One of those important principles is admissibility.  Maybe it should be called inadmissibility, because one alternative choice is inadmissible relative to a second alternative if no matter what actually happens, the second alternative leads to an outcome which is at least as good as the outcome from the first alternative.  Well, children would never phrase it this way, but let’s watch a child in action.  The child wants something – maybe an in-between meal snack, maybe a new toy or a trip to the zoo.   Shortly after the child acquires the ability to actually ask for this particular something, the child recognizes which parent it should ask, because the child knows which parent is more likely to grant the request.

Another important principle is the maximax principle, which states that if conditions are favorable, one should select the alternative which yields the maximum payoff.  Want to watch a child employ the maximax principle?  If the child asks his mother for a cookie and gets it, by far the most likely outcome is that after consuming the cookie, the child will request another.  Even if the child is full, there’s a very good chance that the child will request another cookie and then be unable to eat it all – a chain of events which in my family led to my mother saying, “Your eyes are bigger than your stomach.”

However, I have never seen a child apply the Bayes’ Criterion, which is the decision principle that urges one to choose the alternative that will result in the maximum payoffs in the long run.  For instance, let’s revisit the situation in the previous paragraph, where the child successfully scored a cookie, and then kept requesting them.  The child is not sufficiently farsighted to realize that requesting too many cookies now will lead to the following result: the mother will remember that bad things happened when the child’s request for additional cookies was granted.  Consequently, the mother will view requests for additional cookies in the future with a jaundiced eye; she may even view the original cookie request in this light.  As a result, the child might be better served in the long run by not requesting an additional cookie.

At least, I’ve never seen a child react in this fashion.  If you do, I’d keep a really close eye on him or her, because you may be looking at a child prodigy, a Wolfgang Amadeus Mozart of practical decision theory.

At one stage last year, Mike Huckabee was the leading contender for the Republican nomination for President.  According to some polls, he’s neck-and-neck with Sarah Palin for the nomination in 2012 – or was until the repercussions from the Maurice Clemmons cop-killings became public knowledge.

Maurice Clemmons was convicted in 1989 for aggravated robbery, burglary, possession of a firearm, and several other charges.  A year later he was convicted of similar crimes.  The sentences he received came to a total of 108 years.  His file crossed Mike Huckabee’s desk in 2000, while Huckabee was governor of Arkansas.  Huckabee commuted Clemmons’ sentence to a length which made him eligible for parole.  Huckabee cited the defendant’s youth, but an additional factor may have been a letter from Clemmons claiming to have reformed.

This was not the first time that a prisoner whose sentence was commuted by Huckabee committed heinous crimes after being paroled.  During the 2008 campaign, Huckabee’s actions in bringing about the parole of convicted rapist Wayne Dumond surfaced, providing an embarrassing “Willie Horton” moment for Huckabee.  After being paroled, Dumond moved to Missouri, and was later convicted of rape and murder.

A basic tenet of the American justice system is that the accused is innocent until proven guilty – but once an individual is proven guilty, there is an obvious danger to society in letting such individuals loose.  In making the decision to free an individual committed of a serious crime, it seems to me that the minimax criterion – making the decision that minimizes the risk of a worst-case scenario taking place, should be paramount.  The worst-case scenario of letting a violent criminal out on the streets is that he will commit other violent crimes.  It happened once, with Wayne Dumond.  It happened a second time, with Maurice Clemmons.  Considering the large number of prisoners whose sentences Huckabee commuted, there’s a chance this may happen again.

It is difficult to convict someone of a crime in America – but we believe it is better to have the guilty go free than to send an innocent man to jail.  I don’t have a problem with that.  However, the minimax principle dictates that it’s a lot better for society to have genuinely reformed individuals serve out their time than to have an individual who falsely claims to have reformed out on the street before his sentence has been fully served.  It is tragic that violent crimes such as those perpetrated by Wayne Dumond and Maurice Clemmons seem to be needed to make this point.

There is a lot of pressure on students to succeed nowadays, and that means there is more pressure to cheat. Dealing with a student who has cheated is a tremendous headache; at my school you must have absolute proof, which is hard to obtain, and even then you may have to run a gamut of appeals committees and politically-correct administrators. As a result, I’ve felt that an ounce of prevention was easily worth a pound of cure in this instance – and so I tell my students when to cheat.

I don’t tell them how to cheat. The cheaters (in math classes) generally do it in such blatantly obvious fashion that it practically screams at you when you see it. However, there is a tremendous lesson to be had in learning when to cheat, because this is a recurrent decision one will face throughout life.

