What Is Lateral Thinking And Why It Matters In Entrepreneurship

Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

OriginCoined by Maltese psychologist and author Edward de Bono in the late 1960s.
OverviewLateral Thinking is a creative problem-solving approach that encourages thinking outside conventional boundaries and exploring multiple perspectives to arrive at innovative solutions. It challenges linear and logical thinking in favor of unconventional ideas and creativity.
Key ElementsCreativity: Lateral Thinking emphasizes the generation of novel ideas and solutions through unconventional approaches.
Provocation: Encourages the use of provocative statements or questions to disrupt traditional thought patterns.
Challenge Assumptions: Involves questioning assumptions, beliefs, and constraints to explore new possibilities.
Random Entry: Promotes starting from unrelated or seemingly irrelevant points to trigger new insights.
How It WorksLateral Thinking employs techniques like brainstorming, provocation, mind mapping, and role-playing to explore diverse perspectives and generate innovative solutions. It encourages the breaking of mental habits and the exploration of new paths to address problems or challenges.
ApplicationsProblem Solving: Ideal for tackling complex problems that require innovative solutions.
Creativity Enhancement: Used in creative processes to foster idea generation.
BenefitsInnovation: Promotes creative thinking and innovative problem-solving.
Expanded Perspectives: Encourages individuals and teams to consider multiple viewpoints.
DrawbacksSubjectivity: Effectiveness may vary based on individuals’ creativity and comfort with unconventional thinking.
Not Always Practical: May not be suitable for all types of problems or situations.
Key TakeawayLateral Thinking is a powerful tool for fostering creativity and finding unconventional solutions to complex problems. By challenging assumptions, provoking new ideas, and exploring diverse perspectives, individuals and teams can break free from conventional thought patterns and arrive at innovative solutions. While it may not be suited for every situation, it remains a valuable approach for promoting creativity and innovation.

Understanding lateral thinking

Lateral thinking was coined by Maltese psychologist Edward De Bono, who argued that the concept was useful in forcing business executives to think outside the box.

Traditional methods of introducing new products to the market involve analyzing market needs and then creating products suited to specific audiences. 

In mature markets however, this approach leads to a proliferation of niche offerings that in turn increases market fragmentation.

Inevitably, the individual segments become so niche that businesses cannot turn profits in them.

Lateral thinking is an alternative approach to this way of thinking. While there is an obvious need for creative thinking in gaining a competitive advantage, creativity itself is difficult to define.

Indeed, many individuals have trouble summoning creativity at will and others may simply view themselves as uncreative individuals.

So what is the answer? Provocation.

Provocation causes mental instability in an individual and as a result, it forces them to develop new ideas.

Importantly, the provocation must be outside of the experience or comfort zone of the individual or business concerned.

The four categories of provocation in lateral thinking

Consumers in modern society are quick to take offense, so businesses often find themselves appeasing the masses.

But to stand out, provocative lateral thinking is the best way to verify whether creative ideas have potential.

Here are the four categories of provocation that such ideas may fall under:


Where normal properties of products or services are exaggerated.

Given that Guinness beer takes longer to pour than some competitors, the company exaggerated the slow preparation time through its “great things come to those who wait” advertising slogan.


Which forces businesses to cancel, negate, drop, remove, or deny what they take for granted.

A car manufacturer may take for granted that their cars have wheels, but what would happen if cars didn’t have wheels?

While it is obviously not viable to sell a car without wheels, perhaps the company could design a car where the wheels were hidden from view.


Where conventional wisdom is replaced by any form of an opposite, perverse, or backward viewpoint.

In an Australian government-run ad campaign on the dangers of speeding, advertisements described the consequences and depicted accident scenes. 

However, the campaign had little effect on speeding among male drivers.

The campaign was later revised, showing footage of young men speeding and being judged negatively by women in their age group.

The message caught on and was highly successful, with over 60% of young male drivers admitting to reconsidering their driving habits.

Wishful thinking

Where a business turns a fantasy wish into a provocation.

Wishful thinking is often related to vision, mission, and company values and is perhaps one of the simplest ways to put creative ideas into practice.

