LET’S TALK ABOUT DECISION MAKING

INDUS KHAITAN

ENTREPRENEUR-AT-LARGE

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QUICK BIO

• Two startups

• One seed fund

• Lots of working and defunct software codehttp://khaitan.org

@1ndus on twitter

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GOOD (& BAD) DECISIONS I’VE MADE AT

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“ A conclusion or resolution reached after consideration.- Dictionary.com’s definition of Decision

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WHY LEARN TO MAKE SMART DECISIONS?

• All the information is out there for everybody to learn

• Skills of humans have gone up

• Everything equal, decisions differentiate success from failure

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RULE OF TWO

• The person with the fewest blind-spots wins

• Don’t aspire to be a problem solver. Avoid the problems by making better decisions

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ANALYSIS VS. PROCESSWidespread Belief that analysis reduces biases

Imagine a big decision made by your boss, organization – How would you rate the quality?

Analysis is a good start to remove bias

Process ensures objectivity in analysis

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HOW DO WE MAKE BAD DECISIONS?

• We fool ourselves

• We are not ready

• We don’t gather information

• We get engulfed by four villains of decision making

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What are the popular examples of bad decisions?

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THE FOUR VILLAINS OF BAD DECISIONSNarrow Framing

Confirmation Bias

Emotional rollercoaster

Overconfidence

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Wrap

✔Widen Your Options

✔Reality Test Your Assumptions

✔Attain Distance Before Deciding

✔Prepare to Be Wrong

The Villains➤To overcome narrow framing

➤To overcome confirmation bias

➤To overcome emotions

➤To overcome overconfidence

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TAMING THE VILLAINS USING “WRAP”

HOW TO MAKE SMART DECISIONS

• Figure out how the world works

• Use frameworks and toolbox such as Mental Models

• Ditch biases

• Debug using a decision journal

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“ What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.”

Joseph Tussman, UC Berkeley Department of Philosophy

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LEARN HOW THE WORLD WORKS

• Rules the Universe plays by (Physics and Math)

• Rules life on Earth plays by (Biology)

• Rules humans have played by (History)

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LAWS OF PHYSICS AND MATH

• Velocity does not equal Speed

• Reciprocity

• Multiplication by Zero

• Relativity

• Leverage

• Randomness

• Compounding

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LESSONS FROM BIOLOGICAL HISTORY

• Life is Competition

• Life is Selection

• Life must Breed

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LESSONS FROM HUMAN HISTORYHuman behavior has changed, but not human nature

Ideas are the strongest things and shape future generations

Fragile relationships break, but strong win-win is super glued

Lack of adaptiveness to change is a losing strategy

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DITCH BIASES

• Availability bias – “Recall the recent, frequent and important.”

• First conclusion bias – “First idea gets in and then the mind shuts.”

• Hindsight bias – “I told you so. Knew-it-all-along.”

• Confirmation bias – “Reassurance, rather than new fact gathering.”

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MENTAL MODELS

• Framework for understanding how the world works

• Toolbox for making decisions

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TOP FIVE MENTAL MODELS

• Inversion – “Just tell me how I’m going to die so that I never get there.”

• Occam’s Razor – “Simplest explanation with the least moving parts.”

• Hanlon’s Razor – “Never attribute to malice that which can be explained by neglect.”

• Second-order thinking – “Effects have effects.”

• Map is not territory – “Reality is different than abstraction.”

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DECISION JOURNAL

• Quality control log for decision making mind

• Write down

• Situation

• Problem

• Variables

• Alternatives

• Outcomes

• Expectations

• Mood/Feelings

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SUMMARY

• Everybody has all the skills, with smart decisions we can lead a good life

• Decision making is not like writing a book, it is an art and a science

• Rein your biases and use mental models

• Keep a Decision log

• There are exceptions, use multiple techniques

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REFERENCES

• Generous helpings from FarnamStreet, BrainPickings, 25iq, Psychology Today

• Decision Making by Alan McLucas

• Decisive by Chip Heath and Dan Heath

• The case for Behavioral Strategy by Dan Lovallo and Olivier Sibony

• Poor Charlie’s Almanack by Peter Kaufman

• Thinking Fast and Slow by Daniel Kahneman

• Seeking Wisdom by Peter Bevelin

Thank you for inspiring!

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GOOD LUCK!

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