Rational Decision-Making

By Hamid Noorani

RATIONAL DECISION-MAKING

For a Brighter FutureFor the Love of the World

This book shows youthrough examples and application exerciseshow to make rational decisions that will make you more productive. Based on the modern philosophy of Systems-Thinking, the book presents a well-defined path to living a productive life: making rational choices that will help you meet your long-term goals and fulfill your obligations to others. To assist you, the book provides tools and concepts you can use to set your objectives, identify and weigh the options, and evaluate the expected benefits. And the many thought-provoking, real-life situations will show you how to craft strategic initiativeswhether in individual, group, organizational, or public policy decisions.

• Language: English
• Publisher: Xlibris US
• Release date: Apr 16, 2010
• ISBN: 9781469124537

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Copyright © 2010 by Hamid Noorani . 69334-NOOR

Library of Congress Control Number: 2010901257

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission

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Contents

Introduction

      Why Be Rational and Methodic?

Chapter 1 The Modern Rational Model

Reality – a Comprehensive Description

The Rational Model

The Business System

Competition and Cooperation

The Decision Cycle

Decision Triggers

The Greater Whole

Decision Context, Decision Scope,

and the Law of Unintended Consequences

Decision Horizon

System Optimization

Deterministic and Probabilistic Systems

Summary

Chapter 2 Our Common Humanity

The Common Human Profile

The Hierarchy of Objectives

The Human Asset – Our Intrinsic Human Worth

Decision Types

Decisions of Integrity

The Mission

Decisions of Ethics

Learning Decisions

Testing the Decision

Summary

Chapter 3 Economics – an Expanded View

Consumption Decisions

Production Decisions

Trade Decisions

Investment Decisions

Free Markets

Integration Decisions

Sovereignty Decisions

Planning for the Unforeseen

Summary

Chapter 4 Public Policy Decisions

State & Markets

Implications for the Political System

Summary

Chapter 5 Conclusions

Bibliography

List of Concept Definitions

Introduction

Why Be Rational and Methodic?

The human family is performing well below its full potential. Even though the Enlightenment philosophy of the 18th Century has paved the way for the successive waves of improvements in human life, many of our actions are unproductive, and at all levels of decisions: individual, group, corporate, and public policy. We have more knowledge, more ways to communicate, and more computing power at our disposal than at any other time in human history. So let us see how, with rational decisions, we can leverage our great potential to build a brighter future for ourselves and the human family. We can do better, and we must.

This book builds on the principles of Systems-Thinking as outlined in my first book POWER – The Modern Doctrine. It lays out the methodic rational processes for making all our decisions at all levels. With rational decisions: we can be more productive in our individual efforts, improve the performance of our organizations through better crafting and implementing of strategic initiatives, and help build a better future for the human family through public policy.

When we find ourselves constantly solving problems, it is time to examine the whole system and see what strategic initiatives are needed. Following a rational decision-making process methodically will highlight what measures we need to take and what options are available to us. We will find that managing a system requires a better design. A system poorly designed cannot be well managed (Noorani, 2010).

The big-picture view that comes from systems-thinking shows us that as intelligent self-sustaining systems we have three ultimate goals: survival, growth, and mission. Survival has to be our number one goal, because without it we lose all functions. Next is the goal of growth because it provides us with the resources and capabilities to function. And choosing something of enduring value to achieve as a mission gives us purpose and direction. Notice that these three ultimate goals of survival, growth, and mission apply to all individuals and organizations. And these goals form a structure for all our objectives in all situations. These three ultimate goals align our short-term objectives in specific situations with our broader and longer-term interests.

Ethics and morality are also rational goals of all our decisions. Yet we commonly overlook these goals for two reasons. First, we usually define our objectives in narrow and immediate terms. Second, ethics and morality seem to relate more to individual preferences than to objective criteria that can be specifically defined. Ethics and morality are system terms and can be defined, appreciated, and pursued only from a systems view of the world. Ethics means maintaining the systems that maintain us. Morality means recognizing our obligations to others (Noorani, 2010).

