Overcome the top mistake we usually make to get a better understanding of the decision process
Being able to better predict the future seems like an impossible skill. But it’s been proven that people can improve their predictive abilities by over 10%* by just taking on board some simple…
Top Strategies for Better Decisions
(That you probably aren’t using)
Being able to better predict the future seems like an impossible skill. But it’s been proven that people can improve their predictive abilities by over 10%* by just taking on board some simple lessons.
10% may seem like nothing but remember that if this is over the course of your life, the compound effect of being correct 10% more of the time could be huge. In a simple example; your investment decisions return 10% more money each year, in 10 years time that means you have 2.1x more money return than at your current level! In 20 years 4.2x, in 30 years 8.4x, in 40 years 16.8x etc… The point is compound gains can be huge.
So there are a lot of useful ways we can all be better decision makers. The 4 listed below are the top strategies that you probably aren’t already aware of and I think can provide some of the biggest gains.
1. The Art of The Pre-Mortem
When you are trying to make an important group decision getting a full picture of the negatives can be hard. Whilst caught up in the opportunity people won’t explore the possible pitfalls or often won’t want to say their honest opinion. Team members may want to agree with the leader to gain points or the leader might not even leave room for feedback. This is a perfect case for the pre-mortem.
In the strategy meeting you say. “Okay, we went with option A. We implemented it as we planned, but in 3 months it hasn’t returned the results we expected. What went wrong?”
This hypothetical scenario is a great way to get all the potential problems with the strategy out in the air. People will be given free reign to explore all the poor elements of the plan and honest opinions will be out on the table. Spending an extra 5 minutes doing this for each potential scenario could save your business.
You might not even change the decision of the main plan to implement. In the process you may well uncover aspects you hadn’t accounted for and can now simply implement the strategy more successfully.
2. Breaking Down the Unknown
Breaking down big unknowns as much as possible into sub-elements that are known (or at least better known) can lead to a much more accurate prediction. This was proved by a great university professor who used to ask his class seemingly unknowable things such as ‘How many piano tuners are there in Chicago?’ (in the years before the internet)
People would not really have any relevant knowledge and so resigned to a random stab in the dark but a few students who applied a process of breaking the question down into sub-components would fair better.
So in this example, ‘How many piano tuners are there in Chicago?’ this could be broken down into 3 parts, each of which can be broken down further:
- Number of pianos in Chicago?
- How many people are there in Chicago?
- How many people own a classical piano?
- How many classical pianos’s are owned by education and business entities?
2. How much tuning work per piano?
- How often does a piano need tuning a year
- How long does it take to tune a piano?
3. How many hours does a piano tuner spend tuning piano’s a year?
- Avg number of hours to work a job (accounting for holiday)
- How many piano tuners work multiple jobs or only part time
- How much time does a piano tuner spend of his job not tuning a piano (commuting, marketing, admin)
You may still not know the actual answer to any of these questions, but I bet you can give a better prediction to each of them. For answers where you are unsure within a given level of accuracy. e.g I think it takes 1–3 hours to tune a piano. Then you go with the average of your answer. In this case 2 hours. Across all your predictions hopefully some will be a bit over and a bit under and your net prediction will be more accurate.
Putting these predictable component parts together you can come up with a reasonable answer that is much better than a stab in the dark!
Obviously, this answer doesn’t really provide any useful business or life context. The point is learning to break-down seemingly unknowable questions to get better at predicting things you don’t know. If you learn this art you will be able to make much more informed decisions on so many things that are more relevant to you.
3. Understanding Statistics
80% likelihood literally means 8 times out of ten it will happen one way. 2 times it will happen the other way. I know what you are thinking.
Errr derrr. That’s obvious. Why have you told me that?
But when a weather-man predicts that the weather will give an 80% chance of being dry. And then it rains. The weather man is right!!!!!!!
If you assumed what he told you is it wasn’t going to rain you are an idiot. And an even bigger idiot when you tell everyone how silly the weather man was today like he owes you something.
He was saying that if today happened 10 times in a row. On 8 of the days, there will be no rain and on two of the days, there will be rain. So pack an umbrella punk.
So in business, understanding what statistics are telling you is massively important if you are using them to make decisions that impact the fate of your company. Even more so for medical decisions that might impact your life.
When you know what the statistics are you can take more control to push them in your favour or defend against them. Some things you have no control over and need to take better precautionary action. Other things you can break down into components with your new found skills above and see if there is anything you can do to improve just one of the components to bring the whole average up in your favour.
Furthermore, some statistics will not change over time. like a coin toss that will always be 50:50 or get a black in roulette. because one happened before does not increase the likelihood of the other scenario happening the next time.
But other statistics will change over time as weight builds up on one side.
You should be mindful of which type of statistic you have on your hands. In the no change scenario you must never change from what is the best strategy.
In the weighting over time scenario, you must be dynamic and you change your decision, e.g. the higher a stock gets without any change in the underlying business and its profits, the more likely it is to crash
4. Don’t be Influenced by a Story
Hearing more of a story behind a possible scenario paints a picture in our minds where we can visualize it happening and thus it feels much more likely even when statistically it is absurd.
For example, a study asked a group of volunteers one of two questions:
– What do you think the likelihood of a major flooding event happening in America is over the next ten years?
– What do you think the likelihood of an earthquake occurring in California that causes a flood by breaking a dam?
And the answers they gave were roughly the same likelihood. That is mental!
America is a huge place and it’s hard to pinpoint where exactly the flood will happen and under what circumstances. Where as people can instantly imagine California. they know it has had earthquakes and has a lot of damns so the picture everything happening in the story very easily.
Now, this doesn’t just occur with questions people ask us but in scenarios, we give to ourselves. In business or life if we can imagine one scenario happening (maybe because it happened to us once, or we know someone it happened to) suddenly we feel the possibility of that occurring is much higher than hundred of other possibilities we haven’t given similar weighting to because we didn’t picture it happening. Ultimately in the future, a million things could happen most of which we don’t have time to even think of and many of which we can’t possibly imagine. So don’t buy into stories we can tell ourselves about the future!
Conclusion
I hope this summary has helped you understand common mistakes people don’t realise and laid out some of the more unknown parts of being a better decision maker.
Some more commonly known aspects you should also be aware of that I haven’t gone into:
- Knowing what you know and what you don’t know. You may be smart but you are much smarter if you know exactly how smart you are and where your weaknesses lie
- Using a scientific approach. The idea of finding a number of reputable sources, reading view points that aren’t your own and coming to informed decisions based on all the facts, even the ones that tell you what you don’t want to hear.
If you are into forecasting and improving your predictions you’ll love the book Superforcasting which introduced me to these ideas.
I’d love to hear any of your own top tips you use to make more accurate predictions and decisions