How To Make High-stakes Decisions Well

Knowing the difference between reversible and irreversible decisions helps prioritize speed and caution. Sometimes you want to decide fast. Other times a swift decision can wreak havoc. Reversible decisions can be made quickly because they can be revisited or undone. Irreversible decisions are one-way doors. Go through, and even if you are unhappy with what you see on the other side, you cannot go back. Thus irreversible choices require deeper analysis to avoid costly mistakes. Whereas reversible ones can be made relatively fast. Course-correct if needed.

Backward chaining starts with your end outcome in mind. You have already achieved your goal. The positive happened. What led you there? Figure out the steps and take them. In high-stakes decision-making and problem-solving, this clarifies the path to success. It’s a compass which assists you in figuring out the critical actions and eliminating the unnecessary time drains.

Loss aversion explains how you weigh potential risks and rewards. It is the tendency to fear losses more than equivalent gains. Losing fifty dollars cannot be mended with gaining fifty. Being wary of this bias makes sure you don’t let the fear of loss dictate your choices. Lucrative opportunities are often hidden beneath a veil of risks that are not as bad in reality as they seem.

In that same boat, second-order thinking pushes you to evaluate the next-order consequences. The long-term. It goes beyond immediate repercussions and explores ripple effects. You use this model to ensure you aren’t just solving the current problem. The aim is always to anticipate how your actions affect the future. You want to solve problems in a way that they do not repeat themselves. You want to make decisions such that you don’t need to go back and patch up your mistakes. Think second-order.

Distinguishing proximate and root causes is much alike the last point. It encourages you to dig and address underlying issues, not surface-level symptoms. This saves time and resources in the long run. You resolve problems at their core and prevent recurrence.

Bundling together the two above is abstraction laddering. Move up and down the rungs. That is, zoom out and in at levels of detail. This flexibility assists you in combining the bigger picture without losing sight of the significant details. You get both the bird’s eye view and the microscopic close-up shot. This enables a comprehensive, well-informed decision-making process.

Filter bubbles are another lens which skews your decision-making. They limit your exposure to diverse perspectives and information. Thank these bad boys for your blind spots. But once you are aware of them, they are rather easy to counter. Seek alternative positions. Step into other peoples’ shoes. Try to prove yourself wrong. The crux of the matter is challenging your assumptions. Assumptions that may or may not be hindering the quality of your choices.

Similarly, mistaking correlation for causation can result in flawed conclusions. Recognize this distinction. Stop linking outcomes to the wrong causes. Coincidental patterns lead to errors far more than you think. Just because B happened after A, does not mean A caused B. Ice cream does not burn your skin. People do eat more ice cream during the summer and suffer more sunburns though. Know the difference.

Diminishing returns warns you that beyond a certain point, additional investment yields progressively smaller benefit. This model stops you from refining solutions and seeking out perfect choices. Know when it’s time to stop. Save resources. It’s not worth chasing a quixotic, flawless course of action. Either it does not exist or you will spend more time searching for it than making a mistake and mending it. Go.

In decision-making, false positives and negatives can both have serious consequences. Whether you act when unnecessary or fail to act when needed, these potential errors can be life-and-death. Literally, in case of medical emergencies and piloting planes. Don’t always trust your gut. If it’s a high-stakes, irreversible decision, take your time. Be cautious.

Local and global optimums highlight the domino effect of one option over another. Settling for a suboptimal, low-level solution while a superior one exists. That’s a local optimum. Your advertising department might be operating at a local optimum: pumping customers to your sales team like there’s no tomorrow. But if your sales wing is overloaded and cannot convert those leads into paying customers, this will only lower productivity in the company. This is critical in high-stakes decision-making. Evaluate whether short-term wins contribute to broader, significant goals.

Decision trees are structured frameworks for weighing options. They work by mapping out choices, consequences, probabilities, and risks. This model is invaluable in high-stakes scenarios. It stops you from making rash, biased, irrational decisions. Grow the tree. Visualize the ripple effect by mapping it out. Quantify the chances of bad and good stuff happening. Choose then. Rely on tried-and-true systems, not irrational brains.

Grasping the difference between zero-sum and non-zero-sum games changes your approach when picking options. It’s a mindset. Zero-sum games are those where one party’s gain is another’s loss. Think chess or poker. Non-zero-sum games are when all parties can benefit. This awareness aids you in seeking out mutually beneficial opportunities. You want win-wins. They are easier to sign and typically churn out better outcomes than zero-sum alternatives. Plus, when you find yourself in a zero-sum game, you’ll know not to waste your time searching for an all-inclusive solution. Competitors want war? Give it to them.

Velocity balances speed and direction. How fast you are moving does not matter. Where you are going is what does. Moving quickly with no clear direction is wasteful. Overanalyzing slows progress. You want to be somewhere in the middle. Velocity ensures you go relatively quickly while staying in alignment with your long-term objective. It’s better to be a tortoise that knows where to go than a cheetah running in circles. Don’t climb the wrong ladder.

The map-territory and prescription-description relationships emphasize the difference between representation and reality. The former does so literally. The map is not the territory. The mountain it projects is not the hill you see in real life. Reality often diverges from expectations and reports. If it’s really high-stakes, go out there and confirm it. Whereas the prescription-description dichotomy is the distinction between describing a problem and prescribing a solution. High-level problem-solving and decision-making requires both. Thoroughly understand the issue. Assess reality. Then offer high-value, effective, actionable solutions.

Lastly, don’t waste your time. And effort, energy, and resources. Draw out an impact-effort matrix. Prioritize high-impact, low-effort actions. Quick wins. Concentrate on the decisions and problems that yield the highest results with the least investment. That is, like, the definition of productivity. Efficiency and effectiveness. Combine the aforementioned models to stymie cognitive biases, deepen thinking, and guide resource allocation for the best short- and long-term outcomes. Be an elite problem-solver and decision-maker. Exploit models.