Decisions, Decisions

Max Bazerman

J. Jay Gerber Distinguished Professor of Dispute Resolution and Organizations
Kellogg Graduate School of Management
Evanston, Illinois

When making a decision, don't listen to your intuition. Intuition will lead you astray; it's drastically overrated. The desire to follow intuition reflects the mythology of people who don't want to think rationally and systematically. They tell stories about how their intuition guided them through a decision, but they don't understand how or why. Often, when you hear about intuition, what you're really hearing is a justification of luck. Intuition might be fine for the small decisions in life - like what kind of ice cream to buy. But when you get to the biggies, you need a more systematic thought process.

One of the biggest challenges I face is teaching people how to change their decision-making behavior. Everyone makes mistakes and bad decisions. I try to show people that their mistakes are predictable.

Here's an interesting thought experiment: You've got to decide between two things - two executives to hire for a key position, two acquisition targets, two houses that you're thinking about buying.

You go through a systematic process of identifying all of the factors and weighing them for each alternative. You do a little arithmetic, and your analysis says to pick A over B. But your intuition says to pick B over A. So what do you do?

Most people will go on their intuition - which raises the question, Why did you do all that work in the first place? One of these two options is wrong. So postpone your decision until you can determine why your intuition is out of sync with the systematic analysis. That's the purpose of systematic analysis: to inform your intuition, to make you consider all of the options, and to help you make a wise decision.

Max Bazerman (mbazerman@hbs.edu) studies decision making, negotiation, and environmental issues. He is the author of Judgment in Managerial Decision Making (John Wiley & Sons, 1986) and Why Smart People Make Dumb Money Moves (forthcoming from Wiley, April 1999). Bazerman is a visiting professor of business administration at Harvard Business School.

Howard Raiffa

Professor Emeritus
Harvard Business School
Boston, Massachusetts

One of the biggest pitfalls in decision making is not creating enough alternatives. You can make a decision in order to solve a problem - or you can make a decision in order to exploit an opportunity. To make this point, I use the case study of a businessman named Bill. His dilemma: to sell or not to sell his business. Bill and his partner had struggled for years to build a soundproofing business in Brooklyn, and finally the company was doing well. But Bill was bored; at age 57, he wanted a change. The solution, he thought, was to sell out to his partner, move to California, and start a new business. He framed his problem around how much he should sell his part of the business for - $400,000 (a price that his partner could afford) or something higher.

At my suggestion, Bill went through a rigorous process of reframing his decision. He realized that what he wanted was to spend more time outdoors, to be challenged intellectually, and to minimize stress. In the end, Bill decided to move to California and to establish a branch of the soundproofing business there. That way, he could change his life and also be challenged - but without taking on an enormous amount of risk. The business did well: Eight years later, he sold out to his partner for $1.7 million.

Howard Raiffa is a pioneer in the development of decision analysis, negotiation analysis, and game theory. He is coauthor, with John S. Hammond and Ralph L. Keeney, of Smart Choices: A Practical Guide to Making Better Decisions (Harvard Business School Press, 1998).