Decide Better! For a Better Life
Improve Your Life Through Better Decisions
by
Michael E. McGrath
Published By DecideBetter! at Smashwords
ISBN 978-1-935112-13-6
Copyright © 2008 by Michael E. McGrath
All rights reserved.
This book is also available in print.
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Smashwords Edition License Notes:
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each person you share it with. If you're reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the work of the author.
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Discover other titles and resources at DecideBetter.com including:
Decide Better! For a Better Life
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Praise
for Decide Better! For a Better Life
Finalist for the Benjamin Franklin Book Award (2009)
Finalist for the ForeWord Magazine 2008 Book Of The Year Awards (2009)
Finalist for the Next Generation Indie Book Award (2009)
Click here for more Awards, Reviews and Testimonials.
“I am an essential study skills teacher at the high school level. I've used a few of your lessons in the classroom in a unit on improving decision-making. Our kids are underperforming, primarily due to the decisions they make. We used information gleaned from DecideBetter.com to get these students to think about how many decisions they make daily and the consequences of those decisions. Thank you for your help!” – Ladanna Feldhake, ESS Instructor, O'Fallon Township High School
“I read Decide Better! and found it to be wonderful. Everyone needs this kind of counseling at one time or another. Keep up the good work.” – Sudarma Kekulawela
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Table of Contents
2. Decision-Maker in Your Pocket
8. Of Two Minds
10. Personality Type
11. The Two-Step
12. Batting Average
13. Changing Lanes
14. Checkmate
15. See If It Fits
16. Against All Odds
17. Lost at Sea
19. Indecision Married with a Lack of Vision
22. Nowor Never
23. Ucant Havit
26. Don’t Listen
27. Throwing Caution to the Wind
28. Crossing My Path
29. When You Get to a Fork in the Road, Take It!
30. Decision Proof
31. Que Sera Sera
34. Does Your Vote Count as Much as Others?
37. Stand or Sit
39. Stuck in a Rut
40. Long and Hard
41. Procrastination
42. Indecision
43. Deal or No Deal
44. Frontal Lobes
47. Conundrum
48. Buyer’s Remorse
49. Hedging Your Bet
50. Milk or Cream
51. The Getaway
53. Here’s How
54. Clear Objectives
58. Stick To It
59. Decision Autopsy
61. The Decider
63. Catch-22
66. It’s Personal, Not Rational
71. Achilles’ Heel
74. Don’t Push Me
76. Size Matters
77. Flying by the Seat of Your Pants
78. Step by Step
79. Chain Reaction
80. Intuition
81. The Duel
82. Somebody’s Got To Do Something
85. The Challenger
86. Assumptions
87. Bold Moves
89. Just Do It
90. Decide Better!
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You will make almost a million decisions in your life – shouldn’t they be the right ones?
The decisions that you make shape your life and, inevitably, making better decisions will make your life better. This is the simple principle behind DecideBetter!.
Successful people are where they are because of good decisions. While sometimes they just made lucky decisions, most of the time they’re successful because they made better decisions. Other people struggle in life. Sometimes, these people may have just had bad luck, but much of the time, they’re struggling because they made poor choices.
Think about your life and how you got to where you are today. Think about how your life would be different if you made better decisions. Would you have different relationships? Would you have a different career? Would you be at a different income level? Would you have different interests? Would you live in a different location or in a different house? Would you owe less money or have more of it? And – most importantly – do you think these different decisions would make you happier?
Like most people, you’ve probably made both good and bad decisions throughout your life. You realize that you can improve your decisions. What you may or may not know, however, is that by working on your decision skills, you can make more good decisions and fewer bad ones. That’s the purpose of Decide Better!: To help you improve your decisions. Everybody can benefit from better decisions. Making better decisions is universal; it’s more important than improving your eating habits, exercise, or other skills. It affects all aspects of your life.
Whether you realize it or not, you will make almost a million decisions in your lifetime. Most of them are routine. What time are you going to get up in the morning? What will you wear? What are you going to have for breakfast? Other decisions that you make are not so routine. These include decisions about your professional life: What career do you want to pursue? Where will you work, and when will you decide to change jobs? Will you start your own business? There are also important decisions that you’ll make concerning your relationships and family: Who will you date? Will you break up with someone? Who will you marry? Will you have children? As a parent, you will make countless decisions for your children. Will you make the right decisions for them?
Throughout your life, you will make numerous purchase decisions: Will you buy or sell a house? Will you buy a new car? What investments will you make? What clothes and gifts will you buy? Where will you go on vacation? While these decisions may not shape your life in a major way, they will have an impact on the quality of your life. There are many decisions you’ll make regarding your health. Whether you recognize it or not, you decide -- possibly by default -- how much you weigh and how much you exercise. You decide if you will smoke and risk the medical consequences. At some point in your life, you’ll be confronted with serious medical decisions, and you may need to decide on a course of treatment, including what doctor to see and what medical advice to follow.
