Imagine that you’re sitting at a poker table.
You’re dealt cards the same way as everyone else, and you’re playing by the same rules. The thing is, you’ve got an advantage: You can see everyone else’s cards, and they can’t see yours. How many hands would you play wrong?
And so the rule for decision making in life and business goes like this: The person with the fewest blind spots wins.
This means that the first and biggest leverage point any of us have in improving our organizations and getting massively better results is improving our ability to make confident and correct decisions, all the time.
Through better initial decisions, we avoid problems.
Doing things “right from the beginning” means understanding exactly what good decision making looks like and developing deeply ingrained habits that lead to success. This doesn’t happen on its own, but we can help you get there.
The way to make better decisions is through intelligent preparation and understanding how the world works.
Think about the state of your life, your career, your business, your major relationships — anything consequential to you.
How many truly important decisions have you already had to make, and with the benefit of hindsight, how well did you make them? How many decisions did you make today? How many of them were great?
The types of decisions we face vary considerably. Most of those decisions, like where to grab a sandwich today, are unimportant. The consequences usually don’t matter. Yet some decisions are critical — they change our lives. We must make very personal choices about whom to trust, how to live, what to buy, and whom to marry.
A few major decisions determine a good portion of how our lives, careers, and relationships turn out. The outcomes of these decision points will reverberate for years, yet not many of us can say that we’re fully equipped to make the most of those choices.
Even small decisions can matter as they accumulate. Consider where to eat, one of a number of seemingly small and insignificant decisions we make daily. Over a small period of time, say a week or even a month, these decisions affect us little. However, as the months turn into years and compounding kicks in, we develop a pot-belly as the true consequences of a long series of poor decisions reverberate. That’s why many of the smartest people I know try to make as few decisions as possible. They go to the same restaurants every day. They eat the same meals. They wear the same clothes. They reduce the trivial choices in their lives so they can focus on making their essential choices well. They know that they are the sum of their decisions — and they want to make the right decisions at every juncture.
Within our jobs, especially in a knowledge economy, further decisions are required: we decide whether to take a promotion or not, which projects to invest in, whether to acquire a company or lay people off. Decisions shape our lives. They affect others. They write our legacies and ripple through history.
The problem is that even really smart people are awful at making decisions and aligning with how the world actually works. And this has always been so. Think about decisions like these:
These were catastrophic decisions made by people who were, in some sense, professional decision-makers. They had impeccable credentials and judgment, and yet they made poor decisions due to poor judgment or too-limited mental representations of the world.
There are lots of reasons we make poor decisions. Let’s take a look at three of the biggest ones.
1. We’re not as rational as we think. I like to think that I’m rational and capable of interpreting information in a non-biased way. Only I’m not. At least not always. We’re all irrational to some extent. Sometimes we fool ourselves.
2. We’re not prepared. We don’t understand the invariant ideas — the mental models — of how the world really works. Mental models help us make sense of what we see happening and give us different lenses through which to view the problems we need to solve.
3. We don’t gather the information we need. We make decisions based on our “guts” in complex domains that require serious work to gather all the needed data. We land on easy solutions that sound about right but aren’t.
We live in a society that demands specialization. Being the best means being an expert in something. Letters after your name and decades in the trenches of experience are required before you can claim to know anything. In one sense there is nothing wrong with this — specialized knowledge is required to solve problems and advance our global potential. But a byproduct of this niche focus is that it narrows the ways we think we can apply our knowledge without being called a fraud.
So we think physicists can’t teach us about love; mathematicians can’t instruct us on how to run a business; poets don’t know squat about “my life.” And bloggers can’t contribute to philosophy.
I don’t believe this is true.
Knowledge is hard to come by.
It takes work and commitment, and I think we owe it to ourselves to take it out of the box it comes in and experiment with it. We should blow past conformity and apply all the knowledge at our disposal to the problems and challenges we face every day.
Think about it. Over time you’ve picked up a lot of fundamentals about how the world works. You may have read a book about the Manhattan Project and the building of the nuclear bomb that was launched at Hiroshima. This story conveys the awesome power of self-sustaining nuclear reactions. Have you ever thought about applying those ideas to your life? You should.
When was the last time you thought about how you decide?
If you’re like most people, you’ve never been explicitly taught how to make effective decisions. You make decisions like a golfer who never took any lessons: miserable with the state of your game and yet not seeking to learn a better swing, and instead hoping for the best every time you lift the club. Hoping that this time your choice will finally work out.
In the early 1980s, Charlie Munger and his partner Warren Buffett realized that a Savings & Loan operation they owned, as with the rest of the industry, was doomed to fail miserably due to forces outside of their control. At a time when almost none of their peers were taking action, they changed course dramatically, massively reducing the effect of the bank’s failure on the rest of their business holdings. These two men knew they had to act much differently than their peers.
It worked: The S&L industry collapsed, yet Munger and Buffett escaped with barely a scratch. They saved themselves a great deal of stress and financial pain by applying a uniquely effective system of organized common sense. In hindsight, it seems like an obvious good decision; at the time, it seemed odd and unusual.
The lesson for us is that the people making consistently good decisions take advantage of how the world works. That’s wisdom.
Real knowledge of the art of decision making, which remains true across time and circumstances, eras and epochs, can help increase the odds that we get what we want and reduce costly mistakes.
While everyone else is guessing, falling into old patterns, blindly following cognitive biases, we can be clear-headed and laser focused.
That’s what Farnam Street is all about.
Here are some examples of applying — or failing to apply — knowledge about how the world really works.
This website is about understanding and applying these time-tested mental models. Knowing how the world works means that you can stop fighting reality — and yourself along with it.
Combining intelligent preparation — learning about the big time-tested ideas from multiple disciplines — with general thinking frameworks will dramatically improve your decision-making skills. These thinking frameworks help you look at problems through different lenses. We’ve compiled a list of ten of them, but here are the top three:
We compiled a list of 39 of the most helpful books on decision making. Here are some of my go-to recommendations:
Here’s the big list of every article we’ve written on decision making.