Thesis: A book that bridges the gap between how people actually make decisions and what researchers have discovered about how they should make decisions.
Specific Things to Remember:
- Work on the right decision problem – state problems carefully, acknowledging their complexity, and avoid unwarranted assumptions and option-limiting prejudice.
- Define it: 1 – what is your assumption of the problem; 2 – the triggering occasion; 3 – the connection between the trigger and the problem
- Question constraints in you problem statement – do they need to be there?
- Identify essential elements of the problem
- Specify objectives – ask what you most want to accomplish and which of your interests, values, concerns, fears, and aspirations are most relevant to achieving your goal.
- Objectives help you determine what information to seek
- They help you explain your choice to others
- Determines a decision’s importance, and consequently, how much time and effort it deserves
- How to:
- Write down all concerns you hope to address
- Compose a wishlist – what would make you really happy?
- Think about the worst outcome – what are you trying to avoid?
- Consider the decision’s possible impact on others
- Ask people who have faced similar situations what they considered
- Consider a great, if unfeasible, alternative; what’s great about it?
- Consider a terrible alternative; why is it?
- How would you justify your decision? This will uncover additional concerns.
- If this is a group situation, have individuals consider the questions above before coming together. Then combine lists.
- Separate ends from means to establish fundamental objectives
- Clarify what you mean by each objective
- If the prospect of a decision sits uncomfortably in your mind, you may have overlooked an important objective
- Create imaginative alternatives – have you really considered all the alternatives?
- Ask “how?” of your objectives
- Challenge the constraints
- Set high aspirations
- Do your own thinking first before you consult others
- Learn from experience
- NOW ask others for suggestions
- Give your subconscious time
- Create alternatives, evaluate later
- Never stop looking for more
- Understand the consequences
- Build a consequences table
- Mentally put yourself in the future
- Create a description using words and numbers that capture its key characteristics
- Eliminate inferior alternatives
- Organize remaining alternatives into a table
- Master the art of describing them
- Try before you buy
- Use common, measureable scales
- Don’t rely on hard data
- Make the most of available information
- Use experts wisely
- Grapple with tradeoffs – set priorities by addressing the need for tradeoffs among competing objectives
- Find and eliminated dominated alternatives – it has disadvantages without any advantages
- Make tradeoffs using even swaps
- Make easier swaps first
- Concentrate on the amount of the swap rather than on perceived importance of objective
- Value an incremental change based on what you start with
- Make consistent swaps.
- Seek out information to make informed swaps
- Practice makes perfect
- Clarify uncertainties – judge the likelihood of different outcomes and assess impact
- Use risk profiles to simplify decisions involving uncertainty
- What are the key uncertainties?
- What are the possible outcomes of these uncertainties?
- What are the chances of occurrence of each possible outcome?
- What are the consequences of each outcome?
- How to create a risk profile
- Identify key uncertainties
- List all uncertainties that might significantly influence the consequences of any alternatives
- Consider these one at a time to determine whether and to what degree their various possible outcomes might influence the decision
- Define outcomes
- How many possible outcomes need to be defined to express the extent of each uncertainty?
- How can each outcome be best defined?
- Assign chances
- Use your judgment
- Consult existing information
- Collect new data
- Ask experts
- Break uncertainties into their components
- Clarify the consequences
- A written description
- A qualitative description by objective
- A quantitative description by objective
- Think hard about risk tolerance – a conscious awareness of your willingness to accept risk will make your decision-making process smoother and more effective.
- Quantify risk tolerance with desirability scoring
- Assign desirability scores to consequences
- Calculate each consequence’s contribution to the overall desirability of the alternative
- Calculate each alternative’s overall desirability score
- Compare the overall desirability scores associated with the alternatives and choose
- Watch our for these pitfalls
- Don’t overfocus on the negative
- Don’t fudge the probabilities to account for risk
- Don’t ignore significant uncertainty
- Avoid foolish optimism
- Don’t avoid making risky decisions because they are complex
- Make your subordinates reflect your organization’s risk tolerance in their decisions
- Open up new opportunities by managing risk
- Share the risk
- Seek risk-reducing information
- Diversify the risk
- Hedge the risk
- Insure against risk
- Consider linked decisions – what you decide today could influence choices tomorrow, and goals for tomorrow should influence choices today. Sequence your actions to fully exploit what you learn along the way.
- Make smart linked decisions by planning ahead
- Understand the basic decision problem
- Identify ways to reduce critical uncertainties
- Identify future decisions linked to the basic decision
- Understand relationships in linked decisions
- Get the timing right
- Sketch the essence of the decision problem
- Describe the consequences at the end points
- Decide what to do in the basic decision.
- Think ahead then work backward in time
- Treat later decisions as new decision problems
- Psychological Traps
- Overrelying on first thoughts
- Always view a decision problem from different perspectives.
- Think about the decision on your own before consulting other
- Seek information and opinions from a variety of people to open your mind
- Be careful to avoid anchoring other people from whom you solicit information. Tell them nothing about your own thoughts.
- Prepare well before negotiating.
- Status Quo
- Remind yourself of your objectives and examine how they’d be served by maintaining status quo
- Never think of the status quo as your only alternative
- Ask yourself whether you would choose the status quo if it were an alternative instead
- Avoid exaggerating the effort or cost involved in switching from the status quo
- Put it to a test
- Don’t default to it, force yourself to choose one
- Sunk Cost
- Seek out and listen carefully to the views and arguments of people who weren’t involved
- Examine why admitting to an earlier mistake distress you
- If you worry about being second guessed, make this an explicit part of the decision process
- Confirming Evidence
- Get someone to play devil’s advocate
- Be honest about your motives
- Expose yourself to conflicting information
- Don’t ask leading questions when asking for advice
- Framing trap
- Remind yourself of fundamental objectives and make sure how you frame the problem advances them
- Don’t automatically accept the initial frame
- Try posing problems in neutral, redundant way
- Think harder about framing of the problem
- When people recommend decisions, examine the way the framed the problem. Challenge them with different frames
- Over confidence
- Avoid being anchored (consider the extremes)
- Actively challenge your own extreme figures
- Challenge expert’s or advisor’s estimates
- Recallability
- Each time you make a forecast, examine your assumptions
- Try to get statistics
- Take apart the event you’re trying to assess and build up an assessment piece by piece
- Base-Rate Trap
- Don’t ignore relevant data
- Don’t mix up one probability with another
- Prudence
- State your probabilities and give your estimates honestly
- Document the information and reasoning
- Emphasize to anyone supplying you with information the need for honest input
- Vary each to he estimates over a range to assess its impact on the final decision
- Outguessing Randomness Trap
- Don’t try to outguess purely random phenomena
- If you see patterns, check your theory where the consequences aren’t too significant
- Surprised by Surprises Trap
- The world present many potential surprises; you’re bound to experience some of them
- An enormous probabilistic gulf exists between an event’s occurring when it has been flagged ahead of time
- Some events that appear rare really aren’t.