“To take away a man’s freedom of choice, even his freedom to make the wrong choice, is to manipulate him as though he were a puppet and not a person.”Madeline L’Engle
The ability to decide is at the heart of what it means to be human. After all, history started with the hasty decision to take a bite of the forbidden fruit. And, like Adam most of us make consequential decisions with little to no thought.
Decision-making is not taught in schools and rarely discussed in leadership circles. There are countless books on how to be more productive, yet relatively few on how to decide. In fact, it wasn’t until recently that academia moved away from the ludicrous idea that humans are rational beings and decision-making gained the fancy moniker, “behavioral economics”, signifying its elevation as a formal field of science, thanks to the work of prominent academics such as Daniel Kahneman and Richard Thaler.
Being good at decision-making explains why some roles, such as Fortune 500 CEOs and hedge fund managers, are paid so handsomely (Founder-CEOs, unfortunately, don’t get the same treatment).
Consider that a typical CEO is expected to make dozens if not hundreds of decisions per day. A one percent improvement in decision-making judgment is equivalent to 183x better performance across the year, assuming just 2 meaningful decisions per day.
The same logic applies to investing where a single good decision per year is all it takes to produce outsized returns. Decision-making, much like investing, compounds in a highly non-intuitive way.
So what does that mean for you? The good news is that decision-making is absolutely a learned skill and one you can measurably improve. Here are my key principles for getting started.
Decision-making velocity matters
When faced with the choice of accuracy or speed, choose speed. It is almost always better to make decisions twice as fast with half the precision. This is because whilst decision-making confidence usually increases with time, delaying decisions often has a greater negative effect.
If it becomes clear that you made the wrong decision, you can easily course correct. If you’re the captain of the Titanic hurtling towards an iceberg, it doesn’t matter if you add a few kilometers to your roundtrip.
A general rule of thumb is to make a decision by the time you achieve 75% confidence. If you have exceeded that, you probably waited too long.
Here’s the caveat. There will inevitably be instances where a decision carries a low degree of reversibility. That’s where it pays to dive deep into the data and build confidence.
Consider where any given decision lies on the matrix below. In three out of four instances, you should prioritize high-velocity decision-making.
Treat fast decisions as an asset in its own right and make it a part of your team culture. Amazon does this better than anyone else by making “bias for action” a stated leadership principle. In his 2016 letter to shareholders, Jeff Bezos explains:
Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.
Use mental models
Unfortunately, the term “mental models” has become a Silicon Valley cliche alongside Patagonia vests, Sapiens and La Croix. That being said, decision-making frameworks or mental models are incredibly effective tools that help shape how you approach a problem and separate the signal from the noise.
One such framework that has helped me personally is regret minimization, which is predicated on the idea that you can maximize happiness by taking the path you’d least regret.
After studying for six years to become a medical doctor, I had to decide whether I would walk the well-trodden path by choosing a specialty or go all-in on a fledgling entrepreneurial idea to rethink how addiction care gets delivered. The choice ultimately came down to which decision I would most regret, and boy do I not regret taking the plunge.
There are many other frameworks and mental models, many of which can be used in conjunction with each other. The key is being able to consistently apply them to counteract your bias and blind spots.
Make fewer decisions
Steve Jobs famously wore the same black turtleneck and denim jeans to reduce decision fatigue. It turns out that he was onto something.
Decision fatigue is a real phenomenon and refers to the deteriorating quality of decisions after a long period of making decisions. It also explains why supermarkets conveniently place chocolates next to the checkout. Each item you choose throughout your shopping trip requires a tiny amount of mental tradeoff which collectively conspire to exhaust you, leaving you vulnerable to that impulse Kit Kat Chunky purchase.
An easy way around decision fatigue is to make fewer decisions. As a CEO, I work hard to decentralize decision-making by empowering my team to make their own decisions. While there are some decisions that a CEO must make, it is easy, especially for founders, to fall prey to micro-managing almost every decision in the organization, leading to decision fatigue and inferior quality decisions.
Instead, great leaders know how to align their organization by setting clear context and staying close to the details, but ultimately enabling the most informed individuals to own the process and make their own decisions. Organizations that embody this typically make faster and higher quality decisions.
Get to the bottom of decision conflict
Decision conflict is a good thing as long as disagreement is thoughtful and constructive. Good conflict is where people debate a specific problem or task. These exchanges can get heated, but underpinning the conflict is a shared drive to reach the truth versus win an argument.
Bad conflict, on the other hand, is dominated by big egos. Arguments get personal and people switch to finger-pointing. This is where a leader needs to step in to avoid things getting messy and realign the group on the ground rules.
Occasionally, a discussion will not resolve the underlying disagreement. In those instances, it’s important to recognize whether the source of disagreement is the group optimizing for different outcomes or simple disagreement of the expected results. If the success metrics are different, it’s important to rebuild team alignment and set clearer context. If the disagreement is about the expected result, it’s pretty easy to find out who is right!
Learn from your successes and failures
It is equally important to learn from successful outcomes as it is to learn from the unsuccessful ones. The best way to learn is to openly discuss your decisions and get input from others involved in the decision or who are familiar with the outcome.
This is inherently easier to do with successful outcomes than unsuccessful ones, yet the importance of equally balancing both reflections cannot be underscored.
Resist the urge for bias to creep into your reflection process. For example, it is easy to overemphasize the drivers for a successful outcome. Meanwhile, sunshining your failures is inherently uncomfortable. VCs rarely end up on CNBC or with viral tweetstorms by talking about their misses.
This is where leaders need to lead by example, which helps to create psychological safety. Reed Hastings has made “sunshining” a formal part of the Netflix culture and openly talks about his screw-ups.
Ray Dalio simplifies the concept down to an equation: “Pain + Reflection = Progress”. He goes on to gamify the analogy by referring to the puzzle left after the pain of a mistake passes. If you solve the puzzle by reflecting on the mistake, you get a gem. You should treasure the gem.
Hopefully, I’ve convinced you that, whilst hard work, honing your decision-making skills is a worthy endeavor and probably one of the most impactful things you can do. Whilst your next decision may not be of biblical significance, your own future hangs in the balance.
So where to next? Here are my favorite books, articles and resources for those who would take the red pill and see just how deep the rabbit hole goes:
- Thinking, Fast and Slow by Daniel Kahneman
- Poor Charlie’s Almanack by Charles T. Munger
- The Great Mental Models Vol 1 by Shane Parrish
- Farnam Street blog by Shane Parrish
- The Decision Making Guide by James Clear