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

by Rolf Dobelli

Sacrificing options was a price they were not willing to pay.

each decision costs mental energy and eats up precious time for thinking and living. CEOs who examine every possible expansion option often choose none in the end. Companies that aim to address all customer segments end up addressing no one. Salespeople who chase every single lead close no deals.

We are obsessed with having as many irons as possible in the fire, ruling nothing out and being open to everything.

A business strategy is primarily a statement on what not to engage in. Adopt a life strategy similar to a corporate strategy: write down what not to pursue in your life. In other words, make calculated decisions to disregard certain possibilities and when an option shows up, test it against your not-to-pursue list. It will not only keep you from trouble but also save you lots of thinking time. Think hard once and then just consult your list instead of having to make up your mind...

assume that most of the technology that has existed for the past fifty years will serve us for another half-century. And assume that recent technology will be passé in a few years’ time. Why? Think of these inventions as if they were species: whatever has held its own throughout centuries of innovation will probably continue to do so in the future, too. Old technology has proven itself; it possesses an inherent logic even if we do not always understand it. If something has endured for epochs, it must be worth its salt. You can take this to heart the next time you are in a strategy meeting.

Taleb traces this tendency back to the neomania pitfall: the mania for all things shiny and new.

whatever has survived for X years will last another X years. Taleb wagers that the ‘bullshit filter of history’ will sort the gimmicks from the game-changers. And that’s one bet I’m willing to back.

sleeper effect. To date, the best explanation is that, in our memories, the source of the argument fades faster than the argument. In other words, your brain quickly forgets where the information came from (e.g. from the department of propaganda). Meanwhile, the message itself (i.e., war is necessary and noble) fades only slowly or even endures. Therefore, any knowledge that stems from an untrustworthy source gains credibility over time. The discrediting force melts away faster than the message does.

How can you thwart the sleeper effect? First, don’t accept any unsolicited advice, even if it seems well meant. Doing so, you protect yourself to a certain degree from manipulation. Second, avoid ad-contaminated sources like the plague. How fortunate we are that books are (still) ad-free! Third, try to remember the source of every argument you encounter. Whose opinions are these? And why do they think that way? Probe the issue like an investigator would: cui bono? Who benefits? Admittedly, this is a lot of work and will slow down your decision-making. But it will also refine it.

alternative blindness: we systematically forget to compare an existing offer with the next-best alternative.

‘Each deal we measure against the second-best deal that is available at any given time – even if it means doing more of what we are already doing.’

The bottom line: if you have trouble making a decision, remember that the choices are broader than ‘no surgery’ or ‘highly risky surgery’. Forget about the

rock and the hard place, and open your eyes to the other, superior alternatives.

The social comparison bias is also a cause for concern with start-up companies. Guy Kawasaki was ‘chief evangelist’ at Apple for four years. Today he is a venture capitalist and advises entrepreneurs. Kawasaki

says: ‘A-players hire people even better than themselves. It’s clear, though, that B-players hire C-players so they can feel superior to them, and C-players hire D-players. If you start hiring B-players, expect what Steve [Jobs] called “the bozo explosion” to happen in your organisation.’ In other words, start hiring B-players and you end up with Z-players.

Try to avoid evaluations based on first impressions. They will deceive you, guaranteed, in one way or another.

For example, in interviews, I jot down a score every five minutes and calculate the average afterward. This way, I make sure that the ‘middle’ counts just as much as hello and goodbye.

inevitably exert an influence. Thus, it makes

Willem de Vlamingh saw a black swan for the first time during an expedition to Australia. Since then, black swans have become symbols of the improbable.

Then, suddenly, a day like 19 October 1987 comes around and the stock market tumbles 22%. With no warning. This event is a Black Swan, as described by Nassim Taleb in his book with the same title.

