Making Better Decisions

Published December 26, 2023

The Road Taken…Or Not

Every day, we are faced with an array of decisions. Some are routine and seem inconsequential, while others possess the power to shape the trajectories of our lives, especially in the business world. My own journey has been punctuated by these pivotal moments.

In the summer of 1994, I grappled with the future of my failing image processing venture. By the end of that year (after having decided to shut down the imaging startup), I was contemplating the nature of my next enterprise – an India-centric Internet startup or a different pursuit. Over the years, I found myself at the crossroads more than once: deciding on content domains in ’96, choosing a buyer for IndiaWorld in ’99, relinquishing control of Netcore to a professional CEO in 2007, contemplating a political startup for the 2014 elections, reevaluating Nayi Disha’s direction in 2019, and in 2022, making a momentous decision about acquiring Unbxd for a staggering $100 million – a milestone for Netcore.

Each decision took me down a certain path. In every case, there was an alternative. I had to decide on the future direction within a limited timeframe. While I could take multiple inputs from others, the final call was mine. Every decision was about the future – one I had no way of knowing or predicting. I would never have perfect information to decide. Decision-making often boiled down to a leap of faith into an unpredictable tomorrow. If I was wrong, the decision could bring some pain and even entail financial losses.

When I have to make big decisions, I do what perhaps many of us do – list out the pros and cons, talk to a few people we trust for inputs, imagine the possible futures based on the choices we make, play out the worst-case scenario should the decision go bad, and perhaps even procrastinate. And yet, there comes a time when the decision cannot be delayed anymore. A deadline approaches. With hesitating finality, an answer must be given, a path must be chosen. One is never fully sure of how things will play out so there is always a moment of self-doubt, and even a “if only I had chosen the other path” feeling. In big and important decisions, there is no going back. For an entrepreneur and leader, there is no higher-up to pass on the buck for a bad decision. A mistake will have costs, and it may quite some time till one realises that an error of judgement has been made. There is the other side – the joy and ecstasy of having made the right move, which becomes a game changer taking the business into a new orbit. Every entrepreneur knows this dance well – between self-doubt and conviction, between lamenting what might have been and the euphoria of a decision that propels a business to new heights.

So, amidst this whirlwind of emotions and consequences, is there a way to consistently make better decisions? Let’s learn from the wisdom of others.

Decisions and Outcomes

Annie Duke writes in “How to Decide”: “Because any decision determines only the set of possible outcomes (some good, some bad, some in between), this means good outcomes can result from both good and bad decisions, and bad outcomes can result from both good and bad decisions.” Here is a helpful graphic:

Annie explains the four cells:

An Earned Reward comes when you make a good-quality decision that results in a good outcome, like when you proceed through a green light and get through the intersection safely.
Dumb Luck comes when you make a poor-quality decision that turns out well. You can be waiting at a traffic light and fail to notice the light has turned green because you are deeply entranced by the world’s most important tweet. If, while you are sitting there failing to proceed through the intersection, you happen to avoid getting in an accident with a car whose driver ignores the red light in their direction and barrels through the intersection, that doesn’t make looking at Twitter while driving a good decision. That’s just Dumb Luck.
Bad Luck comes when you make a good-quality decision that turns out poorly. You can proceed through a green light and get in an accident with someone turning into traffic. That’s a bad outcome, but it wasn’t because your decision to follow the traffic laws was poor.
Just Deserts means making a poor-quality decision that results in a bad outcome, like running a red light and getting in an accident.

Some additional inputs:

The only thing you have control over that can influence the way your life turns out is the quality of your decisions.
Determining whether a decision is good or bad means examining the quality of the beliefs informing the decision, the available options, and how the future might turn out given any choice you make.
Resulting: A mental shortcut in which we use the quality of an outcome to figure out the quality of a decision…A necessary part of becoming a better decision-maker is learning from experience. Experience contains the lessons for improving future decisions. Resulting causes you to learn the wrong lessons.
Luck exerts its influence between your decision and which of the possible paths you end up on. It is the element you have no control over that determines which of the possible outcomes you actually observe in the short run.

In her book, Annie outlines six steps to better decision-making:

Step 1—Identify the reasonable set of possible outcomes.
Step 2—Identify your preference using the payoff for each outcome—to what degree do you like or dislike each outcome, given your values?
Step 3—Estimate the likelihood of each outcome unfolding.
Step 4—Assess the relative likelihood of outcomes you like and dislike for the option under consideration.
Step 5—Repeat Steps 1–4 for other options under consideration.
Step 6—Compare the options to one another.

She adds: “Your greatest challenge as a decision-maker is seeing things that, by their nature, are going to be hazy. For past decisions, you’re reconstructing the decision while navigating your way through distortion-inducing biases. For new decisions, you’re looking into the future, which is inherently uncertain. This six-step process will help you improve the quality of both new decisions on your horizon and your assessment of past decisions. It’s hard to accurately assess a decision after the fact, in the shadow of an outcome that has already happened. But if you have a good decision process going forward, and keep a record of it, you’ll be a lot better off. You won’t have to wonder after the fact whether a decision was good or bad, under the haze of resulting and hindsight bias.”

