Afford Anything - Cracking the Code of the Rich, with Seth Stephens-Davidowitz

Episode Date: September 21, 2023

#462: As a society, we’re fascinated by stories of the rich. We hear news, see social media posts, and read books about how others become wealthy, how to maintain that status, and what their lifestyles look like. But what if the media we’re consuming is misleading us? Dr. Seth Stephens-Davidowitz’s research shows that the stories about the rich that dominate the popular press are misleading. Stephens-Davidowitz holds a PhD in economics from Harvard University. He’s a data scientist and a New York Times bestselling author.  In today’s episode, we discuss the misleading stories around the rich. We unearth the truth behind those stories, using data rather than narrative.  We explore the types of businesses that quietly make people millionaires. We describe the ages, occupations and locations of people that become rich, and the unexpected paths they take to achieve this. And we share actionable takeaways that will help you do the same. Discussion as of September 2023: 01:38: Who gets secretly rich? 02:18: The kind of protection you need if you want to be rich 04:10: The number one way to become a millionaire 08:44: What is takes to be a successful entrepreneur 09:19: The detrimental impact of some stories 12:48: The worst kind of businesses 17:14: Who makes up the best entrepreneurs? 21:18: Increase your luck surface area 27:57: How to revolutionize a field 30:37: The ACTUAL path to entrepreneurial success 32:08: The role of duration neglect in decision making For more information, visit the show notes at https://affordanything.com/episode462 Learn more about your ad choices. Visit podcastchoices.com/adchoices

There is endless media coverage about how to become rich and how to stay rich. What if these stories that we hear are actually misleading us? That's the topic of conversation in today's podcast episode with Seth Stevens Davidowitz, who has a PhD in economics from Harvard. He works as a data scientist and has studied the counterintuitive things that data shows us about wealth, which we would not glean simply from news stories alone. Welcome to the Afford Anything Podcast. This is a show that understands you can afford anything,

but not everything. Every choice that you make is a trade-off again something else. That doesn't just apply to your money. That applies to any limited resource you need to manage, your time, your focus, your energy. So what matters most? And how do you make decisions accordingly? Answering both of those questions is a lifetime practice,

and that's what this podcast is here to explore. My name is Paula Pant. I am the host of the show. And again, New York Times bestselling author and PhD economist, Seth Stevens Davidowitz, is here to discuss with us what we can learn from data that we can apply to our lives, that we would not. And this is information that we would not necessarily know based on what is commonly or popularly understood by the stories that we hear. Here he is. Enjoy it.

Hi, Seth. It's great to talk to you. Hi, Paula. Great to talk to you. Seth, who is secretly rich in America? Beverage distributors and auto dealership owners. Wow. Not the answer I was expecting. Why middlemen? Why beverage distributors? Why auto dealership owners? Why not the people that we more often think of? Celebrities, athletes, people who had financial services firms. Well, some of those people obviously are rich as well. I came across a paper. It was in the quarterly journal of economics, capitalist in the 21st century. And they studied the entire universe of taxpayers in the United States. And they said, who's the typical member of the top 0.1% kind of people earning $1.3 million a year, really rich people. And they had this sentence that just shocked me. They said basically the typical rich American is the owner of a mid-sized regional firm, such as an auto dealership or beverage distributor.

And I'm just like, whoa, like, why is that? I had the same question you did. I'm like, Right. To be honest, and people made fun of me because I have a PhD in economics. I didn't know what a beverage distributor was. And when I said that, I said that in a New York Times article. And I was just hammered. I went viral on Twitter for being the world's biggest idiot. They're like, are we just handing out PhDs? I was. I was not know. I had not known what a beverage distributor was, kind of a middleman in the beverage industry. And it turns out that beverage distributors and auto dealers have some legal protection. They're kind of local monotimes. Regulated monopolies that you can't just start, you can't just move to Colorado and start a beverage distribution company. Kind of Heineken and Corona and all the companies have their own beverage distributor and they're kind of locked in and then they can, you know, the beverage distributors can take a nice cut going from the companies to the actual stores and they have connections with everybody.

