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Volume 16, Number 2 Copyright 2000 Corporate Support Systems, Inc. All Rights Reserved

Smart Choices
A Practical Guide
to Making Better Decisions

John S. Hammond, Ralph L. Keeney,

and Howard Raiffa
1999 Jossey-Bass Publishers
ISBN: 0-875-84857-5
Number of Pages: 208

Summary
Chapter One: Making Smart Choices
Decisions are the fundamental tool people use in facing lifes opportunities and challenges. Some decisions are fairly
obvious but most are complex, with no easy solutions. Moreover, decisions not only affect the individual, but also family,
friends, coworkers, and an unimaginable host of others. Thus, making good decisions is one of the most important
determinants of how well we meet our responsibilities and achieve personal and professional goals.
Despite their importance, most people dread making hard choices. The stakes are high, numerous and complex
considerations are involved, and serious consequences are attached. So, we suffer through self-doubt, overconfidence,
procrastination, wheel spinning, flip-flopping, and/or desperation and end up making a mediocre choice that we
later regret.
We have so much trouble because we havent been trained; therefore, we are forced to learn from experience. However,
situations vary so markedly, the experience of making one important decision often seems of little use when facing the
Business Book Review Vol. 16, No. 2 Copyright 2000 Corporate Support Systems, Inc. All Rights Reserved

Smart Choices

John S. Hammond, Ralph L. Keeney, and Howard Raiffa

next. Thus, the only way to raise the odds of making a good
Is straightforward, reliable, easy to use,
decision is to learn to use a good decision-making process
and flexible.
that addresses the how rather than the what.
Chapter Two: Problem
The PrOACT approach is that kind of process. By
Posing the right problem drives everything else.
working through its eight elements one by one, individuals
Because
the way in which the problem is stated determines
can analyze and resolve even the most complex decision.
the alternatives and how they are evaluated, the wrong
The first five elements Problem, Objectives, Alternatives,
Consequences, and Tradeoffs
A good decision doesnt necessarily guarantee a good result, just as a
constitute the core of the
bad decision doesnt necessarily guarantee a bad result. The careless
methodology and are applicable
can hit it lucky; the careful can be shot down. But a good decision
to almost any decision. They does increase the odds of success an at the same time satisfies our
form the acronym PrOACT that very human desire to control the forces that affect our lives.
serves as a reminder that the
decision problem will lead to the wrong choice. To ensure
best way to make chioces is to be proactive. The three
getting it right, we need to think creatively, and we need
remaining elements uncertainty, risk tolerance, and
to consider that all problems are not bad. By stating a
linked decisions help clarify decisions in volatile or
problem creatively, we can often transform the bad into
evolving contexts. When these elements are combined,
an opportunity that opens up attractive and useful new
they form a decision-making process that is effective
alternatives.
because it does the following:
The best method for defining, or redefining, a decision
is to start by writing down your initial assessment of the
Focuses on whats important;
basic problem, then question, test, and hone it. Ask what
Is logical and consistent;
triggered this decision. Question the constraints in your
Acknowledges both subjective and objective
problem statement that narrow the range of alternatives.
factors and blends analytical with
Identify the essential elements of the problem to ensure
intuitive thinking;
that youre focused on the right goal. Understand what
Requires only as much information and
other decisions impinge, or hinge, on this basic decision.
analysis as is necessary to resolve a
Establish a sufficient scope for your problem definition.
particular dilemma;
And, gain fresh insights by asking others how they view
Encourages and guides the gathering of relevant
the situation.
information and informed opinion; and

Chapter Three: Objectives

About the Authors
John S. Hammond, former professor at Harvard
Business School, is a decision-making consultant
specializing in negotiation and corporate strategy.
Ralph L. Keeney is a professor in the Marshall
School of Business at the University of Southern
California, a member of the National Academy of
Engineering, and a decision-making consultant.
Howard Raiffa, professor emeritus at Harvard
Business School, is a pioneer in developing decision and negotiating analysis. He is also the author
of The Art and Science of Negotiation.

