Q: What is your anticipated cadence for the Decision Education Podcast? -David M.
A: Thanks for asking, David! In the past, we have released episodes about once every two weeks, give or take. So I would expect the same cadence this year. We release one season a year and have some amazing guests coming up, including Steven Pinker, Seth Godin, and David Eagleman among many others!
That reminds me! Seth just released a brilliant new book, This is Strategy. I highly recommend it.
Thanks for being a listener of this podcast and watch this space as new episodes are released.
Q: As a Nasdaq Futures trader, I constantly feel myself betting… with myself. I know my trading rules (only trade at specific times of day, limit my trading size, only enter a trade on specific conditions), and yet every single day I hear myself saying “this opportunity looks good, you should take it even though it goes against your rules… trust me, it’s worth the risk!” And then I lose money. I just cannot figure out how to stop doing that! How to stop being lured by the feeling that my “now me” is the smartest me there is. Do I just have to accept it’s part of my wiring, that I lack self-control, and I’m never going to change? -Damion M
A: Damion, this is a great question and something that many people struggle with. You have definitely taken the first step in terms of setting rules in advance about your trading. Setting these types of precommitments increases the chances that you’ll act rationally when you are facing down tempting decisions in the future. But these tools don’t guarantee that you won’t rationalize going against the rules in the moment. This is obviously what you are feeling.
I think about the turnaround times that get set on Mt. Everest. On summit day, the rule is that, no matter where you are on the mountain, if it is 1pm you have to turn around. This is meant to make sure that the probability of death or serious injury stays below what one is willing to risk. The turnaround time doesn’t guarantee everyone will start back down the mountain at 1pm, even if they haven’t reached the summit. But the turnaround time does make it so more people turn around than otherwise would have.
Better not perfect if the key concept here and I suspect that you are making fewer impulsive and risky trades because you have the rules in place. Of course, when you do break the rules, you berate yourself…wondering if you will never change.
There is another strategy that can really help you increase the chances you will follow your rules and that is to buddy up. Find someone who can basically be your trading coach. Share your trading rules with them. Have them suggest some additional rules. And then don’t just commit to yourself that you will follow the rules, commit to your coach that you will as well. They will hold you accountable and that accountability will make it more likely you will stop yourself before you act in those moments luring you to be irrational.
I hope that helps and let me know if you find that trading coach!
Q: Collecting data is time-consuming and expensive. Value of Information, VoI, (en.wikipedia.org/wiki/Value_of_information) can give you an idea of whether to collect. If perfect information (VoPI) will not change your mind, then there is no point in collecting even imperfect information (lesswrong.com/posts/vADtvr9iDeYsCDfxd/value-of-information-four-examples). Often, it is easier to work up perfect information, so you would not want to spend more than the VoPI. Is this something you use in your work? Do you have other ideas on what and how much data to collect? -Mark O.
A: Thanks for the great question, Mark! The question of how much time to spend collecting data is one I spend a whole chapter on in my book, How to Decide. You hit on one of the questions we can ask ourselves in determining whether it is worth it to keep collecting data and that is, “Is this new information going to change my mind?” You’d be surprised how often the answer to that question is, “No.”
We spend a lot of time case-building, collecting more data that we need to decide in the service of defending ourselves if we get a bad outcome. Obviously, the best decision can end in a bad result. When that bad result happens, we think we made a mistake or we should have spent more time deciding, as if that would have prevented the bad outcome from occurring. Or we anticipate being in a postmortem where we are having to defend our choice. And one of the best ways to defend yourself is to present pages of pages of pre-decision analysis.
All that defending against anticipated second-guessing of our choice slows us down, making us collect data even after the point that it wouldn’t change our minds. But if it won’t change your mind, then don’t collect it! use that effort on other important decisions that you actually need more data for.
A second idea is to think about the longterm impact of the outcome of any choice you are making. If the longterm impact is small, don’t spend a lot of time collecting data. If the longterm impact if big, then spend more time getting more information. The idea is this: If the impact is small, it doesn’t really matter if you increase the chances you make a suboptimal choice by going fast because there isn’t a big penalty for not getting it exactly right. If the impact is big, there is a bigger penalty for making a bad choice, so take more time on those decisions.
To ground this concept, if you are hiring an intern, it doesn’t matter much if you don’t hire the very best candidate because even if the intern doesn’t work out, there isn’t much of an impact on your bottom line. But if you make a poor choice in hiring a CFO, that will have a negative impact on your bottom line. That means you shouldn’t spend a whole bunch of time collecting tons of data on the intern choice. But you ought to put more effort into the CFO choice.
There are more concepts that drive the decision about how much time to spend on a choice. But these two ides are probably the most impactful:
-
What is the longterm impact of getting a bad outcome? If it is small, go fast.If it is big, slow down.
-
Will the next bit of information I collect change my mind? If no, stop collecting data!
Do you have a reading list of books you recommend?