There are many types of decisions, and there is no one simple formula for all. The situations we find ourselves in when we need to make decisions are broad. The circumstances surrounding our decisions vary widely. And people tend to approach decisions differently, depending on their personality and previous experiences. So I don’t promote one universal approach to making decisions. DecideBetter! for a Better Life offers a series of chapters that cover a wide range of decision situations. Some provide insights into how decisions are made by better helping you to understand how to approach decisions, so you can see your decision-making strengths, weaknesses, and quirks. Others will help you understand why certain people approach decisions differently than you do. The book provides concrete advice and practical tips for making better decisions, and gives you a roadmap – or process – for making the best life-shaping decisions.
You may find some of these lessons immediately useful when you read each chapter. Others you may find useful at some point in the future when you’re facing a new decision and you realize, it’s just like one of the chapters I read in the book. Yet others you may have wished you read before so you could have avoided bad decision in your past. So you may want to keep it as a handy reference guide for the future, and review it again from time to time to see what lessons apply as your life unfolds. As you read the book, you may think that a particular lesson or two may be helpful for your friends, family, or co-workers. Don’t hesitate to give the book to others. You could actually be giving them the gift of better decisions and a better life. Isn’t that a great gift?
You can read this book in one of two ways: from beginning to end, or by randomly reading chapters that look interesting. Although there are a few exceptions, you don’t need to read the chapters sequentially. As you may have already noticed, each chapter is only 2-4 pages long, and each one contains an individual lesson, technique, or insight into better decisions. You can read it on the go, as you have time; it’s written to fit into your busy lifestyle.
Each lesson is designed to be entertaining as well as educational, using anecdotes, stories and examples to teach a lesson. This was the fun part of writing the book. History is filled with great stories and examples of exciting and horrible decisions. Except for the historical references, the names and details of examples used in the book are largely based on events and situations that have happened, but these have been fictionalized to better explain the lessons. Any resemblance to real people or real situations is coincidental. These examples do, however, tend to represent real situations, and many are disguised, modified, or composites of actual situations.
DecideBetter! is more than just a single book. It’s a broad set of essential resources to help you make better decisions. The DecideBetter! website (www.DecideBetter.com) is the hub of these resources. Periodically, you will see references in this book to decision sheets, roadmaps, and other tools to help you. These are all available on the website, so download them when you want to use them. The DecideBetter! website also contains other resources, including decision surveys and Ask Michael, a feature that allows you to ask me for help on the decisions that you’re facing.
This book is the first in a series of DecideBetter! books. Some will be focused on specific categories of decisions that you or those you know may face in different aspects of your lives. Some of the next books in the series, for example, will focus on: helping college students, and those applying for college, to make better decisions; helping executives, managers, and all people involved in a wide-range of business activities, to make better decisions at work; and, helping people make better relationship decisions.
DecideBetter! also offers seminars, workshops, and speeches in an effort to further help you make better decisions. In addition, we will offer a continuous variety of other DecideBetter! products and media. Check the website periodically or, even better yet, subscribe to our free newsletter that provides a new lesson every week.
People have asked me what makes me qualified to create DecideBetter. I’m not sure anyone is really a master decision-maker, but I am an experienced decision-maker, having made more decisions than most others make. I don’t want to imply that I’ve always made great decisions. In fact, I’ve probably made more bad decisions than most people make, too. In my early education, I studied decision-making theory extensively, and continued that with practical decision-making skills at Harvard Business School. In business, I’ve started six companies, some of which have succeeded and some of which have failed. I’ve consulted for more than 25 years to senior executives of more than 200 companies on strategy and decisions. Together with great business partners, we built one of the most successful management consulting firms in the world, Pittiglio, Rabin, Todd & McGrath (PRTM). At PRTM, I had the opportunity to create PACE™, which became the standard decision-making process for the best high-technology companies around the world. Later in my career, I lead the successful turnaround of two public companies as CEO and executive chairman. I’ve also served on the board of directors of more than a dozen companies and non-profit organizations. All of these experiences helped me to understand decision-making and the techniques that can be used to improve the outcome of important decisions – in both business and life.
On the personal side, I’ve made many of the decisions people make in life with relationships, marriage, divorce, and raising four children. I’ve bought, built, and sold houses, and made other major purchase decisions. I’ve made hundreds of investment decisions (probably more bad ones than good ones). I’ve faced important health decisions.
I found that, over the years, people looked to me to help them make their major decisions. This has helped me reflect on what I’ve learned from my own experiences and how to share that experience with others.
Perhaps most importantly, decision-making has been a fascination of mine over the last 20 years. I’ve been an avid observer of decisions, and I’ve strived to formulate common theories and understandings across decisions. I’ve studied major world events, and tried to examine why the individuals and groups behind them made the decisions they did. I tend to look underneath everything to try to understand the decisions involved and how they were made. I’m frequently amazed at how faulty decisions are so prevalent and how severely they affect the world we live in, and I hope that our world leaders will learn to decide better in the future, just as I hope that my readers will learn to decide better.
It is my humble goal to make the world a little better for a lot of people by helping them to make better decisions. This includes you. I encourage you to look at decision-making as a skill that you can develop, improve, and become more proficient at. I hope the stories, lessons, techniques, tips, and guidelines of DecideBetter! for a Better Life help you make better decisions and have a better life.
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1. Frog in Boiling Water
Remind yourself that you are too smart to be complacent about a steadily deteriorating situation.
