Evaluating outcomes: a (brief)case study
Imagine you’re a contestant on Deal or No Deal.
You’re standing next to Howie Mandel, and five briefcases are left.
For luck, you picked the one Meghan Markle stood beside, and it holds $100, $400, $1,000, $50,000, or $300,000.
The banker has just offered you $80,000.
What do you do?
Choose Deal or No Deal and I’ll share the math with you at the end of this email.
The reality is most of life isn’t this clear-cut. It’s filled with ambiguity and uncertainty.
The tough decisions are far squishier than your probability of getting the best financial outcome from continuing to open cases or taking the deal. Some choices set the course of your life.
We can further complicate the decision-making process when we focus more on eliminating ambiguity than making a good decision.
Using a decision-making journal
I thought rather than continuing with my stories (I’ve got some more), I’d provide a format for your journal—a document to help you create entries for decision-making.
I attached the form to the bottom of this article—it is yours to use as you wish.
You can use it next time you face a tough choice.
Have you ever faced a decision and felt the pressure of a deadline?
By having a guide sheet, you become a better decision-maker.
I include prompts like, how long do I have with no consequence to collect more information to make a better decision?
This revelation separates winners and losers. Knowing that you have time or don’t gives you power.
Most people are so focused on the uncomfortable feeling of ambiguity that they make a snap decision. A decision—good or bad—relieves them from suffering under a cloud of ambiguity.
You may think…
“Why talk about ambiguity and uncertainty? Aren’t they the same thing?”
Not in this context. Ambiguity is the emotional state you find yourself in (i.e., not knowing what to do).
The act of deciding relieves the ambiguity. It may not result in a good outcome.
After the decision, there still is uncertainty about the outcome.
What we look to do with the decision-making system is give you a process to reduce your urgency to decide, relieve ambiguity, and increase the probability of the best outcome.
Let’s get to the process.
In the last article, I suggested you start a decision-making journal.
If you journal already, you can insert my template into that journal when the time comes for those big decisions.
The act of completing the template is 80% of the decision-making process.
The analysis of its contents is 15%, and deciding becomes 5% of the effort.
Rather than go through the journal template line by line, here is a video on how to use it.
Did you take the deal or not?
Here is the analytics on the decision:
If you total the possible wins to $351,500, the average is $70,300.
The probability that your case is $300,000 is 20%.
The likelihood that it’s not $300,000 is 80%.
Four out of five of the choices are below $70,300.
The banker offers a 13% premium above the average to step away from a one in five chance at winning $300,000.
The prudent choice is to take the banker’s offer.
But you just may be here for the action…
And that’s what he wants, for you to get caught up in the emotion!
The point of this is that most of your decisions are not as cut and dried, and you’re not under a time constraint to decide.
Yet, we don’t go through any analytical process to evaluate all the outcomes or second or third-order consequences.
I just gave you a list of questions that would walk you through making an educated decision.
It will help reveal the emotions behind and probable outcomes of your big decisions.
Will you decide to use it?
Journal Template
What are all the potential outcomes?
List at least seven outcomes. The more, the better. The idea is to push yourself to see what else may be an outcome.
Apply the 5 Whys to the outcomes. Asking the five whys is a process for understanding the root cause of a problem. Ask why, then ask why about the why. Use the process to dig deeper and get a better understanding.
Review each outcome and ask: What are the second and third-order outcomes?
Do the second- or third-order outcomes create more benefits or cause more damage? Use this insight to determine the stakes.
Don’t stop with the obvious outcome. Challenge yourself to think through what will happen next. If this outcome occurs, then what happens next? There may be a beneficial consequence of the outcome.
- Rank the probability of your outcomes
- Estimate stakes for each outcome
Knowledge gap:
Your choice:
Review: Set a date and review what you learned.
