Software Development and the Psychology of Money

The Psychology of Money: Timeless lessons on wealth, greed, and happiness:  Housel, Morgan: 9780857197689: Books -

I picked up The Psychology of Money because it’s light, had pretty good reviews and looked like a quick read. All of these promises came true, but I didn’t expect to apply the lessons to software!

The book mainly revolves around two things that are hard to integrate into our every day thinking – 1) compounding and 2) tails.

The first comes down to this: all growth is driven by compounding, which always takes time. The impatient among us will never succeed at the long game of growth, only at the short game of gambling. And it’s not worth gambling. Why? That’s the second part.

The second pertains to risk and ruin (and from which the author borrows heavily from Nicholas Taleb. In other words, it’s a good book ;). The essence is that all long games are subject to tail events – rare, catastrophic events that mean ruin for the unprepared – and they will happen. Unfortunately we often have a very bad idea of where we actually sit inside probabilities (or we just ignore them).

What does this have to do with software?

Firstly, we are all looking for growth. Whether it is in the products we are building, or in our careers, networks, knowledge, etc. The principle of compounding applies here:

  • In the two-second lean tasks you do to make your product better. It pays to take the time to make improvements, remove that technical debt, document those decisions, refactor your old code. You won’t get much today, but the benefits compound over time as you and your team make a habit of small improvements.
  • In the daily tasks you do to learn and grow. Everyone is going to agree that it’s easier to spend an hour on Netflix than it is to take the time to learn a new thing, but an hour spent is an hour gone for ever. The dividends paid on an hour learned are huge in the long game. You are presented with this decision every single day. It’s yours and yours alone to make.
  • In the conversations you have with your teammates, your peers, your manager, your manager’s manager, your industry contacts and so on. You need to make an investment in these. Again the pay off might not happen today (in fact it may be somewhat uncomfortable today, since you have to figure out what to talk about!). But you should see these as long term investments that will be worth it when you run into problems down the road. Speaking of which:

Secondly, on ruin. There are all kinds of disasters that we need to protect ourselves from in software: late integrations, big bangs, building the wrong thing, outages. But there are also a variety of different practices that we can use to buy insurance: thin slicing, writing tests, incremental development, monitor driven development, and so on. When you look at these practices as insurance against ruin, and you understand a bit about probability and risk, it’s easy to make the right decision to use them.

The psychology of “money” is not really about money at all. It’s about taking a realistic approach to the way things actually work in life. And so it takes a lot of the mystery out of why things work the way they do, and the lessons can be applied to a lot of areas of life. These are lessons that pass the test of time, and that we can use in our every day decisions.

Published by JohnRauser

Eng Leader @ Cisco

One thought on “Software Development and the Psychology of Money

  1. Really interesting insights, John! Picking good learning topics has a lot to do with stock picking (market trends, value, cost, solid fundamentals).

    Great point about the everyday choices we all have. As with spending, developing good habits and mindset helps us making these decisions almost effortlessly, and avoid surprises when checking the statement at the end of the month (sprints, releases).



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