Make better decisions by thinking in probabilities

Overthinking and the procrastination it creates stem from trying to make perfect decisions in a world where perfect decisions only exist in hindsight – Steven Barlett

Summary:

• In our world, there’s no such thing as a perfect decision
• Making good decisions is crucial if you want to live a happy and fulfilled life
• Virtually nothing in life is 100% certain, rather, every outcome underlies a probability

Practical advice:

• First, identify all relevant options. Often, we miss crucial alternatives because we just consider the status-quo and another new option even though often there’re many more options
• Second, shortlist the options and evaluate the most promising ones. Doing so, (A) write down all the pros and cons, and (B) estimate the expected outcome for the different options
• Third, make a resolute decision and stick to it unless there’s a new better option

Dear friend,

Making decisions resolutely is a crucial skill. If you want to live a happy life and achieve your goals, you need to learn this skill. It’s key to succeed in your endeavors since a resolute decision will allow you to get things done, fail fast, and learn from your failures. Further, good decision-makers have happier lives since they perceive themselves as the master of their own destiny and work on the things causing discomfort and misery.

However, making decisions isn’t easy for several reasons. Sometimes, we experience a kind of “perfect decision paralysis”. We cannot decide because we haven’t identified the “perfect option” yet and want to wait until it somehow manifests itself. Another reason is uncertainty. If the outcomes of the different options aren’t certain but underlie risk, it’s difficult the assess them. Generally, making decisions consumes time and effort. Even though it seems easy, making a resolute decision requires a conscious effort.

I’ve already worked through numerous books, articles, and videos to improve my decision-making skills. I’m convinced that it’s a skill, something we can improve if we work on it. In today’s article, I want to share with you how I make better decisions, particularly, how I deal with uncertainty, and how using probabilities can greatly help us to make better decisions.

There’s no perfect decision

Imagine you have to decide whether you study psychology or medicine. You talked to various people, read several guides, and made a long pros and cons list. Yet, you feel like you cannot decide. Both options seem equivalent and involve so much uncertainty that you don’t want to regret deciding against one of them.

In our world, there’s no such thing as a perfect decision. We can always ask more people, read more articles and books, and collect more pros and cons. At some point, we have to stop analyzing and make a resolute decision as we will only know the true outcome if we actually pursue an option.

Gary Vee illustrated a great example in one of his blog articles showing that there’s no perfect decision:

Imagine you had to decide whether you quit your job or start your own business. And let’s say you decided to start your business, and it becomes huge and you turn out to be right in your hypothesis. Imagine that led to a big meeting in a different country and you had to fly there. In the process, your plane crashed and you died.

Now, what would have been the better decision? Staying at the job or becoming that successful entrepreneur dying in a plane crash?

You will never know how things will turn out. And hence, there’s no perfect decision.

Make decisions better not perfect

Nevertheless, making good decisions is crucial if you want to live a happy and fulfilled life. Both procrastinating and making continuously bad decisions lead to discomfort and misery.

For instance, in my exchange semester in the US, I f*cked up my diet and ate too often baked potatoes and fries. I continuously made the “bad decision” to eat those and hence I gained weight. Another example, I procrastinated the decision to invest in crypto, making me lose a great amount of the market upturn. As I’m now invested, I’ve got a similar risk with less potential as I invested at a higher market price.

We all will make a bad decision from time to time, that’s not the problem. In fact, it’s better to make a decision leading to a bad outcome than make no decision at all, since we then can learn from our failure and improve our decision-making skills. The best decision-makers are those that have already made plenty of decisions and learned from those that led to a negative outcome.

Assuming that a decision has to be perfect, though, will make us suffer decision making paralysis. We need to make good decisions not seemingly perfect ones. Indeed, the harder the decision, the more we desire certainty.

The first step to making these hard decisions is becoming comfortable with the fact that we won’t make a perfect decision. Virtually nothing in life is 100% certain, rather, every outcome underlies a probability.

To make our decisions better, we have to understand that we deal with probabilities. Every outcome of an option has a certain probability that it will come true. Taking that into account, allows us to assess the expected value of an option and hence make better decisions.

Think in probabilities, make better decisions

Uncertainty s*cks. Yet, all our lives are full of it. A great way to better deal with it and make better decisions is to think in probabilities.

Let’s say you want to decide what you are going to study – psychology or medicine – and even though you prefer studying medicine, you’re undecided as you’re afraid of the hard exams in medicine. Here, you could use probabilities to rationalize your anxiety by finding out what the drop-out rates due to failed exams in medicine are. And before doing so, you set yourself a limit. Let’s say, if 10% of students drop out of medicine because of failed exams, you’ll study psychology. The percentage of students failing in medicine you could find out via the examination office or randomly asking medicine students what they estimate to be this percentage and taking the average.

Even though I’m making that up, plenty of people face this exact problem every year and have a hard time deciding. In life, we face many hard decisions. And while it might be an easy choice what to study or to work, other decisions, like investing, asking a friend out, or choosing where to live, might be a difficult choice for you.

To make better decisions, I follow a 3 step approach:

First, I try to identify all relevant options. Often, we miss crucial alternatives because we just consider the status-quo and another new option even though often there’re many more options. We neglect alternatives, worsening our decision-making process.

Second, I shortlist the options and evaluate the most promising ones. Doing so, (A) I write down all the pros and cons, and (B) I estimate the expected outcome for the different options. For instance, before I invested in crypto, I listed all the arguments for investing in crypto, using that money to invest into sector-specific ETFs, or using this money for something else. After I had evaluated the pros and cons and estimated the probabilities of the different outcomes, I could make a very clear decision.

Third, I make a resolute decision. Once I can make a decision, I do it and stick to it. For me, there’s no way back. Only when there’s a significantly better option, I change my mind and decide on it. Consistency is key.