Mimetic Desire in the 21st Century

You may be familiar with Rene Girard’s theory of mimetic desire. If not, I’ll summarise it briefly. The theory of mimetic desire says that we do not desire things directly for ourselves in a linear fashion, but rather we desire objects because someone else desires that object. For example, the theory says that we do not want a specific job just for ourselves – rather, we want that job because we see someone else who wants (or has) that job, which causes us to desire it too.

I see some practical failings of this theory. For example, I am confident that when I wake up in the morning, I want to drink a cup of coffee because I want the caffeine from the coffee – I do not want the caffeine simply because someone else wants caffeine. It seems like a fairly straightforward example of when we desire something simply for ourselves. Maybe food, and human necessities in general, are exceptions to mimetic desire.

But the failings of the theory are not actually what I want to talk about here. I want to talk about how mimetic desire is much more obvious than perhaps ever before.

As brands grow in popularity and power all over the world, we are given a perfect example of mimetic desire in action. I believe that a brand fundamentally tries to sell its products through mimetic desire. Think about this. If someone tried to sell a handbag that was completely identical in every way to one made by Gucci, only it lacked the Gucci label, it would sell much less than the actual Gucci handbag (this happens every day all over the world). Why is this? The product is identical. All it lacks is a little label on the inside that says 5 letters. The difference in the cost of producing these two products is likely less than 5 cents – the cost of the label on the inside of the bag. And yet the difference in cost of the label to the consumer is probably at least $500, if not thousands of dollars. There is clearly something else at play that makes many more people want the bag with the label than the one without, despite the outrageous price differences.

There are probably two reasons that someone wants the Gucci handbag over the one without the label. Either they know someone who has the bag, and they admire that person and want to emulate them, or they’ve seen Gucci’s advertising and want to be like the person in the ad. These are both on a basic level the same thing, but it’s worth mentioning the difference.

In each case, someone buying a Gucci handbag is only wanting the bag because they’ve seen someone else with it, and they want to emulate that person’s style. No one thinks “The economic difference between this Gucci bag and an identical one without the label is five cents, but I will pay hundreds more for it”. That is not logical or intelligent in any way. But because of a desire to imitate someone else’s desire or possession of the item, people end up going against economic reasoning and purchasing the Gucci product nonetheless.

You might ask why the first person to buy a Gucci handbag bought one, even though they hadn’t seen anyone else with one yet. In my opinion, this is the role of advertising. Its role is to create the image of ideal customers using the product, in order to create mimetic desire. Someone will desire the image and style of the person in the advert, which causes them to desire the product with the label. Again, they desire the product through someone else’s possession or desire.

By these inferences, mimetic desire is the basis of brands’ success. Mimetic desire is visible more in the world today than it ever has been previously. We all wear branded clothing, and wearing a brand is a sign that we indeed succumb to mimetic desire.

I like reducing things to fundamentals. And in my opinion, the fundamentals of brands and advertising is mimetic desire. Without it, they wouldn’t have a role or purpose. If people can keep in mind mimetic desire when advertising or creating a brand, they may be more successful.

The Time Value of Experience

You’ve no doubt heard of the Time Value of Money, a theory that explains how the value of a dollar in your pocket today is more than the value of that dollar if you receive it tomorrow. If you own that dollar right now, you have the opportunity to receive interest on it before tomorrow, which means that the dollar is more valuable to you by the amount of the interest that you receive before tomorrow (and tomorrow can represent any date in the future).

The Time Value of Money theory is the basis of fundamental finance and economics. It explains the core reasoning behind why people act rationally with regard to money and how people make investment decisions. There is no arguing with the importance of this theory in our society.

I propose that there is another theory which is arguably more important than the Time Value of Money. It’s a theory that is relatively obvious, but often forgotten. The theory explains the core reasoning behind how we act, and how we make decisions in life. And because it encompasses much more than money, it’s something that people should be made aware of, so that they don’t forget it.

