When it comes to coincidence, people just don’t think very clearly. They can’t accept the indifference of randomness. They feel that they, personally, must have some special importance in and impact on the great impersonal universe. Believing, in effect, in divine or supernatural intervention, they become mystical in their own reasoning and suspicious of the probabilistic reasoning of others.
What can you do about it? When a seemingly rare event occurs, don’t be so surprised that you forsake logic and the laws of probability and believe instead that all rare events are preordained. Usually a good explanation can be found. Remember the following points:
•The world presents 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— ‘‘I will meet my future wife by chance on the next subway train’’— and when it has been identified later as interesting or significant— ‘‘I happened to meet my future wife on the subway two years ago.’’
•Some events that appear rare really aren’t. What’s the probability, for example, that you’ll find a pair of people with the same birthday (day and month) out of 24 randomly chosen people? The answer is more than 50 percent!
Forewarned Is Forearmed
Our brains are always at work—sometimes, unfortunately, in ways that hinder rather than help us. At every stage of the decision-making process, misperceptions, biases, and other tricks of the mind can distort the choices we make. Highly complex and highly important decisions are the most prone to distortion because they tend to involve the most assumptions and the most estimates. The higher the stakes, the higher the risks.
We’re particularly vulnerable to traps involving uncertainty because most of us aren’t naturally very good at judging chances. We are adept at judging time, distance, weight, and volume. That’s because we’re constantly making judgments about these variables and getting quick feedback about their accuracy. Through daily practice, our minds become finely calibrated. Judging uncertainty, however, is a different matter. Though we often make forecasts about uncertain events, we rarely get clear feedback about our accuracy.
If you assess, for example, that an event has a 40 percent chance of occurring and a different one occurs, you can’t tell whether you were right or wrong. The only way to gauge your accuracy would be to keep track of many similar judgments to see if, after the fact, the events you thought had a 40 percent chance of occurring actually did occur 40 percent of the time. That would require a great deal of data, carefully tracked over a long period of time. Weather forecasters and bookmakers have incentives to maintain such records, but the rest of us don’t. As a result, we never calibrate our brains for judging probabilities.
The best protection against all psychological traps is awareness. Forewarned is forearmed. Even if you can’t eradicate the distortions ingrained in the way your mind works, you can build tests and disciplines into your decision-making process that can uncover and counter errors in thinking before they become errors in judgment.
Taking action to understand and avoid psychological traps has an added benefit: it will increase your confidence in the choices you make.
Notes
Many of the specific examples in this chapter were first published in the scientific literature. The clarity/distance example (page 190) is from Amos Tversky and Daniel Kahneman, ‘‘Judgment Under Uncertainty: Heuristics and Biases,’’ Science 185 (27 September 1974): 1124–1131. The mug/chocolate bar example (page 194) is from J. L. Knetsch, ‘‘The Endowment Effect and Evidence of Nonreversible Indifference Curves,’’ American Economic Review 79 (1989):1277–1284. The death penalty example (page 199) is from C. G. Lord, L. Ross, and M. R. Lepper, ‘‘Biased Assimilation and Attitude Polarization: The Effects of Prior Series on Subsequently Considered Evidence,’’ Journal of Personality and Social Psychology 37 (1979):2098–2109. The Pennsylvania/New Jersey insurance example (pages 200–201) is from E. J. Johnson, J. Hershey, J. Meszaros, and H. Kunreuther, ‘‘Framing, Probability Distortions, and Insurance Decisions,’’ Journal of Risk and Uncertainty 7 (1993): 35–51. The classic framing study (pages 201–202) is in Amos Tversky and Daniel Kahneman, ‘‘The Framing of Decisions and the Psychology of Choice,’’ Science 211 (30 January 1981):453–458. The airline safety statistic (page 206) is from Arnold Barnett and Mary K. Higgins, ‘‘Airline Safety: The Last Decade,’’ Management Science 35 (January 1989):1–22. The recalling of names example (page 207) is from Amos Tversky and Daniel Kahneman, ‘‘Judgment Under Uncertainty: Heuristics and Biases,’’ Science 185 (27 September 1974):1124–1131. The salesman/librarian example (page 208) is from Daniel Kahneman and Richard Thaler as quoted in Money, June 1990, p. 87. Readers will find other interesting examples and traps described in these articles and in J. Edward Russo and Paul J. H. Schoemaker, Decision Traps: The Ten Barriers to Brilliant Decision-Making and How to Overcome Them (New York: Simon & Schuster, 1989), and Max Bazerman, Judgment in Managerial Decision Making (New York: John Wiley & Sons, 4th edition, 1998).
CHAPTER 11
The Wise Decision Maker
BY NOW IT SHOULD BE CLEAR that the art of good decision making lies in systematic thinking. A systematic approach helps you to
•Address the right decision problem.
•Clarify your real objectives.
•Develop a range of creative alternatives.
•Understand the consequences of your decision.
•Make appropriate tradeoffs among conflicting objectives.
•Deal sensibly with uncertainties.
