Michael Mauboussin: Three Steps to Effective Decisions

three steps

Making an important decision is never easy, but making the right decision is even more challenging.

Effective decision-making isn’t just about accumulating information and going with what seems to make the most sense. Sometimes, internal biases can impact the way we seek out and process information, polluting the conclusions we reach in the process. It’s critical to be conscious of those tendencies and to accumulate the sort of fact-based and unbiased inputs that will result in the highest likelihood that a decision actually leads to the desired outcome.

In this video, Michael Mauboussin, Credit Suisse’s Head of Financial Strategies, lays out three steps that can help focus a decision-maker’s thinking.

How do we take new information that comes in and integrate it with our point of view?

Typically we don’t really take into consideration new information. The first major barrier to that is something called the confirmation bias. Once you’ve decided on something and you think this is the right way to think about it, you either blow off new information or if it’s ambiguous you interpret it in a way that’s favorable to you. Now the next problem, and we all have this, is called pseudo and subtly-diagnostic information. Pseudodiagnostic means information that isn’t very relevant but you think it is. Subtly-diagnostic is information that is relevant and you don’t pay attention to it.

So the key in all of this, is we have this torrent of information coming in, how do I sort that in a way that should lead me to increase or decrease my probabilities of a particular event happening.