5-Star Review by Readers’ Favorite

Decision Making Essentials You Always Wanted to

Know by Vibrant Publishers and Mark Koscinski is
one of twelve books in the Self Learning
Management series, and came to fruition after
Koscinski’s wife requested that her husband make
a chart for a manager who seemed to waffle when
it came to making decisions. Broken down into eleven separate and
interconnected chapters, the book covers virtually all aspects of the
process and its considerations when making a firm choice. These
include the personal pitfall potential of those making a decision based
on their bias, their strengths and their weaknesses, research and
outside discussion, planning and prediction, analysis and method,
among many other variables. The book also includes anecdotal
scenarios and sample questions, as well as a chapter summary and
discussion questions.

Decision Making Essentials You Always Wanted to know stands out in

its tone, honed by seasoned authority and university professor Mark
Koscinski, and its function, a hallmark of Vibrant Publishers and the
entire Self Learning Management series. I loved how the book pulled
together more than just a laundry list of methods and instead focused
on the entire process of decision-making. There’s a psychology to
it that is as important as the methodology and external elements
that are frequently ignored. My favorite section is one that gives the
outline that Koscinski’s wife asked of him; the Decision Tree, a graphic
representation of all possible outcomes – or at least the ones that can
be thought of. In a day and age where there’s a global pandemic, this
book is likely to be far more important in that we must re-evaluate the
possibility of the impossible. This is a fantastic book that will find itself
useful to all decision-makers, from homemakers to CEOs.”

This review is for an earlier edition.

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 SELF-LEARNING MANAGEMENT SERIES

DECISION MAKING
ESSENTIALS
YOU ALWAYS WANTED TO KNOW

TM

MARK KOSCINSKI
Decision Making
Essentials
You Always Wanted To Know

© 2021, By Vibrant Publishers, USA. All rights reserved. No part of this publication
may be reproduced or distributed in any form or by any means, or stored in a database
or retrieval system, without the prior permission of the publisher.

Paperback ISBN 10: 1-63651-002-7

Paperback ISBN 13: 978-1-63651-002-6

Ebook ISBN 10: 1-63651-003-5

Ebook ISBN 13: 978-1-63651-003-3

Hardback ISBN 10: 1-63651-004-3

Hardback ISBN 13: 978-1-63651-004-0

Library of Congress Control Number: 2020945968

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 SELF-LEARNING MANAGEMENT SERIES

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 What experts say about this book!
This is the first book that I’ve read that details decision-making with
such depth. Mark Koscinki is able to take seemingly complicated
information and break it down into short, easy-to-understand chapters,
summarize the key points, and offer questions to ensure one’s
understanding of decision-making processes. I recommend it to those in
leadership and to those aspiring to leadership roles!

– Jacqueline Childress, J.D.

Adjunct Associate Professor at Austin Community College

In this unparalleled textbook, Mark Koscinski has done an excellent job

providing the relevant keys to effective decision-making. By providing
the necessary details of transforming decision-making into success,
Mark Koscinski takes the simple art of choosing into a science that
allows managers to consistently make those choices that benefit the
workplace.

– Sonja B. Wilson, PhD

President at Wilson’s Professional Training Services, Inc.

An exemplary, masterfully-written, comprehensive guide into the

navigation of the management realm. I admire the author’s adeptness
at framing the content by incorporating topics relating to management,
accounting, economics, and statistics—a holistic approach to decision
making.

– Dr. Dawn A. Humburg CPA PhD

Professor at Iowa Central Community College
 What experts say about this book!
As a college professor I am constantly looking for ways to incorporate
decision making skills into my classes and this is the perfect book. My
students are provided with a flexible system that makes sense in today’s
world. My students will be able to learn how to make decisions based on
the theory we are learning!

– Heather Nestorick,
Accounting Professor at Luzerne County Community College

The greatest threat to my business success and survival in the early

years was the quality of my decision making. I did not know what I
did not know and that made solid decision making risky. Every poor
decision provided a lesson to learn and the motivation not to make
the same mistake twice. As the business grew so grew the significance
of the decisions. I never tire of learning new decision making models,
practicing my decision making and helping others to learn as well.
Decision Making Essentials is a great way to refresh my skillfulness and
develop those around me. Being a strong process decision maker has
contributed to my consulting effectiveness and value-added to my client
relationships.

– Leslie Yerkes
Founder
Catalyst Consulting Group, Inc.
 What experts say about this book!
I think the book is a great addition to the Management Series. The
author has included numerous examples to illustrate the concept
which makes it easier to understand and follow. Some of the chapters
seem to be a bit technical but overall the book is quite helpful for a
beginner or businessman to successfully accomplish his decision making
responsibilities.

– Tony Ruscitto
Professor at New York University & Touro College
Corporate Director of Human Resources
Fitzpatrick Hotel Group, North America
 About the Author
Mark Koscinski, a certified public accountant, is
an assistant professor of accounting practice at
Moravian College in Bethlehem, Pennsylvania.
He teaches undergraduate courses in accounting
and decision analysis on a graduate level. Mark
has over forty years of experience in the
corporate and not-for-profit worlds. He served as
chief financial officer and corporate controller of companies in the
toy, banking, investment banking and defense contracting industries.
He holds a B.A. in economics with high honors and an M.B.A in
professional accounting from Rutgers University in New Jersey. He
earned a doctorate from Drew University, in New Jersey as well. His
research interests lie in artificial intelligence, machine learning, and
decision analysis, as they apply to the sports world. Mark is happily
married to his wife Susan and has three children and four
grandchildren.
 Preface
My lovely wife Susan told me about a manager who had difficulty
making a decision. She asked if I could create a one-page decision
tree outlining the decision making process for this manager. I politely
declined and said I would have to write a book to cover the topic. I
did, and this is the book.

Decision analysis is leaping forward every year with new

developments. Artificial intelligence, behavioral economics, machine
learning, big data, data science and other developments make this
a wonderful and very fertile field of study. Despite the flurry of
activity, there doesn’t seem to be a handbook for decision-makers.
Many of the books talk about decision making methodologies in
great detail, but don’t really address the peripheral issues such as
ethics, morality, time horizons, etc. It seems as if the decision is made
in a timeless and static environment, not subject to internal control
process, project planning, and management review. This book is a
modest attempt to address these issues.

I would like to dedicate this book to my colleagues at Moravian

College. It is a wonderful place to explore your intellectual curiosity
and teach. Of course, I also dedicate it to my wife Susan, a kind and
gentle soul and a dedicated health care professional. Without her
help, I couldn’t have even attempted or have been motivated to write
this book.
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 Table of Contents

1 Introduction to Decision Making 13

Chapter Summary 19
Discussion Questions 20

2 Cognitive Processes and Their Limitations 21

2.1 Introduction 21
2.2 Information Processing Issues 23
2.3 Prospect Theory 36
2.4 Mental Accounting 39
Chapter Summary 42
Discussion Questions 43

3 Gathering Data: How Much is Enough? 45

3.1. Speed of a Decision 45
Chapter Summary 50
Discussion Questions 51

4 Group Mechanics 53
4.1. Introduction 53
4.2. Informal Consultations 54
4.3 Formal Consultations 55
4.4 Brainstorming 56
4.5 Groupthink 58
Chapter Summary 61
Discussion Questions 62
5 Scenario Planning and Prediction Markets 63
5.1. Scenario Planning 64
5.2. Prediction Markets 66
Chapter Summary 68
Discussion Questions 69

6 Heuristics and Programmed Decisions 71

6.1. Heuristics 71
6.2. Programmed Decision Making 80
Chapter Summary 82
Discussion Questions 83

7 Probability and Base Rate Neglect 85

7.1. The Law 87
7.2. Accounting for Contingent Liabilities 89
7.3 Using Probability in Decision Making 92
7.4 Expected Value 99
7.5 Decision Trees 104
7.6 Bayesian Inference 106
Chapter Summary 114
Discussion Questions 115
Test Your Knowledge 116

8 The SMART Method 117

8.1. Using the SMART Method 117
Chapter Summary 128
Discussion Questions 129
9 EBA and Even Swaps 131
9.1. Even Swaps 133
9.2 Other Alternatives to SMART 139
9.3 Will You Always Get the Same Result? 139
Chapter Summary 143
Discussion Questions 144

