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Think Twice: Harnessing the Power of Counterintuition
How to stop yourself before you make another costly decision.... No one intentionally makes bad decisions. Yet we make them all the time. In fact, some of the worst disasters in recent history - the collapse of major investment banks, the global financial meltdown - were the result of seemingly reasonable decisions made by a lot of smart people. How does this happen?
Michael J. Mauboussin argues that the correct process for deciding well - especially when the stakes are high - conflicts with how our minds naturally work.
When faced with complex situations, our brains revert to simplified patterns that obscure better approaches to the problem. Even when we think we’re applying logic and reason, we’re subconsciously succumbing to social or situational influences. Fortunately, we can override our mind’s default systems - that is, we can counter our intuition - by learning to “think twice”.
In this compelling audiobook, Mauboussin outlines a disciplined approach to decision-making that will significantly reduce costly mistakes. Through vivid stories from business, sports, science, and everyday life, Mauboussin categorizes common mental mistakes and offers actionable advice for avoiding them,
The Inside/Outside Take the experiences of others into account Tunnel Force yourself to consider alternatives that make you uncomfortable The Whole Is Smarter Than Its Don’t oversimplify complex problems Situational Be highly aware of the influence others have on you The Expert Know when to trust so-called experts, and when not to Backed by powerful research and shrewd analysis, this audio book gives you a mental toolkit for spotting dangerous decision traps - and making smarter choices in your professional and personal life.
Michael J. Mauboussin argues that the correct process for deciding well - especially when the stakes are high - conflicts with how our minds naturally work.
When faced with complex situations, our brains revert to simplified patterns that obscure better approaches to the problem. Even when we think we’re applying logic and reason, we’re subconsciously succumbing to social or situational influences. Fortunately, we can override our mind’s default systems - that is, we can counter our intuition - by learning to “think twice”.
In this compelling audiobook, Mauboussin outlines a disciplined approach to decision-making that will significantly reduce costly mistakes. Through vivid stories from business, sports, science, and everyday life, Mauboussin categorizes common mental mistakes and offers actionable advice for avoiding them,
The Inside/Outside Take the experiences of others into account Tunnel Force yourself to consider alternatives that make you uncomfortable The Whole Is Smarter Than Its Don’t oversimplify complex problems Situational Be highly aware of the influence others have on you The Expert Know when to trust so-called experts, and when not to Backed by powerful research and shrewd analysis, this audio book gives you a mental toolkit for spotting dangerous decision traps - and making smarter choices in your professional and personal life.
Audible Audio
First published November 4, 2009
184 people are currently reading
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About the author
Michael J. Mauboussin
15 books332 followersMichael J. Mauboussin is Chief Investment Strategist at Legg Mason Capital Management. Prior to joining LMCM in 2004, Michael was a Managing Director and Chief U.S. Investment Strategist at Credit Suisse. Michael joined CS in 1992 as a packaged food industry analyst. He is a former president of the Consumer Analyst Group of New York and was repeatedly named to Institutional Investors All-America Research Team and The Wall Street Journal All-Star survey in the food industry group.
Michael is the author of Think Twice: Harnessing the Power of Counterintuition (Harvard Business Press, 2009) and More Than You Know: Finding Financial Wisdom in Unconventional PlacesUpdated and Expanded (New York: Columbia Business School Publishing, 2008). More Than You Know was named one of The 100 Best Business Books of All Time by 800-CEO-READ, one of the best business books by BusinessWeek (2006) and best economics book by Strategy+Business (2006). He is also co-author, with Alfred Rappaport, of Expectations Investing: Reading Stock Prices for Better Returns (Harvard Business School Press, 2001).
Michael has been an adjunct professor of finance at Columbia Business School since 1993 and is on the faculty of the Heilbrunn Center for Graham and Dodd Investing. In 2009, Michael received the Deans Award for Teaching Excellence. BusinessWeeks Guide to the Best Business Schools (2001) highlighted Michael as one of the schools Outstanding Faculty, a distinction received by only seven professors.
Michael earned an A.B. from Georgetown University. He is also affiliated with the Santa Fe Institute, a leading center for multi-disciplinary research in complex systems theory, and is on the board of directors of Sermo, an online community for physicians."
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Displaying 1 - 30 of 109 reviews
November 9, 2014
There is a secret author's fraternity with the rule of siting each of the following at least once in each work: Taleb, Tetlock, Kahneman (and Tversky). Kahneman is their leader, his work has the most inward citations. Second in line is Taleb, followed by Tetlock, and then Mauboussin. The newest member of the group is possibly Nate Silver. They meet annually in an undisclosed location to vote on the direction of humanity's intellectual discourse. Every vote is unanimous. Kidding aside if you have any interest in any one of these authors, reading others in the circle can often illuminate key concepts. For example Taleb's writings are notoriously difficult to distill into summaries - his writings are dense (and one could say fractal in nature) - but Mauboussin's description of black / grey swans and the power law distribution in chapter 7 here is the most precise summary of the black swan concept I have come across that I think Taleb would approve of. This is an enjoyable read. I'm curious if the author was trying to say something by highlighting the phrase "thin ice" on the cover out of the full title "think twice", or perhaps the cover designer was just trying to be cute? (probably the latter)
May 31, 2016
To be fair, I think this book must have 2 different reviews: one for those who have already read the author's "More Than You Know" (MTYK), and those who haven't.
For those who have read MTYK, this book is less useful and pretty repetitive. Most of the points in "Think Twice" (TT) have already been covered in MTYK, although in different depths. TT usually delves deeper on each subject, mostly because the material is not only focused on finance/investing as in MTIK, and because you have less ground to be covered as well. Still, I think that the average MITK reader won't find the time spent on this book worthwhile.
For those who haven't read MTYK, this book is really recommended, especially if your interest is on decision-making outside of finance/investing. This is NOT a book with a guideline to decision making, but it will give you a lot of insight on specific situations where we tend to go thinking the wrong way.
Still, if you're more worried about the finance/investing angle, I would definitely recommend MTYK first, as it's a more complete and more focused book on the subject (it's actually on my top 5 list of investing books, and had a profound impact on my work as a financial analyst).
For those who have read MTYK, this book is less useful and pretty repetitive. Most of the points in "Think Twice" (TT) have already been covered in MTYK, although in different depths. TT usually delves deeper on each subject, mostly because the material is not only focused on finance/investing as in MTIK, and because you have less ground to be covered as well. Still, I think that the average MITK reader won't find the time spent on this book worthwhile.
For those who haven't read MTYK, this book is really recommended, especially if your interest is on decision-making outside of finance/investing. This is NOT a book with a guideline to decision making, but it will give you a lot of insight on specific situations where we tend to go thinking the wrong way.
Still, if you're more worried about the finance/investing angle, I would definitely recommend MTYK first, as it's a more complete and more focused book on the subject (it's actually on my top 5 list of investing books, and had a profound impact on my work as a financial analyst).
December 9, 2013
This book describes and examines some fascinating biases and errors we humans are subject to. Some fun quotes/notes:
His capricious performance evoked what lab researchers call Harvard’s Law, “Under the most rigorously controlled conditions of pressure, temperature, volume, humidity, and other variables, the organism will do as it damn well pleases.” - location 296
people rolling dice throw softly when they want to roll low numbers and hard for high numbers. - location 383
Before the drawing, one of the researchers asked the participants at what price they would be willing to sell their cards. The mean offer for the group that was allowed to choose cards was close to $9, while the offer from the group that had not chosen was less than $2. - location 386
When radio became popular in the 1920s and 1930s in the United States, some psychologists worried that the media would infect a vulnerable public with ideas. The fear was that everyone hearing the same message simultaneously might spark some massive, unintended, coordinated behavior. - location 740
So you can imagine the reaction when James Surowiecki, author of the best-selling book The Wisdom of Crowds, strolled into Best Buy’s headquarters and delivered a startling message: a relatively uninformed crowd could predict better than the firm’s best seers.1 Surowiecki’s message resonated with Jeff Severts, an executive then running Best Buy’s gift-card business. Severts wondered whether the idea would really work in a corporate setting, so he gave a few hundred people in the organization some basic background information and asked them to forecast February 2005 gift-card sales. When he tallied the results in March, the average of the nearly two hundred respondents was 99.5 percent accurate. His team’s official forecast was off by five percentage points. The crowd was better, but was it a fluke? Later that year, Severts set up a central location for employees to submit and update their estimates of sales from Thanksgiving through year-end. More than three hundred employees participated, and Severts kept track of the crowd’s collective guess. When the dust settled in early 2006, he revealed that the official August forecast of the internal experts was 93 percent accurate, while the presumed amateur crowd was off by only one-tenth of 1 percent.2 Best Buy subsequently allocated additional resources to its prediction market, called TagTrade.3 The market has yielded useful insights for managers through the more than two thousand employees who have made tens of thousands of trades on topics ranging from customer satisfaction scores to store openings to movie sales. For instance, in early 2008, TagTrade indicated that sales of a new service package for laptops would be disappointing when compared with the formal forecast. When early results confirmed the prediction, the company pulled the offering and relaunched it in the fall. - location 899
research by Richard Nisbett, a psychologist at the University of Michigan, suggests important cultural differences exist between how Easterners and Westerners perceive the causes of behavior. Different economic, social, and philosophical traditions have shaped two distinct perceptions of social events. Easterners provide more situational explanations, while Westerners focus more on the individual. This leads to a host of potential cognitive differences, including patterns of attention (Easterners are attuned to environments and Westerners to objects), beliefs about the degree of control (Westerners believe that they are more in control), and assumptions about change (Easterners are more open to change).9 - location 1253
Exposure to the scent of an all-purpose cleaner prompted study participants to keep their environment tidier while eating a crumbly biscuit. - location 1292
When asked why doctors generally shun checklists, Joseph Britto, a former doctor, quipped, “Unlike pilots, doctors don’t go down with their planes.” - location 1405
Encouraged by these results, Pronovost convinced the Michigan Health & Hospital Association to adopt his checklists. The rate of infection in that state was above the national average. But after using the checklists for just three months, it had dropped by two-thirds. The program saved an estimated fifteen hundred lives and nearly $200 million in the first eighteen months. Pronovost’s work did not go unnoticed. Other states began to consider the program, Time magazine named him one of the one hundred most influential people in the world, and he received a prestigious MacArthur “genius” grant. But then inertia got in the way. Toward the end of 2007, a federal agency called the Office for Human Research Protections charged that the Michigan program violated federal regulations. Its baffling rationale was that the checklist represented an alteration in medical care similar to an experimental drug and should continue only with federal monitoring and the explicit written approval of the patient. While the agency eventually allowed the work to continue, concerns about federal regulations needlessly delayed the program’s progress elsewhere in the United States. - location 1419
Many management theories today look a lot more like feathers glued to wings than airfoils. Consultants, researchers, and practitioners often observe some successes, seek common attributes among them, and proclaim that those attributes can lead others to succeed. This simply does not work. You should be highly skeptical any time you see “the keys to success” or “formulas for winning.” - location 1711
LTCM observed that the correlation between its diverse investments was less than 10 percent over the prior five years. To stress test its portfolio, LTCM assumed that correlations could rise to 30 percent, well in excess of anything the historical data showed. But when the financial crisis hit in 1998, the correlations soared to 70 percent. Diversification went out the window, and the fund suffered mortal losses. “Anything that relies on correlation is charlatanism,” scoffed Taleb. Or, as I’ve heard traders say, “The only thing that goes up in a bear market is correlation.” - location 2073
Gary Klein, a psychologist, suggests what he calls a premortem, a process that occurs before a decision is made. You assume you are in the future and the decision you made has failed. You then provide plausible reasons for that failure. In effect, you try to identify why your decision might lead to a poor outcome before you make the decision. Klein’s research shows that premortems help people identify a greater number of potential problems than other techniques - location 2555
Planning fallacy: people consistently and dramatically underestimate how much something will cost and how long it will take. However, this does not apply to people's judgments about others' projects.
More than forty years ago, Daniel Kahneman was asked to help flight instructors in the Israeli air force sharpen their training skills. After watching the instructors hurl obscenities at the trainees, Kahneman told the instructors about research with pigeons that demonstrated how positive feedback can motivate batter than castigation. One instructor retorted, 'With all due respect, sir, what you're saying is for the birds.' The agitated instructor went on to explain that pilots almost always did worse on their next flight after praise and consistently did better after a tongue lashing. Initially taken aback, Kahneman soon realized that the instructor was committing our third mistake. The instructor believes that his insults caused the pilots to fly better. In reality, their performance was simply reverting to the mean.
His capricious performance evoked what lab researchers call Harvard’s Law, “Under the most rigorously controlled conditions of pressure, temperature, volume, humidity, and other variables, the organism will do as it damn well pleases.” - location 296
people rolling dice throw softly when they want to roll low numbers and hard for high numbers. - location 383
Before the drawing, one of the researchers asked the participants at what price they would be willing to sell their cards. The mean offer for the group that was allowed to choose cards was close to $9, while the offer from the group that had not chosen was less than $2. - location 386
When radio became popular in the 1920s and 1930s in the United States, some psychologists worried that the media would infect a vulnerable public with ideas. The fear was that everyone hearing the same message simultaneously might spark some massive, unintended, coordinated behavior. - location 740
So you can imagine the reaction when James Surowiecki, author of the best-selling book The Wisdom of Crowds, strolled into Best Buy’s headquarters and delivered a startling message: a relatively uninformed crowd could predict better than the firm’s best seers.1 Surowiecki’s message resonated with Jeff Severts, an executive then running Best Buy’s gift-card business. Severts wondered whether the idea would really work in a corporate setting, so he gave a few hundred people in the organization some basic background information and asked them to forecast February 2005 gift-card sales. When he tallied the results in March, the average of the nearly two hundred respondents was 99.5 percent accurate. His team’s official forecast was off by five percentage points. The crowd was better, but was it a fluke? Later that year, Severts set up a central location for employees to submit and update their estimates of sales from Thanksgiving through year-end. More than three hundred employees participated, and Severts kept track of the crowd’s collective guess. When the dust settled in early 2006, he revealed that the official August forecast of the internal experts was 93 percent accurate, while the presumed amateur crowd was off by only one-tenth of 1 percent.2 Best Buy subsequently allocated additional resources to its prediction market, called TagTrade.3 The market has yielded useful insights for managers through the more than two thousand employees who have made tens of thousands of trades on topics ranging from customer satisfaction scores to store openings to movie sales. For instance, in early 2008, TagTrade indicated that sales of a new service package for laptops would be disappointing when compared with the formal forecast. When early results confirmed the prediction, the company pulled the offering and relaunched it in the fall. - location 899
research by Richard Nisbett, a psychologist at the University of Michigan, suggests important cultural differences exist between how Easterners and Westerners perceive the causes of behavior. Different economic, social, and philosophical traditions have shaped two distinct perceptions of social events. Easterners provide more situational explanations, while Westerners focus more on the individual. This leads to a host of potential cognitive differences, including patterns of attention (Easterners are attuned to environments and Westerners to objects), beliefs about the degree of control (Westerners believe that they are more in control), and assumptions about change (Easterners are more open to change).9 - location 1253
Exposure to the scent of an all-purpose cleaner prompted study participants to keep their environment tidier while eating a crumbly biscuit. - location 1292
When asked why doctors generally shun checklists, Joseph Britto, a former doctor, quipped, “Unlike pilots, doctors don’t go down with their planes.” - location 1405
Encouraged by these results, Pronovost convinced the Michigan Health & Hospital Association to adopt his checklists. The rate of infection in that state was above the national average. But after using the checklists for just three months, it had dropped by two-thirds. The program saved an estimated fifteen hundred lives and nearly $200 million in the first eighteen months. Pronovost’s work did not go unnoticed. Other states began to consider the program, Time magazine named him one of the one hundred most influential people in the world, and he received a prestigious MacArthur “genius” grant. But then inertia got in the way. Toward the end of 2007, a federal agency called the Office for Human Research Protections charged that the Michigan program violated federal regulations. Its baffling rationale was that the checklist represented an alteration in medical care similar to an experimental drug and should continue only with federal monitoring and the explicit written approval of the patient. While the agency eventually allowed the work to continue, concerns about federal regulations needlessly delayed the program’s progress elsewhere in the United States. - location 1419
Many management theories today look a lot more like feathers glued to wings than airfoils. Consultants, researchers, and practitioners often observe some successes, seek common attributes among them, and proclaim that those attributes can lead others to succeed. This simply does not work. You should be highly skeptical any time you see “the keys to success” or “formulas for winning.” - location 1711
LTCM observed that the correlation between its diverse investments was less than 10 percent over the prior five years. To stress test its portfolio, LTCM assumed that correlations could rise to 30 percent, well in excess of anything the historical data showed. But when the financial crisis hit in 1998, the correlations soared to 70 percent. Diversification went out the window, and the fund suffered mortal losses. “Anything that relies on correlation is charlatanism,” scoffed Taleb. Or, as I’ve heard traders say, “The only thing that goes up in a bear market is correlation.” - location 2073
Gary Klein, a psychologist, suggests what he calls a premortem, a process that occurs before a decision is made. You assume you are in the future and the decision you made has failed. You then provide plausible reasons for that failure. In effect, you try to identify why your decision might lead to a poor outcome before you make the decision. Klein’s research shows that premortems help people identify a greater number of potential problems than other techniques - location 2555
Planning fallacy: people consistently and dramatically underestimate how much something will cost and how long it will take. However, this does not apply to people's judgments about others' projects.
