Written by Anthony Demangone, Powered by NAFCU
The more I know, the more I realize I don't know. - Albert Einstein
I was scanning articles the other day, and I ran across this: Three Ways to Improve Your Decision Making. (HBR)
Now, if you talked to my wife, she would likely tell you that there are hundreds of ways to improve my decision making. So an article that whittles it down to three caught my attention.
Number one on the list? Be less certain. This comes from the article.
Nobel-prize-winning psychologist Daniel Kahneman has said that overconfidence is the bias he’d eliminate first if he had a magic wand. It’s ubiquitous, particularly among men, the wealthy, and even experts. Overconfidence is not a universal phenomenon — it depends on factors including culture and personality — but the chances are good that you’re more confident about each step of the decision-making process than you ought to be.
So, the first rule of decision making is to just be less certain — about everything. Think choice A will lead to outcome B? It’s probably a bit less likely than you believe. Think outcome B is preferable to outcome C? You’re probably too confident about that as well.
Once you accept that you’re overconfident, you can revisit the logic of your decision. What else would you think about if you were less sure that A would cause B, or that B is preferable to C? Have you prepared for a dramatically different outcome than your expected one?
This is good advice. But here's the rub. Our brains seem to be wired to make us overconfident.
- There's confirmation bias. We have an idea in our mind, and we seek out data that confirms what we already believe. Subconsiously, we want our assumptions to be correct. So we look for things to make it so.
- We overvalue what we know. This is a theme of the book The Black Swan. Through our experiences, we gather knowledge. But we tend to overvalue that knowledge as it relates to the future. You've likely heard the phrase - fighting the last war. That's an example of this problem. We have a strategy that worked back then. But it isn't as relevant when facing new issues.
- We undervalue what we don't know. Also from the same book is the idea that we undervalue what we don't know. (And some of the things we think we know, aren't true.) It is hard to place a finger on what you don't know. Because you don't know it. But don't underestimate what you don't know. When making decisions, remind yourself there is an unknown element of what you are examining.
Please take a moment to read the article. It is a good one.
***
You might also be interested in:
Some NAFCU items of note:
- Tomorrow is the last day for early bird savings for our Spring Regulatory Compliance School. Sign up and save $200. Sign up 10 times, and save even more!
- Wouldn't it be nice to drink fine wine and chew the fat with CEOs from around the country? You bet it would.
Comments