In Decision

Feb 2013

(Based on a talk at the Universidad De Chile)

 

“Alice came to a fork in the road. ‘Which road do I take?’ she asked.
‘Where do you want to go?’ responded the Cheshire Cat.
‘I don’t know,’ Alice answered.
‘Then,’ said the Cat, ‘it doesn’t matter.”

– Lewis Carroll, Alice in Wonderland

 

“You may think that in life, a lot of things happen to you along the way. The truth is, in life, you happen to a lot of things along the way. Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.”

– Dr. Shad Helmstetter

 

Should you start a company?

I don’t really know how to answer that and I’m sure the answer is different for each person. Some people who start companies probably shouldn’t and some people who don’t probably should. I’m probably not even experienced enough to answer that for myself. So instead of answering I’m going to talk about decision making instead and how to make decisions. That is arguably more important.

Statistically decision making is known as a Markov Chain and is where the probabilistic likelihood of an event occurring is altered with each decision changing the outcome. Like branches coming of a tree, each decision leads in a different direction.

Notice I use the word decision not the word choice. They basically mean the same thing but implicit in the difference is conviction. When someone makes a decision they usually stick by it. When someone makes a choice it can easily change. I like to think of the difference as impact. A decision is the macro and the choice is the micro or the minutiae. A decision would be to buy a dress but the choice is in what colour dress to buy and what size.

A choice is choosing tea or coffee in the morning. A decision is deciding when to propose to your girlfriend.

What is commonly overlooked is time. For example if you decide to do something and you do it for long enough eventually you will succeed at it. Over enough time anything is possible. Very rarely if you do something for a long time will it fail, which is both comforting and scary because often you don’t know how long it will take. That’s just how the world works. Ralph Waldo Emerson puts it nicely when he says, “Once you make a decision, the universe conspires to make it happen.” I think that’s what he’s talking about.

 

But normally when given a decision to make where there is a chance they might be wrong or fail, for most people the default answer is no or to not answer at all. This is actually the wrong answer and I’m going to try and prove why. Saying no is often the same as not answering at all.

The explanation for this is actually really simple. It’s the reasoning why whenever you are given a decision to make you should always make one even if you are wrong and fail. Not making a decision is actually the worst answer. In a multiple choice exam the worst answer is to not answer the question at all.

I’ll try and explain. If you can imagine a simple game theory matrix. It’s the box with 2 columns and 2 rows where one column and one row represents the affirmative and the other represents the negative. Then take nearly any scenario that has only two answers and ask the question “Should I Do Y?”

Y represents a decision. Like starting a company, asking someone out, applying for a job etc. You can either yes, make a decision or no, not make one. After you’ve made the decision you are either right or wrong. For the purpose of the matrice an X represents if you don’t benefit and an O represents if you do benefit.

In practice not making a decision is the same as saying no to something. There is a very

Now if you don’t make a decision then you won’t benefit so mark an X in both spaces in the negative No column. If you do make a decision and you are wrong then you don’t benefit so mark an X in the affirmative Yes column but the negative Wrong row. Now if you make a decision and you are right then you do benefit so you place an O in the affirmative Yes column and the affirmative Right row.

If you look at the matrix you will now see there are three X’s and only one O.

 

The three X’s are the same as not benefiting. The O is when you do benefit. Now if you don’t make a decision you will always get an X which means you won’t benefit. But if you do make a decision then you have a 50% chance of getting an X and a 50% chance of getting an O. Getting an O is if you make a decision and you’re right then you benefit.

So immediately you should never do nothing because you physically can’t get an O. We’ve just worked out that you should always make a decision because you have a 50% chance of being right and benefiting. If you’re wrong then it’s the same result as not making a decision in the first place which isn’t really that bad.

The other dimension is to make decisions quickly. Because if the decision is to your benefit, it maximises the utility of the decision because it happens sooner so you benefit for longer. And if it’s a bad decision, not to your benefit, it minimises the effect of it because you didn’t waste a lot of time to make it. If the decision is bad, you then make a new one, iterating until you reach a good one. The absolute worst outcome is sticking with a bad decision for a long time.

Often peoples imaginings of bad things are worse than the bad thing itself and is why they take a long time to make a decision in the first place. But the virtue of making decisions quickly is that it reduces the effect of time. And time does mysterious things to bad decisions. It usually makes them worse. Because when you take a long time to make a bad decision, you also miss the opportunity cost of any good decisions you could have made in the meantime.

In practice, this is inductive reasoning for why, when an opportunity comes their way, a person should always say yes and to say yes quickly. In practice this is the same as capitalising on every opportunity. Because the probability of that yes being a good decision is not insignificant, and if it was a bad decision they can change it quickly. After enough bad decisions you will eventually come across a good one. What you cannot do is come across a good decision if you don’t make any.

What is subtly hidden in the equation is the snowball effect. Good decisions snowball into other good decisions. But bad decisions don’t snowball. A bad decision makes a person more likely to then want to make a good one. But a good decision just makes you want to make more good ones. When the outcome is good, you can then see other good outcomes when they start because you will have developed the pattern recognition to discern what a good decision and good outcome looks like.

That’s why typically the most successful people are the ones who seem the most willing to take a leap of faith because they’ve internalised the likelihood of it having a good outcome and they don’t think about it anymore. They don’t need to think about it, they just become used to making good decisions and it becomes habit. The least successful people I know are the ones who say No a lot and are always thinking about what they should do. They then internalise their own bad decision making and make bad decisions regularly without even realising. They’ll then become defensive about them.

It’s also part of human nature that after a decision is made you usually feel better about it afterwards, even if you were wrong. If you’ve ever done something really hard, after finishing you would have felt relieved or a sense of satisfaction. The hardest part usually ended up being the endless thinking about it beforehand. Singers don’t get stage fright when they’re on stage singing, it happens beforehand when they imagine everything that can go wrong. But most of the time, nothing goes wrong. It was all in their mind.

Looking back on your life it’s not the things you did that you’ll regret most, it’s the things you didn’t do. I remember when I was little having this explained to me and felt like I’d understood the most important thing ever. Because it’s not failing that is a tragedy, it’s underachieving. Doing less than what you are capable of doing. That is the real tragedy.

What people forget is that most questions are actually of this nature. It’s really easy to forget that but it’s why if you ever want to ask out a girl or apply for a job or meet someone new, the answer is invariably yes. You should always err on the side of most benefit. Because the marginal utility of her saying no or you not getting the job is the same as not applying for it in the first place. Indecision is actually the worst decision.

I asked a famous rapper once how he knew when he was ready to do his first solo tour. He said, “You’re never ready. For anything. Everything is terrifying. So just jump and you’ll figure it all out on the way down.”

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