GOOD DECISION MAKING

At OLEKSIY NESTERENKO. STARTUP FINANCE we often have to remind our clients that, unfortunately, there is no panacea for poor decision-making and no Excel plug-in will help them in all settings. The world is a complicated place. Fortunately, being aware of the common decision traps is the most important protection one can have. However, protecting yourself will also require a bit of work. You need to be constantly aware of the traps into which you might fall, and will want to exert a bit of cognitive effort. For instance, often you will need to assess your uncertainties and always be aware that your mind will tend to make things appear much more certain than they are in reality.

OLEKSIY NESTERENKO. STARTUP FINANCE outlines the key tools that will help you in your decision-making.

Decision Process vs. Decision Outcome

Good decisions do not always lead to good outcomes, and good outcomes do not necessarily imply that a good process is used. Chance always plays a big role, so one cannot confuse a good decision with a good outcome. The best hope for a good decision outcome is a good decision process (focus on what you can control!).

Intuition

Do not ignore intuition, but be aware of its limitations and try to validate it by systematic analysis, additional information, and advice. Be systematic: What are the odds? What is at stake?

Decision Objectives

Remember that we do not think enough to what we want and why. By doing so, we anchor on the available alternatives and miss many opportunities. Do not decide among a set of given alternatives. Instead, identify your fundamental decision objective, and then generate alternatives that are consistent with it. Only then should you decide among alternatives. Furthermore, always use the “Why Is It Important?”test to identify your ultimate objectives: Why is that objective important? Is it important in and of itself or only as a means to some other purpose?

Maximizing vs. Satisficing

Conventional view says that maximizing attempting to find the best decision alternative should be chosen over satisficing (finding a decision alternative that is “good enough”). Yet, it is not always the case. Remember that the perfect solution seldom exists, and as Voltaire said, “Better is the enemy of good.”Establish aspiration levels -- values of an attribute that you find acceptable -- and then take the first alternative you encounter whose attribute values exceed your aspiration levels.

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