“Decision-making process” is the act of gathering relevant information in order to choose the best decision based on a set of available options. A good decision-making process is a step-by-step approach that allows a person to make consistently better decisions. The result of these better decisions is a life with less stress and more happiness.
Sadly, however, few of us actually have a concrete decision-making process. Instead, we make decisions on a whim and often by the seat of our pants. This can make life increasingly harder for yourself since you’ll often find yourself in situations you didn’t actually want. So, how can we use our decision-making process to make better decisions? The answer lies in the process you use and the information you collect.
What is the Best Decision-Making Process?
The best decision-making process is one that starts with a broad hypothesis and ends with a firm decision. Good decision-making processes help you make better decisions by accurately assessing all the available information. A “good decision-making process” is typically one that results in a reduction in mental anguish and an increase in relative levels of happiness.
However, a “good decision” could mean almost anything to you. It could be about your career, love life, friendships, or anything in between. Regardless, most of your life’s stress, hardships, happiness, and joy all come as a direct result of the decisions you make. This is why we need to make better decisions by refining our decision-making process.
Here is the best step-by-step decision-making process you can use in almost any scenario:
- Form a Hypothesis
- Assess Your Options
- Identify the Trade-Offs
- Calculate Your Risk
- Make a Decision and Don’t Look Back
How to Make Better Decision
1. Form a Hypothesis
This is arguably the most important step in your decision-making process, which is probably why it’s first. It’s the foundation of your decision and it’ll make life easier…or not.
A hypothesis is the formation of a thought that has both a cause and a result. This is actually where most of us fail when we try to make better decisions. We can have the best intentions in mind, but if we operate under the wrong assumptions and the wrong hypothesis, the end-result will be wrong for your life.
The genesis of this article came from my need (or maybe desire) to get a car. I moved from San Francisco to Los Angeles, and although I hadn’t owned a car for three years, I figured I’d need one down in La La Land. But I didn’t really want one; I liked not having a car payment and reduced stress that comes from not worrying about unseen car costs. It’s pretty awesome, you should try it some time.
Which led me to a crossroad. Should I buy a car, lease a car, or continue to not own a car at all? Well, if you read my article on the cost / benefit analysis of owning a car, then you’ll know what I decided.
Still, when I approached this certain decision, I formed a simple hypothesis: Owning a car would make my life easier in L.A. I defined “easier” in terms of the convenience, benefits, and the overall costs.
Once I had my hypothesis, the next step was to assess my options.
2. Assess Your Options
One of the biggest traps people fall into when making life easier by making better decisions is that they don’t have enough options. The people with the best lives are often the ones with the most options available.
This is because more options equal more opportunities. Further, this is because when things go south, people with the most options are able to adapt quickly and remain happily moving toward an easier life.
Whenever you make a decision you always want to ensure you’ve identified all the options available to you. This way you can make sure that you’re choosing the option that has the greatest impact on your life, i.e., has the highest level of stress reduction and the greatest amount of happiness gained.
Which is actually where I failed. When I was deciding on whether to not to buy a car, I figured my only two options were to buy a car or lease a car. I failed to identify the third option, which was, embarrassingly enough, my current life at the time: not having a car at all.
Again, you can check out my calculations in my article on buying vs. leasing a car, but if you think about it, owning a car costs about ~$4,500 per year. If you don’t use your car a lot (like me), there’s a good chance that you might spend less than $4,500 per year on Uber’s and Lyfts (or Fasten or Ride, holler all my Austin, Texas people!).
This means that I might’ve been able to save money, on average, if I didn’t buy a car (I ended up buying a car). To me, saving money is the same as reducing your stress and giving yourself more monetary options, which is the whole point of this exercise!
I hope you learn from my folly the necessity of assessing all your options. More options can result in better decisions, which results in a better life.
3. Identify the Trade-Offs
Now, even though you want as many options as possible, typically these options are mutually exclusive. This means that if you choose one option over the other you’re naturally giving something up. This is known as a “trade-off.”
Life is filled with trade-offs. Usually, when we make a poor decision, it’s because we don’t accurately assess what we’re giving up by choosing something else. A decision might look great at first blush, but if the resulting trade-off is too great, it’ll cause your decision-making process to falter.
