'm Motley fool producer Matt Grier. Motley Fool Chief Investment Officer Andy Cross recently talked with Epstein about Epstein's new book, Inside the How Constraints Make Us Better. Enjoy.
- [00:34]
Andy Cross
Welcome to another Motley fool conversation. I'm Andy Cross. David Epstein is the author of the number one New York Times bestseller Range Wide Generalists Triumph in a Specialized World. And he's the author of the Sports Gene. His latest book is Inside the Box How Constraints Make Us Better. David, welcome back to the Motley Fool.
- [00:54]
David Epstein
Thank you for having me. It's nice to be back.
- [00:55]
Andy Cross
Yeah. I say, well, thanks for being here. I say welcome back because you spoke at our annual Motley fool member event back in 2019 and it was fantastic. Thank you for being there. And now thank you for being back here talking to our members. Let's talk about your new book. I have it right here inside the Box. How Constraints Make Us Better. Let's get right to the chase. How do constraints, David, make us better?
- [01:18]
David Epstein
Broadly speaking, they can force us to clarify our priorities and to launch into productive exploration. And those are two things that, because of the way our brains work, which they are wired for convenience, which you might call laziness, we very rarely do those things to the extent that we should unless we are forced by useful constraints.
- [01:39]
Andy Cross
Some of the inspiration for the book came from a class that you took in college studying haikus. Now, haikus are poems that are three lines. First line is five syllables, second line is seven syllables, the third line is five syllables. I've actually started writing some haikus myself just because it does really kind of help focus. But what makes a constraint so well designed as opposed to so stifling? I think some of us think of constraints as stifling. Why are they not stifling? And why are they actually beneficial?
- [02:12]
David Epstein
Yeah, not just some of us. I think the word is practically synonymous with something that's, that's frustrating. And in fact, there's a recent international survey by psychologists of known creativity myths. So these are things we know from research are not true. And the most popular one was that people are most creative when they're most free. And in fact, because our brains again are made for, as the cognitive scientist Daniel Willingham says, not for thinking, but for preventing you from having to think whenever possible, that we will reach for easy, convenient solutions, path of least resistance. Unless that is blocked and we're forced to go in another direction. So constraints are incredibly useful for getting us to think in new ways. I think the challenge is when constraints give people a feeling of taking away agency. You know, say your boss gives you some directive and it feels so stifling. First of all, if you get that directive and say, could I still surprise myself? And if the answer is no, then it's too constrained. Right. Because the whole point is to get people to think in different ways and productive ways. But short of that, we actually need constraints that force us off the most convenient ideas and get us to do our best work. And in many cases, that actually lead to personal satisfaction.
- [03:25]
Andy Cross
I recently interviewed Stephen Witt, who is the author of the Thinking Machine, a fantastic book about Nvidia co founder and CEO Jensen Huang. I know you read it. Great book because you have a nice blurb on the COVID Stephen talked about Jensen's willingness to pursue these markets long before there were any constraints. These billion dollar opportunities long before they were even customers. How do you square that side of that kind of outside the box thinking with this idea that constraints make us better inside of business?
- [03:54]
David Epstein
Yeah, well, I think one of the things that Jensen also did is made sure to keep things small and focused on very well defined problem solving early on. I mean, so early on they were doing computer graphics, period. And that's not because Jensen Huang thought that the only applications for this were computer graphics.
- [04:14]
Andy Cross
It's.
- [04:15]
David Epstein
He used it the same way that Jeff Bezos used books, right where it was. I'm trying to make something much bigger, but in the meantime, I need a very defined problem that I can work on to get started. So Bezos chose books because if people ordered, they knew what they were getting. Right. It wasn't going to break in shipping, so you weren't going to have tons of returns and things like that. But that was just this stepping stone problem to see. Can I start problem solving in this context? And if I can do that, then you can start expanding from that. And that's the same thing that Jensen did with computer graphics. It was, here's a defined problem. It keeps it small and contained enough and well defined enough that we can experiment in this well defined case and then we can build from there. And when companies or organizations haven't done that, where they jump ahead to the full vision, that's where they tend to have a disaster.
