One area that most people, leaders or managers fear is decision-making. Why? The repercussions of a wrong decision. But is making a bad decision terrible?
That depends. Some are minor. Some reversible. Some can't be reversed. Some have unintended results. Some have profound implications, and some you won't know because you have moved on and let someone else deal with the consequences.
Most of us aren't taught how to make decisions effectively. You are taught SWOT analysis or some linear methods in school where every piece of information is known with certainty. That's where you find these methods don't work in real life.
Let's work through a scenario, and you tell me how much information you need before deciding. And what else is factored into your decision?
The Scenario
Say you have a toothache, and it is the tooth at the back of your mouth. You visit your dentist, and from the X-Ray, you find you have a decayed tooth. There are two options. One to extract it. Next, a possibility of saving the tooth.Both options solve your toothache. You ask your dentist to give you the rundown for each option. If you extract the tooth, your pain will go away. It will cost you $500. Losing one back tooth may affect the joy of chewing your food. Some people may find this affects their eating enjoyment too.
If you want to save the tooth, there are a few options. Because the decay has created a large cavity, the dental filling won't help. Otherwise, your dentist would have recommended it straight away.
The dentist can do a root canal and have a dental crown over the tooth. It will cost you $2000 for the root canal. The dental crown is extra and has to be made to fit. It can be between $2000 to $3000. The total cost to save the tooth at this stage is up to $5000.
By now, you can see extracting the tooth is a no-brainer because the cost is much lower by 10 times. Your toothache will be gone soon. Will that be your decision?
You're not sure. So you ask your dentist what your decision should be. The dentist has an ethical dilemma. They can't decide for you because there are other unknown factors that you, as the patient, know they don't know. For example, what is your budget? What is your lifestyle like? What type of crown material do you like?
Besides the above, every dentist will not decide for their patient. They can list the pros and cons. It's up to the patient. Have you encountered a situation where your leader and manager want you to decide for them? Or at least recommend a solution? I'm sure you do.
Assuming you want your dentist to help you decide. The dentist proposes the root canal treatment and a dental crown to fit. You accepted the recommendation to have a root canal and a crown. The proposal meets your outcome of curing your toothache and saving your tooth.
Your decision has changed at this stage and is not based on cost anymore. $500 vs $5000. Your decision criteria are based on your other values that are hard to quantify. Your decision has become qualitative.
So far, so good. You are sure things will progress as planned at this stage. What's your gut feeling that things will go your way? The likelihood is high if it's something you have experienced or done before. What if this is all new to you?
Let's take this further.
Unintended Consequence
You are now at your dental appointment for your root canal treatment. Everything seems to be going your way - your treatment. A moment later, your dentist shares some unexpected news. There are complications. The anatomy of your tooth is irregular. There's a crack in your tooth, and one of the roots is too fine that the X-Ray didn't detect them. The root canal treatment cannot proceed.What now?
More decisions to make. You must extract the tooth since it cannot be saved anymore. But you can have a dental implant, which may cost even more, takes more time, and require additional treatment from another dental specialist. If cost becomes a concern now, you can have a single-tooth denture.
At this stage, you would have spent more than $500. The running cost includes the dressings to temporarily address the toothache and the partial root canal treatment. You are back to square one, and your tooth is extracted anyway.
You look back with regrets. You wish you had stuck to your decision and didn't. Remorseful? Don't! All forms of cognitive biases play out while you make decisions.
By now, you see where we are going with this. There are no right or wrong decisions. It's how we deal with it, especially the unknowns. Because we are taught to treat everything with certainty, this is where we fail and struggle.
There's a better way, but you will be constrained because it's not the norm in the workplace. Not even at home. Recall that you were taught differently to make decisions.
How do you make better decisions?
The better one is known as the Bayesian Decision Theory. Bayesian decision-making involves basing decisions on the likelihood of a successful outcome, where this likelihood is informed by both prior information and new evidence the decision-maker obtains.The entire premise is to help us select decisions that will cost us the least risk. Meaning minimises the bad ones. There are always some unknowns attached to any decision we make.
Here are the steps minus the maths.
1. Make decisions on future outcomes in percentages.
You can replace "decisions" with odds, bets, likelihood, or chance. Remember, there's no certainty of 100% in all your decisions. Using your toothache example. Assume the following:Extracting the tooth - 60%
Protecting the tooth - 40%
2. Identify prior beliefs. What if your thinking is wrong?
In the toothache example, you don't have any about your treatment. You know your budget and what you can afford. What's important to you personally, health-wise. But you need to find out if extracting your tooth is better.3. Listening to gather information
So you ask your dentist to give you a rundown. The more you hear about protecting your tooth and not losing it, the more appealing it becomes. Your future outcome to protect your tooth matches your value.4. Evaluate your decision in percentages on your future outcomes
By now, you have adjusted the percentages for the following.Extracting the tooth: 20%
Protecting the tooth: 80%
5. Update your initial beliefs
You now have your initial beliefs. As you evaluate your next set of decisions, this will become your prior beliefs. Remember, you still have a 20% chance that you may need to extract your tooth.By now, you have made your first decision. As you cycle through the scenario I shared above and discover that the root canal treatment failed to achieve your future outcomes, it is not the end. You have learned what didn't work for you. You didn't know about the anatomy of your tooth. No one can predict that until they explore it.
What you have now is a set of prior beliefs that matter to your future decisions. You can use it to decide what's next for you. You now have more options if you care to replace your extracted tooth.
Conclusion
The main lesson in decision-making is knowing that your decision does not equal the intended outcome. What makes a good decision is not the outcome but a good process. That process must include your attempt to accurately represent your own knowledge.Next, use uncertainty to your advantage. You do not know what you do not know. You are making a bet on the future. It is as good as your beliefs. Update your thoughts by seeking information. Then adjust your decision again with the new information.
Finally, keep the big picture in mind. Take the long view so that we think less emotionally and more rationally. Give it a go, and let me know how this works for you.