THOUSANDS OF DAILY DECISIONS
In our personal lives, business dealings, and investments, we make thousands of decisions daily, often without realizing it. The sheer volume is too overwhelming for our conscious minds to process mindfully, leading our brains to rely on habits, past behaviors, quick heuristics, and “common sense.”
USING GUT FEELING
We frequently turn to our “gut” feeling or follow our “heart” when making decisions. You’ve probably heard the advice, “When in doubt, just follow your gut feelings.” Similarly, we might embrace the emotional aspects of decisions driven by passion and intuition.
RELYING ON EXTERNAL EXPERTISE
Other times, we seek guidance from specialists and experts. It makes sense: we turn to those with expertise if we lack it in such a specific area. Whether it’s a doctor for health issues, a lawyer for legal problems, or a financial planner for managing money, consulting experts is a rational approach. However, choosing the right advisor requires a personal process to find “the right one for you.”
RELYING ON STATISTICAL ANALYSIS
When making significant decisions with high stakes and pros and cons, many strive to be analytical and logical, avoiding emotional biases. Despite seeking advice, we know the ultimate decision rests with us, along with the inherent uncertainty and risk.
People quantify the chances of an expected or desired outcome in certain fields. Even qualitative analyses often translate into specific percentage chances of success or a range of possible outcomes. For instance:
If we undergo a surgical operation, we ask for an estimated chance of success or an estimated chance of full recovery. In more mundane circumstances, we often read weather forecasts, which are expected to estimate sun, rain, or adverse weather.
THE BUCK STOPS HERE: THE CASE OF THE US PRESIDENT’s HARD CALLS
Examining the role of the US President offers a fascinating perspective on decision-making. I read that decisions with clear, highly probabilistic outcomes don’t reach the President’s desk. Instead, his team handles those with 80-20 or 70-30 chances.
What the President faces are the tough, hard calls: those with 55-45 or 50-50 chances. These decisions no longer require higher technical insights but the acceptance of responsibility regardless of the consequences.
This highlights the crucial role of advisors in presenting well-analyzed options. Each idea and situation has its pros and cons, supporters and detractors. It’s a stark reminder that some decisions are ultimately personal, driven not by superior knowledge but by the responsibility and leadership required to make them. “The Buck Stops Here” was a very well-known sign on President Truman’s desk.
HOW TO JUDGE A HARD CALL / TOUGH DECISION
The art of making high-stakes, hard calls cannot be underestimated. Good and bad decisions cannot be judged by Outcomes, which sometimes are based on luck or randomness. Experts know that great outcomes can come from bad decisions, and bad outcomes can come from good decisions.
Decisions cannot only be taken based on prior experience because, at high stakes, decision-makers often find themselves in new, untested scenarios. Therefore, good and bad decisions can mainly be judgments based on the quality of the process (gathering data, analysis of probability, and lucid and clear decisions, and taking full responsibility).
Overall, we often encounter two scenarios in decision-making:
- When Specialists Have Clarity: Experts can overwhelmingly provide enough data, and suggest a specific option with high accuracy. After gathering all the information, you make the decision, informed by their insights.
- When Experts Don’t Provide Additional Insights: In this scenario, you have limited data and unclear or conflicting opinions. So, you’ll have to make up your mind, and accept the decision with the hope for the best outcome while accepting the possibility of the opposite.
WE ARE NOT AVERAGE
The challenge with this “probabilistic” approach is that we’re not average. When planning a singular event—like getting married, buying a house, undergoing surgery, or investing all your savings—the average isn’t a comforting metric. It is not enough to know that if you make such a decision 100 times, you get away with a positive result 60% of the time!
Howard Marks aptly noted that “you don’t want to survive 80% of the time; you want to survive 100% of the time. You wouldn’t cross a river that’s not too deep 80% of the time”.
This approach to decision-making resonates strongly with the insights shared in Annie Duke’s book, “Thinking in Bets.” Duke, a former professional poker player, illustrates how decision-making in poker mirrors the uncertainty and probability we face in life. She argues that thinking in bets helps us understand that we make decisions based on incomplete information and probabilities rather than certainties. This framework has resonated strongly among politicians and investors, underscoring the importance of evaluating decisions based on potential outcomes and their probabilities rather than just the desirability of the outcomes.
Some situations allow embracing an average percentage if repeated multiple times, benefiting from statistical opportunities. However, for one-time decisions, you need more than an average estimation, and you need to be ready to “own” the decision and the outcome.
In conclusion, mastering the art of managing tough decisions involves understanding the expected probabilities of outcomes and making decisions even with limited data. It’s about balancing expert advice with personal responsibility, embracing uncertainty, and making the best choice for your situation.
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