Here is more from ChatGPT on the key ideas in the book:

Backcasting and Precommitment: When faced with a decision, imagine a future where a positive outcome has occurred, then work backward to figure out the steps that led to that outcome. Precommit to decisions and set clear criteria before entering a situation where emotions might sway your choices.
Decide in Bets: When making a decision, think of it as placing a bet on a particular outcome. Assess the risks, rewards, and probabilities associated with each option.
Seek Feedback: Constructive feedback can help improve your decision-making process. Create an environment where you and others can provide feedback without fear of retribution.
Use Decision Journals: Keep a journal of your decisions. Note the context, the decision made, the expected outcome, and the reasons for the decision. This helps you learn from your experiences and refine your process over time.
Decision Hygiene: Introduce practices that minimize biases and errors in decisions. This includes techniques such as considering the opposite of your initial instinct, breaking decisions into smaller components, and being wary of data that seems too good to be true.
Tackle Decisions Sequentially: Instead of trying to decide all at once, break decisions into smaller parts and tackle them one at a time. This can reduce complexity and make the process more manageable.
Use Tools and Frameworks: Tools like decision trees, pros-and-cons lists, and weighted factor models can help structure your thinking and lead to better decision outcomes.

Zoom In, Zoom Out

In their book, “Decisive”, Chip Heath and Dan Heath write:

“A remarkable aspect of your mental life is that you are rarely stumped,” said Daniel Kahneman, a psychologist who won the Nobel Prize in economics for his research on the way that people’s decisions depart from the strict rationality assumed by economists. In his fascinating book, Thinking, Fast and Slow, he describes the ease with which we draw conclusions: “The normal state of your mind is that you have intuitive feelings and opinions about almost everything that comes your way. You like or dislike people long before you know much about them; you trust or distrust strangers without knowing why; you feel that an enterprise is bound to succeed without analyzing it.”

Kahneman says that we are quick to jump to conclusions because we give too much weight to the information that’s right in front of us, while failing to consider the information that’s just offstage. He called this tendency “what you see is all there is.”…We’ll refer to this tendency as a “spotlight” effect.

… That, in essence, is the core difficulty of decision making: What’s in the spotlight will rarely be everything we need to make a good decision, but we won’t always remember to shift the light. Sometimes, in fact, we’ll forget there’s a spotlight at all, dwelling so long in the tiny circle of light that we forget there’s a broader landscape beyond it.

They identify the four villains of decision-making:

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.

The solutions, remembered by the mnemonic WRAP for the four verbs:

Widen Your Options. How can you expand your set of choices?
Reality-Test Your Assumptions. How can you get outside your head and collect information that you can trust?
Attain Distance Before Deciding. How can you overcome short-term emotion and conflicted feelings to make the best choice?
Prepare to Be Wrong. How can we plan for an uncertain future so that we give our decisions the best chance to succeed?

One of the ideas they discuss is “Zoom Out, Zoom In” as part of the process to attain distance before deciding. It’s a way of gaining a broader perspective on a problem or decision. Here’s a summary:

Zoom Out

This means taking a step back to see the bigger picture. When we’re deeply involved in a situation, it’s easy to lose perspective and get caught up in the minutiae. By “zooming out,” you can detach from the immediate details and see things in a broader context.
One tactic is to consider how other people in similar situations have handled similar decisions or challenges. This broader vantage point can offer valuable insights.
Another approach is to ask, “What would I advise a close friend to do if they were in this situation?” This reframing can help sidestep personal biases and offer clarity.

Zoom In

After zooming out, it’s crucial to “zoom in” to get a close-up view of the situation. This means immersing yourself in the specifics to ensure you’re not missing any essential details.
One way to do this is by grounding decisions in concrete, tangible facts and realities. It might involve firsthand observation or seeking out detailed feedback.
By focusing closely, you can make sure you’re not overlooking critical elements that could impact your decision.

This combination of “big-picture view and close-up” offers a balanced perspective. While zooming out provides a broader context and reduces emotional biases, zooming in ensures that decisions are grounded in the real, tangible aspects of the situation at hand. It’s a method to counteract both the tunnel vision that can come with being too close to a problem and the potential oversight of missing crucial details.

Consequential and Irreversible

Shane Parrish writes in his book, “Clear Thinking”: “In order to get the results we desire, we must do two things. We must first create the space to reason in our thoughts, feelings, and actions; and second, we must deliberately use that space to think clearly. Once you have mastered this skill, you will find you have an unstoppable advantage. Decisions made through clear thinking will put you in increasingly better positions, and success will only compound from there.”

In 2020, I had done a course offered by Shane Parrish on “Decision by Design.” In the introduction to the course, Shane wrote: “Great decision making happens more like running multiple experiments at once. You create multiple hypotheses and test them simultaneously. You refine the experiments that are working based on the failed ones. While each decision is its own unique situation, there are common skills that put you on the path toward success. You can think of it more like a sandwich, the top and bottom are important, but the order of the ingredients in the middle changes every time. That’s why instead of teaching you a linear process, in this program we’re focusing on teaching you how to master the skills that apply throughout the process. So you can come into any decision, at any point, and add incredible value. Or you can see any problem at any point and identify where something may have gone wrong.”

The course covered 12 skills:

One of my biggest takeaways from the course for me was the importance of identifying consequential and irreversible decisions. This is a graphic from Shane’s book:

He writes: “When a decision is highly consequential and irreversible, its effects ripple throughout your life, and there’s no way to stop them. Some people call these “lead dominoes.” When decisions are like lead dominoes, the cost of a mistake is high. Exactly the opposite is true of a decision that’s inconsequential and easily reversed. The cost of a mistake is low: if you don’t like the outcome, you can just reverse it. The biggest mistake in cases like these is wasting time and mental energy. If you can take something back, or it doesn’t really matter, continuing to gather information becomes a drain on resources.”

