Predictably Irrational and Better Decision-Making
The relatively new book by Dan Ariely called Predictably Irrational looks like a pretty good read. I have always had a fascination and curiosity with trying to understand how we really think and make decisions. There have been so many times in my own life that I (or observing others) that I have seen strange decision-making. The kind of thing where you scratch your head wondering how someone could reach such an utterly stupid decision. Sometimes it really is because someone is just dumb but that's more rare than you would think. More often, it is a circumstantial fact that you may not be aware of which drove the decision. Other times, it could be one of the traps described in Ariely's book.
Those traps are what interest me in seeing if decisions can really be made better if you become self-aware of your own natural human tendencies to be susceptible to them. Herding is a decent example. From the book outline:
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Herding: Assuming that something is good (or bad) on the basis of other people's previous behavior
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Example: People wanting to go to a restaurant where people are waiting outside
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Example: Going back to Starbucks because you recall enjoying yourself on your previous visit
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At that point, you no longer ask yourself if you'd be better off with the cheaper coffee at Dunkin Donuts, or with the free coffee at your office
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I like this one because it is something we can all identify with. In the first example, we somehow assume that a restaurant with a line outside "must be good." Who can blame us? I mean, clearly if that many people are waiting and the line extends outside, that restaurant must be good, right? Therein lies the predictably irrational behavior because while 8 times out of 10 that may be true, you're wrong 20% of the time. The area the restaurant is in might just be overly busy (nearby sports event at a stadium, maybe?). Perhaps the restaurant is physically just small and it is a Friday or Saturday evening (even if it is not a great restaurant, they're bound to fill up some tables if they don't have many to fill?). Maybe the restaurant actually has slow service (and bad food)? All of these are explanations of why just having a line outside the restaurant doesn't necessarily make it a great restaurant. Therein lies the question: Does noticing our tendency to make these assumptions help us make better decisions? I mean, if you know that the line outside the restaurant is not because it is good but because it is small (and not so good) make you a better decision-maker? In this case, a better decision-maker is one who is able to choose/find good restaurants. Obviously, the solution here is to locate additional facts about the restaurant before going there, in addition to the fact that it may (or may not) have long lines waiting to get in.
Predictably Irrational paints many examples of these situations and I reflect on my own personal experience when reading about these various "irrational" behaviors because I have been guilty of them myself. I just wonder if becoming more self-aware of them ahead of time would make me a markedly better decision-maker.
The unexpected in life
It's true that many decisions made now can be changed later but often recognizing which decisions are changeable later are sometimes more ambiguous than you would otherwise know. To complicate matters, "what-if" scenarios about choices you didn't make and predicting their outcomes makes it all the more interesting. "What if I hadn't taken that job and took a different one?" "What if I had applied to that other university?" "What if I had pushed harder for that promotion?" "What if I had made that sales call?" "Wouldn't it be more fun to have taken that time off?"
Quite honestly, I believe that woven between the fabric of decisions is a slight element of luck, perhaps even fate (if you believe it). A small pence of luck does indeed have a role in life as in nature. The luck is really masked by the things you don't know that you don't know. This area of knowledge is the truly unexpected; the things we absolutely know nothing about and can't even describe to others that we don't know anything about them. The absolutely undiscovered area of reality; things that, hopefully, scientists are moving towards discovering bit by bit. Of course, the game be as it may is such that the more we know, the more we learn that we don't know. Luck, whether prescribed by some higher spirit or fate or not is the area of the unknown.
Walking into an area unknown (but perhaps opportunistic) is what makes things happen. Life is about bets and making choices that sometimes you don't always have all the facts for up-front. Risk really is the reality, if not the most interesting part of life. Risk is about trying to discern between the choices that affect what happens later and cannot be changed against choices that can be changed. Ideally, all decisions are somehow reversible or fixable later on but the reality is such that they are not.
The funny thing about that is that opportunity is what creates "reversible" decisions. Counter-intuitive, maybe, but opportunity and finding new opportunities is what allows someone to escape (or "fix") a bad decision or situation. In contract terms, it is all about your BATNA (Best alternative to a negotiated agreement) [Thanks Jeff], which basically means your substitutes or alternatives if something were to not work out as you thought. Just as if you were stuck in a house fire, having more doors in the room that hopefully aren't up in flames yet is a set of opportunities that might just save your life.
The lesson (at least for me) is to try and make decisions that create more opportunity. Straight-forward, you say? Not quite. In fact, making choices that create more opportunity often involve the risk factor that I mentioned. What I mean is that sometimes creating more opportunity means closing doors to existing opportunities and, yes you guessed it, making a bet that more opportunities will emerge down the road even if you forgo existing opportunities now. Economists would call that opportunity-cost but in fact, it is part of our everyday life, and should be embraced as first-class tool for doing the best things for ourselves. Think about the new opportunities you can make for yourself, not just the immediate or short-term value, the next time you make any decision.
