Smart People Make Terrible Decisions

Yes, they do. Perhaps not you though. But if you did, perhaps you don’t believe you would ‘intentionally’ make terrible decisions.

“Otherwise smart people can make terrible decisions. Think about decisions like these as described by Farham Street:

• Napoleon deciding to invade Russia (and Hitler doing it again 130 years later)
• An editor deciding to publish O.J Simpson’s If I Did It
• Chris Webber choosing the timeout he didn’t have in the 1993 Final Four
• NASA’s decision to ignore the O-ring issues on the Challenger
• President Kennedy’s famous blunder to continue the Bay of Pigs operation inherited from the previous administration (a mistake he quickly learned from)
• Margaret Thatcher deciding to get behind a “poll tax” that led to her ouster by her own party
• Juergen Schrempp, the CEO of Daimler-Benz, deciding to merge with Chrysler despite massive internal opposition and a general history of big M&A deals working very poorly
• Jim Cramer looking at Bear Stearns in 2007 and calling it a “BUY”
• …and a hundred thousand more…

These were catastrophic decisions made by people who were, in some sense, professional decision-makers. They had impeccable credentials and judgment, and yet they made poor decisions due to poor judgment, a too-limited mental representations of the world, or just plain stupidity.

When was the last time you thought about how you make decisions?

If you’re like most people, you’ve never been explicitly taught how to make effective decisions. You make decisions like a golfer who never took any lessons: miserable with the state of your game and yet not seeking to learn a better swing, and instead of hoping for the best every time you lift the club. Hoping that this time your choice will finally work out.”

We all accumulate assets, big or small for another day. It’s natural. We all want to make sure when we need our assets in the future, they are available for us to use. It is very easy to not think enough about allocating assets for the future, but that does not mean giving up or compromising too easily. The message by Farnham Street illustrates that even if you are smart, perhaps apply that smartness to realising you can be wrong, often.