After formulating the right decision problem, pause

and think about your objectives. Because they form the
basis for evaluating the available alternatives, they are your
decision criteria. They help determine what information
to seek. They help explain your choice to others. And,
they determine a decisions importance and the amount of
time and effort it deserves.
Identifying objectives requires five steps. First, write
down all the concerns you hope to address with your
decision. Second, convert these concerns into succinct
objectives, consisting of a verb and an object (e.g., minimize
costs). Third, separate ends from means. Each means
objective can serve as a stimulus for generating alternatives
and can deepen your understanding of your decision

Business Book Review Vol. 16, No. 2 Copyright 2000 Corporate Support Systems, Inc. All Rights Reserved

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Smart Choices

problem. But, only fundamental objectives (ends) should

be used to evaluate and compare alternatives. The fourth
step involves clarification. Asking, What do I really
mean by this? enables you to see the components of
your objectives more clearly. In the fifth and final step,
you should test your objectives to ascertain if youd be
comfortable living with the resulting choices. A second
useful test is to see if these objectives would help explain
a prospective decision to someone else.

Chapter Four: Alternatives

Alternatives represent the range of potential choices
available for pursuing your objectives. Thus, you need
to actively think about alternatives in order to avoid
falling into the trap of business-as-usual types of
decisions, incrementalizing, choosing only the first available
solution or among alternatives presented by others, and
procrastinating so long that desirable alternatives are no
longer available.
A good set of alternatives can be generated via the
following techniques: You can use your objectives to ask,
How can I achieve the objectives Ive set? This question
will lead you from ends (objectives) to means. You can
assume no constraints exist and then create alternatives
that reflect their absence. You can also increase your

John S. Hammond, Ralph L. Keeney, and Howard Raiffa

decision will often be obvious, and no further reflection

will be needed.
The trick is to describe the consequences with enough
accuracy, completeness, and precision as possible, which
can be accomplished by employing four steps. First,
mentally put yourself into the future in order to focus
on the longer-term consequences of a decision. Second,
create a free-form description of the consequences of each
alternative, using any words or numbers that best capture
its key characteristics. Third, eliminate any clearly inferior
alternatives. And, four, organize descriptions of remaining
alternatives into a consequences table.

Chapter Six: Tradeoffs

At this point, some of the poor choices will likely have

been eliminated. Those that remain, however, will seem
to nearly balance each other. In other words, alternative A
will be better than alternative B on some objectives, but
worse on others. Thus, you need to make tradeoffs to give
up something on one objective to achieve more in terms of
another. The difficulty lies in the fact that each objective
has its own basis of comparison either precise numbers,
relational judgments, or descriptive terms.
Before making rough tradeoffs, try ruling out some
of your remaining alternatives. The fewer the alternatives
there are, the fewer tradeoffs youll need, and
Always focus your thinking where it matters most. Typically, the easier your decision will be. To identify
for all but the most complex decisions, you will not need to
alternatives that can be eliminated, decide if
consider all the elements in depth.
alternative A is better than alternative B on
chances of finding good unconventional alternatives by
some objectives and no worse than B on all other objectives.
setting targets that seem beyond reach. Moreover, it is
If so, B can be eliminated because it is dominated by A. It
important that you give your own mind free rein and
(B) has disadvantages without any advantages.
give your subconscious time to operate before consulting
Because consequences tables provide a framework that
others. Finally, remember to tailor alternatives to the
facilitates comparison, they can be used to help identify
situation. Process, win-win, information-gathering, and
dominated alternatives. However, if there are too many
time-buying alternatives are particularly well suited to
alternatives and objectives listed, it becomes difficult to
specific kinds of problems.
spot dominance. If this is the case, create a second table
in which the descriptions of consequences are replaced
Chapter Five: Consequences
with simple rankings.
Making a smart choice requires comparing the merits
At this point, if more than one alternative is in
of competing alternatives and assessing how well each
contention, tradeoffs will need to be made. The even swap
satisfies your fundamental objectives. Thus, you need
method provides a means of adjusting the consequences of
to delineate the consequences of each alternative listed.
different alternatives in order to render them equivalent in
Doing this will help you gain a better understanding
terms of a given objective, making the objective irrelevant.
of consequences, your objectives, and even the decision
As more objectives are eliminated, additional alternatives
problem. If you articulate the consequences well, your
Business Book Review Vol. 16, No. 2 Copyright 2000 Corporate Support Systems, Inc. All Rights Reserved

