Type-1 and Type-2 Decisions

Type-1 and Type-2 Decisions

Often when making decisions, people are burdened by the risks. The risks form some decisions are easier to mitigate than others. Depending on whether or not they are reversible, decisions can be classified as type-1 or type-2.

Some decisions are irreversible. After proceeding forward with them, there is no going back. The risks are much harder to mitigate. These decisions are called type-1 decisions.

Some examples of type-1 decisions are:

  • Terminating a relationship - whether with an employee, spouse, business partner, or otherwise.
  • Selling a business
  • Initiating a lawsuit

People tend to view most decisions as type-1, looking at the risk of what could happen if it goes wrong. Fortunately, most decisions are not type-1, but are instead type-2 decisions.

Some decisions which can be changed or even reversed. It’s plausible to mitigate their risks. While they may feel hard to come back from, these decisions can be modified or undone, often with a modest investment of time and effort. These reversible decisions are called type-2 decisions.

Some examples of type-2 decisions are:

  • Making a career change into a new discipline or industry
  • Starting a side hustle
  • Creating a new pricing or business model for a product or service.

As goals, priorities, and scale increase, decisions are increasingly treated as type-1 decisions. Realizing that many of them are type-2 decisions may make it easier to make more ambitious moves.

Is there a type-2 decision in your life that’s being treated as a type-1 decision? Consider whether it makes sense to take the risk, knowing that it is possible to change or reverse it if things don’t pan out.