Jeff Bezos: There are two types of decisions to make and don't confuse them

Amazon's Jeff Bezos just published his annual letter to shareholders, and new this year is a lot of talk about how Amazon calculates big risks.

He first notes that Amazon is the $4 because the company is willing to take big risks with the knowledge that 90% of them will fail.

But then he goes on to carefully distinguish two kinds of decision-making that affect how he thinks about risks.

Type 1 decisions are not reversible, and you have to be very careful making them.

Type 2 are like walking through a door - if you don't like the decision, you can always go back.

The problem comes from confusing the two, Bezos writes:

As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We'll have to figure out how to fight that tendency.

And one-size-fits-all thinking will turn out to be only one of the pitfalls. We'll work hard to avoid it… and any other large organization maladies we can identify.

In a footnote, he acknowledges that taking Type 1 decisions lightly is an even a bigger mistake:

The opposite situation is less interesting and there is undoubtedly some survivorship bias. Any companies that habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before they get large.

Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.