April 27, 2021

My journey to learn better decision making

Of mental models & cognitive biases.

I have made some famously bad decisions in my life. I am sure you have too. I was taught to work my ass off, and hero-worship street hustle. Maybe you were too. But I was never taught how to make good decisions. I don’t think anyone ever is.

Is decision making really a fuzzy topic? Do successful people just get lucky, are better at making gut calls or do they really know the science of making good decisions? I have spent the past 1 year consciously learning more about this, and this is what I learnt. ‍

Good decision vs good execution

I have no problems with working hard. I am not that smart a person, so whatever little success I have had in my career, was because of hard work. I have been lucky to learn new things every new year (digital marketing after graduating as an engineer, coding last year and Ukulele this year). Those new skills wouldn’t be possible without good execution.

Put your head down and execute can never really fail you. But I have learnt to realise the danger of hustle porn. Hard work can’t help you much if it is being applied at the wrong place.

It is way more important to work on the right thing at the right time, vs working hard.

As a startup CEO in 2015, I used to tell everyone proudly that “My superpower is working harder than others. It’s the only way to beat competition”. What a stupid way to live life. I now spend more time thinking about what to do, vs doing it. I still work 10 hours everyday on Kaapi, and a few times last month I even pulled 16 hour workdays. But I now spend 10 days thinking about the decision, and then 20 days of execution. Those 10 days helped me narrow down on our market (employee engagement & feedback), find a decent GTM (Slack app) and get our earliest 7 paying customers within few days of public launch.‍

Two types of decisions

We all make 100s of decisions every day. What to eat? Where to sit? Should I go to sleep now? These are all quick decisions. On the other end you have large life changing decisions e.g. Should I marry this person? Should I go into this new market? Should we build this feature?‍

If you have read the fabulous book “Think fast, and slow”, then you must already be familiar with the concept above. Daniel Kahneman calls this System 1 and System 2 thinking. System 1 is the quick one at the forefront of our monkey brain, while switching on System 2 is more a conscious effort. You have to force yourself to bring System 2 to the forefront. Slow down, think, analyse, introspect and then make a decision.

If you work in a fast paced environment, especially tech startups, then most probably you are making decisions via System 1. Yes, yes I know that you did an amazing quarterly goal planning exercise with loads of thinking. But did you really? Most startup founders (and me, circa 2015) are so busy fighting fires that planning for 90 days happens over one Friday meeting of 2 hours.

In almost every business or people decision as a leader, you should be focused on getting your System 2 on the driver seat. System 1 thinking leads to biased thinking, and hence bad decisions. More on that below. ‍

How do humans make decisions

We react to changes around us. An employee leaving your team, a bug in the product or market conditions changing (hello Covid-19!). We take these new inputs, process them (quickly or slowly i.e. System 1 or System 2) and then out comes new decisions. Sounds too fancy? Not really. We do this everyday e.g.

Feeling hunger (Input) —> Trying to lose weight (framework) —> Order salad
Feeling hunger (Input) —> Today is Monday, loads of meetings (framework) —> Grab a sandwich on the go

You make different decisions based on the active framework at that time. And that is real clincher. Apply the wrong mental model, you will make a bad decision. Fall victim to your biases; and you will make a bad decision again. Let’s look in more details at the anatomy of a bad decision. ‍

This is why we make bad decisions

I had this painting on my desk wall for over an year.

Cheat sheet of Cognitive Biases - by Buster Benson

Cognitive biases are little software bugs / viruses in your decision making process. You are not as smart as you think you are. It sucks, but it’s true. Me, you and even Elon Musk suffer from hidden-in-plain-sight cognitive biases which are hardwired into our monkey brain. Our past experiences have shaped our understanding of the world; and that is what we use to make decisions that impact our future.

A few common cognitive biases that you might recognise - ‍

‍Herd mentality - stock market going up? Damn, you must invest too! All these people must be right ‍
Self serving bias - failed an exam because the teacher hated you? Business came crashing down because you think the investors backed out wrongly? You are suffering from a self serving bias. I personally went through this in 2015, and took me almost an year to see things clearly. ‍
The sunk cost fallacy - ever felt like continuing on a project because you have already spent so much time on it? Too late to give up?

The first step in making better decisions is to simply learn and recognise these cognitive biases. Before you jump into a new thing, slow down, take a pause, and think about it. I recommend this cheat sheet.