He suggests three principles:

The ASAP principle: If the cost to undo the decision is low, make it as soon as possible.
The ALAP principle: If the cost to undo a decision is high, make it as late as possible.
The Stop, FLOP, Know principle: Stop gathering more information and execute your decision when either you Stop gathering useful information, you First Lose an OPportunity (FLOP), or you come to Know something that makes it evident what option you should choose.

Here is another helpful graphic:

Elaborating on the last principle, Shane writes: “It’s finally time to act when you come to know something that makes it clear what you should do. Sometimes you gather a critical piece of information that makes your decision easy, perhaps a First Lost Opportunity. Other times, especially in more ambiguous situations like relationships, it’s just a gut feeling that doesn’t go away or change. Either way, there’s always a moment when you simply know at a core level exactly what to do.”

First-Principles Thinking

Ozan Varol, in his book “Think like a Rocket Scientist”, writes: “Process, by definition, is backward looking. It was developed in response to yesterday’s troubles. If we treat it like a sacred pact—if we don’t question it—process can impede forward movement. Over time, our organizational arteries get clogged with outdated procedures…When necessary, we must unlearn what we know and start over. This is why Andrew Wiles—the mathematician who solved the centuries-old Fermat’s last theorem—said, “It’s bad to have too good a memory if you want to be a mathematician. You need to forget the way you approached [the problem] the previous time.”…Knowledge is good. But knowledge should inform, not constrain. Knowledge should enlighten, not obscure. Only through the evolution of our existing knowledge will the future come into focus. The tyranny of our knowledge is only part of the problem. We’re constrained not only by what we’ve done in the past, but also by what others have done as well.”

What Ozan advocates is first-principles thinking. He writes:

The credit for first-principles thinking goes to Aristotle, who defined it as “the first basis from which a thing is known.” The French philosopher and scientist René Descartes described it as systematically doubting everything you can possibly doubt, until you’re left with unquestionable truths. Instead of regarding the status quo as an absolute, you take a machete to it. Instead of letting your original vision—or the visions of others—shape the path forward, you abandon all allegiances to them. You hack through existing assumptions as if you’re hacking through a jungle until you’re left with the fundamental components.

…For Musk, using first principles meant starting with the laws of physics and asking himself what’s required to put a rocket in space. He stripped a rocket down to its smallest subcomponents—its fundamental raw materials. “What is a rocket made of?” he asked himself. “Aerospace-grade aluminum alloys, plus some titanium, copper, and carbon fiber. And then I asked, what is the value of those materials on the commodity market? It turned out that the materials cost of a rocket was around 2 percent of the typical price—which is a crazy ratio.”… So Musk decided to cut his own metal and construct his next-generation rockets from scratch.

…[Invisible rules] are habits and behaviors that have unnecessarily rigidified into rules. They’re unlike written rules, which are visible. The written rules appear right there in the standard operating procedures and can be amended or deleted…[I]nvisible rules…are the silent killers that constrain our thinking without our being aware of it.

…[F]irst-principles thinking should be deployed where it matters the most. To mop the mist collected on your mental windshield in those areas and expose the invisible rules governing your life, spend a day questioning your assumptions. With each commitment, each presumption, each budget item, ask yourself, What if this weren’t true? Why am I doing it this way? Can I get rid of this or replace it with something better?

…If you’re trying to transform an industry, it makes sense to look outside the industry for talent. That’s where you’ll find people who aren’t blinded by the invisible rules—the white tablecloths—that constrain their thinking. In its early days, SpaceX would often hire people from the automotive and cell-phone industries. These are fields where technologies change rapidly, requiring quick learning and adaptation—the hallmark of first-principles thinkers.

First-principles thinking is a problem-solving and decision-making approach that involves breaking down complex ideas and problems into their most fundamental underlying components or principles. Instead of relying on analogies, conventions, or past norms, first-principles thinking directs us to dive deep into the problem and understand its basic elements. Once identified, these fundamental principles can then be reassembled in a creative manner to devise innovative solutions. In essence, first-principles thinking prevents one from getting trapped in prevailing modes of thought and opens the door for genuine innovation by returning to the basics and building from there.

Second-level Thinking

Second-level thinking is a concept often attributed to Howard Marks. He calls it, “The Most Important Thing.” In the context of decision-making, it refers to the ability to think beyond the immediate and obvious implications of a decision and to consider the next-level consequences and possibilities that might not be readily apparent.

First-level thinking is superficial and simplistic. It might involve making decisions based on obvious facts or popular consensus. For instance, in an investment context, first-level thinking might be: “This company’s earnings are rising, so its stock is a good buy.” Second-level thinking delves deeper, asking questions like: “If everyone believes this company’s stock is a good buy because earnings are rising, perhaps it’s already overvalued. What are the underlying factors driving the earnings growth? Can they be sustained? What are the broader market dynamics at play? How might competitors respond?”

Second-level thinking is about understanding the complexities and nuances of a situation, challenging the initial assumptions, and looking for deeper insights that might give one an edge in decision-making. It’s about trying to see things that others don’t, predicting how situations might play out based on a multitude of factors, and making decisions that account for these deeper insights.

From Howard Marks’ book: “Remember, your goal in investing isn’t to earn average returns; you want to do better than average. Thus, your thinking has to be better than that of others—both more powerful and at a higher level. Since other investors may be smart, well-informed and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss or bring insight they don’t possess. You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others … which by definition means your thinking has to be different.”

