THINK TWICE

Research indicates that people buy more German wine when a store s sound system plays German music in the background and more French wine when it plays French music. However, shoppers claim that the background music has no effect on their wine choices. Most people think that they make rational decisions, even if they do not. In this example, irrelevant, low-level sensory input determines people s choices.
Michael J. Mauboussin, a finance professor and investment strategist, wants to help people make better decisions.

In his book, he details the most common decision-making mistakes and suggests practical techniques to avoid them.

GetAbstract recommends this book to people who want to increase their awareness of their own irrationality and, especially, to managers in decision-making positions, whose mistakes may have ripple effects throughout their organizations and even beyond.

According to Mauboussin, smart, well-informed people make decisions as poorly as anyone else. The human mind is not hard-wired for rational thinking, and many intelligent and creative people harbour false beliefs. Arthur Conan Doyle, the creator of the superrational detective Sherlock Holmes, believed in spiritualism and fairies. His capacity to interpret the world accurately was, therefore, rather less than that of his protagonist.

To make better decisions, learn to counteract false premises and avoid other mental pitfalls. Don t go with your first impulse. Instead, Mauboussin advises you to think twice . First, prepare to make decisions by learning about usual mistakes.

Next, recognize flaws in your own decision making, and then apply this lesson to your next decision. Don t let closeat-hand information lead you astray.
Avoid the inside view. Use objective information about how other people have evaluated and handled the type of problem you face.

Avoid the tunnel vision trap by seeking out different points of view. Don t make important decisions at stressful times. Since incentives can sway your opinions, analyse the incentives that might cause you to make one decision over another. Consider the potential consequences of your actions.

Mauboussin recommends keeping a decision-making journal , where you enter each major decision you make, the reasons that led to your choice, a description of your mood and your prediction of the outcome. By auditing your decisions, you ll be able to evaluate them. The journal will reveal patterns in your thinking. Equipped with a record of your decisions, you will avoid hindsight bias , the inclination to see events as more predictable than they were. It will help you remember how the situation presented itself to you before you knew its outcome. Your circumstances influence your decisions. Thus, to make good decisions, increase your awareness of your environment and its influence upon you. Don t mindlessly base your decisions on what peers do. Keep your thinking fresh and relevant, and don t let yourself be dragged down by inertia or the status quo.

Often, you must consider numerous factors when you make decisions. Therefore, in addition to a decision-making journal, Mauboussin recommends developing a decision checklist so you don t inadvertently overlook something crucial. People make mistakes more often by forgetting an important step than by failing to handle the individual steps well. The value of your checklist will increase in proportion to the stability of your environment . For example, decision checklists are useful for pilots and surgeons, because much data exists regarding situations similar to those they routinely confront. However, in an environment where everything is fluid and circumstantial, decision checklists are less helpful.

Warren Buffett said, Virtually all surprises are unpleasant. With this in mind, think through the worst-case outcomes of your decisions. When you regard such scenarios as potential real-life situations, you will be motivated to think things through rationally.

Place yourself mentally in the future. Imagine that your decision did not work out as you had planned. Should you have been able to predict the poor outcome? This technique enables you to spot in advance problems that may result from your decisions.

Rolf Dobelli is chairman, getAbstract. Think Twice: Harnessing the Power of Counterintuition Michael J. Mauboussin Harvard Business Press, 2009, 272 pages List price: $26.95 ISBN13: 9781422176757