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Ronald A. Howard
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Foundations of Decision
Analysis
Global Edition
Ronald A. Howard
Stanford University
Ali E. Abbas
University of Southern California
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A catalogue record for this book is available from the British Library
10â•‡9â•‡8â•‡7â•‡6â•‡5â•‡4â•‡3â•‡2â•‡1
ISBN 10: 1-292-07969-X
ISBN 13: 978-1-292-07969-1
Typeset by Integra in 10/12 Times LT Std.
Printed and bound in Great Britain by Clays Ltd, Bungay, Suffolk

Brief Contents
Prefaceâ•…17
Part 1 Defining a Good Decisionâ•…

Chapter 1 Introduction to Quality Decision Makingâ•… 23
Chapter 2 Experiencing a Decisionâ•… 44
Part 2 Clear Thinking and Characterizationâ•…

Chapter 3 Clarifying Valuesâ•… 63
Chapter 4 Precise Decision Languageâ•… 77
Chapter 5 Possibilitiesâ•…84
Chapter 6 Handling Uncertaintyâ•… 100
Chapter 7 Relevanceâ•…145
Part 3 Making any Decisionâ•…

Chapter 8 Rules of Actional Thoughtâ•… 178
Chapter 9 The Party Problemâ•… 198
Chapter 10 Using a Value Measureâ•… 216
Part 4 Building on the Rulesâ•…

Chapter 11 Risk Attitudeâ•… 239
Chapter 12 Sensitivity Analysisâ•… 269
Chapter 13 Basic Information Gatheringâ•… 287
Chapter 14 Decision Diagramsâ•… 314
Part 5 Characterizing What you Knowâ•…

Chapter 15 Encoding a Probability Distribution on a Measureâ•… 330
Chapter 16 From Phenomenon to Assessmentâ•… 349
Part 6 Framing a Decisionâ•…

Chapter 17 Framing a Decisionâ•… 356
Part 7 Advanced Information Gatheringâ•…

Chapter 18 Valuing Information from Multiple Sourcesâ•… 370
Chapter 19 Optionsâ•…400
Chapter 20 Detectors with Multiple Indicationsâ•… 421
Chapter 21 Decisions with Influencesâ•… 447

4 Brief Contents
Part 8 Characterizing What You Wantâ•…

Chapter 22 The Logarithmic u-Curveâ•…464
Chapter 23 The Linear Risk Tolerance u-Curveâ•…495
Chapter 24 Approximate Expressions for the Certain
Equivalentâ•…508
Chapter 25 Deterministic and Probabilistic Dominanceâ•… 521
Chapter 26 Decisions with Multiple Attributes (1)–Ordering
Prospects with Preference and Value Functionsâ•… 539
Chapter 27 Decisions with Multiple Attributes (2)–Value Functions
for Investment Cash Flows: Time Preferenceâ•… 555
Chapter 28 Decisions with Multiple Attributes (3)–Preference
Probabilities Over Valueâ•… 572
Part 9 Some Practical Extensionsâ•…

Chapter 29 Betting on Disparate Beliefâ•… 589
Chapter 30 Learning from Experimentationâ•… 596
Chapter 31 Auctions and Biddingâ•… 610
Chapter 32 Evaluating, Scaling, and Sharing Uncertain Dealsâ•… 643
Chapter 33 Making Risky Decisionsâ•… 670
Chapter 34 Decisions with a High Probability of Deathâ•… 683
Part 10â•‡ Computing Decision Problemsâ•…

â•‡ Chapter 35 â•‡ Discretizing Continuous Probability Distributionsâ•… 708
â•‡ Chapter 36 â•‡ Solving Decision Problems by Simulationâ•… 725
Part 11â•‡ Professional Decisionsâ•…

â•‡ Chapter 37 â•‡ The Decision Analysis Cycleâ•… 746
â•‡ Chapter 38 â•‡ Topics in Organizational Decision Makingâ•… 775
â•‡ Chapter 39 â•‡ Coordinating the Decision Making of Large
Groupsâ•…789
Part 12â•‡ Ethical Considerationsâ•…

â•‡ Chapter 40 â•‡ Decisions and Ethicsâ•… 803
Indexâ•…817

Contents
Prefaceâ•…17
Chapter 1 Introduction To Quality Decision Makingâ•… 23

1.1â•…Introductionâ•…23
1.2â•…Normative Vs. Descriptiveâ•…23
1.3â•… Declaring a Decisionâ•…26
1.4â•…Thought Vs. Actionâ•…29
1.5â•… What is a Decision?â•…30
1.6â•… Decision Vs. Outcomeâ•…32
1.7â•… Clarity of Actionâ•…35
1.8â•… What is a Good Decision?â•…36
1.9â•…Summaryâ•…40
Key Termsâ•… 41â•… •â•… Problemsâ•…42
Chapter 2 Experiencing A Decisionâ•… 44

2.2â•…Analysis of a Decision: The Thumbtack and the Medallion
Exampleâ•…44
2.3â•… Lessons Learned from the Thumbtack and Medallion Exampleâ•…53
Key Termsâ•…â•…57
Appendix A: Results of the Thumbtack Demonstrationâ•… 58
Problemsâ•… 59
Chapter 3 Clarifying Valuesâ•… 63

3.2â•… Value in Use and Value in Exchangeâ•…63
3.3â•… Values Around a Cycle of Ownershipâ•…67
Chapter 4 Precise Decision Languageâ•… 77

4.2â•… Lego-Like Precisionâ•…77
4.3â•… Precise Decision Languageâ•…78
4.4â•… Experts and Distinctionsâ•…79
4.5â•…Masteryâ•…81
4.6â•… Creating Your Own Distinctionsâ•…82

6 Contents
4.7â•…Footnoteâ•…82
Chapter 5 Possibilitiesâ•…84
5.1â•…Overviewâ•…84
5.2â•… Creating Distinctionsâ•…84
5.3â•…The Possibility Treeâ•…87
5.4â•…Measuresâ•…94
Chapter 6 Handling Uncertaintyâ•… 100

6.2â•… Describing Degree of Belief by Probabilityâ•…100
6.3â•…The Probability Treeâ•…104
6.4â•…Several Degrees of Distinctionâ•…113
6.5â•… Multiple Degrees of Distinctionâ•…113
6.6â•… Probability Trees Using Multiple Distinctionsâ•…116
6.7â•… Adding Measures to the Probability Treeâ•…123
6.8â•… Multiple Measuresâ•…131
Key Termsâ•… 134
Appendix A: The Chain Rule for Distinctions: Calculating Elemental
Probabilitiesâ•…135
Appendix B: Let’s Make a Deal Commentaryâ•… 137
Appendix C: Further Discussion Related to the Example:
At Least One Boyâ•… 140
Problemsâ•…141
Chapter 7 Relevanceâ•…145
7.2â•… Relevance with Simple Distinctionsâ•…145
7.3â•…Is Relevance Mutual?â•…146
7.4â•… Relevance Diagramsâ•…148
7.5â•… Alternate Assessment Ordersâ•…152
7.6â•… Relevance Depends on Knowledgeâ•…154
7.7â•… Distinctive Vs. Associative Logicâ•…159
7.8â•…The Third Factorâ•…160
7.9â•… Multi-Degree Relevanceâ•…163

