Rational Decision Making

The rational model of decision making makes three assumptions about decision makers: that they are rational, evaluative, and maximizing. Rational means they have the ability to apply reason and exercise judgment. They are evaluative in the sense that they place a value on everything and have preferences. Finally, they seek to maximize their choice to derive the highest value at the lowest cost for the things they care most about. Models simplify, however, and we know that decision making in practice can look quite different. That rationality may be bounded by the availability of high quality information; evaluation may include both quantitative and qualitative factors as well as objective and subjective ones; and sometime we choose alternatives that satisfy rather than maximize because we are happy with “good enough” rather than needing to have “the best.”

Decision making follows a process that is generally linear in that it progresses through a series of steps. This is true whether one takes a formal, rigorous, and highly analytical approach or a more informal, cursory, and less methodical one. Of course, the higher the stakes or the more consequential the decision, the more effort and thought should go into making it. Think about it: we generally don’t do a whole lot of analysis before deciding what to eat for lunch, but most people spend time doing research and making comparisons when choosing a new car.

Example: Choosing a Job
To examine how decisions are made, let’s take a common one faced by hopeful recent college graduates: job selection. Choosing a first job, or any for that matter, is a highly consequential decision. It helps determine your standard of living, your ability to repay student loans, and the early course of your career. Taking a rational, deliberative approach to making this decision can give you confidence that you have made the right choice and increase the likelihood that you will be satisfied with it.

So you’ve looked for a job, found several opportunities, had successful interviews, and been offered several positions. That’s worth celebrating, but where do you start to make the decision about which one to accept? The first step is identifying the goal: what kind of job do you seek? It may be one that offers an entry into an industry or profession you are passionate about or one that is located in a city where you want to live. Identifying the goal is probably something you did when you began your job search, but you may have cast a wide net to maximize your chances. Whatever that goal, it is important to state it so you can be sure the final decision serves that objective.

Decision Criteria
Decisions are made against a set of criteria, the factors that are relevant and important aspects of the choice. In the case of job selection, the list can be long depending on what is valuable to you. Criteria may include the level and type of compensation, the range and quality of healthcare benefits, the amount of vacation, the work environment and organizational culture, career development and learning opportunities, task characteristics and assignments, and work-life balance. Listing the criteria that matter to you creates a way to consider the options. Establishing your criteria before you are faced with a choice can alleviate the time pressure that may come when an offer has a short deadline (“Let us know by the day after tomorrow.”), which can inhibit your ability to make a good decision.

The process of identifying criteria also helps clarify what you will value most as an employee. Prioritizing in rank order the criteria you select can help you make the decision that maximizes the outcome for you. Many of the criteria will be things that can be quantified; salary is the most obvious. Even those that don’t have a number associated with them can still be described in objective terms and thus considered rationally. For instance, a job can offer a lot of variety or be limited to a narrower range of duties. Rather than represented on a numeric, or interval, scale, this criterion can be described in terms of “high” and “low” on an ordinal scale.

Selecting Alternatives
Without alternatives, there would be no decision to make. Based on the goal, a decision process includes the search for a range of options to consider. It may as simple as “go/no go” in the case of a new product launch, or there may be a large number of options as in decisions about where to place ads as part of a marketing campaign. The range of options available when choosing to accept a job offer was the result of a prior set of decisions about which ones to apply for and pursue. Even if you have only one offer, you still have the choice of whether to take it or not, in which case you continue your search. Depending on how many choices you have, now is the time to be sure each matches the goal you have established. If it doesn’t, you might consider eliminating it from the options you consider.

Analyzing Alternatives
Analyzing the alternatives against the set of criteria is the next step in making a decision. This step involves collecting data and information for each alternative that relate to the criteria. Some of this will have been obtained from the research you did in the course of the job search while others may be included in the job offer itself. The criteria can also serve as the basis for the questions you should ask during the interview process; this is another reason to be clear about what matters to you before you reach a decision point. Once you have comparable data for the alternatives you can see which scores highest, or is most preferable, on each criterion. A helpful tool for doing this is a simple spreadsheet that arrays the alternatives in the top row and the criteria in the first column. Following the rational choice model, the decision should be the alternative that provides the highest value on the most important criteria.

Decision Feedback
After you’ve made a decision, how do you know it it’s the right one? In time, feedback will come in the form of results. After a while you’ll have more and better information about how the job you chose actually rates on the criteria you selected. The closer the fit, the more satisfied you are likely to be since the job is meeting your expectations. This is confirmation that your choice was the right one. Alternatively, you may find the requirements of the job, the working conditions, or the career opportunities are not what you were led to believe. This may lead you to consider starting a new job search to find an opportunity that better matches your needs, goals, and desires.

Non-rational Decision Making
Left out of this discussion so far are the emotional aspects of decision making. These are not rational in the sense that they don’t rely on logic or objectivity, but still they are important influences in the choices we make. One common element is risk tolerance, or how well you handle uncertainty. For example, choosing to join a startup may promise a big upside reward when compensation comes the form of stock options that become valuable when the company is acquired. But that comes at the cost of lower cash compensation with no certainty of higher reward: there is the risk that the company will fail to find a market for its goods or services and go out of business, rendering the stock options worthless. Your willingness to take on some risk will shape your decision. Other emotions can come into play. For instance, you may want to be close to friends and family or work for a company that gives you a sense of status or prestige. There may even be an emotional component to the criteria you’ve used; for instance, how you’ll feel about yourself if you accept a job at a company that pays more than the others even though you don’t agree with some of its business practices.

We also have to approach decisions knowing that we do not always have full and accurate information. That doesn’t mean choosing based on assumptions or instinct, but rather that it’s not possible to have confidence that you have perfect information – only the best that is available at the time of the decision. You can’t fully know what it’s like to work at a job until you’ve actually done so. People can tell you what it’s like, but you may perceive it differently. In that sense, the information you based your analysis was limited by what was knowable; some things are only learned through experience.

The ability to make decisions can improve the more you have the opportunity to do so. Stating goals, identifying alternatives and criteria, analyzing those alternatives, and finally making a choice all rely on a mix of skills, aptitudes, and heuristics that enable us to make sense of the options. These can be developed over time to improve one’s judgment and ability to make the right decision.

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