A regret minimization framework is a business heuristic that enables you to make a decision, by projecting yourself in the future, at an old age, and visualize whether the regrets of missing an opportunity would hunt you down, vs. having taken the opportunity and failed. In short, if taking action and failing feels much better than regretting it, in the long run, that is when you’re ready to go!
| Aspect | Explanation |
|---|---|
| Regret Minimization Framework | The Regret Minimization Framework is a decision-making approach often associated with Jeff Bezos, the founder of Amazon. It’s a philosophy he employed when making important life and business decisions. The core idea is to minimize future regrets by making choices that prioritize long-term value and personal growth over short-term comfort or convenience. |
| Origin and Philosophy | – Jeff Bezos introduced the concept in the context of his decision to leave his job at a hedge fund to start Amazon. He wanted to avoid the regret of not pursuing his passion for building an internet-based business, even if it meant taking significant risks and facing potential failures. – The framework encourages individuals to think about their decisions by projecting themselves into the future and considering which choice they would regret less when looking back. It emphasizes learning from failures and taking calculated risks. |
| Key Principles | – Prioritizing Long-Term Value: The framework encourages choosing options that lead to long-term growth and fulfillment, even if they involve short-term sacrifices or uncertainty. – Embracing Failure: Regret is seen as a potential outcome of not trying, so the framework encourages taking calculated risks and learning from failures. – Balancing Risk and Opportunity: It suggests that individuals should carefully assess the balance between the potential for regret and the opportunity for growth in their decisions. |
| Applications | – The Regret Minimization Framework can be applied to various aspects of life, including career choices, business decisions, and personal goals. – In business, it has influenced Amazon’s long-term thinking, willingness to innovate, and commitment to customer-centricity. |
| Challenges | – Implementing this framework requires a willingness to step out of one’s comfort zone and embrace uncertainty. – It may not provide immediate gratification and can involve making difficult choices. – Balancing short-term and long-term objectives can be challenging. |
| Conclusion | The Regret Minimization Framework is a decision-making philosophy that encourages individuals to prioritize long-term value and personal growth over short-term comfort. It has played a significant role in Jeff Bezos’s approach to business and life. While it may involve taking risks and facing challenges, it can lead to more fulfilling and regret-free outcomes in the long run. |
Understanding the regret minimization framework
While no explicit connection has ever been made, there are clear similarities between Bezos’ framework and aspects of game theory.
Game theory is the study of how individuals and groups make decisions in situations where their choices depend on the choices of others. In a game situation on which the theory is based, the best course of action (or optimal outcome) for one player is always contingent on the course of action implemented by another player.
In business, the game in most cases is a competition for economic gain. Many are often forced to decide between retiring an existing product or developing a new one, while others need to develop new marketing strategies or undertake acquisitions.
Note also that the game businesses play may be internal or external. Some focus on external players such as competitors and market forces, while other businesses set internal objectives and strive to become better versions of themselves.
Whether the focus is internal or external, it is important to remember that most businesses are locked in a game with competitors where the “prize” is new customers, the best talent, or other important resources.
Bezos and game theory
By projecting himself into the future with probing questions, Bezos in essence runs hypothetical simulations in his mind that we may call games. In other words, he wants to determine how certain decisions may play out in the future so he can then select the option with the most optimal perceived outcome.
This is similar to how game theorists try to anticipate the decisions of other players and determine the best outcome based on their particular identity, preferences, or strategy. However, instead of other players, Bezos may have considered the strategies of customers, partners, competitors, and other key stakeholders.
Bezos chose to sell books because they are commodity products with millions of different titles, low unit prices, and high margins. But if we assess the decision using game theory, he sold books because he believed that no other competitor possessed Amazon’s winning strategy of selection, convenience, and price.
Short-term gains and long-term success
The regret minimization framework also encourages people to think beyond short-term gains and losses and focus on the long-term consequences of their decisions.
This is also important in game theory since strategic decision-making sometimes involves a trade-off between short-term and long-term consequences. For example, some players make decisions that sacrifice long-term success in favor of immediate gains. Others are content to do the opposite, to sacrifice immediate gains in favor of long-term success.
In most cases, long-term success equates to winning the game.
Bezos’ framework inspires the individual to avoid short-term thinking and its potential consequences. Instead, it is better to focus on the bigger picture – even if it is a case of one step forward, two steps back.
