Minimizing Max Regret

One of the most important "general skills" a person can have is the ability to make good decisions. It's a universal requirement, no matter the subject matter: your career, your investments, your relationships, your health...everything depends on making good decisions.

I've been obsessed with this idea since I was in high school--what does "making a good decision" even mean? My dad was a very traditional, father0-knows-best kind of guy, and he could be very forceful when "guiding" me towards his desired outcomes. He wasn't great at explaining why I should do what he wanted me to do, and many of his answers felt wrong for me.

For example, until I was 24, he was adamant that I should be a doctor or a dentist. Never mind that I spent all my free time playing with computers and reading science fiction--or the fact that I had been running a bulletin board system and hosting online games from my bedroom since I was 11. Doctor was a good solid profession. Engineers ended up retiring early and owning subways.

For my first generation immigrant parents and their friends, there were only four professions: Doctor, Lawyer, Engineer, and failure. And what was this internet thing? It sounded made up.

I needed to develop a rock solid decision-making framework in order to ever escape from my dad's traditional worldview and pursue my own path. My career was rocky for a long time, a time better measured in decades than years--and without that kind of framework, I don't know how I could have gotten anywhere.

Even with such a framework, I was constantly being chased by the ghost of alternate life choices. I imagined how the alternate timeline version of me had married sooner, never gotten divorced, had kids earlier, made more money...been more impressive to my dad's friends. As I ran down my actual path, at every setback or loss, I had my dad's voice whispering in my ear, you should have been a dentist...

Intuitively, I knew that a losing outcome could come from a good decision, and a winning outcome could come from a bad decision (though I never formalized it into the idea of resulting like Annie Duke did in Thinking in Bets). This was the only terra firma for me for years until I found a way forward.

I also realized I was often making bad choices or simply paralyzed when I was trying to decide between two positive, but uncertain, outcomes. Let's say you had to choose between these options:

• a 1 in 10 chance to win $100k
• a 1 in 10 chance to win $1M, but a 1 in 20 chance to lose $100k

What's the right choice? How do you know that you chose well?

What if you don't know the odds or definite outcome, so the decision is actually more like a 1 in X chance at something between $50,000 to $100,000 vs a 1 in Y chance at something between $500,000 and $2,000,000? As vague as that sounds, the unknown odds and range-estimates of outcome mirror reality a lot better than classroom questions based on roulette wheels.

I was tempted to think harder: gather more data, analyze it with more complex models, build complex scenario optimizers. All useless. There are no crystal balls to be found in Excel sheets.

Eventually, I realized that the questions were easy to solve if inverted them.

In most decisions, I would have been happy with any positive outcome. Who cares if I won $50k or $2M? Who cared if I was a successful, happy dentist or entrepreneur? Sure some wins are better--but winning is winning! So forget the positive outcomes. They don't matter.

Instead, I started asking myself "which mistake would I rather make?"

Instead of focusing on the positive outcomes, I started mapping out the negative outcomes of each choice, and then making my decision based on which negative outcome I would prefer to live with.

Suddenly, intractable problems became easy to answer. Questions like "should I forget this entrepreneur thing and become a dentist (like my dad always said)?" I couldn't tell you if I'd prefer being a successful entrepreneur that much more than being a successful dentist. Worse, it felt so much more unreasonable to imagine myself as a successful entrepreneur than as a successful dentist. I might have as well been imagining myself as a rock star.

But I could sure as hell tell you that I'd rather be a failing-but-still-striving entrepreneur than a suicidal dentist, wishing I had never listened to my dad. That was easy.

Over and over again, I was able to cut through the noise, make hard decisions, and happily live with the consequences--because I was actually signing up to lose. I just had to choose which loss I preferred to take.  Whatever happened, I at least knew what I was getting myself into, and sometimes I was happily surprised. (And, by the way, not choosing is the ultimate loss, as you never get back all the hours you spent fence sitting.)

Only years later did I come across Ben Hunt's perfect articulation of it: minimizing max regret. Whatever the decision, choose the path the minimizes the amount of regret you'll feel if it fails as opposed to maximizing the gains you'll have if it succeeds.

I now apply this principle in every decision I can--and my worst decisions seem to always happen when I forget this discipline (more on those some other time).