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Book Summary: Smart Choices




This is an excellent book on decision making, without the complexities of ERBA(Enterprise Risk Benefit Analysis) or Real Options. The authors provide a simple decision making mechanism, PrOACT-URL

where

Pr representrs the Problem
O stands forthe objectives to be addressed in solving the problem
A is for the alternatives that must be considered in solving the problem
C stands for consequences in choosing an alternative (solution)
T stands for tradeoofs made in choosing a solution.
U represents the uncertainities involved
R represents the risks associated with a particular solution
and L stands for other aspects linked to the problem or solution.


The problem stage is to describe the problem. The authors suggest that one must take the time to properly define a problem before venturing to solve it. Sometimes one may realize that his or
her assumptions on a problem are not accurate in this stage.

The objective stage helps build a deeper understanding of the problem we are trying to solve.Besides lending to clarification, Objectives also help to check if we are meeting the original need.

Coming up with alternatives, the 3rd stage of the procedure of making choices is a process of active brainstorming and free thinking. No limit is set on the numerous alternatives one may come up with in solving a problem. Boundaries can be questioned and the opinions of others may be sought in seekiing alternatives. The authors suggest that there are 4 types of alternatives:

ProcessAlternatives: This is a process of imposing fairness when there are conflicting alternatives. Examples: Standardized scores, voting, auctions, and sealed bids.

Other types of alternatives are Win-win, time buying and information gathering.

The next stage of smart choices is the evalution of consequences in going with a certain solution. Often a solution may be inaccurate, incomplete or imprecise. This is when one must picture the future in terms of after a solution has been utilized in solving a problem. Now one brainstorms consequences and then eliminates inferior alternatives. One may decide to map a table of alternatives and consequences. One must choose appropriate scales in weighing alternative

Inevitably, we must face uncertainity. Sometimes the smartest of choices can result in the worst of consequences because of happenings beyond our control. And conversely poor choices could yield large payoffs. While making choices we must consider possible uncertainities, their outcomes, their probabilities of occurence and finally the consequences of the occurence of each uncertainity. The authors suggest using decision trees for evaluating uncertainities.

The next step is to evaluate one's risk tolerance for each outcome and making a decision based on that outcome.

Linked decisions have to do with what we plan to do in the future after a choice has been made and a consequence, as a result of the decision has occured.

The final chapter of the book deals with pitfalls(psychological traps) one encounters while going through all the steps outlined above.

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