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Unwitting Errors (free PDF version)

Unwitting Errors (free PDF version)

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Dialogue between great thinkers helps you too.

By Rachel Kaberon.

I’m betting that you would love to be able to make better decisions. That if you could really choose, you would prefer to avoid painful, costly mistakes and want the everyday bets you take to succeed. www.smartpeoplemagazine.com

Dialogue between great thinkers helps you too.

By Rachel Kaberon.

I’m betting that you would love to be able to make better decisions. That if you could really choose, you would prefer to avoid painful, costly mistakes and want the everyday bets you take to succeed. www.smartpeoplemagazine.com

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Published by: Smart People magazine (FREE ARTICLES) on May 15, 2009
Copyright:Traditional Copyright: All rights reserved

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01/20/2014

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     C     H     O     O     S     I     N     G
Unwitting errors
Dialogue between great thinkers helps you too
By Rachel KaberonI’m betting that you wouldlove to be able to make betterdecisions. That if you couldreally choose, you wouldprefer to avoid painful,costly mistakes and want theeveryday bets you take tosucceed,.Sadly, this may be asucker’s bet and one that TalebNassim, author of the
BlackSwan,
has willingly taken on.What he has learned fromhis years as a quant (expertin math) and more earnestinformal conversations withDaniel Kahneman can helpyou too, that is if you’re game.Tim Geithner, U.S.Secretary of the Treasury, andfor that matter Bernie Madoff,facing fraud charges in theU.S., are both pretty smartguys, yet each of them madesome serious mistakes.Rather than debatinghow intentional their errorswere, I’d like you to considerthat both of their errors in judgment were unintentional.Being smart doesn’t alwaysalign with whether we made asmart decision.
Your consciousness
unwittingly biases your judgment and leads to error.Will Rogers said it: “It’snot what we don’t know thatgives us trouble. It’s what weknow that just ain’t so.” Thegrowing evidence compiled by behavioral economistsand their counterparts inpsychology or cognitivescience has begun to further
our understanding of series
of unconscious biases thatcompromise judgment.Central to the argumentson the irrationality of humandecision-making is thework of Amos Tversky andDaniel Kahneman, winnerof the Nobel prize for theirpioneering work in Prospecttheory.Your ignorance of theodds is not the only reasonyou consistentlyfavor small steady
returns overone time
windfallsand preferwhen youhave tolose, to loseeverythingat once. When it comes to thelikelihood of losing graduallyand all at once, the odds areindifferent.This inconsistency in ourrisk-taking behavior reflectsa wiring problem, or a losescrew. Decisions require us toassess the likely frequency orprobability of a given event.A series of three availableshortcuts simplify the task and simultaneously result infurther error as we naturallytend to ignore relevantinformation.
 
Expectations and judgments are formulated by quick intuition and slower reasoning. The context will frequently dictate your interpretation.
Our judgment isformulated from two systemswhich develop expectationsvery differently. Your intuitionis fast while your rational,reasoning side is a bit slower.These systems areconstantly searching for anexplanation, the rationale forthe information you encounter.The intuitive part of the brainresponds and seeks to matchto existing patterns – the testof ‘representativeness.’ We alsoattempt to form associations
“It’s not what we don’t know that gives us trouble. It’s what we know that just ain’t so.” 
CHOOSING 
20 
 
SMART PEOPLE 

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