Let’s call it the Time Value of Experience. It describes how experiences we have are more valuable the earlier that we have them, because those experiences can then be applied to all other parts of our lives in the future. It’s about knowledge and lessons that we’ve learned – so perhaps those terms are interchangeable.

If I make a mistake today – let’s say I screw up a negotiation with someone, or make a bad decision – then the lessons that I’ve learned through this experience are valuable, as they help me to avoid making similar mistakes in the future when perhaps the stakes are higher. By making these mistakes today, that experience is more valuable than if I made the mistake tomorrow because I’ve had a day with which to apply that experience to my life. Later that day, I may have avoided making a similar mistake because I already made the mistake earlier that day.

Therefore, experiences that I have today are more valuable than that same experience tomorrow by the difference of mistakes that I would’ve made before tomorrow if I hadn’t gained that experience today.

Obviously, the Time Value of Experience is not as easy to measure as the Time Value of Money. It’s intangible, and non-numerical. But by being aware of this theory, we can attempt to gain as many experiences as we can, as soon as possible.

This theory explains why many entrepreneurs love making mistakes, and look upon mistakes as a huge achievement. By screwing up, you’ve successfully gained experience and knowledge which you can apply to everything you try in the future.

The Time Value of Experience also helps me to explain the importance and value of my project They Don’t Teach You This In School. If people can pass on their knowledge and experiences through TDTYTIS, then young people can learn from that right now and benefit from it into the future. On the other hand, if the only way for someone to learn something is through personal experience, then society is slowed down because everyone is making mistakes that could be avoided.

I believe everyone should bear in mind the Time Value of Experience. You should try to gain as much experience as you can in whatever it is you do every single day, because that experience is more valuable the sooner you gain it.

My Recommended Book List

I spend a lot of time talking to people and browsing the Internet to try and find the best books to read on topics I’m interested in. I don’t have that much time to read so I want to make sure that the books I do read are ones I get a lot out of.

To that end, I thought I’d write a quick post to share some of the books I’ve found most valuable and insightful to read over the last year or so. I’ll also give a very brief description of what each book is about. They are in no particular order.

• The Filter Bubble, by Eli Pariser.

I’ve written previously about this book. It sums up many of the negatives to the Internet, and outlines a plan for how we can go about avoiding these negatives. Read this one if you’re interested in the theory of the Internet and its effects on society.

• Too Big To Fail, by Andrew Ross Sorkin.

The best book in the world about the 2008 financial meltdown. I love this guy’s writing style, and the whole event was so exciting and gripping that this book is more exciting than most fiction. I loved this book and learned so much from it about the events that happened, and about finance in general.

• Outliers, by Malcolm Gladwell.

I’ve written about the parts I liked best in this book here. In many ways it’s a guideline for how you can go about becoming more successful and lucky. I got sick of Gladwell’s writing after the third book of his that I read, so if you’re going to read just one, this should be it.

• Fooled By Randomness, by Nassim Nicholas Taleb.

This book explains randomness in our life and what it means for us. A hard book to read (Taleb goes off on all sorts of tangents), but hugely insightful and mind-expanding. If you want to read it, I’ve previously written a summary of five interesting things from his book.

• Permission Marketing, by Seth Godin.

Simply the best marketing book out. I loved it and learned so much.

• Every Bastard Says No, by Justine Troy and Geoff Ross.

The true story of how a New Zealand couple built a worldwide vodka business from their basement in Wellington. I found it great as an insight into the hard work that goes into building a business, and the pure belief that you must have in an idea to keep going.

• The Ascent of Money, by Niall Fergusson.

A fantastic book about how money came about and what its significance is in the world today and going forward. Huge amounts of interesting facts in it.

Would love to hear about books that you guys recommend at the top of your lists – heading away on holiday again soon so will have some reading time! Do share them in the comments.

