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On The Power Of Habit

I chose to read The Power Of Habit by Charles Duhigg, given my inherent belief in the power of habits and also the strong review/ratings this book has received. Let me start by saying this book did not disappoint in delivering both in terms of content and delivery.

There are three parts to this work, as summarized by Charles, that cover the power of habits in three contexts from the most specific (individual) to the most general (society):

This book is divided into three parts. The first section focuses on how habits emerge within individual lives. It explores the neurology of habit formation, how to build new habits and change old ones, and the methods, for instance, that one ad man used to push toothbrushing from an obscure practice into a national obsession…The second part examines the habits of successful companies and organizationsThe third part looks at the habits of societies. It recounts how Martin Luther King, Jr., and the civil rights movement succeeded, in part, by changing the ingrained social habits of Montgomery, Alabama—and why a similar focus helped a young pastor named Rick Warren build the nation’s largest church in Saddleback Valley, California. Finally, it explores thorny ethical questions, such as whether a murderer in Britain should go free if he can convincingly argue that his habits led him to kill. Each chapter revolves around a central argument: Habits can be changed, if we understand how they work.

Recent research in neurology and psychology has allowed us to advance our understanding of habits and their impact on our lives:

In the past decade, our understanding of the neurology and psychology of habits and the way patterns work within our lives, societies, and organizations has expanded in ways we couldn’t have imagined fifty years ago. We now know why habits emerge, how they change, and the science behind their mechanics. We know how to break them into parts and rebuild them to our specifications. We understand how to make people eat less, exercise more, work more efficiently, and live healthier lives. Transforming a habit isn’t necessarily easy or quick. It isn’t always simple. But it is possible. And now we understand how.

Habits are necessary shortcuts for our brains:

But that internalization—run straight, hang a left, eat the chocolate—relied upon the basal ganglia, the brain probes indicated. This tiny, ancient neurological structure seemed to take over as the rat ran faster and faster and its brain worked less and less. The basal ganglia was central to recalling patterns and acting on them. The basal ganglia, in other words, stored habits even while the rest of the brain went to sleep…Millions of people perform this intricate ballet every morning, unthinkingly, because as soon as we pull out the car keys, our basal ganglia kicks in, identifying the habit we’ve stored in our brains related to backing an automobile into the street. Once that habit starts unfolding, our gray matter is free to quiet itself or chase other thoughts, which is why we have enough mental capacity to realize that Jimmy forgot his lunchbox inside. Habits, scientists say, emerge because the brain is constantly looking for ways to save effort. Left to its own devices, the brain will try to make almost any routine into a habit, because habits allow our minds to ramp down more often.

Habits are a process loop consisting of three steps a cues, a trigger and a reward:

This process within our brains is a three-step loop. First, there is a cue, a trigger that tells your brain to go into automatic mode and which habit to use. Then there is the routine, which can be physical or mental or emotional. Finally, there is a reward, which helps your brain figure out if this particular loop is worth remembering for the future. Over time, this loop—cue, routine, reward; cue, routine, reward—becomes more and more automatic. The cue and reward become intertwined until a powerful sense of anticipation and craving emerges…Researchers have learned that cues can be almost anything, from a visual trigger such as a candy bar or a television commercial to a certain place, a time of day, an emotion, a sequence of thoughts, or the company of particular people. Routines can be incredibly complex or fantastically simple (some habits, such as those related to emotions, are measured in milliseconds). Rewards can range from food or drugs that cause physical sensations, to emotional payoffs, such as the feelings of pride that accompany praise or self-congratulation.

Marketing was among the first functions to leverage the power of the habit from a commercial perspective:

“I made for myself a million dollars on Pepsodent,” Hopkins wrote a few years after the product appeared on shelves. The key, he said, was that he had “learned the right human psychology.” That psychology was grounded in two basic rules: First, find a simple and obvious cue. Second, clearly define the rewards. If you get those elements right, Hopkins promised, it was like magic…And those same principles have been used to create thousands of other habits—often without people realizing how closely they are hewing to Hopkins’s formula.

Sport teams/coaching leverage habits as well:

“Champions don’t do extraordinary things,” Dungy would explain. “They do ordinary things, but they do them without thinking, too fast for the other team to react. They follow the habits they’ve learned.”

