'The Art of Thinking Clearly'

…First published in Great Britain in 2013 by Sceptre

…Printed and bounded by clays Ltd, Elcograf S.P.A

Author: Rolf Dobelli

Number of pages 303

The Art of Thinking Clearly lists 99 common thinking errors or cognitive biases, as author Rolf Dobelli calls them. He writes a brief chapter for each to describe what they are and how to avoid them in making decisions. Indeed, truth be told, all of us have made such errors before but didn’t know it. Now we know. So what? We might experience a leap in prosperity, he audaciously claims. That’s good to hear. “The Art of Thinking Clearly” by Rolf Dobelli is a practical guide to thinking better and making better decisions. It exposes common thinking errors and provides simple solutions to avoid them, leading to improved clarity and rationality in our daily lives.

If we can learn to recognise and evade the biggest errors in thinking—in our private lives, at work, or in government—we might experience a leap in prosperity. We need no extra cunning, no new ideas, no unnecessary goals, no frantic hyperactivity—all we need is less irrationality.

In daily life, because triumph is made more visible than failure, we systematically overestimate our chances of succeeding. As an outsider, we succumb to an illusion, and we mistake how minuscule the probability of success really is.

Investors frequently fall victim to the sunk cost fallacy. Often, they base their trading decisions on acquisition prices. “I lost so much money with this stock, I can’t sell it now,” they say. This is irrational. The acquisition price should pay no role. What counts is the stock’s future performance (and the future performance of alternative investments).

Reciprocity is a very useful survival strategy, a form of risk management. Without it, humanity would be long extinct. It is at the core of cooperation between people and a necessary ingredient for economic growth and wealth creation.

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. In other words, we filter out any new information that contradicts our existing views.

We judge something to be beautiful, expensive, or large if we have something ugly, cheap, or small in front of us. We have difficulty with absolute judgments.

With the availability bias, we prefer the wrong information to no information.

Hindsight bias makes us believe we are better predictors than we actually are, causing us to be arrogant about our knowledge and consequently to take too much risk.

There are two types of knowledge. First, we have real knowledge. We see it in people who have committed a large amount of time and effort to understand a topic. The second type is chauffeur knowledge—knowledge from people who have learned to put on a show.

The illusion of control is the tendency to believe that we can influence something over which we have absolutely no sway. Do not think you command your life through life like a Roman emperor. Rather, you are the man with the red hat. Therefore, focus on a few things of importance that you can really influence.

Never judge a decision purely by its result, especially when randomness and “external factors” play a role. A bad result does not automatically indicate a bad decision and vice versa. So rather than tearing your hair out about a wrong decision, or applauding yourself for one that may have only coincidentally led to success, remember why you chose what you did.

Abundance makes you giddy, but there is a limit. When it is exceeded, a surfeit of choices destroys the quality of life. The technical term for this is the paradox of choice.

We respond to the expected magnitude of an event, but not to its likelihood. In other words: We lack an intuitive grasp of probability. And it leads to errors in decision making.

Induction seduces us and leads us to conclusions such as: “Mankind has always survived, so we will be able to tackle any future challenges, too.” Sounds good in theory, but what we fail to realise is that such a statement can only come from a species that has lasted until now. To assume that our existence to date is an indication of our future survival is a serious flaw in reasoning.

The fear of losing something motivates people more than the prospect of gaining of equal value.

In groups, we tend to hold back not only in terms of participation but also in terms of accountability. People behave differently in groups than when alone. The disadvantages of groups can be mitigated by making individual performances as visible as possible.

We can understand linear growth intuitively. However, we have no sense of exponential growth. Why is this? Because we didn’t need it before. Our ancestors’ experiences were mostly of the linear variety. Whoever spent twice the time collecting berries earned double the amount. Whoever hunted two mammoths instead of one could eat for twice as long. In the Stone Age, people rarely came across exponential growth. Today, things are different.