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Status: Tags: Links: Decision Trees

Three P’s of Outcomes

Principles

• Preferences are based on our goals and values
• Payoffs are the supposed benefits and downsides of a decision
• Probabilities are the chances of the payoffs happening

Steps

1. Identify the possible outcomes
2. Identify your preference using the payoff for each outcome- to what degree do you like or dislike each outcome, given your values?
   • List them from most favorable to least
   • Consider payoffs like money, hapiness, knowledge
     • Upside, downside
       • Consider magnitude
3. Estimate the probabilities for each outcome
   • Consider the level of risk in relation to the potential reward
   • Can use actual percentages or phrases
4. Assess the overall probability of the good happening vs bad
5. Repeat 1-4 for other options
6. Compare options to one another
   • Which option has the best upside to downside ratio?

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