Learn more about personaldevelopment with this collection
Identifying and eliminating unnecessary expenses
How to negotiate better deals
Understanding the importance of saving
Managing the overconfidence bias
- Embrace meta-rationality. Know the limits of your own understanding, know when to consult experts, which experts to defer to, and when to admit that something is impossible for anyone to know.
- Allow for uncertainty. Confident statements seem more promising but are open to hidden risks.
- Seek fingerspitzengefühl, roughly translated as intuitive knowledge. We all have some areas where we have a deep knowledge. We have to learn not to overestimate our own knowledge. To avoid overconfidence bias, learn more about your field of expertise.
- Build in a margin of safety. When an engineer designs a bridge that can support up to 100 cars at a time, they plan to hold a multiple of that amount, 200 or 300, as a margin of safety.
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Overconfidence bias
Most people think they know more than they really do.
Researchers showed that people believe they understand familiar manufactured objects much better than they really do. For instance, if you think you understand how a can opener works, try to draw a diagram of a can ...
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The hidden risk of not understanding the details of our reality
Focusing on specific details in a complex system while ignoring the amount of detail contained within the system may at first show a benefit. However, it can create a massive collapse in the long-run.
In the late 18th century, the German government wanted to grow "scientific forests" t...
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The details that form our reality
When we don't understand the details, it can cause much trouble. If a nation is overconfident that they will win a war, they will fight more wars. An investor that is to sure of their estimate of an asset's value will trade too much.
The world is too big to proces...
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Have Margin of Safety
Things don’t always go as planned. You need to have a buffer between what we expect to happen and what could happen. That’s margin of safety.
Engineers build a bridge to sustain more than double its maximum capacity. Investors only choose business they understand so that they can calculate ...
Living in the age o doubt
We live in a time when all scientific knowledge (the safety of fluoride, vaccines, climate change, moon landing, etc.) faces coordinated and vehement resistance.
The access to all sorts of information sources and their own interpretations of what they research made doub...
The egocentric bias
The egocentric bias causes us to think that our own perspectives are more important when considering events, ideas, and beliefs. For example, we tend to overestimate the amount we contributed to a team project.
The bias can make it more challenging to understand o...
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