More than forty years ago, Daniel Kahneman was asked to help flight instructors in the Israeli air force sharpen their training skills. After watching the instructors hurl obscenities at the trainees, Kahneman told the instructors about research with pigeons that demonstrated how positive feedback can motivate batter than castigation. One instructor retorted, 'With all due respect, sir, what you're saying is for the birds.' The agitated instructor went on to explain that pilots almost always did worse on their next flight after praise and consistently did better after a tongue lashing. Initially taken aback, Kahneman soon realized that the instructor was committing our third mistake. The instructor believes that his insults caused the pilots to fly better. In reality, their performance was simply reverting to the mean.
March 8, 2012
Maubossin's 2009 work on how to avoid common mental pitfalls probably filled a gap when it was written, but there are better texts available now to help you understand systematic thinking and judgement errors.
Think Twice seems to exist largely to temper the excessess the author perceives in Gladwell and Ariely's works.
Gladwell's popular book, Blink, leads Maubossin to take the opposite corner - that people should "Think Twice" rather than go with their gut. However, he ends his book assuring the reader that most of the time their practiced intiutive decisions will be right.
It's worth reading his criticism of Behavioral Economics' assertion (by Ariely and others) that irrational personal behavior gives lie to the dogma that markets are rational. Basically, he argues that what may prove irrational on a individual level functions according to reliable patterns on a systemic level.
Maubossin seems to have high regard for Michael Lewis (Moneyball) and Daniel Kahneman. Kahneman's Thinking, Fast and Slow (published in 2011) is a much better treatment of this topic.
Overall, Maubossin offers a smattering of research findings mixed with anecdote to arrive at vague, familiar action items at the end of each chapter. In spite of this, I did emerge with a couple of points for further reflection.
Bottom line: Skim a library copy.
Think Twice seems to exist largely to temper the excessess the author perceives in Gladwell and Ariely's works.
Gladwell's popular book, Blink, leads Maubossin to take the opposite corner - that people should "Think Twice" rather than go with their gut. However, he ends his book assuring the reader that most of the time their practiced intiutive decisions will be right.
It's worth reading his criticism of Behavioral Economics' assertion (by Ariely and others) that irrational personal behavior gives lie to the dogma that markets are rational. Basically, he argues that what may prove irrational on a individual level functions according to reliable patterns on a systemic level.
Maubossin seems to have high regard for Michael Lewis (Moneyball) and Daniel Kahneman. Kahneman's Thinking, Fast and Slow (published in 2011) is a much better treatment of this topic.
Overall, Maubossin offers a smattering of research findings mixed with anecdote to arrive at vague, familiar action items at the end of each chapter. In spite of this, I did emerge with a couple of points for further reflection.
Bottom line: Skim a library copy.
September 29, 2011
This book is dedicated to exposing mistakes people make as a result of poor intuition. The problem is that our intuition was great for the last few million years, but it has become inappropriate or ineffective in the last century or two due to the rapid innovations in technology, psychology, marketing, and so on. For example, people favor anecdotes over statistics. In one study, people were given a hypothetical choice between a cancer treatment that worked 30% of the time and one that worked 90% of the time. They were also given an anecdote of the 30% treatment succeeding and the 90% treatment failing. Amazingly, most people picked the 30% treatment because of the anecdote, even though it was three times less likely to work. Think Twice is somewhat practical, but what I really enjoyed were all of the studies that were discussed. A lot of pop psych books these days rehash the same experiments over and over: the marshmallow experiment, the Stanford prison study, the Milgram electro-shock experiment, and so on. The examples in Think Twice were new — at least to me — and made the book a much more interesting read.
June 6, 2020
Really makes you dwell on decision making. Great data to support points.
August 1, 2010
An excellent overview of Mauboussin's writings on behavior, decision-making, human biases and how to compensate for them. It's what I would call an overview of major themes, written almost as though intended for a five-day workshop on the topic. Devoted readers of Mauboussin, Lehrer, Gladwell, Wilson, Tversky, Taleb and others who tackle this topic will find it a bit of a rehash of familiar topics and stories. I recommend it highly, though, for those looking for an approachable, enjoyable introduction to this fertile area of exploration and also recommend More Than You Know by the same author.
May 30, 2012
Black Swan-light. Mostly recycled content from other books you read that show you how often you're wrong.
December 21, 2020
Well researched, and very digestible. Plus, the chapter structure makes it easy to read one chapter every day.
May 27, 2017
The best thing about this book was that it was short. It's written without the slightest spark or energy and on a subject matter that desperately needs some pizzaz to be enjoyable.
The author concludes the dull book with two suggestions that capture just how pointless this book is: 1) Keep a decision journal and record how you feel while you make decisions. 2) Make a checklist. [slow clap] A stunningly dull conclusion to a stunningly dull book with absolutely nothing to add to the conversation of decision making.
The author concludes the dull book with two suggestions that capture just how pointless this book is: 1) Keep a decision journal and record how you feel while you make decisions. 2) Make a checklist. [slow clap] A stunningly dull conclusion to a stunningly dull book with absolutely nothing to add to the conversation of decision making.
May 22, 2020
Great overview of many domains related to decision making, plus practical (ish) recommendations. Definitely recommended over most similar books that focus more narrowly on one or a few aspects.
March 23, 2023
This isn't a new piece of finding/research compared to Mandelbrot/Kahneman/Tetlock/Taleb writings but definitely well deserved presentational improvement on others. If you have any kind of interest in these authors, highly recommended to read this work to digest their ideas.
August 23, 2020
No one wakes up thinking, “I am going to make bad decisions today.” Yet we all make them.
The book Think twice by Michael Mauboussin explores how counterintuitive decision making process is and gives us set of suggestions of how to avoid common mistakes during the process of making decisions.
So this is my assessment of the book Think twice by Michael Mauboussin according to my 8 criteria:
1. Related to practice - 5 stars - author says "if you define theory as an explanation of cause and effect, it is eminently practical." And that's why I give them 5
2. It prevails important - 4 stars
3. I agree with the read - 5 stars
4. not difficult to read (as for non English native) - 4 stars
5. Too long (more than 500 pages) - short and concise (150-200 pages) - 4 stars
6.Boring - every sentence is interesting - 4 stars
7. Learning opportunity - 5 stars
8. Dry and uninspired style of writing - Smooth style with humouristic and fun parts - 4 stars
Total 4.37 stars
───────────────
◆ Introduction
▪ No one wakes up thinking, “I am going to make bad decisions today.” Yet we all make them
▪ What is particularly surprising is some of the biggest mistakes are made by people who are, by objective standards, very intelligent. Smart people make big, dumb, and consequential mistakes
▪ Keith Stanovich, a psychologist at the University of Toronto, argues “Although most people would say that the ability to think rationally is a clear sign of superior intellect,” he writes, “standard IQ tests devote no section to rational thinking.”
