Four villains of decision making
The track record of humanity making decisions is not so good. The decisions range from career choices, hiring, mergers & acquisitions, buying stuff, retirement planning to relationships. Many people say they trust their gut to take decisions. Some say they do thorough analysis. But both of these too have high failure rates. Some even say follow a process. The only decision making process in wide circulation is the pros-and-cons list. It was Benjamin Franklin who introduced this framework or concept of pro-con-list and that is till today being used for making decisions. Whenever we are presented with a choice, we compare the pros and cons of our options, and then we pick the one that seems the most favorable. Research in psychology has identified a set of biases in our thinking that doom the pros and cons model of decision making. If we want to make better decisions then we must learn how theses biases work and how to fight them. There are 4 villains of decision making and we will see each one of them and be aware of them.
Narrow Framing
Suppose you want to select a partner, vendor or supplier for a new project. The usual process you follow is seek proposals from various vendors and based on some criteria you narrow down one or two and then apply the pros and cons method. Your assumption would be the selected vendor would have an ideal solution that you were expecting. But at a later point in time if you find out that vendor is not meeting your expectations, it was a bad decision to select on your part. The decisions were based on assumptions and beliefs rather than evidence. You are fighting the first villain of decision making.
On the other hand if you split your scope of project into phases and give the first phase of work to all vendors and ask them to deliver the reduced scope. You will have far more evidence to act upon as each vendor will strive to do their best. In the beginning you feel it costs more money and takes time, but you get to have a very broad perspective of how things work, you meet lot of people and understand things better before making a decision. The higher stakes in a decision the more useful is the process of widening your options.
Confirmation bias
Humans normal habit in life is to develop a quick belief about a situation and then seek out information that bolsters that belief. This is called confirmation bias and is the second villain of decision making.
I would like to present a different example for this villain. You are planning to buy a stock of a company which looks promising and has high growth potential. Then you will try to seek information that justifies your belief. You will diligently look for information and view that supports your belief and will not be interested to have a contrarian view. You will only focus on the upside and don't think what could be the downside. You will find all means to justify your purchase. The tricky thing about confirmation bias is that it can look very scientific as we are collecting data to make a decision. But we get the decision wrong more than right. How can you avoid this villain. If you go ahead and collect evidence contradicting your beliefs and assumptions and then do an analysis. In this state you will be in a better frame of mind. In the stock purchase case, look at other angles such as valuations, cash flow, moat and other potential risks that can cause a downside.
Short term emotion
In some decisions you might have all the facts and have done proper analysis, but still you will not be able to make a decision because of a short term emotion. Suppose you are having an ancestor property that you want to let off go as you are in a different place from the property and you can't maintain it and visit often. You get a good offer to sell the property and all the economics are in your favor. But still you are not able to make a decision as all your family members, relatives and friends tell you not to sell the property as it is your family legacy.
How do you come out of such a tricky situation. Just have an outsider perspective. Slightly detach yourself from the legacy and history of the property and think what an outsider will do in such a situation. Will the outsider sell off the property and invest the money in a different avenue? If it is yes, then it is the moment of clarity. Always detach yourself from the situation to make a decision when you can't make one because of the third villain.
OverConfidence
This is a villain when people or companies think they know more than what the future would unfold. There are many examples in the corporate world for this villain and the more famous one in the Nokia story. Nokia was the dominant player in the mobile phone market particularly the feature phone market. When the concept of smartphone came, Nokia didn't consider the possibilities that the smartphone market could offer and was too overconfident of the feature phone.
Nokia didn't expect the smartphone evolution to be as it is today and got lost into oblivion. When Nokia got acquired by Microsoft , Nokia CEO said " we didn't do anything wrong, but still we lost". You need not wrong but if you too overconfident and unwilling to learn or change, you will be redundant. So whenever you take a decision give enough thoughts on the future.
To sum up a normal decision is a 4 step process
There is a villain that could affect in each of the above steps
All the villains and the measures to overcome are for all the decisions that you take more than 5 minutes to decide. Apart from these we will take more decisions in a fraction of seconds which will be taken in our default mode, the subconscious mind.