Source: Farnam Street
Reversible vs. irreversible decisions. We often think that collecting as much information as possible will help us make the best decisions. Sometimes that’s true, but sometimes it hamstrings our progress. Other times it can be flat out dangerous.
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Many of the most successful people adopt simple, versatile decision-making heuristics to remove the need for deliberation in particular situations.
One heuristic might be defaulting to saying no, as Steve Jobs did. Or saying no to any decision that requires a calculator or computer, as Warren Buffett does. Or it might mean reasoning from first principles, as Elon Musk does. Jeff Bezos, the founder of Amazon.com, has another one we can add to our toolbox. He asks himself, is this a reversible or irreversible decision?
If a decision is reversible, we can make it fast and without perfect information. If a decision is irreversible, we had better slow down the decision-making process and ensure that we consider ample information and understand the problem as thoroughly as we can.
Bezos used this heuristic to make the decision to found Amazon. He recognized that if Amazon failed, he could return to his prior job. He would still have learned a lot and would not regret trying. The decision was reversible, so he took a risk. The heuristic served him well and continues to pay off when he makes decisions.
Decisions Amidst Uncertainty
Let’s say you decide to try a new restaurant after reading a review online. Having never been there before, you cannot know if the food will be good or if the atmosphere will be dreary. But you use the incomplete information from the review to make a decision, recognizing that it’s not a big deal if you don’t like the restaurant.
In other situations, the uncertainty is a little riskier. You might decide to take a particular job, not knowing what the company culture is like or how you will feel about the work after the honeymoon period ends.
Reversible decisions can be made fast and without obsessing over finding complete information. We can be prepared to extract wisdom from the experience with little cost if the decision doesn’t work out. Frequently, it’s not worth the time and energy required to gather more information and look for flawless answers. Although your research might make your decision 5% better, you might miss an opportunity.
Reversable decisions are not an excuse to act reckless or be ill-informed, but is rather a belief that we should adapt the frameworks of our decisions to the types of decisions we are making. Reversible decisions don’t need to be made the same way as irreversible decisions.
The ability to make decisions fast is a competitive advantage. One major advantage that start-ups have is that they can move with velocity, whereas established incumbents typically move with speed. The difference between the two is meaningful and often means the difference between success and failure.
Speed is measured as distance over time. If we’re headed from New York to LA on an airplane and we take off from JFK and circle around New York for three hours, we’re moving with a lot of speed, but we’re not getting anywhere. Speed doesn’t care if you are moving toward your goals or not. Velocity, on the other hand, measures displacement over time. To have velocity, you need to be moving toward your goal.
This heuristic explains why start-ups making quick decisions have an advantage over incumbents. That advantage is magnified by environmental factors, such as the pace of change. The…
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