Reading Notes Day 134/365

Today I read "Dimension Ascension - Decision-making Game in an Uncertain Era"

Chapter 9: In the Uncertain Looking for certainty in the world

1. "Unchangeable" is more important than "change".

1. Where to find certainty?

Amazon founder Jeff Bezos has been thinking about the question "What will not change in the next 10 years?" He believes that this question is better than the question "What will the world look like in the next 10 years?" Even more important, because corporate strategy should be based on those things that remain unchanged.

The value investment of stock god Buffett is a decision-making system that pursues certainty. His investment model is very stable and is not affected by short-term stock price fluctuations.

An important difference between top poker players and ordinary poker players is that top players have the ability to always maintain stable decision-making, and will not be affected by changes in the surrounding environment or the results of losing or winning.

So, what can give us certainty? "Unchanging" ultimately points to intangible goals such as preferences, missions, and values. Therefore, intangible things can often provide us with certainty. Behavioral economics tells us that everyone has a cognitive framework for things. This framework will serve as a reference point for decision-making and behavior. The framework provides the "certainty" needed for decision-making.

2. Extreme sports cannot do without the certainty of the moment.

In the process of freehand rock climbing, it is often dangerous both front and back, but the most dangerous thing is to have weak feet and a confused mind. At this time, you can neither look back too much nor look forward. You can only focus on the present, grasp the certainty of the moment, and take it step by step.

Seizing the certainty of the moment without looking forward or backward is not only a required course for extreme sports challengers, but also a required course for each of us.

3. The secretary’s problem tells us that standards formed based on experience are certain.

The solution to the secretary problem is also the 37% rule. This rule illustrates two important factors in decision-making: First, people’s decision-making standards are not formed at the beginning, but after a trial and error process. Formed after the wrong process. In other words, only by experiencing it can people know what they really want. Second, those intangible goals, or even unclear feelings such as good feelings, are the ultimate driving factors for decision-making, rather than those specific and quantifiable indicators.

Aristotle’s wheat problem, secretary problem, princess choosing a husband and other problems are all about finding reference standards that respond to inner needs in the time sequence, but without going through a process of trial and error, there will be no problem. Find this standard. In these problems, standards based on experience are certain.

I thought:

Trial and error is the only way for children to grow. If parents help their children point out the right path every time they make a decision, then the child will never make the right decision because the child's trial and error experience is deprived of it by the parents. Therefore, parents should not think that making decisions for their children is helping their children. Maybe when they were young, children could avoid detours and go faster with the help of their parents, but children have not experienced trial and error, and they have not formed standards for making decisions in the future. You can't make the right choice. The older you get, the greater the importance of decision-making and the greater its impact on life. Therefore, parents must have the experience of trial and error when their children are young to help them eventually form standards and needs and provide certainty in decision-making.

2. Maximize your opportunities by maximizing your efforts.

1. Try your best with your ability and bottom line.

Under deterministic decision-making, the decision-maker makes decisions based on profit maximization. Under uncertainty-based decision-making, the ideal approach for decision-makers is to maximize their own opportunities.

1) Maximizing opportunities is based on a deterministic bottom line, which cannot be broken.

If the bottom line can be exceeded, it is not a game but a gamble. At the same time, uncertainty will create an "externality" in the game structure that deterministic games do not have. What externalities mean is that you will bear the costs that you impose on other game parties (including the tenderer or bidder), that is, you will only harm others and not yourself. Therefore, the real cost gives you an indicator for decision-making reference, and externalities use the threat of self-unfairness to restrict opportunistic behavior that benefits oneself at the expense of others.

In the bidding framework of "Vickery Auction", no one can control the result, only the bottom line. On the basis of holding the bottom line, the bidder should give the true cost price that he knows. , to maximize your opportunities, because the bottom line can only be guaranteed by people's proactive behavior, so the best strategy is to grasp the bottom line and pay the true cost price.