When a marketing team brainstorms potential provocations, many of them will be unrealistic, politically incorrect, ineffective, or just plain ridiculous. 

However, a combination of unreasonable provocations may subsequently result in a good idea coming to mind.

Therefore, it is important to write down ideas – irrespective of potential viability – and move through the process regardless.

How to obtain fresh perspectives with lateral thinking

Here are a few ways to obtain fresh perspectives with lateral thinking.

Random metaphors

This method is a three-step process. 

To start, use random metaphors to enhance your creative process. Choose a nearby item or a word from the dictionary, and write down all of the associations and characteristics you can think of that are related to it. 

For example, if you choose the word “exhibition,” you may write down aspects such as:

  • “Visitors walking around enjoying artwork”.
  • “Learning about cultures”, and
  • “Enjoying a pleasant environment”.

Next, imagine some expert in your field recommends you use this item or word as a metaphor for your project. For instance, you could organize information, tips, and images for a travel-related app to function like an art or museum exhibition with enjoyable virtual tours of various locations.

Lastly, incorporate the metaphors you came up with into your design or product to improve it. You could create an engaging app with virtual reality features that allow tourists to explore a location in a unique and captivating way.

Real-world examples of VR in museums include:

  • Philadelphia’s Franklin Institute – where visitors can explore the depths of the ocean, inside the human body, and the vastness of space with virtual reality experiences.
  • Louvre – the Louvre in Paris introduced the VR-based exhibition Mona Lisa: Beyond The Glass in 2019 with interactive design, sound, and animated images.


Eighteen years later, it was adapted by psychologist Bob Eberle in his book SCAMPER: Games for Imagination Development. The SCAMPER method was first described by advertising executive Alex Osborne in 1953. The SCAMPER method is a form of creative thinking or problem solving based on evaluating ideas or groups of ideas.

Another technique to think laterally is SCAMPER. By asking seven different types of questions about how to innovate and improve existing products, services, or concepts, you can develop fresh solutions efficiently and effectively.

The seven questions form part of the SCAMPER acronym:

  1. Substitute – what can be substituted or replaced in the current situation? What can be used instead of the current solution?
  2. Combine – what elements can be combined or merged to create a new solution? How can different ideas, methods, or concepts be combined to devise something new?
  3. Adapt – how can the current solution be adapted or modified to better fit the problem or situation at hand? Can existing ideas or methods be tweaked?
  4. Modify – how can the current solution be modified or enhanced to make it more effective? 
  5. Put to other uses – how can the current solution be used in different or unexpected ways? Are there other applications or markets?
  6. Eliminate – what can be removed or eliminated from the current solution? What aspects are unnecessary or hindering progress?
  7. Reverse – what can be reversed or rearranged in the current solution? What would happen if the order or sequence of steps were changed?

Six thinking hats

The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

To consider alternative perspectives, try using the six thinking hats method which was developed by de Bono himself. 

Each of the six colored hats is worn by a different team member and represents a different perspective that encourages lateral thinking:

  1. White hat – calls for information that is known or needed. In other words, the facts.
  2. Yellow hat – this hat represents optimism and searches for value and benefit.
  3. Black hat – the black hat is the risk management hat. It identifies potential problems and risks or explains why an idea may not work. Think of it as the devil’s advocate. 
  4. Red hat – characterized by emotions, hunches, and intuition. The person wearing the red hat is free to share their likes, dislikes, loves, and hates.
  5. Green hat – the most creative hat that is open to new possibilities and perceptions, and
  6. Blue hat – a mediator that manages the ideation process and ensures rules are followed.

Lateral thinking case study

Lateral thinking can be used to solve many complex workplace problems. We have explained three common predicaments below to show how it can be used to arrive at the correct solution.

Problem 1 – The company must reduce real estate costs

The conventional approach here would be for the company to increase the density of its workspace and reduce the floor space that each desk occupies.

This may involve reducing the size of work cubicles or assigning two people to an office previously occupied by one person.

Other actions that may be immediately obvious include making better use of wasted space in hallways, meeting rooms, and storage rooms.

A solution based on lateral thinking, however, is to reduce the floor space that every person occupies. This means more shared areas and fewer dedicated areas.

