Afford Anything - How to Avoid Financial and Life Disasters, with Dr. Gleb Tsipursky

Episode Date: October 2, 2020

#279: You might know several decision-making principles, but do you have a step-by-step strategy that pieces those principles together? Dr. Gleb Tsipursky is an internationally-recognized thought leader on decision-making strategies. He shares two decision-making techniques for any aspect of your life in this episode. For more information, visit the show notes at https://affordanything.com/episode279 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to any limited resource that you need to manage, including your time, your energy, your attention, your focus, anything that you have to manage is a scarce resource, and you need to decide where you're going to direct it. Because putting too much time, energy, attention into one thing means that that's got to come from somewhere that's going to come at the expense of something else. So what matters most to you? And how do you make decisions that reflect that? Answering these two questions is a lifetime practice. And that is what this podcast is here to explore.

My name is Paula Pant. I am the host of the Afford Anything podcast. And today, Dr. Gleb Soperski joins us to discuss how to make better decisions, how to avoid disasters, the importance of probabilistic thinking, and the case for not going with your gut. Dr. Sopersky was a professor at Ohio State University, and prior to that, a fellow at the University of North Carolina Chapel Hill. His expertise is the psychology of decision-making. He is a behavioral economist and a cognitive neuroscientist. And he has spent decades studying the dangerous judgment errors known as cognitive biases that destroy bottom lines, that bring down careers and that result in people and institutions underperforming their potential.

So how do we draw from the fields of behavioral economics and cognitive neuroscience to learn how to make better decisions in our own lives? To discuss that, here is Dr. Gleb Sopersky. Hi, Gleb. Hi, Paula. How are you doing? I'm excellent. How are you? I'm doing fine as well.

You have developed an expertise as being the disaster avoidance expert. Where did that come from? Can you tell us a little bit about your background? Happy to. I have actually been fascinated in disaster. ever since I was a kid. When I saw my parents making some pretty disastrous decisions with each other, how they related to each other.

So, for example, my mom liked to buy nice clothing. So she'd go out and she'd buy a $100 sweater. And my dad was kind of a cheespe Skate. So she'd come home and he'd yell at her, you know, no sweater should be worth over $20. And then she'd bring up how he always leaves a toilet seat up, and then he'd bring up something else. And then they went into these sorts of conflicts.

So repeated conflicts again, again. as a kid that was painful for me to see my parents having these conflicts, but it was even more painful for them to have these same discussions every time the thing happened. They didn't change their behavior. They just hurt each other. And that was just really dumb from what I saw. And that was led to some disastrous consequences for their relationships. And so I wanted to study this. Why do they make these decisions that lead to their disastrous consequences? But you know what? Nobody sat me down and taught me, hey, here's how I made. good decisions and here's how I make bad ones. I wasn't taught that in elementary school,

there wasn't taught that in middle school, not in high school, it's not taught in college, that's not taught in business school. So I decided to study this myself. How do we make such bad decisions that lead to disasters? I mean, half of all marriages or so end in divorce. About half of all startups fail within the first five years and three quarters fail within the first 15 years. That all comes from decisions that we make as human beings. So that's what I started to study. found out that the kind of decisions we make are actually really bad because the typical advice of decision making is going with your gut, following your heart, trusting your intuitions, you know, to quote Tony Robbins, being primal, be savage. That's terrible advice. That's horrible

advice because our intuitions, our gut reactions are actually wired for the Savannah environment, not the modern environment. So when we go with our gut, we make the kind of decisions that result and half of all startups failing and half of all marriage is failing. So that's pretty bad. And so I wanted to study how do we address this topic. I went into cognitive neuroscience and behavioral economics and I studied these topics as a professor,

as a researcher for about 15 years in academia, researching all of these topics, specifically the dangerous judgment errors that scientists call cognitive biases. And my expertise is how do you defeat these cognitive biases? How do you deal with them? So that's one part of my expertise. And I've also spent 20 years as a consultant, coach, and trainer, helping leaders of all sorts, just professionals, folks, avoid disasters in their financial life,

in their professional life, in their work life, in their business organization. So I've been doing that as well. So I have a lot of pragmatic real life expertise and their experience as well as that academic framework for understanding how our brains are screwed up. You mentioned cognitive biases, and later I want to ask about those. But first, I know that part of the work that you do, you talk about the Defend Your Future approach, which I know is a fairly comprehensive framework for decision-making. Can you go over this particular approach? Happy to.

So Defend Your Future has to do with how we plan for our future, how we envision our future. When you as an individual make a personal financial plan, when a company makes a strategic plan, when a family household makes a plan, they make a single comprehensive plan. Our plan for the next five years, this is what will happen. This is what we'll do. Unfortunately, that has been shown to not work very well at all. There's extensive research on how our forecasts about the future when we make one singular forecast, you know, they perform just about as well as dart throwing chimpanzees and literally

so. So that is not a good way of making a plan, you know, if you think about what will happen in the future. So even the best, the most skilled forecasters are going to be really bad at predicting five years out. They can maybe do a half decent job doing one year out. But the typical strategic plans are five years out. So that's not something that you should be doing, making one plan. Instead, what you should be doing, here's what the research comes in, is you should be looking at a variety of potential scenarios and addressing the problems in advance. So when you want to defend your future is a specific technique that incorporates the cognitive neuroscience and behavioral economics

into an effective mode of strategic planning. It does not tell you to, hey, here's the one strategic plan you should make, because there are a lot of cognitive biases, which we'll talk about later, that undermine our strategic plans. What it helps you do instead is say, okay, looking at the future, there are a variety of possible futures that can happen. So you don't look at one potential future. explore scenarios. So what kind of potential scenarios can happen in the future? If let's say you're thinking about COVID-19, right, that's one potential scenario. A lot of people are thinking about that as a major topic.

