5 tips to help you make better decisions according to behavioral economics

I admire people who seem fearless in their pursuits. A few years ago, a successful TV news presenter, a friend of mine, casually announced she’d no longer be broadcasting live from the White House. She quit. “Yeah they were a bunch of assholes so I said screw it.” I could scarcely believe it—she had a massive salary package and a multi-year contract with a penalty for breaking it. Not to mention a mortgage payment. “What will you do,” I asked, to which she shrugged and said she’d figure it out.

Fast forward a few months, and she’s making documentaries with top talent and more than made up her salary. A few years from there, she launched her own publication with other top journalists. Her decision to quit what I thought was a golden-ticket-type job was inspired, in hindsight, at least.

Quitting a sure thing to take a chance isn’t my natural inclination, so I’ve consumed every scrap of behavioral economics and psychology knowledge and doubled down on those concepts in my MBA. Here are my five tips I lean on when trying to figure out what to do with myself.

Reversibility, or cost to quit. This is my favorite Jeff Bezos quote. Is the path you’re following a one-way door or a two-way door? Or, put differently, what is the cost of quitting a particular path? For example, if you launch a side-project that costs your free time but not other resources, the cost of quitting that project will be zero. If you move across the country for a new job but don’t like it after a few months, there’s a hefty cost to quitting and going back to your old employer.
Is this a freeroll? Gamblers get this one instantly—a freeroll as described by psychologist Annie Duke is “A situation where there is an asymmetry between the upside and downside because the potential losses are insignificant.” Cold emails are freerolls. Asking a stranger for something is often a freeroll. Putting up a landing page for a new product idea is a freeroll, since it costs very little, but the upside of the product succeeding could be in the six figures. If you’re in a freeroll situation, take it.
Satisfice, don’t maximize. This fantastic portmanteau was coined by Nobel-winning economist Herbert Simon in 1956, combining “satisfy” with “suffice.” If you’re like me and will search “best toothpaste” or “best sweatband for 80s-themed party” before making any purchasing decision, invoking the incantation “satisfice” will save you buckets of time. Simon’s theory was that attempting to find a solution with maximum utility would be burdensome in a complex world. Instead, we should look for an option that gets the job done to a satisfactory degree. Think of it this way: what’s the difference in utility between the best toothbrush in the world and the third-best toothbrush?
Hedging. I’m naturally risk-averse, so this is a favorite of mine. But buying insurance or hedging isn’t enough, according to Annie Duke. You need to imagine what it will feel like the day after you don’t use the hedge. Like that feeling when you return your rental car unscratched and realize you paid an extra $100 for “nothing.” Not quitting your job when you launch on IndieHackers is a hedge. You can take this too far, like Brett from DesignJoy, who only left his full-time role when his “side hustle” brought in $80,000. A month!
Make a “decision tree” with payoffs. This can be clunky at times but warranted, nonetheless. It’s a classic decision theorist technique—you map out the paths you could take and branches these could follow. You assign each with your best-guess odds and multiply that by the reward to obtain your expected value. So it might look something like, quit my day job, launch a side business. Add the odds of success, let’s say one in 20. Multiply that by the payoff, let’s say, a million dollars in profit a year. The expected value is 1/20 x 1M, or $50,000. This would be a good bet if your day job pays $40,000. Better yet, you could hedge if you can take an extended leave from your job. Or maybe cut down to part-time.

I love hedges. I’m on an extended leave of absence as a US diplomat. I’m building EnterInk.com, a subscription service that gives you quality written content from experts for a flat monthly fee. Since this is bootstrapped on the cheap, it’s mainly a freeroll. If it doesn’t pay off soon, though, it’ll be back to bouncing from country to country for me.