In a restaurant the other day I (Rolf Dobelli) scanned the wine list in desperation. Irouléguy? Harslevelű? Susumaniello? I’m far from an expert, but I could tell that a sommelier was trying to prove his worldliness with these selections. On the last page, I found redemption: “Our French house wine: Réserve du Patron, Bourgogne,” $52. I ordered it right away; it couldn’t be that bad, I reasoned.
I’ve owned an iPhone for several years now. The gadget allows me to customize everything—data usage, app synchronization, phone encryption, even how loud I want the camera shutter to sound. How many of these have I set up so far? You guessed it: not one.
The Difference between Risk and Uncertainty: Ambiguity Aversion
Two boxes. Box A contains one hundred balls: fifty red and fifty black. Box B also holds one hundred balls, but you don’t know how many are red and how many are black. If you reach into one of the boxes without looking and draw out a red ball, you win $100. Which box will you choose: A or B? The majority will opt for A.
Let’s play again, using exactly the same boxes. This time, you win $100 if you draw out a black ball. Which box will you go for now? Most likely you’ll choose A again. But that’s illogical! In the first round, you assumed that B contained fewer red balls (and more black balls), so, rationally, you would have to opt for B this time around.
Don’t worry; you’re not alone in this error—quite the opposite. This result is known as the “Ellsberg Paradox”—named after Daniel Ellsberg, a former Harvard psychologist. (As a side note, he later leaked the top-secret Pentagon Papers to the press, leading to the downfall of President Nixon.) The Ellsberg Paradox offers empirical proof that we favor known probabilities (box A) over unknown ones (box B).
Why You Identify with Your Football Team: In-Group Out-Group Bias
When I (Rolf Dobelli) was a child, a typical wintery Sunday looked like this: My family sat in front of the TV watching a ski race. My parents cheered for the Swiss skiers and wanted me to do the same. I didn’t understand the fuss. First, why zoom down a mountain on two planks? It makes as little sense as hopping up the mountain on one leg, while juggling three balls and stopping every hundred feet to hurl a log as far possible. Second, how can one-hundredth of a second count as a difference? Common sense would say that if people are that close together, they are equally good skiers. Third, why should I identify with the Swiss skiers? Was I related to any of them? I didn’t think so. I didn’t even know what they thought or read, and if I lived a few feet over the Swiss border, I would probably (have to) cheer for another team altogether.
This brings us to the question: Does identifying with a group—a sports team, an ethnicity, a company, a state—represent flawed thinking?
You Were Right All Along: Falsification of History
Winston Smith, a frail, brooding, thirty-nine-year-old office employee, works in the Ministry of Truth. His job is to update old newspaper articles and documents so that they agree with new developments. His work is important. Revising the past creates the illusion of infallibility and helps the government secure absolute power.
Such historical misrepresentation, as witnessed in George Orwell’s classic 1984, is alive and well today. It may shock you but a little Winston is scribbling away in your brain, too. Worse still: Whereas in Orwell’s novel, he toiled unwillingly and eventually rebelled against the system, in your brain he is working with the utmost efficiency and according to your wishes and goals. He will never rise up against you. He revises your memories so effortlessly—elegantly, even—that you never notice his work. Discreet and reliable, Winston disposes of your old, mistaken views. As they vanish one by one, you start to believe you were right all along.
The Myth of Like-Mindedness: False-Consensus Effect
Which do you prefer: music from the ’60s or music from the ’80s? How do you think the general public would answer this question? Most people tend to extrapolate their preferences onto others. If they love the ’60s, they will automatically assume that the majority of their peers do, too. The same goes for ’80s aficionados. We frequently overestimate unanimity with others, believing that everyone else thinks and feels exactly like we do. This fallacy is called the false-consensus effect.
Stanford psychologist Lee Ross hit upon this in 1977. He fashioned a sandwich board emblazoned with the slogan “Eat at Joe’s” and asked randomly selected students to wear it around campus for thirty minutes. They also had to estimate how many other students would put themselves forward for the task. Those who declared themselves willing to wear the sign assumed that the majority (62 percent) would also agree to it. On the other hand, those who politely refused believed that most people (67 percent) would find it stupid to undertake. In both cases, the students imagined themselves to be in the popular majority.
Writing books about clear thinking brings with it many pluses. Business leaders and investors invite me (Rolf Dobelli) to give talks for good money. (Incidentally, this is in itself poor judgment on their part: books are much cheaper.) At a medical conference, the following happened to me. I was speaking about base-rate neglect and illustrated it with a medical example: In a forty-year-old patient, stabbing chest pain (among other things) may indicate heart problems as well as stress. Stress is much more frequent (with a higher base rate), so it is advisable to test the patient for this first. All this is very reasonable, and the doctors understood it intuitively. But when I used an example from economics, most faltered.
The same thing happens when I speak in front of investors. If I illustrate fallacies using financial examples, most catch on immediately. However, if I take instances from biology, many are lost. The conclusion: Insights do not pass well from one field to another. This effect is called domain dependence.
How to Profit from the Implausible: The Black Swan
“All swans are white.” For centuries, this statement was watertight. Every snowy specimen corroborated this. A swan in a different color? Unthinkable. That was until the year 1697, when Willem de Vlamingh saw a black swan for the first time during an expedition to Australia. Since then, black swans have become symbols of the improbable.
You invest money in the stock market. Year in, year out, the Dow Jones rises and falls a little. Gradually, you grow accustomed to this gentle up and down. Then, suddenly, a day like October 19, 1987, comes around and the stock market tumbles 22 percent. With no warning. This event is a Black Swan, as described by Nassim Taleb in his book with the same title.
A Black Swan is an unthinkable event that massively affects your life, your career, your company, your country. There are positive and negative Black Swans. The meteorite that flattens you, Sutter’s discovery of gold in California, the collapse of the Soviet Union, the invention of the transistor, the Internet browser, the overthrow of Egyptian dictator Mubarak, or another encounter that upturns your life completely—all are Black Swans.
Why You Can’t Beat Homemade: Not-Invented-Here Syndrome
My (Rolf Dobelli) cooking skills are quite modest, and my wife knows it. However, every now and then I concoct a dish that could pass for edible. A few weeks ago, I bought some sole. Determined to escape the monotony of familiar sauces, I devised a new one—a daring combination of white wine, pureed pistachio nuts, honey, grated orange peel, and a dash of balsamic vinegar. Upon tasting it, my wife slid her baked sole to the edge of the plate and began to scrape off the sauce, smiling ruefully as she did so. I, on the other hand, didn’t think it was bad at all. I explained to her in detail what a bold creation she was missing, but her expression stayed the same.
Two weeks later, we were having sole again. This time my wife did the cooking. She prepared two sauces: The first was her tried-and-true beurre blanc, and the other, a new recipe from a French top chef. The second tasted horrible. Afterward, she confessed that it was not a French recipe at all, but a Swiss one: my masterpiece from two weeks before! She had caught me out. I was guilty of the not-invented-here syndrome (NIH syndrome), which fools us into thinking anything we create ourselves is unbeatable.