2) Cost is the best bottom line, because cost is a good tangible presentation, reflects core capabilities, and is easier to be accepted and understood by the public.

"Vickery Auction" tells us that bidding according to cost (true willingness) is not only the optimal strategy under uncertainty, but also means that you have done your best with your own abilities and bottom line. effort. The reason why bidding according to true wishes is the optimal strategy is because it maximizes one's own opportunities by maximizing one's own efforts.

I thought: Opportunities always favor those who are prepared. The harder you work, the more opportunities you will get.

2. Maximize your opportunities on the basis of certainty.

The Antarctic expedition story of British Antarctic explorer Ernest Shackleton is a good example of seeking certainty in a complex and desperate situation and striving for the best chance for oneself.

In December 1914, Shackleton and his 27 crew members began to cross the Antarctic continent under the sunlight of extreme daylight. This was an initiative that had never been completed at the time. In the spring of 1917, after more than two years of Antarctic exploration, they overcame ice floes, storms, and an average low temperature of minus 15 degrees, and all returned to the UK alive (although they did not complete their original goal of crossing the Antarctic).

In the desperate natural situation of Antarctica, Shackleton always chose the lowest certainty that people could grasp amidst the uncertainty, trying to gain more life for the team: the ship was refloated. When the ice was trapped, he chose to abandon the ship and board the ice, setting up a camp on an ice floe as huge as land. When the ship sank, he decisively changed his strategy and changed his goal from "crossing the Antarctic" to "getting everyone back safely"; When the ice became smaller, he chose his target and boarded the boat. After landing on the island, he led the death squad to the nearest inhabited area to save himself. He landed at the wrong port, and with limited food and physical strength, he did not hesitate to choose a more difficult but successful option. A more confident rapid march on land, heading towards the whaling station where the time and goal are certain, and finally arriving at the whaling station at the critical moment of life and death, and finally rescuing the remaining crew members.

This was a failure for the strategic goal of "crossing the Antarctic", but for the adventure itself, it was a great success.

3. Let high dimensions guide decision-making.

1. Decision matrix.

The decision matrix consists of two dimensions: the vertical axis subjectively reflects the logic of our choices, and the horizontal axis is the objective analysis of things. The former represents a subjective, intangible dimension in which decision makers are not neutral; the latter is an objective analysis system that is not affected by the subjective preferences of decision makers. The two dimensions represent the standards and preferences that influence our final decision-making choices, such as long-term versus short-term, intangible versus tangible, non-quantitative versus quantifiable, stability versus variability, value orientation versus interest orientation, etc. Therefore, The decision matrix can also be understood as a game between high-dimensional deterministic thinking and low-dimensional uncertain thinking.

Choosing long-term interests is actually making a choice based on values ??on the vertical axis. That is, when facing uncertainty, give priority to satisfying the intangible dimension. The long-term will always take precedence over short-term values ??and interests. .

2. Kazuo Inamori’s decision-making principles.

When making investment decisions, Inamori Kazuo first emphasizes that the profit rate must be above 10%, because this can ensure that the company has healthy, stable, and sufficient cash flow, so that the company can survive when the economic situation is bad. It can have a large amount of cash to retain employees and ensure their survival.

Inamori Kazuo’s business philosophy is based on meeting business indicators (tangible indicators) and using values ??(intangible goals) as the selection criterion. He believes that the prerequisite for employees to fully exert their enthusiasm at work is to have sufficient security. Only on the premise that employees have a sense of security, a people-oriented approach can stimulate employees to work actively and strive for innovation.

3. Find certainty in the intangible dimension.

Intangibility brings long-term certainty and represents a higher dimension. In high-dimensional decision-making, we should look for references and dependencies with relative certainty, and goals that can be grasped, that is, goals that are stable, controllable, usable, and consistent with laws. They can be divided into the following three points:

< p> 1) In line with core capabilities: competitiveness around core intangible assets such as systems, property rights, models and rules;

2) In line with the laws of reality: unchanging laws in a changing world;

3) In line with true wishes: Honesty is the best strategy.

