News: Three Ways to Improve Your Decision Making

Great article from HBR on decision making where they outline three ‘rules’ for better outcomes. In particular:

…In general, research suggests, the best starting point for predictions ­— a key input into decision making — is to ask “How often does that typically happen?” If you are considering funding a startup, you might ask: What percentage of startups fail? (Or, what percentage succeed?) If your company is considering an acquisition, it should start by asking how often acquisitions enhance the acquirer’s value or otherwise further its goals

This rule, known as the base rate, comes up a lot in the research on prediction, but it might be helpful for the judgment side of decision making, too. If you think outcome B is preferable to outcome C, you might ask: How often has that historically been the case? For instance, if you’re thinking about starting a company, and you’re weighing the possibility of spending years on a company that will fail against staying in your current job, you might ask: How often do entrepreneurs who fail end up wishing they’d stayed at their previous job?

The idea with both prediction and judgment is to get away from the “inside view,” where the specifics of the decision overwhelm your analysis. Instead, you want to take the “outside view,” where you start with similar cases before considering the specifics of your individual case…

More here.

This is very much the way we think of decisions at GridRank – leveraging the expertise of your subject matter experts in order to turn a ‘subjective’ view into an objective number. For example, in estimating the likelihood of a risk factor.


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