You’ve no doubt heard the story of the frog in boiling water. If you drop a frog into boiling water, it immediately jumps out (or so the story goes). However, if you put a frog in a pot of room-temperature water, and then bring the water to a boil very, very slowly, the frog will stay in the water until it dies. It’s an odd experiment that I have no intention of testing in my kitchen, but it’s an apt metaphor for how people sometimes deal with slowly deteriorating situations.
When we are confronted with an abrupt negative change, we tend to react immediately and decisively. Coming in contact with a flame will cause us to pull away instantly to avoid getting burned. We don’t think about it; we just react. Yet we will sit in the sun for hours and get badly burned. We know full well that we’re getting burned, but we tend to sit there anyway, because there is no instantaneous sensation to trigger a decision to get out of harm’s way.
It’s this absence of decision triggers that causes people to miss opportunities or to get into trouble that could have been avoided. Fortunately, being smarter than frogs, we have the ability to create decision triggers for our own good. If we’re sunbathing, for example, we might place an alarm clock deliberately out of reach and set it to go off every half hour. When it goes off, we have to get up, go over to it, and turn it off. This triggers a decision: “Should I expose myself to another half hour of sun, or have I had enough?” Without the clock, deliberately placed at an inconvenient distance and annoying us every 30 minutes, we are likely to keep telling ourselves, “Just a few minutes more,” and then a few minutes more after that, and so on, until it’s too late. The “time to get out of the sun” decision trigger arrives the following morning when we turn over in bed and wince in pain. By then, it’s too late to avoid the trouble.
The frog-in-boiling-water syndrome, as I like to call it, can arise in other, more serious, situations throughout our lives where we willfully ignore an increasingly dangerous situation, telling ourselves that we’ll do something about it “soon.”
Take putting on weight as an example. Nobody decides to get fat, yet many people will just keep putting on more and more weight without doing anything about it. They keep telling themselves, “I’m going to lose some weight soon.” Similarly, people don’t make a conscious decision to keep smoking until they get lung cancer. They tell themselves, “I can stop anytime, and I will, but another day, or week, or month won’t matter.” So they remain like the frog in the pot, slowly burning up their lungs.
The frog-in-boiling-water syndrome doesn’t apply just to self-destructive behaviors. It can trap people facing important career decisions. This is the case for people who stubbornly remain in a job or occupation that isn’t satisfying or isn’t offering sufficient opportunities. Like the simmering frog, they stay where they are, telling themselves that things might improve while knowing they won’t, instead of changing employers or acquiring new professional skills. They may complain about the situation to others, but they never do anything about it until they find themselves trapped in a miserable, dead-end job, or worse, they lose their job without any updated skills to go forward in a more successful direction.
People stuck in deteriorating or stagnating relationships also fall prey to the frog-in-boiling-water syndrome. They are unhappy, but they just go on being unhappy without deciding to do anything to improve the relationship or to get out of it. Just like the frog, they stay where they are as the water slowly reaches the boiling point.
This syndrome can also trap people who are not in a relationship but would like to be. They do not take any action to help themselves meet someone, and the years pass. Slowly they lose their “window of opportunity” to meet a person who might become a lifetime partner.
Some people even believe that the frog-in-boiling-water syndrome applies to the way a society can ignore critical decisions. For example, we may be gradually depleting our limited resources without making any conscious decisions about replenishing them or slowing the depletion. Instead, we’re letting the situation boil away until it becomes too late to preserve a sustainable environment. We may be creating global warming, yet we ignore or reject any solutions until our polar ice caps melt away and we find our coastlines submerged. Likewise, as the economic gap between the lower and upper classes increases, we do nothing to avert the inevitable ramifications from such a gap. We sit in the water of our own apathy and denial without taking action.
Don’t be like our friend the simmering frog. You are smarter than the frog. Step back from time to time and take stock of situations in your life such as your health, your relationships, your career or job, your business and your investments. Do this regularly. You might take stock on New Year’s Day, your birthday, or every three months. Set that alarm clock, and put it someplace where you’ll have to get up and go over to turn it off. Remind yourself that you are too smart to be complacent about a steadily deteriorating situation.
Moreover, if you think a friend is falling into the boiling-frog syndrome, share this story. It might save a life.
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2. Decision-Maker in Your Pocket
The pocket decision-maker works because it forces you to confront your true feelings about the two decision options.
Believe it or not, if you have a coin in your pocket, you possess a powerful decision-making device. Flipping a coin is a vastly underrated method for making decisions. It works well most of the time, but not for the reason most people would imagine. Let me explain.
Here are some common decisions, ranging from the trivial to the critical, that we can be indecisive about. Should I order the Pinot Noir or the Cabernet? Which dress should I buy? Should I leave my comptroller position at Allied Amalgamated to accept the offer from Federal Fruit and Vegetable? While you may have weighed and reweighed the two choices, you still can’t make up your mind. This technique works best when you have done all the analysis you can on a decision or when you don’t have enough information to make a more thorough decision. You are just at the end of your deliberation and are having a difficult time choosing one choice over the other.
It’s time to flip that coin. Heads for one choice, tails for the other. But are you going to let chance determine your decision? You don’t have to. The power of the decision-maker in your pocket is that you don’t have to accept the result, but you can learn from it.
