As part of our book reading club in eBay, I did a talk about one of my favourites book "The Art of Thinking Clearly". Here are some snapshots from the book in my own words.

2. Survivorship Bias

3. Survivorship Bias
Survivorship bias means this: people systematically overestimate
their chances of success.
Guard against it by frequently visiting the graves of once-
promising projects, investments and careers. It is a sad walk,
but one that should clear your mind.

4. Confirmation Bias

5. Confirmation Bias
‘Murder your darlings.’ - Quiller-Couch
To fight against the confirmation bias, try writing down your beliefs –
whether in terms of worldview, investments, marriage, healthcare, diet,
career strategies – and set out to find disconfirming evidence.
Axing beliefs that feel like old friends is hard work, but imperative.

6. Confirmation Bias
Write down your beliefs - look for disconfirming evidence.
When the word ‘exception’/’corner case’/’rare event’ crops up, prick up
your ears. Often it hides the presence of disconfirming evidence.
We prefer information that is easy to obtain, be it economic
data, logs or recipes. We make decisions based on this
information rather than on more relevant but harder to
obtain information

7. Outcome Bias
Outcome bias is a cognitive bias which refers to the tendency to judge a decision
by its eventual outcome instead of judging it based on the quality of the decision
at the time it was made.
If a million monkeys speculate on the stock market,
eventually one will repeatedly pick up the winning stocks
“every time”

8. Outcome Bias
Never judge a decision purely by its result,especially when randomness or ‘external
factors’play a role.
A bad result does not automatically indicate a bad decision and vice versa.
So rather than tearing your hair out about a wrong decision, or applauding yourself
for one that may have only coincidentally led to success, remember why you chose
what you did. Were your reasons rational and understandable?
Then you would do well to stick with that method, even if you didn’t strike lucky last
time.

9. Sunk cost Fallacy

10. Sunk cost Fallacy
The sunk cost fallacy is most dangerous when we have invested a lot of time,
money, energy or love in something. This investment becomes a reason to carry
on, even if we are dealing with a lost cause. The more we invest, the greater the
sunk costs are, and the greater the urge to continue becomes.
But beware of doing so for the wrong reasons, such as to justify non-recoverable
investments.
Rational decision-making requires you to forget about the costs incurred to date.
No matter how much you have already invested, only your assessmentof the
future costs and benefits counts.

11. Availability Bias – Why we prefer a wrong map to
no map at all
Are there more English words that start with a K or
more words with K as their third letter?
What’s most likely to kill you when you visit a
tropical island filled with sharks and coconut trees?
Answer: more than twice as many English words have
K in third position than start with a K
Answer: Falling coconuts kill 150 people every year
nearly 15x number of people killed by sharks

12. Availability Bias – Why we prefer a wrong map to
no map at all
We create a picture of the world using examples that come most easily
to us.
Things don’t happen more frequently because we conceive of them
more easily.
We travel through life with an incorrect risk map.
We overestimate the risk of being victims of a plane crash than from
dying from diabetes.
We attach more risk to the loud and spectacular and less to the silent.
Fend it off by spending time with people who think differently than you think –
people whose experiences and expertise are different than yours. We require
others’ input to overcome the availability bias.

13. Illusion of control
Every day, shortly before nine o’clock, a man with a
red hat stands in a square and begins to wave his
cap around wildly. After five minutes he disappears.
One day, a policeman comes up to him and asks:
‘What are you doing?’ ‘I’m keeping the giraffes
away.’ ‘But there aren’t any giraffes here.’ ‘Well, I
must be doing a good job, then!

14. Illusion of control
Do you have everything under control? Probably less than you
think.
Do not think you command your way through life like a Roman
emperor. Rather, you are the man with the red hat.
Therefore, focus on the few things of importance that you can
really influence. For everything else: que sera, sera.

15. Why there is no such thing as an
“Average” XXXXXX

16. Why there is no such thing as an
“Average” XXXXXX
In conclusion: if someone uses the word ‘average’, think twice.
Try to work out the underlying distribution. If a single anomaly has
almost no influence on the set, the concept is still worthwhile.
However, when extreme cases dominate (such as the Bill Gates
phenomenon), we should discount the term ‘average’.
We should all take stock from novelist William Gibson: ‘The future is
already here – it’s just not very evenly distributed.’

17. Effort Justification – what hurts should be
worth it!!

18. Effort Justification – what hurts should be
worth it!!
• When you put a lot of energy into a task, you tend to overvalue the
result.
• Groups use EJ to bind members, e.g. initiation rites.
• The harder it is to pass an “entrance exam,” the greater the pride and
value they attach to the membership.

19. Neomania – Disregard the brand new

20. Neomania – Disregard the brand new
´ Take a look around. You’re sitting in a chair, an invention from ancient Egypt.
´ You wear pants, developed about 5,000 years ago and adapted by Germanic tribes
around 750 B.C.
´ The idea behind your leather shoes comes from the last ice age.
´ Your bookshelves are made of wood, one of the oldest building materials in the
world.
´ At dinnertime, you use a fork, a well known ‘killer app’ from Roman times.
We place far too much emphasis on flavour-of the-month inventions and the latest
‘killer apps’, while underestimating the role of traditional technology
Think of these inventions as if they were species: whatever has held its own through
centuries of innovation will probably continue to do so in the future, too..

21. Ambuiguity Aversion – Difference between risk & un-
certainity
Box A – 50 red , 50 black Box B – 100 balls, distribution unknown
Scenario 1 – Draw a ball from A or B. If you pick “Red Ball”, you get 5000INRScenario 2 – Draw a ball from A or B. If you pick “Black Ball”, you get 5000INR
Which box would you prefer to draw from?

22. Ambuiguity Aversion – Difference between risk & un-
certainity
This is known as the Ellsberg Paradox – named after Daniel Ellsberg, a
former Harvard Psychologist.
The Ellsberg Paradox offers empirical proof that we favor known
probabilities (box A) over unknown ones (box B).
There is a 70% chance that company XYZ will grow to be a 30 billion USD

23. Ambuiguity Aversion – Difference between risk & un-
certainity
To avoid hasty judgment, you must learn to tolerate ambiguity
Whoever hopes to think clearly must understand the difference between
risk and uncertainty.
Only in very few areas can we counton clear probabilities: casinos, coin
tosses and probability textbooks. Often we are left with troublesome
ambiguity. Learn to take it in stride.