Every decision we make in life is a bet. Like it or not, we are all inveterate gamblers. We rarely have all of the necessary information, but we forge ahead, making decisions based on internal (and often unconscious) guidelines.
When we order dinner at a restaurant, we are making a bet that we will like what we have chosen more than the other items. Fortunately for our dinner companions, we usually don’t describe a detailed mental calculus of how we made our decision nor go through how every other alternative could have been better or worse than what we chose. But when confronted with endless menu choices, we make a bet.
Poker wizard Annie Duke, in her book, “Thinking in Bets,” points out that we often gauge our decisions by their results rather than our decisionmaking process. She calls this resulting.
Look at the major decisions you have made in your life — your marriage, career, housing. For most of us, we never had much practice with any of those choices and yet they had significant impact on the quality of our lives.
I have been married almost 35 years and have had the same business partner for more than 30. Does that mean that I am particularly good at choosing partners? Maybe, but my sample size is two. It could mean that I have strong beliefs around commitment and so do my partners. It may mean that I have been particularly lucky. Or there could be a host of other reasons why I have been in relationship with these two people for as long as we have. But the fact that I have had great results does not mean that I had a great process for making decisions.
Duke believes that our lives are based on the quality of our decisions and luck. Both come into play with everything we decide. We know that in poker, you may have the best hand and still lose. The quality of your decision isn’t based on the result, but how you made it. Look at investing, for example. If you believed that stocks were overpriced in 2007 and sold out of them before the historic crash of 2008, did that mean that you made the right decision?
There are so many determinants to market valuations that markets can continue to go up long after they reach the stupid phase. Calling the top was resulting. And if you managed to sell in 2007, did you buy back in April 2009 to catch the unprecedented rebound? If you did, I congratulate you on your luck, not necessarily on your decisionmaking.
When it comes to investing, you should sell up to three years before you need to spend the money. Otherwise, you need to develop a strategy that will allow you to participate in the volatility that over time creates returns. If markets were predictable, they would not reward you with higher returns.
The easiest way to handle volatility is by setting up asset allocating (large, small, international stocks and bonds) and regularly rebalancing. You can tweak this by changing your allocation slightly as markets go up. You can tweak it more by having a strategy for deploying cash into the market. Don’t make things all or nothing — that takes far too much luck.
Since people don’t have a lot of experience with making big decisions, it is important to increase the odds in helping make better choices.
For example, if you are considering a job change even though you are happy in your current position, create a strategy to gather information in a variety of ways from a number of places. Learn what you can about the new company from people who work there (connecting on LinkedIn is a start). Remember that their experiences and needs are going to be different from yours. Gather feedback from people who know you and will be candid with you about what environments you do well in and where you meet resistance.
When you are being reviewed in your current position, try to collect comprehensive feedback and seek out areas where you are not doing well. That will help you understand where your skills lie. Spend time on your own to discern why you are interested in the change. Find people who will take a Devil’s Advocate role rather than those who will simply agree or support you in everything you do. The stakes are higher when you are leaving a job you enjoy, so the forensic information has to be much deeper than if you are leaving a place that is clearly not a fit.
Understand the odds of the decisions you are making and be careful about how you judge yourself on your outcomes. Most events are not right or wrong, they are simply one result in a series of possible outcomes.
When the site fivethirtyeight.com had the odds of Hillary Clinton winning the presidential election at 71.4 percent, that still meant that slightly less than three out of 10 times that Donald Trump would end up being president.
Odds merely represent the chances of alternative outcomes — even the slimmest of odds may occur. Many decisions are somewhat easily reversible, but for those really big ones you want to put the odds in your favor.
Ross Levin is the chief executive and founder of Accredited Investors Wealth Management in Edina.