Distrust your instinct #27

I had first learned about Michael Baubousssin from a colleague at work in the summer 2014. I was quickly impressed by his background at Legg Mason and Columbia.

I had already read James Montier’s book “The Little Book of Behavioral Investing: How not to be your own worst enemy” about behavioral biases but I was interested to learn how other authors approached the topic. What I liked in this book Think Twice: Harnessing the Power of Counterintuition when I read it in April 2015 was the huge collections of examples and extracts of research done by other prominent names in the field of behavioural economics.

We think we make rational decision but we often don’t. For instance:

  1. Exposure to the scent of an all-purpose cleaner prompted study participants to keep their environment tidier while eating a crumbly biscuit.
  2. In one study, people were given a hypothetical choice between a cancer treatment A that worked 30% of the time and one B that worked 90% of the time. They were also given anecdotes: one from the A treatment succeeding and one from the B treatment failing. Amazingly, most people picked treatment A because of the anecdote, even though it was three times less likely to work.
  3. Research indicates that people buy more German wine when a store’s sound system plays German music in the background and more French wine when it plays French music. However, shoppers claim that the background music has no effect on their wine choices.

My main takeaways:

  1. context is everything
  2. don’t assume anything
  3. learn to distrust your reasoning instinct where relevant

This book only triggered my curiosity for more.

My purpose in life is independence, fulfilment and a better understanding of how the world works. Like Charlie Munger, I believe in the discipline of mastering the best that other people have ever figured out. And like Sir Isaac Newton, I believe in our ability to see further than any others before us by acknowledging that we are standing on the shoulders of giants. With this blog I hope to keep track of my learning about investing, business, decision making, entrepreneurship and self development while inspiring others to do the same. For the moment the format of this blog will be one post for each book that has influenced me, but I expect it to evolve over time. Join my Journey. John.
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