Tag: Decision Making

Information Without Context

Information without context is falsely empowering and incredibly dangerous.

As an adult, have you ever picked up a child’s shape-sorter and tried to put the square item through the round hole? Of course not. Adults know better — or at least we’re supposed to. Yet we often take square solutions and cram them into round problems.

Consider, for example, a project that falls behind schedule. A project manager is apt to adopt whatever solution worked the last time a project was falling behind schedule. If more people were added last time and that produced a successful outcome why not do it again? Our tendency to stick with what has worked in the past, regardless of why it worked, creates a powerful illusion that we are solving the problem or doing the right thing.

When posed a difficult question by an informed reporter, politicians often answer something related but simpler. The politician treats what should be a complex topic as something black and white and portrays the topic as simpler than it really is (reductive bias). In the corporate world we do the same thing when we take something that worked previously (or somewhere else) and blindly apply it to the next problem without giving due consideration to why it worked.

Maybe we’re just becoming an intellectually lazy society constantly looking for then next soundbite from “experts” on how to do something better.  We like the easy solution.

In Think Twice, Michael Mauboussin writes: “Consultants, researchers, and practitioners often observe some success, seek common attributes among them and proclaim that those attributes can lead others to succeed. This simply does not work.”

Our brains may be adult, yet we demonstrate a very childlike level of consideration. Decision makers often fail to ask key questions, such as: What’s different about this project? Under which circumstances is adding more people likely to work? and, Am I doing this because someone else is doing it?

Adopting best practices has become the reason to do something in and of itself.  It is, after all, hard to challenge logic of best practices. But what do best practices mean? Whom are they best for? What makes them successful? Can we replicate them in our company? Culture? Circumstance? Do we have the necessary skills? What are the side effects? What are the incentives? … More often than not, we embrace a solution without understanding under which conditions it succeeds or fails.

I think there are some parallels between business decision making and medicine. In Medicine our understanding of the particulars can never be complete: misdiagnosing a patient is common so doctors look at each patient as a new mystery.

A doctor, applying the same thoughtlessness spewed by management consultants might, reasonably, determine that all people with a fever have a cold. However, we know people are more complex than this simple correlation. Medical practitioners know the difference between correlation and cause. A fever by itself tells the doctor something but not everything. It could indicate a cold and it could be something more serious. Doctors, like good decision makers, check the context and seek out information that might disprove their diagnosis.

Three Questions to Remove Ego from Decision Making

Here are three questions leaders can ask to help make better decisions.

1. How will this decision make things better for the organization?

Consider how the decision will affect the organization’s ability to fulfill its mission. Managers who push their teams to achieve “stretch goals” without providing adequate support and resources may be seeking to get noticed by their bosses rather than helping the company serve its customers. Such behavior will have another side effect — talent will exit. The answer to this question must enhance the organization, not simply the resume of the manager.

2. How will this decision affect employees?

The business case for your decision should factor in the people quotient and affects on headcount, training, and development. Employees must execute what leaders decide, so if employees perceive that their boss is only doing something to make himself look good, they’ll be reluctant to embrace the change. They may comply, but they may never commit unless they determine the benefit for themselves.

3. How will this decision affect me?

When you are involved in a project, it is easy to entangle ego with outcome. Healthy ego is necessary, but when too much ego makes a you blind to obvious problems such as lack of resources, customer disinterest, and employee morale, problems arise. As we have seen with corporate executives in the financial sector, it isn’t positive when personal interest comes before corporate and public interest. So if the answer to this question is more in favor of you rather than the company, the issue may be over-personalized and need more deliberation.

Bertrand Russell: On Avoiding Foolish Opinions

bertrand russell avoiding foolish opinion

We’d all like to avoid folly, wouldn’t we?

Avoiding stupidity is easier than seeking brilliance. And it doesn’t take a genius. Only a few simple ideas.

Philosopher Bertrand Russell (1872-1970) offers some advice, which will not keep us from all error but will help us navigate away from obvious error.

