Few things will improve the quality of your life more than learning how to make high-quality decisions. Yet amazingly, no one really teaches us how to do it. Not in grade school; not in high school. Most college majors don’t require courses in critical thinking or decision making. Has anyone ever told you that their parents sat them down one day and said, “It’s time for me to teach you how to gather information, assess that information, think critically and then make a high-quality decision”?
The Internet has made things worse. Why learn decision making skills when Google has thousands of “experts” with an answer? All those answers then introduce the Paradox of Choice, which leaves many feeling overwhelmed and looking for somebody else to make decisions for them.
A September 2021 Inc. magazine article reported that the average adult makes approximately 35,000 decisions per day. (Do you suddenly feel tired?) Decisions fall on a continuum ranging from the unimportant (do I go to lunch at 11:45 or Noon?) to the critically important (do we launch this product?). The consequences of important decisions can change our careers, and sometimes our lives.
Most people don’t possess the tools to optimally process these things. Consequently, they rely on tactics like the old pro-con list, listing the positives on the left side of the page and the negatives on the right. It works, but that approach has drawbacks. If all you have is a hammer, everything looks like a nail.
It’s important to note that even people with good decision-making skills can get it wrong. History is full of bad calls made by smart people, many of whom could even be called “professional deciders.” However, there is much we can do to increase our odds of making high-quality decisions.
Those who make consistent, high-quality decisions take advantage of how the world works. They choose outcome over ego. They accept reality’s feedback and use it to change their behavior. Poor decision makers do the opposite. They choose ego over outcome. They decide based on how they think the world should work. They ignore reality’s feedback, then blame others and blame circumstances for the consequences of their poor decisions.
Those who make consistent, high-quality decisions also use mental models. A mental model is simply a way of thinking that helps us process what goes on around us. They’re the routines our brain uses to simplify the outside world. We all have them, and we all use them.
Charlie Munger, billionaire investor and vice chairman of Berkshire Hathaway, once summed up his approach to wisdom using mental models. He stressed the importance of having models in your head, and then filtering your experiences through that network of mental models to arrive at better decisions. So, what are these Core Mental Models?
The Map is Not the Territory: Maps aren’t reality, they are a representation of reality. The territory can change. Downpours, earthquakes, and bulldozers happen. Another way to think of it: The Menu is Not the Meal. Trust, but verify.
Circle of Competence: When ego drives what we undertake, we have blind spots. Know what you know, but more importantly – know what you don’t know.
First Principles Thinking: Separate the underlying ideas or facts from any assumptions based on them. Once you get down to the essential idea or facts, you can build to produce something new. Elon Musk explains it like this: boil things down to their fundamental truths, then reason up from there.
Thought Experiment: A fancy way of saying “use your imagination.” Lay out a problem mentally and extensively think through all the potential consequences. When we can’t find actual evidence, thought experiments force us to confront questions we can’t answer easily.
Second-Order Thinking: Almost everyone can anticipate the immediate results of their actions. That’s first-order thinking. Far fewer can think farther ahead and think holistically, anticipating subsequent effects beyond the immediate.
Probabilistic Thinking: This is trying to estimate, using math and logic, the likelihood of any specific outcome happening. Identifying the most likely outcomes is one of the best tools available to improve the quality of our decisions.
Inversion: Most of us tend to think in one direction about a problem. Sometimes it helps to turn things upside down. Instead of asking, “What’s the fastest path to getting this product to market?”, invert and ask, “What are all the obstacles that could delay us getting this product to market?”
Occam’s Razor: Simpler explanations are more likely to be true than complex ones. Don’t begin with trying to disprove a complicated fact pattern. Instead, begin with trying to prove a simple fact pattern.
Hanlon’s Razor: Don’t blame malice for things that can more easily be explained by stupidity. Bad results aren’t always caused by bad actors; they are more often missed opportunities. The explanation most likely to be right is the one with the least amount of intent. People make mistakes.
We can’t always predict the outcome of our decisions. But if you have a solid decision-making process using mental models, you will find yourself making high-quality decisions more often.
Leah Yosef International is a boutique executive search firm specializing in the private wealth and investment management arena, catering to single/multi-family offices and registered investment advisory (RIA) firms nationwide.
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