Wednesday, June 13, 2007

Humble decision making

The reason of my search for my old article on decision making is another paper by Amitai Etzioni I obtained from the Internet just recently. It is called Humble Decision Making and is an elaboration of the decision making theory. Although it is old, published in HBR in 1989, many of the observations are still quite valid today.

Etzioni predicted that many of the decision making theories will fail owing to the world getting more complex. He observed that the flow of information has swollen into such a flood and manages are in the danger of drowning. Extracting relevant data from the torrent is increasingly a daunting task. Little wonder that some beleaguered decision makers turn to astrologers and mediums.

First back on the rational model. This is the standard type of approach by rational persons through analyzing all the information concerning the decision required. It is the military type of approach and is well known for early academic researches into the mechanics of decision making. However, in the modern age, even with the assistance of powerful computers and databases for the processing of information, such semi-processing is still unable to analyze and thus obtain complete knowledge for decision making. Furthermore, since all decisions entail risks, decision making always evokes anxiety. Decision makers respond in predictable ways which render the decisions less reasonable. Some of the phenomenon mentioned may be quite familiar to us as they reflect the behaviour of some government officials:

Defensive avoidance - delaying making decision unduly as a defense for themselves.
Overreaction - making decision impulsively in order to escape the anxiety state.
Hypervigilance - obsessively collecting more and more information instead of making a decision.

Another observation is that executives see their decisions as professional and technocratic, but rarely as political. Rationalism disregards the emotion and politics of decision making. Implicit in the rationalistic decision making model is the assumption that decision makers have unqualified power and wisdom. It ignores the fact that other individuals also set goals for themselves and seek to push them through. Successful decision making strategies must include a place for co-operation, coalition building and the whole spectrum of differing personalities, perspectives, responsibilities and powers.

The difficulty in fully adopting the rational model has led executives seeking two alternatives. The first is the incremental model which is also known as the science of muddling through. It advocates not so much moving toward a goal as just away from trouble, by taking small maneuvers without any grand plan or sense of ultimate purpose. For the bureaucrats, it has two advantages. First, it eliminates the need for complete information by focusing on limited area close at hand. Second, it avoids the danger of making policy decision by not making any. This is of course highly conservative.

The second alternative to rationalism is openly opposed to reflection and analysis. Facing the fact that information is never complete, some bureaucrats may choose not to sit back and wait, but to pick the course favoured by their experience, inner voice, intuition, gut feeling and then to commit. By pumping enough resources, dedication and ingenuity into the course, they hope to make the under-processed decision right. However, this will more often result in shipwreck.

A variation to the above, which I think is very relevant to government officials, is rational ritualism, where the executives and their staff involve in an information dance whose prescribed moves include data pas de deux (two-person dance) and the interpretation waltz. The information used is generally poor, either arbitrarily selected or from undependable source, and vastly over interpreted. Usually most of those involved know that the data is unreliable and the analysis unreal but dare not say that the emperor is naked. They just make ritualistic projections and know well enough to ignore them.

A more practical approach to decision making, which is more suitable to the world of partial information, is what Etzioni called Humble Decision Making. It is a more generalized description of the adaptive decision making model or mixed scanning model. We have to acknowledge that we live in a world so complex that it is not possible to have very sound information for rational analysis, and also that good decisions cannot be made through conservative muddling through. Mixed scanning entails a mixture of shallow and deep examination of data, which is the generalized consideration of a broad range of facts and choices followed by detailed examination of a focused subset of facts and choices.

Adaptive decision making comes in many forms. Etzioni discussed several adaptive techniques in making use of partial information in decision making:

Focused trial and error - It assumes there is important information that the executive does not have and must proceed without. It is about feeling one's way towards an effective course of action despite the lack of essential chunks of data.

Tentativeness - A commitment to revise one's course as necessary is an essential adaptive rule.

Procrastination - Delay permits the collection of fresh evidence, processing of additional data, presentation of new options. If one can make a significantly stronger case at a later meeting, the result will justify the delay.

Decision staggering - It is another form of delay. An example is the decision to increase interest rate. By staggering the increase in small steps, the central bank can see the result of a partial intervention of the market.

Fractionalizing - It is a second corollary to procrastination. It treats important judgment as a series of sub-decisions and may or may not stagger them in time.

Hedging bets - An example is the buying of stocks of several companies instead of one owing to the lack of information of a company. It is much more likely to produce long term yield and security.

Maintaining strategic reserves - Maintaining large reserve is not always good for a company. But in a world where we learn to expect the unexpected, we need reserves to cover unanticipated costs and to respond to unforeseen opportunities.

Reversible decisions - They are a way of avoiding overcommitment when only partial information is available.

Such adaptive techniques illustrate several essential qualities for effective decision making that the textbook models lack, including flexibility, caution and the capability to proceed with partial information.

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