Framing Decisions Based on Cost of Failure

Considering the “cost of failure” drives much of my decision making.

For example, when I buy new clothes (at most once a year), the cost of failure is low. Even if the piece of garment doesn’t quite fit or doesn’t quite look as I’d want to, I’ll accept it, because I hate shopping and don’t care much about fashion. So, it doesn’t make sense for me to spend unnecessary time agonizing over this t-shirt versus that t-shirt — the cost of failure for me is low.

On the contrary, meals have a high risk of failure. If I have a bad breakfast (or worse, no breakfast at all), it can negatively impact my day in a meaningful way. So, I am more conservative about what I order at restaurants. I would argue for most people meals have a high cost of failure, one reason why people tend to order the same thing each time they go someplace. A known success is better than risking a failure. People also seem to regularly agonize over their orders, poring over the menu and discussing their potential choice with their eating mates. Makes sense if the cost of failure is high.

Reading a book has a low cost of failure for me. I own tons of books. I have 40+ books unread at my house and about 200 books on my Amazon wish list which I’ll buy eventually. If a book doesn’t engage me, I put it down. It’s very easy to stop reading and pick up a new one. This is why I’ll add a book to my wish list without a lot of scrutiny.

Going to a movie theater has a high cost of failure for me. If the movie is bad, I’m stuck in the theater (come on, are you going to walk out?). Going to a movie theater also requires transportation time. Finally, movies in a theater are shown when the theater wants to show the flick, not on your own schedule. For all these reasons I rarely go to movies in a theater (3-5 times a year) and when I do, I subject the decision to a lot of scrutiny and time. If the movie fails to entertain me (a higher bar than for most people), the consequences are high.

Low cost of failure means more risk taking and faster decision making.

Here’s how to start incorporating this thinking into your own decision making. Ask yourself, If what I’m about to do fails (whatever that means to me), what are the consequences and are they meaningful?

Then, probe on the word “meaningful.” Figuring out what matters to you and what doesn’t allows you to frame decisions in this way. Maybe you’re big on fashion but not big on meals. Fine.

I betcha you’ll find, upon reflection, certain activities have a lower cost of failure than you assumed and you now have a good reason to act swiftly.

How do you think about cost of failure in your life? In your business?

3 Responses to Framing Decisions Based on Cost of Failure

  1. Chris Yeh says:

    A slightly different angle on this would be Marty Seligmann’s rules on when to be optimistic and when to be pessimistic:

    “If the cost of failure is high, optimism is the wrong strategy.”

    link to bookoutlines.pbwiki.com

    Or more vividly–do you want your pilot to be optimistic or pessimistic when he’s deciding whether or not to de-ice the wings of your plane?

  2. Tyler Willis says:

    Ben,

    One of the most important things I value of your blog is an insight into how you rationalize and approach decision making. I would read your blog without that because I enjoy you’re views and style of writing, but these type of insights are extremely helpful to me as I begin to more strongly analyze decisions I make.

    I’ll have to remember, next time we sit down together to pick you’re brain on the college process, I’m just entering into a due dilligence process to find a good fit. I’d like to find a school with enough activity to engage me – seems like you did just that.

    Finally on topic, I think this type of analytical decision making is a lesson that few people learn from introductry economics. There’s always opportunity cost associated with any activity. If I sleep in on Sunday, I might not be able to get to run, or I may be less productive and not do work that I’ll have to make up at a later date. It’s far to easy to simply consider the economic cost of an action – it causes mistakes to be made in a much easier fashion.

  3. cass says:

    Ben, I’d just like to tell you how much I enjoy your blog. I stumbled upon it while conducting a GOOGLE search for one of my favorite authors, Ben Kunkel, and thought I’d tell you I am now a devoted reader. I REALLY appreciate your insight, and that’s much more than I can say for most people I know in our generation. Thanks for your devotion to intellectual stimulation and reasoning. I appreciate it more than you know.

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