Find and eliminate dominated alternatives.
Make tradeoffs using even swaps.
The essence of the even swap method.
Application of the even swap method.
Determine the change necessary to cancel out an objective.
Assess what change in another objective would compensate for the needed change.
Make the even swap.
Cancel out the now-irrelevant objective.
Eliminate the dominated alternative.
Simplify a complex decision with even swaps.
Practical advice for making even swaps.
Make the easier swaps first.
Concentrate on the amount of the swap, not on the perceived importance of the objective.
Value an incremental change based on what you start with.
Make consistent swaps.
Seek out information to make informed swaps.
Practice makes perfect.
Application: to renovate or move?
7 Uncertainty
How to think about and act on uncertainties affecting your decision
Distinguish smart choices from good consequences.
A smart choice, a bad consequence.
A poor choice, a good consequence.
Use risk profiles to simplify decisions involving uncertainty.
How to construct a risk profile.
Identify the key uncertainties.
Define outcomes.
Assign chances.
Use your judgment.
Consult existing information.
Collect new data.
Ask experts.
Break uncertainties into their components.
Clarify the consequences.
Picture risk profiles with decision trees.
Application: to settle or not to settle?
8 Risk Tolerance
How to account for your appetite for risk
Understand your willingness to take risks.
Incorporate your risk tolerance into your decisions.
Quantify risk tolerance with desirability scoring.
Assign desirability scores to all 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.
Use desirability scoring to make a tough decision.
The desirability curve: a scoring shortcut.
An investment example.
Create a desirability curve.
Use the desirability curve to make a decision.
Get additional insights by converting desirability scores back to money.
Interpret desirability curves.
Watch out 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 sure 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.
Application: to settle or not to settle?
9 Linked Decisions
How to plan ahead by effectively coordinating current and future decisions
Linked decisions are complex.
Make smart linked decisions by planning ahead.
Follow six steps to analyze linked decisions.
Understand the basic decision problem.
Identify ways to reduce critical uncertainties.
Identify future decisions linked to the basic decision.
Understand relationships in linked decisions.
Decide what to do in the basic decision.
Treat later decisions as new decision problems.
Keep your options open with flexible plans.
All-weather plans.
Short-cycle plans.
Option wideners.
‘‘Be prepared’’ plans.
Application: should Dan change jobs?
Maintain your perspective.
10 Psychological Traps
How to avoid some of the tricks your mind can play on you when you’re deciding
Overrelying on first thoughts: the anchoring trap.
Keeping on keeping on: the status quo trap.
Protecting earlier choices: the sunk-cost trap.
Seeing what you want to see: the confirming-evidence trap.
Posing the wrong question: the framing trap.
Framing as gains versus losses.
Framing with different reference points.
Being too sure of yourself: the overconfidence trap.
Focusing on dramatic events: the recallability trap.
Neglecting relevant information: the base-rate trap.
Slanting probabilities and estimates: the prudence trap.
Seeing patterns where none exist: the outguessing randomness trap.
Going mystical about coincidences: the surprised-by-surprises trap.
Forewarned is forearmed.
11 The Wise Decision Maker
How to make smart choices a way of life
Get started.
Concentrate on what’s important.
Develop a plan of attack.
Chip away at complexity.
Get unstuck.
Know when to quit.
Use your advisors wisely.
Establish basic decision-making principles.
Tune up your decision-making style.
Take charge of your decision making.
What’s in it for you?
About the Authors
Dr. John S. Hammond is a management consultant based in Lincoln, Massachusetts, known for helping his clients make tough choices. He blends the rigors of sound theory with extensive practical experience from four decades in industry, academia, and consulting. Dr. Hammond has worked in the computer division of NCR; taught at the Harvard Business School and at MIT’s Sloan School of Management; and consulted for the American Stock Exchange, Bank of America, CIGNA, DuPont, Este e Lauder, General Electric, IBM, the United Nations, the World Bank, and scores of other organizations. He is the coauthor of Strategic Market Planning and a coauthor of Management Decision Sciences. He also wrote or supervised more than 100 Harvard case studies. Dr. Hammond’s articles have appeared in the Harvard Business Review, the Sloan Management Review, the Journal of Finance, Management Science, and other journals.
Dr. Ralph L. Keeney is a professor at the University of Southern California in the Marshall School of Business and the School of Engineering and affiliated with the Center for Telecommunications Management. He is especially known for his work on making difficult tradeoffs. He also has a private consulting practice, based in San Francisco, where his clients include American Express, British Columbia Hydro, the Electric Power Research Institute, Kaiser Permanente, Pacific Gas and Electric, Seagate, and the U. S. Department of Energy. Dr. Keeney is the author of Value-Focused Thinking: A Path to Creative Decisionmaking and coauthor of Decisions with Multiple Objectives, winner of the 1976 Lanchester Prize. He was the founder and, for seven years, the leader of the decision and risk analysis group of a major geotechnical and environmental consulting firm. Dr. Keeney was previously a professor at MIT and was elected to the National Academy of Engineering.
Dr. Howard Raiffa is a pioneer in the development of decision analysis, negotiation analysis, and the theory of games. He has taught the art and science of decision making at Harvard University for the past four decades. Throughout that time, half of his professorial appointment has been at the Harvard Business School, and half has been distr
ibuted among the Division of Engineering and Applied Sciences, the Economics Department, the Kennedy School of Government, the Law School, the School of Public Health, and the Statistics Department. Dr. Raiffa has supervised nearly 100 doctoral dissertations. His writings, and his students, have influenced the teaching and practice of decision making in universities throughout the world. Among his most influential authored and coauthored books are Games and Decisions, Decision Analysis, Decisions with Multiple Objectives, and The Art and Science of Negotiation. Professor Raiffa helped negotiate the establishment of the International Institute for Applied Systems Analysis (IIASA), an international think tank in Vienna, and served as its first director. In the 1970s, its aim was to bridge the political divide between East and West through applied science; in the 1990s, its mission has become to study global environment problems.
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