How We Can Improve Our Decisions

I gave a keynote speech at the Pender Investment Conference in early November. This was a great venue to talk about some of the things I’ll be discussing in more detail at Re:Think Decision Making this February in San Francisco.

One of the most common things people ask me is how we can improve our decisions. Better decisions are a function of two things that sometimes conflict: making fewer mistakes and having better insights.

Pender was kind enough to put together a summary of the speech that I wanted to share with you.

Relevant Thought Processes

Rationality

When Charlie Munger was asked the secret to his success, he responded “I’m rational.” But what does it mean to be rational?

In investing as in life, there is perhaps nothing more useful than developing thought processes that help determine what is true and what is best to do, and that lead to rational action and belief.

In order to take actions that fulfill our goals, we must base those actions on beliefs that are properly calibrated to the world. We all want our beliefs to align with the way the world actually works and we also want to maximize the chances of achieving our goals, based on the resources at our disposal.

Emotion

We tend to think of emotion as the enemy of rational behavior and that removing emotional biases from our decision making process will make us more rational. However, while emotions can impede rational decisions, they can also facilitate them. Emotions serve a valuable role because they help us focus.

​​“… emotions stop the combinatorial explosion of possibilities that would occur if an intelligent system tried to calculate the utility of all possible future outcomes. … In short, emotions get us in the right ballpark of the correct response.” — Keith Stanovich

Biases

But we often have patterns of behavior that cause us to fall short on rational thinking.

One way of looking at this is that our brains have two ways of reacting. One is an automatic mode. This is when our minds, without thinking, have an immediate reaction to a situation with little or no conscious effort.

This is how we evolved. This is our instinct. I don’t have to think very hard when I see a lion coming at me. I quickly respond to the situation in order to maximize my odds of safety. Academics call this System One thinking.

System Two thinking is when we allocate our scarce resources of attention and effort to mental activities in order to (hopefully) make better decisions. We must pay attention or we are likely to end up behaving in a way that is not rational. That is, in a way that fails to acknowledge how the world works, or failing to use the tools at our disposal in the best way possible to achieve our aim.

If we believe the premises that mental resources are scarce and we require these resources to make decisions, it stands to reason that when it comes to searching for a reason to do something our brains shut off when we see an idea that we think fits. We stop thinking because thinking is resource intensive and our bodies are designed to conserve resources.

So this has some interesting implications for decision making. Rather than trying to eliminate these innate biases, a better way is to develop mental models.

Decision Environments

Most of us make decisions in an environment where it is very hard for us to behave rationally.

I’m hard pressed to imagine an environment less conducive to rational decision making than that of the modern office worker. It is hard to make rational decisions in this pressured environment.

Now picture Warren Buffett sitting at his desk with his feet up and reading. Look at his empty calendar. He has no meetings and he doesn’t even have a computer in his office. He’s in Omaha for a reason.

​​“It’s very easy to think clearly here. You’re undisturbed by irrelevant factors and the noise generally of business investments. If you can’t think clearly in Omaha, you’re not going to think clearly anyplace.” — Warren Buffett

Buffett is smart enough to structure his environment to reduce decisions, interruptions, and encourage focus.

Our routines influence our decisions as well. One of the objectives of good decision-making is to ensure that decisions are not influenced by irrelevant information.

​​“The most successful people don’t have super-strong willpower when making decisions. Rather, they conserve their willpower by developing habits and routines, so they reduce the amount of stress in their lives. … The more choices you make, the harder they become. To save energy your brain starts to look for shortcuts. One shortcut is to be reckless and act impulsively (rather than rationally). The other shortcut is to do nothing, which saves as much energy as possible (and often creates bigger problems in the long run).” — Roy Baumeister

If you agree with that then it impacts how you organize your day. You may decide to meet clients in the morning as you know that later in the day, they (and you) are likely already at a point of “decision fatigue”.

Circle of Competence

​​“You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” — Warren Buffett

It’s a simple concept: Each of us, through experience or study, has built up useful knowledge on certain areas of the market. We do not necessarily need to understand the more esoteric areas to invest capital. Far more important is to honestly define what we do know and to stick to those areas. The circle can be widened, but only slowly and over time. Mistakes are most often made when straying from this discipline.

If you cannot understand the variables that govern a given situation you are probably outside of your circle of competence. Ideally you’d pass this decision off to someone for whom this is inside their circle of competence. But what can you do if you are outside your circle of competence and have to make a decision quickly?

Inversion

Carl Gustav Jacob Jacobi, the German mathematician said, “invert, always invert” recommending that “many hard problems are best solved when they are addressed backward.”

This model is one of the most powerful thinking habits we can adopt. “Indeed,” says Charlie Munger, “many problems can’t be solved forward.”

Think about what makes life good. Now invert the process and think about what would make life bad. Knowing what would make life bad gives you a shortlist of what to sidestep. Both thinking forwards and thinking backwards can result in action, however, despite your best intentions, thinking forward can in fact increase the odds that you’ll cause harm, while thinking backwards is actually less likely to cause harm – call it the avoiding stupidity filter.

Decision Journals

As participants in the financial industry, offering guidance, advice, and opinion to clients, your product is decisions. So you should care enormously whether you’re providing good advice or bad advice, and continuously looking for opportunities to learn.

The key to providing good advice is to have a good process. Ultimately, the process matters more than the outcome because the outcome doesn’t always tell you if you made a good decision or a poor one.

If you have a good process and a good outcome that’s deserved success. If, however, you have a good process and a bad outcome, that’s what I call a bad break. If, on the other hand, you have a bad process and a good outcome, that’s just dumb luck. And finally a bad process with a bad outcome is really just poetic justice.

