How To Make Great Decisions

Great decision making is a skill that can be improved with deliberate practice. Three key aspects that you need for great decision making are - 1) robust framework on how to make decisions. 2) context in the problem space. 3) and most importantly, humility.

In this post I will primarily focus on the framework of decision making. While A robust framework may not protect you from making wrong decisions, but even a 1% improvement in decision making at and aggregate level compounded over years will lead to a radically better outcome. Amazon is a great example of that. Amazonians at any level are allowed, nay expected to make high impact decisions. While the undesired outcome of an individual decision may sting, decisions taken using the Amazon framework at an aggregate level, compounded over a long time, have created one of the biggest innovation machines the world has ever seen.

So how does Amazon make decisions? People say that Amazon has a culture of data driven decisions. Most people misunderstand this. They think that Amazonians have access to all this pristine and complete data before making a decision. Let's look at what Jeff Bezos has to say about that -

"Most decisions should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases, you're probably being slow."

You complement the information with high judgement. While it allows you to make decisions faster, how does one mitigate the risk? Jeff has also answered this in his shareholder letters where he talks about One way door (Type1) and Two way door (Type 2) decisions.

"Type 1 decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don't like what you see on the other side, you can't get back to where you were before. Most decisions aren't like that - they are changeable, reversible - they're two-way doors. If you've made a suboptimal Type 2 decision, you don't have to live with the consequences for that long. You can reopen the door and go back through."

The worst way of using these pearls of wisdom is to treat them like a prescription rather than advice. For many decisions, you may want to have more than 70% information and for others you may need to make them with less than 70%. Similarly not all One way doors are equally bad. Depending on the adverse outcome of the Type 1 decision, you may want to gather a lot more than 70% of the information you wish you had. Similarly if the decision has optionality (high reward with low probability and low risk is high probability) built into it you may want to make it with less than 70% of the information.

Jeff has further advice on optionality -

“You cannot invent without experimenting. And the thing about experiments is, lots of them fail. If you know in advance that it will work, it is not an experiment” 

The thing with ‘failed’ experiments is that they expand your understanding of the domain you are operating in. In many cases, they may even help you get the 10% information you need to make a decision. Set the culture of your organization so people are setting as many deliberate Type2 experiments as possible and the flywheel of innovation will start spinning.