The reason Warren Buffett and Charlie Munger are so successful is because they have thought so deeply about decision-making processes.
Business leaders are decision-making machines. They make decisions all day long, which is, after all, what they get paid for. Nevertheless, there are six common decision-making traps they fall into. And it is no coincidence that four of these six mistakes were identified by Warren Buffett and his partner Charlie Munger. After all, they have been hugely successful because they have thought so deeply about decision-making processes.
Mistake 1: Perfectionism
Warren Buffet once said: “A friend of mine spent twenty years looking for the perfect woman; unfortunately, when he found her, he discovered she was looking for the perfect man.” Perfectionism is great as long as it drives people to do their best. However, it can turn into a serious obstacle if it is used as an excuse to hesitate and vacillate. Isn’t it far better and more realistic to accept that there’s no way to be perfectly prepared for every decision? And doesn’t it make sense to recognize that external circumstances will never be ideal?
Mistake 2: Making NO Decision Can Also Be A Mistake
“Our biggest mistakes were things we didn’t do, companies we didn’t buy,” explained Warren Buffett’s partner Charlie Munger. Some people believe that the best way to avoid making a significant mistake is to avoid making a decision at all. They are wrong. Even deciding not to make a decision is a decision – to do nothing. In some cases, doing nothing could well be the right decision. But it could also be a huge mistake.
Mistake 3: Believing That Collective Decisions Are Better
“My idea of a group decision is to look in the mirror,” commented Warren Buffett. Decisions made by committee aren’t necessarily better than decisions made by individuals. Many people lack the gumption to take responsibility and act decisively. They prefer to go with whatever “the team” decides, so they won’t have to shoulder the blame if things start to go wrong.
Mistake 4: Kicking A Decision Into The Long Grass
On the subject of decision-making, the German poet Johann Wolfgang von Goethe observed: “He who deliberates lengthily will not always choose the best.” Many people go back and forth over every possible permutation of a problem without ever coming to a decision. Eventually, they find that a decision needs to be made one way or another. But are such forced decisions any better than the decisions they would have made at an earlier point in time? Is it possible to learn to make decisions more quickly?
First and foremost, it is essential to have a clear understanding of the desired outcome. When someone bases a decision on a vaguely defined result, they will find it harder to decide quickly when the time comes. Having a clear sense of priorities also helps. Once priorities are clearly defined, it is easier to arrive at a decision far more quickly because it is obvious which elements of any question are most essential and which are less so.
Mistake 5: Overanalysing And Not Listening To Gut Feeling
Scientific studies have confirmed that exceptionally successful individuals often rely on gut feeling. Arnold Schwarzenegger agrees: “Don’t overthink. If you think all the time, the mind cannot relax. This doesn’t mean that you shouldn’t use your brain, but part of us needs to go through life instinctively. By not analyzing everything, you get rid of all the garbage that loads you up and bogs you down.” Researchers have found that people frequently make better decisions when they spend less time weighing up which course of action to take. At first glance, this may seem surprising. But everyone has intuition and an analytical mind. Intuition is the sum of all of the things we have ever experienced—the product of implicit, unconscious learning processes.
Anyone who believes that they need to analyze everything as thoroughly as possible will gradually lose the ability to listen to what their gut feeling is telling them. A survey of 83 Nobel Prize winners in science and medicine revealed that 72 strongly emphasized the role intuition had played in their success. Sometimes intuition takes the form of a spontaneous flash of inspiration, but sometimes it also needs a certain incubation period, which is what Schwarzenegger is referring to above. The Nobel Prize Laureate in Medicine, Konrad Lorenz, put it this way: “If you press too hard…nothing comes of it. You must give a sort of mysterious pressure and then rest, and suddenly BING!…the solution comes.”
Mistake 6: Making Decisions Without Using Checklists
With some decisions, it is essential to listen to your intuition. For other decisions, checklists are crucial. “I’m a great believer in solving hard problems by using a checklist. You need to get all the likely and unlikely answers before you; otherwise, it’s easy to miss something important”, explained Charlie Munger. When it comes to routine processes, particularly those where it’s vital that nothing goes wrong or gets missed, checklists are indispensable tools.
For example, airline pilots are not allowed to take off before they have completed a series of extensive lists. Air accident investigations have shown that, in many cases, crashes could have been prevented had pilots fully adhered to their checklists. Numerous scientific studies also show that error rates during surgical procedures are much lower when surgeons follow predefined checklists. After all, what is a checklist? It’s the result of learning from past mistakes that should now be avoided wherever possible.