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Decision-Making
What California Oil Rigs Can Teach Us About Making Decisions
Numbers are not everything. How do you factor the subjective in your decisions?
Posted September 22, 2023 Reviewed by Tyler Woods
Key points
- To make big decisions consistently, we can boil down all quantitative aspects of an alternative into a number.
- Subjective impressions and qualitative aspects are not so easy, but there are ways to work them in.
- You can put quantitative and qualitative aspects together and still make rational decisions.
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, and how to avoit it. The last post described a method to be more rational in your decisions.
You are facing a big decision, like hiring a new coworker or choosing a new apartment or a school for your kids. You have looked at all quantitative, numerical aspects of each option: years of experience and wage demands for a coworker, square feet and commuting distance for an apartment, etc. As we saw here, you can put those together into a number by finding the tradeoffs: how much more are you willing to pay for a coworker with one more year of experience, or how much more rent are you willing to pay for ten minutes less of daily commuting. Once that is done, you have a ranking (a preference), and your decisions will be consistent (and avoid traps like these).
But is that all? That coworker candidate seemed really nice, but something was off with that other one. The neighborhood of that apartment looked vibrant, but that other felt dull. Those subjective and qualitative aspects are important, too. Should you ignore them because you cannot put a number on them?
Example: Oil Platforms
This is not an easy problem, and firms and managers all over the world struggle with it every day. For example, in 2007, the California Natural Resources Agency faced the problem of decommissioning offshore oil and gas platforms. There are many ways to decommission these gigantic structures, including towing them to shore for dismantling, converting them into artificial reefs or offshore wind platforms, and even just tossing them into the ocean (yikes!). Those options differ in many quantitative aspects, including, of course, the cost, but also more indirect ones, such as the increase in accessible ocean surface.
The California Natural Resources Agency and a non-profit organization developed a method to make those decisions, which was based exactly what we described in the last post. But, as many other decision-makers, they also faced qualitative, subjective aspects: The impact on corals and other deep-sea life forms, bird mortality due to collisions with whatever you leave in place (how much is a bird’s life worth to you?), the impact on water quality, and the impact on public opinion.
Here is what they did. First they aggregated all quantitative aspects into a number, essentially by finding out the factors (for the apartment example: if an additional 100 square feet is worth $350 more to you, the factor is 3.5). So they converted all quantitative aspects into money. To fix ideas, suppose that the most money one of the options can cost is $100 (million). Then they went through each of the qualitative aspects (bird mortality, public opinion, and so on), and classified them into “best,” “good,” “medium,” “bad,” and “worst.” Then they replaced those words with 100, 75, 50, 25, and zero, respectively, and added that to the number total of each option. Presto! That turns the qualitative aspects into numbers.
Making it work for you
Yes, that is a bit arbitrary. Turning subjective impressions into numbers was never going to be easy! Maybe very big decisions like decommissioning oil rigs should be given more thought than that, but for your personal decisions, this method gives you a way to decide when you are stumped.
Let’s recap, and maybe make it a little bit better. First, we turn all quantitative aspects of our options into numbers as in the last post. Almost always, one of those aspects is money (the wage of the coworker, the monthly rent of the apartment, etc.). If not, change what follows to whatever metric you were using to measure everything else (maybe minutes of daily commuting).
Choose one of your qualitative criteria, and think about the best and the worst it could be. Imagine a hypothetical option whose quantitative aspects are all more or less in the middle of the relevant range. Now imagine that that hypothetical coworker, apartment, or school was at its best with respect to the qualitative dimension, for example a vibrant neighborhood or a really good impression in the interview. Then, suppose you had another coworker, apartment, or school which was identical to the first one in all quantitative aspects, but was at its worst with respect to the qualitative dimension: a dull neighborhood, a really bad impression in the interview.
Finally, ask yourself which difference in money (wages, monthly rents, etc.) would make you indifferent between both options. Use the same iterative process as for the quantitative ones. Do you prefer a dull neighborhood to the vibrant neighborhood if it is $1,500 cheaper? Then, do you still prefer it if it is only $750 cheaper? No? What about $1,000 then? And so on. Once you have that, you have your scale. For this example, let’s say it is $1,000.
One warning: We are speaking about reasonable options, where even a “worst” subjective impression can be offset by a (monetary) compensation. If a candidate feels like such a bad fit that you would not want her even if she worked for free, or a neighborhood feels so bad that you would not live there even if no rent was charged, just remove that option!
If you have the time, and the decision is really important, you could apply this process to every option you have and every qualitative aspect by comparing it to a hypothetical version identical in everything else but is “worst” for the intangible aspect. That is, mentally put that apartment into a dull neighborhood, and find out how much money is worth to you to avoid that change. But, if that is too much time, just play the same trick as the Californians.
How does that go? Suppose the difference from “best” to “worst” is $1,000. Classify all your options in “best,” “good,” “medium,” “bad,” and “worst.” But make sure that you think of each option in isolation, that is, do not start calling it “good” or “bad” depending on which other options are on the table. If you did, you might end up making inconsistent decisions.
For the options you think “best,” add $1,000 to the overall value of that option (or whatever your number was). For the ones you feel are “good,” “medium,” and “bad,” add three quarters, half, and one quarter of your number, respectively ($750, $500, and $250 in our example). For the ones you think “worst,” add nothing. Repeat this for all quantitative aspects, and go back to your number totals for every option. You are done! Those final numbers give you a preference, and you can pick the best. And even if some new option comes up, or an option becomes unavailable, you will still be consistent.
