Introduction
This week is the first
blog for MSLD632. This blog will compare and contrast how researchers of
decision making processes have developed mathematical tools to help leaders
make better decisions versus the age old method that has proven to be effective – the use
of intuition. In addition, they have exposed some conditions of human nature
that weaken our ability to make good decisions when they matter most. In a
world growing more complex as each year passes, leaders are facing the fact
that their intuitive skills so heavily relied upon in the past are fast
becoming a more risky proposition. “The study concluded that of 100 percent of
knowledge existing in the early 1990s only 10 per cent existed in the 1900s.”
(Obolensky, 2014, p. 16).
This blog proposes some
tools that can be put to use reduce the risk that ‘bad’ decisions are made. It’s a short read and it just could
change your perspective on your current decision-making processes.
Many Decisions Leaders Make are Based on
Intuition and so are Mine
The
very first leadership text book in the MSLD program (MSLD500) was a how-to-guide
on critical thinking, Learning to Think
Things Through: A Guide to Critical Thinking Across the Curriculum – by Gerald
Nosich. Perhaps this was intentional…to nip a problematic attribute of the
human condition, one of ‘reactionary’ responses and planning, by introducing
critical thinking – a condition of reflective and analytical reasoning. While Hoch
& Kunreuther (2001) tout decision-making based on intuition as reasonably
successful, “The good news about multistage decision making is that in many
cases everyday reasoning provides nearly optimal decisions.” (p. 61), there is absolutely
a need for a more analytical approach at times to avoid the ‘catastrophic’ decisions
from taking place.
Reflecting
on my own personal experiences, I can say with confidence that most decisions I’ve
made have been intuitive in nature. Some have been emotional in. Featured in
this week’s MSLD 532 discussion board are three recent decisions I’ve made that
could have had better outcomes had a more critical approach been taken.
The first example provided
involved poor judgement (based on intuition) on what impact small changes in
procedure would have on the overall product. The rush to complete the project
by introducing these small changes caused blindness in anticipating the impact
of those changes (Hoch & Kunreuther, 2001, p. 6).
The
second example involved a trade-in of a 2005 diesel truck for a 2013 gasoline
truck. Since the trade, diesel and gasoline prices have converged half-way and
has diminished the expected gain. “This problem of shifting comparisons can
bedevil our attempts to make rational decisions.” Gilbert (2008).
Finally the last example
I purchased a headset solely based on the fact it was a mid-ranged priced
headset and was main criteria used in making the decision. Packaging looked
good and the brand name did not raise suspicion. Intuition and emphasis on
speed were the drivers in this decision. In hindsight, a quick review of
consumer reports would have revealed a less than stellar report and would have
saved me time in the long run. There really is no excuse for not checking
consumer reports since this can be done today in a matter of seconds if you can
get an internet connection on your smart phone.
How These Decisions Could Have Had a Better
Outcome
Decision #1 (small changes in procedure) was based both on intuition and
emotion. Had time been taken to perform a proper in-depth analysis of these
changes, expectations would have been more realistic and disappointment within
the team tempered. A simple walk-through of the changes in real-time (half-day’s
work) would have revealed some additional work needed and wouldn’t have come as
a surprise and team effectiveness would not have suffered.
Decision #2 (truck
trade) could have used Bernoulli’s gift “The expected value of any of our
actions – that is, the goodness that we can count on getting – is the product
of two simple things: the odds that this action will allow us to gain something,
and the value of that gain to us.” (Gilbert, 2008). At the time of the trade
the price difference between a gallon of diesel and gasoline was more than one
dollar and the assumption I made as that it would stay above or right around a
dollar more per gallon. It had been that was for several years now (or so it
seemed at the time) and I was tired of paying so much more. So had I taken more
care in calculating the odds that the difference between gas and diesel prices
would remain instead of assuming the price would remain a dollar or more, the
outcome may have been different…or at least I wouldn’t be second guessing my decision?
Decision #3 (headset purchase)
has the easiest solution. Intuition and emphasis on speed were the drivers in
this decision. In hindsight, a quick review of consumer reports would have
revealed a less than stellar report and would have saved me time in the long
run. There really is no excuse for not checking consumer reports since this can
be done today in a matter of seconds if you can get an internet connection on
your smart phone.
Solving Multi-Stage Problems Using Dynamic
Programming
My first exposure to solving multi-stage problems using dynamic
programming came in MSLD632. The formulas used in dynamic programming are deemed
“straight forward” (Hock & Kunreuther, 2001, p. 42), using these
assumptions (p. 40):
1.
Accumulation of knowledge – How we rate the items (value-wise) we
are deciding upon over a one year period of time. Once the value are known we
make an assumption they won’t change.
2.
Decision Policies – How we make a choice to stay with a decision
or move to the other option if the values change.
On the surface my
position within my company (lead fault isolation writer) does not directly
involve stakes with monetary gains and losses (other than the cost of doing
business), but establishing the above two assumptions could be applied to many
scenarios, regardless of assigned monetary value. How to apply the formulas on the
other hand is another matter that I have not quite solved yet. My intention is
to ask my manager and / or director if they have experience using this formula and
if so, would they help me understand its application in our environment. Once
answers are revealed, they will be posted to this blog.
References:
Gilbert,
D. (2008, Dec). Why we make bad decisions [Video file]. Retrieved from http://www.ted.com/talks (Links to an external
site.)/dan_gilbert_researches_happiness#t-488159.
Obolensky,
N. (2014). Complex adaptive leadership:
Embracing paradox and uncertainty. Burlington, VT: Gower Publishing
Company.
Hoch,
S. J., & Kunreuther, H. C. (2001). Wharton
on making decisions. (1st edition.). Hoboken, NJ: John Wiley & Sons
Inc.