Watch your reaction the next time you flip a coin. After it lands, you immediately have a sense of having “won” or “lost” the coin toss, even though you had been prepared to accept the results when you decided to flip the coin. Once you’ve flipped the coin, if you don’t like the result, simply throw it out like a dictator declaring null and void the result of his country’s first democratic election. Why? For the same reason as the dictator: You don’t like the result. Your dissatisfaction with the result of the coin toss points you straight to the decision you actually prefer.
The pocket decision-maker works so well because it forces you to confront your true feelings about the two decision options. The coin gives you an answer and directly confronts you with the decision it made for you. Immediately, you feel either comfortable with the outcome or uncomfortable with it. If you feel comfortable with the coin’s decision, then go with it. If you think the coin gave you the wrong decision, and you begin to argue with yourself for the other outcome, then go with that other outcome.
The decision-maker in your pocket works by summoning your intuitive powers in the service of good judgment. Toss a coin, and the decision alternatives are suddenly vivid. On several occasions, tossing a coin put me in touch with what my intuition knew was right for me all along, but because of my propensity for analysis and the pressures of time and circumstance, I wasn’t willing to accept my first choice without further “testing.”
If we examine this technique analytically (I can’t help myself), we see that the decision device (the coin) is programmed statistically to select either alternative with an equal probability. The only thing that I have found – and it is not a statistically valid sample – is that on many occasions people have a tendency to override the coin’s selection and go with the alternative not selected by the coin. I’m not sure why, but it may be that they are not ready to make the decision yet. They will, therefore, react by refusing to accept the outcome of the coin toss, or they may learn that they simply have a reverse bias to the coin’s selection.
If this happens to you, you might decide to keep flipping the coin until it comes up with the decision you like best. “I think I’ll do the best of three flips of the coin … or maybe I’ll do the best of five.” Or maybe you decide that the first flip, or three flips, were really just “practice.” These techniques work, too, because they are part of the learning process about how you really feel about a decision. Remember that the objective is to make the right decision, not to let the coin toss determine your life’s path.
Some people like flipping the coin in the presence of others, which forces them to verbalize their reaction to the result. Articulating their reaction seems to help them make a better decision. Other people find that this is best done using a “lucky” coin, one that will always give them the correct decision. This coin has been tested by other decision-making tosses that they agreed with. The point is that the coin toss facilitates a process of finding out how and why we feel the way we do about something important to us. Whatever works.
You can also use the coin flip decision-making technique when someone wants you to make a decision that they don’t want to make. By taking out a coin, flipping it and giving them your decision, you make the point that they could have easily made this decision without you. It may also show them that you are not necessarily able to make the decision any better than they could have.
If you don’t like my psychological explanation of why a coin can be a good decision aid, that’s fine: Go ahead and accept the result of the toss. The coin has spoken! If it turns out to be the right decision, you now have a “lucky” coin. If not, you can blame the “unlucky” coin and throw it away, or slip it into a rival’s loose change.
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3. At Knifepoint
When you are confronted by a threat that requires an immediate decision, you make an emotional decision, not a logical one.
In October 1988, I was on my way to Singapore and had a one-night layover at the airport in Los Angeles. Before I went to bed for the night, I decided to take a short walk down Century Boulevard between the Marriott and Hilton hotels. Soon after I started my walk, a car pulled up on the sidewalk behind me and a passenger jumped out and headed for some newspaper boxes in front of me. He then turned and came at me with something that looked like a machete.
Since it was the night before Halloween, at first I thought that he was joking. I soon learned differently. As I turned to run, the driver of the car pulled the car around to block my escape. Before I knew what was happening, I found myself lying on my back on the sidewalk with a knife pointed at my chest. The mugger demanded that I give him my wallet.
Now I had to make a decision at knifepoint: Give the mugger my wallet or not. In that situation, I learned you don’t really make a decision; you simply react. A reaction is not a logical response. It’s typically driven by a strong emotion such as fear, anger, or love.
In my case, my dominant emotion was anger. I was angry with my assailants, angry with myself for being so stupid as to go for a walk alone and angry with the people driving by. Century Boulevard is a major road, and dozens – perhaps hundreds – of cars passed me by. Nobody stopped or turned around to help.
In my anger, I responded by refusing to give the two men my wallet. Interestingly, this confused them. They didn’t seem to know what to do. I could see the confusion in their eyes. I did try to yell for help once, but one assailant started to push the knife into my chest, so I decided that was not such a good idea.
They kept screaming at me to give them my wallet and I kept screaming back, “No.” (Actually their language and mine were a lot more colorful.) Eventually, I gave them a few dollars from my pocket and they jumped into their car and sped away. I returned to the hotel and the hotel clerk called the police. The police told me that these guys had done this more than 20 times over the last three weeks in that vicinity (something I would have appreciated knowing before I went for my innocent walk) and they thought that my refusal to give them my wallet might slow them down a little. That wasn’t much comfort.
The lesson I learned from this incident is that when you are confronted by a threat like this that requires an immediate decision, you’ll likely make the decision based on emotion and not logic. In hindsight, it would have been better for me to give them my wallet. I could easily have been severely injured or killed by these two guys, who the police later told me were likely on drugs.
A few weeks later, a close friend of mine, who is a Tae Kwon Do master, taught me a move to use the next time I found myself in this position. He said I should twist my body around, reach into my back pocket, and give my wallet to the mugger!
