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Algorithms to Live By: The Computer Science of Human Decisions by Brian Christian and Tom Griffiths Book Summary preview
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Synopsis

Can computer science teach us the secrets of life? Perhaps not, but it can shed light on how certain everyday processes work and how to exploit them. Algorithms are everywhere, from following a recipe to the order in which you sort your email.

In Algorithms to Live By: The Computer Science of Human Decisions by Brian Christian and Tom Griffiths, programmer and researcher Brian Christian and psychology and cognitive science professor at UC Berkeley Tom Griffiths share the many ways that algorithms shape everything from the way we remember things to how we make big and small decisions.

Top 20 insights

  1. The "37% rule" refers to a series of steps, or algorithms, that someone must follow to make the best decision within a set amount of time. Someone allots 37% of their time to research before they make a decision, then commits to the very next "best choice" they find.
  2. The "explore/exploit" trade-off refers to the need to balance the tried and tested with the new and risky. The payoff of this algorithm depends entirely on how much time you have to make decisions. People are more likely to visit their favorite restaurant on their last night in town than risk something new.
  3. Developed in 1952 by mathematician Herbert Robins, the "Win-Stay, Lose-Shift" algorithm uses slot machines as a metaphor. Choose a machine at random and play it until you lose. Then switch to another machine; this method was proven to be more reliable than chance.
  4. A psychology study found that given choices, people often "over explore" rather than exploit a win. Given 15 opportunities to choose which slot machine would win, 47% used Win-Stay, Lose-Shift strategies, and 22% chose machines randomly instead of staying with a machine that paid out.
  5. Hollywood is a prime example of the exploit tactic. The number of movie sequels has steadily increased over the last decade. In both 2013 and 2014, seven of the Top 10 films were either sequels or prequels. The trend is likely to change if new movie ideas draw more box office dollars.
  6. The A/B test is similar to the two slot machine scenario in that you stick with the option that performs best. More than 90% of Google's $50 million in annual revenue is from paid advertisements, which means that explore/exploit algorithms power a large portion of the internet.
  7. The Gittins Index provides a framework of odds that assume you have an indefinite amount of time to achieve the best payoff, but the chances reduce the longer you wait. For example: choose a slot machine with a track record of one-to-one wins/losses (50%) over the machine that has won nine out of 18 times.
  8. "Upper Confidence Bound" algorithms offer more room for discovery than the "Win-Stay, Lose-Shift" method. This algorithm assigns a value based on what "could be" based on the information available. A new restaurant has a 50/50 chance to provide a good experience because you have never been there.
  9. The "Shortest Processing Time" algorithm requires that you complete the quickest tasks first. Divide the importance of the task by how long it will take. Only prioritize a task that takes two times as long if it is two times as important.
  10. Laplace's Law calculates the odds that something will occur with only small amounts of data. Count how many times that result has happened, add one, then divide by the number of opportunities plus two. For example: Your softball team plays eight games per season. It has already won two games. 2+1/ 6+2=3/8, or a 37.5% chance you win the next game.
  11. The Copernican Principle allows you to predict how long something will last without much of anything about it. The solution is that it will go on as long as it has gone on so far. Based on this principle, Google will reasonably last until 2044 (23 years since 1998 + 23 from 2021).
  12. "Power-law distribution" considers that, in life, most things fall below the mean and a few rise above. Two-thirds of the US population makes less than the mean income, but the top 1% make almost ten times the mean. Few movies make "Titanic" level money in the box office, but some do.
  13. The "Nash Equilibrium" explores the phenomenon of two-player games and the way that players form strategies that neither wants to change based on what the other person does. This creates stability. In Rock-Paper-Scissors with three options, players adopt a 1/3-1/3-1/3 strategy unless the other person changes tactics, and the process starts again.
  14. Human brains have a nearly infinite capacity for memories, but we have a finite amount of time to access them. This results in the "forgetting curve." A study by Hermann Ebbinghaus found that he could recall nonsense syllables 60% of the time after he read them, but it declined to 20% after 800 hours.
  15. Ebbinghaus' "forgetting curve" was shown to closely match how often words are used in society. The recurrence of words found in headlines of The New York Times declined at a rate of 15% over 100 days and implied that human brains naturally tune their processes to the world around us.
  16. The stock market "flash crash" of May 6, 2010 was caused by an "information cascade." When one person does something different, then other people follow suit, assuming that the first person knows something they don't. This behavior causes people to panic buy or exhibit mob behavior.
  17. Sociologist Barry Glassner noted that murders in the United States declined by 20% throughout the 1990s, and yet the mention of gun violence on American news increased by 600%. An information cascade can be caused more by public information than private information.
  18. When authors Brian Christian and Tom Griffiths scheduled interviews for the book, they found that experts were more likely to accept a narrow, predetermined window than a wide-open one. It is less challenging to accommodate restraints than find another solution.
  19. Believe it or not, randomness is part of life's algorithm, too. Nobel prize-winner Salvador Luria realized that random mutations could produce viral resistance by watching his friend win the jackpot on a slot machine.
  20. The best-laid plans are often the simplest. Jason Fried and David Heinemeier Hannson, founders of software company 37signals, use a thick marker when they start to brainstorm because it limits room and forces them to keep it simple and focus on the big picture.