The key principle is the Bayes’ Criterion – looking at the long-term average payoffs from the decision whether or not to cheat. This involves measuring the reward associated with successful cheating, the risk associated with unsuccessful cheating, and the probability of the cheating being discovered.

There are situations in which a rational individual should unquestionably cheat – these are generally extreme situations. If you have access to company funds and your child needs an expensive operation for which you cannot pay and without which she will die, your only recourse is to cheat. Cheating on an exam, the problem I generally confront, is not as clear-cut. However, it’s actually a pretty simple decision to make – at least at my school. Most students considering cheating see only the two alternatives; to fail an exam (or get too low a grade), or to cheat. However, usually a single exam is only a small component of the final grade; if they fail it they can still survive the course. Even if they feel they cannot pass the course, if they have sufficient time they can decide to withdraw from the class. If they do not withdraw from the class and end up failing it, they have an option known as repeat-delete; they can repeat the course and the grade the second time around replaces the first grade for the purpose of computing their grade-point average. On the other hand, if they decide to cheat, they are unlikely to significantly improve their grade through successful cheating on one exam, and if they are caught and kicked out of school, it stays as a black mark on their record. In this day and age, it’s hard to expunge such black marks.

As a result of this lecture, I’m seeing much less cheating on exams than I used to. Even if this is the only thing they remember from math class (and most students who aren’t scientists or engineers forget math very quickly), they’ve learned something very valuable – not only for themselves, but for society. If we eliminated a lot of pointless cheating, we’d not only elevate the general moral tone, but we’d have the time we spend dealing with pointless cheating to deal with more serious matters.

Most of us have to accept the fact that when we make decisions, our decisions are constrained by some sort of limitation on our resources.  We can’t buy McMansions and luxury yachts – and if something bad happens to us, we can’t always prevent the consequences.

Most of us can’t – but some of us can; generally those people who have either a lot of money, a lot of connections, or – as generally happens when you have one or the other – a lot of both.  Bad things happened to three well-known scoundrels: Roman Polanski, Michael Milken, and Bernard Madoff.  The bad things that happened were consequences of actions freely chosen by each of them – but they decided to react in different ways.

Roman Polanski was accused of several crimes, but was convicted of illegal sex with a minor, a 13-year-old to whom he had given a Quaalude before having sex with her.  He had spent more than 40 days in jail, but when the day dawned for sentencing, he received word that the judge was considering throwing the book at him.  So he skipped town – and country – taking the red-eye to France, where he lived luxuriously for thirty years until his recent incarceration by the Swiss.

It’s hard to quarrel with Polanski’s decision.  Considering the fact that his payoffs undoubtedly consisted of his future happiness, there was nothing to be gained from staying in the United States to face the music.  Why go to jail – bad food and lodging, unpleasant companions – when you can live as a celebrated motion-picture director in a country with affable companions, and terrific food and lodging?  It looks like a no-brainer to me.

But virtually the same decision, an apparent no-brainer, confronted both Michael Milken and Bernard Madoff, financiers convicted of monetary malfeasance.  Unlike Polanski, they both chose to stay and take their medicine – even though, in the case of Madoff, there is a significant chance that he will never be released from prison.  Milken was released after two years – but even a country-club prison offers considerably less in the way of amenities than a villa in a country with no extradition treaty with the United States.  Why did these extremely intelligent individuals make such a seemingly irrational decision?

My belief is that it is a matter of weighing the payoffs – and both Milken and Madoff had families to consider, whereas Polanski (whose wife was brutally murdered by Charles Manson) was on his own.  I think that both Milken and Madoff agreed to sacrifice their personal payoffs in order to avoid additional disgrace for their families.  Payoffs determine decisions – and both Milken and Madoff were family men, and judged that the payoffs for the family as a whole were greater if they agreed to take the prescribed punishment for their crimes.

The first decision was fairly straightforward – should he acquiesce to the blackmailer’s demands?  There is a long history of people paying off blackmailers and regretting it, as there is no guarantee that the blackmailer will not come back for more.  In the good old days, when evidence was in the form of photographic negatives, there was the slight chance that only one copy of the incriminating evidence existed, but in the Internet era, practically any form of information can be digitized and duplicated ad infinitum.  Letterman also realized that even if this one particular blackmailer could be paid off and trusted to keep a secret, once a secret is no longer secret there may be many other parties to the secret.   He could be confronted by the identical situation at some future date.  His future options would then be the same as his current ones, the only difference being that the future payoffs would all be lowered by the amount that he had paid the current blackmailer.  There simply was no chance of a favorable outcome from paying off the blackmailer, and so Letterman wisely decided not to do so.

