Lately, I’ve been reminded that our actions often spur unintended consequences, causing results and ramifications we never could have anticipated. No matter what our intentions might be, we can sometimes harm while trying to help.
Just ask the Congressmen whose efforts to reign in online gambling in 2006 actually legalized the daily fantasy sports websites we have today. Or the Israeli day care centers that accidentally increased the numbers of late parents by introducing a “late fee”. Turns out the parents didn’t feel as guilty once they were paying cash for being late. Whoops.
Our lives are essentially accumulations of all our decisions, big and small. Unfortunately, we often need to make these decisions with imperfect information. Hindsight is 20/20, it will always be easier playing the Monday morning quarterback. While it’s impossible to avoid the Law of Unintended Consequences, it’s imperative that we do all we can to improve our decision making process. One way to do this is by keeping a decision journal. As Michael Mauboussin, the chief investment strategist at Legg Mason, explains decision journals:
“Whenever you’re making a consequential decision … just take a moment to think, write down what you expect to happen, why you expect it to happen and… how you feel about the situation, both physically and even emotionally.”
Mauboussin learned about decision journals from Daniel Kahneman, the famed psychologist and Nobel Prize winning economist. Kahneman recommended the decision journal when asked, “What is a single thing an investor can do to improve his or her performance?” Keeping the journal, and actively reviewing it several times a year, helps you review your decisions and provides “accurate and honest feedback of what your were thinking at that time.” It prevents “hindsight bias,” which refers to the human tendency to sugarcoat our thought process and pose it in a way that makes us look and feel better, despite the truth.
Shane Parrish over at Farnam Street talks frequently about decision journals. Below is what he thinks the ideal journal should include:
- The situation or context
- The problem statement or frame
- The variables that govern the situation
- The complications or complexity as you see it
- Alternatives that were seriously considered and why they were not chosen
- A paragraph explaining the range of outcomes
- A paragraph explaining what you expect to happen and, importantly, the reasoning and actual probabilities you assign to each (The degree of confidence matters, a lot)
- Time of day the decision was made and how you feel physically and mentally (if you’re tired, for example, write it down)
On the need to consistently review the journals, Parrish notes, “These journals should be reviewed on a regular basis—every six months or so. This is where you can get better. Realizing where you make mistakes, how you make them, what types of decisions you’re bad at, etc. will help you make better decisions…”
Start tomorrow. Head over to the closest CVS or Walgreens and buy the cheapest notebook you can find; the expensive leather-bound books are almost too nice that you’ll be afraid to write in them. The decision journal will help you keep your decision making process on track and be confident in your actions, no matter what unintended consequences might occur.