Alchemy

• Definition: The fundamental properties of something that determine how it could be used.
• Insight: Reducing the possible applications of something can increase the clarity of its affordance; conversely increasing the features of something could make it more versatile but reduce the clarity of its affordance and make it less easy to use.
• Reference: Donald Norman: "Affordances provide strong clues to the operations of things. Plates are for pushing. Knobs are for turning. Slots are for inserting things into. Balls are for throwing or bouncing. When affordances are taken advantage of, the user knows what to do just by looking: no picture, label, or instruction needed."

• Example: The seller of used cars knows more about the car than the buyer.
• Example: Under communism there were no brands of bread, so no bread makers had an incentive to make good bread and be rewarded with repeat custom because the customers did not know where the bread came from. So the bread was bad.
• Insight: Advertising is a form of signalling of quality (why spend big of advertisements unless the product is good).
• Reference: George Akerlof 1970 paper 'The Market For Lemons'.

"If economics isn’t behavioral, I don't know what the hell is."

- Charlie Munger

Insight: In a more sensible world, economics would be a subdiscipline of psychology, but it has been long detatched from how people behave in he real world.

• Definition: The more time energy and effort we invest in something, the more value we tend to put on it.
• Insight: In business, adding work in sign-up may decrease conversion rates but increase retention.
• Insight: Objectively IKEA products use relatively low-quality materials and require assembly, but the work taken to build the furniture increases our attachment to the items.

• Example: The "door close" button in many elevators does not work, but is a placebo to give people the illusion of control.
• Insight: The illusion of control can make people calm.

• Reference: Herbert Simon - coined satisficing in the 1950s.
• Insight: As humans, we crave the illusion of certainty - when we should aim to be more "vaguely right".
• Insight: Satisficing is contrasted to maximising in problem solving - when we have incomplete information (usually) it is often better to satisfice.
• Insight: Satisficing is optimal because it is better to find satisfactory solutions in a realistic world than perfect solutions in an unrealistic one.
• Insight: Heuristics are the practice of satisficing - and are often best.
• Insight: "Irrational" behaviour is often clever satisficing - doing what is least likely to be disastrous.

• Definition: Goods that increase in demand as price goes up.
• Example: Caviar.
• Insight: The same ideas that arise from sexual selection theory such as signalling explain Veblen Goods.