Six Keys To Making Good Decisions
Posted by Somik Raha on Jun 22, 2010
On my first day in a class called "Decision Analysis" at Stanford, I was shocked when Prof. Ron Howard said that you couldn't judge a decision from the outcome. I walked up to him after class and said, "Professor, this is what I have read in spiritual texts - that we are only competent in the action, and the outcome is not in our hands. Your principle is ancient." Prof. Howard replied, "It may be, but these texts don't tell you how to apply this to financial decision-making, and we have worked out the details here." This little conversation ended up changing my life. Here was a field of thought right in the middle of the material world that espoused the deepest spiritual philosophy I'd ever come across. Suddenly, I could be consistent with my material decisions without compromising my spiritual ideals. I had to learn more. After trying most of the classes in the Masters program at Stanford, I decided to continue on a doctoral journey in this field.
Before going further, I must mention Prof. Howard's caveat, said in dramatic form, "Let it not be said that this is the best way to make decisions. For the monk who believes every outcome is the right outcome, there is no decision to be made. However, for our western society which likes to think we have some influence over outcomes, I have found no better way to think about it." I think this is not limited to western society at all - we all like to think that we have some influence over our outcomes. Isn't there a contradiction then between the spiritual and the material? We'll explore this further on.
After establishing the first principle that decisions cannot be judged from their outcomes, we learn that a decision can only be judged by "the light the decision-maker had when making the decision." In other words, we have to travel back in time to the point where the decision was being made, and look at all the information the decision-maker had. We have to then see how the decision process unfolded, by examining it in light of the six elements of decision quality, which can be applied by anyone in any decision situation:
- Appropriate Framing: Think of the decision as similar to taking a photo. Was the decision "frame" too restrictive, or was it too broad to be useful? Did we make assumptions that we ought to have explicitly stated and challenged? Recognizing one's assumptions requires taking a step back. Most of the time, we narrow our frame too much and don't zoom out to see how much room there is. At other times, we are so overwhelmed by our lack of focus that we cannot recognize what our decision is. Developing an awareness of when to zoom in and zoom out is at the heart of arriving at the appropriate frame. When discussing our decision frame, it is extremely important not to be trapped by our own rhetoric, and so we have to try our best to use value-neutral language (language that does not evoke value-judgments). For instance, there is a big difference in our emotional reaction when using the word "pollution" over the more neutral "emission."
- Creative Alternatives: Did we find ourselves restricted by the alternatives at hand, or did we make a sincere effort in coming up with creative alternatives? Most of the time, when we have a favored alternative, we jump straight in without reflection. Sometimes, we are so attached to our favorite alternative that we may even be manipulative in making sure it is chosen. Breaking our attachment and giving ourselves room to be creative is necessary in order to find out-of-the-box alternatives.
- Clear Values: Did we think about the important sources of value? What is it that is fundamentally important to us? What is instrumental? Do we appreciate all the values that are important and how they relate to each other? Understanding what we want involves understanding ourselves. Did we slow down to reflect on what's important to us?
- Useful Information: Did we try hard enough to resolve the most critical uncertainties in our decision situation? Or did we spend our time gathering useless information that would not help our decision-making? We live in the age of "information explosion" thanks to the internet, and can easily be overwhelmed by it. Instead of trying to get as much data as possible on anything and everything, we can direct our attention to the information that affects what we value the most. More fundamentally, it is important for the decision maker to recognize that information is a state of mind. There are no probabilities out there in the universe that can be discovered by plunging into a haystack of data. Probabilities are a measure of our beliefs about the universe, and they only exist in our head. This distinction helps keep us honest by avoiding misleading terms like "objective probability."
- Sound Reasoning: Were we consistent with our values when using information to come up with the best alternative? Did we contradict our values? This is the only element of decision quality that can be considered "objective." Given all the same inputs, the process of decision analysis will give us the same answer every time. However, it is rare for two people to have the same inputs. Each individual has different values and different beliefs. Decisions therefore are necessarily subjective and so, if we take the decision-maker out of the decision, the notion of a decision becomes meaningless.
