One of the oldest and most frequently cited geometric axioms is that the shortest distance between two points is a straight line.  While this is most certainly true in the sphere of mathematics and geometry, the path we take through business and life rarely (if ever) moves in a straight line.  Because of this, much of our ability to realize success is dependent on our ability to adapt to the twists and turns that we are presented with on a perpetual basis.

This is especially important for our financial calculations and decisions.  It is not a secret that most financial planning models are built on the assumption of indefinite steady compounding that is expected to make you rich after a certain calculated period of time.  Of course, real life does not work in that manner.  The stock market does not compound at 9% per year, every year, with no deviation.  In some years … or in the past decade, in many years, gains do not meet expectations or values decline.

Thus, it is not just the paper performance of our decisions, but their ability to absorb uncertainty that is highly important.  The problem is that most people do not fully understand the impact of uncertainty, and even fewer people are not aware of how to make their financial plans sufficiently robust so that they can withstand abrupt, significant changes to the marketplace.

Adaptability is Key

Regardless of whether you are talking about a manufacturing line, a small (or large) business, or a financial portfolio, it is absolutely critical to ensure that your strategy is adaptable to new market realities.  The more you allow yourself to depend on static models, the more you will be susceptible to destructive changes in the marketplace.  This concept must be internalized when planning, executing, and revising our personal and professional strategies.  As reality changes, we must be able to adapt and change with it.

A simple way to understand this concept is by internalizing the following three truisms about business/life:

1. Business/Life is a game
2. The game has rules
3. The rules are always changing

If this feels highly chaotic, that’s because in many cases it is.  We cannot suffice ourselves with learning the rules (both written and unwritten) of business/life.  We must also learn how and when the rules change so that we can adjust our personal, professional, and financial decisions.  An unfortunate fact of life is that none of us possess the power to change the larger reality … we only have the ability to change the decisions we make and influence the decisions that people close to us make so that we can adapt to the larger reality more successfully.

Learning When the Rules Change

Many people make a regular habit of following the news both in print and on the internet.  The typical result of most people’s news consumption is agreement with stories support their political views, and anger at stories that stand in contrast to their personal views.  This typically manifests itself in political arguments over current events with friends, co-workers, and family members.  The only problem is that none of us have the ability to change the political reality of the world at large.  Our vote counts as one of many, many millions, and political decisions do not vary as much many are led to believe.  Politicians are wildly different in their rhetoric (what they say), but their decisions (what they do) are much more closely tied to their incentives.

At first blush, this can easily lead to a belief that the news is useless, and it is optimal to tune out.  While temping, this view is not completely accurate.  The news is not useful from the context of my ability to change the global political reality, but it is useful from the context of understanding what changes are coming in the national and global marketplace.  From this perspective, news and information take on an entirely new light.

Signal and Noise

The key to making use of what we learn through the news is the concept of signal and noise.  Within most transmissions, there is an element of useful information (signal) and an element of useless information (noise).  In everything that we see, sense, or experience, there is something we can learn (signal) and there is everything else (noise).  The challenge that we have as people and as businesses is to act on the signal, and not on the noise.  In practice, this is much easier said than done.  In following the news, we should not be simply looking for stories that either confirm or conflict with our beliefs, but looking for useful information signals that can help us make better personal, professional, and financial decisions.

In the end, each of us will be able to achieve the best results if we realize the importance of adapting our strategy and decisions to a changing marketplace, while using the signals that we gain from our everyday experience to inform better decisions in the future.  By learning to do this on a consistent basis, it will allow us to perpetually move closer to our goals, dreams, and aspirations.

 

In the game of blackjack, you can ‘double down’ on a hand by doubling your bet for one more card from the dealer.  (When playing blackjack, your goal is to create a hand that is as close as possible to 21 without going over)  This action allows you to take additional risk for an immediate payoff.  Within the community of people who enjoy the game of blackjack, most will tell you that it is advantageous to double down on an eleven, or possibly a ten.  The principal reason for this is because cards with a value of ten have a higher concentration than other cards.  Because of this, it is advantageous for players to increase their risk in certain situations because of an increased probability for a higher payoff.

In the world of investing, there are both times to increase your exposure to risk for a higher payoff, and appropriate situations.  The problem which arises is that many people end up taking excessive risk to chase returns.  In this situation, it is rarely the optimal time to take more risk in the hopes of earning a higher return.

Currently, there are many people from the baby boom generation who are currently ‘doubling down’ with their retirement accounts by over-weighting their portfolios in high-risk ventures such as emerging market stocks and speculative real-estate in an attempt to pump-up the value of their nest egg before retirement.  The risk of this strategy is that your nest egg could crack just before it hatches.

