Decision Making - Reversible or Not?

One of the most effective decision-making frameworks I’ve adopted comes directly from Jeff Bezos's shareholder letters: determining whether a decision is reversible or not. This approach builds a bias for action, enabling faster and more confident decision-making.

Bezos categorizes decisions into two types: Type 1 and Type 2.

- Type 1 Decisions ("One-Way Doors"): These are high-impact, non-reversible decisions that, once made, are difficult or impossible to undo. They require careful deliberation and input from the right stakeholders because the consequences are significant. These decisions should be approached with caution.

- Type 2 Decisions ("Two-Way Doors"): These are reversible decisions that can be changed or corrected if needed. Since the risks are lower and the impacts are easier to mitigate, Type 2 decisions can be made more quickly. Bezos advocates for agility in these cases, encouraging experimentation and a mindset of "did the decision work or not?"

This framework allows reversible decisions to be made faster, treating them as experiments where we can quickly assess outcomes and pivot as needed.

Here are some examples of Type 1 decisions I’ve made in my life:

- Marrying Kelly
- Having kids
- Starting the business with Sumit
- Buying and eventually selling 788
- Acquiring 475
- All hires and fires
- Big investments

In contrast, Type 2 decisions are those that don’t carry long-term consequences, such as:
- Rearranging the furniture in my office (yes, it's a thing, and it takes time to get it just right)
- Delegating tasks more freely to see what happens (The key to making this successful is clear communication about responsibilities, desired outcomes, and how they will be measured)
- Buying and driving race cars (though Kelly probably wishes this was more of a Type 1 activity!)

Some big Type 1 decisions on the horizon include:
- Selecting a new ERP system
- Deciding when to go live with the ERP system
- Defining our future Amazon strategy
- Creating a new position for a pricing analyst and choosing the right person for the role

Warren Buffett offers another perspective on decision-making, particularly with investments, through his "punch card" theory. He suggests investors should imagine having a punch card with only 20 punches for their entire lifetime of investing. Each investment uses up one of the punches.

This limitation encourages more selective, thoughtful, and disciplined decision-making, steering investors away from frequent or impulsive trades. Buffett’s focus on a concentrated portfolio of high-quality companies mirrors his belief in making fewer, but better, long-term investment decisions. The punch card theory teaches us to be patient and wait for truly outstanding opportunities rather than spreading investments too thin.

However, the reverse is also true: failing to punch the card at all can lead to mediocrity. Taking action, when it matters, is just as critical as knowing when to hold back.

Still, the most important concept is bias for action, then reviewing and reflecting out the outcomes.