Category Archives: Business

Paul Graham’s latest essay on Cities and Ambition has some parts I agree with, some parts I do not (as usual), but I found this footnote particularly amusing:

How many times have you read about startup founders who continued to live inexpensively as their companies took off?  Who continued to dress in jeans and t-shirts, to drive the old car they had in grad school, and so on?  If you did that in New York, people would treat you like shit.  If you walk into a fancy restaurant in San Francisco wearing a jeans and a t-shirt, they’re nice to you; who knows who you might be?  Not in New York.

One sign of a city’s potential as a technology center is the number of restaurants that still require jackets for men.  According to Zagat’s there are none in San Francisco, LA, Boston, or Seattle, 4 in DC, 6 in Chicago, 8 in London, 13 in New York, and 20 in Paris.

(Zagat’s lists the Ritz Carlton Dining Room in SF as requiring jackets but I couldn’t believe it, so I called to check and in fact they don’t. Apparently there’s only one restaurant left on the entire West Coast that still requires jackets: The French Laundry in Napa Valley.)

Embedded below is a great 4 minute video of Tom Peters on the definition of leadership. The essence is captured by Robert Altman’s lifetime achievement Oscar acceptance speech: "The director allows an actor to become more than they’ve ever dreamed of being."

Peters also says that people often ask him about the key to leadership in the 21st century. He says "nothing has changed." The key to leadership in the 21st century B.C. is the same as it is in the 21st century A.D. Yes!

Tom Peters on the Definition of Leadership from Tom Peters on Vimeo.

From the FT’s review of George Soros’ latest book:

In markets, Soros says, participants’ thinking plays a dual function: they try to understand the situation (the "cognitive function"), and to change it (the "manipulative function"). The two functions can interfere with each other; when they do so the market displays "reflexivity".

So an investor’s misperception of reality can help to change that reality, begetting further misperceptions. When market actors’ decisions affect outcomes, patterns emerge. If a lot of people are bullish about internet stocks their price goes up. Soros used the theory to predict, and profit from, a series of "initially self-reinforcing but eventually self-defeating boom-bust processes, or bubbles". Each bubble "consists of a trend and a misconception that interact in a reflexive manner".

A key implication of this is that markets do not tend towards "equilibrium", as predicted by modern portfolio theory. And they will not move in the "random walk" promulgated by efficient markets theory, which holds that prices always incorporate all known information and so move randomly in response to new information.

This is important, as the architecture of modern capital markets depends on these theories. And it begins to look as though the credit crisis was the tipping point at which academics and practitioners decided a new paradigm was needed to replace the efficient markets hypothesis. Alternative theories borrow from experimental psychology, advanced mathematics and evolutionary biology and have been built in response to experience in the markets.

The theory of "adaptive markets" – that markets follow trends until they become overblown and then start building up other trends – seems to be gaining ground as an alternative paradigm.

I recently dined at a restaurant in Southern California that, on the receipt, included in small font what 15% of the bill was, as a guide for tipping. I’ve never seen this done before. It was helpful.

But they’re leaving money on the table. If I ran a restaurant, on each tab I’d include a "Tip Guide" suggestion with three percentages:

15%
17%
20%

If most of your patrons usually tip 15% (the standard in restaurants in the U.S.), by making 15% the lowest of three, more will choose 17%. Persuasion research shows that people tend to choose the middle of three options and are heavily influenced by relativity — ie, what a number/option is relative to other numbers/options.

Naturally, this is a concept not limited to restaurant tabs. In any kind of negotiation, framing your desired outcome in the context of other choices is key.