Contents 7
Appendix A: More on Relevance Diagrams and Arrow Reversalsâ•… 165
Problemsâ•… 168
Chapter 8 Rules Of Actional Thoughtâ•… 178

8.2â•… Using Rules for Decision Makingâ•…178
8.3â•…The Decision Situationâ•…180
8.4â•…The Five Rules of Actional Thoughtâ•…181
Chapter 9 The Party Problemâ•… 198

9.2â•…The Party Problemâ•…198
9.3â•…Simplifying the Rules: E-Valueâ•…204
9.4â•… Understanding the Value of the Party Problemâ•…209
Appendix Aâ•… 214
Problemsâ•…215
Chapter 10 Using A Value Measureâ•… 216

10.2â•… Money as a Value Measureâ•…216
10.3â•… u-Curvesâ•…219
10.4â•… Valuing Clairvoyanceâ•…223
10.5â•… Jane’s Party Problemâ•…227
10.6â•… Attitudes Toward Riskâ•…230
10.7â•… Mary’s Party Problemâ•…233
â•‡ Key Termsâ•… 235â•… •â•… Problemsâ•…236
Chapter 11 Risk Attitudeâ•… 239

11.2â•… Wealth Risk Attitudeâ•…239
11.3â•… Buying and Selling a Deal Around a Cycle of Ownershipâ•…240
11.4â•…The Delta Propertyâ•…243
11.5â•… Risk Oddsâ•…246
11.6â•… Delta Property Simplificationsâ•…251
11.7â•…Other Forms of Exponential u-Curveâ•…253

8 Contents
11.8â•… Direct Assessment of Risk Toleranceâ•…254

Chapter 12 Sensitivity Analysisâ•… 269

12.2â•… Kim’s Sensitivity to Probability of Sunshineâ•…269
12.3â•… Certain Equivalent Sensitivityâ•…271
12.4â•… Value of Clairvoyance Sensitivity to Probability of Sunshineâ•…272
12.5â•… Jane’s Sensitivity to Probability of Sunshineâ•…273
12.6â•…Comparison of Kim’s and Jane’s Value of Clairvoyance
Sensitivitiesâ•…274
12.7â•… Risk Sensitivity Profileâ•…276
Chapter 13 Basic Information Gatheringâ•… 287

13.2â•…The Value of Informationâ•…287
13.3â•…The Acme Rain Detectorâ•…289
13.4â•… General Observations on Experimentsâ•…295
13.5â•… Asymmetric Experimentsâ•…299
13.6â•…Information Gathering Equivalentsâ•…302
â•‡Problemsâ•… 307
Chapter 14 Decision Diagramsâ•… 314

14.2â•…Nodes in the Decision Diagramâ•…314
14.3â•… Arrows in Decision Diagramsâ•…315
14.4â•… Value of Clairvoyanceâ•…317
14.5â•…Imperfect Informationâ•…318
14.6â•… Decision Tree Orderâ•…318
14.7â•… Detector Use Decisionâ•…319
Chapter 15 Encoding A Probability Distribution On A

Measureâ•…330
15.2â•… Probability Encodingâ•…332

Contents 9
15.3â•… Fractiles of a Probability Distributionâ•…338

â•‡ Key Termsâ•… 346â•… •â•… Problemsâ•… 347 â•… •â•… Answers to Problem 2â•… 348
Chapter 16 From Phenomenon To Assessmentâ•… 349

16.2â•…Information Transmissionâ•…349
16.3â•…Perceptionâ•…350
16.4â•…Cognitionâ•…351
16.5â•…Motivationâ•…355
â•‡ Key Termsâ•… 355
Chapter 17 Framing A Decisionâ•… 356

17.2â•… Making a Decisionâ•…356
17.3â•…Selecting a Frameâ•…357
Chapter 18 Valuing Information From

Multiple Sourcesâ•… 370
18.2â•…The Beta Rain Detectorâ•…370
18.3â•…Clarifying the Value of Joint Clairvoyance
on Two Distinctionsâ•…377
18.4â•… Value of Information for Multiple Uncertaintiesâ•…380
18.5â•… Approaching Clairvoyance with Multiple Acme Detectorsâ•…385
18.6â•… Valuing Individually Immaterial Multiple Detectorsâ•…394
Chapter 19 Optionsâ•…400
19.2â•… Contractual and Non-Contractual Optionsâ•…400
19.3â•…Option Price, Exercise Price, and Option Valueâ•…401
19.4â•…Simple Option Analysisâ•…402
19.5â•… Consequences of Failure to Recognize Optionsâ•…405
19.6â•… Jane’s Party Revisitedâ•…408
19.7â•… Value of Clairvoyance as an Optionâ•…410

10 Contents
19.8â•…Sequential Information Optionsâ•…411

19.9â•…Sequential Detector Optionsâ•…414
19.10â•… Creating Optionsâ•…414
â•…Key Termsâ•…419â•…•â•… Problemsâ•…420
Chapter 20 Detectors With Multiple Indicationsâ•… 421

20.2â•… Detector with 100 Indicationsâ•…422
20.3â•…The Continuous Beta Detectorâ•…439
Chapter 21 Decisions With Influencesâ•… 447

21.2â•…Shirley’s Problemâ•…447
Chapter 22 The Logarithmic u-Curveâ•…464

22.2â•…The Logarithmic u-Curveâ•…465
22.3â•…Deals with Large Monetary Prospects
for a DeltaPersonâ•…469
22.4â•… Properties of the Logarithmic u-Curveâ•…473
22.5â•… Certain Equivalent of Two Mutually Irrelevant Dealsâ•…478
22.6â•…The St. Petersburg Paradoxâ•…481
â•‡ Appendix A: The Logarithmic Function and Its Propertiesâ•… 486
â•‡ Appendix B: The Risk-Aversion Functionâ•… 487
â•‡ Appendix C: A Student’s Question Following an Economist Articleâ•… 488
Chapter 23 The Linear Risk Tolerance u-Curveâ•…495

23.2â•… Linear Risk Toleranceâ•…495
â•‡ Appendix A: Derivation of Linear Risk Tolerance u-Curveâ•… 504
â•‡Appendix B: Student’s Problem Using Linear Risk Tolerance u-Curveâ•… 505

Contents 11
Chapter 24 Approximate Expressions For The Certain

Equivalentâ•…508
24.2â•… Moments of a Measureâ•…508
24.3â•… Central Moments of a Measureâ•…512
24.4â•…Approximating the Certain Equivalent Using
First and Second Central Momentsâ•…513
24.5â•…Approximating the Certain Equivalent Using Higher Order
Momentsâ•…515
24.6â•…Cumulantsâ•…518
Chapter 25 Deterministic And Probabilistic

Dominanceâ•…521
25.2â•… Deterministic Dominanceâ•…521
25.3â•… First-Order Probabilistic Dominanceâ•…526
25.4â•…Second-Order Probabilistic Dominanceâ•…530
25.5â•… Dominance for Alternatives in the Party Problemâ•…534
Chapter 26 Decisions With Multiple Attributes