The hidden danger of highly volatile investments is that the risk of loss generally stays hidden until market disruptions push the value of multiple asset classes down simultaneously.  In this case, there is not enough time to adjust your portfolio before it has been significantly burned.  These types of situations are especially dangerous, because the market tends to change very abruptly as relevant news and information develop.  For people who are approaching retirement, volatility can be especially dangerous.

This is not to say that investors shouldn’t take risks . . . it is very difficult to generate returns in excess of bond or money market yields without taking risks.  The caution is that you should be aware of the risks that you are taking, and not allow yourself to fall into a false sense of security because the market hasn’t had a significant downward movement lately.  Large returns generally require that you take large risks.  If you are currently earning large returns, chances are that you are at risk for a large adjustment.  It is very important to make sure that a significant downward adjustment in value of your risky investments will not place you in a situation that you can’t recover from.

Thus, when deciding whether to ‘double down’ on your investment strategy, it is critically important to understand whether you are in a situation where such a decision is optimal.  Are your personal emotions constructed in such a way that a dramatic shift in market valuation will cause excessive nervous tension?  In most cases, investors are their own worst enemy … we allow our emotions over the movements of our portfolio value to influence our actions in a way that frequently moves contrary to our rational thoughts.

Thus, investing becomes a battle of reason vs. emotion.  Our reason frequently tells us to make decisions that would appear to be quite smart by most objective standards.  Reason typically evaluates decisions based on their inherent merits.  However, not all of our decisions are made rationally.  Instead of making our investing decisions based simply on the merits of a particular investment, we allow ourselves to be influenced by the other people we have seen being successful in making money.  When the market is going up, our emotions want to double-down on what we have seen as being successful.  When the market is going down, our emotions want to run for the hills and retreat from the perceived danger of the investing world.

As it turns out, the movement in market perception of a particular investment does not necessarily change the underlying fundamentals.  Many investments that are fundamentally sound experience negative market news, and other investments that lack solid fundamentals will experience upward escalations in market valuation that defy reason.  In the former case, it is important to avoid the emotional pull to bail-out on an otherwise solid investment strategy.  In the latter example, it is important to avoid the temptation to increase our investment, simply because the price has gone up and we hope that it will go up some more.

In the end, it is important for each of us to understand the extent to which our emotions compel us to ‘double down’ on what may turn out to be a highly risky strategy.  All of our decision should be made because of what we judge to be best for our well-being.  Achieving our desires will require that we take risks of some manner along the way.  However, it is important to ensure that all of our decisions are being made consciously instead of re-actively … rationally instead of emotionally.  This will help us to make sure that we don’t double-down on risky situations that we are not emotionally prepared to deal with.

 

There are two basic management formats. One is the pyramid organization, where the head of the company, typically the owner, makes all the decisions and managers simply implement the company’s mandates.

Alternatively, there is the flat organization, where managers make operational decisions, with the management team and owner only reviewing results or discussing issues and problems. Managers resolve daily operation issues, while reporting on a regular timely basis such as in a weekly managers’ meeting. Of course, the owner can always review critical issues as required, but the company is run by the managers in this flat format.

There is a huge difference in these styles. The pyramid organization concentrates all power and decision-making typically in the owner’s hands. The owner micromanages every aspect of the business with a constant flow of managers asking him or her for immediate short-term consideration and response to whatever is happening at the moment.

Typically few systems are in place, as the owner makes decisions on an issue-by-issue basis. This is more often called putting out brush fires and babysitting, as these are the main functions such a style promotes. It means endless hours of work and total self-absorption on the part of the owner.

In contrast, the flat organization allows, encourages and even requires managers to make operational decisions without going to the owner or CEO for the answers to every micro issue. A flat organization requires that managers be held responsible for success and also be held accountable for their achievements or failures.

Employees can also be empowered to contribute to decision making. This way, you involve the entire team in the responsibility and accountability for success. Holding periodic department meetings, managers can frankly and honestly discuss the workings of the operation and ways to improve it.

This approach works best when the employees are rewarded for success on an incentive basis. It puts everyone in the same boat, all pulling together trying to achieve the same goals.

To become a flat organization, start from the top. If you select a strong management team and let them manage, if the managers can create quality teamwork in each department, and if the departments can work together to create a larger team effort, success will be assured.

This requires a significant discussion with your managers to agree upon goals and objectives, but the managers are responsible for achieving them. Each division or group acts as if its manager was the chief executive officer of that group. The manager’s answer is the final word, and he or she does not have to retreat to the mother ship for ratification, affirmation or permission.