•Take account of your risk-taking attitude.
•Plan ahead for decisions linked over time.
It should also be clear that the concepts underlying a systematic approach are really rather simple. It may take a bit more time and effort to articulate your objectives carefully or to expand your set of alternatives, but the thought process itself is straightforward. In fact, the extra effort may not really be extra at all—it will often save you from endless wheel-spinning. And, most important, it will lead you to a better decision.
But making a smart decision is one thing. Becoming a smart decision maker is another. In this, our final chapter, we step back from the elements of a good decision-making approach to look at the ten core practices of the successful decision maker. We move from the process to the person. By mastering these practices, and applying them consistently, you will be well on your way to a lifetime of smart choices.
Get Started
Procrastination is the bane of good decision making. Whatever the reason for putting off a decision—the problem seems hopelessly complex, deciding will be a lot of work, unpleasant emotions may arise—the need to decide won’t go away.
Deciding by default, by not deciding, almost always yields unsatisfactory results, if only because you spend time wondering if you could have done better. So get started. The sooner you start, the more likely it is that you’ll give your decision adequate thought and find adequate information, rather than being forced to decide in partial ignorance under pressure from the clock. Given time, too, your subconscious will aid your decision process, mulling over the problem and prompting solutions even as you attend to other things.
For a relatively painless jump-start, try answering the ten diagnostic questions listed on page 219. These will show you what you know and what you need to know to make a smart choice.
Getting Started: Ten Diagnostic Questions
1.What’s my decision problem? What, broadly, do I have to decide? What specific decisions do I have to make as a part of the broad decision?
2.What are my fundamental objectives? Have I asked ‘‘Why’’ enough times to get to my bedrock wants and needs?
3.What are my alternatives? Can I think of more good ones?
4.What are the consequences of each alternative in terms of the achievement of each of my objectives? Can any alternatives be safely eliminated?
5.What are the tradeoffs among my more important objectives? Where do conflicting objectives concern me the most?
6.Do any uncertainties pose serious problems? If so, which ones? How do they impact consequences?
7.How much risk am I willing to take? How good and how bad are the various possible consequences? What are ways of reducing my risk?
8.Have I thought ahead, planning out into the future? Can I reduce my uncertainties by gathering information? What are the potential gains and the costs in time, money, and effort?
9.Is the decision obvious or pretty clear at this point? What reservations do I have about deciding now? In what ways could the decision be improved by a modest amount of added time and effort?
10.What should I be working on? If the decision isn’t obvious, what do the critical issues appear to be? What facts and opinions would make my job easier?
Once you do get started, don’t let yourself get bogged down. Some decision makers become obsessed with each particular element of the process. They won’t consider alternatives until they have a polished set of objectives. They won’t spin out consequences until all possible alternatives are in place. And so on. Without the perspective that comes from looking ahead, these people always waste time on aspects of the decision problem that later turn out to be relatively unimportant. They may spend needless hours refining their objectives, for example, when the real issue is uncertainty, and when they finally get to uncertainty, they have too little time to do it justice.
Avoid this problem by beginning with a fire-drill analysis. For a simple or routine decision, imagine that you have only a few minutes to make it; for a more important and complex decision, imagine that you have only a few hours. Quickly run through all the decision elements: problem, objectives, alternatives, consequences, tradeoffs, uncertainties, risk tolerance, and linkage. Analyze each quickly. Don’t get hung up on details. Don’t worry about doing things just right. Try for an overview of your decision problem. See how the pieces fit together. This rough sketch should enhance your understanding of your problem. Armed with a perspective on the whole, you can later go back to specific points, tying off loose ends. And, often, you’ll be pleasantly surprised to find that the fire-drill analysis led to a clear decision that, with little or no additional analysis, solved your problem. In any case, you’ll be off and running.
Concentrate on What’s Important
For most decisions, you’ll know right away what you need to focus on—it will be whatever is bothering you about the decision. Usually, there will be only one or two crucial elements; seldom will you be confronted by three or more.
If what’s important isn’t obvious, ask yourself ‘‘What’s blocking me from making this decision? Why can’t I just decide now?’’ The answer will indicate where you need to focus your attention. It may be uncertainty (‘‘I don’t know if this company will survive’’) or your basic problem definition (‘‘I don’t even know why this problem came up’’). Whatever it is, review the relevant chapter’s suggestions and buckle down.
Develop a Plan of Attack
Once you’ve scoped out the decision and focused your sights, you’ll next want to plan an orderly approach to find a resolution to your decision problem. Do you need information? Clearer objectives? Better alternatives? Proceed systematically to fill in the gaps, and then review your understanding of your decision problem as a whole.
Remember, however, that the problem definition may change as you dig in, so be flexible. Reexamine your strategy at regular intervals, and also stop and reflect whenever you have an unexpected insight or a burst of progress. Ask these kinds of questions:
•Is my decision obvious now?
•If not, is it worth more effort, or should I just pick the best contender?
•What have I learned? How has my perception of the problem changed?
