Theory of Decision

“Every time you make the hard, correct decision, you become a bit more courageous, and every time you make the easy, wrong decision, you become a bit more cowardly"........ Ben Horowitz (venture capitalist in his book, The Hard Thing About Hard Things)

If you read through Jeff Bezos’ 1997 Annual Shareholders Letter for long enough, you will find a message buried in the footnotes, Bezos uses this letter to outline his theory of decision-making. 

For the Amazon founder, there are only two types of decisions in the world. 

“Type 1” decisions are significant and irreversible. In Bezos’ theory, they are one-way doors: “If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.” 

“Type 2” decisions operate differently. They are two-way doors – easily reversible and light on jeopardy. When it comes to Type 2 decisions, if you don’t like your choice, just walk it back and try again.

Bezos makes his concern clear in his letter: as Amazon scales, it cannot lose its creativity. Employees across the company must recognize when they are facing a “Type 2” decision – and move quickly. 

As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions, he writes. “The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention.”

While big companies like Amazon might worry about maintaining their speed at scale, startups must know when to slow down and deliberate, to recognize when the stakes are high and the consequences of a misstep.

Decision theory has numerous applications in various fields, including economics, finance, management, psychology, artificial intelligence, and public policy, among others. It helps decision-makers understand and improve their choices by considering the available information and the potential consequences of their actions.

If you move too quickly, think too little, and act without strategy, you will lose the Edge.

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