How can we effectively change a habit? The golden rule of habit change:

His coaching (Dungy) strategy embodied an axiom, a Golden Rule of habit change that study after study has shown is among the most powerful tools for creating change. Dungy recognized that you can never truly extinguish bad habits. Rather, to change a habit, you must keep the old cue, and deliver the old reward, but insert a new routine. That’s the rule: If you use the same cue, and provide the same reward, you can shift the routine and change the habit. Almost any behavior can be transformed if the cue and reward stay the same

The other key ingredient to successfully changing a habit? Belief:

It wasn’t God that mattered, the researchers figured out. It was belief itself that made a difference. Once people learned how to believe in something, that skill started spilling over to other parts of their lives, until they started believing they could change. Belief was the ingredient that made a reworked habit loop into a permanent behavior.

What about for changing corporate habits? The key there is to tackle a keystone habit that sets a chain reaction of changes:

‘I knew I had to transform Alcoa,” O’Neill told me. “But you can’t order people to change – That’s not how the brain works. So I decided I was going to start by focusing on one thing. If I could start disrupting the habits around one thing, it would spread throughout the entire company.” O’Neill believed that some habits have the power to start a chain reaction, changing other habits as they move through an organization. Some habits, in other words, matter more than others in remaking businesses and lives. These are “keystone habits,” and they can influence how people work, eat, play, live, spend, and communicate. Keystone habits start a process that, over time, transforms everything…If you focus on changing or cultivating keystone habits, you can cause widespread shifts. However, identifying keystone habits is tricky. To find them, you have to know where to look. Detecting keystone habits means searching out certain characteristics. Keystone habits offer what is known within academic literature as “small wins.” They help other habits to flourish by creating new structures, and they establish cultures where change becomes contagious.

Corporate habits are necessary shortcuts, just as our individual ones are for our brains:

Or, put in language that people use outside of theoretical economics, it may seem like most organizations make rational choices based on deliberate decision making, but that’s not really how companies operate at all. Instead, firms are guided by long-held organizational habits, patterns that often emerge from thousands of employees’ independent decisions. And these habits have more profound impacts than anyone previously understood…These organizational habits—or “routines,” as Nelson and Winter called them—are enormously important, because without them, most companies would never get any work done. Routines provide the hundreds of unwritten rules that companies need to operate. They allow workers to experiment with new ideas without having to ask for permission at every step.

In some cases, a crisis is needed to remake or changes some of these organizational habits:

Good leaders seize crises to remake organizational habits…In fact, crises are such valuable opportunities that a wise leader often prolongs a sense of emergency on purpose.

On social movements, and the role of habits to make them self-propelling and help them achieve critical mass:

A movement starts because of the social habits of friendship and the strong ties between close acquaintances. It grows because of the habits of a community, and the weak ties that hold neighborhoods and clans together. And it endures because a movement’s leaders give participants new habits that create a fresh sense of identity and a feeling of ownership. Usually only when all three parts of this process are fulfilled can a movement become self-propelling and reach a critical mass. There are other recipes for successful social change and hundreds of details that differ between eras and struggles. But understanding how social habits work helps explain why Montgomery and Rosa Parks became the catalyst for a civil rights crusade.

On a concluding note:

Habits are not as simple as they appear. As I’ve tried to demonstrate throughout this book, habits—even once they are rooted in our minds—aren’t destiny. We can choose our habits, once we know how. Everything we know about habits, from neurologists studying amnesiacs and organizational experts remaking companies, is that any of them can be changed, if you understand how they function. Hundreds of habits influence our days—they guide how we get dressed in the morning, talk to our kids, and fall asleep at night; they impact what we eat for lunch, how we do business, and whether we exercise or have a beer after work. Each of them has a different cue and offers a unique reward. Some are simple and others are complex, drawing upon emotional triggers and offering subtle neurochemical prizes. But every habit, no matter its complexity, is malleable. The most addicted alcoholics can become sober. The most dysfunctional companies can transform themselves. A high school dropout can become a successful manager. However, to modify a habit, you must decide to change it. You must consciously accept the hard work of identifying the cues and rewards that drive the habits’ routines, and find alternatives. You must know you have control and be self-conscious enough to use it—and every chapter in this book is devoted to illustrating a different aspect of why that control is real.

A must read book, and quoting Daniel H. Pink‘s advance praise of it – “Once you read this book, you’ll never look at yourself, your organization, or your world quite the same way.”

On The Money Game

I recently finished reading The Money Game by George Goodman (pseudonym Adam Smith).

