A book review of Michael J. Mauboussin’s Think Twice: Harnessing the Power of Counterintuition by Capital Ideas Online
Here are some parts that I have marked in my copy of the book “Think Twice: Harnessing the Power of Counterintuition” by Michael J. Mauboussin.
- “The statistical rate of success and failure must be reasonably stable over time for a reference class to be valid. If the properties of the system change, drawing inference from past data can be mis-leading. This is an important issue in personal finance, where advisers make asset allocation recommendations for their clients based on historical statistics. Because the statistical properties of markets shift over time, an investor can end up with the wrong mix of assets.
Also keep an eye out for systems where small perturbations can lead to large-scale change. Since cause and effect are difficult to pin down in these systems, drawing on past experiences is more difficult. Businesses driven by hit products, like movies or books, are good examples. Producers and publishers have a notoriously difficult time anticipating results, because success and failure is based largely on social influence, an inherently unpredictable phenomenon.”
Qualivian Investment Partners Up 30% YTD; Long ORLY Thesis
Qualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” - Ian Cassell Executive Summary Readers of investment letters fall into Read More
- “The adjustment from the anchor “entails a search for a plausible estimate” and that the subjects terminate the adjustment once they reach what they believe is a reasonable answer.”
- “Developing and recognizing a full range of outcomes is the best protection against the anchoring effect if you are sitting on the other side of the negotiating table.”
- “Like representatives, availability encourages us to ignore alternatives.”
- “This mistake is tough because our minds have a deep-seated desire to make out patterns and our prediction process is very rapid (the researchers call it “automatic and obligatory”). This pattern recognition ability evolved through the millennia and was profoundly useful for most of human existence. “In a natural environment, almost all patterns are predictive,” says Scott Huettel. “For example, when you hear a crash behind you, it’s not something artificial; it means that a branch is falling, and you need to get out of the way. So, we evolved to look for those patterns. But these causal relationships don’t necessarily hold in the technological world that can produce irregularities, and in which we look for patterns where none exist.”
- “While cognitive dissonance is about internal consistency, the confirmation bias is about external consistency.”
See full article here.
Think Twice: Harnessing the Power of Counterintuition – Description
No matter your field, industry, or specialty, as a leader you make a series of crucial decisions every single day. And the harsh truth is that the majority of decisions—no matter how good the intentions behind them—are mismanaged, resulting in a huge toll on organizations, the people they employ, and even the people they serve.
So why is it so hard to make sound decisions? In Think Twice: Harnessing the Power of Counterintuition, now in paperback, Michael Mauboussin argues that we often fall victim to simplified mental routines that prevent us from coping with the complex realities inherent in important judgment calls. Yet these cognitive errors are preventable.
In this engaging book, Mauboussin shows us how to recognize and avoid common mental missteps. These include misunderstanding cause-and-effect linkages, not considering enough alternative possibilities in making a decision, and relying too much on experts.
Through vivid stories, the author presents memorable rules for avoiding each error and explains how to recognize when you should “think twice”—questioning your reasoning and adopting decision-making strategies that are far more effective, even if they seem counterintuitive. Armed with this awareness, you’ll soon begin making sounder judgment calls that benefit (rather than hurt) your organization.
“… a fine pick for any business collection strong in management issues, and addresses some of the predecessors of bad mistakes.” — Bookwatch