Systems-thinking also reminds us that as intelligent self-sustaining systems we are economic entities. The vast majority of all the decisions that we make in a life-time are economic in nature. We sustain ourselves through all the decisions of consumption, production, trade, and investment that we all make. Each of these decisions has its own economic rationale that guides how the objectives should be set and measured (Noorani, 2008).

Well, what if there is a rational path to decision-making and people of all backgrounds can share it? What if we can set rational objectives, achieve them, and learn from the process? What if we can make group decisions in a timely manner and arrive at consensus on a rational choice of action? What if we can set public policies that improve everyone’s productivity for a prosperous life, and a better future for the human family? Enlightened with systems-thinking, we can do all this and more. And this is the greatest news of the 21st Century.

Chapter 1

The Modern Rational Model

How can we make better decisions, individually and as groups?

Is there such a thing as a rational path?

Does everyone share the same idea of what is a rational thought process?

How do we test to see whether we are following the rational path or have deviated from it?

Are there universal principles that can guide us in each and every decision?

What happens when we make a decision? Some event triggers us to do something. We either react to the way we feel or try to accomplish a defined purpose. In all cases our actions can be either beneficial or harmful to us and others. Through our actions we create new situations that will affect our future decisions. We want and try to make rational decisions, so as to benefit us and our loved ones, for both the short and the long term.

Rational decision-making requires a Rational Model: a description of reality that is both reliable and valid in every decision situation. And the only solidly reliable foundation for all our thought processes is the laws of physics. After centuries of experimentation with all types of belief systems, our modern doctrine has come to rest on the belief that laws of physics are the only set of rules that uniformly govern all events in the universe.

Yet, many find no connection between physics and their feelings, hopes, aspirations, desires, and prejudices. Indeed, they believe that making decisions based on their feeling, hopes, aspirations, and prejudices is only natural. This view comes from the way they register reality. They understand reality in terms of their subjective reactions to events. They register the reality of what they see in terms of how it makes them feel. We all start out registering reality in that way, until we come to learn that the objective reality is independent of our feelings. This objective reality is governed by a uniform set of rules that we have uncovered through centuries of experimentation and measurement (Serway, 1996). We call these rules the Laws of Physics, and we have verified their validity through all the technologies that we have developed and use daily. And yes, we too—feelings and all—are also governed by the same laws of physics, no less than the rest of existence.

We are each entitled to our feelings, hopes, aspirations, desires, and prejudices. And there are times when some of these find a place in the rational decision-making process (Goleman, 1997) (Glimcher, 2004). But we ignore the objective reality at our peril. Laws of physics are not optional.

Realism means recognizing that the laws of physics govern all processes. And processes create the reality. Things are the way they are because certain processes made them so. Other processes are constantly changing them, but they can be changed to new desired forms only through appropriate processes. So, realism means looking to physics for the explanation of why things are the way they are and how they are altered through each process.

Objectivity means seeing things as they are, rather than as we wish or fear them to be. Separating objective facts from feelings, fantasies, and opinions is the first requirement for making a rational decision. It guides us to be proactive and respond to new situations with purpose, instead of merely reacting to feelings. It brings us to ask what it is that we are trying to accomplish, and why.

This objectivity is a critical requirement when making decisions individually. It is even more critical when making group decisions. Increasingly, managerial decisions are made by groups that are multicultural, cross-functional, and geographically dispersed. For arriving at a consensus based on rational decisions, we need an objective rational model, one that all in the group can share.

To summarize, an objective rational model has to be based on the laws of physics. We need an objective rational model so we can determine the rational thought process. We can then follow the rational thought process to make rational decisions in any given situation, be it individually or as a group.

What if members of a team want to pursue different goals or have conflicting goals? Can such objectivity bring us to agree on the situation at hand and help us determine the common goals that we need to pursue collectively? We have known the laws of physics for centuries. Why, then, is building consensus still such a challenge?

We need a new worldview, one that uses our understanding of physics to describe reality in the most complete way possible. A worldview describes the basic assumptions behind a rational model. It describes our understanding of how the basic constituents of reality—time, space, matter, and energy—give rise to all observable phenomena. A systems-worldview looks to physics for that description. That is why it can resolve all conflicting views. That also is why it is the ultimate foundation for creating consensus even among the most diverse of groups.

