Misdiagnosing bad (and good) luck

Sometimes I make good decisions based on the information that I have available. Sometimes I make bad decisions. Sometimes I wait for more information and sometimes I act quickly on a hunch. I have written about this sometimes in the past.

You would hope that good decisions lead to good outcomes, but sometimes, in fact, I have made a good decision and then been unlucky. Similarly, I have sometimes made a bad decision, but been lucky.

Nothing revolutionary in that observation I guess, but let me put it in a diagram anyway.

Decisions and outcomes – good and bad

Now I can break outcomes into 4 types

  • A good decision leads to a good outcome – well done me, I made a good call
  • A poor decisions leads to a poor outcome – Not well done, learn to do better
  • Outside events led to a poor outcome, in spite of the decision being good. I was just unlucky this time.
  • Outside events led to a good outcome, in spite of me making a bad decision. The outcome was a “fluke” and I got lucky this time.
Good call, bad call or luck based outcome

What I want is good outcomes regardless of my decision – so I am happy to be lucky. However there is a danger here.

When I am lucky, it is easy to learn that I can get away with bad decisions, or worse, that I made the right decision. I will get away with this as long as I am lucky.

When I am unlucky, I may feel despondent and again learn the wrong lesson – that I am helpless or that I should have done better.

The trick then, is to learn from my “good calls” so I can practice the skills needed to repeat them; and to learn from bad calls, so I can learn to see my mistakes coming.

However – it is also important to avoid the wrong lessons from the flukes and unlucky outcomes. If I learn the wrong lessons then I will potentially be learning to make worse decisions.

So how can I do that? One thing to do is to follow the old proverb:

“Look not where you fell but where you landed”

An old saying

In other words, learn to review decisions based on what I knew at the time. This can be hard but is doable.

But another trick is to think about luck when making decisions. I can’t always predict luck, but I can ask myself a couple of questions:

  • What do I think will happen when I make this decision? When should I see evidence of that?
  • What are the odds that I am wrong? If I was wrong, what else could happen? Would that be good or bad? What might I see that would indicate that things have changed from what I expect now?
  • What would I do if I was wrong? When would find out?

Predicting what else might happen at the time your are making your decision is actually and important way to protect from “hindsight bias” which often leads to learning the wrong lessons from outcomes.

So I am going to focus some of my attention on predicting what I think will happen and what else might happen. Then I might look at when I was lucky/unlucky or making good/bad calls. I hope that this will help me with my expectation setting (and resetting) and with my planning. I will see how it goes.

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