Authors: John S. Hammond, Ralph L. Keeney, Howard Raiffa
Smart Choices introduces the PrOACT method in making decisions — big or small. The method focuses on the eight elements of effective decision making: Problem, Objectives, Alternatives, Consequences, Tradeoffs, Uncertainty, Risk Tolerance, Linked Decisions. They help solve the most common decision-making process mistakes.
In addition to that, there’s an entirely different category of errors that can undermine even the most carefully considered decisions. The authors call these errors “psychological traps.” They arise because our minds sometimes play serious tricks on us.
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My Reading Notes
Our decisions shape our lives. Made consciously or unconsciously, with good or bad consequences, they represent the fundamental tool we use in facing the opportunities, the challenges, and the uncertainties of life.
The best approach to decision situations is a proactive one. The worst thing you can do is wait until a decision is forced to you — or made for you.
The eight elements of smart choices: Problem, Objectives, Alternatives, Consequences, Tradeoffs, Uncertainty, Risk Tolerance, Linked Decisions.
Work on the right decision problem. The way you frame your decision at the outset can make all the difference. To choose well, you need to state your decision problems carefully, acknowledging their complexity and avoiding unwarranted assumptions and option-limiting prejudices.
Specify your objectives. Your decision should get you where you want to go. A decision is a means to an end. Ask yourself what you most want to accomplish and which of your interests, values, concerns, fears, and aspirations are most relevant to achieving your goal. Thinking through your objectives will give direction to your decision making.
Create imaginative alternatives. Your alternatives represent the different courses of action you have to choose from. If you didn’t have different alternatives, you wouldn’t be facing a decision. But have you considered all the alternatives or at least a wide range of creative and desirable ones? Remember: your decision can be no better than your best alternative.
Understand the consequences. How well do your alternatives satisfy your objectives? Alternatives beckon and beguile, but beyond them lie something sobering, sometimes exciting consequences. Assessing frankly the consequences of each alternative will help you identify those that best meet your objectives — all your objectives.
Grapple with your tradeoffs. Because objectives frequently conflict with one another, you’ll need to strike a balance. Some of this must sometimes be sacrificed in favor of some of that. In most complex decisions, there is no one perfect alternative. Different alternatives fulfill different constellations of objectives. Your task is to choose intelligently among the less-than-perfect possibilities. To do so, you need to set priorities by openly addressing the need for tradeoffs among competing objectives.
Clarify your uncertainties. What could happen in the future, and how likely is it that it will? Uncertainty makes choosing far more difficult. But effective decision making demands that you confront uncertainty, judging the likelihood of different outcomes and assessing their possible impacts.
Think hard about your risk tolerance. When decisions involve uncertainties, the desired consequence may not be the one that actually results. Conscious awareness of your willingness to accept risk will make your decision-making process smoother and more effective. It will help you to choose an alternative with the right level of risk for you.
Consider linked decisions. What you decide today could influence your choices tomorrow, and your goals for tomorrow should influence your choice 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.
The PrOACT method solves the major mistakes in decision making. In addition to that, there’s an entirely different category of errors that can undermine even the most carefully considered decisions. We call these errors “psychological traps.” They arise because our minds sometimes play serious tricks on us.
The Anchoring Trap: In considering a decision, the mind gives disproportionate weight to the first information it receives. Initial impressions, ideas, estimates, or data “anchor” subsequent thoughts.
The Status Quo Trap: Most decision makers display a strong bias toward alternatives that perpetuate the current situation. Many psychological experiments have shown the magnetic attraction of the status quo.
The Sunk Cost Trap: We tend to make choices in a way that justifies past choices, even when the past choices no longer seem valid. Our past decisions create what economists term “sunk costs” — old investments of time or money that are now unrecoverable. We know, rationally, that sunk costs are irrelevant to the present decision, but nevertheless they prey on our psyche, leading us to make wrong-headed decisions.
The Confirming-Evidence Trap: This trap leads us to seek out information that supports our existing instinct or point of view while avoiding information that contradicts it. The confirming-evidence trap not only affects where we go to collect evidence but also how we interpret the evidence we do receive, leading us to give too much weight to supporting information and too little to conflicting information.
The Recallability Trap: Human beings infer the chances of events from experience, from what we can remember, we can be overly influenced by dramatic events — those that leave a strong impression on our memory. We all, for example, exaggerate the probability of rare but catastrophic occurrences because they get disproportionate attention in the media. A dramatic or traumatic event in your own life can also distort your thinking.
The Outguessing Randomness Trap: Despite our innate desire to see patterns, random phenomena remain just that — random. Dice and lotteries have neither memory nor conscience — every roll, every number choice is a new and different event, uninfluenced by all previous events.