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1-Page Summary of Think Twice

Introduction

In his book, Think Twice, Michael J. Mauboussin illustrates eight common mistakes that lead to bad outcomes and explains how to avoid them. He provides examples of each mistake along with ways to fix the problem so you don’t make those same mistakes in your own life. By learning from what commonly goes wrong, it’s possible to learn what makes things go right.

This book will explore how to avoid common mistakes. You can do this by researching similar situations, being aware of each unique situation and respecting the role of context, considering all options instead of just relying on experts, knowing that the total is greater than the sum of its parts, understanding that correlation doesn’t equal causality or predictability, considering what might happen if things go too far in one direction before they start going back again (the tipping point), and accepting that reversion to average is inevitable.

The Outside View

Taking the inside view means you’re basing your decisions on what’s readily available to you. It also means that you may be ignoring other information, focusing only on one specific task and being biased by perception or anecdotal evidence. The outside view takes into account comparable situations and their outcomes so that we can make better decisions.

A good example of taking the inside view is Big Brown’s Triple Crown attempt in 2008. Many bettors placed their bets on him because they thought he was a great horse, and that he would win. However, if they had looked at his overall race times and track speeds, they would have realized that Big Brown wasn’t as great as everyone thought—he ended up coming in last place.

Confidence and optimism can cloud decisions in business. For example, when companies make acquisitions, they often overestimate their chances of success by getting caught up in the excitement of a bidding war. To avoid making bad decisions based on that kind of short-sightedness, find situations similar to yours and note what happened—the average outcome for those types of decisions. Based on your analysis, predict how things will turn out for you personally (considering your own optimism).

Open to Options

Tunnel vision limits our possibilities. Sometimes we don’t consider all the options because of some piece of information we have in the beginning, which is an anchor that keeps us from looking for more reasonable answers.

Two psychologists studied real estate agents and found that they were more likely to use the listing price as an anchor when making a decision than if they had no information. This is probably because it’s easier for them to focus on one piece of information rather than many.

We make decisions based on what we see and hear. Our emotions affect our reasoning, and previous experiences impact the way we think about making a decision in that moment.

Mauboussin shares several ways to avoid tunnel vision. He suggests that when you’re making a decision, ask people who disagree with it for their opinion and listen to them. Also, review your previous decisions so that you can learn from your mistakes. Finally, if you’re emotionally charged about something, don’t make any big decisions because it’ll only make things worse.

The Expert Squeeze

Experts rely on their intuition to make decisions, but they don’t do it enough. Furthermore, intuition is overrated; its value is limited to stable conditions. Experts can use statistics and technology in order to develop algorithms that will help them with decision making better than their intuition does.

For example, Harrah’s executives thought that their biggest profits came from high rollers. However, when they examined the data more closely, they realized that senior citizens with money to spend were actually their best customers.