11 Mar Emotional, Egotistical and Logical Decision Making
I remember when I was faced with pulling the plug on a business investment that I had sunk a lot of money into and really wanted to work. Actually, I had been faced with the decision to pull the plug two times previously. Both times I sunk more money into the investment.
Third time round I stumbled across a perspective on the decision that I hadn’t considered before.
I figured out I could make the decision one of three ways:
If I think back to the first time I was going to shut down the investment, I made the egotistical decision. I thought – I can make this work. It was a decision based on self-confidence, no data, and very little time went into thinking about it. It was my default position. Back myself. This is the first and largest cash injection I put back in. I didn’t want to appear weak.
The second time I was faced with the decision I made the emotional decision. Other people had vested interests, they were relying on me to put more money in. I didn’t want to let anyone down.
… in went more money.
This time half the amount of the first top up, but another decent amount nonetheless. I lost it all again too.
Third time round. Logical decision time.
What was interesting at this stage is I took longer to make the decision. I collected more data. By this stage the financial loss really hurt. Call it the sting or tarnish of loss, embarrassment (egotistical and emotional damage) whatever way you want to look at it, I was really feeling it this time. But it was the time I spent looking at the data that made the difference.
I could see that the months following the first injection of cash that performance had increased slightly but then it stayed consistent – consistently under profitability. The second cash injection made no difference. Consistently just under profitability.
Third time round. Logical decision time. No more investment.
The investment showed no signs of turning around. The trends were the same. And it still wasn’t profitable. I pulled the plug.
I don’t regret backing myself and investing the first time even though it was the larger cash injection and money I would rather have now. The changes and effort invested did make an immediate difference and I learned a lot from that experience. It’s the second one that gets me every time I think about it… that I didn’t learn from the first time. It took me three times to get it right. That second loss, while smaller, hurts more.
The right decision hurt the most, egotistically and emotionally. But the least financially. Fear of loss (cognitive bias) affected my thinking the first two times.
What did I learn from these decision-making scenarios?
- Get more data
- Spend more time thinking about it
- Gain some perspective – Am I being logical, emotional or egotistical?
- Sleep on it – don’t rush into the decision
Truthfully, it doesn’t need to be more complicated than this. A little more self-awareness and a little more caution and I could have made better decisions. I could have invested less the first time and tracked the results of that injection of cash before re-investing. I could have pulled my investment at the second round. I could have done several smaller investments based on meeting key milestones or drip fed the cash over a longer period. I could have ceased investing at the first stage. I had so many manageable options available to me and I didn’t see any of them.
Isn’t hindsight great?
There is no room for egotistical or emotional decision making in business. Look for the logical solution. The logical decision.