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

by Rolf Dobelli

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

Here is an example from a campaign promoting breast self-examination (BSE): two different leaflets were handed out to women. Pamphlet A urged: ‘Research shows that women who do BSE have an increased chance of finding a...

Pamphlet B said: ‘Research shows that women who do not do BSE have a decreased chance of finding a tumour in the early, more treatable state of the disease.’ The study revealed that pamphlet B (written in a ‘loss-frame’) generated significantly more awar...

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

Suppose your business is home insulation. The most effective way of encouraging customers to purchase your product is...

are losing without insulation – as opposed to how much money they would save with it, even though th...

Management gurus push employees in large companies to be bolder and more entrepreneurial. The reality is: employees tend to be risk-averse. From their perspective, this aversion makes perfect sense: why risk something that brings them, at best, a nice bonus,

and at worst, a pink slip? The downside is larger than the upside. In almost all companies and situations, safeguarding your career trumps any potential reward. So, if you’ve been scratching your head about the lack of risk-taking among your employees, you now know why. (However, if employees do take big risks, it is often when they can hide behind group decisions. Learn more in chapter 33 on social loafing.)

We can’t fight it: evil is more powerful and more plentiful than good. We are more sensitive to negative than to positive things. On the street, scary faces stand out more than smiling ones. We remember bad behaviour longe...

social loafing effect.

It occurs among rowers, but not in relay races, because here, individual contributions are evident.

For example, in meetings, the larger the team the weaker our individual participation. However, once a certain number of participants is involved, our performance plateaus. Whether the group consists of 20 or 100 people is not important – maximum inertia has been achieved.

In the West, teams function better if and only if they are small and consist of diverse, specialised people. This makes sense, because within such groups, individual performances can be traced back to each specialist.

We hide behind team decisions. The technical term for this is diffusion of responsibility.

The individual group members reason that

they are not the only ones who will be blamed if things go wrong. This effect is called risky shift, and is especially hazardous among company and pension-fund strategists, where billions are at stake, or in defence depa...

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. L...

STUMPED BY A SHEET OF PAPER

Exponential Growth

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.

‘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.

fundamental attribution error.

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

In short, our lives depended on and revolved around others, which explains why we are so obsessed with our fellow humans today. The result of this infatuation is that we spend about 90% of our time thinking about other people, and dedicate just 10% to assessing other factors and contexts.

Consider the headline ‘Employee motivation leads to higher corporate profits.’ Does it? Maybe people are simply more motivated because the company is doing well. Another headline touts that the more women on a corporate board, the more profitable the firm is. But is that really how it works? Or do highly profitable firms simply tend to recruit more women to their boards?

Today we know that these commentators fell victim to false causality. America’s symbiosis with China, the globe’s low-cost producer and eager buyer of U.S. debt, played a much more important role. In other words, Greenspan was simply lucky that the economy did so well during his tenure.

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. And sometimes there is no link at all – just like with the storks and babies.

The halo effect occurs when a single aspect dazzles us and affects how we see the full picture. In the case of Cisco, its halo shone particularly bright. Journalists were astounded by its stock prices and assumed the entire business was just as brilliant – without making closer investigation.

Beauty is the best-studied example. Dozens of studies have shown that we automatically regard good-looking people as more pleasant, honest and intelligent. Attractive people also have it easier in their professional lives – and that has nothing to do with the myth of women ‘sleeping their way to the top’. The effect can even be detected in schools, where

teachers unconsciously give good-looking students better grades.

To counteract this, go beyond face value. Factor out the most striking features. World-class orchestras achieve this by making candidates play behind a screen, so that sex, race, age and appearance play no part in their decision.

Dig deeper. Invest the time to do serious research. What emerges is not always pretty, but almost always educational.

Alternative paths are all the outcomes that could have happened, but did not. With the game of Russian roulette, four alternative paths would have led to the same result (winning the $10 million) and the fifth

alternative to your death. A huge difference.

Yes, looking at alternative paths from the outside is a difficult task. Looking at them from the inside is an almost impossible task. Your brain will do

everything to convince you that your success is warranted – no matter how risky your dealings are – and will obscure any thought of paths other than the one you are on.

‘There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know,’ wrote Harvard economist John Kenneth Galbraith.

The conjunction fallacy is at play when such a subset seems larger than the entire set – which by definition cannot be the case. Nobel laureate Daniel Kahneman and Amos Tversky have studied this extensively.

In conclusion: forget about left brains and right brains. 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. Remember: if an additional condition has to be met, no matter how plausible it sounds, it will become less, not more, likely.

framing.

Glossing is a popular type of framing. Under its rules, a tumbling share price becomes ‘correction’.

The simple answer: appearance. 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.

discipline in avoiding just doing any damn thing just because you can’t stand inactivity.’

Society

at large still prefers rash action to a sensible wait-and-see strategy.

‘All of humanity’s problems stem from man’s inability to sit quietly in a room alone,’ wrote Blaise Pascal. At home, in his study.

omission bias.

Suppose you are the head of the Federal Drug Administration. You must decide whether or not to approve a drug for the terminally ill. The pills can have fatal side effects: they kill 20% of patients on the spot, but save the lives of the other 80% within a short period of time. What do you decide? Most would withhold approval. To them, waving through a drug that takes out every fifth person is a worse act than failing to administer the cure to the other 80% of patients. It is an absurd decision, and a perfect example of the omission bias. Suppose that you are aware of the bias and decide to approve the drug in the name of reason and decency. Bravo. But what happens when the first patient dies? A media storm

‘If you’re not part of the solution, you’re part of the problem.’

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