Multitasking and Music

One theory for how human multitasking works:

"It appears that rule activation takes more time for switching from familiar to unfamiliar tasks than for switching in the opposite direction... [T]ask switching may often be mediated by a rule-activation stage of executive control through which the rules for prior tasks are disabled and the rules for current tasks are enabled in distinct operations."

Multitasking is necessary in business to the extent that unexpected higher-priority items need to be able to preempt lower-priority activities. However, frequent gratuitous task-switching is a productivity drain that should obviously be avoided.

On the plus side, engaging in side activities that don't come to the attention of your brain's "executive system" may be relatively harmless. Under many circumstances, listening to music may be one such activity; the data on the topic is mixed. One line of studies claim that music can reduce cognitive performance; for example, lyrical music may harm recall in the short term. Other studies claim listening to enjoyable music over the course of multiple weeks can increase productivity by producing positive affect and lowering stress.

Advantages of listening to music include:

• Positive affect
• Reduction in mental fatigue
  
• Reduced stress
• Screening out other environmental distractions

The emotional benefits can often increase productivity. The main disadvantage is a risk that the music itself can become a distraction, especially for more complicated tasks. Some factors that may affect the cost/benefit ratio (again, the data is mixed, and many of these points have been unevenly replicated, so take with even more of a grain of salt than usual):

• In terms of productivity benefits for simple tasks, the genre of music may be less relevant than whether you find the music enjoyable.
• In terms of distraction, certain genres (such as lyrical and pop instrumental) may be more distracting than others.
  
• The simpler your tasks are, the greater the productivity boost; conversely, the more complicated the tasks, the more distraction can harm you. However, even the tasks involved in a typical software development workflow may be simple enough to gain some productivity benefits.
  
• Extroverts might gain a greater productivity boost than introverts do.

 See also:

• The multi-tasking paradox

Metapost: Posting Schedule and Python

1. As the prophecy foretold, we've had one post per day in November, and starting tomorrow will scale back the attack on your poor RSS reader.

2. This month I'm looking for fellow Python developers in the Silicon Valley area to collaborate with on some small Google Wave and CRM projects. If you know anyone who might be interested, have them drop me an email.

The Mental Athlete

As with a physical athlete, the mental athlete (or, as we call him nowadays, "knowledge worker") should pay attention to what he puts into his body.

Nutrition

Besides adopting good overall nutrition, remain aware that the brain runs on glucose, and is quite a pig. Familiarize yourself with the concept of glycemic load. Don't skip breakfast; your blood glucose levels are low when you wake up. Based on basic biochemistry, vitamin or protein deficiencies are presumably harmful as well to cognition.

Caffeine

Caffeine raises alertness and (at larger doses) increases mental performance. Habituation poses a significant problem, especially at 900 mg/day or more. Happily, lower doses appear not to cause complete habituation, even in the long run. The half-life of caffeine is about five hours, with some caveats. So, if you drink two cups of coffee with dinner, you might have as much trouble sleeping as if you drank a single cup at midnight.

Prescription Nootropics

Modafinil improves working memory and may be neuroprotective. Ritalin (Methylphenidate) focuses attention (which can be a good thing or a bad thing) but carries a risk of habituation. The long-term effects of most nootropics are unknown.

Other

Stress tends to increase mental fatigue, as does a lack of sleep.

See also:

• Bostrom and Sandberg on cognitive enhancement
  
• Nature on Cognitive-Enhancing Drugs
  

Time is Money (a quick and free guide)

Putting an explicit monetary value on your time has the advantage of ironing out certain irrational habits. (Of course, if taken too far it could be a source of stress, for example if you were to constantly interrupt your leisure time with thoughts of how much it's costing you.) Here's some advice for putting a ballpark dollar value on your time.

1. Your time value should be your marginal salary increase if you consistently were to try to work an extra hour, not your average hourly wage. Your marginal wages may be above or below your average wages, depending on your circumstances. (If you're unlikely to follow through on efficiently working the full extra hour, you would want to factor that in.)
   
2. Factor in expected marginal taxes, both personal and (for some entrepreneurs) corporate taxes.
3. Factor in a discount rate if returns are far in the future or if you're currently short on cash.
4. For entrepreneurs or anyone else exposed to high levels of risk, figure out an expectation value and adjust for your personal level of risk aversion.
   

Setting a time value doesn't magically instantly increase or decrease your cash flow. However, it does help you decide whether you should:

• spend more (less) money on leisure activities and personal expenditures, and indulge in less (more) leisure time
• invest more (less) money in business automation and hired help
  

Not all hours are equal; the monetary value can be adjusted by situation based on many criteria, such as:

• How pleasant or unpleasant is the given activity?
• Does the activity provide a learning opportunity?
  
• How much does the activity affect your level of mental fatigue?

Cheat sheet: Success Factors in New Technology Ventures

Some sobering statistics remind that, even after gaining initial funding, your high-tech startup still isn't out of the woods. From Success Factors in New Ventures: A Meta-analysis:

...after four years only 36 percent... of (U.S. New Technology Venture) companies with more than five full-time employees had survived.

If you want a handy reference to which factors consistently were correlated with survival for U.S. NTV's, here's your cheat-sheet (in order of decreasing importance):

1. Supply chain integration: "A firm’s cooperation across different levels of the value-added chain (e.g., suppliers, distribution channel agents, or customers)"
2. Market scope: "Variety in customers and customer segments, their geographic range, and the number of products"
3. Firm age
4. Size of founding team
5. Financial resources
6. Founders’ marketing experience
7. Founders’ industry experience
8. Existence of patent protection

Interestingly, the "market scope" factor contrasts with Scott Shane's advice that "new businesses that focus their activities (on one market or product) perform better than those that do not," which cites (for example) "Survival chances of newly founded business organizations."

The positive correlation of patent protection contrasts with Guy Kawasaki's disdain for patent protection, although Guy may be speaking towards new software startups specifically rather than to NTV's as a whole.

These factors consistently failed to be correlated with survival for NTV's:

1. R&D experience
2. Prior start-up experience (a recurring puzzle)
   
3. Environmental dynamism: "High pace of changes in the firm’s external environment"
   
4. Environmental heterogeneity: "Perceived diversity and complexity of the firm’s external environment"
   
5. Competition intensity

The non-correlation of competition intensity suggests that entrepreneurs as a group are well-calibrated, neither shying away from competition to an irrational degree, nor irrationally ignoring the existence of competition.

Roundup of Business and Rationality Links

Some useful links:

Less Wrong:

• The Planning Fallacy
• Just Lose Hope Already
• Risk-Free Bonds Aren't
• Seeing With Fresh Eyes
  

Scott Shane:

• Behavioral Economics for Entrepreneurs
• The Gray-Haired I.P.O. Market
• Why Investors Won’t Believe Your Projections

Prediction Apps:

• Prediction Tools (Ian Ayres)
  
• YouNoodle
  

Other:

• Marc Andreessen on cognitive bias
• Everyone thinks they're hiring the top 1%
• Top Ten Money Mistakes
  

Fighting the Sunk Cost Fallacy

One person's innovative way of fighting the sunk cost fallacy:

All you have to do is to periodically pretend that you were magically teleported into your current situation.

Puzzle: Failing as a Founder Seems to Teach Surprisingly Little

"...a programmer deciding between a regular job at a big company and their own startup is probably going to learn more doing the startup." -Paul Graham

Paul Graham's sentiment, that the best way to gain the skills, experience, and knowledge necessary to succeed at a startup is to launch a startup, is common, logical, and reasonable, but (surprisingly) might be wrong. Some claim your odds of success are maximized if you have experience as an employee rather than a founder:

"...good preparation, having a business partner, and some years in salaried employment also enhance firm growth." -Determinants of new firm success

"...people who have worked (and indeed were employed before start-up) in the industry where they are founding the new firm, and who have had at least some managerial experience, embody the entrepreneurial human capital features which are more likely to contribute to the early success of new businesses... Entrepreneurial experience in itself does not seem to play a significant role in enhancing survival probability..." -Entrepreneurial Backgrounds, Human Capital and Start-Up Success

The data is mixed on the final point above, whether entrepreneurial experience might be useful if added to experience as an employee. Part of the difficulty in analyzing the data is that first-time success (or near-success) can cause someone to become a serial entrepreneur, and the traits of successful entrepreneurs differ from the traits of failed entrepreneurs. Failed serial entrepreneurs do have a decent second-time success rate, but this could be an artifact of the fact that serial entrepreneurs' first-time failures are more likely to be of the 'almost made it' variety. People who completely crash and burn are less likely to continue to want to be entrepreneurs! Such people tend to withdraw themselves from the entrepreneur pool, leaving behind a more competent set of serial entrepreneurs; this confounds the data analysis.

Anyway, here is one set of numbers:

• In one population, the overall success rate of first-time ventures is 25.3%.
• Subsequent ventures in the same population have a success rate of 29.0%.

This all seems fairly mysterious; "practice makes perfect" is the rule in most other domains, and failed entrepreneurs seem to strongly believe they learned a lot from their experiences. Still, until more data is available, I would argue you should only start a venture because you think it might succeed, not because you think failing at it will provide you with priceless and invaluable experience.

Overconfidence and Reference Group Neglect

While overconfidence is a complicated phenomenon, it does seem clear that in contests of skill (such as entrepreneurship), we tend to be overly optimistic:

"The large majority of subjects in the self-selection sessions seem to be saying, 'I expect the average entrant to lose money, but not me!'... When subjects’ post-entry payoffs are based on their own abilities, individuals tend to overestimate their chances of relative success and enter more frequently (compared to a condition in which payoffs do not depend on skill). The more surprising finding is that overconfidence is even stronger when subjects self-select into the experimental sessions, knowing their success will depend partly on their skill (and that others have self-selected too). In these sessions, there is so much entry that the average subject loses money in 34 out of 48 periods, and earns money in only four periods. This result suggests a new phenomenon specific to competition, 'reference group neglect'- the tendency to underadjust to changes in the reference group one competes with." -Overconfidence and Excess Entry

Overconfidence can have some advantages; for example, confident people can seem more competent to observers (occasionally to absurd degrees). On the balance, though, overconfidence may be harmful to entrepreneurs:

"...the average survival chances of nascent entrepreneurs are actually lower in countries that exhibit high prevalence rates of entrepreneurial self-confidence." -"I think I can, I think I can": Overconfidence and entrepreneurial behavior

"...both overconfidence and under-confidence have a negative effect on sales growth." -What Makes a Successful Entrepreneur? Evidence from Brazil

"...optimism is on average bad for performance... (however) optimism is much less harmful to performance when loans have a shorter maturity." -Financial Contracting with Optimistic Entrepreneurs

The point about loans is interesting: it appears that being under short-term debt "keeps optimists honest," to coin a phrase, and helps mitigate the negative effects of overconfidence about long-term growth prospects.

Further reading:

• Overoptimism among entrepreneurs in new ventures: the role of information and motivation 
• Are Individuals Entering Self-Employment Overly-Optimistic?
  

Persevere, But Avoid the Sunk Cost Fallacy

The Sunk Cost Fallacy is the tendency to "throw good money after bad", especially when the alternative is to admit that you made a mistake. In one experiment, subjects were asked to role-play managers who either were or were not responsible for initial funding:

"Under high personal responsibility conditions, subjects allocated an average of 11.08 million dollars to the corporate divisions they had earlier chosen for extra R & D funding. Under low personal responsibility conditions, subjects allocated an additional 8.89 million dollars to the corporate divisions previously chosen by another financial officer." -Knee-Deep in the Big Muddy

The great thing about this experiment is that the high-responsibility subjects were only role-playing managers who had made a set of initial investments (which were actually determined by the researchers), and yet still felt the need to save face and defend their fictitious past investments.

The main effect of the sunk cost fallacy is to encourage further investment in projects, especially ones you feel personal responsibility for. A side-effect is to raise your probability estimate that the project will succeed (which can result in a state of denial over a failing project).

