Tuesday, December 31, 2013

Prescriptive vs. Behavior Decisions for a smarter 2014!

New Year's resolutions are all about making smarter and more rational decisions that can maximize your welfare. Traditional economists like to say that people always choose according to their own best interest. They have a model called prescriptive decision making, which includes the following sequential steps:
  1. Identify your options.
  2. Determine the probability of each outcome.
  3. Decide the utility--the perceived benefit--associated with each option
  4. Choose the option with the highest expected utility.
If you're like most people, however, then you don't always make rational choices. Our frames of reference are influenced by intuition, which isn't rational. Our rationales may be based in tacit knowledge, which we understand but can't communicate to others. Sometimes, we still choose irrational alternatives even with clear visualization of better choices. For example, do we really weigh romantic decisions according to a prescriptive behavior model? 

Behavioral economists have challenged the prescriptive decision-making model, arguing that rationality is bounded by frame of reference and cognitive limitations. In other words, when we view all options as painful, then we perceive the situation as a no-win scenario even when one option may have more utility than the others. We can't generate every possible alternative nor can we completely evaluate the utility of each possible alternative. 

Fortunately, by crowdsourcing decision making, we can bring more perspectives to bear on our choices and thus improve decision quality. "Satisficing," a term developed by Nobel laureate Herbert A. Smith, enables faster and smarter choices because we choose "good enough" over "perfect." By crowdsourcing decision making and engaging the collective intelligence in outcome visualization, we make stronger decisions about which outcomes are "good enough" for everyone. We do this by substituting the crowd's collected tacit knowledge for our individual subjective evaluation of events.

Tools like RankTab, which collect crowd wisdom and translate it into visual results, can help you to make faster and smarter decisions in the coming year. The collective intelligence often sees aspects of choices that individual subjective evaluation cannot. Of course, crowdsourcing can't guarantee that all of your choices in 2014 will be rational. Maybe in some cases, as in the case of romance, rationality is overrated.

Tuesday, December 17, 2013

Should Companies Reward Good Outcomes or Good Decisions?

Businesses focus on outcomes because they're the easiest ways to measure success. Rewarding an outcome, however, means making a subjective evaluation that a good outcome always results from a good decision. We've all seen managers who've achieved good outcomes in spite of bad decision making. That's why examining decision quality in addition to outcomes is crucial when rewarding managers and employees.

If you chose to open a seafood restaurant on the Jersey shore in 2011, then your decision seemed solid based on just tacit knowledge. After all, the collective intelligence would have embraced fine dining in an affluent community poised for long-term growth. Unfortunately, when Hurricane Sandy destroyed many million-dollar homes in 2012, that great decision then had a bad outcome. The hurricane, not the restaurant owner, was to blame for the result.

Crowdsourcing decision making instead of making decisions unilaterally reinforces decision quality long before you know the outcomes. For smarter, faster decision making, try these four steps:
  1. Change your company's approach. In a constantly changing environment, your visualization tools can't perfectly forecast what will happen in 10 years.Focus on the choice instead of on the unpredictable outcome.
  2. Identify and record the assumptions. All choices, whether rooted in tacit knowledge, subjective evaluation or data, are based on a set of assumptions. Sometimes it's the assumption and not the decision that fails.
  3. Establish decision quality criteria. When you're crowdsourcing decision making, teach your team what constitutes good decisions.
  4. Reward a good choice before you know the outcome. Unexpected factors may derail even the best decisions, so reward smart choices on the spot instead of basing performance ratings on the outcomes.
Outcomes are good indicators of decision quality over the long term. Unfortunately, instead of taking the smarter, wait-and-see approach, many companies take the faster approach and punish good decision-makers for bad outcomes. Managers can protect themselves and solidify their choices by tapping the collective intelligence of their colleagues. 

Visualization tools like RankTab can help managers tap the wisdom of the crowd to test decision quality. When everyone has a vote, everyone has a sense of ownership. Although the manager makes the final call, it's easier to defend a decision that many people supported.

Wednesday, December 11, 2013

6 Elements of Decision Quality

Carl Spetzler, the chairman and CEO of Strategic Decisions Group and the program director for Stanford's Strategic Decision and Risk Management Program, has said that no matter what our role is in the group decision making process, we can't address problems from our own comfort zones. By tapping the collective intelligence of others, we let others challenge our comfortable assumptions and push us toward smarter alternatives.

Spetzler's six elements of decision quality form links in a chain. The final decision will only be as strong as the weakest link. These links include:

  1. Solving the right problem. Confront the real issues instead of stalling or getting distracted by peripheral problems.
  2. Clarify what you want. Use visualization to determine which outcome you want to achieve.
  3. Come up with creative but doable alternatives. This step is a good place to pull in collective intelligence by using crowdsourcing tools. Although they'll have to work within given constraints, tap your employees' tacit knowledge to come up with creative but realistic solutions.
  4. Gather the right information. There needs to be a consensus on the type of information required to make a smarter decision. Too often organizations don't analyze what information is relevant or required before the decision takes place.
  5. Make your choices using logical and correct reasoning. Clarifying the values of the organization in order to align towards a common goal helps in coping with tradeoffs.
  6. Commit. Decisions can be made easily, but they're meaningless until they're implemented. As an organization, stick with your choices unless you need a drastic course correction.

Through the use of a visualization tool like RankTab everyone is able to visualize the hidden consensus of the group, and choose among aligned criteria instead of just having endless erratic discussions.

Although our individual tacit knowledge may give us some insight on different situations, we too often choose what is familiar over what might actually work. Crowdsourcing decision making with an app like RankTab not only helps us to make smarter and faster choices. It also takes us out of what we know and forces us to see beyond the obvious options.

Monday, December 2, 2013

Does Having More Choices Lead to More Satisfaction?

Modern societies perceive variety of choice as an indicator of progress. We assume that more choices and more competition create a better community. Psychologist Barry Schwartz, who is the author of "The Paradox of Choice" and a professor at Swarthmore College, argues that more choices can actually create "decision paralysis" in some of the following ways:

Anticipation of regret. We see so many options that we fear making wrong choices. Anticipating future regret makes us reluctant to choose.
Opportunity costs. When we make a subjective evaluation from among many options, visualization of the attractive features of each rejected alternative leads to "buyer's remorse."
Escalating expectations. With a wide range of choices, we expect great outcomes. We lose the opportunity to be pleasantly surprised.
Self-blame. Freedom to choose from many options means that we have no excuse for poor choices. When we make the wrong selection, we have only ourselves to blame.

Imagine that you're considering creating a RankTab for crowdsourcing decision making. You're polling employees about music preferences for the office's holiday party. Too many options may not create smarter, faster selections, so avoid listing the name of every local band or every musical genre. Instead, narrow the choices to two or three options. For example, employees could choose between a DJ, a live band or karaoke. 

After you've set up your choices, employees can make a subjective evaluation by ranking each option. RankTab purposely limits you to no more than three decision parameters to prevent decision paralysis when you're accessing collective intelligence. Each employee could rate each option according to expense, broad popularity and personal level of enjoyment. You're accessing their tacit knowledge based on their experiences both as party hosts and guests. After you've collected responses, RankTab simplifies visualization by presenting the results on an easy-to-read graph.

When you're crowdsourcing decision making, you may actually achieve smarter, faster results by introducing no more than two or three alternatives. That's why your RankTabs can most effectively tap your respondents' tacit knowledge when you offer just a few options for them to rank. Employees not only feel like part of the process; they also share responsibility for whether or not they enjoy the party.