Decision-Making Under Uncertainty and Entrepreneurship (with Miles Lasater)

1. Decompose Intractable Problems

When faced with an intractable problem, break it down into a series of smaller, simpler, and more tractable pieces, then solve those pieces and reassemble them for a solution to the whole problem.

2. Apply Probabilistic Thinking

Integrate tools like Bayesian thinking and Monte Carlo analysis into your decision-making process to think realistically about probabilities and improve aggregate outcomes.

3. Calibrate Your Intuition

Train yourself to translate your expert intuition into numerical probabilities and repeatedly practice stating them in numbers to become calibrated, making your gut feelings more predictive and useful for quantitative models.

4. Reconcile Intuition and Models

When your intuition and a quantitative model disagree, investigate the reasons for the contradiction to deepen your understanding and refine both your intuition and the model.

5. Combine Quantitative and Intuitive Judgments

Improve decision-making by combining quantitative analysis with intuitive gut feelings, as the process of detailed grading can make intuition more reliable, and averaging both approaches can lead to better outcomes.

6. Incorporate Base Rates in Predictions

When making predictions, start by considering the base rate (the average probability of an event in a relevant population) and then adjust based on specific case details, rather than solely focusing on individual case information.

7. Embrace a Learning Identity

Anchor your identity to the continuous process of learning, updating beliefs, and incorporating new information, rather than to specific beliefs, to remain adaptable and persistent on the path to truth and success.

8. Detach Ego from Predictions

To improve decision-making and forecasting, cultivate the ability to adjust your beliefs with new information by detaching your ego from past predictions or positions, prioritizing truth over being right.

9. Inflexible Goals, Flexible Path

Maintain unwavering commitment to your long-term goals, but remain highly flexible and adaptable in your strategy and methods to achieve them, adjusting based on data and feedback.

10. Cultivate Optimism, Short-Term Pessimism

Develop a mindset of long-term optimism (believing problems are solvable and the future is bright) combined with short-term pessimism (recognizing that daily effort is critical for success) to drive motivation and execution.

11. Be a ‘Fox’ in Your Thinking

Adopt a ‘fox’ mindset by cultivating many different mental models and lenses for viewing the world, combining them to make more accurate predictions and avoid biases inherent in a single worldview.

12. Embrace Trial and Error, Failure

Recognize that innovation is driven by constant tinkering, trial and error, and numerous failures; therefore, foster social, economic, and political structures that embrace failure as a learning opportunity rather than a career-ending event.

13. Learn from Others’ Patterns

Don’t reinvent the wheel; instead, learn from the recurring patterns, mental models, and ways of thinking used by others in your field, such as venture capital and startups.

14. Document and Communicate Ideas to Learn

To understand a subject more deeply, actively communicate and document your own ideas, as this process serves as a powerful method for learning in public.

15. Iterative Idea Refinement

Refine your ideas through a multi-platform feedback loop: start with low-cost platforms like Twitter for initial critiques, then move to platforms like Facebook for further refinement, and finally to a blog for a polished version.

16. Prioritize Research by Uncertainty Impact

Use quantitative models and simulations (like Monte Carlo) to identify which variables’ uncertainties most significantly impact your ultimate outcome, then prioritize your due diligence and research efforts on those high-leverage variables.

17. Evaluate Information Value vs. Cost

Before gathering more information, assess its potential value in reducing uncertainty relative to the cost of acquiring it, focusing on areas where information acquisition yields the greatest impact.

18. Seek Information in High Uncertainty Areas

When facing high uncertainty or a wide range of estimates, even minimal information gathering (e.g., talking to a few people) can significantly improve your understanding and narrow your estimate.

19. Use Predictive Proxies

When direct measurement is difficult or costly, identify and use sufficiently predictive proxy metrics (e.g., product usage for user happiness) that are cheaper and easier to obtain.

20. Adopt Superforecaster Habits

Improve your predictions by giving precise numerical probability estimates, being willing to make small adjustments to those numbers with new evidence, and continuously updating your estimates rather than fixing them.

21. Integrate AI with Human Judgment

When using AI for decision-making, consider three integration strategies: using human input as an AI variable, providing AI predictions as input to human decision-makers, or combining AI and human predictions with weighted averages.

22. Increase Portfolio for Power Law

As an investor, if you believe outcomes are power law distributed, increase your portfolio size to maximize your chances of capturing the few, massive winners that drive overall returns.

23. Invest in Mission-Driven Companies

As an investor or founder, focus on companies that are mission-driven and aim to improve the human condition, as this guiding force increases the likelihood of creating positive impact, even if not every outcome is perfectly predictable.

24. Identify Impact-Driven Founders

When investing in or collaborating with founders, prioritize those genuinely driven to create positive impact, as their commitment to the mission can ensure critical details are addressed, making the difference between perceived and actual good.

25. Allow Early Founder Payouts

As an investor, consider allowing founders to take some money out of the business at an earlier stage to create a financial floor for them, which can encourage them to continue pursuing aggressive growth and higher-risk, higher-reward strategies.

26. Advocate for Founder Risk Reduction

Support policies and mechanisms (e.g., better healthcare, shared risk models like owning small stakes in other founders’ companies) that reduce the inherent risk of starting a company, encouraging more innovation and problem-solving.

27. Practice Probabilistic Estimates

Engage in practice and iteration, especially with feedback, to improve your ability to make probabilistic estimates, aiming for your stated confidence levels (e.g., 90% likelihood) to accurately reflect actual outcomes.

28. Practice Confidence Intervals

Develop the skill of stating 90% confidence intervals for numerical estimates (e.g., ‘I’m 90% sure the real answer is between X and Y’) to improve your judgment on uncertain quantities.

29. Use Calibration Tools

Utilize free online tools like ‘Common Misconceptions Test’ and ‘Calibrate Your Judgment’ (on clearerthinking.org) to practice making probabilistic estimates and track your calibration.

30. Consult ‘How to Measure Anything’

Read ‘How to Measure Anything in Business’ to learn about making decisions under uncertainty, estimating the state of the world, and calculating the value of additional information.

31. Read Superforecasting for Predictions

To improve your forecasting abilities, read ‘Superforecasting’ by Philip Tetlock, which details techniques non-experts use to outperform experts.

32. Use Decomposed Monte Carlo Models

For investment decisions, use spreadsheet models that decompose a problem into dozens of specific estimates (e.g., market size, team likelihood of success) and run Monte Carlo analysis to understand probability-weighted return on invested capital.

33. Account for Variable Interaction in Simulations

When performing Monte Carlo simulations, ensure your models account for potential interactions between different variables (e.g., low sales impacting financing) to generate more realistic outcomes.

34. Listen to ‘Startups for Good’ Podcast

For more insights on mission-driven entrepreneurship, listen to Miles Lasseter’s podcast, ‘Startups for Good,’ available at startupsforgood.com or @startups4good on Twitter.