On the one hand, you want to avoid the sunk cost fallacy. On the other hand, you do want to exhibit the minor personality trait of grit (perseverance):

"Grit did not relate positively to IQ but was highly correlated with Big Five Conscientiousness. Grit nonetheless demonstrated incremental predictive validity of success measures over and beyond IQ and conscientiousness. Collectively, these findings suggest that the achievement of difficult goals entails not only talent but also the sustained and focused application of talent over time." -Grit: Perseverance and Passion for Long-Term Goals

Perseverance seems helpful in the technical arena:

"..the higher the overall perseverance scores of patent inventors, the higher their annual earnings." -Are perseverance and self-efficacy costless?

My advice is to persevere, but to focus your perseverance especially powerfully on the projects that have the greatest possibility of success. For example, you should (within reason) persevere on a promising company you own based on the amount of future profits you expect, regardless of whether you founded or bought the company, and regardless of how much or how little you've invested in it so far.

Your Market is Smaller Than You Think: The Law of Small Numbers

"The Law of Small Numbers" is our intuition that we can pick a small sample and confidently extrapolate from it. You and your best friend like paintball and chihuahuas, yet the paintball/chihuahua crossover demographic is completely ignored by big business. Surely you two can't be the only ones who would enjoy combining the experiences; you can extrapolate that there must be many others who would pay for the ability to roam about in camo as you deploy an army of small dogs to hunt down and sink their teeth into the enemy's padded ankles. So you open the world's first Chihuahuaball franchise, and are puzzled when the throngs fail to materialize.

The problem here (besides your lack of advertising; you really should have bought that Animal Planet spot) is that we tend to believe too strongly in an intuitive "Law of Small Numbers" that turns out to be false. (This error may be an overuse of the Representativeness heuristic.) In other words:

We tend to overestimate how much we can generalize from a small sample more often than we tend to underestimate.

This "hasty generalization" problem can vex any company, but is especially nasty for startups because they are less likely than large companies to have the resources to perform market research and confirm whether the hypothesized demand for their new service is real or illusory.

Two related problems can help calibrate your intuitions:

1. The birthday paradox. Suppose there are 23 people in the room. What is the likelihood that two of them have the same birthday? The answer, surprisingly, is about 50%.

Now suppose you survey 23 people in the room about what iPhone app they would most like to see. Only two of the people in the room give the same answer. What conclusions do you draw?

2. A research institute tests 20 hypotheses, all of which are incorrect. You still expect one of them to be confirmed at a 95% confidence interval, due to the laws of chance.

Now suppose you have 20 great Chihuahuaball-level ideas. 19 of them generate no interest in the people you survey, but for one of them, you find a certain level of interest. How suspicious should you be of that level of interest?

Answers: 1. If the two people agree on iChihuahuaball, go ahead and launch. The other 21 people are clearly unrepresentative freaks. 2. You should be suspicious of anyone who would discount even one of your 20 fantastic ideas. They are probably spies for a rival company, eliminate them.

There isn't any easy solution. Even if you can't afford to conduct full-scale market research, try to attack subparts of the question from different angles and see if the estimates converge. And, as always, try to have a way to "fail fast" if your basic assumptions fail to pan out.

Predictors of Startup Success

Here's a roundup of some predictors of startup success.
Determinants of new firm success:

"In addition to a large firm size right from the start, good preparation, having a business partner, and some years in salaried employment also enhance firm growth."

Intellectual capital and business start-up success:

"...the human capital of the entrepreneur (i.e. education, business experience and level of motivation), organizational capital (i.e. firm capacity to adapt quickly to changes and the ability to implement successful strategies), and relational capital (i.e. development of productive business networks and an immediate access to critical stakeholders)... seem to be related positively to venture performance."

Social interaction: A determinant of entrepreneurial team venture success:

"The quality of the social interaction within entrepreneurial teams is crucial for the new venture success."

Predicting new venture survival:

"New ventures that survived were more likely to have: (1) entrepreneurs who gained knowledge and ability during the founding process; who devoted greater efforts to (2) dealing with suppliers; (3) analyzing potential new entrants and who (4) devoted less time to determining the identity of the business; businesses that had (5) 'fundable' resource requirements (6) focused on products or services that were designed or produced to order; and (7) were in high growth industries."

Intelligence, Education, and Startup Success

From van der Sluis's "Successful entrepreneurship and human capital" (2007):

"We find that an individual's level of general intelligence increases both entrepreneurs' and employees' incomes to the same extent. But entrepreneurs and employees benefit differently from specific areas of intelligence. The earning power of both groups is affected positively by social and technical intelligence. Both types of intelligence render stronger returns for entrepreneurs than for employees. Mathematical intelligence is also beneficial for both groups, though only for the upper end of the mathematical intelligence distribution. Only employees benefit from clerical intelligence. Verbal intelligence does not have a strongly significant effect on earnings for either group."

The biggest surprises for me here are:

• No statistically significant benefit from verbal intelligence, and
• No statistically significant benefit to entrepreneurs from clerical intelligence, which includes the ability to accomplish simple tasks quickly.

Formal education seems to aid entrepreneurs even more than employees; in "Why are the returns to education higher for entrepreneurs than for employees?", van der Sluis advances a hypothesis:

"We find (indirect) support for the argument that the higher RTE for entrepreneurs is due to fewer (organizational) constraints faced by entrepreneurs when optimizing the profitable employment of their education."

The fox, the hedgehog, and the entrepreneur

"Generalists Succeed as Entrepreneurs," proclaims a 2005 press release from the Stanford School of Business. It is robustly true that entrepreneurs tend to be generalist "foxes" rather than "hedgehogs" who specialize. However, among inventor-entrepreneurs, it turns out that the more varied their experience, the lower their household income. The current likelihood is that Stanford got the arrow of causation wrong: variety-seekers tend to gravitate toward both generalism and entrepreneurship, but a lack of specialist skills is more likely to make a startup fail rather than succeed. While foxes may be better at predicting the future, they may be worse at succeeding in a startup.