- [05:00]
Andy Cross
Yeah, you talk about in your new book, this great story about the rise and fall of a company called General Magic, a company that had really, as you write, too much creative freedom fueled by too much Money. So tell us the story of General Magic and what you learned from it.
- [05:16]
David Epstein
Yeah, so General Magic was the first so called concept IPO in Silicon Valley history. So Goldman Sachs took the company public in the mid-90s with an idea, not a product because their vision was so incredible. And their vision was right, by the way. So they were making a personal communicator, basically the iPhone. It was founded by three former Apple employees, two who had designed the original Mac and one who was just this absolute visionary. His job had been looking at the future of technology, a guy named Mark Peratt. And I read his Ph.D. dissertation in reporting. It's like eerie. He coins the term information economy on the first page and he sees the next half century of what's coming, both the promise and the problems. And in 1989, he's sketching in his notebook a thin glass rectangle with no protruding buttons and a touchscreen and rectangular apps that was going to be a remotaphone pewter, as it, as it said near the diagram. And so they, they have the vision. So money pours in. They have so many international telecommunications companies invest millions of dollars and come on board that they have to start meetings with an antitrust lawyer listing all the things they're not allowed to talk about. And this is beginning when only 15 of American households even have computers. And Peratt later says that his goal in raising all this money so quickly was to create heaven for engineers where they were free to play and create no limits. What more could anyone want? He asked. I think the answer was a little less freedom because they could do anything. And so they did do anything. Every time someone had a good idea, they added it on and the project grew and grew and grew and you know, they're missing deadlines. And I interviewed dozens of former employees and the refrain was, gosh, I just couldn't figure out what not to do. They couldn't figure out what not to do. So they did so much that the project, the product, it just kept growing and it was essentially incoherent by the time it appeared. Nobody could figure out what they were supposed to do with the thing. And it was a disaster. So the stock price had doubled on the first day when they went public. By two years later, it was essentially worthless. And so it was really this, this cautionary tale. In some ways it was a success though, because so many of the people inside learned these lessons about the importance of boundaries and constraints and they went on to create technology that every single person listening to this has used.
- [07:32]
Capital Group Narrator
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- [07:52]
Andy Cross
Client Group is Inc. Bill Gurley, the. The legendary VC investor who, as you write, is invested in Uber and Zillow. His line is more startups die of indigestion than starvation. You know, it's kind of, we're in this environment now where, you know, there are echoes of the 90s with the amount of capital that is flooding through AI. First of all, your reaction to what Bill writes about startups, and do you think it also applies to companies that aren't startups that have been around for years and years and years, this idea of that more die from indigestion, starvation, Maybe unwrap that a little bit?
- [08:27]
David Epstein
Yeah, I mean, in fact, I think there were several people that claimed that that was their line when I was interviewing them. So I. I don't know really what the origin of it is, but like Tony Fidel, who co founded Nest, also saying, he's like, that's my line. But I actually think it has never been easier to do too much than right now. And. And over the last year, I've spent some time with one particular company that helps other companies implement AI. And one of the things I've seen as I've been doing that is that a lot of companies are rushing to implement, right? It's alluring, it's powerful, competitors are ahead of them, and so they implement. And it's a sprawling implementation and leads to what researchers are starting to call work slop. Incredible amount of volume of stuff, not all of it connected to the larger strategy. Kind of unclear who's supposed to deal with all this stuff sometimes. And so the companies that have done it successfully, the ones that I've been exposed to at least, have said, all right, we're going to really well define the problem we're trying to solve, and then how does the tool match to that? It's almost like they're mapping the jobs to be done in an organization and saying, where does the tool fit? And so this is another case where it's not what Bill Gurley was talking about with just capital alone, but with the tool that can do so much that people are often applying it in this incredibly sprawling way where they haven't taken the time to define, find the bounding box or the problem. It's really solving. And I think that's one of the reasons why the productivity data so far is surprisingly disappointing for how much implementation there's actually been.
- [09:57]
Andy Cross
So another company you write about is Pixar and how its co founder and longtime president Ed Catmull incorporated constraints in the creative process. Tell us a little bit about the Pixar experience.
