Chunking is an organizational method of sorting a large group of items into subgroups on the basis of a common characteristic. Suppose I gave you the following list of twelve grocery items (and you happened not to have pen and paper handy): spring water, sponges, apples, dishwashing liquid, coffee, tangerines, lemonade, laundry detergent, grapes, milk, limes, paper towels. It would be difficult to remember twelve different items over the twenty minutes you needed to drive to the supermarket. By chunking them into three subgroups (fruit, beverages, household cleaning supplies), you make the information much more manageable because you've essentially reduced twelve items to three, using each sub-category as a cue for its four members.
Chunking can also be used to divide a large sequence of items into several shorter sequences. If you're again caught without pen and paper as someone is giving you a ten-digit phone number, rely on the usual three-three-four subgrouping of digits. The number 6178714902 is tough to recall; 617-871-4902 is easier.
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