Smart Choices

by Howard Raiffa

  Process alternatives help to ensure the fairness of decisions involving conflicting interests and thus can help preserve and foster long-term relationships. Other familiar process alternatives include the following:

  •Voting

  •Binding arbitration

  •Standardized test scores (to establish minimum requirements)

  •Sealed bids

  •Auctions

  To create process alternatives, you can begin by listing all of the basic alternatives from which to choose (for example, a slate of candidates to chair a committee). Then you should determine the right process mechanism (such as a secret ballot) for selecting the best alternative. In other situations, such as binding arbitration, the alternatives won’t be clearly specified beforehand. The process itself both creates the basic alternatives and selects one.

  Win-win alternatives. Sometimes devising great alternatives isn’t the problem. The problem is that your decision requires someone else’s approval. Suppose you’ve decided to ask for a three-month leave of absence from your job at a pharmaceutical company in order to take advantage of a once-in-a-lifetime opportunity: volunteering at a remote hospital in Africa. Your boss, the decision maker, must approve your leave, which he is not inclined to do. To change his mind, you need to create an alternative that will address his concerns as well as fulfill your own objectives.

  The key is to step back and analyze his decision problem. What are his objectives, and how can you use them to create a win-win alternative that benefits both of you? Suppose that your boss has been assigned responsibility for developing a new procedure for appraising your company’s product quality. He’s uncomfortable with the task because he feels he lacks the right analytical background. You, on the other hand, feel well suited to the job. You offer your boss a deal: you’ll create and implement the procedure over the next six months, putting in a lot of nights and weekends, if he’ll then grant you the leave. He agrees—you both win.

  Making someone else’s decision-problem alternatives jibe with your own—creating a win-win alternative—is like lighting two candles with one match. It’s economical, it’s satisfying, and it gets the job done.

  Information-gathering alternatives. Information helps dispel the clouds of uncertainty hovering over some decisions. A doctor, for example, will gather information from a patient’s history, examination, and tests to reduce uncertainty about a diagnosis. A business will test a prototype of a new product to ensure that it meets all performance expectations. Better information means better decisions.

  When there are uncertainties affecting a decision, it is useful to generate alternatives for gathering the information necessary to reduce each uncertainty. First list the areas of uncertainty. Then, for each one, list the possible ways to collect the needed information. Each of these ways is an information-gathering alternative. Sometimes the alternatives are well established, with predictable costs and accuracy—comparison shopping and medical tests are two examples. In other cases, you’ll need to design an information-gathering alternative tailored to your particular needs, evaluating, for example, the relative merits and cost-effectiveness of a telephone poll, a direct-mail survey, and a market test.

  Time-buying alternatives. ‘‘Don’t put off ‘til tomorrow what you can do today.’’ That’s a good rule for decision making, but as with most rules, there are times when you should break it. Deferring a decision can provide you with additional time to better understand a decision problem, gather important information, and perform complex analyses. You may, as a result, be able to dispel uncertainties and reduce risks. Sometimes, extra time may allow you to create a new alternative that is much better than all the current alternatives.

  Deferring a decision usually comes at a price, however. Some alternatives may disappear in the interim. Several used cars you had been looking at, for example, may be sold by the time you return to the lot. Other alternatives may erode. Delaying the release of a new product while you explore the market, for example, may allow the competition to get in first.

  Devising a halfway alternative, a partial commitment, can sometimes circumvent the drawbacks of a delay in making a full commitment. A family uncertain about spending its summers in Maine, for example, may decide to lease a vacation home there for two years, reserving an option to buy at a set price. The lease, a time-buying alternative, gives them a chance to determine whether they really like the house and area before committing to ownership.

  Whenever you’re uncomfortable about deciding now, question the deadline. Is it a real deadline, or is it just an assumed constraint? What would be the pros and cons of waiting? If the pros outweigh the cons, look for a time-buying alternative. But beware! Make sure the deferral offers real benefits. Don’t use it merely to avoid an unpleasant or tough decision.

  Know When to Quit Looking

  It’s an unfortunate truth: the perfect solution seldom exists. But that doesn’t stop a lot of people from endlessly (and unrealistically) pursuing one. It’s important to be careful and thorough in laying out your alternatives. Obsessing over them, though, is a different matter. It takes a heavier toll in time and in mental and emotional energy than is justified.

  How will you know when enough is enough? You need to balance the effort made against the quality of the alternatives found. To strike the right balance, ask yourself these questions:

  •Have you thought hard about your alternatives, using the techniques listed on pages 50–56?

  •Would you be satisfied with one of your existing alternatives as a final decision?

  •Do you have a range of alternatives? Are some alternatives distinctly different from the others? (If your alternatives all seem too similar, you need to push your creativity.)

  •Do other elements of this decision (such as consequences and tradeoffs) require your time and attention?

  •Would time spent on other decisions or activities be more productive?

  If you answered ‘‘yes’’ to each of these questions, stop looking for more alternatives and apply your energies elsewhere.

  APPLICATION

  To Renovate or Move?

