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

by Rolf Dobelli

In daily life, because triumph is made more visible than failure, you systematically overestimate your chances of succeeding.

Survivorship bias means this: people systematically overestimate their chances of success. Guard against it by frequently visiting the graves of once-promising projects, investments and careers.

Once again we see the swimmer’s body illusion at work: the factor for selection confused with the result.

The human brain seeks patterns and rules. In fact, it takes it one step further: if it finds no familiar patterns, it simply invents some. The more diffuse the signal, such as the background noise on the tape, the easier it is to find ‘hidden messages’ in it.

In conclusion: 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.

The advertising industry benefits greatly from our weakness for social proof.

W. Somerset Maugham’s wise words: ‘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.

He has studied the phenomenon of reciprocity and has established that people have extreme difficulty being in another person’s debt.

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.

In conclusion: 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.

If you are seeking a partner, never go out in the company of your supermodel friends. People will find you less attractive than you really are. Go alone or, better yet, take two ugly friends.

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.

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.

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.

We systematically overestimate our knowledge and our ability to predict – on a massive scale.

What’s surprising is this: experts suffer even more from overconfidence than laypeople do.

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.

There is a clear indicator: true experts recognise the limits of what they know and what they do not know.

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

Be wary, too, of investment advisers endorsing particular financial products. They are not interested in your financial well-being, but in earning a commission on these products.

In conclusion: keep an eye out for the incentive super-response tendency. If a person’s or an organisation’s behaviour confounds you, ask yourself what incentive might lie behind it.

In conclusion: when you hear stories such as: ‘I was sick, went to the doctor, and got better a few days later’ or ‘the company had a bad year, so we got a consultant in and now the results are back to normal’, look out for our old friend, the regression-to-mean error.

The monkey story illustrates the outcome bias: we tend to evaluate decisions based on the result rather than on the decision process.

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.

The liking bias is startlingly simple to understand and yet we continually fall prey to it. It means this: the more we like someone, the more inclined we are to buy from or help that person.

I’d fallen under the influence of the endowment effect. We consider things to be more valuable the moment we own them. In other words, if we are selling something, we charge more for it than what we ourselves would be willing to spend.

In real estate, the endowment effect is palpable. Sellers become emotionally attached to their houses and thus systematically overestimate their value.

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.

When everyone thinks and acts like this, groupthink is at work: this is where a group of smart people makes reckless decisions because everyone aligns their opinions with the supposed consensus.

This illustrates that we respond to the expected magnitude of an event (the size of the jackpot or the amount of electricity), but not to its likelihood. In other words: we lack an intuitive grasp of probability. The proper term for this is neglect of probability, and it leads to errors in decision-making.

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 detailed description enticed us to overlook the statistical reality. Scientists call this fallacy base-rate neglect: a disregard of fundamental distribution levels.

The gambler’s fallacy leads us to believe that something must change.

For this reason, if you want to convince someone about something, don’t focus on the advantages; instead highlight how it helps them dodge the disadvantages.

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

In conclusion: people behave differently in groups than when alone (otherwise there would be no groups). The disadvantages of groups can be mitigated by making individual performances as visible as possible. Long live meritocracy! Long live the performance society!

When it comes to growth rates, do not trust your intuition. You don’t have any.

The winner’s curse suggests that the winner of an auction often turns out to be the loser.

the fundamental attribution error. This describes the tendency to overestimate individuals’ influence and underestimate external, situational factors.

In conclusion: 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 occurs when a single aspect dazzles us and affects how we see the full picture.

The halo effect always works the same way: we take a simple-to-obtain or remarkable fact or detail, such as a company’s financial situation, and extrapolate conclusions from there that are harder to nail down, such as the merit of its management or the feasibility of its strategy.

In conclusion: risk is not directly visible. Therefore, always consider what the alternative paths are.

Remember: if an additional condition has to be met, no matter how plausible it sounds, it will become less, not more, likely.

In conclusion: realise that whatever you communicate contains some element of framing, and that every fact – even if you hear it from a trusted friend or read it in a reputable newspaper – is subject to this effect, too.

In conclusion: in new or shaky circumstances, we feel compelled to do something, anything. Afterward we feel better, even if we have made things worse by acting too quickly or too often.