Not all decisions are important.
Why? Because the consequences don’t matter. Yet some decisions are critical — they change our lives.
Decisions about who to entrust with your finances, where to call home, or who to spend your life with can have long-lasting effects that echo for years to come. Yet most of us don’t have the right skills to think through these problems.
And even smart people make terrible decisions. You see this all the time – whether it’s NASA deciding to ignore the O-ring issues on the Challenger, or your law partner friend who put his life savings into crypto.
In many cases, these catastrophic decisions are made by people who are, in a way, professional decision-makers. Even those with impeccable credentials and judgment can make poor decisions due to a limited understanding of the world, flawed judgment, or sheer stupidity.
There are a lot of reasons we fail to make effective decisions.
Five of the biggest ones are:
- We’re unintentionally stupid.
- We have the wrong information.
- We use the wrong mental model.
- We fail to learn.
- We want to look good, over doing good.
Thankfully, there are steps we can take to minimise the chances of making bad decisions and enhance our likelihood of making sound ones, in each of these areas.
So, when was the last time you thought about how you make decisions?
If you’re like most people, it’s something you’ve never been taught.
During the early 1980s, Charlie Munger and Warren Buffett found themselves in a precarious position as their Savings & Loan operation, along with the entire industry, was on the brink of catastrophic failure due to external factors outside of their control.
However, instead of following the herd and remaining idle, the duo made a bold decision to change their course of action, which greatly reduced the impact of the bank’s impending failure on their other business holdings. Munger and Buffett’s decision to think differently from their peers was a significant factor in their ability to emerge from the crisis relatively unscathed.
Their ability to apply a system of organised common sense proved to be a lifesaver, sparing them from immense stress and financial loss. While their decision may have seemed peculiar at the time, it was a wise move that ultimately paid off. Everyone else was guessing, falling into old patterns, and blindly following cognitive biases, while they were clear-headed and laser-focused.
There is a lesson here for us all – about how the world works.
And there are many examples of this around us.
Other thinking frameworks that help you look at problems through different lenses could be an inversion, otherwise known as thinking something through in reverse or thinking “backwards,” or Second-Order Thinking, where you ask yourself, “And then what?”
Finally, here are some of my go-to recommendations for the most helpful books on decision-making:
- Judgment and Managerial Decision Making — An academic book that effectively covers heuristics and biases. For a non-academic book on the same subject, see Thinking, Fast and Slow by Daniel Kahneman.
- Poor Charlie’s Almanack and Seeking Wisdom — These books cover most of the ways we fool ourselves but add a layer of applied multidisciplinary education.
- The Great Mental Models Volume 1: General Thinking Concepts — This volume details nine of the most versatile, all-purpose mental models you can use right away to improve your decision-making, productivity, and how clearly you see the world.
This article was written by Sam Instone with permission to publish.
https://www.aesinternational.com/blog/education/weekend-reading-2023-15