- Commitment to Action: While we may do a great decision analysis, when it comes time for the rubber to hit the road, does the car stop? How committed are we as decision-makers to follow through on what we believe to be a good decision? Lack of commitment to action can render the best decision analysis useless.
In my own practice of this process, and in having brought this process to organizations, there are a few interesting principles that help us see how decision analysis bridges the material and the spiritual:
- You can only judge your own decisions: a consequence of understanding decision analysis is in seeing the logical fallacy of being judgmental. Given the above elements, you can't possibly judge the quality of another person's decision, as it's too hard to get all this information. This is fascinating - without talking about spirituality, decision analysis brings to the fore the futility of judging other people.
- The "Sunk Cost principle:" The past is gone - it ain't coming back. You cannot hold on to how much you've sunk in any calculations on coming out ahead in the future. This brilliant rule knocks out clinging to the past, and incorporates it in our mathematics. In our exams, when students include the sunk cost in their mathematical calculations, they get penalized for making a fundamental mistake! The principle is treated as matter-of-fact, without a second thought given to the huge implications on our lives, which is, as it should be. Why should we spend large chunks of our life regretting the past? The past matters for learning, not for accounting.
- Testing our beliefs and values: what if we believed differently - would our decisions change? What if we valued differently - would our decisions change? Do we have to go through all of our values to make a decision? Which values are material to our decision-making (as in, if we change some of our preferences, would our decisions change)? This interaction with our own beliefs and values is invaluable, for it helps loosen our attachment to any one belief and helps create a space of reflection between us and our decisions. Only when we believe that we have done our best can we let go of all our attachments to the past and the future, and start to be present. When we are fully present, we are free to do our best, at this one instant of time. We are living more fully, more happily. The ultimate utility of Decision Analysis, in my mind, is to help develop detachment to outcomes and promote equanimity.
- Distinguishing between small-d and big-d decisions: there are decisions and then there are Decisions. To borrow from Prof. Howard, for the small stuff (multi-billion dollar resource allocation decisions included), decision analysis is the best way we know of for making good decisions. Decision Analysis is a consequentialist philosophy, where we think about the consequences that matter and our influence over them. For the really "important" stuff, like relationships with other people, deciding to love someone, or changing one's fundamental beliefs about life, embarking on a spiritual journey, decision analysis (or consequentialism) is not the best way to think about decisions. This is because the outcome of such decisions is likely to be transformational. I will no longer be the same person with the same set of values, preferences and perspective. Consequentialism implies some continuity of values and preferences from the decision to the outcome.
Prof. Howard once told me that he never made the "important" decisions in his life. They just happened and he was open to possibilities - he was present. For important decisions, value-based decision making is a much better approach, which he teaches in a class on Ethics (some might know this as the "action-based" or "Kantian" approach). My own research is on bridging the gap between consequentialism and value-based thinking, answering the question, "How do we make sure that our decisions are aligned with our core values?"
The best part of it all is that it's easy: the six elements of decision quality don't require complex mental gymnastics. In fact, these methods can be used across the board for all decisions, ranging from the personal to the professional, and even for life-and-death medical decisions. In my own experience, in organizations that sincerely use Decision Analysis, there is a marked difference in the atmosphere - people are relaxed and dedicated to doing their best. And besides the immediate mundane gains, there are deep trains of spiritual wisdom in the practice of decision analysis, that are independent of any spiritual tradition. Decisions are universal, and decision analysis is an accessible method that for all practical purposes, bridges the gap between spiritual and material thinking.
Note: The Decision Education Foundation (DEF) is a non-profit organization started by Prof. Howard to bring this philosophy to high-school children. DEF has opened up its unique curriculum so teachers all over the world can learn and teach it.