Many people have read the earlier studies showing the tendencies of entrepreneurs as a whole, but fewer have read the later study characterizing successful entrepreneurs. It would be nice if there were a service that keeps track of what claims you've read and then alerts you if later evidence comes up that invalidates those claims! In any case, press releases are generally set in stone, so it's unlikely the press release will ever be updated to "Generalists Try to be Successful Entrepreneurs, but Usually Fail."

Request for Feedback: scaling up to a larger founder team

I'd like to request comments on the following concrete proposal for how a Silicon Valley founder team might be productively scaled up to four, five, or even six founders.

Management. The founders periodically elect a manager from amongst themselves. The manager is expected to act in an authoritarian manner and pursue aggressive schedules. Where possible, the manager delegates responsibilities to other founders, who are also expected to act in an authoritarian fashion within their area of responsibility. This allows the startup to make decisions quickly despite its larger size, and also fights over-engineering: software can still ship even if there's no consensus that all issues have been solved to everyone's satisfaction.

Communication. Rather than write down brief status reports, random screenshots are automatically taken during the day. At periodic intervals, each founder then walks the rest of the founder team through his screenshots, using them as visual aids to explain what he's been working on. This allows the other team-members to understand his activities and make suggestions. This also provides more opportunities for team-members' work to be recognized. Watching and listening to occasional visual status reports is probably not a mentally taxing activity, and so should enhance communication and coordination without greatly increasing mental fatigue.

Equity. Founder equity vests gradually over the course of three years, vesting at a reduced rate throughout the first six months. Any founder can be dismissed at any time by a majority of the other founders, if they are not a good fit for the organization. Founders are required to verifiably work for at least seventy hours per week, not including breaks and meals. Founders are expected to get proper sleep, nutrition, and exercise. Founders are required to abstain from recreational drugs; if enforceable, I would even favor a clause that founders forfeit equity if they fail to abstain. The goal of this equity strategy is to encourage good work habits and to reduce tensions and conflicts over perceptions of unfair workload distribution.

Many aspects of the proposal are expected to be tweaked or replaced as one gathers evidence of what works and what doesn't. Any comments are welcome on specifics or the overall approach, either by posting comments below or by sending me email, but I'm especially interesting in hearing:

1. Have similar approaches been tried before, and what lessons were learned?
2. If you're a software developer, would you tilt towards being interested in participating as a co-founder in such a startup?
3. If you're in a position to hire consultants, would you tilt towards hiring such an organization to provide consulting services to you if it provided appropriate consulting services?
4. If you're a VC, would you tilt towards funding such a startup?

70 hours times 6 founders

Currently a typical high-tech startup has up to three founders and, I would estimate, up to 50 hours of actual productive work per founder per week. (I would claim that most founders tend to overestimate their productive hours per week.)

One can have one of four strategies for scaling up the number of founders or increasing the work schedule to increase the number of productive man-hours:

1. Increase the number of founders, or the number of hours worked, without paying attention to the many difficulties that can ensue. Not too bright.

2. Don't bother increasing the number of founders or the number of hours worked, because it seems doomed to failure.

3. Increase the number of founders, and the number of hours worked, but understand the difficulties involved and take action to mitigate the risks and disadvantages.

The goal of option (3) is to go from the smaller to the larger rectangle, without suffering too great a loss in per-hour productivity:

A Small Graphic on Procrastination

On the mental front (as on the physical front), we are too lazy and procrastinate too much. Just as most developed-world citizens engage in too little physical activity, most people would agree that we put off and avoid mental labor to an irrational degree. Research tends to back up this intuition: for example, driven people tend to earn more (even controlling for hours worked) and students who are given the opportunity to commit themselves to not procrastinate end up doing better.

Habits that suited our ancestors well are sometimes poor fits for modern society. For example, we are not particularly calorie-limited in physical nor in mental effort.

To help visualize the situation:

Predictors of Career Success

An Empirical Investigation of the Predictors of Executive Career Success is a great working paper on what sort of things can affect overall pay as well as subjective career satisfaction. One of its findings also provides further backing that, unfortunately, the college you go to matters.

To zero on personality: the research on the effects on your career of the Big 5 Personality Traits is all over the place, but in general if you're in doubt, you could do worse than ask yourself, "what would I do in this situation if I were a little more conscientious, agreeable, mentally stable, and open to new experiences?"

Some of the varied findings on the Big 5 and Achievement: here, here, here, and here.

Introducing the 70-hour Work Week

Let's consider the consequences, good and bad, of voluntarily increasing to a 70-hour work week as a white-collar worker in a job that you often need to immerse yourself in. The 70 hours does not include time spent on commutes, meals, or breaks. This is outside the range of most current research; most populations studied have an insignificant number of 70-hour white-collar workers as defined, even in Japan and South Korea. In the absence of good studies, I will render my own judgments here on what I expect the likely consequences to be for the average person.

1. Decreased per-hour productivity

Mental fatigue, short-term ego depletion, stress, and flagging motivation can reduce hourly productivity. Sunk costs for training and knowledge-acquisition can increase it, as can medium-term willpower building. Overall, I judge that per-hour productivity is probably diminished.

How to mitigate: Aggressively vary tasks and take breaks during work. Try to reduce stress during work. Relax outside of work. Reduce commute time if possible, otherwise use unavoidable commute time to unwind. Do not allow the long work hours to interfere with sleep and exercise. Adopt good sleep hygiene.

2. Increased total productivity

I will judge that per-week productivity goes up with a 70-hour work week, if managed correctly; the extra hours available, rather than the reduced per-hour productivity, should be the dominating factor.

How to capitalize: Leverage your competitive advantage by seeking out fields where "time is of the essence," for example where there is a race to exploit a market window before it closes.

3. Mildly decreased health

Research is mixed, but overall it seems long hours can have a negative impact on health, possibly due to decreased exercise and sleep, and increased stress. Some of the negative impact may be permanent.

How to mitigate: As above, prioritize exercise, sleep, and stress reduction.

