Thinking About Thinking

“Cogito, ergo sum.” – I think, therefore I am. Attributed to Rene DesCartes.

Descartes may have had the tools to make his persona contingent on his thoughts. The rest of us might not be able to make that work on a continuing basis. We all have thinking flaws. Edward de Bono offers a thought that cast some doubt on thinking. “How you think matters more than what you think about.” We’d like to deny that, but we know it’s true.

It seems that thinking, not the factors you think about, makes the outcome.

De Bono compared it to the difference between a clean white bolt of cotton being shot with different coloured inks from water guns. The colors stay more or less where they land. His idea about how thinking works used a different paradigm. Suppose you used hot ink in your water guns and shot at a Jello in a large bowl. Initially the hot ink would make a small crater in the surface and stay there. But as more ink was shot, the craters would come together and eventually no matter where the ink landed in the bowl, the older craters would carry the ink to a single point. That’s what he meant by thinking matters more than what you think about. No matter the input, the outcome is the same.

A remedy

Thinking matter, but only if leads you where you want to go. Objectively, we are not good at that. We have many errors in our thinking system. To that point, Thomas Kida wrote a book. “Don’t Believe Everything You Think” Subtitled “The six basic mistakes we make in thinking.”

Yeah, I know. I thought six was way too few, as well. Maybe “basic mistakes” is the key.

He listed these on the cover:

  1. We prefer stories to statistics
  2. We seek to confirm
  3. We rarely appreciate the role of chance and coincidence in life
  4. We can misperceive our world
  5. We oversimplify
  6. We have faulty memories

Let’s think about those. Again, I know. Where will it lead? Anywhere new?

By the way, I cannot see the book in my library. If I loaned it to you and you forgot to return it, let me know please.

We prefer stories to statistics.

I doubt many would disagree with that. Why do you suppose the preference exists? I don’t know exactly but I think stories are more easily digested. Therefore more easily accepted. Each of us has our own experience and our reality depends on that. If we hear a story whose elements are similar to our experience we fit it in immediately. Not many of us have a way of thinking that parallels the form of the annual report from the Bank of Canada. It’s not a story.

Scott Adams, the creator of Dilbert puts it this way. “When you give people details, you give them ways to not relate.” Stories tend to have few specific details. As an example, again from Scott Adams, “Imagine a forest.” wait a bit, then say, “What a lovely grove of oak trees..” What happened?. By adding the detail a very large share of the listeners dialed out. The oak tree detail conflicted with what they had imagined and they did not connect. Stories work because details are scarce. Connection comes first, detail later, and only if necessary.

Statistics are different. If one of fifty conflicts with another belief. All forty-nine are suspect. That’s a big presentation hurdle.

Statistics cannot lead, they can only support and then sparingly.

We seek to confirm

It’s called confirmation bias. We seek to support our beliefs. Anything we agree with is filed away, anything that disagrees is promptly forgotten. We all do it and the internet is a marvelous tool. I would bet there are at least twenty scholarly articles on how aliens visit Earth regularly, and there are at least twenty others that prove it to be impossible.

The process tends to be

  1. Decide what is true, usually using weak thinking methods,
  2. Find information that supports the decision.
  3. Pretend we used the information to make the decision.
  4. Aggressively hold the belief

The less information we actually used to make the decision, the more tightly we hold it.

We rarely appreciate the role of chance and coincidence in life

Nassim Nicholas Taleb’s first book, was “Fooled by Randomness.” How can that be true? Randomness is kind of noisy right. It doesn’t really matter. people pay no attention.

Not so.  People are brilliant at pattern recognition. In ancient times it kept us alive. Knowing the pattern of a Sabre Tooth tiger in the trees changed our future immensely. The problem with the skill is we find patterns even if none exist.

How can we fall for that? One of the easy problems to see, is we pay too much attention to what happened and often overlook what did not. One of our inherent failings is we seldom ever assess how likely what happened really was. Since we see so many things, probability says that we have a number of random events in our data-set that were unlikely. We can’t see that.

Similarly, we don’t understand survivor bias in what we use as information. As an example, suppose I want to compare fund managers. To do so, I compare the records of all the managers I can find who have a ten-year record. So the bottom quartile are weak managers? Really? How many managers started 10 years ago? The bottom quartile of the ten-year survivor group is likely in the top decile of all the ones who started. We don’t have a valid comparison method to decide.

We can misperceive our world

It is hard to imagine how much better the 100th highest money winner on the PGA tour is compared to the best golfer in your city. When I was playing a lot of golf I enjoyed a PGA championship course and shot 84. Two days earlier, on my home course, I had 66. To get the 84, I played better. Comparison is your enemy unless you know exactly what you are comparing. Letting randomness or false equivalence into your thinking will lead you far from right.

We see the world through our biases and experience before we see the reality. The world is not the way they tell you it is, or even the way you have experienced it. You have to work hard to get away from that.

It’s not easy to see objective reality.

We oversimplify

I am a huge fan of life-simplifying assumptions. I also know they are just a summary, and contain little nuance. They are things I think are directionally accurate, but not specifically accurate. You cannot rely on the simpliciation when you want to be specific.  If you know that, you are safe. If you rely on the generalization you will be wrong quite a lot of the time.

Einstein put it this way, “Make a thing as simple as possible, but no simpler.” If you simplify, you leave things out. The trick is too leave out things that don’t change the essence of the factor.

Selective simplification can be very compelling and very misleading. Be careful.

We have faulty memories

It’s not so much as faulty as it is that we remember selectively. We don’t remember everything. Just the things that fit. Recall how we rationalize decisions later.

Another aspect of remembering is every time we recall an event we reprocess it and then we re-remember store it in a slightly changed form. Usually changed slightly to more closely parallel our preferred current  belief.

I have occasionally wondered how many things I think I remember are really accurate. Ones that had an emotional component are likely not so accurate. We upgrade our perception to our current experience. For some fearsome memories recent experience may minimize the fear. Like fear of driving in traffic as a learner. The very deepest, PTSD, require help.

Application

Once we know our thinking is confined by things we have done, experienced, or thought about before, we can make better decisions.

Every fund manager I know has a portfolio that reflects them. An outside experienced manager could look through the holdings in Robert’s portfolio and assess the time the he holds, the industries he favours, the factors he bases decisions on, and the emphasis on dividend income. Once done, the observer would notice the Robertisms. The little peculiar things he does.

If Robert learned about those, don’t you think he would improve? Managers who know their tendencies would be less constrained or prejudiced towards a particular flow on the Jello bowl. More into objective reality.

One of the values in dealing with an accountant or lawyer is they can fit you into a broader category. There are certainly things you do a certain way that no one else in the world does your way. You could be exactly right or exactly wrong. Wouldn’t you like to know? Ask about that.

The Takeaway

Don’t believe everything you think.

Jokes are sometimes better than stories. They surprise and that’s always an attention getter.

Notice the cues to tell you some of your decisions are Robertisms.

There is  risk in “cogito, ergo sum.” Descartes goes into a bar. The bartender says, “Would you like your usual? Descartes says, ” Hmm, I think not.” and immediately disappears.


I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com

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