Imagine you’ve made two decisions. One has resulted in a loss of 10 thousand dollars, while the other resulted in a gain of 10 thousand dollars. Would you say that the former was a bad decision, and the latter was a good one?
The first response that usually comes to everyone’s mind is “of course, the second decision was better”. But this is not necessarily the case. Can you think of a scenario where your response would be the opposite?
I’ve been thinking and reading about decision-making for many years while trying to put everything I learned into practice. Below, I summarize the strategies and mental models that I personally found most useful.
The Process vs. The Outcome
We all have a natural tendency to judge decisions based on their outcomes. This is not the worst heuristic, as there is a correlation between the quality of decisions and outcomes. But this heuristic has a major flaw — it doesn’t account for luck and incomplete information.Continue reading