4. Decreased happiness

If you significantly value happiness, and are rational, you should familiarize yourself with the literature of hedonic psychology. Unfortunately, some of the advice from the literature will be difficult to fully implement given the reduction in your free time. It's extremely unlikely that the set of activities that are optimized for your long-term happiness are the exact same set of activities that are optimized for your career success. Mapping out your schedule should confirm for you that adopting a 70-hour work week, and following the productivity mitigation advice above, will leave you with extremely little free time.

How to mitigate: Pick a career you find meaningful.

I would conclude the 70-hour work week as described is not for everyone. If you're prone to stress (for example, if you tend to score high on the Maslach Burnout Inventory), or if you value happiness more than your career goals, you should pursue a more conventional work schedule.

Further reading:

• Extreme Jobs: The Dangerous Allure of the 70-Hour Workweek 
• An analysis of the different forms of excessive working
  

Social Loafing, meet Peer Pressure

Founder team size has two contradictory effects on effort:

• The larger a team is, the more social loafing occurs: each founder has a greater incentive to "free ride" on a larger team and withhold effort. This causes each founder to put in less effort in a larger team.
  
• The larger a team is, the more peer pressure there is to contribute effort. As the extreme low end, in the case of a sole founder, there is no co-founder peer pressure at all.

By crunching data from the Cologne Founder Study and correcting for confounding variables, Backes-Gellner et al claim that, in terms of causation, social loafing and peer pressure combine in their population to make three-founder companies the size that makes founders work the longest hours. In other words, if you're at three founders, removing a founder makes the founders work fewer hours because of the removed peer pressure, and adding a founder makes the founders work fewer hours because of social loafing.

Having the hours worked peak at three founders can be unfortunate in that larger teams require spending more time on communication and coordination activities. In my opinion, larger teams should consider making an explicit effort to work more, rather than fewer, hours than three-founder teams, for example by agreeing from the outset on aggressive work-schedule expectations. This would compensate for the additional coordination overhead. This assumes that the coordination activities can be managed in a way that doesn't greatly increase mental fatigue, which I believe is a reasonable assumption.

See Also:

• Transparency, Inequity Aversion, and the Dynamics of Peer Pressure in Teams: Theory and Evidence

A Quick Guide to Mental Fatigue

A natural consequence of being engaged in your work, or of working longer hours, is a risk of mental fatigue. Mental fatigue is a very broad phenomenon: the brain is a very complicated organ, with many different working parts! Mental fatigue appears to be a warning sign that mental reserves are starting to become depleted. Its symptoms include increased task aversion and difficulty focusing attention on the task at hand.
Two contrasting examples:

• During the course of two hours of repetitive boring mental tasks, false-alarm error rates doubled from 5% to 10% and reaction time increased from 675 to 700 ms. Subjects became increasingly averse to continuing, and their tension level dropped. (Mental fatigue and task control: Planning and preparation)
  
• Subjects took part in a simulated workday. Reaction times decreased (got better!) during the morning and stabilized during the afternoon. For most people, error rates did not significantly increase throughout the day. However, subjects showed signs of subjective mental fatigue as the day progressed, especially if they had started with a high score on the Maslach Burnout Inventory. (The influence of mental fatigue on facial EMG activity during a simulated workday)

For a Swedish population:

"Fatigue was predicted by high work demands, low social support, not being a supervisor, female gender, lower age, lack of exercise, inability to stop thinking about work during leisure time (high immersion), snoring and disturbed sleep. The latter became the major predictor." (Mental fatigue, work and sleep)

People working 55+ hours per week do not in general seem to accumulate more mental fatigue due to their longer hours, unless they have high work demands and/or high immersion, in which case the combination seems to be quite nasty, and paying attention to mental fatigue issues becomes extremely important.

Obvious ways to combat mental fatigue include proper sleep (which also gives a boost to long-term happiness), physical exercise, work breaks, and task variation. Stress reduction is another obvious win, but how to best accomplish it is not well-understood; perhaps any activity that makes you feel more relaxed will do. The Mayo Clinic's list of suggestions is probably as good a starting point as any.

Hyperbolic discounting and self-restraint

Suppose you're friends with both Alice and Bob. Both of them are great people, but a little self-centered; Alice, in particular, has the bad habit of periodically walking up to Bob and punching him in the face for fun. You ask Alice how she would would like it if Bob punched her in the face. "I would hate that," Alice responds as she pauses from her pugilism. "In fact, I would definitely prefer a world where neither of us punched the other, to a world where we both punched each other. However, I prefer even more the current world, where I can land blow after blow to Bob's head without immediate consequence to myself."
Clearly the amount of harm caused to Bob by these one-sided fights is greater than the benefit accrued to Alice, so despite being friends with both, you owe it to Bob to try to thwart the consistent battery.

This situation is exactly analogous to the situation you find yourself in every day, with respect to your attitude to your future selves. If you're not just concerned with the welfare of you_tomorrow, the person you will be tomorrow, but are also concerned with the welfare of you_{next week}, you should face up to the fact that there's an excellent chance hyperbolic discounting means that you_tomorrow is going to figuratively punch you_{next week} in the face.

Hyperbolic discounting is best described with an example. Suppose that you are trying to quit smoking because you've judged that never smoking cigarettes is better than smoking cigarettes every day. On Monday, hope that you can go without cigarettes on Tuesday. However, when Tuesday arrives, you smoke, hoping that you will quit on Wednesday. On Wednesday you light up again, predictably regretting the decision you made on Tuesday; you_Tuesday has predictably stomped all over the preferences of both you_Wednesday and you_Monday. If you care about you_Wednesday, then you_Monday should consider taking action to dissuade you_Tuesday from making his poor decision, for example by throwing away your cigarettes or enlisting peer pressure to prevent you_Tuesday from smoking.

Hyperbolic discounting is usually irrational. One can make various tortured models where uncertain risks cause us to rationally change our mind; in this scenario, it would correspond to receiving significant new information on Tuesday about the odds of acquiring cigarettes, or contracting cancer, or both, that you infer from the mere fact that you are still alive and capable of smoking on Tuesday. Such odd models with rational hyperbolic preferences are not generally applicable when attempting to attain goals in modern life.