What will happen in that scenario? Well, we have an optimistic potential scenario with COVID-19, which is that a vaccine will be invented sometime by the summer of 2021. And then if we assume a very high level of government competence, within six months or so we'll have vaccine that's produced, distributive, and people will be vaccinated, widely available. So that's COVID-19 will be mostly over by the beginning of 2022. Wow, that's the optimistic scenario, huh?

That is an incredibly optimistic scenario. That assumes that the Modena vaccine, which is the first vaccine that's right now being tested, is effective. And this is why it's optimistic. That's very, very unlikely to occur, unfortunately. because looking back at all past vaccine creations, the first wave of vaccines has usually, in the large majority of cases, they fail the tests of safety and effectiveness. So they have not proven to be very safe or very effective.

And so it's most likely to be the case that the Modena vaccine will not be effective, especially because there was a recent study that came out in Cell, which is a prestigious peer-reviewed journal about three weeks ago, that showed that COVID-19 actually mutated from its original form. So it had an original form that was spread in Wuhan, China. And then as it spread elsewhere, especially in Europe, it mutated into a more infectious form. And the vaccines, the Modena vaccine, Johnson Johnson,

all of those vaccines were based on the initial form of the virus. So hopefully they'll be effective against this new form, but we don't know. That's another reason to suspect that the initial. way of vaccines won't be effective. So most likely we will not be an optimistic scenario. There can be a moderate scenario. So we have an optimistic scenario, 2022, everything over. We have a moderate scenario where one of the second waves of vaccines is going to be effective. Or third wave. That means we'll have a vaccine approved by sometime late 2022 maybe, maybe sometime in 2023. And then depending on when the vaccine will be approved, we have to also think about the

level of government competence. Now, the government, unfortunately, has not shown a high level of competence in expanding testing, in providing personal protective equipment to hospitals and ventilators, all of this sort of stuff. So assuming a high level of government competence is also a problem. If we assume only a moderate level of government competence, more competent than it showed with the testing regime, somewhat more competent, then it will take about a year to produce vaccines, distribute them, and vaccinate people. And vaccinating people is going to be hard. We know from surveys, only about 50% of the population is ready to take COVID-19 vaccine. So that will take a massive education campaign. So most likely, it will take about a year.

And that timeline, that moderate timeline puts us into 24 or 25 when COVID-19 will be dealt with. So that's a moderate timeline. That's for that moderate timeline, what will most likely occur, I have to say, unfortunately. And then we can also have a plan. a semistic timeline. We need to. Because, you know, we might never have an effective vaccine for COVID-19. And that might sound very cynical to you. But realistically speaking, we still don't have an effective vaccine for the flu. We've been trying to get an effective vaccine for the flu for over a century. And our current vaccine for the flu is only about 50% effective. Right. We still don't have an effective vaccine for HIV. Exactly. Exactly. So that might happen.

We might have a, you know, halfway effective. We might have one that's 50% effective. That's still going to be very bad consequences for COVID-19 if our vaccine is 50% effective because it won't go away. So how will our society live and survive in this constant state of semi-pandemicness? I don't know. That will be weird. But that's a pessimistic scenario and that might well happen too. So you want to, if we're just dealing with COVID-19 for the future, so looking at that, and you can look at any aspects of your life, your financial plans, your organization's plans,

using the same approach. but just a very basic approach to COVID-19, this optimistic scenario, this moderate scenario, and this pessimistic scenario. So what you'll want to do with these scenarios, let's say you're looking at your financial plan. What will your finances look like in each of these scenarios in five years from now? So think about each of these scenarios in five years from now and what will your finances look like. I mean, that depends, of course, on your job and what you're doing, your investments. Then you want to think about the kind of problems. So you look at all these scenarios, think about those futures, what you think will happen in each of them.

Then think about the potential problems that might arise in each of these scenarios. In the optimistic one, in the moderate one, and then the pessimistic one. So in the optimistic one, you know, that's still a timeline of nearly two years away or 18 months away. So 18 months away, if you were dealing with COVID-19 pretty seriously for 18 months, you want to think about your investments, you want to think about how stable your job is. maybe you want to think about if you're in certain industries like the restaurant industry or the live entertainment industry, you might want to think about getting out of those industries. So those are not necessarily good industries to be in right now, and we can talk about that. So you want to think about your finances. And in some cases, if you think that, hey, I'll last fine until 2022, that's something that you want to be thinking about your plans.

Of course, you could apply the same thing to your organization, your company, what's going to be going on. then you want to think about the kind of problems that might arise if it's the moderate scenario. So that's going to be for the next four to five years, we'll be in the state dealing with the pandemic. That's going to be really complex and challenging for many people. And that should seriously lead you to think about pivoting your career, your organization plan, your finances, toward preparing for that long-term future. And of course, in the pessimistic scenario, there are going to be a whole series of problems that would arise in the pessimistic scenario. that you want to plan for.