- [10:07]
David Epstein
Yeah, I liked to contrast Pixar to General Magic because, you know, general magic was total creative freedom and Pixar was evolving at exactly the same time equally audacious vision to make the world's first fully computer animated feature film. And it's thought of as this place of kind of unfettered imagination, I think, where in fact it is a place of very many fetters that channel creative ideas into creative achievement. And so for example, they would keep things as small as humanly possible for as long as possible in film. So directors can spend years in story development stripping away complexities. In a story like Schadenfreude was a character from inside out that got pulled out because it's adding too much complexity. And that, that might seem wasteful to spend years in that phase, but the costs only explode once you move into production. So staying that small in the long run actually ends up being really efficient. And they have all sorts of rules for creators. Like one that I adopted for my own writing called the three pitches rule, where they find that people fall in love with their first idea even though it's usually not their best one is called the creative Cliff illusion. We think our best ideas come first or not at all, but in fact they usually come later. And so they were forced to pitch three different ideas. So that was not a suggestion, it was a rule. The three pitches rule, they just had all kinds of rules and constraints that would help people who otherwise could get carried away in the way General Magic did. Actually, one, one I loved was what Ed told me about they called the beautifully shaded penny problem. So this problem at General Magic was if someone had a good idea, they did it. Like they could never figure out when to stop. The beautifully shaded penny problem was named because directors might get fixated on the shading on a penny in the background of a shot that the audience would never see, you know, some inconsequential detail and they'd keep working on it while other things needed to be done. So they came up with a here's how's this for a high tech fix? Popsicle sticks velcroed to a board. Each popsicle stick represented the amount of work one animator could do in one week. And if they wanted to, if that director wanted to keep animating that penny, they had to start taking away popsicle sticks from other characters, moving it to the penny. So making that constraint visible instantly solved the problem.
- [12:11]
Andy Cross
That's really brilliant. You know, I was thinking when I was talking to Mac, our producer about your work and just the story of Pixar, I was thinking about Steve Jobs because my recollection or thinking around Steve Jobs is obsessive about these details like the shaded penny. And so just thinking about the brilliance of someone like that and how do they stay focused enough or how are they able to kind of unwrap that really focused detail with like, oh my gosh, I have lots of other things to get to and to do in running a business or just in my life.
- [12:42]
David Epstein
Yeah, funny thing about. So there's a few things about Steve Jobs. One by the way, is he was banned from certain meetings at Pixar because they felt his opinion would carry too much weight, even if it wasn't good. This is the, the Hippo principle. Highest paid person's opinion carries too much weight. But he was, I think people who have read about him much probably know that there were times when he was a micromanager. Right. But I wasn't reporting about Apple, but because of some of the other reporting I was doing like general magic, I ended up interviewing a ton of people who worked with Steve Jobs. And what came through to me was that one of the big differences in the time, you know, after those so called years in the wilderness where he was pushed out of Apple, then he came back in the late 90s, was that when he came back. So like when he was at Next Computers, he had this famous thing where he wanted the hard drive casing to be into this perfect cube in a certain metal and it drove the engineer is crazy because they had no freedom to problem solve inside of that. When he came back to Apple, what I was told is he was much more like, I'm going to really define the problem, but then I'm going to trust my people and let them do their thing. So as portrayed to me with some of the people that worked with him, the big area of growth for him was setting the boundaries and letting brilliant people problem solve. So I think he may have evolved in his career to the point where he became obsessive about setting up the problem and what is it that they were trying to do and simplifying that as much as he could. And that actually liberated people to then go and create. I mean Even when he first came back to Apple, I think it was 97 maybe, you know, they were, Apple at the time, was making printers and servers and the handheld thing, the Newton, like they had a million different computer models. And he drew on a whiteboard, famously a two by two grid and on one axis it said consumer and pro. And on the other desktop and portable. We're only going to have four products, period. And people were upset because he killed most of the stuff they were doing. But that complexity was stealing clarity. And by narrowing it down to these buckets, it actually liberated people to problem solve.
- [14:36]
Andy Cross
Yeah, and that's great because I do want to ask about one of the people that you write that you say that if you had to choose a real one single thinker who really influenced the book, it was Professor Herb Simon and his work on decision making. Now he was a polymath and he did a lot of research on how we make decisions and whether we're maximizing or whether what he calls satisfy scene, satisfy scene. Not letting perfection be the enemy of the really very good. So unpack those ideas and why that research resonated so much to you when it comes to decision making, which is so important as we think about making investing decisions.