(1)–Ordering Prospects With Preference
And Value Functionsâ•… 539
26.2â•…Step 1: Direct Vs. Indirect Valuesâ•…540
26.3â•…Step 2: Ordering Prospects Characterized
by Multiple “Direct Value” Attributesâ•…544
â•‡Appendix A: Deriving the Relation Between Increments in
x and y as a Function of h in the Preference Functionâ•… 553

(2)–Value Functions For Investment
Cash Flows: Time Preferenceâ•… 555
27.2â•… Rules for Evaluating Investment Cash Flowsâ•…556
27.3â•… Methods Not Equivalent to the Present Equivalentâ•…567

12 Contents
27.4â•… Cash Flows: A Single Measureâ•…570


(3)–Preference Probabilities
Over Valueâ•… 572
28.2â•…Stating Preference Probabilities with Two Attributesâ•…573
28.3â•…Stating Preference Probabilities with a Value
Functionâ•…574
28.4â•…Stating a u-Curve Over the Value Functionâ•…574
28.5â•…The Value Certain Equivalentâ•…576
28.6â•…Other u-Function Approachesâ•…578
28.7â•…Stating a u-Curve Over an Individual Attribute within the Value
Functionâ•…579
28.8â•… Valuing Uncertain Cash Flowsâ•…582
28.9â•…Discussionâ•…586
Chapter 29 Betting On Disparate Beliefâ•… 589

29.2â•… Betting on Disparate Probabilitiesâ•…589
29.3â•… Practical Useâ•…593
Chapter 30 Learning From Experimentationâ•… 596

30.2â•… Assigning Probability of Head and Tail for the Thumbtackâ•…597
30.3â•… Probability of Heads on Next Two Tossesâ•…598
30.4â•… Probability of Any Number of Heads and Tailsâ•…599
30.5â•… Learning from Observationâ•…600
30.6â•… Conjugate Distributionsâ•…603
30.7â•…Does Observing a Head Make the Probability
of a Head on the Next Toss More Likely?â•…604
30.8â•… Another Thumbtack Demonstrationâ•…605

Contents 13
Chapter 31 Auctions And Biddingâ•… 610

31.2â•… Another Thumbtack Demonstrationâ•…610
31.3â•… Auctions 1 and 3 for a Deltapersonâ•…615
31.4â•…Non-Deltaperson Analysisâ•…621
31.5â•…The Value of the Bidding Opportunity for Auction 2â•…623
31.6â•…The Winner’s Curseâ•…627
Chapter 32 Evaluating, Scaling, And Sharing Uncertain

Dealsâ•…643
32.2â•…Scaling and Sharing Riskâ•…643
32.3â•…Scaling an Uncertain Dealâ•…644
32.4â•… Risk Sharing of Uncertain Dealsâ•…647
32.5â•…Optimal Investment in a Portfolioâ•…649
â•‡ Appendix A: Covariance and Correlationâ•… 660
â•‡ Appendix B: Scalar (Dot) Product of Vectorsâ•… 665
â•‡Appendix C: 2 * 2 and 3 * 3 Matrix Multiplications
and Matrix Inversionâ•… 666
Chapter 33 Making Risky Decisionsâ•… 670

33.2â•… A Painful Dilemmaâ•…670
33.3â•…Small Probabilitiesâ•…673
33.4â•… Using Micromort Valuesâ•…673
33.5â•…Applicationsâ•…675
33.6â•… Facing Larger Probabilities of Deathâ•…677
Chapter 34 Decisions With A High Probability Of Deathâ•… 683

34.2â•… Value Function for Remaining Life Years and Consumptionâ•…683
34.3â•… Assigning a u-Curve Over the Value Functionâ•…686
34.4â•… Determining Micromort Valuesâ•…689

14 Contents
34.5â•… Equivalent Perfect Life Probability (Eplp)â•…695

â•‡ Appendix A: Mortality Table for 30-Year-Old Maleâ•… 698
â•‡ Appendix B: Example of a Black Pill Calculation, x = 10,000â•…701
â•‡ Appendix C: Example of a White Pill Calculation, x = 10,000â•…704
Chapter 35 Discretizing Continuous Probability

Distributionsâ•…708
35.2â•… Equal Areas Methodâ•…709
35.3â•… Caution with Discretizationâ•…713
35.4â•…Accuracy of 10–50–90 Approximate Method for Equal Areasâ•…715
35.5â•… Moments of Discrete and Continuous Measuresâ•…718
35.6â•… Moment Matching Methodâ•…718
â•‡ Appendix A: Rationale for Equal Areas Methodâ•… 721
Chapter 36 Solving Decision Problems By Simulationâ•… 725

36.2â•… Using Simulation for Solving Problemsâ•…725
36.3â•…Simulating Decisions Having a Single Discrete Distinctionâ•…726
36.4â•… Decisions with Multiple Discrete Distinctionsâ•…729
36.5â•…Simulating a Measure with a Continuous Distributionâ•…732
36.6â•…Simulating Mutually Irrelevant Distinctionsâ•…736
36.7â•… Value of Information with Simulationâ•…738
36.8â•…Simulating Multiple Distinctions with Relevanceâ•…742
Chapter 37 The Decision Analysis Cycleâ•… 746

37.2â•…The Decision Analysis Cycleâ•…746
37.3â•…The Model Sequenceâ•…756
â•‡Appendix A: Open Loop and Closed Loop Sensitivity for the Bidding
Decisionâ•…768

Contents 15
Chapter 38 Topics In Organizational Decision Makingâ•… 775

38.2â•…Operating to Maximize Valueâ•…776
38.3â•…Issues When Operating with Budgetsâ•…778
38.4â•…Issues with Incentive Structuresâ•…779
38.5â•… A Common Issue: Multiple Specifications Vs. Tradeoffsâ•…780
38.6â•…Need for a Corporate Risk Toleranceâ•…781
38.7â•… Common Motivational Biases in Organizationsâ•…785
Chapter 39 Coordinating The Decision Making Of Large

Groupsâ•…789
39.2â•…Issues Contributing to Poor Group Decision Makingâ•…789
39.3â•… Classifying Decision Problemsâ•…791
39.4â•…Structuring Decision Problems within Organizationsâ•…794
39.5â•… Example: The Fifth Generation Corvetteâ•…799
Chapter 40 Decisions And Ethicsâ•… 803

40.2â•…The Role of Ethics in Decision Makingâ•…804
40.3â•… Ethical Distinctionsâ•…805
40.4â•… Harming, Stealing, and Truth Tellingâ•…808
40.5â•… Ethical Codesâ•…811
40.6â•… Ethical Situationsâ•…812
â•‡ Key Termsâ•… 815â•… •â•… Problemsâ•… 816
Indexâ•…817

