Seeking Wisdom

by Peter Bevelin

  The hypothesis

  - Based on what I want to achieve; test statement implied by goal or statement for consequences.

  - For every alternative ask: Is this alternative likely to achieve my goal (true)? For proposition ask: Is this proposition likely to be true?

  - How can I test (testability) if this is true? Can I try to prove it is false before I try to see if it's true?

  - What do I need to know ifI shall test this statement? I must first find out the equation for what causes the statement to be true so I know what is the most important I need to know the future true outcome of and then search for the evidence for and against that this will be achieved. What is the statement that should be proved?

  - What is the simplest hypothesis?

  Look for evidence and judge the evidence

  - How likely is it that the key cause (for goal, non-goal, and proposition) will be achieved?

  - When evaluating statements or true/false, look for meaning, motives, causes, consequences and evidence for and against.

  - If this were true what would the consequences then imply? Are the consequences of it not

  being true illogical or unbelievable? Does it have any predictability?

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  - How and where can I find the representative evidence if this is true? What is given? What are unquestionable truths? Will the test or other ways of measure give the same results when repeated (reliable)? Can I test for consequences (verifiable)? Is the evidence based on what is known and have I interpreted the data correct (valid)? What evidence do I have? Evidence against? What grounds do I have for accepting that evidence? Weight of evidence? What is the quality of the evidence? How credible is the evidence? Dependent on time, environment? Too small sample? Does the statement agree with the available evidence? Does it violate any scientific laws or laws of nature?

  - What representative information do I have? What is happening by observation? Can I do an experiment to confirm my guess? Does it agree with experiment?

  - What is the track record (case rate, base rate frequency, variability, average rate, degree of randomness, my own experiences, environment, players, and other relevant factors for the case) on what happened (worked and not) in the past? Is there any reason to believe that this record isn't representative for what is likely to happen in the future? What can make the future a lot different than the past? What's been permanent and what hasn't?

  - How long can this continue? What is the major cause(s) now? What force(s) can make it continue, initiate a change, or stop it and why? Is it likely?

  - Ifl get evidence that is the opposite of my previous convictions I must ask: How does this happen? What is going on here? What evidence do I have? What grounds do I have for accepting the evidence?

  Disprove my (or others) conclusion by thinking like a prosecutor

  - Consider causes for misjudgments

  How can I test and prove that my idea and conclusion is wrong? What reasons are there why I might be wrong? Where can I find the evidence that suggest I am wrong? How credible is my evidence? What facts and evidence disagree with my conclusion/idea?

  What major assumptions have I built the case on? Are they built on reality? Are their consequences logical? Has anyone proved that my assumptions are right? What are the consequences if my beliefs and assumptions are wrong?

  What have I ignored or overlooked? Better alternatives? Have I ignored evidence? Have I taken into account the limitations when humans are involved? What factors are uncertain and why? Have I just projected present trends? What have I misinterpreted? Have I used the right definitions? Did I consider and combined all the relevant factors? Have I used the appropriate measure/yardstick? Did I go wrong in the measurement? Have I confused cause and correlation? What about if my goal is shaped by what I believe is true but it isn't? Are there random or systematic errors? What other causes can explain my results? Have I considered the whole system and that interacting parts sometimes can vary in unexpected and unwanted ways?

  - Bias for my own ideas? Is my ego getting in the way of making an intelligent decision? Will I really beat the historical average/record? Have I looked for contrary effects?

  - What do I not see? What is the significance of this? Does an inversion of the assumption lead to a logical absurdity? Is the opposite more likely? Is there any contrary evidence? What evidence can prove it is false (or not achieving goal)? What experimental (or experience,

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  observation... ) evidence are there that it's false? More evidence in favor of that? What causes it to be false?‌‌

  - Meaning? Can I show that the consequences ofit being true are unbelievable? What is the implied effect ifl trace it out mathematically? Would the opposite of the statement be more likely? If yes, the proposition is probably false.

  What is the downside?

  - How can I be hurt? What could possible go wrong? What can turn this into a mistake? What would the consequences be?

  - How often do things go wrong? Surprise factors? What can happen that will dramatically change the outcome?

  - What is the worst thing that could happen - the nightmare scenario? How likely is that? What will I do if it does? What are the consequences if things go from bad to worse? And what are then the consequences?

  - What are the consequences ifI get two or three forces acting in concert against me? Which alternatives net effects are least worse?

  - Execution risk?

  - What do I least like? What am I least sure of?

  - Can an advantage give me unwanted consequences? How do I lose an advantage?