When asked how we can improve decisions, Daniel Kahneman, one of the preeminent psychologists in the world who won a Nobel prize in economics, said, without hesitation, buy a very cheap notebook and start keeping track of your decisions: A decision journal.

The basic idea is that whenever you’re making a decision of consequence you should write down what you decided and why. Perhaps you want to do this with your clients, ask them these questions as they are making an investment. It could facilitate great future discussions, regardless of whether the investment is a success or failure.

Conceptually, this is pretty easy but it requires some discipline and humility to implement and maintain.

Conclusion

The long and short of it is: In your decision making, spend less time trying to be brilliant and more time trying to avoid obvious stupidity. Avoiding stupidity is easier than seeking brilliance.

The History of Cognitive Overload

The Organized Mind

The Organized Mind: Thinking Straight in the Age of Information Overload, a book by Daniel Levitin, has an interesting section on cognitive overload.

Each day we are confronted with hundreds, probably thousands of decisions. Most of which are insignificant or unimportant or both. Do we really need a whole aisle for toothpaste?

In response to all of these decisions most of us adopt a strategy of satisficing, a term coined by Nobel Prize winner Herbert Simon to describe something that is perhaps not the best but good enough. For things that don’t matter, this is a good approach. You don’t know which pizza place is the best but you know which ones are good enough.

Satisficing is one of the foundations of productive human behavior; it prevails when we don’t waste time on decisions that don’t matter, or more accurately, when we don’t waste time trying to find improvements that are not going to make a significant difference in our happiness or satisfaction.

All of us, Levitin argues, engage in satisficing every time we clean our homes.

If we got down on the floor with a toothbrush every day to clean the grout, if we scrubbed the windows and walls every single day, the house would be spotless. But few of us go to this much trouble even on a weekly basis (and when we do, we’re likely to be labeled obsessive-compulsive). For most of us, we clean our houses until they are clean enough, reaching a kind of equilibrium between effort and benefit. It is this cost-benefits analysis that is at the heart of satisficing.

The easiest way to be happy is to want what you already have. “Happy people engage in satisficing all the time, even if they don’t know it.”

Satisficing is a tool that allows you not to waste time on things that don’t really matter. Who cares if you pick Colgate or Crest? For other decisions, “the old-fashioned pursuit of excellence remains the right strategy.”

We now spend an unusual amount of time and energy ignoring and filtering. Consider the supermarket.

In 1976, the average supermarket stocked 9,000 unique products; today that number has ballooned to 40,000 of them, yet the average person gets 80%– 85% of their needs in only 150 different supermarket items. That means that we need to ignore 39,850 items in the store.

This comes with a cost.

Neuroscientists have discovered that unproductivity and loss of drive can result from decision overload. Although most of us have no trouble ranking the importance of decisions if asked to do so, our brains don’t automatically do this.

We have a limited number of decisions. There are only so many we can make in a day. Once we’ve hit that limit it doesn’t matter how important they are.

The decision-making network in our brain doesn’t prioritize.

Our world has exploded. Information is abundant. I didn’t think we could process it all but Levitin argues that we can, at a cost.

We can have trouble separating the trivial from the important, and all this information processing makes us tired. Neurons are living cells with a metabolism; they need oxygen and glucose to survive and when they’ve been working hard, we experience fatigue. Every status update you read on Facebook, every tweet or text message you get from a friend, is competing for resources in your brain with important things like whether to put your savings in stocks or bonds, where you left your passport, or how best to reconcile with a close friend you just had an argument with.

The processing capacity of the conscious mind has been estimated at 120 bits per second. That bandwidth, or window, is the speed limit for the traffic of information we can pay conscious attention to at any one time. While a great deal occurs below the threshold of our awareness, and this has an impact on how we feel and what our life is going to be like, in order for something to become encoded as part of your experience, you need to have paid conscious attention to it.

What does this mean?

In order to understand one person speaking to us, we need to process 60 bits of information per second. With a processing limit of 120 bits per second, this means you can barely understand two people talking to you at the same time. Under most circumstances, you will not be able to understand three people talking at the same time. …

With such attentional restrictions, it’s clear why many of us feel overwhelmed by managing some of the most basic aspects of life. Part of the reason is that our brains evolved to help us deal with life during the hunter-gatherer phase of human history, a time when we might encounter no more than a thousand people across the entire span of our lifetime. Walking around midtown Manhattan, you’ll pass that number of people in half an hour.

Attention is the most essential mental resource for any organism. It determines which aspects of the environment we deal with, and most of the time, various automatic, subconscious processes make the correct choice about what gets passed through to our conscious awareness. For this to happen, millions of neurons are constantly monitoring the environment to select the most important things for us to focus on. These neurons are collectively the attentional filter. They work largely in the background, outside of our conscious awareness. This is why most of the perceptual detritus of our daily lives doesn’t register, or why, when you’ve been driving on the freeway for several hours at a stretch, you don’t remember much of the scenery that has whizzed by: Your attentional system “protects” you from registering it because it isn’t deemed important. This unconscious filter follows certain principles about what it will let through to your conscious awareness.

The attentional filter is one of evolution’s greatest achievements. In nonhumans, it ensures that they don’t get distracted by irrelevancies. Squirrels are interested in nuts and predators, and not much else. Dogs, whose olfactory sense is one million times more sensitive than ours, use smell to gather information about the world more than they use sound, and their attentional filter has evolved to make that so. If you’ve ever tried to call your dog while he is smelling something interesting, you know that it is very difficult to grab his attention with sound— smell trumps sound in the dog brain. No one has yet worked out all of the hierarchies and trumping factors in the human attentional filter, but we’ve learned a great deal about it. When our protohuman ancestors left the cover of the trees to seek new sources of food, they simultaneously opened up a vast range of new possibilities for nourishment and exposed themselves to a wide range of new predators. Being alert and vigilant to threatening sounds and visual cues is what allowed them to survive; this meant allowing an increasing amount of information through the attentional filter.

