The Art and Science of Decision-Making

1. The Art and Science of Decision-Making May 13, 2013 Robert S. Duboff Tony Gallo Jason Robins

2. Themes • All decisions have an emotional component; most have a rational component as well • The process can be structured, scientific • Making the actual decision is always art – science can be used, but you can’t turn off type 1 thinking • All big decisions are influenced by biases, prior events, priming and the like • Some decisions are about puzzles; some are about mysteries • Recognizing which is which is critical • Decision-making will and should vary depending on context (and whether it is a group decision or not • Risk • Consequences • Etc.

3. Decision Situations Before Decision Post-Decision Deliberation Decision • Individual • Family • Large business • Small business • Start-ups • Government • Non-profit

5. A Good Decision Is: • Meeting objective(s) • Objective • Based on hypothesis generation • Replicable • Valid • With no interaction effect (i.e., “scientist is not part of the experiment”) • Complete diagnosis/considered everything • One that would be reaffirmed if did it over • One that feels right • One you are better off after it • One with clear cut thinking

6. What Causes Mistakes in Decisions? Problems • Resistance to answer changing • Anchoring/simplification errors • Overconfidence/above average • Change/inattentional blindness • Framing • Highsight bias/memory • Information overload • Skimming • Wrong causes

7. Decision-Making Problems Are Abundant • Priming • Anchoring • Availability • WYSIATI • Cognitive dissonance • Self-delusion/over-confidence • Perceptions/personality types differ • Etc.

8. A Rational Decision-Making Process • Define the problem • Identify the criteria • Weight the criteria • Generate alternatives (can use decision tree/Bayes) • Conduct research/information gathering where relevant and influential • Rate each alternative on each criterion • Compute the optimal decision • Options • Delineate roles • Set timing Source: Judgment in Managerial Decision-Making, Max Bazerman.

9. Ways to Improve Decisions • Triage first if the issue is a mystery or a puzzle • Is “why” important or only “what”? • Acknowledge instincts at the onset • Identify what could change/overcome the instincts • Then, structure research to try to disprove • Form teams to advocate live options • Articulate the goals of the decision • Use a decision tree/Bayes • Add instincts perhaps • Add “what would I have to believe” • Do a pre-mortem to identify what could go wrong and a pre-celebration • Try out explanations in advance • Develop checklists as appropriate • Consult with people (including experts) appropriate for the issue • Consider those with fresh perspective/truly objective • Must be credible to decision-maker(s)

10. Ways to Improve Decisions (continued) • Identify (possible) linkages to other events • Consider how to handle sunk costs, if any, and decide if zero-based decision-making makes sense • Root cause investigation • Use skills of Ss and Ns; Ts and Fs • Pause (especially Js) • Train to make decisions better • Platonian dialogue • Question beliefs and habits

11. Quotes • “If you can measure it, it can also be measured incorrectly.” • - Samuel Arbesman • “Statistics are no substitute for judgment.” • - Henry Clay • “Once you have missed the first button hole, you’ll never manage to button up.” • - Goethe • “ ‘Facts’ may not always be facts, but feelings will always be feelings.”