The media is not interested in digging around in the graveyards of the unsuccessful. Nor is this its job. To elude the survivorship bias, you must do the digging yoursel

be wary when you are encouraged to strive for certain things – be it abs of steel, immaculate looks, a higher income, a long life, a particular demeanour or happiness. You might fall prey to the swimmer’s body illusion. Before you decide to take the plunge, look in the mirror – and be honest about what you see.

They do not realise that cheerfulness – according to many studies, such as those conducted by Harvard’s Dan Gilbert – is largely a personality trait that remains constant throughout life. Or, as social scientists Lykken and Tellegen starkly suggest, ‘trying to be happier is as futile as trying to be taller

when it comes to pattern recognition, we are oversensitive. Regain your scepticism. If you think you have discovered a pattern, first consider it pure chance.

And you? Have you ever seen faces in the clouds or the outlines of animals in rocks? Of course. This is perfectly normal. The human brain seeks patterns and rules. In fact, it takes it one step further: if it finds no familiar patterns, it simply invents some. The more diffuse the signal, such as the background noise on the tape, the easier it is to find ‘hidden messages’

So, be sceptical whenever a company claims its product is better because it is ‘the most popular’. How is a product better simply because it sells the most units? And remember novelist W. Somerset Maugham’s wise words: ‘If 50 million people say something foolish, it is still foolish.

Why do we act like this? Well, in the past, following others was a good survival strategy. Suppose that 50,000 years ago, you were travelling around the Serengeti with your hunter-gatherer friends, and suddenly they all bolted. What would you have done? Would you have stayed put, scratching your head, and weighing up whether what you were looking at was a lion or something that just looked like a lion but was in fact a harmless animal that could serve as a great protein source? No, you would have sprinted after your friends

But we’ve invested so much money in it. If we stop now, it’ll all have been for nothing.’ Another victim of the 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

This irrational behaviour is driven by a need for consistency. After all, consistency signifies credibility. We find contradictions abominable. If we decide to cancel a project halfway through, we create a contradiction: we admit that we once thought differently. Carrying on with a meaningless project delays this painful realisation and keeps up appearances.

Psychologist Robert Cialdini can explain the success of this and other such campaigns. He has studied the phenomenon of reciprocity and has established that people have extreme difficulty being in another person’s debt.

In much the same way, if someone approaches you in the supermarket, whether to offer you a taste of wine, a chunk of cheese or a handful of olives, my best advice is to refuse their offer – unless you want to end up with a refrigerator full of stuff you don’t even like.

The second type is chauffeur knowledge – knowledge from people who have learned to put on a show. Maybe they have a great voice or good hair, but the knowledge they espouse is not their own. They reel off eloquent words as if reading from a script.

To guard against the chauffeur effect, Warren Buffett, Munger’s business partner, has coined a wonderful phrase, ‘circle of competence’. What lies inside this circle you understand intuitively; what lies outside, you may only partially comprehend. One of Munger’s best pieces of advice is: ‘You have to stick within what I call your circle of competence. You have to know what you understand and what you don’t understand. It’s not terribly important how big the circle is. But it is terribly important that you know where the perimeter is.’

The illusion of control is the tendency to believe that we can influence something over which we have absolutely no sway. This was discovered in 1965 by two researchers, Jenkins and Ward. Their experiment was simple, consisting of just two switches and a light. The men were able to adjust when the switches connected to the light and when not. Even when the light flashed on and off at random, subjects were still convinced that they could influence it by flicking the switches.

If you have read Aleksandr Solzhenitsyn, Primo Levi or Viktor Frankl, this finding will not surprise you: the idea that people can influence their destiny even by a fraction encouraged these prisoners not to give up hope.

So, what can you do? Think carefully about what you want before you inspect existing offers. Write down these criteria and stick to them rigidly. Also, realise that you can never make a perfect decision. Aiming for this, given the flood of possibilities, is a form of irrational perfectionism. Instead, learn to love a ‘good’ choice. Yes, even in terms of life partners. Only the best will do? In this age of unlimited variety, rather the opposite is true: ‘good enough’ is the new optimum

Don’t cling to things. Consider your property something that the ‘universe’ (whatever you believe this to be) has bestowed on you temporarily. Keep in mind that it can recoup this (or more) in the blink of an eye.