Levitin points out an interesting fact on how highly successful people (HSP) differ from the rest of us when it comes to attentional filters.

Successful people— or people who can afford it— employ layers of people whose job it is to narrow the attentional filter. That is, corporate heads, political leaders, spoiled movie stars, and others whose time and attention are especially valuable have a staff of people around them who are effectively extensions of their own brains, replicating and refining the functions of the prefrontal cortex’s attentional filter.

These highly successful persons have many of the daily distractions of life handled for them, allowing them to devote all of their attention to whatever is immediately before them. They seem to live completely in the moment. Their staff handle correspondence, make appointments, interrupt those appointments when a more important one is waiting, and help to plan their days for maximum efficiency (including naps!). Their bills are paid on time, their car is serviced when required, they’re given reminders of projects due, and their assistants send suitable gifts to the HSP’s loved ones on birthdays and anniversaries. Their ultimate prize if it all works? A Zen-like focus.

Levitin argues that if we organize our minds and our lives “following the new neuroscience of attention and memory, we can all deal with the world in ways that provide the sense of freedom that these highly successful people enjoy.”

To do that, however, we need to understand the architecture of our attentional system. “To better organize our mind, we need to know how it has organized itself.”

Change and importance are two crucial principles used by our attentional filter.

The brain’s change detector is at work all the time, whether you know it or not. If a close friend or relative calls on the phone, you might detect that her voice sounds different and ask if she’s congested or sick with the flu. When your brain detects the change, this information is sent to your consciousness, but your brain doesn’t explicitly send a message when there is no change. If your friend calls and her voice sounds normal, you don’t immediately think, “Oh, her voice is the same as always.” Again, this is the attentional filter doing its job, detecting change, not constancy.

Importance can also filter information. But it’s not objective or absolute importance but something personal and relevant to you.

If you’re driving, a billboard for your favorite music group might catch your eye (really, we should say catch your mind) while other billboards go ignored. If you’re in a crowded room, at a party for instance, certain words to which you attach high importance might suddenly catch your attention, even if spoken from across the room. If someone says “fire” or “sex” or your own name, you’ll find that you’re suddenly following a conversation far away from where you’re standing, with no awareness of what those people were talking about before your attention was captured.

The attentional filter lets us live on autopilot most of the time coming out of it only when we need to. In so doing, we “do not register the complexities, nuances, and often the beauty of what is right in front of us.”

A great number of failures of attention occur because we are not using these two principles to our advantage.

Simply put, attention is limited.

A critical point that bears repeating is that attention is a limited-capacity resource— there are definite limits to the number of things we can attend to at once. We see this in everyday activities. If you’re driving, under most circumstances, you can play the radio or carry on a conversation with someone else in the car. But if you’re looking for a particular street to turn onto, you instinctively turn down the radio or ask your friend to hang on for a moment, to stop talking. This is because you’ve reached the limits of your attention in trying to do these three things. The limits show up whenever we try to do too many things at once.

Our brain hides things from us.

The human brain has evolved to hide from us those things we are not paying attention to. In other words, we often have a cognitive blind spot: We don’t know what we’re missing because our brain can completely ignore things that are not its priority at the moment— even if they are right in front of our eyes. Cognitive psychologists have called this blind spot various names, including inattentional blindness.

One of the most famous demonstrations of this is the basketball video (for more see: The Invisible Gorilla: How Our Intuitions Deceive Us.)

A lot of instances of losing things like car keys, passports, money, receipts, and so on occur because our attentional systems are overloaded and they simply can’t keep track of everything. The average American owns thousands of times more possessions than the average hunter-gatherer. In a real biological sense, we have more things to keep track of than our brains were designed to handle. Even towering intellectuals such as Kant and Wordsworth complained of information excess and sheer mental exhaustion induced by too much sensory input or mental overload.

But we need not fear this cognitive overload, Levitin argues. “More than ever, effective external systems are available for organizing, categorizing, and keeping track of things.”

Information Overload, Then and Now

We’ve been around a long time. For most of that time we didn’t do much of anything other than “procreate and survive.” Then we discovered farming and irrigation and gave up our fairly nomadic lifestyle. Farming allowed us to specialize. I could grow potatoes and you could grow tomatoes and we could trade. This created a dependency on each other and markets for trading. All of this trading, in turn required an accounting system to keep tabs on inventory and trades. This was the birthplace of writing.

With the growth of trade, cities, and writing, people soon discovered architecture, government, and the other refinements of being that collectively add up to what we think of as civilization. The appearance of writing some 5,000 years ago was not met with unbridled enthusiasm; many contemporaries saw it as technology gone too far, a demonic invention that would rot the mind and needed to be stopped. Then, as now, printed words were promiscuous— it was impossible to control where they went or who would receive them, and they could circulate easily without the author’s knowledge or control. Lacking the opportunity to hear information directly from a speaker’s mouth, the antiwriting contingent complained that it would be impossible to verify the accuracy of the writer’s claims, or to ask follow-up questions. Plato was among those who voiced these fears; his King Thamus decried that the dependence on written words would “weaken men’s characters and create forgetfulness in their souls.” Such externalization of facts and stories meant people would no longer need to mentally retain large quantities of information themselves and would come to rely on stories and facts as conveyed, in written form, by others. Thamus, king of Egypt, argued that the written word would infect the Egyptian people with fake knowledge. The Greek poet Callimachus said books are “a great evil.” The Roman philosopher Seneca the Younger ( tutor to Nero) complained that his peers were wasting time and money accumulating too many books, admonishing that “the abundance of books is a distraction.” Instead, Seneca recommended focusing on a limited number of good books, to be read thoroughly and repeatedly. Too much information could be harmful to your mental health.

