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Hello and welcome to the topic of making decisions.
My name is J. Russo, Professor at Cornell University,
and the first of the Henry Stewart Talks on decision making will be presented by me.
But I would like you to know there's a whole series that I'll try and suggest
how the other more detailed talks fit into the larger picture.
Please allow me to begin with a friendly challenge.
The challenge is really about the value of the time
that you're putting into listening to this talk.
Let me suggest that you take a moment
and follow the instructions on the screen.
What advice would you give to a young person entering your organization,
your profession, about how to make decisions?
What are the five points that would seem to you
to be most important that someone should know
about making good decisions in your profession?
Take a moment if you would and write down what you think is good advice.
We'll return to this later
and a comparison between the before, now, and the after, that is the later,
will inform you about the value that you may be able to get from today's talk.
Let's begin by talking about a problem—
a decision that was made—
and then asking whether or not this was a smart decision or not.
An individual was offered a choice between two coins.
They'll be flipped—or rather one of them will,
whichever one the individual chooses.
If a head turns up, the individual receives 10,000 US dollars
after taxes, so it's a real spendable $10,000.
If a tail turns up you get nothing. But overall it's a happy situation.
You can only win. You can't lose.
But the two coins are different
in that both are biased slightly and in opposite directions.
Coin one is biased against the head 45 versus 55 for tails.
Coin two is biased in favor of a head 55 for head, 45 for tails.
The individual chooses coin two.
It's flipped. The lower probability event, a tail, turns up,
and nothing is the reward.
Curious as to what would have happened,
the individual asks the power offering this choice,
"Would you please flip coin one and let me know what would have happened?"
It's flipped. A head turns up.
The individual would have gotten $10,000.
When I ask people, "Was choosing coin two a good or a bad decision?"
people tend to be on both sides.
Most people tend to say it was a good decision,
but many say it was a bad decision.
Those who argue against the wisdom of having chosen coin two
say something like the following:
"It's all about outcomes. It's about results.
"You're not rewarded for being smart.
You're rewarded for delivering good results."
And in this case if the individual had chosen coin one,
results would have been $10,000.
Because of the choice that was made—coin two—
the results—the outcome is nothing—zero.
So it was a bad decision. The individuals—the people—
who argue for coin two often come back with the following:
"Well, if you had a second chance,
"if the individual were given by the power offering this another choice
"between coin one and coin two, a second flip,
what would you advise the individual to choose?"
And even those people who say choosing coin two was a bad decision
all say, "Well, in a new choice choose coin two
because 55 is bigger than 45."
What this coin toss example does is contrast
a good logical process—55 is bigger than 45—
with a bad outcome—
a bad outcome, of course, due to bad luck.
The overall theme of today's talk
is that the closest we can guarantee to good decision outcomes
is good decision processes.
So what I'll mean today by a good decision
is a good decision process.