In an investor note, he wrote: “Second-level thinkers double-think (and triple-think) every angle of every situation. A good example can be seen in the hypothetical newspaper contest John Maynard Keynes wrote about in 1936. Readers would be shown 100 photos and asked to choose the six prettiest girls, with prizes going to the readers who chose the girls readers voted for most often. Naive entrants would try to win by picking the prettiest girls. But note that the contest would reward the readers who chose not the prettiest girls, but the most popular. Thus the road to winning would lie not in figuring out which were the prettiest, but in predicting which girls the average entrant would consider prettiest. Clearly, to do so, the winner would have to be a second-level thinker. (The first-level thinker wouldn’t even recognize the difference.)”

By engaging in second-order thinking, we can make more informed decisions that are likely to have positive outcomes in the long run. This type of thinking can help us to avoid making decisions that may seem beneficial in the short term but could have negative consequences in the future. In addition to considering the long-term consequences of our decisions, second-order thinking also involves considering the potential unintended consequences. For example, a decision that seems to be beneficial for one group of people may have negative consequences for another group. By taking into account the potential unintended (and often unseen) effects of our decisions, we can make more better choices.

Second-order thinking is a valuable skill that can be applied to all areas of our lives. By developing our ability to think in this way, we can make better decisions that are more likely to lead to positive outcomes.

Rapid Response Teams

Pawel Moetyl, in his book, “Labyrinth”, looks at “the most prevalent weak spots in decision-making processes, not only in business but in life in general; during crisis and calmer times; in both individual and group decisions.” Pawel tries to “to answer the question of how to make decisions that are simultaneously rational, effective, and wise.” Among the common errors he identifies: relying on past successes, ignoring significant information, conducting superficial analysis, yielding to outside pressure, putting too much faith in luck, or misinterpreting important data.

Pawel writes:

There are three fundamental approaches to the decision-making process, each with its own particular advantages depending on circumstances.

The first approach is called routinized decision-making—essentially an intuitive approach in which we make a decision unconsciously, drawing on repeated experiences and ingrained habits and decision-making mechanisms without thinking too much about them. It sounds dangerous, but the routinized approach is the one that we naturally use for making recurring decisions in known conditions (i.e., when we know exactly what the effects of an action will be). In such conditions, routinized decision-making not only works, but thanks to the extra automaticity of this method of deciding, it also saves our brains the time and energy needed for more important, conscious choices.

In advocacy mode, when we encounter a problem that requires us to make a decision, we rely on our prior experience, knowledge, and sense of the situation to point us toward an appropriate solution. Once we find a starting point, we look for information to confirm that our idea is a good one, and if we find that information, we make our decision and then act on it. In this mode, decision-makers and teams operate quickly and effectively, looking for key pieces of information that are pertinent to the choice to be made. Advocacy therefore works in numerous situations where we are dealing with classically understood risk management—that is, when we know what the consequences of a decision will be and how likely it is that they will occur…The vast majority of business decisions are made in this mode, as it enables us to save one of our most precious resources: time.

In the context of a black swan event, …the third decision-making approach—inquiry—should be the only option. With inquiry mode, the decision-maker tries to analyze all the available data, to review the evidence from all angles, involving as many people and perspectives as possible. This leads to open, constructive discussion and an intellectual battle of ideas (detailed discussion of different options, actions, and possible scenarios), but without affective (personal) conflicts…Inquiry is certainly the most time-consuming approach, but it helps anyone using it to make the best possible decisions, based on a thorough analysis of the data and assessment of possible scenarios.

A rapid response team is one way to deal with black swans. Writes Pawel: “An organization that reacts faster than its competitors can not only not lose in a black swan situation, but may even gain. At the same time, truly unexpected situations typically create chaos in an organization, and too much time passes before the key people recover from the shock and set in action the appropriate mechanisms. For this reason, more and more organizations are setting up rapid response teams (sometimes even calling them the black swan response team), made up of people from a number of departments, with varying competencies and a range of experiences, whose task is to shorten the time is takes to react to a crisis. These teams meet often and rehearse reacting to different types of black swans. They analyze how to respond to events on a global, sectoral, organizational, team, and individual level, looking for weak points in the company that require immediate action. They also force others to discuss new solutions and promote the inquiry mode.”

Among some of the rules suggested:

If you find yourself in a black swan situation, go into inquiry mode. Whatever your intuition or experience is telling you may be wrong.
Set up your own Executive Committee. Surround yourself with people who don’t think like you. Value those who disagree with you, and who aren’t afraid to say it.
When improving an organization, also pay attention to the best and most efficient processes. In a black swan situation, they can fail. Do you have a backup plan?
Shoot down Concordes and hunt for monkey habits. Eliminating loss-making projects and bad practices frees up time for other things, increasing a company’s agility and flexibility.

Pawel adds: “Rapid response teams act so that any eventual black swan attacks with less force. They relentlessly test an organization and its components from the point of view of the unexpected. They optimize processes, structures, resources, and working practices. They free up time and energy. An effect of their work is a kind of decisional Kaizen, constantly seeking minimal gains that make a firm more agile and thus better prepared for a surprise scenario.”

Asking Right Questions

In any decision-making process, one of the biggest hurdles is the question and process. Paul Magnone, Christopher Frank and Oded Netzer provide some interesting insights in their book, “Decisions over Decimals.” They write:

What distinguishes a person who makes smart, confident data‐driven decisions? It is not exceptional analytic skills. Instead, successful decision‐makers balance data, experience, and intuition. They quickly sort through information, apply judgment, and are fierce interrogators of data to cultivate sharp insights. They know there is more to decision‐making than just the data. They resist being intoxicated by information. Instead, they apply first‐order principles to understand what the decision really is, why it must be taken, and to what end. They then seek the relevant data to help make that decision. In short, they make informed decisions with incomplete information.

This approach to fast decision‐making taps into a different set of skills, requiring a change in mindset by combining information and intuition. We call this approach Quantitative Intuition (QI). QI is the product of years of discovery about making effective and efficient decisions. For too long, the debate has been on the value, veracity, and variety of Big Data. This trend has shifted the problem from data exploration to data sifting. This book dives into this emerging method to reimagine making decisions with imperfect information. By sharing a set of rapid response tools to get to the core of any business challenge, QI enables the reader to quickly interrogate and integrate data to make quick, effective, and often bold decisions. QI emphasizes the need to break the allure that an abundance of data is a crystal ball to eliminate all uncertainty and lead to perfect decisions.

… Being able to combine qualitative thinking and intuition means possessing the ability to make confident decisions with incomplete information while counterbalancing our fear of failure. It means transforming different pieces of information into a decision by adopting a parallel view of all issues that matter, rather than just considering each piece of information separately and sequentially. Furthermore, it means enhancing our business acumen with the ability to spot patterns while also challenging how much value we are willing to attribute to those patterns and the data.

A starting point in the process is asking what the authors term as “divergent questions.” An explainer: “These are open‐ended questions that encourage many answers. These questions can best be understood as exploratory—as means for analyzing a situation, problem, or complexity in greater detail and then predicting different outcomes. Frequently the goal is to stimulate creative thought or to expand the conversation.” Some examples:

Go/No Go: Why are we talking about this now?
Clarification: What is the meaning?
Assumptions: What are your assumptions?
Foundational: How do we know this to be true?
Action: What could be done? What should be done?
Cause: What is the context? Why did this happen?
Effect: What will be the impact or outcome?

In any problem solution or decision-making exercise, the key is to get to the crux. As the authors write: “[The] first step is to ask ourselves one straightforward but extremely powerful question: What do I wish I knew to make the best decision possible?” Their solution:

IWIK, as we’ll henceforth refer to the formula “I wish I knew,” has a particular goal: to identify the core fundamental issue that needs to be solved. IWIK accelerates your team’s thinking to establish awareness of what you know and what knowledge is necessary to make an informed decision. By focusing on what matters, IWIK speeds up the decision‐making process.

… Agile decision‐making is grounded in how you think, not how hard you work. Either through repetition or observation, we have all developed habits that undermine our ability to solve a problem. We jump into solution mode, accepting what is asked of us at face value, often confusing activity with impact. In our rush toward a solution, we neglect to frame the problem. We need to understand this crucial insight: The quality of your decision is directly proportional to the effort invested in framing the problem. The frame enables you to narrow what you need to solve.

IWIK is a tool—a thinking technique, if you will—that’s designed to help you frame the problem. It clarifies priorities, uncovers the essential information needed, quickly identifies knowledge gaps, defines assumptions, and reveals biases that might threaten to influence, slow, or shape a decision.

There are four parts to the IWIK process, as the authors outline:

Ask: Getting the right people to think about the right questions. “The goal of the initial communication is to kick‐start the thinking process, to prime the brain pump, so to speak. You’re not overwhelming them with sticky notes, whiteboards, or breakout sessions; you’re just asking them to start considering and contemplating. As a result, by the time you meet in person or virtually for your session, each participant should be in the right mindset to think creatively.”
Brainstorm: Optimizing the discovery of information. “You should plan to conduct successive rounds of sessions with various stakeholders. By its very nature, the goal of the exercise is to expose knowledge gaps, and it is essential, as a leader, to understand and appreciate that some people are more comfortable than others highlighting what they don’t know and acknowledging the limits of their competencies. Small group discussions have the advantage of unlocking conversations that may not happen in other group settings because of fear or inhibition.”
Capture: Leading IWIK discussions. “Your role is that of a scribe. When you ask your colleagues or clients “What do you wish you knew?”, you’re extending an invitation to them to think expansively without concern for existing data, time, resources, headwinds, budgets, or guard rails… An interesting dynamic occurs after you pose the IWIK question: The mode slowly shifts from a quiet, awkward silence to one of high energy. Once the questions start flowing, your colleagues, liberated from the pressure to know and have answers, may actually feel unable to stop…The output of an IWIK session will be a series of statements or questions highlighting what people want to know.”
Deliberate: Ordering, aggregating, and synthesizing IWIKs. “The goal of organizing the IWIKs is to identify patterns in the requests and look for duplicates and outliers. You’re on the path to understanding the root of the issue, and this, in turn, will inform the essential data you need, guide the specific analysis required, and focus your efforts on what matters most to your stakeholders, leading to faster, more confident decisions.

The aim is to create the IWIK Knowledge Matrix:

In conclusion, the authors write: “IWIK and the Knowledge Matrix are designed to prevent companies from the immense temptation to drown themselves in data. They won’t help you answer every single question that might possibly be related to solving a greater problem, but they will help you determine what the most important and salient questions are for framing the problem at hand.”

Rethinking

There are times when we will realise that a decision we have made has not gone as expected. We are having second thoughts. We need to rethink. In his book “Think Again”, Adam Grant asks us to “let go of knowledge and opinions that are no longer serving you well, and to anchor your sense of self in flexibility rather than consistency. If you can master the art of rethinking, I believe you’ll be better positioned for success at work and happiness in life. Thinking again can help you generate new solutions to old problems and revisit old solutions to new problems. It’s a path to learning more from the people around you and living with fewer regrets. A hallmark of wisdom is knowing when it’s time to abandon some of your most treasured tools—and some of the most cherished parts of your identity.”

