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Play Long-Term Games With Long-Term People.html
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Play Long-Term Games With Long-Term People.html
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<p>![[Naval-Ep10.mp3]]</p>
<p>All returns in life come from compound interest in long-term games</p>
<p>Play long-term games with long-term people</p>
<p>
<strong>Nivi:</strong> Talk a little bit about what industries you should
think about working in. What kind of job you should have? And who you
might want to work with? So, you said, “One should pick an industry where
you can play long-term games with long-term people.” Why?
</p>
<p>
<strong>Naval:</strong> Yeah, this is an insight into what makes Silicon
Valley work, and what makes high trust societies work. Essentially, all
the benefits in life come from compound interests. Whether it’s in
relationships, or making money, or in learning.
</p>
<p>
So, compound interest is a marvelous force, where if you start out with 1x
what you have, and then if you increase 20% a year for 30 years, it’s not
that you got 30 years times 20% added on. It was compounding, so it just
grew, and grew, and grew until you suddenly got a massive amount of
whatever it is. Whether it’s goodwill, or love, or relationships, or
money. So, I think compound interest is a very important force.
</p>
<p>
You have to be able to play a long-term game. And long-term games are good
not just for compound interest, they’re also good for trust. If you look
at prisoner’s dilemma type games, a solution to prisoner’s dilemma is
tit-for-tat, which is I’m just going do to you what you did last time to
me, with some forgiveness in case there was a mistake made. But that only
works in an iterated prisoner’s dilemma, in another words if we play a
game multiple times.
</p>
<p>
So, if you’re in a situation, like for example you’re in Silicon Valley,
where people are doing business with each other, and they know each other,
they trust each other. Then they do right by each other because they know
this person will be around for the next game.
</p>
<p>
Now of course that doesn’t always work because you can make so much money
in one move in Silicon Valley, sometimes people betray each other because
they’re just like, “I’m going to get rich enough off this that I don’t
care.” So, there can be exceptions to all these circumstances.
</p>
<p>
But essentially if you want to be successful, you have to work with other
people. And you have to figure out who can you trust, and who can you
trust over a long, long period of time, that you can just keep playing the
game with them, so that compound interest, and high trust will make it
easier to play the game, and will let you collect the major rewards, which
are usually at the end of the cycle.
</p>
<p>
So, for example, Warren Buffett has done really well as an investor in the
U.S. stock market, but the biggest reason he could do that was because the
U.S. stock market has been stable, and around, and didn’t get for example
seized by the government during a bad administration. Or the U.S. didn’t
plunge into some war. The underlying platform didn’t get destroyed. So, in
his case, he was playing a longterm game. And the trust came from the U.S.
stock market’s stability.
</p>
<p>
<strong
>When you switch industries, you’re starting over from scratch</strong
>
</p>
<p>
In Silicon Valley, the trust comes from the network of people in the small
geographic area, that you figure out over time who you can work with, and
who you can’t.
</p>
<p>
If you keep switching locations, you keep switching groups… let’s say you
started out in the woodworking industry, and you built up a network there.
And you’re working hard, you’re trying to build a product in the
woodworking industry. And then suddenly another industry comes along
that’s adjacent but different, but you don’t really know anybody in it,
and you want to dive in, and make money there.
</p>
<p>
If you keep hopping from industry to … “No, actually I need to open a line
of electric car stations for electric car refueling.” That might make
sense. That might be the best opportunity. But every time you reset, every
time you wander out of where you built your network, you’re going to be
starting from scratch. You’re not going to know who to trust. They’re not
going to know to trust you.
</p>
<p>
There are also industries in which people are transient by definition.
They’re always coming in and going out. Politics is an example of that,
right? In politics new people are being elected. You see in politics that
when you have a lot of old-timers, like the Senate, people who have been
around for a long time, and they’ve been career politicians.
</p>
<p>
There’s a lot of downside to career politicians like corruption. But an
upside is they actually get deals done with each other because they know
the other person is going to be in the same position ten years from now,
and they’re going to have to keep dealing with them, so they might as well
learn how to cooperate.
</p>
<p>
Whereas every time you get a new incoming freshman class in the House of
Representatives, which turns over every two years with a big wave
election. Nothing gets done because of a lot fighting. “Because I just got
here, I don’t know you, I don’t know if you’re going to be around, why
should I work with you rather than just try to do whatever I think is
right?”
</p>
<p>
So, it’s important to pick an industry where you can play long-term games,
and with long-term people. So, those people have to signal that they’re
going to be around for a long time. That they’re ethical. And their ethics
are visible through their actions.
</p>
<p><strong>Long-term players make each other rich</strong></p>
<p>
<strong>Nivi:</strong> In a long-term game, it seems that everybody is
making each other rich. And in a short-term game, it seems like everybody
is making themselves rich.
</p>
<p>
<strong>Naval:</strong> I think that is a brilliant formulation. In a
longterm game, it’s positive sum. We’re all baking the pie together. We’re
trying to make it as big as possible. And in a short term game, we’re
cutting up the pie.
</p>
<p>
Now this is not to excuse the socialists, right? The socialists are the
people who are not involved in baking the pie, who show up at the end, and
say, “I want a slice, or I want the whole pie.” They show up with the
guns.
</p>
<p>
But I think a good leader doesn’t take credit. A good leader basically
tries to inspire people, so the team gets the job done. And then things
get divided up according to fairness, and who contributed how much, or as
close to it as possible, and took a risk, as opposed to just whoever has
the longest knife… the sharpest knife at the end.
</p>
<p>
<strong>Returns come from compound interest in iterated games</strong>
</p>
<p>
<strong>Nivi:</strong> So, these next two tweets are, “Play iterated
games. All returns in life, whether in wealth, relationships, or knowledge
come from compound interest.”
</p>
<p>
<strong>Naval:</strong> When you have been doing business with somebody,
you’ve been friends with somebody for ten years, twenty years, thirty
years, it just gets better and better because you trust them so easily.
The friction goes down, you can do bigger, and bigger things together.
</p>
<p>
For example, the simplest one is getting married to someone, and having
kids, and raising children. That’s compound interest, right? Investing in
those relationships. Those relationships end up being invaluable compared
to more casual relationships.
</p>
<p>
It’s true in health and fitness. You know, the fitter you are, the easier
it is to stay fit. Whereas the more you deteriorate your body, the harder
it is to come back, and claw your way back to a baseline. It requires
heroic acts.
</p>
<p>
<strong>Nivi:</strong> Regarding compound interest, I think I saw retweet
something a while back. Maybe it was from Ed Latimore. It went something
along the lines of, “Get some traction. Get purchase, and don’t lose it”
[correction: the tweet is by @<a
href="https://twitter.com/mmay3r/status/932005444179992576"
>mmay3r</a
>]. So, the idea was to gain some initial traction, and never fall back,
just keep ratcheting up, and up.
</p>
<p>
<strong>Naval:</strong> I don’t remember it exactly. But I think that was
right. Yes, it was like, “Get traction, and don’t let go.” It was a good
one, yes.
</p>
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