What is a good decision? Not Bad
It would seem an obvious question; until one ponders the matter.
Some context is provided below; then a self-test, allowing for reflection and a call to action.
Good decision..?
A good decision is one that leads to one’s desired outcome; yet not all good decisions lead to such an eventuality.
For example: as a law-abiding driver you stop your vehicle at an intersection’s red light; waiting for it to turn green, to allow you to proceed. It does, you do; only to be hit, side-on, by a speeding driver having run-a-red-light. You made the right decision, yet suffered a bad outcome. Likelihood? Rare, but a possibility.
We are all immersed in decisions; be they: personal; ones made on behalf of others; through to those for formal organisations. These decisions range from: the small and mundane; through the regular (if not automatic) to the unique. Decisions can be: protracted to immediate; trivial to momentous (such as investments, house purchase, career choice, relationship, parenthood, health).
The decision-making process continues to be a fertile topic for psychologists, as theories ebb and flow.
Cascading outcomes
Any decision has an immediate outcome but also leads to consequential effects that can cascade through time and space. Thus, any assessment of decisions, good or bad, must be seen in the context of its rippling effects. Even a ‘non-decision’ itself has consequences.
Thus, decisions are less linear and encompass more flux.
The crux of the ‘good’ decision remains: being clear as to the desired outcome, when made; for its realisation at some future point in time.
Coping mechanisms
“Decision-remorse” affects many individuals; it is a coping mechanism. The psychological profile of human-beings is wired with loss-aversion as a key character aspect. The gain from any decision must be substantiated versus the status quo. Assessment is always a post-factum affair.
Such a review needs to be both quantitative as well as qualitative in nature. Studies find that even with a 50/50 probability; the bulk of respondents would only be willing to make a bet for a return that would be two-times greater than the original stake. Highly skewed! This certainty-demand increase exponentially with the amount involved. All cake! Even objective decision-makers must work hard to overcome innate biases. The team at Harvard have suggested 3 practical questions to challenge decision- biases: (Challenge convictions, Assess likelihoods, Practice probabilities).
Interestingly though, the human psyche is endowed with an unerring ability to rationalise any situation, including negative outcomes.
A better “good decision”
Thus, a “good” decision is best answered as being a decision which is “not bad”.
Unsurprisingly, most individuals and organisations would aver decisions. Again, research suggests that ‘playing it safe’ leaves a negative residual effect on one’s psychological state of mind. Such a mental state has profound impacts on innovative, creative, entrepreneurial and risk-taking activities - which often drive betterment, in all its forms.
“Good” decisions are not taken in isolation; they are taken in a context and as part of a wider system. The research though suggests that in determining a “good” decision, regardless of outcome, one should consider the process itself; taking numerous aspects into account. The ‘New Scientist’s’ “top 10 ways” list is a useful summary of the many aspects that exist. There are 7 main aspects.
Framing the decision parameters (including the need for any decision at all – a decision in of itself).
A clear, desired outcome as well as the impact on others (involved in the machinations of the decision, as well as how it will be viewed by one’s peers) in terms of time, costs and quality.
Seeking out a sufficient relevant information and alternatives
Gauging the resources required.
Being transparent to these engaged and affected.
Bringing robust closure to the goal, yet open other future opportunities.
Replicable, certainly in terms of decision-process.
A “good” decision is one which we can live with, even if the outcome is not what we wanted More so, if everyone connected with the decision can see that when taken it made sense at the time.
Choice ephemeral?
So, if the recipe for a “good decision” is clear then why is it so hard to decide; and decide well?
In the case of our driver, we have abrogated accountability to a higher-level system and codes of behaviours. It was not the law-abiding driver’s fault! But this raises the perennial question: quo vadis?
We jealously guard our ability, if not right, to choose. But in reality, we are captives of the decision-making process and its framing; within which “choices’’ are presented. Blue pill vs Red pill.
Less is more
A mental crutch to overcome our psychological profile is the belief that more information begets better decisions: the notion that perfect knowledge leads to a perfect decision.
At its simplest this mantra is at the heart of machine-learning, AI and decision algorithms. However, perfect information is ephemeral.
The world of chess is one of “perfect knowledge”. Even “Deep Blue’s” skills had limitations. Its successor, “Deep Mind” raises the spectre of Skynet: choice will be obviated, as Morpheus suggests.
For the poker player, in a world of imperfect knowledge (and more akin to the real world) the only poor decisions are uninformed ones. That throws accountability squarely on the decision-maker, in this case the player. Many of us lack that necessary resolve.
In the absence of information: logic should triumph; leading to a better decision!? Such a belief is a mental palliative, as the Wason 4-card solution task shows. In aggregate, less than 10% of respondents get the right answer following logic. Go ahead (the answer is found below). Mr. Spock would be shocked!
Source: Wikipedia
Again, research suggest that to cut through our decision biases, euphemistically referred to as: “noise”, an individual should syndicate decisions. Yet this raises philosophical issues of: ‘choice’, ‘herd mentality’ and individual accountability. “Who wants to be a millionaire?”
For teams (such as in sports), practitioners speak of “decision-chains”; with any decision only being as strong as the ‘weakest’ link (ie “commitment to follow through”) as well as being based on the choice of answers to decision-framing questions. The emphasis is on the coach to strengthen the process for the athlete(s).
For true risk-takers and entrepreneurs , they operate in world of shifting “knowns” and “unknowns”, even “unknown-unknowns”. For them, the same disciplined, good-decision paradigm can be applied (even in a less rigid, yet robust fashion) to accommodate the changing contextual facts and forces of the real competitive, commercial world.
As an equity investor, the stock market context is a set of complex rules with zero-sum outcomes: one side gains, the other loses. This game is framed in understood and accepted conventions and time-frames with transparent benchmarks. Relative to the investor’s own starting position and risk-reward objectives, the dynamics of the overall market act as a base-line proxy for alternatives. A “good decision” preserves initial capital and access to it, while generating a return greater than the chosen base-rate. Timing is all. Interestingly most active retail and day-traders receive most of their investment training ‘on-the-job’; with concomitant results.
As the song goes: “…know when to hold ‘em; know when to fold ‘em”. It is how better investors invest. You have a choice.
In short: a good decision is not a bad one.
Call us at Gate Capital!
>>> Solution: “8” and “Brown”
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Justin Jenk is business professional who enjoys simplifying-decisions-by-connecting-dots. His career encompasses a rare blend of roles as a manager, advisor, investor and board member; with a track record of successes. He is a graduate of Oxford and Harvard universities. Justin can be found at justinjenk.com or www.raktas.ee or researchgate.