How to Make Important Decisions

[Note: Republishing with significant changes from previous version]

Lovaglia's Law: The more important the outcome of a decision, the more people will resist using evidence to make it.

Why is it so difficult to rationally make big decisions?

We agonize over the decision; we debate ourselves; we finally decide; and then we immediately begin to second-guess our choice!



It doesn't have to be that way.

David Maister points to an interesting post by Bob Sutton on how "the more consequential the outcome, the more power, greed, stress and irrationality come into play in influencing how people react and how individual and collective decisions are made" (quoting David).

In our research for Moonshots and Tsunamis, Mark and I looked at the brain science behind these kinds of issues, and came across some startling (but upon review intuitively obvious) findings.

The key to understanding the problem and devising a solution is understanding our triune brains:



You can also represent the three parts of the brain this way:


This is Ogg. He represents the r-Complex brain, in which a perfect day consists of sitting in the sun on a warm rock, occasionally gobbling up small prey that wanders by, listening for snapping twigs and other signs that we might be imminent prey, and occasionally scratching our procreative itch. The r-Complex is reflexive and automatic, not contemplative.



Let's call the next guy Thag. He represents the right brain, the seat of creativity and pattern matching and experience. Thag's job is to interpret complex, often conflicting input about weather and terrain to decide where to hunt or where to plant. He lives is a social environment where wisdom is embodied in stories passed from one generation to the next, and skill is obtained through apprenticeship, with mastery of one's craft taking years or even decades of practice.



Finally we have Oleg, who represents the fully developed left brain. He's the master of logic and rational thought. Oleg's reasoning ability has given rise to great cities, miracle drugs, and return-of-premium life insurance.


Oleg looks to be leading the pack, but guess again! Neuroscience shows that Ogg and Thag have veto power over his rational thought. And in that order! The picture should really look like this:


Ogg and Thag are kind enough to let Oleg make all the small decisions, but they both have specific triggers for when they exercise veto power. Ogg has two: Fear and Love. Ogg is focused on preservation of self and species. Most of the time he doesn't see the need to do more than monitor the environment, but when his interest is piqued, Thag and Oleg better get out of the way before they get hurt!

Thag has many triggers, some hard-wired, but also many created by his culture and personal experience. His part of the brain is constantly pattern-matching observations against that store of triggers.

Admit it, for much of the day you operate in Thag-mode. You're observing and orienting and acting in response to external stimuli without a lot of conscious decision-making. [I've seen you driving down the road, talking on your cell phone!]

Not convinced on the whole Ogg-Thag-Veto concept? Okay, let's try a little thought experiment. Have you ever had a habit that you wanted to get rid of? Maybe you sucked your thumb as a child. Maybe you took up smoking or drinking or internet surfing or watching reality TV. They made perfect sense at the time you started, but eventually you realized that they weren't in your best interest. So the Oleg in you decided to make a change for all the logical reasons. You convinced yourself that there was absolutely no reason to keep that old habit. And so you quit cold turkey on the spot and never reverted to the old behavior. Right? No??

What happened?

Yep. We've all been there. Aside from any physical addiction, Thag's pattern-response mechanisms made it awfully hard to break that habit, didn't they?

But this post isn't about changing habits. We'll go into that in the book. Today we're focused on making important decisions. And there's one more important concept to discuss before we can propose a solution to the Ogg-Thag-Veto problem.


Categories of Problems

Problems (and Opportunities) come in three varieties:

• Simple
• Complicated
• Complex

Let's define each of these:

• Simple - Ogg can figure out a solution


• Complicated - not simple, but the solution is deterministically knowable. A Thag-era complicated problem was napping a nice, sharp flint tip for a spear. An Oleg-era complicated problem is designing a modern jumbo-jet.
  
• Complex - not simple, and the solution cannot be known in advance. A Thag-era complex problem was bringing down a wooly mammoth in coordination with 8 twitchy, fur-slippered cohorts. An Oleg-era complex problem is predicting what will happen when you fill that jumbo-jet with 400 people (and maybe a few snakes) and fly it from L.A. to N.Y.
  
  

Oleg is the master of the complicated problem, using his skills in mathematics, science, and engineering. But when things get complex, Thag takes over. And despite what we would like to think, our world is a lot more complex than complicated. The main source of complexity in the world:


Isn't that the truth? People are moody and suspicious and predictably unpredictable. You can't know what's going on in their heads from one minute to the next. Only through interaction and observation can we get start to form opinions on the subject. Our Thag-brains are great at generating patterns and hypotheses about the future. With respect to decision making, our experiences with the people involved and their likely actions in the future often allow us to synthesize these scenarios and make an informed decision.