Cue the printing press, which allowed for the rapid copying of books. This further complicated intellectual life.

The printing press was introduced in the mid 1400s, allowing for the more rapid proliferation of writing, replacing laborious (and error-prone) hand copying. Yet again, many complained that intellectual life as we knew it was done for. Erasmus, in 1525, went on a tirade against the “swarms of new books,” which he considered a serious impediment to learning. He blamed printers whose profit motive sought to fill the world with books that were “foolish, ignorant, malignant, libelous, mad, impious and subversive.” Leibniz complained about “that horrible mass of books that keeps on growing ” and that would ultimately end in nothing less than a “return to barbarism.” Descartes famously recommended ignoring the accumulated stock of texts and instead relying on one’s own observations. Presaging what many say today, Descartes complained that “even if all knowledge could be found in books, where it is mixed in with so many useless things and confusingly heaped in such large volumes, it would take longer to read those books than we have to live in this life and more effort to select the useful things than to find them oneself.”

A steady flow of complaints about the proliferation of books reverberated into the late 1600s. Intellectuals warned that people would stop talking to each other, burying themselves in books, polluting their minds with useless, fatuous ideas.

There is an argument that this generation is at the same crossroads — our Gutenburg moment.

iPhones and iPads, email, and Twitter are the new revolution.

Each was decried as an addiction, an unnecessary distraction, a sign of weak character, feeding an inability to engage with real people and the real-time exchange of ideas.

The industrial revolution brought along a rapid rise in discovery and advancement. Scientific information increased at a staggering clip.

Today, someone with a PhD in biology can’t even know all that is known about the nervous system of the squid! Google Scholar reports 30,000 research articles on that topic, with the number increasing exponentially. By the time you read this, the number will have increased by at least 3,000. The amount of scientific information we’ve discovered in the last twenty years is more than all the discoveries up to that point, from the beginning of language.

This is taxing all of us as we filter what we need to know from what we don’t. This ties in nicely with Tyler Cowen’s argument that the future of work is changing and we will need to add value to computers.

To cope with information overload we create to-do lists and email ourselves reminders. I have lists of lists. Right now there are over 800 unread emails in my inbox. Many of these are reminders to myself to look into something or to do something, links that I need to go back and read, or books I want to add to my wishlist. I see those emails and think, yes I want to do that but not right now. So they sit in my inbox. Occasionally I’ll create a to-do list, which starts off with the best intentions and rapidly becomes a brain dump. Eventually I remember the 18 minute plan for managing your day and I re-focus, scheduling time for the most important things. No matter what I do I always feel like I’m on the border between organized and chaos.

A large part of this feeling of being overwhelmed can be traced back to our evolutionarily outdated attentional system. I mentioned earlier the two principles of the attentional filter: change and importance. There is a third principle of attention— not specific to the attentional filter— that is relevant now more than ever. It has to do with the difficulty of attentional switching. We can state the principle this way: Switching attention comes with a high cost.

Our brains evolved to focus on one thing at a time. This enabled our ancestors to hunt animals, to create and fashion tools, to protect their clan from predators and invading neighbors. The attentional filter evolved to help us to stay on task, letting through only information that was important enough to deserve disrupting our train of thought. But a funny thing happened on the way to the twenty-first century: The plethora of information and the technologies that serve it changed the way we use our brains. Multitasking is the enemy of a focused attentional system. Increasingly, we demand that our attentional system try to focus on several things at once, something that it was not evolved to do. We talk on the phone while we’re driving, listening to the radio, looking for a parking place, planning our mom’s birthday party, trying to avoid the road construction signs, and thinking about what’s for lunch. We can’t truly think about or attend to all these things at once, so our brains flit from one to the other, each time with a neurobiological switching cost. The system does not function well that way. Once on a task, our brains function best if we stick to that task.

When you pay attention to something it means you don’t see something else. David Foster Wallace hit upon this in his speech, The Truth With A Whole Lot Of Rhetorical Bullshit Pared Away. He said:

Learning how to think really means learning how to exercise some control over how and what you think. It means being conscious and aware enough to choose what you pay attention to and to choose how you construct meaning from experience. Because if you cannot exercise this kind of choice in adult life, you will be totally hosed. Think of the old cliché about the mind being an excellent servant but a terrible master. This, like many clichés, so lame and unexciting on the surface, actually expresses a great and terrible truth.

And Winifred Gallagher, author of the book Rapt: Attention and the Focused Life, wrote:

That your experience largely depends on the material objects and mental subjects that you choose to pay attention to or ignore is not an imaginative notion, but a physiological fact. When you focus on a stop sign or a sonnet, a waft of perfume or a stock-market tip, your brain registers that “target,” which enables it to affect your behavior. In contrast, the things that you don’t attend to in a sense don’t exist, at least for you.

All day long, you are selectively paying attention to something, and much more often than you may suspect, you can take charge of this process to good effect. Indeed, your ability to focus on this and suppress that is the key to controlling your experience and, ultimately, your well-being.

When you walk into the front door of your house after a long day of work to screaming kids and a ringing phone you’re not thinking about where you left your car keys.

