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Making Complex Decisions: Guiding Principles, with Lawrence Summers, Former Director, White House United States National Economic Council
Reversibility
Some kinds of decisions are reversible and some kinds of decisions are irreversible. You know a principle that I’ve learned over time to try to live by is to make reversible errors, not irreversible errors. If I’m thinking about whether to talk to you about something that’s a sensitive subject or that might involve revealing a confidence, if I do it and it was a mistake I can’t take it back. If I don’t do it and it was a mistake I can have the conversation tomorrow. And so usually in life if you’re not sure what to do you should recognize that probably that means there’s a reasonable chance you’re going to make a mistake. And then you should ask yourself, which kind of mistake would I rather make? And the answer is, you prefer to make mistakes that are fixable or reversible rather than unfixable and irreversible. In the case of war and peace if you launch an attack you can’t take it back. If you don’t launch an attack and you wish you had, you may well be able to do it, to launch the attack subsequently. And so thinking about reversibility is very important.
Calibration
I usually try to think of a question as a calibration. Should we commit five billion dollars to this program? Well then, I, before coming to that conclusion, I say to myself – why would it be a bad idea to commit seven billion dollars to the program? And there’ll be some set of reasons often that the other two billion dollars will come from some other place where it’s more valuable. What about committing three billion dollars to the program? Well, then perhaps the objective won’t satisfactorily be met.
So what’s the point where you are spending, you’ve made the right size commitment to the program? It’s the point where the benefit of committing another dollar is just about equal to the cost. And so you try to find that point where a small change doesn’t make any difference.
There’s nothing financial about this. If you’re deciding whether to go on vacation for six days or eight days or ten days, how do you think about that? Well, a longer vacation will be more pleasurable in many ways but a longer vacation will be more expensive. A longer vacation will take one away from home for longer. And so the right length of the vacation to plan on is a length of time where if you did one more day the extra pleasure would just about be balanced by the extra pain.
And so most decisions, if you think about them right, can be thought of as that kind of calibration. And if you don’t think of yourself as trading one thing off with another, you’re probably not understanding your decision in as clear a way as you can.