Don’t judge a decision by outcome alone

If a friend came to you with an idea for a completely new type of website and said he was dropping out of a very prestigious college to chase his dream, what would you say?

Would you support him? Would you invest in him? Would you tell him he was crazy and that he should stick with college and do this as a hobby?

Now imagine we can jump ahead 10 years. Was his decision the right one? Did he make a sound decision?

Most people need more information. We need to know how it all worked out for him, naturally.

One thing that I do often is separate out the decision from the result. The reason is simple. There are a multitude of factors that will determine success or failure. If we make sound decisions regularly we will fare better in life and achieve more success than if we consistently make poor decisions.

Poor decisions hurt your chances for success but they don’t guarantee it. Plenty of people spend all of their savings on lottery tickets instead of investing for retirement. For the majority the result is loss of money. For a very minor few, the result is more money than they would be able to earn if they invested the money in another way.

So is that a good retirement strategy? If you say it isn’t for those that lost and it is for those that won, you are falling victim to something that poker players call resulting.

In Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, by Annie Duke, the author talks about a famous decision that was criticized because of the outcome, not because of the judgment used to make the call.

She talks about Pete Carroll, coach of the Seattle Seahawks, during Super Bowl XLIX. In that game, Carroll famously called a play that resulted in a low percentage outcome, but an extreme outcome, one that cost them the game.

Duke says, “Pete Carroll was a victim of our tendency to equate the quality of a decision with the quality of its outcome. Poker players have a word for this: ‘resulting.’ When I started playing poker, more experienced players warned me about the dangers of resulting, cautioning me to resist the temptation to change my strategy just because a few hands didn’t turn out well in the short run.”

So if you are wondering about your friend in the beginning example, and needing to know the result before you can tell whether your friend made a good or bad decision, then you are resulting.

The problem with resulting is that it is completely biased and flawed. We would see a friend win the lottery and suddenly think playing the lottery is a good decision. It doesn’t change your odds, which show it is incredibly difficult to come away ahead from playing the lottery.

Instead we should work to understand the decisions we make and feel confident in the decision we made regardless of the outcome. We can use outcome to help us understand our decisions and what is possible, but we should avoid getting too caught up in outcome.

If your friend’s website turned out to be the next Facebook, everyone would say he made a great decision. If it turned out to fail and consequently caused him to lose a significant amount of money and starts a path that leads to him ending up poor and living on the street then everyone would say that same decision was a bad one.

But in order to improve in life, we have to be able to make sound decisions. We have to be able to judge decisions based on the facts available when the decision was made, not use hindsight. Hindsight makes us feel like we are much smarter than we are. The reality is that hindsight is like already having the winning lottery numbers. It takes your percentage chance of winning from about a 0.0001% chance to win to a 100% chance. But unfortunately we can’t use hindsight to make decisions in our life (or to win the lottery).

I encourage you to start to split the result from the decision as much as possible. This will help you improve your decision-making over time. This will ultimately result in more positive outcomes and avoid getting sucked into stories of someone else’s good luck, rather than learning from positive decision-making.