So the lesson I took from that is getting rich is really, really hard because everybody wants to be rich basically, you need something to kind of help you to give you a nudge to avoid ruthless competition. Many industries, if you start a company, if you're a pest control company in New York City, there's nothing to stop someone else from starting a new company and just undercutting you on price and taking away all your profits. Capitalism is just a ruthless, ferocious game that a lot of rich people have some protection from that game that gives them an edge, which also.

implications just if you want to get rich, thinking through what's going to be your protection. Right. So then how would an ordinary individual, somebody listening to this podcast who wants to start a business, find ideas of what could be protected businesses? Or conversely, what are some of the never get rich or rarely get rich businesses based on the data sets? Yeah. So a lot of things, basically anything that just has perfect competition where you're just selling a commodity in whatever reform, you're kind of very unlikely to get rich that way. So you need some sort of protection. Now, the protection doesn't have to be legal protection. Brand protection is a big one. So one of the things that kind of surprised me in the data, we know that there are some

celebrities that are rich that are making, you know, tens of millions of dollars a year, hundreds of millions of dollars a year these days. Sometimes there are more celebrities than I thought making, you know, 400,000, 500, 500,000, $600,000, a million dollars a year. I kind of went into this research thinking, don't try to be a celebrity and artist, a podcast host, a painter, a writer. I'm just like, this is the stupidest thing you can ever do. Like, we all know those long shot dreams don't come true. And when you actually look at the data, the odds are low, but they're not as low as I would have thought. It's more like a one in 20 bet than like a one in a thousand or one in a million bet that I might have thought it was. So I think going all

in in a creative career isn't necessarily as risky. It gives you a shot of having that protection from competition, that brand, that those fans that can allow you to make a good amount of money. To back this up a little bit, the premise of this conversation is that we know from the data that the majority of millionaires in the United States are business owners. That is the number one way to become a millionaire. But we also know, and this is one thing that really came out in some of the research that you've been able to collect, that there are certain businesses that do disproportionately make people rich. And so independent creatives, as you were just discussing, artists, writers, independent creatives are actually one of those, what you call the big six

of industries in which people can become wealthy and stay wealthy because of that brand protection. You also talk about, in addition to the independent creatives and auto dealerships, real estate, investing, market research, and then middlemen, such as beverage distributors, why is there protection around market research investing and real estate? How do those fit in? Well, market research, you have the protection that you've kind of built in a very specialized expertise, hopefully over a long period of time. So you kind of, you know, you've maybe collected some proprietary data. You have some connections. an amazing network you've built over years.

And then you know something about a particular industry that nobody else knows and you write these reports. You sell them to everybody for exorbitant fee. And it's very, very hard for someone to just out of nowhere build up this same knowledge base that you had created over such a long period of time. It's kind of like being an independent creative, but just for more boring topics, you know, an independent creative of the aluminum industry or something. An intellectual entrepreneur.

Intellectual entrepreneur, I would say. And then real estate investing, I don't know if they fit in quite with the local monopoly. But, I mean, their complication in investing has great tax write-offs. Real estate has great tax write-offs. So it's a little more complicated than that. But I think investing in real estate, they do tend to stay localized those markets. So a lot of like the biggest industries are dominated by a few behemoths. So social media, for example.

Right. You know, it's Twitter. It's, or X, sorry. Yeah, it's X and meta now. and I always met us. It's TikTok. There are a few giants and kind of, there aren't really these niche companies. But things like real estate investing, they're more disaggregated.

There's not one investment firm or two investment firms that just dominate everything. You have specialists. You have all kinds of different strategies, all kinds of different expertise. And similarly with real estate, they do tend to play to local markets in various ways. So I think that's kind of another consideration is a industry that's just dominated by a few global behemoths or do you have a chance of building kind of a small specialty? A lot of times when we think of getting rich, we think of the really richest people, you know, Mark Zuckerberg or Elon Musk, Bill Gates. It is dangerous to learn lessons from them because they're one and a billion outcomes.

To be the very, very top five on billionaire, you have to dominate a global industry. That's very, very unlikely. But to be a millionaire, you want to have some sort of local industry that isn't dominated by a global industry. So it's kind of a different game and a more realistic game to play. Right. And see, that makes total sense to me because I remember from investing in real estate, when we would see these big hedge funds come in and we'd see Wall Street come in and try to buy up rental real estate in these neighborhoods in Atlanta,

it was clear that they didn't understand the nuance of the neighborhoods. And so local investors, boots on the ground investors and their friends, You know, like either you yourself are a boots on the ground investor in Atlanta, or you live in Indianapolis, but you've got a bunch of friends who are boots on the ground investors in Atlanta. It's that local one-to-one where people had the informational advantage. Yeah, exactly. And there has to be some reason that, you know, it's not just dominated by one big firm. And all these kind of fields that have a disproportionate number of millionaires have something that's keeping it localized. Right. Now, one of the other myths that many people believe about entrepreneurship is that entrepreneurs

