From one of my favorite blogs farnamstreetblog.com
People often ask me how they can improve their ability to make decisions over time. This question makes a lot of sense. After all, in most knowledge organizations, your product is decisions.
We all have a vested interest in getting better at decisions. As an entrepreneur, I live and die by my decisions. I’m not alone. In almost any organization, you are the result of your decisions. While good decisions might not get you promoted, bad ones will almost certainly get you fired.
We don’t get better at making decisions because we rarely receive feedback on the quality of our decisions. Think about it, there is no Yelp for decision ability where you can leave a review. It’s like we’re operating a restaurant but the customers can’t give us feedback. So we never learn that the steak has too much salt or the spaghetti has too much sauce. Because we can’t learn and get better, we go out of business. Good decisions don’t ensure success but bad ones almost always ensure failure.
The way to test the quality of your decisions, whether individually or organizationally, is by testing the process by which they are made. The best way to do that, according to the dean of biases and Nobel winner, Daniel Kahneman, is to use a decision journal. Kahneman said:
Go down to a local drugstore and buy a very cheap notebook and start keeping track of your decisions. And the specific idea is whenever you’re making a consequential decision, something going in or out of the portfolio, just take a moment to think, write down what you expect to happen, why you expect it to happen and then actually, and this is optional, but probably a great idea, is write down how you feel about the situation, both physically and even emotionally. Just, how do you feel? I feel tired. I feel good, or this stock is really draining me. Whatever you think.
The key to doing this is that it prevents something called hindsight bias, which is no matter what happens in the world, we tend to look back on our decision-making process, and we tilt it in a way that looks more favorable to us, right? So we have a bias to explain what has happened.
A decision journal helps you collect accurate and honest feedback on what you were thinking as you made the decisions. This also helps us see when we’re lucky. Sometimes things work out for very different reasons than we thought they would. The key to understanding the limits to our knowledge (see: circle of competence) is to check it against what you thought was going to happen and why you thought it was going to happen. That feedback loop is incredibly powerful because our minds won’t do it by themselves. I’ll give you the spoiler right now. We don’t know as much as we think we know. We’re fooled into thinking that we understand something when we don’t and we have no means to correct ourselves.
Our minds revise history to preserve our view of ourself. The story that we tell ourselves conflates the cause and effect between a decision that we made and the actual outcome. The best cure for this is the decision journal.
You can think of a decision journal as quality control — something like we’d find in a manufacturing plant or a restaurant.
Conceptually this is pretty easy but it requires some discipline and humility to implement and maintain. In an interview I did with Michael Mauboussin he offered some great advice:
The idea is whenever you are making a consequential decision, write down what you decided, why you decided as you did, what you expect to happen, and if you’re so inclined, how you feel mentally and physically.
The act of writing alone helps you. Carol Loomis once said:
Writing itself makes you realize where there are holes in things. I’m never sure what I think until I see what I write. And so I believe that, even though you’re an optimist, the analysis part of you kicks in when you sit down [to write] … You think, ‘Oh, that can’t be right.’ And you have to go back, and you have to rethink it all.
What does a Decision Journal Look like?
Here’s mine. (Click on the image for a printable pdf).
Whenever you’re making a consequential decision either individually or as part of a group you take a moment and write down:
- The situation or context;
- The problem statement or frame;
- The variables that govern the situation;
- The complications or complexity as you see it;
- Alternatives that were seriously considered and why they were not chosen; (think: the work required to have an opinion).
- A paragraph explaining the range of outcomes
- A paragraph explaining what you expect to happen and, importantly, the reasoning and actual probabilities you assign to each. (The degree of confidence matters, a lot.)
- Time of day the decision was made and how you feel physically and mentally (if you’re tired, for example, write it down.)