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Library of Congress Cataloging-in-Publication Data
Frame, J. Davidson.
Framing decisions : decision making that accounts for irrationality, people, and constraints / J. Davidson Frame.
p. cm. – (The Jossey-Bass business & management series)
Includes bibliographical references and index.
ISBN 978-1-118-01489-9 (cloth); ISBN 978-1-118-22186-0 (ebk); ISBN 978-1-118-23564-5 (ebk); ISBN 978-1-118-26078-4 (ebk)
1. Decision making. I. Title.
BF448.F73 2013
153.8'3–dc23
2012027908
The Jossey-Bass Business & Management Series
To my extended family of siblings: Sally, Deborah, Matthew, Pia, Marinella, Giancarlo, Mark, and Derek
3.1 | The Social Space of Decision Making |
4.1 | Chain of Command |
4.2 | Self-Directed Work Team |
6.1 | Human Factors That Affect Decision Making |
6.2 | Risk Utility Function |
7.1 | Degree of Group Involvement in Decision Making |
7.2 | Strong Support, Weak Opposition for a Decision |
7.3 | Moderate Majority Support, Strong Minority Opposition for a Decision |
7.4 | Moderate Support, Substantial Indifference: “I Can Live with the Decision” |
7.5 | Absence of Consensus on a Decision |
8.1 | Old Hag or Young Lady? |
8.2 | Seeing What Is Not There |
8.3 | Hering Illusion |
8.4 | Illusion of Curved Lines Caused by Pattern Disruption |
8.5 | Luminance Affected by Background Shading |
8.6 | Effects of Context |
8.7 | Park Bench Variant of Shepard’s Tabletop Illusion |
I’m a “self-pincher,” meaning that I pinch myself from time to time. The pinching is not a product of masochism or a symptom of an exotic neurological disorder (I hope). Rather, it is driven by a desire to determine whether I am awake or dreaming when I come across things that many people accept as true but don’t make sense to me.
My self-pinching proclivity is not new. Following are examples of events that triggered self-pinching actions over the years:
The conventional word for self-pincher is, of course, skeptic. I am a skeptic. I may have a genetic predisposition toward skepticism, since my earliest memories have a skeptical flavor to them. My mother jokes that the first time I used the word mom when addressing her, I placed a question mark after it, as in, “Mom?” I enjoy standing conventional wisdom on its head, which sometimes makes me curmudgeonesque. I don’t do this to be ornery. It comes naturally to me. If something doesn’t make sense, this bothers me, and I strive to figure out what’s going on.
Recently I turned my skeptic’s eye toward decision-making theory and practice. I have taught this subject for more than thirty years, and as a practicing manager and consultant, I have personally contributed to significant decision-making efforts in academia, business, and government. I approached the subject uncritically for many years, but I now believe that the great majority of decision-making courses and books view decision making too narrowly. Works that fall under the umbrella of decision science often concentrate on decision-making tools that typically focus on optimizing an objective function, prioritizing alternatives in a logical and consistent fashion, or building models to carry out what-if analyses.
Works that approach decision making more broadly go beyond mere tool use and may suggest useful heuristics and good-sense nostrums to follow, but they still adhere to the underlying precepts of traditional decision science: decisions should be based on logical and rational thinking, should seek to maximize benefits and minimize costs, should focus on core issues and push nonpertinent distractions to the side, and so on. On the surface, these precepts sound 100 percent compelling, but a bit of skeptical reflection raises questions on this matter.
In my view, works directed at “how to be a better decision-maker” are especially off-target, because they promote the view that if readers assume the right perspective and do the right things, they will be better decision-makers, making smart, high-impact decisions. What is bothersome here is that these works implicitly assume the reader is in a position to make decisions in isolation from the rest of the world. The fact is that nontrivial decision making occurs in a social environment that requires decision-makers to recognize that the viability of their individual decisions is often shaped by forces that lie outside their direct control. How useful is a book titled How to Be a Better Decision-Maker to a committee of senior managers of a company trying to determine whether to acquire a new company, or to a field commander pondering whether to launch an attack against enemies entrenched in civilian homes? Can anyone seriously believe that the president of the United States will improve his decision-making skills by reading the hypothetical How to Be a Better Decision-Maker?
