From Chip Heath’s book “Decisive“
“Why do people make bad decisions?”
- “In recent years, many fascinating books and articles have addressed this question, exploring the problems with our decision making. The biases. The irrationality. When it comes to making decisions, it’s clear that our brains are flawed instruments. But less attention has been paid to another compelling question: Given that we’re wired to act foolishly sometimes, how can we do better?” (L 76)
What’s wrong with the pros and cons list?
- “The pros-and-cons approach is familiar. It is commonsensical. And it is also profoundly flawed. Research in psychology over the last 40 years has identified a set of biases in our thinking that doom the pros-and-cons model of decision making. If we aspire to make better choices, then we must learn how these biases work and how to fight them (with something more potent than a list of pros and cons). Prepare to encounter the four most pernicious villains of decision making—and a process that we can use to counteract their influence.”
The Four Villains of Decision Making
1st Villain- NARROW FRAMING.
Widen Your Options
- Beware of binary options and widen your options.
“narrow framing is the tendency to define our choices too narrowly, to see them in binary terms.”
“The first step toward that goal is to learn to distrust “whether or not” decisions. In fact, we hope when you see or hear that phrase, a little alarm bell will go off in your head, reminding you to consider whether you’re stuck in a narrow frame. If you’re willing to invest some effort in a broader search, you’ll usually find that your options are more plentiful than you initially think.” - “When you hear the telltale signs of a narrow frame—people wondering “whether or not” they should make a certain decision or rehashing arguments endlessly about the same limited set of choices—push them to Widen Their Options.”
- Think about opportunity costs–
“What are we giving up by making this choice? What else could we do with the same time and money?”
Example: Let’s say you are trying to decide between a $1000 stereo and a $700 stereo. You shouldn’t simply compare the pro and cons of the $1000 stereo vs the $700 stereo. You should widen your options and think about Opportunity Costs. You should compare the $1000 stereo vs the $700 Stereo PLUS $300 worth of albums. - “Try the Vanishing Options Test– “Ask them what they’d do if their current alternatives disappeared.”
- Try Multitracking– “considering several options simultaneously.”
- Find someone who’s solved your problem- Like Walton did looking at competitor’s stores.
- Look for analogies- Like how scientists look and compare viruses and how Speedo looked at sharks. Ladder up from locally, to regionally, to nationally, to more.
2nd Villain- CONFIRMATION BIAS.
Reality Test Your Assumptions
- “Our normal habit in life is to develop a quick belief about a situation and then seek out information that bolsters our belief. And that problematic habit, called the “confirmation bias,” is the second villain of decision making.”
- “Researchers have found this result again and again. When people have the opportunity to collect information from the world, they are more likely to select information that supports their preexisting attitudes, beliefs, and actions. Example- Political partisans seek out media outlets that support their side but will rarely challenge their beliefs by seeking out the other side’s perspective.”
- “develop the discipline to consider the opposite of our initial instincts. That discipline begins with a willingness to spark constructive disagreement.”
- Create a Devil’s advocate or challenge network
“Hayward and Hambrick also discovered an antidote to hubris: disagreement. They found that CEOs paid lower acquisition premiums when they had people around them who were more likely to challenge their thinking, such as an independent chairman of the board or outside board members who were unconnected to the CEO or the company.”
“The most important lesson to learn about devil’s advocacy isn’t the need for a formal contrarian position; it’s the need to interpret criticism as a noble function.” - “That’s the whole point of the confirmation bias—deep down, we never really want to hear the negative information. (When’s the last time you earnestly “considered the opposite” of one of your political views?)
- Ask disconfirming questions- “we can ask questions that are more likely to surface contrary information.” (p. 96)
- Look for base rates (outside views) and take it seriously.
“What we’ve seen so far is a very simple rule for analyzing your options: Take the outside view. You should distrust the inside view—those glossy pictures in your head—and instead get out of your head and consult the base rates. Sometimes those numbers are readily available, as on TripAdvisor or Yelp. Sometimes you might have to cobble them together yourself. If neither of those options is possible, try consulting an expert for their estimates of the base rates.” - “Your friends and colleagues will suffer from this same stubbornness: the tendency to trust their own impressions too much. They’ll be trapped in the inside view, but you’ll have an easier time seeing the outside view. Be forewarned, though: Sometimes people can have access to the perfect set of data—and still manage to ignore it.”
