A decision is always a milestone. No matter how long it took to come to a decision, as soon as it is done there is no turning back. I personally think that companies are very much run and determined by decisions – no matter if they are good or bad, right or wrong – it is just their simple existence that makes them influence the entire business life.
I wonder that there are nearly no leaders of managers that have dealt with important historical milestones of decision making. Well, maybe some of them have read Sunzi’s “Art of War” (孫子兵法), or Machiavelli’s “The Prince” (Il Principe), but is that all there is on decision making?
In this post I would like to take you on a brief journey of decision making from prehistory until the 21st century.
For millennia, human decisions are guided by interpretations of entrails, smoke, dreams, and the like; hundreds of generations of Chinese rely on the poetic wisdom and divination instructions compiled in the I Ching. The Greeks consult the Oracle of Delphi. Prophets and seers of all kinds peer into the future.
Sixth Century BC
Lao-tzu teaches the principle of “nonwillful action”: letting events take their natural course. Confucius says decisions should be informed by benevolence, ritual, reciprocity, and filial piety.
Fifth Century BC
Male citizens in Athens, in an early form of democratic self-government, make decisions by voting.
Fourth Century BC
Plato asserts that all perceivable things are derived from eternal archetypes and are better discovered through the soul than through the senses. Aristotle takes an empirical view of knowledge that values information gained through the senses and deductive reasoning.
In an early jury-trial decision, 500 Athenian citizens agree to send Socrates to his death.
Alexander the Great slices through the Gordian knot with his sword, demonstrating how difficult problems can be solved with bold strokes.
Julius Caesar makes the irreversible decision to cross the Rubicon, and a potent metaphor in decision making is born.
The Hindu-Arabic number system, including zero, circulates throughout the Arab empire, stimulating the growth of mathematics.
Omar Khayyám uses the Hindu-Arabic number system to create a language of calculation, paving the way for the development of algebra.
An English friar proposes what became known as “Occam’s razor,” a rule of thumb for scientists and others trying to analyze data: The best theory is the simplest one that accounts for all the evidence.
Stable keeper Thomas Hobson presents his customers with an eponymous “choice”: the horse nearest the door or none.
Hamlet, facing arguably the most famous dilemma in Western literature, debates whether “to be, or not to be.”
Francis Bacon asserts the superiority of inductive reasoning in scientific inquiry.
René Descartes proposes that reason is superior to experience as a way of gaining knowledge and establishes the framework for the scientific method.
Prompted by a gamblers’ question about the “problem of points,” Blaise Pascal and Pierre de Fermat develop the concept of calculating probabilities for chance events.
Pascal’s wager on the existence of God shows that for a decision maker, the consequences, rather than the likelihood, of being wrong can be paramount.
Daniel Bernoulli lays the foundation of risk science by examining random events from the standpoint of how much an individual desires or fears each possible outcome. Nineteenth Century Carl Friedrich Gauss studies the bell curve, described earlier by Abraham de Moivre, and develops a structure for understanding the occurrences of random events.
Oliver Wendell Holmes, in a series of lectures later published as The Common Law, puts forth the thesis that “the life of the law has not been logic; it has been experience.” Judges, he argues, should base decisions not merely on statutes but on the good sense of reasonable members of the community.
Francis Galton discovers that although values in a random process may stray from the average, in time they will trend toward it. His concept of regression to the mean will influence stock and business analysis.
Sigmund Freud’s work on the unconscious suggests that people’s actions and decisions are often influenced by causes hidden in the mind.
Economist Irving Fisher introduces net present value as a decision-making tool, proposing that expected cash flow be discounted at a rate that reflects an investment’s risk.
Frank Knight distinguishes between risk, in which an outcome’s probability can be known (and consequently insured against), and uncertainty, in which an outcome’s probability is unknowable.
Chester Barnard separates personal from organizational decision making to explain why some employees act in the firm’s interest rather than in their own.
In their book on game theory, John von Neumann and Oskar Morgenstern describe a mathematical basis for economic decision making; like most theorists before them, they take the view that decision makers are rational and consistent.
The Alabe Crafts Company of Cincinnati markets the Magic 8 Ball.
Rejecting the classical notion that decision makers behave with perfect rationality, Herbert Simon argues that because of the costs of acquiring information, executives make decisions with only “bounded rationality”—they make do with good-enough decisions.
Project RAND, its name a contraction of “research and development,” separates from Douglas Aircraft and becomes a nonprofit think tank. Decision makers use its analyses to form policy on education, poverty, crime, the environment, and national security.
