I liked Shane Parrish’s notion of ‘chalkboard decisions‘. These, says Shane, are the kind of decisions that ‘work well in the classroom but not in real life’. The maths may be right but you can still make the wrong decision if you follow the maths but don’t use judgement as well.
The simple example that Shane gives is paying off your mortgage. Assuming you have some spare cash available the maths would say that it makes more sense to invest in a stock market that can offer 8% return rather than a mortgage that has a 2% interest rate.
Yet this doesn’t account for any number of unforeseen factors which may impact the rate of return (stock market crashes, interest rate rises, pandemics and so on). So the decision should also factor in the probability of significant change in context or situation. The maths may indicate the optimal immediate decision but this is rarely the best long-term decision. Shane equates this with many business decisions:
‘The math says lever up, reduce inventory, pay your employees as little as possible, charge your customers as much as possible, and take advantage of the weakness of your suppliers…In the short term, these decisions almost always seem optimal. In the long term, they almost always fail.’
This reminded me of Annie Duke’s thoughts about making decisions with imperfect information, and how a real blindspot for us is our tendency to equate the quality of our decisions with the quality of the outcome (a good result means you’ve made a good decision, a bad result the opposite). Yet a good quality decision can still turn out badly, perhaps due to circumstances beyond your control. So a much better way of assessing the quality of decisions is the process that we have followed.
It strikes me that, in the rush to be ‘data-driven’, lots of teams are at risk of using data to make decisions that may look to be right in the here and now, but actually miss the nuance and judgement that is needed to make a good decision for the long term.
As Shane notes: ‘Our ability to predict the future is never as certain in the real world as in the classroom’.
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Photo by Tim Mossholder on Unsplash
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