But it's not all bad because then you want to think about opportunities. So you want to think about opportunities in each of these scenarios too. So for example, with your finances, if you are thinking that, let's say for the moderate scenario, you can invest financially into stocks, for example, that you think will be doing well in the pandemic for the next four to five years. There are lots of people who are right now investing into airline stocks. And I think they're being foolish for doing that because airlines will not be doing doing well, I can tell you that if the pandemic lasts for the next four to five years, which is

quite possible for that to happen. So you want to think about why your investments are or for your organization. If you are an organization, let's say manufacturing organization, then you might want to think about changing your supply lines because if the four to five years of pandemic disruption will be seriously problematic. And a lot of the people who you are talking to a lot of your suppliers, they might not be doing a very good job of preparing for the next four to five years in the pandemic. So you may want to diversify your supply lines. So think about opportunities like, let's say if your competitor is stumbling, a lot of your competitors will not be thinking about the long term. They'll be trusting political and business leaders. I mean, Elon Musk tweeted

in early March that, hey, this coronavirus panic is dumb. And then on March 19th, he tweeted that, you know, based on current trends, it'll be close to zero new cases in the U.S. by the end of April. Well, guess what? There are over 4 million cases, unfortunately, in the U.S. So that's pretty terrible, and he's clearly wrong. But many people believe him. Many people underestimate the pandemic. And a lot of your competitors might be doing so.

So you want to think about where are your competitors going to stumble, and how can you take advantage and seize market share from them? And if for an individual or a company, you could also be thinking about, hey, if this will be going on for the next four to five years, what kind of changes will our society go through? Social norms, habits, behaviors, patterns. And how can I get ahead of these changes? How can I be in that long-term future where society will be heading?

So I can satisfy people's needs in advance. So that's an important way of thinking about things. So that's the opportunities. And then think about the kind of resources that you'll need to take advantage of each of those scenarios. So let's say you decide to change your job in the context, to the pandemic. Then you want to think about, well, if you think that, okay, even if it's going to be only 18 months, even if it's going to be very optimistic, that will still not be good for my job.

If you happen to be working in the industry where that's not a good orientation, then you want to think about changing your job and what kind of resources you'll need to change your job. So those are the kinds of things you want to be thinking about in each of those scenarios. And then, finally, you want to think about what kind of information will indicate to you in which scenario you're in. The optimistic scenario, the moderate scenario, or the pessimistic scenario. So, for example, we should be getting information about the Modena vaccine, how well it functions sometime in November or December of this year. And if you're starting to get information that the Modena vaccine is not very effective, then that will indicate to you that most likely

the other wave of vaccines, the early wave of vaccines, is not going to be effective. So then we will not be in the optimistic scenario, or be either in the moderate or pessimistic scenario. So you want to look at information, and that's one example. You want to look at people who are forward thinking and who have a lot of resources on this topic. So for example, Bill Gates is well known as someone who has predicted the likelihood of the pandemic

and who is very involved in researching the vaccines. And he's not making a profit of this. It's completely philanthropic. So he's just really concerned about human welfare. So you can follow what Bill Gates is saying, what the Bill and Melinda Gates Foundation is saying about the future of vaccines as another source of information for where things are headed with the pandemic. You want to be careful about following politicians or people like Elon Musk were but certainly biased in their perspectives on the

pandemic. And so then you want to think about what kind of information will lead you to know which of these futures you're in and then adjust your plans accordingly based on which future we're going toward. And this technique, this will help you address the kind of of problems we experience as human beings when we look at one vision of the future. Because the vast majority of people who do strategic planning, make a strategic plan, and they're way too optimistic. They tend to look at the most optimistic scenario, then they don't tend to look at all the problems and risks that occur.

So this technique, the Defend Your Future technique, will really help you address a lot of the problems we experience and help you address the kind of problems you might experience in the future and seize advantage of various opportunities. that might arise in the future. All right. So think about the worst case, the moderate case, and the best case scenario and make plans accordingly based on each of those assumptions. Exactly.

How can we evaluate realistically what those scenarios may look like? How can we evaluate the problems that may occur, the resources that we may need in order to be able to address those problems? How can we develop a realistic picture of worst, middle, and best case? Well, what you want to do is, first of all, research, of course, the information on the worst, middle, and best case. I gave you the example of COVID-19. It was pretty simple. I am not an expert on vaccines.

Let me be clear. I'm an expert on decision-making risk management, disaster avoidance, and strategic planning. That's what my expertise is. But once I started researching this and looking at the kind of scenarios that are possible, it's very easy to find out what is the most optimistic scenario,

what is the moderate scenario, and what is the pessimistic scenario, because this is written about. People write about this topic, they talk about this topic. If you're a company, for another example. So that's one thing.

You can look at what other people are talking about, research it. The other thing you want to look at is base rates. Now, base rates is a concept of how do you address the kind of cognitive biases, mental problems that we all experience.

And one of the fundamental techniques that you want to use is called probabilistic thinking. Our mind tends to see the future as black and white. It tends to say either yes or no, black and white, you know, there's no shades of gray

in our intuitive gut reaction mental perspective on the future. We feel that the future will be one way and we reject intuitively any concepts of the future might be different from that, which is why this scenario-based planning is very effective. It addresses these sorts of intuitions. So what you want to do is think about the probabilities involved in the future.

What will the future most likely look like? And base rates refers to looking at what other experiences we have of similar scenario. in the past. What other case studies do we have that we can use to learn from about the future? I gave an example when I talked about the past vaccine development. So when you look at past vaccine development, you can see that the large majority of initial vaccines failed. What does that mean? That means that most likely the first wave of vaccines will not be successful, just because of the base rate. That's the base rate. That's the base probability of likelihood. Let's say,

if you're going to start up a company as a startup. The base rate of failure in company startups is going to be half of all startups will fail within the first five years. So you should assume that your startup has a 50% chance of failure within the first five years. You know what? You're not a special snowflake. Everybody thinks that they'll be super successful and they will avoid all the problems that lead to failure.

