“The quality of our lives is the sum of decision quality plus luck” — Annie Duke
“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained…The world makes much less sense than you think. The coherence comes mostly from the way your mind works.” — Daniel Kahneman
“The most common source of mistakes in management decisions is the emphasis on finding the right answer rather than the right question.” — Peter Drucker
I’m writing another note on decision-making to share lessons I’ve learned. I firmly believe that making better decisions—even if it’s just 5% of the time—can make a huge difference in your life.
Good decision-making is a skill you can build. Most people rely on their mood or shaky logic to make choices, both large and small. But remember, human logic is oftentimes inconsistent. The world is noisy and can also easily lead you astray. You need to follow a system that gives you the best odds of living the life you hope to live.
The first step is Triage. You have to know when to go fast and when to go slow. We tend to overthink the small things, like picking an entrée from a menu after quickly narrowing it down to the ideal options. I want you to be able to recognize the low-impact choices. If a decision is easily reversible or passes the “happiness test”—meaning it won’t affect your happiness a year/month/week from now—then go fast. Similarly, in professional settings, Jeff Bezos said:
“Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.”
Look for Freerolls—those moments where there is asymmetrical upside and limited downside, and the worst-case scenario leaves you no worse off than you are now. Take asking for a discount at a market. The upside is saving money. The downside is just being told “no.” Or wearing a seatbelt. The downside is that it might feel tight, but the upside could save your life. In these cases, the only wrong move is waiting.
Triaging is critical because thinking fast and slow work differently. As Daniel Kahneman explains, our fast-thinking mind (“System 1”) has unique strengths and weaknesses compared to our slow-thinking methodical mind (“System 2”):
“Mood evidently affects the operation of System 1: when we are uncomfortable and unhappy, we lose touch with our intuition. These findings add to the growing evidence that good mood, intuition, creativity, gullibility, and increased reliance on System 1 form a cluster. At the other pole, sadness, vigilance, suspicion, an analytic approach, and increased effort also go together. A happy mood loosens the control of System 2 over performance: when in a good mood, people become more intuitive and more creative but also less vigilant and more prone to logical errors.
I’ve learned that we tend to believe we’re the exception to the rule. We think our circumstances are special. That’s why you have to look at the Outside View. Before your optimism or pessimism takes over, find the Base Rate—the historical success rate for people in your exact or similar situation. Ask yourself: “Why is my situation different?” Unless you have a specific, measurable advantage, start your plan from the base rate and adjust gradually. Again, from Kahneman:
“We focus on our goal, anchor on our plan, and neglect relevant base rates, exposing ourselves to the planning fallacy. We focus on what we want to do and can do, neglecting the plans and skills of others. Both in explaining the past and in predicting the future, we focus on the causal role of skill and neglect the role of luck. We are therefore prone to an illusion of control. We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs.”
When you’re doing the actual work of deciding, use precise language. Get away from vague words like “probably” or “likely.” They mean different things to different people. Instead, use percentages. If I tell you I’m 90% sure a trip will cost between $1,000 and $2,500, we’re having a real conversation. If I just say it’ll be “affordable,” we’re both guessing.
I also want you to stress-test your ideas. Before you commit, run a Premortem. Imagine it’s a year from now and your project has failed. Why did it happen? By looking for the cracks now, you can fix them while it’s still cheap. Then perform Backcasting to draft your plan. Imagine now a successful future outcome and map out the specific steps needed to reach it.
And remember Astro Teller’s Monkeys and Pedestals. When you’re trying to train a monkey to juggle torches on a pedestal, tackle the hard part first. Don’t spend your life building fancy pedestals for a monkey that can’t juggle. Address the monkey in any problem first.
Finally, know when to Quit. The hardest time to think straight is when you’re already stuck in a loss. Set your Kill Criteria early—the signals that tell you it’s time to walk away. Ask yourself the Sunk Cost question: “If I were starting today with nothing invested, would I still choose this path?” If the answer is no, have the courage to stop.
As Annie Duke says, good decisions aren’t just about the outcome. You can make a great decision and still get a bad result—that’s just life. Daniel Kahneman put it this way:
“We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events.”
Real failure is ignoring the process. Focus on the quality of your decisions. Over the course of your life, the results will take care of themselves.