Understanding the kinds of decisions we are facing and the tools needed for varying decisions is essential for knowing how to make your next decision. This means we are faced with a decision about a decision before we make that decision! Perhaps, this could be called a metadecision. In some ways, the necessary "decision about the decision" is no different than initial decisions about other typical challenges. For example, if you are building a deck, you must first decide which tools you will need to construct the deck. Or, if you are preparing for a big night out, you need to make initial decisions about the makeup and clothes needed to prepare yourself for the big night.
About the author: Jeff Hulett is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM. Today, Jeff leads Personal Finance Reimagined, a decision-making and financial education platform. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions -- at jeffhulett.com.
We start with a general decision classification model. Classification models have plusses and minuses. On the minus side, classification models place the world into neat, discrete buckets, even though the real world is messy, continuous, and dynamic. This risks missing nuances and exceptions existing in the real world. On the plus side, a good classification model anchors the decision-maker in the key decision drivers and how the differences between decisions interact. A good classification model also points decision-makers toward tools to make more accurate, faster, and easier-to-structure decisions. On balance, this classification provides a decision-making foundation. With experience, the decision-maker will come to appreciate the nuance and exceptions to further refine their decisions.
Understanding the kind of decisions we face occurs with a two-step classification model. We begin by determining if the decision is simple or complex. Then, if it is complex, we determine if the decision criteria are predominately one-way or two-way referential.
Decision category – Is the decision complex or simple?
Most decisions we face are simple. Our brains are “pre-wired” to handle simple decisions with our intuition. The subconscious part of our brain handles simple decisions in the background. The decision "pops out" to consciousness, which makes simple decisions seem quick, efficient, and without conscious effort. The fact that most decisions are simple may surprise you. Since our subconscious decision-making processes are hidden from our conscious view, it will feel like simple decisions rarely happen. You may thank your evolution and ancestors for your endowment with this amazing capability. The good news is, we all have this simple decision-making capability. It is a feature of human neurobiology.
An essential characteristic of simple decisions is that they are binary. For example,
Should I make coffee this morning, or not?
Should I wear dressy clothes today, or not?
Should I run from this lion, or not?
There are many simple decisions we make all the time. The average adult makes 33,000 to 35,000 total decisions each day, those decisions include: what we will eat, what we will wear, what we will say, and how we will say it. [i-a] Luckily, most decisions fall in the simple category our subconscious handles quite well.
Complex decisions are a minority of our total decisions. Our brain does NOT handle complex decisions in our subconscious. These must be handled in our consciousness, generally by accessing memory and other mental resources with our left hemispheric operations. [i-b] These operations, while very helpful, are generally slower and higher energy users than our efficient, fast subconscious decisions.
Complex and simple decisions will vary in their significance. Simple decisions, like morning coffee, are not very significant. The "Cold Brew vs. Keurig" coffee question requires a decision with a relatively low risk to being wrong. Alternatively, the life-impacting simple decision to run from the lion is very significant. While there are not as many of them, complex decision impact can be significant. Significant complex decisions include buying a house, buying a car, getting married, or purchasing insurance. [i-c] However, the less significant decision of which salad dressing to purchase at the grocery store is surprisingly complex, given the multitude of dressing alternatives. Later on - as complex decisions are explored - the focus will be on those more significant complex decisions.
Also, complex decisions tend to be modern decisions. Human evolution, and especially our brain's advancement, requires significant time. Evolutionary time is necessary to transform common and life-enabling decisions into our subconscious routines. As such, because our evolutionary biology-based decision processes have not caught up, complex modern or newer decisions must occur in our consciousness. Someday, via natural selection, today’s complex decisions may [i-d] become simple, if our future brain handles them in our subconscious. However, regardless of whether or when this happens, there will almost certainly be a new set of modern-to-that-future-time decisions creating complexity. A feature of humanity is that we innovate faster than our genome can adapt via natural selection. Our culture and our conscious cognition fill that gap in evolutionary time. Our genome is perpetually playing catchup with our culture and modern advancements.
What are complex decisions? Contrasting to the binary nature of simple decisions, complex decisions are multi-criteria, multi-alternative decisions. Multiple criteria may involve both judgmental information – like from our experience or emotions and objective information – like from external data sources. Also, the multifactors of complex decisions tend to interact dynamically. It is not always easy to understand how these factors impact each other. This is important because part of the toolset for handling complex decisions is breaking down complex problems into a series of easier-to-handle binary decision steps. More on this later.