He writes: “[Rethinking] starts with intellectual humility—knowing what we don’t know. We should all be able to make a long list of areas where we’re ignorant…Recognizing our shortcomings opens the door to doubt. As we question our current understanding, we become curious about what information we’re missing. That search leads us to new discoveries, which in turn maintain our humility by reinforcing how much we still have to learn. If knowledge is power, knowing what we don’t know is wisdom.”

I asked Bard to list out a few key ideas from Adam’s book:

The first-instinct fallacy: We tend to believe that our first thought or idea is the best one. However, Grant argues that our first instincts are often wrong. We are more likely to be correct if we take the time to consider alternative perspectives and to gather more information.
The desirability bias: We tend to see what we want to see. This can lead us to overlook evidence that contradicts our beliefs. In order to make better decisions, we need to be aware of our own biases and to actively seek out information that challenges our views.
The confirmation bias: We tend to seek out information that confirms our existing beliefs. This can lead us to become entrenched in our own views and to be resistant to change. In order to be more open-minded, we need to be willing to consider evidence that contradicts our beliefs.
The sunk cost fallacy: We tend to continue investing in a course of action even when it is no longer the best option. This is because we feel a sense of ownership over our past decisions. In order to make better decisions, we need to be willing to admit when we have made a mistake and to change course.
The argumentation mindset: We tend to approach conversations with the goal of winning. This can lead us to become defensive and to close our minds to alternative perspectives. In order to have more productive conversations, we need to approach them with the goal of learning.

At the end of the book, Adam lists out takeaways for individual rethinking. A few among them:

Think like a scientist. When you start forming an opinion, resist the temptation to preach, prosecute, or politick. Treat your emerging view as a hunch or a hypothesis and test it with data. Like the entrepreneurs who learned to approach their business strategies as experiments, you’ll maintain the agility to pivot.
Beware of getting stranded at the summit of Mount Stupid. Don’t confuse confidence with competence. The Dunning-Kruger effect is a good reminder that the better you think you are, the greater the risk that you’re overestimating yourself—and the greater the odds that you’ll stop improving. To prevent overconfidence in your knowledge, reflect on how well you can explain a given subject.
Harness the benefits of doubt. When you find yourself doubting your ability, reframe the situation as an opportunity for growth. You can have confidence in your capacity to learn while questioning your current solution to a problem. Knowing what you don’t know is often the first step toward developing expertise.
Don’t shy away from constructive conflict. Disagreements don’t have to be disagreeable. Although relationship conflict is usually counterproductive, task conflict can help you think again. Try framing disagreement as a debate: people are more likely to approach it intellectually and less likely to take it personally.
Practice the art of persuasive listening. When we’re trying to open other people’s minds, we can frequently accomplish more by listening than by talking. How can you show an interest in helping people crystallize their own views and uncover their own reasons for change? A good way to start is to increase your question-to-statement ratio.

More Frameworks

In this essay, I discussed the following decision-making frameworks:

Decisions and Outcomes, by Annie Duke
Zoom in, Zoom out (part of WRAP), by Chip and Dan Heath
Consequential and Irreversible, by Shane Parrish
First Principles Thinking, by Ozan Varol
Second-level Thinking, by Howard Marks
Rapid Response Teams, by Pawel Moetyl
I Wish I Knew, from “Decisions over Decimals”
Rethinking, by Adam Grant

Here are some more:

The Eisenhower Matrix: Developed from a quote by President Dwight D. Eisenhower, the matrix is a simple four-quadrant box that helps categorise tasks by urgency and importance. It helps differentiate between what’s urgent and what’s important, ensuring that time and resources are spent on tasks that align with larger goals.

A3 Thinking: Originated from Toyota’s lean management philosophy, A3 thinking focuses on problem-solving, proposing changes, and continuous improvement. The ‘A3’ references the international paper size used to document the process. By containing everything on a single page, it forces clarity, brevity, and disciplined thinking.

Six Thinking Hats: Proposed by Edward de Bono, the Six Thinking Hats method requires participants to adopt various ‘modes of thinking’ (symbolized by different coloured hats). Each hat represents a unique perspective, allowing groups to examine issues from multiple angles and reduce bias.

Cost-Benefit Analysis: A systematic process to weigh the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. The fundamental principle behind the cost-benefit analysis is to ensure decisions are made based on objective data.

Pareto Analysis (80/20 rule): Focuses on identifying the 20% of causes that are responsible for 80% of the effects. Helps in prioritising tasks or identifying areas of maximum impact.

Intuitive Decision-Making: Rather than always relying on structured frameworks, intuitive decision-making emphasizes using one’s intuition or ‘gut feeling’. This mode of decision-making acknowledges that humans have an innate ability to recognize patterns and make decisions based on this subconscious understanding.

Decision Matrix: A tool used to evaluate and prioritise a list of options. The matrix helps in ranking options based on certain criteria, making it easier to choose the most suitable option.

Cynefin Framework: Developed by Dave Snowden, it is a tool that helps leaders categorise problems into five domains: Obvious, Complicated, Complex, Chaotic, and Confused. Each domain represents a different level of complexity and suggests an appropriate decision-making approach, from clear cause-and-effect in the Obvious domain to the unpredictable nature of the Chaotic domain.

OODA Loop: Formulated by U.S. Air Force Colonel John Boyd, it stands for Observe, Orient, Decide, and Act. The cycle begins with observation of the environment, followed by orientation based on gathered data and previous experiences. A decision is then made about the course of action, which is subsequently executed. The loop emphasizes continuous feedback and adaptability, allowing entities to respond quickly to evolving circumstances and outpace competitors.

Pre-mortem: It is a proactive strategy used to anticipate potential problems before they occur. Unlike a post-mortem, which analyses a project’s failures after completion, a pre-mortem imagines a future scenario where a project has failed and works backward to identify potential pitfalls and weaknesses. Conducted at the onset of a project, team members are encouraged to think negatively and envision worst-case outcomes. By foreseeing challenges, teams can devise preventative measures, enhancing the project’s chances of success.

Red Teaming: It is a decision-making support process wherein a group actively challenges an organisation’s plans, policies, systems, and assumptions, mimicking potential adversaries to expose vulnerabilities. Originating from military exercises, Red Teaming’s primary goal in business and security contexts is to improve decision-making by providing a candid, critical perspective. It helps organisations anticipate potential threats and weaknesses by simulating an external attacker’s mindset, ultimately refining and fortifying decisions and defences.

Incorporating these frameworks in decision-making processes can enhance the clarity, accuracy, and effectiveness of the decisions made. Each tool or method offers a unique perspective and is best suited to specific types of decisions or situations.

Mental Models – 1

In the final section of this series, I want to discuss about mental models and their importance in decision-making.

My first memory of the phrase “mental models” was in a book club meeting a couple decades ago. It was in the context of a book by Robert Hagstrom, “Investing: The Last Liberal Art.” The book is about how building a multidisciplinary mindset can help you become a better investor. The author writes about the inspiration for the book from Charlie Munger, from a talk Charlie gave to students:

Rather than discussing the stock market, he intended to talk about “stock picking as a subdivision of the art of worldly wisdom.” For the next hour and a half, he challenged the students to broaden their vision of the market, of finance, and of economics in general and to see them not as separate disciplines but as part of a larger body of knowledge, one that also incorporates physics, biology, social studies, psychology, philosophy, literature, and mathematics.

In this broader view, he suggested, each discipline entwines with, and in the process strengthens, every other. From each discipline the thoughtful person draws significant mental models, the key ideas that combine to produce cohesive understanding. Those who cultivate this broad view are well on their way to achieving worldly wisdom, that solid mental foundation without which success in the market—or anywhere else—is merely a short-lived fluke.

To drive his point home, Charlie used a memorable metaphor to describe this interlocking structure of ideas: a latticework of models. “You’ve got to have models in your head,” he explained, “and you’ve got to array your experiences—both vicarious and direct—on this latticework of models.” So immediate is this visual image that “latticework” has become something of a shorthand term in the investment world, a quick and easily recognized reference to Charlie’s approach.

He goes on:

John H. Holland, a professor in two fields at the University of Michigan—psychology, and engineering and computer science—is a frequent visitor to the Santa Fe Institute, where he has lectured extensively on innovative thinking. According to Holland, innovative thinking requires us to master two important steps. First, we must understand the basic disciplines from which we are going to draw knowledge; second, we need to be aware of the use and benefit of metaphors.

…The ability to link mental models together and then benefit from the connections assumes that you have a basic understanding of each model in the latticework. There is no benefit to stringing mental models together if you have no idea how each model works and what phenomena it describes. Remember, though, it is not necessary to become an expert in each model but merely to understand the fundamentals.

… Holland argues [that] metaphors are much more than merely a colorful form of speech, even more than representations of thoughts. They can also help us translate ideas into models. And that, he says, represents the basis of innovative thinking. In the same way that a metaphor helps communicate one concept by comparing it to another concept that is widely understood, using a simple model to describe one idea can help us grasp the complexities of a similar idea. In both cases we are using one concept (the source) to better understand another (the target). Used this way, metaphors not only express existing ideas, they stimulate new ones.

A diverse set of mental models across various disciplines improves decision-making and problem-solving. By integrating knowledge from diverse fields, one can form a “latticework” of interconnected ideas to approach challenges holistically. This multidisciplinary approach ensures a broader and deeper understanding of complex situations, preventing over-reliance on a single perspective.

Mental Models – 2

In the vast spectrum of human cognition, decision-making stands as one of the most intricate processes. Every day, we are faced with an array of choices, ranging from mundane selections like what to eat for breakfast to more profound dilemmas, such as career shifts or ethical quandaries. Underpinning these decisions is an arsenal of cognitive tools known as mental models.

Defined as the representations people build to make sense of the world, mental models consist of our underlying assumptions, concepts, principles, and ideas about how things work. Just as a scientist uses models to explain and predict phenomena, our minds employ mental models to interpret and navigate the world around us. From Wikipedia: “The term was coined by Kenneth Craik in 1943 who suggested that the mind constructs “small-scale models” of reality that it uses to anticipate events. Mental models can help shape behaviour and set an approach to solving problems (similar to a personal algorithm) and doing tasks.”

James Clear adds: “A mental model is an explanation of how something works. The phrase “mental model” is an overarching term for any sort of concept, framework, or worldview that you carry around in your mind. Mental models help you understand life. For example, supply and demand is a mental model that helps you understand how the economy works. Game theory is a mental model that helps you understand how relationships and trust work. Entropy is a mental model that helps you understand how disorder and decay work. Mental models also guide your perception and behavior. They are the thinking tools that you use to understand life, make decisions, and solve problems. Learning a new mental model gives you a new way to see the world.”