10 Sensitivity Analysis 145

10.1. Kicking the Tires 147
10.2 High-Low Sensitivity Analysis 149
Chapter Summary 152
Discussion Questions 153

11 Negotiating and Selling the Final Decision 155

11.1. Negotiations 155
11.2 Asymmetric Information 158
11.3 Coordination Problems 160
11.4 Game Theory 160
11.5 Walking Away From the Deal 163
11.6 Selling the Decision 164
Chapter Summary 166
Discussion Questions 167

Glossary 169

Bibliography 186
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Chapter 1

Introduction to Decision
Making

T his chapter explores the characteristics of decision

making and the definition of decision analysis. Some
of the key issues and pitfalls in decision making such as
framing are also discussed.

You are taking the vacation of a lifetime when a major

catastrophe strikes the cruise ship. The rest of the passengers and
you make it safely to the lifeboats as you watch the crippled ship
slip beneath the ocean. You are days from any port, and you know
the ship sank so fast no Mayday warning could possibly have
been broadcast. Another horrible realization soon sets in. There
are nine passengers in a lifeboat built to hold six. The lifeboat is
becoming unstable because of the extra weight and is in danger of
sinking too. What do you and the other passengers do?

By this time, you surely recognize this as the famous lifeboat

problem. It is usually supplemented with the background
information about: who is on the boat, what are their professions,
if they have children etc. The following question is posed to the
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14 Decision Making Essentials You Always Wanted To Know

readers: who should remain in the lifeboat? The readers will pour
over that information, making moral value judgments on who will
survive and who will be forced overboard.

The lifeboat problem illustrates a particular problem in

decision analysis called framing. The way a question is posed
sometimes dictates the answer. The readers draw the inference
three of the passengers must be consigned to their demise. Very
few readers will come up with a seemingly obvious answer:
healthy passengers can take turns in the water holding onto the
lifeboat for a time. They can return to the lifeboat for rest while
other passengers take their place in the water. The way the
question was framed helped dictate the solutions the students
proposed. Reframing a question is often necessary to see if the
potential solution set was restricted by the how the question was
framed. Perhaps better solutions were eliminated by the framing
and not fully considered. Framing in decision making is just one
of the difficulties we will examine in this book.

Isaac Asimov, a famous and prolific author on many subjects,

wrote a science fiction story almost sixty years ago called The
Machine That Won the War. It is widely available and is a very
short read. In the distant future, the human race just won a war
against an alien race called the Denebians.1 Earth’s military
strategy was dictated by an advanced computer named Multivac.2
Three key officials of the government gather to talk about the
victory. Henderson, the programmer of Multivac sheepishly
admits he altered the data fed to Multivac since he didn’t trust the
information. This seems to have gone well beyond the typical data

1. For the scientifically minded, the star Deneb is in the constellation Cygnus and is
over 800 parsecs from earth.

2. Asimov wrote several Multivac short stories. All are still worth reading and, in many
ways, presaged artificial intelligence.
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Introduction to Decision Making 15

scrubbing and transformation data scientists do today. Jablonsky,

the operator of Multivac then admits he altered the output from
Multivac since he knew it was not functioning properly. Finally,
Swift, the Executive Director of the government, admits he didn’t
rely on Multivac at all and made the decisions using another
method. When pressed, Swift produced a coin and asked, heads
or tails?

This short impactful story reveals many truths about decision

making. Poor data can result in poor decisions. A poor decision
model–in this case–an artificial intelligence not kept updated
or in full repair-- can result in erroneous recommendations and
decisions. Another is a decision-maker can often ignore the
recommendations of the decision model (or experts) and reach
another conclusion if the data, methodology and decision rule are
considered faulty.

Swift, the final authority as executive director, ignored the

recommendation of Multivac and relied on pure chance to make
the decision. Even a faulty method such as flipping a coin can
sometimes result in a good decision!

Decisions are made every day in organizations. These decisions

range from major, strategic decisions such as articulating the
organization’s mission and value proposition to small decisions
such as who can park in the reserved lot and who will receive the
corner office.