Preface
Decisions are the only means you have to change your future life. We make decisions every day.
Some decisions are routine, like choosing a television program to watch. Occasionally we make
decisions that have profound effects on us and those around us. Gaining competence in deci-
sion making is a highly desirable attainment. Although many of the principles of good decision
making have been known for centuries, there is little emphasis on this subject throughout our
educational lives. The important concepts in this book could be taught in grade school and in
high school. Yet when we ask graduate students about having taken previous courses in decision
making, few say that they have. Students in professional courses from major companies with
global interests have the same response.
The purpose of this book is to provide an opportunity to gain this mastery; to be able to
achieve clarity of action in making any decision on which you focus your attention. One of the
biggest obstacles in gaining decision competence is that most of us think we are pretty good at
making decisions. Yet it is easy to demonstrate that even in relatively simple decision situations
people make decisions that they see as unwise when they carefully review them.
Let us preview the major conceptual lessons that we will share. The most challenging
phenomenon we face in decision making is uncertainty. Suppose for each alternative we face in
making a decision we had a video showing the future course of our lives in as much detail as we
wished. Then we could easily make the decision. Uncertainty is inseparable from all significant
decisions. To become masters of decision making we must become competent in dealing with
uncertainty. We must learn to surf on the sea of uncertainty rather than to drown in it. We must
build clear thinking about uncertainty as a precursor to making a decision; we call this achieving
clarity of thought.
Learning how to deal with uncertainty does not mean that we do not relish it in our lives.
Who would want to live a life with a future calendar that is completely filled out so that, for
example, you would know years in advance on each day when, where, and with whom you
would be having lunch.
The most important distinction of decision analysis is that between a decision and the out-
come that follows it. This distinction, once thoroughly understood, is a powerful aid to achieving
clarity of action. Though it is common for people who make a decision followed by an unfortu-
nate outcome to see the decision as bad, this is not clear thinking. Good decisions can have bad
outcomes; bad decisions can have good outcomes. The quality of the decision depends only on
the quality of the thought and analysis that you have used in making it.
The amount of analysis appropriate to a decision can range from virtually none to exten-
sive computer modeling. Everyone will have extensive conversations about making important
decisions–sometimes with others, sometimes with oneself. Mastering the concepts of decision
analysis will increase the focus and usefulness of these conversations. While few decisions will
warrant the extensive analysis possible using these methods, merely thinking using the con-
cepts in this book can improve many of the choices we make every day. We find that as stu-
dents become acquainted with decision analysis it changes their conversation with friends and
colleagues.
An important distinction about any decision is its degree of revocability. Some decisions
are very revocable, like changing the movie you will see once you arrive at the multiplex; other
17

18 Preface
decisions have limited revocability, such as amputating your leg for a medical purpose. The irre-
vocability of an important decision is a sign to invoke the power of decision analysis.
There is no point in valuing an outcome after the decision is made. You will be living
the rest of your life beginning with that outcome or, as we prefer to call it, prospect. Once you
commit yourself to making good decisions there is no place in your life for regret or guilt. Good
decisions never become bad; bad decisions never become good.
Consider how evolution has prepared us for the modern world. What will befall an air-
plane pilot if he flies into the clouds and has no instruments? Soon he will think he is upside
down when he is not, or not turning when he is. Without intervention he is likely to die. This is
not a matter of his training or experience as a pilot, but rather that he is human. Humans never
developed the ability to operate an aircraft without visual reference. Why not? Because before
the invention of aircraft there was no evolutionary advantage to this ability. As long as you are
standing on earth or swimming in the water, you know which way is down. Notice that birds
that fly have no such problem. Duck hunters watching a flock fly into the clouds do not say,
“Drop the guns, we will catch them as they fall.” The many pilots of aircraft flying in bad vis-
ibility somewhere at this moment also have no difficulty, because the aircraft are equipped with
instruments and the pilots are trained to read them. Even if a pilot feels he is upside down, his
instruments show him that he is not.
Consider another example. For thousands of years, humans have been able to dive into
deep water successfully for food or pearls. They would take a deep breath and hold it till they
reached their goal and then return to the surface with their spoils. The development of scuba–
self-contained underwater breathing apparatus–equipment has allowed people for many decades
to do what only the most athletic of our ancestors could achieve. Suppose you are using scuba
equipment and you have dived to a depth of 100 feet, about 3 atm, and then find that your equip-
ment does not function. You are now far below the surface with only a lungful of air, air that
is now extremely precious to you: you can’t breathe. Your instinct is to head to the surface as
quickly as possible and preserve what air you have. Unfortunately, following this instinct will
probably kill you, for the lungful of air that you have will expand threefold by the time you reach
the surface. This expansion will destroy the alveoli in your lung that allow you to breathe and
admit air to your bloodstream. Following your instinct will kill you. Instructors point out that in
this situation that as you slowly ascend, no faster than your smallest bubbles, you must blow out
the air as you rise to avoid this misfortune. You must give up what is precious to you according
to your instinct to save your life. (Of course it is even better to dive with a buddy who can assist
you in these circumstances.) Here again before the invention of scuba there was no evolutionary
advantage in having this be our natural behavior.
Finally, as you sit reading this, it is possible that under your chair there is a highly radioac-
tive substance whose emissions will kill you by tomorrow. You have no alarm, since the ability
to sense radiation was not of evolutionary value to our ancestors. If in our modern world you are
concerned about the presence of radiation, there are many instruments that will warn you of its
presence.
Now let us consider the evolutionary influence on decision making. While evolution has
sensitized us to deal with judging the intentions of those we meet for millions of years, there
is not any evolutionary knowledge of dealing with uncertainty. If each of us suddenly heard
the roar of a live lion we would immediately react, though the noises of everyday life cause no
alarm. There was an evolutionary advantage to being aware of dangers from other predatory
forms of life that we have, fortunately, little reason to use frequently today. Yet someone can

Preface 19
sign a paper having profound effects on his future welfare without alarm since making marks on
a paper does not inspire the natural fear induced by the lion’s roar.
Just as knowledge and proper instruments have helped us overcome our evolutionary dis-
advantages in these areas, so also can they help us in becoming better decision makers. The
essential commitment is to use our instruments rather than trusting our intuition.
It is easy to show, and we do so in several occasions in this book, that our intuition on
matters of uncertainty is severely flawed. Using our instruments is essential for clear thinking.
No matter how long you have studied the subject, solving probability problems intuitively is
as likely to be successful as a pilot flying in bad weather without visible reference and without
instruments. The list of people who have made reasoning errors about uncertainty looks like the
roll call of famous scientists.
Once uncertainty has been mastered, the next step is to use our instruments for making
decisions in the face of uncertainty to arrive at clarity of action. The decision procedure will
apply to virtually every decision that you face. Once a student in decision analysis said that he
could see using the methods we were presenting for financial decisions, but not for medical
decisions. We replied that if we had to choose between using it for financial decisions and for
decisions about the health of a family member, then we would hire a financial advisor to manage
money and use decision analysis for family medical decisions. The reason is that we would want
to use the best decision method for the health of family and we know no better method than the
one we present in what follows.
This book summarizes what we have learned by teaching decision analysis to thousands of
people in the United States and around the world in university classes and special professional
educational programs. Dozens of doctoral students and colleagues have contributed to its devel-
opment. We intend for this book to extend the appreciation and application of this field, with
roots in centuries past, to the decision-makers of the future.
How to Use this Book