It further requires a CEO who will expect that managers will make errors in judgment and will support them when this happens. This is critical since every decision will not be correct or the best. As long as enough of the decisions are appropriate, then the CEO should cultivate decision-making by supporting managers.

Managers should be encouraged to occasionally take risks and experiment, and maybe they will hit a home run, bringing additional profits into the company. They should be supported in their efforts and encouraged to try again if they fail, even if they fail more often than they succeed, as long as they reach their objectives and projections.

Ask your managers to draft their own department business plan and supporting budget, and then give them the authority to implement it. You will have the basis of a very successful flat organization, with far less management and babysitting for you.

Why not even leave hiring decisions to your managers? It’s their team. Allow them to pick their own players.

This begs the question, what does the CEO do if he or she is no longer responsible for the operation and is running a flat organization with the managers controlling and operating the game? Plan, train, and review: That is the CEO’s real job.

• Plan. Chart the future course and goals. Plan for capital investments, growth and development.
• Train. Make certain your managers are constantly learning new skills and acquiring additional capabilities. Provide training opportunities and make them mandatory.
• Review. Always monitor the results and the key indicators so you have a pulse on your progress and success. If faltering, you’re there as soon as possible to help make corrections. You’re supporting your managers’ efforts, not doing their job for them. Inspect your managers’ work, often and deeply.

That’s a flat organization. Can anyone do it? It requires a CEO who can resist being a control freak and who can let go in exchange for the benefits of greater success with less work effort. Let your managers do their job. Why pay them to watch over the employees when they should really be managing them?

Finally, learn from the masters: Jack Welch, the most successful CEO in modern history, spent his career flattening General Electric, one of the most successful organizations ever. He spent years converting a huge pyramid to a flat organization, division by division, and he claims flat is the only way to go.

Article source: Entrepreneur.com

 

For both individuals and business owners, negotiations can prove to be one of the most difficult and most important things that we do.  The largest purchases that most people make frequently involve very intense negotiations.  The ability to gain employment, and earn promotions is also frequently influenced by your ability to negotiate.  Negotiation has a very significant impact on personal, professional, and financial success.  Because of this, it is very important to understand the parts of negotiations that are the most important, along with the parts that are frequently misunderstood.

To many people, the idea of negotiating brings up images of aggressive arguments where both sides attempt to prevail against the other in a pitched battle for power where one side wins and the other side loses.  Another paradigm of negotiation is one where a “win-win” paradigm requires that no deal be made unless both sides realize significant benefits.  The truth of negotiation exists in-between these opposite visions.

Best Alternative To a Negotiated Agreement

The term BATNA, meaning “Best Alternative to a Negotiated Agreement” was coined by Roger Fisher and William Ury of Harvard University, and incorporates many of the ideas published by John Nash in his work on Game Theory.  The idea incorporated in BATNA is that our ability to negotiate is heavily influenced by our alternatives if the negotiated agreement does not occur.

One way to think about BATNA is to imagine that you’re looking to sell a car.  If you have one buyer lined-up who will pay $2,000 for the car, then you will be very unlikely to accept less than $2,000 from anybody else unless you have doubts about the original offer.  Your best alternative is selling the car for $2,000 and that places you in a position of power to confidently list the car for sale at a higher price. Alternatively, if you need to raise cash very quickly and have no buyers lined-up, then you may need to accept $500 or less from the first able buyer whom you come into contact with.  Thus, your best alternative exerts a tremendous degree of influence over your decisions.

How BATNA Influences Our Idea of Fairness

One of the enduring ideas of humanity is the notion of fairness.  The situations that most people perceive as being unfair are those where one side has a significantly better BATNA than the other.  An example of this is if you are walking across a desert, parched of desperate thirst, and run across a truck who offers to sell you a 20 ounce bottle of water for $5,000.  The natural response to this scenario is that the transaction is supremely unfair since the cost of that bottle to the seller is approximately one dollar.  In this situation, the BATNA of the person walking through the desert is a painful death of dehydration.  Alternatively, the BATNA of the seller is their lost time and the expense of driving across the desert to find somebody walking whom they can sell water.