Now, you can take steps to address the kind of problems that lead to failure. So I often, when I consult with folks on doing startups, I tell them that the two biggest reasons for startup failure that they want to look at. They come from what's called the optimism bias. We're talking about cognitive biases. One of the biggest problems that we have is called the optimism bias. This is for people like me who are very optimistic, who are very hopeful about the future, who see it as full of opportunities, not of full of threats.

That's me. Now, I have 20 ideas before breakfast, and I think they're all brilliant. Unfortunately, I have learned to my better experience that they're not all brilliant. I mean, I'm a startup founder. And what I learned is that I need to filter my ideas by someone who is pessimistically oriented because my 20 brilliant ideas are not all brilliant. So looking at the reasons for failure, they all have to do with excessive optimism. One is a lack of fit of product to market, where entrepreneurs, startup founders of small businesses,

they think that their offering will be good for the market. That's what they feel. Their gut reaction tells them that it will be good for the market. But when they actually start up their business, it turns out that it's not nearly as good as they thought it was because they didn't do nearly enough testing and they didn't look at the risks and problems that are associated with it. So optimism. That's one of the biggest problems with optimism.

And the other one is lack of cash. So their product may be a good fit for the market, but they run out of cash before they can actually make their startup successful. So those two causes are the best. biggest causes of startup failure. There are others, but those are the biggest. If you take care of those two causes by looking ahead, you're going to be much more likely to succeed, to not be in that 50% of people who startups fail. But unfortunately, the large majority of startup founders don't do that. They're just excited about what they're doing. They think that they create a business

plan and they think that everything will go according to plan. And that's a very fallacious mode of thinking. It's one of the cognitive biases called the planning fallacy. The planning fallacy, The planning fallacy is cognitive bias, dangerous judgment error, where when we make a plan, we tend to feel that everything will go according to plan. There's the phrase that failing to plan is planning to fail. It's a very unfortunate and misleading phrase because, you know, your business plan is going to be very optimistic when you just make it intuitively when you're a founder because you're going to be very hopeful about the future. The much better phrase that I teach my clients is failing to plan for problems is planning to fail. failing to plan for problems is planning to fail. You want to integrate problems, risks, issues into your plans.

That's why I would defend your future technique, which I have people who do startups always go through. I make sure that they focus a lot on the problems, which might accompany each of the scenarios that they create. So you want to look at these problems in advance and address them. And there are lots of typical problems that accompany startups that you can address in advance when you think about them. So this gets to the question, fundamental question of how do you anticipate and look at problems in advance?

You look at other case studies of others who have went through the same things and you'll see how they apply to your situation and you don't assume that you're much better than anybody else. So you develop that sense of humility and addressing problems in advance because, again, you're not special. So you've named several cognitive biases so far. You've talked about optimism biased. You've talked about the planning fallacy. You've talked about the importance of overcoming the overconfidence bias, of being humble, understanding that you're not a special snowflake. Given that addressing cognitive biases, by definition, means that the mind has to evaluate itself. How do you embrace probabilistic thinking?

How do you embrace the need for such an exercise with the reality that you will never be an objective judge of your own? thinking. You embrace it in the same way that you embrace salad. And the salad example is actually very evocative. Salad is not anybody's favorite food. I'm sorry to say it's not anybody's favorite food. And we embrace it because we know it's good for our physical health. But how do we know? There's extensive research by doctors who have researched it and found out, hey, you need these nutrients if you want to have a healthy lifestyle because our gut intuition are reactions. They're adapted for the savannah environment, not the modern environment in all ways, including in what we eat. So in what we eat in the savanna environment, when we came across a source of sugar,

it was incredibly important for us to eat as much of it as possible. We are the descendants of those who ate all the honey or all the bananas, all the apples that they could come across, and we are the ones who survived and thrived because of it. So that is something that when we come across, you know, box of donuts in the break room and we start eating one donut, you know, it's very tempting for us to eat more than one donut. then more than two donuts, more than free donuts. Not a good thing, not a healthy thing, but it's very intuitive. That's natural. That's what it functions. Or let's say if you have a half gallon of ice cream, the serving of ice cream is half a cup, but show me the person who can eat

half a cup of ice cream. That's not realistic. That's not how we human beings function. So what we learn to do instead is, hey, we have learned that our gut reactions tell us to do the wrong thing when we eat. So we have learned to embrace other modes of eating, but perhaps, you know, not eat the donuts or ice cream in the first place and focus on some fresh fruit or maybe get, you know, serving size, get a bar of ice cream instead of a half-gallon carton of ice cream. That's something that you use portion control or you eat salad to make sure you have a healthy diet. In the same way, we have to overcome the mental problems that we experience. So experience these physical problems with our desire to eat too much.

And we take care of our physical health. Now we need to take care of our mental health in the same way by embracing probabilistic thinking, by embracing other techniques such as the Defend Your Future Techniques, which contains a lot of these techniques, a lot of these steps tied together. For example, we talked about probabilistic thinking. One of the other things that you really need to do

to make good decisions is called Consider the Alternative. So you want to consider not simply your performance, preferred alternative for the decisions. When you look at decision making, it's very bad to simply look for information that confirms your initial predisposition. Because when you look for that information, you're going to find that information and you're going to intuitively cherry-pick information that supports your initial hypothesis. What you need to do in order to make a good decision is consider various alternatives to your initial predisposition and look twice as hard for that information that disconfirms your decision.

you want to prove that your decision is wrong, that your initial intuitive decision-making process is wrong. And it's not an easy thing to do because you don't want to admit to yourself that you're wrong. But if you can prove to yourself that you're wrong, you're going to make a much better decision because you won't screw up and result in a disaster. And that's why I'm a disaster avoids experts. I help people avoid screw-ups. So that is another technique.