Decision making in our daily lives is an essential skill, whose fundamentals should not rely on
knowing much more than arithmetic. Often you can make the decision using easily explained
concepts without any calculations. We have therefore written the early chapters of this book and
certain later chapters to be accessible to a general audience. Readers with more mathematical
and computational preparation can benefit from the remainder of the book after understanding
the fundamentals.
To be specific, Chapters 1 through 17, Chapters 26, 29, and 33, as well as Chapters 37
through 40 provide the foundations of decision analysis using reasoning. The story is not in the
math: a decision maker can, step by step, transform confusion into clarity of thought and action.
Other chapters in this book are intended to expose readers to problems that require a
higher level of analysis, such as problems that may appear in organizations. They are covered
in Chapters 18 through 25, Chapter 27, Chapter 28, Chapters 30 through 32, and Chapters 34
through 36. While the analyses in these chapters require a higher level of computation, they rely
on the basic principles presented in Chapters 1 through 17. No knowledge of calculus is essential
to proper understanding of any of these chapters.
The “Decision Analysis Core Concepts Map” at the end of this book is a useful tool to
help you understand some of the main concepts presented. You can use this map in several
ways. First, it summarizes some of the important concepts, and so it can be used as a checklist

20 Preface
for things you need to know. Second, it tells you the chronological order of concepts you need to
understand before learning about another concept. An arrow from one concept to another helps
you identify what you need to know before understanding a particular concept.
We do not require the reader to use any software for the analyses carried out in this book.
Our purpose is to provide the foundations needed to solve the problems from fundamental prin-
ciples. While software packages and spreadsheets undergo change in versions and upgrades, the
concepts needed to solve these problems remain the same. An analyst should understand and
know how to analyze problems from the first principles. We have presented much of the sophis-
ticated analysis in tabular form to give the reader exposure to solving these problems numeri-
cally. To gain a better understanding of these chapters, we suggest that the reader repeat the
tabular analysis on their own instead of just reading the chapters. The replication of these tables
in spreadsheets or other current tabular forms can be assigned as homework problems in classes.
Chapter 37 provides an informative case study (The Daylight Alchemy) that has been used
in many decision analysis classes as a final take-home exam. It captures many of the tools pre-
sented throughout the book.
Below are some suggestions for using this book in a classroom:
When teaching to an audience that has an interest in the foundations of decision making
but less emphasis on the math or computations, the following chapters could be covered:
Chapters 1 through 17 introduce the foundations of decision analysis without requiring
significant mathematical sophistication. Topics include characterizing a decision, the rules
of actional thought, u-curves, sensitivity analysis, probability encoding, and framing.
Chapter 26 discusses multi-attribute decision problems with no uncertainty. The presenta-
tion prepares the reader to address multi-attribute problems where uncertainty is present.
Chapter 29 presents a fundamental notion about probability: when two people have dif-
ferences in beliefs, we can construct a deal that both will find attractive, and we can also
make money out of constructing those deals.
Chapter 33 analyzes decisions that involve a small probability of death, such as skiing or
driving a car.
Chapters 37 through 39 explain how to use the decision analysis approach when there are
large groups involved. They also discuss some impediments to quality decision making in
organizations.
Chapter 40 discusses ethical considerations in decision making. Like any tool, decision
analysis is amoral: you can use it to determine the best way to rob a bank. The ethics must
come from the user.
Other chapters in the book are also relevant when teaching to a technical audience that would
like to learn about large-scale problems and the computations involved. For example, seniors in
an undergraduate engineering curriculum, MS students, or MBA students. For this audience, the
instructor may wish to add any of the following chapters to the chapters listed above:
Chapters 18 through 25 discuss advanced information gathering from multiple sources,
the concept of creating options in our daily lives, other types of u-curves that describe risk
aversion, using approximate formulas for valuing deals, and the concept of probabilistic
dominance relations that, when present, facilitate the determination of the best alternative.
Chapters 27 and 28 analyze multi-attribute problems where a value function for cash flows
is determined and explain how to handle multiattribute decision problems with uncertainty.

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terminated the old monarchy, and for four hundred years threw
everything into confusion. But, what we are concerned with, is the
fact that in the reign of this king and his successor, the Nile rose, on
an average, twenty-four feet above the level to which it rises now.
Here, then, are two witnesses, Nature and Man. The coincidence
of their testimony is as clear and complete as it is undesigned. It
may, therefore, be accepted as an undoubted fact, that the Nile is
now flowing from Semnéh to Silsiléh at a level lower by at least
twenty-four feet than it did at the date of the inscriptions. Nature says
there was a time when it rose at least twenty-seven feet higher than
at present, for at that height it deposited alluvium. There is no
discrepancy in these three additional feet, though there would have
been something like a discrepancy had Nature indicated three feet
less than the markings.
The only question for us to consider is, how this was brought
about. It could have been brought about only in one way, and that
was by the river deepening its channel. As far down as Silsiléh it had
been flowing at a higher level. Here there must have been a
cataract, or an actual cascade. Whatever the form of the obstruction,
the stream carried it away. And so, again and again, working
backwards, it ate out for itself a deeper channel all the way up to
Semnéh. This is just how the Niagara river is dealing with its
channel. It has undertaken the big job of deepening it, from Lake
Ontario to Lake Erie, down to the level of Ontario. The stone it has to
work in is very hard and compact. It has now done about half the
work, and every one sees that it will eventually complete it. All that is
required is time. The River Colorado, we are told, runs for six
hundred miles of its course in a canon, a mile in perpendicular depth,
all cut through rock, and some of it granitic.
This is what the Nile did in the historic period for at least two
hundred miles of its course. It planed down this part of its channel to
a lower level, to what may be called the level of Egypt. Why should it
not have done precisely the same work in the prehistoric period for,
in round numbers, the four hundred miles from Silsiléh to Cairo, that
is to say, for the whole valley of Egypt? That is just what I believe it
did. Of course, there were aboriginal facilities which decided it upon
taking that course. There may also have been greater depressions in
some places than in others. There was harder work here, and lighter
work there. The planing was carried on rapidly in one district, and
slowly in another. But I believe that, after making whatever
deductions may be thought proper for aboriginal depressions, it is
safe to conclude that the valley of Egypt was, in the main, cut out by
the Nile. It did not begin to obtain its abrading power after the reign
of Amenemha III.
There may have been a cataract once at Cairo. When this was
carried away, another must have been developed somewhere above
its site, and so on backwards all the way to Silsiléh, where we are
sure that there was once something of the kind. In a still remoter
past the river may not have come as far north as Cairo, but may
have passed through the Faioum, or by the Natron Lakes, into the
desert. This is a question which, to some degree, admits of
investigation.
The river would not always be bearing on the same side of the
valley. A little change in any part of the channel, and which might
result from any one of a variety of causes, would deflect its course. It
is so with all rivers. These causes are always everywhere at work.
The river would thus be always shifting from one side of the valley to
the other; and, impinging in turn on the opposite bounding hills,
would always be widening the valley.
The number of side canals, especially the Bahr Jusuf, which,
throughout almost the whole length of the valley, is a second Nile,
running parallel to the original river, must, during the historical
period, by lessening the volume of water in the main channel, have
very much lessened its power of shifting its course. But every one
who voyages on the Nile will become aware that this power is still
very great. He will often hear, and see, large portions of the
incoherent bank falling into the water. In many places he will observe
the fresh face of recent landslips. On the summit of these slips he
will occasionally have presented to him interior sections of some of
the houses of a village which is being carried away by the stream.
On the fresh faces of recent slips I often observed that the
stratification was unconformable, and irregular. This indicated that
the sand and mud out of which the alluvium had been formed, had
not been deposited at the bottom of a quiet lake-like inundation, but
must have been formed at the bottom of a running stream, precisely
in the same way as the sand-banks and mud-banks of the existing
channel are always at the present time being formed. This irregular
stratification is just what we might expect to find in the alluvium of a
valley through which runs a mighty river, always restlessly shifting its
channel to the right, or to the left.
To experts in geology there will be but little, or nothing, new in the
above given account of the process, by which the Nile formed Egypt.
All river valleys have been formed, more or less, by the action of
running water. It is, however, interesting both to those who are
familiar, and to those who are not, with such investigations, to trace
out the steps of the process, in such a manner as to be able to
construct a connected view of as many of its details as can be
recovered. In any case this would be interesting; but here it has an
exceptional, and quite peculiar, interest, for it enables us to picture to
the mind’s eye how the whole of the most historical country in the
world was formed by the most historical river in the world—a
physical operation, on which much that man has achieved, and,
indeed, on which what man is himself at this day, very largely
depended. Pictures of this kind are only one among the many helpful
contributions, which science can now make to history.
I was not in Egypt during the time of the inundation; I can,
therefore, only repeat on the authority of others, that for the first few
days it has a green tint. This is supposed to be caused by the first
rush of the descending torrents sweeping off a great deal of stagnant
water from the distant interior of Darfour. This green Nile is held to
be unwholesome, and the natives prepare themselves for it by
storing up, in anticipation, what water they will require for these few
days. The green is succeeded by a red tint. This is caused by the
surface washing of districts where the soil is red. The red water,
though heavily charged with soil, is not unwholesome. With respect
to the amount of red in the colour of the water of the inundation, I
found it stated in a work which is sometimes quoted as an authority
on Egyptian subjects, that it is so great that the water might be
mistaken for blood. This I do not understand, as the soil this water
leaves behind has in its colour no trace of red. By the time the water
of the inundation reaches the Delta, it has got rid of the greater part
of its impurities. This causes the rise of the land in the Delta to be far
slower than in Upper Egypt. In winter, when the inundation has
completely subsided, the water, though still charged with mud, in
which, however, there is no trace of red, is pleasant to drink, and
quite innocuous. The old Egyptians represented in their wall-
paintings these three conditions of the river by green, red, and blue
water.
For myriads of years this mighty river has been bringing down
from the highlands of Abyssinia and Central Africa its freight of fertile
soil, the sole means of life, and of all that embellished life, to those
who invented letters, and built Karnak. It is still as bountiful as ever it
was of old to the people who now dwell upon its banks; but to what
poor account do they turn its bounty! How great is the contrast
between the wretchedness this bounty now maintains, and the
splendour, the wealth, the arts, the intellectual and moral life it
maintained four and five thousand years ago!
The Egyptians have a saying, with which, I think, most of those
who have travelled in Egypt will agree, that he who has once drunk
the water of the Nile will wish to drink it again.
CHAPTER II.
HOW IN EGYPT NATURE AFFECTED MAN.
Continuo has leges, æternaque fœdera certis

