Decision principleFrameworkDecision-makingPsychology and behaviourInvesting
A good decision and a good outcome are separate things
The idea
Duke's argument comes from poker, where a well-played hand loses often and a badly played one sometimes wins. Judging decisions by their outcomes, which is the natural thing to do, teaches the wrong lessons: it rewards the lucky and punishes the careful. The alternative is to judge a decision on what was knowable when it was made, the quality of the process, and the odds as they stood, and to keep a separate account of how it turned out. The Library calls this the single most useful idea on the list for an investing interview, and the cheapest to acquire.
Judge a decision by what was knowable when it was made, and keep the outcome in a separate column.
When it works
Reviewing a trade or a deal that went wrong, answering a question about a failure, and any post-mortem.
When it may fail
Over a long run, outcomes are evidence about decision quality, and the separation can become an excuse. The honest version keeps both columns and updates the process when the outcomes keep disagreeing with it.
How to use it
Asked about a mistake, describe what you knew, what you decided and why, then what happened, as three separate things. If the decision was sound and the outcome bad, say so; it is a better answer than a false confession.
Where it came from
Book Thinking in Bets · Annie Duke
What the source says. Separating decision quality from outcome quality, the single most useful idea on the list for an investing interview and the cheapest to acquire.
Connected ideas
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Judge a decision on what was knowable at the time, not on how it turned outThe fair test of a decision is the information available when it was made; hindsight is a different exam.
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Concepts
Put it to work on L3VLUP
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