Shane Parrish has written three books on mental models. “The quality of your thinking depends on the models that are in your head…When you learn to see the world as it is, and not as you want it to be, everything changes. The solution to any problem becomes more apparent when you can view it through more than one lens. You’ll be able to spot opportunities you couldn’t see before, avoid costly mistakes that may be holding you back, and begin to make meaningful progress in your life. That’s the power of mental models.”

He adds: “In order to see a problem for what it is, we must first break it down into its substantive parts so the interconnections can reveal themselves. This bottom-up perspective allows us to expose what we believe to be the causal relationships and how they will govern the situation both now and in the future. Being able to accurately describe the full scope of a situation is the first step to understanding it. Using the lenses of our mental models helps us illuminate these interconnections. The more lenses used on a given problem, the more of reality reveals itself. The more of reality we see, the more we understand. The more we understand, the more we know what to do… Most problems are multidimensional, and thus having more lenses often offers significant help with the problems we are facing… The key here is variety. Most of us study something specific and don’t get exposure to the big ideas of other disciplines. We don’t develop the multidisciplinary mindset that we need to accurately see a problem. And because we don’t have the right models to understand the situation, we overuse the models we do have and use them even when they don’t belong.”

Consider a business leader deciding whether to launch a new product. If she were to rely solely on financial models, her decision might be purely based on projected profitability. However, by integrating mental models from psychology, she could anticipate consumer behaviour. Incorporating models from sociology might allow her to predict societal trends or shifts that could influence the product’s reception. By weaving these models together, her decision becomes multifaceted, incorporating a range of factors that might have been overlooked in a unidimensional approach.

Moreover, mental models play a pivotal role in countering cognitive biases, the systematic patterns of deviation from norm or rationality in judgment, which can cloud decision-making. For instance, the ‘confirmation bias’ pushes individuals to seek out information that aligns with their existing beliefs. A robust latticework of mental models can act as a safeguard against such biases, offering multiple perspectives and challenging pre-existing notions. When faced with a decision, consulting various mental models can serve as a mental checklist, ensuring that biases don’t unduly influence the outcome.

Mental models are thus invaluable assets in the realm of decision-making. They offer structured frameworks for understanding complexities, drawing connections, and predicting outcomes. By cultivating a diverse and interconnected latticework of these models, one can navigate decisions with increased clarity, depth, and foresight.

Checklist

If there is one book I had to recommend, it would be “Seeking Wisdom: From Darwin to Munger” by Peter Bevelin. It dives deep into the mental models used by brilliant minds. Drawing from multiple disciplines, it explores the psychology of misjudgements and biases, emphasising the importance of understanding human behaviour and its influences on decision-making. The book is a treasure trove of insights on how to think rationally, avoid common cognitive pitfalls, and make better decisions. Regarded as a masterpiece in the decision-making genre, “Seeking Wisdom” equips readers with tools to navigate complex challenges, making it an indispensable read for anyone looking to enhance their judgment.

There is a very good collection of checklists towards the end of the book. Here is a sample of questions for determining what the issue is:

What’s the question? What is this really about?
What’s the essence or nub of the issue? What is then the key question?
Relevant? Solvable? Important? Knowable? Utility- applicability?
Do I understand what the subject is all about? In order to have an opinion on a subject I need some relevant data and basic knowledge about the subject, otherwise just say: “I don’t know”.
Is my judgment here better than others?
What must I predict here and is it predictable?
Is a decision needed? What happens if I don’t deal with this? Is this something I can do anything about? Should “I” do this?
Over what period of time am I considering this issue? Where am I at present? From whose point of view?
Simplify by deciding big “no-brainer questions” first and begin from where I am.

I asked Claude to prepare a 10-point checklist for managers and leaders based on this series.

Identify the decision’s level of consequence and reversibility. Some choices are inconsequential or easily reversed while others have lasting impacts. Assess where this decision lies on the spectrum.
Widen options through divergent thinking. Avoid narrow framing. Brainstorm as many alternative paths forward as possible.
Test assumptions against reality. Ask probing questions to check assumptions. Seek objective data and feedback.
Attain distance before deciding. “Zoom out” for perspective. “Zoom in” for granular analysis.
Weigh costs, benefits, and likelihoods. Use expected value calculations. List pros/cons and assess probabilities.
Leverage mental models. Consult different lenses like psychology, systems thinking and game theory.
Prepare to be wrong. Simulate worst-case scenarios. Have contingency plans to course correct.
Debate respectfully. Seek constructive criticism. Arguments can refine decisions.
Decide sequentially. Break down complex choices into smaller steps. Pause and validate.
Continuously re-evaluate. Be ready to think again if new data emerges. Stay flexible.

In the intricate tapestry of life, decisions serve as the threads that shape our path, influencing not just our immediate actions but also the broader contours of our journey. The art of decision-making, while seemingly innate, is a skill that benefits greatly from conscious cultivation, practice, and refinement. As we traverse the labyrinth of choices, it’s empowering to remember that we can hone this skill, drawing from diverse mental models and frameworks. Equipped with this knowledge and understanding, we can navigate the myriad choices with greater clarity, making decisions that resonate with our values and aspirations. In this continuing journey, every choice we make is a step towards mastering the art of decision-making, an endeavour that holds the promise of a more intentional and enriched life.

Making Better Decisions

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Rajesh Jain

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