Summary

Optimal stopping

Look versus leap

Life is full of situations that require us to make the best possible decision in the shortest amount of time. Drivers search for the perfect parking space. Managers search for the best job candidate for a job, and property owners must decide on whether or not to accept a sale offer before the real estate market changes again. This dilemma is called "optimal stopping."

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Questions and answers
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The concept of optimal stopping can apply to academic research in several ways. For instance, researchers often need to decide when to stop collecting data or when to stop a study. This decision can be based on a variety of factors, such as the quality of the data collected, the time and resources available, and the objectives of the research. Optimal stopping can help researchers make these decisions in a more systematic and efficient way.

Some other decision-making dilemmas that can be explained using algorithms include choosing the best time to buy or sell stocks, determining the optimal route for a delivery truck, deciding when to replace aging equipment, and selecting the best strategy in a game of chess. Algorithms can also be used to solve problems in machine learning and artificial intelligence, such as classifying images or predicting future events.

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"Optimal Stopping" problems refer to dilemmas that require the best decision in the shortest amount of time. How do you balance the need to get all the facts with the need to act before it's too late? Common examples include searching for the perfect parking spot, when to rent an apartment before they're all taken and when to hire the best candidate for a job. The latter has been thoroughly examined and discussed by mathematicians since the 1950s.

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Optimal Stopping principles can be applied in various aspects of everyday life. For instance, when looking for a parking spot, you might decide to stop at the first available spot after a certain point to avoid wasting more time. When renting an apartment, you might decide to take the first one that meets your minimum criteria after viewing a certain number. When hiring, you might decide to hire the first candidate who exceeds a certain benchmark after interviewing a certain number of applicants. The key is to define your criteria and decide on a stopping rule in advance.

The concept of Optimal Stopping can apply to financial decisions in various ways. For instance, it can be used to determine the best time to sell a stock or other investment. If you sell too early, you might miss out on potential gains. If you sell too late, you might lose money. Similarly, it can be used to decide when to stop investing in a losing venture. The goal is to make the best decision in the shortest amount of time, balancing the need for information with the need to act.

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This problem is known as the "Secretarial Problem."

  • If an employer interviews 100 secretary applicants, that person should allocate the first 37% percent of interviews to familiarize themselves with the talent pool and best qualities.
  • If they hire the very next applicant that appears to be the "best so far," the company has a 37% chance of that person being the best candidate.
  • The odds become greater with fewer applicants.

