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But good engineers don't memorize formulas. They understand them.

False dichotomy much?

At some level I think you have to do both. Either by explicit drilling or frequent use, you end up memorizing a lot of formulas anyway. And for the longer ones, it takes too long to derive from first principles every time, so whichever way it happens, it's good to have them in mental RAM. You can always look them up, but just knowing is faster.

..or at least know how to look them up

What ginko said. Engineers don't memorize formulas, we're taught to recognize the principles underlying problems, and then looking up the appropriate formula to address the problem. In high school all I did was rote memorization and I coasted through; I tried that approach during my first two years at MIT and struggled hard. Only after I finally realized that problem-solving was not the same as memorization did I start to "get it."

In fact, most of my college exams, as well as my Engineer-in-Training and Professional Engineering exams were open book/open note.

Personally i would choose the one that can think

Those are not the only choices.