Cracking the Code of the Rich, with Seth Stephens-Davidowitz

25:34Why is that? Yeah, well, with something like art, there's so much randomness in what catches on. You know, we like to think that the artists who are most famous are the greatest, but there are all these studies that there's, you know, it's very hard for even experts to say that, you know, this painting was really better than that painting. Or if what catches on has such a random component, you kind of need to increase your luck surface area, you need to basically increase the chances that your painting or song or podcast is selected among all the other ones that they're not the same, but they're just, you know, it's hard to say that yours is better than other people's.

26:16And I think a mistake that a lot of artists make and a lot of people make, and this is probably true, even some business people make this mistake too, is just hoping that, you know, the world's going to find you and any way you can get more of your stuff out there in the world, whether putting a lot of it out there, traveling to much wider, being on more shows, being on in more galleries, that just dramatically increases your chances of stumbling on one of these big breaks that could make your career. And, you know, the thing about art and careers in general is once you're in, you're kind of, it's kind of a snowball rolling down a hill phenomenon so you know before you're known you got to just hustle like mad to get known and take any opportunity you have whether you know it's in the other side of the country other side of the world and you know the study that I that I really loved the study of painters where they found that the biggest predictor of unknown the success of unknown painters is how widely they travel to galleries to showing.

27:19So there are some painters and it seems crazy that they try this, but they, they're not having success and they just show their work at the same gallery over and over again. It's like, it didn't work. You know, it hasn't worked yet. It's not going to ultimately work. And then there are other painters that are just constantly both accepting invitations and just hustling to get invitations. And they're going all around the world and they're not at the level where they're being invited to the Guggenheim or the Art Institute of Chicago or the top museums, but it doesn't matter. They're just, they're hustling.

27:48They're out and about in the world. They're in Berlin today and Tokyo tomorrow and New York City, you know, the day after that. And maybe that's not even possible, but they're all over the place. And those ones tend to be the artists who then break in the inner circle of made artists who then can go to all the top galleries and make a fortune from their art. So it's a very important lesson. Pretty much everybody I told this to are like, I need to show this to my friend because everyone has a friend who is just hoping to be found. You know, the artist is just doing the same thing over and over again and not allowing luck to work for them and just hoping that they're presenting the same thing the same way they've always done it and looking for their big break.

28:36And that's not the way to do it. Right, right. Increasing your luck surface area. But But one thing that is notable within art is that sometimes fluke accidents can create the biggest reputational bump. So the Mona Lisa, for example, was a relatively unknown painting until it was stolen. And the news of its theft was the thing that propelled it into a position of fame. And it's now the most famous, arguably the most famous painting in the world. I think that's right. That's another reason that quantity is so important in art, because there's such a random component in what explodes on, you know, yeah, the random employee at the Louvre, he stole it.

29:16People thought Pablo Picasso had stolen the Mona Lisa. People thought JP Morgan had stolen it. It was like crazy. It was like the OJ Simpson trial at that time. And then, you know, everyone's reading about this painting. Oh my God. There was a rumor that Picasso had stolen it because he wanted to destroy his rival's career. And they're like, wow, this painting is so good that Picasso wanted to steal it. It's just random, basically, that the Mona Lisa was the one that got stolen. But the key is, if you produce a lot of art, you kind of have more of a chance for one of them to get stolen. Yes. I mean, that's the lesson I took, right?

29:49I mean, the other lesson you could take is like, convince someone to steal your piece of art to get attention, which I think a lot of artists do, too. Not like that, but the equivalent of fake drama or getting in the news in some way to get more attention for their pieces of art. Banksy shredding his own painting at the auction. Yeah. Kind of a thing. Yeah. Right. What's interesting about what I'm hearing you say is that we often make the mistake of assuming that the stories we hear are representative of the truth. But in fact, those stories are the anomalies. They're the exceptions. And if we actually look at data, the data paints a completely different picture.

30:26But also because of the fact that stories can create self-fulfilling prophecies, we can actually use storytelling to, as you talk about, create buzz around any product or any service, any entrepreneurial or creative venture. Yeah, that's a great point. I hadn't even thought of that. Yeah. So stories are dangerous to make decisions based on, but they are useful for catapulting your career. Yeah. If you're an independent creative, you should use storytelling in building your independent creative career. And that was a challenge in writing this book because part of my point was that stories are not representative.