Having successfully gotten over the first hurdle, the next decision Letterman faced was how to minimize the damage.  This was a highly complex situation, as damage could come in many different areas of Letterman’s life.  The public scandal might have an adverse impact on his career, would almost certainly harm his marriage, and if the marriage were to end in divorce, would certainly do considerable financial damage.

Bill O’Reilly, faced with a similar situation a few years ago, made a decision to admit the involvement but minimize the discussion.  He survived the incident – possibly coincidentally, but possibly by his decision of which course to pursue.  Letterman obviously had to admit the involvement but chose to make the matter public in an extremely high-profile way — by admitting and discussing it on his late-night television show.  This didn’t hurt his ratings, but there is talk in celebrity gossip circles that a $300 million divorce battle may be in the offing.

It seems to me that by raising the stakes as Letterman did, he not only increased the probability of an unfavorable outcome but also raised the cost of such an outcome, without a commensurate increase in the payoffs from a favorable outcome.  He ignored the value of information, which is never a good thing to do when you are making a decision, and would have done better by learning from Bill O’Reilly.

Here is my analysis of the answers

A – Conduct a market survey to find out what the American public doesn’t like about the Edsel, then redesign it to take advantage of the results of this survey?

1 point - Information can help you make better decisions, providing that the cost of the information does not exceed the gain produced by that information, and that the information you are seeking is the RIGHT information. You have produced a sow’s ear, and conducting a survey to obtain information about how to turn it into a silk purse could result in your throwing even more money away.

B – Conduct a study to find out which of your assumptions about the Edsel were wrong, and resulted in the production of a car that despite your best efforts the American public wouldn’t buy?

5 points - You acted in accordance with what you thought was the best information available. It wasn’t. You had better find out why this wasn’t the best information available, otherwise how can you ever have faith in basing decisions on information you have acquired? Adopting this action is not only critical for this decision, but for future decisions as well.

C – Discontinue production of new models and go back to the models that you already know the public will buy?

2 points - This action will certainly improve your near-term payoffs. However, it will not favorably impact your decision- making structure, and failure to repair the flaws in this structure may result in other disasters down the road. In making decisions, it pays to think about other related decisions that might occur – one swallow doth not a summer make.

What Actually Happened – Ford conducted the study suggested in

Alternative B, and discovered that the American buying public was segmented according to lifestyle. This discovery resulted in spectacular successes, the Thunderbird and the Mustang. Much of Detroit’s current malaise stems from its inability to work with information. After the oil crisis of the 1970s, Detroit inaugurated a program to build more fuel-efficient vehicles. When the boom times came in the 1990s, Detroit focused much of its attention on the production of sports utility vehicles (SUVs) – gas guzzlers with high profit margins. Cadillac is now trying to off-load its Escalades on China. The auto industry has a history of ignoring valuable information. Even though Ford came up with winners in the Mustang and Thunderbird, it fought the public interest tooth and nail on safety, environmental and social issues, which were clearly of considerable concern. It opposed seat belt and air bag legislation, opposed fuel economy (as noted above) and the Clean Air Act, and resisted alternative-fuel vehicles. Whether the government will bail out the auto industry, and how it will react if that happens, is still to be determined – but if that does take place, they would be well advised to make better use of information than they have in the past.

I am giving away two advance copies of my new book The Right Decision. How can you get a copy? Simple. See the scenario and poll below? Pick “the right decision” and in the comments section tell me why you think that is the best way to proceed. The first two people to pick “the right decision”  and tell me their reason for doing so will get a free copy of the book. Check back on Wednesday for the best answer. Please don’t forget to write a comment as to why you picked a certain answer. I cannot track who won if you don’t comment.

Thanks for playing!

Jim Stein.

THE SCENARIO

As a member of the management team of Ford Motor Company, you have helped your firm to rebound from near-bankruptcy following World War II to a prosperous number-two position in the domestic market, and challenging for number-one in the European market. After thorough and intensive market surveys, careful design, and sound and skillful marketing tactics, you have produced in 1957 what is destined to be a legend in the annals of consumerism: the Edsel. Even though not all the returns are in, this looks like the biggest bomb since Hiroshima. Something obviously went drastically wrong, and the bottom-line impact of another Edsel may place Ford in financial jeopardy. On the other hand, the country is clearly in the midst of boom times — you simply can’t sit back and watch GM and Chrysler climb all over you. Should you recommend that Ford…..??

Half a century ago, when I first started getting vaccinations, if your doctor said to get vaccinated, you got vaccinated.  End of story.  Nowadays, however, there are some frightening postings on the Internet concerning the downside of vaccinations.  People have died from them.  There is a presumed link between vaccines and autism which many people believe, although it has been repeatedly and strenuously debunked by the medical profession.  Additional problems result from flu vaccines, as these are generally constructed so as to deal with what is considered to be the most likely flu strain – and so they may not be effective.  Finally, the swine flu itself does not seem to be the global threat that it appeared to be this spring.  What does decision theory have to say about this?