The reason why this feels so unfair is because the alternative of the person walking is death, while the alternative of the person selling the water is simply wasted time.  However, this transaction still makes both parties better off, even though it feels patently unfair.  If the truck were not present to sell the high-priced water, the person walking across the desert would suffer a painful death.  Even when the person driving the truck engages in what is frequently called “price gouging,” he still delivers a valuable service that is critically important to the person in the desert.  Thus, in what seems to be a blinding paradox, some of the transactions that appear to be the most unfair to the “little guy” are actually the most beneficial.  The reason for this is because when the best alternative for the “little guy” is worse that the seemingly unfair exchange, then they are far better off with the deal that feels severely slanted against them.  Thus, by using legislative power to prevent exchanges that feel unfair, it is possible that we are actually condemning the people whom we think we are helping to suffer an even worse outcome.

How BATNA Influences our Negotiations

Another important thing to consider in regards to BATNA is its impact on our personal, career, business, and investing decisions.  Within this insight is two levels of distinction.  The first is that our alternatives influence our decisions.  The second is that our perceptions may differ from reality, and result in decisions that are sub-optimal.  In short, it is very easy to both over-estimate and under-estimate our best alternative.

• Why our Alternatives Matter

  • The simple reason why alternatives matter so much is because we can be more confident in refusing low-quality outcomes when we have a better alternative.  If you are highly educated and experienced in a field that is in demand, you do not need to take the first job offer that comes your way.  If you are able to re-locate with ease, you can be more flexible in finding a new job that allows you to advance more quickly.  If you are a business owner who already has a key customer that generates sufficient revenue to cover your costs, you can negotiate pricing with new customers from a stronger position.  If you are able to assemble investment deals that generate a high rate of return, it will allow you to walk past the traditional financial instruments that are sold for retirement planning.
  • In short, the decisions that you make are bracketed by the alternatives that you possess.  By increasing the quality of your alternatives, you increase the strength of your decisions.  Thus, the ‘real’ way that people achieve success is not just through the decisions that they make, but through developing the alternatives that allow them to make high-impact decisions in the first place.  Most of the best investments require some degree of capital.  If you are unable to pay the monthly rent, high-impact investing is not an option.  Regardless of how educated you are in decision making, those decisions will not become available until you influence the underlying alternatives through preceding actions and decisions.

• Over-Estimating the Alternatives

  • One of the thing that frequently happens in high-stakes negotiations is that one or both sides will over-estimate their alternatives.  This typically results in the adoption of “tough-guy” negotiation techniques, and can create very large problems if the deal falls apart and the assumed alternative do not materialize.  Typically this situation occurs when negotiators fail to invest sufficient research into their realistic options.  The most frequent occurrences of this effect are when one side focuses on the other side’s lack of options more than their own situation.
  • For example, the union frequently notes that management will be in a pinch without labor.  Similarly, management frequently notes that the union members will be in trouble without their wages.  The truth is that both labor and management suffer from a prolonged work stoppage.  It is important to avoid taking your eye away from your own alternatives by excessively focusing on other people’s alternatives.

• Under-Estimating the Alternatives

  • Another way that people can run into trouble is by under-estimating their alternatives.  When this happens, people will be likely to take “the first thing that comes along” instead of searching for their best option.  Typically, this situation occurs when people have a low opinion of themselves and their abilities.  This is not to say that ego and arrogance are in order, but that an honest assessment is critical.

In the end, understanding our alternatives is a critical part of optimal decision making.  It is important to make an honest assessment of what our options look like so that we can avoid the errors of both over-estimating and under-estimating the quality of our alternatives.  This is one of the fundamental keys to negotiating success in our personal, professional, and financial life.

 

Knowledge and power are both deep and influential topics.  There is a popular sentiment that knowledge is power.  This sentiment stems from the fact that people who are educated and skilled have much greater opportunities to influence the shape and direction of their lives.  As time has moved forward, knowledge has become increasingly specialized and increasingly dispersed among a larger number of people.  In short, the power of knowledge comes from specialization and that specialization is no longer concentrated in a handful of metropolitan areas.

This is where the impact of politics creates problems.  Political solutions are frequently created and implemented by a central authority.  This can be a city council, county agency, state, or the federal government.  In each case, a council of experts are gathered by the political authority to study the situation and make recommendations.  In some cases, public agencies become hotbeds for corruption and influence by corporate interests or unions.  These circumstances make for popular news stories and special reports. However, there is a deeper problem that is largely unknown and frequently unreported.  With the world becoming increasingly complex, knowledge becoming more specialized and the people possessing that knowledge becoming more dispersed, it is literally impossible for any central agency to possess enough knowledge to create an optimal solution.