A Black Swan is an unthinkable event that massively affects your life, your career, your company, your country. There are positive and negative Black Swans. The meteorite that flattens you, Sutter’s discovery of gold in California, the collapse of the Soviet Union, the invention of the transistor, the Internet browser, the overthrow of Egyptian dictator Mubarak or another encounter that upturns your life completely – all are Black Swans.

there are things we know (‘known facts’), there are things we do not know (‘known unknowns’) and there are things that we do not know that we do not know (‘unknown unknowns’). How

big is the universe? Does Iran have nuclear weapons? Does the Internet make us smarter or dumber? These are ‘known unknowns’. With enough effort, we can hope to answer these one day.

Unlike the ‘unknown unknowns’. No one foresaw Facebook mania ten years ag...

Put yourself in situations where you can catch a ride on a positive Black Swan (as unlikely as that is). Become an artist, inventor or entrepreneur with a scaleable product.

If you sell your time (e.g. as an employee, dentist or journalist), you are waiting

vain for such a break. But even if you feel compelled to continue as such, avoid surroundings where negative Black Swans thrive. This means: stay out of debt, invest your savings as conservatively as possible and get used to a modest standard ...

The conclusion: insights do not pass well from one field to another. This effect is called domain dependence.

When it came to Markowitz’s own portfolio – how he should allot his savings in stocks and bonds – he simply opted for 50/50 distribution: half in shares, the other half in bonds. The Nobel Prize winner was incapable of applying his ingenious process to his own affairs.

Police officers are twice as violent at home as civilians.

We frequently overestimate unanimity with others, believing that everyone else thinks and feels

exactly like we do. This fallacy is called the false-consensus effect.

The false-consensus effect thrives in interest groups and political factions that consistently overrate the popularity of their causes. An obvious example is global warming. However critical you consider the issue to be, you probably believe that the majority of people share your opinion. Similarly, if politicians are confident of election, it’s not just blind optimism: they cannot help overestimating their popularity.

false-consensus effect.

Companies with tech people in charge are especially affected. Inventors fall in love with their products’ sophisticated features and mistakenly believe that these will bowl customers over, too.

Social proof is an evolutionary survival strategy. Following the crowd has saved our butts more often in the past 100,000 years than striking out on our own. With the false-consensus effect, no outside influences are involved. Despite this, it still has a social function, which is why evolution didn’t eliminate it. Our brain is not built to recognise the truth; instead its goal is to leave behind as many offspring as possible.

Whoever seemed courageous and convincing (thanks to the false-consensus effect) created a positive impression, attracted a disproportionate amount of resources, and thus increased their chances of passing on their genes to future generations. Doubters were less sexy.

assume that your worldview is not borne by the public. More than that: do not assume that those who think differently are idiots. Before you dist...

It is safe to assume that half of what you remember is wrong. Our memories are riddled with inaccuracies, including the seemingly flawless flashbulb memories.

This brings us to the question: does identifying with a group – a sports team, an ethnicity, a company, a state – represent flawed thinking?

The Ellsberg Paradox offers empirical proof that we favour known probabilities (box A) over unknown ones (box B).

Risk means that the probabilities are known. Uncertainty means that the probabilities are unknown. On the basis of risk, you can decide whether or not to take a gamble. In the realm of uncertainty, though, it’s much harder to make decisions.

A credit default swap is an insurance policy against specific defaults, a particular company’s inability to pay. In the first case (life insurance), we are in the calculable domain of risk; in the second (credit default swap), we are dealing with uncertainty. This confusion contributed to the chaos of the financial crisis in 2008. If you hear phrases such as ‘the risk of hyperinflation is

x per cent’ or ‘the risk to our equity position is y’, start worrying.

To avoid hasty judgement, you must learn to tolerate ambiguity. This is a difficult task and one that ...

Your amygdala plays a crucial role. This is a nut-sized area in the middle of the brain responsible for processing memory and emotions. Depending on how it is built, you will tolerate uncertainty with greater ease or difficulty. This is evident not least in your political orientation: the more averse you are to uncertainty, the more co...

Either way, whoever hopes to think clearly must understand the difference betwe...

casinos, coin tosses and probabili...

Often we are left with troublesome ambiguity. Learn to ...

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