Monthly Mulling💡

Blazing Decisions & Jeff Bezos's Wisdom: Navigating Life's Opportunity Costs

Hi👋 Tapan here!

📖 Currently, I am reading: The Midnight Library by Matt Haig

Between life and death, there is a library and within that library, the shelves go on forever. Every book provides a chance to try another life you could have lived. To see how things would be if you had made other choices… Would you have done anything different, if you had the chance to undo your regrets?

Pretty intriguing, right?

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🚂 Just Burn The Damn Train: The Hidden Costs of Every Decision

The year was 1859, and the American Railroad industry was on the brink of its golden age, set to peak in the 1890s. 

The western division of the Pennsylvania Railroad faced a calamity — a severe derailment that left train cars scattered across the tracks, effectively paralyzing the entire network. The cargo was a mess, blocking any passage through.

Enter the scene: a 24-year-old, barrel-chested Scotsman, a relatively inexperienced superintendent of the western division. With his boss absent, he faced a colossal decision.

Before we move ahead, answer the below:

The superintendent made a bold decision. He sent a note saying: “Burn the train cars!”

This was highly unconventional as no railroad boss would order their cargo and freight cars to be burned. 

🧐 So, why such a drastic step?

Clearing the wreckage traditionally would be a lengthy and costly affair, leading to days of halted operations across the system. The superintendent, valuing the continuous flow of the network, opted for the immediate, albeit radical, resolution.

It was much more profitable to keep the network moving. 

A US Railroad train wreckage from the 1890s.

The aftermath? The train cars were set ablaze, the remnants quickly cleared, and, just as predicted, the network resumed its smooth operations

The superintendent had gauged the opportunity cost and made the right call, a legendary decision.

What is the name of the superintendent who made this unconventional decision? Andrew Carnegie. 

Funnily, when Carnegie’s boss caught wind of this unconventional tactic, he was so impressed that it became the go-to strategy for handling similar emergencies.

💡 Deciphering Opportunity Cost: The Path Less Traveled

Every decision we make comes with its own set of invisible trade-offs, or opportunity costs. 

It's the road not taken, the path left unexplored as we choose one direction over another.

Always remember, there ain’t no such thing as a free lunch. Every choice carries its own cost, visible or not.

⌛ Time and Money: The Currency of Choices

Our time and money are limited.  

Every minute we choose to spend on one thing is a minute unavailable to spend on other things.

Every dollar we invest is a dollar unavailable for other available investments.

Opportunity Cost (via Napkin Finance)

💼 Business Decisions: From deciding whether to launch a new product, invest in technology, or upgrade equipment, businesses constantly navigate these trade-offs, aiming to maximize their resources.

👨‍👦‍👦 Life's Dilemmas: Whether it's choosing between scrolling through TikTok or spending quality time with loved ones, opportunity costs remind us of the value and potential loss inherent in every decision. The Paradox of Choice should make you think of the Opportunity Cost.

The Paradox of Choice

💰 Investment Strategies:  The investment world brings its dramatic flair to the concept of opportunity cost. Warren Buffett and Charlie Munger, the legendary duo of Berkshire Hathaway, often reflect on how missed opportunities have cost their shareholders "billions and billions." 

🧭 Mastering Opportunity Costs: Principles to Guide You

So, how do we navigate this landscape of endless choices and hidden costs?

🛣️ The Road Not Taken: Always be aware of the alternatives you're passing up. What could those other paths offer?

🔎The Three Lens: View opportunity costs through these three lenses: (1) Compared with what? (2) And then what? (3) At the expense of what?

Take buying a car, for example. It's not just about the sticker price. It's about weighing that Mercedes against a Civic, considering not just the immediate cost but also the long-term implications—maintenance, insurance, the joy of driving one over the other, using second-order thinking. And finally, it's about recognizing what else that money could have achieved, perhaps a step closer to owning a home.

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🏃‍♂️ Lessons in Decision-Making: A Page from Jeff Bezos' Playbook

Recently, I dove into Invent and Wander, a collection of Jeff Bezos' Amazon shareholder letters and interviews. It's a treasure trove of insights. 

While I've previously discussed the Regret Minimization Framework, today's focus is on quick decision-making.

High-Velocity Decision Making: The Art of Swift and Sound Choices

What's the essence of a senior executive's role? It boils down to making a few, impactful decisions rather than getting bogged down by the minutiae of daily choices. 

You have to make high-quality, high-velocity decisions. Jeff Bezos explains how:

🚪 Door Decision Framework: Never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong?

Types of Doors in the Door Decision Framework

📊 70% Rule: Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. 

You need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.

🙅‍♂️ Disagree & Commit: Use the phrase “disagree and commit.” If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this, but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes. 

But your team needs to commit to the decision, there should be no backstabbing or politics once they have disagreed & committed.

It’s the equivalent of 1000 pushups from Brooklyn Nine-Nine

🧐 Spotting Misalignment Early: Recognize true misalignment issues early and escalate them immediately. Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion and no number of meetings will resolve that deep misalignment. The teams acts like this:

Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision. 

“You’ve worn me down” is an awful decision-making process. It’s slow and de-energizing. Go for quick escalation instead—it’s better.

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🎭 Swinging Between Ego and Blame: The Self-Serving Bias Saga

Imagine a scene on the cricket field: a player hits a spectacular century, basking in the glory of his achievement. He credits his rigorous training regimen, innate talent, unwavering dedication, vegan diet, and peak physical fitness as the pillars of his success.

Yet, in a twist of fate, he's out for a duck in the very next inning. Suddenly, the narrative shifts—the pitch was poor, the playing conditions were against him, and the umpire's decisions? Questionable at best.

💡 Unmasking the Ego: The Self-Serving Bias Exposed

This is a classic example of self-serving bias which is the belief that individuals tend to ascribe success to their abilities and efforts, but attribute failure to external factors. 

Self-serving bias explained (via Sketchplanations)

When we fail, we blame external circumstances or bad luck. When others are successful, we tend to credit their success to luck and blame their failures on foolishness.

When our investments turned into losers, we had bad luck. When they turn into winners, we are geniuses. 

🧠 The Roots of Bias: Steering the Ship of Self-Perception

So, what causes self-serving bias? At the heart of this bias lies the concept of locus of control. 

Those with an internal locus of control see themselves as the architects of their destiny, attributing successes to their efforts and accepting responsibility for failures. 

On the flip side, individuals with an external locus of control view their fortunes and misfortunes as the whims of fate, often feeling powerless in the face of adversity.

The cricketer’s self-serving bias (via NYT)

🗺️ Charting a Course Through the Bias: A Journey of Self-Discovery

And how do we steer clear of the self-serving bias? 

Understand your limits and what you don’t know. Don't let your ego determine what you should do. Overconfidence can cause unreal expectations and make us more vulnerable to disappointment. 

The wisdom in the old saying, "It's the strong swimmers who drown," serves as a poignant reminder.

An optimist is a person who sees a green light everywhere, while a pessimist sees only the red stoplight. The truly wise person is colourblind.

— Dr. Albert Schweitzer

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