Defining judgment

Professor Andrew Likierman of the London Business School says, “Judgment is the ability to combine personal qualities with relevant knowledge and experience to form opinions and make decisions.” I like this definition because it recognizes the role personal qualities (such as likes, values, and beliefs) play in judgment. After all, so many decisions facing us have no obvious right or wrong—and the “right” decision for you may be completely wrong for someone else. Things aren't always simple, in other words, and this is why we need to exercise judgment in order to arrive at the best decision we can, based on a combination of information, experience, and our personal attributes.

Likierman says judgment can be measured according to six core elements:¹

1. What you take in (essentially, how much attention you pay to what you hear or read)
2. Who and what you trust (as in, whether you're basing judgment on high-quality, reliable raw materials; see Chapter 5, “Critical Thinking”)
3. What you know (bearing in mind that what you know to be right today may be wrong or out of date tomorrow)
4. What you feel and believe (i.e. being aware of your values and beliefs, not only to use them when appropriate, but to also recognize when they may hamper judgment)
5. Your choice (as in, bringing together the raw materials and using decision-making techniques to improve the chances of success)
6. Delivery (in other words, making a choice isn't the end of the story, because you also have to take into account feasibility of delivery)

To further understand judgment and decision-making, we need to grasp two key concepts: rationality (or, more specifically, why humans aren't rational all the time), and intuition (or, importantly, the difference between acting on intuition and acting on considered logic).

Rationality

Good decisions are rational decisions, right? As humans, we all intend to make rational decisions. (No one intentionally sets out to make an irrational decision.) And this is why we do things like weigh up the pros and cons of decisions—a perfect example of a rational decision-making technique.

The trouble is, various limitations prevent us from being 100 percent rational all the time. Being pressed for time may limit a person's ability to gather all the information needed to make a fully rational decision. The limitations of human memory mean we can't retain infinite amounts of relevant information. And, of course, cognitive biases (see Chapter 5) limit our ability to think critically. This notion of bounded rationality—meaning that rationality is limited—was proposed by Nobel Prize–winning psychologist Herbert Simon. Simon's bounded rationality framework is so important because it explains the discrepancy between the assumed rationality of human decision-making and, well, the reality of human decision-making.

Another factor in decision-making is the way in which the brain actually thinks.

Intuition versus slow thinking

When we make a decision or take an action, the brain deploys one of two modes of thinking. Firstly, there's the quick, intuitive approach—where our brain processes a decision within seconds or milliseconds, often without any conscious thought process. Think of knocking over a full glass of water on your desk and then instantly snatching it up; your brain doesn't need to weigh up the pros and cons of picking up the glass versus letting the water spill towards your laptop; it just does it.

And then there's the second, more considered approach, where you think critically about the right way forward. A good example might be weighing up two job offers based on factors like salary, organizational fit, commute time, opportunities for future advancement, and so on.

This contrast between the two systems of thinking is perfectly described by renowned psychologist Daniel Kahneman in his best-selling book Thinking Fast and Slow. The first system, thinking fast (intuition), is perfectly fine for little decisions, such as deciding whether you want chicken or hummus in your sandwich. But for more complex decisions we need to deploy the second system, thinking slow. Here, we need to take the time to weigh up our options based on multiple factors. We need to look at the bigger picture, and not just rely on our instincts.

We all know this at heart. And yet every one of us has made rash decisions at one time or another—where we've rushed in and acted without proper consideration, only to regret it later on. We do this because thinking slow takes effort, concentration, and self-control—and, sometimes, maybe because we're tired or stressed, we just don't have those skills. As a result, the fast-thinking mode takes over. And this is precisely why even smart people can make bad decisions.

Bad decisions and mental shortcuts

History is littered with examples of otherwise intelligent people making terrible decisions. (Think of Ronald Wayne, co-founder of Apple, who sold his 10 percent stake in the company to co-founders Steve Jobs and Steve Wozniak for $800 in 1976—a stake that would be worth about $80 billion today. Wayne later said he “made the best decision with the information available to me at the time.”)

One of the key reasons for bad decisions is simplification. When we're overwhelmed, we tend to oversimplify things. The brain, struggling to process a lot of data, creates mental shortcuts or simplifications in order to streamline the process and make what seems like a daunting decision (even if it's not really daunting but we're just tired or stressed), much simpler.