What is missing in these traditional perspectives is conscious consideration of a host of factors that have a significant impact on how decisions are actually made but are not usually covered in decision-making courses and books. I am referring here to things like politics, legacy, competence, honesty, selfishness, altruism, personality, cognition, and acts of God. No one would deny that these factors can strongly affect decision making, yet they are seldom discussed in formal treatments of decision-making theory and practice. People routinely discover the importance of these factors in the school of hard knocks, but they are unlikely to encounter them in a university classroom. These factors should not be viewed as interesting sidelines in the business of decision making but as part of the core process.
Consider, for example, the reality of dissimulation. How often do decision-making courses and books address lying and liars? Informed decisions require acquiring facts. When the facts are consciously twisted, decisions based on these facts will be poor ones. At the risk of sounding overly cynical, I would argue that there are plenty of times that the facts going into a decision-making equation have been consciously distorted, with distortions ranging from small white lies to the Big Lie. It seems obvious that smart decision making should accommodate the possibility that the facts decision-makers work with are not truthful. Ordinary car buyers bargaining with a salesperson on the showroom floor know this and factor it into their purchasing decision. TV viewers watching late-night advertisements describing miracle wrinkle-removing creams know this as well, and they too factor it into their purchasing decision. Yet you do not come across much treatment of lying and liars in traditional decision-making books and courses. Is this an important topic that decision-makers should highlight? Certainly! Consider how the lies of Bernard Madoff, Enron’s Kenneth Lay, and WorldCom’s Bernard Ebbers distorted the decision processes of countless investors, causing them collectively to lose billions of dollars.
Another example of the narrow outlook of conventional decision science thinking can be found by examining its approach to decision making under conditions of uncertainty. While this topic is routinely covered in decision-making courses and books, the treatment of the nature of uncertainty is largely mechanical and shallow. Generally in decision science, it refers to making decisions with incomplete data. For example, when conducting a market research study for a new product, market researchers can only guess at potential market size and the price at which the new product will sell. The lack of information on market size and product price defines uncertainty from the viewpoint of traditional decision science. Decision scientists attack the problem of uncertainty by computing probabilities of events and employing clever statistical techniques to fill in the blanks. They tend to deal with it mechanically. Researchers affiliated with the sixteen-university Decision-Making Under Uncertainty Multi-University Research Initiative have developed a detailed list of worthwhile research topics, such as “basic methods based on probability, decision and utility theories,” “real-time inference algorithms,” and “fusing uncertain information of different kinds.” (For a full list of suggested topics, go to http://www.cs.berkeley.edu/∼jordan/muri/.)
Personally I love this stuff. When I get stuck at a central Nebraska airport during a snowstorm or after missing a connection to Yunnan province in southwestern China, I work on problems like these to pass the time and maintain my sanity. I also use them to guide decisions in well-defined, highly structured circumstances. But although these are interesting and valuable topics worthy of study, none touches on a more profound aspect of uncertainty that scientists and philosophers regularly address: uncertainty rooted in the limits of what humans can know.
The most famous treatment of this subject is Heisenberg’s uncertainty principle, which holds that you can know a particle’s location or its momentum, but you cannot know both at the same time. To the nonphysicist, this revelation is too abstruse to have meaning, so let’s ignore its physical interpretation and focus on its deeper, nontechnical implication: it tells us that no matter how smart you are and no matter how powerful and precise your instruments are, there are things you simply are incapable of knowing. There are absolute limits to your knowledge. The emergence of quantum physics in the early twentieth century was a humbling experience for science. After Newton’s revelations of his amazing laws of motion, scientists saw no limits to their mastery of knowledge. It seemed that through the gradual accretion of knowledge, they could ultimately have a full understanding of all natural phenomena. Quantum physics dashed this vision.
While we have no clear mathematical demonstration of the limits of knowledge in the arena of human behavior that is comparable to the uncertainty principle, it is evident that there are many things that we are unsure of—often profoundly so—despite our efforts to study them diligently. To see this, consider the lives of nine of the most significant decision-makers in the United States: the justices of the U.S. Supreme Court. Their principal mission is to adjudicate. The point of adjudication is to decide the disposition of a legal case after careful review of the facts. Anyone who has been unfortunate enough to be involved in a legal dispute has learned that in legal proceedings, facts are examined with far more care than in typical business proceedings or when making personal decisions.
