Smart Choices by Hamond, Keeney, Raiffa

• The essence of our approach is divide and conquer: break your decision into its key elements; identify those most relevant to your decision; apply some hard, systematic thinking; and make your decisions.
• Our approach is practice, encouraging you to seek out decision-making opportunities rather than wait for problems to present themselves.
• In short, the ability to make smart choices is a fundamental life skill.
• Despite the importance of decision making to our lives, few of us ever receive any training in it. So we are left to learn from experience. But experience is a costly, inefficient teacher that teaches us bad habits along with good ones.
• An effective decision-making process will fulfill these six criteria:
• It focuses on what’s important.
• It is logical and consistent.
• It acknowledges both subjective and objective factors and blends analytical with intuitive thinking.
• It requires only as much information and analysis as is necessary to resolve a particular dilemma.
• It encourages and guides the gathering of relevant information and informed opinion.
• It is straightforward, reliable, easy to use, and flexible.
• Hard decisions are hard because they’re complex, andnoone can make that complexity disappear. But you can manage complexity sensibly.
• The acronym for these--PrOAT--serves as a reminder that the best approach to a decision situation is a proactive one.
• Problem
• Objectives
• Alternatives
• Consequences
• Trade Offs
• The worst thing you can do is wait until a decision is forced on you--or made for you.
• The essence of the PrOACT approach is to divide and conquer. To resolve a complex decision situation, you break it into these elements and think systematically about each one, focusing on those that are key to your particular situation. Then you reassemble your thoughts and analysis into a smart choice.
• Your alternatives represent the different courses of action you have to choose from.
• Assessing frankly the consequences of each alternative will help you to identify those that best meet your objectives--all your objectives.
• What you decide today could influence your choices tomorrow, and your goals for tomorrow should influence your choices today. Thus many important decisions are linked over time.
• The key to dealing effectively with linked decisions is to isolate and resolve near-term issues while gathering the information needed to resolve those that will arise later.
• By sequencing your actions to fully exploit what you learn along the way, you will be doing your best, despite an uncertain world, to make smarter choices.
• First and foremost, always focus your thinking on why it matters most.
• Typically, for all but the most complex decisions, you will not need to consider all the elements in depth. Usually, only one or two elements will emerge as the most critical for the decision at hand.
• Be proactive in your decision making. Look for new ways to formulate your decision problem. Search actively for hidden objectives, new alternatives, unacknowledged consequences, and appropriate tradeoffs.
• Most importantly, be proactive in seeking decision opportunities that advance your long-range goals; your corevaleus and beliefs; and the needs of your family, community, and employer.
• Take charge of your life by determining which decision you’ll face and when you’ll face them.
• The way you state your problem frames your decision. It determines the alternatives you consider and the way you evaluate them. Posing the right problem drives everything else.
• A good solution to a well-posed decision problem is almost always a smarter choice than an excellent solution toa poorly posed one.
• The greatest danger in formulating a decision problem is laziness.
• Every decision problem has a trigger--the initiating force behind it. Triggers take many forms.
• Be proactive. Seek decision opportunities everywhere.
• As you explore the trigger, beware! Triggers can bias your thinking. They can trap you into viewing the problem only in the way it first occurred to you.
• Question the constraints in your problem statement.
• Problem definitions usually include constraints that narrow the range of alternatives you consider.
• Questioning the problem is particularly important when circumstances are changing rapidly or when new information becomes available. A poorly formulated decision problem is a trap. Don’t fall for it.
• By making sure you’ve identified all your objectives, you will avoid making an unbalanced decision--one that, for example, considers financial implications but ignores personal fulfillment.
• Sometimes, the process of thinking through and writing out your objectives can guide you straight to the smart choice--without your having to do a lot of additional analysis.
• For important decisions, only deep soul-searching will reveal what really matters--to you. This kind of self-reflective effort perplexes many people and makes them uncomfortable.
• The cleanest and most easily communicated form for objectives is a short phrase consisting of a verb and an object.
• Many people mistakenly focus on immediate, tangible, measurable qualities when listing objectives, but these may not reflect the essence of the problem.
• Alternatives are the raw material of decision making. They represent the range of potential choices you'll have for pursuing your objectives. Because of their central importance, you need to establish and maintain a high standard for generating alternatives.
• You can never choose an alternative you haven’t considered.
• No matter how many alternatives you have, your chosen alternative can be no better than the best of the lot.
• One of the most common pitfalls is business as usual.
• Business as usual results from laziness and an overreliance on habit. With only a modest amount of effort, attractive new alternatives can usually be found.
• Many poor choices result from falling back on a default alternative.
• Choosing the first possible solution is another pitfall.
• People who wait too long to make a decision risk being stuck with what’s left when they finally do choose. The best alternatives may no longer be available.
• Remember, get an early start on major decisions. Take charge.
• Many decision problems have constraints that limit your alternatives. Some constraints are real, others are assumed.
• An assumed constraint represents a mental rather than a real barrier.
• One way to increase the chance of finding good, unconventional alternatives is to set targets that seem beyond reach.
• High aspirations force you to think in entirely new ways, rather than sliding by with modest changes to the status quo.
• Setting high aspirations stretches your thinking.
• Start thinking about your decision problem as soon as possible; don’t put it off until the last minute. Once you’ve begun, make a point of thinking about the problem from time to time to give your subconscious a nudge.
• Create alternatives first, evaluate them late.
• Creating a good alternative requires receptivity--a mind expansive, unrestrained, and open to ideas. One idea leads to another, and the more ideas you entertain, the more likely you are to find a good one.
• Bad ideas will almost certainly emerge along with good ones. That’s a necessary part of the process and something you shouldn’t be concerned about at this point.
• Don’t evaluate alternatives while you’re generating them. That will slow the process down and dampe creativity.
• Never stop looking for alternatives. As the decision process moves on to the consideration of consequences and tradeoffs, the evaluation stages, your decision problem will become increasingly clear and more precisely defined.
• Information helps dispel the clouds of uncertainty hovering over some decisions.
• When there are uncertainties affecting a decision, it is useful to generate alternatives for gathering the information necessary to reduce each uncertainty.
• First list the areas of uncertainty. Then, for each one, list the possible ways to collect the needed information. Each of these ways is an information-gathering alternative.
• Whenever you’re uncomfortable about deciding now, questions the deadline. Is it a real deadline, or is it just an assumed constraint?
• It’s an unfortunate truth: the perfect solution seldom exists. But that doesn’t stop a lot of people from endlessly (and unrealistically) pursuing one.
• Be sure you really understand the consequences of your alternatives before you make a choice. If you don’t you surely will afterwards, and you may not be very happy with them.
• The main benefit to be derived from describing consequences is understanding.
• The trick is to describe the consequences with enough precision to make a smart choice, but not to go into unnecessary and exhausting detail.
• Eliminate any clearly inferior alternatives. This step is a terrific time saver for many decisions because it can quickly eliminate alternatives and may lead to a resolution of your decision.
• Important decisions usually have conflicting objectives--you can’t have your cake and eat it too--and therefore you have to make tradeoffs. You need to give up something on one objective to achieve more in terms of another.
• Decisions with multiple objectives cannot be resolved by focusing on any one objective.
• Ben Franklin proposed a wonderful way to simplify a complex problem. Each time he eliminated an item from his list of pros and cons, he replaced his original problem with an equivalent but simpler one. Ultimately, by honing his list, he revealed a clear choice.
• Whenever uncertainty exists, there can be no guarantee that a smart choice will lead to good consequences.
• A risk profile captures the essential information about the way uncertainty affects an alternative.
• For most uncertainties, there will probably be someone out there who knows more about it than you do. Seek out an expert and elicit his or her judgement.
• Pinpoint precision usually isn’t required in assigning chances. Frequently, knowing that a chance falls within a certain range is sufficient for guiding a decision.
• Decision trees are especially useful for explaining decision processes to others.
• Getting into the habit of skethin decision trees, even for relatively simple decisions involving uncertainty, can enhance your decision-making skills.
• Your risk tolerance expresses your willingness to take risk in your quest for better consequences. It depends primarily on how significant you consider the downside--the poorer consequences of any decision--compared to the up side.
• The more likely the outcomes with better consequences and the less likely the outcomes with poorer consequences, the more desirable the risk profile to you.
• Weight desirabilities by chances. More fully stated: weight the desirabilities of the consequences by the chances of their associated outcomes.
• Outcomes with a low chance of occurring should have less influence on an alternatives overall desirability than outcomes with a high chance of occurring.
• When uncertainty is significant, develop a risk profile for each alternative which captures the essence of the uncertainty.
• Think hard and realistically about what can go wrong as well as what can go right.
• An organization’s leaders should take three simple steps to guide subordinates in dealing successfully with risk. First, sketch desirability curves that reflect the risk-taking attitude of the organization. Second, communicate the appropriate risk tolerance by issuing guidelines that include examples of how a typical risky decision should be handled.
• Third, examine the organization’s incentives to ensure they are consistent with the desired risk-taking behavior.
• When a good opportunity feels too risky, share the risk with others.
• Seek risk-reducing information.
• Try to temper risk by seeking information that can reduce uncertainty.
• Diversify the risk.
• Avoid placing all your eggs in just a few baskets. Look for ways to diversify.
• Wherever a risk consists of a significant but rare downside, with no upside, try to insure against it. But don’t overinsure.
• All decisions affect the future, of course.
• Making smart choices about linked decisions requires understanding the relationships among them.
• The essence of making smart linked decisions is planning ahead.
• Makers of effective linked decisions, like successful chess players, plan a few decisions ahead before making their current decision.
