The Premortem

Behavioral Finance guru Michael Mauboussin discusses biases in decision making, and offers a checklist with some simple tips for improving our decision making (HT: Barry Ritholtz):

  1. Raise your awareness: Incomplete information and lots of uncertainty leads to poor outcomes
  2. Put yourself in the shoes of others: Consider the point of view or experience of other people
  3. Recognise the role of skill and luck: Sorting skill from luck is essential for evaluating outcomes
  4. Get feedback: Maintaining a decision-making journal allows you to audit your decisions
  5. Create a checklist: It will alert you to think clearly about what you might advertently overlook
  6. Perform a premortem: Assume that the decision has failed; look for reasons why
  7. Know what you can’t know: In decisions that involve systems with many interacting parts, causal links are frequently unclear

I think #6 is fascinating, simple, and surprisingly unique when it comes to techniques for improving decision making. It might sound overly pessimistic, but by planning for the worst-case scenario (a failure of the decision), we may be able to better anticipate obstacles that present themselves as we pursue that decision.

Often, our focus is on the best-case scenario – the great and successful result of our decision. This is what probably motivated us to make the decision in the first place! But things rarely go according to plan. And we may falter when challenges (which we will inevitably face) are unexpected. A premortem is essentially a thought experiment in which we can consider potential reasons for our failure. In the process, we can hopefully pinpoint some weaknesses or drawbacks to our approach, and anticipate a few of the obstacles that lie ahead.

There are many big decisions where expectations play a large role. By imagining the potential for failure, we can be better prepared for the challenges of executing such decisions. Instead of being derailed by a challenge (“I didn’t realize it was going to be this hard!” or (“I never thought we’d have such a tough time getting X to work.”), we can be proactive and start preparing solutions in advance.

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One comment

  1. hmm i tend to do this all the time, don’t i? and you tend to tell me not to! 😉

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