Currently Rereading: Think Twice By Michael J. Mauboussin Part Three

I want to backtrack and share an example that the author uses in explaining the anchoring-and-adjustment heuristic. This is a tremendous illustration of how our mind works in these situations. mauboussin-bookshelf.jpg (553×369)

From page 17:

“Here’s an example of how this heuristic works, based on an exercise I did with my students at Columbia Business School. I gave them a form requesting two numbers. If you have never done this exercise, take a moment and jot down your responses.

(1) The last four digits of your phone number.

(2) An estimate of the number of doctors in New York City’s Manhattan borough:

The anchoring-and-adjustment heuristic has a bias, which predicts that the phone number will influence the doctor estimates. In my class, the students with phone numbers ending in 0000-2999 guessed an average of 16,531, while those with 7000-9999 reckoned 29,143, higher by 75 percent. (As best as I can tell, there are approximately 20,000 doctors in Manhattan.)

Of course, individuals know that the last four digits of their phone number have nothing to do with the population of doctors in Manhattan, but the act of thinking about an arbitrary sum prior to making an estimate unleashes the powerful bias. What’s also obvious is that the students would have most assuredly give a different estimate if I had reversed the order of the questions.”

I found this illustration most intriguing and I would like our readers to comment and share some similar illustrations.

Currently Rereading: Think Twice By Michael J. Mauboussin Part Two

We are continuing on sharing notes from Think Twice by Michael J. Mauboussin.416ZsptOLEL.jpg (333×500)

From page 19:

“First, people reason from a set of premises and only consider compatible possibilities. As a result, people fail to consider what they believe is false. Consider a hand of cards, about which only one of the following three statements is true:

(1) It contains a king, an ace, or both.

(2) It contains a queen, an ace, or both.

(3) It contains a jack, a ten, or both.

Given these statements, can the hand contain an ace?

Johnson-Laird has presented this problem to many bright people, and most believe the answer is yes. But that is wrong. if there were an ace in the hand, the first two statements would be true. You can think of the premises and their alternatives as a beam of light that shines only on perceived possible outcomes, leaving lots of viable alternatives in the dark.”

“Second, and related, is the point that how a person sees a problem—how it’s described to him, how he feels about it, and his individual knowledge—shapes how he reasons about it.”

I have previously given the definition of a mental model but I feel it is important to do it again.

“Last, a mental model is an internal representation of an external reality, an incomplete representation that trades detail for speed. Once formed mental models replace more cumbersome reasoning processes, but are only as good as their ability to match reality. An ill-suited mental model will lead to a decision-making fiasco.”

I believe this book is vital in understanding your thought process in decision making and how you make decisions and where we all need improvement.

Currently Reading: November 7, 2013

English: D-Wave logo

English: D-Wave logo (Photo credit: Wikipedia)

I have been slow in reading this week and ran across some interesting predictions from The Futurist Magazine November-December 2013 issue and I thought I would share these with our readers.

(1) According to D-Wave One creator Geordie Rose, quantum computing could lead the way to true artificial intelligence. Rose predicts that within 10-15 years, they might be able to achieve true machine consciousness. Any comments on this readers?

(2) The Fraunurfer Institute has developed a smart instrument handle, which allows inexperienced surgeons to perform surgeries with the skill of veteran doctors and this device will be able to let doctors know when a screw is tight enough.

(3) According to Rob Bencini, students will move away from traditional forms of higher education. I believe we are seeing this now with MOOC’s and other online learning methods.

Compound Interest Illustration

Here’s a way to look at compound interest. How much does a slice of pizza cost? Would you believe nearly $65,000? If a slice of plain pizza costs $2.00 and you buy a slice every week until you’re old enough to retire, you’ll spend $5200 on pizza. If you give up that slice of pizza and invest the money instead, earning 8% compounded every year for 50 years, you’ll have over $64,678.87.

The Signal and The Noise

I recently purchased this book because I am fascinated with predictions.  I am currently almost halfway through and was intrigued with Chapter 5 Desperately Seeking Signal about Earthquake prediction.  I will readily admit I need to go back and read this chapter again, however, I came to the realization that there are some things we need to prepare for but have no idea when they may occur. i.e. a traffic accident, Am I prepared? seatbelt on, insurance, kids in booster seats. So far, a fascinating book. Buy it here.

Interesting Illustration (Sort of)

Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed.  Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle. When the sun comes up, you better start running.

                                                                                                                  African Proverb

Illustration of Engagement

I once read about a man who heard his friend say: “There are two sides to every question…Just like there are two sides to a sheet of flypaper, but it makes a difference to the fly which side he chooses.”