Reversible and Irreversible Decisions
Being 100% sure that you are making the right decision in any given moment is a waste of time.
I mean, when can we be absolutely certain about anything in life? The answer is never. Randomness is something that we will almost definitely miscalculate when we make any decision. So, what’s the point of creating a fake existence of surety? The world will keep spinning and throwing decisions our way.
Everyday we encounter decisions. These decisions come in all shapes and sizes. They might be as light as which cereal to have in the morning or serious as which school to put our child in.
Given that we can’t predict most outcomes with complete certainty, the question shifts from “Am I making the right decision?” to “How quickly should I decide?” Whether we realise it or not, this is the underlying question that truly guides us whenever we’re faced with a choice.
Type 1 or Type 2?
“The art of decision making includes the art of questioning.”– Pearl Zhu
Jeff Bezos, founder of Amazon, one of the biggest companies in the world knows a thing or two about making decisions.
He considers decisions like doors. When faced with a decision, he asks himself if the decision is a one-way door or a two way door.
A one-way door decision, is so consequential that you can’t come back. It’s irreversible. Whereas, with a two-way door, you can walk through, have a look around and decide whether you’d like to stay or walk right back out.
Here’s how he put it in a shareholder letter:
Some decisions are nearly irreversible — one-way doors — and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that — they are changeable, reversible — they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.
As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We’ll have to figure out how to fight that tendency.
Yes, Bezos is talking about running the trillion-dollar market cap business — but doesn’t the same sentiment hold true for our own lives too?
As Abraham Maslow’s famous saying goes: If the only tool you have is a hammer, you tend to see every problem as a nail. The same is true for decisions. Not all decisions should be treated the same way. There are type 1s which are reversible, so can be made fast and there are type 2s which are irreversible, so should be made slower.
Decisions fall on a spectrum between reversible and irreversible. The easiest way to decipher where your decision sits on this spectrum is by asking how much it would cost to undo. The higher the cost, the more irreversible the decision is. The lower the cost, the more reversible the decision is.
Make sure you think about ‘cost’ not purely in financial terms. Poorly made decisions which are irreversible may cost you more than money. Think about your time and energy too. Let me use a couple examples to illustrate this point. (quiz — script).
It’s the summer, you’re out shopping and see a t-shirt that someone else is about trying on in the store. It looks really good on them but you’re not quite sure it’s your style. The store has a 28-day refund policy so you go ahead and buy the t shirt.
You own a 1 bedroom apartment near your city and after a spike in interest rates your mortgage is now squeezing you financially. You are considering selling your place.
Which of the two is reversible and which is irreversible?
The first is reversible, because if the t-shirt doesn’t suit you after all you can take it back to the store for a refund. Whereas with the second scenario, once you sell your apartment, that decision can’t be easily undone.
Learning the difference will change how you make decisions. When decisions are reversible, don’t drag your feet in making a decision. If you think of a graph for reversible decisions, with time taken to make a choice on the X axis and utility of information on the Y axis. The plot would show diminishing returns. The cost we pay in time to acquire that marginal bit of information often just isn’t worth it.
In his book “Blink,” Malcolm Gladwell proposed that more information does not mean better outcomes. He gives an example about a museum that’s considering purchasing an ancient Greek statue. It costs millions and millions of dollars. But the museum is unsure whether or not the piece is authentic, so several “experts” are called in to run tests on the stone that it’s made from. After various tests are run to analyze when it was made and where the stone originated, the museum decides to buy the piece.
Some time passes and an art historian quite knowledgeable about the era the statue supposedly came from visits the museum. As he lays his eyes on the piece, he immediately says that something is off and expresses his hope they didn’t actually buy it. After further investigation it turns out he’s right, the piece is a fraud, and it was a giant waste of money.
What this means for us is that when you’re faced with a tough decision, where there’s no obvious answer, there are actually few factors that matter. What we think we are doing by overthinking is buying us time to obtain extra data to help us make an accurate decision, when in reality it might do the opposite.
Bezos considers 70% certainty as the cut-off point where it is appropriate to make a decision. That means acting once we have 70% of the required information, instead of waiting for 80 or 90%. 70% certainty and then quickly course-correcting is much more effective than waiting for 90% certainty.
But if we think about our imaginary graph that we mentioned before. Time might help irreversible decisions, given their gravity. The cost to get additional information for type 2 decisions, may be worth the time and effort because of the one-way path they present. Bezos, often called himself the Chief Slowdown Officer because of this.
The future is unpredictable and what extra time won’t do in any case is remove uncertainty completely. More often than not by playing the waiting game all we do is end up looking a gift horse in the mouth and foregoing the opportunity that is staring us in the face. So where appropriate, just pull the trigger.
Back to Momentum
“A good plan, violently executed now, is better than a perfect plan next week”— George S. Patton
The ability to make decisions fast is a competitive advantage. I spoke about this in a previous episode titled “You Need Momentum Not Motivation.” Maintaining velocity en route to your right goals is what will give you the stamina to continue. If you are constantly stall on making decisions, it shows an inability to take responsibility for the consequences that may come.
Remember Bezos mentioned this in his shareholder letter “As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 methods.” That’s one of the benefits of startups, they can decide in the morning and implement in the afternoon — and so can you.
I used this line of thinking to quit my job making a good salary in the city and join a startup. Whilst some people disregarded my decision as being risky, I didn’t. I knew that if the company failed, I would’ve gained valuable skills and could return back to my old job. The risk wasn’t nearly as high as others perceived because it was a two-way door.
The beauty of reversible decisions is that you get to throw a little randomness into your life at little risk, gather valuable insights and change. Irreversible decisions are where you can’t do such.
So make your reversible decisions quickly and decide on your irreversibles as late as you can.
