The Art of Thinking Clearly: The Secrets of Perfect Decision-Making

by Rolf Dobelli

Social proof is the evil behind bubbles and stock market panic.

Charles Darwin: from his youth, he set out systematically to fight the confirmation bias. Whenever observations contradicted his theory, he took them very seriously and noted them down immediately. He knew that the brain actively ‘forgets’ disconfirming evidence after a short time.

What distinguished the resourceful student from the others? While the majority of students sought merely to confirm their theories, he tried to find fault with his, consciously looking for disconfirming evidence. You might think: ‘Good for him, but not the end of the world for the others.’ However, falling for the confirmation bias is not a petty intellectual offence.

Both of these stories epitomise the contrast effect: 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 judgements.

All industries that offer upgrade options exploit this illusion.

When we encounter contrasts, we react like birds to a gunshot: we jump up and get moving. Our weak spot: we don’t notice small, gradual changes.

When we encounter contrasts, we react like birds to a gunshot: we jump up and get moving. Our weak spot: we don’t notice small, gradual changes.

‘Smoking can’t be that bad for you: my grandfather smoked three packs of cigarettes a day and lived to be more than 100.’ Or: ‘Manhattan is really safe. I know someone who lives in the middle of the Village and he never locks his door. Not even when he goes on vacation, and his apartment has never been broken into.’ We use statements like these to try to prove something, but they actually prove nothing at all. When we speak like this, we succumb to the availability bias.

The availability bias says this: we create a picture of the world using the examples that most easily come to mind.

We attach too much likelihood to spectacular, flashy or loud outcomes. Anything silent or invisible we downgrade in our minds. Our brains imagine show-stopping outcomes more readily than mundane ones. We think dramatically, not quantitatively.

We prefer wrong information to no information. Thus, the availability bias has presented the banks with billions in losses.

What was it that Frank Sinatra sang? ‘Oh, my heart is beating wildly/And it’s all because you’re here/When I’m not near the girl I love/I love the girl I’m near.’ A perfect example of the availability bias.

The It’ll-Get-Worse-Before-It-Gets-Better Fallacy

A mere smokescreen, the It’ll-Get-Worse-Before-It-Gets-Better Fallacy is a variant of the so-called confirmation bias. If the problem continues to worsen, the prediction is confirmed. If the situation improves unexpectedly, the customer is happy and the expert can attribute it to his prowess. Either way he wins.

The problem with all these questions is that, though valid, they just don’t make for a good yarn. Stories attract us; abstract details repel us.

Advertisers have learned to capitalise on this too. Instead of focusing on an item’s benefits, they create a story around it. Objectively speaking, narratives are irrelevant, but still we find them irresistible. Google illustrated this masterfully in its Super Bowl commercial from 2010, ‘Google Parisian Love’. Take a look at it on YouTube.

The real issue with stories: they give us a false sense of understanding, which inevitably leads us to take bigger risks and urges us to take a stroll on thin ice.

The hindsight bias is one of the most prevailing fallacies of all. We can aptly describe it as the ‘I told you so’ phenomenon: in retrospect, everything seems clear and inevitable.

Hindsight may provide temporary comfort to those overwhelmed by complexity, but as for providing deeper revelations about how the world works, you’ll benefit by looking elsewhere.

be aware that you tend to overestimate your knowledge. Be sceptical of predictions, especially if they come from so-called experts.

DON’T TAKE NEWS ANCHORS SERIOUSLY Chauffeur Knowledge

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 understanding a topic. The second type is chauffeur knowledge – 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. They reel off eloquent words as if reading from a script.

The illusion of control is the tendency to believe that we can influence something over which we have absolutely no sway.

you: the idea that people can influence their destiny even by a fraction encouraged these prisoners not to give up hope.

For example, censoring a book makes its contents more famous and rewarding bank employees for each loan sold leads to a miserable credit portfolio. Making CEOs’ pay public didn’t dampen the astronomical salaries; to the contrary, it pushed them upward. Nobody wants to be the loser CEO in his industry.

Imagine for a moment that, instead of demanding enemies’ riches, warriors and soldiers charged by the hour. We would effectively be incentivising them to take as long as possible, right? So why do we do just this with lawyers, architects, consultants, accountants and driving instructors? My advice: forget hourly rates and always negotiate a fixed price in advance.

we tend to evaluate decisions based on the result rather than on the decision process. This fallacy is also known as the historian error. A classic example is the Japanese attack on Pearl Harbor. Should the military base have been evacuated or not?

never judge a decision purely by its result, especially when randomness or ‘external factors’ play a role.

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.

Were your reasons rational and understandable? Then you would do well to stick with that method, even if you...

And yet, selection is the yardstick of progress. It is what sets us apart from planned economies and the Stone Age. Yes, abundance makes you giddy, but there is a limit. When it is exceeded, a surfeit of choices destroys quality of life. The technical term for this is the paradox of choice.

In conclusion: 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.

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.

‘Only while stocks last,’ the adverts alert. ‘Today only,’ warn the posters. Gallery owners take advantage of the scarcity error by placing red ‘sold’ dots under most of their paintings,

In conclusion: the typical response to scarcity is a lapse in clear thinking. Assess products and services solely on the basis of their price and benefits. It should be of no importance if an item is disappearing fast, nor if any doctors from London take an interest.

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

We remember bad behaviour longer than good – except, of course, when it comes to ourselves.

When it comes to growth rates, do not trust your intuition. You don’t have any. Accept it. What really helps is a calculator, or, with low growth rates, the magic number of 70.

In conclusion: accept this piece of wisdom about auctions from Warren Buffett: ‘Don’t go.’ If you happen to work in an industry where they are inevitable, set a maximum price and deduct 20% from this to offset the winner’s curse. Write this number on a piece of paper and don’t go a cent over it.

Consider these two statements: ‘Hey, the trashcan is full!’ ‘It would be really great if you could empty the trash, honey.’ C’est le ton qui fait la musique: it’s not what you say, but how you say it. If

It looks more impressive and feels less embarrassing to dive to the wrong side than to freeze on the spot and watch the ball sail past. This is the action bias: look active, even if it achieves nothing.

So, though it might not merit a parade in your honour, if a situation is unclear, hold back until you can assess your options. ‘All of humanity’s problems stem from man’s inability to sit quietly in a room alone,’

In short: we attribute success to ourselves and failures to external factors. This is the self-serving bias.

Never leave home without ‘because’. This unassuming little word greases the wheels of human interaction. Use it unrestrainedly.

Decision fatigue is perilous: as a consumer, you become more susceptible to advertising messages and impulse buys. As a decision-maker, you are more prone to erotic seduction. Willpower is like a battery.