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Thinking Fast and Slow by Daniel Kahneman
Don’t tell anybody, but the economist in me is breaking out. I’m starting to get more and more interested in behavioral economics, game theory, and decision theory as I grow into my commercial real estate career.
I have found that the concepts I learn and grow to appreciate in behavioral economics are useful in my every day interactions with deal-makers and colleagues. Learning about how people make decisions and how they make rational choices given the information available is crucial.
Let me see if I can bring it home to commercial real estate. Consider the following questions:
Given the information available to me, should I build this shopping center?
Given the information available to me, should I buy this flex industrial building?
Given the information available to me, should I lease this office space to this prospective tenant?
Given the information available to me, should I refinance my apartment complex with Life Company debt?
Given the information available to me, should I pursue this retailer as a potential lease lead?
Those are just a handful of examples of decisions facing CRE professionals that I would file under behavioral economics, game theory, or decision theory. You can certainly apply the concepts to tenants or clients:
Given the information available to them, how will a tenant want to use this space?
Given the information available to them, what will a shopper want to see in this center?
Given the information available to them, what will visitors to my property want in their parking experience?
Again, just a few examples of behavioral economics in action in our world, and I hope you can see why I find those concepts so relevant. They shape almost everything we do.
That’s why I enjoy books like Thinking Fast and Slow by Daniel Kahneman. To call this a follow up to The Black Swan wouldn’t be fair, but I can say that they are highly related and TFaS quotes tBS fairly often. Black Swan told us how much we suck at predicting anything, particularly “outlier” events. I would say Thinking Fast and Slow is more about our everyday decision-making skills and biases.
In the book, Kahneman discusses two systems of our thinking that he labels System One and System Two. System One is our automatic recall memory, our first impression, our first thoughts and reactions to the world around us. System one isn’t very good with statistics and is prone to mathematical errors and all sorts of biases.
System Two is our more analytical, slow, methodical thinking system that takes the time to analyze probabilities, best practices, likelihood, etc. This is the system we use when we take the time to really break down a problem or decision and analyze it mathematically or systematically. We don’t rely on our impressions or memories of similar problems in System Two. We approach everything more carefully and methodically than we would in System One.
A large section of the book is dedicated to the short-comings and biases of System One and how we, as imperfect decision-makers, rely too heavily on System One for our decisions. Kahneman does a thorough job of breaking down our biases and heuristics when faced with similar situations. He uses questions like: “Would you prefer a 40% chance to win $100 or a 8% chance to win $1000?”
All-in-all the thought processes and common decision biases he examines are though-provoking and interesting, but I would warn you that his style of writing can tend toward academic. He is very skilled in describing complex scenarios at high levels, but tends to use numbers heavily and will stroll through complex psychological issues that the lay reader may not be familiar with.
So, this wouldn’t be an easy beach vacation read that you leisurely peruse between trips to the pool. You need to take your time with Kahneman, take notes, and allow yourself a chance to digest these complex psychological contradictions. I think it’s worth your time to do so, if nothing else you will better understand your own short-comings in quick decision analysis and judgment and may be able to recognize when to slow down your thinking and engage System Two for some heavy lifting.
Thinking Fast and Slow in Two Sentences: Each of us have two systems of thinking: System One (Thinking Fast) and System Two (Thinking Slow). System One is our quick-judgment, memory, and recognition center that is prone to errors in estimation while System Two is our more analytical and statistical system that methodically breaks down options to reach rational conclusions.
Pros: Very interesting foray into psychology that explores decision-making, game theory, and behavioral economics. Well-researched and well-argued.
Cons: A bit length and highly academic/mathematic in parts. Not a leisurely read.
Target Audience: Any reader interested in human psychology, the psychology of decision-making, heuristics, game theory, and behavioral economics.
This book is best for: Someone wanting to analyze and improve the way they make decisions and judgments.
Overall Rating: ♦♦♦ (out of 5)
Here is the Amazon link to buy this book:
♦ = Not worth your time
♦♦ = May be worth your time if it is specific to your industry or interests
♦♦♦ = A decent book and worthy addition to your library depending on your interests
♦♦♦♦ = A great book and an excellent addition to your library.
♦♦♦♦♦ = One of the all time classics. A must-read for anyone and everyone.
With many residents upset over Park Atlanta’s practices, an Atlanta City Councilman calls for Atlanta to terminate the contract with the private company.
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I just got back from 10 days in the UK. I didn’t get to see any of the Olympics in person, but I did get to visit dozens of architectural treasures and centuries-old towns in the British and Welsh countryside. The trip was a birthday gift for my wife and she has a nice little obsession with English castles, manors, and historic estates.
So most of my trip was spent in and around dramatic buildings and classic examples of British architecture. After about a dozen guided and audio tours of these magnificent buildings, I realized that these Brits have been creating architectural masterpieces for 500 years.
So, I thought I would briefly share with you a few thoughts I gathered from my trip through some of Britain’s greatest buildings.
1. They Build Stuff That Lasts
I know that I may have a sampling bias here since I mainly went to the coolest and grandest castles in the country, but those Brits know how to build stuff that lasts. I marveled at how amazing the structures were preserved and the stone buildings showed minimal signs of wear.