If truth were unambiguous and clearly discernable, all Supreme Court rulings would be unanimous. This is an important point. But in reality, most rulings entail split decisions. As a skeptic, I enjoy reading the justifications of the affirmative and dissenting views of the Supreme Court justices on specific cases. They are all over the map. Here you have nine men and women who stand at the apex of the legal profession, have studied at the top schools, have undergone a rigorous screening process in getting hired, and whose decisions guide the law of the land—and yet they often hold opposing views on how decisions should be rendered.
What the legal system teaches us is that in the real world, the facts decision-makers rely on do not speak for themselves. They must be interpreted contextually. Assumptions must be made about their veracity. A decision scientist who suggests that due diligence clearly paves the way to correct decisions has not experienced the workings of the legal system in general or the Supreme Court in particular.
In this book, I am not rejecting the traditional perspective on decision making. Rather, my goal is to expand its purview because I believe the traditional outlook is too narrow. I am not a lone pioneer in this effort. I am one individual in a growing crowd of men and women currently looking at decision making from a non–decision science perspective. The scope of decision-making theory and practice is being broadened because of interest in the topic arising in other disciplines. Practitioners of traditional decision science have not displayed much curiosity about the social dimensions of decision making; however, we find that social psychologists, political scientists, and economists are pursuing investigations on topics such as the impacts of group dynamics on decision outcomes, the achievement of decisions through coalitions, and the psychological dimensions of market behavior. Similarly, practitioners of traditional decision science have not devoted much effort to examining the biology of decision making, but this subject is being studied actively now. Since the 1990s, there has been a burst of activity among neuroscientists, ophthalmologists, and psychologists examining the biological roots of decision making. Researchers in these fields are employing new technologies and psychosocial experiments to examine brain structure and function to see what happens when people make decisions ranging from the most trivial to the complex.
Perhaps most curious have been the perspectives on decision making arising in the arena of the philosophy of science. Linking philosophy of science to decision-making theory and practice may seem to be a bit of a stretch, but consider how all scientists who are engaged in serious research face profound questions in determining what is true and what is not. For one thing, they want to know whether the findings emerging from their experiments are true or whether they are artifacts of sampling bias, faulty equipment, or flawed measurement. Concern with truth goes beyond questions of experimental method: their experiments and analyses of data enable them to generate multiple hypotheses to explain the phenomena they investigate. Which explanation is true? Interestingly, scientists seldom face a paucity of explanations; instead, they suffer from a surfeit, and they must sort through multiple explanations in order to arrive at what is called IBE—inference to the best explanation. You can argue convincingly that ultimately, the most significant chore scientists carry out is determining how to decide which hypotheses should be supported and which rejected.
Over two years, I immersed myself in reading whatever I could that looked at decision making from a non–decision science viewpoint. When I began this effort, I was well versed in pertinent decision-making perspectives in the behavioral sciences (particularly economics) and philosophy of science, so most of my attention was directed at getting up to speed in social psychology, neuroscience, ophthalmology, and cognitive psychology. I was delighted to discover that the neuroscience, ophthalmological, and cognitive psychology literatures are accessible to anyone with a modest background in biology, chemistry, and experimental design. While I would be fortunate to understand the content of the first paragraph of an article written in Physics Review, I had no problem reading medical and psychological papers. I was also helped in this effort by my thirty-five-year background in research design and methodology.
A reading of the original scientific papers was important in helping me to understand the achievements and limitations of research and thinking in non–decision science disciplines. There’s a lot of interesting stuff going on, and a goal of this book is to cover the new material. But my investigation also revealed substantial weaknesses in the studies I encountered, particularly methodological ones. One thing that was surprising was to see that the actual outcomes of experiments reported in scientific articles were far humbler than what popularizers report in best-selling books, such as Malcolm Gladwell’s Blink (2005), Jonah Lehrer’s How We Decide (2009), Cordelia Fine’s A Mind of Its Own (2006), and most recently, Daniel Kahneman’s Thinking, Fast and Slow (2011). (Fine’s Delusions of Gender (2011), on the other hand, is a very good book.) These authors play fast and loose with tentative findings reported in the scientific literature. What they present as breakthrough discoveries about clever psychology experiments or the role of the brain in decision making are in fact tentative hypotheses that are barely supported by the data reported in the published studies. Something I emphasize in this book is that while attention to the biology of decision making is growing rapidly, scientists are only at the earliest stages of understanding the brain’s role in decision making, and firm conclusions to date are few while exciting hypotheses are abundant.
