"Research in psychology of the last forty years has identified a set of biases in our thinking that doom the pros-and-cons model of decision making. If we aspire to make better choices, then we must learn how these biases work and how to fight them (with something more potent than a list of pros and cons.)"
Good decisions in business and in life are the difference between success and failure, between happiness and misery.
With the stakes so high, wouldn’t you like to be sure of your decision-making process?
The Big Idea
We Are All Using a Flawed Decision-Making Process
"The pros-and-cons approach is familiar. It is commonsensical. And it is also profoundly flawed."
Humans are fundamentally irrational. We like to think our decisions are logical deductions based on empirical data, but this ignores large and powerful portions of our brains in which emotions overpower or undermine logic.
This gives rise to four villains in our decision-making process:
1. Narrow framing – spotlighting one alternative at the expense of others available
2. Confirmation bias – developing a belief about a situation, then seeking out information that bolsters our belief
3. Short-term emotion – mental churn which obscures perspective
4. Overconfidence about how the future will unfold – we cannot examine what we can’t see or know
We may be irrational, but we’re predictably irrational. Forewarned is forearmed: knowing the villains means we can learn coping strategies.
Insight #1
WRAP: Strategies for Defeating the 4 Villains of Decision Making
"We can't deactivate our biases, but... we can counteract them with the right discipline."
As Daniel Kahneman shows repeatedly in Thinking Fast and Slow, awareness of our irrationality doesn’t remove it, it only allows us to compensate.
These coping strategies, properly applied, prevent us from being entirely at the mercy of our irrational unconscious when making decisions. Note the mnemonic acronym WRAP.
1. Narrow framing – Widen your options – Avoid a narrow frame by considering opportunity costs. Consider what you’d do if all your options went away. Be wary of “whether or not” single-choice decisions. Multitrack: consider more than one option simultaneously. Can you have “this AND that” rather than “this OR that”? Find someone who’s solved your problem and analyze their solution. Look at your own past solutions to similar choices.
2. Confirmation bias – Reality-test your assumptions – Consider the possibility of the opposite of your assumptions being true. Ask disconfirming questions. Look for empirical data which might contradict our assumptions. Take baby steps: small experiments to test various options.
3. Short-term emotion – Attain distance before deciding – Overcome short-term emotion. Consciously consider: how will I feel about this decision in 10 minutes? 10 days? 10 years? What advice would I give my best friend? Honor your core priorities. Agonizing decisions are often a conflict between core priorities. Identify those priorities and resolution is easier, sometimes obvious.
4. Overconfidence about how the future will unfold – Prepare to be wrong – Bookend the future. Likely outcomes fall in a range, not on a single point. Know the range and prepare for both extremes. Set a tripwire: If X happens, I will revisit the status quo and decide again. Partition: set aside finite funds, time, or other assets, and before increasing the investment, revisit the decision.
Insight #2
Prepare to Be Wrong: Bookend the Future & Set a Tripwire
"In a letter to [Beatles manager Brian] Epstein, Dick Rowe, a prominent talent scout at Decca Records, wrote ‘We don’t like your boys’ sound. Groups are out; four-piece groups with guitars, particularly, are finished.’ As Dick Rowe would soon learn, the fourth villain of decision making is overconfidence. People think they know more than they do about how the future will unfold."
Let’s take a deep dive into the strategy for dealing with the fourth villain, overconfidence about how the future will unfold, by preparing to be wrong.
Bookend the future. Likely outcomes fall in a range, not on a single point. Know the range and prepare for both extremes. A wider target is easier to hit, so if we imagine a worse (but realistic) lower end of the range and a better high end of the range, we’re even more likely to be prepared for any outcome. Hold premortems: imagine your decision leads to utter failure. What caused it? Prepare for those possibilities. Hold pre-parades: your decision leads to wild success. Will you be ready for what that means? Some outcomes can’t be predicted. Sometimes it makes sense to build in a safety factor. For instance, elevator cables are designed to withstand eleven times the elevator rating. Because the cost of failure is so high in this case, the safety factor is large, but a smaller multiplier can also be useful.
Set a tripwire: If X happens, I will revisit the status quo and decide again. It’s natural to fall into autopilot mode, especially when change is gradual. Choosing a measurement, event, or pattern of events which prompts revisiting the decision can snap us awake. Knowing we have a tripwire in place allows us to focus on the process rather than continually fretting about the current status. Partition: set aside finite funds, time, or other assets, and before increasing the investment, revisit the decision. It’s human nature to escalate our investment in poor decisions to try to bend them to our will. When we’ve set a cap in advance (no more than X dollars, or X months will be spent) it prevents runaway cost and schedule overruns.
When the greatest minds in science have only recently accepted the predictable irrationality of the human mind, it can be easy to ignore the challenging claim that our decision-making process is fundamentally flawed.
Even if we don’t see the train, we still need to get off the tracks.
One weapon against the villains of decision making is to take baby steps; test small decisions to see which is the better direction.
Where will you test the WRAP process in your life or business?