A renter on the hunt for an apartment in San Francisco might be inclined to take the first available unit due to high demand. If that renter needs to find a new place to live within 30 days, the "Optimal Stopping" algorithm suggests that the renter commit 37% of their time, or 11 days, to explore options without any commitment. On day 12, the renter must be prepared to commit to the first place that they consider to be the "best so far."

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Questions and answers
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Yes, there are several companies that use the Optimal Stopping algorithm in their business models. For instance, online dating services like Tinder and OkCupid use versions of this algorithm to help users find potential matches. Similarly, companies like Amazon and Netflix use it to recommend products or movies based on user's past behavior. In the real estate industry, companies use this algorithm to determine the best time to buy or sell properties. However, it's important to note that the use of this algorithm is not always explicitly stated by the companies.

Small businesses can apply the Optimal Stopping algorithm in various aspects of their operations. For instance, when hiring new employees, they can use this algorithm to decide when to stop interviewing candidates and make a hire. The algorithm suggests that after interviewing about 37% of candidates, they should hire the next candidate who is better than all previous ones. Similarly, when deciding on a new product or service to launch, businesses can use this algorithm to determine when to stop researching and start implementing. They can spend 37% of their time exploring options, and then choose the next option that seems better than all previous ones.

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Algorithms to Live By - Diagrams

Explore versus exploit

Laura Carstensen, a psychology professor at Stanford, hypothesized that people strategically reduce their social circles as they get older. In one study, people were asked if they would rather spend 30 minutes with an immediate family member, an author that wrote a book they read recently or someone they'd met who appeared to share their interests. Older respondents chose the family member, while younger people chose to make new friends.

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When time was added or taken away, however, something interesting happened. If older people were allowed to live 20 years longer, their choices matched those of younger respondents. If younger respondents imagined they were about to move across the country, they chose family members instead.

Life is full of uncertainty, making the decision process that much more of a struggle at times. To take some of the life or death pressure out of the equation, let's turn instead to something a bit less dire – the casino slot machine.

Dubbed the "one-armed bandit," slot machines come with various payout odds that have baffled gamblers and fascinated statisticians for centuries. In 1952, mathematician Herbert Robbins proposed a solution to the age-old dilemma of whether you should hold out for the next big win or quit while you're ahead. He called this the Win-Stay, Lose-Shift algorithm.

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Robbins proposed that a person should choose "an arm" at random (explore), then pull it as long as it pays off (exploit). Once the machine fails to pay, the person should move to another one, and so on.

Minimal regret

Sometimes you have to weigh the risk with potential regret to find the solution to your particular problem. Amazon CEO Jeff Bezos had a steady, well-paid job on Wall Street before starting Amazon. The risk of the first online bookstore, he found, was outweighed by the possibility that he might regret not trying, a "regret minimization framework."

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Questions and answers
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The book "Algorithms to Live By" offers several actionable takeaways for entrepreneurs or managers. Firstly, it emphasizes the importance of making decisions based on calculated risks and probabilities, much like algorithms do. Secondly, it suggests that problems should be broken down into smaller, manageable parts for efficient problem-solving. Lastly, it encourages embracing randomness and uncertainty in decision-making, as these factors can often lead to innovative solutions and strategies.

The ideas from "Algorithms to Live By" can be implemented in various real-world scenarios. For instance, the concept of 'Optimal Stopping' can be used in decision-making processes such as hiring an employee or choosing a life partner. The 'Explore/Exploit' algorithm can be applied in situations like deciding whether to try a new restaurant or stick to your favorite one. The 'Sorting' algorithm can be used to organize your emails or files efficiently. The 'Caching' concept can be applied in managing your time and resources effectively. The 'Scheduling' algorithm can help in prioritizing tasks in your daily life.

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"I knew that when I was 80, I was not going to regret having tried this," Bezos said. "I was not going to regret trying to participate in this thing called the internet that I thought was going to be a really big deal. I knew that if I failed, I wouldn't regret that, but I knew the one thing I might regret is not ever having tried."

