A framework for making decisions

Recently, many of my current and former students have reached out to me for advice. Often, the conversation is centered around a decision they’re facing. In our daily lives, we make numerous decisions and they tend to set our direction, so I think about this topic a lot.

In today’s post, I’ll share some principles for decision-making that I’ve tried and that have worked well for me. I hope they’re of some use to you the next time you’re faced with a difficult decision.

Limit your choices

I remember the peak days of Netflix, before competitors such as Disney+ and HBO Max crowded into the streaming market. In those days, when Netflix had almost every TV show and every movie available on its service, I’d sometimes spend over half an hour just to decide what to watch. Inundated with choice, I’d browse and read reviews, and once in a while decide to not watch anything at all.

Economics research papers have been written about this phenomenon. An abundance of choice causes indecision. Evidence of this can be seen in anywhere from the “fear of missing out” (FOMO) syndrome that afflicts many business school students to the mundane struggle that many office workers face in deciding what to have for lunch.

The key, it seems, is to limit choice. For example, the best shoe salespeople limit their customers’ choices to two pairs; whenever the customer asks for a third pair, the salesperson would remove one of the other two from consideration.

I have a similar strategy when I have lunch with others and we need to decide where to go. Usually, the other person says something like, “Anything is fine with me” (都可以). In such cases, I’d propose that one person selects three restaurants they’d be happy to go to, and the other person gets to pick one from the three. I also let the other person choose whether they want to be the one who selects three options or the one who makes the final decision.

Consider the extreme scenarios

Scenario analysis is especially important when considering life-altering decisions because we tend to overestimate the impact of a negative outcome.

Let’s say we are considering to quit our job to co-found a startup. Before arriving at a decision, we should think clearly about both the worst case scenario and the best case scenario (give each result a score out of 10, with a 1 being the most depressing failure we can imagine and a 10 being a permanent and immense improvement in our life).

Most of us, after completing the above mental exercise, might be surprised to discover that most “risky decisions” we face actually have worst case scenarios that are about a 4 or 5 out of 10. To continue our example, the startup might fail, but even in that case, we’d have learned a lot and will likely be able to use our newly learned skills to source new employment or business opportunities.

Act despite imperfect information

The real world isn’t like school, which tends to present homework problems with neatly packaged solutions. Rather, the real world often forces us to make decisions without key facts. It’s useful to understand that having imperfect information is normal, and that there is an opportunity cost to indecision.

Just as a photography student who takes 100 mediocre photos will become a better photographer than a photography student who tries to take one “perfect” photo, people who make decisions quickly will generally find more success in the long run than people who habitually wait for weeks or even months to make similar decisions.

Accept the consequences

In a previous post, I discussed that we should avoid complaining about a bad situation or making it worse. This is especially true if we made the decision that led to this bad situation, because we might be tempted to blame ourselves (or worse, blame others).

Such negative responses don’t contribute value. Focus instead on reflection, to try and discover the reasons for failure and whether there are lessons from this that can be broadly applied to similar decisions in the future.

Bad decisions that lead to failure are almost never enough cause for despair. Rather, they're painful experiences that should invite introspection and ultimately result in personal progress. Remember that without failure, there would be little motivation for improvement. And rate of improvement is what matters most in the end.