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2022-06-24 00:56:50 Media Heroes

4 Rational Decision Making Models To Make Good Choices

Alistair Roberts
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Life is filled with tough decisions, and many of them seem impossible to get past. Some of us put them off for months, or make an emotional spur-of-the-moment decision that we later regret. The smartest among us use rational decision making—a logical, deliberate way to understand and make difficult choices to get the best possible outcome, whether personal or business-related.

In this article, we explore the psychology behind our decisions, what rational decision making is, and some models that you can use to make good choices.

How do we make decisions?

We make decisions using two psychological systems: 

  1. Our instincts, which are made up of emotion and beliefs. They are fast, often unconscious, and use little energy.
  2. Reason, which is logical. This is slow, conscious, and uses a lot of energy.

 

Psychologist Daniel Kahneman called these “System 1” (instincts) and “System 2” (reason).1 He discovered that we make a surprisingly large number of decisions based on System 1, which can lead to biases that affect our ability to make good choices, especially if they are complex. Once we’ve made an instinctive emotional decision, only then do we rationalise it using logic. We concoct a sensible cover story about why we chose that particular car, that particular meal, or that particular career, because we like to think of ourselves as rational decision makers. Before Kahneman’s (and his colleague Amos Tversky’s) work, economists and psychologists believed that our decisions were mostly rational. Kahneman turned that on its head, and won the Nobel prize for his efforts.

When we make important decisions, we need to remove as much bias as possible. We can’t really trust our instincts because they are made up of persuasive emotions and deep-set beliefs that can cripple our logic, leading us to a terrible choice with big consequences. 

The higher the decision’s risk, the more we need to be rational. This includes risks of all types—financial, reputational, and health risks, to name a few. Heightened emotion simply isn’t a good way to make this kind of weighty choice where risks are extreme, and where there’s no going back. When we’re low, we often want to choose something just to get rid of the stress, which voids potential opportunities because we don’t have the mental strength to see them. When we’re elated, we tend to focus too much on the positives and ignore possible risks, which can lead us down a dangerous road. Emotional prejudices like confirmation bias are a major reason why some people believe the earth is flat—they are so emotionally invested in the idea that they only seek out information that confirms their beliefs, which makes it all but impossible to be reasonable or to make good choices.

When a decision is simple, it’s usually fine to use your gut—you can’t go through a complex decision making process about every little choice. But when the decision is harder or more serious, and you’re in danger of facing decision paralysis because the stakes are too high, the best way to handle it is with rational decision making.

What is rational decision making?

Rational decision making is using data, analysis, and logic to make objectively good choices. It considers the most relevant and important factors so that the decision is made with the best information using rational System 2 thinking. It’s all about thinking critically, and inhibiting our instincts as much as possible. There’s a variety of rational decision making models, including pros and cons, mind mapping, and decision trees, each with their own effectiveness and times to complete. We explore these later.

In rational decision making, emotion is limited so that the choice isn’t made in fits of passion or bouts of gloom, and biases are curbed because you’re using real-world information rather than memories or beliefs, many of which may be unconscious. We don’t want to make important decisions based on instinct because it’s an obscure force that can’t be extrapolated or explained, and strongly influenced by biases and logical fallacies that we aren’t aware of. Instead, we want to make rational, well-informed choices that follow a proven model that helps to limit emotion.

Instinct isn’t the only issue when it comes to making complex decisions. Often, these decisions have many different aspects, as we don’t have the brainpower or inclination to identify, assess, and evaluate every detail. Instead, we usually fall back to System 1 because it requires less energy. We sacrifice a rewarding outcome because we don’t want to experience stress. The results are obvious. If the decision doesn’t need to be made in just a few seconds, a rational decision making model can help you to make much better choices in both your professional and personal lives. It can help business executives, marketers, salespeople, school leavers, people thinking about getting married, or anyone who has to make a decision with important consequences.

Here’s a few more reasons why rational decision making can help you to make good choices:

  • It simplifies complex decisions, makes them more manageable, and gives you the courage to face them. You can then move forward with confidence.
  • It drastically reduces the chances of making emotional decisions based on instinct. 
  • It helps to illuminate the risks involved in a big decision, and their consequences.
  • It can help you to make good business choices that spur the growth of your business.
  • It can encourage teamwork and innovation.
  • It can result in a happier, healthier you.

