By Phil Rosenzweig
This is a book about decision-making, but where it stands apart from the many that have come before, is its attempt to tackle the realm of complex, strategic decisions.
Rosenzweig asserts that to make great strategic decisions — decisions that managers and marketers, leaders and policy makers (among others) often need to make — one should go beyond first order observations and pose second-order questions. Are we making a decision about something we cannot control or are we able to influence the outcome? And, if we don’t know whether it is something we can control or not, on which side should we err. Is it better to overestimate our control when in reality we have none (a Type I error)? Or, should we underestimate our control when in reality we have more influence that we think (a Type II error)? Are we seeking an absolute level of performance or is performance relative? And if relative, how are the payoffs for performance distributed — is it highly skewed, maybe even a winner takes all? And again, is it better to make a Type I or Type II error?
With plenty of relevant examples and entertaining stories, mostly from business, Rosenzweig provides fresh insights on many facets of making better decisions. For each facet, he posits the correct approach. For example, it is better to assume we can effect change (a Type I error), and it is better to assume relative performance and a highly skewed payoff, rather than the opposite. Or consider overconfidence, often the explanation when something turns out badly. Are we certain overconfidence is always bad, or are we inferring overconfidence based on the outcome of a decision? Are we even clear what we mean by overconfidence? Often over-precision (the tendency to be too certain that our judgement is correct), overestimation (the belief that we can perform at a level beyond what is objectively warranted), and over-placement (the belief that we can perform better than others) are lumped together as “overconfidence”. While almost all failure can be blamed on overconfidence, this is of little value- and determining the right level of confidence ex ante is difficult. What is needed is an understanding of the type of event we are making a decision about. In fact, Rosenzweig suggests, for events where we can influence outcomes, and especially when performance is relative and the payoff highly skewed, a seemingly exaggerated level of confidence is often essential.
Rosenzweig’s conclusion is that it is preferable to err on the side of action. This is the “right stuff” he alludes to in the title, the ability to inspire, push boundaries, manage risk and take bold steps that, combined with understanding common decision errors and biases (left brain), enables leaders to make great decisions.