  Darlene and Drew have thought hard about their objectives, and, list in hand, they are ready to look for alternatives.

  Darlene proposes calling Anne, their realtor friend, but Drew counters, ‘‘Shouldn’t we first try on our own? Maybe we can even avoid the realtor’s commission.’’

  John pipes up: ‘‘I’ll ride my bike around the neighborhood and look for ‘For Sale’ signs.’’

  ‘‘You will not,’’ his mother scolds. ‘‘You know you aren’t allowed to ride your bike in the streets.’’

  But John has another idea. ‘‘Well, I could announce in my class that we’re looking for a new house and offer a reward.’’

  ‘‘No, John, you’ll do no such thing. We don’t want to tell the world we want to move before we’re sure we can afford to.’’

  The next few weeks are hectic. In their few available free hours, Darlene and Drew answer newspaper ads, and the family visits houses that sound promising. Often, though, the advertised homes don’t meet their expectations. John wants to know when they will quit looking and decide. ‘‘I don’t know when, John,’’ his dad says, ‘‘but I know not yet.’’

  Frustrated and exhausted with the time-consuming search process, Darlene and Drew at last decide to call Anne. But their do-it-yourself efforts do pay a small dividend: the process has helped them to sharpen their thinking about what they really want and to bring their aspirations more in line with reality.

  The following week, Darlene and Anne meet for lunch. As they eat dessert, Anne summarizes their discussion. ‘‘Let’s see. You and Drew want to buy a house that’s close to each of your jobs. You want the finest of schools for John and for the precocious kid you’re about to have. You want to live in a quality neighborhood. You want more than adequate living space and a big yard for the kids and for the dog you’ve always wanted. And you want all of th
is to be affordable and a very good investment. You also want me to arrange for the Federal Reserve to lower interest rates so you can get a 5 percent mortgage. You want me to sell your old house for an above-market price. And because we’re such good friends, you want me to accept 4 percent rather than the standard 6 percent commission.’’

  ‘‘I never said anything about your commission, Anne.’’

  ‘‘But you were thinking it.’’

  ‘‘How could you tell?’’

  ‘‘I’m not psychic, but I am an observer of human behavior, and four of my last five clients, who all knew me slightly in high school, asked me for that favor—which I politely told them I couldn’t do because I promised to send my own kids to college.’’

  As they leave the restaurant, Anne quips, ‘‘If your John wants a job in my real estate office, tell him to come around. This is the first time I know of that a kid has helped his parents formulate their housing problem.’’

  Over the next few weeks, the Mathers pore over listings and visit many houses. Several meet a lot of their objectives, but Drew and Darlene don’t put in any bids. The family is in a search phase, trying to get a feel for the possible.

  Then Anne phones one night. ‘‘Time for action, folks. You can’t be voyeurs all your lives. How about putting your money on the line?’’

  Darlene and Drew acknowledge that they’ve seen enough and that now is the time to buy. John heartily agrees. One morning he tells his mother that if they don’t do something soon his new brother won’t have a place to sleep.

  So Darlene pulls out her list of viable alternatives. The house on Eaton Street has a yard big enough for a dog. The Wade Street house has the best school district of the lot. The West Boulevard house is sort of crummy, but a terrific buy. The house on Amherst is a bit distant, but the neighborhood is stable, with great amenities. Finally, their own house at 281 School Street needs some renovations but is a decent default option.

  ‘‘So what do we do now?’’ asks Drew.

  ‘‘How do we decide?’’ asks John.

  (To be continued in Chapter 5.)

  Lessons from the Application

  The Mathers have done a good job of generating alternatives, first by answering ads on their own (even if it was a rather inefficient and ultimately ineffective method) and then by enlisting the aid of a realtor. Could they have done better? We think so. Darlene and Drew might have benefited from the following suggestions:

  •Consider your objectives and, for each, ask ‘‘How?’’ By evaluating neighborhoods first, for example, the Mathers could have narrowed their search, ruling out locations that did not meet key objectives such as school quality and commuting time. They might have saved a lot of time by only visiting homes on the most fertile ground.

  •Be proactive in creating alternatives. The Mathers could have asked friends or friends of friends in attractive neighborhoods to alert them if a house was about to come on the market. They might also have placed a newspaper ad themselves, specifying what they were looking for in a house, rather than merely responding to others’ ads. This would accomplish what John had wanted to do by making an announcement to his classmates, but in a broader sphere and in a more discreet way.

  •Think carefully about the right time to stop looking for new alternatives and make a decision. This is often a challenge. The Mathers were pushed by their realtor, who took the initiative to say, ‘‘It’s time to decide.’’ By quickly agreeing, they avoided further searching, but it may have been wiser to think twice. Only the actual decision makers can truly say when and if they are ready to make a choice.

  One more thing to keep in mind as we move on: never irrevocably commit yourself to considering only existing alternatives. The Mathers have five houses on the table. But they should continue looking while they evaluate these. They may reject all five after further analysis or unsuccessful offers, and they’ll want to have more options available.