Attention is created by networks of neurons in the prefrontal cortex (just behind your forehead) that are sensitive only to dopamine. When dopamine is released, it unlocks them, like a key in your front door, and they start firing tiny electrical impulses that stimulate other neurons in their network. But what causes that initial release of dopamine? Typically, one of two different triggers:

1. Something can grab your attention automatically, usually something that is salient to your survival, with evolutionary origins. This vigilance system incorporating the attentional filter is always at work, even when you’re asleep, monitoring the environment for important events. This can be a loud sound or bright light (the startle reflex), something moving quickly (that might indicate a predator), a beverage when you’re thirsty, or an attractively shaped potential sexual partner.

2. You effectively will yourself to focus only on that which is relevant to a search or scan of the environment. This deliberate filtering has been shown in the laboratory to actually change the sensitivity of neurons in the brain. If you’re trying to find your lost daughter at the state fair, your visual system reconfigures to look only for things of about her height, hair color, and body build, filtering everything else out. Simultaneously, your auditory system retunes itself to hear only frequencies in that band where her voice registers. You could call it the Where’s Waldo? filtering network.

It all comes back to Waldo.

If it has red in it, our red-sensitive neurons are involved in the imagining. They then automatically tune themselves, and inhibit other neurons (the ones for the colors you’re not interested in) to facilitate the search. Where’s Waldo? trains children to set and exercise their visual attentional filters to locate increasingly subtle cues in the environment, much as our ancestors might have trained their children to track animals through the forest, starting with easy-to-see and easy-to -differentiate animals and working up to camouflaging animals that are more difficult to pick out from the surrounding environment. The system also works for auditory filtering— if we are expecting a particular pitch or timbre in a sound, our auditory neurons become selectively tuned to those characteristics.

When we willfully retune sensory neurons in this way, our brains engage in top-down processing, originating in a higher, more advanced part of the brain than sensory processing.

But if we have an effective attention filter, why do we find it so hard to filter out distractions? Cue technology.

For one thing, we’re doing more work than ever before. The promise of a computerized society, we were told, was that it would relegate to machines all of the repetitive drudgery of work, allowing us humans to pursue loftier purposes and to have more leisure time. It didn’t work out this way. Instead of more time, most of us have less. Companies large and small have off-loaded work onto the backs of consumers. Things that used to be done for us, as part of the value-added service of working with a company, we are now expected to do ourselves. With air travel, we’re now expected to complete our own reservations and check-in, jobs that used to be done by airline employees or travel agents. At the grocery store, we’re expected to bag our own groceries and, in some supermarkets, to scan our own purchases. We pump our own gas at filling stations. Telephone operators used to look up numbers for us. Some companies no longer send out bills for their services— we’re expected to log in to their website, access our account, retrieve our bill, and initiate an electronic payment; in effect, do the job of the company for them. Collectively, this is known as shadow work— it represents a kind of parallel, shadow economy in which a lot of the service we expect from companies has been transferred to the customer. Each of us is doing the work of others and not getting paid for it. It is responsible for taking away a great deal of the leisure time we thought we would all have in the twenty-first century.

Beyond doing more work, we are dealing with more changes in information technology than our parents did, and more as adults than we did as children. The average American replaces her cell phone every two years, and that often means learning new software, new buttons, new menus. We change our computer operating systems every three years, and that requires learning new icons and procedures, and learning new locations for old menu items.

It’s not a coincidence that highly successful people tend to offload these tasks to others, allowing them to focus.

As knowledge becomes more available— and decentralized through the Internet— the notions of accuracy and authoritativeness have become clouded. Conflicting viewpoints are more readily available than ever, and in many cases they are disseminated by people who have no regard for facts or truth. Many of us find we don’t know whom to believe, what is true, what has been modified, and what has been vetted.

[…]

My teacher, the Stanford cognitive psychologist Amos Tversky, encapsulates this in “the Volvo story.” A colleague was shopping for a new car and had done a great deal of research. Consumer Reports showed through independent tests that Volvos were among the best built and most reliable cars in their class. Customer satisfaction surveys showed that Volvo owners were far happier with their purchase after several years. The surveys were based on tens of thousands of customers. The sheer number of people polled meant that any anomaly— like a specific vehicle that was either exceptionally good or exceptionally bad— would be drowned out by all the other reports. In other words, a survey such as this has statistical and scientific legitimacy and should be weighted accordingly when one makes a decision. It represents a stable summary of the average experience, and the most likely best guess as to what your own experience will be (if you’ve got nothing else to go on, your best guess is that your experience will be most like the average).

Amos ran into his colleague at a party and asked him how his automobile purchase was going. The colleague had decided against the Volvo in favor of a different, lower-rated car. Amos asked him what made him change his mind after all that research pointed to the Volvo. Was it that he didn’t like the price? The color options? The styling? No, it was none of those reasons, the colleague said. Instead, the colleague said, he found out that his brother-in-law had owned a Volvo and that it was always in the shop.

From a strictly logical point of view, the colleague is being irrational. The brother-in-law’s bad Volvo experience is a single data point swamped by tens of thousands of good experiences— it’s an unusual outlier. But we are social creatures. We are easily swayed by first-person stories and vivid accounts of a single experience. Although this is statistically wrong and we should learn to overcome the bias, most of us don’t. Advertisers know this, and this is why we see so many first-person testimonial advertisements on TV. “I lost twenty pounds in two weeks by eating this new yogurt— and it was delicious, too!” Or “I had a headache that wouldn’t go away. I was barking at the dog and snapping at my loved ones. Then I took this new medication and I was back to my normal self.” Our brains focus on vivid, social accounts more than dry, boring, statistical accounts.

