Why is better decision-making so important?

Consider for a moment a world in which over the next week, each and every person on this planet makes one better personal decision. Decisions may include not going out on what would have been a bad date; deciding to buy a car with better fuel efficiency; avoiding the cheaper meat in the supermarket because it may smell a bit funny; making a donation to the Red Cross instead of going out for yet another expensive, cholesterol-soaked, dinner; giving your car keys to a friend before beginning a night of drinking; taking your children to a health clinic for immunizations despite the need to travel a long distance.

Can the benefits of these better decisions be measured? Economists have come up with the concept of a util, which is a unit of benefit or utility. Needless to say, most of us (including economists) find the util unhelpful. We tend to be more comfortable with other units of value, such as currency. In defense of practitioners of the dismal science, it’s no easier pinning down the precise dollar benefit of better decisions than it is using utils. Dollars are easier to relate to, however.

For the sake of argument, let’s assume that on average the financial benefit of the average decision assumed above is one dollar. Given an adult population of 5 billion people globally, the added benefit in a single week is 5 billion dollars. We’ll allow children to continue making their bad decisions—that’s what childhood is about; making mistakes and learning from them. In the grand scheme of things 5 billion dollars is not a huge amount (a billion dollars isn’t what it used to be!). Nevertheless, good leaders consistently make better decisions, so let’s allow our global citizens to make one better decision each week for a year. 5 billion dollars times 52 weeks is 260 billion dollars, a number larger than the annual GDP of many nations!

Let’s examine those earlier decisions. You will note these were all personal decisions, each one fairly modest on its own, and hence the average added value of just one dollar assigned. Let us now consider more meaningful decisions, such as giving an employee candid feedback instead of damning him with meaningless praise; speaking out along with other citizens against a poorly-considered municipal (or state or federal) law; electing not to use cheaper, more harmful pesticides on our farm.

These are more impactful decisions. While there are arguably fewer of these bigger decisions to make over a year, one could argue that making the correct rather than incorrect choices in these decisions leads to far greater average benefit than a single dollar. Over the course of a year, such decisions, made globally, could easily account for hundreds of billions of dollars of savings or net value creation.

Predictably, this now leads us to the last class of decisions: the huge ones. These are decisions made by titans of industry, generals, admirals, statesmen, religious leaders. What if these leaders each made one better (momentous) decision a year. Avoiding an ill-conceived battle, or on a bigger scale, an ill-conceived war; urging restraint rather than violence; positioning religion as an instrument of peace; setting a solid corporate strategy; passing a controversial but necessary law. Again, one would expect there to be relatively few such decisions made in a single year, but any one of these on its own may lead to benefits on the order of hundreds of billions of dollars.

The main message here should be clear. Better leadership through better decision making can have a huge impact on society, even if on the margin most of the decisions are relatively small. We can’t afford not to make better decisions!

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