MAKING SMART CHOICES
How to think about your whole
decision problem
Arif Altaf Southwest High School, 2016
Eight keys to effective decision making
Work on the right decision problem
Specify your objectives
Create imaginative alternatives
Understand the consequences
Grapple with your tradeoffs
Clarify your uncertainties
Think hard about your risk tolerance
Consider linked decisions
PROBLEM: How to define your decision
problem to solve the right problem
 Be creative about your problem definition
 Turn problems into opportunities
 Define the decision problem
 What triggered this decision? Why am I considering
it?
 Question the constraints the problem statement.
 Understand what other decisions impinge or hinge on
this decision.
 Establish a workable scope for your problem definition.
 Ask others how they see the see the situation – for
fresh insights.
 Reexamine problem definition as you proceed
 Maintain your perspective
OBJECTIVES: How to clarify what you
are really trying to achieve with your
decision
 Let your objectives be your guide
 Watch out for pitfalls – narrow focus; insufficient
time spent
 Master the art of identifying objectives
 Write down all concerns you want to address
 Convert concerns into succinct objectives
 Separate ends from means to establish fundamental
objectives – Why? Why? Why? Why? Why?
 Clarify what you mean by each objective
 Test objectives to see if they capture your interests
OBJECTIVES: How to clarify what you
are really trying to achieve with your
decision (continued)
Practical advice for nailing down objectives
Objectives are personal
Different objectives suit different problems
Objectives should not be limited to availability
or ease of use of data
Fundamental objectives for similar problems
should remain relatively stable over time
ALTERNATIVES: How to make
smarter choices by creating better
alternatives
 Don’t box yourself in with limited alternatives
 The keys to generating between alternatives
 Use objectives – ask “how?
 Challenge constraints
 Set high aspirations
 Do your own thinking first
 Learn from experience
 Ask others for suggestions
 Give your subconscious time to operate
 Create alternatives first; evaluate them later
 Never stop looking for alternatives
ALTERNATIVES: How to make smarter
choices by creating better alternatives
(continued)
Tailor your alternatives to your problem
Process alternatives – Ben Franklin Example
Win-win alternatives
Information gathering alternatives
Time-buying alternatives
Know when to quit looking
CONSEQUENCES: How to describe how well
each alternative meets your objectives
 Describe consequences with appropriate accuracy
 Completeness and precision
 Build a consequences table
 Mentally put yourself in the future
 Create a free-form description of each alternative’s
consequences
 Eliminate any clearly inferior alternatives
 Organize descriptions of remaining alternatives into a
consequences table
 Compare alternatives using a consequences table
CONSEQUENCES: How to describe how well
each alternative meets your objectives
(continued)
Master the art of describing consequences
Try before you buy
Use common scales to describe
Don’t rely on hard data
Make the most of available information
Use experts wisely
Choose sales that reflect an appropriate level
of precision
Address major uncertainty head on
TRADEOFFS: How to make tough compromises
when you can’t achieve all of your objectives
Find and eliminate dominated alternatives
Make tradeoffs using even-swaps -- the
even swap method
Determine the change necessary to cancel our
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
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 key uncertainties
 Define outcomes
 Assign changes
 Use judgment – consult existing information – collect new
data – ask experts – break uncertainties into their
components
 Clarify the consequences
 Picture risk profiles with decision trees
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
 Desirability means “utility”
 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 and choose
RISK TOLERANCE: How to account for your
appetite for risk (continued)
 Avoid pitfalls
 Over focus on the negative
 Fudging probabilities to account for risk
 Ignoring significant uncertainty
 Foolish optimism
 Avoiding risky decisions because they are complex
 Subordinates who do not reflect your organization’s
risk tolerance in their decisions
 Open up new opportunities for managing risk
 Share the risk
 Seek risk reducing information
 Diversify the risk
 Hedge the risk
 Insure against the risk
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 the relationships in linked decisions
 Decide on what to do in the basic decision
 Treat later decisions as new decision problems
 Keep all your options open with flexible plans
 All-weather plans
 Short-cycle plans
 Option wideners
 “Be prepared” plans
PSYCHOLOGICAL TRAPS: How to avoid some
of the tricks your mind can play on you when
you are deciding
Neglecting relevant information: the
anchoring trap
Population of Turkey example (35MM vs 100MM
anchor)
The status quo trap
Chocolate bar vs. mug gift example
Sunk cost trap
Car repair example after accident
Seeing what you want to see: the
confirming evidence trap