22 - Making Rational Decisions
Many people make decisions based on gut feelings, and the regret they feel later is in not having invested sufficient effort in making a more rational decision.
That's not to say that every decision requires deliberation. When the consequences are insignificant, it's not worthwhile to deliberate. When failing to act will have negative consequences, we may need to go with gut feel. However, when the outcome of the decision is significant, we should not use emotions and gut feelings to guide us. We generally consider a rational decision to be a good decision.
Another caution is in evaluating a decision by an outcome. A decision is made before action is taken, based on imperfect and limited knowledge. A rational decision may have a disastrous outcome, or an irrational decision may have an excellent outcome - either as a result of factors that could not be foreseen, or those that the decision failed to account for. Even so, it's generally accepted that a good decision process is more likely to result in a positive outcome.
A Good Decision Process
Modern life is fast-paced and we are under pressure to make many quick decisions. It's easier not to think, easier to go with your gut, but ultimately better to undertake a more rigorous process. The author suggests a basic six-step process for approaching decisions:
- Think generally about how the decision should be made.
- Do some research.
- Come up with a list of options.
- Evaluate their pros and cons and pick the best option.
- Prepare for contingencies.
- Monitor progress and learn from the results.
It seems simple enough, but requires effort, discipline, and the ability to resist distractions.
Step 1: Think Generally about How the Decision Should Be Made
Before beginning to analyze the problem, consider how to conduct the analysis. If the problem is not well understood, or the wrong processes employed, the solution will not be satisfactory. Remember John Dewey's advice : "A problem well stated is a problem half solved."
- Consider Delegating. Especially in organizations, you do not have to make every decisions, but should instead defer to others where there is not a compelling reason to become personally involved.
- Consider the Return on Effort. Much time can be wasted on deliberating over trivial things, and putting too much effort into decisions whose outcomes are insignificant.
- Identify the Central Issue. Pare away the things that don't matter and consider the interrelation of what is left to determine how to proceed.
- Consider Biases. Immediately consider sources of bias that might affect your objectivity in making the decision. For example, it's well known that decisions made under pressure, or in an emotionally charged state, are often quite awful.
Step 2: Do Some Research
An uninformed decision is very seldom sound, and a half-witted one can often be worse. Rather than relying on guesses and misconceptions, find the information that is germane. In the age of the Internet, this is easier than ever before.
A good first step would be to research the decision itself: find out if others have been in the same situation and faced the same decision. Consider what they decided, and what the consequences were.
After that, research facts related to the decision. The greater the impact of the decision, the more careful and exhaustive you should be in gathering information. (EN: The author follows with a description of SWOT analysis that is completely misguided, so I'm, though it seems that nothing other than that is provided as a guide for gathering information.)
Step 3: Come up with a List of Options
Some decisions are binary in nature, and the only option is to "do" or "not do" - but for most practical decisions, this is not the case, and there are a broader array of options. If you choose not to do something, you create the opportunity to do something else instead. In other instances, there is a broad array of options. When deciding what to do for vacation, there is a universe of possibilities.
A few related bits:
- Adequate choices. There is a careful balance to be struck between making a decision that fails to consider all options, and making a decision that is complicated by too many options.
- Consider feasibility. There are generally a list of constraints that rule out some options, and little point in considering them further (EN: This is a little short-sighted and wrongfully eliminates options - the question is whether the constraints can be overcome, and they often can).
- Likelihood of success. Consider the outcome you ultimately wish to achieve, and assess whether the options you are considering are likely to achieve it.
- Options or alternatives. Sometimes choosing one option excludes choosing others, but this is not always so and should not be assumed.
Step 4: Evaluate the Options and Pick the Best One
When selecting among options and alternatives, we seek to pick the best one - but are often unclear on what constitutes "the best" among them. This is because each option has different outcomes, and the degree to which each is important depends on your goals and values.
Where there is a purely financial decision to be made, we can assign a monetary value (revenue or cost) to each of the outcomes, multiply them by their probability of achievement, and total them to determine the value of the option, then choose the most profitable.
Some have attempted to take the same approach to non-financial decisions, assigning an arbitrary unit called "utils" to the outcome. It seems scientific, or at least mathematical, but is not very practical because we may not accurately assign the value of an outcome, or be able to assess its probability.
A less sophisticated but no less accurate approach is to make a list of the "pros" and "cons" of each option available and pick the option that seems to have the most in its favor, considering not merely the raw count of pro/con but the importance of each.
