Copyright © 1999 John S. Hammond, Ralph L. Keeney, and Howard Raiffa

      All rights reserved

      Printed in the United States of America

       Library of Congress Cataloging-in-Publication Data

      Hammond, John S., 1937-

      Smart choices : a practical guide to making better decisions /

       John S. Hammond, Ralph L. Keeney, and Howard Raiffa.

       p. cm.

       Includes index.

       ISBN 0-87584-857-5 (alk. paper)

       1. Decision-making. I. Keeney, Ralph L., 1944- . II. Raiffa,

       Howard, 1924- . III. Title.

       BF448.H35 1999

       153.8'3—dc21 98-8118

      CIP

      Parts of Chapters 5 and 6 were previously published as “Even Swaps: A Rational Method for Making Trade-offs” in Harvard Business Review (March–April 1998). Parts of Chapter 10 were previously published as “The Hidden Traps in Decision Making” in Harvard Business Review (September–October 1998).

      ISBN 978-1-63369-104-9

      eISBN 978-1-63369-105-6

      The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.49–1984.

      Preface

      You're stuck. You're in a quandary. You face an important decision, and you're not sure what to do.

      You've come to the right book.

      You know success depends on making smart choices, so you want to know how to become a better decision maker.

      You, too, have come to the right book.

      We wrote Smart Choices to bridge the gap between how people actually do make decisions and what researchers—including the three of us—have discovered over the last 50 years about how they should make decisions. We have distilled for you the essence of decision-making research, combined it with experience and common sense, and presented it in a straightforward, accessible form for your regular use. The result should be hundreds, maybe thousands, of better decisions that help you reach your goals, reduce wasted time and money, and avoid hassle, worry, and regret—in short, a higher quality of life through improved decision making.

      The arguments for acquiring superb decision-making skills are compelling. You spend a significant portion of your time and psychic energy making choices. Who you are, what you are, where you are, how successful you are, how happy you are all derive in large part from your decisions. Yet decision making is seldom taught as a skill in its own right. Considering its importance, one would expect that high schools, colleges, and graduate schools would routinely offer courses in decision making and that dozens of good books on the topic would be available. Sadly, neither is true. There are few courses, few books.

      Smart Choices Provides a Roadmap for Good Decisions

      In these pages, we present a clear process and a set of user-friendly techniques for making smart choices. We show you what you need to consider in evaluating your options and the steps you need to take to arrive at the smart choice. The essence of our approach is divide and conquer: break your decision into its key elements; identify those most relevant to your decision; apply some hard, systematic thinking; and make your decision. Our approach is proactive, encouraging you to seek out decision-making opportunities rather than wait for problems to present themselves.

      Smart Choices is a distillation of all we have learned from our more than 100 collective years of teaching and writing about decision making, as well as the practical experience we have gained in consulting on thousands of important decisions facing individuals, families, businesses, nonprofits, and governments. You can apply our method to any decision worthy of serious thought. It will help you make smart personal decisions—from which new house to purchase, to which mutual fund to buy, to whether to have elective surgery. And it will help you make smart work decisions—from which job candidate to hire, to which business strategy to pursue, to which travel itinerary to book.

      Smart Choices Is Clear and Easy to Understand

      One reason that few people have been able to gain the benefits of all the existing research on decision making is that the insights are expressed in academic, technical prose. We strip away the jargon, allowing you to grasp the essence of the ideas quickly and surely. For your most complicated and important decisions, we provide step-by-step procedures that will help you grapple with tough tradeoffs, clarify uncertainties, evaluate risks, and make a series of linked decisions in the right sequence.

      After you've applied our method to a few of your decisions, you'll find yourself growing more and more comfortable with the process and techniques. You'll become less intimidated by making decisions, and you'll start making them faster and more easily, with less frustration and with better results. As you hone your decision-making skills, drawing on the lessons in this book, we are confident that your life will change for the better.

      Once you have read the book, you'll find that the Roadmap to Smart Choices is a complete summary of the contents. Since it mirrors the chapters, it also serves as a quick reference to any part of the book and as a refresher for its concepts. The Roadmap is at the end of the book in place of an index.

      The hardest part about writing a book is getting the words right. Fortunately, we had outstanding help. We are grateful for the astute guidance from Nikki Sabin, our HBS Press editor, for the excellent editing by Susan Boulanger and Nick Carr, for the tireless word-processing and advice from Nancy Orth, and for the helpful suggestions of many who commented on our earlier manuscripts.

      John S. Hammond

       Ralph L. Keeney

       Howard Raiffa

      CHAPTER 1

      Making Smart Choices

      OUR DECISIONS SHAPE OUR LIVES. Made consciously or unconsciously, with good or bad consequences, they represent the fundamental tool we use in facing the opportunities, the challenges, and the uncertainties of life.

      • Should I go to college? If so, where? To study what?

      • What career should I pursue? What job should I take?

      • Should I get married now, or wait? Should I have children? If so, when and how many?

      • Where should I live? Should I trade up to a larger house? What can I contribute to my community?

      • Which job candidate should I hire? What marketing strategy should I recommend for my company?

      • I feel unfulfilled. Should I change jobs? Go back to school? Move?

      • How should I invest my savings? When should I retire? To do what? Where?

      Such questions mark the progress of our lives and our careers, and the way we answer them determines, to a large extent, our place in society and in the world. Our success in all the roles we play—student, worker, boss, citizen, spouse, parent, individual— turns on the decisions we make.

       Making Decisions Is a Fundamental Life Skill

      Some decisions will be fairly obvious—‘‘no-brainers.’’ Your bank account is low, but you have a two-week vacation coming up and you want to get away to someplace warm to relax with your family. Will you accept your in-laws’ offer of free use of their Florida beachfront condo? Sure. You like your employer and feel ready to move forward in your career. Will you step in for your boss for three weeks while