And of course, when you think about the scenarios that you're thinking about, the optimistic, the moderate, the pessimistic, that embraces the considered alternative, because we all want to orient toward the optimistic. That's just our intuitive nature. When we make a plan for the future, we're very oriented toward optimism. But instead, what we need to do is think about what is the moderate scenario and the pessimistic one, and consider all the alternative problems that might occur and opportunities as well.

So that's another technique that's part of the Defend Your Future. And there are many other techniques that are encompassed within the Defend Your future technique that will help you make much better decisions by developing the mental habits that help you address cognitive biases. 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. They're also powered by the latest in payments technology, built to evolve with your business.

Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth-third better is all about. It's about not being just one thing, but many things for our customers. Big Bank muscle, fintech hustle. That's your commercial payments, a fifth-third better. The holidays are right around the corner, and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens.

Maybe you need serveware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays, you can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving, it's got drawers underneath for storage. But you can get whatever it is you want, no matter your style, no matter your budget.

Wayfair has something for everyone. Plus they have a loyalty program, 5% back on every item across Wayfair's family of brands. Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-F-A-R.com. Sale ends December 7th. How do we recognize the unknown unknowns?

How do we recognize the black swans that, for example, a person in 2019 would have never anticipated a pandemic? Most people wouldn't have, unless you're an epidemiologist. So what you want to do? So black swans is one of the fundamental concepts that you want to be thinking about in order. That is one of the cognitive biases that we have, that we avoid thinking about black swans, which are the unknown unknowns, things that we can't easily imagine. But there are ways of transforming these unknown unknowns into what's called grace swans. So grace ones are low probability, high impact predictable events.

The large majority of things that we typically think of as unknown unknowns can actually be predicted and addressed. So for example, something that's completely random that might never occur in a serious way is a solar flare. Solar flare is something that we can't easily predict. Obviously, it's hard for us to predict when it occurs. Scientists don't have something that would easily predict it, but it can seriously cause us problems. Knock out a lot of satellites, knock out power. That's something that can happen.

And it would be especially bad if it happens in the context of the pandemic because we'd already have a lot of resources devoted to fighting the pandemic. So we would have many less resources devoted to a solar flare. Or, let's say, a second pandemic. There's no reason just because we have one crisis doesn't mean that another one can't arise. So the second pandemic is something that might happen. And there might be a number of other, you know, asteroid impact. There might be a number of other disasters.

A lot of climate change related emergencies might happen. There might be a lot of disasters or something might happen in your personal life. Let's say if you're running a small business, a key employee might be a get hit by the pervail bus. All of these things might happen. and we can scan the future and look at the range of possible disasters. And we can see what steps we can take to address these sorts of problems. So, for example, if you might be worried about power outage, you can get an electric generator.

That's going to be $300 well spent. And my wife and I have, believe, we have an electric generator in our house that would protect us in the case of a major power outage. So that's something that you can address and that's going to cost resources, going to cost money, but that's something that will address a number of problems at once. So there can be an electric outage due to a solar flare or to other issues. And you can do the same thing. For example, pandemic insurance.

A lot of companies could have purchased pandemic insurance. You know, that's a thing. Pandemic insurance is something that's offered by reinsurers. But they chose not to. The vast majority of companies did not choose to buy pandemic insurance. And they're in a tough spot. I mean, especially companies that are especially vulnerable to pandemic, I mean, I think they're so foolish for not spending a little bit of money on pandemic insurance.

For example, airlines, right? Very vulnerable. Restaurant chains, very vulnerable. So there are lots of things that you can predict if you start looking for these problems. If you don't close your eyes to them. But it's very tempting, very tempting for us to close our eyes to these because they feel uncomfortable. They go against our gut intuitions. Our gut intuitions is what's comfortable to us.

That's what a gut is about. So what's comfortable to us is to deny problems because we want to look toward a hopeful future. We want to look toward the future full of brightness, full of flourishing. That's the kind of thing we want to see. And that's the kind of thing that the vast majority of leaders tend to orient toward. They have this bright vision of the future and they don't acknowledge all the problems and risks that might come along. But the problems and risks are so fundamentally important to acknowledge that's the way you

defend yourself, you defend your future against all of these sorts of things that might occur. So you can actually address these black swans, turn them into gray swans, something that you can imagine happening by researching the kind of things that might happen and the kind of ways you can protect yourself against them. If a person is spending a lot of time thinking about these types of risks, does this exercise inherently run the risk of causing a person to over-focus on defense at the expense of playing offense? It really doesn't because one of the components of defend your future is looking for opportunities. So you don't simply look for problems. You look for opportunities as well.

And looking for opportunities is something that is really hopeful and helps someone play offense, not simply defense. So that's something that is very important to do. Second, there's a cognitive bias called anchoring. So anchoring has to do with us being very much tied to our initial position. We are very tied to where we are right now, and the large majority of of us tend to be way too optimistic and way too overconfident. So even by going through this exercise, believe me, you will not be playing defense. You will just simply shift yourself away a little bit from your current anchor, from your currently where you are right now. Like I mentioned, I'm a person who is very optimistic, who's very helpful. I have to use these exercises a lot

in order to get toward a realistic place. And it's very hard and very uncomfortable for me to do that because I tend to see the future as bright and full of hope and so do the large majority of people who are in leadership positions, small business owners, entrepreneurs. They see the future as mainly optimistic. They're kind of glass-half-full folks, just like I am. But in order for them to compensate,

they really need to go through these exercises repeatedly, often strategically, and that will help them at least. least a little bit, address the kind of problems and risks that occur. They will not be perfect by any means. I know that I'm not addressing these problems and risks, because it's not intuitive to them. It's not intuitive to us. But over time, by repetitively learning these sorts of things, you will definitely orient more toward where you want to be. It's like, you know, saying that you're going to learn to play defense too much is like saying you learn to love salad too much. I don't think that's going to happen, I think you will still really, really love and pulled toward ice cream

and donuts, but you will be less likely to overindulge and more likely to eat somewhat more nutritious food if you start to focus much more on eating salads and using portion control on the most delicious food. In the same way, you will learn to portion control your enthusiasm and focus much more on the risks and problems, and that will pull you somewhat toward more healthy mental patterns with regard to your individual finances or your company's finances. When it comes to making the best major decisions about major components of your life, you have a chapter in which you outline eight steps towards making these best decisions. Can we go through the eight steps?

