The Art of Thinking Clearly

To Err Is Human

Human beings are prone to cognitive errors, or barriers to clear, logical thinking. Everyone experiences flawed patterns in the process of reasoning. In fact, many of these common mistakes have a history that goes back centuries. Even experts fall prey to such glitches, which might explain why supposedly savvy financiers hold investments for too long. Identifying “systematic cognitive errors” will help you avoid them. You can’t sidestep these irrationalities completely, because that would require a level of control and willpower beyond human capability. However, becoming familiar with these pitfalls will improve your ability to make astute decisions. Heed this selection of cognitive errors to avoid their consequences:

“Survivorship Bias”

Tales of garage bands making it big, authors self-publishing bestsellers or college athletes signing with the major leagues for millions are so inspiring that people tend to overestimate their own chances of duplicating such career trajectories. This bias makes most folks focus on the few stars who soar, not the millions of ordinary humans who falter. This tendency is quite pernicious among investors and entrepreneurs...