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.
Element
Description
Implications
Examples
Applications
Principle
Occam’s Razor, also known as the law of parsimony, is a problem-solving and scientific principle that suggests choosing the simplest explanation or solution that adequately explains the phenomenon or problem at hand.
– Simplicity and elegance in problem-solving.
– Explaining a phenomenon with the fewest assumptions. – Selecting the simplest model to predict data.
– Scientific research, hypothesis formation, problem-solving in various domains, model selection in statistics and machine learning.
Origin
Named after William of Ockham, a 14th-century philosopher and theologian, who popularized the idea, though similar principles existed earlier.
– Historical and philosophical context.
– Philosophical writings by William of Ockham. – Use in modern scientific and engineering fields.
Occam’s Razor suggests that when faced with competing hypotheses or explanations, the one that requires the fewest assumptions, entities, or complexities should be preferred.
– Minimization of unnecessary complexity.
– Explaining planetary orbits with elliptical paths (Kepler) rather than complex geometries (Ptolemy). – Selecting the simplest algorithm that accomplishes a task.
– Scientific research, medical diagnosis, machine learning model selection, problem-solving in various disciplines, critical thinking in everyday life.
Heuristic
It serves as a heuristic, guiding scientists and researchers to prioritize simpler explanations and avoid overcomplicating theories or models without strong evidence.
– Time-saving and resource-efficient approach.
– Choosing the simplest chemical reaction mechanism to explain observed reactions in chemistry.
– Guiding hypothesis formation, theory development, and model selection in various scientific and problem-solving contexts.
Scientific
Occam’s Razor is often invoked as a principle of scientific methodology, encouraging scientists to seek the most parsimonious theories that fit available evidence and to avoid adding unnecessary complexity.
– Aiding in theory testing and model validation.
– Selecting the simplest mathematical model that fits experimental data. – Focusing on essential variables in ecological models.
– Scientific research, hypothesis testing, model selection, data analysis, theory formulation, and validation across scientific disciplines.
Occam’s Razor is a principle that states that one should not increase (beyond reason) the number of entities required to explain anything.
In other words, with all things being equal, the simplest solution is often the best one.
The principle is attributed to 14th-century English theologian William of Ockham.
It’s important to realize that Occam’s Razor is not 100% reliable. That is, the simplest solution is not always the correct solution.
But when a business is presented with several solutions to a problem, its best course of action is to choose the solution with the fewest assumptions.
In business, companies spend vast amounts of time and money recruiting new customers and retaining them as loyal followers.
Consumers themselves are bombarded with messages daily and are easily distracted by social media and other sources of cognitive overload.
While complex marketing strategies may be somewhat effective in attracting customers, far simpler solutions help businesses retain them.
Here, the simplest solution for the business is to focus on:
Product quality
Many businesses equate the number of features with the value of a product.
But they do not ask the customer what they value beforehand. Products with too many features distract a consumer and reduce product utility.
Occam’s Razor suggests that product development teams discard as many features as possible and go for the simplest, most effective solution.
Customer service
Simplifying customer services means removing as many barriers as possible.
It might be streamlining the customer purchase journey by removing unnecessary sign-up forms.
It might also mean removing wait times on customer support calls. Ultimately, consumer behavior is guided by simplicity and a pleasurable shopping experience.
Defining their target audience
No product or business can appeal to everyone, so defining a target audience should be made as simple as possible.
Simplicity is achieved by starting small and focusing on the traits of a single, ideal customer to develop a marketing persona.
This is Occam’s Razor at work. Simplifying procedures increases productivity and profitability by focusing on processes most likely to deliver results.
McDonald’s is a heavy-franchised businessmodel. In 2021, over 56% of the total revenues came from franchised restaurants. The long-term goal of the company is to transition toward 95% of franchised restaurants (in 2020 franchised restaurants were 93% of the total). The company generated over $23 billion in revenues in 2021, of which $9.78 billion from owned restaurants and $13 billion from franchised restaurants.
In an attempt to boost their profits, McDonald’s created the now-infamous phrase “Would you like fries with that?”
Behind this catchphrase, marketers selected a very simple way to increase profits out of what was likely a large spread of options. Fries are of course made with potatoes, which are cheap and abundant and thus very profitable.
