Smart Choices

by Howard Raiffa

  Chat with spouse.

  3.The connection between the trigger and the problem.

  How to use our yard.

  As you explore the trigger, beware! Triggers can bias your thinking. They can trap you into viewing the problem only in the way it first occurred to you. When your boss asks you to choose a new mailing-list software package, for instance, the problem might not actually be: What’s the best package to buy? The real problem may be: What’s the best way to manage our company’s direct-mail program? You may find that you don’t need new software at all. You need to contract with an outside company to take over the mailing effort.

  Question the constraints in your problem statement. Problem definitions usually include constraints that narrow the range of alternatives you consider. For example, the problem definition ‘‘When should we conduct the three-month market test of our new credit card offering in the Midwest?’’ assumes (1) that there will be a market test, (2) that it will last three months, and (3) that it will be in the Midwest. Often, such constraints are useful— they focus your choice and prevent you from wasting time wrestling with irrelevant options. Sometimes, though, they put blinders on you, preventing you from seeing the best options. As the following example demonstrates, identifying and challenging the constraints can lead you to better problem definitions and better solutions.

  Questioning Constraints: The Berkeley Meeting

  A West Coast snowboard manufacturer was getting ready to make a big push into the northeastern U.S. market. To craft its strategy, it appointed a team of three people—one from its headquarters in Berkeley, California; one from its manufacturing plant in Vancouver, British Columbia; and one from its sales office in Denver, Colorado. The vice president of marketing in Berkeley, the head of the team, suggested they get together for a three-day meeting to pull together the final strategy, and he asked his executive assistant to schedule the meeting in Berkeley as soon as possible. After many telephone calls and e-mails, however, the assistant could find no good dates for a three-day meeting any time in the next two months.

  Unable to schedule the meeting, the assistant started asking some questions. Was a three-day meeting really necessary, or would two days do? Were all three individuals needed for the entire time? But even scheduling everyone for at least one day proved difficult.

  The vice president went back to basics, asking himself and his colleagues, ‘‘Why are we considering a meeting at all?’’ Simple: to complete the strategy. He then asked, ‘‘How else can we get the work done?’’—in effect recasting the decision problem from ‘‘When do we meet?’’ to ‘‘How can we finish the strategy?’’

  The team came up with a new plan of action. The vice president would outline the steps needed to complete the strategy and would then assign tasks to himself and his two associates. Using e-mail, the team members would update one another on the outcomes of the tasks. Then they would hold three two-hour conference calls over the next two weeks to bring it all together.

  The plan worked, and the strategy was solid within three weeks.

  Identify the essential elements of the problem. If you’re an actor and you need to choose your next role, the elements of your decision problem might include any or all of the following: What role will gain me the most exposure? How much money do I need to earn? What’s the best way to develop my skills? What are the limits on my time and travel? Should I wait for more options to open up, or should I concentrate on what’s available now? By first breaking a problem down into its component pieces, you can be sure that your problem statement is focused on the right goal.

  Understand what other decisions impinge on or hinge on this decision. What other decisions will affect this one? What other decisions will this one influence? Whether your company will allocate funds for training may influence how far afield you look for a new word processing package. How much you spend on it may influence what new computer and telecommunications hardware your organization will be able to buy. Rarely does a decision exist in isolation. Thinking through the context of a decision problem will help keep you on the right track.

  Establish a sufficient but workable scope for your problem definition. Should related decisions be made part of this decision? Should part of this decision be peeled off and dealt with separately? You need to weigh a comprehensive, broad definition against a more easily tackled, narrower one. An ideal solution for a problem that is too narrow could be a poor solution for a more broadly and accurately defined problem. If you’re looking to minimize gasoline costs, you might overinflate your tires to reduce road friction. But if your real problem is cutting your overall automobile operating expenses, this might be a very poor decision. The money you save on gas may be more than offset by the cost of having to replace your tires sooner.

  Gain fresh insights by asking others how they see the situation. After you’ve asked, answered, and reviewed all of the above questions to your satisfaction, get some other perspectives. Depending on the nature of the problem, you might seek advice from a family member, a knowledgeable friend, an acquaintance who has faced a similar problem, or a professional in a relevant field. Their ideas will help you see your problem in a new light, perhaps revealing new opportunities or exposing unnecessary, self-imposed constraints. If you can’t actually talk to anyone, it can even be worthwhile to imagine how others might think. Ask, for example: How would my accountant see this problem? How would my boss look at it? Don’t be afraid to be creative. If you’re a politician, you might want to imagine how Harry Truman or Winston Churchill would have thought about the problem you’re facing.

  Reexamine Your Problem Definition as You Go

  Obviously, you will want to create the best possible problem definition at the outset. But even after putting considerable effort into defining the problem and then digging into its solution, your perceptions may change. You might start off thinking that your problem is planning your summer vacation, only to realize that what really appeals to you is a winter trip to South America. You don’t have the time or the money to take two vacations, so you need to change your original problem definition.