tend to be young. A lot of people, when surveyed, say that 27 is what they imagine the average age of a startup founder to be. It's actually 42, and there's a positive correlation between advancing age and probability of success up until you reach about 60. Yeah, that's wild. Nobody thinks of a 60-year-old entrepreneur, but they're crushing it. Yeah. They're like the most successful out there. And sometimes you look at the data and it's kind of obvious and yet also goes against what people think, which is really interesting. One thing I learned is that sometimes surprising stories just capture our attention are so exciting and so sexy that we think they're more common than they are. So Mark Zuckerberg starts Facebook at the age of 19 and Aaron Sorkin

writes a movie about him. Right. And the social network is one of the most of the most. most popular movies of all time and everyone wants to be the next Mark Zuckerberg. Well, the reason that movie was so popular, the reason Mark Zuckerberg story stays in our mind is because it's so surprising that a 19-year-old is running a media empire. And it's actually incredibly rare and the exception. And more common are the 50-year-olds, the 60-year-olds, the beverage distributors, the auto dealerships, the person who spent his or her career in an industry and launches a market research based on all their context and all the information they've learned over two decades, starts a market

research firm at the age of 50. That's common, but who's going to make a movie about that? That's so boring that we kind of forget. And then we make mistakes in our lives where we try to follow the stories we see in movies, which are actually unlikely. The reason they're made into movies is because they're so surprising. They're so off market. They're so unlikely.

Right. The man bites dog, rather than. than the dog bites man, which is what makes the headlines. Exactly. So 19 year old starts company rather than 45 year old starts company. And then so many 19 year olds, you know, you see after the social network came out, a large rise in businesses started by teenagers and, you know, people dropping out of college because Mark Zuckerberg dropped out of college. And that's just not a smart play. You know, it's a dangerous thing in life is we're so drawn to the great stories that capture our attention and don't kind of step back and think about how likely they are.

You know, what's interesting to me is that there are certain businesses, you know, because it's easy to look at the data and say, hey, the data shows that the majority of millionaires are business owners in the United States. And so if I pivot to entrepreneurship, that gives me the greatest chance of building sustainable wealth. But then deeper inside of that, there are certain businesses where you're just unlikely to have a lot of. of monetary success. So for example, and this surprised me, architecture and engineering services, there are high barriers to entry to becoming an architect or an engineer, which you would think would lower competition. Why? I think there's just like endless supply of people who want to be

architects is a big part of that. And it is hard to really stand out. You know, I think a lot of architects think there may be more independent creatives in that, you know, they are doing something, you know, using their creativity. But it's not quite like an independent creative where you actually have fans and like a brand, you know, except in very extreme circumstances. You know, there are thousands of independent creatives, tens of thousands of independent creatives who have a small group of fans who know their names, who follow them on Twitter, who if they come into town or going to want to meet them or go to their show. That's not really true for architects,

so it's hard to escape the ruthless competition of capitalism. Right. What about other industries like owning gas stations or personal care services, like beauty salons? Well, the worst businesses by far, except for independent creatives, are things that are cool and that, again, movies are made of. So there's a study of which businesses go out of business,

fastest. And the number one to fail, it was from, you know, five, ten years ago. So it was when these still existed, but record stores was the worst. I mean, two or three movies about record stories and everyone watched this and like, that's the dream. I'm going to start a record store. And then, you know, two, three years, you're done. And similarly, uh, toy stores, clothing stores, beauty stores, like, they're just horrible, awful, disastrous businesses. There's basically no way to escape competition. And everybody's trying to do it. it because it seems so fun, a game store. You know, I don't want to just crush everyone's dream, but it is dangerous to enter

some of these fields that are really sexy. But then there are some things that are not sexy, but also it's hard to escape competition, you know, mowing people's lawns or pest control, gas stations. Gas stations are a little complicated because the study uses tax data. And I think some of these businesses are, they're hiding a little bit of their money. Right. So I think gas stations may be a business where, the tax data may just be missing how many millionaires there are in those businesses.

Right. Some of these industries shield their tax money a little bit. But, you know, gas station definitely is hard to escape competition. You know, I think of the town I grew up in. There was one gas station. He was killing it. He basically had a gas station right off the major exit of the highway where everyone had to go when they were coming back from work. And then somebody realized he was killing it and just put a gas station right next to him.

