The Art of thinking clearly
people systematically overestimate their chances of success. Guard against it by frequently visiting the graves of once-promising projects, investments and careers.
be wary when you are encouraged to strive for certain things — be it abs of steel, immaculate looks, a higher income, a long life, a particular demeanour or happiness. You might fall prey to the swimmer’s body illusion. Before you decide to take the plunge, look in the mirror — and be honest about what you see.
when it comes to pattern recognition, we are oversensitive. Regain your scepticism. If you think you have discovered a pattern, first consider it pure chance.
If 50 million people say something foolish, it is still foolish.
Rational decision-making requires you to forget about the costs incurred to date. No matter how much you have already invested, only your assessment of the future costs and benefits counts.
if someone approaches you in the supermarket, whether to offer you a taste of wine, a chunk of cheese or a handful of olives, my best advice is to refuse their offer — unless you want to end up with a refrigerator full of stuff you don’t even like.
The confirmation bias is the mother of all misconceptions. It is the tendency to interpret new information so that it becomes compatible with our existing theories, beliefs and convictions
To fight against the confirmation bias, try writing down your beliefs — whether in terms of worldview, investments, marriage, healthcare, diet, career strategies — and set out to find disconfirming evidence.
whenever you are about to make a decision, think about which authority figures might be exerting an influence on your reasoning. And when you encounter one in the flesh, do your best to challenge him or her.
we judge something to be beautiful, expensive or large if we have something ugly, cheap or small in front of us
we create a picture of the world using the examples that most easily come to mind. This is absurd, of course, because in reality things don’t happen more frequently just because we can conceive of them more easily.
if someone says ‘It’ll get worse before it gets better,’ you should hear alarm bells ringing. But beware: situations do exist where things first dip and then improve.
Whenever you hear a story, ask yourself: who is the sender, what are his intentions and what did he hide under the rug?
in retrospect, everything seems clear and inevitable. You will be amazed at what a poor forecaster you are.
be aware that you tend to overestimate your knowledge. Be sceptical of predictions, especially if they come from so-called experts.
knowledge from people who have learned to put on a show. Maybe they have a great voice or good hair, but the knowledge they espouse is not their own.
YOU CONTROL LESS THAN YOU THINK
Never ask a barber if you need a haircut.
Extreme performances are interspersed with less extreme ones. The most successful stock picks from the past three years are hardly going to be the most successful stocks in the coming three years. Knowing this, you can appreciate why some athletes would rather not make it on to the front pages of the
newspapers: subconsciously they know that the next time they race, they probably won’t achieve the same top result — which has nothing to do with the media attention, but is to do with natural variations in performance
never judge a decision purely by its result, especially when randomness or ‘external factors’ play a role.
Think carefully about what you want before you inspect existing offers. Write down these criteria and stick to them rigidly. Also, realise that you can never make a perfect decision.
So, if you are a salesperson, make buyers think you like them, even if this means outright flattery. And if you are a consumer, always judge a product independent of who is selling it. Banish the salespeople from your mind, or rather, pretend you don’t like them.
don’t cling to things. Consider your property something that the ‘universe’ (whatever you believe this to be) has bestowed on you temporarily. Keep in mind that it can recoup this (or more) in the blink of an eye.
let’s not get too excited. Improbable coincidences are precisely that: rare but very possible events. It’s not surprising when they finally happen. What would be more surprising would be if they never came to be.
If you ever find yourself in a tight, unanimous group, you must speak your mind, even if your team does not like it. Question tacit assumptions, even if you risk expulsion from the warm nest. And, if you lead a group, appoint someone as devil’s advocate. She will not be the most popular member of the team, but she might be the most important.
We have no intuitive grasp of risk and thus distinguish poorly between different threats. The more serious the threat and the more emotional the topic (such as radioactivity), the less reassuring a reduction in risk seems to us.
WHY THE LAST COOKIE IN THE JAR MAKES YOUR MOUTH WATER
Scarcity Error
This is clear base-rate thinking. For most people, survivorship bias (chapter 1) is one of the causes for their base-rate neglect. They tend to see only the successful individuals and companies, because the unsuccessful cases are not reported (or are under-reported). This makes them neglect the large part of the ‘invisible’ cases.
‘What goes around, comes around’ simply does not exist.