▪ if you explain to intelligent people how they might go wrong with a problem before they decide, they do much better than if they solve the problem with no guidance
▪ Intelligent people perform better only when you tell them what to do!” exclaims Stanovich
▪ I will take you through three steps:
1. Prepare. The first step is mental preparation, which requires you to learn about the mistakes
2. Recognize. Once you are aware of the categories of mistakes, the second step is to recognize the problems in context, or situational awareness. Here, your goal is to recognize the kind of problem you face, how you risk making a mistake, and which tools you need to choose wisely
3. Apply. The third and most important step is to mitigate your potential mistakes. The goal is to build or refine a set of mental tools to cope with the realities of life, much as an athlete develops a repertoire of skills to prepare for a game
▪ I present the class with a jar of coins and ask everyone to bid independently on the value of its contents. Most students bid below the actual value, but some bid well above the coins’ worth. The highest bidder wins the auction but overpays for the coins. This is known as “the winner’s curse.”
▪ gave each participant a list of ten unusual questions of fact (e.g., gestation period of an Asian elephant) and asked for both a best guess and a high and low estimate, bounding the correct answer with 90 percent confidence. For example, I might reason that an elephant’s gestation is longer than a human’s and guess fifteen months. I might also feel 90 percent assured that the answer is somewhere between twelve and eighteen months. If my ability matches my confidence, then I would expect the correct answers to fall within that range nine times out of ten. But, in fact, most people are correct only 40 to 60 percent of the time, reflecting their overconfidence
▪ Richard Thaler, one of the world’s foremost behavioral economists, asked us to write down a whole number from zero to one hundred, with the prize going to the person whose guess was closest to two-thirds of the group’s average guess. In a purely rational world, all participants would coolly carry out as many levels of deduction as necessary to get to the experiment’s logical solution—zero. But the game’s real challenge involves considering the behavior of the other participants. You may score intellectual points by going with naught, but if anyone selects a number greater than zero, you win no prize. The winning answer, incidentally, is generally between eleven and thirteen.8
▪ Three factors determine the outcomes of your decisions: how you think about the problem, your actions, and luck
▪ That statistical reality begs a fundamental question: should you evaluate the quality of your decisions based on the process by which you make the decision or by its outcome?
▪ The intuitive answer is to focus on outcomes. Outcomes are objective and sort winners from losers. In many cases, those evaluating the decision believe that a favorable outcome is evidence of a good process. While pervasive, this mode of thinking is a really bad habit.
▪ Our most challenging decisions include an element of uncertainty, and at best we can express the possible outcomes as probabilities.
▪ Further, we must make decisions even when the information is incomplete. When a decision involves probability, good decisions can lead to bad outcomes, and bad decisions can lead to good outcomes (at least for awhile
▪ In a probabilistic environment, you are better served by focusing on the process by which you make a decision than on the outcome
▪ If you make a good decision and suffer a poor outcome, pick yourself up, dust yourself off, and get ready to do it again
▪ When evaluating other people’s decisions, you are again better served by looking at their decision-making process rather than on the outcome. There are plenty of people who succeed largely by chance
◆ Chapter 1
▪ An inside view considers a problem by focusing on the specific task and by using information that is close at hand, and makes predictions based on that narrow and unique set of inputs. These inputs may include anecdotal evidence and fallacious perceptions. This is the approach that most people use in building models of the future and is indeed common for all forms of planning
▪ The outside view asks if there are similar situations that can provide a statistical basis for making a decision. Rather than seeing a problem as unique, the outside view wants to know if others have faced comparable problems and, if so, what happened. The outside view is an unnatural way to think, precisely because it forces people to set aside all the cherished information they have gathered
▪ Kahneman and Amos Tversky, a psychologist who had a long collaboration with Kahneman, published a multistep process to help you use the outside view.21 I have distilled their five steps into four and have added some thoughts. Here are the four steps:
1. Select a reference class. Find a group of situations, or a reference class, that is broad enough to be statistically significant but narrow enough to be useful in analyzing the decision that you face
2. Assess the distribution of outcomes. Once you have a reference class, take a close look at the rate of success and failure
3. Make a prediction. With the data from your reference class in hand, including an awareness of the distribution of outcomes, you are in a position to make a forecast. The idea is to estimate your chances of success and failure. For all the reasons that I’ve discussed, the chances are good that your prediction will be too optimistic.
4. Assess the reliability of your prediction and fine-tune. How good we are at making decisions depends a great deal on what we are trying to predict. Weather forecasters, for instance, do a pretty good job of predicting what the temperature will be tomorrow. Book publishers, on the other hand, are poor at picking winners, with the exception of those books from a handful of best-selling authors. The worse the record of successful prediction is, the more you should adjust your prediction toward the mean (or other relevant statistical measure). When cause and effect is clear, you can have more confidence in your forecast.
◆ Chapter 2
▪ Anchoring is symptomatic of this chapter’s broader decision mistake: an insufficient consideration of alternatives. To be blunter, you can call it tunnel vision. Failure to entertain options or possibilities can lead to dire consequences, from a missed medical diagnosis to unwarranted confidence in a financial model.
▪ mental model is an internal representation of an external reality, an incomplete representation that trades detail for speed.5 Once formed, mental models replace more cumbersome reasoning processes, but are only as good as their ability to match reality. An ill-suited mental model will lead to a decision-making fiasco.6
▪ Anchoring is relevant in high-stakes political or business negotiations. In situations with limited information or uncertainty, anchors can strongly influence the outcome. For instance, studies show that the party that makes the first offer can benefit from a strong anchoring effect in ambiguous situations.
▪ Cognitive dissonance is one facet of our next mistake, the rigidity that comes with the innate human desire to be internally and externally consistent.14 Cognitive dissonance, a theory developed in the 1950s by Leon Festinger, a social psychologist, arises when “a person holds two cognitions—ideas, attitudes, beliefs, opinions—that are psychologically inconsistent.”15 The dissonance causes mental discomfort that our minds seek to reduce
▪ Stressed people struggle to think about the long term. The manager about to lose her job tomorrow has little interest in making a decision that will make her better off in three years
▪ How do you avoid the tunnel vision trap? Here’s a five-point checklist:
1. Explicitly consider alternatives. As Johnson-Laird’s model of reasoning suggests, decision makers often fail to consider a sufficient number of alternatives. You should examine a full range of alternatives, using base rates or market-derived guidelines when appropriate to mitigate the influence of the representativeness or availability biases
2. Seek dissent. Much easier said than done, the idea is to prove your views wrong. There are a couple of techniques. The first is to ask questions that could elicit answers that might contradict your own views. Then listen carefully to the answers. Do the same when canvassing data: look for reliable sources that offer conclusions different than yours. This helps avoid a foolish inconsistency.
3. Keep track of previous decisions. We humans have an odd tendency: once an event has passed, we believe we knew more about the outcome beforehand than we really did. This is known as hindsight bias. The research shows people are unreliable in recalling how an uncertain situation appeared to them before finding out the results
4. Avoid making decisions while at emotional extremes. Making decisions under ideal conditions is tough enough, but you can be sure your decision-making skills will rapidly erode if you are emotionally charged. Stress, anger, fear, anxiety, greed, and euphoria are all mental states antithetical to quality decisions. But just as it’s hard to make good decisions during emotional upheaval, it’s also hard to make good decisions in the absence of emotion. Antonio Damasio, a neuroscientist, suggests that “our reason can operate most efficiently” when we have some emotional poise. Whenever possible, try to postpone important decisions if you feel at an emotional extreme.
