Wharton on Making Decisions

Wharton on Making Decisions

Wharton on Making Decisions. The book was written and compiled by Stephen Hoch and Howard Kunreuther, both professors at the Wharton School of the University of Pennsylvania. Stephen is a professor of marketing and Howard is a professor of decision sciences,

Public policy and management. This book contains a number of articles written by various professors at Wharton. The articles are academically sound and promote using logical and compelling approaches to making decisions.

Strategy centers on decisions. Developing strategies, planning how to best achieve the strategies, and managing the daily activities to achieve the goals of the organization involve making decisions – hundreds and thousands of decisions.

Web of Decision Making

In “Wharton on Making Decisions” it is pointed out that we make decisions on many levels. The quality of our decisions contribute to our success or failure in our various endeavors. It is helpful to understand how we make decisions, and then determine how we can best improve. Often, this isn’t easy. We typically make decisions on four levels:

• Individual: Our decisions are heavily influenced by our emotions, our intuition, and are focused on the “here and now” as opposed to future consequences.
• Management: In a management setting, we are more inclined to use a decision analysis model to make decisions
• Negotiations: Negotiations based decisions are made generally made with one or more parties.
• Societal: These are decisions that have societal impact. Economic, environmental, health and safety are just a few of the areas where societal decisions are made.

As Individuals

Wharton on Making Decisions

We often do not make decisions logically, even when we have training in decision making. In an article titled “The Emotional Nature of Decision Trade-Offs, James Bettman, Mary Luce and John Payne” explain that our emotions affect our choices – especially our negative ones. Decisions that adversely impact someone else (e.g., their job) are most difficult. The higher the stakes, the more emotions can weigh in.

To make better decisions, the authors suggest that we set our emotions aside and work through the logic of making a smart decision. When we rely too much on our feelings and intuition, our thinking can become cloudy.

• In other articles, professors at Wharton suggest that we are:
• especially bad in making decisions about our futures
• often overconfident about successful outcomes
• struggle in planning for the future
• generally underestimate the costs of an opportunity
• struggle in scheduling for the long-term
• are poor comprehensive planners
• tend to weigh tangible factors more heavily than intangible ones simply because they are quantifiable
• are bias towards information that confirms our opinions than we are in truly being objective
• struggle evaluating low probability, high-risks so we tend to under-protect ourselves

Too Much Variety Can Be Bad

The authors of "Wharton on Making Decisions" point out that we desire variety as we creatively look at options. However, in decision making too much variety adds confusion and can prove to be a waste of time. The objective is to determine what factors in a decision are most important, and then to go from there.

As managers, we employ a different approach to decision making. We tend to:

• Discount the human element
• Focus too much on information and use it to cover any weakness we have as a decision maker
• Forget that decision models are only aids to help us
• Not allow ourselves to combine our intuition with our decision making model
• In the West, we tend to make hasty decisions. In the East, we tend to be too reflective.
• Utilizing a decision making process that incorporates reflective thought and the willingness to jump in and learn as you go, may be ideal.

Multi-Party Decision-Making

Colin Camerer and Ho share some keys to multi-party decision making. They share some points that help in negotiations such as: