Recall from tip 4 that you should use the wisdom of crowds approach to making better decisions when there are a wide range of outcomes and the outcome is subject to considerable degree of probability. So when should you use a computer to make decisions?
When the principles are clear and well defined, computers tend to outperform experts or the crowd. Think of fields like credit scoring and simple medical diagnosis. But they are increasingly outperforming in other fields too?
The role of statistics in decision making under uncertainty was best popularised by the bestselling book Moneyball: The Art of Winning an Unfair Game by Michael Lewis. The book recounts the story of the Oakland Athletics baseball team pioneered the use of statistical modelling of player performance. By relying on computers rather than expert perception they were able to compete with teams with three times the budget.
The psychologist Philip Tetlock completed an exhaustive study of expert predictions, including 28,000 forecasts made by 300 experts from 50 countries over a period of 15 years. The predictions related to political and economic events with a wide range of outcomes. According to Tetlock, “It is impossible to find any domain in which humans clearly outperformed crude extrapolation algorithms, less still sophisticated statistical ones.”
Which house should I buy, when should I get married and to whom?
Over the article of our lifetimes we make a handful of big decisions. Who to marry? Which house to buy? What career to pursue? All are subject to uncertainty.
An algorithm may be able to help. The optimal solution to these problems (assuming you are trying to maximise your chances of getting the very best partner, job or house) is 37%. If you want the best odds spend 37% of the search time allocated noncommittally exploring options. According to the authors of the book “Algorithms to Live By”, this is not merely an intuitively satisfying compromise between looking and leaping, it is the provably optimal solution.
How using formulas can enable you to make better decisions
- Less is more: The idea behind “less is more” it that it is often rational to ignore information in making decisions to prevent “overfitting”. The inclusion of every detail helps the model match the observed data, but prevents generalisation to new situations and predictions based on new data lack reliability.
The tip from this article on decision making is that you can only do so much to improve your decision making. The problems that we face each day are hard, and there isn’t always the time to optimise the decision making process. I’ll finish this article with a quote from the book Algorithms to Live By: The Computer Science of Human Decisions:
“Don’t always consider all your options. Don’t necessarily go for the outcome that seems best every time. Make a mess on occasion. Travel light. Let things wait. Trust your instincts and don’t think too long. Relax. Toss a coin. Forgive, but don’t forget. To thine own self be true.”
Materials Risk is a verified creator on the Brave Rewards platform. If you’d like to support Materials Risk please consider tipping some BAT. You can download the Brave web browser here.