5. Understand incentives. Consider carefully what incentives exist, and what behaviors the incentives might motivate. Financial incentives are generally easy to spot, but nonfinancial incentives, like reputation or fairness, are less obvious yet still important in driving decisions. While few of us believe that incentives distort our decisions, the evidence shows that the effect can be subconscious. Finally, what may be individually good for group members can be destructive for the group overall
◆ Chapter 3
▪ he gave a few hundred people in the organization some basic background information and asked them to forecast February 2005 gift-card sales. When he tallied the results in March, the average of the nearly two hundred respondents was 99.5 percent accurate. His team’s official forecast was off by five percentage points
▪ the prediction market has been more accurate than the experts a majority of the time and has provided management with information it would not have had otherwise
▪ The expert squeeze means that people stuck in old habits of thinking are failing to use new means to gain insight into the problems they face. Knowing when to look beyond experts requires a totally fresh point of view, and one that does not come naturally
▪ Experts are initially important for these problems because they figure out the rules
▪ Once you have properly classified a problem, turn to the best method for solving it. As we will see, computers and collectives remain underutilized guides for decision making across a host of realms including medicine, business, and sports
▪ experts remain vital in three capacities
1. First, experts must create the very systems that replace them. Severts helped design the prediction market that outperforms Best Buy’s in-house forecasters.
2. Next, we need experts for strategy. I mean strategy broadly, including not only day-to-day tactics but also the ability to troubleshoot by recognizing interconnections as well as the creative process of innovation, which involves combining ideas in novel ways
3. Finally, we need people to deal with people. A lot of decision making involves psychology as much as it does statistics. A leader must understand others, make good decisions, and encourage others to buy in to the decision
Scott Page, a social scientist who has studied problem solving by groups, offers a very useful approach for understanding collective decision making. He calls it the diversity prediction theorem, which states:
▪ Collective error = average individual error − prediction diversity
▪ Page discusses the diversity prediction theorem in depth in his book The Difference, and provides numerous examples of the theorem in action
▪ Also important is that collective accuracy is equal parts ability and diversity. You can reduce the collective error either by increasing ability or by increasing diversity
▪ With the diversity prediction theorem in hand, we can flesh out when crowds predict well. Three conditions must be in place: diversity, aggregation, and incentives
▪ Diversity reduces the collective error. Aggregation assures that the market considers everyone’s information. Incentives help reduce individual errors by encouraging people to participate only when they think they have an insight
▪ intuition does not work all the time.
...
Complete highlights and excerpts from the book you can find at https://antoniozrilic.com/myblog
The book Think twice by Michael Mauboussin explores how counterintuitive decision making process is and gives us set of suggestions of how to avoid common mistakes during the process of making decisions.
So this is my assessment of the book Think twice by Michael Mauboussin according to my 8 criteria:
1. Related to practice - 5 stars - author says "if you define theory as an explanation of cause and effect, it is eminently practical." And that's why I give them 5
2. It prevails important - 4 stars
3. I agree with the read - 5 stars
4. not difficult to read (as for non English native) - 4 stars
5. Too long (more than 500 pages) - short and concise (150-200 pages) - 4 stars
6.Boring - every sentence is interesting - 4 stars
7. Learning opportunity - 5 stars
8. Dry and uninspired style of writing - Smooth style with humouristic and fun parts - 4 stars
Total 4.37 stars
───────────────
◆ Introduction
▪ No one wakes up thinking, “I am going to make bad decisions today.” Yet we all make them
▪ What is particularly surprising is some of the biggest mistakes are made by people who are, by objective standards, very intelligent. Smart people make big, dumb, and consequential mistakes
▪ Keith Stanovich, a psychologist at the University of Toronto, argues “Although most people would say that the ability to think rationally is a clear sign of superior intellect,” he writes, “standard IQ tests devote no section to rational thinking.”
▪ if you explain to intelligent people how they might go wrong with a problem before they decide, they do much better than if they solve the problem with no guidance
▪ Intelligent people perform better only when you tell them what to do!” exclaims Stanovich
▪ I will take you through three steps:
1. Prepare. The first step is mental preparation, which requires you to learn about the mistakes
2. Recognize. Once you are aware of the categories of mistakes, the second step is to recognize the problems in context, or situational awareness. Here, your goal is to recognize the kind of problem you face, how you risk making a mistake, and which tools you need to choose wisely
3. Apply. The third and most important step is to mitigate your potential mistakes. The goal is to build or refine a set of mental tools to cope with the realities of life, much as an athlete develops a repertoire of skills to prepare for a game
▪ I present the class with a jar of coins and ask everyone to bid independently on the value of its contents. Most students bid below the actual value, but some bid well above the coins’ worth. The highest bidder wins the auction but overpays for the coins. This is known as “the winner’s curse.”
▪ gave each participant a list of ten unusual questions of fact (e.g., gestation period of an Asian elephant) and asked for both a best guess and a high and low estimate, bounding the correct answer with 90 percent confidence. For example, I might reason that an elephant’s gestation is longer than a human’s and guess fifteen months. I might also feel 90 percent assured that the answer is somewhere between twelve and eighteen months. If my ability matches my confidence, then I would expect the correct answers to fall within that range nine times out of ten. But, in fact, most people are correct only 40 to 60 percent of the time, reflecting their overconfidence
▪ Richard Thaler, one of the world’s foremost behavioral economists, asked us to write down a whole number from zero to one hundred, with the prize going to the person whose guess was closest to two-thirds of the group’s average guess. In a purely rational world, all participants would coolly carry out as many levels of deduction as necessary to get to the experiment’s logical solution—zero. But the game’s real challenge involves considering the behavior of the other participants. You may score intellectual points by going with naught, but if anyone selects a number greater than zero, you win no prize. The winning answer, incidentally, is generally between eleven and thirteen.8
▪ Three factors determine the outcomes of your decisions: how you think about the problem, your actions, and luck
▪ That statistical reality begs a fundamental question: should you evaluate the quality of your decisions based on the process by which you make the decision or by its outcome?
▪ The intuitive answer is to focus on outcomes. Outcomes are objective and sort winners from losers. In many cases, those evaluating the decision believe that a favorable outcome is evidence of a good process. While pervasive, this mode of thinking is a really bad habit.
▪ Our most challenging decisions include an element of uncertainty, and at best we can express the possible outcomes as probabilities.
▪ Further, we must make decisions even when the information is incomplete. When a decision involves probability, good decisions can lead to bad outcomes, and bad decisions can lead to good outcomes (at least for awhile
▪ In a probabilistic environment, you are better served by focusing on the process by which you make a decision than on the outcome
▪ If you make a good decision and suffer a poor outcome, pick yourself up, dust yourself off, and get ready to do it again
▪ When evaluating other people’s decisions, you are again better served by looking at their decision-making process rather than on the outcome. There are plenty of people who succeed largely by chance
◆ Chapter 1
▪ An inside view considers a problem by focusing on the specific task and by using information that is close at hand, and makes predictions based on that narrow and unique set of inputs. These inputs may include anecdotal evidence and fallacious perceptions. This is the approach that most people use in building models of the future and is indeed common for all forms of planning
▪ The outside view asks if there are similar situations that can provide a statistical basis for making a decision. Rather than seeing a problem as unique, the outside view wants to know if others have faced comparable problems and, if so, what happened. The outside view is an unnatural way to think, precisely because it forces people to set aside all the cherished information they have gathered
▪ Kahneman and Amos Tversky, a psychologist who had a long collaboration with Kahneman, published a multistep process to help you use the outside view.21 I have distilled their five steps into four and have added some thoughts. Here are the four steps:
1. Select a reference class. Find a group of situations, or a reference class, that is broad enough to be statistically significant but narrow enough to be useful in analyzing the decision that you face
2. Assess the distribution of outcomes. Once you have a reference class, take a close look at the rate of success and failure
3. Make a prediction. With the data from your reference class in hand, including an awareness of the distribution of outcomes, you are in a position to make a forecast. The idea is to estimate your chances of success and failure. For all the reasons that I’ve discussed, the chances are good that your prediction will be too optimistic.
4. Assess the reliability of your prediction and fine-tune. How good we are at making decisions depends a great deal on what we are trying to predict. Weather forecasters, for instance, do a pretty good job of predicting what the temperature will be tomorrow. Book publishers, on the other hand, are poor at picking winners, with the exception of those books from a handful of best-selling authors. The worse the record of successful prediction is, the more you should adjust your prediction toward the mean (or other relevant statistical measure). When cause and effect is clear, you can have more confidence in your forecast.