I know that the National Trust has worked relentlessly to make these buildings appear to be in mint condition, but there is something to be said about carefully and meticulously building structures out of stone. They last for hundreds of years.
I think it also speaks to the enduring appeal of classic English architecture. Those buildings are still as stunning and spectacular today as they were when they were built hundreds of years ago. And they don’t come across as grotesquely ornate or intricate for the sake of intricacy. Great architectural design stands the test of time and they have done a magnificent job with their classical architecture.
I see the nasty brick condo buildings that we built around here in the 80s and I wish we had the same classic architecture and building practice. That isn’t to say that we can’t build to last or that we don’t have architectural treasures of our own. It’s just that there are so many beautifully-built and maintained buildings, including the humblest of stone-built country homes, that there seems to be a national trend that I find missing here.
2. They Understand Scale
Sometimes I get the feeling that we always assume bigger is better. Since I’m a fairly large guy myself, I usually don’t complain. But traipsing about England, in and out of castles and churches, I began to appreciate the significance of size and scale a little more. I think I become desensitized to scale when every major building I’m in here tries to impress me with its enormity, soaring ceiling, grandiose artwork, etc.
In England, scale matters. cathedral ceiling are 40 feet high and vaulted to represent the awe-inspiring nature of God. Grand castles have 40 bedrooms not because they are needed, but because at the time they were built the region needed to send a message of power and wealth. It was crucial to the area to have a few huge manors as a sign of regional strength. Even the smallest, tiniest details seem to be meticulously scrutinized. The daintiest teaspoon and salt cellar had craftsmanship that Chippendale would envy.
Here, I walk into a 2500 sf suburban home with a 25 foot ceiling in the entry foyer and all I think about is the enormous cost to heat and cool the space. And maybe I miss the tiny details and craftsmanship in our delicate treasures, but they seem to be more pronounced over there. I just appreciated the use of scale in their buildings and crafts because they didn’t use size or intricacy for the sake of size and intricacy. They used it when it was appropriate.
3. They Use Space Well
This observation came more from the contemporary buildings I observed. Anyone who has been to Europe knows that it is a continent created and built by small people on horses. This is, after all, the continent that gave us IKEA.
So the doorways are small, ceilings are low, streets are narrow, and space is very limited. The English have had to become creative with their limited space and have been forced to maximize the utility of every inch of space without crowding or cluttering.
I think they have done so. There are some spaces left empty and some space packed with furniture, lighting, appliances, or whatever. I felt like there was a good balance of blank and filled space that left me thinking how much space we waste here in The States. Hopefully the recent trend away from “stuff-for-the-sake-of-stuff” will help us become more efficient with our space and I think we can learn a thing or two from our brothers across the pond.
4. They Understand Density
They had to. Most of these small British towns started as agricultural centers or ports in the pre-industrial era. They were farmers and ranchers that raised crops and animals, or they were merchants in a port town who needed to be close to the market to hock their goods. As industrialization took hold, the English moved into the cities in great numbers and moved as close into the city center as possible.
This early densification made urban dwellers have to deal with the pros and cons of density. So they built multi-story, stone buildings around a town center and then radiated out from there. As I alluded to in Point 1, there is a lasting demand for multi-story housing near a downtown center. That trend hasn’t faded in the subsequent 500 years and shows no sign of fading hereafter.
We in the U.S. tend to have problems when we spread out too much and put single-story, single family homes in downtown corridors. The early English also had the (dis)advantage of traveling by horse when their downtowns were built whereas many of our major cities were built after the invention of the steam engine. So, when we could get from Downtown Atlanta to Marietta in 25 minutes, they had to make the same distance trip in two hours. Sprawl really wasn’t an option. So I think they have done density well even though it was out of necessity.
5. They Appreciate the Importance of Words
This one is more about culture than business, but I think it is worth mentioning. England is the home of Shakespeare, Chaucer, Wordsworth, Churchill, Rowling, and dozens of the greatest wordsmiths in the history of the planet. I thoroughly enjoyed the British ability to turn a phrase eloquently.
Maybe it’s just my own internal backlash against a country full of people saying: “OMG. I found five dollars! Best. Day. Ever. LOL!”
Seriously, that overly-dramatic, constant exaggeration drives me crazy. Here is a challenge to illustrate my point:
Step 1. Go onto iTunes and download a podcast or free audiobook of Winston Churchill speaking and listen to it for 5 minutes.
Step 2. Go onto Facebook and read the stats updates of your friends.
Step 3. Compare.
Get my point? I know I am putting our friends at a disadvantage comparing them against one of the greatest orators in history, but take note of the style of his speaking and his careful word selection. Speaking and writing eloquently is a learned skill and I think it can be done artfully. Team GB gets that. Facebook doesn’t. Score one for the land of David Beckham.
So consider this my tip of the cap to our cricket-playing brethren. Well done, ladies and gents.
I loved the countryside and have a new appreciation for our brothers across the pond.
Have you had any similar experiences abroad? Think I missed something crucial about our British counterparts? Let me know in the comments.
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