Academic and Creative Writing Journal Vikram Karve: How to make Good Decisions in Uncertainty

“The man who insists upon seeing with perfect clearness before he decides – never decides”
~ Frederic Amiel

Here is an article written by me around 25 years ago on the Topic SHOR MODEL FOR DECISION-MAKING IN UNCERTAINTY

I have published this article in management journals in the 1990s and have also posted this article on a number of my blogs from time to time since the year 2004, when I started blogging.

I am posting it once more for you to read:

SHOR MODEL FOR DECISION-MAKING IN UNCERTAINTY

VIKRAM KARVE

If a single most important characteristic is crucial to a decision-maker in any field, it is the ability to make optimal decisions in conditions of uncertainty.

A unique ability that sets humans apart from animals is self-awareness and the ability to choose how we respond to any stimulus.

Animals do not have this independent will.

They respond to a stimulus in a pre-programmed manner.

If there is a threat stimulus the response is either fight or flight.

We human beings too sometimes instantly follow the stimulus-response model.

It may be apt to remember that whenever we are confronted with any decision making situation:

Between Stimulus and Response there lies a space – a timeline – and – in that space lies our freedom to choose a course of action – and in that choice lies our sagacity.

Hence – when confronted with a stimulus – instead of instantly responding (Stimulus-Response) – we must calm our minds – dispassionately analyse and evaluate the situation – draw up options – and then choose the most suitable option as the response.

The Stimulus-Response (SR) Paradigm of decision making may result in sub-optimal decisions – especially in an environment of uncertainty – hence – there is need for a better model like the SHOR Paradigm – which is described below.

TYPES OF UNCERTAINTY

Decision-making is so pervasive that everyone, professionally or personally, is involved with making a variety of decisions.

In today’s fast-moving world, the timing of a decision is of paramount importance in many decision-making situations.

In real life even the “perfect” decision may not be optimal if it is made too late.

Information is a vital resource in decision-making.

One of the most important characteristics of successful managers is the ability to make the correct decision when confronted with imperfect or insufficient information (i.e.) Decision-making under conditions of uncertainty.

In the context of decision-processing, two realms or domains of uncertainty are:

1. Information Input Uncertainty which creates the need for hypothesis generation and evaluation.

2. Consequence-of-Action Uncertainty which creates the need for option generation and evaluation.

SHOR PARADIGM

Decision Taxonomy:

The Stimulus – Hypothesis – Option – Response (SHOR) Paradigm decision making model is useful in such decision situations.

The SHOR paradigm represents a qualitative, descriptive, model as distinct from a quantitative, predictive model, and comprises the following primary decision-making task elements:

S: Stimulus Input Data Processing

H: Hypothesis Generation, Hypothesis Evaluation, Information Processing (What is?)

O: Option Generation, Option Evaluation, Decision-Making (What if?)

R: Response Output Action

The SHOR paradigm is basically an extension of the classical “Stimulus – Response” (SR) Paradigm of behaviorist psychology.

The SHOR paradigm provides explicitly for the necessity to deal with information input uncertainty and consequence-of-action uncertainty, and helps us understand some of the peculiar human factors that affect the quality of the decision-making and answering questions such as:

What makes some decision-makers perform better than others, especially in placing high-value assets at risk, in business...?

What are the sources and dimensions of “poor” performance...?

HUMAN ERRORS IN DECISION-MAKING

Based on the SHOR Model, human errors in decision-making appear to lie in four domains:

(S) Stimulus: “I did not know…”

(H) Hypothesis: “I did not understand…”

(O) Option: “I did not consider…”

(R) Response: “I did not act…”

Stimulus based errors of the type “I did not know…” result from lack or inadequacy of information, the true inability to obtain information.

“I did not understand…” is the fundamental result of information input uncertainty, while “I did not consider…” is the product of consequence-of-action uncertainty.

It is possible to have accessed all significant information, to have developed the correct hypothesis and to have selected the best option and yet fail to take appropriate action.

The two possible reasons for the “I did not act…” type of response error are:

1. Paralysis: This is a complete failure to act, the pathological ‘observation of an inevitable course’ without intervention. It is caused by an over-riding emotional struggle in which some internal factor is being placed in conflict with the course of action selected by the decision-maker. The final scene in the evergreen classic film The Bridge on the River Kwai (1957) exemplifies such a situation.

2. Misjudgement: The decision-maker correctly decides what to do but errs in either or both of the two dimensions – how [the specifics of the action] or when [the timing of the action].

Prediction of the critical consequences of inaction may be of some help in dealing with paralysis whilst the ability to perform sensitivity analyses may assist in alleviating misjudgment.

Any Decision-Maker (and designers of decision processors and aids) must address the Four Cardinal Types of Errors epitomized by the SHOR paradigm:

“I did not know…” – “I did not understand…” – “I did not consider…” – and – “I did not act…”

DECISION-MAKING IN UNCERTAINTY

In the context of decision-making in uncertainty, the conflict theory paradigm developed by Janis and Mann may be apt.

This paradigm postulates five patterns of coping behaviour which tends to occur in such situations:

1. Unconflicted Adherence in which the uncertain, or risk, information is ignored and the decision-maker complacently decides to continue whatever he has been doing.

2. Unconflicted Change to a new course of action, where the decision-maker uncritically adopts whichever new course of action is most salient, obvious or strongly recommended.

3. Defensive Avoidance in which the decision-maker evades conflict by procrastinating, shifting responsibility to someone else, or constructing wishful rationalizations and remaining selectively inattentive to corrective information.

4. Hyper-vigilance wherein the decision-maker searches frantically for a way out of the dilemma and impulsively seizes upon a hastily contrived solution that seems to promise immediate relief, overlooking the full range of consequences of his choice because of emotional excitement, repetitive thinking and cognitive constriction. In its most extreme form hyper-vigilance is referred to as “panic”.

5. Concerned Vigilance in which the decision-maker optimally processes pertinent information and then generates and evaluates hypotheses and options before selecting a response as characterized by the SHOR paradigm.

In many real-life situations a decision-maker cannot always keep waiting until the entire information-input and consequence-of-action conditions are known a priori with certainty.

In most cases there is no such thing as “perfect” certainty.

If a single most important characteristic is crucial to a decision-maker in any field, it is the ability to make optimal decisions in conditions of uncertainty.

Qualitative Descriptive Models like the SHOR Paradigm may prove useful in such situations.

CONCLUSION

In uncertain times – events have repeatedly demonstrated the failure of the Stimulus-Response (SR) Model of decision-making and underlined the need for expertise for making good decisions in situations of uncertainty.

The Stimulus–Hypothesis–Option–Response (SHOR) Paradigm decision-making model is useful in such decision situations.

Remember the saying:

“The man who insists upon seeing with perfect clearness before he decides – never decides”

In real life situations there is no such thing as “perfect” certainty.

Qualitative Descriptive Models like the SHOR Paradigm may prove useful make optimal decisions in conditions of uncertainty.

VIKRAM KARVE

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1. These are my personal views based on my observations and life experiences and the stories and examples quoted may be apocryphal.

2. All stories in this blog are a work of fiction. Events, Places, Settings and Incidents narrated in the story are a figment of my imagination. The characters do not exist and are purely imaginary. Any resemblance to persons, living or dead, is purely coincidental.

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