Read the following sentence and identify how many errors it contains: Thiss sentence contains threee errors. Most of us will discover the first two errors very easily. The third error in the sentence is that there is no third error. But not many can find the third error. But why? For discovering the first two errors you need focused thinking. But for the third, you need to think in diffuse mode.
Focused vs Diffused
Consider the following problem: For the year 2013 Amazon’s total revenue is $74.45 billion and it made a gross profit of $20.27 billion. What is Amazon’s gross margin. In order to solve this problem we will do the following (1) Concentrate and read the question carefully (2) Understand gross margin and learn how to calculate it (3) Substitute the values and get 27.22% as gross margin. The thinking involved in solving this problem is done using focused mode.
Excerpt from: A Mind For Numbers
Focused-mode thinking is essential for studying math and science. It involves a direct approach to solving problems using rational, sequential, analytical approaches. The focused mode is associated with the concentrating abilities of the brain’s prefrontal cortex, located right behind your forehead. Turn your attention to something and bam – the focused mode is on, like the tight, penetrating beam of light.
Couple of months back a multistory building (11 floors) collapsed in Chennai. You can read about it here. Let us assume that you read this news using focused mode, watched it in news channels several times, and also discussed about this with your friends. What will your conclusion be? Most likely you will conclude that multistory apartments are dangerous and if you were planning to buy an apartment you will prefer ones with few floors. I stayed in India for a month and most of my friends where thinking this way. This is what happens when you depend only on focused mode and this effect is called Einstellung effect (first conclusion bias) – In this phenomenon, an idea you already have in mind, or your simple initial thought, prevents a better idea or solution from being found. In order to avoid this trap you need to think using diffuse mode.
Excerpt from: A Mind For Numbers
Diffuse-mode thinking is also essential for learning math and science. It allows us to suddenly gain a new insight on a problem we’ve been struggling with and is associated with “big-picture” perspectives. Diffuse-mode thinking is what happens when you relax your attention and just let your mind wander. This relaxation can allow different areas of the brain to hook up and return valuable insights. Unlike the focused mode, the diffuse mode seems less affiliated with any one area of the brain – you can think of it as being “diffused” throughout the brain.
Let me use the diffuse mode thinking to understand the building collapse. The first tool I will use is probability and ask what is the base rate for these kinds of incidents? I know that it is very low. Then why are people not buying multistory apartments? To answer this question I need to jump from probability to psychology. Clearly there is recency effect. Things that happened recently are overweighted and base rates are ignored. What else can I come up with? The news channels made this very vivid and this prevents people from thinking rationally. Also everyone is thinking the same way and a strong social proof is at play here. Why did the building collapse? The builder operated under incentive caused bias and compromised on quality.
This way of allowing mind to wander from one discipline to another is diffused thinking. One of the best examples of this kind of thinking can be found here. In order to learn effectively you need both modes of thinking. Look at the illustration given below to understand both the modes.
Working and Long-Term Memory
Each Walmart distribution center is more than 1 million square feet in size. Imagine you have only one pickup truck and asked to stock the distribution center with different kinds of items by sourcing it from different suppliers. To complete this task you need to work really hard for several months and also take rest so that you do not burnout. In a way this is what your brain does to learn effectively. Our brain has two major memory systems: working memory and long-term memory.
Working memory is the pickup truck which has limited capacity and it can hold up to four chunks of information at a time. If I ask you to remember the phone number 989-138-4596 what will you do? You will repeat it several times in order to remember it. The part of memory that is doing this is your working memory. It is very short term in nature. Think of it like a random access memory (RAM). When the power goes off items present in RAM gets erased. Similarly items in working memory gets erased when you do not think about it actively.
Long term memory is the distribution center which has unlimited storage capacity. Once the items are in there, they generally stay there for a very long time. Think of it like a hard disk with unlimited storage. The information stays put even when the power goes off. To push the phone number from working to long-term memory you need to (1) repeat it several times (2) try to recall the number few times without looking (3) take rest and sleep well (4) repeat it after few days [spaced repetition].
Around 13.7 billion years ago there was an infinitesimally small and dense dot which exploded and out came the universe. This explosion is called as the big bang. Every human cell which is measured in micrometers contains 2 meters worth of genetic information. It contains all the necessary information to make a human body. We call this is as DNA. Is it possible to compress all the scientific knowledge in a single sentence. This is what Feynman did.
Excerpt from: Feynman Lectures
If, in some cataclysm, all of scientific knowledge were to be destroyed, and only one sentence passed on to the next generations of creatures, what statement would contain the most information in the fewest words? I believe it is the atomic hypothesis (or the atomic fact, or whatever you wish to call it) that all things are made of atoms—little particles that move around in perpetual motion, attracting each other when they are a little distance apart, but repelling upon being squeezed into one another. In that one sentence, you will see, there is an enormous amount of information about the world, if just a little imagination and thinking are applied.
