Dear Q&A friends,
We start out this week with a phenomenon that seems concrete, but might not be (inflation) and a phenomenon that is a lot more tangible than given credit for (creativity). We follow with two reflections on one of our favourite subjects: cognitive biases. Enjoy!
In an earlier article about inflation, we left you with a cliffhanger that the definition of 'core CPI', or core Consumer Price Index, may not represent the inflation metric that the average person experiences in daily expenses. We never quite followed up on this topic, but meanwhile inflation itself did its best to grab the spotlight.
Whatever metric you use for inflation, all of them currently are at an elevated level, often reaching a 10- or 20-years high. It is safe to say we're in inflationary territory. More importantly, inflation has currently been around long enough not to be called 'transitory'.
When wage growth keeps up with inflation, there is not much to worry about. It's probably even a positive thing, as it'll make it easier to pay back debt, which amount was fixed in the past. In the US, however, the inflation is currently higher than wage growth, which may cause problems, not in the least in terms of economic activity and consumer demand.
Amidst this potential bleak outlook, there is also positive news. John Authers in his recent newsletter shows that current wage growth is in fact reducing some of the inequality that grew over the past decade. The graph below shows that average wages in the lowest quartile grew at a much faster pace than the ones in the highest income bracket.
Women also seem to benefit this time around:
Inflation feels very artificial to me. This may not be surprising as the whole money system is man-made. In a way, it makes it plainly obvious that the number shown on a bank note is nothing more than just that: a number. Let's not make too much fuss about it.
Most people feel creativity is an elusive, dark art. Something you're born with or not, something you had as a child but lost along the way. Tons of research, however, show that creativity is something you can (re-)learn and practice. It's a skill like any other. But even when you're a seasoned artist, having the equivalent of a sixpack worth of creative muscle, things can get tough. You can get stuck.
Some time ago I bumped into the story of a mythical set of creativity cards, called Oblique Strategies. The idea was born in the 60's and 70's, when musician / producer Brian Eno and artist Peter Schmidt had independently come up with a set of 'cue cards' to break a deadlock or dilemma situation. In 1975 they combined their efforts and created a deck for sale in a limited edition of 500 sets.
The strategies mentioned include "Honor thy error as a hidden intention", "Look closely at the most embarrassing details and amplify", "Not building a wall; making a brick" and "Repetition is a form of change", cryptic advice in some cases.
When hitting a block, a card was drawn and that advice was to be followed in any shape or form. Helping out during several recording sessions in Eno's studio, they can count the likes of R.E.M., Coldplay and David Bowie amongst their fans. "Withdrawing in disgust is not the same thing as apathy." even made it literally to the lyrics of R.E.M.'s 1994 "What's the frequency, Kenneth?"
Most of our economic models are based on the fact that humans make rational choices. Though our brains have impressive computing power, they still aren't able to process all the information rationally and weigh all scenarios involved in making a potential decision. Still, we're able to move ahead and make decisions. We tend to use intuition and cognitive biases to filter all incoming information and take the shortcut.
We should probably not change the way we make choices, as this could make life very dull. However, there are situations where a 'pure' rational decision could be preferable. For example, doing a performance review or judging in a court case.
From an article by neuroscientist Liro Rozenkrant, I learned that individuals that have a high degree of autism seem to be less susceptible to cognitive biases and therefore make decisions in a more 'rational' way. These individuals generally have the label 'autistic'; however, every human being has a degree of autism, so I rather try to avoid the label.
"[...] researchers have repeatedly found evidence that autistic individuals are, on average, more consistent, less biased, and more rational than non-autistic individuals in a variety of contexts."
They tend to be more focused and integrate information in a more objective and unbiased way. A great example of the benefits of diversity, in this case: neurodiversity. Making use of these traits, our overall perspective will become more balanced and, frankly, more colourful.
Human beings are built to detect fast changes and rely on patterns. This reliance on patterns and predictability has huge evolutionary benefits (it saves us from constantly seeing everything like a baby does, drinking from a firehose worth of information) but it can also fool us into destructive behaviour. Normalcy bias, as it is called, is our human tendency to think our environment will stay as it is.
When COVID hit two years ago, most of us suspected that life would continue as we know it. Even after seeing the first illegally broadcasted images from China of locked down apartment buildings, most people suspected that this would be a blip that would be forgotten soon. We are just hardwired to have a tough time with imagining drastic change. Combine this tendency with increased complexity (and therefore unpredictability) in the world around us, and you get an interesting mix.
A tool that might help in getting ready for possible scenarios is the 'disaster movie' (or 'near disaster movie'). Last week I watched "Don't Look Up" on Netflix, which I think does a wonderful job of making you empathise with humanity when faced with a potentially life-eradicating comet hurling at the earth, only 6 months away. The prospect of human life being terminated might not be everybody's cup of tea, but the stellar performance of Meryl Streep (playing the President of the United States) and Jonah Hill (playing her son, also the Chief of Staff) make the potential nightmare highly palatable and a nice stretch for your bias-inspired convictions.
As always, we would love to hear your thoughts and tips. Just reply to this e-mail to get in touch with us.
Have a great week!
Quinten & Alphons