Their guesses confirmed the anchor effect: the highest estimates came from people who had spun high numbers on the wheel.
Inductive thinking can have devastating results. Yet we cannot do without it. We trust that, when we board a plane, aerodynamic laws will still be valid. We imagine that we will not be randomly beaten up on the street. We expect that our hearts will still be beating tomorrow. These are confidences without which we could not live, but we must remember that certainties are always provisional. As Benjamin Franklin said, ‘Nothing is certain but death and taxes.’
it has been proven that, emotionally, a loss ‘weighs’ about twice that of a similar gain. Social scientists call this loss aversion.
Science calls this the social loafing effect. It occurs when individual performance is not directly visible; it blends in to the group effort. It occurs among rowers, but not in relay races, because here, individual contributions are evident.
Linear growth we understand intuitively. However, we have no sense of exponential (or percentage) growth. Why is this? Because we didn’t need it before.
accept this piece of wisdom about auctions from Warren Buffett: ‘Don’t go.’
The fundamental attribution error is particularly useful for whittling negative events into neat little packages. For example, the ‘blame’ for wars we lazily push on to individuals:
correlation is not causality. Take a closer look at linked events: sometimes what is presented as the cause turns out to be the effect, and vice versa.
The halo effect obstructs our view of true characteristics. To counteract this, go beyond face value. Factor out the most striking features.
risk is not directly visible. Therefore, always consider what the alternative paths are. Success that comes about through risky dealings is, to a rational mind, of less worth than success achieved the ‘boring’ way
Some things are fairly simple. For example, I have a rough idea of how many pounds I will weigh in a year’s time. However, the more complex a system, and the longer the time frame, the more blurred the view of the future will be.
The difference between intuitive and conscious thinking is much more significant. With important decisions, remember that, at the intuitive level, we have a soft spot for plausible stories. Therefore, be on the lookout for convenient details and happy endings.
IT’S NOT WHAT YOU SAY, BUT HOW YOU SAY IT
Framing
WHY WATCHING AND WAITING IS TORTURE
Action Bias
If you’re not part of the solution, you’re part of the problem.
DON’T BLAME ME
Self-Serving Bias
People who change or progress in their careers are,
in terms of happiness, right back where they started after around three months.
Particularly amusing is this recent telephone survey: a company wanted to find out, on average, how many phones (landline and cell) each household owned. When the results were tallied, the firm was amazed that not a single household claimed to have no phone. What a masterpiece.
We should be careful to get out of an experience only the wisdom that is in it — and stop there; lest we be like the cat that sits down on a hot stove-lid. She will never sit down on a hot stove-lid again — and that is well; but also she will never sit down on a cold one anymore.
BE WARY WHEN THINGS GET OFF TO A GREAT START
Beginner’s Luck
you can play the clever fox all you want — but you’ll never get the grapes that way.
though instantaneous reward is incredibly tempting, hyperbolic discounting is still a flaw. The more power we gain over our impulses, the better we can avoid this trap.
ANY LAME EXCUSE
‘Because’ Justification
DECIDE BETTER — DECIDE LESS
Decision Fatigue
a handful of actors take home more than $10 million per year, while thousands and thousands live on the breadline. Would you advise your son or daughter to get into acting since the average wage is pretty decent? Hopefully not — wrong reason.
HOW BONUSES DESTROY MOTIVATION
Motivation Crowding
If you have nothing to say, say nothing.’ Simplicity is the zenith of a long, arduous journey, not the starting point.
The survival rate is highest for stage-one patients and lowest for stage-four patients. Now, every year new procedures are released on to the market and allow for more accurate diagnosis. These new screening techniques reveal minuscule tumours that no doctor had ever noticed before. The result: patients who were erroneously diagnosed as healthy before are now counted as stage-one patients. The addition of relatively healthy people into the stage-one group increases the group’s average life expectancy. A great medical success? Unfortunately not: mere stage migration.
Forget trying to amass all the data. Do your best to get by with the bare facts. It will help you make better decisions.
HURTS SO GOOD
Effort Justification
watch out when you hear remarkable statistics about any small entities: businesses, households, cities, data centres, anthills, parishes, schools etc. What is being peddled as an astounding finding is, in fact, a humdrum consequence of random distribution.
Expectations are intangible, but their effect is quite real. They have the power to change reality. Can we deprogramme them? Is it possible to live a life free from expectations?
