Making Great Decisions is one of my favorite books of all time and I am excited to do an in-depth review of it. The book was written by David Henderson and Charles Hooper, two economists who have made careers in academia simplifying difficult concepts for their students’ understanding. It’s great that the word “economics” isn’t written in the title of the book because now I can recommend it to people without them fearing the material.
The premise of the book is that we often make irrational decisions in business and life, but clearer thinking about problems can take you a long way. Making Great Decisions lays out a great framework for you to think more clearly about problems. Here is a summary of the concepts talked about in the first chapter.
The authors explain some of the problems that we face while trying to make good decisions and I can relate to both of them. First, problems in the “real world” are not packaged in neat little subjects like they are in the classroom. In class, the teacher is constrained by time, so it is important for the him to make his point in a timely manner. Also, trying to learn a new concept without the ability to see consistently repeatable results is very frustrating. The challenge is that almost all problems in life are not packaged neatly and can become very messy.
This concept of solving messy problems is what makes entrepreneurship challenging, but fun. However, if you are not used to thinking in a mental mess, then this environment can be a nightmare. Many aspiring entrepreneurs never get their ideas off of the ground because the perceived complexity of starting a business paralyzes them from actually starting anything.
The second problem is that when we make decisions, we often fram problems in the wrong way and lose site of core economic principles within the details. The authors told a great story of a couple getting married at Stanford through the eyes of their photographer. The wedding was going awesome with everyone having a good time. Suddenly, the wedding couple approached the photographer to tell him to speed the rest of the wedding up as they had to be out of the venue by 5pm. The reason that they had to leave at 5 was because the limo driver charges an additional $1 per minute fine for late passengers.
After months of time costs planning and a huge monetary cost, the biggest day of the wedding couple’s life was cut short because of the threat of $60 fine. Chances are that if you asked the couple if they would spend an additional $60 to extend their wedding by an hour, they would have said yes. We all have made irrational decisions like this. I went almost a year with a broken pair of glasses because I didn’t want to spend the money to get them fixed. When I did, I wondered why I waited so long.
Henderson and Hooper believe that this book is like driving through corn-country of the midwest. From afar, all you can see is a bunch of corn stalks that look like a jumbled mess. As you get closer your “perspective changes and you can see down the rows and realize that the corn was planted in perfectly straight lines. This book gives you the perspective of the cornfield of life.”
I took away for key nuggets of wisdom from this chapter.
As business people, we often have more information at our fingertips than we think. It is our job to take what we know and makes something useful out of it. Quit separating what we learn in school from how we can apply it in life.
The best courses of action are not uniform from one person to another. The best decision largely hinges on what your objectives and values are. The authors use football great Ronnie Lott as an example of this and retell his decision to cut off his pinky finger in order to extend his playing career by nine years. My decision to go into entrepreneurship was made because I valued independence over immediate monetary gain. It is important for all of us to have a clear understanding of what we value in life.
The understanding of why something occurs can go a long way in making the proper decisions in life. This point reminds me of the Five Why Analysis made popular by Toyota.
The end goal is for you to make the right decision, not going through complicated analysis just for the sake of it. The authors state that “you want to do just the right amount and right kind of analysis to quickly achieve the understanding you need to make a decision.”
I am looking forward to reviewing the rest of the book and getting into some of the nuts and bolts frameworks that Henderson and Hooper use to make better decisions. The book has 14 more chapters, so we will be going through it for a while. I would love to hear your thoughts in the comments section.