The solution - build your own frameworks & mental models

As a leader, you would already have a set of values that are close to you. The ones that you never sacrifice. Use those to help you make more logical decisions. Another exercise you can do is to make a list of good decisions you made in the recent past and see the common patterns.

At Kaapi, almost every big decision now goes through a checklist of frameworks we believe in. We can not optimise for every model all the time, but we definitely try. This one simple change in thinking helped us make a much better GTM decision last quarter -

Found these scribbles in my notes from March

I have written down my favourite mental models below, but you should build your own.

#1 - Focus on avoiding stupid decisions, not finding brilliant ideas

Warren Buffet built his entire empire on this one simple concept vs trying to time the market like other investors. Find good companies, run by good operators, invest in them and then ignore the noise.

We over complicate things. We all do. But you be better served by simply focusing on not doing the absolute basic things that will fuck up the entire company. If a decision is too complex to make, and has too many variables, we simply say no. ‍

#2 - Avoid ruin. Survive long enough to get lucky.

If you can simply focus on not dying, and not going to zero, half your problems will go away. You will automatically end up playing for the long term game. Naval Ravikant has a fantastic podcast on this. More below.

We get too flattered by rags to riches stories on the internet. And by press releases from unicorn companies. What is true for 100 people on average, isn’t true for the one person averaging that same thing 100 times. 1% startups make it big. But it doesn’t mean that if you 100 startups, you will definitely succeed.

Kelly criterion is a mathematical formula that tells you how much you can wager on every hand on the poker table. Simply put, don’t get wiped out. But simply put, don’t get wiped out. Survive long enough to get lucky. ‍

#3 - Invert, always invert

An inversion exercise forces you to look at things from the opposite end first. I learnt this from the fantastic people at Farnam Street. A good way to get started is to make a list of things that will kill you, and then remove those first. Just do a post-mortem in advance.

Most difficult problems can be solved if you go backwards first. Need to lose 10 kgs in 2 months? Forward thinking sends you searching for the latest diets. Inversion forces you to ask “What is 100% unhealthy?”. The answer is to stop eating sugar, don’t over eat, love yourself and exercise when you can. If these basic things are covered, that is when you can do the fancy diets.

As a business leader, take your current project, transport yourself 6 months in the future, and then imagine why that project has failed. Do this exercise with a team or with yourself in a room without any distractions. Think until your brain is bleeding from the ears. Now when you have a list of reasons, solve for them first. ‍

Thinking in Bets by Annie Duke is another great resource on this concept‍

#4 - Play the long term game

I talked a bit about it above, but I love it so much that I am going to repeat myself again -

“Survive long enough to get lucky.”

Compound interest applies to everything. To the skills you learn, and to the decisions you make. Being 1% better everyday stacks up. You shouldn’t be very bothered by competition, but if you can think in 10 year horizons, then you have already defeated most of your competitors, because they are busy thinking in quarterly timelines.

I don’t have much to add here honestly. Better people than me have talked about it. You should definitely read more about how Jeff Bezos & Elon Musk think about this. ‍

#5 - Analyse 2nd & 3rd order effects of your decision

I am a doer and operator at heart. I love jumping into a project and executing things. It took me a sometime to realise that I have a bias for action. Sometimes, the worst thing you can do, is to act. Not making a decision today, can be a good decision. But some fences are there for a reason (read Chesteron’s Fence)‍

Those processes & decisions were made by someone sometime before you. And probably for a valid reason (valid at that time). So before you change things, think a few levels deeper about why that fence exists today.

Think like a chess grandmaster, not a monkey with a hammer in your hand who must find some nails. ‍

#6 - Decrease the scope and make small bets

Work expands to fill the time allocated to its completion (Parkinson’s Law). To make sure that you don’t sink a lot on a new decision, put constraints. Constraints are good.

It’s amazing the amount of things you can do without sacrificing on the quality, if you simply decrease the scope. Such small bets also mean that you can fall back on being 1% better everyday to survive, avoid ruin, and get to success without being a visionary or genius. ‍

When do I skip this checklist - Irreversible vs reversible decisions

It’s ok to not think so much if it’s a small decision, or irreversible decisions. Speed is indeed a superpower and you should make full use of it. Sometimes, it’s fun to just dive into the unknown and enjoy the journey of stumbling around and learning! In no way am I against that at all.

But if you are running a business or the future of your team is at stake with this decision; take your time, decrease the scope, do a quick experiment to validate and then move on! ‍