  Remember that defining your decision problem is itself a decision problem, the resolution of which will profoundly influence your ultimate choice. That’s why it’s important not only to consider several possible problem definitions in the beginning, but also to pause along the way and reexamine the definition you’ve chosen. Faced with a competitor that has just made a 20 percent improvement in the clarity of its video conferencing picture, a telecommunications company might at first formulate its decision problem as ‘‘How do we match their level of clarity as quickly as possible?’’ But on further consideration, it might realize that it could actually gain an advantage if it recast the problem as ‘‘What technological innovation would allow us to leapfrog the competition by achieving a 100 percent improvement in clarity?’’

  Chances to redefine your problem are opportunities that often lead to better decisions. So, from time to time as you work your way through the decision-making process, ask yourself: Am I working on the right problem? Questioning the problem is particularly important when circumstances are changing rapidly or when new information becomes available. A poorly formulated decision problem is a trap. Don’t fall into it.

  Maintain Your Perspective

  If it seems like we’re making a big deal out of the problem definition, you’re right. Crafting a good definition takes time; don’t expect to get it right in one sitting. True, the effort involved in creating a good, comprehensive definition must be balanced against such considerations as time (‘‘I don’t have time to address a more complex problem right now’’), importance (‘‘The decision’s not very important—it’s not worth all that effort’’), saliency (‘‘I have more pressing matters on my plate’’), and emotional energy (‘‘I’m not ready to face that now’’). But in 99 out of 100 cases, spending extra time defining the problem pays off handsomely in the end. It increases the odds that yo
u’ll make the smart choice.

  A Poor Problem Definition Limits Options: Finding a New Job

  Bob Hamonski lost his job in Portland, Oregon. Well, sort of. When his company was acquired by a larger one, his position as a financial analyst was eliminated. The new owners were eager to keep Bob, however, and they offered him his choice of financial analyst positions at other subsidiary companies they owned—all in states other than Oregon.

  Relocating was problematic because Bob was just concluding a divorce. The divorce agreement, an amicable one, would give him custody of the couple’s two young children, while his wife, a lawyer, would pitch in with emergency child care and take the kids on weekends.

  Bob could have defined his decision problem in various ways, but he never stopped to think about it. Instead, even though his skills were highly marketable, he proceeded as if his problem were ‘‘How do I stay with my current employer?’’ As a result, he chose one of the open analyst positions—with a subsidiary in Seattle, Washington, the closest option to Portland.

  Now, however, Bob’s life is a nightmare whenever a child is sick, because his ex-wife is too far away to babysit. And the five-hour round-trip drives to Portland every weekend aren’t much fun either. To add insult to injury, the job itself isn’t as good as his old one.

  With a different problem definition (such as ‘‘What’s the best financial analyst job I can get in Portland?’’), Bob probably would have ended up with a better job with a different employer—without having had to move. By allowing others to frame his decision problem, he unnecessarily narrowed his options.

  Too often, people give short shrift to problem definition (as the story of Bob Hamonski above illustrates). In their impatience to get on with things, they plunge into the other elements of decision making without correctly formulating the problem first. Though they may feel like they’re making progress in solving their problem, to us they seem like travelers barreling along a highway, satisfied to be going 60 miles an hour—without realizing they’re going the wrong way.

  APPLICATION

  To Renovate or Move?

  Meet Darlene and Drew Mather. They’ve run out of space in their two-bedroom, one-and-a-half-bath, finished-basement home, and they have to decide what to do.

  Eight years ago, the young couple bought a modest house on School Street in an urban residential neighborhood. Darlene had been pregnant with their son, John, at the time, so they’d left their tiny apartment to give their expected child a room of his own. Now, a second child is on the way. At first, Darlene and Drew had tried to figure out how they might accommodate the new child in the existing house. Could John share his room with the baby? (He’d quickly tire of that.) Could they divide their own bedroom? (A possibility, but their room was already overcrowded.) They quickly came to see that they wouldn’t be able to make do with the space they had.

  So they’ve decided to add onto the house, and for the last two months they’ve been reviewing and pricing their renovation options. A bedroom off the end of their one-story house would cost $25,000, for example, and take away a large chunk of their already-small yard. Adding a second story would save the yard but cost $40,000.

  Having bought the house when they did, they’ve reaped the benefits of a doubling in prices in the local real estate market over the past eight years. A close friend and realtor, Anne Chu, has told them that their house would sell now for $155,000—a pretty good deal, since they originally paid $77,750. With a remaining mortgage of $57,000, their equity totals $98,000 ($155,000 minus $57,000). Their job situations, too, are stable. Darlene works full-time as a nurse in a local hospital, though she plans to work only part-time for a couple of years after the baby is born. Drew works as a salesman and has a secure, solid job. Their joint income before taxes is about $75,000 a year. They feel confident they can afford the renovation—they can use the equity in the house to finance it, and they should have no trouble meeting the monthly payments.

