A Conversation on How We Make Decisions
Foundational Principle for this Blog: To explore Applied Game
Theory and how individuals and organizations can strategize to make
Definition: Decision – A choice selected from a number of alternatives.
STUDENT: How can Applied Game Theory be used to make effective
LEWIS: Any decision requires that a choice be made from a number of alternatives and
directed toward an organizational goal or sub-goal. This is basically what happens when an
individual chooses a strategy in Applied Game Theory.
STUDENT: What defines the superiority of one decision over another?
LEWIS: The likelihood that one consequence will result rather than
another. The correctness of decisions whether in a group or in a
personal situation is measured by two major criteria:
1. adequacy of achieving the desired objective; and
2. the efficiency with which the result was obtained.
Decisions can be complex admixtures of facts and values. In
groups with a hierarchal structure of leaders and followers,
information derived from observation or experimentation as well as
proven facts, or facts derived from specialized experience, are more
easily transmitted than are values. Many members of an organization
may focus on adequacy, but the overall administrative management must pay particular attention to the efficiency with which the desired
result was obtained to ensure that the benefits are worth the economic
and social cost.
STUDENT: How can one make wise decisions if one must make a personal decision
without the benefit of the assessment tools available to a large organization?
LEWIS: Through the assessment of fact-based and intuitive sourced
STUDENT: Explain this in greater depth.
LEWIS: Logical and apparently rational options have real and multiple consequences
consisting of personal actions or non-actions influenced by environmental factors and
values. In application, some of the various consequences may be unintended as well as
intended; may be conscious or unconscious; and some of the means and ends may be
imperfectly differentiated, incompletely related, or poorly detailed.
STUDENT: Let’s say that the information required to make a rational or
logical decision is available.
LEWIS: In such a case a clear-thinking individual will select the
alternative that results in the more desirable set of all the possible consequences.
STUDENT: This seems like a complex task.
LEWIS: It is; and yet to some it initially would seem pretty basic,
requiring only three steps that can be done with a pad and pencil:
1. identify and list all of the alternatives;
2. determine all the consequences resulting from each of the
3. compare the accuracy and efficiency of each of these sets of
STUDENT: So what makes it complex?
Lewis: Any given individual or organization attempting to strategize
applying this model in real life would soon discover that it is
extremely difficult to comply with the three steps, since it is
highly improbable that anyone can know all the alternatives, or all
the consequences that follow each alternative, without a remarkable
team including resources such as sophisticated computer models and
an understanding of many influential theories, such as the Butterfly
Effect and Black Swan.
STUDENT: If these limitations exist what can one do to make the best
LEWIS: Bringing into play the reality that there are insurmountable
limits on rational decision making, one would need to find and apply
other techniques or behavioral processes that a person or organization can bring to bear to achieve approximately the best result.
STUDENT: Is there much research on how to do this?
Yes. Much of the early research in this area was conducted by Herbert
Alexander Simon (June 15, 1916 – February 9, 2001), one of the most
influential social scientists of the 20th century. Simon dedicated
much of his life to exploring, both directly and indirectly, the
behavioral and cognitive processes and factors of making rational
human choices: that is, decisions. On this subject Simon wrote:
“The human being striving for rationality and restricted within the
limits of his knowledge has developed some working procedures that
partially overcome these difficulties. These procedures consist in
assuming that he can isolate from the rest of the world a closed system
containing a limited number of variables and a limited range of
STUDENT: Is Simon’s work still important today?
LEWIS: Yes. Even today many social scientists refer to his most
influential work, Administrative Behavior, in which he addresses a
wide range of criteria for evaluation of accuracy and efficiency,
such as cognitive abilities, human behaviors, management techniques,
personnel policies, training goals and procedures, specialized roles,
and all of the ramifications of communication processes.
STUDENT: Speak more of Simon’s work.
LEWIS: Simon explores many organizational factors but within the great
scope of his writings two universal elements of human social behavior
seem to stand out:
1. The Role of Authority
2. Loyalties and how an individual identifies with a specific group or
These are important areas of exploration for a person looking to
become skilled in the application of LHAGT since, when strategizing,
one must take into consideration factors such as hierarchal and
competitive behavior in oneself and others.
STUDENT: Can you address decision-making in a large competitive and hierarchal
LEWIS: In such an environment where one is dealing with operational administrative
decision-making, a decision as mathematically accurate, efficient, and practical as possible
is of greatest value.
STUDENT: What does “practical” mean in this context?
LEWIS: Easy to implement within a set of specific guidelines – what a
mathematician would call “coordinated means.”
STUDENT: So one must do this effectively in the midst of a hierarchal
and competitive environment?
LEWIS: Yes but this is not really an obstacle since hierarchies,
competition, and the application of power, influence and authority are
well studied, primary elements of organizational behavior.
STUDENT: Speak further about hierarchies, competition, and the
application of power, influence and authority in such a situation.
LEWIS: From a LHAGT perspective it is pretty straightforward. In
an organizational hierarchal game one individual has defined rights
because of a higher rank to determine the decision of an individual
of lower rank. There is both rigidity and flexibility within this
process. On the one hand the attitudes, actions, and relationships of
the dominant and subordinate individuals in the hierarchy constitute
components of role behavior that can vary widely in content, form, and style, but on the
other hand there is no variance in the expectation of obedience by the player of superior
status, as well as the willingness of the player in a
subordinate position to obey.
STUDENT: How does all this work in a Japanese business model, or in a communal
situation where everyone’s ideas are respected and considered?
LEWIS: There is no conflict here. It is virtually impossible to
have an organization, no matter how egalitarian, that does not
have some minimal authority, even if that position changes, as
for example it does in the UN Security Council, where a different
nation’s representative serves as president on a revolving basis.
No matter what the structure of a group might be, authority is
highly influential on the formal structure of the group, including
patterns and styles of communication, sanctions, and rewards, and the
establishment within the group of goals, objectives, and values.
STUDENT: How are personal decisions that an individual might make different than
decisions the same individual might make within an organization?
LEWIS: A decision that an individual might make as a member of an
organization would be quite distinct from his/her personal decisions.
In fact it is a personal decision for an individual to decide to
join a particular organization. Over time this individual is likely
to explore whether to remain as part of this group based on changes
and the needs that arise in his or her extra–organizational private
life. While in the organization this individual will need to make
decisions not in relationship to personal needs and changes, but in an
impersonal sense detached from personal need. Rather decisions will
need to be made as part of the organizational intent, purpose, and
STUDENT: How can one separate the personal from the organizational in terms of
LEWIS: If the distinctions between the personal and organizational
are not clear it can be difficult. Often individuals act unethically
because they look to serve the group in ways that are inappropriate,
and which ignore that distinction. “Whistleblowers” – individuals who
report unethical behavior within organizations to which they belong –
are extraordinary in having a clear distinction in this area.
LEWIS: In the most effective organizations, ethically-based
inducements, rewards, and sanctions are created to form, strengthen,
and maintain an individual’s healthy identification with an organization. Simon’s
contributions to research in the area of decision-making have become increasingly
mainstreamed in the business community thanks to the growth of management
To learn more about Decision Making, research Decision Analysis and explore the ideas of Harold Dwight Lasswell and Chester Barnard.