  CHAPTER 5

  Consequences

  YOU’VE DEFINED YOUR PROBLEM, you’ve structured your objectives, and you’ve established the set of alternatives you have to choose from. Now, to make a smart choice, you need to compare the merits of the competing alternatives, assessing how well each satisfies your fundamental objectives. To make the comparisons, you’ll first need to describe how well you’ll fare with each alternative. In other words, you’ll need to lay out the consequences each alternative would have for each of your objectives. If you describe the consequences well, your decision will often be obvious— without requiring much further reflection.

  This chapter presents a simple message: be sure you really understand the consequences of your alternatives before you make a choice. If you don’t, you surely will afterwards, and you may not be very happy with them. The main benefit to be derived from describing consequences is understanding. You will gain a better understanding not only of the consequences themselves, but also of your objectives and even of your decision problem. The more deeply you understand these, the more likely you are to make a smart choice.

  Describe Consequences with Appropriate Accuracy, Completeness, and Precision

  Here’s a seemingly straightforward problem: You need to decide where to dine before you go to the theater tonight. You want a nice meal in a pleasant setting, you don’t want to spend too much money, and most of all, you don’t want to be late for the show—you know you’ll have only an hour and a half to eat and get to the theater. You’ve identified two alternatives: Mario’s reportedly offers outstanding food but only a fair setting, and the service can be slow. Luigi’s, on the other hand, has reasonably good food, a superb setting, and efficient service, but it is the more expensive of the two. Neither alternative offers everything you want—that’s the way life is—so your choice will depend on how well each meets your objectives and on the relative importance you assign to those objectives. If you’ve adequately described the consequences of your two alternatives, you will be in a position to make a smart choice.

  Simple, right? Wrong. Describing consequences isn’t as easy as it might at first appear. In fact, it can be downright difficult. If your descriptions are inaccurate, incomplete, or imprecise, the three biggest pitfalls, you risk making a poor choice. You won’t get what you thought you would. In terms of the restaurant choice, for example, your descriptions may fall short in a number of ways:

  •Inaccurate: What if, contrary to what you’ve heard, Luigi’s food is actually better than Mario’s?

  •Incomplete: What if Luigi’s is 15 minutes farther from the theater than Mario’s? What if Mario’s doesn’t have a liquor license, and you expect to have wine with your dinner?

  •Imprecise: How slow is Mario’s service? How much more expensive is Luigi’s?

  When we think about the challenge of defining consequences, we’re reminded of an old joke about a now-defunct airline that was known for its erratic service. When one of this airline’s flights touched down one day, the pilot came on the intercom. ‘‘We’re early,’’ he announced, ‘‘but we’re lost.’’ If you don’t define the consequences well, you may arrive at a decision quickly, but it probably won’t be the right choice.

  Build a Consequences Table

  The trick is to describe the consequences with enough precision to make a smart choice, but not to go into unnecessary and exhausting detail. How do you master this trick? By taking these four steps:

  Step 1: Mentally put yourself into the future. Because the consequences of your decisions will occur in the future, often months or years from now, you need to shift your mindset ahead in time to uncover a decision’s true significance. As you think about each alternative, instead of imagining you might choose it, imagine that you have chosen it. Imagine, for example, that you have remodeled your house following the plans just submitted by your architect. Ask yourself what life is like in the remodeled house. What is a typical weekday like? a weekend day? a summer day? a winter day? What’s it like when you have house guests? How are
things different when your children are three years older? Putting yourself in the future will help you to focus on the longer-term consequences of a decision rather than just the immediate ones, and it will help you to view those consequences in their actual context.

  Step 2: Create a free-form description of the consequences of each alternative. Write down each consequence using the words and numbers that best capture its key characteristics.

  •Gather hard information (for example, the re sume of a job candidate), but also express your subjective judgments (the candidate is ‘‘eager’’ or ‘‘personable’’).

  •Use numbers where appropriate (the candidate’s desired salary is $37,000); otherwise, use words (‘‘extensive computer and analytical skills’’). Use graphics—diagrams, photos, symbols—if they are revealing and can be used consistently (you might use a suitcase icon, for example, to indicate the candidate’s willingness to travel).

  •Check your description against your list of objectives. Do your descriptions take into account all your objectives? If you’ve missed any, you will need to fill in the gaps. Does any of your descriptions imply a previously unstated objective? If so, you will want to evaluate its appropriateness and, if it is to be retained, apply it to your other alternatives. (The possibility of turning up unrecognized objectives makes starting with a free-form description of consequences preferable to describing them using your objectives as a checklist.)

  Step 3: Eliminate any clearly inferior alternatives. This step is a terrific time saver for many decisions because it can quickly eliminate alternatives and may lead to a resolution of your decision. You essentially play ‘‘king of the mountain,’’ trying to knock one alternative out with another.

  •Take two alternatives. Select one as the tentative king. The status quo, if it is one of the alternatives, often makes a good initial king. For example, you start by comparing your current computer to one of the new models you’re thinking about buying.