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16 Decision Making Essentials You Always Wanted To Know

Decisions usually involve some or all of the following

characteristics:

1. Risk3 and/or uncertainty;

2. One or more decision attributes;

3. One or more objectives; and

4. One or more interested stakeholders.

An objective is the goal or target of the decision. It implies

a direction and desired movement towards the objective. An
attribute is a factor or element considered in making the decision.
The greater the number of attributes, objectives, and stakeholders,
the more complex the decision process and the greater the
difficulty in arriving at a final decision.

The decision-maker can be a single individual for smaller

decisions, or a group such as a committee or a board of directors
for more important decisions. In this book the term “decision-
maker” will include both individual and group decision-makers.

We would like to believe all decisions are made rationally.

Put it another way, if a decision-maker is prepared to accept a
rational decision-rule, the outcome of the decision analysis should
be chosen. As we will see, completely rational decision making
is not entirely the reality of the situation. The human mind can
only efficiently process so much information. This problem is
compounded by our limited memories as well. Often times bias
will sneak into our decision making. Our analysis will often
conflict with our intuitive approach to making a decision. Quick,
intuitive decisions are often wrong. How decision-makers make
decisions with limited processing ability is one topic of this book.

3. Highlighted words are included in the Glossary.

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Introduction to Decision Making 17

Mythology teaches us a silver bullet can destroy all

supernatural creatures such as vampires and werewolves. In
our modern culture, the phrase silver bullet has come to mean a
universal solution to any problem. Alas, there is no silver bullet in
decision analysis. There isn’t one decision making model to fit all
situations. Situational factors are often key in determining what
decision analysis model to use. For example, financial decisions
need to be supported by financial analysis. Personnel decisions
often depend on other, less quantifiable attributes.4

One commonality to all types of decision making is analysis.

Some form of analysis must be done to make the best decision
possible. The field of decision analysis could be thought of as a
toolbox containing a variety of methodologies. These tools help
the decision-maker assign probabilities to potential outcomes
and make the decision process explicit. As there is no certainty in
the business world, the decision-maker can often only “play the
odds” and choose the option to provide the best chance of success.
Explicitly stating the analysis will allow other stakeholders to
critique the methodology and its results, hopefully adding to its
reliability. This book will provide you with a toolbox of insights
you can open and use whenever you are dealing with a difficult
problem.

We begin our journey with a simple decision model. Making

a major decision requires a structured approach. The decision-
maker first needs to frame and pose the question. Then gather
data and analyze their findings. The decision-maker then applies
a decision rule or a way to make a judgement between competing
alternatives to arrive at a proposed solution.

4. Although time precludes further discussion, the use of an algorithm or a checklist to

make hiring decisions often leads to superior hiring results.

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18 Decision Making Essentials You Always Wanted To Know

An explanation and negotiation phase may be needed when

the decision - maker attempts to gain “buy in” from superiors,
colleagues, subordinates and other stakeholders. The decision-
maker may have to negotiate an agreement both outside and
inside the organization. Decision analysis tools can be helpful
here too. Even after the decision-maker “sells” his decision,
implementation can be a major headache. Ask anyone who has
implemented a major change in software such as migrating to an
Enterprise Resource System. A post-implementation review of the
decision and its execution should also be undertaken.

In summary, this book is aimed at decision-makers across all

organizations and operations. It takes a commonsense approach to
the decision making process as it examines some key principles of
decision analysis.

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Introduction to Decision Making 19

Chapter Summary

¡ Framing a question in a particular way might affect the

outcome of a decision.

¡ The decision making process is fraught with potential

problems including the limited cognitive processing
ability of the decision-maker, limited memory, and
poor information.

¡ Decision analysis does not provide the answer to

your question. It provides input for your decision.
Nevertheless, this input should improve the quality of
the decision being made.

¡ There isn’t a single method of decision analysis fitting

all circumstances. We do best to think about the
field of decision analysis as providing a toolbox of
methodologies for decision-makers as they approach
problems.

¡ A decision rule is a way to make judgments between

competing alternatives.

