The Art of Thinking Clearly

by Rolf Dobelli

Or, as social scientists David Lykken and Auke Tellegen starkly suggest, “trying to be happier is as futile as trying to be taller.”

“We’ve come this far . . .” “I’ve read so much of this book already . . .” “But I’ve spent two years doing this course . . .” If you recognize any of these thought patterns, it shows that the sunk cost fallacy is at work in a corner of your brain.

Both of these stories epitomize 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 judgments.

A product that has been reduced from $100 to $70 seems a better value than a product that has always cost $70. The starting price should play no role.

Stories are dubious entities. They simplify and distort reality and filter things that don’t fit.

Whenever you hear a story, ask yourself: Who is the sender, what are his intentions, and what did he hide under the rug?

So why is the hindsight bias so perilous? Well, it 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.

In conclusion: Be aware that you tend to overestimate your knowledge. Be skeptical of predictions, especially if they come from so-called experts. And with all plans, favor the pessimistic scenario.

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.

the knowledge they espouse is not their own.

What lies inside this circle you understand intuitively; what lies outside, you may only partially comprehend. One of Munger’s best pieces of advice is: “You have to stick within what I call your circle of competence. You have to know what you understand and what you don’t understand.

How do you recognize the difference? There is a clear indicator: True experts recognize the limits of what they know and what they do not know. If they find themselves outside their circle of competence, they keep quiet or simply say, “I don’t know.” This they utter unapologetically, even with a certain pride. From chauffeurs, we hear every line except this.

Crossing the street in Los Angeles is a tricky business, but luckily, at the press of a button, we can stop traffic. Or can we? The button’s real purpose is to make us believe we have an influence on the traffic lights, and thus we’re better able to endure the wait for the signal to change with more patience.

“Never ask a barber if you need a haircut.”

The more choice you have, the more unsure and therefore dissatisfied you are afterward.

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.