MAKING SMART CHOICES

1. MAKING SMART CHOICES How to think about your whole decision problem Arif Altaf Southwest High School, 2016

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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