Deciding on the basis of earned and learned knowledge

A simple rule of thumb Shane Parrish has for making decisions.

👉When the cost of failure is low, use learned knowledge to decide. Learned knowledge is what we abstract from the experiences of others. This type of knowledge can be downloaded from others.

👉When the cost of failure is high, make sure you’re using earned knowledge. Earned is what we extract out of our own lived experiences. Such knowledge cannot be copied. It is earned by doing the work yourself.

Here’s the rub. The split between the two may not always be enforceable. We cannot possibly know all that it takes to have a happy marriage or raise a child well or run a successful company.

Does that mean we leave things entirely up to chance? Some of us do that. We call it fate. Yet, how about we:

✔vacuum up distillations from others — you don’t want to ignore advice from those who’ve been there and done that, and
✔shoot bullets before cannonballs — pre-sell your business idea, babysit friends’ kids, stay in relationships.

Doing this will not guarantee you a 100% accurate model of reality but one that’s useful nonetheless.

And what kind of things can we learn about, directly or indirectly?

👉The Earned-High Cost of Failure quadrant below consists of procedural knowledge (repetitive, causal, tight feedback loop). Such knowledge comes from a lived experience. Surgeons, pilots, and firefighters are valued because of their earned knowledge.

👉For Learned-High Cost of Failure, we rely on conceptual knowledge (non-repetitive, correlational at best, delayed feedback). We enrich ourselves from the wisdom of those who know better through books and conversations.

This is where the wealthy have an edge. They can put their knowledge to test by making a decision with a (relatively) high cost of failure and living through its consequences. They don’t have to burn their fingers, just their fingernails.

💡Wealth allows a bias for action, which in turn compounds wealth.

There’s another way to make the journey from learned to earned. A path I try to walk on. It’s called teaching. I teach by writing and some pontificating with friends and colleagues. Teaching shows what parts of my mental model don’t add up. And it works best when those I speak with ask questions and point out gaps.

So then: share with me how you learn when the cost of failure is high.