The Two-Judgment Contingency Check
Test your confidence, then prepare for what your plan overlooks
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 6
- Confidence
- 95%
The method separates every decision into two judgments: whether the proposed choice appears sound and whether the decision-maker has enough evidence to trust that assessment. Instead of concentrating exclusively on the preferred scenario, the decision-maker examines missing information, compares the plan with what typically happens to others, and anticipates interference from an unpredictable world. Confidence is then translated into safeguards: weak evidence, substantial uncertainty, or severe downside calls for smaller exposure and stronger contingencies. Plan B and Plan C are prepared before trouble arrives, including responses to disruptions that cannot yet be named precisely. The output is not certainty but a more resilient decision that can survive mistaken assumptions, delays, hidden barriers, and unexpected events.
Origin
Extracted from Masters in Business during David Dunning's discussion of self-insight, overconfidence, and portfolio risk.
Core principles
- 01A decision and confidence in that decision are separate judgments
- 02Unknown events are inevitable
- 03Past outcomes provide a useful outside view
- 04Confidence should determine the amount of contingency planning
- 05A robust plan anticipates barriers rather than assuming control
How to run it
- 1
Define the First Judgment
Write down the decision, expected result, and reasoning behind the preferred plan. Make the assumptions explicit enough that they can be challenged.
Pro tip Separate observable evidence from predictions and preferences.
Watch out Do not treat a detailed plan as proof that the plan is correct.
- 2
Make the Second Judgment
Assess how confident you should be in the first judgment. Consider the completeness and reliability of the information environment, not merely how certain you feel.
Pro tip Ask what evidence would lower your confidence if you encountered it.
Watch out Subjective certainty can reflect motivated reasoning rather than reliable knowledge.
- 3
Search for Invisible Gaps
Identify missing information, untested assumptions, and relevant expertise you may lack. Include unknown categories of disruption instead of limiting the review to familiar risks.
Pro tip Invite a knowledgeable outsider to name omissions you cannot see yourself.
Watch out Your ignorance is hardest to detect precisely where your competence is weakest.
- 4
Use the Outside View
Examine what typically happened to other people pursuing comparable plans. Use base rates, common delays, and recurring obstacles to correct the optimism of the inside view.
Pro tip Prefer a relevant reference class over a vivid success story.
Watch out Do not assume your agency makes you exempt from ordinary failure patterns.
- 5
Build Contingencies
Create Plan B and Plan C for foreseeable barriers, then establish reserves or fallback rules for unspecified surprises. Match the strength of these protections to the potential downside.
Pro tip Define the trigger that activates each contingency in advance.
Watch out A fallback without a trigger may be ignored when ego and sunk costs take over.
- 6
Calibrate the Exposure
Adjust position size, leverage, deadlines, or commitments to reflect the confidence assessment. Preserve enough flexibility to respond when reality diverges from the plan.
Pro tip When uncertainty cannot be reduced, reduce the cost of being wrong.
Watch out Do not compensate for poor information by increasing conviction.
In the wild
An investor believes a stock will rise because its product is gaining attention. The first judgment favors buying, but the second reveals limited industry knowledge, no valuation work, and reliance on optimistic social-media commentary. The investor reviews similar companies, identifies financing and execution risks, starts with a small unleveraged position, and sets review triggers tied to earnings and cash flow.
→ The investor retains upside exposure while limiting damage from missing information or a mistaken thesis.
A team expects to ship a product in six weeks. It checks comparable launches, finds that integrations commonly cause delays, and acknowledges unknown technical risks. The team adds schedule margin, prepares a reduced-scope release, and defines when to activate it.
→ The launch plan becomes resilient to both predictable delays and unforeseen failures.
Common mistakes
Evaluating Only the Plan
A plausible scenario can absorb all attention while the reliability of the judgment goes unexamined. Always assess both the plan and the evidence supporting confidence in it.
Naming Only Foreseeable Risks
A list of known risks can create false comfort because some disruptions cannot be predicted specifically. Maintain reserves and flexible responses for unknown events as well.
Assuming Exceptional Control
Overestimating personal agency leads people to discount delays, external barriers, and base rates. Give the outside world explicit weight in the decision.
Is it for you?
Best for
It is best for investors, leaders, and planners making consequential decisions under uncertainty.
Not ideal for
It is unnecessary for trivial, easily reversible choices where contingency planning costs more than failure.
From the transcript
“any decision or plan we make requires not one, but two judgments.”
“We should expect the unexpected, and so we should have contingency plans.”
“We should be sure to think about what typically happens to other people and have plan b's and Plan c's”
From the episode
At the Money: Why Self-Insight Is So Important