17 Jun 2016 Do You Have Options?
Are your options wide enough?
Have you ever noticed when filming activities like children playing, school plays, or sporting events, how difficult it is to capture the whole story? There’s so much going on outside the tight focus of the camera’s lens we can’t possibly capture it all. Regrettably, the phenomenon also explains a significant part of our lives and how we make decisions and plans.
Chip and Dan Heath, in their book Decisive, use teenagers to illustrate how narrow our frames of reference can be for most of our decisions, even the most important ones. They are called single-option decisions. For example, ‘should I break up with my boyfriend or not?’ is a single option decision.
In a most revealing section they refer to a 1977 study by Paul Nutt comparing the decision-making process of teenagers to those of major corporate CEOs. The study revealed that of the decisions tracked only 30% of teens considered more than one option. Surprisingly, Nutt found that only 29% of CEOs and their organizations considered more than one alternative. The cost? A KPMG study of 700 mergers and acquisitions that a shocking 83% of them failed to boost shareholder value.
While the cost of bad decisions by CEOs is measured in millions and billions of dollars, wrong decisions in life planning impacts our lifestyles and those of the ones we love. We are not particularly interested in CEOs for any reason other than the fact that we deem them to be smart people; tops in their classes. If these men and women make such big mistakes in planning and decision-making for their companies, how can we hope to do better?
One great way to make better decisions and plan more effectively is to widen our options beyond single choices or “whether-or-nots.” Nutt’s research indicates that considering just one more option improves the failure rate of decisions from 52% to 32%. So how do we escape our tendency to narrowly frame our decisions?
The Heaths point out that process is far more important than analysis. They offer the mnemonic WRAP to easily remember the process.
Widen your options
Reality test your assumptions
Attain distance before deciding
Prepare to be wrong.
So by adding just one more option, we can improve results of our decisions from 50/50 to two in three. The Heaths further suggest that considering opportunity costs increases our options and our understanding of them. For instance, if we buy the latest iPhone we can impress our friends, but if we buy last year’s model we will have an extra $200 for apps and music, or rent money. Problem is, when we focus on that brand new iPhone, we lose awareness of all other options. We’ve allowed our emotions to make our decision.
In our profession we often see questions with important financial implications framed in a binary way. “When do you want to retire?” feels like an innocuous question, but it ignores, “Have you considered phasing out of your current job five years ahead of when you wish to retire?” Or, “Is there another career that you’ve always wanted to pursue, and what you be willing to do to make that a reality?” Putting more options on the table widens your gaze and improves the likelihood that you will make the most beneficial decisions possible for you and your family.
If you want to graduate from binary options and arbitrary target dates into a more authentic style of life-planning, please give us a call. We’d love to help.