On Avoiding Foolish Opinions

Via The Basic Writings of Bertrand Russell:

If the matter is one that can be settled by observation, make the observation yourself. Aristotle could have avoided the mistake of thinking that women have fewer teeth than men, by the simple device of asking Mrs. Aristotle to keep her mouth open while he counted. He did not do so because he thought he knew. Thinking that you know when in fact you don’t is a fatal mistake, to which we are all prone. I believe myself that hedgehogs eat black beetles, because I have been told that they do; but if I were writing a book on the habits of hedgehogs, I should not commit myself until I had seen one enjoying this unappetizing diet. Aristotle, however, was less cautious. Ancient and medieval authors knew all about unicorns and salamanders; not one of them thought it necessary to avoid dogmatic statements about them because he had never seen one of them.

Many matters, however, are less easily brought to the test of experience. If, like most of mankind, you have passionate convictions on many such matters, there are ways in which you can make yourself aware of your own bias.

If an opinion contrary to your own makes you angry, that is a sign that you are subconsciously aware of having no good reason for thinking as you do. If some one maintains that two and two are five, or that Iceland is on the equator, you feel pity rather than anger, unless you know so little of arithmetic or geography that his opinion shakes your own contrary conviction. The most savage controversies are those about matters as to which there is no good evidence either way. Persecution is used in theology, not in arithmetic, because in arithmetic there is knowledge, but in theology there is only opinion. So whenever you find yourself getting angry about a difference of opinion, be on your guard; you will probably find, on examination, that your belief is going beyond what the evidence warrants.

A good way of ridding yourself of certain kinds of dogmatism is to become aware of opinions held in social circles different from your own. When I was young, I lived much outside my own country in France, Germany, Italy, and the United States. I found this very profitable in diminishing the intensity of insular prejudice. If you cannot travel, seek out people with whom you disagree, and read a newspaper belonging to a party that is not yours. If the people and the newspaper seem mad, perverse, and wicked, remind yourself that you seem so to them. In this opinion both parties may be right, but they cannot both be wrong. This reflection should generate a certain caution.

Becoming aware of foreign customs, however, does not always have a beneficial effect. In the seventeenth century, when the Manchus conquered China, it was the custom among the Chinese for the women to have small feet, and among the Manchus for the men to wear-pigtails. Instead of each dropping their own foolish custom, they each adopted the foolish custom of the other, and the Chinese continued to wear pigtails until they shook off the dominion of the Manchus in the revolution of 1911.

For those who have enough psychological imagination, it is a good plan to imagine an argument with a person having a different bias. This has one advantage, and only one, as compared with actual conversation with opponents; this one advantage is that the method is not subject to the same limitations of time or space. Mahatma Gandhi deplores railways and steamboats and machinery; he would like to undo the whole of the industrial revolution. You may never have an opportunity of actually meeting any one who holds this opinion, because in Western countries most people take the advantage of modern technique for granted. But if you want to make sure that you are right in agreeing with the prevailing opinion, you will find it a good plan to test the arguments that occur to you by considering what Gandhi might say in refutation of them. I have sometimes been led actually to change my mind as a result of this kind of imaginary dialogue, and, short of this, I have frequently found myself growing less dogmatic and cocksure through realizing the possible reasonableness of a hypothetical opponent.

Be very wary of opinions that flatter your self-esteem. Both men and women, nine times out of ten, are firmly convinced of the superior excellence of their own sex. There is abundant evidence on both sides. If you are a man, you can point out that most poets and men of science are male; if you are a woman, you can retort that so are most criminals. The question is inherently insoluble, but self esteem conceals this from most people. We are all, whatever part of the world we come from, persuaded that our own nation is superior to all others. Seeing that each nation has its characteristic merits and demerits, we adjust our standard of values so as to make out that the merits possessed by our nation are the really important ones, while its demerits are comparatively trivial. Here, again, the rational man will admit that the question is one to which there is no demonstrably right answer. It is more difficult to deal with the self esteem of man as man, because we cannot argue out the matter with some non-human mind. The only way I know of dealing with this general human conceit is to remind ourselves that man is a brief episode in the life of a small planet in a little corner of the universe, and that, for aught we know, other parts of the cosmos may contain beings as superior to ourselves as we are to jellyfish.

Still curious? Check out Bertrand Russell’s 10 Commandments of Teaching.

