Paul Nutt, a leading decision-making researcher – Only 15% of the case studies saw decision-makers actively seek out new options than what was available at the outset. Only 29% of organizational decisions contemplated more than one alternative. (From Farsighted by Steve Johnson)
There is more to decision-making than “whether or not”. Too often, decision-making is bereft of choices. Everything is condensed into a “go or no go” decision or just an act of rejecting the choice placed on the table. This is just a choice between one change and maintaining the status quo. Think how limiting decision-making is in this austere environment. Yes, restricting options simplifies problem-solving, but it also limits opportunities.
It is not easy to develop choices. We naturally like to limit our choices because our ability to process multiple pieces of information is limited. We also have a problem with processing alternative models that may conflict. Alternative models require acceptance of disorder when we prefer an ordered world that follows a few simple rules. So what should an investment manager do?
When presented with a single choice, ask for more. What are we forgetting? Ask for the options that were eliminated from consideration. However, the essential requirement is not the choice of action but expanding the forecast choices. Investment choices are limited because environmental options are limited. Ask for alternative realities. For example, if we believe that the Fed will not raise rates in 2019, there is a limited set of choices for action. If you accept that alternative realities exist where the Fed may act to raise rates, albeit unlikely, the investment choices are more complex. The set of options is a function of the group of assumptions used. Change beliefs and intentions change. Ask for different assumptions and see if preferences change. Along with increasing the options is a requirement to handicap their likelihood. More alternatives are good, but the chances of other possibilities differ.
Increasing choices go back to basics – look for alternatives and weigh them by their probability of success. Next, increase choices of forecasts and increase options of action. Finally, map a set of projections into a set of steps.