- [15:12]
David Epstein
Yeah, and Simon, as you mentioned, he's trained as a political scientist, but he won the highest awards in computer science and psychology. He won the Nobel Prize in economics. But all, all of the work revolved around how humans make decisions. And what he found was that we cannot really optimize the way that economic theory, according to like the rational actor model of humans, because we have limited bandwidth, we have limited ability to predict the future, so we have to use shortcuts. And one of those shortcuts he called satisficing. We use good enough rules to get to things. And he argued that we should do this very proactively because we actually spend a ton of time and energy on attempting to optimize, even though we can't. So he had decision rules for, for everything he did, like what is good enough. And that helped him avoid what's called Fredkin's Paradox, where we end up spending the most time on the least important decisions because the options are hard for us to tell apart. And that probably means it doesn't matter much or if it does, we can't figure it out. And yet that's where we spend a lot of our energy just because the options are seem similar. And so I think when it comes to any kind of decision making, before you get into the heated part of choosing Setting these, these satisficing rules are what would good enough look like here. And the evidence is that typically once you've reached that, applying more effort actually isn't going to make your decision any better. It may feel make. Make you feel better, but it's not going to make your decision any better. So thinking about that ahead of time, whether it's purchasing stock or purchasing a broom on Amazon, like what is good enough here? And once you get to that, recognize that your decision quality is really not going to go up anymore and just stick with it.
- [16:43]
Andy Cross
Yeah. The quote in that you talk about is that Simon says is people are always faced with imperfect information about their options and equipped with limited ability to anticipate the consequences of their choices. And investors were always dealing with imperfect information. Yet I feel like investors always want perfect information to make that perfect timing around a buy or a sell. And so the concept of this idea of maximizing versus satisficing and dealing with imperfect information for investors, I think is very important.
- [17:15]
David Epstein
Yeah, I mean, wanting perfect information, I understand, but that's exactly the tension that he was getting at, is that we think we can do this, we think we want more information, but the evidence is it does not improve our decision quality. And to quote a line that has influenced some of my own investing, it comes from the illustrious David Gardner, co founder of the Fool. You know, when we were having a conversation about trying to buy or sell at the right time, you know, there's the classic saying, you know, buy low, sell high. David said, buy high, never sell. Don't try to do that. If a company's good, buy it. Don't worry about that timing. And I think that's an amazing decision rule that is doing exactly what Simon said is you're having that good enough decision rule that like the perfection you want, you're not going to get it anyway. There's no evidence you'll improve your decision quality. And so having those kinds of simple decision rules that are based on a principle, I think can be really powerful.
- [18:09]
Andy Cross
Well, I think that there's also some Danny Kahneman and Amis Tversky in here, too, with the idea that we feel our losses twice as much as we feel our gains, especially with money. But I think decisions in general, and it kind of leads to this analysis paralysis or even the paradox of choice when we have many decisions. I mean, there are something like four ETFs created almost every day now. Like there are. There are more ETFs than there are public stocks. So it's like the decisions you mentioned about 401ks. Maybe we talk a little bit about this, like the plethora of information out there for investors to try to digest and how it can be a little bit overwhelming and how we really need boundaries maybe to help us and really focus on certain things when making those decisions.
- [18:47]
David Epstein
Yeah, I mean that 401k research again is pretty clear. It's as the choice set gets bigger and more complex, more people just back out of it because they're just having trouble making a decision. So in hoping that they'll get perfect information, they're putting it off. They're putting it off. Right. And often end up never making a decision at all, which is the worst case scenario. I haven't seen any research yet about this proliferation of ETFs. That's really interesting. I didn't realize before a day that are being created. I wonder if some of that because I've noticed that with like Vanguard, like I get fed a lot of their, you know, emails about new ETFs and I even look into some of them and I can't even tell the difference between some of them. So it seems to me that they are just trying to make sometimes more possibilities even though there's not that much material difference between them. Or maybe just an excuse to email saying we've got something new that like prompts you to remember maybe to buy something. I don't really know, but I don't actually think it's good for decision quality. Right. I think like having some basic simple principles and sticking to those and then all these other bells and whistles are mostly a distraction and marginal stuff at best anyway. So I think knowing what those principles are before you get into that morass of all the bells and whistles is really important.