What is the relationship between big bang, DNA, atoms, and learning? These examples shows us the most efficient way to compress and store the information. Our brain does the same thing by using chunking.
Excerpt from: A Mind For Numbers
When you first look at a brand-new concept in science or math, it sometimes doesn’t make much sense, as shown by the puzzle pieces above on left. Just memorizing a fact (center) without understanding or context doesn’t help you understand what’s really going on, or how the concept fits together with the other concepts you are learning – notice there are no interlocking puzzle edges on the piece to help you fit into other pieces. Chunking (right) is the mental leap that helps you unite bits of information together through meaning. This new logical whole makes the chunk easier to remember, and also makes it easier to fit the chunk into the larger picture of what you are learning.
What benefit do I get from chunking? By chunking our brain stores information in long-term memory and it can (1) store the information in an efficient way; less space more information (2) easily recall that chunk when needed (3) combine multiple chunks to solve novel problems which it has not seen before. This is what Charlie Munger refers to as latticework of mental models.
Learning How To Learn
So far we learnt about (1) focused vs diffused mode of thinking (2) working and long-term memory (3) chunking. Let us put this knowledge to use by learning about something. Imagine that your friend told you about Buffett and asked you to read the following paragraph about moats.
Excerpt from: 2007 letter to shareholders
A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies whose moats proved illusory and were soon crossed. Our criterion of “enduring” causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism’s “creative destruction” is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all.
You get fascinated by reading this and wanted to learn about moats and especially about low cost producer. Where should you start? The world has 7 billion people and someone smart must have written a book on this.
Step 1: Start reading the book actively so that your focused mode thinking is completely engaged. Make sure that you sit comfortably in a quiet place. It is hard to be in this mode for a long time. Hence do this active reading for 25 minutes. Use a timer to keep track of the time and this way of reading is called as pomodoro technique. Why is this important? Reading a book requires a lot of time and effort and your brain will try to avoid this. In order to trick your brain you do not focus on finishing the book (product) instead focus on reading for 25 minutes (process). By focusing on process instead of the product you avoid procrastination. Remember procrastination prevents learning. During this period your working memory will be very busy and it would have pushed some information in your long-term memory.
Step 2: After 25 minutes take a short walk for 10 minutes. During the walk try to recall what you learnt. By recalling you are pulling information out of your brain which helps your neural structures to solidify the concept. Remember recalling is learning. Also taking a walk and thinking about what you read helps your diffuse mode of thinking to get activated. This helps in consolidating the concept in long-term memory. Alternate between step 1 and 2. After few hours you should take rest by getting some sleep. Why is sleeping very important?
Excerpt from: A Mind For Numbers
You may be surprised to learn that simply being awake creates toxic products in your brain. During sleep, your cells shrink, causing a striking increase in the space between your cells. This is equivalent to turning on a faucet – it allows fluid to wash past and push the toxins out. This nightly housecleaning is part of what keeps your brain healthy. When you get too little sleep, the buildup of these toxic products is believed to explain why you can’t think very clearly… Dreaming about what you are studying can substantially enhance your ability to understand – it somehow consolidates your memories into easier-to-grasp chunks… Experienced learners will attest to the fact that reading for one hour with a well-rested brain is better than reading for three hours with a tired brain.
In few days you will finish reading the book. At that point a lot information will be stored in your long-term memory. But the knowledge will not be in an unusable form (not chunked) and it will be crumbled as the image on the right. What should we do to make this in a usable form?
Step 3: After finishing the book you should write a one page summary by recalling the information stored in your long-term memory. While writing do not refer the book. Try to explain the concept using your own words; simpler the better and write it in a way so that a 5th grader can understand. Use a lot analogies preferably from other disciplines. It helps to solidify the concept. Here is an analogy from biology on low cost advantages. Cockroaches are built for survival no matter what the world throws at them. They can live for 45 days without food, and more than two weeks with neither food nor water. They spend energy sparingly and this results in survival advantages. Using this analogy we can see that businesses that has low cost has better survival advantages during adverse conditions. At this point you almost have the knowledge in a usable form. There is one final piece that is missing. You need to use this knowledge frequently. Remember It is use-it-or-lose-it.
Step 4: The final step is to put the knowledge to use. When you read an annual report you should check if the company has low cost advantages. Given below is the income statement of Costco. The company sold goods for $102.87 billion and its cost of goods sold was $91.94 billion. The gross margin comes to 10.6% which is extremely low. The company is still profitable because membership fees flows directly to the bottom line. This gives Costco an enormous low cost advantage which is a moat. Thus by applying the knowledge I have made it permanent and accesible in my long-term memory. It is chunked and will be there to service me all the times.
I recently took the course Learning How to Learn from coursera and I wrote this post to deepen my learning about learning. It is a fantastic course and I throughly enjoyed it. I highly recommend it along with few books on this subject.