Two important nuggets from an interview with Chip Heath, co-author of Decisive (more here), on improving our ability to make better decisions: A decision-making magic trick The closest thing to a decision-making magic trick that I’ve found is the question, “What would you advise your best friend to do if they were in your situation?” [...]
Insensitivity to base rates
Michael Mauboussin commenting on Daniel Kahneman: When asked which was his favorite paper of all-time, Daniel Kahneman pointed to “On the Psychology of Prediction,” which he co-authored with Amos Tversky in 1973. Tversky and Kahneman basically said that there are three things to consider in order to make an effective prediction: the base rate, the [...]
Our insensitivity to base rates emanates from the representativeness heuristic and is a common psychological bias. From Smart Choices: A Practical Guide to Making Better Decisions: Donald Jones is either a librarian or a salesman. His personality can best be described as retiring. What are the odds that he is a librarian? When we use [...]
Wellesley High English teacher David McCullough Jr. tells graduates “You are not special. You are not exceptional.” “You are not special. You are not exceptional. …. You’ve been pampered, cosseted, doted upon, helmeted, bubble wrapped … feted and fawned over and called sweetie pie. … Your galaxy is not the centre of the universe. In [...]
Some of the general heuristics—rules of thumb—that people use in making judgments that produce biases towards classifying situations according to their representativeness, or toward judging frequencies according to the availability of examples in memory, or toward interpretations warped by the way in which a problem has been framed. These heuristics have important implications for individuals and society. [...]
Michael Mauboussin, author of Think Twice, says people tend to ignore mean reversion, misunderstand it, or miss-specify it.
Mental Models: Insensitivity to Sample Size, Insensitivity to base rates, Conjunctive and Disjunctive-Events Bias,There is a significant growth of behavior economics in the last decade. The goal of the behavior research is aimed at the deviations from rationality in order to improve the predictive power of economic models. In this paper, attached to the specific [...]