Book Review: Think Twice

Think Twice

Think Twice: Harnessing the Power of Counterintuition
Michael J. Mauboussin
Harvard Business Press (2009)

I agree with Mauboussin that the most valuable lessons in life tend to be revealed by failure that results from errors of judgment. To reduce the number if one’s mistakes (if not eliminate them), Mauboussin suggests a three step plan, suggested by the acronym PRA: First, Prepare by acknowledging and analyzing one’s mistakes in order to understand their cause(s), nature, extent, and impact; next, to Recognize each mistake in context, to gain “situational awareness,” in order to recognize the kinds of problems one faces, what the risks are, and which tools are needed to make smart decisions; finally, Apply what one has been learned in order to mitigate one’s potential mistakes by building or refining a set of mental tools to cope with the realities if life.”

Mauboussin’s core insight is that most of the worst decisions are made in haste, without sufficient information, and driven by emotion rather than by reason, and are avoidable. For example, consider mistakes associated with reversion to the mean (i.e. denying or ignoring the fact that an outcome that is not is not average will be followed by an outcome that has an expected value closer to the average). How to avoid making these mistakes? Mauboussin offers four suggestions:

1. Evaluate the mix of skill and luck in the system that you are analyzing. “Here’s a simple test of whether an activity involves skill: ask if you can lose on purpose [because] if you can lose on purpose, then skill is involved.”

2. Carefully consider the sample size. “The more that luck contributes to the outcomes you observe, the larger the sample you will need to distinguish between skill and luck.”

3. Watch for change within the system or of the system. “One obvious example is individual changes in skill level. And athlete’s age is a good example. In many professional sports, athletic skill improves through the late twenties, at which point it begins to steadily deteriorate.”

4. Watch out for the halo effect. That is, “the human proclivity to make specific references based on general impressions. Mauboussin cites Phil Rosenzweig’s analysis of a tendency to observe so-called “great” companies, attach common attributes to them that explain their success, and recommend others to embrace the attributes to achieve their own success.

Meanwhile, those who read this book are urged to take some concrete actions immediately to improve the quality of their decisions: Learn about the potential mistakes (Prepare), identify them in context rather than in isolation (Recognize), and sharpen ultimate decisions when they must be made and then executed (Apply). “There are common and identifiable mistakes that you can understand, see in your daily affairs, and manage effectively. In those cases, the correct approach to deciding well often conflicts with what your mind naturally does.” If you believe that your decisions cannot be improved, that you do not need this book, think again.

How to improve decisions immediately

Think Twice

In Think Twice published by Harvard Business Press (2009), Michael Mauboussin explains how to “harness the power of counterintuition” and thereby avoid making mistakes in situations when “the stakes are sufficiently high and where your natural decision-making process leads you to a suboptimal choice.” He makes seven specific recommendations:

1. Raise your awareness of mistakes that are almost always common, identifiable, and preventable. What isn’t working? Why?

2. Put yourself in the shoes of others by embracing “the outside view” and consider “the power of the [given] situation” in terms of its potential impact. What are others seeing, thinking, and feeling? What motivates them?

3. Recognize the respective roles of skill and luck and understand when each is operative. When offering cnstructive criticism about another person’s performance, for example, comment only on the skill component. No one can control luck.

4. Get feedback that is timely, accurate, and clear from as many different reliable sources as possible. Welcome principled dissent and constructive criticism. Ask the right questions and be an alert, appreciative listener.

5. Create a checklist before making an important decision. “A good checklist balances two opposing objectives. It should be general enough to allow for varying conditions, yet specific enough to guide action.

6. Perform a postmortem, a rigorous analysis, once the outcome of a decision becomes known. The primary objective is not to assign credit or blame; rather, to understand what did (and did not) happen…and why.

7. Know what can’t be known and focus on what can be known. “Also resist the temptation to treat a complex system as if it’s simpler than it is.”

Mauboussin concludes with some general advice: So prepare your mind, recognize the context, apply the right technique – and practice.”

Foxes, Hedgehogs, and Problem-Solving

Think Twice

In Expert Political Judgment: How Good Is It? How Can We Know? published in 2005 by Princeton University Press, Philip Tetlock suggests that so-called experts tend to be either foxes (who know a little bit about a great many subjects) or hedgehogs (who know a great deal about only one subject). Tetlock asserts that “foxes” tend to make better decisions because they rely on a variety of sources and consider several different points of view whereas “hedgehogs” tend to view reality through “a single lens” and explain everything wholly in terms of what they already know.

It is worth noting that these two critters were previously discussed by Archilochus (c. 680 and 640 B.C.E.), more recently by Isaiah Berlin in his essay The Hedgehog and the Fox, and then by Jim Collins in Good to Great.

In Think Twice, Michael J. Mauboussin supports Phil Rosenzweig’s criticism in The Halo Effect of Collins and other business thinkers who write bestsellers. According to Mauboussin, “The important question is not ‘were all great hedgehogs’ but rather, ‘were all hedgehogs great?’ If the answer to the latter question is no – and it assuredly is – then dwelling on the survivors creates a bias in the analysis, leading to faulty conclusions.”

My own take on all this is, both foxes and hedgehogs first need to make certain that they are asking the right question, that they are solving the right problem. Only then can they determine what they need to know and where they can obtain the information their decision requires.

In another commentary, I will share Mauboussin’s thoughts about how to avoid or correct errors of judgment such as those associated with the “halo effect” and reversion to the mean.