But if Thag can't make sense of a situation, guess who makes the call?


And there ain't no Abundance Mentality in "Fight or Flight"!


So much for the problem; what about the solution?

The solution begins with the acknowledgement that Ogg and Thag have done a pretty good job of advancing human civilization, and that they're both acting in what they perceive to be our own best interest based on the information available (genetic, cultural, and experiential). They may in actuality be dead wrong, but they're trying to do the right thing.

So how can our inner Oleg "manage up" within the brain hierarchy to make better decisions?

Bob Sutton's suggestion is to turn a big decision into a series of small ones that don't register on Ogg or Thag's radar. How might we do that?

The key would be to define a series of complicated problems that Ogg and Thag would delegate to Oleg. So we must ask:

Is there a set of necessary and sufficient facts that will allow us to logically determine the right course of action?

If the answer is yes, we can make a rational decision!



Thanks, Fred, but you know that we live in a complex world. If we can't define the problem as complicated, what next?

Back to brain research.



Or not.

Experimental data has shown that the human brain evaluates down-side risk and up-side risk disproportionately. Ogg focuses on the down side WAY more than the upside, and influences Thag in the process. There are two ways to counteract this influence: 1) Thag recalls or constructs superior models of the current situation, or 2) Thag and Oleg create options that allow exploration of multiple paths to the goal, thus eliminating the single "do or die" decision.

The first alternative: creating a superior model of the current and future situation, can be done in a number of ways. Our pattern-matching Thag-brains work largely on existing knowledge and experience. If I am making a decision for the first time, how do gain experience without actually making and living with the decision?



One surprisingly effective method is to create a simulator of the interaction between the key assumptions, inputs, and outputs of a system. Simulators are used in all kinds of applications, but seem to me to be sorely underutilized in business decision-making. Most businesses aspire to evaluate their investment decisions based on some Return on Investment formula. When someone proposes a new investment, they often create a model for that return and present a single set of assumptions, inputs, and outputs as the rationale for the investment. A common alternative is to provide an Optimistic, Pessimistic, and Middle-of-the-Road-Kind-of-Expected-Results scenario. These scenarios may be perfectly valid, but they don't give Thag the experiential needed to override Ogg's natural wariness. Ogg thinks: "These business case calculations are always gamed to the presenter's advantage!"

The simple solution to this problem is to create a simple simulator that easily allows users to modify the assumptions and inputs and to view the algorithms involved in creating the outputs. This gives the users' Thag-brains a chance to play with those numbers and to gain a feel for the dynamics of the system. By trying different sets of numbers on their own, users' Thag-brains can create that superior model of the full range of options - especially the upside that Ogg and Thag couldn't see at the start of the process. My experience is that in every single case where I allowed a customer to play with the model of return instead of just presenting three scenarios, they settled on a more optimistic return than I had suggested.


If you are unable to effectively model the dynamics of the decision and its consequences, a second alternative for avoiding Ogg-mode decision making is the option approach. In the financial world, options allow investors to purchase the ability to take a specified position in the future without obligating them to take that position. For instance, you might be holding 100 shares of a stock selling at $10 per share, and buy options that allow you to sell for $9 per share, thus locking in the value of your investment. If the price rises to $11, you won't exercise your option, but you eliminate the Ogg-based fear that the bottom could drop out of the stock and you'd lose everything!

Things work the same way in the real world. Instead of making a single one-shot decision, is there a way to economically pursue multiple paths simultaneously? Or to at least give us the option of quickly switching paths if our favorite turns out not to be the best? This is akin to, but not the same as, Bob Sutton's suggestion to break one decision into a series of smaller decisions. In the small decision case, making a wrong decision requires backtracking, which could involve great cost. In our investment analogy, instead of taking out options, we sold at $7 per share and invested in something else. An agrarian Thag-oriented example of the option strategy is to plant multiple crops, some of which are bound not to fetch top price, rather than plant only one, which might fail or drop in price because everyone else planted the same thing.


In summary, the questions to ask yourself when faced with an important decision are:

1. Can I define a necessary and sufficient set of facts to make this decision a complicated one?
2. Can I simulate the dynamics of the decision sufficiently to create an adequate model of the situation?
3. Can I devise and buy options that defer the ultimate decision until I have a better understanding?

This simple checklist will insure that you won't unwittingly fall victim to Lovaglia's Law.