How can intuition and analysis be blended to make rapid decisions? - Chapter 6

What is the essence of claim 3?

Claim 3: To make a decision, generate several options and compare them to pick the best one.

Claim 3 is taught in business schools. These leaders believe that all they need is more good options and stronger methods to select the best. Claim 3 makes a stronger statement; that when faced with a decision, we should go trough the drill of listing a set of alternatives and then contrasting them.

Five more important claims:

• When people get better at making decisions they consider more options and evaluate them more deliberately.

• Only novices rush ahead with the first option that pops into their minds.

• We make decisions by comparing options, using the same criteria to find the best one.

• Decision analysis will improve the quality of our choices.

• The closer the alternative options are matched, the harder we must work to pick the best one.

These beliefs encourage us to think carefully when making decisions. Thinking carefully means identifying a range of different options so that we don’t miss anything by being too impulsive, then setting up a common set of criteria so we evaluate each of the options using the same standards.

Sometimes we want to give more weight to the most important evaluation criteria rather than counting every dimension equally. This type of analysis can be referred to the Rational Choice method.

Another technique is to use a decision tree. Decision-tree diagrams represent different options, the probability of success with each, and the anticipated benefit if that option is successful. The result of each branch is an expected value for that option, letting the decision maker see which option to select.

The option with the highest expected value will have the greatest chance for success.

What about the disclaimer?

People and organizations rarely use formal methods of decision making, such as the Rational Choice Method. Many decision analysts have come to recognize that decision makers hardly ever set up formal evaluation methods or rate different options on the same dimensions. Look at your own life. Do you always set up matrices for choices / decisions?

Reasons why people rarely make these matrices:

1. They require too much time and effort. You can’t use them if you have less than half an hour to make the decision.

2. The formal methods require a lot of data to fill in all the cells of the decision matrix, or to estimate all the probabilities. If you want to use the methods, you have to make up ratings and probabilities that you don’t have any way to confirm.

3. It is much harder to estimate complex variables than well-ordered ones. In buying a car, we can pin down reliability records and fuel economy and crash protection ratings. On the other hands, we have trouble estimating how comfortable a car will be on long trips.

4. People are not convinced with any evidence that these analytical methods help people make better decisions, or that training in formal decision making results in better performance. Decision analysts now argue that their goal is to help people make more consistent decisions with clearer justifications, not necessarily decisions that are better.

As a result, we either ignore those features or we rate all alternatives as average, which washes out this variable from the decision.

Example of an Rational Choice Model

Evaluation dimensions:

• Price

• Reliability

• Safety

• Gas mileage

A final weakness in these analytical methods is the Zone of Indifference. When one option is clearly better than the others, we need not to do any analysis. We immediately know what to choose. The closer the options become, the more the strengths and weaknesses are balanced, the harder the choice. The hardest decisions are those that must be made when the options are just about perfectly balanced.

The analytical methods are designed to help us make the toughest choices, but once we realize we are inside the zone of Indifference we should stop right here, make an arbitrary choice and move on.

What if we don’t move on? Herbert Simon argued that any company that attempted to optimize its returns and make the best decisions would fall into a never ending quest to find the best decision. Simon coined the term satisficing to describe what we all do just about all the time.

The more choices that are given, the harder the decision. The field of decision making searches for ways to help people make better choices. Yet in study after study we find that people don’t compare any options, let alone systematically review those options’ strengths and weaknesses.

Replacement

How do we make decisions, especially under some time pressure and uncertainty?

Army Research Institute did a small experiment. After this there was evidence that with 23 years of experience you recognize situations as familiar, or typical. The patterns you recognize include typical ways to react.

Therefore, the first option the commanders thought of was usually going to get the job done. They were satisficing and their first impulses were very effective.

The answer to the second mystery where they were interested in, was how to evaluate an option if you don’t compare it to others, is that the commanders evaluated an option by imagining it. They played it through in their mind, conducting a mental simulation. If it worked, they carried it out. If it almost worked, they altered it to make it better. If they couldn’t make it work, they discarded it and looked at the next most typical action.

Klein, Calderwood and Clinton-Cirocco called this strategy a Recognition-Primed Decision model. The pattern recognition suggested an effective course of action and then the firefighters used a mental simulation to make sure it would work. This RPD strategy combines intuition with analysis. The pattern matching is the intuitive party, the mental simulation is the deliberate analysis.

Therefore, Claim 3 (to make a decision, generate several options and compare them to pick the best one) can be replaced with the RPD model: Good decision makers use their experience to recognize an effective option and evaluate it through mental simulation.