Imposuit natura locis, quo tempore primum
Deucalion vacuum lapides jactavit in orbem.—Virgil.
The physical features, and peculiarities of a country are one of the

starting-points in the history of its people. If we do not provide
ourselves with a knowledge of these matters before we commence
our investigation of what the people were, and did, the character of
the people, and of the events is sure very soon to make us feel the
want of it. It is so in a higher degree with the history of the Egyptians,
than with that of any other people. They were, emphatically, a people
that stood alone; and the peculiarities of the people were the direct
result of the peculiarities of the country.
Its environment by the desert gave it that security, which alone in
early days could have enabled nascent civilization to germinate and
grow. It possessed also a soil and climate which allowed its
inhabitants to devote themselves to some variety of employments
and pursuits, and so prevented their being all tied down to the single
task of producing food. The absence of these two great natural
advantages elsewhere placed insurmountable difficulties in the way
of advancement in other parts of the world, so long as the arts by
which man battles with nature were few, and feeble; and the
organization of society in consequence only rudimentary. So was it,
for instance, in Europe, at the time when Egypt was at the zenith of
its greatness; where, too, for long centuries afterwards, nothing
could have been done without the aid of slavery, which alone made
mental culture possible for the few at the cost of the degradation and
misery of the many. Egypt was differently circumstanced. There one
man might produce food sufficient for many. The rest, therefore,
could devote themselves to other employments, which might tend, in
different ways, to relieve man’s estate, and embellish life. In this
matter the river and the climate were their helpers. The river
manured with an annual warp, irrigated, cleaned, and softened the
land; and the climate, working harmoniously with the river, made the
operations of agriculture easy, speedy, certain, and very productive.
What in other countries, and in later times, the slow advances in arts,
and knowledge, and in social organization, as the successive steps
became possible, brought about for their respective inhabitants,
Nature did, in a great measure at once, and from the first, for the
Egyptians.
Another of the early hindrances to advancement arose out of the
difficulties of communication, which prevented either a military force
from maintaining itself away from home, or a single governing mind
from acting at a distance. Of course in matters of this kind the effects
of the want of sufficient means of communication are greatly
aggravated by the want of foresight, and the distrust men have in
each other, which belong to such times and circumstances. Nothing
but the organization of tribes and cities can be accomplished then.
Egypt, however, had advantages in the great and varied gifts of
nature to which our attention is now directed, which enabled her, in
some remote prehistoric period, to emerge from this politically
embryonic condition, and to form a well-ordered and homogeneous
state, embracing a population of several millions, who were in
possession of many of the elements of wealth and power, and had
attained to a condition that would suggest, and encourage culture. Of
these advantages, that which came next in order to the soil and
climate, was that its good fortune had conferred upon it a ready-
made means of communication, absolutely complete and perfect; no
part of the country, either in the valley of Egypt, or in the Delta, being
more than a few miles distant from one of the most easily navigable
rivers in the world.
And that nothing might be wanting, this advantage was equalised
to all by a provision of nature that, at a certain season of the year,
the descending current of the river should, for the purposes of
navigation, be overbalanced by a long prevalence of northerly winds;
thus giving every facility, by self-acting agencies, to both the up and
the down traffic.
I may also observe that the river ran precisely in that direction in
which it could serve most effectually as a bond of union, by serving
most largely as a channel of commerce. If its course had been along
the same parallel of latitude, that is, from East to West, or reversely,
then throughout its whole length the productions of its banks would
have been the same. It would, therefore, have been of little use as a
means of commercial interchange. Where there was no variety of
productions there would have been no commodities to exchange.
But as its course was in the direction of a parallel of longitude, its
stream offered a highway for the exchange of the varying products of
the different degrees of latitude it passed through. This difference in
the direction of their courses already constitutes a vast difference in
the comparative utility of the streams of the Amazon and of the
Mississippi; and must ensure to them very dissimilar futures.
Another of the provisions that had been made for the early
progress of the country was something quite unique: there was not
by nature, and there could not be constructed by man, a single
strong place in the whole of Egypt, such as would enable powerful
and ambitious individuals, or malcontent factions of the people, to
maintain themselves in independence of the rest of the community,
or to defy the government. Nature had supplied no such places, and
the conditions of the country were such that they could not be
formed. This is a point which involves so much that I will return to it
presently.
It ought not to be unnoticed here, for it is one of the important
peculiarities of the country, that Egypt yields both a winter and a
summer harvest. The overflow of the river, and the warmth of the
winter sun suffice for the former, which consists of the produce of
temperate regions; and artificial irrigation for the latter, which
consists of the produce of the tropics. This gives it the advantage of
the climates of two zones; the one temperate and the other tropical;
for, though it lies to the north of the tropic, its winter, by reason of its
environment by the heat-accumulating desert, resembles our
summer, and its summer, for the same reason, that of the tropics.
Egypt is thus enabled to exceed all other countries in the variety of
its produce. Both its wheat and its cotton are grown beneath its
palms. This variety of produce ought to contribute largely to the
wealth, and well-being of a country; and it was, we know, a very
considerable ingredient in the greatness of the Egypt of the
Pharaohs.
The characteristics of surrounding nature had corresponding
effects on the ideas, too, and sentiments of the ancient Egyptians.
We may, for instance, be absolutely certain that had they lived in an
Alpine country, although they might have had the power of
commanding the requisite materials on easier terms, they never
would have built the Pyramids, for then an Egyptian Pyramid would
have been but a pigmy monument by the side of nature’s Pyramids.
But as these structures stood in Egypt, when seen from the
neighbourhood of Memphis and Heliopolis, and throughout that level
district of country, they went beyond nature. There they were
veritable mountains; and that is what the word means. There were
no other such mountains to be seen. In that was their motive. Man
had entered into rivalry with nature, and had outdone nature.
So was it with one instance. And so was it on the whole, generally.
The guise in which nature presented herself to the eye of the
Egyptian was grand and simple. Nature to him meant the broad
beneficent river; the green plain; the naked bounding ridge on the
right hand, and on the left; upon, and beyond these the lifeless,
colourless desert; above, the azure depth traversed by the unveiled
sun by day, and illumined with the gleaming host of heaven by night.
Here were just five grand natural objects, and there were no more.
We rehabilitating to our mind’s eye the scene, must add a sixth, the
orderly, busy, thronging community itself. But to them these five
objects were all nature. No dark forests of ancient oak, and pine; no
jutting headlands; no island-sown seas; no hills watered from above,
nor springs running among the hills; no cattle upon a thousand hills;
no shady valleys; no smoking mountains. Just five grand objects;
everywhere just the same, and nothing else. Their thoughts and
sentiments could only have been a reflection of nature (their mind as
a glass reflected nature), and of the instincts which the form of
society nature had imposed upon them gave rise to. And their acts
could only have been the embodiment of their thoughts and
sentiments, which must needs have been in harmony with
surrounding nature. And hence the character of the people, which
was grand and simple; but withal sensibly hard, somewhat rigid and
formal, without much tenderness, and with little geniality; solid,
grave, and serious.
Under such circumstances the individual was nothing. There could
be no Homeric Chieftains; no Tribunes of the people; no
eccentricities of genius. The community was an organism, of which
every member had his special functions and purpose; a well-ordered
machine which did much work, and did it smoothly.
This complete organization of society—it was what the gifts and
arrangements of nature had enabled them to attain to—had brought
them face to face with the ideas of law and justice. But under their
form of society—and it has not been different under other forms the
world has since seen—it was understood that some laws, which
were necessary, were not good, and that justice did not rule
absolutely. We see—it shows itself in all that they did—that their
minds were too thorough, and logical, to rest satisfied under these
contradictions; they therefore worked out for themselves to its
legitimate, and complete development the old Aryan thought of a life
beyond this present existence: this was that western world of theirs,
in which no law would be bad, and in which there would be no
miscarriage of justice. And thus it came to be that their doctrine of a
future life was the apotheosis of their social ideas of law, and justice,
and right.
And nature encouraged them in this belief. Every day they saw the
sun expire in the western boundary of the solid world; and the next
morning rise again to life. They saw also the mighty river always
moving on to annihilation in the great sea, just as the sun sank every
evening into the desert: but still it was not annihilated. Its being was
