BOOK REVIEW: Don't just trust your gut - make better decisions when stakes are high

Farsighted: How we Make the Decisions that Matter the Most, by Steven Johnson

In business, as in other important aspects of life, we value the decisive leader. Such a person makes hard choices and sticks with them.

But complex decisions can leave little room for manoeuvre in the future, or can have awful consequences. Complex issues don't lend themselves to the simple decision-making methods most of us have been exposed to.

We all make complex decisions, but not always with earth-shattering consequences. Johnson, however, uses several important political and ecological decisions the reader may recognise.

For most of us, complex decisions may be whether to start a new business, buy one, change course, or change jobs. They involve multiple variables. For example: Do you accept a challenging, lucrative new position that will require you and your family to relocate?

With some effort, you calculate the cost benefit, the difference in cost of living, the cost of relocation and schooling. This in itself is not a complex decision.

·         READ: BOOK REVIEW: How to make much better decisions with less information

The complex decision involves whether your young son will adjust to a new school or find new friends. Will your daughter adjust to the academic standards that took her so long to achieve in her current school?

And will you succeed?

These family considerations with lifelong consequences are harder to make and should be recognised as such. Their downstream consequences may be impossible to reverse.

In this example, as in many others, the outcomes with the highest uncertainty are the ones we care about most.

Too often, decisions that matter are based on instinct and intuition. They shouldn't be.

This book's benefit is the promotion of deliberative decision-making. It is designed to keep us from falling into preconceived assumptions. "Kids adapt." "If others have moved for their career, so can we." "I have always made a success of my career." Often, these assumptions are deeply flawed and misleading.

More uncertainty, higher stakes

Most decisions, big or small, are predictions about the future: Will I enjoy a scoop of vanilla or chocolate? Do I choose the investment with a 75% success likelihood, or the money market?

The predictions in complex decisions often involve conflicting objectives such as when your heart conflicts with your politics, or your community roots, or your financial needs—or all three. Complex decisions involve multiple stakeholders, whether your family or an entire community.

Complex decisions involve undiscovered options, with the available options often not fully defined. The best decision may be an option that wasn’t visible at the outset.

And when we use a group to assist with decision-making, the odds of success are vulnerable to the failures that collective intelligence often produces.

The three steps

Deliberative decisions involve three steps.

1) Build an accurate map of all the variables, and the potential paths available to us.

2) Make predictions about where those different paths might lead us.

3) Reach a decision by weighing the various outcomes against our overarching objectives.

Mapping, predicting, and choosing are obvious.

How these are achieved for complex decisions is anything but obvious. The decisions depend on innumerable conditions, whose significance may only manifest later.

No one makes a hard decision without some kind of mental map. The decision to launch a new product could include a map of all the regions where it might potentially sell, as well as a metaphoric map of the complexities involved in producing the product in the first place.

Overconfidence killed the cat

The challenge of mapping is getting outside our intuitive sense of the situation in front of us, and expanding the range of possible factors.

The best way to do this is to get multiple perspectives on the problem. Having an open discussion gives too much weight to the opinions of people who speak early and assertively, and thus cause others to align with them.

So interviewing individuals is preferable. The power of diversity appears to apply even when the diverse perspectives come from people with no relevant expertise! Studies show that "outsiders" to a homogeneous group help the "insiders" come up with more nuanced and original insights of their own.

Moreover, multiple studies prove that people who were far less confident in their decisions, make more astute decisions. Sometimes the easiest way to be wrong, is to be certain you are right.

…But don't wait for absolute certainty

Amazon’s Jeff Bezos famously adheres to the "70% rule" in making decisions. You only need to be 70% sure.

When you are very sure, use this technique. Imagine a world where this path is roadblocked, what would you do then?

READ: How to make faster, better decisions

Look ahead

This leads to the "predicting" step. Making decisions based on future prospects on the scale of months or years—even something as simple as planning a summer vacation in December— is a uniquely human ability. No other creatures have this capability. No wonder people are three times more likely to think about future events than about past events.

Even the past events we ruminate on, have some relevance for their future prospects.

We have perfected many ways of forecasting, but none for prophesising. We can use an amalgamation of meteorological data and scientific insight to predict tomorrow’s weather with a high level of accuracy, but we cannot predict next month’s weather.

To forecast complex problems, we have various techniques such as "war games" - a mental exercise where decisions could be rehearsed multiple times, using different strategies with each round.

The technique I favour, and that is central to my book on strategy, is scenario building. It focuses attention on the uncertainties that inevitably haunt complex decisions, and forces one to imagine multiple versions of how that uncertain future could get better, worse, or weird.

READ: How to make better investment decisions

Scenario building is not merely thinking about the future.

First, we rarely take the time to do a full-spectrum analysis of all the forces that shape those thoughts. Second, we rarely bother to construct multiple stories.

A useful technique is to imagine that it is months into the future, and the plan has been carried out. It has failed. Now, formulate an explanation as to why it failed.

People come up with richer and subtler explanations when they are given a potential future event and asked to explain the event as if it has actually happened.

Give it time

As powerful as computational decision-making may be, it’s fair to say that most of us end up making complex decisions without actually doing any maths. This is probably not a bad thing.

"If we’ve done a thorough job working through the mapping and predicting phases, the actual choice often becomes self-evident," Johnson explains. The best approach is often an old-fashioned one: give your mind the free time to mull it over once you have done all the pre-work.

People who make complex decisions quickly, are almost always doing so in ignorance.

Readability         Light -+--- Serious

Insights                High -+--- Low

Practical               High ----+ Low

*Ian Mann of Gateways consults internationally on strategy and implementation and is the author of ‘Strategy that Works’ and ‘The Executive Update.’ Views expressed are his own.

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