• A good quick test to weed out information-gathering alternatives is to ask what you’d pay to completely resolve the uncertainty. If an information alternative costs more, it’s an obvious non contender.
• Flexible plans keep your options open.
• In highly volatile situations, where the risk of outright failure is great, an all-purpose plan is often the safest plan.
• Sometimes the best plan is to act in a way that expands your set of future alternatives.
• Just knowing how sets of decision are linked and using a modest amount of foresight can help considerably in making a smart choice and can practically guarantee avoiding many, if not all, of the dumb ones.
• Over time, making smart choices on linked decisions will affect your life and career more positively and profoundly than making perfect choices on all your simpler decisions put together.
• By now you’re much better prepared to identify and avoid the eight most common and most serious errors in decision making:
• Working on the wrong problem.
• Failing to identify your key objectives.
• Failing to develop a range of good, creative alternatives.
• Overlooking crucial consequences of your alternative.
• Giving inadequate thought to tradeoffs.
• Disregarding uncertainty.
• Failing to account for your risk tolerance.
• Failing to plan ahead when decisions are linked over time.
• Researchers have identified a whole series of such flas in the way we think.
• The best protection against these traps is awareness.
• In considering a decision, the mind gives disproportionate weight to the first information it receives. Initial impressions, ideas, estimates, or data “anchor” subsequent thoughts.
• You’ll be less susceptible to anchoring tactics.
• Never think of the status quo as your only alternative. Identify other options and use them as counterbalances, carefully evaluating al theri pluses and minuses.
• The past is past; what you spent then is irrelevant to your decision today.
• Remember, your decision influences only the future, not the past.
• Expose yourself to conflicting information. Always make sure that you examine all the evidence with equal rigor and understand its implications. And don't be soft on the disconfirming evidence.
• In seeking the advice of others, don’t ask leading questions that invite confirming evidence.
• The same problem can also elicit very different reponsinse when frames use different reference points.
• A poorly framed problem can undermine even the ebay-considered decision. But the effect of improper framing can be limited by imposing discipline on the decision making process.
• Don’t automatically accept the initial frame, whether it was formulated by you or by someone else.
• Always try to reframe the problem in different ways. Look for distortions caused by the frames.
• A major cause of overconfidence is anchoring. When you make an initial estimate about a variable, you naturally focus on midrange possibilities. This thinking then anchors your subsequent thinking about the variable, leading you to estimate an overly narrow range of possible values.
• In fact, anything that distorts your ability to recall events in a balanced dway will distort your probability assessment for estimates.
• Where possible, try to get statistics. Don’t rely on your memory if you don’t have to.
• When you don’t have direct statistics, take apart the event you’re trying to assess and build up an assessment piece by piece.
• Analyze your thinking about decision problems carefully to identify any hidden or unacknowledged assumptions you mahe have made.
• Don’t ignore relevant data; make a point of considering base rates explicitly in your assessment.
• Consider the methodology of “worst-case analysis”, which was once popular in the design of weapons systems and is still used in certain engineering and regulatory settings.
• Documents the information and reasoning used in arriving at your estimates, so others can understand them better.
• To avoid distortions in your thinking, you must curb your natural tendency to see patterns in random events. Be disciplined in your assessments of probability.
• Highly complex and highly important decisions are the most prone to distortion because they tend to involve the most assumptions and the most estimates. The higher the stakes, the higher the risks.
• The best protection against all psychological traps is awareness. Forewarned is forearmed. Even if you can’t eradicate the distortions ingrained in the way your mind works, you can build tests and disciplines into your decision-making process that can uncover and counter errors in thinking before they become errors in judgement.
• Procrastination is the bane of good decision making.
• Deciding By default, by not deciding, almost always yields unsatisfactory results, if only because you spend time wondering if you could have done better. So get started. The sooner you start, the more likely it is that you’ll give your decision adequate thought and find adequate information, rather than being forced to decide in partial ignorance under pressure from the clock.
• Large corporations and the military use this technique, making strategic decisions first, tactical decisions second, and operational decisions last.
• Obsessing over your decision takes a tool in time and psychological energy, but a hasty decision, rushed to avoid emotional stress or hard mental work, is usually a poor decision.
• Seldom does a perfect solution exist, yet too many people endlessly (and unrealistically) pursue one.
• Often, the imagined need for more analysis becomes an excuse for procrastination, for avoiding a decision, because deciding will require accepting some bad along with the good.
• To make a decision beyond your sphere of expertise, you’ll often need to seek advice from others.
• Many of your toughest decisions aren’t as hard as they look. By being systematic and focusing on the hard parts, you can resolve them comfortably.
• Over time luck favors people who follow good decision making procedures.
• Most important, always remember: the only way to exert control over your life is through your decision making. The rest just happens to you.
• Be proactive, take charge of your decision making, strive to make good decisions and to develop good decision-making habits.