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"Upper Confidence Bound" algorithms offer more room for discovery than the "Win-Stay, Lose-Shift" method. This algorithm assigns a value based on what "could be" based on the information available. A new restaurant has a 50/50 chance to provide a good experience because you have never been there.

Algorithms can't guarantee a life without regret, but they show how our willingness to take risks is reduced by how much time we think (or know) we have to take them. When we are children, we explore our worlds and discover new things with great enthusiasm. As we grow older, we tend to rely on the "tried and true" decisions based on what we've learned, i.e. exploit them.

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Algorithms to Live By - Diagrams

Plan with purpose

Often, those tasks with a due date can be tackled from the nearest deadline to the furthest. If you have multiple tasks due simultaneously, it is best to sort them by how long each will take.

To approach this type of schedule, especially if you have multiple clients, you can reduce the amount everyone must wait using the Shortest Processing Time algorithm. Simply put, always tackle the quickest task first and so on. Imagine a Monday morning in which you have one big project that takes four days to complete and a smaller project that takes one day. If you deliver the big project first on Thursday (4 days) and the small project on Friday (5 days), your clients will have waited a total of nine days. If you deliver the small project first on Monday (1 day) and the big one on Friday (5 days), your clients will have waited for a total of six days between them. This is known as the "sum of completion times."

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Another approach is to assign a weight to each task, such as how much money it will bring in. Divide each task's weight by how long it will take to complete, then work in the highest to lowest order. For a freelancer or independent contractor, this allows you to determine each task's hourly rate. Divide each project fee by its size and work from the highest hourly rate to the lowest.

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The book "Algorithms to Live By: The Computer Science of Human Decisions" provides several key insights that can be applied in everyday life. One of the main takeaways is the concept of the Copernican Principle, which can be used to predict the duration of an event or phenomenon. This principle suggests that, in the absence of other information, we should assume that we are observing at a random point in the timeline of an event. This can be applied in various situations, such as estimating the remaining lifespan of a technology or predicting the duration of a trend. Another key insight is the idea that algorithms, which are often associated with computer science, are actually ubiquitous in everyday life. They are involved in everything from cooking (following a recipe) to organizing emails, and understanding this can help us approach these tasks more efficiently.

The Copernican Principle, developed by J. Richard Gott III, can be applied in business decision making as a predictive tool. It's based on the assumption that, in the absence of other information, we are observing a process at a random point in its duration. For instance, if a business has been running for 10 years, and there's no other information available, one could predict that it will continue for another 10 years. However, this principle should be used with caution as it's a probabilistic approach and doesn't take into account specific factors that could influence the lifespan of a business.

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Predict the future

Astrophysicist J. Richard Gott III developed the Copernican Principle in 1969 – a method to predict how long something will last. When he visited the Berlin Wall, he wondered how long the wall would last. Since he didn't know how long the wall's life span would be, Gott could assume that, on average, his arrival would be around halfway through. Therefore, he guessed that the wall would stand for another eight years. In this case, the Berlin Wall stood for 20 years, not eight.

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The Copernican Principle isn't perfect – a 90-year-old man is unlikely to live to be 180 – but there are instances where it works well. Long before Gott gave this algorithm a name, statisticians tried to estimate how many tanks the Germans produced each month during World War II. The solution was to double the serial number seen on the tanks and estimate that at least twice as many existed. In this case, they estimated 246 tanks were manufactured each month, compared to the 1,400 suggested by aerial reconnaissance. After the war, German records confirmed the actual number to be 245.

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Forget about it

Your brain was designed to forget

The human memory seems to be a fickle thing at times, but there is a method to the madness. Hermann Ebbinghaus, a psychologist at the University of Berlin in 1879, studied himself to understand memory better.

Each day, Ebbinghaus would memorize a list of nonsense syllables and quiz himself. He then created a graph to show how long it took for his memory to fade. The likelihood of recall predictably declined with time, from close to 60% just after reading something to just 20% after 800 hours.