Social Dilemmas: When to Defect and When to Cooperate

Social dilemmas arise when an individual receives a higher payoff for defecting than cooperating when everyone else cooperates. When everyone defects they are worse off. That is, each member has a clear and unambiguous incentive to make a choice, which if made by all members provides a worse outcome.

A great example of a social dilemma is to imagine yourself out with a group of your friends for dinner. Before the meal, you all agree to share the cost equally. Looking at the menu you see a lot of items that appeal to you but are outside of your budget.

Pondering on this, you realize that you’re only on the hook for 1/(number of friends at the dinner) of the bill. Now you can enjoy yourself without having to pay the full cost.

But what if everyone at the table realized the same thing? My guess is you’d all be stunned by the bill, even the tragedy of the commons.

This is a very simple example but you can map this to the business word by thinking about healthcare and insurance.

If that sounds a lot like game theory, you’re on the right track.

I came across an excellent paper[1] by Robyn Dawes and David Messick, which takes a closer look at social dilemmas.

A Psychological Analysis of Social Dilemmas

In the case of the public good, one strategy that has been employed is to create a moral sense of duty to support it—for instance, the public television station that one watches. The attempt is to reframe the decision as doing one’s duty rather than making a difference—again, in the wellbeing of the station watched. The injection of a moral element changes the calculation from “Will I make a difference” to “I must pay for the benefit I get.”

The final illustration, the shared meal and its more serious counterparts, requires yet another approach. Here there is no hierarchy, as in the organizational example, that can be relied upon to solve the problem. With the shared meal, all the diners need to be aware of the temptation that they have and there need to be mutually agreed-upon limits to constrain the diners. Alternatively, the rule needs to be changed so that everyone pays for what they ordered. The latter arrangement creates responsibility in that all know that they will pay for what they order. Such voluntary arrangements may be difficult to arrange in some cases. With the medical insurance, the insurance company may recognize the risk and insist on a principle of co-payments for medical services. This is a step in the direction of paying for one’s own meal, but it allows part of the “meal’ ‘ to be shared and part of it to be paid for by the one who ordered it.

The fishing version is more difficult. To make those harvesting the fish pay for some of the costs of the catch would require some sort of taxation to deter the unbridled exploitation of the fishery. Taxation, however, leads to tax avoidance or evasion. But those who harvest the fish would have no incentive to report their catches accurately or at all, especially if they were particularly successful, which simultaneously means particularly successfully—compared to others at least—in contributing to the problem of a subsequently reduced yield. Voluntary self-restraint would be punished as those with less of that personal quality would thrive while those with more would suffer. Conscience, as Hardin (1968) noted, would be self-eliminating. …

Relatively minor changes in the social environment can induce major changes in decision making because these minor changes can change the perceived appropriateness of a situation. One variable that has been shown to make such a difference is whether the decision maker sees herself as an individual or as a part of a group.

Footnotes
  • 1

    Dawes RM, Messick M (2000) Social Dilemmas. Int J Psychol 35(2):111–116

Bruce Pandolfini Teaches Thinking, Not Chess

Bruce Pandolfini Teaches Thinking

Bruce Pandolfini doesn’t have an MBA but he knows more about strategy than most people. Pandolfini is one of the most sought-after chess teachers in the world.

He’s also one of the most widely read chess writers. I have a copy of Pandolfini’s Ultimate Guide to Chess on my bookshelf.

Pandolfini makes it clear to his students that he’s not teaching them how to play chess. He is, instead, teaching them how to think.

“My goal,” he says, “is to help them develop what I consider to be two of the most important forms of intelligence: the ability to read other people, and the ability to understand oneself. Those are the two kinds of intelligence that you need to succeed at chess — and in life.”

On Thinking Ahead

There are lots of misperceptions that influence how people think about — and play — chess. Most people believe that great players strategize by thinking far into the future, by thinking 10 or 15 moves ahead. That’s just not true. Chess players look only as far into the future as they need to, and that usually means thinking just a few moves ahead. Thinking too far ahead is a waste of time: The information is uncertain. The situation is ambiguous. Chess is about controlling the situation at hand. You want to determine your own future. You certainly don’t want your opponent to determine it for you. For that, you need clarity, not clairvoyance.

“You should never play the first good move that comes into your head. Put that move on your list, and then ask yourself if there is an even better move.”

