1. Advanced Decision Making

2. The Eight Elements of Decisions
Problem
Objectives
Alternatives
Consequences
Tradeoffs
Uncertainty
Risk Tolerance
Linked Decisions

3. Problem Be creative about your problem definition
Turn problems into opportunities
Reexamine your problem definition as you go
Maintain your perspective

4. Let your objectives be your guide
Objectives determine what information you seek.
Objectives can help you explain your choices to others.
Master the art of identifying objectives

5. Alternatives Don’t box yourself in with limited alternatives
Use your objectives and ask “how?”
Set high aspirations
Ask experts for suggestions
Give your subconscious time to operate
Incubate
Never stop looking for alternatives
Think outside the box, brainstorm

6. Consequences
Use top management experts to help define political, financial and public-relations consequences.

7. Tradeoffs
Use swaps
Determining the relative value of different consequences is the hard part
Compare alternatives using a payoff matrix

8. The Prisoner’s Dilemma
In 1950 a conductor on a train to Kiev rehearses for a Tchaikovsky concert.
KGB arrests him for subversive activity.
KGB arrests Boris Tchaikovsky, a worker, on the streets of Kiev.
KGB puts them in separate cells so they cant communicate.
KGB offers them both a deal. 4

9. Game Theory
You have to take into consideration the objectives and strategies of the other players.
Not just the probabilities
Not just your own goals and strategies
Your moves depend on the other side’s moves.

10. The Prisoner’s Dilemma
If the conductor rats and Boris doesn’t, he gets one year in a gulag and Boris gets 25 years.
If the conductor doesn’t rat and Boris does, he gets 25 years in a gulag and Boris gets one year.
If both rat, each gets 10 years.
If neither rats, each get three years.
The silent auction begins. 5

11. Each serving 10 years, they meet in the gulag, begin talking and discover they ratted on each other.
While talking they realize that if each had said nothing, they would only have been in for three years. 6

12. Payoff Matrix Boris Rat Not Rat Rat 10, 10 * 1, 25 Conductor 3, 3
25, 1
Not Rat
* Conductor, Boris 7

13. Looking at the Payoff Matrix, the lower right-hand box (3,3) is clearly the most favorable payoff – three years for each.
Thus, staying silent is the best option for the conductor and Boris.
A Payoff Matrix is a good way to visualize options, but coming up with values is the hard part.
A four-box matrix (2X2) covers two players, if there are three players, you need a nine-box (3X3) matrix, etc. With multiple players, it gets really complicated but not impossible.
You can use a payoff matrix with a binary (go, no go) decisions – two players – and up to four possible outcomes like in the Prisoner’s Dilemma.

14. Uncertainty
Use risk profiles to simplify decisions involving uncertainty
What are the key uncertainties?
What are the possible outcomes of these uncertainties?
What are the chances of occurrence of each possible outcome?
What are the consequences of each outcome?
Use experts to help define possible outcomes

15. Uncertainty Use a Decision Tree
A decision tree helps you visualize the consequences of your binary (go, no go) moves versus the binary moves of a single competitor.

16. Decision tree A = You B = competitor B Go A Go B No Go A B Go A No Go

17. Risk Tolerance
Understand and calibrate your group’s tolerance to take risks
Incorporate your risk tolerance into all of your decisions

18. Linked Decisions Linked decisions are complex
Ask: “How will this decision affect other people, other departments, other divisions, partners, your community (industry, country or world)?”

19. Decision Making Summary
Problem
Objectives
Alternatives
Consequences
Tradeoffs
Uncertainty
Risk Tolerance
Linked Decisions

20. Seven Basic Rules Make bold decisions that challenge the status quo
Avoid choices that justify past bad decisions
Check for faulty cause-and-effect reasoning
Test your decisions with experiments (shoot little bullets, not big cannonballs)
Root out unconscious prejudices
Foster and address constructive criticism
Defeat indecisiveness with clear accountability