To find what you love, immerse yourself in “worlds”

I’ve been thinking a lot lately about how we understand things. For example, I understand a lot about the tech world. I can read a news article about a new company or invention and assess its significance. I know how these businesses work, and I understand all the terminology used in this sector. But then if I read an article about the arts, or science, it all goes straight over the top of my head. I just don’t get it, and I can’t understand more about what’s written other than the literal meanings of the written words.

This is nothing new or profound – I’m just thinking out loud here. I eventually came to the conclusion that what we understand, and what we don’t, is based around what “worlds” we are a member of. I’m a member of the tech startup world because I immerse myself in it every day. Everything I read is related to this, a large number of conversations I have in each day revolve around it, and it’s something I’m passionate about. The tech sector is a “world”, and a very specific one that you need to get “in” on. The opposite is true for the arts worlds, or the science world. I’ll hear bits and pieces about them, sure, and I am required to take biology in school. But I’m not immersed in these worlds. And that’s the difference between understanding them and having it all go straight over your head.

What’s the significance of this? Well, a regular discussion at school is about finding what you love. Perhaps that’s why I’ve written a lot on it recently. I’m lucky in that I know what I’m passionate about – but the large majority of my friends have no idea what they want to do for the rest of their lives. They do a large number of things outside of school, and read a diverse range of stuff in the hope of finding what they love. But I don’t think they’ll truly find their passion just from doing that. I reckon that to find your passion, you need to immerse yourself in the world of it. It wasn’t until I started reading huge numbers of books and blogs and talking to people about tech startups that I realized it was what I loved – and even then, it took a few months for it to really hit me.

But my friends just dabble in a lot of different things hoping that it’ll one day hit them. Instead of this, I think they need to be devoting each month of the year to immersing themselves in a different “world”. One month can be science month, the next can be finance month, the following can be sport month.

Immersion in “worlds” is how you truly understand something, and only then can you actually know what you love.

A Future Without Personal History [RWW Post]

My second article for ReadWriteWeb was posted today.

It discusses how written letters are a very effective historical item, because they detail entire relationships and friendships. As we become more and more a digital society, all of our communication is being frequently lost as our email storage fills up, or we get a new mobile phone. I argue that unless we start actively trying to store our communications, we will lose these aspects of our personal history forever.

All of this information that is so important and so relevant to me personally is just disappearing, and I won’t be able to track the relationships and friendships that I have had.

You can read the full article by clicking here.

A comment on the post by Chris Neale caught my attention:

My advice to you wouldn’t be to archive everything. You’ll *never* go back to a complete archive (because you’d have to filter out all the meaningless drivel to get at any of the riches), but like you say it’s a huge amount of effort to actually build such an archive. So don’t bother.

Just write your girlfriend a letter, and post it, and enjoy the whole “retro-ness” of it all. In 30 years time it’ll mean a great deal to her more than a .zip file.

I think that’s really valuable information, and if I could go back and edit the post on RWW I would make that point. Thanks Chris!

Hope you’ll check the article out, because I can’t stress enough how important it is that people are aware of this issue.

Five Lessons From Nassim Taleb’s Fooled By Randomness

I wrote earlier on the Problem of Induction, which I discovered by reading Nassim Taleb’s book Fooled By Randomness. While that was one of the points that I thought about most, the text was filled with numerous other theories and conjectures that I feel deserve to be shared. None of the following is my own thought — I am just summarising theories outlined in Fooled By Randomness, but that have in most cases been discovered elsewhere first. For more information on any of them, read the book, or Google it.1. Prospect Theory

While it was Taleb who introduced me to prospect theory, it was not he who created it — prospect theory became well-known after the works of Daniel Kahneman and Amos Tversky. Prospect theory is the paradigm of how individuals base their risk calculations not on possible total wealth, but on the change in wealth from a given point. In other words, we look at the differences and not the absolutes.

