70% Information

70% Information – is a concept so elegant and seemingly effective, that I just couldn’t stop myself from writing about it. 🙂

Its simple and powerful – and can easily help you take tough decisions when navigating through complexities of life.

Whenever you are taking a decision, you don’t want to look foolish. Right?

So you try to get all the information that is necessary and relevant for that particular decision. But at times, waiting for too long can be costly.

And this is what Amazon’s founder Jeff Bezos highlights in his latest letter to shareholders. This is what he said:

Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.

I personally feel this idea is quite useful.

I regularly find myself in situations where I don’t have all the information needed. Though, I would love to have more information before deciding (in life as well as investing), I still need to get on with decision making. I cannot wait to have 100% information. And its always like that.

We never had and we will never have all the information we need to decide most of the things. Its never 100%.

Less information might mean higher chances of being wrong in decisions. And being wrong can translate into losses eventually. But that is fine. As humans, its proven that we have an aversion for losses. People face more mental pain contemplating potential losses than they get pleasure from equal-sized successes.

But this very tendency towards “loss aversion” can be paralyzing. It can lead, us to avoid taking chances (decisions) even when they are more likely to end up in our favor.

For example – There are so many people who know that equity is the best option for long term wealth creation. But since there are real chances of short term losses, they end up ignoring the potential to create long term wealth. And this is what paralyzes their chances of making real money. People should stop focusing too much on making the perfect decision.

Instead we should be ready to take decisions even with less than 100% information (where necessary) and work towards “quickly recognizing and correcting bad decisions.” And when we do that, “being wrong will become less costly than what we think”.

But waiting for ‘more information before deciding’ might not help you always. Being slow can turn out to be really expensive (or less profiting) in long run.

As Warren Buffett said:

You’re going to make mistakes. You can’t play in the game without making any mistakes. I don’t think about it, I just move on… It’s a mistake to dwell on mistakes, it’s unproductive.

It’s like Mark Twain’s story about the cat that sat on a hot stove – he never sat on a hot stove again, but he never sat on a cold one again either.

So don’t be like that cat. 🙂

I don’t know but maybe, Jeff Bezos’ 70%-Information advice is one of the best ones ever given on making decisions.

Do you agree?