Consequences Tables

From Raiffa’s book “Smart Choices“

Use a Consequence Table:

• “You’ve defined your problem, you’ve structured your objectives, and you’ve established the set of alternatives you have to choose from. Now, to make a smart choice, you need to compare the merits of the competing alternatives, assessing how well each satisfies your fundamental objectives. To make the comparisons, you’ll first need to describe how well you’ll fare with each alternative. In other words, you’ll need to lay out the consequences each alternative would have for each of your objectives. If you describe the consequences well, your decision will often be obvious— without requiring much further reflection.” (p. 65)
  
  
• “This chapter presents a simple message: be sure you really understand the consequences of your alternatives before you make a choice. If you don’t, you surely will afterwards, and you may not be very happy with them. The main benefit to be derived from describing consequences is understanding. You will gain a better understanding not only of the consequences themselves, but also of your objectives and even of your decision problem. The more deeply you understand these, the more likely you are to make a smart choice.” (p. 65)
  
  
• “Describing consequences isn’t as easy as it might at first appear. In fact, it can be downright difficult. If your descriptions are inaccurate, incomplete, or imprecise, the three biggest pitfalls, you risk making a poor choice.” (p. 66)

Build a Consequences Table

• “The trick is to describe the consequences with enough precision to make a smart choice, but not to go into unnecessary and exhausting detail.” (p. 67)
  
  
• “Step 1: Mentally put yourself into the future. Because the consequences of your decisions will occur in the future, often months or years from now, you need to shift your mindset ahead in time to uncover a decision’s true significance. As you think about each alternative, instead of imagining you might choose it, imagine that you have chosen it. 
  
  Imagine, for example, that you have remodeled your house following the plans just submitted by your architect. Ask yourself what life is like in the remodeled house. What is a typical weekday like? a weekend day? a summer day? a winter day? What’s it like when you have house guests? How are things different when your children are three years older? Putting yourself in the future will help you to focus on the longer-term consequences of a decision rather than just the immediate ones, and it will help you to view those consequences in their actual context.” (p. 67)
  
  
• “Step 2: Create a free-form description of the consequences of each alternative. Write down each consequence using the words and numbers that best capture its key characteristics.” (p. 68)
  
  
• Step 3: Eliminate any clearly inferior alternatives. “This step is a terrific time saver for many decisions because it can quickly eliminate alternatives and may lead to a resolution of your decision. You essentially play ‘‘king of the mountain,’’ trying to knock one alternative out with another.” (p. 68)
  
  
• Step 4: Organize descriptions of remaining alternatives into a consequences table. Using pencil and paper or a computer spreadsheet, list your objectives down the left side of a page and your alternatives along the top. This will give you an empty matrix. In each box of the matrix, write a concise description of the consequence that the given alternative (indicated by the column) will have for the given objective (indicated by the row). You’ll likely describe some consequences quantitatively, using numbers, while expressing others in qualitative terms, using words. The important thing is to use consistent terminology in describing all the consequences for a given objective—in other words, use consistent terms across each row. Now, compare pairs of alternatives again, and eliminate any that are inferior.” (p. 69)

Example:

• “As you can see, a consequences table puts a lot of information into a concise and orderly format which allows you to easily compare your alternatives, objective by objective. It gives you a clear framework for making comparisons and, if necessary, tradeoffs. Moreover, it imposes discipline, forcing you to bring together all your thinking about your alternatives, your objectives, and your consequences into a single, concise framework. Although this kind of table isn’t too hard to create, we’re always surprised at how rarely decision makers take the time to put down on paper all the elements of a complex decision. Without a consequences table, vital information can be overlooked and comparisons can be made haphazardly, leading to wrong-headed decisions.” (p. 71)
  
  
• “Use experts wisely. Frequently, others—we’ll call them ‘‘experts’’—will know more about the possible consequences than you do. Accountants and tax attorneys can best assess the ramifications of putting investments in your name or your child’s name. And your nine-year-old may be the family expert on how much a particular birthday present would please an eight-year-old cousin.” (p. 74)
  
  
• “When you seek out the judgment of others, be sure you understand not just the consequences they project but how they derived those consequences. You will want a full explanation of the underlying data, judgments, and logic. This explanation will be especially important for controversial decisions that you will need to explain or justify to family, colleagues, or others.” (p. 75)
  
  
• “Too often, the terms used in describing consequences imply a level of precision that is higher or lower than is reasonable or useful. A rough cost estimate stated as ‘‘$33,475’’ implies too much precision in the scale. It would be more accurate if it were stated as ‘‘$33,000 ± 10 percent.’’ (p. 75)
  