Apple has a business model that is divided into products and services. Apple generated over $394 billion in revenues in 2022, of which $205.5 came from iPhone sales, $40 billion came from Mac sales, over $41 billion came from accessories and wearables (AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and accessories), $29.3 billion came from iPad sales, and $78.13 billion came from services.
While the removal of the headphone jack may have been a case of over-simplification, the design of the iPhone also reflects Occam’s Razor principles.
With just a single button on smartphones and tablet devices, designers gave consumers a sleek and minimalist product without extraneous features.
Where can Occam’s razor be applied in business?
In this section, we’ll detail the ways Occam’s Razor can be applied in business to reduce complexity in certain situations.
Too many websites
Some business owners create a separate website for each of their brands with the belief that more sites equal more sales.
However, this does not tend to be the case.
Operating a single website is much simpler and more efficient. It is also much more cost-effective since hosting and maintenance costs are reduced.
In the context of marketing, too many websites means finite resources must be spread and diluted in the process.
Aside from poor resource utilization, this also reduces an individual website’s ability to dominate its niche and be ranked on the first page of search results.
Other companies dilute their presence with different websites for their B2B and B2C operations.
Unless there is a valid reason for doing so, these models should not be separated as doing so only leads to cost increases.
Instead, it is better to keep it simple by creating a website that appears for all intents and purposes to be a B2C site.
B2B customers can use the site by accessing a password-protected area where they can see a list of business prices, make volume purchases, or contact a dedicated support team, for example.
Bloated proposals
The most persuasive business proposals are those that focus on a simple minimum viable product (MVP).
A leaner MVP is the evolution of the MPV approach. Where the market risk is validated before anything else
Why is this the case? For one, simple MVPs tend to be cheaper and as a result, are associated with less risk. They can also be developed more rapidly, which shortens the time until the company can enter the market.
Despite these benefits, some product developers choose to ignore Occam’s Razor and develop complicated, bloated proposals where an excess of bells and whistles is the norm.
The goal here should be to work with the customer and assess each feature on its own merits to determine whether it contributes to functionality.
Superfluous features that do nothing but add complexity to the MVP should be discarded.
International expansion
Business owners can also become preoccupied with complexity when looking to expand into international markets.
An eCommerce site looking to sell tennis rackets in France and Spain, for example, may feel the need to replicate their website on a .fr and .es domain.
However, this situation is similar to building a separate website for each brand. That is, it tends to be more expensive, more inefficient, and less effective in terms of SEO.
For most eCommerce companies, a simpler course of action involves using canonical link elements for each country on their core website.
For example, tennis rackets for sale in France may be found at tennisrackets.com/fr/ and in Spain at tennisrackets.com/es/.
While a .fr site written in French may convert higher, a separate French page on the core tennisrackets.com domain will be effective provided it prices the tennis rackets in euros and details country-specific shipping policies.
In fact, any decrease in conversation rate is normally offset by reduced maintenance costs and the increased authority and visibility of the tennisrackets.com domain.
Occam’s Razor and Law of Parsimony
Parsimony psychology is an idea that advocates finding the simplest, most accurate explanation for any cognitive process or behavior.
Aspects of parsimony psychology may be referred to as the law of parsimony or Occam’s razor, with the latter named after William of Ockham.
Sometime in the 1300s, the theologian and logician wrote that “plurality must never be posited without necessity.”
However, the ideas that form the basis of the law have existed at least since the time of Aristotle who said “the more limited, if accurate, is always preferable.”
Since then, Ptolemy and Isaac Newton have used the idea to explain natural phenomena, and in the modern area, it has found use in healthcare and psychological contexts in particular.
So how exactly can parsimony psychology be defined?
The first clue lies in the word parsimony, a term based on the Latin word parser which may be defined as excessive thriftiness or, in less complimentary terms, miserliness or a lack of generosity.
Thus, parsimony psychology advocates that when academics want to explain a cognitive process or behavior, they should endeavor to find the simplest, most accurate explanation that fits the available evidence.
Five elements of the law of parsimony
Five of the most salient elements fundamental to parsimony and thus parsimony psychology are briefly explained below.
