Decide more simply

by | Apr 3, 2017

For a long time you can observe how scientists argue about which is the only true theory of decision making.

Specialist literature helps to get an overview of the current state of research. These are the literary works of Daniel Kahneman “Fast thinking, slow thinking”, of Gerd Gigerenzer “Risk, How to make the right decisions” or “Personality, Decision and Behaviour” by Gerhard Roth, to name but a few. Buzzwords such as risks, uncertainty, probabilities of occurrence, cognitive biases or helpful rules of thumb are used very frequently.

Rational or intuitive?

One thing is indisputable: people who make decisions make mistakes! We all know that from our own experience. A sensible goal is surely to reduce these bad decisions. To do this, it is necessary to provide today’s decision-makers with tools that make it easier for them to make decisions. My personal recommendation is not to forget the gut (intuition) when making decisions with unknown risks (great uncertainty) and to trust the gut decision more often. To put it simply, we make decisions either with our head, i.e. rationally, or with our gut, i.e. intuitively. It is agreed that if all the parameters (risks) of a problem are known, then the rational decision is the right one. But we live in an uncertain world where not all parameters are known. There are complex risks, and it is questionable whether applying or attempting to apply complex solutions is always the right answer.

Use of rules of thumb

There are many positive examples where using simple rules of thumb to solve complex risks is the way to go. The use of gut decisions is useful when there are predictable situations with learning potential such as firefighting, aviation, or sports, among others. Moreover, in highly uncertain situations without a robust data base. Even if you can’t rely on probabilities that you base a decision model on, you may be better served by a rule of thumb.

A popular example of a positive rule of thumb is explained by Mr. Gerd Gigerenzer in his book “Risk, How to make the right decisions” (page 42ff.). This describes the situation of the emergency landing of the passenger plane in 2009 on the Hudson River. Using a simple rule of thumb, the pilots decided against attempting a landing at LaGuardia and opted for an emergency landing on the Hudson River:

“Fix the tower: if the tower goes up in the cockpit window, you won’t make it.”

This “shortcut in decision making” gave the pilots the window of opportunity to take the next steps in the emergency landing. In science, these rules of thumb or decision shortcuts are called heuristics. The pilots used the “gaze heuristic.” For example, we use gaze heuristics to catch a ball (… rather than complex trajectory calculations).

Gut decisions in our society

The big problem with a gut decision, however, is traceability. Among other things, the legal framework that exists today does not allow economically significant decisions to be explained on the basis of a gut decision. A decision-maker will certainly not come up with the statement “I made my decision based on my gut feeling” to his shareholders. If the intuition was strong enough that the decision was made in favor of the gut, then the decision maker will spend money, time and resources in the aftermath to back up the intuition with rational data.

We should honestly ask ourselves how often it happens that a conscious decision is made against intuition, that a decision is made against one’s own experience, and that a conscious decision is made in favour of rationality. Because from the decision maker’s point of view, this is exactly the second choice. The question is, does it even cause economic harm? This leads to the conclusion that managers need to know when to make decisions based on formal rules, when to make decisions based on gut instinct, and when it is best to combine both approaches.

It would be interesting to develop tools to measure the quality of gut decisions. TD Trusted Decisions GmbH, in cooperation with the Institute of Information Systems – Information Engineering at the JKU Linz, is researching this topic with various projects. It will be a pleasure for me to inform you about further interesting news on this topic with our newsletter.

TD Trusted Decisions GmbH Philipp Wicke
Philipp Wicke
©TD Trusted Decisions GmbH

TD Trusted Decisions GmbH Frank Werner
Frank Werner
©TD Trusted Decisions GmbH

In our Newsletter 12/2016, we already reported that we were represented at the Zoological Garden in Augsburg at the 17th meeting of the Working Group of Commercial Directors, Managers and Administrative Directors of Zoological Gardens in the German-speaking world. Among other things, we wowed attendees with this very theme, “Decide Easier.” This was lively discussed by those present, and not only during the meeting. No, even at the evening event this complex and exciting topic did not let go of the participants.

I also invite you to share your comment, personal opinion or experience with me.

I look forward to your feedback at discussion@trusteddecisions.com.

Philipp Wicke

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