Negative Decision Making
There are many ways to approach the decision making process. The most common is to make decisions that maximize the probability of the desired outcome, which we’ll call “position decision making”.
Negative decision making is another approach that focuses on all possible outcomes and choosing to minimize the possible downsides. In Positive Decision Making, potential benefits are the primary consideration, whereas in Negative Decision making, potential benefits are factored in afterwards as a secondary consideration. Positive decision making takes into account a limited set of outcomes and seeks to maximize the expected result; negative decision making takes into account all possible outcomes and seeks to minimize the expected downside.
The simplest example of Negative Decision Making happens when you try to avoid an unwanted outcome. If you know you are lactose intolerant and you want to avoid eating any dairy products, you use the Negative Decision Making process to choose between options, some of which sometimes contain dairy. In this example, dairy products are always considered the greater of the two evils when you’re deciding what to eat.
It’s not obvious why one should practice and improve upon their Negative Decision Making skills when Position Decision Making works for the vast majority of situations in their life. There are two things that make Negative Decision Making more effective in the long run:
- Bad things are so much more bad than good things are good
- If you don’t survive, you don’t get to play again
There’s a reason for your brain’s Negativity Bias, and that’s because bad things are so much more bad than good things are good. The good things in life display diminishing marginal returns — i.e. each additional unit of something good gives you less additional happiness — and no matter how good things are, your brain will eventually return to its baselines state of happiness (see: Hedonic Treadmill). Together, diminishing marginal returns and the hedonic treadmill functionally cap the upside of the good things in life.
On the other hand, there is really no obvious limit to how bad things can get. Bad things, unlike good things, don’t display diminishing marginal returns. On the other hand, they seem to display increasing marginal returns, which means each additional unit of something bad gives you increasing misery, up to a certain point. Also, bad things compound — each thing makes you less able to handle the demands of daily life, until you are completely miserable and incapacitated. The Hedonic Treadmill concept still applies here, so you will eventually return to your baseline state of happiness following a bad event, as long it’s just that one event. But since bad things have a tendency to compound (one bad event begets another, and another), then you might never get to spend much time at baseline. When I say “bad”, I don’t mean things that you don’t want to do or don’t like to do but that otherwise have benefits, like exercise. I mean stuff like cancer, student loan debt, depression, chronic illness, obesity, that sort of stuff.
One of the points that Taleb makes in his books is that people don’t understand how to handle tail risk. Tail risk is any risk that we have little or no data on. Because we know so little about Black Swan events, people have a tendency to ignore them and focus on the kind of risks that we have a lot of data on; basically, any risk that can be quantified and used for predictions (see: Taleb’s take on the normal distribution). This is fine 99% of the time, but the problem is that tail risk and Black Swan events are real. It’s only a matter of time before they show up. Herein lies the problem — we know nothing about these events and it’s a matter of time before they show up, so how does one prepare for these sort of events? The only way is to consider all possible outcomes and make sure in every case you end up in tolerable position. In other words, use the negative decision making process.
Managing risk is the art of balancing short term gains against the probability of ruin in accordance with your personal risk tolerance and desires. You can live life in the fast lane and accept the high probability of dying young or spend your entire life sitting inside in hopes of living as long as possible. In the end, the choice is up to you. The mistake people make, and the issue with positive decision making, is focusing on the possible upsides and not giving enough thought to the possible downsides and tail risk involved. If you win, you win, but if you lose, you could die, and if you die, you don’t get to play again. Even if you do get to play again, there is an opportunity cost that you incur that often far exceeds the possible upsides involved. By “dying” I mean literally dying but also any other metaphorical way of “dying”, like losing all your money in the stock market or going to jail. By focusing on the worst-case scenarios (negative decision making) instead of maximizing the expected benefit (positive decision making), you are much more likely to survive to see another day and less likely to incur the huge opportunity costs that come with losing big. Negative decision making is definitely less exciting, doesn’t feel as good, and usually requires more legwork, but as time goes on, it’s what accounts for most of the differences in outcome.
Footnote: The key to maximizing one’s sense of well-being, or “happiness”, is by seeing the world through what is not there and what did not happen, i.e. a negative lens. One’s perceived sense of well-being is a function of three things: where you are now, where you want to be, and where you could be in the worst-case scenario. Seeing the world through a negative lens helps you see how bad the worst-case scenario and how infrequently it occurs. (Here I use “negative” to mean “not present” in addition to “bad”.) When you start to see this, the distance between where you are and where you want to be doesn’t seem so large anymore in comparison between where you are and where you could be.
Popular psychology has sort of figured this out via gratitude journalling. They point to scientific studies that show that gratitude journalling increases one’s perceived sense of well-being (or something like that, I haven’t read any of these studies), but misunderstand why. Gratitude journalling works not because you are listing things you are glad you have in your life, but because you start thinking about the things that you are glad you don’t have to deal with. You start to see all the things that could’ve happened and didn’t, and by doing this, you start to see the world a negative lens.