Richard Thaler performed an interesting classroom experiment at Cornell University to measure the endowment effect. He distributed coffee mugs to half of the students and told them they could either take the mug home or sell it at a price they could specify. The other half of the students, who didn’t get a mug, were asked how much they would be willing to pay for a mug. In other words, Thaler set up a market for coffee mugs. One would expect that roughly 50% of the students would be willing to trade – to either sell or buy a mug. But the result was much lower than that. Why? Because the average owner would not sell below $5.25, and the average buyer would not pay more than $2.25 for a mug.

The typical response to scarcity is a lapse in clear thinking. Assess products and services solely on the basis of their price and benefits. It should be of no importance if an item is disappearing fast, nor if any doctors from London take an interest.

Rara sunt cara, said the Romans. Rare is valuable. In fact, the scarcity error is as old as mankind

When people work together, individual performances decrease. This isn’t surprising. What is noteworthy, however, is that our input doesn’t grind to a complete halt. So what stops us from putting our feet up completely and letting the others do all the hard work? The consequences. Zero-performance would be noticed, and it brings with it weighty punishments, such as exclusion from the group or vilification. Evolution has led us to develop many fine-tuned senses, including how much idleness we can get away with and how to recognise it in others

Correlation is not causality. Take a closer look at linked events: sometimes what is presented as the cause turns out to be the effect, and vice versa. And sometimes there is no link at all – just like with the storks and babies.

Or, take this headline: ‘Fact: Women who use shampoo XYZ every day have stronger hair.’ Though the context can be substantiated scientifically, this statement says very little – least of all that the shampoo makes your hair stronger. It might simply be the other way round: women with strong hair tend to use shampoo XYZ – and perhaps that’s because it says ‘especially for thick hair’ on the bottle

Even if you have never heard the expression, you definitely know the selfserving bias from high school. If you got an A, you were solely responsible; the top grade reflected your intelligence, hard work and skill. And if you flunked? The test was clearly unfair.

So, how can we dodge the self-serving bias? Do you have friends who tell you the truth – no holds barred? If so, consider yourself lucky. If not, do you have at least one enemy? Good. Invite him or her over for coffee and ask for an honest opinion about your strengths and weaknesses. You will be forever grateful you did

These false connections are the work of the association bias, which also influences the quality of our decisions. For example, we often condemn bearers of bad news, since we automatically associate them with the message’s content (otherwise known as shoot-the-messenger syndrome).

The Greek poet, Aesop, created this fable to illustrate one of the most common errors in reasoning. An inconsistency arose when the fox set out to do something and failed to accomplish it. He can resolve this conflict in one of three ways: A) by somehow getting at the grapes, B) by admitting that his skills are insufficient, or C) by retrospectively reinterpreting what happened. The last option is an example of cognitive dissonance, or rather, its resolution.

Suppose you apply for a job and discover you have lost out to another candidate. Instead of admitting that the other person was better suited, you convince yourself that you didn’t want the job in the first place; you simply wanted to test your ‘market value’ and see if you could get invited for interview.

Hyperbolic discounting, the fact that immediacy magnetises us, is a remnant of our animal past. Animals will never turn down an instant reward in order to attain more in the future. You can train rats as much as you like; they’re never going to give up a piece of cheese today to get two pieces tomorrow

The introduction of ‘now’ causes us to make inconsistent decisions. Science calls this phenomenon hyperbolic discounting. Put plainly, the closer a reward is, the higher our ‘emotional interest rate’ rises and the more we are willing to give up in exchange for it.

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.’

Forget trying to amass all the data. Do your best to get by with the bare facts. It will help you make better decisions. Superfluous knowledge is worthless, whether you know it or not. Daniel J. Boorstin put it right: ‘The greatest obstacle to discovery is not ignorance – it is the illusion of knowledge.’ And next time you are confronted by a rival, consider killing him – not with kindness but with reams of data and analysis

A mild form of effort justification is the so-called IKEA effect. Furniture that we assemble ourselves seems more valuable than any expensive designer piece. The same goes for hand-knitted socks. To throw away a hand-crafted pair, even if they are tatty and outdated, is hard to do. Managers who put weeks of hard work into a strategy proposal will be incapable of appraising it objectively. Designers, copywriters, product developers, or any other professionals who brood over their creations are similarly guilty of this.

n the 1950s, instant cake mixes were introduced to the market. A surefire hit, thought the manufacturers. Far from it: housewives took an instant dislike to them – because they made things too easy. The firms reacted and made the preparation slightly more difficult (beating in an egg yourself). The added effort raised the women’s sense of achievement and, with it, their appreciation for convenience food.