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20 Decision Making Essentials You Always Wanted To Know

Discussion Questions

1. Read the short story The Machine That Won the War by Isaac
Asimov. Approach this from a systems perspective. What
went wrong? How could each issue have been corrected?

2. In 1884, four sailors were afloat in a lifeboat at sea. They

rapidly ran out of provisions. One of the sailors killed
the youngest member of the four and the remaining three
resorted to cannibalism to survive. The three were eventually
rescued. Evaluate their decision.

3. One problem often encountered in decision making is a lack

of information. Can you have too much data when making a
decision?

Solutions to the above questions can be downloaded from

the Online Resources section of this book on
www.vibrantpublishers.com

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Chapter 2

Cognitive Processes and

Their Limitations

C lassical economics asserts we are rational decision-

makers. This chapter explores why we may not
be because of our biases and cognitive processing issues.
Behavioral economics, including prospect theory, is also
discussed.

2.1 Introduction

Professional theologians coined the term hermeneutic insight.

In its simplest form, this theory of textual interpretation states
anyone reading a sacred scripture will interpret the whole of
the document by reference to certain parts of it. The overall
understanding of the document will depend on each reader’s
understanding of the passages selected. This has been labeled
as the “canon within the canon” problem, or the emphasizing
of certain parts of the scripture and the deemphasizing or total
exclusion of other parts. As one of my professors once put it,
“everyone brings their own baggage to scripture.” The economics
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22 Decision Making Essentials You Always Wanted To Know

profession did not come to widely understand or appreciate this

insight until the later part of the twentieth century.

We would all like to believe we make decisions in a completely

rational manner. Economic theory assumes this is the case,
giving rise to the image of the economic man5: a person who
makes decisions rationally and with perfect information in
order to satisfy his or her utility function. As we will see, it may
not be practical, desirable or even possible to fulfill the perfect
information requirement. Many decisions are made under
conditions of uncertainty, a condition we will turn to in later
chapters.

The fields of behavioral finance, behavioral economics and

psychology have challenged the assumption of the economic
man. As it turns out, decision making processes are much more
complex than the simple calculus of economics supposes. Classical
economics was criticized for assuming the maximization of profit
was the same as maximizing utility. It also does not leave room for
cognitive biases and limitations in the decision making process.
This chapter explores some of the interesting cognitive processes
we employ when we are making decisions, the biases we possess,
and the limitations of our cognitive processes.

Before we begin though, it is also important to note these fields

of study are not without their critics. The best term to describe
what many minimizers of the study of the behavioral scientists
believe is the entire field is relatively unstructured. Any deviation
from the result predicted by classical economics can be ascribed
to one or more of the phenomena described in this chapter or
in other studies after the fact. The various behavioral theories
described in this chapter read like a laundry list of cognitive

5. Called “Econs” by the psychology profession.

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Cognitive Processes and Their Limitations 23

processing errors, but they may not accurately predict how

someone comes to choose any one particular option. Critics ask
for a behavioral theory that is predictive.6 They ask for a unified
theory that can explain the entire range of phenomena. These
commentators deny the behavioral disciplines provide a refutation
of the classical economic model. In the field of behavioral finance,
Eugene Fama (b. 1939), a Nobel Prize winning economist notes
the behavioral schools are not consistent in explaining the reasons
why decisions may vary from classical economics. In some studies
deviations are cited as both overreactions and as underreactions to
market forces.

The behavioral schools make many valid points about decision

making but the extent these factors impact decisions is still
controversial. While it is difficult if not impossible to eradicate all
bias and cognitive processing limitations from any one individual,
organizations understand this as they require major decisions
to be vetted by either a committee of decision-makers or senior
management. Major decisions are kicked up to the board of
directors. The hope is by that point all emotion, cognitive biases
and potential errors have been filtered out of the decision-analysis.

2.2 Information Processing Issues

In his book Thinking Fast and Slow, Daniel Kahneman adopts

the terms System 1 and System 2 (originally coined by Keith
Stanovich and Richard West) to describe the functioning of the
human brain. They do not reside in any particular part of the brain

6. Prospect theory, covered later in this chapter, does fit that bill. It was one of the
reasons Kahneman was awarded the Nobel Prize in Economics.