So not only does knowledge become easier to access than ever before (frictionless) but as it becomes more available our brains need to cope with it, which they do by magnifying our pre-existing cognitive biases.

illusions

In Roger Shepard’s version of the famous “Ponzo illusion,” the monster at the top seems larger than the one at the bottom, but a ruler will show that they’re the same size. In the Ebbinghaus illusion below it, the white circle on the left seems larger than the white circle on the right, but they’re the same size. We say that our eyes are playing tricks on us, but in fact, our eyes aren’t playing tricks on us, our brain is. The visual system uses heuristics or shortcuts to piece together an understanding of the world, and it sometimes gets things wrong.

We are prone to cognitive illusions when we make decisions. The same type of shortcuts are at play.

The Organized Mind: Thinking Straight in the Age of Information Overload is a wholly fascinating look at our minds.

The Power of Noticing: What the Best Leaders See

The Power of Noticing, Max Bazerman

In The Power of Noticing: What the Best Leaders See, Harvard Professor Max Bazerman, opines about how the failure to notice things leads to “poor personal decisions, organizational crises, and societal disasters.” He walks us through the details of each of these, highlighting recent research and how it impacts our awareness of information we’re prone to ignore. Bazerman presents a blueprint to help us be more aware of critical information that we otherwise would have ignored. It causes us to ask the questions, typically found in hindsight but rarely in foresight, “How could that have happened” and “Why didn’t I see it coming?”

Even the best of us fail to notice things, even critical and readily available information in our environment “due to the human tendency to wear blinders that focus us on a limited set of information.” This additional information, however, is essential to success and Bazerman argues that “in the future it will prove a defining quality of leadership.”

Noticing is a system 2 process.

In his best-selling book from 2011, Thinking, Fast and Slow, Nobel laureate Daniel Kahneman discusses Stanovich and West’s distinction between System 1 and System 2 thinking. System 1 is our intuitive system: it is quick, automatic, effortless, implicit, and emotional. Most of our decisions occur in System 1. By contrast, System 2 thinking is slower and more conscious, effortful, explicit, and logical. My colleague Dolly Chugh of New York University notes that the frantic pace of managerial life requires that executives typically rely on System 1 thinking. Readers of this book doubtless are busy people who depend on System 1 when making many decisions. Unfortunately we are generally more affected by biases that restrict our awareness when we rely on System 1 thinking than when we use System 2 thinking.

Noticing important information in contexts where many people do not is generally a System 2 process.

Logic and other strategic thinking tools, like game theory, are also generally system 2 thinking. This requires that we step away from the heat of the moment and think a few steps ahead – imagining how others will respond. This is something that “system 1 intuition typically fails to do adequately.”

So a lot of what Bazerman spends time on is moving toward system 2 thinking when making important judgements.

When you do so, you will find yourself noticing more pertinent information from your environment than you would have otherwise. Noticing what is not immediately in front of you is often counterintuitive and the province of System 2. Here, then, is the purpose and promise of this book: your broadened perspective as a result of System 2 thinking will guide you toward more effective decisions and fewer disappointments.

Rejecting What’s Available

Often the best decisions require that you look beyond what’s available and reject the presented options. Bazerman didn’t always think this way, he needed some help from his colleague Richard Zeckhauser. At a recent talk, Zeckhauser provided the audience with the “Cholesterol Problem.”

Your doctor has discovered that you have a high cholesterol level, namely 260. She prescribes one of many available statin drugs. She says this will generally drop your cholesterol about 30 percent. There may be side effects. Two months later you return to your doctor. Your cholesterol level is now at 195. Your only negative side effect is sweaty palms, which you experience once or twice a week for one or two hours. Your doctor asks whether you can live with this side effect. You say yes. She tells you to continue on the medicine. What do you say?

Bazerman, who has naturally problematic lipids, had a wide body of knowledge on the subject and isn’t known for his shyness. He went with the statin.

Zeckhauser responded, “Why don’t you try one of the other statins instead?” I immediately realized that he was probably right. Rather than focusing on whether or not to stay on the current statin, broadening the question to include the option of trying other statins makes a great deal of sense. After all, there may well be equally effective statins that don’t cause sweaty palms or any other side effects. My guess is that many patients err by accepting one of two options that a doctor presents to them. It is easy to get stuck on an either/or choice, which I … fell victim to at Zeckhauser’s lecture. I made the mistake of accepting the choice as my colleague presented it. I could have and should have asked what all of the options were. But I didn’t. I too easily accepted the choice presented to me.

The Power of Noticing: What the Best Leaders See opens your eyes to what you’re missing.

What makes Warren Buffett a great investor? Is it the intelligence or the discipline?

I thought this excerpt from Warren Buffett’s 2011 interview in India was relevant to not only investing but also decision making. A member of the audience says to Buffett: “As we all know, you are an extremely intelligent person. At the same time, you are very disciplined with your investing approach. What makes Warren Buffett a great investor? Is it the intelligence or the discipline?”

Here is Warren’s response.

Warren: The good news I can tell you is that to be a great investor you don’t have to have a terrific IQ.

If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing. What you do need is the right temperament. You need to be able to detach yourself from the views of others or the opinions of others.

You need to be able to look at the facts about a business, about an industry, and evaluate a business unaffected by what other people think. That is very difficult for most people.

Most people have, sometimes, a herd mentality which can, under certain circumstances, develop into delusional behavior. You saw that in the Internet craze and so on. I’m sure everybody in this room has the intelligence to do extremely well in investments.

Moderator: They’re all 160 IQs.

Warren: They don’t need it. I’m disappointed they haven’t sold off some already. The 160s won’t beat the 130s at all necessarily. They may, but they do not have a big edge. The ones that have the edge are the ones who really have the temperament to look at a business, look at an industry and not care what the person next to them thinks about it, not care what they read about it in the newspaper, not care what they hear about it on the television, not listen to people who say, “This is going to happen,” or, “That’s going to happen.”

