No one intentionally makes bad decisions, yet we make them all the time. In his new book Think Twice, Michael J. Mauboussin, chief investment strategist at Legg Mason Capital Management and adjunct professor of finance at Columbia Business School, US, blames it on how our minds naturally work. “When faced with complex situations, our brains revert to simplified patterns that obscure better approaches to the problem,” he says. His solution: Counter our intuition by “thinking twice”. Edited excerpts from an email interview.
Winning formula: Preparation and hard work are key, says Mauboussin.
Is ‘Think Twice’ about learning from your mistakes or being smart enough not to fail?
Well, ideally it’s both. The idea is that experience is a costly way to learn, and that it’s best to avoid mistakes in the first place. But few of us can avoid the costly school of experience. We have to hope that we learn from it. The main theme of Think Twice is that when faced with certain situations, our minds want to go down one path when a better way to think about it is another path. These situations are like optical illusions: You perceive one thing when the reality is different. So the goal of the book is to prepare by learning about those situations, to recognize them when they appear, and to apply methods to avoid the mistakes.
You say that the least capable people often have the largest gaps between what they think they can do and what they actually achieve. How then do you define being confident?
Confidence is good, up to a point. But to succeed over time you also need to emphasize the need to constantly prepare and work hard to improve. You want to have a somewhat realistic sense of what you can do, and you want to get better. My personal view is that confidence comes from preparation and hard work.
You say situations influence our decisions and the mistakes we make are based on influences. How can you minimize the consequences?
There is no foolproof way to avoid mistakes. But the first step is to learn about the mistakes and why they are so common. A basic awareness is likely the first step in managing your mistakes. Throughout the book, I try to share concrete ways to mitigate mistakes, and the approach varies with the problem. In this spirit, I like to believe that Think Twice is really a book about opportunity. First, if you can reduce (the number of) your own mistakes, you’ll clearly be ahead in the long run. Second, the hope is that you can take advantage of situations where others do make mistakes. Because the mistakes are common and hard to avoid, you can be sure that people will make them. Astute businesspeople can capitalize on the mistakes of others.
What are the five things you must make a mental checklist of every day at your workplace?
Think Twice: By Michael J. Mauboussin, Harvard Business Press, 190pages, Rs995.
I don’t have such a mental checklist. But I can mention a handful of approaches that may improve your decisions right now.
• A decision-making journal. Keeping track of your decisions and how you decided is a very valuable, time-effective and inexpensive technique to furnish yourself with useful feedback.
• Use checklists. Atul Gawande, a surgeon, just published a terrific new book called The Checklist Manifesto. In it, he shows how checklists improve outcomes in field after field, without any improvement in skill. Creating checklists feels demeaning to some professionals, but the evidence in favour of their usefulness is quite powerful.
• Try a pre-mortem. It is a session where, before the decision is made, people place themselves into the future and assume the decision went sour. They then write down all the reasons the decision didn’t work out well. It turns out that when people go through that exercise, they identify more possible reasons for problems than if they just project into the future.
• If probabilities are involved, always stay focused on process. It’s always tempting to evaluate the quality of a decision by the outcome. But in fields that involve probability, in the short run proper decisions can lead to poor outcomes and poor decisions can lead to good outcomes. But over the long haul, it is process that wins out.
• Finally, I would emphasize the role of preparation. When things are going well, prepare for tougher times. When they are bad, prepare for better times. Always prepare for whatever you are doing, and you will like the outcomes.