lost, and was recovered, at every moment. It was ever dying, but
equally it was ever living. These two great phenomena of nature
(through our increased knowledge they teach other lessons now)
aided the idea which the working of society was making distinct in
their apprehension, and confirmed them in the belief of their own
immortality. With the Egyptian also death would not be the end: the
renewal he beheld in the sun, and in the river, would not fail himself.
The complete organization of the whole population had been
rendered possible by the peculiar advantages of the country. The
enterprising among the Pharaohs availing themselves of this
complete organization, and of these peculiar advantages, were
thereby enabled to command the whole resources of Egypt, and to
wield the whole community at their will, as if it had been but one
man.
I reserved for separate and fuller consideration the point that
nature had nowhere provided Egypt with a single spot where the
ambitious, the discontented, or the oppressed could maintain
themselves; or to which, we may add, they could even secede. In
this respect also, Egypt is quite unique. The configuration of the
country, combined with the absence of rain, brought about this
peculiarity. The valley of Egypt, speaking roundly, is five hundred
miles long, and five miles wide, with a broad navigable river flowing
through the midst of it. The Government will always be in possession
of the river. It follows then that before the disaffected can be drawn
together in formidable numbers at any rendezvous—for the
distances they would have to traverse would not admit of this—the
Government will be able to send troops by the river in sufficient force
to disperse them; or, at all events, to prevent their receiving
reinforcements.
A second reason is, that these handfuls of isolated insurgents
must always remain within reach of the Government troops sent
against them. They would not be able to withdraw themselves from
the flat, open banks of the river; for there is nowhere vantage ground
they could occupy, except in the desert; and there in twenty-four
hours, that is before they could be starved, they would by thirst be
reduced to submission. For, from the absence of rain, there are no
springs on the high ground; and from the same cause the nitre
accumulates in the soil to such a degree, as to render the well-water
brackish, and unfit for drinking.
A third reason is the dependence of the agriculture of Egypt on
irrigation. The people, therefore, in any neighbourhood cannot
intermit their attention to their shadoofs and canals for the purpose of
insurrection, or for any other purpose whatsoever. Were they to do
so starvation would ensue. The Government also, being in
possession of the river, could at any moment stop the irrigation, by
destroying the shadoofs and canals, of a malcontent district.
Here, then, are three reasons, any one of which would, singly, be
sufficient to make the Government in Egypt omnipotent. What
conceivable chance, then, can the people have, when all the three
are, at all times, combined against them? This explains much in the
past and present history of the country. Nature had decided that in it
there should be no strongholds for petty potentates, no castles for
freebooters, no mountain fastnesses for untameable tribes, no
difficult districts to harbour insurgent bands; no possibility of getting
away from the bank of the river; no possibility of withdrawing
attention, for a time, from the most artificial of all forms of agriculture.
For long ages the wandering Arab of the desert was the only
possible disturber of the peace of this exceptional country. Nature
first gave to it, in its singular endowments, the means of union; and
then eliminated those physical obstacles to its realization which,
elsewhere, for long ages proved insurmountable. The point to be
particularly noted here is, that these circumstances have ever given
to the Government for the time being every natural facility for uniting
the whole country into a single State, and ruling it despotically.
The Delta is no exception, for the branches of the river, and the
canals by which this whole district is permeated, and the absence of
defensible positions, reduce it, in respect to the points I have been
speaking of, to the same condition as that of the long narrow valley
above it.
A time may come when the moral force of public opinion will
outweigh, and overmatch these natural facilities for establishing, and
working a despotism; but there is no indication in the existing
condition of the country of such a time being at hand. And that this is
the only force that can be of any effect in such a country is
demonstrated by its history. In the remote days of its greatness there
was in some sort a substitute for it in the priestly municipal
aristocracy, or oligarchy, of each city. The priests were the governing
class, and supplied the magistracy. They were an united and
powerful body. Wealth, religion, knowledge, the habitual deference of
the people, made them strong. They thus became, to some
considerable extent, a bulwark, behind which, in each separate city,
some of the rights of person and of property could find protection
from the arbitrary caprices of despotism. In this way something that
was in the mind of man was at that time counterworking the
consequences of physical arrangements: and this only is the way in
which a country so circumstanced can be helped in the future.
Nothing, however, of this kind is now at work in modern Egypt. It
has, therefore, but one ground for the hope of escaping from the
despotism which so heavily oppresses it, and that is in the chance of
external aid, which means the chance that some European power
should assume the protectorate of the country. It must, however, be
a power in which public opinion is in favour of liberty and political
justice, and in which the economical value of security for person and
property is understood. The Egyptians themselves desire such a
consummation. They know how blessed to them would be the day
which should relieve them from the grinding and senseless exactions
of an oriental taskmaster, and place them under the sway of good
and equal laws. Their wish is that this beneficent protector should be
England. They almost expect that it will be. I was asked, why do you
not come and take possession of the country? In Egypt this appears
the natural conclusion of existing conditions. But a protectorate
carried out thoroughly, and unflinchingly, and entirely for Egyptian
objects, would be far better for both parties than simple English
possession. If we were to make a gain by ruling the country, we
should always be tempted to go a little further. We should find it very
difficult to stop at any particular point, or to be clean-handed at all,
when everything was in our power.
The motives for interference are strong. How saddening is it to the
traveller to see the poor good-natured Fellah, his naked limbs
scorched by the blazing sun, baling up the water from the river,
during the livelong day, for his little plot of ground; and to think that
all that will be left to him of its produce will be barely enough to keep
himself, and his little ones, in millet-bread and onions; all the rest
having been cruelly swept away to support at Cairo unused, and
unuseable, palaces and regiments, and to make a Suez Canal for
the furtherance of the policy of France, but for the naval and
commercial benefit of England, and to build sugar-factories for a
trading Khedivé. Of what benefit to the wretched cultivator are all the
bounties of Egyptian nature, and all his own heavy moil and toil?
This is one of the remorseless, and purposeless oppressions done
under the sun, which it would be well that some modern Hercules
should arise in his might, and in his hatred of such heartless and
stupid injustice, to beat down, and make a full end of. An Egypt, in
which every man might reap securely the fruit of his labour, would be
a new thing in the world, and a very pleasant thing to look upon. At
present, the riches of Egypt mean wealth without measure for one
man, and poverty without measure for all the rest of the world.
The case of the poor Fellah is very hard: so also is that of his
palm-tree. It came into existence, and grew up to maturity under
great difficulties. It was hardly worth while to give it space and water,
and to fence it round in its early days; for so soon as it could bear a
bunch of fruit, it was to be taxed. Why, then, should the oppressed
villager go to the cost of rearing it? He would be only toiling for a
domestic despot, or foreign bond-holder. How many a palm-tree that
might now be helping to shade a village, and beneath which the
children might be playing, and the elders sitting, has by this hard and
irrational impost, been prevented from coming into being. And of all
the gifts of nature to Egypt, this palm-tree is one of the most
characteristic, and of the most useful: its trunk supplies the people
with beams; its sap is made into a spirit; its fruit is in some districts a
most useful article of food, and everywhere a humble luxury; baskets
are made of the flag of its leaf, and from the stem of the leaf beds,
chairs, and boxes; its fibres supply materials for ropes and cordage,
nets and mats; it has, too, its history in Egypt, for its shaft and crown,
first suggested to the dwellers on the banks of the Nile, in some
remote age, the pillar and its capital. A wise ruler, whether his
wisdom was that of the head, or of the heart, would do everything in
his power to induce his people to multiply, throughout the land, what
is so highly useful, and in so many ways. But the plan despotic
wisdom adopts is to kill the bird that lays the golden egg, and by a
process which shall at the same time cause as few as possible of the
precious kind to be reared for the future.
Every traveller in the valley of the Nile, who can think and feel,
finds his pleasure, at the sight of the graceful form of this beneficent
tree, clouded by the unwelcome recollection of the barbarous and
death-dealing tax that is laid upon it.
If, when the Turkish empire falls to pieces, England should shrink
from undertaking, on her own sole responsibility, the protectorate of
Egypt, the great powers of Europe, together with the United States of
America, might, as far as Egypt is concerned, assume the lapsed
suzerainty of the Porte, and become the protectors of Egypt
conjointly.
CHAPTER III.
WHO WERE THE EGYPTIANS?
Ex quovis ligno non fit Mercurius.
What were the origin and affinities of the ancient Egyptians? To