31:01But there's a reason these stories keep coming out. And, you know, like I argued against I'm a big fan of David Epstein. He wrote this book, Range. Oh, yeah. He's been on this podcast. Yeah. And he has a chapter in his book, The Outsider's Advantage. And he says, you know, all these people come from outside a field and they look at things from a new angle. I don't think he used the story of the Poopery Woman, but he uses I forget which stories he used. but he's just like, look at these people who knew nothing about that field and then revolutionize the field. And people just eat that stuff up.

31:34And the point I want to make is that's actually not true. You know, look at the data. Someone is way more likely to revolutionize the field if they've been experts in that field for a long time. But that's so much less exciting. So it's a little it's just like it's a challenge that what gets hooked in our mind isn't necessarily the truth. It's the best story. And then, so we're all kind of a little bit misled about how the world works. It's a challenge as a data scientist who's trying to be a nonfiction author as well. Well, how do I make the non-sexy data compelling to people so, you know, stay in their minds that they can make better decisions?

32:19And that's not easy. How do you make the non-exciting exciting or compelling so that people, so it sticks and people remember that they're not misled by these amazing stories that they're hearing all the time that just, it's not trivial. You know, there are people, the social network came out. There was a huge rise in people dropping out of college, starting businesses. You know, now it's been 15 years from that. A lot of those people, their careers are ruined. And they're trying to get back on their feet 15 years later from a decision they made because they saw a movie that was completely unrepresentative of how the world works.

32:54So it's very dangerous, you know, our draw to stories and exciting, unrepresentative stories. Right. Yeah. I mean, and you'd see that in investing, too. You know, somebody gets rich off of crypto and you hear that story or somebody gets rich off of the GameStop AMC meme stonk thing. You hear a few stories and all of a sudden the stories become really compelling. And when it comes to actual investing itself, outside of career, when it comes to monetary investing, oftentimes we hear these stories, these runaway stories of success. When the data shows that passively managed index fund investing actually presents the best shot at growing a multimillion dollar portfolio.

33:43deal it's a great example but it's hard like i feel like i follow the data as well as anyone but i invested a little bit in bitcoin when it was at like 60k or something it was just so hard because my entire it's called twitter back then twitter feed yeah just all these people like saying how much money they had made right in bitcoin and just hearing it from everywhere like similar the path to entrepreneurial success is basically mastering a field over 20 years so you start as an employee in a very narrow field, you know, when you're 25, 26, and then when you're 42, 43, 44, 45, maybe even 60, the idea hits, it's your time, you have all the knowledge, you have all the connections, and you boom, you're ready to launch your massive business in middle age.

34:34And that's hard because it's kind of the equivalent of an index fund for your career in that it's the boring long-term strategy, and it's not going to be the single most successful. So while you're going about this, while you're still an employee at 34, 35, 36, some of your friends are going to have hit it big. They're going to have started a company, and they're going to have had a massive windfall, a huge success, and they're going to have the Bitcoin of entrepreneurship. And you're going to have to put your head down, say, I'm following the data, it doesn't matter. And in 10 years, you're going to get the payoff.

35:17Right. And part of the reason that we struggle so much to follow the data, and we are more drawn to story is due to cognitive biases that we hold. Can you talk about some of these cognitive biases? I know you've highlighted duration neglect, as well as the peak end experience. We'll start with duration neglect. Yeah, well, that's a study of when we're trying to remember how painful something was. We forget how long it lasted. Yeah, which is a big part of how painful it was. So you know, we minimize it was a study of colonoscopies of all things, back when those were really painful. And turns out that Danny Kahneman won the Nobel Prize in economics.

35:58He gave people different colonoscopies. He asked them during their colonoscopy how painful it was. And then after the fact, he said, looking back on it, how painful it was. And it turns out people totally neglected how long it took in their memory of it. So it's really important to keep in mind that's a huge factor in how painful or pleasurable something is, how long it lasted. Right. And that can be applied going back to what we were talking about with the index fund investing strategy of your career. That can also be applied to our memory of what a particular job was like or our memory of a particular work experience.

36:33Yeah, I think this kind of goes against part of what I recommend is that people maybe grind out as an employee for a while. But from your happiness perspective, there are studies that show that people aren't quitting jobs enough, that if people are indifferent, if you're indifferent between quitting your job and not quitting your job, if you quit it, you're going to be much happier in six months or longer. the data is sometimes conflicting. Making money may not be good for what makes you happy. And it's not like there's one life strategy that is the right answer for all these questions. And I think people kind of wrestle with the complexities of decision-making and know that, okay, maybe if I stick with this job for 10, 15 years, I'm more likely to be a successful entrepreneur later.

