A simple way to make difficult choices

How can we make better decisions?

Is there a simple algorithm we can use when we have to make a hard choice?

I've long been a fan of the Freakonomics books and particularly the podcast series. Listening to these podcasts has got me through many a long run or exercise session. They are well researched, interesting and skillfully put together.

A more recent addition to the Freakonomics podcast stable is People I Mostly Admire hosted by Steven Levitt, the University of Chicago economist. In this series, Levitt interviews a range of experts and challenges and explores their ideas together. In the middle of each episode he also answers listeners questions and it is one of these sections I want to discuss here.

Levitt was asked how to make important decisions. I really like his answer, which I've put in full at the bottom of this post. Here's the summary.

• If you don't have enough information or knowledge to make a good choice yourself, and you don't have the resources or inclination to find out more, you can ask an expert. But be careful to ensure their interests are aligned with yours.
• It's often better to find a friend, or someone whose opinion you trust who has faced the same decision that you are making. If you can find someone like that, do what they did.
• If you do have good information, think about in the worst case scenario, which option would lead you to regret the most. And choose the other alternative.
• If you still can't decide, choose the path which is the biggest change from your current situation. Levitt's research suggests that people who make bigger changes end up happier and this approach helps us overcome our status quo bias.

In coaching we often work with people who are making tough decisions. One thing I recommend to people is trying to visualise the future and think about what we are likely to regret. I think good career planning is about reducing the 'if onlys' that we will say to ourselves in the future.

I was impressed with a client who consciously uses Levitt's second option, looking at the choices that people they trust have made and doing the same. In explaining an investment decision they told me that they know that their friend had researched the options well and better than they could, so they were happy to copy them.

I hadn't before thought about going for the most change when we are unsure what to do. Levitt bases this on a recent study he ran based on using a coin toss for participants to decide whether to make a change or not.

For important decisions (quitting a job or ending a relationship), individuals who were told by the coin toss to make a change were more likely to make a change, more satisfied with their decisions, and happier six months later than those whose coin toss instructed maintaining the status quo. This finding suggests that people may be excessively cautious when facing life-changing choices.

Although this is only one study, it did involve over 20,000 participants and the results seem compelling.

So what do you think of this advice? It has certainly prompted me to reflect on choices I make, and yes I think I am now more likely to make more changes. But what about you? Please add your thoughts in the comments.

Levitt's full answer is below, here's my simplified version in 4 steps.

1. Ask an expert, if their interests are aligned with yours
2. Find someone you trust, who has faced the same decision, and do what they did.
3. Think about which option could lead you to regret the most, and choose the other.
4. If you're still not sure, choose the option which involves the most change.

Here's the full text from Levitt's answer shared in the podcast episode.

Now, I want to divide my answer into two pieces. So there are situations where you have really good information about a decision, but it’s still really hard to make a choice. And there are other cases where you’re either too distracted or too lazy or so uninformed that it’s hard to even gather information and then you know you can’t make a good decision. Let me start with the case where I don’t have good information and I’m also not willing to invest the effort to get good information. So in that case, the typical path that people follow is to hire an expert. So when I’m selling my house, I might hire a real estate agent. If I’m thinking about investing money, I might hire a financial adviser. O.K., and that’s not the worst thing you can do, but you have to be really careful in thinking through the incentives that the expert has and how they’re not the same as yours and how that can distort the advice that they have. Now, you don’t know very much so you’re really at a disadvantage. And as we write about in?Freakonomics, oftentimes these experts will therefore take advantage of you. So I don’t actually think that’s usually the best advice.

The better option, if you can, is to find a friend or a family member or colleague whose opinion you trust, who, unlike you, is not so lazy and distracted that they’re unwilling to go and gather the information to make a good decision. So I try to find someone who’s faced the same decision as me, who I know and I like, and then I just do whatever they did. If it was good enough for them, it’s probably good enough for me. Now let’s take the other situation, and that’s where you actually have good information and you’ve thought really hard about a problem and you can’t figure out what to do. Now, one rule of thumb I use in that case is I think about the worst case scenario, because for me, I find that regret is a really painful, sticky emotion. So I get over anger and I get over sadness. But regret can stick with me for years, even decades. So what I do is I think about the two choices that are in front of me, and I try to imagine the worst case scenario. And I think about “In that worst case scenario, if I make this choice, how regretful will I feel?” And then I take whichever choice leaves me feeling less regret in the worst case scenario. I don’t know if that’s a good rule or not, but it’s one that I use.

Now, let’s say even after I’ve gone through that regret exercise, I’m still not sure. In that case, I think very good advice is to take whatever path is the biggest deviation from the status quo. So I’ve actually done research in this area, and it turns out that the people who make the biggest changes end up reporting being happier six months later. And it’s not just correlation. I’m actually able to randomize to a certain extent who makes these different choices. And the people who are randomized into making a big change are on average, happier than the people who aren’t. So, if you can’t decide what to do, follow the path that’s the biggest deviation from the status quo. So, that’s how I think about making decisions.

As well as being a practicing academic, Levitt engages in real world changes as well. He's been active in education innovation and has co-founded the Center for RISC - Radical Innovation for Social Change which aims to investigate bold new ways to tackle the world's biggest problems.

Thanks to Steven Levitt and Stephen Dubner for all the great sharing of insights and research that they do on various Freakonomics channels!