And they just were in a price for the entire time of my childhood. Yeah. That's kind of a classic gas station experience. It's very hard to escape competition. Right. I think just everybody in business just has to be thinking way more than they sometimes do about what's going to allow you to avoid someone just coming in to your business and charging a lower price. So essentially what I'm hearing is you ask yourself, what is the moat, right? What is the economic moat that's around my business? And also how high are the barriers to entry? And also how desire. is the business, how much cachet is there. So the optimal business would be low cashé, high moat, high barrier to entry. That's right, yeah. There's this phrase in business, use your unfair advantage.

You're talking about this before we started the actual recording of the podcast, that since you've been a child, people have been telling you you had a voice for radio or podcasting, before podcasting existed. So that's kind of an unfair advantage that you have. have in this field that allows you to separate yourself. A lot of these businesses like auto dealerships or beer distributors, your unfair advantage is that your dad or grandfather started the business when that was possible and you can just inherit it. That's obviously a good way to get into one of these fields with a barrier entry. But yeah, I think market research, your unfair advantage is the expertise

that you built up over and the expertise and connections you built up over 10, 15, 20 years in the industry. Right. And that points to another kind of counterintuitive finding that the data bears out, which is that the best employees often make the best entrepreneurs, which is kind of the social myth that we have about entrepreneurship, is that it's the rebels, it's the Alconoclasts, it's the people who never did well in school and maybe can't fit in at a regular job. That rebel without a cause, you know, caricature. Yeah, there was a study of the profits of various businesses using tax data compared to the wages that the entrepreneur had made as an employee. And you see that it's just like a curve going way up that, you know, when you get to the 98,

99th percentile, 99.9th percentile of employee income, you're just way more likely to have a successful business to have a lot of profit to succeed in, you know, however you measure it, which does go against this idea that, you know, oh, he's just an employee. He can't make it on his own as an entrepreneur, or she can't make it on her own as an entrepreneur. In the data, you know, the best entrepreneurs tend to have been the best employees in part because they've learned a lot of relevant information. You know, another finding in the data is that the best entrepreneurs, most successful entrepreneurs, tend to start a firm in a very narrow field where they've already had a lot

of expertise where they've been successful employees. So, you know, that's another idea that, oh, I'm just going to come out of nowhere and be the ultimate outsider and transform a field because I'm going to see it. from a different angle, and that sometimes happens, but is rare relative to someone who's been knee-deep in the weeds of that business for an extended period of time. That's right. And while that goes back to another social myth that's often born of storytelling, the inventor of potpourri does not have any background in chemistry and yet was quite successful at inventing popery, first at noticing the need to mask fecal odor, and then at

preventing a solution for it and then scaling that and distributing it. But that outsider approach that the popery inventor took is the anomaly. Yeah, I almost think like in deciding whether to try a business, whether it's a good idea, the poopery woman I learned about in the New Yorker. I think if you read about it in the New Yorker, it's a bad. It's like the inverse New Yorker correlation. Yeah, it's a bad business. If it's in the New Yorker, Don't try it. New Yorker articles aren't necessarily made about, yeah, someone who's writing market research reports are about real estate and making, you know, spent a decade in real estate firm and now built up some data and now is selling their reports and making $2 million a year.

That's so much more boring than the random woman who decided at a party that she was going to cure the odor of feces with no training in this background. She crushed it. She's, she crushed it. She's made $100 million dollars, one of the wealthiest woman in the world. So good for her, but you only get one life. Right. And you kind of have to make your bets. Hopefully you make take calculated risks and make, you know, smart bets. And if it's kind of an amazing story, it's not usually not representative of the data.

The data, yeah. Right. Okay. So the inverse New Yorker index. Yeah. I mean, not just New Yorker. You know, today's show, 60 minutes. It's like anytime it's someone's kind of getting a lot of attention for what they did because it's the reason that happened is because it's so surprising and, you know, surprising things frequently aren't representative.

And then so many people just try it, you know. How many people read that story and then just said, oh, maybe I'll cure the odor from urine. Like, you know, people are, you read these stories and you think, well, that seems fun. That seems quirky. That seems interesting. And that's a dangerous way to make decisions. We'll come back to this episode after this word from our sponsors. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient.