If I were to invest $10,000 tomorrow, I won’t think “after I make this investment, my wealth could be either $9,000 or $11,000”. Instead, I will think “I can either make $1,000 or lose $1,000”. By taking the “local” view rather than the “global” view, our risk calculations in investment decisions will be formed around the possible volatility of the investment, and not on the possible total wealth outcome.

The result of this is that our investment decisions are not made in as rational a manner as they should be, because a small amount of volatility can have a larger effect on our mental risk calculations.

2. Scaling Property of Randomness

Following on from prospect theory, the scaling property of randomness describes how the perceived performance of an investor’s portfolio can very much depend on the frequency with which the portfolio’s performance is tracked.

Studies have shown that we feel the effects of negative emotions 2.25 times stronger than we feel the effects of positive emotions. Therefore if we view an investment portfolio every minute of the day, the mere randomness factor of the markets will cause us to feel more pain than positive emotions, even if our portfolio has increased in value. Whereas if we view our portfolio’s performance every hour, there are less opportunities for us to feel pain because we are reducing the scale via reducing frequency. You could even go as far as to say it is more productive to view the results of a given portfolio just once every year, because then we have solely a single opportunity to feel either positive or negative emotion.

Imagine that your portfolio increases in value at the end of the year, but you have been monitoring your portfolio’s performance every hour over that year. Noise in the markets dictates that your portfolio is bound to decrease a large number of times over the course of that year, for no other reason than randomness. Therefore for each of those decreases, you will feel 2.25 times the pain than you feel positive emotion when your portfolio increases.

The effect of this is that investors may view a portfolio’s performance as bad, even if it has increased in value, because of the fact that they are feeling more pain through noise losses than positive emotion through gains.

To cut through the noise and just get the “meaning” in your portfolio, it’s best to focus on the long-term trends by tracking your portfolio’s performance infrequently. In other words: reduce the scale of randomness.

My explanation above is simply awful compared to Taleb’s, but hopefully from it you can determine whether it is a theory that interests you or not. If it is: read Taleb’s book (pages 64 to 70 include his explanation of the scaling property of randomness).

3. Causalities

If a stock market increases even 1% in a given day, there should not be journalistic explanations of the causes of that rise. Markets fluctuate a certain degree solely through noise, and yet journalists are paid to try and find the reasons to such fluctuations. Taleb describes how it would take an absurd amount of time to truly track the economic reasons for a fluctuation in a market, and therefore we should not trust any of the reasons that journalists give.

If a journalist says an interest rate rise is the reason for a recent price change in the market, they have absolutely no reasons to back that claim up with, apart from the fact that interest rates rose. The real reason may be the dumping of stock in a company on a mass scale, or any number of reasons!

Taleb stresses that we must learn to ignore journalists’ reasons for market fluctuations, and live with the fact that the majority of daily changes are purely because of noise. He says: “The wise man listens to the meaning; the fool only gets the noise.”

4. Non-linearity in Life

If we study for 365 days on a given subject but learn absolutely nothing, what’s to say that on the 366th day it won’t all suddenly click and the previous 365 day’s work will have paid off?

Because of a degree of non-linearity in life, we cannot comprehend what events might occur. We are trained to think linearly — if we do x, then y will happen after z period of time. But in reality, that’s not how things work. We may play soccer for five years and suck, but then become world-class in the sixth year.

In my opinion, this is why our parents always tell us “keep all your doors open”. If we close routes in life, then we let linearity have its way because we have removed the possibly of non-linearity working to our advantage.

5. Endowment Effect

Using Taleb’s example: If you are to buy a painting at $20,000, and market conditions cause it to increase to a value of $40,000 a month later, would you still buy it at the current market price? Many of us would say no because we could have bought it for half the price a month early — but this is absurd, because if we wouldn’t buy it for the current market price, then there is no logical reason for keeping the painting. Only emotional reasons would exist.

