In our cars we may spend 95% of the time going straight, but its the turns that determine where we end up. So choose your turns wisely.
4 Villains of Decision Making
- Narrow Framing – we are drawn to choose from a handful of options
- Confirmation Bias – we are predisposed to favor the opinion which we want to be true. We focus on the supporting evidence and decide based on that and that alone.
- Short-term Emotion – we let our emotion get the better of us
- Overconfidence – we think we know more than we do
Use WRAP Model to Make Better Decisions
Widen your options
- Consider what are you giving up by making a choice
- Question what else can be done
- Think AND instead of OR
- Use vanishing options test
- Don’t fall pray to paradox of choice, less than 5 is usually enough
Reality-test your assumptions
- Consider opposite (opinion murder boards)
- Ask probing questions (zoom in and zoom out)
- Talk to domain experts
- Work with prototypes and experiments first
- 10/10/10 think how you’ll feel after 10 minutes, 10 months and 10 years
- Imagine how would you advise to your best friend in your situation
Prepare to be wrong
- Optimism can conceal consequences
- Consider both extremes, good and bad
It’s an unwritten law of the stock market that corporations must keep growing year after year. Acquiring another company looks like an attractive shortcut. But its an expensive shortcut.
For public companies, the average premium paid the acquisition is 141% which means if the target company in the stock market is valued at $100 million, the acquirer will bid $141 million for it. To translate into layman terms, the acquirer CEO is basically saying to the target CEO “I can run a company 41% better than you can.”
Take 1 option 1 at a time, ask: “What would have to be true for this option to work?”
See people switch from arguing to analyzing, discussing logical underpinning of each option.
“What problem does it have?” prompted 89% of the seller to come clean.
Experts are bad at predictions, but great at assessing base rates.
Keep experts talking about the past and present. Not the future.
- “What are the important variables in a case like this?”
- “How many cases get settled before trials?”
- “And of those that put to trial, what are the odds the client prevail?”
Don’t let experts predict and trigger them to use their inside view. They tend to be optimistic on the chances of success.
Ask “Imagine that 6 months from now, an employee has just quit. Why did he quit?”
This produce 25% more than the other group.
Perspective hindsight seem to spur more insights because it forces us to fill in the blank today and the future event, as opposed to the uncertain event that may or may not happen.