While it is true that desk sizes may become smaller irrespective of the solution, shared spaces are beneficial in that they are located near focus areas, work cafes, and huddle rooms where employees can interact and collaborate.

Problem 2 – The company must pander to millennial employees to secure the best talent

When faced with an inability to secure the best millennial talent in an industry, many businesses create work environments characterized by free food, contemporary design, open desking, and an excessive amount of lighting and other gimmicks.

How could lateral thinking be employed here? Instead of the company becoming preoccupied with catering to a certain generation of employees, it could devote its resources toward corporate social responsibility, a focus on community, and superior work/life balance facilitated by mobile work and flexible work practices.

These initiatives will appeal to every generation – not just consumers – and, as a result, the business may discover that it has access to a larger talent pool than it realized.

Of course, contemporary design and free food are still worthwhile workplace features. But by using lateral thinking, the business can attract and then retain a talented workforce.

Problem 3 –  The company must address a reduction in employee productivity

Faced with unproductive employees, a leader’s first impulse may be to implement a quick fix such as creating more enclosed offices or increasing the height of the walls between cubicles.

Others may introduce a number of new rules around acceptable forms of behavior.

The less obvious – and perhaps counterintuitive – solution would be to reduce the height of cubicle walls and designate specific areas of the office as quiet zones.

How could this solution be beneficial? For one, lower cubicle walls mean employees become more aware of those around them.

They may instinctively lower the volume of their voice or form other habits to be more considerate toward others.

Quite zones also act as an insurance policy against certain employees who will be disruptive regardless of the solution imposed.

These zones are a sanctuary for those who need work in a quiet environment without necessarily leaving their area.

Quiet rooms designed to accommodate small groups can also be used to conduct impromptu but non-disruptive meetings.

Lateral thinking examples in business


One of the lateral thinking techniques Apple utilizes to generate product features is known as “Random Entry”.

Teams start with a clear, well-defined problem and traverse one of de Bono’s random word tables by rolling a dice multiple times.

The team then spends time coming up with as many ideas as possible that associate the word with the problem statement.

This process is brief and no longer than three minutes in total. Ideas are then discussed and built upon if they stimulate deeper discussion before the process is repeated for another problem statement. 

According to former Apple employee Alan Cannistrato, one example is the problem statement that reads as follows:

Video editing is too hard, and should be more fun.

Now, let’s say the team landed on the word “bicycle” and was required to devise solutions that simplified video editing, made it more enjoyable, and were related to bicycles. 

Here are a few of the features Cannistrato came up with:

  • Automatically detect bike tricks and post them to Vine.
  • Render a so-called “travel-by-map” montage with established bike routes.
  • Superimpose iPhone sensor data over a live video stream, and
  • Develop an effect pack for iMovie with an 80s BMX theme.

The internet

Tim Berners-Lee is the man responsible for inventing the internet and its three fundamental components: the formatting language HTML, the address system URL, and the HTTP system that links individual sites.

Berners-Lee first proposed the idea of a global information system in 1980 while working at CERN – otherwise known as the European Particle Physics Laboratory.

His system was based on an idea called ‘hypertext’ and would enable researchers to share information irrespective of their location. He even built an early prototype and called it ‘Enquire’. 

In 1989, Berners-Lee authored a paper titled Information Management: A Proposal.

CERN was the largest internet node in Europe at the time, and he saw an opportunity to develop a global system based on hypertext and the internet.

This system, which would enable information to be distributed globally and not just within companies, was dubbed the World Wide Web.

Berners-Lee’s flash of inspiration

It is important to note that most of the technology Berners-Lee needed to construct the World Wide Web was already in existence.

Nevertheless, it remained the domain of computer nerds and was inaccessible to the general public. 

Berners-Lee noted that components “like the hypertext, like the internet, multi-font text-objects, had all been designed already. I just had to put them together. It was a step of generalising, going to a higher level of abstraction, thinking about all the documentation systems out there as being possibly part of a larger imaginary documentation system.

Based on this lateral thinking exercise, he created the world’s first website,, which went live in 1991.

To make his system more accessible, the site explained the concept of the World Wide Web and also details on hypertext, how to build webpages, and how to search the web for information.