◆ Chapter 2
▪ Anchoring is symptomatic of this chapter’s broader decision mistake: an insufficient consideration of alternatives. To be blunter, you can call it tunnel vision. Failure to entertain options or possibilities can lead to dire consequences, from a missed medical diagnosis to unwarranted confidence in a financial model.
▪ mental model is an internal representation of an external reality, an incomplete representation that trades detail for speed.5 Once formed, mental models replace more cumbersome reasoning processes, but are only as good as their ability to match reality. An ill-suited mental model will lead to a decision-making fiasco.6
▪ Anchoring is relevant in high-stakes political or business negotiations. In situations with limited information or uncertainty, anchors can strongly influence the outcome. For instance, studies show that the party that makes the first offer can benefit from a strong anchoring effect in ambiguous situations.
▪ Cognitive dissonance is one facet of our next mistake, the rigidity that comes with the innate human desire to be internally and externally consistent.14 Cognitive dissonance, a theory developed in the 1950s by Leon Festinger, a social psychologist, arises when “a person holds two cognitions—ideas, attitudes, beliefs, opinions—that are psychologically inconsistent.”15 The dissonance causes mental discomfort that our minds seek to reduce
▪ Stressed people struggle to think about the long term. The manager about to lose her job tomorrow has little interest in making a decision that will make her better off in three years
▪ How do you avoid the tunnel vision trap? Here’s a five-point checklist:
1. Explicitly consider alternatives. As Johnson-Laird’s model of reasoning suggests, decision makers often fail to consider a sufficient number of alternatives. You should examine a full range of alternatives, using base rates or market-derived guidelines when appropriate to mitigate the influence of the representativeness or availability biases
2. Seek dissent. Much easier said than done, the idea is to prove your views wrong. There are a couple of techniques. The first is to ask questions that could elicit answers that might contradict your own views. Then listen carefully to the answers. Do the same when canvassing data: look for reliable sources that offer conclusions different than yours. This helps avoid a foolish inconsistency.
3. Keep track of previous decisions. We humans have an odd tendency: once an event has passed, we believe we knew more about the outcome beforehand than we really did. This is known as hindsight bias. The research shows people are unreliable in recalling how an uncertain situation appeared to them before finding out the results
4. Avoid making decisions while at emotional extremes. Making decisions under ideal conditions is tough enough, but you can be sure your decision-making skills will rapidly erode if you are emotionally charged. Stress, anger, fear, anxiety, greed, and euphoria are all mental states antithetical to quality decisions. But just as it’s hard to make good decisions during emotional upheaval, it’s also hard to make good decisions in the absence of emotion. Antonio Damasio, a neuroscientist, suggests that “our reason can operate most efficiently” when we have some emotional poise. Whenever possible, try to postpone important decisions if you feel at an emotional extreme.
5. Understand incentives. Consider carefully what incentives exist, and what behaviors the incentives might motivate. Financial incentives are generally easy to spot, but nonfinancial incentives, like reputation or fairness, are less obvious yet still important in driving decisions. While few of us believe that incentives distort our decisions, the evidence shows that the effect can be subconscious. Finally, what may be individually good for group members can be destructive for the group overall
◆ Chapter 3
▪ he gave a few hundred people in the organization some basic background information and asked them to forecast February 2005 gift-card sales. When he tallied the results in March, the average of the nearly two hundred respondents was 99.5 percent accurate. His team’s official forecast was off by five percentage points
▪ the prediction market has been more accurate than the experts a majority of the time and has provided management with information it would not have had otherwise
▪ The expert squeeze means that people stuck in old habits of thinking are failing to use new means to gain insight into the problems they face. Knowing when to look beyond experts requires a totally fresh point of view, and one that does not come naturally
▪ Experts are initially important for these problems because they figure out the rules
▪ Once you have properly classified a problem, turn to the best method for solving it. As we will see, computers and collectives remain underutilized guides for decision making across a host of realms including medicine, business, and sports
▪ experts remain vital in three capacities
1. First, experts must create the very systems that replace them. Severts helped design the prediction market that outperforms Best Buy’s in-house forecasters.
2. Next, we need experts for strategy. I mean strategy broadly, including not only day-to-day tactics but also the ability to troubleshoot by recognizing interconnections as well as the creative process of innovation, which involves combining ideas in novel ways
3. Finally, we need people to deal with people. A lot of decision making involves psychology as much as it does statistics. A leader must understand others, make good decisions, and encourage others to buy in to the decision
Scott Page, a social scientist who has studied problem solving by groups, offers a very useful approach for understanding collective decision making. He calls it the diversity prediction theorem, which states:
▪ Collective error = average individual error − prediction diversity
▪ Page discusses the diversity prediction theorem in depth in his book The Difference, and provides numerous examples of the theorem in action
▪ Also important is that collective accuracy is equal parts ability and diversity. You can reduce the collective error either by increasing ability or by increasing diversity
▪ With the diversity prediction theorem in hand, we can flesh out when crowds predict well. Three conditions must be in place: diversity, aggregation, and incentives
▪ Diversity reduces the collective error. Aggregation assures that the market considers everyone’s information. Incentives help reduce individual errors by encouraging people to participate only when they think they have an insight
▪ intuition does not work all the time.
...
Complete highlights and excerpts from the book you can find at https://antoniozrilic.com/myblog
May 2, 2019
I first learned about Michael Baubousssin from a colleague at CS and was quickly impressed by his background at Leg Mason and Columbia. I had already read James Montier's book about behavioral biases but was interested to learn how other authors approached the topic. The huge collections of examples and extracts of research done by other prominent names in the field only triggered my curiosity for more (Yes I admit I had not heard about Khaneman and Arieli before but added them on my reading list now). My main takeaways i) context is everything ii) don't assume anything iii) learn to distrust your reasoning instinct iv) admit that all success is not down just to your own awesomeness. I call all of that intellectual integrity. That reminds me that I have a lot more to learn and read.
July 18, 2019
Recomendable. Más fácil de leer que Thinking Fast and Slow y con mucha información para aprender de los principales sesgos que "teóricamente" afectan a la toma de decisiones. Están todos los "sospechosos habituales" de los que hayan tenido interés anterior en la materia, pero el relato está bien hilvanado y además con buenas checklists al final de cada capítulo y resúmenes.
August 22, 2018
The Autobahn to buying low and selling high is cluttered by mental traps, institutional barriers and questionable theories (CAPM, anyone?). This core read by Mauboussin deals with the first and arguably most important of those obstacles: (faulty) decision-making.
The author has previously written the classic More Than Y ou Know, co-authored Expectations Investing and, of course, a number of thought-provoking articles while a strategist at CFSB and Legg Mason. Like we have noted on this website in other reviews of books written by James Montier or Mauboussin, it is of course no coincidence that these two men have had an enormous advantage by virtue of their client-meeting days while working on the sell-side. The readability and staying power of the books are helped immensely by these illustrations and examples from “the real world”. And while Montier is made up of equal measures Benjamin Graham and Daniel Kahneman, Mauboussin ́s kingdom is ruled by Kahneman and Charlie Munger, making him not the interpreter but rather the added contemporary glue between these two, incorporating the realities of investing anno 2012.
While More Than You Know was a broad odyssey into investment philosophy, strategy, psychology and innovation, Think Twice dives deeper into the realms of how we make investment decisions and how your investing would improve by not letting your intuitions play first fiddle. When stakes are high and situations extremely complex, we decide less well. It ́s as simple as that. Stress brings out the intuition in all of us, which of course has been made popular in lots of articles with the illustration of the inherited trait from our ancestors: “A lion approaching? Run!” But this is not the savannah, this is the investment landscape of the 21st century. So, put those instincts away and counter your default-system by learning to “think twice”. If not, you will surely be on Thin_ __ice.
Personally, I do not agree at all with some people ́s opinion that “I ́ve read one behavioural finance book, so I ́m all set there.” That ́s like saying: “nah, I saw Barcelona play last year so I ́ll pass on those tickets.” Because the gist of the matter is depth and repetition; knowing yourself and your pitfalls better, linking theory with practice and keeping those connections alive and fresh in your decision processes.
