Key Elements of Decision Making Framing Gathering Intelligence Coming to Conclusions Learning (or Failing to Learn) from Feedback

1. Decision Framing Boundaries and Mental Maps Reference Points and Yardsticks Metaphors and World Views

Framing Traps Plunging in Frame blindness Lack of frame control

Boundaries Situation A: You discover that you have lost the ticket. Would you pay thirty dollars for another ticket to see the play (assuming you still have enough cash)? Situation B: You discover that you have lost thirty dollars from your wallet. Would you still pay thirty dollars for a ticket to see the play (assuming you have enough cash left)? 38% in situation A say they would be unwilling 17% in situation B say they would be unwilling (yet it shouldn't matter; in each case the loss is equal; lost ticket is in side the boundary while the lost $30 in inside it)

Reference Points Scenario A: Of 100 people having surgery, 10 will die during surgery, 32 will have died by one year, and 66 will have died by five years. Of 100 people having radiation therapy, none will die during treatment, 23 will die by one year, and 78 will die by five years. Which treatment would you prefer? Scenario B: Of 100 people having surgery, 90 will survive the surgery, 68 will survive past one year, and 34 will survive through five years. Of 100 people having radiation therapy, all will survive the treatment, 77 will survive one year, and 22 will survive past five years. Which treatment do you prefer? Scenario A: about 50% of doctors chose therapy, half chose surgery; Scenario B: 84% of doctors chose surgery

Yardsticks Situation A: You are in a store about to buy a new watch which will cost $70. As you wait for the sales clerk, a friend comes by and tells you that an identical watch is available in another store two blocks away for $40. You know that the service and reliability of the other store are just as good as this one. Will you travel two blocks to save $30. Situation B: You are in a store about to buy a new video camera that costs $800. As you wait for the sales clerk, a friend comes by and tells you that an identical camera is available in another store two blocks away for $770. You know that the service and reliability of the other store are just as good as this one. Will you travel two blocks to save $30. Situation A: 90% will travel the two blocks; Situation B 50% will travel the two blocks.

Metaphors War Frame Evolution Frame Sports Frame Intelligence Planning Concentration of forces Motivation of the Troops Highlights competition but conceals customer Evolution Frame Sports Frame

Challenging Your Frame Ask challenging questions Seek other opinions Role-play your adversaries Welcome diversity Brainstorming Analogies Consider alternative metaphors Find out how others do it

2. Intelligence Gathering Overconfidence and the Illusion of Control Bias Towards Confirming Evidence Reliance on Imperfect Heuristics anchoring availability

2.1 Overconfidence % of Misses Estimates of cost and time on projects usually underestimate where there is no prior experience to draw upon. Experience of one Fortune 500 company: study of 80 projects; where they had experience avg 3% less than estimate; where no experience -- avg 18% above estimate Confirmation Bias: Wharton study of strategic planning (Mitroff)); Have the discipline to see information that might disconfirm your opinions. Know what you don’t know Don’t listen to Ned Knowall: Ned Knowall vs Mel Meek Stern’s eyewitness study (of 63 statements where they were willing to take an oath, 50 contained errors) Another eyewitness study showed a .07 correlation between confidence and accuracy. Overconfidence as a strategic weapon Confucious vs Goethe

2.2 Confirmation Bias Many of us seek information to support past decisions Moral: Have the discipline to seek out disconfirming information

Which causes more deaths?

Causes of Death

2.3 Rules of Thumb (Heuristics) Paying too much attention to the most readily available information The tendency to excessively anchor opinions in a single statistic or fact.

Intelligence Gathering Questions How much do we really know? Is our knowledge base truly representative? Are our estimates and judgments sound, or have we relied excessively on an easily available anchor?

Attilla the Hun

Exposing Hidden Sources of Problems Fault trees Using Scenarios Prospective hindsight

Improving Intelligence Gathering Require confidence levels for each estimate Provide feedback to help people calibrate Ask disconfirming questions Expose the hidden sources of future problems Limit yourself to the info you can handle

Scenarios List major issues. List major players List potentially important economic, technological, and social trends Specify key uncertainties Construct two forced scenarios (all good, bad) Assess internal consistency and plausibility Rearrange scenarios to create two consistent, plausible scenarios Evaluate the behavior of the major players for possible reactions Distill information and insight into a few distinctly different scenarios

3. Coming to Conclusions Dangers of Intuitive Judgments Reliance on Simple Rules Conformity in Group Judgments

Limits of Intuition Radiologists Study: diagnosing 96 cases for presence of malignant stomach ulcer -- r= .60 to .92. Tonsillectomy Study: 45% of 389 boys needed tonsillectomy 46% of the remaining healthy boys were diagnosed as needing one by another panel 44% of the remaining needed one (3rd panel)

Simple Alternatives to Intuition simple screening and ranking threshold screens for loans specific rules of thumb product quality comparisons

Choosing with Linear Models Subjective linear models list factors; assign weights; give numerical rating; weight x rating; add scores Bootstrapping (regression on predictions) Objective models repeated decisions data on past outcomes are available the future will resemble the past

Group Decisions Problem: Conformity, groupthink How to manage: metadecisions attention to framing see conflict as necessary and valuable mix personalities, expertise, etc. prevent premature consensus

4. Learning from Experience Internal Blocks Hindsight; Rationalization External Obstacles Noise; Treatment Effects Organizational Limits Resistance; Poor information sharing

Fooling Yourself about Feedback Not learning from experience Claiming credit Rationalization Self-serving explanations Hindsight Nothing new

Learning from Feedback Don’t claim credit for successes that occur by chance Avoid rationalization when you fail Minimize hindsight bias record predictions, expectations compare real outcomes to expectations consider the lessons that you should learn

Putting it Together: Metadecisions What’s the crux or primary difficulty in this issue? In which of the key elements of the decision process does it lie? How should decisions like this one be made (e.g. in groups or alone; intuitively or analytically) Does this decision greatly affect other decisons? Must this decision be made at all? Does it need to be made by me? Should it be made by me?

Metadecisions 2 How much time have decisions like this one taken in the past? How long should this decision take? When should it be made? Are the deadlines arbitrary or real? Where should I concentrate my time and resources? What are my own skills, biases, and limitations in dealing with an issue like this? Do I need other points of view? How would a more experienced decision-maker whom I admire handle this issue?