The Quantum Pause: Delaying Decisions to Increase Optionality
Nauman ul Haq
Finance Director | Group Reporting and Financial Control | Digital Transformation | FCA, CFA
The Cat Inside the Box
Imagine a cat is placed inside a sealed box, and inside the box, there is also a bit of radioactive material, a Geiger counter (a device that detects radiation), a hammer and a small vial of poison. If the radioactive material emits radiation, the Geiger counter detects it and activates the hammer. The hammer then strikes the vial poison, breaking it and releasing the poison, which would kill the cat.
You would say that the cat's fate is sealed, and it is dead as the radioactive material will always emit radiation. However, in quantum mechanics, particles like the radioactive material can exist in multiple states at once until they are "observed". This is called "superposition". In this thought experiment, the radioactive material can be simultaneously in a state where it has emitted radiation and where it has not emitted any radiation. Thus, the cat is considered to be alive and dead at the same time when it is in the box, and no one can see inside.
Is the Cat Dead or Alive?
Once you open the box and look inside, you "observe" the actual state of the cat (whether it is alive or dead). This act of observing "collapses" the superposition into one of the two possible states.
Parallel Realities?
Schrodinger's Cat is a thought experiment in quantum mechanics, devised by physicist Erwin Schr?dinger in 1935. Schr?dinger created this thought experiment not to describe a real situation but to illustrate a problem in quantum mechanics about how particles can exist in multiple states at once, but we only see one state when we observe them. He thought it was absurd that a cat could be both alive and dead at the same time, highlighting the strange and counterintuitive nature of quantum mechanics.
Superposition is the state in which a particle or system is in multiple states at the same time. In other words, it exists in several possible states simultaneously until it is measured or observed. Measurement or observation refers to any interaction between the quantum system (like the radioactive material) and the outside environment. Once this measurement or observation is made, the superposition collapses, and the system settles into one of the possible states.
We don't generally observe quantum superpositions in everyday life—because the objects around us are constantly interacting with their environment, causing their quantum states to collapse rapidly. Apparently, that is one of the major challenges in development of quantum computing.
If you like me, would like to develop a chauffer's understanding of quantum mechanics and challenges in quantum computing, do listen to FT's mini-series on quantum computing.
Should we Keep the Cat Alive or Kill the Cat?
I am not really qualified to lecture anyone on quantum mechanics, but we can think of Schrodinger's thought experiment as a metaphor for preserving optionality or maintaining flexibility to choose between multiple courses action until one is clearly preferable.
Previously, we studied the Stop, Flop and Know framework in Decision by Design to identify the point at which we have to commit to a decision. It points us to when is the right time to decide? When we decide is that point at which the superposition collapses to a single state and all the options diminish. For those decisions which are relatively irreversible and consequential (our quadrant four decisions), we want to preserve the quantum state and keep our options open for as long as possible.
So how do we prolong our hypothetical quantum state?
Preserving Options
The next lesson in Decision by Design teaches us three techniques to give our future self as many options as possible while we are gathering more information. We are only going to talk about the first two methods, as I could not tell the third method apart from the second.
Inversion
When we think about opportunities, we often dream about the best outcomes and ignore potential risks. The strategy of inversion helps us focus on these risks. It involves clearly writing down the worst-case scenarios, understanding the factors that could lead to them, and figuring out how to prevent them. This approach makes these outcomes seem more realistic and not just distant possibilities.
In decision-making, especially when the stakes are high, we may not know the best way to achieve what we want. But if we can avoid the worst outcomes, we can continue to participate and make further decisions. By steering clear of these worst-case scenarios, we keep our options open. So, how do we clearly define what the worst outcome could be?"
Shoot Bullets Before Cannonballs
Deciding too soon, before we have all the information, risks putting too much on one option. If our financial future hinges on just one decision, the impact of a mistake could be devastating. For example, consider the risk of quitting a job to start a business without having another income source or a financial safety net.
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It’s like a gambler who's lost everything and, in desperation, bets his car keys. Such high-stakes risks rarely pay off.
Instead, we should adopt a more cautious approach by taking small, low-risk steps. This strategy allows us to explore multiple options without committing significant resources prematurely. In the book Great by Choice, Morten Hansen and Jim Collins describe this method as 'shooting bullets, then cannonballs.'
Picture yourself at sea, a hostile ship bearing down on you. You have a limited amount of gunpowder. You take all your gunpowder and use it to fire a big cannonball. The cannonball flies out over the ocean…and misses the target, off by 40 degrees. You turn to your stockpile and discover that you’re out of gunpowder. You die. But suppose instead that when you see the ship bearing down, you take a little bit of gunpowder and fire a bullet. It misses by 40 degrees. You load another bullet and fire. It misses by 30 degrees. You load a third bullet and fire, missing by only 10 degrees. The next bullet hits—ping! — the hull of the oncoming ship. Now, you take all the remaining gunpowder and fire a big cannonball along the same line of sight, which sinks the enemy ship. You live.
At the beginning of the decision-making process, when we have multiple options to pursue, the best bet is to pursue as many as possible without investing too much time, money or energy in any particular option.
By firing bullets up front, we give ourselves as much optionality, by preserving our resources, in the future without having to commit entirely to one option now.
By delaying the commitment to the decision, we gain time to undo. Perhaps there is no need to shoot the cannon ball, if it doesn't feel right to shoot the bullets. We get time to check-in with our emotional brain and gather information in a new light right up to the last possible moment - instead of after.
Delaying Decoherence
Just as the quantum state collapses into a definitive state upon observation, our options narrow once decisions are made.
Loss of optionality and committing to a decision is equivalent to quantum decoherence. Decoherence refers to the loss of quantum behavior and the system becoming more classical as it interacts with the environment. Now the cat is either dead or alive and we can no longer keep the cat dead and alive.
Similarly, when we are waiting as long as possible to gather information and are not sure of which path to choose, we want to preserve the quantum state and put ourselves in the position that gives us the most options in future.
Are we Missing Out?
Preserving options might sometimes feel like missing out. Watching others profit from Bitcoin while we hold back can be tough, especially if such investments seem irrational to us.
I experienced this during the crypto winter of 2022, losing a significant portion of my savings. Yet, I was content because I was following the crowd. However, prioritizing the right outcome over ego requires us to occasionally appear passive. Acting hastily is often driven by fear of seeming indecisive or unmotivated.
Many successful individuals have occasionally appeared foolish in the short term. More often than not, they were simply preserving their options, waiting for the optimal moment to act.
Many successful individuals have occasionally appeared foolish in the short term. More often than not, they were simply preserving their options, waiting for the optimal moment to act. A notable example, from Snowball, is Warren Buffett during the late '90s tech bubble. Featured on the cover of TIME Magazine, he was criticized for missing out on the dot-com boom. Yet, when the bubble burst, his substantial cash reserves became a significant advantage.
If you do what other people are doing, you’re going to get the same results as everyone else. If we don't know what to do, we should aim to keep our options open while we gather more information, reduce blind spots, and gain clarity on what we want.
For example, if unsure where to invest, opting for treasury bills might be wise. They offer lower returns but maintain liquidity, allowing us to seize better opportunities when they arise.
Conclusion
When making decisions about investments, job changes, relationships, or relocating, it's wise to start with the smallest possible decision that keeps our options open and prepares us for a range of outcomes.
The analogy of Schr?dinger's cat serves to underscore the value of preserving optionality, though simplified. Our decision-making is far more complex, influenced by emotions and factors such as past experiences, relationships, and our mental state. Unlike the probabilistic nature of quantum states, our choices are shaped by a diverse array of personal elements.
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