How do I make better decisions and get my life in order? Some simple rules will really help your decision process
The risk and reward of decision making
Every day we are making decisions in life as well as business. We can't get them all right all the time but can we do it better?
First of all, let's look at the procrastinators that have trouble making a decision. Either a simple every day one or a lifetime result.
The first step is to understand if you have all the inputs required or do you need to search for more. When you have the facts then it is time to put them into place.
To delay the process at this stage is creating anxiety around the whole process that should be finished.
Good decisions and bad decisions
You can never be a perfect decision-maker. There are so many outside influences that control the result so you are going to get some of them wrong.
where the skill comes in is evaluating whether the gain is better than the loss.
Or what is the best case- worst case scenario?
As an example, let's look at a crisis many face at different times.
You have had a couple of drinks but decide to push the odds and drive home. You make it safe so you think it is a good decision.
However, the worst case was that someone runs in front of you and you kill them. Not your fault except you have been drinking so you hold all the blame and have a couple of years in jail to go with it.
That was to save a $30 Uber fee.
These small crisis moments are repeated throughout the day.
Consider that you are catching a plane but you are running late. Unless you speed you will miss the flight, forfeit your fare and have to wait another day. By speeding ( at a reasonable pace) you risk a $100 fine. The reward in this case outdoes the risk.
The reward for your action must outweigh the risk.
If the risk is high and the reward is low then the decision must be to avoid the risk. There must be a better way.
Perhaps you are putting a new product to market and you establish a best-case and worst-case plan.
The best case is you sell $100,000 of product and the worst is $20,000
. However, your cost is $20,000 and you might just break even.
Therefore your reward is far greater than your risk and the decision is an easy one to make.
Making decisions on Gut feel
Let's face it you are still in the 50-50 mode of decision-making. Your gut may simply be anxiety or have a need for more information.
If it is the information required then you need to hold the decision until you have all the facts, if it is simply indecision think of reward v risk and take the option that offers more gain than downside.
Looking for big upsides and small downsides in decision making
Is the reward worth the risk? If not then make another decision that meets a greater reward opportunity.
Nothing is certain because unknown elements come into play and you can never forecast the future with accuracy. Gee, even the weather people get it wrong with all the tools they have.
Elon Musk decided to build an electric car that would suit the masses. The risk was that it would not be accepted and he would lose the company and a bundle of money. The reward was to change the perception of EV cars and be the biggest manufacturer in the world.
a 10 x loss and a 1000 times gain. The rewards far outweighed the risk.
At the same time, GM determined the risk was too big and the rewards were minimal because no one would buy an EV
This single decision nearly sunk GM forever.
Money matters can be viewed the same way.
If you had a hundred grand to invest would you put it all into Bitcoin?
The reward could be 10x because it has shown that in the past but the risk is armageddon. Everything is down the drain.
Therefore would you be better off punting say $20k on Bitcoin and putting the rest with investments that have a zero risk of failing but return only a small reward?
If Bitcoin goes you may earn $200,000 but have a risk of just $20,000 and the balance is secure.
The reward must be greater than the loss
This is a pretty simple theory in decision making however so brilliantly constructive that it can make your life a lot easier.
This is written based on an interview with a world-renowned Decision Scientist named Dr. Alan Barnard.
The concept grabbed my attention to help with every day grappling with decisions.
I like to dwell a little longer than most and often insist on sleeping over a critical problem. This is particularly so when a high-pressure salesperson has you all excited and convinced the new car or 75″ TV that you can't afford is yours, all you need to do is sign on the dotted line.
Having walked from many deals like this when the reality of a new day puts a different light on what you may have done.
My current car is good for another year and a new one would depreciate by 30% as I drive it out the door. Risk v Reward