Over time, this problem has grown in scope and impact since the number of government representatives has stayed the same while the population and size of government has grown.  Consider that the the US legislature currently has 100 Senators and 435 Representatives.  This total has not changed for a very long time, so with each passing year the number of people represented by each person in congress increases.  Similarly, the political power of each person in congress increases.  With this trend of more power becoming concentrated in the hands of government, the impact of mistakes becomes increasingly stark.

It is important to consider that when the number of people represented by an individual increases, it becomes impossible to individually know a significant number of the people you represent.  This means that elections become an exercise in marketing and messaging instead of campaigning to people whom you personally know.  This means that large amounts of money are required to spread a message to many people whom you need to influence in order to win the next election.  This phenomenon results in shifting influence away from individuals, toward large contributors such as special interest groups, corporations, and unions.  Even in an environment that is absent of overt corruption, the influence of large organizations will necessarily trump that of individuals.  In most elections, there is a small field of candidates and none of the candidates completely represents the interests of any voter … people simply vote in favor of the person who they believe are likely represent their interests the most closely.  Even then, most elections result in between 1/3 and 1/2 of the electorate (i.e. people who voted for the opposing candidate) are unrepresented.

Thus, the question becomes one of the best way to create results in a world where knowledge is specialized, that specialization is widely dispersed, and decision power is becoming concentrated.  The current situation is one where people in power have far too much power, and create initiatives that are (supposedly) well intentioned, but fail to produce results.  One way to address this issue is to increase the number of representatives in government.  Another option is to decrease the size and scope of government so that market-based solutions emerge.

The notion of increased representation in government is appealing to many, due to the intellectual appeal of legislators who are members of our community.  This is most certainly preferable to the current situation, but still carries the implicit problem of trying to make centralized decisions in a world where knowledge is specialized and dispersed.  It is possible that this these centralized decisions will be incrementally beneficial to those who are currently under-represented, but will not address the fundamental problem of centrally planned solutions.

The idea of market based solutions is appealing to many in the business community, because it allows them more freedom to create products and services that can profitably benefit their customers.  The unique power of markets is that the dynamic process of trial and error allows for ideas and solutions to emerge from the specialized knowledge people possess, and is not constrained to a particular geographic area.  The aspect of markets that many people find unappealing is that the outcomes they create are not always the same ones that they personally desire.  Competition necessarily means that some people will be more successful than others.  Relying on voluntary charitable donations necessarily means less funding than would be available through a government agency that is financed with tax revenues.

The fundamental question that individuals must answer is not one of whether markets are ‘good’ or ‘bad’ … those descriptions are highly subjective, and lack intellectual depth.  The question is whether we prefer to pursue centrally planned solutions that we know to be sub-optimally effective, but are able to be directed.  In contrast to this is markets, where more products, services, and solutions emerge but results are produced that many people do not find desirable.  Fundamentally, the choice is between a sub-optimal solution that we can direct and a more optimal solution that we must allow to emerge.  The question of knowledge, power, and politics ultimately comes down to whether you value the ability to direct outcomes over the generation of greater output and opportunity.  The result of this choice is ultimately less important that the understanding that a choice must be made.

The great fallacy of utopia is quickly becoming revealed.  There is no perfection … only varying degrees of trade-off decisions.  We make these trade-off decisions as individuals, and as an electorate.  As each of us go throughout our lives, it is important to understand these decisions, and their extended implications on our personal, professional, financial (and political) lives.

 

One of the ideas that is most common in business literature is the notion of solutions.  Namely that leaders should seek to find solutions to problems.  Instead of selling a product, sell a solution.  Instead of doing a job, solve the problems of your group manager.  Creative problem solving has become its own genre of business writing.

Unfortunately, there is one critical insight that this genre frequently leaves out of the analysis.  This learning is that perfect solutions do not exist.  Every choice requires that we forgo other alternatives.  Every problem that we solve results in the emergence of new problems.

Thus, the paradigm is not one of solving problems, but making decisions.  There are no solutions in the world, only decisions.  Each decision has different costs and consequences.  This is an important insight because it highlights the fallacy of solving short-term problems, only to create long-term problems.  Thus, we are not faced with the issue of solving a single problem, but an entire system of decisions that we must attempt to optimize in such a way that we receive the greatest total benefit for the least total cost.

This phenomenon is complicated when dealing with short time windows such a single year, and is further complicated when we are spending other people’s resources.  When making decisions, most people only think about what is happening right now, and assume that they will be able to deal with whatever comes about in the future when it arrives.  Unfortunately, this frequently results in decisions that pull benefits into the present and push costs into the future.  Many people have amassed large credit card bills based on this principal alone.  When costs are continually pushed into the future, they do not go away.  They simply grow and compound until they are so large that drastic action is necessary in order for them to be addressed.