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Smart Choices

can be eliminated because of dominance, making the

decision easier.

Chapter Seven: Uncertainty

John S. Hammond, Ralph L. Keeney, and Howard Raiffa

think about the relative desirability of the consequences

of the alternatives youre considering. Second, balance
the desirability of the consequences with their chances of
occurring. Third, choose the most attractive alternative.
If you are still unable to decide at this point, you need
to be more precise about the relative desirability of
each consequence. Thus, it is necessary to move from a
qualitative analysis to a quantitative analysis by following
the same steps but using numbers to express the desirability
of each consequence and each alternative.

Some situations exist in which, no matter how much

thought is expended, there is no way of knowing what
the consequences will be until after the decision is made.
Although you cant make these kinds of uncertainties go
away, you can raise the odds via risk profiles.
By answering four key questions What are the key
uncertainties? What are the possible
outcomes of these uncertainties? What Sometimes, the simple act of setting out your problem, objectives,
are the chances of occurrence of each alternatives, consequences, and tradeoffs, as well as any uncerpossible outcome? And, what are the tainties, risks, or linked decision factors, will fully clarify the deciconsequences of each outcome? sion, pointing the way to the smart choice.
a risk profile captures the essential
Using these reliable, logical ways to account for your
information about the way uncertainty affects an alternative.
risk tolerance in making decisions will help you to avoid
Depending on the complexity of the decision, you should lay
focusing too much on the negative, fudging the probabilities
out the consequences, either by using a written description,
to account for risk, ignoring significant uncertainty, being
a qualitative description by objective, or a quantitative
foolishly optimistic, and evading risky decisions because
description by objective.
they are complex. This approach will also ensure that
Some highly complex decisions will, however, require
your subordinates reflect the organizations risk tolerance
further analysis in the form of a decision tree a graphical
in their decisions.
representation displaying all the interrelationships among
choices and uncertainties.
The tree begins at the
Chapter Nine: Linked Decisions
point of the decision, with the initial branches representing
Many important decision problems require that you
the competing alternatives. Each alternative branch leads
select now among alternatives that will greatly influence
to a fork, indicating an uncertainty. Each possible outcome
your choices in the future. Such decisions are linked
of the uncertainty is represented by a branch leading out
decisions. Whether they are minutes apart or years apart,
from the fork. Each of the outcome branches, in turn,
they add a new layer of complexity to the process.
leads to different consequences, which are summarized,
The essence of making smart linked decisions is
by objective, at the tips of the tree.
planning ahead. Chess players, for example, plan a
few moves ahead before making their current move.
Chapter Eight: Risk Tolerance
After making a move (the basic decision) and noting
Once the risk profiles have been specified and
developments (the opponents move, which resolves the
compared and all the poor choices eliminated, often the
pending uncertainty), the chess player again plans a
best choice will be obvious. But, if it isnt, you need to focus
few decisions ahead before making the next choice, and
not only on the risk profile, but also on the degree of risk
so on.
you are willing to assume. To reflect your risk tolerance,
Because linked decisions can present hundreds or
you need to think about how desirable you consider the
thousands of possible combinations of alternatives and
possible consequences to be relative to one another. The
consequences, the trick is to follow six steps to focus your
more desirable the better consequences of a risk profile are
attention on those aspects that matter most:
relative to the poorer consequences, the more willing you
will be to take the risks necessary to get them.
1. Understand the basic decision problem.
Three simple steps are required to take your risk
2. Identify ways to reduce critical uncertainties.
tolerance into account when comparing risk profiles. First,
Business Book Review Vol. 16, No. 2 Copyright 2000 Corporate Support Systems, Inc. All Rights Reserved

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Smart Choices

3. Identify future decisions linked to the

basic decision.
4. Understand relationships in linked decisions
by drawing a decision tree to represent the
links between choices and learned information
in sequence.
5. Decide what to do in the basic decision
think ahead and then work backward
in time.
6. Treat later decisions as new decision
problems.
Sometimes, uncertainty is so great and the present
environment undergoes so much change that its difficult
to plan future decisions with confidence. In these cases,
flexible plans (e.g., all-weather plans, short-cycle plans,
option wideners, and/or be-prepared plans) keep your
options open, allowing you to make the most of whatever
circumstances arise.

Chapter Ten: Psychological Traps

John S. Hammond, Ralph L. Keeney, and Howard Raiffa

of the decision, making appropriate tradeoffs among

conflicting objectives, dealing sensibly with uncertainties,
taking into account ones tolerance for risk, and planning
ahead for decisions linked over time. Becoming a smart
decision maker (i.e., a person who becomes adept at
making smart choices over time), however, involves
mastering the following ten core practices and applying
them consistently:
1. Getting started procrastination is the bane of
good decision making;
2. Concentrating on whats important;
3. Developing a plan of attack;
4. Chipping away at complexity;
5. Getting Unstuck;
6. Knowing when to quit;
7. Using advisers wisely;
8. Establishing basic decision-making principles;
9. Tuning up your decision-making style; and
10. Taking charge of your decision making.

In addition to making the process mistakes (e.g.,

working on the wrong problem, failing to identify
* * *
key objectives, overlooking crucial consequences, etc.),
Instead of a subject index, A Roadmap to Smart
individuals can also fall prey to psychological traps that will
Choices is provided.
undermine even the most carefully considered decisions.
Anchoring, maintaining the
Too often, people give short shrift to problem definitoin. Though they
status quo, protecting earlier
may feel like theyre making progress in solving their problem, to us
choices, seeing what you want they seem like travelers barreling along a highway, satisfied to be
to see, flawed framing, going 60 miles an hour-without realizing theyre going the wrong way.
overconfidence, focusing on
dramatic events, neglecting relevant information, slanting
probabilities and estimates, seeing patterns where none
exist, and becoming mystical about coincidences are some
What route should I drive to work? Should I even go
of the misperceptions, biases, and other tricks of the mind
to work today? Should I repair the car or buy a new one?
that can distort the choices we make.
Should I accept that new job and move my family to a
Unfortunately, we cant rid our minds of these ingrained
new town? What college should I attend, and what course
flaws. We can, however, build tests and disciplines into
of study should I pursue? Should I change careers or go
the decision-making process that can uncover and counter
after a promotion in my present job? Should I buy a new
errors in thinking before they become errors in judgment.
house, in what neighborhood, and for how much? Should I
Thus, the best protection is awareness.
spend my money I inherited from Aunt Esther on a dream
Chapter Eleven: The Wise Decision Maker
vacation, should I use it to renovate the house, or should
Making a smart decision requires addressing the right
I invest it? If I decide to invest, should it be in stocks,
problem, clarifying the real objectives, developing a range
bonds, IRAs, mutual fundsor what? These are the kinds
of creative alternatives, understanding the consequences
of choices we are forced to make each and every day.

