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MAKING BETTER DECISIONS


drawing of decision tree

❝There are no solutions. There are only trade-offs.❞ -Thomas Sowell

Have you ever felt paralyzed when it came time to make a decision? Perhaps you worry that you won't make the best choice, or that you should wait until you are fully informed in order to make a decision. Your worry may be keeping you from enjoying your life.


Or maybe it's the other way around. Maybe you ruminate about the past, wondering if you made the right choices or if things would be better if you did something else.


The fear and worry in both of these scenarios is the same. They both involve wanting to have the best outcome you can.


Unfortunately, knowing what the best outcome is is impossible. We can't replay the universe under a different set of choices and compare the results. Instead, we can learn to make some good guesses about what we want and move forward from there.


UNCERTAINTY PARALYSIS


You've lived a life. And that life has taken you on a particular journey. All the things you've experienced, seen, noticed, and been through have made you who you are. You might even be able to think back to big transitional periods in your life and see how those altered the course of your life. Shoot, you might even be able to think of seemingly small things that happened that changed the course of your life.

drawing of your life

Of course we can never know how things would have turned out if only we did this or that differently. There are countless life journeys that are unavailable to you now because the past can't be changed.

This adds a potential source of paralysis to our lives. How can we ever know if we made the right decision?

drawing of  unavailable lives

That doesn't just apply to our past decisions, either. We face decisions every day.

drawing of possible futures

And much like we can't know if we made the "best" decision as we look at our past, we can't know with certainty whether we are making the best choice now going forward. It is almost as if there is a curtain covering up the outcomes.


We can never fully know what the future holds.

drawing of uncertain future

DECISION TREES


We can't know with certainty how the future will pan out, but that doesn't mean we can't make decisions intentionally. We can make guesses about what the consequences, both good and bad, of our decisions might be.


A decision tree helps us think through our choices in a way that helps us lay it all out on the table. It helps prevent us from doing what we all love to do - avoid thinking about the consequences.


With a decision tree, you simply lay out the options you have, along with the pros and cons of each option.

drawing of decision tree

Some of your options might have secondary choices you get to make. That's okay; just list the proc and cons of each choice.

drawing of decision tree with multiple nodes

Let's use a simple example. Suppose it's around noon, and you're hungry. Your decision tree would start by listing out the options you have available to you. You could eat leftovers at home, get some fast food, or go to a fancy restaurant (there are more than three options, of course).


Then, you list the consequences of each choice. If you eat leftovers, you're no longer hungry and it was free, but you don't really like leftovers. Getting some fast food means you'll be full and it's pretty low cost, but it's not the greatest food. Finally, you could go to a fancy restaurant and get rid of your hunger with delicious food, but at a high price.


There may be other things to be aware of as you do your decision tree, like the time it takes for each option and so on. The main idea, though, is to list out your options and their consequences.

drawing of decision tree



The Value Compass is designed to help you gain insight into your own values and how they guide your thoughts, feelings, and actions. It can be used to explore your personal goals and motivations, as well as to gain a better understanding of others' values and how they may differ from your own.




TRADE-OFFS AND SUNK COSTS


There's something to keep in mind as you look at your options. If you find the same thing in many of the choices, then that shouldn't be involved in your decision-making process. That's what economists call a sunk cost. No matter what you do, that's going to be there.


In our lunch example, you are full no matter what you do. Therefore you don't need to consider that aspect.

drawing of sunk cost

That may sound like a silly example, so let's consider a real-life example. On my way to the store last weekend I had to put up with heavy traffic. On top of that I just missed the stop light and had to wait for an entire light cycle. When I finally got to the store, I found that it was a complete zoo! There was no place to park, there were more people in the store than I've ever seen, and I knew I wasn't going to enjoy the experience.


If I drew a decision tree it would have to branches, go to the store or return home. In both cases, I had to wait in traffic and at the stop light.

What this does is it allows us to ignore information that won't be helpful to us as we go forward with our decisions. It also shines a light on the trade-offs we face. Life is a series of trade-offs, yet most of us are unaware of those trade-offs.


By understanding what we are trading off, we get to see more clearly what we get in exchange for our resources.

drawing of trade offs

In the shopping example, ignoring the sunk costs highlights the actual trade-off I'm facing. Is it worth struggling to find a place to park and getting stressed out inside in order to get what I need?


There's no right or wrong answer. As Thomas Sowell says, there are no solutions, only trade-offs.


GETTING COMFORTABLE WITH DISCOMFORT


Even with decision trees, we can't know if we were "right," whatever that means. It's important to make the distinction between the process and the outcome. There is a lot that goes into our outcomes that is outside our control. We can do everything right and still get an unfavorable outcome. That's okay! It's the process that matters.


Having said that, that's easier said than done. Humans are deeply uncomfortable with uncertainty and we'll do a lot to avoid it.

drawing of comfort zone

Being able to grow our comfort zone so that we're more comfortable being uncomfortable will help keep us from making the mistake of thinking we have to control everything before making a decision.

drawing of growing your comfort zone


Making good decisions doesn't mean getting the best possible outcome. We can never know if we got the best possible outcome, or even what "best" means. Making good decisions can even mean getting an unfavorable outcome sometimes.


Making better decisions is about understanding your trade-offs and thinking through your choices.


You get one life; live intentionally.


 

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REFERENCES AND INFLUENCES

Adams, Scott: How to Fail at Almost Everything and Still Win Big Ariely, Dan: Predictably Irrational Ariely, Dan & Jeff Kreisler: Dollars and Sense Burkeman, Oliver: Four Thousand Weeks Burkeman, Oliver: The Antidote Kahneman: Daniel: Thinking Fast and Slow

Klein, Grady & Yoram Bauman: The Cartoon Introduction to Microeconomics Manson, Mark: The Subtle Art of Not Giving a Fuck

Urban, Tim: Wait But Why



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Eddy Smith
Eddy Smith
5月19日

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About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.

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