  - How can I structure the "system" to minimize the influence of negatives? Antidotes to what I don't want happen? Do I have a backup plan for surprises? Can I correct it? What rules can I install to achieve goal and avoid non-goal? Is there a built-in safety factor?

  What are the consequences if I am wrong?

  - What key thing am I betting on? Do I risk what is important for me for something of relative low utility for me?

  What is the cost (dollars, time, mental stress etc) of being wrong weighted against the benefit or value of being right compared to the next best available opportunity?

  Ifl do this because I believe the consequences are in my best interest/it's true but I turn out wrong/it is false, what are the short- and long-term consequences (actual loss and opportunity cost loss) for my goal and can I handle them and/or reverse them?

  IfI don't do this because I believe the consequences is not in my best interest/it's false but I turn out wrong/it's true, what are the short- and long-term consequences for my goal and can I handle them and/or reverse them?

  - If I don't take a decision at all now because I don't believe it is necessary but I am wrong,

  what are the short- and long-term consequences for my goal and can I handle them and/or reverse them?

  What is the value?

  What is the utility or preference of each of these alternatives to me? Which alternative is most likely to achieve my goal and ultimate objective? Is it really more attractive than the other choices I have?

  What can I use as criteria to judge my alternatives against each other?

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  - What do I like best if I weigh the alternatives against each other by assigning their characteristics numerical values?‌‌‌‌

  - Will it make a difference? Make an impact? How willing am I to accept certain outcomes?

  What yardstick can be used to measure progress or to measure things against?

  - What yardstick(s) do I use? What is the yardstick by which the decision is made?

  - How can I easily measure to what degree my goal are being achieved? What indicators can I track?

  - Does the "system" give people an incentive to behave in a way so that my goal will be achieved? Or does it work against the goal?

  How act now?

  - Can I execute? What specific action(s) do I have to do (must do) now? What do I need to do first?

&nbs
p; Who is going to do what, where, when, why and how?

  Have I decided on where the critical points (time and effects) are?

  Have I installed some kind of control stations and rules? Why is this the right rule? What are the consequences if I don't install chis rule (or change my way of doing something)? What administrative and practical actions must I do due to the rule? How much time will it take to follow the rule? Can I control how I follow the rule? Can I install a time-limited rule? Where does the rules not work?

  Have I made an active decision?

  - Am I prepared to change the decision to reflect new information or new insights on what works and not?

  Is another decision contingent on a specific event happening? Have I evaluated the issue as it exists today? Is the underlying rationale for the decision still there? What new evidence is there that can change the likelihood? Does my way of measuring progress give any clue of what is likely to happen in the future? Events - relevant or irrelevant? Does it make any difference for my goal (independent of time horizon)?

  Post mortem or learning from mistakes

  How well did it or didn't it work out? Did I act? Did I do what I said? What did I think at the time? Original reasons compared to reality?

  Why did I go wrong? How? Where? Opportunity cost?

  How can I figure out if this is going to continue? Have I acted on my mistakes? How act to not repeat? What should I have done and didn't do? What should I concentrate on? What must I improve? What must I learn?

  What exactly is the problem?

  What do I want to achieve? Why don't I achieve my goal? What happen? How does it happen? Where does it happen and not? When does it happen and not? Who's affected?

  What causes my goal? What interferes with the factors chat cause my goal? Symptoms or

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  core cause? What is the single most important limiting factor for reaching my goal? What principles or assumptions do I base this on? What are the consequences if they are wrong? Assuming no limitations, what would be the best course of action? Other consequences?‌‌‌‌‌‌

  WHAT ARE THE LIKELY CONSEQUENCES CONSIDERING HUMAN BEHAVIOR?

  What is causing me to do this?

  What are my present environment and my state of mind? What is rewarding for me to do/say ifl want to avoid pain? What do I perceive to be the consequences for me? Are they painful or pleasurable? What psychological tendencies will influence me? Are they likely to cause a misjudgment?

  What is the context?

  What does the environment and participants (incl. size) look like? Who is the decision-maker and what are his criteria for making decisions? Who benefits and who pay? Who is responsible for outcome? Who and what are influencing the participant's perception of reality?

  Can I judge him?

  Can I judge his character? What are his experiences? What temporary or permanent characteristics influence him (age, cultural background, health, mood... )? What environmental (present internal and external) or situational factors influence him? Does he want to sell me something?

  What is in his self-interest to do?