Let us also consider what happens when we are spending other people’s resources.  One of the singularly dominant themes in all stripes of economic thought is that people do not spend other people’s money as wisely as they spend their own.  Evidence of this can be found in both the public and private sectors.  Decision makers in both sectors spend other people’s money.  Politicians and public employees spend taxpayer money for the ‘general good’ or ‘social welfare’ of their community.  Unfortunately, this is a very loose concept and frequently allows considerable room for funneling resources to special interests and pet causes to help the politicians stay in power.  Corporate decision makers use the resources of shareholders in an attempt to earn profits.  Wile considerably less vague than ‘social welfare’ this arrangement still leaves room for self-serving interests to override service to the shareholders.

Thus, we can see that short-term “problem solving” with other people’s money has the potential to create a perpetual cascade of bad decisions that eventually result in problems that are too large to address without making significant sacrifices.  The prime example of this in the United States is our national debt and entitlement liabilities.  Large promises of future entitlement payments have been made to multiple generations of workers, based on programs that fund current expenditures with current revenues.  This means that as the number of recipients grows relative to the number of payers, the programs will quickly run out of resources.

When addressing a problem of this magnitude, it is important to understand that there is no “solution” to be found.  There is no way to keep the (unrealistic) promises that have been made without imposing more costs on more people.  This situation is aggravated by the fact that current federal government spending exceeds tax revenue by nearly $1.6 trillion dollars.  When combined, these two problems spell future fiscal calamity since the US cannot borrow indefinitely at current interest rates.  Sooner or later, major sacrifices will need to be made.

One way to address the problem is by reducing future promises, cutting spending today, and re-aligning the tax code to provide incentives for greater economic growth.  Another way to address the problem is by raising taxes to capture more revenue, and sacrifice future economic growth for the sake of current spending.  A third option is to ignore the problem entirely and attack anybody who proposes reforms as a radical extremist.  This is the path of least resistance for politicians, and will ultimately prove to be the most painful.  The many promises that have been made cannot all be kept.  Simply opposing any changes will not alter the fact that the resources to fund these promises do not exist.  Very large cuts will be required in the future if action is not taken in the present.  Unfortunately, politicians have almost no incentive to make current sacrifices for future gains.  Those future gains won’t be realized until after they are out of office.

Fortunately, our individual lives are not directed by the sway of public opinion.  Each person has the ability to decide and to act.  The decisions that you make will shape the future you experience.  The problems that you face can be addressed many ways, but each decision you make will spawn new problems.  Thus, the real question is not one of how to solve problems, but which problems you face, and when you face them.  Your life comes down to decisions.  Which ones will you make, and how will it shape your future.  The answer to those questions is difficult at best, but in any circumstance it is certain that delaying all of our major decisions until later will result in a worse situation than if we take action today.

 

One of the logical fallacies that is becoming increasingly prevalent in the contemporary world is that of the false dichotomy.  This is also referred to as the either-or fallacy, fallacy of false choice, black and white thinking or the fallacy of exhaustive hypotheses) is a type of logical fallacy that involves a situation in which only two alternatives are considered, when in fact there are additional options.  Unfortunately, the false dichotomy has become a dangerous tool for pushing public policies that are not necessarily in the public interests by presenting them as the only alternative to prevent a catastrophic scenario.

The reason why this logical fallacy has become so problematic is that it is frequently used as a means of creating artificial emergencies and rushing decisions that are typically optimal for connected parties and sub-optimal for everybody else.  By and large, the harder somebody pushes for a decision right now, and the more they try to get you to act out of fear, the worse off you will be from the deal.  As we go throughout business and life, it is very important to avoid falling into the trap of these false dichotomies, as they frequently lead to very bad decisions.  Some of the more famous false dichotomy’s in the contemporary world:

We need to do a bailout now or the whole economy will collapse

This was the (in)famous plea from Hank Paulson when he was Treasury Secretary during the financial crisis of 2008 when an unprecedented level of power was shifted to the Treasury and Federal Reserve.  What was left unsaid in his dire plea for “emergency powers” is what would happen if the firms in trouble simply went bankrupt and were sold off at a discount to other players in the marketplace.  As it turns out, the financial markets still froze up after the so-called “solution” to the financial crisis, since nobody wanted to trade in the impaired debt instruments due to uncertainty about whether the value(s) would be supported by the government.