Thinking is more exhausting than sensing: rational consideration requires more willpower than simply giving in to intuition.
if people don’t double-take when they pass you on the street, the best way to contribute is with greenbacks rather than greenhorn labor.
Whether we like it or not, we are puppets of our emotions. We make complex decisions by consulting our feelings, not our thoughts.
nothing is more convincing than your own beliefs. We believe that introspection unearths genuine self-knowledge.
We are obsessed with having as many irons as possible in the fire, ruling nothing out and being open to everything. However, this can easily destroy success. We must learn to close doors.
When contemplating the future, we place far too much emphasis on flavour-of- the-month inventions and the latest ‘killer apps’, while underestimating the role of
traditional technology.
How can you thwart the sleeper effect? First, don’t accept any unsolicited advice, even if it seems well meant. Doing so, you protect yourself to a certain degree from manipulation. Second, avoid ad-contaminated sources like the plague. How fortunate we are that books are (still) ad-free! Third, try to remember the source of every argument you encounter. Whose opinions are these? And why do they think that way? Probe the issue like an investigator would: cui bono? Who benefits? Admittedly, this is a lot of work and will slow down your decision- making. But it will also refine it.
if you have trouble making a decision, remember that the choices are broader than ‘no surgery’ or ‘highly risky surgery’. Forget about the rock and the hard place, and open your eyes to the other, superior alternatives.
do you foster individuals more talented than you? Admittedly, in the short term the preponderance of stars can endanger your status, but in the long run, you can only profit from their contributions. Others will overtake you at some stage anyway. Until then, you should get in the up-and-comers’ good books — and learn from them.
first and last impressions dominate, meaning that the content sandwiched between has only a weak influence. Try to avoid evaluations based on first impressions
we are drunk on our own ideas. To sober up, take a step back every now and then to examine their quality in hindsight. Which of your ideas from the past ten years were truly outstanding? Exactly.
Put yourself in situations where you can catch a ride on a positive Black Swan (as unlikely as that is). Become an artist, inventor or entrepreneur with a scaleable product. If you sell your time (e.g. as an employee, dentist or journalist), you are waiting in vain for such a break. But even if you feel compelled to continue as such, avoid surroundings where negative Black Swans thrive. This means: stay out of debt, invest your savings as conservatively as possible and get used to a modest standard of living — no matter whether your big breakthrough comes or not.
What you master in one area is difficult to transfer to another.
assume that your worldview is not borne by the public. More than that: do not assume that those who think differently are idiots. Before you distrust them, question your own assumptions.
t is safe to assume that half of what you remember is wrong. Our memories are riddled with inaccuracies, including the seemingly flawless flashbulb memories.
prejudice and aversion are biological responses to anything foreign. Identifying with a group has been a survival strategy for hundreds of thousands of years. Not any longer; identifying with a group distorts your view of the facts. Should you ever be sent to war, and you don’t agree with its goals, desert.
The Ellsberg Paradox offers empirical proof that we favour known probabilities (box A) over unknown ones (box B).
WHY YOU GO WITH THE STATUS QUO
Default Effect
WHY ‘LAST CHANCES’ MAKE US PANIC
Fear of Regret
salient information has an undue influence on how you think and act. We tend to neglect hidden, slow-to-develop, discrete factors. Do not be blinded by irregularities. A book with an unusual, fire-engine red jacket makes it on to the bestseller list. Your first instinct is to attribute the success of the book to the memorable cover. Don’t. Gather enough mental energy to fight against seemingly obvious explanations.
be careful if you win money or if a business gives you something for free. Chances are you will pay it back with interest out of sheer exuberance.
So get over yourself. Procrastination is irrational, but human. To fight it, use a combined approach. This is how my neighbour managed to write her doctoral thesis in three months: she rented a tiny room with neither telephone nor Internet connection. She set three dates, one for each part of the paper. She told anyone who would listen about these deadlines and even printed them on the back of her business cards. This way, she transformed personal deadlines into public commitments. At lunchtime and in the evenings, she refuelled her batteries by reading fashion magazines and sleeping a lot.
It’s OK to be envious — but only of the person you aspire to become.’
be careful when you encounter human stories. Ask for the facts and the statistical distribution behind them. You can still be moved by the story, but this way, you can put it into the right context. If, however, you seek to move and motivate people for your own ends, make sure your tale is seasoned with names and faces.
