Summary

The article outlines a method for making good decisions by combining base rate information with personal intuition to achieve a 90% success rate.

Abstract

The article discusses the psychological challenges of dealing with the consequences of wrong decisions and the importance of viewing them as learning experiences rather than sources of regret. It introduces the concept of using base rates, or reference statistics, as a foundation for decision-making, a technique detailed in Daniel Kahneman's book "Thinking, Fast and Slow." The method involves anchoring decisions on statistical data and then adjusting those decisions based on personal intuition, a process Kahneman calls "adjustment away or towards the anchor." The article emphasizes that relying solely on intuition or statistics can lead to errors, and it provides an example of how to apply this decision-making strategy when considering immigration to another country. The author also promotes an AI service that offers similar capabilities to ChatGPT Plus (GPT-4) at a lower cost.

Opinions

The author suggests that it is difficult for most people to accept mistakes and learn from them without experiencing regret or self-blame.
Emotional regret is seen as something that can either dominate an individual or dissipate depending on their level of optimism.
The article posits that wise decisions are made by thinking with one's head, using available statistics, and controlling emotional influences.
It is important to consider both the base rate and the diagnosticity of evidence, which involves balancing statistical information with personal intuition.
The author believes that intuition should be used to adjust, not replace, judgments based on base rates, a concept referred to as "taming your intuition."
The article conveys that there should be a balance between statistical evidence and personal intuition when making decisions, and one should be willing to reassess decisions when intuition significantly contradicts available evidence.
The author endorses an AI service as a cost-effective alternative for decision-making assistance, suggesting its value in practical applications.

A Simple Reasoning To Make Good Decisions: how to be right 90% of the time.

It is tough to accept the repercussions of wrong decisions and treat them as mistakes to be avoided in the future. Very few among us will look at wrong decisions positively; regret, self-blame, and misery are inevitable.

It was right in front of my eyes.

How could I not see it?

It’s impossible to be that delusional.

I’ve made the biggest mistake of my life. It’s irredeemable.

No matter how confident you are, there will be a tinge of regret, which will either grow to consume you entirely or fade away (depending on how optimistic you are).

So the question is, how do we avoid this regret?

How do we master the art of thinking clearly?

The rationale for wise decisions is to think with your head instead of your heart. Control your emotional/ sentimental side and base a decision on the statistics available.

so how to go about a difficult topic?

I came across this concept in Daniel Kahneman’s International Bestseller Thinking, Fast and Slow. In his book, Daniel comprehensively explains a concept that can help us make prudent, practical decisions.

The first thing he talks about is a base rate, also called the reference statistics. The base rate is simply all the information ( in the form of statistics) available about a particular topic/ issue.

To make any decision, it is important to consider the base rate/ related information about that issue. Make this base rate the anchor of your judgment/ decision. Next, consider the diagnosticity of your evidence.

This means considering your intuition. Your knowledge before the base rates should be used to adjust away or towards the anchor. This is what Daniel Kahneman defines as adjustment away or towards the anchor. It is also called taming your intuition.

Basing your decision solely on your intuition or the base rate can lead to wrong decisions.

For example, if you are planning to immigrate to another country consider the base rates of various factors:

what percent of that country is diverse? What is the crime rate? What is the probability of immigrants getting jobs?

Next, consider your intuition:

Will your family be able to acclimatize? Will you be able to secure a decent job? Will your family be safe?

This method of decision-making can be used to predict the probability of an outcome and consequently make a decision on that probability. It is sensible to reconsider your decision when your intuition is the opposite of the available evidence. ( for example, your intuition suggests an 80% probability of success whereas evidence suggests 20% of a certain type of start-up )