Lorie Farrell 💙

In 2009, Stanford business professor Tina Seelig split her class into groups and issued a challenge: Each group had $5 and 2 hours to make the highest return on the initial money. At the end, they'd give a short presentation on their strategy. The results were fascinating... Most of the groups followed a basic approach: • Use the $5 to buy a few items. • Barter or resell those items. • Repeat • Sell final items for (hopefully) more than $5. These groups made a modest return on their initial $5. A few groups ignored the $5. They thought up ways to make the most money in the 2 hours of allotted time: • Made and sold reservations at hot restaurants. • Refilled bike tires on campus for $1 each. These groups made a better return on their initial $5. The winning group took an entirely different approach. They had three core realizations: 1. The $5 was nothing more than a distraction. 2. The 2 hours of time was not enough to make an attractive, outsized return with a mini-business (like selling restaurant reservations or filling bike tires). 3. The most valuable "asset" was actually the presentation time in front of a class of Stanford students. Realizing the value of this hidden asset, they offered the presentation time to companies looking to recruit Stanford students. They struck a deal to sell the time slot for $650, netting a monstrous return on the $5 of initial capital. The losing groups thought in linear, logical terms and achieved a linear, logical outcome. The winning group thought differently. So, what can we learn from this story? There are two types of problems: 1. Low-Stakes: Lower potential, linear rewards. Decisions are easily reversible. 2. High-Stakes: Higher potential, asymmetric rewards. Decisions are not easily reversible. With low-stakes problems, given the reward potential is low and the decisions are easily reversible, we can use shortcuts and heuristics to choose our path. We can take a logical, linear approach. With high-stakes problems, the high, asymmetric reward potential means we need to think differently. We want to take a creative, non-linear approach. Three steps to start thinking differently: Step 1: Avoid the Distraction There will always be an "obvious" solution that is simple, clear, and entirely wrong. In the challenge, the $5 was nothing more than a distraction. It was a trap. To find the best path, you have to avoid the distraction. Step 2: Ask Foundational Questions Ask and answer questions that expose and vet underlying assumptions and logic. • What's the real problem you are trying to solve? • What's your hypothesis? Why? • What are your core assumptions? Why? • What evidence do you have? • What are your core options? • What alternatives exist? This takes time, but it's an essential exercise when facing a problem with the potential for non-linear rewards. Step 3: Select the High Leverage Approach Slow down and evaluate the options on the table. Select the path most likely to generate the asymmetric, attractive risk-adjusted returns. If the story teaches us one thing, it's this: Creative, non-linear, asymmetric thinking generates creative, non-linear, asymmetric outcomes. If you enjoyed this or learned something, follow me @SahilBloom for more in future.