The observable examined

Can we know when we made a good decision?

leave a comment »

The third lecture I attended at Stanford Saturday University, on November 5, was given by Prof. Ron Howard, from the Management Science and Engineering Department. The title of his talk was : Can People make good decisions? How would they know? As I have indicated elsewhere, judgment and decision making is a favorite topic of mine.

Howard started out by observing that our lives, professional or personal,  are dominated by decisions at every turn. Decisions are logically distinct from outcomes. Think about this for a second or two. It is an important idea. Decisions are what you control. In general, decisions are difficult because of uncertainty.

Howard’s classifies decisions as being mediated by two systems: deliberative and affective. The deliberative system, aka the “cool” cognitive system relies on brain structures more recent in origin (eg., prefrontal cortex about 150,00 yrs old). The affective system, or the “hot” emotional system relies on ancient brian structures (> 6 million yrs old) and are involved typically in decisions related to sex, fear, hunger, proximity, impatience, and empathy. Decisions are also modulated by will power, stress, and cognitive effort.

We are prone to a number of cognitive biases that affect our decisions. These most common ones include

  • anchoring – sticking to one piece of information
  • availability heuristics – basing decisions on what is available in memory
  • confirmation biases – ignoring information that contradicts the information you have
  •  endowment effect – demand more when they give up something versus when they want it
  •  framing effect  – the way the information is presented affects your decision
  • illusion of control  – overestimating how much control you have over external events

Decisions are based on three factors : what you can do, what you want, and what you know. The other factors include the logic you bring to bear on the decision making process, and the frame/context. Clarity of thought should guide clarity of actions.

Howard narrated the history surrounding the myth of Stork visits and Babies. The origins are in Denmark and has to do with Stork nesting in chimneys. But the main point of this story was to illustrate how we end up making errors in attributing cause and effect to correlated events.

Howard also pointed out some common logical failures in decision making. Here are a few : confounding decisions with outcomes;including sunk costs in decisions; experiencing worry and regret;thinking wishfully in assigning probabilities; using associative logic instead of conditional probabilities;confusing relevance and causation. He talked also about framing failures and ethical failures. Here my notes are incomplete, so I am leaving them out.

Finally, he talked about the need to teach the techniques of proper decision making at a fairly early age. He wants kids to think about being HIP when making decisions.

  • H – How will it change?
  • I – What is the impact on others and me?
  • P – Is it Permanent or Reversible?

Probably the last slide had the best nugget of all. How to assess your decision readiness? The signals to HALT a decision are

  •  H – Hungry
  • A – Angry
  • L – Light Headed
  • T – Tired

While I learned a few new things from the lecture (the most important one I think is is the idea that decisions are logically distinct from outcomes), something bothered me about Dr. Howard. When someone asked him for further reading on the topic, he suggested in all seriousness that they wait for his book which is forthcoming. There is plenty of material on this topic by Tverksy and Kahneman. Kahneman has a book out where he discusses ideas similar to the deliberative and affective systems, He calls them System 1 and System 2.  Dan Ariely has widely popularized the irrational side of our being in a couple of books. So I did not quite understand his response. Nevertheless, still enjoyable. In summary, people make decisions. If the outcome is good, it was a good decision else it was a bad decision.

Across the three lectures, the money, and time were all well spent. A great decision I must say.


Written by asterix98

December 4, 2011 at 7:50 am

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: