For a wide category of problems under conditions of uncertainty, Bayes Decision Rule is a simple way to look at things differently.
Imagine you have three big ideas
and they are all really great ideas with large potential for payoff.
Let’s say you are also short of time and cash.
Lets look at the situation:
A = high cost, high time and huge payout
B= no cost, medium time, large payout
C= low cost, medium time, and medium payout
Lets assign weight to the variables by assigning a simple favorite #1 to the least favorite #3
A = high cost (3), high time (3), and huge payout (1)
B= no cost (1), medium time (2), large payout (2)
C= low cost (2), medium time (2), and medium payout (3)
Now let’s add the numbers for each option.
A = 3+3+1 = 7
B = 1+2+2 = 5
C = 2+2+3 = 7
In this example since we rank ordered with one the best, we will choose option “B” since it has the lowest number.
The results change depending on what is most important to you and how you rank each item.
Here are the basic steps:
1) List the alternatives.
2) List the possible variables like time, cost, money, future event or state.
3) Assign probabilities to the variables.
4) For each alternative determine the net result or payoff.
5) Evaluate each alternative by computing an expected return
6) Select the alternative with the highest expected return based on your weighting of the probabilities of the variables.
See the video for another example. I will add a few other videos with examples and see about cutting down the time on the first video for you.
I am interested in the ways you make decisions and look forward to reading your comment.
{ 17 comments… read them below or add one }
Thanks for the post. I do get what you’re saying but do you have any real life example which you’ve used this rule?
Cheers,
Bob.
Pretty much practical stuff. But I feel that the Bayes Decision Rule is too complicated for me. I usually just weigh the pros and cons. It has worked for me, so far. :)
Hmmm… this method is quite good.
I can know how to decide something.
Lately i got problem when i have to making decisions.
I will try this method, i hope i will get better results soon from my decisions.
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I usually decide on something after lots of research and studies. Also, I weigh the cost and benefits.
Victoria, I usually do lots of research also. I even find I analyze some small cost purchases sometimes more than expensive ones like a car. It does not make sense, its just what I have found happens. Analytics vs. emotions.
Nice post, Clay. I’m very intrigued by this decision rule. I suppose if I had ample time when making a decision (and possibly a pen & paper handy), I’d be able to use this, but I usually find that I’m making decisions on the spot (like at the grocery store) and don’t have a lot of time to think through the variables. I will keep this in mind and hopefully be able to give it a try. Thanks!
Thank you Sean. I use the Bays Decision rule so often that I can now apply percentages quickly and do the math in my head for simple problems. Like what is a better value the big package or the small one that costs more. I quickly apply weights to extra storage in the cabinet, probability it will expire before I use it all if I get the bigger one and variables like that. I do need a piece of paper to do a more complex formula like should I go to the event in Atlanta because it has more variables and costs. I love it for deciding on things that I am not sure of by applying a simple percentage to the different outcomes based on effort, time, money, or whatever makes sense.
This is a great article. But I think it is a little difficult to use this when making a day to day decision. I usually go with my instinct when deciding, and so far it hasn’t failed me.
For classification, it is known that the Bayes decision rule is the best decision rule, which gives the minimum probability of misclassification. It is difficult to use the Bayes decision rule, since it contains unknown parameters from each class. A Bayesian decision maker proceeds by assigning a numerical utility to each of the possible consequences of an action, and a probability to each of the uncertain events that may affect that utility. The weighted average of the utility with respect to the probability is then used as the criterion of choice. In statistical decision theory, this plan can be applied to actions that represent inferences, predictions, or conclusions to be drawn from experimental evidence. Decision theory enables statisticians to bring basic principles of rationality to bear on both the development and the evaluation of statistical methodologies.
Impressive idea. I believe it takes a lot of practice before you can apply and master this rule without a pen and paper. I always go for practicality. Weigh things out according to the importance of such situations.
I can there’s no harm in trying the Bayes Decision in weighing things out. This will help us in checking what issues to prioritize and take sides.
Jenny who are you????? I see you are leaving comments all over the web as if it is from me and my site?
This kind of makes my head hurt…that’s just the gin, nevermind! LOL
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your article is practical but its good, thanks for the post !
Very interesting formula you have there. It seems that in the beginning it might be a bit more time consuming to use it towards smaller decisions but once I get used to it after applying it to larger decisions, I’m sure I’ll be able to do it in my head for the smaller decisions. Thanks for the great blog post!
I’m terrible in making decisions! And usually, I talk myself out of whatever I’ve thought about in the first place. To be honest, a lot of how I decide is on the opinion of my mom. I know it sounds tacky, but I’m the person that weighs everything in necessity. Do I really need it? Is it really going to benefit me? As I do that, I weigh the pros and cons, but then somehow con myself out of it. A fresh eyes with more knowledge really helps making important decisions, because it’s a different perspective- even if it’s a mother’s.
Such sensible tips, Clay! I’m glad I ran into your post. However, I have a much simpler option, which I have been employing since my dad suggested it to me about 15 years ago. Whenever I need to make a decision which is somewhat confusing and complicated for me, I grab a piece of paper, draw a line straight down the middle and label one side “Cons” and the other “Pros.” The longer the list is for whichever side, the higher the probability that my decision will be influenced by it.