Making decisions is a fundamental life skill. Expecting to make perfect decisions all of the time is unreasonable. When even an ounce of luck is involved, good decisions can have bad outcomes. So our goal should be to raise the odds of making a good decision. The best way to do that is use a good decision making process.
Smart Choices: A Practical Guide to Making Better Decisions contains an interesting decision making framework: PrOACT.
We have found that even the most complex decision can be analysed and resolved by considering a set of eight elements. The first five—Problem, Objectives, Alternatives, Consequences, and Tradeoffs—constitute the core of our approach and are applicable to virtually any decision. The acronym for these—PrOACT—serves as a reminder that the best approach to decision situations is a proactive one. … The three remaining elements—uncertainty, risk tolerance, and linked decisions—help clarify decisions in volatile or evolving environments.
This framework can help you make better decisions. Of course, sometimes good decisions go wrong. A good decision, however, increases the odds of success.
There are eight keys to effective decision making
From Smart Choices:
Work on the right decision problem. … The way you frame your decision at the outset can make all the difference. To choose well, you need to state your decision problems carefully, acknowledging their complexity and avoiding unwarranted assumptions and option-limiting prejudices. …
Specify your objectives. … A decision is a means to an end. Ask yourself what you most want to accomplish and which of your interests, values, concerns, fears, and aspirations are most relevant to achieving your goal. … Decisions with multiple objectives cannot be resolved by focusing on any one objective.
Create imaginative alternatives. … Remember: your decision can be no better than your best alternative. …
Understand the consequences. … Assessing frankly the consequences of each alternative will help you to identify those that best meet your objectives—all your objectives. …
Grapple with your tradeoffs. Because objectives frequently conflict with one another, you'll need to strike a balance. Some of this must sometimes be sacrifices in favor of some of that. …
Clarify your uncertainties. What could happen in the future and how likely is it that it will? …
Think hard about your risk tolerance. When decisions involve uncertainties, the desired consequence may not be the one that actually results. A much-deliberated bone marrow transplant may or may not halt cancer. …
Consider linked decisions. What you decide today could influence your choices tomorrow, and your goals for tomorrow should influence your choices today. Thus many important decisions are linked over time. …
Max Bazerman, suggests something very similar to this approach in Judgment in Management Decision Making:
The Anatomy of Decisions
The term judgment refers to the cognitive aspects of the decision-making process. To fully understand judgment, we must first identify the components of the decision-making process that require it.
Let's look at six steps you should take, either implicitly or explicitly, when applying a “rational” decision-making process to each scenario.
1. Define the problem. (M)anagers often act without a thorough understanding of the problem to be solved, leading them to solve the wrong problem. Accurate judgment is required to identify and define the problem. Managers often err by (a) defining the problem in terms of a proposed solution, (b) missing a bigger problem, or (c) diagnosing the problem in terms of its symptoms. Your goal should be to solve the problem not just eliminate its temporary symptoms.
2. Identify the criteria. Most decisions require you to accomplish more than one objective. When buying a car, you may want to maximize fuel economy, minimize cost, maximize comfort, and so on. The rational decision maker will identify all relevant criteria in the decision-making process.
3. Weight the criteria. Different criteria will vary in importance to a decision maker. Rational decision makers will know the relative value they place on each of the criteria identified. The value may be specified in dollars, points, or whatever scoring system makes sense.
4. Generate alternatives. The fourth step in the decision-making process requires identification of possible courses of action. Decision makers often spend an inappropriate amount of search time seeking alternatives, thus creating a barrier to effective decision making. An optimal search continues only until the cost of the search outweighs the value of added information.
5. Rate each alternative on each criterion. How well will each of the alternative solutions achieve each of the defined criteria? This is often the most difficult stage of the decision-making process, as it typically requires us to forecast future events. The rational decision maker carefully assesses the potential consequences on each of the identified criteria of selecting each of the alternative solutions.
6. Compute the optimal decision. Ideally, after all of the first five steps have been completed, the process of computing the optimal decision consists of (a) multiplying the ratings in step 5 by the weight of each criterion, (b) adding up the weighted ratings across all of the criteria for each alternative, and (c) choosing the solution with the highest sum of weighted ratings.
Rational decision frameworks, such as those suggested above, are a great starting place. On top of that we need to consider our psychological biases. And keep a decision journal.