In my personal finance class and via my book Making Choices, Making Money, the students, readers, and I work through many complex decisions. These decisions tend to have significant financial implications. Complementary to the personal finance topics is that the learners routinize a consistent, repeatable decision process to handle these or other decisions in their evolving future. Complex decision examples include:
Homebuying
Car Buying
Bank accounts and credit cards
Insurance
College and continuing education
Career and job
Pet buying
Wedding venue
Retirement
Financial portfolio and many others
Notice some, but not all, of these example decisions are more likely to be associated with typical personal finance decisions – like buying a house, car, or banking. But some you may not associate with personal finance – like event planning, career, college, or a pet. The important point is we focus on complex decisions with significant financial implications.
Decision reference – is the decision one-way or two-way?
Once we determine if a decision is complex, the next step in the hierarchy is determining the degree to which a complex decision is one-way or two-way referential. This step is essential for choosing the appropriate decision approach. Decision reference is the degree to which the evaluation of decision criteria is present-focused (extrinsic, one-way reference) or involves criteria evaluation for how the decision of our present self impacts our future selves in a way updating the evaluation made by our present self (intrinsic, two-way reference). To be clear, all decisions impact our future. The decision reference is different. Decision reference relates to how decision criteria are evaluated for making the best decision.
Decision reference explanation and examples:
One-way, the “which” question: Car buying requires predominately one-way decision reference for evaluating criteria. For example, someone may want a blue car, a fast car, a car that gets them to work, and an electric car. These wants are known as criteria. In the world of economics, the aggregation of these wants, also known as preferences, is called your utility. How individuals weigh their criteria is likely to vary. [i-e] For example, you may associate the color blue with your favorite relative or some other positive emotion, so that criterion gets weighted more highly than people with no emotional connection to color.
We also have a budget - which constrains alternatives available to fulfill our criteria. This set of criteria is predominately based on one-way, extrinsic facts. The car is blue – this is an extrinsic fact. The car goes fast – this is an extrinsic fact. And so on. We evaluate those extrinsic facts as criteria for their importance to us today. One-way means the extrinsic fact is fixed outside of us. The extrinsic fact is a one-way perception from that being sensed to our senses.
From the earlier list, other one-way decisions include which house to buy, which credit card to use, which financial advisor to use, which wedding venue to choose, or which investment account to open.
Two-way, the “whether” question: Among the set of "whether" questions, two-way questions generally share the same objective. Our common two-way question objective is to achieve human flourishing. For example:
"If I fill in the blank how will that help me flourish?
blank options are "get married," "go to college," "buy a pet," etc.
In this case, marriage has an important two-way decision reference. Whether to marry is different than car-buying because it includes a two-way question.
What is flourishing?
Economist Russ Roberts provides a nice overview of two-way decision problems. The marriage decision is among a set of decisions he calls “Wild Problems.” [i-f] Roberts relates the "whether to marry" part of the decision as your motivation to "flourish" or your process of "becoming." Marriage is certainly not the only way to flourish, but history teaches us that marriage is an important path to flourishing. If you marry, your life will change. Certainly, in my case, my wife and I adapted to each other and our environment over time. It was our willingness to adapt that made our marriage work. The very basis for evaluating “what is important to me” criteria will evolve to become more like the person you marry. You cannot help but be influenced by the company you keep. Over time, two-way criteria loops back to impact how you evaluate the criteria. Your personality and standard for evaluation will evolve.
Defining the two-way question.
The basis for this two-way challenge is what mathematicians call self-reference. Unlike the extrinsic question, the future-focused, two-way question means you are found within that being evaluated. Two-way questions are intrinsic. People naturally create mental maps of what they expect the future to be like. The two-way challenge is that the map of the future contains you and you are holding the same mental map! The present “you” needs to anticipate how being married will impact the future “you.” Then, that future “you” needs to have a view back to the present “you” to put it in the context of that being evaluated. Being married, like other intrinsic questions, will impact how you flourish in the future.
Contrasting to the extrinsic criterion, the color blue will still be blue in the future. Blue has a fixed frequency and wavelength on the visible light spectrum. Unlike intrinsic criterion, we can weigh the blue car criterion directly today, without concern for future flourishing. Because the future is uncertain, the two-way question creates a recursive loop that never ends… or doesn’t end until you exhaust or frustrate yourself! It is like a dog chasing their tale. The great mathematician and logician Kurt Goedel famously proved this challenge with the “Incompleteness Theorem” for related undecidable mathematical problems. People regularly decide to get married, so these challenging self-referential problems are resolvable. However, they are not decidable with traditional algorithms.
Causation or correlation?
Also, a common misperception is that some one-way decisions cause two-way decision impact. For example, the home purchase decision seems to cause a two-way impact. A typical homebuying criterion is "I need more bedrooms because my family is growing." But it turns out, while the one-way home-buying decision is related to a two-way decision to have a family, it is not the same decision. The operative question is, "What causes someone to flourish - your house or your family?" Next is a thought experiment to clarify the "family or house" flourishing prediction question: If you did not have a family, would you be less likely to flourish? For me, that answer would be "Yes." However, if you have a family and your house is a little small, are you still likely to find a way to flourish? For me, the answer is also "Yes." Thus, if it is likely that your family will directly cause flourishing, and the house is incidental to that flourishing, then home buying is a one-way decision. [i-g] Of course, having a family is not for everyone and others may have a different answer to the flourishing prediction question. However, once a decision is considered via the flourishing lens, the decisions classified as one-way have little, if any, two-way referential criteria.
