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

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

3. Framing Traps
Plunging in
Frame blindness
Lack of frame control

4. 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)

5. 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

6. 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.

7. 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

8. 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

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

10. 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

11. 2.2 Confirmation Bias
Many of us seek information to support past decisions
Moral: Have the discipline to seek out disconfirming information

12. Which causes more deaths?

13. Causes of Death

14. 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.

15. 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?

16. Attilla the Hun

17. Exposing Hidden Sources of Problems
Fault trees
Using Scenarios
Prospective hindsight

18. 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

19. 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

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

21. 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)

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

23. 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

24. 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

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

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

27. 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

28. 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?

29. 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?