1. Human Behaviour

How To Make Good Decisions | 3 Steps

Last Updated on October 5, 2020

How Can I Always Make Great Decisions?

3 Steps In Decision Making Process

Every day of our lives we are faced with many decisions. Most are unimportant. Some will be life-changing. But are you, aware of the “decision not to decide”?

We will discuss this and other steps that will guide you through on how to make good decisions.

Step 1. You Don’t Always Have to Decide

Smart parents with little kid throwing a tantrum screaming for running shoes with flashing lights and a buzzer will often distract the kid with a choice: “Would you rather have this red lollipop or the green lollipop?”

More often than not, the kid chooses one or the other, not realizing that the object of his desire was not included in his choices. And thus, most of us as adults, feel that if given a choice, we must always make a decision. 

But it is not true. If there is a fork in the road, yes, you can take the well-beaten path or the road less traveled by. But you can also do nothing, to wait and see. Or you can go back.

Step 2. Consider All Your Options

My point is that whenever you are confronted with a decision, the first thing to do is to carefully consider ALL your options. Sometimes you may need an outsider or a consultant to help you discover options you didn’t know you had.

In Harvard, Wharton, or any top business school, to get an MBA you will probably need to take and pass a course in strategic decision-making. 

There are long textbooks on the subject. Why? Because professors who write these texts can’t sell a book of a few paragraphs.

But in my opinion, the essence of good decision making can be outlined in a brief answer.

Step 3. Break It Down To Show the Options

making good decision

After writing down the decision you think you have to make, with all options, you take a sheet of paper and make columns with pluses and minuses.

In other words, you list and write down the good points and bad points of each potential decision. Then you put a weight (say between 1 and 10) for each item on the list. You add up the plusses and minuses, and you will normally see the logical decision in front of you.

There are many times that this process won’t give you a good, rational decision because something in your past prevents you from properly seeing or weighting the decision in front of you. Let’s look at the most common of these.

Historical cost. You paid $50 a share for some stock or any price for anything. It is now $40. You decide that you will never sell it at less than you paid. Is this a good decision? Emphatically NO!

The market does not care what you paid or spent. Here’s the best way to decide whether to sell or not at the market price.

If I sold my stock at $40 and had the $40 in my pocket, would I buy that stock back immediately, and hold it till it goes to $50, or would I get something else? The answer to that question makes a good decision.

There are many variations on this theme. 

The gambler has stood by as “red” came up on the roulette wheel 27 times. He decides to bet big on the black. Wrong move. The odds are still close to 50/50 regardless of how many times there has been a red instead of black, or heads instead of tails.

What happened to you in the past is not necessarily a guide to what will happen in the future.

Health? When I was younger, I always wanted to try everything that might be thrilling. But I carefully weighed the risks. I would not try a recreational drug if one hit was dangerous or addictive. As a result, I tried everything in a limited way so that I’d get the experience. 

In sports, I played football and soccer for fun and camaraderie. There was a slight risk of injury, but death or permanent injury risk was low.

Based on my plus and minus columns, I decided in favor of pilot lessons, but not skydiving.

Wealth? When younger, I had no money, but plenty of time. It was necessary to decide what to do with my life. 

I decided that financial independence was an excellent short-term goal. 

Why? Because with financial independence you can do what you want, not work in a job you hate, living in a city you don’t like, and with a partner and/or family you don’t enjoy. 

Thus, I read books and news articles about extremely rich people. I discovered that almost all of them learned how to get rich and handle themselves. How? By working for a successful role model after graduating from a prestigious business school.

I call this process discovering the options available. The logical decision was to offer my services as a flunky (they called it a “squire” in the Middle Ages) in return for a chance to learn a trade. I did exactly that. 

A few years later, I was ready to go out into the world on my own and repeat (with variations) what I learned to do from my “master”.

As a result of the good training I made fewer mistakes, and in my twenties was earning a million dollars a month when (unlike now) a million was serious money.