How To Decide

By Annie Duke

Simple tools for making better choices

Resulting

  • tendency to look at whether a result was a good or bad to figure out whether a decision was good or bad

  • loose coorelation between quality of decision and quality of outcome

Resulting

  • Luck intervenes between your decision and the actual outcome

  • You can’t tell that much about the quality of a decision from a single outcome, because of luck

  • You notice bad luck but overlook dumb luck

Resulting

  • Goal is to make a decision that will lead to the most favorable range of outcomes

  • Resulting reduces compassion when it comes to how we treat others and ourselves

Hindsight Bias

  • tendency to believe that an outcome, after it occurs, was predictable and inevitable

  • Two ways: should have known and knew it all along

Hindsight Bias

  • Memory creep: things that reveal themselves after the fact creeps into your memory of what you knew or what was knowable before the decision

  • Hindsight bias leads to lack of compassion for ourselves and others

Decision Multiverse

  • Paradox of experience

  • Experience is necessary for learning, but individual experiences often interfere with learning

Decision Multiverse

  • Exploring the other possible outcomes is a form of counterfactual thinking

  • our willingness to example outcomes is asymmetrical

  • we are more eager to put bad outcomes in context than good outcomes

Preferences, Payoffs, and Probabilities

  • Preference is individual to you, depends on your goals and values

  • Payoff is how an outcomes affects your progress toward or away from a goal

Preferences, Payoffs, and Probabilities

  • Some possibilities will have payoffs where you gain something of value

  • These compromise the upside potential of a decision

Preferences, Payoffs, and Probabilities

  • Some possibilities will have payoffs where you lose something of value

  • These compromise the downside potential of a decision

  • Risk is your exposure to the downside

Preferences, Payoffs, and Probabilities

  • When you’re figuring out if a decision is good or bad, you’re comparing the upside to the downside

  • Does the upside potential compensate for the risk of the downside potential?

Preferences, Payoffs, and Probabilities

  • Pros and cons lists are flat, low quality decision making tool

  • These lack information both about the size of the payoffs and the probability of any pro or con occuring

Six Steps to Better Decision Making

  • Identify the reasonable set of possible outcomes.

  • Identify your preference using the payoff for each outcome, what degree do you like or dislike each outcome?

  • Estimate the likelihood of each outcome unfolding

Six Steps to Better Decision Making

  • Assess the relative likelihood of the outcomes you like and dislike for the option under consideration.

  • Repeat steps 1-4 for other options

  • Compare the options

Taking Dead Aim

  • Likely and unlikely are ambiguous terms, it leads to miscommunication

  • Expressing probabilities as percentages is more useful and precise

Taking Dead Aim

  • Size of range of signals indicates what you know and what you don’t know

  • Shock test: would you be surprised if the correct answer was outside your range?

Turning Decisions Outside In

  • Inside view is your view of the world

  • Many cognitive biases are in the inside view

  • Pros and cons list amplify the inside view

Turning Decisions Outside In

  • Outside view is the way others would see your situation, indepedent of your own perspective

  • Accuracy leaves at the intersection of the outside view and the inside view

Breaking Free from Analysis Paralysis

  • Increasing accuracy costs time

  • Saving time costs accuracy

  • Key to balancing it - what is the penalty for not getting the deicison right?

Happiness Test

  • How happy will you be in a week, a month, or a year?

  • If this was the only option I had, would I be happy with it?

Opportunity Cost

  • When you pick an option, you’re passing on the potential gains associated with the options you don’t pick

  • Higher the opportunity cost, the higher thee penalty for making choices that are less certain

Power of Negative Thinking

  • Gap betwen the things we know we should do and the decision we later make is known as the bahavior gap

  • Think positive

  • Plan negative

Power of Negative Thinking

  • Mental contrasting is thinking about how things can go wrong

  • Mental time travel: picturing yourself in the future having failed, and looking back at what got you to that outcome

  • This is a premortem

Power of Negative Thinking

  • Backcasting is when you work back from a positive future to figure out why you succeeded

  • Don’t confuse the destination with the route.

  • Your reaction to a bad outcome can make things worse.

Power of Negative Thinking

  • Backcasting is when you work back from a positive future to figure out why you succeeded

  • Don’t confuse the destination with the route.

  • Your reaction to a bad outcome can make things worse.

Decision Hygiene

  • Beliefs are contagious

  • Halo effect: tendency for an impression created in one area to influence opinion in another area

The End

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