A rational person will seek to normalize their hyperbolic discounting in some way, for example by improving their abilities to commit ahead of time to pursue rational and consistent policies. Failing to consider deploying commitment strategies in the presence of known and predictable temptations is irrational.

More reading:

• Life-cycle consumption and hyperbolic discount functions
• Uncertainty and Hyperbolic Discounting
• Discounting by Intervals: A Generalized Model of Intertemporal Choice, for possible refinements to the hyperbolic model
  
• Less Wrong thread on "Applied Picoeconomics"
  

You Will Eat That Oreo: The Empathy Gap and Restraint Bias

An entrepreneur often needs to exercise self-control (for example, in order to engage with boring but necessary tasks.) How good are you at predicting how well your future self will follow through and consistently exercise self-control?

One thing to take into account is the hot-cold empathy gap: we tend to consistently underestimate how much effect emotional state (such as being tempted, or being bored) has on decisions. The restraint bias is a more specific phenomenon where we overestimate how well we will exercise self-control in the future. The restraint bias is a logical consequence of the hot-cold empathy gap: when not tempted, we underestimate how much our future emotional state (such as desire, craving, curiosity, or boredom) will impact our future decisions when a temptation presents itself. The restraint bias may also be further fueled by some of our positive illusions.

Some examples:

• People who have not recently experienced pain are more likely to agree to endure future pain in exchange for small sums of money
  
• When in a low-craving state, smokers underestimate how much they will later value cigarettes when in a high-craving state
• People overestimate how willing they will be to embarrass themselves in the future by miming or dancing for money
• Never go to the grocery store hungry; people order more junk food for future meals when hungry than when satiated, as though either hungry people overestimate how much they will want junk food in the future, or satiated people underestimate

Recent research is starting to confirm that the restraint bias can be harmful:

Recovering smokers with more inflated impulse-control beliefs exposed themselves to more temptation, which led to higher rates of relapse 4 months later. (The Restraint Bias: How the Illusion of Self-Restraint Promotes Impulsive Behavior)

When calibrating how well you will resist future temptations, I advise looking at the following benchmarks:

• How well have you resisted similar temptations in the past?
• How often do other people resist similar temptations?

If the answer to these questions is 'poorly', consider taking steps to bind your future actions, such as:

• remove temptations from your environment
• make a public commitment to achieve your goals
  
• make a bet with a friend that you will follow through
  
• install tools on your computer to help reduce time-wasting activities

Tomorrow: a discussion of hyperbolic discounting

Avoid the "Automatic Lose"

Followup to: How to Follow Through: The Emerging Science of Self-Control

Self-control is about behaving closer to your 'ideal self', and taking the actions that you would, upon reflection, like to take. As shorthand, I will categorize success at matching the actions of your 'ideal self' as winning.

The theory is silent concerning what your ideal self should be; that is a decision you have to make for yourself. Theoretically, you can decide that your ideal self eats chocolate all day and gets kicked out for not bothering to pay the rent, but most of us prefer, under many circumstances, to exercise self-control. More reasonably, your ideal self may very well read every xkcd as soon as it comes out (while it's still optimally topical), but bar you from reading the not-quite-as-funny smbc until your weekly task list is done. In this case, we won't characterize reading xkcd right away as 'losing' if it is something that you genuinely, on reflection, consistently want to do.

Let me categorize aspects of your daily life into three categories, and illustrate each with an example.

1. Automatic Win. Example: you are a former smoker, have no easy way of getting cigarettes, and have gotten into the habit of not smoking; as a consequence, you do not spend much of your time thinking about smoking.

Consequences:

• You win (that is, you behave the way your 'ideal self' would)
• You do not suffer short-term Ego Depletion
• You do not exercise your willpower
  

2. Deliberation. Example: you are a smoker who has recently quit, and you have cigarettes available. You are tempted to smoke.

Consequences:

• You have a chance of winning, but also a chance of losing
• You suffer short-term Ego Depletion
• You exercise your willpower; sufficiently exercising your willpower is believed to increase your medium-term willpower reserves

3. Automatic Lose. Example: you are a smoker who is not currently consciously trying to restrain his level of smoking.

Consequences:

• You lose (that is, you do not behave the way your 'ideal self' would)
• You do not suffer short-term Ego Depletion
• You do not exercise your willpower

We see that category 1, the Automatic Win, dominates (always gives a better outcome than) category 3, the Automatic Lose. So moving a part of your daily habits from category 3 to category 1 seems clearly beneficial.

Category 1 has two strong advantages over category 2: first of all, you don't suffer short-term Ego Depletion, and secondly, you don't risk losing. The only downside is the loss of an opportunity to exercise and strengthen your medium-term willpower. For now, I would tentatively advise preferring category 1 to category 2.

Some examples of behaviors that you can try to improve and, if they are in category 3, move into categories 1 or 2:

• Eating too few vegetables
• Exercising too little
• Working too few hours (or too many hours, depending on what you value)
• Disengaging from your work
  
• Failing to get up the first time the alarm goes off
• Checking for a new xkcd, even though you already checked for one when you were at the start of this article

We close with a simple summary:

OT: send me your links, also comments fixed

Comments were broken for some people last week, but should be fixed now. Don't be shy to email me if something looks broken or non-user-friendly.

Also, please email me any links to other interesting content that you think sits at the crossroads of rationality and entrepreneurship. I'll periodically make a front-page post linking to the most interesting ones. If it's a link to a post on your own blog, that's fine, just disclose it in your email (and also consider introducing yourself on my blog.) Either way include 'blog link' or 'blog links' in your email subject.

How to Follow Through: The Emerging Science of Self-Control

Followup to: Your Work Habits and the Happiness Treadmill

On the one hand, sure, you really should fix that medium-priority production bug today instead of tomorrow. But that's a bit boring, and a few minutes' delay won't hurt; why not take a break and launch Google Reader to browse your feeds? It's about time for a new xkcd, or better yet there may be a new Rational Entrepreneur post (and the running 'my personal hero' joke never gets old!) And hey wait, someone on the Internet may have posted a new picture of a cat with a funny caption, you can't possibly skip one of those!

