Think Twice

Author Q and A

1. There are a lot of books out there about decision making. What encouraged you to write Think Twice?
2. Do you advocate for a specific process to improve decision making?
3. Do I really need to think twice before all of my decisions? That seems pretty time consuming.
4. Is this book only for investors and businesspeople or do the lessons extend beyond those fields?
5. Think Twice seems to have the opposite message of Malcolm Gladwell’s bestselling book, Blink. Which is right?
6. Do you have any general advice to help people with their decision making?
7. Are you a better decision maker now that you’ve written Think Twice?

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1. There are a lot of books out there about decision making. What encouraged you to write Think Twice?
   My motivation really came from two sources. The first was the revelation, after years of practicing and teaching the process of investing, that making good decisions is a lot more important than being smart. There is no clear correlation between intelligence and good decision making. In fact, history is replete with examples of objectively smart people making big mistakes with significant consequences. Examples include the engineers at NASA responsible for the tragic failure of the space shuttle, Columbia, and more recently the leaders of financial institutions who lost their shareholders billions of dollars.
   
   Second, a lot of decision making books dwell on the negative by pointing out all the ways that you behave irrationally. And, of course, there’s truth to that. But I wanted Think Twice to be about opportunity. This opportunity comes either when you think better about the decisions you face or, perhaps more significantly, when you can take advantage of the poor decisions that other people make.
   
   One illustration is the choice of plays made by the coaches of American football teams. Analysis suggests that patterns of play calling are handed down from generation to generation, even though the choices are in many cases suboptimal. So thinking twice about what plays to call in key situations can meaningfully improve a team’s chances of winning. It represents an opportunity.
   
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2. Do you advocate for a specific process to improve decision making?
   In the book, I discuss the eight decision mistakes I have seen most frequently in my career, and dedicate a chapter to each one. I also draw on substantial academic research to understand the nature of the mistakes and why we make them.
   
   This catalog of mistakes leads to a natural process to manage them. The first step is to prepare, or basically to learn about the mistakes. The second step is to recognize these mistakes in other settings. The mistakes show up in different fields in varying guises, so it’s important to be able to identify them. The final step is to apply methods to offset potential mistakes.
   
   Let me give you a really trivial example. A few years back I went to a conference on behavioral finance and investing. During these conferences it’s common for the instructors to have little contests, with small prizes, to illustrate a point about decision making. That year, I won both of the contests the professors ran, one relating to overconfidence and the other on how people think about the decisions of others.
   
   But here’s a confession: when I had first encountered versions of those experiments, well before the conference, I did poorly. I mean below-average poorly. But I learned the lessons, recognized them in context, and applied approaches to mitigate the potential mistakes. So even though I didn’t know the answers for those specific experiments, I had learned how to think about those types of problems.
   
   As one of the instructors threw me my prize, a t-shirt, he grumbled, “You don’t deserve this because you knew what was going on.” And I thought, “Yes, that is the point!” And that’s really the point of Think Twice.
   
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3. Do I really need to think twice before all of my decisions? That seems pretty time consuming.
   The answer is a resounding no! The fact is that most decisions are either pretty clear cut or relatively inconsequential. In those cases, there’s little need to linger on a decision.
   
   But here is the book’s message in a nutshell: in certain decision making settings, our minds—and we’re hardwired this way—want to take us down one mental path when another path leads to a better decision. Consider, for example, how a retailer might come up with a forecast for holiday sales. The natural approach is to defer to an expert, who gathers information and analyzes trends. Another approach is to throw the question to a relatively uninformed crowd. Remarkably, the crowd frequently predicts better than the expert. Still, most executives have deep misgivings about making decisions based on forecasts derived from a crowd.
   
   So in cases where the stakes are large and the risk of a poor decision is high, you definitely need to practice thinking twice.
   
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4. Is this book only for investors and businesspeople or do the lessons extend beyond those fields?
   While I am clearly more familiar with what goes on in business and investing, I am convinced the book’s lessons apply to almost every profession. In fact, I used examples from fields including sports, engineering, medicine, and science.
   
