3 Rules To Better Decision Making
Business owners and managers make decisions every day that impact the operation of the dairy. Some of those decisions impact daily activities that are important to the efficient management of the dairy. Other decisions that can involve a significant capital investment or commitment of additional resources. Those type of decisions can be stressful: if you’re right, your business is successful; if not, your business will most certainly suffer.
“To make a good decision, you need to have a sense of two things,” Walter Frick, a senior editor at Harvard Business Review. “How different choices change the likelihood of different outcomes and how desirable each of those outcomes is.”
In a Harvard Business Review article, Frick points out three rules that will improve your ability to predict the effects of your choices and assess their desirability.
Rule 1: Be less certain. “Overconfidence is not a universal phenomenon, it depends on factors including culture and personality,” Frick says. “But the chances are good that you’re more confident about each step of the decision-making process that you ought to be.”
Frick says that once you accept that you’re overconfident, you can revisit the logic of your decision. You can reassess expected outcomes on more logical terms.
Rule 2: Ask “how often does that typically happen?” If you think outcome A is preferable to outcome B, you might ask “historically, how often has that been the case”. This forces you to take an outside view of your decision to objectively evaluate potential outcomes without getting stuck seeing things from only an insider’s perspective.
Rule 3: Think probabilistically – and learn some basic probability. While Frick says the first two rules can be implemented right away, this rule takes a bit of time. “Research has shown that even relatively basic training in probability makes people better forecasters and helps them avoid certain cognitive biases,” Frick says.
Improving your ability to think through the probability of a decision will help with the first two rules, Frick says, and the three rules together are more powerful than any of them alone. It pays to revisit the rules, however, because he says once you’ve used them for awhile you may become overconfident in your decision making abilities. “Great decision makers don’t follow these rules only when facing particularly difficult choices, they return to them all the time,” Frick says. “They recognize that even seemingly easy decisions can be hard, and that they probably know less than they think.”