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24 Decision Making Essentials You Always Wanted To Know

but are rather a description of how the brain functions when it

makes a decision. System 1 is always active and is responsible for
making quick decisions and automatic responses such as routine
driving skills, reacting to loud noises, reading facial cues, doing
simple mathematics, etc. It is impulsive and intuitive. That is not
so say System 1 is primitive, but it acts quickly and spontaneously
to stimuli and comes to quick conclusions. We do not have
conscious access to System 1. Other characteristics of System 1
include:

● Generating skilled intuitions;

● Making causal connections;

● Suppressing doubt;

● Substituting an easier question for a more difficult one; and

● Over weighting low probabilities.

System 2 on the other hand is the analyzer of complex data

and does the heavy lifting when it comes to making weighty
decisions. System 2 engages when the decision has the potential
for significant risk and reward. It approves the actions of System 1
and can override System 1. System 2 is not good at multi-tasking,
requires a lot of energy, and is cautious by nature. System 2 is our
aware self.

System 1 is marvelously efficient, but also can jump to quick

conclusions. Unfortunately, these quick, intuitive decisions can
be wrong. System 1 is where bias and information processing
issues arise. Bias can be defined as systematic errors occurring
in predictable patterns. When making crucial decisions for an
organization such as those described later in this book, we strive
to get the decision making process into System 2. Organizations
take this one step further by having vetting major decisions by
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Cognitive Processes and Their Limitations 25

senior management, experts in the area of the decision, and even

the board of directors. Yet, System 1 does not shut off. We are still
subject to its vicissitudes. System 2 may generate a correct answer
for us, but we still need to understand the influence System 1
has even when System 2 made the decision. System 1 impacts
our decisions through biases, or the interpretation of decisions
generated by System 2.

Knowing when someone has engaged their System 2 is critical

for discussing the decision with other stakeholders and getting
their “buy-in. We all have encountered coworkers or managers
who are laser-focused on some problem at hand and don’t seem
to hear or let alone comprehend what you are saying about
another topic. Their System 2 has been engaged and multi-tasking
(meaning listening to you) is simply not in the cards. We seem
to instinctively know that as well because more often than not
we will simply become quiet and wait to finish our conversation
until the person completes the first task at hand. Picking the time
to engage other stakeholders in a conversation about a complex decision
is critical to gaining acceptance for it. You must make sure they have
engaged their System 2 and it is focused on your decision.

Besides the issues caused by Systems 1 and 2, decision-makers

also have limited cognitive capacity. For instance, memory is a
critical factor in decision making. We tend to remember unusual
items or repeated items. The easier we remember something the
easier it can be applied to a decision. We overweight decision
factors we remember more easily. To compensate for this
shortcoming in today’s world, we tend to remember how to access
information rather than the information itself. The internet gives
us quick access to untold amounts of information. We often don’t
remember all of the details about a decision attribute, but we
remember how to research them.

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26 Decision Making Essentials You Always Wanted To Know

Aside from dealing with our “split personalities” of Systems 1

and 2 and cognitive limitations decision-makers may suffer from
poor information processing caused by other factors. Examples are
becoming fatigued or feeling pressured because of deadlines.

The following is not an exhaustive list, but are examples of

common processing issues decision-makers should be aware of:

Overweighting recent evidence

Forecasting is a difficult thing to do under any circumstances,

but decision-makers tend to place too much weight on recent
evidence and experience. This can make the forecast either too
rosy or too pessimistic since there is normally uncertainty in the
data being used in the decision making process.7

Overconfidence

Decision-makers tend to be quite optimistic about their own

ability to make decisions, to the point where they can exclude
other legitimate points of view. Overconfidence can sometimes
result from relying on one’s intuition too much. One acerbic
commentator pointed out how often successful entrepreneurs
ignore good business advise by asking, “If you are so smart why
aren’t you rich?” The point being past success may spur on over-
confidence. Needless to say, overconfidence in one’s own ability to
make decisions can produce bad decisions as critical information
can be ignored and doubts are suppressed. Ask Hilary Clinton
about her overconfidence in the 2016 American Presidential
election.

7. Kahneman and Tversky (1972 and 1973)

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