From the earlier list, other two-way decisions include whether to go to college, whether to buy a pet, and whether to change a job.
Two-way decisions with a one-way complement.
A great way to make the best decisions is by breaking the decision down into manageable subcomponent decisions. [ii] Generally, all two-way decisions can be broken down into its “whether” decision plus its “which” complement. In fact, many people get stymied by two-way decisions because they try to handle both components together. On the other hand, one-way "which" decisions are more often stand-alone, with no two-way complement. Please see the graphic at the end of the next section, describing two-way decisions with a one-way complement, plus some stand-alone one-way decisions.
Next, we discuss the two-step process for disaggregating the two-way "whether" decision component from its one-way "which" decision complement.
The college example: At Personal Finance Reimagined, the decision-making and financial education platform, we encouraged high schoolers and their families to consider the college decision as a two-step decision. This means separating the "whether" they are ready for college decision from the "which" college is best for them decision.
Step one: Consider the two-way “whether” they are ready for college decision. For example, for high schoolers considering college, did they get the high school grades demonstrating their readiness? People sometimes misunderstand what grades signal. Grades do NOT imply whether someone is "smart." Grades signal whether a student has developed the STUDY SKILLS necessary to sustain 4 years of consistent, focused effort. Grades suggest whether a student can prioritize the hours necessary to study rather than going to a party or other diversions. If the student did not demonstrate the study skills in high school, that student is less likely to manufacture them over the summer before their freshman year in college. In other words, whether to go to college is not a “Yes” or “No” question, it is a “Now” or “Not Yet” determination.
Then, comes the more challenging two-way internal question. Do they feel a desire to further their knowledge and position themselves for success with future employers? Can they see themselves flourishing in the workforce 5 years from now? Statistics show that students from first-generation college families are significantly less likely to be successful in college than those from legacy-generation families. [iii] This has NOTHING to do with how “smart” they are. I suspect this is because legacy-generation family culture helps the student resolve their self-referential challenge. The legacy-generation family a) helps their student understand what their "future you" looks like and b) counsels them on the habits and behaviors to get the most from their college experience. The family resources to inform the “future you” for the first-generation student may not be as available.
Step two: However, the step two question decision - which college to attend once college readiness is confirmed - may be handled with algorithmic-based choice architecture. By examining mostly one-way criteria, like “Do they have a major I like?” “Do they have good sports?” “How much academic competition is there?” “How far from home is it?” and other typical criteria, a “which” decision is simpler because it can be solved with process and choice architecture tool assistance. The choice architecture process is a series of binary decisions, simulating the simple decision category discussed earlier. To be clear, the “which” decision is not insignificant, but it is very solvable with the right process and tools.
Of the 4,000 or so colleges in the United States, almost all of them know how to put on a good college show. When I see college students drop out, it is almost always because they were not ready – related to the internal two-way “whether” question. The drop-out is NOT usually because there was something wrong with the college, as related to the external one-way "which" question. Also, if the high school student is not ready for college, especially because of grades, I encourage them to attend community college. This is a low-cost option to determine college readiness. If they get good community college grades, they can always transfer to a four-year college. If they do not get good grades - at least they did not pay so much to find out they are still not ready. [iv]
Finally, these two steps are not always done in order. Sometimes, initially engaging step 2 will help clarify step 1. Especially when trying to confirm that “future you.” It is good to be clear where you are. For example, as a high school student, are you convinced you are ready for college, so you are good with moving directly to step 2? Or, is there some doubt, so you will begin step 2, but knowing you still need to clarify step 1? As mentioned earlier, counsel from your community is helpful to clarify step 1. Sometimes, it helps to shop a decision in step two mode, as a means to gather information to clarify step 1. Choice architecture tools will help collect information necessary for both steps.
Tools to handle different kinds of decisions
At this point, we have identified the three kinds of decisions. The next step is to determine how to make the best decisions, given the kind of decision.
Starting with our typical and most frequent simple binary decisions, your subconscious is mostly handling these decisions. The biggest challenge is the potential for cognitive bias. These are biases that may cause a seemingly accurate simple decision to be inaccurate. Because simple decisions are intuitive and subconscious, our ability to recognize we are under the spell of a cognitive bias is very challenging.