Before starting Amazon, Bezos had a well-paid job at investment firm D.E. Shaw & Co. He became an SVP in under four years and was tasked with researching new ways to profit from the emerging internet. In all likelihood, a man with Bezos’ intelligence and acumen would have become a managing director at the company had he stuck around longer.
History will show that Bezos walked away from his six-figure salary at D.E. Shaw for the chance to profit from the internet himself. Like the game player, he was willing to sacrifice short-term gain for long-term success to emerge victorious.
Bezos later remarked that he believed Amazon only had a 30% chance of success. But in an interview with Time magazine and in keeping with his philosophy, he was sanguine about the seemingly unfavorable odds: “That’s actually a very liberating expectation, expecting to fail.”
Let’s delve deeper into Bezos’ core philosophy below.
The Regret Minimization Framework Explained By Jeff Bezos
The regret minimization framework has been made popular by Jeff Bezos.
Indeed, in many interviews over the years he has highlighted over and over again, how this framework helped him make a decision (that of leaving Wall Street) which, with hindsight was an incredibly successful one.
How did he get to the decision? In a “60 Minutes” interview from 1997, Jeff Bezos explained:
I want to have lived my life in such a way that when I’m 80 years old I’ve minimized the number of regrets that I have
Thus, when the journalist highlighted that was not a “Carpe Diem” moment (a moment driven by instinct rather than reason), Jeff Bezos stressed:
I don’t go in for Carpe Diem, I go in for regret minimization framework!
As Jeff Bezos further explained in another interview, as he recounted the whole story:
I went to my boss and said to him you know I’m going to go do this crazy thing and I’m going to start this this company selling books online and this is something that I’d already been talking to him about in a sort of more general context.
And he continued:
But then he said “let’s go on a walk” and we went on a two-hour walk in Central Park in New York City. And the conclusion of that was this he said “you know this actually sounds like a really good idea to me but it sounds like it would be a better idea for somebody who didn’t already have a good job.”
Thus, Jeff Bezos’ boss tried to persuade him. Yet, as Bezos recounted:
And he convinced me to think about it for 48 hours before making a final decision.
And so I went away and was trying to find the right framework in which to make that kind of big decision.
And you know I already talked to my wife about this, and she was very supportive.
And said, “look, you know you can count me on 100% for whatever you want to do.”
However, as Bezos pointed out, this was not the “implicit deal” they had as they got together:
True she had married this kind of you know, fairly stable guy in a stable career path. And now he wanted to go do this crazy thing but she was 100% supportive. So it really was a decision that I had to make for myself.
In that process, the idea came:
And the framework I found which made the decision incredibly easy was what I called – which only a nerd would call – a regret minimization framework. So I wanted to project myself forward to age 80 and say okay now I’m looking back on my life I want to have minimized the number of regrets I have.
How did he know?
And you know what I knew that when I was 80 I was not going to regret having tried this. I was not going to regret having wanted trying to participate in this thing called the Internet. That I thought was going to be a really big deal.
I knew that if I failed I wouldn’t regret that. But I knew the one thing I might regret is not ever having tried and I knew that that would hunted me every day. And so when I thought about it that way, it was an incredibly easy decision. And I think that’s a very good. It’s if you can project yourself out to age 80 and think what will I think.
At that time it gets you away from some of the daily pieces of confusion. I left this Wall Street firm in the middle of the year when you do that you walk away from your annual bonus. And that’s the kind of thing then the short-term can confuse you, but if you think about the long-term then you can really make good life decisions that you won’t regret later.
This short vs. long-term decision-making model would actually become the basis for the whole of Amazon’s philosophy.
As the company listed back in 1997, within its shareholders’ letter, in a paragraph entitled “It’s All About the Long Term,“ Jeff Bezos explained:
We believe that a fundamental measure of our success will be the shareholder value we create over the long
term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.
Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most
indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.
To be sure, after almost 25 years, in 2021, Jeff Bezos passed the baton to Andy Jassy, the company’s CEO; he highlighted in October 2021:
We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter—and you can see that during every phase of this pandemic.
Let’s break down the regret minimization framework so that you can use it too!
Breaking down the Regret Minimization Framework
Let’s now break down the main thinking phases through which a decision can be made within the regret minimization framework.
We can do that through five steps, which we summarized as “PRIOR” from the Latin “precede” as the framework that precedes the final decision.
Project
The first step is about projecting yourself in the final years of your life.
Jeff Bezos talks about “80 years” as this is the age when you think back on your life and when all the regrets come hunting you.