You don't need much to live
Fixing flaws in yourself (whatever they may be) takes a lot of time and discipline. It's really tough to disambiguate them sometimes, not to mention just difficult to break habits. Difficult, sure, but definitely something worth doing. The interesting thing about fixing some of these flaws over time has been seeing new flaws emerge. We all change and much as we try to improve ourselves, we also introduce new flaws in ourselves. It's a by-product that perfection isn't possible.
That's actually the way of the world, not just the way each of us individually behaves. Fix one thing, and something else breaks or another problem emerges. Our dissatisfaction with practically everything is a function our being prisoner to relativism. Give a man a million dollars and he'll want more; Give a man ten dollars and he'll want more. Give a man pain and he'll want less. Give a man a lot of pain and he'll want a lot less.
The power to overcome relativism is adaptation and flexibility. In other words, live below your means. Don't buy the new car, don't buy the new house, don't go on that expensive vacation. If you are trying to save your money, the fact is you must sacrifice something. You really have to put off some of those expensive things in order to accomplish whatever it is you set out to do.
Living below your means is the same as living with an attitude of "you don't need much to live." I can't stand how often I hear about people fretting that they "need" a new car or "need" that new house or whatever the hell they damn well "need." 95% of the time, they don't need it at all, they just want it badly. Restraining yourself from wants when you should focus on your needs probably accounts for the lion's share of any successful person's life. Successful people focus on their needs and their wants become fulfilled as a by-product. People that focus only on their wants end up just treading water and often never reach neither their wants or their needs.
It really requires basic financial discipline and self-restraint to keep one's self from being overwhelmed with debt and unnecessary things. By ignoring a lot of those wants, your emotional stress will find itself a new home in some other schmuck.
Preparation
It's certainly possible to train one's self in these areas, to become better at them. Nevertheless, make no mistake: Future success is all about increasing amounts of chance opportunities and the more one can do that, the more one is exposed to higher level opportunities, be they based on challenge, financial reward, intellectual reward, or just fun.
This post, though, is about preparation. Most people, my family included, are somewhat in awe or surprised about my choice to start my own business. Not that anyone think it's bad (in fact everyone thinks exactly the opposite) but that a lot of folks' reactions comes off with caution and it isn't because they're concerned about me. No, I think they're concerned about themselves because most people love the idea of "self-employment" and "being your own boss" with such an affliction that they doubt their own abilities internally when they hear that someone else is running their own business. Of course, when they hear that, they assume that person is "self-employed" and "being their own boss."
The self-doubt people have about their own abilities is often exaggerated but then again, if you're seriously lacking one of the above areas, you're going to find trouble starting a business. Starting a business is straight-forward but certainly not easy to make successful.
As far as preparation is concerned, starting your own business should include making substantial amounts of savings before you do so. You should be prepared to live for 12-24 months with ZERO pay. In fact, 6-12 months is my own personal minimum even if you work a professional career. To add to that, I'd say your savings should never decrease below 6 months, but grow indefinitely to the point where you could not work for years and years and years straight and still maintain a suitable lifestyle. Most people may think this is insane: "How could I possibly save when I live paycheck to paycheck?" "Why would I expect to be able to get to that level when I only save $50 a week?"
The answer to saving is a combination of living below your means, saving, and investing your savings. Most people I've run into lack all of those traits and thus can never live long without a job. Fortunately for them, at least some semblance of a retirement plan is a way to stay disciplined about the prospect of one day living without a regular income.
The fact is, in all these situations, whether it be starting a business, living well without a regular income, or retirement, preparation always starts right now.
On Mentors
It's not that you are not intelligent in your own right to be successful and do great things but mentors and teachers create a network and a balance that requires fairly little investment in exchange for great returns. A great mentor and teacher will challenge your views (even your aspirations) and you must find deep in yourself a way to understand what it is you're doing in life. For many, this is a most challenging task. After all, a mentor or teacher should care about you and will challenge you, much like a caring and loving parent. This doesn't mean that success is only rooted in "complex" things but certainly, doing rewarding things (especially financially) do require some talent and skill. A great mentor and teacher, especially one from the business world, will be able to help you understand the details.
What if you don't have a mentor now but want one? Well, you can't really go to Wal-Mart and buy one on the cheap so you're left to network on your own. Find people you share a similar worldview with. Who knows? Maybe they blog? If you email them and speak intelligently about the issues, perhaps you'll find someone who is responsive and willing to talk to you, if not help you outright. You'll never know until you do, though, so you'll need to try. The worst thing you can do is just sit there and fear rejection because frankly, rejection will happen, all the time, no matter awesome you are.
One of the keys to success involves finding a great mentor. If you don't have one (or two or three) and want to be successful, you need to find one, right now.
A quick posterous post to the world
Sean Eby
