Peter Zhang

Decision-Making

Introduction

Recently, I noticed a common theme running through my reading list: I have an interest in decision-making. The attraction makes sense to me; my first semester of college has featured a constant barrage of decisions, ranging from trivial choices about whether to go on a jog to less trivial dilemmas about which clubs to join or which classes to take.

The study of decision-making draws on and influences a multitude of fields, spanning from microeconomics and public policy to game theory and psychology. The goal is to help people make good decisions, particularly in the context of risks. Here, I list key ideas I took from four books that have shaped how I make decisions.

Reviews

Thinking Fast and Slow, Daniel Kahneman

Utility: ★★★★★ (5/5)

Writing: ★★★★✰ (4/5)

  • Two systems rule the mind. System 1 makes quick and automatic decisions, like driving home from work; System 2 carefully dissects complicated problems, like solving a brain teaser.
  • Humans are biased. You’re liable to a litany of fallacies, including priming (flashing the color red makes you more likely to pick apples over oranges), cognitive ease (you’ll believe a lie if it’s constantly repeated), “What You See Is All There Is” (drawing conclusions from the immediately available information), and many more.
  • Econs are imaginary. Unlike the textbook economic actor, you’re subject to risk aversion (you prize certainty), the sunk cost fallacy, and loss aversion (losses outweigh benefits 2 to 1).

Here’s the paperback and audiobook.

Thinking in Bets, Annie Duke

Utility: ★★★★✰ (4/5)

Writing: ★★★★★ (5/5)

  • Life is poker, not chess. There are things you just don’t know, and sometimes you’re just unlucky. Accepting that life is uncertain is the first step to thinking in terms of shades of grey, rather than in black and white.
  • Process over outcome. Don’t judge your decisions by whether the results were good or bad. If you study hard for a test and the professor tosses in a stinker you never learned, don’t blame your choice to study. By the same token, hopping in the driver’s seat piss drunk is a terrible decision, even if you don’t run over someone’s grandma.
  • Our default sucks. You believe what you’re told and treat it like dogma. When challenged, you are evolutionary hardwired to defend our beliefs. Betting—putting money where your mouth is—shifts your incentives to be honest and correct for biases.
  • Communicate truthfully. In discussions, you should express uncertainty (inviting dissenting opinions) and lead with assent (follow with “and” instead of “but”).
  • Forecast. Conduct the 10-10-10 process. Before making a decision, ask yourself: What are the consequences of each option in ten minutes, ten months, and ten years?
  • Backcast. Identify your future goal step and figure out the steps that will take you there. Use pre-mortems. Imagine all the ways the future can go to shit—negative scenario planning can be even more important than positive imagination.

Here’s the paperback and audiobook.

Superforecasting, Phillip Tetlock & Dan Gardner

Utility: ★★★★✰ (4/5)

Writing: ★★★★✰ (4/5)

  • Most experts suck. Political commentators are, on average, no better than dart-throwing monkeys. But they aren’t all the same. Regardless of political leanings or baseline optimism, the commentators that beat the chimp were united by a different mindset.
  • Foxes outperform hedgehogs. The worst forecasters were hedgehogs—ideologues that view complex problems through totalizing ideas. Foxes—who gather information, change their minds, and think in probabilities—perform much better.
  • Be like the superforecasters. The top forecasters have a probabilistic philosophy, open-minded and numeric thinking, pragmatic and dragonfly-eyed methodology, and a persistent work ethic.

Here’s the paperback and audiobook.

Nudge, Richard Thaler & Cass Sunstein

Utility: ★★★★✰ (4/5)

Writing: ★★★★✰ (4/5)

  • Design is never neutral. Choice architecture nudges people towards choosing the easiest option. If the fruits are eye-level and the chips are tucked away behind the counter, choosing a healthy lunch becomes a lot easier.
  • Decision-makers need help. In addition to the biases outlined by Kahneman, your decisions are influenced by framing (half-full vs. half-empty), status quo bias (e.g. you’ll sit at the same table every day at lunch), emotions (e.g. hungry judges are less forgiving), mental accounting (e.g. you treat pay-rises ad bonuses differently), and herd behavior (following the crowd).
  • Policies should use helpful nudges. Examples of nudge-inspired policies include Save money tomorrow (which automatically sets aside employee income for savings), CARES (where people deposit a financial commitment to stop smoking), and healthcare plans (that reward healthy habits with reduced premiums).

Here’s the paperback and audiobook.

Consider picking up one of these books. I’m 86% sure you won’t regret it.

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