Reflect
Once you’re visualizing and projecting your older self.
Start reflecting, “what if I hadn’t taken that opportunity.”
You will notice two feelings: regret for not taking it and anxiety/excitement in thinking, “what if I fail.”
At this stage, the “what if I fail” is the short-term consequence, balanced out with “how much would I regret.”
While Jeff Bezos recounts this framework as “rational” in reality, you got to feel what’s right at that moment. Thus, internalize.
Internalize
If your body and mind both tell you that regretting it would be much worse than trying and failing, you’re almost ready to go!
Observe
Is the older self happy with this decision? If so, move on.
React
Once the process above has been completed, you got to act!
The three tenets of the “Bezos Mindset.”
The “Bezos Mindset” starts with the regret minimization framework, which leads to action.
It moves along three tenets of the core of Amazon’s strategy for the over two decades in which Jeff Bezos has led Amazon to become one of the most successful companies in the world.
Those comprise:
- Day 1 Mindset.
- The Flywheel.
- And Customer Obsession.
“Day One Mindset”
In the letter to shareholders for 2016, Jeff Bezos addressed an important topic. Something he had been thinking quite profoundly in the last two decades.
What he had dubbed as Day 1.
Jeff Bezos starts the letter by saying:
“Jeff, what does Day 2 look like?”
That’s a question I just got at our most recent all-hands meeting. I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.
“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.
I’m interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?
Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.
Day 1 mindset is always having a fresh mindset capable of continuous innovation and breakthrough.
The Flywheel
Amazon has been able over the years to combine a breakthrough innovative approach with the ability to build momentum into its business model, a virtuous cycle or Amazon flywheel.
The flywheel has been a turning point for digital business models, and it has created a new paradigm.
Indeed, to build a platform business model, you want to make sure to create – over time – momentum by doing unscalable things in the short term (like Amazon building its own inventory) to scale in the long run and create moats around it.
The flywheel, combined with the understanding that moats for digital businesses are built around network effects, has been one of the main lessons for digital business models, and Amazon has led the way!
Customer Obsession
The last and core tenet of Bezos’ mindset is customer obsession.
Customer obsession is, on the one hand, a continuous innovation approach made of fast execution, iteration, and experimentation.
And on the other hand, a combination of discovery, where new products and lines of business are built through entrepreneurial intuition.
Case Studies
Career Change:
- Project: Imagine yourself at age 80, reflecting on your career. Will you regret not pursuing your passion and staying in your current job?
- Reflect: Consider the regret of not following your passion vs. the fear of financial instability that may come with a career change.
- Internalize: Trust your intuition. If the regret of not pursuing your passion feels stronger, it’s time to consider a change.
- Observe: Envision your older self being content with the decision to follow your passion.
- React: Take steps to transition into a career aligned with your passion, such as acquiring necessary skills or seeking new opportunities.
Entrepreneurship:
- Project: Imagine yourself at age 80, reflecting on your life. Will you regret not starting your own business and playing it safe with a stable job?
- Reflect: Consider the regret of not pursuing entrepreneurship vs. the fear of financial risk and uncertainty.
- Internalize: Trust your intuition. If the regret of not starting a business feels stronger, it’s time to explore entrepreneurial opportunities.
- Observe: Envision your older self being content with the decision to take the entrepreneurial path.
- React: Develop a business plan, seek funding if needed, and start your entrepreneurial journey.
Education Choices:
- Project: Imagine yourself at age 80, reflecting on your life. Will you regret not pursuing a challenging degree program aligned with your goals?
- Reflect: Consider the regret of not pursuing higher education vs. the challenges and sacrifices it may entail.
- Internalize: Trust your intuition. If the regret of not pursuing education feels stronger, enroll in the program.
- Observe: Envision your older self being content with the decision to pursue the degree.
- React: Start the educational program, manage your time effectively, and stay committed to your goals.
Relationship Decisions:
- Project: Imagine yourself at age 80, reflecting on your life. Will you regret not confessing your feelings or ending a toxic relationship?
- Reflect: Consider the regret of not taking action in your relationship vs. the fear of potential rejection or loneliness.
- Internalize: Trust your intuition. If the regret of inaction or staying in a toxic relationship feels stronger, take appropriate steps.
- Observe: Envision your older self being content with the decision to express your feelings or end the toxic relationship.
- React: Confess your feelings or end the relationship, prioritizing your well-being and emotional health.