The moral of this story is that all decisions are not made in deliberate states of consciousness. Once a strong emotion takes control, you will react to that emotion. The emotion, not logic, determines the decision. I reacted in anger (and perhaps stubbornness) by refusing to give in. Had I reacted in fear, which was probably a more appropriate emotion, I would have quickly handed over my wallet.
Emotional reactions can take control over rational decisions when you are confronted by fear or other powerful emotional states. Someone may say something that angers you and you respond in anger without thinking about and rationally deciding what to say or do. You can easily say something that you really didn’t mean. In most cases, if you had time to decide your reaction, you would decide to do something different.
Here’s my advice if you make an emotional decision that you later regret: Simply apologize. Admit you acted irrationally and stupidly out of emotion and try to reverse your decision. If you are fortunate, you will be able to reverse it.
Next time I’m mugged at knifepoint – “Here’s my wallet.”
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4. Yankee Gift Swap
Don’t let the endowment premium influence you to make non-rational decisions.
Have you ever participated in a Yankee Gift Swap? A Yankee Gift Swap usually happens at a party when the host asks everyone to bring a wrapped gift for a gift exchange. The gifts are placed on a table, and each participant is randomly assigned a number that determines when it will be his turn to select one of the gifts. After he unwraps the one he chooses, he shows it to everyone else. He can then choose to keep the gift or swap it for one of the gifts previously opened by another person at the party. The person who opened the first gift has a chance at the end of the selection process to swap his gift for any of the others.
I’ve participated in several of these swaps, and I’m always struck by the oddity that most people refuse to swap the gift they initially chose for one that they would have most likely preferred had all the gifts been displayed, unwrapped, on the table. It has made me wonder why people hold onto their first selection when better alternatives are available. Why is it that people tend to place a higher value on something that belongs to them than they would place on that same thing if they had to choose to purchase it?
Whatever the reason, people tend to be possessive about their possessions. In economic and psychological theory, this ownership bias is referred to as the endowment effect. It describes the difference between the maximum price we are willing to pay to acquire something and the minimum price we would be willing to sell it for.
Essentially, the value of something increases when it becomes part of a person’s “endowment.” Classical economic theory holds that the difference between the two prices should be zero, or nearly zero. The willingness to pay for something should be equal to the willingness to accept an offer to sell it. Yet in situations where the endowment effect applies, the minimum acceptable selling price predictably exceeds the maximum acceptable purchase price. This suggests that the fact of ownership immediately “endows” the possession with extra value.
The endowment effect can make some types of decisions less rational. For example, I tend to become attached to particular stocks in my investment portfolio. I resist selling them even when I think they’re overvalued. In fact, I resist selling them at a price that I think would be ridiculous to pay to buy them. I also tend to place higher performance requirements on stocks I’m considering buying than on the ones I already own. Being too tolerant of one’s “own” stocks and too critical and demanding of all the others opens the door to two types of losses: the losses from clinging irrationally to stocks that decline in value and the lost opportunities to acquire stronger or more promising stocks at favorable prices.
I’ve often had this experience with cars that I’ve owned over the years. Every time I’m ready to purchase a new car, I look into selling my existing car or trading it in to the dealer for a newer model. Inevitably, when I’m given an offer for my used car, it’s much less money than I hoped to get for it. If the shoe was on the other foot, however, and I was the one purchasing a used car, I would not pay as much as I expected to receive as the seller.
In this way, I have had firsthand experience with the influence of “ownership rights” on the determination of value. In legal disputes, the endowment effect creates a gap that is sometimes hard to bridge. The person who is asked to give up something that he thinks he has a legal right to will value it higher than will the person who wants to buy that right.
I’ve been to four NFL Super Bowls and was fortunate enough to get my tickets at list price. I absolutely would not have paid the going rate of $2,500 to $7,500 for a ticket similar to mine. Yet when someone asked if I would sell my ticket for list price, I wouldn’t even consider it. I valued the ticket I already owned much more than I would be willing to pay for it.
Some research suggests that the endowment effect has more influence on people who have a strong aversion to loss than those who do not. For the former, there is a premium for this emotional attachment, and this premium increases the longer they hold onto something. Maybe this accounts for why so many people, when moving into a smaller home, put highly valued items into storage rather than letting them go. The value is an emotional value, not an economic one, and the price is sometimes very high when you consider the cumulative cost of storage over time.
There is also a smaller endowment premium for goods that have become commodities. Stocks are commodity products to a stockbroker. The broker has learned to be dispassionate about the buying and selling of stocks – much more so than the amateur investor. The premium the broker puts on stocks diminishes as his market discipline and experience grow.
The endowment effect is routinely exploited in commerce. It’s part of the rationale behind money-back guarantees. Retailers know that customers are not inclined to return something once they own it, even if they wouldn’t buy it again at the same price. Automobile dealers apply this principle by letting potential customers take a test drive. Even the temporary ownership of a test drive can in some cases impart an endowment premium. Realtors have learned that people who put their homes on the market almost invariably expect a higher price than they would consider paying if they were prospective buyers.