1 – Find the elegant solution
The elegant solution is the one that operates within the bounds of the law of parsimony.
In psychology, it may be a conceptual framework that can explain a behavior in the most simple terms or with the fewest components.
In business, think of an optimized assembly line that produces satisfactory results and contains no unnecessary steps or processes.
2 – Make assumptions that can be dealt with easily
If assumptions are present in a solution, further research is crucial to discover whether they are valid and can be efficiently dealt with.
If they cannot be validated, stick with the solution with the fewest assumptions.
3 – Refer to things that are observable
Observable things may comprise objects, behaviors, motions, body language, KPIs, or performance review results.
4 – Few entities
The law of parsimony also points out that history is littered with ordinary phenomena that have been explained countless times by countless entities with complex descriptions.
Therefore, it is important to involve as few entities as possible to explain an event.
In that important sales meeting, ensure that only people who are knowledgeable about the product and can sell it to the potential client are in attendance.
Remember, there is no need to overcomplicate an event or strive for perfection when a desirable result has been produced by others many times beforehand.
5 – Simple is best, but not always possible
Simplicity is important in parsimony, but so is accuracy.
While it may be tempting to default to the simplest solution right away, there are occasions when more information is needed to arrive at the solution we want.
Think of the thrifty consumer who wants to purchase a vehicle.
If they don’t research durable and inexpensive models beforehand, they’re more likely to waste their money on a car that either doesn’t run or is constantly off the road for repair.
Parsimony psychology in the workplace
We all can relate to having one of those days where everything seems to go wrong.
Perhaps we missed our usual bus, tripped on the pavement in our haste to make the office, and arrived at work late anyway where we received a reprimand from the boss.
Then, when it comes time a break, we realize our lunch is sitting in the fridge at home and the café is closed.
How can you explain this using parsimony psychology? Here are some possible explanations for these events:
You’re just having a bad day. No need to panic, they happen from time to time.
The world is out to get you and restore balance. After all, the bus was early three times last week.
Someone is out there whose primary intention is to sabotage your life. This may be the café owner, the bus driver, or your boss.
Remember from earlier that the parsimonious solution is one with the fewest assumptions. In this case, the first explanation is the simplest and therefore most likely to be correct.
Key takeaways on the law of parsimony
Parsimony psychology is an idea that advocates finding the simplest, most accurate explanation for any cognitive process or behavior.
Five of the most salient elements of parsimony and thus parsimony psychology include finding the elegant solution, making assumptions that can be dealt with easily, referring to things that are observable, involving as few entities as possible, and ensuring solutions are both simple and accurate.
In the workplace, parsimony psychology can also be used to explain a bad day where everything seems against us.
Occam’s Razor vs. Hanlon’s Razor
“Never attribute to malice that which is adequately explained by stupidity.”
Similar to Occam’s Razor, Hanlon’s Razor proposes that often an outcome can be explained through stupidity, rather than malice.
In short, in a complex world, where it’s easy to think in terms of conspiracy theories, Hanlon’s razor is a great heuristic, which tells us, often stupidity is the cause of many problems, rather than malice.
Variations of Hanlon’s razor go back as far as German writer Johann Wolfgang von Goethe, who equated malice and stupidity with incompetence.
However, the adage was named after Robert J. Hanlon, who submitted the quote for inclusion in a joke book.
In the modern context, Hanlon’s razor is a somewhat philosophical concept.
Indeed, the principle of a razor in philosophy is one that allows the individual to eliminate or “shave off” unlikely explanations for a particular phenomenon.
Instead, Hanlon’s razor advocates that problems and bad experiences are part of life. In the vast majority of instances, there is no malice behind them.
Thus, similar to the Occam’s Razor, Hanlon’s Razor proposes a simpler solution to complex situations.
Occam’s Razor vs. Occam’s broom
Occam’s broom was first proposed by South African microbiologist Sidney Brenner who proposed that inconvenient facts that do not fit into someone’s hypothesis or serve their agenda are swept aside or hidden. Occam’s broom is a principle stating that inconvenient facts are hidden or obscured to draw important conclusions or argue points.