Because the methodological deficiencies of several highly acclaimed studies are so pronounced, I touch on the methodological weakness of the research efforts in Chapter Nine.
I have criticized the decision science discipline as being insular several times in this Preface. I now direct the same criticism at other disciplines that are investigating decision making. (That’s one of the consequences of being looked at by skeptics: no one is sheltered from their captious habits.) Neuroscientists, cognitive psychologists, social psychologists, and political scientists seldom look beyond the boundaries of their disciplines. To their credit, experimental psychologists have taken a stab at being interdisciplinary by establishing a behavioral economics subdiscipline, but as I discuss later in this book, behavioral economists devote too much energy to demonstrating through experiments that humans do not behave rationally—as if we did not already know this! Researchers and thinkers in these disciplines can learn much from decision science; after all, the sole focus of decision science is on decision making, and despite my call for a broader outlook on the domain of the discipline, I believe that decision science practitioners have significant insights that are lacking in other disciplines.
An improved understanding of what it takes to strengthen decision-making theory and practice will require substantial interdisciplinary cooperation.
In my readings, I have come across several books that step a bit outside the traditional decision science box and present different perspectives from those we normally encounter. They are Jonathan Baron’s Thinking and Deciding (2007), Bazerman and Moore’s Judgment in Managerial Decision Making (2008), David Hardman’s Judgment and Decision Making (2009), Hastie and Dawes’s Rational Choice in an Uncertain World: The Psychology of Judgment and Decision Making (2010), Newell, Lagnado, and Shanks’s Straight Choices: The Psychology of Decision Making (2007), and Scott Plous’s still relevant The Psychology of Judgment and Decision Making (1993).
Chapter One argues that recent high-impact decision failures in the public and private sectors, epitomized by the economic collapse of 2008–2009, make it clear that despite increased access to information and the growing sophistication of information-handling capabilities, decision making at the level of individuals, organizations, communities, and nations is often ineffective and needs to be viewed with fresh eyes. Decision-making theory and practice need to reach beyond the traditional, narrow purview of decision science, with its focus on heuristics, modeling, and decision tools, such as linear programming, decision tree analysis, and Bayesian statistics. A big step toward broadening the purview of decision making is to recognize that consequential decisions are made in a social context with psychological, economic, political, moral, and cognitive dimensions that need to be addressed.
Chapter Two introduces readers to the nature of decisions and decision making. It distinguishes between unconscious decisions that people routinely make without thinking and mindful decisions of consequence that are made consciously. It also looks at ways that decision scientists have tried to deal with the uncertainty inherent in decision making. Most important, it highlights the fact that concern with decision making lies beyond the provenance of decision science alone. It examines approaches taken to decision making in different disciplines—decision science, economics, public policy, social psychology, psychology, law, neuroscience, and philosophy—and argues that a robust approach to decision making should accommodate the best features of these different disciplines.
Decisions of consequence should not be approached mechanically. The launching point for considering decisions should be people, because decisions occur in a social context and therefore have social, psychological, economic, political, organizational, and moral implications. While a traditional benefit-cost ratio may provide an optimal solution that suggests taking certain steps to address a problem (for example, closing a factory), the purportedly optimal solution may be politically, socially, and economically unacceptable. When social factors come up against technically optimal solutions to problems, the social factors generally prevail. Chapter Three examines the social context of decision making, demonstrating how technically optimal solutions can be derailed by the contending interests of a wide range of stakeholders, both within and outside the organization in which decision-makers function. It emphasizes that a key consideration in making good decisions is to take stock of the decision’s social space. It also looks at the moral dimension of decision making, pointing out that problems of principal-agency, moral hazard, self-dealing, and prevarication are ubiquitous and must be recognized as such by decision-makers who make decisions of consequence.
