I’m a Libra. While I don’t really care about zodiacs and horoscopes, I do know that Libras are known to be terrible decision-makers because we usually see both sides of a situation.
According to Walter Frick, a Harvard Business Review contributor, to make a good decision, you need to have a sense of two things: how different choices change the likelihood of different outcomes and how desirable each of those outcomes is based on your goals.
In today’s Promotional Consultant Today, we are sharing three rules Frick recommends to help improve your ability to predict the effects of your choices.
1. Be less certain. Being overconfident can cause a bias in the decision-making process. Frick points out that overconfidence is not a universal phenomenon—it depends on factors including culture and personality—but the chances are good that you’re more confident about each step of the decision-making process than you ought to be. So, the first rule of decision making is to just be less certain. If you think choice A will lead to outcome B, then it’s probably a bit less likely than you believe. Once you accept that you’re overconfident, you can revisit the logic of your decision. What else would you think about if you were less sure that A would cause B? Have you prepared for a dramatically different outcome than the one you expect?
2. Ask “How often does that typically happen?” In general, research suggests, the best starting point for predictions¬—a key input into decision making—is to ask, “How often does that typically happen?” For example, if you are considering funding a startup, you might ask: What percentage of startups fail? (Or, what percentage succeed?) If your company is considering an acquisition, it should start by asking how often acquisitions enhance the acquirer’s value or otherwise further its goals.
This rule, known as the base rate, comes up a lot in research on prediction, but it can also be useful in decision making, too. If you think outcome B is preferable to outcome C, you might ask: How often has that historically been the case? For instance, if you’re thinking about starting a company, and you’re weighing the possibility of spending years on a company that will fail against staying in your current job, you might ask: How often do entrepreneurs who fail end up wishing they’d stayed at their previous job?
3: Think probabilistically—and learn some basic probability. The first two rules can be implemented right away; this one takes a bit of time. Research has shown that even relatively basic training in probability makes people better forecasters and helps them avoid certain biases.
Improving your ability to think probabilistically will help you with the first two rules. You’ll be able to better express your uncertainty and to numerically think about “How often does this usually happen?” The three rules together are more powerful than any of them alone.
Even though these rules are all things you can start using relatively quickly, mastering them takes practice. Great decision makers don’t follow these rules only when facing a particularly difficult choice; they return to them all the time. Give them a try.
PCT is taking a break tomorrow to celebrate our country’s birthday and returning on July 5. Enjoy the fireworks!
Source: Walter Frick is currently a senior editor at Harvard Business Review, and he’s written previously for The Atlantic, MIT Technology Review, the BBC, The Boston Globe and Nieman Lab. He was a 2016 Knight Visiting Nieman Fellow at Harvard University.
