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Smart choice, bad consequence

Smart choice, bad consequence. Poor choice, good consequence. Takeaway. Judge decisions under uncertainty by the quality of the process NOT the consequences CIGNA insurance guy. Simplifying uncertainty . To make sense of uncertainty you need to simplify it Do this with “risk profiles”

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Smart choice, bad consequence

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  1. Smart choice, bad consequence

  2. Poor choice, good consequence

  3. Takeaway • Judge decisions under uncertainty by the quality of the process • NOT the consequences • CIGNA insurance guy

  4. Simplifying uncertainty • To make sense of uncertainty you need to simplify it • Do this with “risk profiles” • What are key uncertainties? • What are the possible outcomes? • What are the chances of outcomes? • What are the consequences of them?

  5. Identifying uncertainties • Virtually all decisions involve uncertainty • Most don’t have consequences enough to matter • List uncertainties that significantly influence consequences • Consider them one at a time • When there are many uncertainties, winnow them down to what matters most! • Business party example (attendance/cost)

  6. Define outcomes • How many possible outcomes need to be defined to express each uncertainty? • How can each outcome best be defined? • Assign representative value to things • EX: $25,000 instead of $20,000 to $30,000 • Ensure mutual exclusivity • EX: “Scattered showers vs. rain vs. shine

  7. Assigning chances • Use your judgment • Oddsmakers • Friends with blind dates • Your commute traffic

  8. Assigning chances • Consult existing information • EX: Google traffic maps • Libraries • Research reports • Collect new data • Market research • Telephone survey • Website name launch EX

  9. Assign Chances • Ask experts • There’s someone who probably knows someone who can help you (and will be pleased to help) • Doctor • Lawyer • Accountant • Meteorologist

  10. Assigning Chances • The way you describe the chances is important: • Fairly unlikely vs. 20% • If you’re having trouble getting there, start at the extremes and ask questions!

  11. Decision tree example • Janet’s employee party • Objectives: Fun, Family Involvement, Expense

  12. Decision Tree Example deux! • Karen’s court case

  13. Risking example • Broken Computer! • Attempt repair (free) • Have a dealer fix it (mod to maj $) • Friend fix it (case of beer)

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