How to Make Better Decisions, According to Science

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1:33There's no safe like SimpliSafe. From Entrepreneur Media, this is Problem Solvers, a show in which entrepreneurs do what entrepreneurs do best, solve unexpected problems in their business. We were completely wrong. And I'm just like, it's not selling. It was like, we have to start from scratch. I'm Jason Pfeiffer, the editor-in-chief of Entrepreneur Magazine.

1:58Right now, you are trying to make a decision. You're trying to decide between two unknowns. How do I know this? It's because if you're listening to this show, you're basically in the business of doing that. This is what entrepreneurs or just ambitious professionals have to do all the time. You're sitting down and you're looking at two paths and you just do not know which is the right one. Now, interestingly, here's how a scientist might state that. Decisions have a combination of what are the goals and the values that you're trying to reach, but they also have to deal with the facts of the world.

2:32And you really want to know what does the world consist of? What are the levers that you could use to move things? This is Saul, and Saul thinks in science. I'm Saul Perlmutter, and I'm a professor of physics at the University of California, Berkeley, but also a senior scientist at Lawrence Berkeley National Laboratory. And he's also the co-author with some of his fellow scientists of a new book called The Third Millennium Thinking, which is a really interesting book that takes ideas that are familiar to scientists, but are not familiar to basically everybody else, and then introduces them in a way in which they become really useful.

3:10And when I first connected with Saul and I said, Saul, what scientific principle would apply extremely well to entrepreneurs. He said, probabilistic thinking, because entrepreneurs are constantly having to make decisions, and they're decisions informed by small amounts of information. And the question ahead is, well, how do you decide what the best decision is? It's not easy. But he said, look, you're never gonna have all the information. So the best that you can do is be probabilistic about it. All of those facts about the world are things that we only know to a certain degree. And there's a temptation to try to be firm and say it's true or it's not true.

3:56But almost no fact about the world that we have do we have complete, absolute knowledge of. And in fact, most we have only very partial knowledge. So if you treat it as everything as a binary, I know it or I don't know it, then you're giving up all of the more nuanced information that you have available to you, which is that this thing I know is probably 85 % likely to be true. This thing I'm only 70 % I'm sure about. And that knowledge is very powerful. It actually allows you to do a lot. Today on Problem Solvers, Saul is going to walk us through how to use probabilistic thinking in our own decision making.

4:35That thing that he said just a moment ago, one thing is 85 % likely to be true. Maybe the other one is 70%. That is not a natural way of thinking for most people, but it is a natural way of thinking for scientists. And when you can absorb how they're thinking about things and how detached they become from whether or not an answer is totally right, and instead live in this space in which maybe it's just 75 % right. Well, that kind of does change everything. Today on Problem Solvers, let's get probabilistic. Coming up after the break. Hi, I'm Emily Washkovic, Yelp's small business expert and host of the podcast Behind the Review.

5:22We're back for season two, and this time we're keeping everything you love and adding so much more. Get ready to find out what happens behind the scenes at those businesses that everyone raves about. You know the ones. Learn how owners swallow their pride when getting critical feedback and what they do to turn around that unhappy customer. And don't forget the reviewers. We'll find out what inspires them to leave those rants or raves in the first place. Get ready for buzzy new guests like restaurants from Yelp's famed top 100 lists and new short BizBite episodes. Just a few minutes of advice on how to set your business up for success and create connections with customers, both online and off.

6:10Subscribe, like, and follow the show to hear new episodes every Thursday. All right, we're back. I'm talking today with Saul Perlmutter, the co-author of a great book called The Third Millennium Thinking, which is all about how to use scientific principles applied to, well, everything outside of science, including business and entrepreneurship. And let's just pick back up with the conversation that I was having with him before the break, in which he was introducing this idea of when we're looking at decisions that need to be made, we often tend to look at them in this binary way. One is right, one is wrong.

6:46But what if that's not the way to think about it? What if there's a 75 % chance that that one's right, and there's a 50 % chance that that one's wrong? It sounds semantic, but it's not. It's a totally different way of understanding outcome and decisions. And it's what scientists do all the time, but that entrepreneurs don't do nearly enough. We play a game, actually, when we're teaching this sometimes, where we ask people have a discussion about some decision, like, should we be using standardized testing in the school? And we ask them, any proposition that you say that could be true or false in that conversation, follow it with a number from zero to 100 of how confident you are in that figure item.

7:28So it makes a rather funny sounding conversation. And the problem is that teachers are going to end up teaching to the test instead of what they think is important. 83. And so these numbers pop up along the way. But what we find is that after people played this game for a little while, they start realizing that, first of all, their confidence numbers are not in the high 90s very often, that a love, things they have by hearsay, they have by their impression of something. And it leaves them open to the possibility that some of those things could be wrong. And it leaves them even able to consider, if this particular one were wrong, would that completely change what my plan is and what my policy would be or my goal or my approach?