Occam’s broom is a sort of bias, coming from the fact that people in various fields look for confirmation to evidence what they’re looking for.
In short, instead of searching for something with the core belief to change their minds, they tend to search for information that only confirms their beliefs, thus reinforcing their thesis.
This bias can be pervasive in business as well, where business people might actually focus on what they believe is right instead of wanting to be proven wrong.
Differently from it, Occam’s razor focuses on keeping things simple in a complex world. In short, Occam’s broom is the other side of the coin, where people focus on what they believe is true instead of what disconfirms their beliefs.
Occam’s Razor vs. Hickam’s dictum
Hickam’s dictum is the counterargument to Occam’s razor. Whereas Occam’s razor is a heuristic that tends to narrow down decision-making to the simplest variables, Hickam’s dictum believes a situation must be tackled by looking at multiple variables.
Hickam’s dictum is the counterargument that helps balance out Occam’s razor.
Indeed, while Occam’s razor is an extremely effective heuristic, this can also lead to over-simplification in a complex environment, where many factors might influence an outcome.
While Occam’s razor helps speed up decision-making when it comes to decisions where. The outcome might have a wider impact, so it’s essential to balance out Occam’s razor with Hickam’s dictum.
Occam’s Razor vs. Pascal’s Wager
Pascal’s wager is named after Blaise Pascal, a seventeenth-century French mathematician, philosopher, and theologian. Pascal believed that since evidence could not settle the question of whether God existed, individuals should wager on it instead. Pascal’s wager is a philosophical argument positing that individuals should wager their lives on the existence (or non-existence) of God.
Pascal’s wager is primarily a philosophical argument whose aim is to find an optimal answer.
Whereas Occam’s razor is a heuristic, or shortcut to making effective decisions, in a complex environment.
Thus, where Pascal’s wager is more of an optimization formula to achieve infinite rewards, Occam’s razor is a more practical approach to decision-making, which is extremely useful in complex scenarios where adding more valuables to a solution makes it harder to define the problem.
Of the two, Occam’s razor is the most applicable to business, and it’s extremely useful in an ambiguous business context, where it’s very hard to define the problem at hand.
Occam’s razor, in that respect, helps and drives execution.
Key takeaways
Occam’s Razor says that the simplest solution is more likely to be the correct solution. The theory does not provide the correct solution 100% of the time, but it does posit that a simpler solution with fewer variables yields more predictable results and is easier for the business to execute.
Occam’s Razor helps businesses focus on streamlining product development, simplifying customer service, and defining a target audience. McDonald’s and Apple are two examples of companies that have used simplicity to their advantage.
In more general business applications, Occam’s Razor is used to reduce the complexity that arises from too many websites, bloated product proposals, and international expansion efforts.
Key Takeaways on Occam’s Razor
Definition: Occam’s Razor is a principle that suggests choosing the simplest solution when presented with multiple explanations for a phenomenon. It advises against unnecessarily increasing the number of entities required to explain something.
Application in Business: In the business context, Occam’s Razor can be applied to simplify product development, customer service, and target audience definition. Companies like McDonald’s and Apple have used simplicity to their advantage.
Simplifying Product Development: Instead of equating more features with higher value, businesses should focus on the simplest and most effective solution for their products, discarding unnecessary features.
Streamlining Customer Service: Simplifying customer service involves removing barriers for customers, such as eliminating unnecessary sign-up forms and reducing wait times on customer support calls.
Defining Target Audience: Businesses should focus on defining a clear target audience rather than trying to appeal to everyone. By starting small and developing a marketing persona based on an ideal customer, companies can create more effective marketing strategies.
Occam’s Razor in Other Business Scenarios: Occam’s Razor can also be applied to reduce complexity in various business situations, such as having too many websites, bloated product proposals, and international expansion efforts.
Occam’s Razor vs. Other Philosophical Concepts: Occam’s Razor is distinct from other philosophical concepts like Hanlon’s Razor, Occam’s broom, Hickam’s dictum, and Pascal’s Wager. Each concept has its specific application and implications.
Key Takeaways: Occam’s Razor is a valuable tool for simplifying decision-making in complex business situations. By embracing simplicity, businesses can achieve more predictable and efficient outcomes.