Like most other mental competitions, investment management is not about performing on one single occasion, it as all about a string-of-pearls performance. That game requires accumulation of knowledge and a constant tweaking of how to best add them to your everyday work as an investor. Proper decision-making requires rational thinking and “second-levelness”. Rational is answering “zero” in the contest of guessing 2/3 of the crowd ́s average number chosen between 0-100. Second-level thinking is incorporating people ́s mental pitfalls and picking a number around 10 (which is normally where the winning number ends up). It also, incidentally, requires discipline; the discipline to not only nod in approval to all of this, saying “gee, that makes perfect sense”. You have to actually engrain it on a daily basis.
Mauboussin do truly belong on the medals ́ podium of Behavioral Finance. And as with the work of the other masters of this universe, he must be read repetitively. Because time is the enemy of the rational decision-making he strives to teach us, and the friend of the faulty factory-settings most of us come equipped with. So my suggestion is that you add this book to your annual, or at the very least, bi-annual reading-list. Chances are you are much less likely becoming a helpless visitor to the everyday stock market beauty-contest.
The author has previously written the classic More Than Y ou Know, co-authored Expectations Investing and, of course, a number of thought-provoking articles while a strategist at CFSB and Legg Mason. Like we have noted on this website in other reviews of books written by James Montier or Mauboussin, it is of course no coincidence that these two men have had an enormous advantage by virtue of their client-meeting days while working on the sell-side. The readability and staying power of the books are helped immensely by these illustrations and examples from “the real world”. And while Montier is made up of equal measures Benjamin Graham and Daniel Kahneman, Mauboussin ́s kingdom is ruled by Kahneman and Charlie Munger, making him not the interpreter but rather the added contemporary glue between these two, incorporating the realities of investing anno 2012.
While More Than You Know was a broad odyssey into investment philosophy, strategy, psychology and innovation, Think Twice dives deeper into the realms of how we make investment decisions and how your investing would improve by not letting your intuitions play first fiddle. When stakes are high and situations extremely complex, we decide less well. It ́s as simple as that. Stress brings out the intuition in all of us, which of course has been made popular in lots of articles with the illustration of the inherited trait from our ancestors: “A lion approaching? Run!” But this is not the savannah, this is the investment landscape of the 21st century. So, put those instincts away and counter your default-system by learning to “think twice”. If not, you will surely be on Thin_ __ice.
Personally, I do not agree at all with some people ́s opinion that “I ́ve read one behavioural finance book, so I ́m all set there.” That ́s like saying: “nah, I saw Barcelona play last year so I ́ll pass on those tickets.” Because the gist of the matter is depth and repetition; knowing yourself and your pitfalls better, linking theory with practice and keeping those connections alive and fresh in your decision processes.
Like most other mental competitions, investment management is not about performing on one single occasion, it as all about a string-of-pearls performance. That game requires accumulation of knowledge and a constant tweaking of how to best add them to your everyday work as an investor. Proper decision-making requires rational thinking and “second-levelness”. Rational is answering “zero” in the contest of guessing 2/3 of the crowd ́s average number chosen between 0-100. Second-level thinking is incorporating people ́s mental pitfalls and picking a number around 10 (which is normally where the winning number ends up). It also, incidentally, requires discipline; the discipline to not only nod in approval to all of this, saying “gee, that makes perfect sense”. You have to actually engrain it on a daily basis.
Mauboussin do truly belong on the medals ́ podium of Behavioral Finance. And as with the work of the other masters of this universe, he must be read repetitively. Because time is the enemy of the rational decision-making he strives to teach us, and the friend of the faulty factory-settings most of us come equipped with. So my suggestion is that you add this book to your annual, or at the very least, bi-annual reading-list. Chances are you are much less likely becoming a helpless visitor to the everyday stock market beauty-contest.
May 25, 2020
We should be careful about how we make our decisions and careful about the reasons we attribute to success or failure. Mauboussin advises us to not make judgments on the actions of the ant but on the actions and apparent decisions of the ant colony. The reasons: a single ant acts alone and is not very smart, but the ant colony operates according to processes that permit it to perform tasks efficiently and for the benefit of the colony at large. The colony has important lessons to teach while the individual ant remains a puzzle.
Regression to the mean plays an oversized role in the author's thinking, and statistically, he makes a very good case. Fighter pilots who were criticized for their performance by superiors and who performed well the next flights out, by and large performed very well in a subsequent flight. Should we deduce, then, that pilots somehow became better performers in subsequent flights because of the harsh, publicly administered criticism? No. These pilots were very smart, good aviators with backgrounds not only in flight but mathematics and engineering in many cases, and the bad performances likely were anomalies while the subsequent good performances were regressions to the mean. Similarly, George Steinbrenner's public chastisements of his Yankees after a month of games did not cause the club to turn around as it did. The early poor Yankee performances had causes that more or less went unnoticed--a group of superstar highly paid athletes trying to get used to playing together? Whatever reasons were considered, it did not explain the Yankees' lates season push toward the playoffs. Like just about everything else in life, there was a regression the mean of a group of very talented ballplayers who later played as they had been expected to play. The point the author makes here is a good one: collections of people or organizations that demonstrate success must be viewed in the history of their existence and the processes that got them there. Isolated incidents or the study of one individual outside his collective experiences and organization--Einstein and McEnroe nothwithstanding--won't tell us much. The author reminds us that the "more accurate view of the data is that, over time, luck reshuffles the same companies and places them in different spots in the distribution." View the data over time, and do not discount the effect of luck in explaining success.
The role of science and the scientific method are important features of the analysis the author presents here. We should not ignore fractal geometry or randomness in our deliberations and we certainly shouldn't deduce too much from an isolated incident to generalize our explanations or decisions. There so much information in this very short book that it is wise to underline it, make marginal notes, or review these notes when you are done reading. How we decide something for ourselves and our organizations is too important for intuition or what we think of ourselves as great decision-makers, which, by the way, experiments conducted about the subject routinely show that we are inclined to think more highly of our own skills than results warrant. If you study the process of decision making by diverse individuals or groups over long periods of time and the collective wisdom you are more likely to make better, more defensible decisions over the long run.
Regression to the mean plays an oversized role in the author's thinking, and statistically, he makes a very good case. Fighter pilots who were criticized for their performance by superiors and who performed well the next flights out, by and large performed very well in a subsequent flight. Should we deduce, then, that pilots somehow became better performers in subsequent flights because of the harsh, publicly administered criticism? No. These pilots were very smart, good aviators with backgrounds not only in flight but mathematics and engineering in many cases, and the bad performances likely were anomalies while the subsequent good performances were regressions to the mean. Similarly, George Steinbrenner's public chastisements of his Yankees after a month of games did not cause the club to turn around as it did. The early poor Yankee performances had causes that more or less went unnoticed--a group of superstar highly paid athletes trying to get used to playing together? Whatever reasons were considered, it did not explain the Yankees' lates season push toward the playoffs. Like just about everything else in life, there was a regression the mean of a group of very talented ballplayers who later played as they had been expected to play. The point the author makes here is a good one: collections of people or organizations that demonstrate success must be viewed in the history of their existence and the processes that got them there. Isolated incidents or the study of one individual outside his collective experiences and organization--Einstein and McEnroe nothwithstanding--won't tell us much. The author reminds us that the "more accurate view of the data is that, over time, luck reshuffles the same companies and places them in different spots in the distribution." View the data over time, and do not discount the effect of luck in explaining success.
The role of science and the scientific method are important features of the analysis the author presents here. We should not ignore fractal geometry or randomness in our deliberations and we certainly shouldn't deduce too much from an isolated incident to generalize our explanations or decisions. There so much information in this very short book that it is wise to underline it, make marginal notes, or review these notes when you are done reading. How we decide something for ourselves and our organizations is too important for intuition or what we think of ourselves as great decision-makers, which, by the way, experiments conducted about the subject routinely show that we are inclined to think more highly of our own skills than results warrant. If you study the process of decision making by diverse individuals or groups over long periods of time and the collective wisdom you are more likely to make better, more defensible decisions over the long run.
November 10, 2019
I enjoyed this book as a quick read and introduction to interesting psychological quirks and tricks to use while making investment decisions. Each chapter covers a different tendency of the human brain that could lead to faulty decision making and covers a few core ideas fleshed out by certain psychologists or demonstrated by given experiments.