With all of the players waiting to see if they could get a better deal from Uncle Sam, nobody had any incentives to play by the (normal) rules.  What ultimately resulted was an unbelievable concentration of power in the hands of the Federal Reserve and Treasury without much (if any) real discernible benefit to the greater economy.  The justification typically cited is that if the actions weren’t taken, the economy would have collapse.  Of course, this is another logical fallacy since it is impossible to prove a negative.  Naturally the people making these claims are aware of this fallacy, but still persist with using it to justify destructive policies and further concentration of power.

If you’re not with us, you’re against us

This was the famous phrase uttered by President George W Bush in response to the terrorist attacks of September 11th, 2001.  It drew great ire from the media, and is another example of a clear logical fallacy.  It is most certainly true that the United States has an interest in stopping terrorism.  However, it does not necessarily follow that you should target people who do not act against terrorism with the same aggressiveness as yourself.  It is quite possible that a group (or nation) could be quite opposed to terrorism, but unable to commit resources for the purposes of actively fighting against it.  Of course, this rhetoric is not only used by George W Bush.  Politicians of all stripes and colors regularly depict any opposition to their policies as “extremism” or paints any opponents as the enemy.  When attempting to curry public favor for his stimulus project, President Obama regularly stated that the spending was absolutely necessary to create jobs and avoid an economic catastrophe.  It turns out that the expected job growth didn’t occur, and the only sector to significantly benefit was government.  Of course, (as usual) “Things would have been catastrophic if the measure hadn’t been approved.”

If cap and trade isn’t adopted, global warming will destroy the planet

The full extent to which mankind has the ability to create or stop global warming is still a matter of considerable disagreement and doubt.  There is convincing evidence in favor of the conclusion that our contributions to total global greenhouse gases are not sufficient to change whatever climactic events are in motion.  Nevertheless, a consistent drumbeat of fear-based rhetoric over the environment and global warming has steered a large amount of public policy over the past few decades.  This is not to say that the environment should be ignored … simply that positioning anybody who opposes a policy or initiative as being against clean air or clean water is intellectually bankrupt.  Logical fallacies such as this are typically the province of those who either lack the mental capacity for rational discussion or seek to shut down the process of rational discussion for the purpose of passing rules that are favorable to their political allies.

Ultimately, the false dichotomy serves as a highly dangerous rhetorical tool that has been used to influence many destructive decisions.  By using fear to force a quick decision with incomplete information, the people in power can acquire favorable decisions that would not otherwise be possible under the full scrutiny of a logical examination.  As individuals, we cannot stop this tide of destructive decisions in the public arena, but we can ensure that our own decisions do not fall prey to this fallacious reasoning.

 

Recent news about the 8.9 magnitude earthquake and subsequent tsunami in Japan has caused many people to pause in consideration and prayer for those affected by this natural disaster.  As the news and images of the disaster comes in, they make the perceived difficulties of our lives pale in comparison to the real turmoil faced by those who are on the front lines of responding to the earthquake and tsunami.

When events such as this unfold, they draw a sharp line between the things that we spend time getting worked up over and the things that are really important.  In response to this, it would be wise for many of us to “get over ourselves” and put the so-called problems of our life in context.

Most of us remember the drama-filled days of high school when the tenner of our life revolved around what one person was saying about another person, and the furthest we looked ahead was the upcoming weekend.  The depth of self centered obsession in our youth only becomes apparent when the wisdom of age and experience has had an opportunity to emerge.  Upon deeper analysis of our lives in the context of a larger and more complex world, it becomes more and more apparent that the drama of our lives, which seems so important in the moment shades pale when compared against the larger world in which we live.  When mired in the depths of self-centered obsession, this is extremely difficult to see.  However, when one steps back from the gritty details of their own life, it becomes quite clear very quickly.

When thinking about the concerned of our personal world, it is important to understand that each of us are only a small piece of the larger scheme.  It is important to simultaneously avoid over-estimating the extent of our impact and take personal responsibility for the results of our own life.  Situations like a natural disaster frequently leave people with a feeling of powerlessness, as there is nobody to blame for the circumstances.  (Not that this fact stops people in power from attempting to assign blame or take credit)

It is most certainly true that none of us can cause, nor prevent a natural disaster.  It is also true that none of us can cause nor prevent a humanitarian crisis or economic recession.  What we can do is take specific actions to create specific results.  We cannot stop an earthquake in Japan, but we can contribute to the response.  We cannot stop an economic recession, but we can act to ensure that the financial well being of our family is secure.  We cannot stop people from being self-destructive in their personal decisions, but we can teach our children to make wise decisions in their own lives.