Lateral Thinking vs. Vertical Thinking

Lateral thinking is the process of developing many creative solutions to problems – irrespective of whether they are considered good, bad, wrong, or right.

Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.

The characteristics of a lateral thinker

The lateral thinker can be distilled into three characteristics:

  1. The ability to focus on overlooked aspects of a problem or situation.
  2. The ability to seek alternatives, whether that be alternative solutions or more importantly, alternative ways of thinking.
  3. The ability to challenge their assumptions and break free from the status quo. This is otherwise known as critical thinking.

Most people are born lateral thinkers but lose their creative flair at schools that promote strict adherence to the rules and one correct answer to any problem.

How can lateral and vertical thinking be combined?

Despite the distinctions between the two methods, it’s important to note that neither type of thinking should be used in isolation all of the time. Instead, think of lateral thinking and vertical thinking as two sides of the same coin. 

Lateral thinking encourages the individual to create a long list of new ideas to find the best solution.

But to ensure that at least one of these ideas comes to fruition, vertical thinking should be used to consider the possibility of implementation.

In this process, vertical thinking should determine whether the solution is valid or indeed viable.

Lateral Thinking vs. Linear Thinking

In a linear thinking mode, you tend to apply very simple logic to an event.

Thus, it makes you leverage simple thinking to navigate the world.

While linear thinking might help in many situations, its main drawback is the fact that it might lead to falling into the trap of first-order effect thinking.

First-order effect thinking is a mode of thinking where you think in straight lines, thus connecting an effect to a cause as if that’s all.

However, in the real world and in the business world, often that might lead you astray.

An example is between the short term and the long term.

Think of the case of a company consciously giving up part of its short-term profitability to actually generate much more profits and cash flow in the longer run.

A linear thinker would think this is not good, as that person might look to short-term consequences.

While in reality, if that is part of a company’s long-term strategy, giving up profits to expand the business, with an emphasis on cash flow, might be good for the long-term.

An example of that is Amazon and how, for years, the company has been giving away profitability to prioritize long-term cash generations.

For years analyses have looked at Amazon and concluded that the company was going to be bankrupt because of its lack of profitability.

When in reality, Amazon was investing those profits back into the business to enhance its mission to have a wide selection of items at convenient prices.

When Amazon finally, and after a decade, became wildly profitable and cash free positive, many of these same analysts were surprised!

These analysts were thinking linearly…

Lateral Thinking vs. Divergent Thinking

Divergent thinking is a thought process or method used to generate creative ideas by exploring multiple possible solutions to a problem. Divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. These ideas are generated and explored in a relatively short space of time. 

Lateral thinking is a form of horizontal expiration of ideas by leveraging an alternative approach to problem-solving.

Similarly, divergent thinking also leverages an unstructured problem-solving method, where creativity is critical to generate unconventional solutions.

In this respect, a model like six thinking hats helps to understand the similarities between lateral and divergent thinking.

Compared to other thinking models, like linear thinking, leverage creativity as the main problem-solving.

The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

Since lateral and divergent thinking promotes creativity for problem-solving, both leverage second-order thinking to understand the situation more broadly, looking beyond first-order effects.

Lateral Thinking And Second-Order Effects

Lateral thinking also helps in developing a second-order effect approach to things.

Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and any eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

In short, with a second-order approach and thinking, you’re able to understand the cascade effects of decisions in a complex environment where there is a lot of uncertainty.

In that respect, also system thinking moves in the same direction.

Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly and understanding the second-order consequences of actions and input into the system.

Lateral thinking, combined with the understanding of second-order dynamics and systems thinking, helps have a much more nuanced understanding of the business world.

Those can help when things that seem to make sense in the short term might have a cascading effect in the long term.

All these thinking models, from lateral to divergent, second-order effect, and systems thinking, are all horizontal discovery tools and thinking models which are non-linear.

Those thinking tools are extremely useful in an ambiguous environment with a lot of noise.

In the opposite scenario, linear thinking models might be more useful in a controlled environment with little noise.

