If we had the gift of knowing the strategy we should use to make good decisions, would we use it? It turns out we have it, but we don't use it.
What is strategy?
We have different definitions of strategy floating around business halls. Many describe what strategy does — it recognizes the nature of the challenge, it creates strength through its coherence, it's unexpected, it needs to be responsive to innovation and ambition.
In Good Strategy, Bad Strategy: the Difference and why it Matters, Richart Rumelt says “strategy is at least as much about what an organization does not do as it is about what it does.” Rumelt says there are three core elements to a good strategy:
- a diagnosis
- a guiding policy that specifies the approach to dealing with obstacles called out in the diagnosis
- coherent action
For individuals and organizations, a good strategy identifies the biggest challenges to forward progress and devises a coherent approach to overcoming them.
Good strategy looks simple — choose these feasible things over others, commit resources, act coherently — yet it not easy.
The paradox of choice
We live at a time of abundance — we have more marketing and business technologies, media channels, and product, entertainment, service options than we have time in a day to try out.
Focus is better, yet focus is hard. Why? One reason is the abundance of choices. It paralyzes us. As psychologist Barry Schwartz says in The Paradox of Choice: Why More is Less, the central tenet of western societies — freedom of choice — has made us not freer but more paralyzed, not happier but more dissatisfied.
We are likely familiar with many of the examples he cites from research — too many brands of cereal on the shelf to choose from, too many product features to evaluate, etc.
Each of these scenarios depletes us cognitively, especially after a log day at work. Cognitive load explains the popularity of smartphones over fancier cameras — simpler methods to capture beautiful moments — and how Instagram won over existing social networks — simpler ways to share photos.
While picking the wrong salad dressing is likely no big deal, the problem is when we are called to make choices of consequence. The central thesis of the book is about strategic choice. Schwartz says how we choose depends on whether our strategy is to be “maximizers or satisficers:”
If you seek and accept only the best, you are a maximizer.
The alternative to maximizing is to be a satisficer.
To satisfice is to settle for something that is good enough and not worry about the possibility that there might be something better.
Picking a course of treatment for our health is an example of a more complex choice. With the Affordable Care Act signed into law (after the book's publication) many had to learn to navigating the current system to choose an appropriate level of health coverage for the first time.
Many of us are likely somewhere in between maximizer and satisficer. Regardless of our directional strategy, as part of the human race, we are subject to biases and assumptions. Which explains why our choices may seem irrationally emotional and not follow a personal strategy.
Why we make poor decisions
Part of the analysis-paralysis for decisions or difficulty in making choices problem stems from our beliefs of what will make us happy. In turn this leads to bad decisions. Harvard psychologist Dan Gilbert says that is because we don't know how to calculate what is best for us:
We all make decisions every day; we want to know what the right thing is to do — in domains from the financial to the gastronomic to the professional to the romantic. And surely, if somebody could really tell us how to do exactly the right thing at all possible times, that would be a tremendous gift.
It turns out that, in fact, the world was given this gift in 1738 by a Dutch polymath named Daniel Bernoulli. And what I want to talk to you about today is what that gift is, and I also want to explain to you why it is that it hasn't made a damn bit of difference.
Now, this is Bernoulli's gift. This is a direct quote. And if it looks like Greek to you, it's because, well, it's Greek. But the simple English translation — much less precise, but it captures the gist of what Bernoulli had to say — was this: The expected value of any of our actions — that is, the goodness that we can count on getting — is the product of two simple things: the odds that this action will allow us to gain something, and the value of that gain to us.
In a sense, what Bernoulli was saying is, if we can estimate and multiply these two things, we will always know precisely how we should behave.
Gilbert provides many examples to explain why we don't, he says:
There are two kinds of errors people make when trying to decide what the right thing is to do, and those are errors in estimating the odds that they're going to succeed, and errors in estimating the value of their own success.
Our loss aversion prevails over rational arguments of gain, for example. We neglect to consider how else we could utilize money based on current circumstances rather than past experiences.
