Wisdom through maxims

Maxims for thinking analytically: The wisdom of legendary Harvard Professor Richard Zeckhauser

Author & Publisher: Dan Levy

Price: Rs 2,173

If people who have reached middle age reflected on some of their big decisions, they would be astounded at how lightly many of them were taken. Life-changing decisions are often made on the spur of the moment, without weighing the pros and cons or gathering inputs from informed people.   

 Blame it on the misplaced confidence of youth. In my own case, by the mid-30s, as my many misjudgements began to take a toll, I had the sense to realise that thinking and decision-making were areas I needed to work on. That prompted a search and led me to Edward de Bono’s books on thinking techniques.

De Bono says most errors in thinking are errors of perception. He offers simple techniques that allow one to view a problem from many angles and then take a well-considered decision.

Another book that offered a novel approach was The Mckinsey Way. To arrive at the right answer to a problem, it is not necessary to go from A to Z: Decide on your research objective, formulate questions, gather information, then arrive at an answer. Instead, one can arrive at the correct answer faster by working backward. Start with an initial hypothesis, which is point Z—the answer or the end result. Ask: For Z to be true, Y must be true. Is it? If Y is untrue, jettison Z and choose another hypothesis. Adopting this approach allows one to eliminate the wrong answers quickly. Charlie Munger, Warren Buffett’s partner at Berkshire Hathaway, advocates something similar: “Invert, always invert.”   

Dan Levy’s recently published book is a compilation of the maxims of Richard Zeckhauser, a professor who has taught a course called “Analytic frameworks for policy” at the Harvard Kennedy School for more than four decades. In the introduction, Larry Summers, former US Treasury Secretary and president of Harvard University, who has known Professor Zeckhauser for more than half a century, says that most of us possess some tacit knowledge, defined as “that which we know but cannot say”. But few, he says, possess as much tacit wisdom, and in as many areas as Professor Zeckhauser. According to him, Professor Zeckhauser’s maxims are his attempt to convert his tacit knowledge into explicit wisdom.

Mr Levy defines these maxims as “one-sentence nuggets of wisdom meant to immortalise an important idea”.

The first maxim in the book says: “When you are having trouble getting your thinking straight, go to an extreme case.” Let us explain this with an example. In economics there is a concept called marginal propensity to consume (MPC), which deals with the proportion of additional disposable income a person is likely to consume. Going to an extreme situation can help one understand this concept easily. MPC ranges from zero to one. A person with MPC zero will not spend any of his extra income, while someone with MPC one will consume all of it. Two people—Warren Buffett and a tramp—receive a windfall of $100. Mr Buffett is so rich he wouldn’t even notice the extra $100. The tramp, on the other hand, would spend all of it on food and other essentials. Many of Professor Zeckhauser’s former students, who are faculty members now, use this example to help their students develop an intuitive understanding of the concept. 

Maxim four says: “When trying to understand a complex, real-world situation, think of an everyday analogue.” Here is one Professor Zeckhauser uses in his teachings to illustrate this maxim. Imagine that 100 identical items have to be transported over the Niagara Falls using buckets, of which there are two types. The first has been used 100 times and has succeeded 70 times. The second has been used two times and has succeeded once. Should you go with the first bucket or the second? Most people say the first, with a 70 per cent success rate, should be preferred over the second, which has a 50 per cent success rate. The correct answer, in real-world situations, or when dealing with public policy issues, is that one should try the second bucket a greater number of times to get a better sense of its success rate. 

When confronted with the issue of whether to stick to a tried and tested object or idea versus a new one, our natural instinct is to go with the former. But if we don’t give the new one a fair trial, and it turns out to be markedly superior, we would miss out on its benefits.

These examples would have, hopefully, given you an inkling of the kind of wisdom contained in the book. American writer and political commentator Walter Lippmann spoke of men who plant trees in whose shade generations derive comfort. Richard Zeckhauser is one such man. Think of his maxims as trees that can make the journey of your life more comfortable and fulfilling.