I'd heard at least half the topics covered, and they were just introduced and explained and demonstrated but it felt each chapter could have been it's own book. For the purpose of the book though, which is to introduce these topics and get you thinking about them and using them in your life, it certainly does a great job of accomplishing that purpose. It felt almost like a book that should have been read slowly and digested over a number of weeks, looking for examples in life where these decision making errors are made.
I may need to revisit this book or explore some of the books that were referenced when writing this one. It also has the advantage of being written for investment professionals, making is especially relevant for my interests. Definitely a good read for anyone in finance, at least to consider how we make decisions and to ensure we follow a good process without any unnecessary irrationality. These examples come up over and over again in life and I was able to reference it in my capstone business class as it has a lot of relevancy for any subject matter.
I'd heard at least half the topics covered, and they were just introduced and explained and demonstrated but it felt each chapter could have been it's own book. For the purpose of the book though, which is to introduce these topics and get you thinking about them and using them in your life, it certainly does a great job of accomplishing that purpose. It felt almost like a book that should have been read slowly and digested over a number of weeks, looking for examples in life where these decision making errors are made.
I may need to revisit this book or explore some of the books that were referenced when writing this one. It also has the advantage of being written for investment professionals, making is especially relevant for my interests. Definitely a good read for anyone in finance, at least to consider how we make decisions and to ensure we follow a good process without any unnecessary irrationality. These examples come up over and over again in life and I was able to reference it in my capstone business class as it has a lot of relevancy for any subject matter.
February 16, 2026
I'd imagine you'd get more from this book if you hadn't already read "The Success Equation" as these two books cover a lot of the same material and I found that Success Equation covered them a bit better. Still fun as a showcase of experiments and historical examples of how irrational human decision making can be, and it'll definitely make you think about your own decision making and times you might have judged others unfairly.
The reason I still gave it 4/5 instead of 3/5 is that it manages to be tightly written and consise while still being fun to read and easy to follow. Which is a very nice contrast to so many pop-psychology books, which drone on and on for 2x the page count of this book; just wasting hours of your time covering the early life of Stanley Milgram or whatever in order to hit the word count that looks best on a shelf at the bookstore.
Mauboussin understands that your time is valuable and I have to respect that.
The reason I still gave it 4/5 instead of 3/5 is that it manages to be tightly written and consise while still being fun to read and easy to follow. Which is a very nice contrast to so many pop-psychology books, which drone on and on for 2x the page count of this book; just wasting hours of your time covering the early life of Stanley Milgram or whatever in order to hit the word count that looks best on a shelf at the bookstore.
Mauboussin understands that your time is valuable and I have to respect that.
December 20, 2017
A book about common pitfalls in decision-making. Fairly quick read with a number of antidotes and references to research studies. Some of the referenced studies were also in a number of other Books of Titans books, so this was yet another book covering a lot of the same topics as the persuasion books. The most beneficial section for me was the one on reversion to the mean. If a company, stock, team, etc is doing extremely well, it's likely due to great skill and a lot of luck. The luck with likely dry up in the future so that the company, stock, team, etc will revert back to the mean. The author gives the example of athletes highlighted on Sports Illustrated because of their athletic prowess usually having a period of less success following the cover story. An interesting book with some good points, but by not one that stuck out as exceptional.
August 15, 2017
Think Twice is an interesting, at times fascinating, read but is never more than a collection of anecdotes from various sources of a similar ilk. The crux of the book is the application of behavioral sciences to decision making, but having been written by an economist it often sidesteps into the realm of numbers, at which point my eyes glazed over and I re-run some classic 90s Simpsons episodes in my head. Fortunately Mauboussin generally takes a light-hearted approach to writing and so much of it is easily accessible even to those unfamiliar with the business management development genre.
I doubt anyone will have changed their working practices after reading Think Twice, but it does offer some amusing insights and whets your appetite for similar, probably superior books.
I doubt anyone will have changed their working practices after reading Think Twice, but it does offer some amusing insights and whets your appetite for similar, probably superior books.
August 28, 2022
Think Twice is a good read if you want to improve your decision making process in general. The author has done a comprehensive job of gathering references of faulty traits in decision making with examples one can follow.
Some of the key takeaways being the Halo effect, reversion to mean, ignoring the base rate etc. The conclusion chapter summarises all key tenets and could be a quick reference for future re-reads
One key takeaway for me is to strat following a strict decision journal to note down the rationale behind key decisions and do a through Port mortem post a decision gone wrong.
Also the author highlights the ineffectiveness of checklists in a fast moving dynamic system like stock markets and highlights that checklists should be short and help us guide on the avoidable.
Some of the key takeaways being the Halo effect, reversion to mean, ignoring the base rate etc. The conclusion chapter summarises all key tenets and could be a quick reference for future re-reads
One key takeaway for me is to strat following a strict decision journal to note down the rationale behind key decisions and do a through Port mortem post a decision gone wrong.
Also the author highlights the ineffectiveness of checklists in a fast moving dynamic system like stock markets and highlights that checklists should be short and help us guide on the avoidable.
April 7, 2023
While "Think Twice" provides a wealth of insights and ideas that are certainly relevant to real-world decision-making, I can understand why one might have some reservations about the practicality of some of the theories presented.
However, I do believe that there is value in considering the concepts discussed in this book when making important decisions. By taking the time to question our assumptions, challenge our beliefs, and seek out diverse perspectives, we can improve the quality of our decision-making and avoid some of the pitfalls of overconfidence and tunnel vision.
However, I do believe that there is value in considering the concepts discussed in this book when making important decisions. By taking the time to question our assumptions, challenge our beliefs, and seek out diverse perspectives, we can improve the quality of our decision-making and avoid some of the pitfalls of overconfidence and tunnel vision.
January 9, 2024
The son of Pakistani-American parents, Nabeel Qureshi was raised as a devout Muslim. Straddling a traditional upbringing and an American education, the adolescent Nabeel grappled with questions of identity and faith. In college, these questions intensified as he befriended a Christian with whom he engaged in theological debates about Christianity and Islam. Nabeel's exploration of the origins of the Quran, contrasted with historical accounts of the crucifixion and resurrection of Jesus, led him to question long-held Islamic teachings, catalyzing his conversion to Christianity.
August 25, 2020
Honestly I wasn’t a huge fan of this book, I got it for free so figured I would read it. I think it was maybe too dry of a writing style for me and just felt like a research paper. I love psychology, but this just didn’t always feel like the message fit with the title other than to say “this is what people do wrong”
May 23, 2021
A good book, and a rather fast and easy read too.
My only concern is that since the masterpiece "Thinking Fast and Slow" is available, why on earth would anyone read "Think Twice"?
After reading both I personally see no reason to read this one. Not that it's a bad book but it doesn't really bring anything else on top of "Thinking Fast and Slow".
My only concern is that since the masterpiece "Thinking Fast and Slow" is available, why on earth would anyone read "Think Twice"?
After reading both I personally see no reason to read this one. Not that it's a bad book but it doesn't really bring anything else on top of "Thinking Fast and Slow".
June 23, 2017
Above average
Good book that highlights decision making errors. Good advice given: focusing on skill and changing things you can control vs praising or criticizing outcomes. Overall it's a fairly easy and quick read. I would recommend it.
Good book that highlights decision making errors. Good advice given: focusing on skill and changing things you can control vs praising or criticizing outcomes. Overall it's a fairly easy and quick read. I would recommend it.
March 4, 2019
Decent book on how to avoid the most common pitfalls when thinking. Not much new here for those who have already read a fair amount of books in behavioral finance. If you’re new to the genre, go ahead! If you’re experienced, skip this book.
August 23, 2019
Very enjoyable, relevant, and insightful of you are interested in the nuances that come with making good decisions. It has a balance of research-based and anecdotal evidence that is blended well to help the reader realize consistent flaws that we inherently make in our thinking.
May 12, 2022
There's nothing new in this book: it's a combination of different psychology research studies applied practically. You can find all of the content referenced in other books. That said, it's still a great packaging of all those ideas, and is a helpful guide to thinking better.
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