The world is full of claims, promises and visions — either explicit or implicit. We better be able to navigate through this noise in order to make good decisions. One way we could do this is by pure belief: We see a commercial that shows how a lotion is effective against dry skin. The actors in the commercial are the only reference we have, so when we buy it, we do this out of pure belief.

Another way to make decisions is out of logic. The same commercial now shows how some important, plant based, ingredients are part of the lotion. Although we still have a large amount of believing in the effectiveness of the lotion, with our additional knowledge about the plant based ingredients we can now find it more logical that this lotion could indeed be effective against dry skin – because these plant based ingredients are well known for their positive effects.

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However, with critical thinking we can evaluate the whole scenery better and better: Maybe there are some other ingredients that may have negative effects which makes the overall product not good for us after all. An example could be candy (gum) which claims to have lots of vitamins in it, but due to the large amount of sugar (which is not mentioned, of course), it is overall a bad choice to consume it on a regular basis. I remember my parents saying this to me all the time when I was a kid and wanted gum with fruit flavor – because fruits are healthy, right? That being said, it is of course necessary that we somehow already know that large amounts of sugar is harmful. If we don’t know this, we would be limited in our final judgement to really evaluate if this type of candy is good for us or not.

 

Time Of Misinformation

 

Nowadays, we are not only living in times of information, but especially in times of misinformation. So it is not a problem for us (anymore) to gather “facts” about those things we want to investigate about. But are we capable to distinguish wrong “facts” from true facts, or at least, how good are our conclusions about these things we gather information about long-term?

Of course, there is a big catch: We are not only logic creatures, but also (or especially?) emotional. It is possible that we think of things that are true (for us), but in fact, are false. Such believes are especially built upon emotional experiences. If someone has lost a tremendous amount of money in the stock market, he may say that he “knows” that the economic system – especially the stock market – is a huge scam. Although this „error“ is quite common, we do not usually refer to eventual suboptimal emotional decisions as a „false knowledge system“ but as a „false belief system.“ After all, it is easier for our brain to believe than to know. Because knowledge requires action – either through experience or by acquiring that knowledge through gathering information, study, etc.

We ALL have examples for both. We can’t possibly know everything, so we have to believe (and trust) a lot in our daily lives. It is up to us, however, to make efforts to gather more information about things that are important to us. But still: Even though we gather and gather information, there will always be some, maybe tiny, maybe large, unknown-factor left. Einstein once said (even though in a different context, but with the same core message): “God does not play dice”, initially meaning that the universe is well orchestrated with basically no randomness. Even though modern science (quantum theory) says there is actually randomness around us, most of the things happening around us are deriving from cause and effect. The more randomness there are around us, the more believing we have to throw into the ring. But cause and effect, which our daily lives are built around, allows us to enable and use critical thinking.

 

The Benefits of Critical Thinking – Why We Definately Should Develop This Skill

 

So, critical thinking is a technique that lets us think about thinking itself (metacognition). It is aware, however, of the flaws – and limitations – of our own brains and our conclusions.
Most important to me is, that critical thinking could be seen as a conscious act of self-defense: Since we know how and where our limits are within our knowledge, critical thinking hits the break before we make any decision out of emotions or “wishful thinking” – based on pure or false beliefs. This is especially handy (and true) in finances.

Knowing that is already cool enough though.

PS: Please check out the books by Nicholas Taleb, who in my opinion does an excellent job of connecting philosophy, science and finances together. You will DEFINATELY be smarter after so much insights.