  What is logical for him to do? What is rewarding for him to do ifhe want to avoid pain? What does he perceive as painful? What does he fear and why? What does he want more of or what does he not want to be taken away? What "resources" motivates him? His health, job, family, position, reputation, status, power? What would give him an incentive or disincentive? What reward or penalty system causes his behavior? What is he rewarded (perceived) for doing? What is he punished (perceived) for doing? How is he measured? How does he perceive the consequences of non-goal? Is it to his advantage/interest to believe (or not to believe) something?

  What are the psychological tendencies and shortcuts that influence him and can cause misjudgment?

  What bias affects his conclusions? What external influences is there, that will likely influence him? What temptations are there that appeal to his self-interest? What activates his behavior?

  What are the consequences?

  What are the consequences for me? Will my goal still be achieved? Is what is rewarding for him also rewarding for me? Is the system set up so that the relevant participant's interest coincides with my goal? Does it "pay him" to make the wrong decision? Does he understand

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  the consequences of his behavior? What are the short-and long-term consequences for him? What are the lines of responsibility? Does he have the responsibility for the consequences? What happens when others do the same?‌‌‌‌

  What system would I like to have if the roles were reversed?

  How would I like to be treated if the roles were reversed? What would cause me to do the things I want him to do? What are the behavioral tendencies I can use to change his behavior? How shall I behave ifl want to guarantee non-goal? Can I now turn around and avoid chose?

  Is this the right system?

  Can I appeal to his self-interest? Can I appeal to fear of losing reputation, money, status, family..? Can I change his present associations to pain? How can I organize the system to minimize certain influences? Have I cold him what I expect? Have I inspected what is done? Have I supported things done well? Does he have the necessary skills, knowledge and the relevant information? Does he know what is expected of him? Does he know the goal, how he will reach it and why that is the best path? Can he measure his progress? Is it related to his daily activities? Does he have the responsibility and the authority? Is his reward aligned with the goal? What rules can I install that will consider human weaknesses? Can I install a reverse rule? What changes must be made? Who will call for them? How likely is that? What are his values? His goals? What does he consider to be resulc? What is his perception of the consequences if he behave like we want him to and if he doesn't?

  BUSINESS EVALUATION

  Filter 1 - Can I understand the business - predictability?

  - Reasons for demand - How certain am I chat (and can explain why) people are likely to continue buy this type of product or service in the future? What has happened in the past and what is likely to happen in the future? Cyclically in demand? Capacity versus demand?

  - Return characteristics - Industry and company return characteristics and change over the last ten years?

  - Industry structure - No of competitors and size? Who dictate the terms in chis industry? What is needed to make money in chis industry? Position within the industry? Do I know who is going to make the money in this market and why?

  - Real Customer- Who decides what to buy and what are his decision-criteria?

  Filter 2 - Does it look like the business has some kind of sustainable competitive advantage?

  - Competitive Advantage - How certain am I that (and can explain why) they are likely to buy the product or service from the company rather than from someone else? Are the reasons virtually unchanged from what they were ten years ago? Are these motivations likely to be unchanged over the next ten years?

  - Value - How strong and sustainable is chis advantage? Have the advantages become stronger and more durable over the years? What can destroy or reduce them? Barriers to entry? Brand loyalty? Vulnerable to change in demand or prices? Easy to copy? Short

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  product life cycle? Customer cost and incentive to switch supplier? Annual cost differential against competition? Capital investments needed? Bargaining power? Obsolescence risk? New customer alternatives? Change in buying habits or power? Competitor potential to undercut prices assuming same cost structure? What is needed to make sure the advantages stay sustainable? Growth opportunities left? Is the demand for the product likely to grow? Untapped unit volume demand? Pricing power?‌‌‌

  Profitability - Can the advantage be translated into profitability and why? How does the

  company make money? How much capital is needed to produce incremental revenues? Financial characteristics-return on capital (operating margins and capital turnover), gross margins, sales growth, cost-and capital structure and
efficiency? Normalized free cash flow? Advantages of scale? Critical variable?

  Filter 3 - Able and honest management?

  Is the management composed of competent and honest people that understands and focuses on creation of value?

  Filter 4 - Is the price right?

  Can I buy at a price that provides a good return with a huge margin of safety measured against other available alternatives and with evidence from facts and figures?

  Filter 5 - Disprove

  How can the business get killed? If the company could kill one of its competitors, who would it be and why? If the company would go away for 5 years which competitor would they bet on and why? How resistant is the business to adversity? Assume the company paid out all its equity capital, would it still have any value? Could someone with the access to billions of dollars and talent, successfully compete with the company? How much damage could a competitor do if he doesn't care about returns? Recession sensitivity? Execution risk? Will new technology help or hurt?