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Definition

magical thinking

Magical thinking is an illogical cognitive pattern in which people become invested in ideas and projects despite a lack of evidence that they are viable, and sometimes despite solid and easily available evidence that they are not.  

Magical thinking is closely related to wishful thinking. The term first arose in psychology, to describe the way that children and some adults mistakenly attribute causal relationships between phenomena where none exist, or believe that their thoughts, beliefs and wishes can affect or effect events.  

In the realm of technology, the dot-com bubble in the early years of the internet is a good example of a time when magical thinking got the better of people. The occasional startup performed spectacularly and the indications were clear that the growth of the internet was going to be phenomenal and sustained. Those factors led some speculators to overvalue IT startups and invest heavily without carefully evaluating business plans or applying standard metrics. For every Google or Amazon, however, there were thousands of startups that went nowhere.  

According to some industry pundits, magical thinking is currently creating another tech bubble, with investors seeking out high-potential startups (sometimes referred to as unicorns) related to trends like the sharing economy and the Internet of Things (IoT). 

Magical thinking can cause serious problems. In the case of a tech bubble, for example, incautious investors can lose a lot of money. As with other types of cognitive errors, preventative measures include maintaining a skeptical attitude, examining available data and practicing critical thinking.  

This was last updated in September 2017

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