People are working harder and harder to clean up otherwise avoidable messes they created by making poor initial decisions. There are many reasons we’re making poor decisions and failing to learn from them.
Under the heading, Sources of Stupidity in an article entitled Smart Decisions we wrote about some of the factors that contribute to suboptimal decisions.
1. We’re (sometimes) stupid. Of course, I like to think that I’m rational and capable of interpreting all of the information in a non-biased way. Only I’m not. At least not always. There are situations that increase the odds of irrationality, for instance when we’re tired, overly focused on a goal, rushing, distracted or interrupted, operating in a group, or are under the direction of an expert2.
2. We have the wrong information. In this case, we’re operating with the wrong facts or our assumptions are incorrect.
3. We use the wrong model. We use models to make decisions. The quality of those models often determines the quality of our thinking. There are a variety of reasons that we use false, incomplete, or incorrect models. For instance, we’re prone to using less useful models when we are a novice or we operate in a domain outside of our area of expertise. The odds of the wrong model also increase as the pace of environmental change increases.
4. We fail to learn. We all know the person that has 20 years of experience but it’s really the same year over and over. Well, that person is sometimes us. If we don’t understand how we learn, we’re likely to make the same mistakes over and over.
5. Doing what’s easy over what’s right. You can think of this as looking good over doing good. In this case, we make choices based on optics, explainability, politics, etc. Mostly this comes from not having a strong sense of self and seeking external validation or avoiding punishment.
Simple But Not Easy
One of the metamodels that traverse all five of these sources of stupidity is understanding the world.
If you understand the world as it really is, not as you’d wish it to be, you will begin to make better decisions almost immediately. Once you start making better decisions the results compound. Better initial decisions free up your time, reduce your stress, allowing you to spend more time with your family and leave your competition in the dust.
Understanding The World
How can we best understand the world as it is?
Acquiring knowledge can be a very daunting task. If you think of the mind as a toolbox, we’re only as good as the tools at our disposal. A carpenter doesn’t show up to work with an empty toolbox. Not only do they want as many tools in their toolbox as possible, but they want to know how to use them. Having more tools and the knowledge of how to use them means they can tackle more problems. Try as we might, we cannot build a house with only a hammer.
If you’re a knowledge worker, you’re a carpenter. But your tools aren’t bought at a store and they don’t come in a red box that you carry around. Mental tools are the big ideas from multiple disciplines, and we store them in our mind. And if we have a lot of tools and the knowledge required to wield them properly, we can start to synthesize how the world works and make better decisions when confronted with problems.
This is how we understand and deal with reality. The tools you put into your toolbox are Mental Models.
Mental models are a framework for understanding how the world really works. They help you grasp new ideas quickly, identify patterns before anyone else and shift your perspective with ease. Mental Models allow us to make better decisions, scramble out of bad situations, and think critically. If you want to understand reality you must look at a problem in multiple dimensions — how could it be otherwise?
Getting to this level of understanding requires having a lot of tools and knowing how to use them. You knew there was a hitch right?
We need to change our fast-food diet of information consumption and adopt the healthier diet of knowledge that changes slowly over time. While changing diets isn’t easy, it can be incredibly rewarding: more time, less stress, and being better at your job. The costs, however, are short term pain for long-term gain. You must change how you think.
2^nd Order Thinking
One example of a model we can immediately conceptualize and use to improve our ability to make better decisions is something we can borrow from ecology called second-order thinking. The simple way to conceptualize this is to ask yourself “If I do X, what will happen after that?”. I sum this up using the ecologist Garrett Hardin’s simple question: “And then what?”
A lot of people forget about higher order effects — second and third-order effects or higher. I’ve been in a lot of meetings where decisions are made and very few people think to the second level, let alone the third. Rather, what typically happens is called first conclusion bias. The brain shuts down and stops thinking at the first idea that comes to mind that seems to address the problem as you understand it.
We don’t often realize that our first thoughts are usually not even our own thoughts. They usually belong to someone else. We understand the sound-byte but we haven’t done the hard work of real thinking. After we reach the first conclusion, our minds often shut down. We don’t seek evidence that would contradict our conclusion. We don’t ask ourselves what the likely result of this solution would be — we don’t ask ourselves “And then what?” We don’t ask what other solutions might be even more optimal.
For example, consider a hypothetical organization that decides to change their incentive systems. They come up with a costly new system that requires substantial changes to the current system. Only they don’t consider (or even understand) the problems that the new system is likely to create. It’s possible they’ve created more problems than they’ve solved – only now there are different problems they must put their head down to solve. Optically, they “reorganize their incentive programs,” but practically, they’ve simply expended energy to stay in place.
Another, perhaps more complicated, example is when a salesman comes into a company and offers you a software program he claims will lower your operating costs and increase your profits. He’s got all these beautiful charts on how much more competitive you’ll be and how it will improve everything. This is exactly what you need because your compensation is based on increasing profits. You’re sold.
Then second-order thinking kicks in and you dare to ask how much of those cost savings are going to go to you and how much will eventually end up benefits enjoyed by customers? To a large extent, that depends on the business you’re in. However, you can be damn sure the salesman is now knocking on your competitor’s door and telling them you just bought their product and if they want to remain competitive they better purchase it too. Eventually, you all have the new software and no one is truly better off. Thus, in the manner of a crowd of people standing on their tip-toes at a parade, all competitors spend the money but none of them win: The salesman wins and the customer wins.
We know, thanks to people like Garrett Hardin, Howard Marks, Charlie Munger, Peter Kaufman, and disciplines like ecology, that there are second and third-order effects. This is how the world really works.It just isn’t always a comfortable reality.
Understanding how the world works isn’t easy and it shouldn’t be. It’s hard work. If it were easy, everyone would do it. And it’s not for everyone. Sometimes, if your goal is to maximize utility, you should focus on getting very, very good in a narrow area and becoming an expert, accepting that you will make many mistakes outside of that domain. But for most, it’s extremely helpful to understand the forces at play outside of their narrow area of expertise.
Because when you think about it, how could reality be anything other than a synthesis of multiple factors? How could it possibly be otherwise?