Get lucky by making better decisions
The ancient Persians had a very interesting approach to decision making. They made big decisions by discussing them twice : once while drunk and once while sober. And honestly, we've not evolved much since then! We agonize over the smaller decisions like what to stream on Netflix. But when it comes to the life changing decisions, we wing it based on emotions and other peoples opinions. This has long been a self identified area of improvement for me and so when I came across the book "Maxims for thinking analytically" by the legendary Harvard professor Richard Zeckhauser, I knew I had to read it. It was an incredibly insightful read filled with anecdotes on how the maxims can be applied in real life.
What are maxims?
A maxim is a statement that reinforces a general truth about the world (Think: Honesty is the best policy). They are useful for 2 reasons:
1. They make us think about things that might not be intuitive at first.
2. They help us correct our behavior when we intuitively know the right behavior but don't engage in it. Of the many maxims outlined in this book, the four described below have been the most insightful to me personally.
1. Think probabilistically about the world
Most people have only two possible probabilities for an event happening - Zero and One. This kind of thinking is extremely limiting, especially in a world as uncertain as ours. The alternative is to use tools of math and logic to assess the likelihood of any specific outcome coming to pass. If we can identify the most likely outcomes, our decisions can be more precise and effective. Assessing the likelihood that your friend will be late for lunch will help you make better decisions like shifting the reservation proactively. Practicing it in everyday situations will help us make better estimations when confronted with an extremely difficult decision in life. The future is far from determined and we can navigate it better by understanding the probabilities of events that could impact us.
2. Uncertainty is the friend of status quo
There was a central assumption in economics that humans are rational decision makers who consistently make objective choices between options to maximize their satisfaction. However, we're actually quite irrational. When there is uncertainty about the value of choices we're considering, we tend to stick with our initial choice. This is known as the "Status-Quo Bias". For example, you may end up ordering the same dish every time you order in. Instead of trying a new dish and running the risk that you will not like it, you'd rather stick to your tried and tested favorite. This minimizes the risk of any potential losses (being unhappy with what you ordered), but you also miss out on the possible benefits, such as finding a new favorite dish. You do this because the potential for loss stands out in your mind much more prominently than the potential for gains. Being aware of the bias and its tendency to appear in the face of uncertainty can help us make better decisions.
3. Good decisions sometimes have poor outcomes
Good decisions don’t always have a good outcome, just as bad decisions don’t always have bad outcomes. Confusing the quality of the decision with the quality of the outcome is so common that poker players have a term for it: resulting.
It is important to judge the quality of a decision by what you knew at the time you took it and not what you found out afterwards. For example, suppose you just purchased an iPhone. You estimate the probability of you damaging it to be 5% and decide to not purchase the insurance. But as luck would have it, you end up breaking your screen. This is a bad outcome for a well thought out good decision. Knowing that good decisions can have bad outcomes should make us more compassionate with ourselves and with others when bad outcomes happen.
4. Eliminate regret
This doesn't really sound like an analytical maxim but is one that I gained the most insight from. Our desire to avoid regret in the future might lead us to make suboptimal decisions in the present. Going back to the I-Phone example, if you decided to buy the insurance not because of rational reasoning but because you could avoid regret in the future - It would be suboptimal decision making. A conscious attempt to eliminate regret from your decision calculus is arguably one of the prime benefits of fully embracing decision analysis. Nonetheless, it is important to remember that regret is a wasteful emotion whether the bad outcome is a result of a good or a bad decision.
This was one of those small easy reads that will linger on in you’re thoughts long after you’ve put it down. I highly recommend it to anyone with even a slight interest in decision sciences.
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