Related Frameworks
Description
When to Apply
Pareto Principle (80/20 Rule)
– The Pareto Principle, also known as the 80/20 Rule, suggests that roughly 80% of effects come from 20% of causes. It implies that a small number of inputs or factors often have a disproportionate impact on outcomes. The principle is applied across various domains, such as business, economics, and quality management, to prioritize efforts, focus resources, and maximize efficiency by identifying and addressing the most significant contributors to desired results.
– When identifying key factors, activities, or resources that have the most significant impact on achieving desired outcomes. – In situations where leaders need to prioritize efforts, allocate resources, and optimize processes to enhance productivity and effectiveness by focusing on the vital few rather than the trivial many.
KISS Principle (Keep It Simple, Stupid)
– The KISS Principle, or Keep It Simple, Stupid, advocates for simplicity in design, communication, and problem-solving. It suggests that solutions should be straightforward, intuitive, and easy to understand, reducing complexity and avoiding unnecessary complications. By adhering to the KISS Principle, individuals and organizations can enhance clarity, reduce errors, and improve usability, leading to more efficient processes, products, and outcomes.
– When designing products, services, or processes to ensure ease of use, clarity, and user satisfaction. – In environments where complexity hinders understanding, communication, or decision-making, simplifying processes, instructions, or messages can improve efficiency and effectiveness.
Root Cause Analysis
– Root Cause Analysis (RCA) is a problem-solving technique used to identify the underlying causes of issues or failures. It involves systematically analyzing events, processes, or systems to uncover the root causes contributing to undesirable outcomes. By identifying and addressing root causes, organizations can implement corrective actions, prevent recurrence, and improve performance and reliability. RCA is often used in quality management, risk mitigation, and continuous improvement initiatives to drive process optimization and enhance organizational resilience.
– When investigating incidents, errors, or failures to understand their underlying causes and prevent recurrence. – In situations where leaders need to improve processes, products, or services by addressing systemic issues and implementing corrective actions that target root causes rather than symptoms.
Ockham Efficiency Theorem
– The Ockham Efficiency Theorem is a mathematical principle derived from Occam’s Razor. It states that among multiple feasible solutions to a problem, the one with the least number of assumptions or steps tends to be the most efficient and effective. The theorem underscores the importance of simplicity, parsimony, and elegance in problem-solving and decision-making processes, guiding individuals and organizations to prioritize solutions that require minimal complexity and resources while achieving desired outcomes.
– When evaluating alternative solutions or approaches to a problem to identify the most efficient and effective option. – In situations where leaders seek to streamline processes, reduce waste, or optimize resource utilization by choosing solutions that minimize unnecessary complexity, assumptions, or steps.
Principle of Least Action
– The Principle of Least Action, also known as Hamilton’s Principle, is a fundamental concept in physics and mechanics. It states that the path taken by a system between two points is the one that minimizes the action, where action represents the integral of the system’s Lagrangian function over time. In essence, the principle suggests that natural systems tend to follow paths of least resistance or effort to achieve equilibrium or optimal states. While originally applied in physics, the Principle of Least Action has broader implications in decision-making and optimization, guiding individuals and organizations to seek paths of minimal effort or resistance to achieve desired objectives.
– When analyzing systems, processes, or behaviors to identify patterns of least resistance or effort that lead to desired outcomes. – In situations where leaders aim to optimize performance, resource allocation, or decision-making by identifying and leveraging paths of least action to achieve objectives efficiently and effectively.
Minimum Viable Product (MVP)
– The Minimum Viable Product (MVP) is a product development strategy that focuses on releasing a basic version of a product with essential features to gather feedback and validate assumptions. It follows the principle of starting small and iterating based on user input and market demand, allowing companies to minimize investment and time-to-market while maximizing learning and value creation. By prioritizing simplicity and core functionality, MVPs enable organizations to test hypotheses, mitigate risks, and refine their offerings iteratively before scaling up or investing further resources.
– When developing new products or services to validate assumptions, test market demand, and gather feedback from early adopters. – In environments where innovation, agility, and responsiveness are essential, launching MVPs can help organizations rapidly iterate, adapt, and refine their offerings based on real-world insights and user needs.