Stop, stop, stop. You are a brain, brains are physical objects that obey laws of cause and effect, brains can be hacked to reduce the prevalence of such failures of self-control. First we need to draw on the works of Baumeister et al (see below for references) to understand how self-control works, from a causal perspective.

Suppose you have a set of normative standards that you would, long-term, like to adopt. A useful way to frame your odds of successful self-control is by the level to which you possess three elements:

1. Motivation: an internal or external incentive (a scenario-specific desire) to meet that particular set of normative standards
2. Monitoring: a way of noticing that your current impulses would deviate from those standards, and that self-control is required
3. Willpower: the quantitatively measurable ability to, given awareness of a self-control opportunity and an incentive to achieve that opportunity, actually succeed in exercising self-control.

Overall willpower levels vary from person to person; your level is probably related to the well-established conscientiousness personality trait. Whenever you exercise self-control, two effects happen. The first, and best-established, is that you suffer a short-term loss of willpower. This well-documented, but complicated, phenomenon is known as ego depletion. In one classic initial ego depletion experiment:

(P)eople who forced themselves to eat radishes instead of tempting chocolates subsequently quit faster on unsolvable puzzles than people who had not had to exert self-control over eating.  (Personality Processes and Individual Differences)

Ego depletion is a robustly reproducible process involving the consumption and subsequent shortage of glucose in certain parts of the brain. Ego depletion has confirmed in many domains:

• eating
• drinking
• spending
• sexuality
• intelligent thought
• making choices
• interpersonal behavior

The other, less well-understood, effect of exercising self-control is somewhat opposite: regularly exercising self-control over a long period of time seems to somehow "strengthen your willpower muscles" and increase your medium-term (and, for all we know, maybe even long-term) ability to exercise self-control in the future.

Some additional complications:

• Sitting through a boring film doesn't seem to require self-control; making the decision to get up to leave a boring film does.
• Deliberating between important choices requires self-control and depletes the ego.
• Positive emotions can mitigate ego depletion.
  
• Having the illusion of control seems to paradoxically strengthen willpower and motivation (in contrast with having to actually think through difficult choices, which depletes the ego).

Now that you know the broad research, the specific decisions of how to hack your brain in your own circumstances to move closer to your "ideal self" are going to vary depending on your individual situation. Some obvious general advice:

1. For important tasks, leverage peer pressure and your social goals to overcome ego depletion
   
2. Plan out ahead of time not to succumb to specific predictable temptations
   
3. Avoid hypoglycemia (low blood sugar), for example by making a point to not skip meals

A more complicated question is whether to seek out difficult dilemmas to strengthen your medium-term self-control skills, or whether to avoid them to prevent short-term ego depletion. The obvious partial answer to this will be the subject of tomorrow's post. In the meantime, the lolcats can wait until you've fixed that bug.

References:

• Self-Regulation and Personality: How Interventions Increase Regulatory Success, and How Depletion Moderates the Effects of Traits on Behavior
• Self-Regulation, Ego Depletion, and Motivation
• Self-Regulation and Choice

Your Work Habits and the Happiness Treadmill

As an entrepreneur (or as anyone who wants to be successful), you have two important decisions to make about your work habits:

1. How many hours should you devote to work activities?
2. How much effort should you put in during each of those hours?

(1) will be the subject of a future post. Today we're going to address (2) and introduce some findings from the field of hedonic psychology, the scientific study of what makes experiences and life pleasant or unpleasant.

Many people have two reasonable-sounding suppositions about a trade-off of work habits:

1. If I engage in my work, for example by putting in full mental effort at the appropriate times to make my tasks succeed, I will increase my expected income.
2. If I disengage somewhat, for example by cranking some tunes on my headphones while I should to be fully engaged in strategic planning, I will live a happier life: I will increase the number of moments in my life during which I feel happy, and I will have an increased overall life satisfaction.

Number 1 is mostly right, although we do have to address the possibility of mental fatigue (a concept better left for an upcoming post on the optimal number of work hours).

Number 2, however, is quite misguided. Part of the problem is that, to a large degree, we have a genetic 'set point' for happiness, weakly analogous to the homeostasis mechanisms that stabilize our body temperature and weight despite changes in the environment; and part of the problem is that our intuitions about what make us happy are extremely unreliable.

Any rationalist who cares about their own happiness should familiarize themselves with hedonic psychology, but for now, two broad findings are:

• We are surprisingly bad at intuitively predicting what will make us happy.
• We intuitively overestimate how much a specific change to our life will affect our short-term happiness  (Focusing Effect) and overestimate even more how much the change will affect our long-term happiness (Impact Bias).

A common example concerns lottery winners and parapelgics: People significantly overestimate how much long-term happiness they will gain from winning the lottery, and overestimate how much long-term happiness they will lose if they become parapalegics.

Again, you should familiarize yourself with the literature, but one minor finding is that having meaningful work is one of the things that can nudge the figures up slightly in terms of your long-term happiness. In contrast, to my knowledge no study has found that being lazy or not caring will increase your overall life satisfaction. (Getting proper sleep does help, but that's a different matter.)

So we see that the tradeoff above is illusory: deciding to become engaged in your work not only improves your career outcomes, but if anything will make you happier in the long run. How to consistently follow through on this decision will be the subject of tomorrow's post.

More reading on hedonic psychology:

• A great executive summary. Note that "Don't equate money with happiness" is a different claim from "Money doesn't matter at all for happiness."
  
• Adapting to Heart Conditions: A Test of the Hedonic Treadmill
• A nice thick book by Daniel Kahneman, my personal hero.

