In the well-known children’s story “Goldilocks and the Three Bears”, a misadventurous young girl enters the home of a family of bears while they are out, tests the comfort of their chairs, helps herself to their porridge, and finally tries out their beds, falling asleep in one of them and, ultimately, being discovered when the three bears return home.
In testing the chairs, the porridge and the beds, the little girl finds that, in each case, the item belonging to one of the three bears is unpleasant because it is too extreme in some way, for example one chair is too large, one bowl of porridge is too hot and one bed is too hard. At the same time, the same item belonging to another of the three bears is also unpleasant because it is too extreme in the opposite direction, that is: too small, too cold or too soft respectively. Finally, the same item belonging to the third bear is always in the middle of these two extremes and is therefore “just right”.
This story gives rise to the Goldilocks principle: the idea that for many things there is a preferred range somewhere within a distribution and that to be outside this range, towards the extremes of the distribution, is undesirable.
The Goldilocks principle becomes important when we consider one of the aspects of good decision-making that is contained within the ELECTIA framework for decision-making: Well grounded.
For our decisions to be well grounded, we must have just enough of the right information and make relevant meaning from it. Or, to put it the other way around, our decisions would not be well grounded if we:
- Had too little information.
- Sought or considered too much information.
- Focused on the wrong information.
- Didn’t make relevant meaning from the information that we had.
I hope that you can imagine easily how it would be possible to have too little information when making a decision. But what about the idea of having too much information? Why is the Goldilocks principle, the idea of having just the right amount of information, not too little and not too much, relevant here?
The answer is that obtaining and considering more information usually takes us more time and that if we spend too much time gathering and analysing too much information then we are not being efficient as decision-makers.
An extreme example of this is analysis paralysis, that is: when we become so consumed with gathering and analysing a large amount of information that we don’t manage to make a necessary decision in a timely manner.
For most decisions, there comes a point at which additional information, even if it’s relevant, doesn’t continue to add as much to our understanding of the situation, the available options and their likely outcomes as earlier information did. That is, we have reached the point at which the Law of diminishing returns takes effect.
Another way to think about this is to consider the Pareto principle, which is often referred to as “the 80-20 rule”. This says that we will usually be able to obtain around 80% of the relevant information for a decision in about 20% of the time that it would take to obtain all of it. It is likely that for many decisions we have almost as high a probability of making a good decision with 80% of the relevant information as we do with 100% of it. So, under these circumstances, spending four times as long again to gather the last 20% of the information is not efficient.
For those with a mathematical or technical inclination, the following chart illustrates these ideas for a hypothetical decision.
What about focusing on the wrong information?
There are many reasons that we might focus on information that isn’t relevant when making a decision and I’m going to illustrate this by considering just one of them, a cognitive bias called the anchoring effect. This is our tendency to focus too much on a single piece of readily available information, possibly one that isn’t even relevant.
For example, if I walk into a store and see a leather jacket that’s been reduced in a sale from £300 to £200 then it’s a bargain, right? I must buy it, surely. Yes?
No. What’s the relevant information that I should consider when buying the jacket? It’s not the jacket’s original price. It’s what value the jacket has to me.
For example, imagine that the leather jacket was black. I’ve always wanted a really stylish black leather jacket and I would be willing to pay up to £250 for one, so at £200 this jacket is a great buy. At the normal out-of-sale price of £300 it would be too expensive for me. Now imagine that the jacket was red. Under no circumstances would I want to be seen wearing a red leather jacket, so the value to me of a red leather jacket is zero or close to zero and at £200 this jacket is still far too expensive for me, even with 33% knocked off the price.
The original price of a product is not relevant when we are making a purchasing decision, yet original prices do very often influence the purchasing decisions that we make.
Sometimes, even obviously unrelated information can influence our decision-making, particularly when relevant information is scarce or not available. In his book “Predictably Irrational”, the behavioural economist Dan Ariely describes a number of research studies in which anchoring influences the participants.
In one, students at MIT’s Sloan School of Management were asked to write down the last two digits of their social security number before then being asked to bid to buy a number of different items including a bottle of fine wine. Those students for whom the last two digits of their social security number were high made much higher bids than those students with low digits at the end of their social security numbers. Having been asked to think about the last two digits of their social security numbers, the students anchored the bids that they made to these numbers, even though they were totally unconnected and irrelevant!
How do we identify just enough of the right information?
It’s worth quoting, once again, the polymath and big thinker Edward de Bono: “An expert is someone who has succeeded in making decisions and judgements simpler through knowing what to pay attention to and what to ignore.”
We must use our judgement when considering whether or not we have enough of the right information to make a decision. However, the ELECTIA framework for decision-making support us by posing the following questions under the aspect of Well grounded:
- What is the relevant information that should be considered in making this decision?
- How much of the relevant information is available within a reasonable time and cost, and what must be done to get it?
- Where relevant information is not available, is there anything that can be done within a reasonable time and cost to mitigate this absence of information and the resulting uncertainty?
- Which factors or attributes are relevant to consider when assessing available options? Which aren’t?
- What is the meaning or implication of each piece or set of relevant information to the decision to be made?