Overwhelm isn't the only reason why the brain creates a mental shortcut. You might, for instance, be trying to please someone you love or trying to be more like someone you admire, both of which involve the brain taking a mental shortcut (“What would make so-and-so happy?” or “What would so-and-so do in this situation?”), rather than taking the time to fully consider all the options.

Biases are another example of a mental shortcut. For example, there's the tendency to prioritize the information that supports what we already think (confirmation bias, discussed Chapter 5). Then there's the optimism bias, in which we tend to underestimate the likelihood of something bad happening to us. Take smoking as an example. Science clearly shows that smoking can kill. Most of us accept this as fact. But because of optimism bias, an individual smoker will believe smoking kills other people, but not them. As a result, they'll make the poor decision to carry on smoking.

For individuals

Here are some practical ways to improve your decision-making skills.

• Start by defining the problem. Making a decision always starts with understanding the situation or problem. By doing this, you can identify gaps in your knowledge and where you need to gather extra information.
• Define your desired goal. What are you hoping will happen here? What's the best possible outcome? Sometimes we can get so bogged down in options that we forget what we're actually trying to accomplish.
• Outline and then weigh up your options. Making a list of options and then defining the pros and cons of each is a great way to make an informed, objective decision. Alternatively, you could use a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to evaluate different scenarios. If you have too many options, try limiting your choices by considering just a few options at a time.
• Get help when you need it. Depending on who is affected by the decision, you may need to involve others in the decision-making process. Other times, you may just need a second opinion, in which case talking things through with a trusted friend, colleague, or mentor will help you evaluate options, validate your decision, and grow in confidence.
• Set a deadline for decisions. If you're prone to procrastination, try setting a limit for how long you'll take to decide. Of course, some decisions really do need more time for consideration than others, so this isn't a one-size-fits-all approach. This leads to the next point.
• Keep the decision in perspective. Here, it can help to remember the Thinking Fast and Slow book (which I highly recommend you read). Not all decisions require slow thinking, and if you dedicate too much time and focus to the decisions that aren't really that important, it can sap your energy for making bigger decisions. And sometimes, it may help to weigh up the consequences of making a decision versus not making a decision—meaning that sometimes you can well afford to take a wait-and-see approach.
• Remember that judgment means drawing upon personal qualities as well as information and experience. In other words, good decision-making may involve a combination of head (information, experience), heart (values, beliefs), and gut (instincts). Being analytical is a good thing, but machines are always going to be better at that than humans—where we excel is in considering the very human consequences of our decisions.
• Be aware of your biases. While you shouldn't disregard gut instinct, do remember that, sometimes, gut instincts come from a place of personal biases. Always be on the lookout for this, and practice your critical thinking skills.
• Don't be afraid to experiment. More often than not, there is no one right decision—just different consequences. That guy who sold his Apple shares for $800? He has spoken openly about struggling to keep up with Jobs and Wozniak and how, if he'd stayed on in the company, he would have ended up “the richest man in the cemetery.” The consequences may have been bad from a financial point of view, but that doesn't mean it was the wrong decision for him personally. With this in mind, don't be afraid to try different approaches or experiments to test certain decisions.
• Keep working at it. A good way to improve your decision-making is to keep analyzing decisions you've made and how they played out. Use that information to help you make similar decisions in future.

As a parent, I also think it's important to instill judgment and decision-making in the next generation. Some good ways to do this with your own children include:

• Let them practice making choices.
• Be clear about what they have decision-making control over, and in which areas you have parental control. Obviously, this will evolve as they grow older.
• Show them how you make decisions yourself, even tiny everyday decisions like whether to take a waterproof jacket when you walk the dog.

For organizations

It goes without saying that there are countless training options out there that will help you build decision-making skills in your organization, so let me focus here on the bigger issues for companies.

First, it's vital business leaders remember that, while machines will play a greater role in organizational decision-making, it's up to humans to consider the real-world consequences of decisions. This process of considering the impact of decisions on the business and the people who work for it should be modeled at every level of leadership and management.

As part of this, you'll want to build a culture of critical thinking, where people routinely do things like question data and consider biases. In such an organizational culture, people at all levels of the business are encouraged to ask questions and challenge decisions.