How to Become Smarter (53 page)

To summarize, MLM is a form of gambling, which MLMers promote as a sure-fire way to financial independence. If you join MLM, you are dealing with three random and unquantifiable variables:

• you don’t know if you have the necessary
  talents
  for this activity;
  
• you don’t know if MLM has already reached a saturation point in your geographic area; (if you live anywhere in the U.S., in all likelihood it has);
  
• you can’t predict whether a brand-new MLM scheme will grow; (if MLM has existed in your area for a long time, you don’t know whether the new scheme will be more attractive to the MLMers in your area than the existing schemes).
  

Profit systems based on the “power of positive thinking” (not to be confused with the book by the same title) deserve a special mention. This approach means that if you dream about riches several hours a day and think and behave as if you were rich, then it is guaranteed that you will get rich. In my view, the correct title of this method is “the power of wishful thinking.” The scientific validity of this method is questionable because it means that your thoughts alone can alter the universe in your favor. This method also implies that the mind can control the brain, which is a fallacy.
^Z
There is no scientific evidence that thoughts (without physical action) can change the physical world. There is no scientific evidence that obsessing about wealth is either a necessary or a sufficient condition for achieving wealth. There is plenty of evidence to the contrary. It is possible to win a lottery or inherit wealth without obsessing about it. There are numerous people who are obsessed with monetary wealth, for example, compulsive gamblers, readers of get-rich-quick books, and some owners of startup businesses. Yet the vast majority of these people will never achieve wealth (if we define wealth as being in the top 1% of net worth in the population).

The kind of proof that a typical “success guru” provides to back up the claims is laughable. There are no citations of scientific studies. There are no names, addresses, and phone numbers of people or organizations who can corroborate the claims. There is no documented evidence whatsoever. The author makes fantastic claims in every other sentence without any supporting evidence. It would be naive to take this kind of information at face value. The “proof” that a typical guru presents consists of cherry-picked anecdotes along the lines of: “I know a person who always dreamed about becoming an entrepreneur, and eventually he became a CEO of a company with 10,000 employees.” This is the classic logical fallacy, where a person assumes that event A causes event B if “B” happens after “A.” What about millions of people who dream about a bright future (for example, bipolar patients during a manic episode) and achieve nothing special? To give another example, suppose some success guru studies wealthy people and finds that they have some traits or habits in common. For instance, he may find that rich people tend to be self-confident. For a typical wealth/success guru this finding constitutes irrefutable proof that if you believe in yourself, you will get rich. If you recall the discussion of strength of evidence in Chapter One, this is the “correlation means causation” fallacy. Does confidence cause wealth or vice versa?

Nonetheless, it is inevitable that the “positive thinking” approach will be (or will appear to be) successful for a small percentage of the followers by coincidence. These people will become convinced that because their success happened after reading a book or attending a seminar, the success must be due to the mystical teachings of the author in question. This is what feeds the continued popularity of the authors who promote this approach. Another reason is that the effectiveness of “positive thinking” is difficult to disprove. Whatever the outcome, the promoter of the method has an ironclad alibi. If you bet your whole net worth on your startup business and the venture is successful, then the method is “valid.” If you fail, this means that you did not want to become wealthy badly enough and it’s “your own fault.” One of the hallmarks of pseudoscience is that a promoter of a theory formulates it in such a way that makes it impossible to test and refute it.

For the majority of aspiring entrepreneurs, this over-reliance on self-delusion and mystical rituals will be ruinous because these things can lead to taking of unreasonable risks. The constant dreaming about wealth and blind faith in other questionable rituals can distort the perception of reality. This will lead the person to believe that these exercises have reduced serious business risks. I had a cousin who was a fan of a popular writer who promotes this “positive thinking” approach to business. My cousin always wanted to become an entrepreneur. Being certain that the power of positive thinking cannot fail, he ran up big debts with loan sharks in the late 1990s. Eventually, he lost everything he owned and committed suicide leaving his wife and child penniless. This tragic story demonstrates the perils of magical thinking and reliance on voodoo methods in business. Therefore, if you wish to start a business, it is best to base your plan on hard facts and rational analysis, not on dreams and mystical rituals.

You will save yourself time and money if you avoid books and other promotional material that contain the following words in the title: “rich,” “wealth,” “millionaire,” “trading,” and “financial freedom.” All people that I have seen who give advice on how to get rich either inherited a fortune or got rich by selling advice on how to become wealthy. The latter category of authors has no other business achievements. A person who got rich by selling advice on how to get rich must be a fraud. When this person was starting out in the “wealth-consulting business,” he was teaching others what he could not achieve himself. The same is true of people whose only success lies in teaching others how to achieve big success. The whole notion that anyone (i.e. the majority of people) can achieve big success is illogical. Big success means that you have much more wealth, fame, or competitive awards than average people. The majority of people cannot be a thousand times better than average people in principle because the majority
consists
of average people.

The last part of this section will explain why wealth requires luck. Nobody will be able to teach you how to become lucky. Luck is beyond anyone’s control, and therefore it makes little sense to pay somebody for this sort of advice. You shouldn’t give a single penny to people who promise to teach you how to control luck by means of positive thinking. If these people had magical access to unlimited wealth, then they wouldn’t be trying to extract a few bucks from you. Instead, they would be giving their books away for free as charity.