Moreover, a systems-view of reality, as we will see shortly, offers many insights that are universally applicable to all situations. The systems-view offers the most complete description of both the animate and the inanimate, thus unifying all the divergent fragments of the human knowledge into one consistent, cohesive, and seamless frame of understanding. The systems-view allows us to define the many qualities that we all share as our common humanity. It shows us that we all have a common profile and a common hierarchy of objectives.

The systems-view also prompts us to look for the super-ordinate goals in every system that we share. Despite our diversity of interests, we share many systems and so have a collective interest in maintaining these. Super-ordinate goals are common between parties to a conflict and so can be achieved only through the collective efforts of all parties. Despite our individual differences, and all our diversity in every conceivable dimension, we have common ground in every significant goal (Noorani, 2010). Where conflicts of interests exist, so do the super-ordinate goals that can bring consensus on collective efforts.

Further, the systems rational model shows us that our common profile and our common hierarchy of objectives for the most part also apply to all organizations. Organizations also have super-ordinate goals. And the systemic view of reality guides us in finding systemic solutions for the benefit of all parties involved. This is why our discussion of decision-making has to begin with a description of the modern rational model. It lays the foundation for understanding the many concepts that make up the processes for decision-making.

Any rational model has two basic components: an understanding of the world, and an understanding of self. We each have a rational model that allows us to think. We have developed our rational model since childhood through observing, doing, and learning. Some of us define our understanding of the world and our place within it in terms of religious teachings. Others look to philosophy or traditions and legends to determine what reality is and how we fit in that reality. Such beliefs, though limited in scope, may very well be satisfactory for individuals. We have each rationalized our beliefs to ourselves. But when we come to making group decisions, such beliefs become divisive and dangerously misguiding.

Here we look to our modern understanding of physics to define a rational model. Describing reality is the purpose of physics. It is open to challenge. Disputes about what is the reality of a given situation and how events unfold are settled through measurement and experimentation. Only physics can offer a description of reality that captures the centuries of experimentation and observations to date. Only physics can offer the most comprehensive description of reality that the human race has ever had. Only physics can provide an understanding that we can all share. If we are to succeed in outlining a methodology for arriving at rational decisions with consensus, we have to start from the foundation of a rational model that is rooted in physics.

Application Exercise 1.1

1. See the video segment Using Your Brain, May 10, 2005, on the web page

http://www.pbs.org/newshour/bb/economy/jan-june05/brain_5-10.html#.

2. Think of a decision of which you are most proud.

a. What decision was it?

b. Why are you proud of it?

c. What were the results of that decision?

d. Who was affected, and how?

e. Which effects were short-term, and which long-term?

f. Which of the results were intended, and which unintended?

Reality – a Comprehensive Description

Rational thought is derived from a rational model. Without a rational model, we have no basis for determining what rational thought is.

A rational model has two elements: a description of reality and a description of our place within it. Both descriptions need to offer the most comprehensive view conceivable. Starting with a limited description of reality can only lead us to a limited view of the situation at hand, a limited view of the available range of options, and a limited view of the potential consequences of each option. Similarly, a limited description of our role can only limit our scope of interests when setting our objectives. This would inevitably lead us to sub-optimal decisions. A narrow view of what reality is and how we fit in that reality condemns us to making poor decisions, the likes of which have long marred human history.

We take our understanding of reality for granted. Few of us ever ponder the question of what exactly is reality. So strong is our faith in our own beliefs, feelings, and opinions that there seems no need for such a question. We often focus our observations on what we expect to see, rather than on what is actually happening. We observe situations, looking for validation of our beliefs, feelings, opinions, and prejudices. Rarely do we make observations with the purpose of challenging our current assumptions.

To see reality as it is, we need a level of objectivity that can be cultivated only through a conscious and consistent effort. We need to train our observations to be as objective and as comprehensive as possible. Only then can we appreciate the aims of physics: an inquiry to unravel and understand the underlying laws that govern the way all events unfold.

Here we begin with a description of reality and then derive from it a description of our place and role within that reality.