4 rational decision making models to help you make good decisions

These are four excellent rational decision making models that can bring key information to light, help you assess risks, and understand the consequences of your possible choices. They vary by speed and effectiveness, allowing you to pick a method that suits your specific circumstance.

Before you start on any of these processes, it’s necessary to think about how you currently feel about your decision to determine whether you’ve already made a choice. As we mentioned above, most decisions are made based on emotion and then justified afterwards. If that’s already the case for you, all you’ll be doing is rationalising as you work through the process, coming up with solutions that match your emotional choice. So try to peer into your own mind to see if you’ve already decided, and try to start the process being as open as possible for the solutions that you come up with. It also helps to involve other people, especially those who know about the subject, and who aren’t biased or invested in the decision themselves.

Now that’s cleared up, here are the four rational decision making models that can help you to make good decisions:

1. Pros and cons

Effectiveness: 2/5
Speed: 5/5

Pros and cons are the age-old method for weighing up decisions. You should already be familiar with them—you make two lists: one for pros, and one for cons, and then think of as many as you can for each. Sometimes, a pro will have a related con, so some people like to do this process in a table side-by-side so they can be easily compared.

Once your ideas are exhausted, review the lists to give yourself a better idea of the right decision. If you’d like to make the process more accurate, you can consider adding a weighting system so that it’s clearer which items are more important than others. This can be as simple as a scale of one to three, with one being the least important, and three being the most important.

Here’s an example of how this might work for a school leaver wondering whether to go to university:

Pros

Cons

Meet lots of new people and make new friends (3)

Will miss my current group of friends (3)

I might love my chosen career path (3)

I might hate my chosen career path (3)

Opens up new career opportunities (3)

Will miss out of getting actual work experience (1)

Will potentially make more money as a qualified graduate (2)

Expensive, will be paying off a loan for years (2)

Will become more independent from mum and dad (2)

Will miss mum and dad terribly (2)

Partying! (2)

Don’t want to get drunk too much and make bad choices (1)

Will learn how to research and analyse problems (1)

Don’t want to do boring coursework (2)

 

Pros and cons can work well for simple “A or B” decisions, but they fail if the decision is highly complex with lots of contingencies. It doesn’t have a way for you to chart a flow of choices and their consequences, which you may need for something like a marketing strategy.

2. Mind mapping

Effectiveness: 3/5
Speed: 3/5

Mind mapping (or brainstorming) is another familiar method for generating ideas, and can also be extended for rational decision making by creating “branches” with additional related ideas or contingencies, as shown in the image below.

how do we make decisions mindmapImage from System Organiser

In this example, a marketing manager might create this mind map as a way to rationally figure out which strategies to adopt. It could be extended to include the potential costs and ROI of each technique, skills and infrastructure needed to accomplish them, and how long they might take to mature into profitable campaigns. This would require plenty of time and research to complete, and can certainly be done just as effectively as a report, but mind maps allow you to see all of your options on one page, which can make the decision feel less overwhelming. Some people much prefer this kind of visual process. 

As you can see, this technique can be used for simple “A or B” choices or more complex decisions. If certain ideas are related, you can also create links between them and create further branches if needed. It’s a free-flowing way for coming up with plenty of ideas, which is why it’s so popular in business meetings (but it can be used for personal decisions too). 

3. Research and analysis

Effectiveness: 3/5
Speed: 2/5

This is a logical step-by-step process that aims to understand the problem, come up with possible solutions, and then pick one to test. It’s more research-heavy than pros and cons and mind maps, but should help you to become more familiar with the problem itself, why it’s happening, and the result that you want, which is helpful for finding a solution that fits.

Here’s how it works.

1. Define your problem

The first thing you’ll need to do is make a clear statement of the problem, and evidence that it actually exists.

Let’s say you’re a business executive who wants to know why your new Surfacebook laptop isn’t selling. You’ve invested a lot of money into development and marketing, but people just aren’t buying it. Your problem statement is: sales are low for the new Surfacebook. And your evidence is clear from sales reports.

Next, you’ll need to extend the problem statement to include the result that you want. In this case, the executive may already have the sales numbers needed to break even on the Surfacebook’s production costs. So the statement becomes: sales are low for the new Surfacebook, we need to sell 1000 units in the next 12 months.