Happy to. So as you go for Defend Your Future, you can come across a major decision that you want to make in any of the scenarios that you're looking at. So this technique accompanies well to defend your future exercise. or you might find yourself separately and outside of the Defend Your Future technique just facing a major decision right now, whether you should change your job, whether you should pivot your company's orientation, whether you should seriously shift your financial investments in your portfolio. So what you want to do is take eight steps to making the best major decisions, which again incorporate a lot of the techniques that are effective in fighting cognitive biases into them. The first thing you want to do is identify the need to make them best major decision. It's not an easy thing to do.

It seems obvious, but it's not obvious. I can't tell you the number of people who, let's say, get stuck in dead-end jobs when they really should be leaving those jobs. I had a coaching client that was about four months ago, who was a manager at a major financial institution, and she kept getting passed over for promotions. So she got to a pretty high place. She was a regional manager.

so she was getting $200,000, so pretty good. But she kept getting passed over for a promotion, so she was not happy about that. But, you know, she had a pretty good job and she was satisfied overall with the money that she was getting, even though the culture, the environment was somewhat unsatisfactory. And so I asked her, you know, can you imagine five years from now what would happen to you if you're still working at this job? And she just had a very visceral negative reaction. She just couldn't imagine it.

But I can tell you that most likely she would still be working at that job if I didn't pose the question that way because at any one moment it feels threatening to leave the job, leave this job and go elsewhere. So you've got to determine the need to make a decision about your career, about your company, whatever you want to do. Second, you want to gather relevant information from a wide variety of people who are informed about the issue at hand. Don't simply look for people who agree with you.

So as an optimist, I would make sure to run my ideas about the issue by people. who are pessimistically oriented so that they poke holes in all my bright ideas and brilliant ideas. And it doesn't feel comfortable. It doesn't feel good. It doesn't mean that they're always right. But you want to get their opinions. You want to get their perspectives.

And you want to incorporate that into your decision-making process, weighing it more heavily than you intuitively would do otherwise. Because, again, it's very tempting for us to weigh more heavily our own intuitive preferences. Step three. Now you gather data. You know, you want to make a decision. Think about the goals you want to reach. what's your vision of the desired outcome?

What do you want to see? Especially you want to see if this one-time decision might be a symptom of an underlying issue with your processes with the way that you make your strategic plan, with the way that you make your career. If you find yourself making a career choice that's consistently bad, that's consistently problematic, then you probably have some systemic issues with the way that you make your career choices that are bad. With the company, if you keep running into product launch,

or hiring the wrong person. Same thing. This is probably systemic issues. You want to identify the systemic issues involved, and you want to paint a vision of the kind of outcome you want to see. Then, step four, develop clear decision-making criteria to weigh the various options of how you want to get your vision. So, for example, if you are thinking about your financial portfolio, you can think about,

well, what are the criteria? You want to, let's say, ensure that your portfolio has a certain amount of growth, has a certain amount of safety. You may want to say that it will be relatively pandemic proof in case of the moderate scenario of the next four to five years. So think about all of these criteria that you want to establish as you change your portfolio. Step five, generate a number of viable options that can achieve your decision-making process

goals. So think about the various options that can be there. With your portfolio, you want to talk to a financial investment manager and talk about the various scenarios that can help you develop your portfolio. So don't simply settle for the first available option. It's very tempting for us to settle for the first available option. You want to at least develop five options. Five attraction options should be the minimum for a major decision,

like seriously changing your financial profile, making a key higher, developing, let's say, a pivot for your company into a different direction, making a serious career move. Then weigh these options. speaking the best of the bunch. So use the criteria that you developed before, the kind of safety that you care about, the growth that you care about, the pandemic proof that you care about, and weigh them. You want to decide which of these is the most important. So if your, let's say, growth is the most important to you. You want to wait on a scale of 1 to 10. So let's say growth,

you can weigh growth at 9 and then safety at, let's say, 4, and pandemic proof at 7, for example. And then you want to weigh the financial options that you developed for your portfolio on each of these criteria. So that's the selection. The next step, step seven, you're going to implementation. So you want to implement the option that you chose. Now, you want to, again, as part of the implementation, you want to minimize risks and maximize rewards because your goal is to get a decision outcome that's as good as possible. So first, imagine that your decision completely fails.

your portfolio completely fails, your new hire completely fails, your pivot to a different direction for your career completely fails. And then think about all the reasons why it might fail. And think about how you can address these problems in advance. So you're thinking about these problems, you're imagining and failing. And that way, by imagining it failing, you give yourself permission to brainstorm all the reasons for why it failed. And then, of course, you can be creative and problem solving and address the problems in advance. Same thing for success. Imagine that the decision succeeded beyond your wireless streams and think about all the reasons why it succeeded beyond your wildest streams. And what will the future look like if it succeeded like that?

