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Suppose we know that Paula suffers from a severe phobia. If we reason that Paula is afraid either of snakes or spiders, and then establish that she is not afraid of snakes, we will conclude that Paula is afraid of spiders. However, our conclusion is reasonable only if Paula’s fear really does concern either snakes or spiders. If we know only that Paula has a phobia, then the fact that she’s not afraid of snakes is entirely consistent with her being afraid of heights, water, dogs or the number thirteen. More generally, when we are presented with a list of alternative explanations for some phenomenon, and are then persuaded that all but one of those explanations are unsatisfactory, we should pause to reflect. Before conceding that the remaining explanation is the correct one, consider whether other plausible options are being ignored or overlooked. The fallacy of false choice misleads when we’re insufficiently attentive to an important hidden assumption, that the choices which have been made explicit exhaust the sensible alternatives.

Question 1) I don't understand the grammatical structure of this bold sentence. is it possible that the word "mislead" has "that clause"?

I know the word "mislead" is used as below case.

From Cambridge Dictionary mislead + someone

meaning : to cause someone to believe something that is not true:

example) He has admitted misleading the police about his movements on the night of the murder.

Question 2) Can the word 'exhaust' be used as 'use up' ?

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What misleads is the stated fallacy, that of false choice.

The fallacy of false choice misleads when we’re insufficiently attentive to an important hidden assumption, that the choices which have been made explicit exhaust the sensible alternatives.

The clause that begins with when explains what causes the fallacy of false choice to mislead us.
(That it misleads us is implied by the clause following when we're.)

The phrase use up can replace exhaust. In this context, it means that you have examined all the sensible alternatives, to be sure that no other possible choice remains.

The final part of the sentence,

that the choices which have been made explicit exhaust the sensible alternatives.

is an appositive to hidden assumption, that is, it is the same thing.

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