Entrepreneurs Are Optimistic About the Odds of Success

(p. 256) The chances that a small business will survive for five years in the United States are about 35%. But the individuals who open such businesses do not believe that the statistics apply to them. A survey found that American entrepreneurs tend to believe they are in a promising line of business: their (p. 257) average estimate of the chances of success for “any business like yours” was 60%–almost double the true value. The bias was more glaring when people assessed the odds of their own venture. Fully 81% of the entrepreneurs put their personal odds of success at 7 out of 10 or higher, and 33% said their chance of failing was zero.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

“If Apple Is a Fruit on a Tree, Its Branches Are the Freedom to Think and Create”

(p. B3) Millions of Chinese flooded the popular micro blogging site Sina Weibo to tweet their condolences on the death of Steve Jobs over the past two days. They also raised the question: Why isn’t there a Steve Jobs in China?
. . .
One of the most popular postings on Mr. Jobs’ legacy came from scholar Wu Jiaxiang. “If Apple is a fruit on a tree, its branches are the freedom to think and create, and its root is constitutional democracy,” he wrote. “An authoritarian nation may be able to build huge projects collectively but will never be able to produce science and technology giants.” On that, Wang Ran, founder of a boutique investment bank China eCapital Corp., added, “And its trunk is a society whose legal system acknowledges the value of intellectual property.”

For the full story, see:
Li Yuan. “China Frets: Innovators Stymied Here.” The Wall Street Journal (Sat., October 8, 2011): B3.
(Note: ellipsis added.)

“Planning Fallacy”: Overly Optimistic Forecasting of Project Outcomes

(p. 250) This should not come as a surprise: overly optimistic forecasts of the outcome of projects are found everywhere. Amos and I coined the term planning fallacy to describe plans and forecasts that

  • are unrealistically close to best-case scenarios
  • could be improved by consulting the statistics of similar cases

. . .
The optimism of planners and decision makers is not the only cause of overruns. Contractors of kitchen renovations and of weapon systems readily admit (though not to their clients) that they routinely make most of their profit on additions to the original plan. The failures of forecasting in these cases reflect the customers’ inability to imagine how much their wishes will escalate over time. They end up paying much more than they would if they had made a realistic plan and stuck to it.
Errors in the initial budget are not always innocent. The authors of unrealistic plans are often driven by the desire to get the plan approved–(p. 251)whether by their superiors or by a client–supported by the knowledge that projects are rarely abandoned unfinished merely because of overruns in costs or completion times. In such cases, the greatest responsibility for avoiding the planning fallacy lies with the decision makers who approve the plan. If they do not recognize the need for an outside view, they commit a planning fallacy.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.
(Note: ellipsis added; italics in original.)

“Let the Consumers Decide When and Where They Want to Eat”

BillowRachelLaCocinita2012-08-13.jpg“Rachel Billow is the co-founder of La Cocinita, a food truck in New Orleans that serves Latin American cuisine. She says the city’s requirement that mobile food vendors change locations after 45 minutes in one spot isn’t feasible. “It takes about a half-hour to set up,” she says.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B8) A street fight is brewing between gourmet food-truck vendors and restaurants–not over the grub, but how it’s sold.

Under pressure to protect bricks-and-mortar restaurants from increased competition, several big cities are starting to apply the brakes on a rising tide of food-truck vendors with fully loaded kitchens.
Boston, Chicago, St. Louis and Seattle are among the cities enacting laws that restrict where food trucks can serve customers in proximity to their rivals and for how long. Some food-truck operators argue that they shouldn’t be punished for offering an innovative service, especially since many cities already allow restaurants to open up alongside one another.
“The rules are unfair,” says Amy Le, owner of Duck N Roll, a food truck in Chicago serving Asian-style cuisine that includes short ribs and mango lychee.
Three weeks after she launched the business last fall, she received a ticket from local law enforcement for doing business about 150 feet from a wine bar–50 feet within the city’s limit for how close food trucks can park outside of retail food establishments.
Ms. Le says she later had to spend nearly a full day in court to find out what the violation would cost her–about $300–and that she lost an estimated $600 to $700 in sales as a result.
“The 200-foot buffer prohibits me from competing,” says Ms. Le, 32 years old, who also opposes a new rule requiring food trucks to install global-positioning devices so the city can track their whereabouts. “It is a free market. Let the consumers decide when and where they want to eat.”
. . .
Gourmet food-truck operators say another problem is that in many cities they are still relegated to antiquated rules intended for ice-cream, hot-dog and other traditional mobile vendors with smaller and less complex menus.
New Orleans, for example, requires mobile food vendors to change locations after 45 minutes in one spot, among other restrictions.
“It’s not a feasible amount of time for this business model,” says 31-year-old Rachel Billow, who last year co-founded La Cocinita, a food truck that serves Latin American cuisine such as plantains and arepas. “It takes about a half-hour to set up.”
Ms. Billow says she and her business partner, Venezuelan chef Benoit Angulo, started La Cocinita after several years of working in the restaurant industry. They invested $50,000 in start-up costs, an amount that included $12,000 in modifications to their vehicle to satisfy the city’s fire code, she adds.