And then how can you get to that future? What are the specific steps that you can take to get to that future in any of these scenarios? And finally, eight, evaluate the implementation of the decision, revised as needed. So think about the implementation process. Think about what will happen. How can you address all the problems there? Well, what you need to do is measure it. So create metrics for whatever you're implementing, for your financial portfolio, for your

new hire, for whatever you're looking at. You want to create metrics of success and see how well you're hitting those metrics of success over time. And if you're not hitting those metrics of success, you've got to revise your decision. Look back, look at what problems might be there, and look at how you can change it in order for it to be more successful. So those are the eight steps process that you. should take to make the best major decision.

Excellent. Well, we're coming to the end of our time. Are there any final takeaways that you would like to emphasize for this community? I would like to strongly encourage folks to remember that their gut reactions are going to lead them in the wrong direction very often. And just because of who we are, we are not wired for the modern environment. We are wired for the Savannah environment. So you've got to learn what are the dangerous judgment errors, these cognitive biases

that lead us to make these really bad choices. and the steps you can take to address them. Both the individual mental habits, like probabilistic thinking and considering the alternative, and broader strategies, formal strategic approaches that you can use, like defend your future and making the best major decisions for these eight steps. So use that, use these techniques, make sure that you go for the salad and not the donuts. Well, thank you so much. I really appreciate the opportunity to share this, Paula.

We'll come back to the show in just a second, but first, and we are back. What are the key takeaways that came from this interview with Dr. Gleb Sopersky? Here are five. Key takeaway number one. When you're thinking about the future, consider three different future scenarios. The pessimistic option, the optimistic option, and a moderate option somewhere in between. Making one single plan or one single projection is not enough, and it's also not realistic. We as humans are awful at forecasting and predicting the future.

So it's incumbent upon us to consider more than one scenario. Looking at the future, there are a variety of possible futures that can happen. So you don't look at one potential future. You explore scenarios. So what kind of potential scenarios can happen in the future? Specifically, you want to consider the pessimistic, moderate, and optimistic scenario. So as an example, maybe you want to pay off all of your debt within the next year. In your optimistic scenario, this happens without a problem.

Maybe you even get an unexpected windfall or bonus that helps you pay it off earlier. In your moderate scenario, you hit a few bumps along the road. Maybe your car needs an expensive repair or your pet needs serious veterinary treatment. And it takes a year longer than you were originally projected, but you still do ultimately get it done. It just takes a little longer. That's the moderate scenario. And then in the pessimistic scenario, everything that can go wrong will go wrong, and you end up taking an extra four years to pay off your debt beyond what you expected.

So when you're thinking through these different scenarios, take note of the potential problems that may arise so that you can figure out how to solve for them ahead of time. We do this in our course. So twice a year, I teach a course on rental property investing. It's called Your First Rental Property. And one of the first things that I teach to the students is that as you're analyzing a property, and this is baked into the spreadsheet and the tools that we use inside the course, When you're thinking through a property, you don't just make a projection of what this property

will return. You make a range of projections. So we actually have these tools built in where people can run a projection scenario range that is worst case, best case, and somewhere in between. And this is very, very important when you're analyzing a rental property or any other type of investment because the same thing. When you're planning for retirement, same thing. Run your worst case, run your best case, run that whole range in between because that's what risk assessment is. It is evaluating the range of potential outcomes and then determining the likelihood of any given outcome

within that range and then assessing whether or not you can survive the worst of those likely potential outcomes. Now, similarly, you can also think about. the successes that might happen. What would you do if things go right? What would you do if you end up in these examples paying off your debt ahead of schedule or choosing an investment that has higher returns than you anticipated? Having a plan for what to do if it works out makes it more likely that you'll be able to capitalize on your successes and keep those compounding. So key takeaway number one is to run multiple scenarios of what the future might hold. Pessimistic, optimistic, and that range in between.

That is that first key takeaway. Key takeaway number two. Focus on base rates. Base rates can help us ensure that we properly evaluate the problems that are likely to occur and the resources that we might need. Base rates refers to looking at what other experiences we have, of similar scenarios in the past? What other case studies do we have

that we can use to learn about the future? This involves looking to the past, not to the future. So when we're looking at base rates, don't look to the future for answers, look backwards. As Dr. Sopersky noted, the base rate of failure for startups is half. Half of all startups fail within the first five years. And yours is not an exception.

You are not a special snowflake. So in order to give yourself the best chances of success, take a look at why startups are likely to fail and plan for how you will protect yourself from some of the most common problems that arise, such as being undercapitalized. Now, base rates can help us overcome cognitive biases, such as optimism bias, the planning fallacy, and being overconfident. Those are three cognitive biases that we discussed during this interview. How can you, in this example, how can you be sure that your business won't face the same fate,

in the face of data. Running this analysis forces you to have a reality check on what's the likelihood that a given outcome may occur and what can you do in order to mitigate the risk of that outcome. And so that is key takeaway number two. Evaluate the problems that are likely to occur. Key takeaway number three. Question your gut reaction. Our gut reactions aren't tailored to the modern world.

The primitive part of our brain is primitive. We need to overcome our instinct to go with our gut, because as Dr. Sopersky says, our gut often reflects what is comfortable. But what is comfortable is not necessarily what is sound. And so as we embrace decision-making techniques, we need to look at these techniques in the same way we look at salad. Our gut doesn't inherently crave salad. Over time, we can teach it to do so. But our gut doesn't want salad. Our gut wants fruit or donuts or ice cream.