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great quantity, but also it isn't sufficient to be prolific if only one localized area sees the result of your work. You actually need to travel quite far and wide to have your work exposed to multiple markets. And that's sort of different, that's the opposite of what we're talking about with real estate where you want to be hyperlocal. Why is it? Why is it? is that? Yeah, well, with something like art, there's so much randomness in what catches on. You know, we like to think that the artists who are most famous are the greatest, but there are all these studies that there's, you know, it's very hard for you and experts to say that, you know, this painting was really better than that painting or if what catches on, it has such a random

component, you kind of need to increase your luck surface area. You need to basically increase the chances that your painting or song or podcast is selected, among all the other ones that they're not the same, but they're just, you know, it's hard to say that yours is better than other people's. And I think a mistake that a lot of artists make and a lot of people make. And this is probably true, even some business people make this mistake too, is just hoping the, you know, the world's going to find you. And anyway, you can get more of your stuff out there in the world, whether putting a lot of it out there, traveling. to much wider, being on more shows, being in more galleries, that just dramatically increases

your chances of stumbling on one of these big breaks that could make your career. And the thing about art and careers in general is once you're in, it's kind of a snowball rolling down a hill phenomenon. So before you're known, you got to just hustle like mad to get known and take any opportunity you have, whether it's in the other side of the country, other side of the world. And, you know, the study that I really loved, the study of painters where they found that the biggest predictor of unknown, the success of unknown painters is how widely they travel to galleries to showing.

So there are some painters. And it seems crazy that they try this, but they're not having success. And they just show their work at the same gallery over and over again. It's like, it didn't work. You know, it hasn't worked yet. It's not going to ultimately work. And then there are other painters that are just constantly both accepting invitations and just hustling to get invitations. And they're going all around the world.

And they're not at the level where they're being invited to the Guggenheim or the Art Institute of Chicago or the top museums. But it doesn't matter. They're just, they're hustling. They're out and about in the world. They're in Berlin today and Tokyo tomorrow and New York City, you know, the day after that. And maybe that's not impossible. Yeah. They're all over the place.

And those ones tend to be the artists who then break in the inner circle of made artists, who then can go to all the top galleries and make a fortune from their art. So it's a very important lesson. Pretty much everybody I told this to are like, I need to show this to my friend. Because everyone has a friend who is just hoping to be found. You know, the artist is just doing the same thing over and over again and not allowing luck to work for them and just hoping that. they're presenting the same thing the same way they've always done it and looking for their big break.

And that's not the way to do it. Right, right. Increasing your luck surface area. But one thing that is notable within art is that sometimes fluke accidents can create the biggest reputational bump. So the Mona Lisa, for example, was a relatively unknown painting until it was stolen. And the news of its theft was the thing that propelled it into a position of fame. it's now the most famous, arguably the most famous painting in the world. I think that's right.

And that's another reason that quantity is so important in art. Because there's such a random component in what explodes, you know, yeah, the random employee at the Louvre, you stole it. People thought Pablo Picasso had stolen the Mona Lisa. People thought J.P. Morgan had stolen it. It was like crazy. It was like the O.J. Simpson trial at that time. And then, you know, everyone's reading about this painting.

Oh, my God. There was a rumor that Picasso had stolen it because. he wanted to destroy his rival's career and they're like, wow, this painting's so good that Picasso wanted to steal it. It's just random, basically, that the Mona Lisa was the one that got stolen, but the key is if you produce a lot of art, you kind of have more of a chance for one of them stolen. Yes, there's a higher. I mean, that's the lesson I took, right? I mean, the other lesson you could take is like convince someone to steal your piece of art to get attention, which I think a lot of artists do, too, not like that, but the equivalent of fake drama or getting in the news in some way

to get more attention for their pieces of art. Banksie shredding his own painting at the auction. Yeah. Kind of a thing. Yeah. Right. What's interesting about what I'm hearing you say is that we often make the mistake of assuming that the stories we hear are representative of the truth. But in fact, those stories are the anomalies.

They're the exceptions. And if we actually look at data, the data paints a completely different picture. But also, because of the fact that stories can create self-fellings. fulfilling prophecies. We can't actually use storytelling to, as you talk about, create buzz around any product or any service, any entrepreneurial or creative venture. Yeah, that's a great point. I hadn't even thought of that. Yeah. So stories are dangerous to make decisions based on, but they are useful for catapulting your career. Yeah, if you're an independent creative, you should use storytelling in building your independent creative career. And that was a challenge

in writing this book because part of my point was that, stories are not representative. But there's a reason these stories keep coming out. And, you know, like I argued against. I'm a big fan of David Epstein. He wrote this book, Range. Oh, yeah, he's been on this podcast. Yeah.