  But one evening, after Drew puts the dinner dishes away, Darlene starts a conversation with a thought that will lead them down a new path.

  ‘‘Drew, John really got me thinking today. You know Jimmy, his friend down the block? Well, Jimmy’s family is going to move, so John asked me why people move and when we were going to move. At first I thought he was apprehensive that we might move, too. But he was actually excited about the possibility! We had a long conversation about why people move, and the more we talked, the more I got to thinking: Why don’t we consider moving instead of renovating?’’

  ‘‘Are you serious?In today’s market?’’

  ‘‘Well, this is a new idea for me, too. But when I rattled off to John the reasons why people move—and he offered reasons, too, like getting more room to play, being able to ride his bike in the street, and being closer to school—I half convinced myself that this might not be such a wild idea. Sure, prices are high, but we’ve built up a lot of equity in our house, and if we sold it we’d be able to afford a down payment on a bigger one. We’d also avoid $25,000 or more in renovation costs.’’

  Thunderstruck, Drew exclaims, ‘‘I can’t believe this! For two months now, we’ve been talking about needing space and renovating. Boy, sometimes it just takes an eight-year-old to set his parents straight! Our real problem isn’t ‘How should we remodel?’ It’s ‘How do we get enough room for our growing family?’ or ‘How do we get a better home?’ Remodeling our house is only one possibility!’’

  (To be continued in Chapter 3.)

  Lessons from the Application

  Darlene and Drew started with an overly narrow problem definition: ‘‘How do we renovate?’’ Their trigger was the need for additional space to accommodate the new baby. At the outset, they didn’t stop to think about the different ways to state the problem—they jumped to the conclusion that renovation was their best option. Luckily, John’s naive question—‘‘Why do people move?’’—got them thinking more broadly.

  What suggestions might help them now?

  •First, they should take more time to reflect on still other possible problem definitions. They might take into account how, for example, a move out to the suburbs would affect their quality of life. Or they might think about whether they’ll have a third child in the future or whether there might be an aging relative to house and care for.

  •Second, they should identify and examine some of the assumed constraints surrounding their decision and ask themselves whether they might want to loosen, eliminate, or replace some of them. If they moved, for example, how much would it matter if they were farther away from Drew’s or Darlene’s family? Might they be able to find good jobs with different employers, widening the geographic area available to them?

  Expansive thinking generates better problem definitions. And better definitions open up a broader range of creative solutions.

  CHAPTER 3

  Objectives

  YOU’VE FORMULATED THE RIGHT DECISION PROBLEM. Now, before you rush into making the actual decision, pause and think hard about your objectives. What do you really want? What do you really need? What are your hopes? your goals? Answering these questions honestly, clearly, and fully puts you on track to making the smart choice.

  Why are objectives so important? They form the basis for evaluating the alternatives open to you. They are, in other words, your decision criteria. By making sure you’ve identified all your objectives, you will avoid making an unbalanced decision—one that, for example, considers financial implications but ignores personal fulfillment. In addition, a full set of objectives can help you think of new and better alternatives, looking beyond the immediately apparent choices.

  Objectives are very personal, but they need not be self-centered. Depending on the decision, the objectives you establish can reflect concerns for your family, your employer, your community and country, even the whole of society. Imagine that you’re a freelance writer and you’ve just completed a long assignment writing a computer training manual for a large company
. Now you’re looking for your next job. Your immediate inclination is to solicit similar work from other big companies—that course would fulfill your objectives for maximizing your income and building your business portfolio. But then you begin to think of other objectives that are also important to you: supporting your community, helping the less fortunate, broadening your experience. You decide to take a lower-paying job writing a fundraising letter and brochure for a local hospice for AIDS patients. Even though you’ve forgone some income, you soon realize that, by looking beyond your own concerns, you’ve made a wise decision.

  Let Your Objectives Be Your Guide

  Sometimes, the process of thinking through and writing out your objectives can guide you straight to the smart choice—without your having to do a lot of additional analysis. Here’s an example. Imagine that your boss has just offered you a promotion. The new job, which requires you to move cross-country from San Diego to New York City, has a considerably higher salary. Your gut reaction is ‘‘Great, just what I wanted!’’ But careful thinking about your full set of objectives gives you reason to hesitate. While the new position would be advantageous financially, the move would disrupt the lives of your spouse, your 12-year-old twin boys, and yourself.

  Working with your family, you determine your most important objectives: to promote your family’s quality of life, to further your professional development, and to contribute to your firm. When you look back at the offer in light of these objectives, your view changes dramatically. You realize that your family’s love of warm weather and outdoor recreation makes it likely that their quality of life would suffer in New York. You see that, although your new position would be challenging and satisfying, it’s actually less suited to your talents and interests than your current job. And you decide that your contributions to your firm would be about the same in either position. The money would indeed be better in New York, but maximizing your income, you now see, is only one of your fundamental objectives. Your decision is suddenly clear-cut. You decline the promotion, explaining your reasoning in clear and compelling terms to your boss.