Book Review: Think TwicePosted: June 7, 2010 | Author: Greg Linster | Filed under: Behavioral Finance | 1 Comment »
Think Twice is ultimately a reminder to those of us who make decisions (ahem, that means all of us) to take a step back think carefully about our decisions. After-all, what could be more important than improving our decision making abilities? As the author, Michael Mauboussin points out: “There’s a funny paradox with decision making. Almost everyone realizes how important it is, yet very few people practice (let alone read about it).”
There is something very important to remember when it comes to decision making though. Some times more information helps us make better decisions and some times it makes things worse. Mauboussin spells out several examples of how people are easily fooled by both their own intuitions and irrelevant data.
So why do smart people make big, dumb, and consequential mistakes? Mauboussin gives the following two reasons:
1) Our mental software wasn’t designed to cope with many of the complex problems we face in today’s society.
2) Smart people make bad decisions because they harbor false beliefs.
The book is chalked full of references to the many biases and illusions social psychologists have discovered thus far. An example I find particularly humorous and interesting relates to driving. Answer the following questions honestly with either a yes or no. Remember, be honest.
- Are you an above average driver?
- Do you have an above average ability to judge humor?
- Does your professional performance place you in the top half of your organization?
If you are like most people you said “yes” to all three questions. Think about that for a moment. You may in fact be above average in all three of those things or you may be falling for the illusion of superiority, which suggests that people have an unrealistically positive view of themselves. We all know that, by definition, not everyone can be above average; however, survey’s have shown that 80 percent of people believed that they were more skillful than half of all drivers. Strangely, according to Mauboussin, the least capable people often have the largest gaps in what they think they can do and what they actually achieve.
Ultimately, the take home message from Think Twice is to be weary of our decision making abilities. I certainly agree that it’s hard to make sound decisions in an increasingly complex world and that all of us fall victim to myriad cognitive errors and biases that that lead us astray. Mauboussin argues that many of these cognitive errors are preventable with an improved awareness. To some degree, I believe that is true. However, in many situations we aren’t afforded the luxury of thinking twice. In these cases, trusting our heuristics is of utmost importance.