Thinking in Bets
Becoming comfortable with uncertainty and not knowing is a vital step to becoming a better decision-maker.
What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge.
MORE IDEAS FROM THE ARTICLE
People have a natural tendency to conflate the quality of a decision with the quality of its outcome. They're not the same thing.
You can make a smart, rational choice but still get poor results. That doesn't mean you should have made a different choice; it simply means that other factors (such as luck) influenced the results.
You cannot control outcomes; you can only control your actions.
Why don't smart decisions always lead to good results? Because we don't have complete control over our lives — and we don't have all of the information.
You can opt not to drink on New Year's Eve, for instance, but still get blindsided by somebody who did to drink and drive. You made a quality decision, but happenstance hit you upside the head anyhow.
- Stop thinking in terms of right and wrong. Few things are ever 0% or 100% likely to occur. Instead, we should think in bets.
- Before we commit to a course of action, we should think about possible outcomes and how likely each of those outcomes is to occur. Every choice carries an opportunity cost.
- Learn to examine your own beliefs. If you're certain about something, explore the opposing viewpoint.
- Build a network of trusted advisors. Draw on people from a variety of backgrounds and belief systems.
- When you make decisions, think of the future. Practice backcasting, a visualization method in which you define the desired outcome then figure out how you might get there.
RELATED IDEAS
The prospect theory shows that people are often willing to make riskier decisions to avoid losses than to make gains - even when the situation is identical but framed differently. For example, a 30% chance of death and a 70% chance of life are two different ways to describe the same thing.
If uncertainty is the default, an irrationally strong influence will be exerted on the outcome.
- We all have some sort of model(s) of how the world works and what's true and what's not
- That's what we're always doing - building models so we can act in it with intention
A poor understanding of good or bad luck can derail the decision making of bankers, judges, and athletes. Being aware of probability will prevent you from reading too much into random events, or 'spotting' trends when there are none.
In the current pandemic, where governments design policies based on limited data, we could all do with a better understanding of uncertainty and how to think about it under pressure.