Regret Minimization Framework

Risk management starts with what Jeff Bezos calls the “regret minimization framework.” Project yourself to age 80, or age 90. “Looking back on your life, you want to minimize the number of regrets you have.”

Jeff Bezos had an idea. A great idea. But he hadn’t made the jump yet.

Even so, he wasn’t shy about it, telling everyone including his boss his intentions. He told them he wanted to start an online store to sell books. His boss was intrigued but told him to think it over. After all, he had a great job, why bother with a startup?

So Bezos took 48 hours to think it through, but he needed a way to help him make this decision. He needed a mental model, the right framework, that would help him make such a big decision.

A mental model is a way to think about the world. It is how we respond and make decisions on what we encounter daily. No single model is right for every person, so it’s important to understand what works for you. You need to understand how you perceive the world and what you hold important. Furthermore, different models work for different situations.

For Bezos, the model he used for this decision became the Regret Minimization Framework. While simple, it’s what got him to take action on the idea he had been incubating for some time. It was what turned a difficult decision into an easy one.

It all starts with a question: In X years, will I regret not doing this?

The idea is to project yourself into the future and look back on your decision from that perspective. For Bezos, he thought of when he would be 80 and if he would regret not trying to start this company. Yes or no. His answer was quite clear.

As Bezos puts it:

I knew that when I was 80 I was not going to regret having tried this. I was not going to regret 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.

I love this for a few reasons. First, it forces you to think beyond the moment. Past all the fears and doubts that you may be having. Instead, you fast forward into the future and assess things from that perspective.

This presents the decision in a completely new light. One that may make your fears and doubts hardly relevant in the grand scheme of things. It certainly worked for Bezos.

Second, it’s a model that can be used throughout your life, whenever you face tough decisions that rest on your shoulders. Having such a tool to leverage when you’re not quite sure what to do is powerful.

Once you frame risk as avoiding regret, the question becomes, “How does it matter how hard it is as long as I can recover from it if I fail? A temporary setback or a failure is not what I’m worried about. I’m worried about, ‘What will I regret?’”

And people can regret completely different things. So risk is never a blanket metric. What looks crazy to you might be something I’d regret if I didn’t try. People can have different risk tolerances. This is why risk can be such a heated debate, and why one person’s thoughtful decision looks crazy to someone else.

What matters in life isn’t how frequently one is “right” about outcomes, but how much one makes when one is right. Being wrong, when it is not costly, doesn’t count.

But a few regrets tend to be universal.

Decisions that can’t easily be reversed, with a downside so severe that it prevents eventual recovery. Getting wiped out. Getting banned. Getting convicted. Severe reputational harm. You’ll regret decisions that lead you there because their stench will stick to you long after you try to scrub them off and move on.

So risk management comes down to serially avoiding decisions that can’t easily be reversed, whose downsides will demolish you and prevent recovery.

Probably that’s true for investments, business models, careers, relationships, etc.

And when you frame it like that, risk management doesn’t seem that complicated.

Good risks are those that you will both regret not taking and won’t regret if they backfire. This was Bezos’s point: He would regret not trying to build Amazon even if it failed.