Winning Decisions: Getting It Right the First Time

391 Pages·2001·2.03 MB·English

by  J. Edward Russo

Contents
TITLE PAGE
DEDICATION
ACKNOWLEDGMENTS
INTRODUCTION
Decision-Making in the Real World
CHAPTER 1
Setting the Course
PHASE I Decision-Framing
CHAPTER 2
The Power of Frames
CHAPTER 3
Creating Winning Frames
Interlude A
Improving Your Options
PHASE II Gathering Intelligence
CHAPTER 4
Avoiding Distortion and Bias
CHAPTER 5
Intelligence in the Face of Uncertainty
Interlude B
Technologies for Aiding Decisions
PHASE III Coming to Conclusions
CHAPTER 6
Choosing: A Pyramid of Approaches
CHAPTER 7
Managing Group Decisions
Interlude C
Implementing Your Chosen Option
PHASE IV Learning from Experience
CHAPTER 8
The Personal Challenges of Learning
CHAPTER 9
Learning in Organizations
CHAPTER 10
Bringing It All Home: The Decisions of RealHome.com
EPILOGUE
Learning into Action
APPENDIX A
Decision Audits
APPENDIX B
Organizational Challenges in Decision-Making
NOTES
COPYRIGHT
To Daniel Kahneman for his lifelong exploration of the mind of the decision-
maker, continually taking us in new directions and revealing hidden patterns of
preference, belief, and value; To his equally remarkable collaborator, the late
Amos Tversky, for his pioneering insights and rigorous formulations of the most
fundamental problems and principles of the field; and To the late Herbert A.
Simon, a founder and intellectual leader of cognitive science over the last half
century, for the model of his life.
Acknowledgments
Our book draws on multiple intellectual disciplines—from behavioral decision
theory and decision analysis through artificial intelligence and problem-solving
to group dynamics and creativity. In each discipline are dedicated researchers
whose collective efforts have formed the intellectual basis for all that you will
read below. We acknowledged some of these scholars by name in our early book
Decision Traps (Doubleday, 1989) and our gratitude to them continues in this
work.
In addition, we have benefited from the stimulating intellectual climates where
we worked as academics, especially the University of Chicago (where we first
met in the early 1980s), Cornell University, and the Wharton School of the
University of Pennsylvania. Our colleagues there have provided much-
appreciated support and challenge to our thinking over the years. Paul especially
acknowledges John C. Hershey for our continuing dialogue in the context of our
joint executive education at Wharton, as well as Howard C. Kunreuther and Paul
Kleindorfer for numerous stimulating discussions while writing our joint book
Decision Sciences: An Integrative Perspective (Cambridge Press, 1993). Thanks
go as well to George Day, Roch Parayre, Howard Perlmutter, and Harbir Singh
for our wide-ranging discussions about decision-making in organizations.
We are also grateful to the thousands of managers who have heard us speak
about decision-making over the years. Their valuable feedback—whether as
questions, survey responses, or follow-up conversations and consulting—
compelled us to respect more fully the complex challenge of real-world, real-
time decisions. These numerous seminars and workshops were conducted at
various universities, in public forums, and at the invitation of companies. There
are too many for all to be listed, but we acknowledge in particular the following
organizations:
University of California at Berkeley, University of Chicago, Cornell University, CEDEP at INSEAD,
Duke University, University of North Carolina, MIT, and the Wharton School for their support of our
executive education workshops; and
Abbott Laboratories, Arthur Andersen, Cargill, Coopers & Lybrand, CUES, Eli Lilly, General
Motors, Harris Bank, IBM, Johnson & Johnson, Knight-Ridder, Lever Brothers, Lucent, National
WestMinister Bank, New York Life, Royal Dutch/Shell, State Farm, and the U.S. Forest Service for
their repeated in-house offerings of our executive decision programs.
Several individuals played essential roles in the making of this book.
John Oakes teamed up with us in the mid-1990s to design a management
training program based on our book Decision Traps. We have benefited not only
from his great interest in this subject and his vast experience in training and
human resource management, but as much from his patient insistence on
practical and user-friendly expositions of our more obtuse concepts and
techniques. He helped sharpen our exercises while adding many tools and tips
where they were needed. Our intellectual journey with him changed our own
thinking, as reflected in the present writing, and we acknowledge his substantial
contribution with gratitude.
Richard Roll, CEO of RealHome.com, Inc., volunteered his time and risked
the exposure of his decision processes to all who read chapter 10. It is one thing
to make a decision; it is another to observe and describe it; and it is still more to
reveal it with candor to two critical scholars for commented publication. For all
of the above, Richard has our gratitude and respect.
In addition, we are indebted to our writer, Margo Hittleman, who undertook
the challenging task of getting two strong-minded decision researchers—living
in two different cities—to see eye to eye on numerous theoretical issues and
applied questions. Her patience, discipline, insight, and professionalism brought
much-needed structure and coherence to our original thinking. Whatever merit
the writing style itself possesses goes to Margo. She performed admirably under
deadline, and without her this book would not have been published in its present
form and at this time.
We thank Barb Drake for her remarkable clerical and administrative support as
well as Angela Horne for her contribution as a reference librarian. In addition,
we thank Roger Scholl and Stephanie Land at Doubleday for their editing.
INTRODUCTION
Decision-Making in
the Real World
In the affair of so much importance to you, wherein you ask my advice, I cannot for
want of sufficient premises advise you what to determine, but if you please I will tell
you how. —Benjamin Franklin