Emotion, context, and situational factors influence our behavior and affect it — information decoys, anchors, playing with gains and losses, availability bias, and so on. Gilbert says:
Now, retailers knew this long before anybody else did, of course, and they use this wisdom to help you — spare you the undue burden of money. And so a retailer, if you were to go into a wine shop and you had to buy a bottle of wine, and you see them here for eight, 27 and 33 dollars, what would you do?
Most people don't want the most expensive, they don't want the least expensive. So, they will opt for the item in the middle. If you're a smart retailer, then, you will put a very expensive item that nobody will ever buy on the shelf, because suddenly the $33 wine doesn't look as expensive in comparison.
So I'm telling you something you already knew: namely, that comparison changes the value of things. Here's why that's a problem: the problem is that when you get that $33 bottle of wine home, it won't matter what it used to be sitting on the shelf next to.
The comparisons we make when we are appraising value, where we're trying to estimate how much we'll like things, are not the same comparisons we'll be making when we consume them.
This problem of shifting comparisons can bedevil our attempts to make rational decisions.
When we add the time dimension to choices, they become even more difficult. For example, making investment decisions, or choosing a course of studies or a job — not everyone makes a big excel spreadsheet like Marissa Mayer made.
How to decide better
Chip Heath and Dan Heath use the Marissa Mayer example in Decisive: How to Make Better Choices in Life and Work.
If we want to become more effective at making decisions, say the Heath brothers, rather than shooting from the hip or getting paralyzed by choices, we can learn to adopt a more objective way of weighing our options.
We can learn to shift our attention or pause to gain better perspective and move forward. Other techniques they recommend are exploring alternative points of view, recognizing uncertainty, and searching for evidence that contradicts our beliefs. These techniques require effort and discipline to automate.
Which is why the book also provides more general guidelines to get started. There is something we can do to respond to the four villains of decision making:
- to avoid narrow framing, we should widen our options
- to keep confirmation bias in check, we should reality-test our assumptions
- to hedge short-term emotion, we should attain distance before deciding
- to counter overconfidence, we should prepare to be wrong
Reframing our goals is also helpful.
For example, they say start by asking “what do I want out of life?” then consider “what are the best options to get me there?” That includes something I have found supremely helpful, which is finding someone who has solved that same problem before. With the caveat that we should also consider “what would have to be true?” for us to achieve similar results (one of the reasons why following best practices may not work.)
The Heath brothers say there is a problem with focus we should be aware of:
Focusing is great for analyzing alternatives but terrible for spotting them. Think about the visual analogy — when we focus we sacrifice peripheral vision. And there's no natural corrective for this; life won't interrupt our focus to draw our attention to all of our options.
This is an issue when we want to be innovative, or are still at the stage of figuring out the best question to answer with our strategy, because we run the risk of creating a solution in search of a problem to solve.
To make better decisions, at a minimum, we can make it easier for people to disagree with us, we can ask questions that are more likely to surface contrary information, and we can check ourselves by considering the opposite.
If we say that truth is important to us, then we should also have the humility to recognize how we are very good at dispensing advice, yet do poorly at taking it. We can learn to make better decisions by becoming more aware of our behavioral gaps and using simple techniques to do better.
Decisions are a means to an end — achieve our goals. We make ourselves happier when we learn to become more effective in our choices.
What we all seek
In Stumbling on Happiness, Dan Gilbert outlines the shortcomings of our imagination — how we have the ability and desire to imagine our future, yet how little we know about it to make it happen. The shortfall is our predictive ability. We're terrible at knowing how we will feel a day or a month or year from now, and even worse at knowing what will and will not bring us happiness.
While the book provides ample information about why we stumble, for a deeper reading on happiness, I recommend finding a valid hypothesis for “What is the Meaning of Life?” in Jonathan Haidt's The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom.
Watch the video of Dan Gilbert's talk below.
[image Dutch polymath Daniel Bernoulli, 1738]