Our research shows that the more experience people have, the more likely they are to make decisions without deliberately contrasting options.

The RPD model shows how we can make good decisions –using our experience- without comparing options and without generating more than one option. The decision-analysis model, as stated in claim 3, shouldn’t be our gold standard for good decision making, because we rarely use this strategy and because it doesn’t seem to result in better decisions.

What are two systems of thinking?

Many researchers are now advocating for a dual system mode of thinking.

1. The automatic system is fast, automatic, effortless and emotional and uses tacit knowledge.

2. The reflective system is slower, consciously effortful, deliberate, logical and serial, and uses explicit knowledge.

These two systems which work in different ways, complement each other, but have different mental gears that we can use.

The connection between the two systems isn’t always perfect. Consider the following problem. A bat and a ball cost $ 1,10 in total. The ball costs a dollar more than the ball. How much does the ball cost? For most of us, the immediate reaction is 10 cents. Yet the correct response is 5 cent.

Bat 1,05 Ball 0,05. Why do we make this fault?

Shane Frederick (2005) has studied this and similar problems as examples of a failure of the reflective to do its job. The initial impulse seems so obvious that we don’t think twice. Therefore we don’t engage the gear for our reflective system. It also works in the other direction. We need the automatic system to check up on the reflective system.

This two system Automatic/Reflective framework fits the RPD model. The intuitive pattern-recognition part of decision making uses the automatic system to size up situations and form initial impulses about what to do. The deliberate mental simulation uses the reflective system to assess the options suggested by the patterns.

As we saw in Chapter 5, we need both intuition and analysis—both the automatic system and reflective system. If we were just using intuition, we would be making lots of blunders. And if we just tried to use analysis, we would never get very far.

Some additional claims about decision making:

• When people get better at making decisions they consider more options and evaluate them more deliberately. Not true, as people gain experience, they consider fewer options and evaluate them using mental review rather than by comparing them using the same evaluation criteria.

• We make decisions by comparing options using the same criteria to find the best one. Not true, when we try to use the same criteria for all the options, we wind up discarding some important considerations and distorting others.

• Only novices would rush ahead with the first option that popped into their minds. Not true, novices don’t feel comfortable going with the first option. They don’t have the experience to trust the first option, or to gauge its quality except by contrasting it to others.

• Decision analysis will improve the quality of our choices. Not true, we're not aware of any evidence that decision analysis improves the quality of judgments and decisions.

• The closer the alternative options are matched, the more we must work to pick the best one. Also not true. When the options match up too closely, we are in the zone of indifference. Sometimes we would be better off just flipping a coin instead of continuing with struggling. Regardless of the tactic, when we reach a point where further analysis is unlikely to break an impasse, we should recognize the futility of endless debate.

When to compare options?

Sometimes we do face situations in which we do have to contrast different courses of action. What do we do then?

We can learn from skilled chess players, they don’t settle for the first satisfactory option. They really do want to play the best move possible. Their strategy is to conduct mental simulations of each one of the promising moves, imagining how the option would play out deeper and deeper into the future.

Skilled chess players don’t compare options using the Rational Choice Method, because there is little benefit to rating options on the same evaluation dimensions, such as controlling the center of the board. These kinds of ratings don’t capture the dynamics of the game position.

The mental-simulation strategy lets chess players appreciate how a move works for that game. The mental simulations capture the context rather than filtering it out through the rational choice method.

The Rational Choice Method might be useful when we do have to make choices and don’t have very much experience. The process of setting up a matrix can help us clarify what matters to us.

How can decisions in organizations be made?

We make many decisions in teams and organizations, rather than alone. The Rational Choice approach lets us direct the behavior of team members. Building on the RPD research, John Schmitt developed a Recognitional Planning Model to expand on the Recognition-Primed Decision model. Schmitt’s model jettisons all the busy work of three courses of action and instead encourages the leader to use intuition to identify a favored course of action.

In this chapter two systems have been distinguished: Reflective and an automatic. Claim 3 puts too much emphasis on the reflective system. That’s the one we can control better. Because we rely on both systems, we have to resolve conflicts between them. We have to gauge how much we trust our intuitions and our analyses. And that depends on how skilled we are.

Claim 3 (to make a decision, generate several options and compare them) doesn’t help anyone making better decisions. It ignores the way experienced people actually make decisions. It just gets in the way of their effective strategy.

Claim 3: To make a decision, generate several options and compare them to pick the best one.

Claim 3 is taught in business schools. These leaders believe that all they need is more good options and stronger methods to select the best. Claim 3 makes a stronger statement; that when faced with a decision, we should go trough the drill of listing a set of alternatives and then contrasting them.