Think Twice: Harnessing the Power of Counterintuition [Hardcover]

Michael Mauboussin asserts, "Smart people make poor decisions because they have the same factory settings on their mental software as the rest of us, and that software isn't designed to cope with many of today's problems...Beyond the problem of mental software, smart people make bad decisions because they harbor false beliefs." What to do? I agree with Mauboussin that the most valuable lessons in life tend to be revealed by failure that results from errors of judgment. For example, consider this familiar observation about betrayal of confidence: "First time, shame on you; second time, shame on me." To improve one's judgment, to reduce the number if one's mistakes (if not eliminate them), Mauboussin suggests a three step plan, suggested by the acronym PRA: First, Prepare by acknowledging and analyzing one's mistakes in order to understand their cause(s), nature, extent, and impact; next, to Recognize each mistake in context, to gain "situational awareness," in order to recognize the kinds of problems one faces, what the risks are, and which tools are needed to make smart decisions; finally, Apply what one has been learned in order to mitigate one's potential mistakes by building or refining a set of mental tools to cope with the realities if life."

"Many of these tips [provided in the book] involve keeping your intuition in check while using an approach that is counterintuitive." Mauboussin makes no claim to immunity from various cognitive mistakes and duly acknowledges that he still falls "for every one I describe in the book. My personal goal [one he hopes the reader will also select] is to recognize when I enter a danger zone while trying to make a decision and to slow down when I do. Finding the proper point of view at the appropriate time is critical."

Mauboussin's core insight is that most of the worst decisions are made in haste, without sufficient information, and driven by emotion rather than by reason, and are avoidable. For example, consider mistakes associated with reversion to the mean (i.e. denying or ignoring the fact that an outcome that is not is not average will be followed by an outcome that has an expected value closer to the average). How to avoid making these mistakes? Mauboussin offers four suggestions:

1. Evaluate the mix of skill and luck in the system that you are analyzing. "Here's a simple test of whether an activity involves skill: ask if you can lose on purpose [because] if you can lose on purpose, then skill is involved."

2. Carefully consider the sample size. "The more that luck contributes to the outcomes you observe, the larger the sample you will need to distinguish between skill and luck."

3. Watch for change within the system or of the system. "One obvious example is individual changes in skill level. And athlete's age is a good example. In many professional sports, athletic skill improves through the late twenties, at which point it begins to steadily deteriorate."

4. Watch out for the halo effect. That is, "the human proclivity to make specific references based on general impressions. Mauboussin cites Phil Rosenzweig's analysis of a tendency to observe so-called "great" companies, attach common attributes to them that explain their success, and recommend others to embrace the attributes to achieve their own success.

Mauboussin observes, "To me, the greatest lesson and opportunity from understanding reversion to the mean is to keep your cool. When outcomes are really good because of a dose of good luck, prepare for times when they will be closer to the average. When outcomes are disappointing as the result of bad luck, recognize that things will get better."

Meanwhile, those who read this book are urged to take some concrete actions immediately to improve the quality of their decisions: Learn about the potential mistakes (Prepare), identify them in context rather than in isolation (Recognize), and sharpen ultimate decisions when they must be made and then executed (Apply). "There are common and identifiable mistakes that you can understand, see in your daily affairs, and manage effectively. In those cases, the correct approach to deciding well often conflicts with what your mind naturally does." If you believe that your decisions cannot be improved, that you do not need this book, think again.

regard decision making as a fundamental skill in life. It's always been a mystherie to me why books on decision making do not attract a large audience. As the author writes: There's a funny paradox with decision making. Almost everyone realizes how important it is, yet very few people practice (let alone read about it).

THINK TWICE is a fantastic book for people interested in decision making. In particular, why we often fail and how we can improve our skills. Mauboussin offers deep insights into the topic. It's not a dummies book. Readers should expect academic rigor in all of Mauboussin's books. The reader finds a framework for thinking twice without a detailed structure. In particular the last chapter, Time to Think Twice", the author offers some guidance in how we can improve our decision making skills immediately.

In my opinion, there used to be only one outstanding book on decision making: ,Smart Choices`. For practical purposes in decision making, like how to use decision trees, it's still the best book in the market. But ,Think Twice` offers a lot more on the subject. In particular why we make mistakes regarding decisions. Now we got two brilliant books on the subject.

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 you can use 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.