MAKING GOOD DECISIONS Somik Raha 4/16/2011

About me Spent 6 years at Stanford 2 getting a Masters in Org. Behavior & Strategy 4 getting a Ph.D. in Decision & Risk Analysis

Quick Exercise For each situation below, write down whether you agree or disagree. A. “The terrible situation in Iraq is proof that Bush made a bad decision invading it.” B. “I decided to breakup with my boyfriend and am so happy now – that shows my decision was good.” C. “The Challenger shuttle blew up and therefore the decision to let it launch was a bad one.”

How do you judge the quality of a decision?

You cannot judge the quality of a decision from the outcome! Drive Drunk, Crash Drive Drunk, Safe Drive Sober, Crash Drive Sober, Safe Bad Outcome Good Outcome Bad Decision Good Decision

What do you say now? For each situation below, write down whether you agree or disagree A. “The terrible situation in Iraq is proof that Bush made a bad decision invading it.” B. “I decided to breakup with my boyfriend and am so happy now – that shows my decision was good.” C. “The Challenger shuttle blew up and therefore the decision to let it launch was a bad one.”

Quick Exercise For each situation below, write down whether you agree or disagree with the reasoning below. A. “We have invested so much time in Afghanistan, and all of that effort would have been for nothing if we pull out now.” B. “I have invested so much time on my relationship and I don’t want to move on or else all of that investment would be a waste.” C. “We have spent so much money on tutors and my skills have still not improved. Even though I believe the next tutor will succeed, I have lost too much money to justify any further expense.”

The Sunk-Cost Principle The past matters only for learning, not for accounting!

What do you say now? For each situation below, write down whether you agree or disagree with the reasoning below. A. “We have invested so much time in Afghanistan, and all of that effort would have been for nothing if we pull out now.” B. “I have invested so much time on my relationship and I don’t want to move on or else all of that investment would be a waste.” C. “We have spent so much money on tutors and my skills have still not improved. Even though I believe the next tutor will succeed, I have lost too much money to justify any further expense.”

How do you know you’ve made a decision? When you’ve made a somewhat irrevocable allocation of resources

Who is the best judge of a good decision?

How do I judge the quality of my decision? From the process used to make the decision

The Six Elements of Decision Quality Alternatives What you can do Information What you know Preferences/Values What you want Logic FRAME Commitment to action

The Six Elements of Decision Quality Creative Alternatives Useful Information Sound Reasoning Commitment to Follow Through Helpful Frame Clear Values What are my choices? What do I know? Am I thinking straight about this? What consequences do I care about? What is it that I am deciding? Will I really take action? 14

Spider Diagrams John’s Decision Spider 0

Exercise Need a volunteer with a real decision problem Let’s draw your Decision Spider Now, let’s test each element and see how we can improve it

Your turn 6 volunteers who have decision problems that they are happy to share: DECISION MAKER Teams of decision coaches Task 1: Produce a spider diagram for the decision-maker Task 2: Ask questions to help improve the quality of the weakest elements Task 3: Reassess spider diagram Task 4: Decision-maker records 3 things he/she has learned through the process Task 5: Decision coaches record 3 things he/she has learned through the process

Group Decision-making There’s no such thing, sorry! If there was, no political science, no marriage counseling We can, however, agree to align our values, beliefs and alternatives to act as a single unit

Mistakes in Framing Too narrow Too broad Assumptions not made explicit Art, not science Takes many tries DECISION HIERARCHY GIVENS CURRENT DECISION FUTURE DECISION Decisions that have already been made

Mistakes in Preferences Not clear about what is of direct and indirect value to you Not clear what is on intrinsic value, prudential and systemic value If you can’t separate what you care about from who you are, you are talking about intrinsic values If you can tell me why something is important, that is probably a prudential value If you are counting something (e.g. profit) or dealing with constructs/laws/rules, those are systemic values Knowing your intrinsic values is about knowing who you are Separate class on The Value of Values tomorrow

Mistakes in Information Cannot distinguish between data and useful information Useful information is that information which changes your decision How to find out what is useful? If there were a clairvoyant in the room who could answer only factual questions about the future, what would you ask regarding your decision situation? Let’s try it now! Associative logic errors Males and Haemophilia Are you considering sample size?

Mistakes in Alternatives Already decided what you want, and stack it up against terrible alternatives: “Advocacy-driven decision-making” There is NO decision to be made between good and bad alternatives Decisions have to be made when we don’t know what is good; when we are confused If you are not confused, are you coming from a space of clarity, or a space of advocacy?

Mistakes in logic Being inconsistent with your preferences Once you learn the math behind this, easy to prevent this altogether

Mistakes in commitment Analysis Paralysis You cannot be a decision-maker without commitment to action Question for you: Does commitment reduce your freedom?

Three Types of Decisions LegalPrudential Ethical Morality What part of your personal ethical code are you willing to impose on others by force? Majority of financial decisions fall in this space

Things you can do Next Steps: 1)Check the Decision Education Foundation (decisioneducation.org) 2)Learn Decision Analysis when you get into grad school

Open House Seed thoughts: A)ETHICS: It ALWAYS makes sense to tell the whole truth B)LAW: It is possible to construct voluntary social systems to solve any social problem C)PHILOSOPHICAL: Is love/hate a decision or a condition?