Why Smart People Make Bad Decisions

Zachary Shore says in "Blunder: Why Smart People Make Bad Decisions" they fall into inflexible mind-sets formed from faulty reasoning and cognition traps. His recipe for avoiding cognition traps and inevitable blunders is to cultivate mental flexibility, empathy, imagination, contrarianism and an open mind. That's got to be easier said than done.

Take a test: A bat and ball cost a dollar and ten cents. The bat costs a dollar more than the ball. How much does the ball cost?

The majority will respond quickly and confidently, insisting the ball costs ten cents. This answer is both obvious and wrong. (The correct answer is five cents for the ball and a dollar and five cents for the bat.)

When faced with an uncertain situation, most people don’t carefully evaluate the information or have the luxury to look up relevant statistics. Instead, our decisions depend on a long list of mental shortcuts.  Shortcuts aren’t a faster way of doing the math; they’re a way of skipping the math altogether. We have seen how Mitt Romney tripped on his budget numbers in the recent debates. Unlike the Singapore system, he can't simply restate the economic data to "correct" a technical recession.

While philosophers, economists, and social scientists assume that human beings are rational agents, others like Shane Frederick (who developed the above bat-and-ball question) demonstrated that we’re not nearly as rational as we like to believe. Apparently there is a “meta-bias” that is rooted in our innate ability to spot mistakes in the decisions of others, and inability to identify those same mistakes in ourselves.

A study in the Journal of Personality and Social Psychology led by Richard West at James Madison University and Keith Stanovich at the University of Toronto suggests that, in many instances, smarter people are more vulnerable to these thinking errors. After testing students on four measures of “cognitive sophistication,” they reported in the paper, all four of the measures showed positive correlations, “indicating that more cognitively sophisticated participants showed larger bias blind spots.” West’s paper demonstrates that it applies to every single bias under consideration, from anchoring to so-called “framing effects.” In each instance, we readily forgive our own minds but look harshly upon the minds of other people.

Sydney Finkelstein, a professor at Dartmouth Tuck School of Business, and the author of "Why Smart Executives Fail" says that being a successful leader is not just about intelligence, not just about being smart. It's about actually making the right moves at the right time.

Andy Ho of ST ("Sex blogger's 'crazy ' act") skips all these headache inducing theorizing, to the extent of rubbishing Socrates, by offering "akrasia" as justification - as defined by him as "intemperance, acting against one's better judgement, or lacking control over oneself". He writes, "Craziness, it turns out, may have little to do with irrationality and everything to do with one's opinion of the virtues of an act." For sure, each one of us is likely to be bonkers, driven to the nut house by the virtue of economic vibrancy (as in Grace Fu's "The economic vibrancy of the country remains an important political consideration") at the cost of stressed infrastructure, encroaching inflation and being squeezed on all fronts by the alien crowd. There's the method in the madness.