This effect is seen all too often in the markets. People will buy a stock at a price of x, only to have it double in the next month. They hang on to the stock thinking that they got it cheap, but then tell themselves that they won’t buy any more at current market prices. This is a cause of our irrationality — logic says that we should sell all our holdings in a given stock if we would not purchase it at current market prices.

The Problem of Induction: A Student’s Wake-Up Call

I’ve just finished another book on my summer reading list – Fooled By Randomness, by Nassim Nicholas Taleb. Like my post on Malcolm Gladwell’s Outliers, I’m not going to discuss the content of the book as a whole. Rather, I’m going to focus on a specific aspect of the text that struck me as significant and sparked my thought.Here, I wish to discuss the Problem of Induction. The problem of induction is nothing new – in fact, its origins date back to the 1st century BC. But Taleb provided an incredible argument on why we should pay attention to the problem of induction, and why it is relevant to our lives today. His argument led me to question why we are not made aware of this thinking in schools today, and wonder whether everything I have been taught could be incorrect.

Wikipedia states “The problem of induction is the philosophical question of whether inductive reasoning leads to knowledge.” An example regularly given to describe the problem of induction is the belief that all swans were white, before the discovery of a black swan (this example is used both in Taleb’s text, and on the Wikipedia page). Through inductive reasoning, people used to believe that all swans were white. They had never seen a swan of a different color, and therefore our natural reasoning leads us to believe that “all swans are white” is a fact. But once Australia was discovered, people soon discovered black swans, leading their “facts” to be proven incorrect.

Just because we have not discovered something, or it has not occurred before, does not mean it does not exist or will not occur. It merely means that we have not yet proven our beliefs incorrect.

Taleb frequently cites the work of two philosophers who attempted to solve the problem of induction. David Hume, an 18th century philosopher and economist, and Karl Popper, a 20th century philosopher. They both disagreed with the scientific method because they believed it led people to false conclusions. They both believed that there are only two types of theory:

1.  Theories that are proven incorrect – falsified theories. (eg. a black swan is discovered, so the theory that all swans are white is falsified).

2. Theories that are exposed to be proven wrong. (eg. before the discovery of Australia, the theory that all swans are white was exposed to be proven wrong by the discovery of a swan of a different color).

This thinking goes against everything that I have learned in school. I am taught that through the scientific method (and inductive reasoning) we can acquire new knowledge. In addition, I am told that everything I learn is “fact”. Never am I told that a scientific theory is “exposed to be proven wrong”. It is always “this is fact”, “this is proven”, “don’t question it”. Why am I told this? Is our education system afraid to admit that what we know may not be “fact” after all? Is it thought that students cannot handle knowledge that is conjecture not yet proven?

Never once in school so far have I been told for one second that what I am learning may not be proven. I have never been made aware of the problem of induction, nor any thinking that strays away from the “this is fact” argument. By deciding to read Fooled By Randomness I’ve suddenly been awoken to a completely different way of thinking – and perhaps created a healthy skepticism for what I learn because of it.

I understand that for us to learn, we have to believe a certain amount of what we are told. But there is no reason for us not to be aware of the thinking around the problem of induction. I think that for our education system to work effectively, students need to be made aware of the different theories and ways of thinking. Education does not work in the “one size fits all” manner. Yet that “one size fits all” manner is taken and applied to the very fundamentals of education – namely, whether our knowledge really is fact.

I wish that I had been made aware of the problem of induction earlier. I think that by being told “this is fact” for everything I learn has created a false sense of security in my knowledge, and has wiped out any desire in me to discover new knowledge or prove “fact” wrong. The way of thinking that I have been taught likely goes with most people to their grave – they never question anything, and just blindly believe the “facts” that they are told.

And at the very least, if this thinking won’t be implemented into an education system, could the teachers reading this please make your students aware of the problem of induction? Take ten minutes in a class just to explain it to them, and let them discover more about it in their own time. I think it’s dangerous to continue with the “this is fact” way of teaching, unless students are aware of the problem of induction.