SPE 77509 Would You Know a Good Decision if You Saw One?

  • R. B. Bratvold
  • Published 2003

Abstract

Ever since the early publication by Grayson, we have seen an increasing interest in decision-analysis in the oil and gas industry. There have been numerous studies and publications discussing methods and models for rational decision-making. Given the inherent limitations of intuition and heuristics, one might expect decision-makers to be delighted with the more consistent approach provided by rational decision-making techniques. Modern decision models can help process large amounts of information without losing valuable pieces. They never suffer from distraction, fatigue, boredom or random error. They are consistent, week after week. An important contributor of the complexity in decisionmaking stems from the fact that human beings are imperfect information processors, we are not always rational. Personal insights about uncertainty and preference can be both limiting and misleading, even while the individual making the judgments may demonstrate an amazing overconfidence. An awareness of human limitations is critical in developing good decision-making procedures. To our knowledge, very little has been published in the exploration & production literature on the “cognitive”; i.e., the “thinking”, social, judgmental and emotional aspects of decision-making. Yet, in spite of these obvious advantages, people treat these with a nearly instinctive distaste. They are particularly resistant to the idea that simple models can validly make such subjective evaluations. For some, that resistance may stem simply from unfamiliarity with the statistics and probability involved. Many more, however, subscribe to the widespread assumption that human judgment is more discerning than a model. They are reluctant to believe that simple mathematical calculations can match the complexity of the human mind. “Take away an ordinary person’s illusions,“ says Dr. Relling in Henrik Ibsen’s Villanden, “and you take away happiness at the same time.” Even today, after decades of research on the psychological aspects of judgment and decision-making, people continue to assume that intuition, repeated experience and their general intelligence will see them through. Unfortunately, intuition and repetition are unreliable teachers at best. Research shows that the less competent people are, the less likely they are to know it. Overconfidence is a deeply rooted human characteristic. Not only do most people tend to hold overly favorable views of their intellectual and interpersonal abilities, but those who are the least accomplished overestimate their performance and ability the most. In other words, those who most need training to improve their decision-making abilities are the least likely to recognize it. Instead, like drunken drivers who are certain that their reflexes are unimpaired, they proceed with the mistaken impression they are doing just fine. A particularly interesting aspect of human judgment and decision-making are the traps we unknowingly step into. Many decision-makers believe that intuition, repeated experience and their general intelligence will see them through. Unfortunately, as will be discussed in the paper, intuition and repetition are unreliable teachers at best. In this paper we will illustrate how a cognitive perspective can offer practical suggestions on how to deal with many 2 BRATVOLD, BEGG AND CAMPBELL SPE 77509 common problems in decision-making. The findings presented here are not novel and we have borrowed liberally from the pioneers and prominent researchers in the exploration of the minds of the decision-maker such as Kahneman and Tversky, Russo and Schoemaker, Thaler, March, and Plous. Yet, given the tendency of geo-scientists and engineers to focus on the “hard” elements of decision-making such as techniques and tools for quantifying uncertainty and risk, and not so much on the qualitative elements such as the cognitive and judgment aspects, we believe there is a need to broaden the understanding and appreciation of cognitive aspects. In this paper we are merely “touching the surface” of this field and we strongly encourage the interested reader to further explore this fascinating field by reading the original references. A good understanding of the behavioral elements of decisionmaking will lead to improved decision quality and, ultimately, to improved corporate performance. Good Decisions Process vs. Outcome Most decision makers focus on outcome. This is not surprising as most organizations reward – or penalize – people based on the outcomes of their decisions. Results are what matter. Indeed, many people believe that good outcomes are synonymous with a good process, that good outcomes necessarily imply that a good process was used. They often assume the converse is true as well: that a poor outcome necessarily signals a poor or incompetent process. Furthermore, if a company’s or a managers track record is based on just a few “big” decisions instead of numerous small ones, a focus on outcomes carries the risk of rewarding good luck – or penalizing bad luck. The best hope for a good decision outcome is a good decision process. The main reason for this is that this forces the decision-makers to focus on what actually is under their control. Three things influence outcomes:

4 Figures and Tables

Cite this paper

@inproceedings{Bratvold2003SPE7W, title={SPE 77509 Would You Know a Good Decision if You Saw One?}, author={R. B. Bratvold}, year={2003} }