By: Laura Walton AFC®
Definition: Critical thinking is thinking about your thinking while you’re thinking in order to make your thinking better. Really?
I started down the rabbit hole of critical thinking after reading an answer given by Jack Bogle, founder of Vanguard and champion of index funds. Asked if he’d read an article that criticized index funds he said, “I glance at anything favorable to indexing; I pore over anything unfavorable. You don’t need people to tell you you’re right all the time. You need people to tell you that you’re wrong.” That makes Jack Bogle a critical thinker.
Then I saw Jason Zweig’s article titled “Investors Should Ask: How Will I Be Wrong?” His column, The Intelligent Investor, appears in the Wall Street Journal and targets the individual investor like you and me. He says, “This past year showed how tightly most of us cling to our preconceived notions, how fiercely we resist evidence that we might be wrong and how adept we are at deluding ourselves into thinking we were right all along.” He cites confirmation bias (our tendency to seek and accept only information that supports our beliefs while ignoring conflicting views) and hindsight bias (the tendency to think you knew what was going to happen all along).
Dr. Peter Facione, author of the white paper “Critical Thinking: What Is It and Why It Counts,” calls critical thinking “a powerful resource in ones personal and civic life” and offers this consensus definition: “The ideal critical thinker is habitually inquisitive, well- informed, trustful of reason, open-minded, flexible, fair- minded in evaluation, honest in facing personal biases, prudent in making judgments, willing to reconsider, clear about issues, orderly in complex matters, diligent in seeking relevant information, reasonable in the selection of criteria, focused in inquiry, and persistent in seeking results which are as precise as the subject and the circumstances of inquiry permit.”
I think it’s fair to say that most financial mistakes are the result of an error in critical thinking: we think we know more than we do, we don’t seek professional, unbiased advice, we give more weight to information that supports our thinking than to information that challenges our thinking, we don’t ask enough good questions, we don’t carefully evaluate the source of information, we confuse wants with needs…I’m sure you can add to the list.
Today’s information society requires us to think critically; at the very least, to sense when to stop in the decision-making process to challenge our information, our assumptions, our very thinking.