Big Decisions: How to Find Out What You Want

This post continues the decision-making series on “Making Better Decisions,” which started here and discussed the dangers of intuition here and here. In recent posts, we discussed how using the wrong way to decide can make you vulnerable to manipulation (here), and how to avoid it (here).

To make good decisions we need to build a preference, or ranking, where each option is evaluated on its own merits (see the last post). But different people have different preferences. This article shows you how to get a better idea of your own, and improve your decision-making by applying methods used to decide among business plans and strategies.

Before we start, you should make sure that you are facing a big decision, like buying a car or a house, choosing a school for your kids, or hiring an employee. This method is going to take some time, and you should not use it to choose a brand of cheese or a restaurant for this evening. You should also make sure that your alternatives can be easily compared among several attributes. For instance, apartments differ in size, commuting time, monthly rent, and whether they have certain amenities or not. Potential employees differ in their years of experience, strength of recommendations, academic grades, and wage expectations (among many other things).

To keep things simple, in this post, I assume that those attributes come with numbers: 500 square feet, $1,200, eight years of experience, and so on. For each of those, we know what we want: larger size, lower rent, more years of experience. The problem is deciding about tradeoffs, for example, whether an experienced candidate who wants a high wage is better than a rookie who will take the starting package.

Building your preference

Start by looking at your options and noting the smallest and largest values for each attribute. The smallest and largest apartment size, the most you can pay for the item (or the lowest wage you can live with), the shortest and longest experience among your candidates, etc. Those define the ranges that you will be looking at.

Once you have done that, stop looking at the options you have. We do not want to get tangled in comparisons. We want to develop a criterion by which we can evaluate any potential alternative on its own.

Next, find an attribute that's easy to grasp. If one of them is money, choose that. If not, find something that you specially care about (if so, replace “money” with that below). For each option in your list, write that number, with a plus sign if it is good (wage offers if you are choosing jobs) or a minus sign if it is bad (monthly rent if you are choosing an apartment).

Now, take another attribute, for instance apartment size or years of experience. Invent a new, fictitious option in the middle of your ranges for this attribute and the “money” one. For instance, an 800-square-foot apartment with a monthly rent of $1,000, or a candidate with three years of experience who demands a wage of $5,000. If possible, this “middle option” should really be fictitious, not one of the options that you actually have.

Now take a reasonable fraction of the number for the attribute you are looking at, for instance 100 square feet or one year of experience (something like ten percent of your range will often work). Ask yourself: how much money is an increase in that amount worth, if everything else is equal? For example, compare an 800-square-feet apartment that costs $1,000 (the middle option) to another fictitious apartment which is 900 square feet in size, everything else (amenities, commuting distance, etc) being equal. How much more than $1,000 would you be willing to pay so that you find it hard (really hard) to decide between both? You can do this iteratively, maybe like this:

• I would prefer a $1,200, 900-square-foot apartment to the middle option. OK, let’s raise the rent.
• I would not prefer a $1,500, 900-square-foot apartment to the middle option. OK, let’s lower the rent now (but not below where we started).
• I would still not prefer a $1,400, 900-square-foot apartment to the middle option. OK, let’s keep lowering it.
• I would prefer a $1,300, 900-square-foot apartment to the middle option. OK, let’s raise the rent a bit.
• I find it really hard to decide between a $1,350, 900-square-foot apartment and the middle option. OK, we are calling this “being indifferent.”

This means that, for you, an additional 100 square feet is worth $350 more. That is a factor of 3.5. Go back to your actual list of options, and, for each option, multiply the apartment size (or whatever the aspect was that you were looking at) by this factor, and add it to the number you already had. For example, if you had a 600-square-foot apartment which cost $7,00 per month in your list, you had already written -700 for it (minus because higher rent is bad). Now you want to add 3.5 x 600 = 2,100 to that, for a new total of 1,400. In this example, you add the number because larger size is good. If more is worse, as for commuting distance, you subtract it instead.

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Repeat the process for each attribute. Always ask yourself how much money you are willing to pay (or give up, if we are speaking about your wage) for an increase of something good, or for a decrease of something bad. For example, you might start with an apartment one hour away from your office that costs $1,000 per month and ask yourself how much more you would be willing to pay if it were 20 minutes closer.

Keep repeating the process, always adding or subtracting the values of the aspects multiplied by the factors, until you run out of aspects that you care about. Now you have a number for each option (a “utility”), and you simply pick the option with the highest number.

Your decisions will be consistent

Now you have much more than a best option. You have a preference. If the best option becomes unavailable, you can just look at the next-highest number. If a new option shows up, you can evaluate it right away. Just multiply each attribute by the factor you identified, and add everything together (do not forget the first aspect, the one I am calling “money”; it has a factor of one).

Because your preference only depends on the actual values of each option and not on comparisons, your decisions will be consistent (you cannot be manipulated). But, of course, this method is not perfect. It assumes that attributes do not interact in complicated ways, and hence adding them up (taking the factors into account) is good enough. It often will be, but sometimes it might not. It also assumes that you can express all attributes in numbers. That might be true for cars, but maybe not for candidate employees. We will discuss how to take that into account in future posts. For now, suffice to say that this is not a magic recipe to perfectly uncover your inner wishes, there is just a way to make your big decisions consistent and a bit more rational whenever you struggle to decide.