Optimal founder team size

Followup to: Four Reasons to Keep Your Founding Team Small (and Two Reasons Not To)

The risks of keeping your founding team small tend to revolve around the usual resource issues, such as:

• Not enough people to ship a quality product before the market window closes
• Lack of sufficiently diverse skill set
• Lack of sufficient contacts

The risks of a large founding team tend to revolve around the usual "human scalability" issues, such as:

• Group conflicts
• Social loafing
• Coordination difficulties
• Slower decision-making processes
  

My judgment is that the problems of a large founding team look more tractable than the problems of a small founding team. In the days ahead, I'll make the following two claims:

If, like most startups, you lack a good strategy for dealing with the problems of large founding teams, then tilt towards keeping your founding team small.
1. But, if you can properly identify and solve the problems of scaling up to a larger team, I will happily fly in the face of conventional wisdom and make the bold claim that, if you have the talent available, you should aim for a team of six founders.

I will be expanding on this controversial claim in more detail in the days ahead, and explore how the scaling problems can be mitigated by:

• Longer working hours
  
• More time spent on coordination activities
  
• Autocratic leadership
• Greater transparency
  
• Increased turnover rate of initial founders

In the meantime, if you'd like to share your experiences working with a 4+ founder startup, feel free to post a comment below.

Four Reasons to Keep Your Founding Team Small (and Two Reasons Not To)

The conventional wisdom is to limit Internet startup to three or fewer founders. However, successful companies do exist that have started with four or more founders. Here are some advantages and disadvantages of capping at the magic number three.

(Aside: most policies have both pros and cons. Even if you believe strongly in one side of an issue, you might benefit from the exercise of writing down the best arguments for both sides of the issue, to avoid the Confirmation Bias.)

Reasons to stay at three founders:

1. Increased Motivation

Even at four people, we start to see visible social loafing; overt reduction of effort begins to manifest itself. This "free-rider problem" can diminish productivity and increase tension. A smaller team means more equity per person, and therefore an increased rational incentive to apply full effort.


2. Better Communication
A greater size increases the likelihood someone on your team is doing something you're not aware of that will conflict with the execution of your strategies. Smaller teams are easier to keep track of.

3. Faster Decisions

If more people are required to sign off on something, or if more people are chiming in with input, decisions will take longer to make and it will be more difficult to alter course in the face of new data. Smaller teams can often move faster.

4. Reduced Conflicts

In a team of size n, the number of dyads (distinct pairs) among team members is equal to n(n-1)/2. A team of three only has three pairs of people who might not get along; a team of five has ten!


In contrast, here are two reasons to add more founders:

1. More Available Man-Hours.

While nine people can't have a baby in nine months, it is true that even a three-person team can be overwhelmed with the number of tasks necessary to make their startup successful. Additional people mean fewer tasks per person.

2. Better Division of Labor.

As the number of founders goes up, the total skill-set increases, reducing the frequency in which a founder is called upon to execute tasks outside his specialties. As a related benefit, the number of contacts available to the founders increases as well.


Tomorrow: My surprising verdict on optimal team size.

Related discussions:

• Feld Thoughts
  
• OnStartups Answers
  

Having co-founders is valuable but not crucial

Many experts, including my personal hero Paul Graham, strongly advise against founding a company on your own:

All investors, without exception, are more likely to fund you with a cofounder than without... If you don't have a cofounder, what should you do? Get one. It's more important than anything else.

Research on the subject appears to be mixed; browsing through abstracts, I would conclude that, all things equal, having a co-founder tends to be a benefit on average, but the effect is not as large as Paul Graham seems to imply. Informal sanity-checks confirm that many successful companies were single-founder:

• Chan Chaiyochlarb's list
• Some guy on Hacker News
  

Why does Paul Graham take such a hardline attitude? Was he mistakenly thinking of plant viruses? Here's my speculation: perhaps we should differentiate the question of "should I get a co-founder" from "should I fund an entrepreneur who has no co-founder." Having a co-founder right away might be a "bozo filter" for an investor: it helps convince an early investor that you're not a bozo who nobody sane will work with. However, if you are such a bozo, somehow getting a co-founder won't change that fact that you're a bozo; and conversely, if you're not bozish (bozonic?), deciding to initially forgo having a co-founder will not turn you into an innate bozo. Therefore, I speculate it may be vitally important for an investor to insist on co-founders, but it may be less important from the founder's point-of-view for a pre-funding founder to immediately acquire co-founders.

Further reading on the topic of founder team size:

• Chandler et al: Antecedents, moderators, and performance consequences of membership change in new venture teams
  
• Pasanen and Laukkanen: Team-managed growing SMEs: a distinct species?
  

Pay more attention to the statistics!

My personal hero, Scott Shane, crunches the numbers and advises entrepreneurs that, given the choice, you should start your business in a favorable industry that you know well.

Allegedly a response was tweeted: "...pick the sector you love and go for it and (don't) worry about the stats."

Who is right? Certainly there are advantages to liking the sector you're working in. But "don't worry about the stats?" Sorry, but it part of a rationalist's duty to concern himself with the stats, and with the Base Rate Fallacy.

The Base Rate Fallacy: People tend to under-utilize, or even ignore, statistical base-rate information in favor of other data. For example, if given a random individual's personality traits and asked whether they are more likely to be an engineer or a lawyer, people over-rate the relevance of the description and under-rate the relevance of what percentage of the population decides to become an engineer, vs. what percentage of the population decides to become a lawyer.

Relevant statistics should be vetted and verified, but they should not be ignored. Our ancestors didn't have access to statistics at the click of a mouse, so I don't find it surprising that modern man is slow to take advantage of the improved decisions that statistics can help us make. Take the extra effort to think through your decisions, and don't ignore inconvenient statistics.

Open Thread

This thread is for anyone to propose or discuss topics that have not yet been addressed in a post.

Please Introduce Yourself

This thread is for you, the reader, to introduce yourself.

Welcome

This blog concerns itself with the overlap between entrepreneurship and the modern tools of rationality. We prefer facts, science, and logic to wishful thinking. Expect to hear a lot about cognitive biases, statistics, and the art of how to appropriately change your actions and beliefs in response to evidence.

Expect to see a new post every day throughout November, and a drastically lighter schedule after that.