Ultimately, there is no perfect method for assessing the value of an outcome, but even an imperfect attempt at being systematic may help us to put more effort into consider the outcomes and thinking about what we value and wish to achieve.
Step 5: Prepare for Contingencies
The author speaks of contingency planning as if it is part of the decision making process. (EN: It is not - you must first make a decision of what to do, then lay a plan to do it, then implement a contingency plan. That's not to say it's not valuable or important, just that it is too early to be considering, and may cause the decision to be clouded by unrelated issues.)
In general, a plan involves risk that the outcome will not be achieved if the expected conditions are not encountered. As these are recognized, you can consider whether you can decrease the probability that the unexpected conditions will arise, as well as consider tactics that can be deployed if unexpected conditions arise.
It's also common that there will be undesirable outcomes, and a plan should also consider how these outcomes can be avoided or mitigated.
There are also procedural issues - "weak links" and "bottlenecks" that will arise in the course of executing a plan, that merit special attention. You may be able to strengthen a weak link or expand a bottleneck.
Step 6: Monitor Progress and Learn from the Results
(EN: Again, part of the execution phase and not the decision-making process.)
Decision-making does not end when the decision is made - at that point, we have a goal. From a goal, we derive a strategy, a plan of action that will effect an outcome, but we do not follow the plan blindly, but instead monitor progress and adjust as necessary, possibly abandoning the plan if it does not seem to be achieving the outcome or has unpredicted side effects .
Ideally, when the plan is designed, metrics will be put in place and tolerances established to more clearly indicate the conditions under which it should be adjusted or abandoned, rather than making a decision based on emotion.
The author also suggests that metrics collected during and following execution helps inform future decisions - it provides detailed records of past experience. The natural inclination is to be overconfident, forget mistakes, or ignore side-effects when the outcome is achieved.
Evaluating Decisions: Checklist and Questions
The author provides a quick checklist of items for evaluating a decision:
- The decision was well defined
- All options were identified
- The pros/cons for each option were listed
- Criteria for choosing the best option was documented
- The conclusion identified the best option based on the criteria
In addition, some basic questions are suggested:
- What is the reason the decision had to be made?
- What would have been the consequence of failing to decide?
- Is the reason sufficient to the effort?
- Was sufficient time available, and taken?
- Was excessive time taken in deliberation?
- Were the desired outcomes realistic?
- Where the options realistic?
- Were there other options that should have been considered?
- Was there sufficient effort to identify any negative consequences?
- Were the criteria used relevant and necessary to the outcome?
- Were any criteria applied wrongly?
Typical Problems in Decision Making
The author provides a list of other problems that may lead to less effective decisions.
- Knee-jerk reactions: People make many small decisions daily with minimal effort, and may fail to recognize that a decision requires a more deliberate process.
- Devotion to the first idea: Even when we may recognize the importance of a decision, there is a tendency to pursue the first solution that comes to mind, or to defend it against alternative options without due consideration
- Overconfidence: Overestimating your ability to make a good decision leads to putting insufficient effort into decision making.
- No system: An overly casual approach to decision making results in messy thinking, insufficient research, poor correlation of options to the desired outcome, etc.
- Decision paralysis: Becoming lot in the details and neglecting to come to a conclusion.
- Procrastination: Failure to make a decision, often from the fear of making the wrong decision
- Obsession with numbers: Assuming numerical data to be more accurate than it is, or weighting it as more significant than factors that cannot be quantified
- Failure to execute: Putting together an intricate plan, then not doing anything.
- Framing bias: misdiagnosing the nature of the problem. Long on-hold time in a call center might be cured by hiring more operators, but is more effectively solved by addressing the reasons many people are calling (poor documentation, product flaws, etc.)
- Poor research: insufficient effort is put into understanding the issue and the options. This is especially poignant when we fail to consider past decisions and repeat our mistakes.
- Rationalization: Trying to justify a bad decision rather than admitting the decision was bad.
- Sunk costs: Particularly in financial decisions, we may consider expenses that will be incurred regardless of whether a decision is made, or throwing good money after bad.
- Distraction: Giving attention or bias based on irrelevant factors, such as considering the quality of paper on which a resume is printed rather than the qualifications described.
Visualizing Decisions
Especially when we are deliberate in the decision-making process, there is a tendency to get lost in the details, considering facts and figures without recalling what they represent. The more complicated the decision, the greater the likelihood of getting lost in the weeds.
Ultimately, a decision is about achieving a desirable outcome, and visualizing the outcome can be an effective way to remember that and focus on what really matters.