I like the thought process here:

How You Can Change Your Decision Making

  1. Raise your awareness: Incomplete information and lots of uncertainty leads to poor outcomes
  2. Put yourself in the shoes of others: Consider the point of view or experience of other people
  3. Recognise the role of skill and luck: Sorting skill from luck is essential for evaluating outcomes
  4. Get feedback: Maintaining a decision-making journal allows you to audit your decisions
  5. Create a checklist: It will alert you to think clearly about what you might advertently overlook
  6. Perform a premortem: Assume that the decision has failed; look for reasons why
  7. Know what you can’t know: In decisions that involve systems with many interacting parts, causal links are frequently unclear

Read the full piece at Think Twice

Category: Philosophy

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4 Responses to “How You Can Change Your Decision Making”

  1. rd says:

    His comment about selection bias where you hear about the successes and not the failures is a very important one.

    In engineering, we actually have the opposite. Failures are often extensively studied, sometimes multiple times over several decades. Studying failures is very important to engineers’ decision making processes as you never know if the successes were due to luck or skill but documented failures will usually inform you. So number 2 on the list above is very critical. Even the analogy of the chess grandmasters is apt – they will have studied the failures of many past grandmasters with specific openings and end games toavoid those mistakes during the more mechanical parts of the games. The intuition is therefore usually in the middle game or coming up with a new, untried variation on an opening.

    Engineers’ goal in design is to end up with a relatively efficient and relatively safe structure or process. Perfection is generally not attainable but it is usually quite viable to do something that meets the expectations of both the people paying and the people using. It is important to understand the various failure modes that could occur with something and the variability of the inputs that could push something past the brink. Generally the consequences of failure are much greater than the consequences of exceeding expectations – this is something the financial sector has yet to learn.

    • ilsm says:

      Good points.

      The “ops research” that came out of US/UK collaboration during WW II is useful. Lots more than code breaking, how do you find subs, how to set the depth on the depth charges or better repair and overhaul plans to keep more Liberators ready to fly.

      Faut trees (Boeing 1961) and failure mode analysis (US CAB) were developed for air transport and DoD maintenance planners.

      Objects, inputs, outputs, environments and constraints help the analysts.

      With all the data mining, and metas the forest can be lost to the trees.

  2. S Brennan says:

    Great advice.

  3. faulkner says:

    I am an admirer of Michael Mauboussin’s work, and it is filled with unspoken conundrums.

    Take #1 on the list How You Can Change Your Decision Making; “Raise your awareness.” How to do this is left unsaid. Behavioral economics research has found that more information increases confidence, but decreases the quality of decisions. So, knowing the difference between raising awareness and more information is critical. But what is that difference?

    Or #2. “Put yourself in the shoes of others.” This is generally a good decision move, but are you simply changing perspectives, or trying on another way of thinking. As both of these are done in your imagination, it will depend on your level of mental development as well as the level of the person you are imagining. If his level is higher, you will simply be reflecting back to yourself what you would do.

    #3. “Recognize the role of skill and luck” are well covered in his new book. Get a copy and read it.

    #4. “Get feedback” with the suggestion of a decision-making journal to audit decisions later is, in principle, a good idea. The further the time away from a decision, the more memory will revise it in favor of preserving your self image. Writing things down right away reduces plausible deniability.
    Still, the practice presupposes you can consciously know how you made a decision, while the research shows most of the decision process will be outside of your consciousness awareness. This is one of the reasons for having an external procedural trading/investing system. It provides feedback on what much of your system is (reducing the unconscious portions) and whether you are following it or not. Explaining your system to other people will get you even more effective feedback.

    Numbers # 5. “Create a checklist;” #6. “Perform a premortem;” and #7. “Know what you can’t know” are all great suggestions and much better implemented in a diverse group than individually. A number of the more effective firms have this as a matter of culture.

    If you are not in one of those firms, a key to changing your decision making (for the better) is to create such a culture for yourself and a select group of others who are interested. Then all the items work better. (And the vast majority won’t do this.)