What Makes A Good Decision?

Would it be a smart to take all my money and bet on a hot IPO? Probably not. Too many eggs, too few baskets. I'll likely lose it all and look like a fool. What if the stock skyrockets 300%? Now all of a sudden I'm a genius and people are asking me for advice.

If things don't work out - bad decision, if they do - great decision. But it was the same decision!

Judging the quality of a decision based on the outcome is known as outcome bias.

When making a decision we can only predict the likelihood of possible outcomes. The outcome itself is always unknowable so we can't judge a decision based on it.

A good decision is one that is most likely to achieve a desired outcome. No guarantees, bad outcomes can still happen. No matter how much analysis you do, there will always be a degree of luck/risk.

To improve your health, exercise is a good idea. You could also seriously hurt yourself - a risk you can manage with proper training but a risk nonetheless. This doesn't mean lifting weights is a bad decision.

Similarly, bad decisions don't always lead to bad outcomes. You could run a stop sign without incident, it was still a poor decision.

We've all heard stories of folks getting rich going all in on something (Bitcoin, real estate, stocks). This doesn't make them savants. They were reckless and got lucky. Outcomes are only part of the story.

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In school, we listen to our teachers. At home, our parents. Throughout our childhood, following instructions is praised and rewarded. When we're young, there's value in this. We don't understand how the world works quite yet, so guidance can be lifesaving. The bias to just accept obviously has drawbacks. Insert old jumping off a bridge adage . This conditioning is especially strong for kids from lower income households. Their parents are more likely in working class jobs involving strict order-taking. Parents of middle-class households tend to be knowledge workers where influence is essential. Studies have shown kids from middle-income households are more willing to negotiable with their teachers. They learn from their parents that things are not set in stone. This leads to better grades and learning outcomes when compared to their lower income counterparts who don't negotiable. In business, if we simply accept things as they are, we would never innovate. In work, w

Herman Ye

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