Naval treats microeconomics as essential mental software. “Microeconomics and game theory are fundamental. I don’t think you can be successful in business or even navigating through most of our modern capital society without an extremely good understanding of supply and demand and labor versus capital and game theory and tit for tat and those kinds of things.” While macroeconomics is voodoo, microeconomics offers real first principles.
“Foundational things are principles, they’re algorithms, they’re deep seated logical understanding where you can defend it or attack it from any angle.” Nassim Taleb says “it is easier to macro bullshit than it is the micro bullshit.” Microeconomics forces mathematical precision. The incentives are clear. The outcomes are testable through iteration.
The principal-agent problem drives “so much in this world. It’s an incentives problem.” This single insight explains why most businesses fail: owners think differently than employees. “Almost all human behavior can be explained by incentives.” Understanding this shapes Naval’s long-term partnerships and people decisions.
Naval’s evolutionary understanding of human behavior made microeconomics intuitive. “I grew up playing all kinds of games and I ran into all kinds of corner cases with all kinds of friends, so it’s just second nature to me.” Strategic pattern recognition developed through childhood repetition.
“The best way to learn game theory is to play lots of games.” Books just confirmed what direct experience had already taught him. This connects to Naval’s broader philosophy: learn by doing, not by consuming theory.
“I gave up macro and I embraced micro. I would say that’s not just true in macroeconomics, that true in everything.” He applies microeconomic thinking beyond business. Focus on specific, measurable impacts. Work on systems you can actually control. This philosophical consistency connects his economic thinking to building lasting wealth through infinite leverage.