John Anderson, a psychologist and computer scientist, reexamined Ebbinghaus' work in 1987 to see if he could design computer systems around the human brain. He discovered that our brains forget information when it is no longer relevant to the world around us. Anderson analyzed headlines from The New York Times and found that a word is most likely to reappear right after first being used. The likelihood of seeing it again reduced more over time. Side by side, the appearance of the chart looked nearly identical to Ebbinghaus' data.

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A startup can use the concept of equilibrium to make strategic decisions by understanding that in any competitive scenario, there is a natural balance or equilibrium that is stable. This concept can be applied to business strategies. For instance, a startup might stick to a certain business strategy unless a significant change in the market or competition occurs, prompting a shift in strategy. This approach allows the startup to maintain a stable position while being ready to adapt when necessary.

The book 'Algorithms to Live By: The Computer Science of Human Decisions' presents the concept of equilibrium in a unique light. It explains that equilibrium is a stable state, particularly evident in two-player games or scenarios involving at least two competitors. A surprising insight is the application of this concept to everyday situations like poker, where players maintain their strategies unless a significant change occurs. This illustrates how equilibrium is not just a mathematical or scientific concept, but a fundamental principle that governs our decisions and strategies in life.

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Seek balance… or not

There is a natural balance in everything, especially in two-player games or scenarios that include at least two competitors. Mathematicians call this phenomenon "equilibrium" because it is stable. Equilibrium is especially evident in poker, where players stick to their strategies unless a significant change occurs.

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The Nash Equilibrium, named after mathematician John Nash, has been used in various case studies across different fields. Here are a few examples:

1. Economics: The Nash Equilibrium is used to predict the outcome of non-cooperative games involving two or more players. For instance, in the case of oligopolies (markets dominated by a small number of firms), the Nash Equilibrium can predict how these firms can maximize their profits by assuming the other firms' strategies.

2. Traffic Flow: The Nash Equilibrium has been used to model traffic flow. It predicts that drivers will choose their routes in a way that no single driver can reduce their travel time by changing their route, assuming other drivers keep their routes constant.

3. Evolutionary Biology: The concept of the Nash Equilibrium has been applied to evolutionary biology in the form of the Evolutionarily Stable Strategy (ESS). This predicts the strategies that will be adopted by populations in the long run.

The broader implications of these case studies show that the Nash Equilibrium can be used to predict outcomes in a variety of real-world situations where individuals or entities interact.

A manufacturing company could apply the Nash Equilibrium principle in its strategic decision-making processes. For instance, in a competitive market, each company is trying to maximize its own profit. The Nash Equilibrium can predict the outcome of the decisions each company makes, assuming each company knows the strategies of its competitors and no company has anything to gain by changing its strategy unilaterally. This could help the company in making optimal decisions regarding production quantity, pricing, investment in new technologies, etc.

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Example: In Rock-Paper-Scissors, there are only three options for players to choose from. Players naturally pick a random choice or 1/3 strategy. If one of the players starts to use rock more often, the other play adapts and uses paper. The other player will then balance things out again by changing strategy, i.e. scissors, etc., and the process starts again.

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Mathematician John Nash, immortalized in the book and film "A Beautiful Mind," proved in 1951 that every two-player game has at least one such equilibrium. This discovery earned him the Nobel Prize in 1994 Economics. Often referred to as the "Nash Equilibrium," this principle offers a prediction of the stable long-term outcome of any set of rules or incentives.

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The Nash Equilibrium concept is highly relevant to contemporary business debates and issues. It's a fundamental concept in game theory that provides a framework for predicting the outcome of a competitive situation where two or more participants are involved. In business, this can be applied to various scenarios such as pricing strategies, market competition, and negotiation tactics. For instance, in the context of market competition, businesses often have to decide on their strategies considering what their competitors might do. The Nash Equilibrium provides a theoretical solution to such strategic dilemmas.

