Are you making decisions effectively?

“Ray Dalio is one of the great investors and entrepreneurs of our time. In 1975, he founded Bridgewater Associates out of his two-bedroom apartment and built it over forty years into the largest hedge fund in the world and the fifth most important private company in the U.S. (according to Fortune).” 

Imagine you are driving a car. How do you choose and maintain a safe distance behind the car in front of you when you are driving? Hold that thought. Try to describe the process in enough detail so that someone who has never driven a car before can do it as well as you can. Difficult right?

This symbolises the challenge of making all of your decisions well, in a systematic, repeatable way, and then being able to describe the process so clearly and precisely that anyone else can make the same quality decisions under the same circumstances. Let me elaborate on some of the adjectives used here. If your decisions are not made in a repeatable way, you may get lucky a few times but largely you are essentially stumbling though life with no real control over outcomes you could certainly influence. Decision making needs to be systematic because then we can refine our process and find weaknesses or loopholes. Without a system we cannot improve the process, leading to stagnation (a scary word for progressive minds).

There is one overarching neural-chemical by-product that often rampages through our logical decision making process. Emotions. In particular harmful emotions that cloud our judgement. I will elaborate on this in a moment but first it’s important to note the two-step process of decision making. Learning and Deciding.

Learning must preclude deciding. What you know must paint a true and rich picture of the realities that will affect your decision. Many have emotional trouble doing this and block the learning that could help them make better decisions. As a rule of thumb, it’s never harmful to at least hear an opposing point of view.

Deciding is boiled down to weighing up first-order consequences against second and third-order consequences and basing your decisions not just on near-term results but on results over time. Let me give you an example. You have a upcoming assignment due and you want to get it done as soon as possible. You decide to do an all-nighter to smash it all in one go. The first-order consequence may be that you finish the assignment – that’s good… or is it? A second-order consequence is that given the strain you placed on your body, you are tired and unproductive for the next few days. A third-order consequence is that you fall behind on other work and now you have to repeat the doomed cycle. Not to mention that the assignment you did in the first place probably has lots of errors that require correcting and will not fare well with the lecturer.

How do you learn from this? Ask questions of yourself and recognise the pain points, for example: I’m not organised therefore I leave all my work to the last minute. Tackle the pain points directly and prevention is always better than a cure. So don’t think ‘maybe I should have the day off after an all-night study session’, but instead ‘why I am putting myself in this position in the first place?’.

Here are some short guidelines to better decision-making:

One of the most important decisions you can make is who you ask questions of

The best policy is to find those who are responsible for what you are seeking to understand and then ask them. If you have a question, think about the best person that you know that could answer that question and go and ask them. Listening to uninformed people is worse than having no answers at all.


Everything looks bigger up close

I love this phrase, because I witness it so often. Do you remember when you were rejected from that internship or job role and it crushed you? A few months later though, we look back and think, ahh it wasn’t so bad. Everyone goes through rough patches so it helps to take a step back to gain perspective and evaluate the overall trend of where your life is going. For example, you may have scored lower than expected in one assessment, but how is your overall average doing? Even when nothing seems to be going our way, this is usually an over-exaggeration and being grateful for little things can shift your perspective on this view that everything in your life is going terribly wrong. (See Tools of Titans – morning routine article for more information on practicing gratefulness).


Don’t over-squeeze dots

A dot is simply one piece of data from one moment in time. It’s not unusual to hyper-analyse a scenario or situation beyond what is reasonable. Your friend who is an infatuated lover may tell you how the shape of their beloved’s smile at a 34.7 degree angle means that they are destined to be together. Don’t be that person.


Remember the 80/20 Rule and know what the key 20 percent is

The rule states that you get 80 percent of the value out of something from 20 percent of the information or effort. The way I incorporate this is to focus on the core element of the task at hand. In the gym, focus on large compound moves. In my studies, focus on being able to answer the exam questions in the best way possible rather than trying to memorise the entire course. At work, focus on the clients that generate the most revenue, with least input.


Be an imperfectionist 

Perfectionists spend too much time on little differences at the margins at the expense of the important things. For example, choosing the best font that Microsoft Powerpoint has to offer for a presentation. Dalio mentions that there are normally just five to ten important factors to consider when making a decision.


Make your decisions as expected value calculations

Here’s an example, you have a 20 percent chance of success and being rewarded with £1000 (could be a small scholarship fund)  but, it will cost you £100 if it fails (application fee). Is it worth it? The expected value is (1000 x 0.2) + (-100 x 0.8)  which equates to a positive £120, so it’s probably worth it even thought the odds are against you, as long as you can cover the loss. Though we don’t do these calculations explicitly, we constantly make them intuitively so it helps to recognise the logic behind it.


“It’s up to you to decide what you want to get out of life and what you want to give.”

Ray Dalio


If you enjoyed this article and would like to purchase the book, see the link below.

https://amzn.to/2Lutn9T


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