For the full story, see:
SARAH E. NEEDLEMAN. “Street Fight: Food Trucks vs. Restaurants; Some Big Cities Jump Into the Fray, Enacting Parking Restrictions to Cope With Rising Tide of Gourmet Vendors.” The Wall Street Journal (Thurs., August 9, 2012): B8.
(Note: ellipsis added.)

LeAmyDuckNRollTruck2012-08-13.jpg “Amy Le, owner of Duck N Roll, an Asian-style food truck in Chicago, says last fall she received a fine for doing business about 150 feet from a wine bar–50 feet within the city’s limit for how close food trucks can park outside of retail food establishments.” Source of caption and photo: online version of the WSJ article quoted and cited above.

Revolutionary Entrepreneurs Need “Unbridled Confidence and Arrogance”

(p. B1) Will there be another?
It’s a bit absurd to try to identify “the next Steve Jobs.” Two decades ago, Mr. Jobs himself wouldn’t even have qualified. Exiled from Apple Inc., . . . Mr. Jobs was then hoping to revive his struggling computer maker, NeXT Inc. . . .
But just as Mr. Jobs followed Henry Ford and Thomas Edison, there will some day be another innovator with the vision, drive and disdain of the status quo to spark, and then direct, big changes in how we live.
. . .
“You have to try the unreasonable,” says Vinod Khosla, a co-founder of Sun Microsystems Inc., who, as a longtime venture capitalist, has seen thousands of would-be revolutionaries. Two key characteristics, Mr. Khosla says: “unbridled confidence and arrogance.”

For the full story, see:
SCOTT THURM and STU WOO. “Who Will Be the ‘Next Steve Jobs’?” The Wall Street Journal (Sat., October 8, 2011): B1 & B3.
(Note: ellipses added.)

Vivid Examples of Government Obstacles to Entrepreneurship

EconomicFreedom.org/Stories is posting video clips of free agent entrepreneurs and the obstacles that government policies put in the path to their achievements. The videos give concrete examples and make the costs of regulations more real by connecting the costs to the faces of actual people.

“Unknown Unknowns” Will Delay Most Projects

Kahneman’s frequently-used acronym “WYSIATI,” used in the passage quoted below, means “What You See Is All There Is.”

(p. 247) On that long-ago Friday, our curriculum expert made two judgments about the same problem and arrived at very different answers. The inside view is the one that all of us, including Seymour, spontaneously adopted to assess the future of our project. We focused on our specific circumstances and searched for evidence in our own experiences. We had a sketchy plan: we knew how many chapters we were going to write, and we had an idea of how long it had taken us to write the two that we had already done. The more cautious among us probably added a few months to their estimate as a margin of error.

Extrapolating was a mistake. We were forecasting based on the informa-(p. 248)tion in front of us–WYSIATI–but the chapters we wrote first were probably easier than others, and our commitment to the project was probably then at its peak. But the main problem was that we failed to allow for what Donald Rumsfeld famously called the “unknown unknowns:’ There was no way for us to foresee, that day, the succession of events that would cause the project to drag out for so long. The divorces, the illnesses, the crises of coordination with bureaucracies that delayed the work could not be anticipated. Such events not only cause the writing of chapters to slow down, they also produce long periods during which little or no progress is made at all. The same must have been true, of course, for the other teams that Seymour knew about. The members of those teams were also unable to imagine the events that would cause them to spend seven years to finish, or ultimately fail to finish, a project that they evidently had thought was very feasible. Like us, they did not know the odds they were facing. There are many ways for any plan to fail, and although most of them are too improbable to be anticipated, the likelihood that something will go wrong in a big project is high.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