37:20But also if I don't like this job, the data says if I quit it, I'm more likely be happy in six months or a year and then you can make a decision based on that well how important is the chance of being successful entrepreneur in your life how important is happiness in your life and and go from there we'll come back to the show in just a second but first you know when i was a kid i remember on christmas morning i got lots of toys lots of books lots of clothes gifts the books were always my favorite i'd spend all of christmas day just reading and reading and reading. But you know, none of those are things that I have anymore.

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40:56let's say somebody who's listening to this is trying to make a decision about some element of their life whether it's their career or where they live where they raise their kids what kind of business they start they're trying to make that decision and so they start digging into the data, but they find conflicting studies. And also they find studies in which the subjects, the data set, doesn't, it's kind of maybe somewhat comparable, but there are also notable differences between their own situation and what the study actually looked at, right? What does a person do when they find essentially either conflicting data or slightly irrelevant data?

41:37You just have to be more comfortable with making decisions under uncertainty. And it's very rare that a decision is 100 % chance of being the right decision. It's more like it's a 60-40 decision, or 70-30 decision, 80-20 if you're really lucky. And what the data is supposed to do is just push you from like 50-50 to 60-40. So I think you have to have lower expectations of what the data is supposed to do. It's not a hundred percent of the data is moving this direction, but I've seen some data and it seems to suggest that on balance, you know, so let's say I'm thinking of starting a toy store. My friend started a toy store as a big success.

42:22Okay. Well, I need to know that toy store is the third most likely to go out of business quickly. Or I think, I think that was in the chart of maybe fourth, whatever it was. It was right near the top. One of the worst businesses you can have the average toy store is out of business in three years. The average dentist this business last 20 years, three years or 20 years. Like this is very different, a very bad on average business. Right. That has to play into your decision-making that doesn't, now you might have, let's say, you know, that you've just created a toy that is blowing up the world and it's gone viral.

42:57And Oprah just talked about your toy. Then you have so much momentum where these rules don't apply to you. Okay, fine, that's okay. But you need to know no matter where you are, no matter what other factors you have in the equation, that this is on balance, terrible business. Just know that and then make decision with that in your head. And it's not this ends the debate. And you know, what activities tend to make people happy? On balance, it turns out that people, when they're watching TV, watching Netflix, on social media, playing computer games are less happy than they think they're going to be.

43:41That's like a pattern in the data on average, significantly less happy. And when they're exercising, hang out with friends out about the world at the museum, at a show, they're way happier than they expect to be, than they would have thought they'd be. Now that's very important to keep in mind as you're going through life. If a friend invites you, do you want to go to this Bruce Springsteen concert? Well, you know, I'm tired. I want to lie in bed and watch TV. You need to keep in mind that on average, people who stay and watch TV end up less happy than they think they're going to be. And people who go out to the show with their friends end up happier than they expect to be.

44:24That doesn't mean 100 % of the time you have to go to the show. But if you're like close, you have to keep in mind that this bias that reveals itself in the data. Right. Well, we're coming to the end of our time. Are there any additional key points that you want the audience to remember? Well, we didn't get as much to happiness as I would have liked to have gotten because I have all this stuff on how to get rich and how to get famous. And then when you review the data on happiness, it really is shocking. The things that make people happy are so freaking simple. It's being with your friends, being with a romantic partner, being married, taking a walk, being near a beautiful body of water.

45:07These very simple, very affordable things in life tend to make people happy. So I think, you know, there is a danger in devoting your life to the accumulation of resources or accumulation of fame, accumulation of attention. it's not necessarily the best bet for happiness. You also need to keep in mind all the research on the best strategies for being happy. Be with your love on an 80 degree and sunny day, overlooking a beautiful body of water, having sex. That is all, that's the happiest activity is intimacy, making love, the happiest weather, 80 degrees and sunny, happiest location near a body of water, happiest person to be with, a romantic partner.

45:51That kind of sums up everything in the data we know about happiness. So that's important to keep in mind as well as you're going through life. That is a lot easier to achieve than owning an auto dealership, owning a beverage distributor company, starting a market research company. That's hard. Being with someone you care about near a lake, hanging out or whatever, is not as difficult to achieve. Nice. Well, thank you again for spending this time with us. Where can people find you if they'd like to hear more? I'm on X at Seth S underscore D. I have a hyphenated name, Seth SD. And Don't Trust Your Gut and Everybody Lies are my books.