And he has a chapter in his book, The Outsiders Advantage. And he says, you know, all these people come from outside of field and they look at things from a new angle. I don't think he used the story of the poopery woman, but he uses, I forget what stories he used, but he's just like, look at these people who knew nothing about that field. and then revolutionize the field. And people just eat that stuff up. And the point I want to make is that's actually not true.

You know, look at the data, someone is way more likely to revolutionize the field if they've been experts in that field for a long time. But that's so much less exciting. So it's a little, it's just like it's a challenge that what gets hooked in our mind isn't necessarily the truth. It's the best story. And then so we're all kind of. a little bit misled about how the world works.

And it's a challenge as a data scientist who's trying to be a nonfiction author as well. Well, how do I make the non-sexy data compelling to people so, you know, stay in their mind so that they can make better decisions? And that's not easy. How do you make the non-exciting, exciting or compelling so that people, so it sticks and people remember that and they're not misled by these amazing stories that they're hearing all the time that just it's not true. You know, there are people, the social network came out.

There was a huge rise in people dropping out of college starting businesses. You know, now it's been 15 years from that. A lot of those people, their careers are ruined. They're trying to get back on their feet 15 years later from a decision they made because they saw a movie that was completely unrepresentative of how the world works. So it's very dangerous, you know, our draw to stories and exciting, unrepresentative stories. Right. Yeah.

I mean, and you'd see that in investing, too. You know, somebody gets rich off of crypto and you hear that story or somebody gets rich off of the GameStop AMC meme stonk thing. You hear a few stories and all of a sudden the stories become really compelling. And when it comes to actual investing itself, outside of Korea, career when it comes to monetary investing, oftentimes we hear these stories, these runaway stories of success when the data shows that passively managed index fund investing actually presents the best shot at growing a multimillion dollar portfolio.

It's a great example, but it's hard. I feel like I follow the data as well as anyone, but I invested a little bit in Bitcoin when it was at like 60K or something. It was just so hard because my entire. it was called Twitter back then, Twitter feed. Just all these people saying how much money they had made. Right. And Bitcoin, you're just hearing it from everywhere.

And like similar, the path to entrepreneurial success is basically mastering a field over 20 years. So you start as an employee in a very narrow field, you know, when you're 25, 26. And then when you're 42, 43, 44, 45, maybe even 60, the idea hits. It's your time. You have all the knowledge. You have all the connections. And you, boom, you're ready to launch your massive business in middle age. And that's hard because it's kind of the equivalent of an index fund for your career in that it's the boring long-term strategy.

Right. And it's not going to be the most single most successful. So while you're going about this, while you're still an employee at 34, 35, 36, some of your friends are going to have hit it big. You know, they're going to have started company and they're going to have had a massive windfall, a huge success. And, you know, they're going to have the Bitcoin of entrepreneurship. And you're going to have to put your head down, say, I'm following the data. It doesn't matter.

And in 10 years, you're going to get the payoff. Right. And part of the reason that we struggle so much to follow the data and we are more drawn to story is due to cognitive biases that we hold. Can you talk about some of these cognitive biases? I know you've highlighted duration neglect as well as the peak end experience. We'll start with duration neglect. Yeah, well, that's a study of when we're trying to remember how painful something was, we forget how long it lasted, which is a big part of how painful it was. So, you know, we minimized, it was a study of colonoscopies of all things back when those were really

painful and turns out that Danny Connman won the Nobel Prize in economics, he gave people different colonoscopies. He asked them during their colonoscopy how painful it was. And then after the fact, he said, looking back on it how painful it was. And it turns out people totally neglected how long it took in their memory of it. So it's really important to keep in mind that's a huge factor in how painful or pleasurable. Right. Something is how long it lasted. Right. And that can be applied going back to what we were talking about with the index fund investing strategy of your career, that can also be applied to our memory of what a particular job was like or our memory of a particular work experience.

Yeah, I think that kind of goes against part of what I recommend is that people maybe grind out as an employee for a while. But from your happiness perspective, there are studies that show that people aren't quitting jobs enough, that if people are indifferent, if you're indifferent between quitting your job and not quitting your job. If you quit it, you're going to be much happier in six months or longer. The data is sometimes conflicting. Making money may not be good for what makes you happy. And it's not like there's one life strategy that is the right answer for all these questions. And I think people kind of wrestle with the complexities of decision making and know that,

okay, maybe if I stick at this job for 10, 15 years, I'm more likely to be a successful entrepreneur later. But also, if I don't like this job, the data says if I quit it, I'm more likely to be happy in six months or a year. And then you can make a decision based on that. Well, how important is the chance of being successful entrepreneur in your life? How important is happiness in your life and go from there. We'll come back to the show in just a second. But first, let's say somebody who's listening to this is trying to make a decision about some element of their life, whether it's their career or where they live, where they raise their kids. what kind of business they start.