•What should I work on next?
Revise your plan and continue. Repeat this process as necessary until your decision is made. A plan enables you to attack your decision problem in a disciplined way. But, at the same time, flexibility and openness to information and new developments are essential. Always be willing to stop, reassess, and reformulate your plan. Keep asking, ‘‘What’s bothering me? What’s blocking me? Why can’t I just decide now?’’
Chip Away at Complexity
Many problems seem hopelessly complex, no matter how you define them. You seem to be making little progress and you find yourself hoping you’ll somehow just muddle through. The following techniques will help you cope with some seemingly impossible situations.
Make decisions in layers. With a series of interrelated decisions, start with the broadest one first (what job to take in a new city), work down to the next level (what neighborhood to live in), then further down to a more detailed level (what apartment to rent). At each level, make sure you have a sense of the most promising alternatives in the next level down, as they might influence your current, higher-level choice. (In selecting a job, for example, keeping in mind the desirability and affordability of nearby residential neighborhoods might help you decide, but the actual choice of a neighborhood and apartment would follow the job selection.) Large corporations and the military use this technique, making strategic decisions first, tactical decisions second, and operational decisions last.
Zoom out and zoom in. The zoom technique, which takes its name from the action of zoom lenses, is a variation on the decisions-in-layers approach. Zooming out corresponds to looking at the big picture (the higher-level, strategic decision); zooming in corresponds to examining the details (the lower-level, tactical and operational decisions). With zooming, however, you don’t make decisions at any level until you’ve considered decisions at each level several times. You start zoomed out and tentatively make the high-level decision, then you zoom in and consider how you would make several lower-level decisions that depend on the higher-level decision. Having done that, you zoom back out and reconsider the higher-level decision, armed with the perspective of having seen its implications at the lower level. You may zoom in and out several times before settling on the higher-level decision. Considering the impact on lower-level decisions serves as a reality check on the higher-level one before you make it.
Compare consistent decision bundles. Certain choices naturally go together—they constitute consistent bundles. Suppose, for example, that you’re a recent college graduate considering two job offers. If you take the engineering job in Los Angeles, you’ll probably live in Westwood and study graduate-level engineering part-time at nearby UCLA. If, on the other hand, you take the product management job in San Francisco, you’ll probably live in Berkeley and pursue graduate business courses part-time at U.C. Berkeley. In each case, having established a consistent set of choices encompassing job, where to live, and graduate work, you can compare the entire bundles.
Pick the appropriate level of detail. Match the level of detail in your analysis to the breadth of your problem definition; the broader the definition, the less detailed the analysis needs to be. Time after time, we see people greatly expand the breadth of a problem definition, maintain a high level of detail, and then complain about complexity. William James, the American philosopher, noted the phenomenon: ‘‘The art of being wise is knowing what to overlook.’’ You must find, by trial and error, advice, or experience, the level of detail that works for the decision problem at hand.
Get Unstuck
Many times in a decision-making process you may find yourself stuck, unable to make any forward progress. Sometimes you can’t get started. Sometimes a seemingly insurmountable obstacle looms in your analysis of a key element. And sometimes, despite yards of analysis, you just can’t make up your mind.
Our advice: find someone to talk to about your decision problem—let your mouth start your mind. Once you get talking, you’ll see connections you never saw before. All the better if you prepare for the session by jotting down notes beforehand. Making notes will jog your mind; even
if your helper backs out and you never meet, you will have advanced your thinking. Often we find that our consulting clients benefit more from preparing to meet with us and from the self-generated insights that result from explaining their problem than from any direct advice.
A good way to get unstuck is to imagine that you have to advise someone else who has a problem identical to yours. Consider Keith’s problem. Tormented by indecision, this 16-year-old world-class swimmer must decide whether to leave home for six months of training with other Olympic aspirants or to continue training at home with his excellent high school coach. Keith is a virtual cinch to make the U.S. Olympic team, and he wants the gold. But he is also loyal to his present coach and would miss his family and girlfriend if he went away. If he decides to go, he’ll feel guilty; if he stays and wins only a bronze, he worries that he’ll regret not having taken his best shot at the big prize. When he discusses his problem with us, we ask him, ‘‘If you had to give advice to someone else in exactly this same situation, what would you say?’’ He responds without hesitation: ‘‘Train with the best; leave home if you have to.’’ And that’s just what he did.
Another way out: if you face an obstacle to making a decision, consider what you would do if the obstacle disappeared. If money is the problem, for example, imagine that you have all you’ll ever need. In many cases, you’ll find that you’d do pretty much the same thing, obstacle or no. If you solve your decision problem by disregarding the obstacle, you can go back and figure out how to remove it.
Know When to Quit
Analysis can continue forever, but you can’t. Eventually, you’ll have to decide. You therefore need to balance deliberation with speed. Obsessing over your decision takes a toll in time and psychological energy, but a hasty decision, rushed to avoid emotional stress or hard mental work, is usually a poor decision.
Smart Choices Page 18
