In a recent interview, Bill Gates described Elon Musk’s decision-making style as “seat-of-the-pants” rather than based on “an objective set of measures done by a broad group of people.”
The most prominent example of what Gates may have been talking about, which may come to mind, is Musk’s decision to buy Twitter. Some have described his decision as a “horrible investment” and his subsequent decision to lay off a large percentage of Twitter’s workforce as a “humongous mistake.” Because Twitter is no longer a publicly traded company and is not answerable to Wall Street, Musk has not had to publicly explain whether he thinks his decision was a mistake or not.
To be sure, this is only one example. In fact, many news stories and major developments revolve around the concept of decision-making, whether in business (Should this company acquire that other company?), politics (Should this policy be supported or opposed?), or sports (Should this team have drafted that player?). Much of the drama of human affairs is centered on high-stakes decision-making.
Since decisions are a central part of life, it is worth reflecting on an important question: How is it possible to determine whether you (or someone else) made a good decision? To answer that, we need to reflect on what makes a decision a “good” one.
Why do we make decisions about anything at all? In part, we decide because we want to exert control over our lives in accordance with our goals and values, but we must do so in a state of uncertainty – we do not have access to knowledge of the future. If we could see into the future, we would automatically know what we should do, and decision-making would be trivial. If we knew that tomorrow it was going to rain, we would bring an umbrella. If we could know for certainty what products would be successful, we would invest all of our research and marketing budgets into those projects. But because we can’t peer into the future, we must decide between courses of action with uncertain outcomes. Therefore, it might be tempting to think that if the result of your decision ends up going well, then you have made a good decision, and if things end up going horribly, then your decision was a bad one.
Good decision vs. good outcome
However, we need to make an important distinction between a good decision and a good outcome. According to decision-making expert Ron Howard, “A good decision is a logical decision – one based on the uncertainties, values, and preferences of the decision-maker. A good outcome is one that is profitable or otherwise highly valued. In short, a good outcome is one that we wish would happen.”
Imagine that you are a real estate investor, considering between a dozen potential properties that are on the market, but your budget allows you to only purchase one. If the property that you buy ends up making you a large profit, that would be a good outcome, but if you selected the property by throwing a dart at a map, that would be a bad decision. Because of the element of luck, good decisions can sometimes result in bad outcomes, and vice versa. But in general, the best way to achieve good outcomes is to make good decisions, which means following a logical, reasoned, data-driven process.
Six elements of decisions
In fact, we can assess exactly how good our decision-making process is Howard defined the concept of decision quality, comprised of six elements that go into a decision:
- Appropriate Frame –What is the decision about? Sometimes by changing the frame, we can make much better decisions.
- Creative Alternatives –What are the different courses of action? Oftentimes, thinking creatively about alternatives can uncover courses of action that have been overlooked.
- Reliable Information –What data do I need to support the decision? As they say, “garbage in, garbage out”.
- Clear Preferences –What would I prefer to happen? It is important to understand your preferences and those of other important stakeholders.
- Correct Logic –How can I arrive at a conclusion based on what I know about the frame, alternatives, information, and preferences? Sometimes modeling the decision using analytical tools, such as those from the field of decision analysis, can uncover valuable insights.
- Commitment to Action –Am I really committed to following through with this course of action? Decisions require action and resource allocation.
If all of the above decision elements, representing the process and inputs, are strong, then the decision is a quality decision. If some of the elements are poor, then your decision is not as good. In other words, you know that you have made a good decision if the six elements of decision quality are as good as they can reasonably be.
To return to Elon Musk’s purchase of Twitter, was it a good decision? Unfortunately, it is hard to say because we don’t know too much about the decision quality elements that went into making that decision. What was his decision frame? Did he use the correct logic? We may never know since decisions exist in the mind of the decision-maker.
As for the rest of us, who will probably never get the opportunity to pay $44 billion for a company, decision-making skills are still important. In particular, if you practice the elements of decision quality, you will build your skills as a decision-maker and will be more likely to achieve good outcomes, whether in business or in life.