8:11So that begins the story, I think, of why probabilistic thinking can be so powerful. The other element is that if you are saying things with a certain degree of probability, it means that you're perfectly comfortable if it turns out to be wrong, that you're able to change your mind because you can say, I said that with 90 % confidence, that sounds pretty good, but that means that one out of 10 times, I really should be wrong if I'm playing this game correctly. And that you should have your honor and your ego attached to having your numbers be about right, not always being right, but having it being that you're, you will be wrong one out of 10 times if you said 90, you'll be wrong one out of five times if you said 80.

8:50And that would be what you're, what you feel attached to, not being right. Yeah, it's really interesting. It is in a way normalizing that the decision you're making could end up incorrect. It is by acknowledging the percentage chance that something's going to work out, or at least the percentage confidence you feel in something working out is to say upfront to others, but maybe even to yourself, really importantly, that this may not work out. I know that going into it. If it doesn't work out, that's okay, because there was simply no way for me to have 100 % confidence in this. People beat themselves up all the time over making a decision that turns out to be incorrect.

9:39But I suppose if you're thinking about it, Saul, just purely on math and probability, the decision that they initially made, they didn't know was going to be correct. They maybe thought it was 75 % going to be correct or they had 80 % confidence, which is good. But as you say, even 90 % is one out of 10 is wrong. So maybe we shouldn't be beating ourselves up over making the wrong decisions because we don't have all the information. And so all we're doing at pretty much all times is just taking our best guess. Is that right? And the probabilistic thinking gives you a bit of a recipe for what to do about it, right?

10:16That even if this comes along, you now actually have some places where you fill the chain of your argument, what you were basing on, you know which parts were weaker and which parts were stronger. And also if somebody gives you a little bit of new information, you know how to say, actually, if that's the case, I've already thought a little bit about what would happen if this particular thing were wrong. Quick, let's pivot. And let's react to the fact that we actually have useful information coming in, not just barrel down the hill, even though somebody points out that there's a tree coming up.

10:43And so these are actually really useful tools to do even more than just cover yourself if you happen to get it wrong. The premise here is taking these things that are generally applied to and very common in science and then finding ways in which they're really useful outside of science. And I'm curious if in your own life you use probabilistic thinking outside of standard science and what that sounds and feels like. I'd say the one place that it's fairly visible to me most is when you have to make a medical decision for yourself or for a family member. And I've been thinking about this in terms of what was I asking doctors when I was with a family member and helping them make a decision.

11:27And I was trying to gauge basically a bunch of the probabilities so I could guess, are we going the right direction here or not? And I knew that we were not going to get any guarantee, right? No doctor can promise you that, except in really good situations, they can promise you that everything will work. But you can gauge, are we doing the best we can in this situation? And I think that's actually somewhat comforting that you're able to say it's all we could do, that we don't know more than this, but this is probably our best bet at the moment. It's difficult, right? Because you don't always have, for example, real numbers to quantify the probabilities.

12:04and you can't just always say, okay, this one's 79, this one's 83, so let's do the 83. It's often you're doing something a little bit more approximate in your feel for, okay, I think what I'm hearing you say is that you're 90 % sure about this, but that you're only 80 % sure of that. And yet it does give you some basis to make these very difficult choices. But there's other situations which are much more relaxed, where you're looking at the odds that you'll make your plane connection if you go this route or that route. And so you figure that, okay, worse comes to worse, we missed dinner. But it still is part of the repertoire of how you tend to find yourself thinking once you're doing this.

12:43And it just is automatic that you'll make these sort of rough guesses as to where the odds are of different parts of the story. Yeah, the stakes, obviously the stakes are lower on the airplane versus the hospital. But stakes still, they are. We want to make good decisions and better outcomes lead to better lives. So I totally appreciate that. I was thinking as you were talking about the point you made earlier when you first introduced the idea of probabilistic thinking, which was that scientists don't generally know for certain a lot. There's a lot that we don't know, which is the reason why every news story about a scientific discovery will also note how it updates current understanding of.

13:29We just discovered this ruin in England, and it completely updates our understanding of the early civilization there, whatever. And so that's because we had formed a foundation of knowledge based on what we knew was limited understanding. And so we've created that space for that understanding to change, even as at the same time, we try to move forward with the understanding that we have. We're trying to hold two things in our head at the same time, Saul. I'd love to hear you analyze that or give us a way to hold those things, because here we are acknowledging that we don't have all the information, which is scary, but then having to move forward with the information that we do have, knowing that something is missing, but we still have to make decisions and we still have to build on top of whatever foundation we have.