- Run a close up- “A “close-up” can add texture that’s missing from the outside view” (p. 114)
- Try Ooching
“running small experiments to test our theories. Rather than jumping in headfirst, we dip a toe in.”
“That strategy—finding a way to ooch before we leap—is another way we can reality-test our assumptions. When we ooch, we bring real-world experience into our decision.” - “we’ve got to Reality-Test Our Assumptions. We’ve seen three strategies for doing that. First, we’ve got to be diligent about the way we collect information, asking disconfirming questions and considering the opposite. Second, we’ve got to go looking for the right kinds of information: zooming out to find base rates, which summarize the experiences of others, and zooming in to get a more nuanced impression of reality. And finally, the ultimate reality-testing is to ooch: to take our options for a spin before we commit.” (p. 128)
3rd Villain- SHORT TERM EMOTION.
Attain Distance
- “When people share the worst decisions they’ve made in life, they are often recalling choices made in the grip of visceral emotion: anger, lust, anxiety, greed. Our lives would be very different if we had a dozen “undo” buttons to use in the aftermath of these choices.” You should ATTAIN DISTANCE BEFORE DECIDING.
- “No doubt Andy Grove had been compiling his pros-and-cons list about whether to exit the memory business for many years. But the analysis left him paralyzed, and it took a quick dose of detachment—seeing things from the perspective of his successor—to break the paralysis.”
- Use the 10/10/10 Rule.
“To use 10/10/10, we think about our decisions on three different time frames: How will we feel about it 10 minutes from now? How about 10 months from now? How about 10 years from now?” - “Perhaps the most powerful question for resolving personal decisions is, “What would I tell my best friend to do in this situation?”
- “our advice to others tends to hinge on the single most important factor, while our own thinking flits among many variables. When we think of our friends, we see the forest. When we think of ourselves, we get stuck in the trees.“
- Enshrine your core priorities. “By identifying and enshrining your core priorities, you make it easier to resolve present and future dilemmas.”
4th Villain- OVERCONFIDENCE.
Prepare to be Wrong
- “We have too much confidence in our own predictions. When we make guesses about the future, we shine our spotlights on information that’s close at hand, and then we draw conclusions from that information.” You should PREPARE TO BE WRONG.
- “After we’ve made a decision, we must challenge ourselves to consider two questions: How can we prepare ourselves for both good and bad outcomes? And how would we know if it were time to reconsider our decision? In other words, we must Prepare to Be Wrong.” (p. 161)
- “They weren’t hedging their remarks by saying, “It’s possible that…” or “I just worry that this could happen someday…” They knew they were right, they just knew it.”
- “Overconfidence about the future disrupts our decisions. It makes us lackadaisical about preparing for problems. It tempts us to ignore early signs of failure. It leaves us unprepared for pleasant surprises.”
- “A study showed that when doctors reckoned themselves “completely certain” about a diagnosis, they were wrong 40% of the time.”
- “To do this we have to Prepare to Be Wrong about our predictions of the future- that’s the P in the WRAP model. We need to stretch our sense of what the future might bring, considering many possibilities, both good and bad, which is exactly the discipline reflected in Penstock’s bookending philosophy.”
- “The future is not a “point”—a single scenario that we must predict. It is a range. We should bookend the future, considering a range of outcomes from very bad to very good.”
Example: “I’m 80% certain that the average Angelina Jolie film grossed between $30 million and $100 million” - Conduct a Pre-mortem.
“A team running a premortem analysis starts by assuming a bleak future: Okay, it’s 12 months from now, and our project was a total fiasco. It blew up in our faces. Why did it fail?
