Smart People Dumb Decisions

Chances are you’re unaware of the limits to your abilities, unappreciative of the challenges that lie ahead, and uninformed of all that can go wrong. Don’t worry—you’re not alone.

Michael Mauboussin, chief investment strategist at Legg Mason Capital Management and author of Think Twice: Harnessing the Power of Counterintuition, wrote this article (which touches on overconfidence, our faulty view of time, outcome bias, and our inside view) for the March-April edition of the Futurist.

If you ask people to offer adjectives that they associate with good decision makers, words like “intelligent” and “smart” are generally at the top of the list. Yet, history contains plenty of examples of smart people who made poor decisions as the result of cognitive mistakes. These mistakes can have horrific consequences, from the space shuttle Columbia disaster to the scores of bank failures across the United States since the start of the 2007 recession. But faulty decision making is also avoidable. Every day, research is offering new insights into the decision-making process. A science of choice is emerging, and the good news is that everyone, from students to stockbrokers, can learn how to make better decisions.

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Michael Mauboussin is the author of More More Than You Know: Finding Financial Wisdom in Unconventional Places and more recently, Think Twice: Harnessing the Power of Counterintuition.