Additional Case Studies

  • Dyson Vacuums:
    • Problem: Vacuum cleaners losing suction over time.
    • Lateral Solution: Inspired by industrial sawmills using cyclonic separation, James Dyson created the first bagless vacuum cleaner that maintained suction power.
  • Southwest Airlines Turnaround Strategy:
    • Problem: Ensuring flight punctuality.
    • Lateral Solution: Instead of focusing on quicker takeoffs, they optimized turnaround time (offloading and boarding passengers) to increase overall efficiency.
  • Netflix’s Evolution:
    • Problem: DVD rental late fees and limited physical rental availability.
    • Lateral Solution: Transition from a DVD-by-mail service to a streaming platform, removing the need for physical rentals and late fees.
  • IKEA’s Flat-Pack Furniture:
    • Problem: High shipping costs and potential damage during transport.
    • Lateral Solution: Ship unassembled furniture in flat packs, reducing costs and allowing customers to assemble products at home.
  • Zara’s Fast Fashion Model:
    • Problem: Fashion industry’s long lead times causing missed trends.
    • Lateral Solution: Zara implemented a rapid production cycle to quickly adapt to changing fashion trends, producing smaller batches and more frequent inventory turnover.
  • Airbnb’s Business Model:
    • Problem: High hotel prices and lack of authentic travel experiences.
    • Lateral Solution: Instead of building new hotels, Airbnb created a platform for people to rent out their own homes or rooms, offering travelers a unique and often more affordable experience.
  • Tinder’s Swipe Feature:
    • Problem: Traditional online dating sites were cumbersome and time-consuming.
    • Lateral Solution: Tinder introduced the simple swipe left or right feature, revolutionizing the online dating experience with speed and ease.
  • Spotify’s Streaming Service:
    • Problem: Rampant music piracy and declining sales of CDs.
    • Lateral Solution: Instead of fighting against piracy with lawsuits, Spotify offered an affordable streaming platform, making it easy for users to access music legally.
  • Uber’s Ride-Hailing Model:
    • Problem: Traditional taxi services were often unreliable and expensive.
    • Lateral Solution: Uber created a platform where anyone with a car could offer rides, disrupting the taxi industry by providing a more convenient and often cheaper alternative.
  • Google’s Ad Auction System:
    • Problem: Traditional online ad sales were based on fixed prices.
    • Lateral Solution: Google introduced an auction system where advertisers could bid for ad placements, optimizing ad relevance and revenue.

Key takeaways

  • Lateral thinking is an indirect, creative, and non-linear approach to problem-solving.
  • There are several lateral thinking techniques, but the mental instability caused by provocation forces individuals and businesses to consider a range of creative possibilities.
  • Lateral thinking can produce a variety of unrealistic solutions, but it is important to explore them thoroughly. Doing so may subsequently yield better, potentially viable ideas.

Key Highlights of Lateral Thinking

  • Definition: Lateral thinking is a business strategy that involves approaching a problem differently, promoting creative thinking, and finding unconventional ways to solve known problems. It was coined by psychologist Edward De Bono.
  • Importance: Lateral thinking helps businesses break away from routine problem-solving and encourages creative solutions. It allows organizations to stand out and overcome challenges in unique ways.
  • Four Categories of Provocation: In lateral thinking, provocation is used to stimulate creativity and idea generation. There are four categories of provocation: exaggeration, escape, reversal, and wishful thinking. By exploring these categories, businesses can uncover innovative ideas.
  • Combining Lateral and Vertical Thinking: Lateral thinking is best combined with vertical thinking, which focuses on analytical and sequential problem-solving. While lateral thinking generates creative ideas, vertical thinking assesses their viability and implementation potential.
  • Real-World Examples: Several successful companies, like Apple and Amazon, have applied lateral thinking to innovate and develop groundbreaking products and services.
  • Characteristics of Lateral Thinkers: Lateral thinkers possess the ability to focus on overlooked aspects, seek alternatives, and challenge assumptions. These characteristics foster creativity and innovation.
  • Combining Lateral and Divergent Thinking: Lateral thinking and divergent thinking share similarities as both promote creative problem-solving and exploring multiple solutions. Both leverage second-order thinking to understand complex situations and future consequences.
  • System Thinking and Second-Order Effects: System thinking and understanding second-order effects are related concepts that complement lateral thinking. They provide a more nuanced understanding of complex environments and help anticipate cascading effects of decisions.

Connected Thinking Frameworks

Convergent vs. Divergent Thinking

Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.

Critical Thinking

Critical thinking involves analyzing observations, facts, evidence, and arguments to form a judgment about what someone reads, hears, says, or writes.


The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Second-Order Thinking

Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Bounded Rationality

Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Dunning-Kruger Effect

The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Lindy Effect

The Lindy Effect is a theory about the ageing of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.


Antifragility was first coined as a term by author, and options trader Nassim Nicholas Taleb. Antifragility is a characteristic of systems that thrive as a result of stressors, volatility, and randomness. Therefore, Antifragile is the opposite of fragile. Where a fragile thing breaks up to volatility; a robust thing resists volatility. An antifragile thing gets stronger from volatility (provided the level of stressors and randomness doesn’t pass a certain threshold).

Systems Thinking

Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.

Vertical Thinking

Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.

Maslow’s Hammer

Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).

Peter Principle

The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.

Straw Man Fallacy

The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.

Streisand Effect

The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.


As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Recognition Heuristic

The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.

Representativeness Heuristic

The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.

Take-The-Best Heuristic

The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.

Bundling Bias

The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.

Barnum Effect

The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

First-Principles Thinking

First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.

Ladder Of Inference

The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.

Goodhart’s Law

Goodhart’s Law is named after British monetary policy theorist and economist Charles Goodhart. Speaking at a conference in Sydney in 1975, Goodhart said that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart’s Law states that when a measure becomes a target, it ceases to be a good measure.

Six Thinking Hats Model

The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

Mandela Effect

The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.

Moore’s Law

Moore’s law states that the number of transistors on a microchip doubles approximately every two years. This observation was made by Intel co-founder Gordon Moore in 1965 and it become a guiding principle for the semiconductor industry and has had far-reaching implications for technology as a whole.

Disruptive Innovation

Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

Value Migration

Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.

Bye-Now Effect

The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.


Groupthink occurs when well-intentioned individuals make non-optimal or irrational decisions based on a belief that dissent is impossible or on a motivation to conform. Groupthink occurs when members of a group reach a consensus without critical reasoning or evaluation of the alternatives and their consequences.


A stereotype is a fixed and over-generalized belief about a particular group or class of people. These beliefs are based on the false assumption that certain characteristics are common to every individual residing in that group. Many stereotypes have a long and sometimes controversial history and are a direct consequence of various political, social, or economic events. Stereotyping is the process of making assumptions about a person or group of people based on various attributes, including gender, race, religion, or physical traits.

Murphy’s Law

Murphy’s Law states that if anything can go wrong, it will go wrong. Murphy’s Law was named after aerospace engineer Edward A. Murphy. During his time working at Edwards Air Force Base in 1949, Murphy cursed a technician who had improperly wired an electrical component and said, “If there is any way to do it wrong, he’ll find it.”

Law of Unintended Consequences

The law of unintended consequences was first mentioned by British philosopher John Locke when writing to parliament about the unintended effects of interest rate rises. However, it was popularized in 1936 by American sociologist Robert K. Merton who looked at unexpected, unanticipated, and unintended consequences and their impact on society.

Fundamental Attribution Error

Fundamental attribution error is a bias people display when judging the behavior of others. The tendency is to over-emphasize personal characteristics and under-emphasize environmental and situational factors.

Outcome Bias

Outcome bias describes a tendency to evaluate a decision based on its outcome and not on the process by which the decision was reached. In other words, the quality of a decision is only determined once the outcome is known. Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.

Hindsight Bias

Hindsight bias is the tendency for people to perceive past events as more predictable than they actually were. The result of a presidential election, for example, seems more obvious when the winner is announced. The same can also be said for the avid sports fan who predicted the correct outcome of a match regardless of whether their team won or lost. Hindsight bias, therefore, is the tendency for an individual to convince themselves that they accurately predicted an event before it happened.

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger EffectLindy EffectCrowding Out EffectBandwagon Effect.

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