Summary
A book about how to make decisions. Whether you're after the ability to make better decisions, to make faster decisions, or both, you'll find something of value in here.
May seem a bit basic for those familiar with cognitive biases, but still worth reading. We all make decisions every day, so every improvement we can make will pay dividends.
Notes
Introduction
- There are only two things that determine your life: luck and the quality of your decisions. And you only have control over your decisions.
- A good tool has a use that can be repeated. Use the tool the same way, get the same results.
1—Resulting
- We tend to look at outcomes of decisions to determine whether a decision was good or bad, rather than looking at the process. This is called "resulting."
- In reality, luck plays a role in every decision.
2—Hindsight
- "Hindsight bias" occurs when we try to remember what we knew and how we felt when we made a decision. It is almost impossible to accurately reconstruct these things after the fact, when we know the outcome.
- Markers of this thinking are things like "I should have known" or "I knew it all along."
- Keeping a decision journal, or writing down what you know when you make the decision, is one way to counter this. You can read it later and remember more accurately.
3—The Decision Multiverse
- We need experience to learn, but individual experiences can interfere with learning.
4—The Three Ps: Preferences, Payoffs and Probabilities
To make better decisions:
- Identify all the possible options for your decision
- Identify the possible outcomes within each option
- Identify your preference for each
- Estimate the likelihood of each option
- Assess the relative likelihood between the outcomes of each option
- Compare the options and decide
Don't forget that the payoffs of each option and outcome can be things other than money: happiness, time, self-esteem, etc.
The downside of pros and cons lists are that they don't take into account the magnitude of the upside or downside, which is critical.
The main tool to improve your decisions: turning stuff you don't know into stuff you do know. In other words, more information.
Another note: the willingness to guess is essential to good decision-making. It forces us to ask how much we really know and why we think we know it.
5—The Power of Precision
- A common problem making decisions with others: you use terms like "probably" but have different ideas what that term means in terms of probability.
- The best way to communicate probability: a specific number, with a range associated with it. For example, "I estimate 60%, with a lower bound of 40% and an upper bound of 80%."
- That range gives other people an idea of how certain that estimate is. Note that this is a "reasonable" range, not a guaranteed range (you'd be shocked if it was outside).
6—Turning Decisions Outside In
- We suffer from all kinds of biases because we view the world from our own perspective, knowledge, and experience.
- One way to counter this is to look at the "base rate," or the overall probability that applies to this situation.
- The other way is to seek a variety of opinions from others with different perspectives.
7—Breaking Free from Analysis Paralysis
- The key to making faster decisions is understanding what the cost is for making a worse decision. If the cost is low, you should go fast. If the cost is high, you should go slow.
- One way to help assess this is to project yourself in the future: will you care about the outcome of this decision tomorrow? In a week? In a year?
- You can also move faster by asking yourself: if this was the only option I had, would I be happy? If yes, make the decision and move on.
- Another good question to ask: "if I pick this option, what's the cost of quitting?"
8—The Power of Negative Thinking
- You can improve your chances of accomplishing a goal by time-traveling to different futures and imagining what got your there.
- First, conduct a "pre-mortem": imagine yourself having failed, and what caused it. This is a good way to encourage others to speak up, and helps identify obstacles.
- Then, do a "backcast": imagine yourself having just succeeded. What got you there?
- Then, commit to doing the things that will increase your chances of success, and prepare you for a better reaction when things go wrong. Planning ahead will help you avoid reacting emotionally.
9—Decision Hygiene
- Don't tell someone your opinion before asking them theirs. It will bias their response.
- If in a group, get opinions from team members individually first. Then you can share those opinions with the group.
- Making individual feedback anonymous can also help elicit better feedback, and prevent groupthink.
- Be careful how you present the background information for the decision too. This can affect the feedback you get.