What Reality Is

In our quest for defining what rational thought is, we have to begin with a description of reality: one as complete as our knowledge of physics permits. We can describe any segment of reality as a system, using a diagram as shown in Figure 1.1 (Noorani, 2010). This system model makes two universal statements about reality:

1. Each part of reality is best explained as a system.

2. All systems are open systems.

A system is a segment of space where a parcel of matter or energy is altered. An open system is one for which matter or energy crosses its boundaries.

Any part of reality occupies a certain segment of space, as marked by its boundaries. Within that segment of space, some parcel of matter or energy is altered. Thus, there is an input that is converted into an output. This transformation of input into output is done through the system’s parts, processes, and structures.

This model reminds us that even inanimate objects are active and are interacting with their environment. A piece of furniture may seem idle and separate from its surroundings. But it is made of molecules that are vibrating. Each of those molecules fits this model and hence is a system. Each molecule is made of atoms, each with electrons flying around its nucleus. Each of those atoms fits this model and is a system. Modern physics considers each subatomic particle to be a vibrating string (Greene, 1999). As such, each part of each atom also fits the system model. Even empty space fits this model because light passes through it and undergoes a shift in its spectrum. This model is thus universally applicable to all parts of reality.

manu-11.tif

Figure 1.1 – The System Model

Application Example 1.2

The department where you work is a system. It takes the inputs of capital, manpower, equipment, and information and converts them to products in the form of goods and services for its clients. The department converts the factors of production into products. Typical decisions that the department needs to make are the following:

• What to produce

• How much of each product to be produced

• In which sequence the products should be produced.

Such decisions depend on the requirements of the clients that the department serves, be they internal customers or external customers.

The department itself is a subsystem of the division to which it belongs. The operations of the division affect the performance of the department and the way the department, performs impacts the operations of the division.

The system model, with its simple and self-evident construct, is the building block of all the concepts and processes that we will consider in this book. As a representation of all segments of reality, the system model is the best foundation for explaining all parts of human knowledge. Every branch of human knowledge is a branch of physics. Every discipline of human knowledge explores some implications of the laws of physics. By explaining all branches of knowledge in a common set of terms and with a common set of principles, the systems-view of reality highlights the connections between all the divergent fragments of knowledge (Noorani, 2010).

The system model reminds us that no part of reality can be completely isolated from the whole. Since every part of reality is a system and since every system is an open system, then reality is a network of interconnected systems.

In a scientific experiment we try to isolate a process from all known factors that could influence the results, so as to examine the effect(s) of a given cause or to discover the causes(s) of a given effect. Science then can establish a series of cause/effect relationships that help us understand how events unfold. The system model reminds us that in any given system, a combination of causes lead to a combination of effects that spread over time.

With every decision that we implement, we alter a part of reality for some purpose. Yet every part of reality affects every other part, some to a significant extent and others to a lesser extent. No part of this network of interconnected systems can be totally isolated from the whole. Therefore every decision has unintended consequences.

And more, this model reminds us that every system is a subsystem of a larger system. Therefore every system exists within multiple layers of context. The context influences the system, and the system in turn influences the context. One of the ways a context influences the systems within it is through its structures (Noorani, 2010). For example, the planet Earth is the context of every system that we commonly come to manage. All the stable aspects of the Earth affect all the systems that it contains. The gravitational force of the planet, its atmospheric pressure, cycles of day and night and the seasons all also become the structures—the stable aspects—of every system that we manage on this planet. And these structures have an influence on the processes of these systems.

Application Example 1.3

Consider the department where you work. It has its own set of rules and procedures to guide its operations. These rules and procedures are stable; they remain the same for many cycles of operation. And they influence the way the department functions. They are therefore structures of the department. But the department is also subject to the rules and procedures of the division to which it belongs. The rules and procedures of the division are imposed on the department, and so they also become a part of its structures.

Our Role Within Reality

Now we are ready to define our role and place. Since reality is all systems, our role is to design and manage systems. This systemic view of reality defines our role as designers and managers of systems. This description of our role is also universal; it applies to everything that we do. Every decision that we make is with the purpose of designing or managing some system, so we can produce some benefit effectively and efficiently. We can measure the performance of any system in terms of effectiveness and efficiency.

Effectiveness