These three points are certain. As a reference for decision-making, it is not necessary to have all three points at the same time. Intangible goals that meet any of these points can give us deterministic guidance when making decisions.

4. Negotiation is about striving for certainty amid uncertainty.

Negotiations are common in the business world. Through business negotiations, both parties reach an agreement and sign a contract. The reason why the contract is signed is to strive for a deterministic arrangement in the uncertainty of the future. This It is to seek or strive for certainty from uncertainty.

5. Expenditure management concept.

In the daily operations of a business, expense management is very important. Expenditure management refers to the overall planning and management of all enterprise expenditure budgets. Why should you manage your expenses? Because the company's revenue depends on customers, the time when the revenue occurs is uncertain, and the profit scale of each revenue is uncertain; while expenses are internal to the company and can be basically determined through sophisticated management.

The reason why expense management is important is that for entrepreneurs and professional managers, every penny saved in expenses is financially equivalent to an increase of one penny in profit, which is certain. ; Every 100 yuan of product sold may bring a financial profit of 50 yuan, or it may only bring a profit of one penny. This is uncertain.

4. Find certainty in the business model.

Cost is an innate certainty in the establishment and operation of an enterprise, but enterprises should and must also create acquired certainties - processes, systems, systems, guidelines, models, etc. Contracts, scale, processes, and systems are all efforts made by enterprises to grasp certainty. These intangible competitiveness are the real core competitiveness of enterprises that cannot be imitated by others.

1. Starbucks deduces a new business model based on human values.

Starbucks’ income includes not only the consumption of coffee and coffee beans, but also the sales of peripheral products. Enjoying coffee at Starbucks and buying expensive but not luxurious products are one of the characteristics of Starbucks. An important profit model, this profit model is Starbucks' respect for people and coffee culture, and thus creates a good experience for consumers.

2. IKEA adheres to the self-operated model.

Since its founding in 1943, self-operation has been IKEA’s core business model. IKEA has always insisted on not entering into joint ventures or licensing chains. Always adhere to the self-operated model, which fully reflects IKEA's persistence in business models and values. Persistence is a kind of certainty. This certainty, to a certain extent, prevents operators from paying attention to and pursuing other models, allowing them to focus on their main business and accumulate brand service capabilities. Adhering to the business model enables the formulation of contracts, regulations, processes, and systems to consolidate the certainty of the business model, and system stability gives rise to organizational organicity. These are the reasons why IKEA can survive as a company and remain competitive.

3. The stability of the decision-making system deserves attention.

In the long run, if you want to gain the probability of winning, you mainly rely on the stability of the decision-making system. You cannot be reckless sometimes and cautious sometimes.

4. The core capabilities of the enterprise are certain.

Corporate systems, business models, corporate strategies, etc. are all the organization and expression of the intangible core assets represented by entrepreneurship. What they ultimately create is a core that is irreplaceable and cannot be easily imitated. Ability, these forms all have certainties worth insisting on.

5. Strategy is for persistence.

Corporate strategic goals are derived from the company's vision and mission and are achieved through operational indicators. In the face of uncertainty, crisis or dilemma, strategy should be the certainty and bottom line for high-level corporate decision-making. Therefore, adhering to strategy means adhering to the core intangible asset - entrepreneurship.

6. Grasp the constant laws in change.

Experience and theory have revealed many long-term unchanging laws in the real world. Even in a complex system full of uncertainty, there are still many proven effective laws, regularities, and effects. Wait for something that can show reliable patterns. Therefore, we must grasp the constant laws of change. The "concession effect" reflects this.

The concession effect means that when China's overall economic situation is very good, Shanghai's real estate will certainly not be bad; but when China's economic performance is poor, Shanghai's real estate will develop against the trend. In today's China, the concession effect exists not only in Shanghai, but also in Beijing, Guangzhou and Shenzhen.