Chapter 3 of the Wharton text discusses the power of everyday
reasoning in multistage decision-making. The text discusses the way that
researchers solve multistage problems through the application of formulas that
provide the most significant chance of success. Critically think about your own
decision-making process and reflect on the process you use compared to the
process outlined in the article. Would this improve your
decision-making? What would the impact be on forward planning? How
would you apply optimal dynamic decision analysis to predict future impact
of today's decision?
The Wharton text discusses the gap between how a class of
decisions should be made versus the rule of thumb that describes the way they
are actually made. Chapter three reflects on the intuitive decisions that
people make and how the positive results of those decisions make us prone to
become overconfident in other decision making areas. Wharton states that we
then over generalize the degree to which good solutions to some problems also
offer good solutions to other problems that may not be similar in nature.
Wharton also states that when the solutions to our intuitive decisions go bad
the errors made during the process are often large in scale leading to negative
long term consequences. Chapter three also shows us how to use formulas
and probability to determine the outcomes of two decisions at hand. Once the
values and probabilities are known, answers are provided using dynamic
programming; deriving a solution to a problem by solving it in the form of two
stages called backward induction.
While the text discusses the methods of
values and probability I must admit that my decision making process does not
reflect that of Richard Bellman’s dynamic programming or backward induction. In
fact, to date I can't think of a time, besides balancing finances or using actual
mathematical computations, when I used a formula to solve a problem. If I had
to choose a method I felt I used to solve problems, I feel as though I almost
always used heuristics to make decisions. Heuristics are described as a mental
way in providing satisfactory solutions or what some may call mental short
cuts.
In my opinion I feel as though heuristics
have provided me with the ability to provide solutions to issues quickly and
effectively in many circumstances. However, when more difficult problems come
along and difficult decisions need to be made, I have found that while
heuristics can be a useful tool in some instances, it will not hold true for
all circumstances. One example occurring as we speak is the decision my husband
and I are trying to make in buying a home. While heuristics can provide us with
the pros and cons of buying a home and the common sense that it will not be the
easiest task to endure, choices in the matter of getting a home such as
mortgage payments, HOA and CDD fees, interest on the home, landscaping,
location and other things, make us see the need to really sit down and
calculate the value of buying a home and the probability of success in us being
able to financially sustain and maintain one. I feel as though that the
formulas, value and probability discussed in Chapter three would help us to
make better quality decisions on forward planning.
I believe that using dynamic programming
and mathematical computations would definitely improve my decision making
skills to some extent however, in my personal opinion I do not find myself
using the strategies of decision making discussed in chapter three on problems
that I may find simple enough to use heuristics. I will agree however, that
there may be some problems I may come across in the future that would just not
be solvable by heuristics, and would therefore consider solving the problem via
equation, dynamic programming, probability and other methods discussed in
Chapter three. I believe that use of these strategies would better assist me to
make effective, quality decisions in both a professional environment and in my
personal life as well. The impact that these strategies could have on forward
planning would most likely be a decrease in myopic decisions and an increase in
zooming out and being able to view how my decisions will affect me for the long
term.
In order to apply optimal dynamic decision
analysis to predict the future impact of today's decision I would do my
best to become less bias and more open to the idea of change and chance. Any
hypotheses that I created would be on fact instead of past experiences and
future perceptions or anticipations. I would also do my best to ensure that
while I am researching and learning new information that I am doing so with an
open mind and filtering the information in a way where I can create opinions
instead of confirm preexisting ones.
Lastly, while failure of decision making
solutions may at times be inevitable, one thing is certain. We must ask
ourselves the following four questions in order to ensure that error is kept to
a minimum. These four questions include. Am I being myopic? How appropriate is
my starting analogy to solve the problem? What are the penalties for making an
error? And, what am I learning from the feedback I am receiving? Asking these
questions and following these four principles will in turn provide the optimism
necessary to make difficult decisions and ensure that our judgment is based as
closely as possible upon the analysis of intuitive dynamic decision making.
Cassandra R.
