Your Decision-Making Ability is Worse Than You ThinkJul 13, 2021
Over the years, numerous people have asked me what I attribute my career success to? Obviously, I haven’t conquered the world, but overall, things have gone pretty well, and why is that? I always answer this question in the same way, which is as follows:
I am completely convinced of how fallible I can be
No, I am not mouthing this like BS to “sound” humble when I really mean the opposite. Instead, what I mean is exactly what I say. There have been so many times that I have been 100% sure that I am right but turned out to have been totally wrong that I started to realize that I was often unable to predict whether the outcomes of the decisions I made would have successful outcomes.
These decisions included important matters, such as which areas of law to practice in, how hard to work on specific projects, how to interact with third parties, marketing angles, business strategies, mission statements, who to hire, who to terminate, which clients to work for, and many others areas affecting my law firm and other businesses.
If you read our Twenty Year Commemorative on our website, you will chuckle and maybe even laugh out loud when you see all the errors that were made at my law firm when I was running the show. Notably, I stepped down as Managing Partner almost three years ago and became Chairman.
As an aside, a lucky break that didn’t seem lucky at the time – in the distant past now -- was many years of depressing purgatory at a couple of major law firms where I was on the ‘loser track.’ And if you are a lawyer reading this, you know what I mean. There is nothing like having some humility whipped into you when you are young enough to learn from it.
Consider the most obvious decision for a law firm, namely, how many lawyers to hire. If you hire too many, you have overcapacity, and if you don’t hire enough, you have under capacity – either of which can be tragic. However, when you are making hiring decisions, you don’t know how much work will come in the door in the coming year, i.e., will it be a Global Financial Crisis year or a COVID year coming up, or a robust year. So you do the best you can. Interestingly, I have been wrong almost every year in making this kind of decision.
So throughout the years, I have instinctively known how opaque the efficacy of decision-making is; however, I am now midway through reading a book that has blown me away in confirming my instincts have been correct with a more analytical and mathematical analysis.
The book is by Daniel Kahneman, who is a New York Times Bestselling author and Presidential Medal of Freedom Recipient for his book, Thinking Fast and Slow. You likely have heard it and maybe even read it.
This is his second book, and it is called quite simply Noise. In essence, he says that the correctness of decisions is affected by Bias and Noise, each of which throws off the predictive effect of decisions. He does not treat Bias in his book, presumably because it is obvious that it affects decisions, and much has already been written about it. Instead, he focuses on what he calls Noise, which is essentially random factors that render the predictive effect of decision-making imperfect.
I don’t have room here to delve into the book’s specifics, but it hooked me because, as inherently a math guy at heart, I like books where there is rigorous analysis instead of what the author thinks ‘should be so.’
I will stick my neck out and say that this is an excellent book, and I heartily recommend it to you. Indeed, I would say that the decision you might make not to read it is likely to be a major mistake. It has led to a major epiphany for me as to how I will be thinking and deciding going forward, and you will see tendrils of this in my future writings. Thank you, Mr. Kahneman, for this book.
The unsubtle point I am making in this article is that whether or not you read the book, you are a lot worse at making decisions than you think you are.
Ironically, the more successful you are, the worse your brain fools you into thinking that you are really a brilliant decision-maker. Consider simple math. If you have ten monkeys making decisions, one monkey will be the best decision-maker, won’t it? If you have been successful, maybe you are really good at decisions, or maybe you are just the luckiest decider? Apologies if that sounds obnoxious; I don’t mean to offend anyone – just making a point about how decision-making success and luck intertwine.
To enhance this irony to a deeper level, our squishy brains are set up to fool us into remembering -- in the front of our minds -- the times we were right and kind of forgetting – or pushing to the back of our minds - the times we were wrong. It is nice of our brains to do this.
And to go even deeper on this same point, you constantly hear about the cool people who gambled big and benefited from it. That is what Fortune writes about every week. But you don’t hear about the dramatically bigger group who gambled big and were wiped out, as there is no reason to write about them. So all the bad outcome decisions are hardly thought of, but the good ones are touted.
The point I am making in this article is extraordinarily important for the future success of your real estate business. Indeed, when you get right down to it, everything depends on the decisions you make. And now, to bring it all home, let me outline how you can benefit from all of this philosophizing...
If you become as confident as I am that there is really no way to know as accurately as you hope whether a particular decision will be a good one or a bad one, then what should you do?
I have two answers to that question:
First - I do advocate you buy Kahneman’s book. He gives you heuristics for shrinking the Noise in your decision-making processes. This will increase your chances.
Second - be humble, at least with yourself – you don’t have to do it publicly, of course, and acknowledge you really don’t know how your decisions will turn out. And then make decisions to the extent possible where you have as low risk as possible if you are wrong and as high a reward as possible for being right. Some outgrowths of this are:
Get in the habit of trying out a lot of stuff and seeing what works and dumping what doesn’t work
Don’t be afraid to reverse yourself instantly – turning on a dime – to get rid of a decision that is turning out wrong and changing direction
Also, if you really internalize the fallacy that you can’t predict outcomes as accurately as you think, it is (virtually) never a good idea to bet the company on anything. There should always be a fallback plan if the big decision turns out to be a boner. Nicholas Taleb makes this point in one of his books, as he points out that a bad outcome on a bet-the-company decision puts you out of business, whereas otherwise, you are still in the game.
I have found over time that making decisions in the foregoing manner tends to lead to better outcomes. Not all the time, of course, but most of the time. And I am planning on ramping this up going forward.
Bruce Stachenfeld aka The Real Estate Philosopher™