Using our continued example, there are three options when deciding whether or not to have a car:
- Purchase a car (loan or cash)
- Lease a car
- Become car-less (rely on rideshares and public transit)
Now, we know that these are our three viable options thanks to the previous step. The next step is to identify the trade-offs of each.
For example, when you decide to purchase a car, the trade-off is typically monetary. When you own a car, the trade-off is that you’re usually locking yourself into a monthly car payment and insurance payment. Conversely, the trade-off of becoming car-less is that you don’t have the freedom or luxury of jumping in your car and whisking off on a road trip at a moments notice.
And the trade-off with a lease is that you’ll never be able to pay it off. You’ll always have a lease payment as long as you have a lease. The upside, however, is that you’ll be able to get a new car every two years. This upside, however, would be that you wouldn’t have to purchase a depreciating asset nor go carless.
There’s no right or wrong answer here. The important thing is to identify what you’re giving up by choosing one option over the other.
4. Calculate Your Risk
This is my favorite part of the decision-making process. I know I say every step is the most important, but this one really is the most important to me.
People are terrible at assessing risk. This is mainly because people think of risk in physical or monetary terms, and rarely in qualitative terms. Which is why you see a lot of people making a lot of money yet working a lot of hours and hating their jobs.
For me, I often think of risk as the risk of lost time and the risk of my happiness. Whenever you make a decision, as sure as there is a trade-off, there is a time and happiness constraint as well. Sometimes those constraints are positive, i.e. they increase your free time and increase your happiness, and sometimes they’re negative, i.e. they take up too much of your time and reduce your happiness.
Making good decisions is the act of cultivating a decision-making process that helps you reduce your quantitative and qualitative risks. At the end of the day, my time and my happiness are the two most important things to me. Doesn’t it make sense that your decision-making process takes into account these factors?
I’m going to divert from our car example here and talk about homeownership. I’m currently looking at investment properties in Austin, Texas, which is definitely a decision worth doing right. The rental potential is there and I should be able to find tenants to rent out my apartment for a majority of the year.
But what about unforeseen costs? What if the occupancy rate is lower than I expect? What if I have to fly out to Austin multiple times to check on the property?
I might make a return on my investment, sure, but at what cost? The cost, it seems, might just be my time and my happiness.
Or it might not. The important thing is to identify all of the quantitative as well as the qualitative risks involved in your decision-making process. If you do, you won’t be driven by external reasons or people’s judgments alone. Instead, you’ll be able to make decisions based on your internal understanding about what’s too important to risk.
Time is money. Just because you can make a positive return on a decision doesn’t mean it’s necessarily the right decision. Instead, make sure you’re valuing your time and your happiness in equal terms. If the monetary return is positive but the time you give up negative, it might be better not to make the decision…until, of course, the expected positive return is large enough (or the time constraint small enough), that it makes sense.
5. Make a Decision and Don’t Look Back
Now that you have a sound hypothesis, assessed your options, identified each option’s trade-offs, and calculated your risk, the next step is to actually make the decision.
Rest assured that you’ve cultivated the best decision-making process and have the information needed to make better decisions. The only thing left to do is decide.
The important thing here, however, is to not look back. There are always multiple options to a decision, and you’ll often have just a bit of decision-makers remorse. The best thing for you to do is to look forward and not back. You’ve made the decision. It’s over.
Lucky for you, humans have an uncanny ability to adapt to new situations. So, chances are, regardless of your decision, you’ll be happy you made it. Your physiology will make you happy.
Just ask me. Would it have been more cost-effective to move to L.A. without a car? Did I screw up by not including a “car-less life” into my transportation options? Maybe, but I’ll never know because I love my new SUV. In fact, I just took it camping. Couldn’t do that in an Uber.
The right decision-making process can help you make better decisions. Better decisions result in a better life. If you follow the decision-making process above, you’ll be able to create a life filled with all the things you want, and get rid of all the things you don’t.
For more information on how to make better decisions, leave a comment in this post or contact me directly. Onward and upward!