Purge yourself of the illusion of attention every now and then. Confront all possible and seemingly impossible scenarios. What unexpected events might happen? What lurks beside and behind the burning issues? What is no one addressing? Pay attention to silences as much as you respond to noises.
if you are dealing with a person (a first-rate candidate, an author or an ophthalmologist), don’t go by what they claim; look at their past performance. When it comes to projects, consider the timeline, benefits and costs of similar projects, and grill anyone whose proposals are much more optimistic. Ask an accountant to pick apart the plans mercilessly. Add a clause into the contract that stipulates harsh financial penalties for cost and schedule overruns. And, as an added safety measure, have this money transferred to a secure escrow account.
when do you listen to your head and when do you heed your gut? A rule of thumb might be: if it is something to do with practised activities, such as motor skills (think of the centipede, Van de Velde or mastering a musical instrument), or questions you’ve answered a thousand times (think of Warren Buffett’s ‘circle of competence’), it’s better not to reflect to the last detail. It undermines your intuitive ability to solve problems. The same applies to decisions that our Stone Age ancestors faced — evaluating what was edible, who would make good friends, whom to trust. For such purposes, we have heuristics, mental shortcuts that are clearly superior to rational thought. With complex matters, though, such as investment decisions, sober reflection is indispensable. Evolution has not equipped us for such considerations, so logic trumps intuition.
The planning fallacy is particularly evident when people work together — in business, science and politics. Groups overestimate duration and benefits and systematically underestimate costs and risks.
if you take your problem to an expert, don’t expect the overall best solution. Expect an approach that can be solved with the expert’s toolkit. The brain is not a central computer. Rather, it is a Swiss Army knife with many specialised tools. Unfortunately, our ‘pocketknives’ are incomplete. Given our life experiences and our professional expertise, we already possess a few blades. But to better equip ourselves, we must try to add two or three additional tools to our repertoire — mental models that are far afield from our areas of expertise. For example, over the past few years, I have begun to take a biological view of the world and have won a new understanding of complex systems. Locate your shortcomings and find suitable knowledge and methodologies to balance them. It takes about a year to internalise the most important ideas of a new field, and it’s worth it: your pocketknife will be bigger and more versatile, and your thoughts sharper.
It’s worth noting that Allen’s recommendation seems to fly in the face of the planning fallacy (chapter 91): the more detailed our planning, the more we tend to overlook factors from the periphery that will derail our projects. But here is the rub: if you want peace of mind, go for Allen’s approach. If you want the most accurate estimate on cost, benefit, and duration of a project, forget your detailed plan and look up similar projects. If you want both, do both.
luck plays a bigger role than skill does . In conclusion: certain people make a living from their abilities, such as pilots, plumbers and lawyers. In other areas, skill is necessary but not critical, as with entrepreneurs and leaders. Finally, chance is the deciding factor in a number of fields, such as in financial markets.
we have problems perceiving non-events. We are blind to what does not exist. We realise if there is a war, but we do not appreciate the absence of war during peacetime. If we are healthy, we rarely think about being sick. Or, if we get off the plane in Cancun, we do not stop to notice that we did not crash. If we thought more frequently about absence, we might well be happier. But it is tough mental work.
ask about the ‘leftover cherries’, the failed projects and missed goals. You learn a lot more from this than from the successes. It is amazing how seldom such questions are asked. Second: instead of employing a horde of financial controllers to calculate costs to the nearest cent, double-check targets. You will be amazed to find that, over time, the original goals have faded. These have been replaced, quietly and secretly, with self-set goals that are always attainable. If you hear of such targets, alarm bells should sound. It is the equivalent of shooting an arrow and drawing a bull’s-eye around where it lands.
THE STONE-AGE HUNT FOR SCAPEGOATS
Fallacy of the Single Cause
always check whether test subjects — drivers who end up in accidents, bankrupt companies, critically ill patients — have, for whatever reason, vanished from the sample. If so, you should file the study where it belongs: in the trashcan.
I would predict that turning your back on news will benefit you as much as purging any of the other ninety-eight flaws we have covered in the pages of this book. Kick the habit — completely. Instead, read long background articles and books. Yes, nothing beats books for understanding the world.