You have to come to your own conclusions, and you have to do it based on facts that are available. If you don’t have enough facts to reach a conclusion, you forget it. You go on to the next one. You have to also have the willingness to walk away from things that other people think are very simple.

A lot of people don’t have that. I don’t know why it is. I’ve been asked a lot of times whether that was something that you’re born with or something you learn. I’m not sure I know the answer. Temperament’s important.

Moderator: That’s very good advice, to be detached from all the noise. You shouldn’t go with the herd.

Warren: If you don’t know the answer yourself don’t expect somebody else to tell you. If you don’t know the answer yourself and somebody else says they know the answer, don’t let that fact push you into coming to a conclusion about something that you don’t know enough to come to a conclusion on.

Stocks go up and down, there is no game where the odds are in your favor. But to win at this game, and most people can’t, you need discipline to form your own opinions and the right temperament, which is more important than IQ.

Pascal said it best: “All men’s miseries derive from not being able to sit in a quiet room alone.”

Warren: If you look at the typical stock on the New York Stock Exchange, its high will be, perhaps, for the last 12 months will be 150 percent of its low so they’re bobbing all over the place. All you have to do is sit there and wait until something is really attractive that you understand.

And you can forget about everything else. That is a wonderful game to play in. There’s almost nothing where the game is stacked in your favor like the stock market.

What happens is people start listening to everybody talk on television or whatever it may be or read the paper, and they take what is a fundamental advantage and turn it into a disadvantage. There’s no easier game than stocks. You have to be sure you don’t play it too often.

You need the discipline to say no.

Ajit: The discipline to say no, if you have that and you’re not willing to let people steamroll you into saying yes. If you have that discipline, that’s more than 50 percent of the battle.

Warren: Don’t do anything in life where, if somebody asks you the reason why you are doing it, the answer is “Everybody else is doing it.” I mean, if you cancel that as a rationale for doing an activity in life, you’ll live a better life whether it’s in the stock market or any place else.

I’ve seen more dumb things, and sometimes even illegal things, justified (rationalized) on the basis of “Everybody else is doing it.” You don’t need to do what everybody else is doing. It’s maddening, during the Internet craze when the bubble was going on.

Here’s your neighbor who’s got an IQ of 50 points below you, and he’s making all this easy money and your wife is telling you “This jerk next door is making money, and you’re smarter than he is. Why aren’t you making money?”

You have to forget about all those things. You have to do what works, what you understand, and if you don’t understand it and somebody else is doing it, don’t get envious or anything of the sort. Just go on and wait until you find something you understand.

From this video, a watermarked transcript of which is available for purchase.

Changing How We Think

Mind the Gap-compressed

What kind of thinking leads to better outcomes? That’s the question that Roger Martin addresses in his wonderful book Diaminds: Decoding the Mental Habits of Successful Thinkers.

The world is awash in complexity. Nearly every decision we make is uncertain. There is no one way to look at uncertainty. There are as many ways of seeing, experiencing and representing problems as there are people. Each person, in turn, brings their own mental models.

Successful thinking integrates several radically different models while preserving the thinker’s ability to act decisively. The successful thinker is an integrator who can quickly and effectively abstract the best qualities of radically different ways of seeing and representing; in doing so, that person develops ‘a better lens’ on the bewildering phenomenon we call the ‘world.’

Integrators attempt to hold two, often contradictory, ways of seeing the world. Rather than fearing the ensuing tension they embrace it.

This is reminiscent of F. Scott Fitzgerald, who said:

The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.

But that view is not out of reach to the layperson. It’s also not new. Thomas C. Chamberlin, President of the University of Wisconsin from 1887 to 1892, proposed the idea of “multiple working hypotheses.” In an article published in Science, he wrote:

In following a single hypothesis, the mind is presumably led to a single explanatory conception. But an adequate explanation often involves the co-ordination of several agencies, which enter into the combined result in varying proportions. The true explanation is therefore necessarily complex. Such complex explanations of phenomena are specially encouraged by the method of multiple hypotheses, and constitute one of its chief merits.

Martin believes that “thinkers who exploit opposing ideas to construct a new solution enjoy a built-in advantage over thinkers who can consider only one model at a time.”

This is not either/or thinking, it’s using a broad-based education to push past the limits of binary thinking and into new ways of combining things. Another of Martin’s books, Opposable Mind: Winning Through Integrative Thinking, defines integrative thinking as:

The ability to face constructively the tension of opposing ideas and, instead of choosing one at the expense of the other, generate a creative resolution of the tension in the form of a new idea that contains elements of the opposing ideas but is superior to each.

Martin argues that this type of thinking is both identifiable and learnable.

Thinking is Habitual

What we think is often made up of habits or, as Martin calls them, “repetitive and recurrent units of mental behaviour that occur on very short time scales.” Most of our mental models and internal stories work by matching patterns — they close off ideas as soon as one fits without attempting to falsify it. In an evolutionary context this makes a lot of sense. If you see a lion, you run. This is fairly closed. You don’t ask a lot of questions or attempt to discern if the lion is friendly or not. Our minds are optimized to think and act quickly. This is system one thinking at its evolutionary finest and it’s fairly inexpensive as far as mental habits go.

Think about how we respond when asked a question of the sort – why did you do X. Our inclination is to respond with a because answer, which rarely includes a cause. If you made a decision, you would offer a reason “this was the best decision given the information” and not “it caused me to avoid someone I’ve been trying to avoid.”

