Howtodecide?
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  • 1. DECISIONS! PART I
  • 2. THE DECISION MAKING LANDSCAPE
  • 3. PREDICT SELECTION DECISIVENESS DATA TIME MIND HEURISTICS REASON WILL POWER CHOICES GUT HEART JUDGMENT IMPULSIVITY
  • 4. DECISIONS! HOW GOOD ARE YOU? 10%, 30%, 50%, 70%, 80%? What should be your ABSOLUTE MINIMUM?
  • 5. In real life: Sixty percent of executives interviewed by McKinsey Consultants believed that decisions in their organizations were “50/50.” What does this mean? It means that they believe their decisions are no better than tossing a coin and calling heads or tails!  The McKinsey Report believed you can improve your return on investment with 6.9 percentage points if you moved your organization from the bottom to the top quartile (“The case for behavioral strategy” in: McKinsey Quarterly, May 2010).
  • 6. No better than flipping a coin?
  • 7. Let’s look at a typical decision…
  • 8. Take job A or B?
  • 9. 1. List the things you should consider in deciding between A and B. 2. Give A and B each a numerical value…
  • 10. VALUE/ JOB A JOB B DON’T ! RELOCATE/10 10 0 PROMOTION/9 8 8 SHORTER COMMUTE/8 0 (3 HOURS 8 (30 MINS) MENTORSHIP/7 3 7
  • 11. A gets 21 and B gets 23.
  • 12. BUT…
  • 13. YOU DON’T LIKE THE OUTCOME!
  • 14. …and you change the numbers so that A gets a higher number than B!
  • 15. AND…
  • 16. …now you are in a tailspin!
  • 17. So, what happened?
  • 18. YOU ARE TRIPPED UP BY YOUR EMOTIONS (GUT) AND REASON DOESN’T SAVE YOU!
  • 19. First understand how the brain decides!
  • 20. SO, HOW DOES THE BRAIN DECIDE?
  • 21. 300 MILLISECONDS BEFORE WE CONSCIOUSLY DECIDE, OUR BODY IS ALREADY PREPARING TO EXECUTE.
  • 22. "We don’t have free will, we have free won’t." (!) V S Ramachandran, Neuro Scientist.
  • 23. 2 THINKING SYSTEMS
  • 24. SYSTEM ONE is the brain jumping to conclusions: fast, intuitive, from the gut. Daniel Kahneman, Nobel Laureate, author of THINKING FAST AND SLOW.
  • 25. SYSTEM TWO is slow, calculating, analyzing, laborious, glucose sapping.
  • 26. System 1 is your Dr Watson brain.
  • 27. "System 2 is your Sherlock Holmes brain”." Anna Konnikova, author of Master Mind: How to think like Sherlock Holmes.
  • 28. WHEN DOES THE LISTWITHNUMBERS WORK?
  • 29. WHEN IT’S A PURE UTILITY DECISION, WITH NO EMOTIONAL ATTACHMENT THE NEW WASHING MACHINE…
  • 30. In decisions where your emotional attachment is important (your new house)…
  • 31. …listen to your heart and check with your brain if there are reasons NOT TO.
  • 32. REMEM BER!
  • 33. “You have a free won’t!”
  • 34. He correctly formulated the problem of making decisions… Herbert Simon, Nobel Laureate.
  • 35. We must make decisions with too little time and too little information at our disposal.
  • 36. A SOLUTION…
  • 37. We creat simple recipes, called heuristics, to simplify decision making. Gerd Gigerenzer, Director of the Centre for Adaptive Behaviour & Cognition, Max Planck Institute for Human Development, Berlin.
  • 38. TRYING TO DO THE MATH WON’T CATCH THE BALL!
  • 39. …SOMETIMES THEY ARE DELIBERATE, CONSCIOUS RECIPES
  • 40. WHEN DECIDING IF A PATIENT HAS A HEART ATTACK…
  • 41. OR INVESTING!
  • 42. The 1/N rule beats Marcowitz’s optimal asset allocation model.
  • 43. SOMETIMES GETTING MORE INFORMATION LEADS TO EVEN WORSE DECISIONS!
  • 44. HOW?
  • 45. “More noise!"
  • 46. So, when to go with your gut and when to go with your brain?
  • 47. #1. When you can accurately measure results of the outcome and…
  • 48. …and clearly link cause and effect.
  • 49. #2. When you have repeatedly executed the routine.
  • 50. TRUST THEIR GUT…
  • 51. BUT, when not?
  • 52. EXAMPLE:
  • 53. Studies show that a woman in her forties has a 1.4% chance to have breast cancer.! What is the probability that she has breast cancer, if she tests positive for breast cancer with a mammogram?! Keep in mind that 75% of women with breast cancer that take the test, will show a positive test result (the results confirm that they have breast cancer). However, some10% of women WHO DO NOT HAVE breast cancer will also test positive!
  • 54. 10%!
  • 55. IMAGINE! ...making a capex decision, thinking that you have a 75% change of success, while it is only10%!
  • 56. When does intuition / gut / heart not work?
  • 57. Fortunately we can identify the mental traps we fall into - the biases that trip us up!
  • 58. PART II FOLLOWS…