46:30And I have another book coming out in about a month. They'll be called Who Makes the NBA? And it's about a passion of mine, basketball. Excellent. And we will link to all of that in the show notes as well. Great. Well, thank you. Thanks. Thank you to Seth. What are three key takeaways that we got from this conversation? Number one, stop counting yourself out just because you've gotten older. We here at Afford Anything see this in our inbox a lot. We get so many emails from people who think their time has passed and think that they can't create anything at this juncture of their lives because, oh, I'm already 40 or 50 or 60 or 70 or however old it is.

47:12The reality is their experience and their knowledge could actually help them be more successful. And if we stop believing this myth that entrepreneurship belongs to the young, and that's a myth that's perpetuated by news stories, but is not actually backed by data. Nobody thinks of a 60-year-old entrepreneur, but they're crushing it. They're like the most successful out there. and the 50-year-olds, the 60-year-olds, the beverage distributors, the auto dealerships, the person who spent his or her career in an industry and launches a market research based on all their context and all the information they've learned over two decades, starts a market research firm at the age of 50.

47:52That's common, but who's going to make a movie about that? That's so boring that we kind of forget. So get rid of the myth that entrepreneurs tend to be young because people, when surveyed, say that 27 is the age that they imagine a startup founder to be. In reality, it's actually 42. And in addition, there's a positive correlation between aging and the probability of success up until 60. And don't you dare email me and say, well, I'm 61, so it's too late for me. Okay. If there's a positive correlation up until 60 and you're 61 or 65 or 68, guess what? You're actually still very, very young. 68 is the new 28.

48:38All right. That's the first key takeaway. Second key takeaway. People want to be rich, but they think that being rich is out of their grasp because there are these connotations around the kinds of people who are rich or what it takes to get there, right? People often think that to be rich, you need to have a spaceship. And, you know, what we know from the data and what we can actually prove from the data is very different. A lot of times when we think of getting rich, we think of the really richest people, you know, Mark Zuckerberg or Elon Musk, Bill Gates. It is dangerous to learn lessons from them because they're one in a billion outcomes.

49:14And yeah, to be the very, very top five on billionaire, you have to dominate a global industry. That's very, very unlikely. But to be a millionaire, you want to have some sort of local industry that isn't dominated by a global industry. Things like real estate investing, they're more disaggregated. There's not one investment firm or two investment firms that just dominate everything. You know, you can be a specialist, you have all kinds of different strategies, all kinds of different expertise. And similarly with real estate, they do tend to play to local markets in various ways. So that is the second key takeaway.

49:48Finally, key takeaway number three. You need to increase your luck surface area. Being successful means putting yourself out there a lot. And that goes far beyond the creative field, right? It means trying out different side hustles for viable businesses. It means buying more investment properties if the first one that you bought isn't a home run, or even if it is, right? Your first time at base is rarely going to be a home run. And you need to be at bat. You need to be swinging. You kind of need to increase your luck surface area. You need to basically increase the chances that your painting or song or podcast is selected.

50:28Among all the other ones, people make this mistake too, is just hoping the world's going to find you. you got to just hustle like mad to get known and take any opportunity you have whether you know it's in the other side of the country other side of the world and you know the study that i really loved the study of painters where they found that the biggest predictor of unknown the success of unknown painters is how widely they travel to galleries to showing so there are some painters and it seems crazy that they try this but they they're not having success they just show their work at the same gallery over and over again.

51:04It's like, you know, it hasn't worked yet. It's not going to ultimately work. And then there are other painters that are just constantly both accepting invitations and just hustling to get invitations. And they're going all around the world and they're not at the level where they're being invited to the Guggenheim or the Art Institute of Chicago or the, you know, the top museums, but it doesn't matter. They're just, they're hustling. They're out and about in the world. They're in Berlin today and Tokyo tomorrow and New York City, you know, the day after that. And maybe that's not even possible, but they're all over the place.

51:35And those ones tend to be the artists who then break in the inner circle of made artists who then can go to all the top galleries and make a fortune from their art. So those are three key takeaways from Harvard PhD economist, Seth Stevens-Davidowitz. Thank you so much for listening to the show. If you enjoyed this episode, share it with a friend or a family member and subscribe to our show notes, affordanything.com slash show notes. My name is Paula Pamp. This is the Afford Anything podcast, and I will catch you in the next episode.

52:12Yeah, the Mona Lisa, some random guy at the Louvre. This is off topic and you can cut this, but it's just a pet peeve of mine that I was on a podcast and I said Louvre. And they just I got hammered. Like this guy doesn't know how to pronounce the Louvre. And then I looked it up and I think there is an argument that it is pronounced Louvre, not Louvre. So, but anyway, it was a random employee at the Louvre, as I say.