Intuitive Expertise Develops Best When Feedback Is Clear and Fast

(p. 241) Some regularities in the environment are easier to discover and apply than others. Think of how you developed your style of using the brakes on your car. As you were mastering the skill of taking curves, you gradually learned when to let go of the accelerator and when and how hard to use the brakes. Curves differ, and the variability you experienced while learning ensures that you are now ready to brake at the right time and strength for any curve you encounter. The conditions for learning this skill arc ideal, because you receive immediate and unambiguous feedback every time you go around a bend: the mild reward of a comfortable turn or the mild punishment of some difficulty in handling the car if you brake either too hard or not quite hard enough. The situations that face a harbor pilot maneuvering large ships are no less regular, but skill is much more difficult to acquire by sheer experience because of the long delay between actions and their noticeable outcomes. Whether professionals have a chance to develop intuitive expertise depends essentially on the quality and speed of feedback, as well as on sufficient opportunity to practice.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

Stewart Brand Marvels at Hippie Perfectionist Jobs’ Results

BrandStewart2012-08-05.jpg

Stewart Brand. Source of photo: online version of the NYT interview quoted and cited below.

(p. 3) Stewart Brand is best known as the editor of the Whole Earth Catalog, a counterculture compendium published twice a year between 1968 and 1972 and the only catalog to win the National Book Award. Its credo, “Stay hungry. Stay foolish,” influenced many of the hippie generation, most notably Steve Jobs.
. . .
READING I’m devouring “Steve Jobs,” by Walter Isaacson. Steve’s life and interests intersected with mine a number of times, so revisiting all that in sequence is like galloping through a version of my own life, plus I get to fill in the parts of his life I wondered about. Take a hippie who is also a driven perfectionist at crafting digital tools, let him become adept at managing corporate power, and marvel at what can result. The book I’m studying line by line, and dog-earing every other page, is Steven Pinker’s “Better Angels of Our Nature.” It chronicles the dramatic decline of violence and cruelty in human affairs in every century. Now that we know that human behavior has been getting constantly gentler and fairer, how do we proceed best with that wind at our backs?

For the full interview, see:
KATE MURPHY, interviewer. “DOWNLOAD; Stewart Brand.” The New York Times, Sunday Review (Sun., Nov. 6, 2011): 3.
(Note: ellipsis added.)
(Note: the online version of the interview has the date November 5, 2011.)

Veterinarians Can Suggest Innovative Hypotheses to Doctors

ZoobiquityBK2012-08-01.jpg

Source of book image: online version of the WSJ review quoted and cited below.

Vets face less government regulation and so are freer to rapidly innovate. They may thus be a promising source of innovative hypotheses for medical doctors.

(p. D2) Cardiologist Barbara Natterson-Horowitz made her first foray into the world of animal medicine when she was asked to treat Spitzbuben, an exceedingly cute emperor tamarin suffering from heart failure.

But first, the veterinarian at the Los Angeles Zoo warned Dr. Natterson-Horowitz: Mere eye contact with the tiny primate could trigger a potentially fatal surge of stress hormones. What she learns from that experience spurs a journey to examine the links between the human and animal condition–and the discovery that the species are closer than she ever imagined.
. . .
The authors recommend that doctors, who often look with disdain on veterinarians, go the next step and collaborate with them in a cross-disciplinary “zoobiquitous” approach–using knowledge about how animals live, die and heal to spark innovative hypothesis for advancing medicine.

For the full review, see:
LAURA LANDRO. “Healthy Reader.” The Wall Street Journal (Tues., June 12, 2012): D2.
(Note: ellipsis added.)
(Note: the online version of the review has the date June 11, 2012.)

The book being reviewed, is:
Natterson-Horowitz, Barbara, and Kathryn Bowers. Zoobiquity: What Animals Can Teach Us About Health and the Science of Healing. New York: Alfred A. Knopf, 2012.

When Is Intuitive Judgment Valid?

(p. 240) If subjective confidence is not to be trusted, how can we evaluate the probable validity of an intuitive judgment? When do judgments reflect true expertise? When do they display an illusion of validity? The answer comes from the two basic conditions for acquiring a skill:

  • an environment that is sufficiently regular to be predictable
  • an opportunity to learn these regularities through prolonged practice

When both these conditions are satisfied, intuitions are likely to be skilled. Chess is an extreme example of a regular environment, but bridge and poker also provide robust statistical regularities that can support skill. Physicians, nurses, athletes, and firefighters also face complex but fundamentally orderly situations. The accurate intuitions that Gary Klein has described are due to highly valid cues that the expert’s System 1 has learned to use, even if System 2 has not learned to name them. In contrast, stock pickers and political scientists who make long-term forecasts operate in a zero-validity environment. Their failures reflect the basic unpredictability of the events that they try to forecast.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.