  
• “Address major uncertainty head on. For some consequences, you won’t be certain about what will happen. When the uncertainty is modest, you can usually define consequences using an estimate or a representative figure. When comparing new cars to buy, for example, you won’t know the actual prices until you negotiate a purchase, but a reasonable estimate will serve to narrow the field or even to make a choice. In this and in many other cases, the low uncertainty level will not influence the decision. For many other decisions, however, uncertainty may loom large enough to complicate your ability to describe consequences adequately. With decisions involving investments, insurance, or complex medical or legal matters, you will want to address the uncertainties explicitly—a topic we’ll address in Chapter 7.” (p. 76)

Tradeoffs

• “At this point of the process, having compared the consequences of your alternatives, you will likely have eliminated some poor choices. Those that remain will seem to nearly balance each other: alternative A will be better than alternative B on some objectives, but worse on others. Important decisions usually have conflicting objectives—you can’t have your cake and eat it, too—and therefore you have to make tradeoffs. You need to give up something on one objective to achieve more in terms of another.” (p. 83)
  
  
• “When you do have only one objective, your decision is straightforward. If you wanted to fly from New York to San Francisco as cheaply as possible, for example, you’d simply find the airline offering the lowest fare and buy a ticket. But having only one objective is a rare luxury. Usually, you’re pursuing many different objectives simultaneously. Yes, you want a low fare, but you also want a convenient departure time, a direct flight, and an airline with an outstanding safety record. And you’d also like to have an aisle seat and earn frequent flyer miles in one of your existing accounts. Now the decision is considerably more complicated. Because you can’t simultaneously fulfill all your objectives, you’re forced to seek a balance among them. You have to make tradeoffs.” (p. 84)
  
  
• “Making wise tradeoffs is one of the most important and most difficult challenges in decision making. The more alternatives you’re considering and the more objectives you’re pursuing, the more tradeoffs you’ll need to make. The sheer volume of tradeoffs, though, isn’t what makes decision making so hard. It’s the fact that each objective has its own basis of comparison. For one objective you may compare the alternatives using precise numbers or percentages—34 percent, 38 percent, 53 percent. For another, you may need to make broad relational judgments—high, low, medium. For another, you may use purely descriptive terms— yellow, orange, blue. You’re not just trading off apples and oranges; you’re trading off apples and oranges and elephants.” (p. 84)

First eliminate dominated alternatives.

• “The first step is to see if you can rule out some of your remaining alternatives before having to make tough tradeoffs. The fewer the alternatives, the fewer the tradeoffs you’ll need to make and the easier your decision will be. To identify alternatives that can be eliminated, follow this simple rule: if alternative A is better than alternative B on some objectives and no worse than B on all other objectives, B can be eliminated from consideration. In such cases, B is said to be dominated by A—it has disadvantages without any advantages.” (p. 85)
  
  
• “To make it easier to uncover dominance, you should create a second table in which the descriptions of consequences are replaced with simple rankings.” (p. 86)

Try the even swap method.

• “What is the even swap method? To explain the concept, we need to first state an obvious but fundamental tenet of decision making: if all alternatives are rated equally for a given objective—for example, all cost the same—then you can ignore that objective in choosing among those alternatives. If all airlines charge the same fare for the New York–San Francisco flight, then cost doesn’t matter. Your decision will hinge only on the remaining objectives.” (p. 90)

Example: Renting an office space.

• Alan Miller is a computer scientist who started a technical consulting practice three years ago. For the first year he worked out of his home, but with his business growing he decided to sign a two-year lease on some space in the Pierpoint Office Park. Now that lease is about to expire. He needs to decide whether to renew it or move to a new location. After considerable thought about his business and its prospects, Alan defines five fundamental objectives for an office: short commuting time, good access to clients, good office services (clerical assistance, copy machines, faxes, mail service), sufficient space, and low cost. He surveys more than a dozen possible locations and, dismissing those that clearly fall short of his needs, settles on five viable alternatives: Parkway, Lombard, Baranov, Montana, and his current building, Pierpoint.” (p. 94).

“For some decisions, you yourself will be the source of much of the relevant information. If you are trading off vacation time and salary in choosing among job offers, only you know how you would spend a two-week versus a four-week vacation and the value of the difference to you. You should be as rigorous in thinking through your own judgments as you are in assessing objective data from outside sources. No matter how subjective a tradeoff, you never want to be guided by whim—think carefully about the value of each consequence to you.” (p. 102)