You will also save yourself time and money if you avoid all kinds of motivational material. If you want to accomplish something (for example, to lose weight, learn a foreign language, or become a bodybuilder), then what you need is a detailed how-to manual supported by scientific evidence. You don’t need vague, long-winded reassurances. People write motivational material when they have nothing useful to say (have no proven methods) and can only appeal to blind faith. There is not a shred of scientific evidence that motivational books, seminars, the law of attraction (clever people call it “the law of extraction”), and so on, really work, other than through pure coincidence. The most typical logical fallacy in motivational writings is the confusion of probabilities, such as the following: “one person in a thousand can achieve this, therefore everyone can.” Another common fallacy among motivational writers is the assumption that the only way to become happy is to achieve wealth or great success. Thus the discussion is centered around luxurious things and material wealth. In the mind of a typical motivational writer, happiness is impossible outside the top 1% of net worth. This notion is false. There are plenty of ordinary people who are happy and who are neither rich nor successful, if we define success as being in the top 1% in any particular field [
476
,
523
,
821
]. Yet another fallacious notion in motivational books is that your perception shapes reality around you (and the related fallacy that you can change your perception by a mental effort). Motivational writers are convinced that if you think negative thoughts, then you will attract misfortune, whereas positive thinking will bring you happiness, health, and wealth. Scientific evidence shows that this is incorrect and, in actuality, brain chemistry shapes perception ([
725
,
813
] and
endnote Z
). Both optimism and effective functioning of a person in society are
consequences
of having a healthy brain. “Positive thinking” is not the cause of anything; it is the result of certain biochemical processes in the brain. In other words, motivational writers are confusing cause and effect. The notion that negative thinking brings misfortune is false too. Statistical studies show that people who are “somewhat unhappy” achieve a much greater increase in income than people who are very happy, on average [
476
]. Furthermore, it is a scientific fact that humans cannot change their mood at will, i.e. by a purely mental effort. If people could start thinking positively or negatively whenever they wanted to, then such mental disorders as depression, anxiety, and bipolar disorder would not exist. Some motivational writers cite the placebo effect as scientific proof that positive thinking works. In reality, rigorous scientific studies show that placebos don’t work [
32
,
33
,
904
,
931
]. In other words, the placebo and the associated “positive thinking” are powerless. In addition, mental exercises do not improve brain function [
917
,
918
], which further proves that the mind is powerless against the brain. Furthermore, it is a proven scientific fact that a person can change mood and mental abilities by applying physical treatments to the brain. People can do this, for example, by consuming psychotropic drugs, certain types of food, or by changing body temperature (Chapters Two and Four). In other words, you have to change the
biological
workings of your brain in order to see any significant changes in your life, including if you want to start “thinking positively.” Thus, you should not take seriously a person who is going to teach you how to use positive thinking to become rich, healthy, and beautiful. In summary, the motivational stuff will be a waste of your time and money for two reasons: a) it will lead you in the wrong direction; b) it will not even help you to attain the wrong goal.

G
AMBLING
.
Pure gambling activities where the outcome of the game is random, such as craps tables, slot machines, blackjack, roulette, and the lottery are a waste of time and money. These activities may have some entertainment value, but one should never hope to make money or to get rich by means of these games. This is obvious to the majority of the population, but the pages below try to explain this to the minority of readers who believe that they can make money through gambling.

First, on average, a loss is more likely than a profit in gambling because the providers of gambling activities charge fees for the use of their games. Second, in games where the outcome is purely random, it is impossible to devise a system that will produce consistent winnings. You will be able to generate consistent profits only if you can identify some predictable patterns or predict certain outcomes of the game. If you could predict certain outcomes reliably, this would mean that the game is not random, which is a false assumption about games of chance. The outcome is
always
random in games of chance and therefore consistent profits are not possible. (There are rare exceptions such as live poker today and blackjack several decades ago; we will talk about them later.) The following is an example.

Let’s say you flipped a coin five times and it came up tails five times in a row. What is the probability that the next time you flip the coin it will come up heads? On the surface, it may seem that you have identified a predictable pattern and now the fortune is on your side if you bet on heads. The probability that a coin will come up tails six times in a row is small: 1/64. Therefore, you might figure that in this case, the probability of heads after the sixth coin toss should be 63/64 or 98.4%. But the probability of heads is still 50%, regardless of what you saw in the previous rounds of coin flipping. Thus, the game is still random and unpredictable.

Certain activities that can help you to predict the outcome of some games, such as card counting in blackjack, are no longer effective due to various countermeasures implemented by casinos. People who will be willing to play blackjack against you outside of a casino are most likely familiar with card-counting techniques. Therefore, you will have no advantage and the outcome of the game will be random.

Third, the common misconception among people who like gambling is that persistence will increase the probability of winning. They believe that if you lose one game, you shouldn’t be discouraged and should keep playing and this will increase your chances of winning. Although the probability of winning will be greater if you play ten games rather than one, your losses will also be ten-fold bigger. The expected return on investment shrunk tenfold: you paid (lost) ten times more money hoping to obtain the prize of the same size. The probability of winning increased also tenfold. This change did not make the game more favorable. If you multiply the probability of winning by the expected return on investment, this will give you the average return on investment also known as
expected value
. Expected value is always negative in any games of chance, whether you play one game or a thousand. Pooling of bets, such as lottery pools that some people participate in, does not change expected value either. In casinos, the negative average return on investment is due to the fees they charge for providing the games to the customers. On average, you will win 49 cents for every 51 cents that you will lose in a casino (the numbers are not precise, but you should get the idea). In lotteries, the negative expected value is due to the withdrawal of a large portion of the lottery revenues (usually 50%) by the government for its own needs. For example, if you collude with all other lottery players and buy up all tickets of a lottery draw for your single pool, will you lose or gain money? You will lose 50% of your investment despite having the winning ticket in your pool. (We are assuming that your share of the winnings is equal to your share of the pool, which is a fair arrangement.) The lottery is a bad investment and the great majority of people will keep losing money no matter how often they play or how much money they spend on lottery tickets. For this reason, some people call the lottery “a tax on stupidity:” the government collects this money from the population, and this tax only applies to people who are not good at mathematics.