Think Twice

Summary Written by Ingrid Urgolites
"You needn’t think twice before every decision. Since most decisions will be straightforward, with clear-cut repercussions, the mistakes in this book will not be relevant. We all make lots of decisions every day, and the stakes are generally low. Even when they are not low, the best course is often obvious enough. Think Twice’s value comes in situations where the stakes are sufficiently high and where your natural decision-making process leads you to a suboptimal choice."

- Think Twice, page 137

The Big Idea

Try to Lose

"Here’s a simple test of whether an activity involves skill: ask if you can lose on purpose. Think about casino games like roulette or slots. Winning or losing is purely a matter of luck. It doesn’t matter what you do. But if you can lose on purpose, then skill is involved."- Think Twice, page 132

Some things we might like to think we are responsible for such as success at work or profitable investments are mostly luck. They are too complex for us to control all the aspects or predict all the outcomes. Reasons they succeed or fail are not in our control. Mauboussin points out when something good happens we usually attribute it to our skills. When something bad happens, we often blame luck. Our error is making the judgment based on the outcome. Instead, we need to focus on the process. The process is what caused the result. Effective decisions come from focusing on processes we control not trying to control what happens by chance.

If you cannot lose on purpose, your decision is not directly responsible for the outcome. If you can, then you need to evaluate whether or not you have the skill necessary to achieve your desired result.

If your decision involves skill, building skills takes focused time and deliberate practice. Mauboussin says most experts do not come close to satisfying the requirements for deliberate practice and cautions us against overconfidence. Honest introspection is important as well as openness to high-quality feedback to expand our perspective—both are essential in building skills. Keep your decisions in line with your degree of skill.

Insight #1

Imagine the Future

"But 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."- Think Twice, page 142

Most of our daily decisions have clear consequences for our actions. Decisions like not paying our electric bill would cause our electricity to be disconnected. Complex decisions may not have obvious consequences. It is useful to imagine a worst-case scenario. For example, perhaps you are planning to move. Imagine the move went badly; now list all the reasons why. You can identify possible problems before they happen and take proactive measures. (Maybe you forgot to have the electricity turned on before the move.)

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Insight #2

Examine the Past

"If you are serious about improving your decisions and are open to feedback, there is a simple, inexpensive technique of great value – a decision-making journal. Whenever you make an important decision, take a moment to write down what you decided, how you came to that decision, and what you expect to happen. If you have the time and the inclination, you can also note how you feel physically and mentally."- Think Twice, page 141

Journaling enables us to audit our decisions. The more information we record about our decision, the more useful it will be later on. We have a tendency to evaluate results of past decisions and think we knew more than we did. We also might make spurious connections and think there is a correlation between unrelated events. Keeping a record that we can examine helps us develop a less biased perspective. It also might identify useful patterns in good and bad outcomes. Honesty and open-mindedness are essential. After all, we want to find our mistakes to improve future decisions.

If you are already in the habit of journaling, you have information that can help you now. I keep a journal and I was able to look back at the decisions I made three years ago and compare them to similar decisions I am making now. If I had designated the journal as a decision-making journal and kept concise notes, it would be more useful. Although it is incomplete, the information I recorded has given me some important insights.

It can be difficult to make good decisions especially if you are aware you lack sufficient skill in an unfamiliar area. Friends and family often offer quick advice that makes them feel helpful and allays their fears. It might be well meant but it is not qualified and it supports their bias. Often they do not suffer the consequences if their advice is faulty. Experts are hard to trust because their qualifications can be difficult to verify and their expertise is assumed. Sometimes they are rewarded if they persuade you to make a decision that is not in your best interest. It might be hard to determine if their recommendations fit your situation. If they have a panacea, it is certainly bad advice. This is why we need to have these mental tools to help us navigate to the best possible outcome.

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Michael J. Mauboussin

Michael J. Mauboussin is head of global financial strategies at Credit Suisse. He is also an adjunct professor of finance at Columbia Business School.

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