Decision Making is tricky
Continuing from the previous blog where I established that “conscious” decision making is an important and urgent need for all of us, over the next several blogs, I intend to cover the following topics:
- Why decision making is tricky
- What makes a good decision
- Anatomy of decision making
- Internal (bottom-up) factors that affect decision making
- Tools/Strategies to address internal factors to improve decision making
- External (top-down) factors that affect decision making
- Tools/Strategies to address external factors to improve decision making
- Other useful strategies
As you read this, if you picture me as a nerdy academic who is out of touch with the real (complex) world, well, I can appreciate that. With no offence to the nerdy academics who have contributed disproportionally to the advancement of humanity, I arrived at this list of topics with only practical relevance in mind. It is my strong belief that those intending to improve their decision-making ability and thereby move the trajectory of their life upwards, will materially and significantly benefit from these blogs. My confidence comes from my own personal experiments with these topics.
Let me start with a few examples of the kinds of decisions we tend to make
(Please allow me to indulge a little here)
“Whether you think you can or you think you can’t, you’re right.” — Henry Ford
Back when I used to live in Bengaluru (Bangalore), I used to travel often to Hyderabad by train. I prided myself on generally being just in time at the station to catch the train. Then one day, when I was to drop off my mom at the station for a similar train journey, we were just a minute or so late and spotted the train leaving the station as we arrived at the station.
A smoker comes to know that one of his acquaintances died of cancer (as a result of decades of smoking). Although this smoker has been smoking for just a few years and that too only five or fewer cigarettes a day, gets alarmed and anxious and decides to quit smoking. On the fourth day of quitting, while working on a particularly tight deadline at work, he accompanies a few colleagues for a quick snack break at 9PM. On seeing his colleagues smoke, he gets tempted, rationalizes that after all, he smoked for only six years and that too hardly ever more than five cigarettes a day and then lights a cigarette borrowed from his colleague.
As a leader of 35 capable team members, one of your duties is to attend weekly staff meeting of your Business Head. The meeting starts at 8:30 AM every Tuesday. You are late for the meeting this week by fifteen minutes, unlike the two-minute delay the last time around. You were called out by your business head and were noticed (once again) by your peers. You plan your travel from home such that you normally arrive on time but today you were hit by a traffic jam just around from your office for about ten minutes.
You just came back from an elderly relative’s house where you were disquieted by their anxious and limited lives given significant limit on the funds that they had available to sustain their long-retired lives. You suddenly realized you should also start consciously planning for your retirement. Although retirement is twenty years away, you strongly felt that you need to start saving and investing in right earnest. You discuss with your spouse and you both decided that you will engage a financial planner the following week. Two weeks passed and the need to plan for retirement promptly receded to the absolute back of your mind.
As you climbed your weighing scale, you gasped at seeing the gauge cross 90 Kg mark. The next day you sign up with a neighbourhood gym franchisee for one year membership which happens to be offered at 40% discount.
You just completed a financial planning exercise with your financial planner and dishearteningly realize that there is a big gap between your resources and your goals. You already know from your neighbour who is engaged with stock markets full time, that investments in stock markets give great returns and you verify this yourself by doing some research on the internet. So, you, overnight, increase your stock market allocations from 10% of your assets to 70% assets.
You feel cheated for constantly getting passed over for what you believe to a well-deserved promotion at work. After getting passed over this cycle again, you quit your employer in frustration.
You bought an apartment for Rs 1 crore ($125L) seven years ago. A week ago, one of your neighbours sold their apartment for Rs 1.6 Crore ($200K). You read in a financial magazine that general inflation for the previous decade was 7% per annum. You feel good that your investment in your apartment has given an excellent return of 60%.
It is quite evident from the anecdotes that you have been hearing that the job market is hot. You try your hand at job change. You were able to capitalize on the hot market not once but twice within a span of eight months. In the process you were able to improve your what-was-already-competitive compensation by 90%.
You invested a non-trivial sum of money into a broad-based stock market index fund. It gives the following returns in the next five years: +20%, -30%, -6%, +30% and +1%. You were quite spooked with negative returns in the 2nd and 3rd years and so waited for your investment to cross their initial value. At the end of five years when your investment marginally exceeded your initial invested value, you cash your fund out, happy that you did not lose any money. The next year index returns 190%.
You are presented with a fabulous job opportunity but in a different city. Although the new city is a modern metropolis, you do not particularly care for its local cuisine. While you have ambitious career aspirations, you decide to give the opportunity a bye as you also care for your food choices.
What makes decision making tricky?
- Unknowability of future
This manifests in many ways, few of which are listed below:
o It is generally hard, and mostly impossible, to determine all the variables that impact the targeted outcome. We tend to miss a variable subset of relevant variables because we have limited time in making decisions and also because of the complexity and enormity of problem statement
o Even for the variables that have been identified, one has to assume values which materialize only in the future but future is anybody’s guess
o World is dynamic and hence even if we figure all the relevant variables and assume their correct values at the time of making decision, scope and nature of variables will most likely change with time
- Our own innate nature
Our decisions are made in our mind. Our decisions are heavily influenced by our subjective ways of thinking, how we perceive variables, how we perceive risk and how optimistically or pessimistically we perceive future. As you will see in detail in one of the later blogs, for various reasons we tend to deploy unsuitable thinking based on non-relevant features of the problem.
Decision making is tricky due to its essential subjective nature and also due to unknowability of future and dynamism in the world around. It being tricky cannot be a reason to not improve methodical decision-making ability.
“Good and evil both increase at compound interest. That is why the little decisions you and I make every day are of such infinite importance.” — C.S. Lewis
Thanks for taking time to read this. In this newsletter, I share my learnings that could help you improve your decisions and make meaningful progress on your goals and desires. I share stuff that I have personally experienced or experimented with. If you find this newsletter worthwhile, please do share it with others — of course, only if you do not mind it.
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