On Attacking

Great players want to build their position and to increase their power — so that, when they strike, there is no defense. Trying to win a game in the fewest number of moves means hoping that your opponent is incompetent. I don’t teach students to base their play on hope. I teach them to play for control.

On Small Advantages

Chess is a game of small advantages. It all goes back to Wilhelm Steinitz, the first great modern chess teacher. Steinitz developed the theory of positional chess, which assumes that, to get an advantage, you have to give up something in return. The question then becomes “How can anyone win? Why isn’t the game always held in dynamic balance?” The answer is that you play for seemingly insignificant advantages — advantages that your opponent doesn’t notice or that he dismisses, thinking, “Big deal, you can have that.” It could be a slightly better development, or a slightly safer king’s position. Slightly, slightly, slightly. None of those “slightlys” mean anything on their own, but add up seven or eight of them, and you have control. Now the only way that your opponent can possibly break your control is by giving up something else. Positional chess teaches that we are responsible for our actions. Every move must have a purpose.

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The Anatomy of a Decision: An Introduction to Decision Making

An Introduction to Decision Making

“The only proven way to raise your odds of making a good decision is
to learn to use a good decision-making process—one that can
get you the best solution with a minimal
loss of time, energy, money, and composure.”
— John Hammond

***

This is an introduction to decision making.

A good decision-making process can literally change the world.

Consider the following example from Predictable Surprises: In 1962, when spy planes spotted Soviet missiles in Cuba, U.S. military leaders urged President Kennedy to authorize an immediate attack. Fresh from the bruising failure of the Bay of Pigs, Kennedy instead set up a structured decision-making process to evaluate his options. In a precursor of the Devil’s Advocacy method, Kennedy established two groups each including government officials and outside experts, to develop and evaluate the two main options–attack Cuba or set up a blockade to prevent more missiles from reaching its shores. Based on the groups’ analysis and debate, Kennedy decided to establish a blockade. The Soviets backed down, and nuclear war was averted. Recently available documents suggest that if the United States had invaded Cuba, the consequences would have been catastrophic: Soviet missiles that had not been located by U.S. Intelligence could still have struck several U.S. cities.

The concept of a decision-making process can be found in the early history of thinking. Decisions should be the result of rational and deliberate reasoning.

Plato argues that human knowledge can be derived based on reason alone using deduction and self-evident propositions. Aristotle formalized logic with logical proofs where someone could reasonably determine if a conclusion was true or false.

However, as we will discover, not all decisions are perfectly rational. Often, we let our system one thinking–intuition–make decisions for us. Our intuition is based on long-term memory that has been primarily acquired over the years through learning and allows our mind to process and judge without conscious awareness. System one thinking, however, does not always lead to optimal solutions and often tricks our mind to thinking that consequences and second-order effects are either non-existent or less probable than reality would indicate.

In Predictable Surprises Max Bazerman writes:

Rigorous decision analysis combines a systematic assessment of the probabilities of future events with a hard-headed evaluation of the costs and benefits of particular outcomes. As such, it can be an invaluable tool in helping organizations overcome the biases that hinder them in estimating the likelihood of unpleasant events. Decision analysis begins with a clear definition of the decision to be made, followed by an explicit statement of objectives and explicit criteria for assessing the “goodness” of alternative courses of action, by which we mean the net cost or benefit as perceived by the decision-maker. The next steps involve identifying potential courses of action and their consequences. Because these elements often are laid out visually in a decision tree, this technique is known as “decision tree analysis.” Finally, the technique instructs decision-makers to explicitly assess and make trade-offs based on the potential costs and benefits of different courses of action.

To conduct a proper decision analysis, leaders must carefully quantify costs and benefits, their tolerance for accepting risk, and the extent of uncertainty associated with different potential outcomes. These assumptions are inherently subjective, but the process of quantification is nonetheless extremely valuable’ it forces participants to express their assumptions and beliefs, thereby making them transparent and subject to challenge and improvement.

From Judgment in Management Decision Making by Max Bazerman:

The term judgment refers to the cognitive aspects of the decision-making process. To fully understand judgment, we must first identify the components of the decision-making process that require it.

Let’s look at six steps you should take, either implicitly or explicitly, when applying a “rational” decision-making process to each scenario.

