Sunday, November 28, 2010

The Riddle of the Box

How often do you think "outside the box"? How often does anyone? In my humble opinion, this kind of thinking, even though frequently discussed, rarely happens in practice. Almost every problem you solve is done by techniques you understand, by tools in your box. The same is true for almost everyone else, and for the problems they solve.

Plane Geometry begins with five axioms (assumptions) and builds an entire branch of mathematics from that. The axioms are the framework of the box, and the resultant proofs are only accepted when methods are shown to be inside the box. If you change even one assumption, you build a different kind of geometry and define a different box.

One of the great intellectual accomplishments of all time was Sir Isaac Newton's three laws of motion and the calculus invented to provide a mathematical basis for them. If ever out of the box thinking took place, wouldn't this be such an occasion? The idea was certainly original, but Newton framed his ideas with tools he created in a box of his own invention. Modern science starts by building the box first as a frame of reference.

Finally, consider Jefferson's concept of inalienable rights. He called them self evident truths, making them his axioms and defining the shape of his box. Others might question whether they were true, or if they were self evident, or what rights are inalienable, but in all cases the box structures the thinking whether you accept the assumptions or not.

Even when ideas make radical changes, the process is the same. Commerce and development were the result of one set of assumptions, ecology and green living the result of another. Even cradle to cradle thinking about a sustainable future is redefining the box.

That's the riddle: rational thinking is the process of connecting inspired ideas to some framework and exploring the resultant consequences. Imagine coming into a darkened building. Just as you turn on a light as you enter to see inside a room, inspiration lights up the box so we can see what is inside it.

We always think inside some box. This is great news. By adding to our tools and redefining the shape of our box, we add new rooms to our intellectual building which we can fill with resultant discoveries. If you gave a problem you can't solve, look for another tool or another box. Don't try to think outside the box. Look for a better box.

Friday, November 5, 2010

The Price of Free

From time to time we all get offers of free stuff, either as an invitation to buy into more for a price or in an attempt to cement loyalty. The front-end is almost always good, but the total deal can be costly. Let's look at some of the more common offers and how you can benefit from them.

Accidental Death Insurance

Your bank offers $1000 of free accidental death and dismemberment insurance with the option to buy more: from $25,000 at $2 per month to $300,000 at $25 per month. You can ignore the offer, sign up for the free piece, or select one of the paid options.

At a minimum, you should take the free part. Insurance is an investment, and as an investment it requires intelligent management and you need to really understand what is being offered. Accidental death accounts for a small fraction of deaths so the odds of a payout are low. Getting an insurance quote will tell you if the offer is competitive. The rest is cost benefit analysis. Buying the extra insurance is an economic decision.

The first thousand dollars is not. In exchange for your contact data, which the bank already has, your heirs have a small chance of collecting a modest policy. This is a no cost no brainer. Take the free piece and evaluate the rest.

Loyalty Programs

Somebody offers you a discount or goodies for your loyalty. You can recognize these because you take a loyalty card or key tab with a bar code for each transaction. The store gets a customized buying history and the assurance of you as a customer. You get some savings or offers.

This one is a tossup. Your buying history has value, your loyalty even more value, and the payback may or may not be worth it. If you don't want something traced back to you, skip the program and pay cash. If you have privacy concerns, this is probably A bad choice. If you are going to be a repeat customer anyway, these programs can save you money.

Credit Card Reward Programs

Reward programs are credit card versions of loyalty programs. As long as you don't buy what you don't need, eliminate interest by paying when due, and don't pay more for the card than the rewards, the program can make financial sense for you.

Bank Giveaways

When I refinanced my mortgage recently, the bank offered me $50 if I opened a free checking account and set up automatic payments through it. I didn't need the account, but I was going to set up an automatic payment system somewhere. I accepted the offer, set up an automated deposit to the checking account just ahead of their withdrawal, and applied the $50 to mortgage principal
Free Meal Seminars

This offer shows up as an in invitation to a free meal while listening to an expert speak on retirement planning or financial services. Do you like the restaurant? Does the topic interest you? Is the presenter really am expert? Do you have the time? If you answered yes to all these questions, consider going. if not, your time is worth more than the Chicken Alfredo, or it should be.


The business of business is business, but it cannot happen without you. These programs can be win- win --- the business has already assured their side of the win. If you pay attention, you can get some tangible benefits. If not, stay away because by default the business will win big at your expense. Don't let the program change your plan and never let it change your plan. As always, caveat emptor.

Jay Elkes