Shane Parrish in his blog Farnam Street writes about difference between reversible and irreversible decisions.
Parrish writes that we often think that collecting as much information as possible will help us make the best decisions. Sometimes that’s true, but sometimes it hamstrings our progress. Other times it can be flat out dangerous. Jeff Bezos, the founder of Amazon.com, has another one we can add to our toolbox. He asks himself, is this a reversible or irreversible decision?
If a decision is reversible, we can make it fast and without perfect information. If a decision is irreversible, we had better slow down the decision-making process and ensure that we consider ample information and understand the problem as thoroughly as we can. Reversible decisions can be made fast and without obsessing over finding complete information. We can be prepared to extract wisdom from the experience with little cost if the decision doesn’t work out. Frequently, it’s not worth the time and energy required to gather more information and look for flawless answers. Although your research might make your decision 5% better, you might miss an opportunity.
Reversible decisions are not an excuse to act reckless or be ill-informed, but is rather a belief that we should adapt the frameworks of our decisions to the types of decisions we are making. Reversible decisions don’t need to be made the same way as irreversible decisions.
With practice, we also get better at recognizing bad decisions and pivoting, rather than sticking with past choices due to the sunk costs fallacy. Equally important, we can stop viewing mistakes or small failures as disastrous and view them as pure information which will inform future decisions. Once you understand that reversible decisions are in fact reversible you can start to see them as opportunities to increase the pace of your learning.
“A good plan, violently executed now, is better than a perfect plan next week.” — General George Patton
Parrish’s thoughts are likely to be very useful for investors. We often take a lot of time to decide about buying or selling something as we want to gather more information. We lose the opportunity in our quest for more information. Most of the times investing decisions will be reversible. We will never have all information that we need so we have to decide whether we have sufficient information to decide. In a few cases, we will go wrong taking an early decision and it may cost us money. Nonetheless, we have to make a start and improve our decision making ability with time as we have to live with the fact that perfect information may be perfectly useless in investing world.
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