The best way to make better decisions is to avoid biases and other costly mistakes
Although there appears to be no scientific support for the oft-quoted statistic that people make on average 35,000 conscious decisions per day, it’s clear that we are constantly making decisions. Some of those choices might seem mundane, like deciding what to have for breakfast, while others are defining moments that are life-shaping or career-making. Even seemingly inconsequential decisions can have an outsized impact over a long enough period if they become habitual. Think of the breakfast example: if a decision to eat sugary breakfast cereal turned into a lifelong habit, it might detriment health in the long run. Decisions don’t just affect the individuals making them, but also the people around them. The cumulative choices of large groups of people can have an impact on a planetary scale, as illustrated by global warming.
Making better decisions starts with understanding your limitations
Decisions are important, which is why most people strive to make good choices. Whether it’s an important life choice like what to study or a high-stakes business decision like whether to acquire another company, there are proven methods for making better decisions. It starts by understanding our limitations as decision makers.
Decisions frequently fail to achieve the desired outcomes, partially because they are often made under conditions of ambiguity with incomplete information. Decisions under such conditions of uncertainty are like bets placed in a game of poker — there is no guaranteed payout. But it is possible to increase the odds of a good outcome, primarily by reducing errors made by the decision maker.
Researchers have found that humans are rarely the rational decision makers that neoclassical economists imagined them to be. On the contrary, in many situations, people are predictably irrational. Systematic errors in judgment, such as cognitive biases often lead to predictably suboptimal outcomes.
Relying on intuition is a lousy way of making decisions
Many decisions are made intuitively, without deliberate conscious thought. Relying purely on intuition or gut feel is a risky strategy that should only be used in decisions of low-risk and low-importance or if the urgency of the decision is so high that there is virtually no time for deliberation. Potentially life-threatening situations such as those encountered by firefighters or soldiers in combat are good examples. Intuition only works well when decision makers have sufficient expertise and are operating in environments in which their knowledge helps them predict the outcomes of their decisions.
In most cases, relying solely on intuition is a lousy way of making decisions. It may even be a sign of overconfidence and hubris. Decisions are rarely as urgent as people make them out to be. As one former US-president was fond of saying:
The things that are urgent are seldom important and the things that are important are seldom urgent.
— Dwight Eisenhower
For important decisions, intuition should be considered one data point among many.
Everyone is susceptible to bias, but debiasing is possible
For tough choices, it’s best to engage in a more deliberate thought process and be aware of the many cognitive biases that can influence decision making. Everyone is susceptible to biases. They are a direct consequence of how the human brain makes sense of the world. Although we rarely catch ourselves making biased decisions, knowledge of the existence of biases can help us take action to avoid them by developing better decision-making habits.
There are many methods of debiasing decision making. Depending on the type of decision, it might make sense to follow a structured decision-making process or make use of an algorithm or analytical tool. But the most powerful debiasing methods are relatively simple habits that any decision maker can adopt, such as considering a broader range of options and listening to different points of view.
To make better decisions consider a broad set of options and a diversity of opinions
A limited set of options is a telltale sign of flawed decision making. Academics call it narrow framing. It’s a sign that the decision maker has not considered all the options and may be ignoring important information. Narrow framing occurs because of our natural overconfidence in our ability to predict future outcomes and our tendency to seek out information that confirms our existing beliefs. Teenagers and organizations appear particularly prone to framing decisions as whether-or-not problems in which only one option is considered (Should I go to the party or not, should we acquire this company or not).
Choosing from a broader set of options makes it more likely that decision makers will consider creative solutions to their challenges. It also provides a fallback plan, should the initially preferred option prove to be unsuitable. To obtain a broader set of options, encourage divergent thinking and avoid narrowing the search too quickly. Allow opposing viewpoints from a diverse group to collide. Don’t hesitate to create a mashup of the best features from different options.
Instead of trying to make the best choice, find ways to minimize costly mistakes
Even with a broad set of options, we are not immune to bias. When evaluating the options, decision makers can fall into the trap of using analysis to justify forgone conclusions. Unfortunately, this can lead to costly mistakes.
It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
— Charlie Munger
Luckily there are some good methods for minimizing the risk of costly mistakes:
- It can help to invert the problem. Instead of trying to devise the optimal solution, think of ways to mitigate the risk of failure. Instead of asking “how can I buy the best car?”, think “how can I avoid buying a lemon?”.
- Running experiments is a way of testing hypotheses without making substantial upfront commitments. Instead of committing to a high-risk decision such as building and launching a new product, design an experiment to test demand first.
- Challenge assumptions by getting a better understanding of the failure rates and success factors of similar decisions. Ask experts to estimate the outcome of similar decisions in the past.
- Allowing for debate and disagreement is vital, but diverging views can get suppressed by influential leaders or strong organizational cultures. An effective method for legitimizing dissent is the premortem method, which is a discussion in which participants imagine that the decision has already failed and they explore possible reasons for the failure.
Decision making is an essential skill in virtually all walks of life. By being aware of our limitations, we improve the chances of making successful decisions, while minimizing the risk of costly mistakes.