The Yankee Gift Swap lesson and the endowment effect provide helpful insight into certain decision situations. Be aware of how this decision bias affects both your decisions and the decisions of others. It can be an important element of negotiations. Understand how various characteristics can create an endowment premium. Don’t let the endowment premium influence you to make non-rational decisions – like holding onto stocks you own for too long. I’ve paid a high premium for this mistake on too many occasions.
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Deadlines can be good masters, and even better servants.
A couple, who are friends of mine (at least until they read this), had great difficulty deciding on names for their three children. That’s not usually a problem of any particular consequence, but it is in Austria, where their three children were born. Under Austrian law, parents must name their newborn child by noon of the fifth day following birth. Otherwise, the child is assigned a generic first name, and the parents need to go through a long legal process to change it.
With all three of their children, my friends waited until the fifth day before deciding on a name and filing the necessary legal papers. In the case of one child, they filed the name a few minutes before the stroke of noon. Why did this happen? In each case, my friends knew almost nine months in advance that they were going to have a baby, and in two of the three cases they had known the baby’s sex for months. Had there been no legal deadline for making a decision, I wonder if my friends might still have three nameless children. On the other hand, it’s possible that the deadline contributed to my friends’ indecision. Perhaps their anxiety over the deadline distracted them from concentrating on the task at hand.
If decision deadlines cause you anxieties, or even lead to mental blocks, it’s time to change your relationship with them. Deadlines are not our opponents. They can be good masters, and even better servants. Either way, they’re on our side. They’re trying to help us to accomplish more and get more out of life. Meeting deadlines with some room to spare is a wonderful way to reduce stress. That is why I think deadlines are friends worth cultivating.
Decision deadlines are often imposed from the external world, as was the case for my Austrian friends. To get the most out of decision deadlines, however, try creating some for yourself. Self-imposed deadlines have served me well in making decisions over the years. Sometimes, I set a deadline for making an important decision or taking an important action, but then I give myself an extension. On rare occasions, I’ve given myself two or even three extensions, but I’ve actually come to enjoy meeting my own decision deadlines.
Let’s explore how decision deadlines can work for you. First, there’s a real sense of satisfaction in controlling externally- or internally-generated deadlines, rather than always letting them control you. Many of my best decisions over the years have been within self-imposed deadlines. These deadlines have helped me create a mental focus and sense of urgency about the decision at hand.
But what if you fail to meet your own deadline? This failure may indicate that your criteria for the decision are not feasible and that you may need to reassess them. My Austrian friends experienced this when trying to choose the name for their third child. Since the father is American, the mother is Austrian, and they lived in Germany, they wanted a name that sounded good in German/Austrian as well as English. As their externally-imposed deadline approached, they realized that accomplishing this task would be impossible for them so they changed their criteria, deciding instead to pick a name from a country that was somewhere between Austria and the United States. After finding Icelandic names difficult to pronounce, they decided on an Irish name even though neither of them is of Irish descent.
My point is this: If you face an external decision deadline, think of it as your ally. “Act by midnight and get a $100 round-trip flight to Paris!” Do you want to go to Paris? Don’t wait until 11:59 p.m. to decide, because your watch might be a minute slow. If you face a decision with no specific external deadline, set one for yourself.
The most important decisions of our lives are often of this deadline-specific type. Moreover, these decisions are perishable, which means that the day will come when it’s too late to make them. They will have been made for us, slowly but surely, by default.
“What career should I pursue?” “Where do I want to live?” “Do I want to raise a family?” These aren’t the kinds of decisions that you must make by noon on the fifth day from today. You won’t be assigned a career or a home or a name if you miss the filing deadline. And that’s the danger. These big, perishable decisions cry out for internal deadlines.
Where do you want to be in five years? You don’t have five years to decide. Set an internal deadline for yourself to make a decision and then begin to execute it.
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6. I’ve Been Framed
If you’re being framed, ignore the frame and focus on the picture.
I’ve been framed. You’ve been framed. We’ve all been framed. I’ve even successfully framed others. But why am I bragging about something that sounds reprehensible? What I’m talking about isn’t illegal, unethical, or immoral. It’s decision-framing.
What does decision-framing mean? Our decisions are framed by the choices offered to us and by how those choices are presented. There are several varieties of framing, and you can often direct someone’s decision by how you frame it. But the same can be done to you, so be on the lookout for decision-framing.
I learned long ago from selling management consulting projects that how you frame a product usually determines what the client ends up buying. For example, suppose a client is given a $500,000 project proposal. The client may well think that’s an awful lot of money, and balk at hiring you. So instead of presenting only one proposal, I found it was more effective to give the client three alternative project proposals at different price points – say, at $250,000, $500,000, and $750,000.
I can tell you from experience that the client will immediately focus on the value of the services each figure represents, rather than on the amount of money you’re charging. I can further tell you that the client will choose the $500,000 project and feel good about it.
Why am I so confident about this? I’ve learned that given three graduated options, people will gravitate toward the middle option, so it’s just a matter of placing the option you want the customer to choose between a cheaper and a costlier option. Happily, I can report that the middle option was almost always the best value for both my company and its clients.
Why do people gravitate toward the middle option? Perhaps they don’t want to seem cheap by selecting the lowest-cost alternative. Or perhaps they’re concerned that it won’t meet their needs. The highest-priced alternative is usually rejected as not being a good value. It may have some nice extras, but the customer reasons that those extras are probably not worth the additional money. Also, there’s usually nothing of substance in the top option that isn’t provided by the middle option.
