Smart Choices. Howard Raiffa
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your summer vacation, only to realize that what really appeals to you is a winter trip to South America. You don’t have the time or the money to take two vacations, so you need to change your original problem definition.
Remember that defining your decision problem is itself a decision problem, the resolution of which will profoundly influence your ultimate choice. That’s why it’s important not only to consider several possible problem definitions in the beginning, but also to pause along the way and reexamine the definition you’ve chosen. Faced with a competitor that has just made a 20 percent improvement in the clarity of its video conferencing picture, a telecommunications company might at first formulate its decision problem as ‘‘How do we match their level of clarity as quickly as possible?’’ But on further consideration, it might realize that it could actually gain an advantage if it recast the problem as ‘‘What technological innovation would allow us to leapfrog the competition by achieving a 100 percent improvement in clarity?’’
Chances to redefine your problem are opportunities that often lead to better decisions. So, from time to time as you work your way through the decision-making process, ask yourself: Am I working on the right problem? Questioning the problem is particularly important when circumstances are changing rapidly or when new information becomes available. A poorly formulated decision problem is a trap. Don’t fall into it.
Maintain Your Perspective
If it seems like we’re making a big deal out of the problem definition, you’re right. Crafting a good definition takes time; don’t expect to get it right in one sitting. True, the effort involved in creating a good, comprehensive definition must be balanced against such considerations as time (‘‘I don’t have time to address a more complex problem right now’’), importance (‘‘The decision’s not very important—it’s not worth all that effort’’), saliency (‘‘I have more pressing matters on my plate’’), and emotional energy (‘‘I’m not ready to face that now’’). But in 99 out of 100 cases, spending extra time defining the problem pays off handsomely in the end. It increases the odds that you’ll make the smart choice.
A Poor Problem Definition Limits Options: Finding a New Job
Bob Hamonski lost his job in Portland, Oregon. Well, sort of. When his company was acquired by a larger one, his position as a financial analyst was eliminated. The new owners were eager to keep Bob, however, and they offered him his choice of financial analyst positions at other subsidiary companies they owned—all in states other than Oregon.
Relocating was problematic because Bob was just concluding a divorce. The divorce agreement, an amicable one, would give him custody of the couple’s two young children, while his wife, a lawyer, would pitch in with emergency child care and take the kids on weekends.
Bob could have defined his decision problem in various ways, but he never stopped to think about it. Instead, even though his skills were highly marketable, he proceeded as if his problem were ‘‘How do I stay with my current employer?’’ As a result, he chose one of the open analyst positions—with a subsidiary in Seattle, Washington, the closest option to Portland.
Now, however, Bob’s life is a nightmare whenever a child is sick, because his ex-wife is too far away to babysit. And the five-hour round-trip drives to Portland every weekend aren’t much fun either. To add insult to injury, the job itself isn’t as good as his old one.
With a different problem definition (such as ‘‘What’s the best financial analyst job I can get in Portland?’’), Bob probably would have ended up with a better job with a different employer—without having had to move. By allowing others to frame his decision problem, he unnecessarily narrowed his options.
Too often, people give short shrift to problem definition (as the story of Bob Hamonski above illustrates). In their impatience to get on with things, they plunge into the other elements of decision making without correctly formulating the problem first. Though they may feel like they’re making progress in solving their problem, to us they seem like travelers barreling along a highway, satisfied to be going 60 miles an hour—without realizing they’re going the wrong way.
APPLICATION
To Renovate or Move?
Meet Darlene and Drew Mather. They’ve run out of space in their two-bedroom, one-and-a-half-bath, finished-basement home, and they have to decide what to do.
Eight years ago, the young couple bought a modest house on School Street in an urban residential neighborhood. Darlene had been pregnant with their son, John, at the time, so they’d left their tiny apartment to give their expected child a room of his own. Now, a second child is on the way. At first, Darlene and Drew had tried to figure out how they might accommodate the new child in the existing house. Could John share his room with the baby? (He’d quickly tire of that.) Could they divide their own bedroom? (A possibility, but their room was already overcrowded.) They quickly came to see that they wouldn’t be able to make do with the space they had.
So they’ve decided to add onto the house, and for the last two months they’ve been reviewing and pricing their renovation options. A bedroom off the end of their one-story house would cost $25,000, for example, and take away a large chunk of their already-small yard. Adding a second story would save the yard but cost $40,000.
Having bought the house when they did, they’ve reaped the benefits of a doubling in prices in the local real estate market over the past eight years. A close friend and realtor, Anne Chu, has told them that their house would sell now for $155,000—a pretty good deal, since they originally paid $77,750. With a remaining mortgage of $57,000, their equity totals $98,000 ($155,000 minus $57,000). Their job situations, too, are stable. Darlene works full-time as a nurse in a local hospital, though she plans to work only part-time for a couple of years after the baby is born. Drew works as a salesman and has a secure, solid job. Their joint income before taxes is about $75,000 a year. They feel confident they can afford the renovation—they can use the equity in the house to finance it, and they should have no trouble meeting the monthly payments.
But one evening, after Drew puts the dinner dishes away, Darlene starts a conversation with a thought that will lead them down a new path.
‘‘Drew, John really got me thinking today. You know Jimmy, his friend down the block? Well, Jimmy’s family is going to move, so John asked me why people move and when we were going to move. At first I thought he was apprehensive that we might move, too. But he was actually excited about the possibility! We had a long conversation about why people move, and the more we talked, the more I got to thinking: Why don’t we consider moving instead of renovating?’’
‘‘Are you serious?In today’s market?’’
‘‘Well, this is a new idea for me, too. But when I rattled off to John the reasons why people move—and he offered reasons, too, like getting more room to play, being able to ride his bike in the street, and being closer to school—I half convinced myself that this might not be such a wild idea. Sure, prices are high, but we’ve built up a lot of equity in our house, and if we sold it we’d be able to afford a down payment on a bigger one. We’d also avoid $25,000 or more in renovation costs.’’
Thunderstruck, Drew exclaims, ‘‘I can’t believe this! For two months now, we’ve been talking about needing space and renovating. Boy, sometimes it just takes an eight-year-old to set his parents straight! Our real problem isn’t ‘How should we remodel?’ It’s ‘How do we get enough room for our growing family?’ or ‘How do we get a better home?’ Remodeling our house is only one possibility!’’
(To be continued in Chapter 3.)
Lessons from the Application
Darlene and Drew started with an overly narrow problem definition: ‘‘How do we renovate?’’ Their trigger was the need for additional space to accommodate the new baby. At the outset, they didn’t stop to think about the different ways to state the problem—they jumped to the conclusion that renovation was their