Decision Making - Working Hypothesis

You have brought forward the best alternative decision you chose at Stage 6. It now becomes your educated guess or hypothesis. A hypothesis is also sometimes called an informed guess, a tentative theory or decision. However, "working hypothesis" describes it more exactly, as it is on trial and you will be challenging it at Stage 8. Here at Stage 7 you will make sure that your hypothesis meets certain standards. Then you will make prediction about your hypothesis that you will check on at Stage 8 when you challenge your hypothesis extensively.

The Method of Multiple Working Hypotheses

Although you usually have only one hypothesis, at times you may end up with more than one you want to present. This is especially so in decision making, planning, diagnosis of illness, geology, and the social sciences. This will require more work at Stage 8, when you give your multiple hypotheses extensive challenge.

Desirable characteristics or traits of a decision-type hypothesis:

•  Be sure it is explicitly stated to help in challenging at Stage 8.
•  It must be better than any rival hypothesis.
•  It brings order out of chaos.
•  It is consistent with existing knowledge and data.
•  It is relevant, fruitful, adequate, and logically achievable.

Normally, predictions should be made about the consequences of a hypothesis so that they can be explored and tested, if possible. However, sometimes a written explanation is prepared instead of testing predictions.

Future Decision Making - Predictions to Test and Check at Stage 8

In challenging your hypothesis at the next stage, you will be helped if you have some predictions to test or check. People have always placed a high value on the ability to predict the future. Making a decision usually involves predicting what will happen in the future. This is very difficult. Often, testing these predictions results only in an educated guess if the future is involved. Here is the first step. You list factors such as these which predictions will be based on:

•  Benefits, disadvantages, good and bad consequences
•  Near-term and long-term consequences
•  Tradeoffs - lose something to gain something
•  Conflicts that may be involved
•  Evidence or prior experiences
•  Financial accounting tools for business decision making

Cost/Benefit and Cost Effectiveness of Your Decision

These are often the most significant feature in decision making and require special attention, especially in management decision making.

Probability Theory, Statistical Quality Control, Decision Making Under Uncertainty, Game Theory

There is a huge body of knowledge about these that you may want to study. They are important in decision making. The study of game theory will help you understand probability theory.

Decisions Involving Conflict

There is a lot of literature covering these that should be read - or hire an expert. In general, be careful of the emotional aspect. Do not be too optimistic or over-confident in your predictions about conflicts.

Behavioral Decision Making Theory

In predicting, keep in mind that people don't always do what they are supposed to do based on the expected utility theory. See "Behavior Decision Theory" for what to guard against.

Real World versus Our Model of the Real World

Analyze the differences to help the efficiency of your prediction. We tend to have a wrong picture of the real world.

Analyze and Control Your Biases & Decision Making Values

This is essential in predicting. Biases can easily cause erroneous predictions.

Can't Win Position

Often if you predict successfully, you may be resented. If you predict incorrectly, you are criticized. However, you must take risks to achieve anything.

Examples of some types of predictions about decisions concerning the future:

•  If this decision is made, the consequences will be .
•  A model we prepared shows this will happen . . .
•  A cost/benefit comparison shows this favorable result . . .
•  Experiment shows . . .
•  A customer survey shows they will . . .
•  Employees interviewed state they will . . .
•  If this decision is made, sales will . . .
•  If this decision is made, future monthly expenses will be . . .
•  If this decision is made, our competition will . . .
•  A mathematical computation shows . . .
•  A scenario we prepared estimates . . .
•  A computer simulation program shows . . .
•  The proposed new location will produce these savings . . .
•  Moving to the new location, we will lose this percentage of our work force . . .
•  Purchasing this new house will increase our monthly expenses by . . .

Next . . . At Stage 8 you will challenge your hypothesis or decision and predictions.