Remarks

Business Book Review Vol. 16, No. 2 Copyright 2000 Corporate Support Systems, Inc. All Rights Reserved

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Smart Choices

And these decisions have consequences that will affect the

decisions we are faced with tomorrow. Thus, every choice
we make alters our lives in some measure.
Unfortunately, most of us dont have the first clue as
to how to go about making sound choices, so we become
anxious and confused and end up making decisions too
quickly, too slowly, or too arbitrarily. Smart Choices is
offered as a means of bridging the gap between how we
actually make decisions and how we should make them.
It presents a divide-and-conquer process and a set of
techniques for systematically thinking it through. And,
it uses a proactive approach that encourages the seeking
out of decision-making opportunities rather than waiting
for decision problems to present themselves.
Nonetheless, the book is not as easy to understand and
as user-friendly as the authors promise. Yes, they do avoid
much of the academic and technical jargon they say is
characteristic of the existing research on decision making;
however, the step-by-step procedures are sometimes very
detailed and as a consequence their instructions lean toward
the arcane. Thus, understanding the intricate procedures of
each technique will require a concerted effort and, perhaps,
a great deal of time. Fortunately, the authors provide many
examples, scenarios, and real-life descriptions of how to
apply the concepts. Although they may not necessarily
clarify the mechanics, they will help you to understand
the concepts.
Even if you are unable to quickly understand and use
each step in the process, the work does provide substantial
value in two important ways. First, it explains that the
frustration, self-doubt, wheel spinning, indecisiveness,
desperation, and even the tendency to procrastinate are
normal afflictions given the fact that most of us are never
taught how to make decisions. Knowing that ones inability
to consistently make good choices is not a fundamental
character flaw, and that effective decision making is
actually a skill to be learned, is a tremendous plus.
Second, Smart Choices teaches us that decisions can be
broken down into at least eight components and that those
elements can be examined separately and systematically.
For those individuals whose decision-making process is
solely a matter of devising a list of pros and cons (probably
the majority of the population), the fact that decisions can
be broken down into at least eight actionable steps is truly
a revelation. True, during the initial reading of the book,

John S. Hammond, Ralph L. Keeney, and Howard Raiffa

you might be left glassy-eyed by some of the instructions

for example: To determine a consequences contribution
to the alternatives desirability, multiply its associated
outcomes probability by its desirability score assigned in
the first step. If your best consequence (desirability score
of 100) had an outcome probability of 30 percent (0.3),
its contribution would be 30 (i.e., 100 x 0.3 = 30). If
this explanation of how to quantify risk tolerance merely
serves to conjure up the agony of defeat you suffered in
every math class you ever took, never fear. You will still
gain great benefit from knowing that such a thing as an
attitude toward risk exists, that it is a legitimate component
of your individual personality, that it can be identified and
then qualified and quantified and, finally, that the fact
of its existence (if not its actual measurement) can and
should be taken into consideration when making a decision.

Reading Suggestions
Reading Time: 6 to 8 hours
If you are only interested in reading about some useful
insights into the theory and practice of decision making,
and have no intentions of actually learning the process,
then you can finish the entire book in the time estimated.
However, this is not just a book, but a course (a twelve-week
course at that one week for each chapter and a final week
for clarification), and as the authors state, you have to work
at it to gain the full benefit. We believe you can best gain
the benefit the authors intended by following two steps.
First, read Smart Choices from cover to cover, without
taking time to make notes or to do any of the procedures.
Two, go back to the beginning (Chapter Two), armed with
an important decision of your own, and work through the
decision-making process chapter by chapter. We estimate
that this approach will take several weeks, so dont pick a
decision that must be made right away.
Unfortunately for those interested in further research,
the only references or bibliographic notes available are for
Chapter Ten. However, the authors bios, appearing at the
end of the work, list other books and articles theyve written
that might be of some use in your research efforts. Beyond
that, the only way to judge if the material is authoritative
is to see if the concepts work in practice.

Business Book Review Vol. 16, No. 2 Copyright 2000 Corporate Support Systems, Inc. All Rights Reserved

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Smart Choices

John S. Hammond, Ralph L. Keeney, and Howard Raiffa

Editor Dr. Jagdish N. Sheth

Publisher John P. Fayad
Lead Book Reviewer Lydia Morris Brown
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