Also, the biases of our simple decisions, if we let them, will impact complex decisions. For example, if a single criterion of a complex decision involves judgment, which often happens, and a cognitive bias causes an inaccurate evaluation of that criterion, this will lead to an inaccurate complex decision. While it is helpful that simple decisions are on autopilot and most of those decisions are accurate, we do need a way to identify and correct if our subconscious autopilot leads us astray with inaccurate decisions. Please see this video for the cognitive bias and reasoning challenges relating to more intuitive decisions and methods to overcome those challenges. In general, a robust complex decision process will eliminate the effects of simple decision impact on that complex decision's judgmental criterion.
Next, let’s turn to your complex, one-way, “which” question. These are most of the conscious decisions you need to make. This is the domain of choice architecture-based decision assistance tools, like Definitive Choice, and much of the content found in my book, Making Choices, Making Money. Earlier, it was discussed how simple, intuitive, and subconscious decisions are binary. Choice architecture tools succeed by transforming a complex decision into a series of intuitive, binary decisions. Successful choice architecture aligns decision-making with our intuition.
You get free access to the app as part of the book. It is essential to create a consistent, repeatable decision process and apply it to those complex decisions. While the details of decisions - like our criteria and available alternatives - do change, the decision process for handling complex decisions remains remarkably stable. Please see this video to introduce the tools and content:
Finally, let’s turn to your complex two-way, “whether” question. As we have seen, the “which” and the “whether” are often complements of the same question. Like "whether I want to go to college" and, if so, "which college should I attend?" Marriage, health, and other questions have some similar complements. In the following article, we introduce the Pareto Principle as an essential tool for answering the “whether” question, along with Definitive Choice. A marriage example is provided. The Pareto framework is a stopping framework for anticipating when to stop the recursive, two-way loop and make the call.
Notes
[i-a] Reill, A Simple Way to Make Better Decisions, Harvard Business Review, Ascend, 2023
[i-b] Hulett, Our Brain Model, The Curiosity Vine, 2020
[i-c] Decision impact significance is understood via Ergodicity. This is the degree to which some system or activity may lead to ruin. As the study of ergodicity suggests, there is a big difference between ergodic and nonergodic systems, just as there is a big difference between a risk you can come back from and a risk leading to ruin. People tend to conflate the difference between risk and ruin, causing them to overpay for small-loss insurance (like insuring an iPhone) and underinsuring for catastrophic insurance (like having insufficient medical insurance for serious injury or disease.)
Hulett, The Regenerative Life: How to be an ergodic pathfinder, The Curiosity Vine, 2023
[i-d] Over time, it would seem the likelihood that modern complex decisions will get evolutionarily transformed into our consciousness is declining. Natural selection occurs via survival. As genetic mutations occur in individuals, genetic information is learned by the genome via their survival. That is - if the individual does not live long enough to pass on their DNA, then that genetic mutation information is retired and the genome is updated to be less likely to breed that retired information. Alternatively, if the individual does live long enough to pass on their DNA, then that genetic mutation information is absorbed and the genome is updated to be more likely to breed that absorbed information. The declining likelihood of promoting complex decision-making to the subconsciousness occurs because:
Most modern decisions are not life and death. While buying the wrong car may be annoying or financially suboptimal, buying the wrong car will likely not be a genetic mutation information retiring event. As a result, the human genome is more likely to maintain the genetic information we already have.
Modern laws and medicine are geared toward the elimination of existential challenges. In the modern world, you are more likely to live to have children than your ancestors. As a result, the human genome is more likely to maintain the genetic information we already have.
[i-e] Preferences are mapped along a self-interest map. At one end are more selfish motivated preferences and at the other end of the spectrum are more selfless motivated preferences. Also, motivations and preferences are often different across individuals and change over time for the same individual. For more information, please see:
Hulett, Adam Smith and how choice architecture makes the invisible hand more visible, The Curiosity Vine, 2023
[i-f] Roberts, Wild Problems: A Guide to the Decisions That Define Us, 2022
[i-g] Another flourish-defining example is for a retirement account. A common suggestion may be "Having a big retirement account when I retire will cause me to flourish." Let's inspect this with a similar thought experiment. If you retire, would sitting in a room surrounded by your money cause you to flourish? Or perhaps, the flourishing would come from what the retirement account allows you to do, like spend time with family or explore interesting ideas or places you have always wanted to explore.
Economists define savings as future consumption. In this retirement account example, it is what constitutes future consumption that causes the flourishing. The retirement account is incidental to that flourishing.
[ii] Tetlock, Gardner, Superforecasting: The Art and Science of Prediction, 2015
[iii] Alger, Drop-Out Rates among First-Generation Undergraduate Students in the United States, Ballard Briefs, 2024
[iv] See this article for a deeper dive into evaluating community college and other lower-cost options for one's higher education journey.
Hulett, Making the best college decision - is community college worth it?, The Curiosity Vine, 2024
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