Projected on to the wall in front are the names of the 100 branches that have the highest theft rates compared to sales. In bold letters above them is his eyeopening conclusion: ‘The branches with the highest theft rate are primarily in rural areas.’ After a moment of silence and disbelief, the CEO is first to speak: ‘Ladies and gentlemen, the next steps are clear. From now on, we will install additional safety systems in all rural branches. Let’s see those hillbillies steal from us then! Do we all agree?’ Hmmm, not completely. You ask the consultant to call up the 100 branches with the lowest theft rates. After some swift sorting, the list appears. Surprise, surprise: the shops with the lowest amount of shoplifting in relation to sales are also in rural areas! ‘The location isn’t the deciding factor,’ you begin, smiling somewhat smugly as you gaze around the table at your colleagues. ‘What counts is the size of the store. In the countryside, the branches tend to be small, meaning a single incident has a much larger influence on the theft rate. Therefore, the rural branches’ rates vary greatly – much more than the larger city branches. Ladies and gentlemen, I introduce you to the law of small numbers. It has just caught you out.’

e are obsessed with having as many irons as possible in the fire, ruling nothing out and being open to everything. However, this can easily destroy success. We must learn to close doors. A business strategy is primarily a statement on what not to engage in. Adopt a life strategy similar to a corporate strategy: write down what not to pursue in your life. In other words, make calculated decisions to disregard certain possibilities and when an option shows up, test it against your not-to-pursue list. It will not only keep you from trouble but also save you lots of thinking time. Think hard once and then just consult your list instead of having to make up your mind whenever a new door cracks open. Most doors are not worth going through, even when the handle seems to turn so effortlessly.

When contemplating the future, we place far too much emphasis on flavour-ofthe-month inventions and the latest ‘killer apps’, while underestimating the role of traditional technology

In the past, I sympathised with so-called ‘early adopters’, the breed of people who cannot survive without the latest iPhone. I thought they were ahead of their time. Now I regard them as irrational and suffering from a kind of sickness: neomania. To them, it is of minor importance if an invention provides tangible benefits; novelty matters more. So, don’t go out on a limb when forecasting the future

The primacy effect is not always the culprit; the contrasting recency effect matters as well. The more recent the information, the better we remember it. This occurs because our short-term memory file drawer, as it were, contains very little extra space. When a new piece of information gets filed, an older piece of information is discarded to make room.

T h e primacy effect triggers practical errors too. Nobel laureate Daniel Kahneman describes how he used to grade examination papers at the beginning of his professorship. He did it as most teachers do – in order: student 1 followed by student 2 and so on. This meant that students who answered the first questions flawlessly endeared themselves to him, thus affecting how he graded the remaining parts of their exams. So, Kahneman switched methods and began to grade the individual questions in batches – all the answers to question one, then the answers to question two, and so forth. Thus, he cancelled out the primacy effect.

First and last impressions dominate, meaning that the content sandwiched between has only a weak influence. Try to avoid evaluations based on first impressions. They will deceive you, guaranteed, in one way or another. Try to assess all aspects impartially. It’s not easy, but there are ways around it. For example, in interviews, I jot down a score every five minutes and calculate the average afterward. This way, I make sure that the ‘middle’ counts just as much as hello and goodbye

How do you curb envy? First, stop comparing yourself to others. Second, find your ‘circle of competence’ and fill it on your own. Create a niche where you are the best. It doesn’t matter how small your area of mastery is. The main thing is that you are king of the castle. Like all emotions, envy has its origins in our evolutionary past. If the hominid from the cave next door took a bigger share of the mammoth, it meant less for the loser. Envy motivated us to do something about it. Laissez-faire hunter-gatherers disappeared from the gene pool; in extreme cases, they died of starvation, while others feasted. We are the offspring of the envious. But, in today’s world, envy is no longer vital. If my neighbour buys himself a Porsche, it doesn’t mean that he has taken anything from me. When I find myself suffering pangs of envy, my wife reminds me: ‘It’s OK to be envious – but only of the person you aspire to become.

The fallacy of the single cause is as ancient as it is dangerous. We have learned to see people as the ‘masters of their own destinies’. Aristotle proclaimed this 2,500 years ago. Today we know that it is wrong. The notion of free will is up for debate. Our actions are brought about by the interaction of thousands of factors – from genetic predisposition to upbringing, from education to the concentration of hormones between individual brain cells. Still we hold firmly to the old image of self-governance. This is not only wrong but also morally questionable. As long as we believe in singular reasons, we will always be able to trace triumphs or disasters back to individuals and stamp them ‘responsible’. The idiotic hunt for a scapegoat goes hand-in-hand with the exercise of power – a game that people have been playing for thousands of years.