It’s likely that we were all taught the merits of the “happy medium” as children. Goldilocks continually selected the middle alternative, finding it “just right.” (Never mind for now the story of The Three Little Pigs, which is arguably a lesson in the value of going with the premium-priced option.)
A rule of thumb for framing prices: If you use the highest-priced alternative as 100% of the value, then the lowest-priced alternative should contain 20% to 25% of the value for 33% of the price. The middle alternative should offer 80% of the value for 67% of the price. Again, the middle offers the best value because the alternatives were framed with that objective in mind. A carefully framed range of alternatives is a potent tool for inducing decisions in others. This type of framing doesn’t always steer the decision-maker toward the middle, but it usually induces a decision in the framer’s favor, one way or the other.
To test this theory, go to a major-chain hardware store and look at the rakes or shovels. You’re likely to see three models, labeled “Good,” “Better,” and “Best.” You were just looking, but suddenly you’re saying to yourself, “Hmm. Which one should I get? One of them has to be right for me.” You’ve been framed, albeit in a minor way. This “Three Bears” framing technique is used by purveyors of everything from management consulting services to vacation cruises to caskets. I’ve used it successfully to frame my children into making a decision – on their own – that I thought was best for them.
Another common form of framing is the discount game. People feel infinitely better about buying a piece of furniture that has been marked down by 25% to, let’s say, $600, than they do about buying the same item for a list price of $600. The discount shifts the decision-maker’s focus from the $600 cost to the $200 “savings.” (Stage magicians call this tactic “misdirection.”) This framing technique works so well that shoppers often think they’re saving money rather than spending it.
Even colleges and universities use this form of framing. They use inflated list prices to frame students, few of whom ever end up paying the list price for a college education. Here’s an example: A young man decides to attend College A because it has offered him a $10,000 scholarship – i.e., a $10,000 discount – from the list-price tuition of $30,000. College B, which is equal to College A in every educational respect, offered him only a $5,000 scholarship from its list-price tuition of $25,000. Although the net cost of attending both institutions is the same, the student thinks he is getting a better savings at College A.
Another framing technique takes advantage of emotional aversion. People tend to reject decision options that contain an explicitly negative consequence, but will select that same alternative if it is framed in positive terms. This principle has been proven through decision-making exercises such as the following, which you may have heard of. One hundred people are stranded and at imminent risk of dying. There are two possible plans for saving them. Under Plan A, half of the victims will live and half will die, with 100% certainty. Under Plan B, there is a 50% chance of saving them all, but a 50% chance of saving none. Leaving aside the moral agony intentionally built into this decision exercise, let’s focus on how the framing of the two options affects the study subjects’ decisions.
Cognitive experiments have repeatedly shown that most people will choose Plan A because of its positive framing (50 will live). The all-or-nothing alternative of Plan B is not so attractive. When Plan A is worded as “under Plan A, 50 will die,” however, then most people will select Plan B. The outcome in Plan A is the same either way, but how it is framed profoundly changes the likelihood that it will be selected.
There are two sides to the framing game. Either someone is trying to frame you, or you’re trying to frame someone. There are some offensive and defensive techniques that can help you get what you want from either situation. If you’re doing the framing, frame the decision in positive terms and present multiple options, even if you have only one option in mind. Hold out a few carrots, or positive benefits of the options – not just the one you want to sell.
If you’re the one being framed, ignore the frame and focus on the picture. Take the decision out of the context of the framed alternatives, and reframe it around your own objectives. If the framer is offering you A, B, or C, your best choice might well be D, or none of the above. This is a great way to manipulate the outcome so that it meets your objectives.
Last, consider alternative ways to frame a decision before you make it. Sometimes, the best decision is not to make one. When you’re being framed, make sure you realize it. For best results, when you’re framing someone else, make sure he or she is not aware of being framed. As long as you’re offering real value at reasonable prices for services rendered, you can rest assured that you’re playing fair.
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7. Experience Counts
While it is acceptable to make mistakes, it is unacceptable to make the same mistake twice.
A successful businessman was once asked for the reasons behind his success. “Good decisions,” he replied quickly. “And what was your secret to making good decisions?” asked the interviewer. The businessman thought about it briefly and then replied, “Experience.” The interviewer asked him to be more specific. “What kind of experience?”
“Experience from making bad decisions,” came the response.
The point is not to make bad decisions intentionally, but rather to learn from them. Bad decisions build an invaluable experience base that helps improve future decisions. Of course, good decisions also build an experience base, but we tend to learn more from our bad decisions, probably because they inflict costs – often very expensive and painful costs. But we can recoup these costs in the future by learning how to make better decisions.
After more than 30 years of business experience, I have a personal philosophy that, while it is acceptable to make mistakes, it is unacceptable to make the same mistake twice. Making the same mistake twice indicates a failure to apply your past experiences to your present decision-making. It’s paying twice for the same bad decision.
All too often, when people make bad decisions, they get angry or depressed instead of constructively channeling their energy into learning from the experience. When you make a bad decision, ask yourself not just what you did wrong, but how you will make a similar decision differently in the future.
