How To Decide

I recently read the book How to Decide by Annie Duke.

I think it can be summarized as follows: Don’t judge the quality of a decision purely by its outcome.

If you do this (which the book calls Resulting) you underestimate the value of luck:

• Did you make a good decision but were just unlucky (bad luck)?
• Or, did you make a terrible decision, but you were lucky (dumb luck)?

I find that an interesting corollary of this is that the quality of your decision is mainly a function of your risk profile and your future beliefs. The outcome in the end doesn’t matter so much. What matters is that you accurately modeled the possible set of outcomes.

Imagine you play a game and you need to roll a six-sided die. Your outs are 2, 5, 6, that means you have 1/2 odds to hit your out. The decision whether to roll or not doesn’t matter on the actual outcome of the roll, but on your risk profile and what you believe will happen next. The only way you really learn from an actual outcome is if it is unexpected, like the die landing on its side or the die landing on its seventh (?) face with a value of 0.

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