Levels of Understanding

The improvement of understanding is for two ends: first, our own increase of knowledge; secondly, to enable us to deliver that knowledge to others.

-John Locke

Imagine someone who casually plays tennis. They play against the 500th best tennis player. They then play against the 10th best tennis player. Without being told who is who, they’d have no idea who is the better tennis player. The 500th and 10th best both won every point with ease. But if the 10th best played the 500th best, the 10th best would win every game. There’s a huge valley between them. The casual player could never see the difference playing each individually. They’re too far away.

In any field there are tiers of comprehension. Sometimes, the difference between tiers is so immense that it’s hard to decipher. We follow a rule of thumb that one can’t judge another’s aptitude unless they’re within two standard deviations of competency.

When one isn’t highly competent in an area, one cannot accurately judge performance. One won’t know the right framework to even judge performance. Frameworks are better ways to solve problems.

People who casually play poker understand the concept of pot odds. They understand how many outs they have and how to calculate their percent chance of hitting their draws. I recently heard a framework that’s stupidly obvious and supersedes that framework. Professional poker players often think, “how much do I have to raise to get them to fold?” Sure, they also think about pot odds of hitting their outs but pot odds aren’t as important. “What percent chance will they fold if I raise X amount” is its own expected value calculation. And if they call, the chance of winning/pot odds adds to the expected value calculation. The most advanced poker players count combinations, blockers, and attempt to play game theory optimal.

When negotiating compensation for employees, there are many ways to frame it: How much is someone worth to the company? How much is the market for them? How much would they be happy with? How much are they willing to take?

Deal people tend to push their comp to the edge of what they’re worth to the company. This is why people in finance are so highly compensated. They think about how things work and how valuable they are. They aren’t necessarily that much more valuable than a highly talented product person or engineer; they simply negotiate with a different frame in mind. 

Engineers rarely negotiate with this mindset. Engineers tend to think about what they’d be happy with and shoot for that. Engineers want to feel compensated, maybe negotiate once and go forward. Deal people tend to constantly renegotiate and push harder. 

As someone who needs all these people on one team, I negotiate differently with each archetype. Our initial offer to engineers tends to be the max of what we’re willing to pay vs our initial offer to “deal people” tend to be on the lower end.

This is similar to negotiation as a whole. A basic level of understanding is-- “what is my BATNA (best alternative to the negotiated agreement)?” If you’re better, you may ask, “what is my negotiating counterparty’s BATNA?” This is negotiation 101. 

A higher level of understanding is figuring out what your counterparty cares most about. Frame the negotiation as a long term partnership/deal. Optimize for what your counterparty cares most about. Then, get the best deal around what you care about, while activating the levers to satisfy what your counterparty cares about.

More than being highly competent in any area, being cognizant of one's own levels of understanding is the most important. If you’re aware of your competency gaps, you can always find others you trust to compliment you. No man is an island.