There are two contrasting principles here: the minimax principle, which cautions us to guard against the worst-case scenario, and the Bayes’ Criterion, which looks for the best long-term result.  However, the worst-case scenario (let’s come right out and say it, you could die) could happen either way – you could die from getting the flu shot, or you could die from getting the flu.  There seems to be no clear way to avoid the worst-case scenario – if there were, everyone would be following it.

So what is the best long-term result?  The medical community has no doubts; they are advising everyone who is in a risk group to get the shots.  The question is whether you are more likely to suffer an adverse result from getting the vaccination than from going without one.  True, the vaccine could kill you, but you can die from a peanut-butter sandwich if you happen to have the wrong type of allergic reaction.

In making a decision, it is important to take advantage of information.  There have been a few deaths from flu vaccine – as there have been from peanut-butter sandwiches – but the great majority of the medical community favors the shots.  That’s the best information we have at this time.  I trust experts – they’re not omniscient, but they have generally devoted their lives to learning about a particular subject.  In particular, much of the increase in life expectancy is due to the continuing efforts of the medical community.

I rolled up my sleeve the first day the vaccines became available.  If I had children, I would have insisted they do the same.

Just a few weeks ago, the noted conservative radio talk show host Rush Limbaugh was a part of a group interested in purchasing the St. Louis Rams, a National Football League franchise.  The laws of the United States guarantee that Limbaugh must be allowed to purchase a ticket to a St. Louis Rams football game, because these are sold to the public, but the National Football League owners form a private club and are allowed to decide who may be permitted to own a part of a football team.

As usual, decisions such as this come down to payoffs.  Unquestionably Limbaugh brought certain assets to the table – in addition to the financial assets he possesses by virtue of his $25 million per year salary, his investments, and the various enterprises that his radio show has spawned.  He is certainly knowledgeable about the game, and actually was a commentator for Monday Night Football.  He is undoubtedly controversial, and in an entertainment industry it is the squeaky wheel that gets the grease.  When Rush says something controversial – practically an everyday occurrence – it makes national headlines, and all the talking heads spend a lot of time dissecting it.

However, there are negative payoffs associated with a Limbaugh ownership.  He is perceived as being anti-minority, and not only does the National Football League owe much of its success to the interest that a broad spectrum of Americans – minorities included – take in the game, a large number of its players and stars are black.  When word came out that Limbaugh was interested in buying a portion of the St. Louis Rams, the reaction from the majority of players was extremely negative.

This decision was an easy one for the NFL owners – and an easy one for someone who is familiar with the minimax principle, which involves guarding against potential disasters.  The assets that Limbaugh would bring to the NFL are not unique – many people have the financial wherewithal, and the league has a sufficiently high profile that it does not need controversy to garner attention.  The liabilities are huge – a Limbaugh ownership would risk alienating a large segment of both players (the employees) and the fans (who support the league financially).  The gains from a Limbaugh ownership are minimal, the potential losses enormous.  The decision of the owners not to allow any group of which Limbaugh was a part to own a team was a straightforward and correct application of the minimax principle.

Sarah Palin has been involved with two extremely important decisions during the past year.  The first was her selection to be John McCain’s running mate, and the second was her decision to resign the governorship of Alaska.  Were these the Right Decisions?

From the standpoint of decision theory, the selection of Palin to be McCain’s running mate was unquestionably the Right Decision.  The polls had Obama clearly in the lead, and all the signs pointed to an Obama victory at the time the Republican convention was held.  There were two possible ways for the Republicans to win: if Obama made a serious error (which was not within the Republicans’ power to accomplish), or if somehow a last-minute Hail Mary pass connected for a political touchdown.  Walter Mondale made the same type of decision in 1984 when, faced with an apparently invincible Ronald Reagan, he selected Geraldine Ferraro as his running mate.

When Palin announced that she would resign the governorship to concentrate on writing her book and taking her family out of the limelight, political pundits were stunned.  How could this be the Right Decision if she wanted to build up her flimsy political resume to run for the Presidency in 2012?  If her payoffs really are centered on home and family, then removing herself from the white-hot glare of the media is almost certainly the correct move for her to make.  It is even possible that if her payoffs are centered on her political future, her decision was correct: if Sarah Palin is to win the Presidency in 2012, it will not be because she has established herself as successful governor, it will be because she is Sarah Palin, and is somehow different from all those other politicians.  Resigning a political office is something those other politicians do only under duress.