14:22How are we supposed to hold those two things together? I think this is a great question because in some sense, there's a real temptation to say, oh, if science is going to change its mind about things, why should I believe anything that it says? Because they'll come up with something else in a few years. In fact, what's missing there is this very practice of using probabilistic thinking tells you that if you decide to ignore all this information that you have because it's not either absolutely true or absolutely false, you're really crippling your ability to do anything effective in the world because in the end, this is really our superpower, our ability to make decisions and to act even with only incomplete information.

15:06The information could be pretty strong. I think we can pretty much put 99.99999 % odds that we will get on an airplane. It will fly magically through the air and it will land somewhere else. And when we get off, we will be at another location. And it's remarkable. And we will be alive. And we'll be alive. It's remarkable how successful that debt has become. Probably it was not the case back when Overwrite was starting. Definitely not. But it really has become that amazing confidence level. And if you said, OK, but is it 100 percent? No, it's not 100 percent. But you don't say at that point, OK, I'm not going to take a plane until it's 100 percent.

15:44It's clear that It's a very effective part of our lives. And most of what we're trying to capture here is that ability to act and make decisions, even when you're saying that what your information is is probabilistic. And so you should be aware when it's at 99.99 % and you'll bet your life on it. You should also be aware that, okay, here it's 99.5%. Maybe I would even be willing to bet my house, but I probably wouldn't bet my life or whatever it would be. And this is actually the key to this story, I think, is that you don't think of it as a weakness to be only able to state things probabilistically.

16:23This is your superpower. This is that it's allowing you to do all sorts of things in the world that otherwise you would never be able to do. And we flew to the moon because of this. And we can instantaneously communicate around the world today, anywhere, and localize ourselves. And these are all built on probabilistic thinking, not on anything that's certain. And we will keep updating the bits and pieces that are underneath it as science learns. Saul, this is really fascinating. And I love the simplicity of this framework as a way of navigating very complex and unknowable situations. So let's end by just applying this directly to someone who's listening right now who has a hard business decision to make.

17:14And they have a team that is relying upon them. People are waiting for a decision. And this person right now is listening to you and thinking, okay, look, I have options in front of me. I do not know which one is gonna be the right one. You really wanna make the best decision. how exactly can i can't i i know that saul cannot tell me what the right decision is but what am i supposed to do next and how can i use probabilistic thinking to at least make what i feel like is the most confident decision the the specific examples obviously depend so much on the chain of logic of what was needed to make that decision but within that chain very typically there are several key factors that you have to balance and it's very useful to roughly guess if i bet on this one 10 times would i get it right nine times or do i only bet that i'll get it right seven times and capture that and it may be that you're the people who are giving you the advice can be asked that question and they can you can tell them all right tell me what is the confidence in this part of the story versus the confidence in that part of the story.

18:27And then you put it together and you say, okay, with these different pieces, this option, when it comes down to it, it may or may not work, but it's the one that has a little bit more like 95 % confidence. This other option, it could be a little bit better. We might reap 10 % better results out of it, but I really think it's only got a 75 % chance of working. and when you put those together, you might decide that you go with the more confident one even because then the odds of making some good results out of it are still better. So it's that feel that you want to be treating this as a, it distances you from it so you don't have to feel that this is personally, a personal problem.

19:08It's a problem where you can just look at what is available to you in terms of information and then you will go with what the best information is and that's what you'll report to people that this is our best information currently and we need to make a decision based on that information. But it would also be nice to tell people that if we have the opportunities to update, here's when we will update. And here's how we will try to keep asking questions to look for particularly the parts that we are less certain about. Let's look for signals that will tell us that those are going right or those are going wrong and then be ready to pivot.

19:43Saul, really useful. The book is called Third Millennium Thinking. creating sense in a world of nonsense. Really appreciate you joining us and sharing some sense. I hope it's helpful. And that's our episode. I would love to hear what you think and maybe even about a problem that you solved. You can find me at my website, jasonfeifer.com. J-A-S-O-N-F-E-I-F-E-R.com. Also, I have some more useful stuff for you. I write a newsletter about how to future-proof yourself and become more adaptable and optimistic. I would love for you to sign up. It is at jasonpfeiffer.bulletin.com. Also check out my other podcast.

20:23It's called Build for Tomorrow. In each episode, I take on some belief that we have that holds us back from progress and show you why it is not as bad as you think. Problem Solvers is a production of Entrepreneur Media and comes out every Monday morning. So make sure you're subscribed so you don't miss an episode. Thanks to Deepa Shah for production. My name is Jason Pfeiffer. See you next week.