In the end, “getting over ourselves” ultimately comes down to a frank realization of what we can and can’t do.  This understanding allows us to focus on the things that we can do, the decisions we can influence, and the goals we can achieve.  In this way, each person can help to create a better world at large by creating a better world within their own sphere of influence.

 

Most people are aware of great deals and tremendous opportunities that people they know have seen or experienced throughout their lifetime.  All of these phenomenal deals share one key characteristic in common . . . somebody took action so that the opportunity could be turned into reality.  This willingness to act is what separates great achievers from the average person.

Conversely, a psychological paralysis grips many people and freezes them into stalling, waiting, and preparing until the opportunity to act has passed.  At this point, many people will begin to create justifications for their decision to avoid action.  This gives us a sense of satisfaction since we avoided what could have been a big mistake.  However, we also avoided what could have been a great opportunity.

The critical skill that high achievers develop is an ability to quickly determine which deals have the highest probability of success, and then to take action on those opportunities that are favorable.  This sounds simple, but it is surprisingly difficult to carry out in the world of reality.  Most of us gather information, get ready to act, then stall . . . and stall some more until the opportunity has passed.

The curious thing about taking action to create success is that it is not a one-time deal.  Most people who achieve high levels of success did not do so because of one single decision.  By and large, success is the result of consistently making wise decisions and taking action over an extended period of time.  It is likely that the benefits of your decisions will compound to produce greater results, but the important part is to start the ball of achievement rolling.

The other side of this insight is that we should avoid looking for the ‘one big deal’ that will make so much money that we never need to work again.  Those deals certainly exist, but they are very rare.  A much more consistent strategy for achievement is to start taking action now and remain open to opportunity as you move forward.  Always keep your future vision in sight, but focus on the next step that you will be taking now.

In the end, Aesop’s words will unfortunately ring true for most people.  However, they do not need to be a description of your life.  By finding opportunity, making wise decisions, and taking action you can consistently build achievements until a temple of success has been constructed for you and your posterity.

 

As we go throughout life, it can sometimes seem mysterious to think how we arrived at our current place.  Each person’s life represents the aggregate total of all their decisions and the influence of chance.  For many of us, it can be tempting to blame ‘fate’ or the actions of other people for the fact that their life has not turned out the way that they had previously imagined it would.  For many people, this has resulted in a slowly burning internal anger against their circumstances.  The enduring problem created by this phenomenon is that it constructs a mental barrier that prevents people from taking the actions that are necessary to improve their circumstances.

The first and most important insight that must precede any sustainable improvement in our life situation is the realization that we are fully responsible for the course of our life, and our decisions are the means by which we navigate the river of chance.  It is most certainly true that we cannot control chance.  There will always be events and circumstances in our life and the world at large that are out of our control.  The secret to influencing your future lies in understanding that there is no point in worrying about things that we cannot control and focusing all of our attention on the decisions and events that we can influence.

One example of how this situation creeps up on people is where you have a person that is living paycheck-to-paycheck and encounters an unexpected automotive repair, medical bill, or some other necessary expense.  With no financial reserves, this person may find themselves forced to go into debt, or possibly default on their financial obligations if they are already in debt.  From this person’s perspective, they have been assaulted by fate and ruined by chance.  However, the situation that placed them at the mercy of chance was completely the result of their decisions.  By modifying their lifestyle, these people could have built-up a savings reserve so that unexpected expenses could be met without destroying their budget.  By consistently living below their means, they could have ensured that their debt limits were not maxed out so that true needs could be met at the critical moment.  By understanding that the future is necessarily uncertain, and planning accordingly, many of the disruptions that cause disasters for other people could have been effectively avoided.

The critical insight here is that our ability to shape our future is dependent on our willingness to embrace a long-term perspective.  By thinking further out than our current wants and needs, we begin to see the benefit of making short-term sacrifices for the purpose of long-term gains.  Thus, by improving our decisions, we make the outcome of our future less dependent on luck.  In this way, making intelligent choices reduces our exposure to chance.  It requires us to discipline our feelings and emotions so that they do not dictate our actions.  It requires us to make conscious decisions that support optimal long-term results.

In the end, our circumstances are determined by both choices and chances.  However, the impact of chances is directly related to the choices that we have made in the past and continue to make into the future.  Each of us must ask whether the choices we are making today prepare us for a more prosperous future.  Each of us must ask whether the decisions and choices we make are the result of our feelings and emotions or if they are conscious and deliberate.  Most of us have a clear vision of what we would like our future to look like, and most of us also know the kind of things that are necessary to attain that vision.  What remains is to develop the discipline so that our decisions turn that vision into reality.