2. Research potential causes

List all of the possible causes for your problem. For the laptop, this might include:

  • Marketing campaigns are failing
  • The laptop doesn’t meet the needs of our buyer personas
  • A competitor has a similar laptop that is better (or cheaper)
  • Our brand is not well known

Turn each of these causes into headings, and then try to find or confirm evidence for them. If you suspect your marketing campaigns are failing, do you have the necessary marketing-specific data to back that up? If you suspect customers don’t want or need the laptop, can you return to your product research and spot any holes, or interview some customers and get their thoughts?

This is the hardest and most time-consuming part of this process. You’ll need to be extremely diligent with your research and use a combination of quantitative and qualitative techniques to discover why your problem exists. When you know why, your potential solutions will be much more effective.

3. List solutions

List as many solutions as you can that may fix the problem and help you to achieve your result. These could be brand new ideas, or updates to existing solutions that you have in place. 

The laptop firm might decide to try an entirely new marketing campaign, or make improvements to their current campaigns. Some of their customers may have told them that the Surfacebook is a little ugly, in which case some design changes could be in order. This is why research is so important, because you have valuable information to help you come up with informed solutions.

If you have a team to work with, you can try a mind mapping to come up with ideas, or just write them on a whiteboard as you go. Every idea should be encouraged. If you’re struggling to list options, try a bounded rationality technique where you list choices that are satisfactory rather than optimal.

4. Pick three solutions to explore further

Pick three solutions that you believe are promising. Now you’ll need to identify the potential costs and risks of each, some pros and cons, and their feasibility.

First, try to calculate roughly how much this solution will cost. If you’re going through this process for a personal decision like which career to choose, you can consider financial costs as well as possible psychological costs. If they are calculable, you should also try to pin down potential returns for the solution.

Next, identify the biggest risks of the solution, and try to consider it from as many angles as possible. The laptop firm may have chosen to redesign certain parts of the machine to make it prettier, in which case there’s an investment risk, a risk of disrupting other projects, and a risk of new marketing campaigns failing. Try to grade the severity of each risk, and get a basic understanding of what is at stake. You’ll also need to know whether it’s a genuine risk rather than just a perceived risk.

For pros and cons, you should already be familiar with what to do. Create a two column table and list every pro and con that you can think of. Grade them by importance if it helps.

Finally, try to assess the feasibility of each solution. How easy will it be to hire the extra staff you need to complete the project? Is it really possible for you to move to an entirely new city and start a new life? What is the likelihood of actually qualifying as an astronaut?

5. Pick an option

Now you have plenty of solid information on your three choices, sleep on them. Sleep organises our memories and processes information that we’ve been experiencing, and may help to make a good choice.

When you’ve had some decent rest, pick the best solution for your desired result.

6. Execute and measure results

Execute the solution, and keep a close eye on its performance. If the results aren’t as you expect, and you haven’t already invested too much, go back to your options and try another. It’s crucial that you continually measure how the solution is going. Otherwise you won’t know whether you’re failing or succeeding.

4. Decision trees

Effectiveness: 5/5
Speed: 2/5

Decision trees are useful for mapping out decisions with lots of contingencies. They use a flowchart like structure to work through the various choices and options that are involved in a complex decision, with the purpose of coming up with multiple solutions that you can choose from. They typically start with a single node (often a question), that then branches out into a tree structure based on the possible values and choices that can be made. Below is a simple decision tree on how to borrow $1000:

rational-decision-making-tree

Image from Why Change Consulting

Here’s a funnier decision tree from a book called Inconsequential Dilemmas that uses simple yes/no conditions:

what-is-rational-decision-making-treeImage from Knock Knock

You can introduce mathematical probabilities into decision trees to determine both the solutions and the likelihood of them occurring. Monetary values can be included too, to figure out which solution might make the most money. These techniques are complex and you’ll likely need to use decision tree software to build the model accurately. But they are one of the most effective ways to make complex business decisions with high levels of investment or risk. Here’s a simple example:

rational-decision-making-models-treeImage from Venngage

Rational decision making—summary

Rational decision making allows you to get past some of life’s most difficult choices, and move forward with confidence. You can select from a variety of effective techniques to suit your situation, or even combine them to create something truly powerful.

References

  1. Daniel Kahneman, 2011, Thinking Fast and Slow, Farrar, Straus and Giroux

Topics: Personal Growth

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