The book shared today is Counterintuitive by Michael M. J. Möbson.
132 books in 2021
People make bad decisions because they are influenced by a variety of factors such as narrow vision, cognitive bias, and situational control, but worse, many people are unaware of the impact they are affected by.
A psychology book on decision-making, a topic of long-term interest, to share the core ideas:
We make a lot of decisions every day, and the risk is usually low. Even if the risk is not low, the best approach is often obvious.
When the risks are large enough, the instinctive decision-making process leads you to make suboptimal choices, you must understand the potential mistakes (preparation), identify them in the context (identification), and make sharper final decisions when the time comes (apply). Here are 7 tips that can help us make the right decisions.
Raise awareness of identifying errors
The first thing you have to do is identify some common mistakes in your daily flow of information.
This practice was inspired in part by the work of mathematician John Allen Paulos, including A Mathematician Reads the Newspaper. 1 Paulus interestingly explains how observing everyday events and comments from the perspective of a mathematician is able to give a useful point. It's a great way to adapt to these ideas. If you have a clear understanding of other people's bad ideas and second-rate decisions, you'll be better able to point them out in the face of potential mistakes.
In terms, I shake my head at the sloppy thinking around me, whether it's a false causality, a halo effect, or a failure to take into account the underlying ratio. For example, the authors found a paper that pointed to a correlation between the tempo variation of popular songs and the standard deviation of the S&P 500 index return. Media coverage naturally implies that a change in beat may cause market volatility. Is it possible? I think so. Is it possible? I wouldn't bet my money on this.
On the other hand, in the process of writing, I have a deeper understanding of how difficult it is to figure out many problems. The truth is that we make mistakes very easily, and when the information is incomplete and uncertain, this leads to bad results. The bigger question is what happens after the fact. Once the results are revealed, hindsight biases emerge, and many commentators say they know what to expect before they happen. In addition, when things deteriorate, everyone wants someone to take responsibility. When things get better, everyone wants to grab credit. This book will at least encourage you to be cautious when events and decisions are just beginning.
Cultivate empathy and think about decision-making from the perspective of others
Considering the views or experiences of others is an effective way to make better decisions. This mindset is crucial on many levels. The first is to accept the outside world's opinion. While many of the decisions we face are rare to us, like getting married, doing a big merger or acquisition, or moving to another community, many of these things have been experienced by many people before. These accumulated experiences create a reference category that can guide your choices.
It's also important to consider the power of context. The idea is that when evaluating others' choices, be careful not to read too much into their personalities, but instead carefully consider their situation. We see that the impact of context on decision-making can be two extremes. However, most of us make the basic attribution error of putting decision-making patterns before context.
Remember, your actions trigger reactions, and in many cases, you may not expect them. Game theorists have been studying how to better deal with these interactions, especially when they are one-on-one. But figuring out how a complex adaptive system will respond is also very challenging, as exemplified by ecologists trying to manage ecosystems or finance ministers trying to direct the economy. Few major decisions are made in a vacuum, so you have to consider the potential impact of each choice. 3
It's also important to consider the motivations of other people's decisions, especially when those decisions affect you. Motivation is important. Take negotiation courses because skilled negotiators are adept at figuring out what is important to the other side and reaching mutually beneficial solutions. Even if you're not dealing directly with the other party, understanding incentives can provide valuable clues to understanding how people make decisions.
Leaders must also cultivate empathy. If you're a decision maker and others are bearing the consequences of your choices, understanding their views and feelings is key to achieving the desired results. Empathy not only helps you make decisions, but also facilitates post-decision communication and management.
Recognize the role of strength and luck
The results we see in areas such as business, investment and sports are a combination of strength and luck, but most people don't think well about the relative contributions of the two. But distinguishing between strength and luck is crucial to making decisions and evaluating results.
When luck plays an important role in the formation of results, you should expect that mean reversion determines that more average results occur after extreme outcomes. The more important the role of luck, the more data you need to correctly distinguish between strength and luck. For example, short-term investment results largely reflect randomness and do not account for investor acumen.
If you're making constructive criticism of someone else's performance, make sure your comments focus on the strengths. By definition, this is the only part of the process that an individual can control in the process of doing something. When making criticisms, it's easy to confuse strength with luck.
Write a decision log
One of the best ways to improve decision-making is through timely, accurate, and clear feedback. This type of feedback is at the heart of deliberate practice and is a necessary ingredient for developing professional skills. The problem is that the quality of feedback varies greatly in different areas. In some areas, such as weather forecasting and gambling, feedback is fast and precise. In other areas, including long-term investment and business strategies, feedback is often lagging behind and often vague. For example, research shows that weather forecasters tend to be more accurate than financial analysts, reflecting both the system and feedback. 4
Feedback can generate value if you really want to hear it. But Philip Tyrock's in-depth study of experts reveals that experts make "belief system defenses." 5 Even if there is evidence that their predictions are wrong, experts come up with ways to defend their choices, in large part to maintain their self-image. The implication of this advice is that even good feedback is useless if you don't use it.
If you really want to improve your decisions and are willing to accept feedback, there is a simple, inexpensive, but valuable way to write a decision log. Whenever you make an important decision, take a moment to write down your decision, how you made it, and what you want to happen. If you have the time and interest, you can also record your physical and psychological feelings.
A detailed decision log has two benefits. The first benefit is that decision logs allow you to review your own decisions. Many times, after making a decision and observing the outcome, our ideas change the story of how we make the decision, especially for good outcomes. Writing down the decision-making process yourself makes it less likely to find new explanations after the fact. This review process is especially useful when decisions made with a poor process produce good results.
The second benefit is that you may be able to figure out patterns. When reviewing the decision log, you may begin to notice a relationship between how you felt and how the decision was implemented. For example, you may notice that when you're in a good mood, you're more likely to be overconfident in your own assessments.
Josh Waitzkin, who has achieved world-class success in chess and martial arts, described the practices of former chess world champion Tigran Petrosian. When the game lasted for days or weeks, Petrosin woke up in the morning and would sit quietly in his room, carefully assessing his mood at the time. He then made plans for the day's game based on this sentiment and achieved great success. Decision logs can provide structured tools for similar introspection. 6
Create a decision checklist
When faced with a tough decision, you want to be able to clearly consider something you might have inadvertently overlooked. That's where the benefits of the list of decisions come in.
For example, in 2009, The New England Journal of Medicine published the results of a study that tracked the incidence of surgical complications before and after the adoption of checklists. The study used data on more than 7,600 surgeries from 8 cities in different countries. The researchers found that when doctors used the checklist, the mortality rate was almost halved, and the incidence of other complications fell by 1/3. 7 Of course, pilots also discovered the value of the checklist in ensuring flight safety. But the question is, can you make a list of all the activities.
People are not making full use of the list. However, the applicability of the list depends to a large extent on the stability of the domain. In a stable environment, the causal relationship is very clear, things will not change much, and the list is very useful. But in a rapidly changing environment, creating a checklist is much more difficult. In these environments, checklists can help with decision-making in some ways. For example, when an investor evaluates a stock, he might use a checklist to make sure he has properly built his own financial model.
A good list can balance two opposing goals. It should be universal enough, taking into account different conditions, but specific enough to guide action. Finding this balance means that the list shouldn't be too long. Ideally, a page or two can be written.
If you haven't created a checklist yet, give it a try and see which problems will surface. Focus on the steps or procedures and ask yourself where previous decisions have gone off track. And recognize that errors are often caused by ignoring one step, rather than improperly performing other steps.
Conduct a prior inspection
Many people are familiar with post-mortem analysis, that is, analyzing decisions after knowing the results. For example, teaching hospitals hold morbidity and mortality meetings to review errors in patient care and revise decision-making processes. But psychologist Gary Klein has come up with a method he calls premortem, a process that takes place before a decision is made. Suppose you are in the future and the decisions you make have failed, then you need to provide a reasonable reason for the failure. In effect, it's about figuring out why your decision is leading to bad results before making a decision. Klein's research shows that because no individual or group has yet invested in a decision, pre-testing helps people identify more potential problems and encourage more open communication than other technologies.
You can track your individual or group's prior inspection in the decision log. Observing the possible causes of failure may also reveal early signs of problems. 8
Learn about the unknown and consider the worst outcome
In most day-to-day decisions, causation is clear. If you do X, Y will happen. But when decisions involve systems with many interacting parts, causation is often unclear. For example, what will climate change bring? Where will the terrorists attack next? When will new technologies emerge? Remember what Warren Buffett said, "Almost all accidents are unpleasant." 9 Therefore, it is crucial to consider the worst-case scenario, which is often overlooked in times of prosperity.
Resist the temptation to think of complex systems as too simplistic. One of the biggest challenges in finance is creating models that are both useful to practitioners and capture large market fluctuations. We can trace most large financial catastrophes back to a model that fails to capture the rich results inherent in complex systems such as the stock market.
There is an interesting contradiction in decision-making. Almost everyone is aware of its importance, but few people practice it. Why don't we train young students to make decisions? Why are only so few professionals, such as executives, doctors, lawyers, and government officials, proficient in these great ideas?
There are some common, recognizable mistakes in everyday affairs that you can understand, see, and manage effectively. In these cases, the right way to make decisions often clashes with your brain's instinctive responses. But now, you know when it's time to think counterintuitively and better decisions will follow. So be mentally prepared, identify the situation, use the right techniques, and practice a lot.