Habits are not all burdens. Often, as Martin points out, they “make thinking bearably simple” But we need a way to describe them if we are to understand them. In Diaminds: Decoding the Mental Habits of Successful Thinkers, Martin writes:

Mental habits work in conjunction with one another to make up patterns of thinking, which are analogous to patterns of behaviour in that they are reliably reproducible and yield predictable results in similar circumstances. It is a commonplace that ‘marketing people’ and ‘engineering people’ process information in different ways. But in what ways are they different? and what difference do their differences make?

This is where the language of cognitive science comes in handy as a language for describing patterns of thought. Thus one finds that ‘marketing people’ pay attention to a lot of information – they are informationally broad in their thinking patterns. They are constantly foraging the world for new bits of information and comparing that new information with parts of their existing database – which they keep around in working memory – in order to arrive at action prescriptions or decision rules. But they spend less time than engineers thinking about each piece of information and about how the various pieces fit together. In other words, compared to engineers, marketers are logically shallower in their thinking approach.

By contrast, one finds that ‘engineering people’ are informationally narrower but logically deeper in their thinking styles. They seek out far less information than do their marketing counterparts; then, having gathered it, they strive for logical consistency among the various pieces of information they deem relevant. For instance, they look for ways in which what they believe connects to what they know. They look for the logical implications of what they already know or believe in order to decide what new beliefs to hold out for testing. They look for connections of the logical and causal type among facts and quasi-facts, rather than just associations and correlations.

Aware of this difference, we can ask: In what circumstances should logical depth dominate informational breadth and, vice versa? In what situations is more thinking better than more foraging or more asking, given that one can only think (or forage) more if one forages (or thinks) less?

The point is to get marketing people and engineering people to think together to create better thinkers. We want to combine the broad thinking the marketers bring to bear on the problem with the logical depth the engineers bring to come up with better solutions.

Mental Habits: A Deep(er) Dive

Martin defines a mental habit as “a pattern of thought that is so entrenched and feels so natural that it has become unconscious and therefore goes unnoticed.” Elaborating on this, he writes:

What we look for when looking for a mental habit is a consistently recurring way in which these explanations are produced, a guiding rule or principle that remains unchanged no matter what the specific explanation.

These thoughts are unconscious and feel natural.

Consider the ‘place responsibility for negative effects elsewhere’ habit.

You arrive late to a meeting. While the reasons vary from situation to situation, you likely never tell the truth but rather blame something else. Traffic was bad. My alarm clock didn’t go off. You almost never hear anyone say, ‘I was late because I forgot to check the room for the meeting.’

This, in Martin’s words, is the difference between responsible and defensive behaviours.

Systematically producing responsible (rather than defensible) causes for one’s behaviour – even when it would be easy to produce irresponsible ones – is likely to feel effortful and to require an exercise of the will.

Consider the mental habit of ‘certainty entails truth’, also known as over-influence from precision.

A CEO asks his CFO if he is sure about the data in the report. If the CFO responds with a no, the CEO thinks he is incompetent. Or maybe the CEO asks the lead on an important project what the odds are they can hit the deadline. The person responds with 80% and the CEO’s next question is “how can we hit 100%?”

As unconscious and intuitive habits, these are often hidden from us and often come from our desire to feel good. Over time, however, these habits become our reality. We believe in the validity of these explanations and this affects how we think about ourselves and the world around us, and how we approach problems. The words we speak become the way we think.

Eminem had it wrong when he said, “I am whatever you say I am.” He should have said, “I am whatever I say I am.”

Tinker With your Thinker

Designing and controlling our mental habits is possible because thinking, when done deliberately, is a sequence of words and sentences. The Panopticon Effect impacts how we design our minds.

Thinking – especially thinking in words and sentences – is a form of internal communication. In thinking, you-in-the-present communicates with you-in-the-future. But though thinking is a private and covert activity, it is influenced by external interactions – in particular, by how you communicate with others. Communicative patterns become mental habits. The implication is that counterproductive – closed, oblivious, disconnected, narrow, hermetic, rigid – ways of communicating are thereby internalized and become counterproductive ways of thinking.

The key to changing how we think, then, is to switch from intuitive to deliberate thought, observe our patterns of communication, and then change the way in which we communicate. As Heinz von Foerster put it, ‘If you want to think differently, first learn to act differently.’

Communicating differently with others and yourself is the key to changing your mind.

What does this look like in practice?

… how one thinks is an internalized version of how one communicates – indeed, it sheds light on how one communicates. The systematic placing of responsibility elsewhere for ills and mishaps is a locally effective social strategy – one that is often rewarded by nods of understanding and (potentially false, but who looks that closely?) expressions of sympathy. It also helps one avoid being placed on the spot by difficult ‘why?’ questions. It feels good to get understanding from others and to avoid such difficult moments. In time, this way of communicating becomes a script.

There is one problem: it is difficult to produce the message convincingly without at least half-believing it. Most humans are reasonably good at identifying liars and dissimulators, even if they are not professionally trained to do so. … But a solution is at hand: make a habit of the way you communicate part of the very fabric of thinking. ‘Place responsibility for ills elsewhere’ thus becomes a mental habit, not just a social and communicative habit.

In the end changing our patterns of thinking becomes about changing the language we use for internal and external communication. We need to move to ‘I was late for the meeting because I forgot to check the room number’ instead of ‘I was late because of something outside my control.’ By addressing problems honestly (especially when they are ambiguous) we change how we think. This isn’t new. Your body language affects how you act too.

Our ‘mind design principle’ for new and more successful mental habits is thus a simple one: because thinking is self-talk, talk and thought are linked. To change patterns of thinking, change patterns of talking.

Diaminds: Decoding the Mental Habits of Successful Thinkers is a fascinating exploration of how we think and offers a new way to improve our ability to think.

(image source)