Algorithms to Live By: The Computer Science of Human Decisions" provides insights into how algorithms can be used to optimize decision-making processes in corporate strategies. It explains how concepts like the Nash Equilibrium can be applied in business scenarios, such as determining optimal working days to maximize profits and minimize losses. The book also highlights how algorithms can help in sorting and prioritizing tasks, which is crucial in time and resource management in corporations.

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This algorithm is used to plan and shape economic policy and social policy – but sometimes, "stable" does not necessarily mean "good."

If a town has two shopkeepers that attract the same customers, the first will lose business if they work six days a week while the other works seven. The Nash Equilibrium suggests that if both businesses take a day off, they will both get rest, but both lose business. So, both owners work seven days a week.

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Companies might face several obstacles when applying the concept of fads and fashions. Firstly, there's the risk of misjudging the market and investing in a fad that quickly fades away, leading to financial losses. Secondly, there's the challenge of timing - entering the market too late or exiting too early can also lead to missed opportunities. Lastly, there's the risk of losing brand identity by constantly chasing trends. To overcome these challenges, companies can conduct thorough market research to understand the longevity and potential of a trend. They can also maintain a balanced portfolio of trendy and classic products, and ensure that any trend they follow aligns with their brand identity.

The lessons from the book 'Algorithms to Live By: The Computer Science of Human Decisions' can be applied in today's business environment in several ways. Firstly, businesses can use algorithms to optimize their processes and make more efficient decisions. For example, they can use sorting algorithms to organize data and make it easier to find specific information. Secondly, the book talks about the concept of 'exploitation vs exploration', which can be applied in business strategy. Businesses need to balance the exploitation of known successful strategies with the exploration of new potential opportunities. Lastly, the book discusses the idea of 'overfitting' - the mistake of optimizing too much for the current scenario and not being adaptable for future changes. Businesses should avoid overfitting and ensure they remain adaptable to changing market conditions.

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Change the game

If your friend jumped off a bridge, would you do it, too? The human instinct to copy one another can be a survival trait, like turning to look when you see others do just in case danger lurks nearby. Fads and fashions come and go. Is it better to play it safe or make your own way for better or worse?

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"Whenever you find yourself on the side of the majority, it is time to pause and reflect," said Mark Twain.

People tend to make decisions based on assumptions they derive from the actions of someone else. If everyone bought Beanie Babies, they must be valuable, right?

When this process begins to avalanche out of control, it is called an "Information Cascade." The real estate crisis of 2007-2009 was an example of home prices rising due to demand, only to crash. People assume that because many others do something that urgency exists. (Toilet paper in 2020, for example.) The results can be catastrophic.

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A startup can use the key topics or framework covered in "Algorithms to Live By" to improve decision-making processes by applying the principles of computer science to their decision-making processes. For instance, they can use algorithms to prioritize tasks, manage time, and make strategic decisions. They can also use the concept of 'Information Cascade' to understand how trends and behaviors spread and how to respond to them effectively. Furthermore, the book's insights on work-life balance can help in creating a healthy and productive work environment.

Yes, there are many examples of individuals and companies that have successfully implemented the practices outlined in "Algorithms to Live By". For instance, tech companies like Google and Amazon use algorithms extensively in their operations, from search engine optimization to product recommendations. Similarly, individuals use algorithms in their daily lives, often without realizing it, such as following a recipe or sorting emails. However, the book does not provide specific examples of individuals or companies.

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Be wary of cases where public information seems to exceed private information. The representation of events in the media does not match frequency in the world. Sociologist Barry Glassner noted that murders in the United States declined by 20% throughout the 1990s, and yet the mention of gun violence on American news increased by 600%.

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Sometimes, in the face of an Information Cascade, you have to change the game. If you are a Christian shopkeeper or have strong convictions about work-life balance, to close on Sunday is a non-issue. If you see people around you fall into an urgent trend, start to panic buy or become disturbed by sensational newspaper headlines, you can alleviate the stress by inserting more data.

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