This is a classic about the stock market and investing. George covers a breadth of topics in that area based on his insider experience. This includes the psychology of the investor (“you”), IT systems and their impact on the investing field, the professional money managers and their role in the Game etc. The concepts are introduced in an accessible, and often humorous style. While the author does not offer direct investing advice, he does expose what he calls “the biases” that exist in the market – that are essential to take into account to be successful together with good judgment.

George is very successful at immersing the reader into the culture, the psychology and way of thinking that dominates the financial markets and its participants. While this book is dated, most of the concepts discussed still apply to the financial industry today. A recommended read for anyone looking to gain more insight into the Stock Market.

Below are excerpts from the book that I found particularly insightful:

1) “If you are a successful Game player, it can be a fascinating, consuming, totally absorbing experience, in fact it has to be. It it is not totally absorbing, you are not likely to be among the most successful, because you are competing with those who do find it absorbing.”

2) “The irony is that this is a money game and money is the way we keep score. But the real object of the Game is not money, it is the playing of the Game itself. For the true players, you could take all the trophies away and substitute plastic beads or whale’s teeth; as long as there is a way to keep score, they will play.”

3) “In short, if you really know what’s going on, you don’t even have to know what’s going on to know what’s going on.”

4) “You must use your emotions in a useful way…Your emotions must support the goal you’re after…You must operate without anxiety.”

5) “The strongest emotions in the marketplace are greed and fear. In rising markets, you can almost feel the greed tide begin…the greed itch begins when you see stocks move that you don’t own.”

6) “If you know that the stock doesn’t know you own it, you are ahead of the game. You are ahead because you can change your mind and your actions without regard to what you did or thought yesterday.”

7) “Who makes the really big money? The inside stockholders of a company do, when the market capitalizes the earnings of that company.”

8) “What you want is the company which is about to do that (compounding earnings) over the next couple of years. And to do that, you not only have to know that the company is doing something right, but what it is doing right, and why these earnings are compounding.”

9) “What I have told you is a set of biases so you can make your own judgement.”

10) “It is an informal thesis of charting that there are roughly four stages of stock movement. These four are: 1) Accumulation: To make a perfect case, let us say the stock has been asleep for a long time, inactively trade. Then the volume picks up and probably so does the price. 2) Mark-up…Now the supply may be a bit thinner, and the stock is more pursued by buyers, so it moves up more steeply. 3) Distribution. The Smart People who bought the stock early are busy selling it to the Dumb People who are buying it late, and the result is more or less a standoff, depending on whose enthusiasm is greater. 4) Panic Liquidation. Everybody gets the hell out, Smart People, Dumb People, “everybody.” Since there is “no one” left to buy, the stock goes down.”

11) “Does this mean that charts can be ignored? Perhaps charts can be a useful tool even without inherent predictive qualities. A chart can give you an instant portrait of the character of a stock, whether it follows a minuet, a waltz, a twist, or the latest rock gyration. The chart can also sometimes tell you whether the character of the dancer seems to have changed.”

12) “The computer is going to sanctify charting. The Chartists are on their way.”

13) “The characteristics of performance are concentration and turnover. By concentration, as I said before, I mean limiting the number of issues. Limiting the number of issues means that attention is focused sharply on them, and the ones that do not perform well virtually beg to be dropped off…Furthermore, you are going to be scouting for the best six ideas, because if you find a really good one it may bump one of your other ones off the list. Turnover means how long you hold the stocks…All that turover has doubled the volume in the last couple of years, and the brokers are getting very rich.”

14) “The further we come along, the more apparent becomes the wisdom of the Master in describing the market as a game of musical chairs. The most brilliant and perceptive analysis you can do may sit there until someone else believes it too, for the object of the game is not to own some stock, like a faithful dog, which you have chosen, but to get to the piece of paper ahead of the crowd. Value is not only inherent in the stock, it has to be value that is appreciated by others…It follows that some sort of sense timing is necessary, and you either develop it, or you don’t.”

15) “The aspiration of the people are a noble thing and no one is against jobs. But it does seem easy to produce them with currency rather than productivity. Central governments soon learn the utility of a deficit. It is convenient to take the views of the economists who followed Keynes and spend money during recessions. There are even problems on that side of the equation, because even with the breadth of statistical reporting and with computer, speed, this kind of economics is still inexact, and the central government can find itself pressing the wrong lever at the wrong time.”

16) “The love of money as a possession – as distinguished from love of money as a means to the enjoyments and realities of life – will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.”

Regards,

Omar Halabieh

The Money Game

The Money Game