Did you have the necessary information to make the decision before you made it?
Did you make the decision prematurely or too late?
Did you weigh the pros and cons of the decision appropriately?
Did you learn something about yourself – perhaps your strengths or weaknesses or biases – that you didn’t know previously?
These insights are exactly the kind of experience that the businessman in our story was talking about: the experience that helps us to do better the next time. Success is based on good decisions, which come from experience, which often comes from bad decisions. This is why we turn to our elders for decision advice: We instinctively understand the correlation between mistake-making and better decision-making.
Here’s a simple example of learning from bad decisions. My friend John bought a new car. His old one had 120,000 miles on it from his long commute back and forth to work every day, and it was becoming costly to repair. When he went car shopping, he started looking at pickup trucks. He thought a truck would be helpful for his weekend furniture-making hobby and that his friends would think that it was cool. Secretly, he had always wanted a truck and thought that maybe this was the right time in his life to have one. He thought he negotiated a good price and good financing, so he reasoned that the truck wasn’t too much more expensive than a car.
While John liked his new truck, he soon realized that he had made a bad decision. He commuted 100 miles to work every day, and was now spending $150 a week on gas, compared to $85 a week for his car. John was on a tight budget, and he could not afford the additional fuel cost of $3,380 per year. He was furious with himself for not considering the gas mileage difference when he made his decision, but he resolved to learn from his mistake. That meant not just considering the cost of gas and financing when he bought his next car or truck, but also generalizing his experience even further. He now realized that it was important to understand not just the immediate costs but the total costs over the long run when he made any future decisions that had a financial impact. This lesson was expensive, but John knew that he could look at the truck purchase as an “investment in learning.”
If you are observant, you can also learn from the bad decisions of others, which is an ideal way to gain experience. This way of learning provides pure profit at no expense to you. So to grow wiser, learn from your decisions – especially your bad decisions. Never pay twice for the same mistake. It’s a waste of experience.
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8. Of Two Minds
In “of two minds” decisions, we are confronted with a choice between two rights.
Have you ever been of two minds about a decision? You feel so strongly about two alternatives that you are unable to choose between them. Being of two minds on a decision is different from simply being unable to choose between two alternatives, however. When you are of two minds, you are enthusiastic about both alternatives. You can argue each alternative strongly and you really do want each of them.
Generally, when you are of two minds you favor one alternative because of a strongly-held belief and you favor the other because of a different belief that you hold just as strongly. The problem isn’t just choosing one; it’s rejecting one of your strongly held values or beliefs in order to make a decision in favor of another.
Here’s a relatively simple example of being of two minds. Sam and Patty were very close friends with another couple, who entered into an ugly divorce. Sam and Patty liked each of their friends equally and didn’t want to take sides in the breakup. They were of two minds on whom to support. They wanted to support each of them because they were both very close friends, but they didn’t want to turn against the other. As the divorce got uglier, they were increasingly pushed into making a decision on whom to support. When they discussed what to do, they realized that they were in agreement that they were of two minds.
Here’s another example. Tom was presented with a great opportunity to become CEO of a company, but to take the job, he’d have to relocate from Dallas to Chicago. He believed that this was the best possible career opportunity he could have and was enthusiastic about it. Yet he also believed in the importance of family, and he would need to uproot his family or leave them behind and commute home to see them. He was drawn to the opportunity and against hurting his family. He was of two minds on taking the job.
In Les Miserables, by Victor Hugo, the main character, Jean Valjean, served many years in prison for stealing a loaf of bread, and after his release he broke his parole and disappeared. Later, in disguise, he successfully became the owner of a factory and the mayor of a small town but was then confronted with a dilemma. He had promised a woman on her deathbed that he would find and raise her daughter, but at the same time, an innocent man was accused of being the fugitive. Jean Valjean would need to confess to keep the other man from going to prison but then would not be able to keep his promise to the dying woman. He struggled with his decision because he was of two minds. He believed that he had a duty to fulfill his promise to the woman on her deathbed, which he could not do if he were sent back to prison, but he also strongly believed that it was unfair for an innocent man to go to prison in his place.
Sometimes the only way to resolve such a situation is to find a creative alternative to selecting either one or the other. Jean Valjean confessed so the innocent man would go free, but then he escaped to fulfill his promise to the woman. He spent the rest of his life in hiding, giving up his factory and his position as mayor. He found a creative solution to accomplish both contradictory beliefs.
Public policy sometimes puts people in situations of two minds. For instance, some people were of two minds at the initiation of the war in Iraq. While they believed strongly that America should do everything to stop terrorism, they also believed that war should be avoided unless absolutely necessary.
Some people are of two minds about major social issues. For example, on the issue of abortion, they might be pro-life because of a strong belief about the right to human life, but pro-choice because of other deeply held principles such as the right of an individual to make decisions about her own life.
In decisions of two minds, we are not confronted with a choice between right and wrong. We are confronted with a choice between two rights.
So, what to do? The first thing you need to do is to recognize that you are of two minds about a decision. This self-awareness gives you a better sense of the decision you face and enables you to approach it in the most appropriate way. In some cases, including issues of social or public policy, you may not need to make a decision. You can just remain of two minds. But your thinking eventually may evolve toward one position over the other.
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