- [19:54]
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- [21:43]
Andy Cross
I do want to get into some AI and just as you think about the world of AI now with this idea of how boundaries can help us when information is and knowledge is more available to us than ever before. But on the investing side, just maybe a little Thoughts on your own investing style. If you think about maximizing satisficing when you're investing on your own.
- [22:02]
David Epstein
Oh big time satisficer, big time. I'm not, I'm not attempting to maximize like lots of stuff just in simple. You know, David's going to be mad at me for saying this. Lots of stuff just in simple index funds and things like that in part because I want simplicity but I do a lot, a certain amount of money for, for particular bets I want to make. When, when I think about my money, I think about money that I can, you know, afford to lose and money that I can't. And if I can't afford to lose it, I want it in something really conservative. And if I can afford to lose it, I'm okay with taking a fair bit of risk. So I want some pretty risky things. So I will invest in some individual stocks. If I just think a company is great and I don't, I don't attempt to buy it low. I do the gardener. I say wherever it is, when I decide I want to buy it, I buy it and don't worry about it. And then there are a few cases where I have particular specific interests in things where I'll invest in those as well. Yeah, excellent.
- [22:53]
Andy Cross
And we are fans of ETFs and simple investing and then Adding on stocks as you kind of grow and as you. As you wish. So I don't think David will be mad at you for saying that. David, any ending guidance around a tool or something? We can start today to help us think about constraints in a very positive way and how we can really kind of get inside the box in the most effective way possible.
- [23:15]
David Epstein
Yeah. Again, to reiterate, I hope inside the box is kind of a mental or emotional reframe for how we face limits and that we can come to see them as opportunities to clarify priorities or to experiment in new ways. And so one thing that I think can be really useful, I write in the book about a genomics lab that did this and then I adopted it myself, is to make all of your current commitments visible. Post it notes on a wall, for example. And usually what people will see is that they have more things going than they can actually get done and that a lot of kind of maybe medium priorities are competing with the higher priorities. We don't like to drop things in process. In fact, humans have what's called additive bias. We overlook solutions that involve taking things away in order to solve problems. I think in this world, with so much information and so many tools and so many possibilities, we should be doing subtraction audits. Once in a while, we're making visible all the things we're doing. It's almost like those Popsicle sticks on the Velcro at Pixar. It's like here are all the priorities. We can't weight them all equally. We are mortals. We have a limited time on Earth, we have limited attention to focus. So I think we should regularly go through this practice of saying, what can I take away here so that I can focus on the things that are the most important.
- [24:28]
Andy Cross
It reminds me of the Glenn Glary Glen Ross play, always be closing. Just always trying to focus and finish on things. I think that's good overall guidance for so many of us in a world where just now, especially with AI, just the information, the overflow and the distractions are just coming from all over the place.
- [24:44]
David Epstein
And you will always get more right again because of. So we have two biases, additive bias and the cousin is subtraction. Neglect bias. We don't take away. So as you just go through life, you'll add more and more commitments, meetings, tools, dashboards, et cetera. So regular subtraction audits, because we don't do it naturally, so you're. Otherwise you'll just only build and add more and add more and it'll dilute the most important things before I close.
- [25:08]
Andy Cross
The one stat in the book that you mentioned was since the Industrial Revolution, the amount of choice has grown like a hundred million times, 100 million times, I think, whereas just wealth has created maybe 400,000x or something like that. Just the difference is just incredible.
- [25:24]
David Epstein
Fantastic.
- [25:25]
Andy Cross
David, thank you for being here with us at the Motley Fool. The book is inside the How Constraints Make Us Better. And you can follow David on Substack, so go out there and check him out. David, thank you so much for being back here. Hope you join us back here again for another Motley fool conversation.
- [25:39]
David Epstein
That's a pleasure.
- [25:40]
Matt Grier
Thank you for having me, as always. People on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes for the Motley Fool Hidden Gems investor team, I'm Matt Grier. Thanks for listening and we will see you tomorrow.