They're trying to make that decision. And so they start digging into the data, but they find conflicting studies. And also they find studies in which the subjects, the data set, doesn't, it's kind of maybe somewhat comparable, but there are also notable differences between their own situation and what the study actually looked at. right? What does a person do when they find essentially either conflicting data or slightly irrelevant data? You just have to be more comfortable with making decisions under uncertainty. And it's very rare that a decision is a 100% chance of being the right decision. It's more like it's a 60-40 decision or 70-30 decision, 80-20, if you're really lucky. And what the data is supposed to do,

is just push you from like 50-50 to 60-40. So I think you have to have lower expectations of what the data is supposed to do. It's not 100% of the data is moving this direction, but I've seen some data and it seems to suggest that on balance, you know, so let's say I'm thinking of starting a toy store. My friend started a toy store is a big success. Okay, well, I need to know that toy store is the third most likely to go out of business quickly. Or I think that was in the chart of maybe fourth, whatever it was.

It was right near the top. One of the worst businesses, you can have the average toy stores out of business in three years. The average dentist's business last 20 years. Three years or 20 years. Like this is very different, a very bad on average business. Right. That has to play into your decision making. That doesn't, now you might have, let's say you know that you've just created a toy that is blowing up the world and it's gone viral.

And Oprah just talked about your toy. then you have so much momentum where these rules don't apply to you. Okay, fine. That's okay. But you need to know no matter where you are, no matter what other factors you have in the equation, that this is on balance, terrible business. Just know that. And then make decision with that in your head. And it's not this ends the debate.

And you know, what activities tend to make people happy. On balance, it turns out that people, when they're watching, watching TV, watching Netflix, on social media, playing computer games are less happy than I think they're going to be. That's like a pattern in the data on average, significantly less happy. And when they're exercising, hang out with friends, out and out about the world, at the museum, at a show, they're way happier than they expect to be than they would have thought they'd be. Right.

Now, that's very important to keep in mind as you're going through life. If a friend invites you, do you want to go to this Bruce Springsteen concert? Well, you know, I'm tired. I want to lie in bed and watch TV. You need to keep in mind that on average, people who stay and watch TV end up less happy than I think they're going to be. And people who go out to the show with their friends end up happier than they expect to be. That doesn't mean 100% of the time you have to go to the show. But if you're like close, you have to keep in mind that this bias that,

reveals itself in the data. Right. Well, we're coming to the end of our time. Are there any additional key points that you want the audience to remember? Well, we didn't get as much to happiness as I would have liked to have gotten because I have all this stuff on how to get rich and how to get famous. And then when you review the date on happiness, it really is shocking. The things that make people happy are so freaking simple.

It's being with your friends, being with a romantic, partner, being married, taking a walk, being near a beautiful body of water. These very simple, very affordable things in life tend to make people happy. So I think, you know, there is a danger in devoting your life to the accumulation of resources or accumulation of fame, accumulation of attention. It's not necessarily the best bet for happiness. you also need to keep in mind all the research on the best strategies for being happy, be with your love on an 80 degree and sunny day,

overlooking a beautiful body of water, having sex. That is all, that's the happiest activity is intimacy and making love, the happiest weather, 80 degrees and sunny, happiest location near a body of water, happiest person to be with, a romantic partner. That kind of sums up everything in the data we know about happiness. So that's important to keep in mind as well as you're going to and through life. That is a lot easier to achieve than owning an auto dealership, owning a beverage

distributor company, starting a market research company. That's hard. Being with someone you care about near a lake, you know, hanging out or whatever is not as difficult to achieve. Nice. Well, thank you again for spending this time with us. Where can people find you if they'd like to hear more? I'm on X at Seth S underscore D. I have a hyphenated name, Seth S.D. And, don't trust your gut and everybody lies are my books. And I have another book coming out in about a month. They'll be called Who Makes the NBA? And it's about passion of mine, basketball. Excellent. And we will link to all of that in the show notes as well. Great. Well, thank you. Thanks. Thank you to Seth. What are three key takeaways that we got from this conversation?