1. Define the problem. (M)anagers often act without a thorough understanding of the problem to be solved, leading them to solve the wrong problem. Accurate judgment is required to identify and define the problem. Managers often err by (a) defining the problem in terms of a proposed solution, (b) missing a bigger problem, or (c) diagnosing the problem in terms of its symptoms. Your goal should be to solve the problem not just eliminate its temporary symptoms.

2. Identify the criteria. Most decisions require you to accomplish more than one objective. When buying a car, you may want to maximize fuel economy, minimize cost, maximize comfort, and so on. The rational decision maker will identify all relevant criteria in the decision-making process.

3. Weight the criteria. Different criteria will vary in importance to a decision maker. Rational decision makers will know the relative value they place on each of the criteria identified. The value may be specified in dollars, points, or whatever scoring system makes sense.

4. Generate alternatives. The fourth step in the decision-making process requires identification of possible courses of action. Decision makers often spend an inappropriate amount of search time seeking alternatives, thus creating a barrier to effective decision making. An optimal search continues only until the cost of the search outweighs the value of added information.

5. Rate each alternative on each criterion. How well will each of the alternative solutions achieve each of the defined criteria? This is often the most difficult stage of the decision-making process, as it typically requires us to forecast future events. The rational decision maker carefully assesses the potential consequences on each of the identified criteria of selecting each of the alternative solutions.

6. Compute the optimal decision. Ideally, after all of the first five steps have been completed, the process of computing the optimal decision consists of (a) multiplying the ratings in step 5 by the weight of each criterion, (b) adding up the weighted ratings across all of the criteria for each alternative, and (c) choosing the solution with the highest sum of weighted ratings.

Hammond, Keeney, and Raiffa suggest 8 steps in their book Smart Choices:

1. Work on the right problem.
2. Identify all criteria.
3. Create imaginative alternatives.
4. Understand the consequences.
5. Grapple with your tradeoffs.
6. Clarify your uncertainties.
7. Think hard about your risk tolerance.
8. Consider linked decisions.

* * *

People, however, are not always entirely logical machines. In Judgment in Managerial Decision Making, the distinction between System One and System Two thinking becomes clear:

System 1 thinking refers to our intuitive system, which is typically fast, automatic, effortless, implicit, and emotional. We make most decisions in life using System 1 thinking. For instance, we usually decide how to interpret verbal language or visual information automatically and unconsciously. By contrast, System 2 refers to reasoning that is slower, conscious, effortful, explicit, and logical. System 2 thinking can be broken down into (1) define the problem; (2) identify the criteria; (3) weigh the criteria; (4) generate alternatives; (5) rate each alternative on each criterion; (6) compute the optimal decision.

In most situations, our system 1 thinking is quite sufficient; it would be impractical, for example, to logically reason through every choice we make while shopping for groceries. But System 2 logic should preferably influence our most important decisions.

* * *

When making a decision, we are psychologically influenced either consciously or unconsciously. By exploring these biases and other elementary, worldly wisdom, we hope to make you a better decision-maker.

Following a rational decision process can help us focus on outcomes that are low in probability but high in potential costs. Without easily quantifiable costs, we often dismiss low probability events or fall prey to biases. We don’t want to be the fragilista.

Even rational decision-making processes like the one presented above make several assumptions. The first assumption is that a rational decision-maker is completely informed which means they know about all the possible options and outcomes. The second major assumption is that the decision-maker does not fall prey to any biases that might impact the rational decision.

In researching decision-making processes, it struck us as odd that few people question the information upon which criteria are measured. For instance, if you are purchasing a car and use fuel efficiency as the sole criterion for decision making, you would need to make sure that the cars under consideration were all tested and measured fuel consumption in the same way. This second order of thinking can help you make better decisions.

If you want to make better decisions, you should read Judgment in Managerial Decision Making. That is the best book I’ve come across on decision making. If you know of a better one, please send me an email.

Stanovich’s book, What Intelligence Tests Miss: The Psychology of Rational Thought, proposes a whole range of cognitive abilities and dispositions independent of intelligence that have at least as much to do with whether we think and behave rationally.

 

Follow your curiosity to The best books on the psychology behind human decision making and Problem Solving 101.