Research conducted at the Carnegie Institute of Technology and MIT will lead to the development of early computer-based decision support tools.
Kenneth Arrow introduces what becomes known as the Impossibility Theorem, which holds that there can be no set of rules for social decision making that fulfills all the requirements of society.
Harry Markowitz demonstrates mathematically how to choose diversified stock portfolios so that the returns are consistent.
Edmund Learned, C. Roland Christensen, Kenneth Andrews, and others develop the SWOT (strengths, weaknesses, opportunities, threats) model of analysis, useful for making decisions when time is short and circumstances complex.
Joseph Heller’s term “catch-22” becomes popular shorthand for circular, bureaucratic illogic that thwarts good decision making.
Corporations use IBM’s System/360 computers to start implementing management information systems. Roger Wolcott Sperry begins publishing research on the functional specialization of the brain’s two hemispheres.
The phrase “nuclear option” is coined with respect to developing atomic weapons and is eventually used to designate a decision to take the most drastic course of action.
Howard Raiffa’s Decision Analysis explains many fundamental decision-making techniques, including decision trees and the expected value of sample (as opposed to perfect) information.
John D.C. Little develops the underlying theory and advances the capability of decision-support systems.
Irving Janis coins the term “groupthink” for flawed decision making that values consensus over the best result. Michael Cohen, James March, and Johan Olsen publish “A Garbage Can Model of Organizational Choice,” which advises organizations to search their informational trash bins for solutions thrown out earlier for lack of a problem.
Fischer Black and Myron Scholes (in one paper) and Robert Merton (in another) show how to accurately value stock options, beginning a revolution in risk management. Henry Mintzberg describes several kinds of decision makers and positions decision making within the context of managerial work. Victor Vroom and Philip Yetton develop the Vroom-Yetton model, which explains how different leadership styles can be harnessed to solve different types of problems.
Amos Tversky and Daniel Kahneman publish their Prospect Theory, which demonstrates that the rational model of economics fails to describe how people arrive at decisions when facing the uncertainties of real life. John Rockart explores the specific data needs of chief executives, leading to the development of executive information systems.
“Nobody ever got fired for buying IBM” comes to stand for decisions whose chief rationale is safety.
W. Carl Kester raises corporate awareness of real options by suggesting that managers think of investment opportunities as options on the company’s future growth. Daniel Isenberg explains that executives often combine rigorous planning with intuition when faced with a high degree of uncertainty.
Howard Dresner introduces the term “business intelligence” to describe a set of methods that support sophisticated analytical decision making aimed at improving business performance.
Max Bazerman and Margaret Neale connect behavioral decision research to negotiations in Negotiating Rationally.
Anthony Greenwald develops the Implicit Association Test, meant to reveal unconscious attitudes or beliefs that can influence judgment.
Web users start making buying decisions based on the buying decisions of people like themselves.
In Blink, Malcolm Gladwell explores the notion that our instantaneous decisions are sometimes better than those based on lengthy, rational analysis.
The questions of who makes decisions, and how, have shaped the world’s systems of government, justice, and social order. “Life is the sum of all your choices,” Albert Camus reminds us. Even so, the history of decision-making strategies is not one of unalloyed progress toward perfect rationalism. Faced with the imperfectability and risk of decision making, theorists have sought ways to achieve, if not optimal outcomes, at least acceptable ones.
To make good choices, companies must be able to calculate and manage the attendant risks. Today, myriad sophisticated tools can help them do so. But it was only a few hundred years ago that the risk management tool kit consisted of faith, hope, and guesswork.
Today, of course, corporations try to know as much as is humanly and technologically possible, deploying such modern techniques as derivatives, Scenario Planning, business forecasting, and real options. But at a time when chaos so often triumphs over control, even centuries’ worth of mathematical discoveries can do only so much. Life “is a trap for logicians,” wrote the novelist G.K. Chesterton. “Its wildness lies in wait.”
According to Chesterton Alden Hayashi writes “Intuition is one of the X factors separating the men from the boys.” Pragmatists act on evidence. Heroes act on guts. Chaotic situations or crisis often ask for gut decisions because there is no time to weigh arguments and calculate the probability of every outcome. So there is no universal solution for making the right decision. Chaotic as well as rational behavior are legitimate depending on the situation.
The original article is taken from a Harvard Business Review article by Leigh Buchanan and Andrew O’Connell…