Naval: Pareto optimal is another concept from game theory, along with Pareto superior.
Pareto superior means something is better in some ways while being equal or better in other ways. It’s not worse in any way. This is an important concept when you’re negotiating. If you can make a solution Pareto superior to where it was before, you will always do that.
It’s about multiplayer games where people respond based on what they think the other person’s response will be. He came up with a mathematical formalization to answer: How do you get people who cannot communicate with each other to coordinate?
Naval: The Kelly criterion is a popularized mathematical formulation of a simple concept. The simple concept is: Don’t risk everything. Stay out of jail. Don’t bet everything on one big gamble. Be careful how much you bet each time, so you don’t lose the whole kitty.
If you’re a gambler, the Kelly criterion mathematically formulates how much you should wager per hand, even if you have an edge—because even when you have an edge, you can still lose. Let’s say you have 51-to-49 edge. Every gambler knows not to bet the whole kitty on that 51-to-49 edge—because you could lose everything and won’t get to come back to the average.
Naval: So mental models are all the rage. Everyone’s trying to become smarter by adopting mental models. I think mental models are interesting, but I don’t think explicitly in terms of mental-model checklists. I know Charlie Munger does, but that’s just not how I think.
Envy can give you a powerful boost, or it can eat you alive if you let it follow you.
Suffering through the wrong thing can motivate you to find the right thing
Nivi: Do you want to tell us about jobs you had growing up and the one that kicked off your fanatical obsession with creating wealth?
Naval: This gets a little personal, and I don’t want to humble-brag. There was a thread going around Twitter—Name Five Jobs You’ve Held—and every rich person on there was signaling how they’ve held normal jobs. I don’t want to play that game.
I’ve had menial jobs. There are people who had it worse than me and people who had it better than me.
Naval: I was going to put that out as a concession to people who believe making money is evil and that the only way to make it is to be evil. But then I realized ethics is not necessarily something you study. It’s something you think about—and something you do.
The goal is that we are eventually wealthy and working for ourselves.
Nivi: Who is this advice targeted to? Is it for my Lyft driver? Is it for an Internet entrepreneur? Is it for somebody who wants to start a YouTube channel?
Naval: Because it comes from someone who’s steeped in Silicon Valley and tech companies, it’s always going to have a bias towards that.
But I think it’s good for anybody who wants to be entrepreneurial. Anybody who wants to control their own life. Anybody who wants to deterministically and reliably improve their ability to create wealth over time, is patient, and is looking at the long haul.
Misunderstanding accountability and other mistakes on the path to creating wealth.
Accountability means letting people criticize you
Nivi: We finished discussing the tweetstorm. We’re going to spend some time on Q&A and discussing tweets that didn’t make it into the “How to Get Rich” tweetstorm. My first question: What are some common failures or things people typically do wrong when they try to apply this advice?
Naval: A lot of people don’t understand what specific knowledge is or how to “obtain” it. People don’t understand what accountability entails. They think accountability means being successfully accountable. No—it means you have to stick your neck out and fail publicly. You have to be willing to let people criticize you.
This giant episode collects all of my interviews with Nivi on How to Get Rich. These interviews are based on my tweetstorm. The individual interviews are here. The podcast is available on Apple, YouTube, Spotify, Overcast, Google, and other podcast apps. Here we go.
1. Seek Wealth, Not Money or Status
The difference between wealth, money and status.
Naval is a prolific tech investor and founder of AngelList
Nivi: You probably know Naval from his Twitter account.
We’re going to be talking about histweetstorm on “How to get rich (without getting lucky).” We’re going to go through most of the tweets in detail, give Naval a chance to expand on them and generally riff on the topic. He’ll probably throw in some ideas that he hasn’t even published before.
Naval’s the co-founder of AngelList and Epinions. He’s also a prolific tech investor in companies like Twitter, Uber, and many more.
I’m the co-founder of AngelList with Naval. And I co-authored the Venture Hacks blog with him back in the day.
Naval: Productize has specific knowledge and leverage. Yourself has uniqueness and accountability. Yourself also has specific knowledge. So you can combine all of these pieces into these two words.
If you’re looking towards the long-term, you should ask yourself, “Is this authentic to me? Is it myself that I’m projecting?” And then, “Am I productizing it? Am I scaling it? Am I scaling with labor or capital or code or media?” It’s a very handy, simple mnemonic.