The American botanist and explorer David Fairchild recounts the following tale.
“I had been dining with our old friends, the Arthur Bullards, and late in the
evening Herbert Hoover came in. He dropped wearily into an easy chair, as if he
had just come from his office. Mr. Bullard said something to him about my
going on a long plant hunting expedition. He looked up in a tired way and asked,
‘Does he have to make decisions on such a trip? If not, I’d like to go along. I’m
tired of making decisions—one after another all day long. My view of Heaven is
of a place where no one ever has to make a decision.’ “1
If you are like many professionals we know, you can echo President Hoover’s
sentiments. But you are unlikely to find his Heaven manifest on earth. If
anything, more people are making more decisions—and are being forced to
make them faster—in an increasingly unpredictable and less forgiving
environment, where more is at stake than ever before.
Whether you work in business, government, professional services, education,
or the not-for-profit sector, the same scenario probably reigns. High speed rules
decision-making as well as everything else. “In a world that moves at Web
speed, time cannot be sacrificed for better quality, lower cost, or even better
decisions,” recently observed John Roth, president and CEO of Canada’s Nortel
Networks.2
Whatever their role and organization, most professionals have to make a
decision “now”—followed by another decision “now,” followed by yet another.
If that weren’t challenging enough, more is at stake than ever before. The terrain
for today’s decision-maker is a minefield in which any misstep can provoke a
devastating explosion. In this sped-up world, you are likely to have exactly one
shot to get a decision right, not three. And if you get it wrong, you have less time
to correct mistakes and reestablish credibility. It’s enough to make anyone tired.
But those very challenges can provide unprecedented opportunity and strategic
advantage—if you can embrace the responsibility for making good, fast, frequent
decisions, and if you can do so better than those against whom you compete.
Simple enough to say, we concede. But how can a decision-maker rapidly
assess the situation, gather needed information, consider it thoroughly, and reach
an intelligent conclusion? How can one make good, fast, frequent, winning
decisions? Bookstores are filled with volumes describing the challenges facing
organizations today and offering platitudes instead of solutions. Remember
“work smarter, not harder”? Unfortunately, no one told you how to work smarter.
Too often the mantra became just one more way to get you to work harder.
In this book we truly will teach you how to work smarter. We believe that
decision-making prowess is a skill that can be learned—and that should be
learned. Why do well-intentioned, smart, experienced professionals make poor
decisions far too often? We believe it is because they haven’t been taught a
disciplined process for making winning decisions. Left to fend for themselves,
they’ve relied on intuition, brains, luck, common sense, and training within the
narrow bounds of their professional expertise. We’re not denigrating those
attributes. Unfortunately, in today’s professional environment they are seldom
sufficient to maintain your edge—and they surely won’t be enough in the future.
Why Decision-Making Is Increasingly Challenging
How many of the following characteristics describe your decision-making
environment?
• Information overload. You have an avalanche of information literally at your
fingertips, but much is conflicting and of uncertain reliability.
• A galloping rate of change. You must make intelligent decisions about