Hick’s Law
– Hick’s Law, also known as Hick-Hyman Law, states that the time it takes to make a decision increases with the number of alternatives or choices available. The principle highlights the impact of choice overload on decision-making speed and complexity, suggesting that reducing the number of options can enhance decision efficiency and satisfaction. By limiting choices and simplifying decision processes, individuals and organizations can accelerate decision-making, reduce cognitive load, and improve outcomes.
– When designing user interfaces, product offerings, or decision-making processes to streamline choices and improve decision efficiency. – In situations where leaders need to simplify complex systems, workflows, or environments to enhance productivity and reduce decision fatigue among stakeholders.
Economy of Scale
– Economy of Scale refers to the cost advantages that arise from increased production or scale of operations. It suggests that as output volume or size increases, unit costs decrease due to efficiencies in resource utilization, specialization, and distribution. By leveraging economies of scale, organizations can reduce per-unit costs, increase profitability, and gain competitive advantages through higher efficiency and lower prices. The concept applies across various industries and sectors, driving economies of scale in manufacturing, distribution, marketing, and other business functions.
– When optimizing production processes, supply chains, or business operations to achieve cost savings through increased scale or volume. – In situations where leaders seek to expand market share, drive down costs, or improve margins by capitalizing on economies of scale in resource allocation, production planning, or market penetration strategies.
Single Responsibility Principle (SRP)
– The Single Responsibility Principle (SRP) is a software design principle that states that a class or module should have only one reason to change. It emphasizes modularity, cohesion, and simplicity in software architecture by assigning each component a single responsibility or function. By adhering to SRP, developers can improve code readability, maintainability, and scalability, reducing complexity and dependencies between modules. SRP is a fundamental principle in object-oriented programming, guiding developers to design systems that are easier to understand, test, and maintain.
– When designing software systems, modules, or components to enhance clarity, maintainability, and flexibility by adhering to the principle of single responsibility. – In environments where software development teams aim to improve code quality, reduce technical debt, and facilitate collaboration by enforcing design principles that promote modularity, encapsulation, and separation of concerns.
Satisficing
– Satisficing is a decision-making strategy that involves selecting the first option that meets a predetermined threshold of acceptability rather than seeking the optimal solution. The term, coined by Herbert Simon, combines “satisfy” and “suffice,” reflecting the idea of choosing outcomes that are satisfactory rather than maximizing utility or minimizing regret. Satisficing acknowledges bounded rationality and limited information in decision-making, prioritizing efficiency and simplicity over exhaustive analysis or optimization. By satisficing, individuals and organizations can make decisions more quickly, conserve resources, and focus efforts on achieving satisfactory outcomes.
– When making decisions under time constraints, uncertainty, or complexity to balance thoroughness with efficiency. – In situations where leaders need to prioritize tasks, allocate resources, or make choices amidst uncertainty by selecting options that meet predefined criteria or thresholds of acceptability.
What is an example of Occam's razor?
A great example is Apple’s iPhone, which with just a single button on smartphones and tablet devices, designers gave consumers a sleek and minimalist product without extraneous features. The simplicity of Apple’s GUI and UX is a trademark of the company, and the fact that anyone, in no time, can learn to use an Apple device, makes it a perfect example of Occam’s Razor.
What is the opposite of Occam's razor?
The opposite of Occam’s Razor is Hickam’s Dictum which works as a counterargument to Occam’s razor. Indeed Hickam’s Dictum poses that to understand complex situations, a person, or group must be looking at multiple variables.
What is Occam's Broom?
Another concept connected to Occam’s Razor is Occam’s Broom, where when inconvenient facts that do not fit into someone’s hypothesis or serve their agenda are swept aside or hidden. This bias can lead to many judgment errors and is pervasive in various domains, especially in cognitive science, where cherry-picking (you select only facts that are in line with your thesis) can become an issue.
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.
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 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 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 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.
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 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.
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 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, 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, 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).
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.
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.
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.
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.
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.
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.
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.
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 – 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.
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 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.
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.
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.
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 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 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 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.
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 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.”
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 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 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 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.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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