Trying on Decisions

I am not much of a car person. However, transportation is on the relatively short list of things “everyone” has experience with. So, for today’s post, we will discuss the challenge of choosing the right car.

Instead of treating this as a math problem where we begin by defining the goals and constraints, I am going to instead follow the path someone considering their options might take. But more than that, I am going to pretend you know a lot about cars but have never really thought about what you would pick before. For decisions we are familiar with, we already have a lot of assumptions we have internalized. Asked what car I want; my first answer is pretty close to my final answer.

Towards that end, I asked my 11 year old son what car he would choose if money was not a concern. He said the “McLaren 720S” would be his first pick. We can infer some things about his preferences from that choice and our knowledge of other options. What we don’t know is what his second, third, etc. choices will be as we layer on practical constraints.

I think of this process as kind of… trying on a decision. You have an idea of what your decision could be, and then you have to see how well it fits (like a piece of clothing). What works and does not work about this decision? Does it feel right to have a car with only two seats, or does that part of the decision feel too tight and need to be changed? What about the idea of driving something that costs about 300K? Is that itchy / uncomfortable, or does it feel just right?

Like the analogy of trying on clothing, for me at least, the big issues jump out at me and I quickly see if this decision is even in the ballpark of right. There may be other things about the McLaren that would make it not the best choice (Google informed me they depreciate a lot and are unreliable). But it is hard for me to care when there is no world in which I personally want a two-seater car. For the people who do buy super cars, those other issues may not fit when they try on the decision. Or it might be fine!

When I identify something that doesn’t fit about a decision, I look for other options to try on. How does a very practical car feel? What about an identical car but new versus a couple years old? Can I imagine having a canary yellow car, or does it have to be stylish white? In a newsletter dedicated to rational decision making, this may seem like an odd way to describe the process. Why focus on how you “feel” about a decision?

The key answer is, except for the very narrow case where there is only one outcome variable we care about, there is always a question of preferences. Would you rather have $10 with complete certainty or a 50% chance of $21 and otherwise you get nothing? (trading off expected value and risk) Would you rather have a super car and $300,000 less, or a used 4 door sedan and only be 20K poorer? (trading off… well, many things)

When talking about preferences, the research shows that people are able to rank their preferences between alternatives, but are not great at knowing how different factors balance. There are many books and papers on the topic, but I will just share this paper by Daniel Kahneman and Amos Tversky from 1982 which covers some of the counter-intuitive things people have seen in experiments.

To me, this research and chain of reasoning inevitably means that we have to compare alternatives to make decisions. “Do you want $10 or $20?” does not really seem like a decision. It is only when we have tradeoffs between outcome criteria that there is a choice to be made. And we just said that trade-offs have to be made based on difficult-to-articulate preferences.

Feel free to comment or reply to this post on the idea of “trying on decisions.” Does the clothes-fitting analogy resonate?