Thinking Things Through

If you want to avoid making big mistakes, it's important to learn to think through a problem. This means learning to think not just about how an idea can succeed, but how it can fail.

Most of us, of course, don't like to do this. When faced with a decision - which job to take, which college to attend, which car to buy -- our search for information is not neutral. We tend to look for information that supports our pre-existing ideas and to discount information that doesn't. Researchers call this "confirmation bias." Often, it leads to bad decisions.

A not-so-obvious example involves the high-tech garbage collection system in the city of Toledo, Ohio. The system was supposed to save the city $3 million a year. Instead, it has left the city with $1.3 million in unanticipated expenses – and a bunch of really honked off residents.

Like a lot of cities these days, Toledo is strapped for cash. So in 2009 its city council voted to spend $22 million (which it had to borrow, by the way) to buy new garbage cans and a fleet of super-duper, driver-operated trucks. The trucks were equipped with pincers that grab the cans, lift them overhead and dump their contents in the truck. The trucks allowed Toledo to eliminate 70 trash-collector jobs and to slash the solid waster division’s budget to $8 million from $11 million. So far, so good.

But then the problems set in. Since the trucks no longer had a pair of human collectors who jump off the back to grab trash bins on either side of the street, drivers had to double back to cover the opposite side of the street. As a result, the trucks use more gas than the city expected, so fuel costs went up.

Not only that, the system proved wildly unpopular with residents. The robo-trucks left trash strewn everywhere, and the new 96 gallon garbage cans were so big that old people complained they were too big to haul.

They flooded city hall with as many as 600 complaints a day. As a result, the city had to hire 8 telephone operators to run a complaint hotline — further eating into savings.

The whole thing has turned into such a nightmare that now the city wants to get out of the trash business entirely and let the county handle it.

Toledo isn't alone. The city of Seattle not so long ago made a similar blunder, squandering $5 million on high-tech public toilets that turned into havens for drug dealers and prostitutes.

Whether it's toilets or trash cans, the problem is the same: nobody thought through the problem before emabrking on the "solution." And the result was a costly error.

The Power of Negative Thinking

If you want a textbook example of how negative thinking can help prevent errors, look no further than the BP oil spill in the Gulf of Mexico. As an editorial in today's New York Times makes clear, "BP's disjointed response suggested it had given little thought to the possibility of a blowout at 5,000 feet."

And it's not just BP that gave little thought to a blowout. The same could be said of many Wall Street firms. They, too, failed to give serious thought to the possibility of a blowout of the U.S. housing market. In testimony earlier this year, for instance, JP Morgan CEO Jamie Dimon made this admission: “In mortgage underwriting,” he said, “somehow, we just missed that home prices don’t go up forever...”

Nobody likes to think negatively (by which I mean thinking seriously and deeply on the front end of a problem about what can go wrong). We prefer to think there will always be blue sky.

But in any serious endeavor, negative thinking is absolutely necessary. Eisenhower thought so. That's why, when planning the invasion of Normandy, he went so far as to draft a letter taking responsibility for the failure of the D-Day invasion.

More recently, Lloyd Blankfein, the head of Goldman Sachs, testified about the essential importance of negative thinking, which at Goldman takes the form of stress tests.

“...The one thing that we constantly learn from every crisis,” he said. “is the need for more stress tests.”

“What a stress test does is it says, ‘Don’t tell me that this is unlikely. What if it did happen?’

“'But, it’s not going to happen.’”

“'What if it did’”?

What if it did? That's the key question every negative thinker needs to ask -- and it's one that BP clearly avoided.

But there's a natural impediment to negative thinking. Researchers call this impediment a confirmation bias. But The Wall Street Journal, in a recent article, referred to it as the "yes-man in your head." Either way, it amounts to the same thing: when we have a decision to make and set out to gather information, our search isn't neutral. As the Journal piece points out, we are twice as likely to seek information that confirms our original belief as we are to seek information that contradicts it.

In other words, the more we know, the more certain we become that we are right. And we go on believing that -- right up to the blowout.