Jeff Bezos has often talked about type 1 and type 2 decisions and how to address these decisions.
A type 1 decision is one that is hard to reverse. The type 1 decision is like a one-way door. If you go through the door, you will not be able to go back or the process of going back will be hard and painful. A type 2 decision is reversible. It is like a two-way door, easy to go through and easy to back again.
First you should always think about the type of decisions that is to be made. Is it reversible, or not? If it reversible, then don’t spend too time on it. Make the decision and move on. If you are wrong, you can get out without too much cost. On the other hand, if it is an irreversible decision, then make sure that you are very careful on your choice. It could be a one-way door.
A trading hedge fund is a reversible decision. A private equity investment is like a one-way door, or at least it is going to take some time before you can go back through the door. In the case of private equity, take your time with your decision.
This idea came from Farnam Street (Brain food), a great blog and newsletter.
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