Rolf Dobelli on the illusion of skill

In certain areas, skill plays no role whatsoever.  In his book Thinking, Fast and Slow, [Daniel] Kahneman describes his visit to an asset management company.  To brief him, they sent him a spreadsheet showing the performance of each investment adviser over the past eight years.  From this, a ranking was assigned to each: number 1, 2, 3, and so on in descending order.  This was compiled every year.  Kahneman quickly calculated the relationship between the years' rankings.  Specifically, he calculated the correlation of the rankings between year 1 and year 2, between year 1 and year 3, year 1 and year 5, up until year 7 and year 8.  The result: pure coincidence.  Sometimes the adviser was at the very top and sometimes the very bottom.  If an adviser had a great year, this was neither bolstered by previous years nor carried into subsequent years.  The correlation was zero.  And yet the consultants pocketed bonuses for their performance.  In other words, the company was rewarding luck rather than skill.

 ~ Rolf Dobelli, The Art of Thinking Clearly, p. 283

 

Rolf Dobelli quotes Charlie Munger on the "man with the hammer tendency"

"If your only tool is a hammer, all your problems will be nails," said Mark Twain - a quote that sums up the déformation professionnelle perfectly.  Charlie Munger, Warren Buffett's business partner, named the effect the "man with the hammer tendency" after Twain: "But that's a perfectly disastrous way to think and a perfectly disastrous way to operate in the world.  So you've got to have multiple models.  And the models have to come from multiple disciplines - because all the wisdom of the world is not to be found in one little academic department."

~ Rolf Dobelli, The Art of Thinking Clearly, "Those Wielding Hammers See Only Nails," pp. 275-276

Rolf Dobelli on déformation professionnelle

Here are a few examples of déformation professionnelle: Surgeons want to solve almost every medical problem with a scalpel, even if their patients could be treated with less invasive methods.  Armies think of military solutions first.  Engineers, structural.  Trend gurus see trends in everything (incidentally, this is one of the most idiotic ways to view the world).  In short: If you ask people the crux of a particular problem, they usually link it to their own expertise.

~ Rolf Dobelli, The Art of Thinking Clearly, p. 276

Rolf Dobelli on the limits of expertise and value of expanding our circle of competence

If you take your problem to an expert, don't expect the overall best solution. Expect an approach than can be solved with the expert's tool kit.  The brain is not a central computer.  Rather, it is a Swiss Army knife with many specialized tools.  Unfortunately, our "pocketknives" are incomplete.  Given our life experiences and our professional expertise, we must try to add two or three additional tools to our repertoire - mental models that are far afield from our areas of expertise.  For example, over the past few years, I have begun to take a biological view of the world and have won a new understanding of complex systems.  Locate your shortcomings and find suitable knowledge and methodologies to balance them.  It takes about a year to internalize the most important ideas of a new field, and it's worth it: Your pocketknife will be bigger and more versatile, and your thoughts sharper.

~ Rolf Dobelli, The Art of Thinking Clearly, p. 277

Rolf Dobelli on college education and selection bias

Whenever we confuse selection factors with results, we fall prey to what Taleb calls the swimmer’s body illusion. Without this illusion, half of advertising campaigns would not work.  But this bias has to do with more than just the pursuit of chiseled cheekbones and chests.  For example, Harvard has the reputation of being a top university.  Many highly successful people have studied there. Does this mean that Harvard is a good school?  We don’t know.  Perhaps the school is terrible, and it simply recruits the brightest students around.  I experienced this phenomenon at the University of St. Gallen in Switzerland.  It is said to be one of the top ten business schools in Europe, but the lessons I received (albeit 25 years ago) were mediocre.  Nevertheless, many of its graduates were successful.  The reason behind this is unknown – perhaps it was due to the climate in the narrow valley or even the cafeteria food.  Most probably, however, is the rigorous selection. 

All over the world, MBA students lure candidates with statistics regarding future income.  This simple calculation is supposed to show that the horrendously high tuition fees pay for themselves over a short period of time.  Many prospective students fall for this approach.  I am not implying that the schools doctor the statistics, but still their statements must not be swallowed wholesale.  Why?  Because those who pursue an MBA are different from those who do not.  The income gap between both groups stems from a multitude of reasons that have nothing to do with the MBA degree itself.  Once again we see the swimmer’s body illusion at work: the factor for selection confused with the result.  So, if you are considering further study, do it for reasons other than a bigger paycheck.

~ Rolf Dobelli, The Art of the Thinking Clearly, Chapter 2: "Does Harvard Make You Smarter?"

Rolf Dobelli on neomania

Fifty years into the future will look a lot like today. Of course, you will witness the birth of many flashy gadgets and magic contraptions. But most will be short-lived… In the past, I sympathized with early adopters, the breed of people who cannot survive without the latest iPhone. I thought they were ahead of their time. Now I regard them as irrational and suffering from a kind of sickness: neomania. To them, it is of minor importance if an invention provides tangible benefits; novelty matters more.

~ Rolf Dobelli, The Art of Thinking Clearly, p. 207

Rolf Dobelli on the value of avoiding cognitive errors

If we could learn to recognize and evade the biggest errors in thinking - in our private lives, or in government - we might experience a leap in prosperity.  We need no extra cuddling, no new ideas, no unnecessary gadgets, no frantic hyperactivity - all we need is less irrationality.

~ Rolf Dobelli, The Art of Thinking Clearly, p. xviii

Recommended books by Notable & Quotable

The Road Less Traveled, by Scott Peck. This is a timeless classic on getting out of your comfort zone and seeking the truth. "Mental health is an ongoing process of dedication to reality at all costs."  Words to live by...

The Art of Thinking Clearly, by Rolf Dobelli.  One key to success?  Avoid muddled thinking and cognitive errors.  Here are 99 bite-size examples from survivorship bias to "Why you shouldn't read the news."

How Do You Know?, by Christopher Mayer.  Once you've completed The Art of Thinking Clearly, take this subject to the next level.  Learn to appreciate the limits of knowledge... and the value of humility.

The Bed of Procrustes, by Nassim Taleb.  A collection of aphorisms full of wit and wisdom by my favorite living philosopher.

A Short History of Man: Progress and Decline, by Hans-Hermann Hoppe.  Do you know how vital the domestication of the wolf - now man's best friend - 16,000 years ago was to establishing the family and private property?  Hoppe examines the major trends of the past 50,000 years of human history: the nuclear family, man using his ingenuity to vastly expand the pool of resources and escape the Malthusian trap, and the growth of the state.

How Capitalism Saved America, by Tom DiLorenzo.  Everything you learned about American history growing up is wrong.  DiLorenzo corrects countless myths by viewing the past through the lens of an Austrian economist.

The Real Lincoln, by Tom DiLorenzo.  Was Lincoln the "Great Emancipator" or "Great Centralizer?"  Until 1861, there were two competing visions for the United States: Jeffersonian (decentralized) and Hamiltonian (centralized).  Lincoln made sure the latter prevailed... at gunpoint.

The Myth of the Robber Barons, by Burton Folsom, Jr.

100 Baggers, by Christopher Mayer.  If you want to get the basics on investing with just one book, this is my choice.  The chapter on competitive moats alone is worth the price.