Financial Decisions:
- Project: Imagine yourself at age 80, reflecting on your life. Will you regret not taking investment risks or saving diligently for your goals?
- Reflect: Consider the regret of not investing vs. the fear of potential financial losses or constraints.
- Internalize: Trust your intuition. If the regret of not taking investment risks or saving feels stronger, make financial decisions accordingly.
- Observe: Envision your older self being content with the decision to invest or save wisely.
- React: Create a financial plan, invest prudently, and stick to a budget to achieve your long-term financial goals.
Key Highlights:
- Regret Minimization Framework: Jeff Bezos popularized this framework as a decision-making heuristic. It involves projecting oneself into the future, considering whether the regret of not taking an opportunity would outweigh the regret of trying and failing.
- Similarities with Game Theory: The regret minimization framework shares similarities with game theory, which studies how individuals and groups make decisions in situations where choices depend on others’ choices.
- Business as a Game: In the business context, decisions often involve competition for economic gain, whether it’s deciding between products, marketing strategies, or acquisitions.
- Internal and External Game: Businesses may compete with external players (competitors, market forces) or set internal objectives. Regardless, they are always competing for resources and success.
- Long-Term Perspective: Both Bezos’ framework and game theory encourage thinking beyond short-term gains and losses and focusing on long-term consequences.
- Bezos’ Example: Jeff Bezos left a well-paid job to start Amazon, even though he believed there was only a 30% chance of success. He was willing to sacrifice short-term gains for long-term success.
- Amazon’s Philosophy: Amazon’s philosophy is built on the regret minimization framework. They prioritize long-term customer value over short-term profits.
- Breaking Down the Framework (PRIOR):
- Project: Imagine yourself in your later years (e.g., 80).
- Reflect: Consider the regret of not taking the opportunity vs. the fear of failure.
- Internalize: Trust your intuition and feelings about which regret is worse.
- Observe: Ensure your older self is content with the decision.
- React: Take action based on the framework.
- Bezos’ Mindset Tenets:
- Day 1 Mindset: Always stay innovative and avoid becoming complacent.
- The Flywheel: Create a virtuous cycle that leverages customer experience and drives business momentum.
- Customer Obsession: Prioritize fast execution, iteration, experimentation, and continuous innovation while staying focused on customer needs.
Case Studies
| Company/Situation | Industry | Case Study Description |
|---|---|---|
| Amazon | E-commerce | Jeff Bezos founded Amazon with the intention of minimizing the regret of not pursuing an online retail opportunity during the early days of the internet. Amazon evolved from an online bookstore to a global e-commerce giant. |
| SpaceX | Aerospace | Elon Musk founded SpaceX with the goal of minimizing the regret of humanity not becoming a multi-planetary species. SpaceX has become a leader in commercial space exploration and transportation. |
| Netflix | Streaming Services | Netflix shifted from a DVD rental service to streaming to minimize the regret of missing out on the emerging streaming industry. This strategic pivot led to its dominance in the streaming space. |
| Airbnb | Short-Term Rentals | Airbnb founders aimed to minimize the regret of not capitalizing on unused living spaces. This resulted in the creation of a global short-term rental platform. |
| Tesla | Electric Vehicles | Elon Musk founded Tesla to minimize the regret of inaction on climate change and to accelerate the transition to sustainable transportation. Tesla is a leader in electric vehicles and clean energy solutions. |
| Internet Services | Google founders Larry Page and Sergey Brin created Google to minimize the regret of missing out on an effective internet search engine. Google’s search engine became the most widely used globally. | |
| Blue Origin | Aerospace | Jeff Bezos established Blue Origin to minimize the regret of not investing in space exploration and ensuring humanity’s future in space. |
| Uber | Ride-Sharing | Uber co-founders aimed to minimize the regret of not revolutionizing the taxi industry and created a global ride-sharing platform. |
| Messaging | WhatsApp founders developed the messaging app to minimize the regret of users paying high SMS charges and to offer an efficient, free messaging solution. | |
| Facebook (Acquisitions) | Social Media | Mark Zuckerberg acquired Instagram and WhatsApp to minimize the regret of missing out on the growth and impact of these platforms in the social media space. |
| Twitter (Periscope) | Social Media | Twitter acquired Periscope to minimize the regret of missing out on live video streaming, enhancing its platform’s capabilities. |
| Amazon Web Services (AWS) | Cloud Computing | Amazon expanded into cloud computing with AWS to minimize the regret of not capitalizing on the growing demand for cloud services. AWS has become a leading cloud provider. |
| Nest Labs (Acquired by Google) | Smart Home | Nest Labs, founded by Tony Fadell, aimed to minimize the regret of not innovating in the smart home space. It was later acquired by Google. |