   I’m convinced that many of the ideas in the book are very relevant for government. Let me provide a couple of examples. One is that government officials need to recognize that it’s basically impossible to manage a complex adaptive system—that is, a system that is made up of a lot of interacting individuals. So an action that is meant to improve one facet of the system may have unintended negative consequences for another part of the system. Officials may end up doing more harm than good, even with the best of intentions.
   
   Another example relates to an idea called “choice architecture,” a term dubbed by Richard Thaler and Cass Sunstein (who now works in the Obama administration). The idea is how you present a choice can strongly influence how people decide about that choice. Thoughtful choice architecture, like programs that encourage individuals to save more money, can lead to better results for society. Fortunately, the current governments in the U.S. and U.K. seem to understand many of these ideas and are putting them to work.
   
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5. Think Twice seems to have the opposite message of Malcolm Gladwell’s bestselling book, Blink. Which is right?
   I believe in the role of intuition in decision making, but I certainly don’t glorify it. By and large, I believe that people rely more on their intuition than they should.
   
   Here’s how I think about it. Psychologists often distinguish between two mental systems, creatively called System 1 and System 2. System 1 is fast, automatic, and hard to train. When you jump at the sight of a snake, you have System 1 to thank. System 2 is slow, requires input, and can be trained. It’s your analytical mind. If you do something repeatedly, some aspects of System 2 thinking slip into System 1. Consider the first time you drove a car; you had to think about each action very deliberately. But after time and experience, you internalized many of the tasks, and driving migrated mostly from System 2 to System 1.
   
   Intuition works when you have a System 1 that is well trained. Think of a chess master, or a finely trained soldier. But note that for System 1 to work effectively, you need to deal with situations that are linear and consistent. If you’re dealing with decisions in a realm where the outcomes are nonlinear or the statistical properties change over time, intuition will fail because your System 1 doesn’t know what’s going on.
   
   Increasingly, professionals are forced to confront decisions related to complex systems, which are by their very nature nonlinear and have changing statistical properties. This definitely applies to investing and business. So you have to be very careful if you rely on intuition.
   
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6. Do you have any general advice to help people with their decision making?
   I might mention a few things. To start, it’s really important to think in terms of probabilities and outcomes. Many decision mistakes come from a failure to consider possible outcomes, or from placing too low a probability on an adverse outcome. I have a chapter dedicated to tunnel vision, or the failure to consider alternatives.
   
   Another really important issue to consider is incentives. What motivates the behaviors of others? Are you fully aware of those incentives and the decisions that may follow? Most people acknowledge the importance of incentives but still underestimate their significance in shaping choices. In Think Twice I relate a story I heard from one of my physician friends. Basically, the point was doctors sometimes prefer treatments that pay them well versus treatments that may be as effective for the patient but have lower reimbursement for the doctor.
   
   Next, it’s important to try to be in an emotionally stable state when making decisions. If your emotions are running too high or, less likely, too low, you are unlikely to decide well—and certainly not consistently well. So if you can defer important decisions until you feel emotionally balanced, you will be better off.
   
   Finally, it can be really useful to keep track of your decisions. A simple notebook will do the job. When you make a decision, write down your rationale. And if you’re so inclined, you might note how you feel emotionally or even physically. Then when you see the outcome from the decision, you see if your decision-making approach was sensible. Since people have a strong tendency to rationalize past decisions or superimpose today’s knowledge on the past, the notebook will act as a reality check.
   
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7. Are you a better decision maker now that you’ve written Think Twice?
   I wish it were so! In truth, what I strive for is a greater awareness of when I’m in a decision-making danger zone and to slow down and think twice when I’m there.
   
   I have also become much more circumspect about the outcomes I see around me. As humans, we constantly creates stories about what has happened and why. Those stories can be soothing on one level but often don’t comport well with reality.
   
   I also believe I can do a better job of identifying the faulty thinking in others than I could before. At a minimum this can help discriminate the value of what people say and at best can lead to opportunity.
   
   But in the end, I recognize that I have to work on improving my decisions every day, by thinking and acting better.
   
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