The Reading Room
How to Decide
Published: 2020, Penguin Random House LLC
Analysing past decisions
We always tend to judge our past decisions based on the outcomes rather than looking at the process involved in making them. The author makes a very valid point. To improve decision-making skills, analyze past decisions based on the process rather than just the outcomes. Hindsight bias distorts our memory of what we knew at the time, leading to repeating poor decisions. Using a “Knowledge Tracker” can reduce this bias by clarifying what we knew and when we knew it, preventing post-outcome information from influencing our evaluation.
Decision making process
The author states a six-step process to improve the quality of both new decisions on your horizon and your assessment of past decisions. To make an informed decision: list possible outcomes, evaluate preferences based on values, estimate probabilities, compare the likelihood of favorable/unfavorable outcomes, repeat for other options, compare options, and make a decision.
It’s hard to accurately assess a decision after the fact, in the shadow of an outcome that has already happened. But if you have a good decision process going forward, and keep a record of it, you’ll be a lot better off. You won’t have to wonder after the fact whether a decision was good or bad, under the haze of resulting and hindsight bias. Instead, you’ll be able to check your work.
Combine the Inside View and The Outside View to make better decisions. Making decisions based solely on your personal perspective is called the inside view. It’s important to combine this with the outside view, which is the objective truth beyond your perspective. The outside view serves as a helpful reality check.
Breaking Free from Analysis Paralysis
We sometimes spend a lot of time making unimportant decisions while taking very important ones in a hurry. The book highlights how to spend your decision-making time more wisely. Time is a limited resource. There is a trade-off between time and accuracy. Increasing the accuracy of a decision costs time, but saving time costs accuracy.
When making a decision, consider if it will significantly affect your happiness in the next year, month, or week. The shorter the negative impact, the faster you can decide, but it may not be as accurate. “Freerolling” means the potential gains are much higher than the losses. It’s a low-risk, high-reward opportunity that shouldn’t be missed. Take time to implement it properly. Close Decisions; Don’t stress too much when faced with two seemingly equal choices. The payoffs are likely similar, so choose quickly. To simplify, ask yourself, “What’s the potential error, whichever I choose?”. To make better decisions, consider the cost of quitting. Lower costs allow for experimentation and changing course as new information becomes available.
We are pretty good at setting positive goals for ourselves. Where we fall flat is in executing the things, we need to do to achieve them. Negative thinking is important. Instead of fearing failure, imagine potential obstacles and plan ways to overcome them. This approach, known as mental contrasting, can help achieve goals by proactively addressing challenges. Climbing to the summit gives a broader perspective. Combine mental contrasting with mental time travel for better results. Mental time travel is imagining yourself in the past or future. Use this ability for decision-making with prospective hindsight. Try the premortem technique to identify potential reasons for failure. Project yourself into the future where your objective has not been achieved and envision the scenario.
I must say, I found this book to be incredibly beneficial as I believe what we are is because of the decisions we make. That’s why we should care about making better decisions. Two things determine how life turns out – luck and the quality of your decisions. You can’t affect luck, but you can affect the quality of your decisions. Improving the quality of the decisions increases the odds of good things happening to you. The future is inherently uncertain, so good decisions cannot guarantee outcomes. They just make good outcomes more likely.
The information contained above and in other entries in the Ocean Dial Book Review Series is intended for general information and entertainment purposes only, and should not be relied upon in making, or refraining from making, any investment decisions. No information provided herein should or can be taken to constitute any form of advice or recommendation as to the merits of any investment decision. You should take independent advice from a suitably qualified investment adviser before making any investment decisions.
Published: 2015, Speaking Tiger Publishing Private Limited
This personal diary records the many small moments that constitute a life of harmony-with the self, the natural world, and friends, family and passersby. ‘A Book of Simple Living’ is a gift of beauty and wisdom from India’s most loved, and most understated, writer.
Published: 2006, New World Library
We’ve all learned many skills through practice; we’ve just forgotten how. Everything we learn and master in life, from walking and tying our shoes to saving money and raising a child, is accomplished through a form of practice. This book shows readers that when they reside in the present moment, practice becomes effortless and enjoyable, and often the practice becomes the goal.
Published: 2011, Random House Trade Paperback Edition
As the title suggests, this book encapsulates the entire journey of Long-Term Capital Management (LTCM). LTCM was a highly leveraged hedge fund, founded by John Meriwether, which collapsed in 1998 and had to be rescued by a consortium of 14 banks orchestrated by Federal Reserve Bank of New York. Roger Lowenstein has not just detailed LTCM’s life, but also captured very beautifully the nature and inner workings of its founders and the key team.