| Related Frameworks, Models, or Concepts | Description | When to Apply |
|---|---|---|
| Expected Utility Theory | Expected Utility Theory, rooted in economics and decision theory, posits that individuals make choices based on maximizing expected utility or satisfaction. However, Regret Minimization diverges from this theory by focusing on minimizing the potential for future regret instead of maximizing expected utility. | Apply Expected Utility Theory to understand traditional decision-making models based on maximizing expected outcomes. Use it to analyze decision scenarios where individuals aim to optimize outcomes based on probabilistic expectations. |
| Decision Regret Theory | Decision Regret Theory suggests that individuals experience regret when they perceive that they made a suboptimal decision compared to available alternatives. Regret Minimization seeks to mitigate the likelihood of future regret by considering potential consequences and evaluating decision options thoroughly. | Utilize Decision Regret Theory to understand the psychological factors underlying regret and its impact on decision-making processes. Apply it to evaluate decision outcomes and anticipate potential sources of regret in various scenarios. |
| Prospect Theory | Prospect Theory proposes that individuals’ decision-making is influenced by subjective evaluations of potential gains and losses, rather than objective outcomes. Regret Minimization aligns with this theory by emphasizing the avoidance of potential losses or negative consequences that may lead to regret. | Employ Prospect Theory to understand how individuals weigh risks and rewards in decision-making processes. Use it to assess decision options and prioritize actions that minimize the potential for regrettable outcomes. |
| Anticipated Regret | Anticipated Regret refers to the expectation or foresight of regret that individuals consider when making decisions. Regret Minimization incorporates this concept by encouraging individuals to weigh the potential regret associated with each decision option and prioritize choices that minimize the likelihood of future regret. | Consider Anticipated Regret as a motivational factor in decision-making processes. Use it to evaluate decision alternatives and select options that offer the highest potential for satisfaction and the lowest likelihood of regret. |
| Opportunity Cost | Opportunity Cost represents the potential benefit that an individual forfeits by choosing one option over another. Regret Minimization considers opportunity cost by encouraging individuals to assess the potential regret associated with missed opportunities and prioritize decisions that minimize future regret. | Evaluate Opportunity Cost when comparing decision alternatives and considering the long-term implications of different choices. Use it to weigh the benefits and drawbacks of each option and select the course of action that maximizes overall satisfaction and minimizes potential regret. |
| Counterfactual Thinking | Counterfactual Thinking involves imagining alternative outcomes or scenarios that could have occurred but did not. Regret Minimization utilizes this cognitive process by prompting individuals to consider potential regret associated with different decision paths and select options that minimize the likelihood of unfavorable outcomes. | Engage in Counterfactual Thinking to reflect on past decisions and identify opportunities for learning and improvement. Use it to anticipate potential regret in future decision-making processes and make choices that align with desired outcomes and values. |
| Regret Aversion | Regret Aversion describes the tendency to avoid decisions that may lead to future regret. Regret Minimization aligns with this concept by encouraging individuals to prioritize options that minimize the potential for regrettable outcomes, even if it means sacrificing potential gains or rewards. | Recognize Regret Aversion as a common psychological bias that influences decision-making behavior. Use it to mitigate the impact of regret aversion by encouraging individuals to evaluate decision options objectively and consider both short-term and long-term consequences. |
| Preventive Decision-Making | Preventive Decision-Making involves proactively anticipating and addressing potential risks or regrets associated with different decision options. Regret Minimization adopts this approach by encouraging individuals to consider the potential consequences of each choice and prioritize actions that minimize the likelihood of future regret. | Practice Preventive Decision-Making by conducting thorough risk assessments and scenario analyses before making important decisions. Use it to identify potential sources of regret and develop strategies to mitigate risks and optimize outcomes. |
| Personal Values and Goals | Personal Values and Goals serve as guiding principles that inform individuals’ decision-making processes and priorities. Regret Minimization incorporates these factors by encouraging individuals to align their choices with their values and long-term objectives to minimize the likelihood of future regret. | Reflect on Personal Values and Goals when evaluating decision options and considering the potential impact on overall satisfaction and fulfillment. Use them as criteria for prioritizing actions that are consistent with desired outcomes and minimize the risk of regrettable decisions. |
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