Number one, stop counting yourself out just because you've gotten older. We hear to afford anything. See this in our inbox. a lot. We get so many emails from people who think their time has passed and think that they can't create anything at this juncture of their lives because, oh, I'm already 40 or 50 or 60 or however old it is. The reality is their experience and their knowledge could actually help them be more successful. And if we stop believing this myth that entrepreneurship belongs to the young, and that's a myth that's perpetuated by new stories, but is not actually bad. by data. Nobody thinks of a 60-year-old entrepreneur, but they're crushing it. They're like the most successful out there. And the 50-year-olds, the 60-year-olds, the beverage distributors, the auto dealerships,

the person who spent his or her career in an industry and launches a market research based on all their context and all the information they've learned over two decades, starts a market research firm at the age of 50. That's common. But who's going to make a movie about that? That's so boring that we kind of forget. So get rid of the myth that entrepreneurs tend to be young because people, when surveyed, say that 27 is the age that they imagine a startup founder to be. In reality, it's actually 42. And in addition, there's a positive correlation between aging and the probability of success up until 60. And don't you dare email me and say, well, I'm 61, so it's too late for me. Okay, if there's a positive correlation up until 60 and you're 61 or 65 or 68, guess what?

You're actually still very, very young. 68 is the new 28. All right. That's the first key takeaway. Second key takeaway, people want to be rich, but they think that being rich is out of their grasp because there are these connotations around the kinds of people who are rich or what it takes to get there, right? People often think that to be rich, you need to have a spaceship. And, you know, what we know from the data and what we can actually prove from the data is very different. A lot of times when we think of getting rich, we think of the really richest people, you know, Mark Zuckerberg or Elon Musk, Bill Gates.

It is dangerous to learn lessons from them because they're one in a billion outcomes. And yeah, to be the very, very top five on a billionaire, you have to dominate a global industry. That's very, very unlikely. but to be a millionaire, you want to have some sort of local industry that isn't dominated by a global industry. Things like real estate investing, they're more disaggregated. There's not one investment firm or two investment firms that just dominate everything. You know, you have specialists.

You have all kinds of different strategies, all kinds of different expertise. And similarly with real estate, they do tend to play to local markets in various ways. So that is the second key takeaway. Finally, key takeaway number three, you need to increase your luck surface area. Being successful means putting yourself out there a lot. And that goes far beyond the creative field, right? It means trying out different side hustles for viable businesses. It means buying more investment properties if the first one that you bought isn't a home run, or even if it is.

Right? Your first time at base is rarely going to be a home run. And you need to be at bat. You need to be swinging. You kind of need to increase your luck surface area. You need to basically increase the chances that your painting or song or podcast is selected, among all the other ones, if people make this mistake too, is just hoping the world's going to find you.

You've got to just hustle like mad to get known and take any opportunity you have, whether it's in the other side of the country, the other side of the world. And the study that I really loved is a study of painters where they found that, the biggest predictor of unknown, the success of unknown painters is how widely they travel to galleries to showing. So there are some painters, and it seems crazy that they try this, but they're not having success and they just show their work at the same gallery over and over again. It's like, you know, it hasn't worked yet. It's not going to ultimately work. And then there are other painters that are just constantly both accepting invitations and just hustling to get invitations.

And they're going all around the world. And they're not at the level where they're being invited to the Guggenheim or the Art Institute of Chicago or the, you know, the top museums. But it doesn't matter. They're just, they're hustling. They're out and about in the world. They're in Berlin today and Tokyo tomorrow and New York City, you know, the day after that. And maybe that's not even possible. Yeah.

They're all over the place. And those ones tend to be the artists who then break in the inner circle of made artists, who then can go to all the top galleries and make a fortune from their art. So those are three key takeaways from Harvard PhD economist Seth Stevens Davidowitz. Thank you so much for listening to the show. If you enjoyed this episode, share it with a friend or a family member, and subscribe to our show notes. Afford Anything.com slash show notes. My name's Paula Camp.

This is the Afford Anything podcast, and I will catch you in the next episode. Yeah, the Mona Lisa, some random guy at the Louvre. This is off topic and you can cut this, but it's just a. pet peeve of mine that I was on a podcast and I said Louvre. And they just, I got hammered. Like, this guy doesn't know how to pronounce the Louvre. And then I looked it up and I think there is an argument that it is pronounced Louvra, not Louvre.

But anyway, it was a random employee at the Louvra, as I say.