Jeff Bezos' Regret Minimization Framework

There is an iconic video on YouTube where the founder of Amazon, Jeff Bezos, talks about a framework he used while deciding whether to quit his well paying job at a hedge fund to sell books online. This two minute video is helpful for taking big decisions and figuring out how to define your personal risk-reward ratio.

Short-Term vs Long-Term Thinking

Most of us are not great at long-term thinking. We underestimate the change we go through as life goes on and we also underestimate how much our context changes over time.

Short-term thinking is confusing as we tend to prioritize urgent over important. We also focus on making sure that our current self is well taken care of. After all, our future seems vague and unpredictable. Why try and deconstruct something with so many unknown variables and uncertainties? We don’t want to be in a situation where we regret not making the most of the present moment.

Marshmallow Test

The Stanford marshmallow experiment was a study on delayed gratification in 1972 led by psychologist Walter Mischel, a professor at Stanford University. In this study, a child was offered a choice between one small but immediate reward, or two small rewards if they waited for a period of time. During this time, the researcher left the room for about 15 minutes and then returned. The reward was either a marshmallow or pretzel stick, depending on the child's preference. In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures

Jeff Bezos’ Regret Minimization Framework

How does Bezos’ framework relate to long-term thinking and the Marshmallow test? Simply put, it helps put in perspective what our future self will regret less. His framework helps us make a more accurate prediction of what will matter more to us in the decades to come (our future self or a massive projection of the Marshmallow test - instead of 15 minutes, you should think of 15 years). Consider the following statements:

1. What is the cost of status quo in your work life?

2. What are the benefits? Perhaps it helps you pay off your education or housing loan.

3. What is the risk/reward ration you are comfortable with?

4. What is the level of risk where you draw the line? What’s absolutely unacceptable to you?

5. What might your future self look like if you tried and succeeded? How about if you tried and failed?

6. What specifically will you regret if you didn’t try at all?

Your 80 year old self is more likely to think in terms of stories and memories, not resumes. It will reflect on the trials and tribulations and the adventure of exploring your curiosities.

If you look back at school, college or graduate school, the most charming memories are often the most adventurous ones, not the ones associated with grades and certificates of accomplishments.

Should you take all decisions keeping your 80 year old self in mind? Absolutely not but it is an important indicator. Next time you have an important decision to make, also ask how might your minimize your regret in the long term while optimizing for some short term variables as well.

Hope this was helpful. We will discuss more during the happy hours tomorrow.

Your Network Capital Team