ECONOMIC ANALYIS: Rational Decision Making.

Rational decision making is a complex process that contains nine essential elements, which are shown sequentially in Figure 1-1. Although these nine steps are shown sequentially, it is common for decision making to repeat steps, take them out of order, and do steps simultaneously. For example, when a new alternative is identified, then more data will be required. Or when the outcomes are summarized, it may become clear that the problem needs to be redefined or new goals established.

The value of this sequential diagram is to show all the steps that are usually required, and to show them in a logical order. Occasionally we will skip a step entirely. For example, a new alternativemay be so clearly superior that it is immediately adopted at Step 4 without further analysis. The following sections describe the elements listed in Figure 1-1.

FIGURE 1-l One possible flowchartof the decision process.

1. Recognize the Problem.

2. Define the Goal or Objective.

3. Assemble Relevant Data.

4. Identify Feasible Alternatives.

5. Select the Criterion to Determine the Best Alternative.

6. Constructing the Model.

7. Predicting the Outcomes for Each Alternative.

8. Choosing the Best Alternative.

9. Audit the Results.