Decisions of consequence are usually carried out in organizational contexts. Chapter Four looks at four aspects of organizational context: organization structure, organizational process, people in organizations, and organizational culture. It introduces organizational architecture as a technique to predict the management consequences emerging from organizational structure. When covering culture, it compares Athenian and Spartan cultures, risk-taking versus risk-averse cultures, and cultures that promote innovation versus those that cherish legacy. The goal of this chapter is to discuss how these organizational issues have a bearing on decision making.
A sad reality of decision making is that decision-makers often come across people who lie, cheat, break the law, engage in self-serving activities, and cut corners. Chapter Five reviews the full array of moral problems decision-makers may encounter while doing their jobs. It pays special attention to two major problems that contributed substantially to the economic collapse of 2008–2009: moral hazard and the principal-agent problem.
Chapter Six addresses a number of important issues about people as decision-makers. It promotes the view that the decision-making efficacy of people is determined situationally. It examines several factors that reflect the decision-making proclivities of people, including personality, creative capacity, intelligence, and competence.
In decision making, there is a constant tension between the need to get insights from a diversity of experts and stakeholders and the views of one or two highly perceptive, independent-thinking people who consistently outperform the crowd. Chapter Seven examines situations where individual decisions outperform group decisions and where group decisions offer superior results. It looks at how to obtain meaningful inputs from diverse sources, how to assess the degree of consensus among them, and how to capitalize on the unique insights of a handful of visionaries. It explores James Surowiecki’s assertion that large groups have a wisdom that enables them to outperform experts. It examines new perspectives on group decision making, where we encounter decision successes among leaderless groups where decision making is completely decentralized, as reflected in the open source. It even looks at the phenomenal decision-making capabilities of bees, which make astonishing collective decisions that benefit the community, and suggests ways that their approach to decision making might be adapted to human groups.
Everything humans perceive is intermediated by the brain. Chapter Eight examines developments in neuroscience, psychology, and ophthalmology since the mid-1990s that enable scientists to understand how the brain supports decision making in humans. It highlights recent findings on brain research that have practical implications for the theory and practice of decision making. For example, it discusses how the brain does not stop its development until people reach their mid- to late twenties. As the brain develops, the last capability it achieves is the ability to make mature decisions. Another example is that the brain is a lazy organ, consuming only 10 watts of power. To conserve energy, it works from stored templates that come from past memories. When it encounters new experiences, it resists them, preferring to stick with tried-and-true templates. Thus, thinking out of the box requires people to break through the brain’s comfort zone.
With the rise of behavioral economics in the 1970s, studies of decision making began to be carried out using systematic experimental methods heavily employed in experimental psychology. Chapter Nine looks at two categories of empirical studies that contribute to an improved understanding of how decision making works. One is based on empirical studies typically carried out by experimental psychologists. It contains an in-depth study of the evolution of empirical research on the question of whether unconscious deliberation of the brain yields better decisions than conscious deliberation. That is, is it better to make a quick decision or to sleep on it?
The second category of empirical studies is tied to research in neuroscience and ophthalmology. These studies attempt to map human behavior to activity in different areas of the brain. Some of the significant issues they have addressed include the role of emotion in rational decision making, the extent to which human perceptions are “fabricated” by the brain in an attempt to conserve energy, and the link between the maturity of humans—as defined by the changes of wiring of the brain that occur up through the late twenties—and their capacity to make effective judgments.
In closing, the last chapter distills the principal lessons offered in this book. Seven lessons emerge:
While this book assumes a skeptical mien, I believe its message is positive. I hope the skepticism I employ is not viewed as mean-spirited. The goal is to be skeptical in order to see things with fresh eyes. It is evident in retrospect that the economic and social turmoil that emerged from the Great Recession of 2008–2009 requires society to rethink how it goes about its business. To the extent the crisis was rooted in bad decision making, it behooves decision-making theorists and practitioners to learn lessons from the calamity. The key lessons I promote are captured in the book’s subtitle: decision making that accounts for irrationality, people, and constraints. We must go beyond the traditional perspective that decision making can be handled mechanically, with a view to promoting rationality, logic, and optimal results. The reality is that when dealing with poorly defined, nontrivial decisions, which characterize decisions of consequence, we must roll up our sleeves and prepare to get dirty. My intent here is to prepare you for the muss.
J. Davidson Frame
September 2012
Arlington, Virginia