That's the type of food that we're predisposed to wanting. And so we need our higher mind to lead us to making better choices. What you need to do in order to make a good decision is consider various alternatives to your initial predisposition and look twice as hard for that information that disconfirms your decision. So you want to prove that your decision is wrong, that your initial intuitive decision-making process is wrong. Now, since it's not intuitive for us to look for disconfirming information, it's not intuitive or comfortable for us to look for information

that will mess with our desire for confirmation bias, that will challenge our assumptions, that's not something that's comfortable, but we need to seek it out, we need to make it a habit, just in the same way as we need to eat salads from time to time. If you tend to be optimistic, run your ideas by someone who is biased towards pessimism or negativity. If you tend to spend a lot of your time in the same echo chambers or getting a lot of confirmation bias, run your ideas through some type of filter or mechanism in which you are not going to be surrounded by a bunch of yeses.

So question your gut responses because your gut responses often reflect. what is comfortable rather than what is right. That is key takeaway number three. Key takeaway number four. Turn black swans into gray swans. Many people don't think about black swan events because of their low probability. So how do we factor for these black swans,

these unknown unknowns that lead to a massive negative impact? Well, we can turn them into gray swans. Gray swans are low probability, high impact, predictable events. the large majority of things that we typically think of as unknown unknowns can actually be predicted and addressed. The key here is that these are low probability high impact events. You don't need to waste your time planning for low probability low impact events. But if there is something that may occur in which the probability is low but the magnitude

is high, those are the types of things that you want to protect yourself against. So, for example, perhaps you think that based on your industry or based on your career, you have a ton of job security. You may think no one ever gets fired at your job. But what happens if you do lose your job? What happens if the economy tanks and your employer needs to shut its doors? You may think that you are in the most secure job in the world, but even if you are lucky enough to have immense job security, you still need to plan for what might happen in the event that that is. assumption fails, because that would be an example of a low probability, high-magnitude event. What happens if you develop some type of chronic illness or disability that is so severe

it impedes your ability to work? You may have every intention of working for the rest of your life. I've talked to so many people who say, I don't want to retire even at the age of 65. I want to work until I'm 75, 85. That's great. I'm glad that that's what you want. I'm glad that you enjoy your work and the meaning and the contribution that it provides. But what happens if at the age of 45, your physical health precludes you from being able to work? Do you have a contingency plan? Plan for these types of gray swans.

That is key takeaway number four. And finally, key takeaway number five. The first step to making good decisions is to realize that you, you need to make a decision. Sometimes we don't even realize that there is a decision in front of us that needs to be made. Or worse, we don't realize that we have a choice, we have autonomy and authority, in a given matter. It's not an easy thing to do. It seems obvious, but it's not obvious.

I can't tell you the number of people who, let's say, get stuck in deaden jobs when they really should be leaving those jobs. Sometimes we can get stuck on autopilot, and we don't stop to question our habits, our identity. our careers, our lives. Dr. Sopersky says that he had a client who constantly got passed up for a promotion, yet never considered leaving their company. And yet, when asked about how they'd feel about being at that company in five years, they weren't happy. So recognizing that there is a choice, that there is autonomy, there's a decision to be made, is the first step in that eight-step process that he outlined of how to make decisions. And actually, Actually, if you want to review all of the eight steps, we'll go through it.

The first step is realizing the need to make a decision. And then the second step is gathering all of the relevant information that you need for the decision from a variety of informed perspectives. That's step two. That third step is deciding what goals you want to reach. What is the objective or what is the desired outcome of this decision? That's the third step. And then after that, step four, develop clear criteria that you're going to use in a decision. order to weigh all of the various options that you gathered. Step five is to, of those options,

narrow them into a number of viable options that can help achieve your goals. And then number six is to weigh those options, picking the best one. Number seven is implement the option that you chose, and number eight is evaluate the implementation of that decision and revise as needed. So that's Dr. Sopersky's eight-step process to methodically going through a decision. decision-making process. And it all starts with recognizing that there is a decision to be made. If you're not happy with some aspect of your life, if you think things could be different, could be better, all right, what's the decision that you need to make in order to disrupt the status quo in order to start the process of iterating and improving the thing that you want

to improve? That is the fifth and final key takeaway from this interview with Dr. Glebs-Syperski. Thank you so much for tuning in. This is our first episode after the September sabbatical has ended. So this is the first episode of October 2020, heralding the first Friday of the month. Coming up on Monday's episode, we will be, myself and Joe Saul-Sehi, a former financial planner, will be answering questions that come from you, the community. So we're back with new episodes, new content. And at the end of Monday's episode, we will also, you'll also.

be hearing from Erin. She is the chief sanity officer here at Afford Anything. And we will be peeking behind the curtain, giving a little backstage behind the scenes tour of all of the stuff that we're working on. That'll be at the very, very end of Monday's episodes. So make sure that you hit subscribe or follow in whatever app you're using to listen to this show so that you don't miss this upcoming episode or any of our other future episodes. Thank you so much for being part of this community. My name is Paula Pant. This is the Afford-Anything Podcast. You have been listening to episode number 279 with Dr. Glebtsoperski, and you can get the show notes at Afford-anything.com slash episode 279. If you'd like to subscribe to the show

notes so that you can get synopsies of all of these interviews and all of our episodes delivered to your inbox. You can have notes and resources and reminders of everything that we've discussed. you can sign up for that for free at Affordainthing.com slash show notes. If you want to chat about today's episode with anybody in the Afford Anything community, go hang out with them at Affordainthing.com slash community. We've actually got some cool stuff planned for the community. We're going to talk about that at the end of Episode 280 on Monday's episode. So again, make sure that you hit subscribe in whatever app you're using to listen to the show

so that you can catch the end of Episode 280 coming up next week. Thank you so much for tuning in. My name once again is Paula Pan, and I will catch you on Monday. See you then.