The number of decisions that we make — professionally and personally — won’t get any less any time soon. Yes, there will be AI based decision making, but expect us humans to continue making many decisions for the foreseeable future. I’ve written about decision making before (see here and here), and I’m always keen to learn about different approaches to decision making. That’s why I recently read “How to Decide — Simple Tools for Making Better Choices” by Annie Duke. Duke is a former professional poker player, who now writes and talks about improving the quality of our decision making.
Duke starts with describing the relationship between decision quality and outcome quality, identifying four different scenarios:
- Earned reward — An earned reward comes when you make a good-quality decision that results in a good outcome.
- Dumb luck — Dumb luck comes when you make a poor-quality decision that turns out well.
- Bad luck — Bad luck comes when you make a good-quality decision that turns out poorly.
- Just deserts — Just deserts means making a poor-quality decision that results in a bad outcome.
Luck is what comes between a decision (with all its potential outcomes) and the outcome that you actually get. Luck is often a factor outside of our control, which means that we’ll have to double down on improving decision quality and Duke introduces six steps that will lead to better decision making:
- Identify the reasonable set of possible outcomes.
- Identify your preference using the payoff for each outcome — to what degree do you like or dislike each outcome, given your values?
- Estimate the likelihood of each outcome unfolding.
- Assess the relative likelihood of outcomes you like and dislike for the option under consideration.
- Repeat steps 1–4 for other options under consideration.
- Compare the options to one another.
Duke boils these six steps down to these ‘three Ps’:
- Preferences — Identify your preference for each outcome. The simplest way to do is to list the potential outcomes in a decision tree (see a good example above), with the most desirable outcome at the top and the least desirable outcome at the bottom.
- Payoffs — For most outcome there will be things you could gain (upside) and things you could lose (downside). These gains or losses are called payoffs. If an outcome moves you toward a goal, the payoff is positive. If an outcome moves you away from a goal, the payoff is negative.
- Probabilities — Estimate the likelihood of each outcome materialising. Such estimations will be based on guesses and Duke stresses that good decision-making requires a willingness to guess. Educated guesses are based on information, and we need to ask two questions when guessing. Firstly, what do you already know that will make your guess more educated? Secondly, what can you find out that will make your guess more educated?
Going back to Duke’s six step process for decision-making, you first look at your preference for each outcome, based on the payoff for each outcome. You then assess whether the outcome moves you closer to or further away from your desired goal. Finally, you consider the probability of each outcome to occur.
Main learning point: The link between decision quality and outcome quality is my main takeaway from reading “How to Decide”; mapping potential outcomes per decision, assessing one’s preference for each outcome as well as estimating the payoff and the likelihood of the outcome occurring.