Everyone on the team takes a few minutes to write down every conceivable reason for the project’s failure. Then the team leader goes around the table, asking each person to share a single reason, until all the ideas have been shared. Once all the threats have been surfaced, the project team can Prepare to Be Wrong by adapting its plans to forestall as many of the negative scenarios as possible. The premortem is, in essence, a way of charting out the lower bookend of future possibilities and plotting ways to avoid ending up there.” - “THE FMEA AND ITS sister technique, the premortem, stop people from focusing on a single, usually optimistic, guess about how the world will unfold and instead compel them to pay attention to the uncertainty surrounding the guess. The effort it takes to explore the full spectrum of possibilities and to prepare for the worst possible scenarios acts powerfully to counteract overconfidence.” (p. 174)
- Create a Margin of Safety– “The safety factor varies by domain. For the space shuttle’s ground equipment, it’s four. For an elevator cable, it’s eleven.” (p. 176)
- Create a Tripwire– “One solution to this is to bundle our decisions with “tripwires,” signals that would snap us awake at exactly the right moment, compelling us to reconsider a decision or to make a new one. Think of the way that the low-fuel warning in your car lights up, grabbing your attention. (if only the woman from Alabama had an Italy warning that lit up before she lost her health.
- “It’s the same voice we’ve all encountered in different forms. My boyfriend still doesn’t treat me the way I want him to, but maybe he will change.… I’ll just wait and see what happens. Or, I know our sales aren’t going as well as we’d predicted, but before we reconsider our strategy … let’s just wait and see what happens. Kodak’s executives were trapped in autopilot; they were coasting with the momentum of past choices. They needed a tripwire to snap them to attention and force a choice.” (p. 189)
- “The goal of a tripwire is to jolt us out of our unconscious routines and make us aware that we have a choice to make.”
Use the WRAP Process.
- Widen Your Options
- Reality Test Your Assumptions
- Attain Distance Before Deciding
- Prepare to be Wrong
We know that you can’t trust your own judgement in decision making because:
- You encounter a choice. But narrow framing makes you miss options.
- You analyze your options. But the confirmation bias leads you to gather self-serving information.
- You make a choice. But short-term emotion will often tempt you to make the wrong one.
- Then you live with it. But you’ll often be overconfident about how the future will unfold.
“So, at this point, we know what we’re up against. We know the four top villains of decision making. We also know that the classic pros-and-cons approach is not well suited to fighting these villains; in fact, it doesn’t meaningfully counteract any of them.”
Other good quotes:
“The researchers found that in making most of the decisions, the teams had conducted rigorous analysis. They’d complied thorough financial models and assessed how investors might react to their plans.
Beyond the analysis, Lovallo and Sibony also asked the teams about their decision process—the softer, less analytical side of the decisions. Had the team explicitly discussed what was still uncertain about the decision? Did they include perspectives that contradicted the senior executive’s point of view? Did they elicit participation from a range of people who had different views of the decision?
When the researchers compared whether process or analysis was more important in producing good decisions—those that increased revenues, profits, and market share—they found that “process mattered more than analysis—by a factor of six.” Often a good process led to better analysis—for instance, by ferreting out faulty logic. But the reverse was not true: “Superb analysis is useless unless the decision process gives it a fair hearing.”(L. 102)
“The discipline exhibited by good corporate decision makers—exploring alternative points of view, recognizing uncertainty, searching for evidence that contradicts their beliefs—can help us in our families and friendships as well. A solid process isn’t just good for business; it’s good for our lives.”
“We’ve also seen plenty of important, and common, life decisions: How do you decide on a job offer? How should you handle a difficult relationship? How do you choose the right college? How do you hire the best people? How can you get a better deal on a car? How can you ensure that you spend time on things that really matter?”
“The same process can guide them all. We can learn to find just one more option. The check our assumptions against reality. To make tough choices based on our core priorities. To prepare humbly for the times when we’ll be wrong.”
“The process need not take a long time to be effective. Even if you’ve only got 45 minutes to consider an important decision, you can accomplish a lot: Run the Vanishing Options Test to see if you might be overlooking a great alternative. Call someone who’s solved your problem before. Ask yourself, What would I tell my best friend to do? (Or, if you’re at work, what would my successor do?) Gather three friends or colleagues and run a premortem.”