what race, or races, of mankind did they belong? At what time,
whence, and by what route did they enter Egypt? The answer to
these questions, if attainable, would not be barren.
We have just been looking at the physical characteristics of the
country, and noting some of the effects they must have had on the
character and history of the people. The inquiry now indicated, if
carried to a successful issue, will enable us, furthermore, to
understand, to some extent, what were the aboriginal aptitudes the
people themselves brought with them. These were the moral and
intellectual elements on which the influences of nature had to act.
The result was the old Egyptian. He was afterwards modified by
events and circumstances, by increasing knowledge, and by the
laws and customs all these led to; but the two conditions we are now
speaking of were the starting-points, and which never ceased to
have much influence in making this people feel as they felt, and
enabling them to do what they did. To have acquired, therefore,
some knowledge about them will be to have got possession of some
of the materials that are indispensable for reconstructing the idea of
old Egypt. We feel with respect to these old historical peoples as we
do about a machine: we are not satisfied at being told that it has
done such or such a piece of work; we also want to know what it is
within it, which enabled it to do the work—what is its construction,
and what its motive power.
Six thousand years before our own time may be taken as the
starting-point of the monumental and traditional history of the old
monarchy. This inquiry, however, will carry us back to a far more
remote past.
There is but one way of treating this question: that is, to apply to it
the method we apply to any question of science—to that, for
instance, of gravitation, or to any other: precisely the same method
applied in precisely the same way. We must collect the phenomena;
and the hypothesis which explains and accounts for them all is the
true one. This will act exclusively: in establishing itself it will render
all others impossible.
Other hypotheses, however, which have been, or may be,
entertained must not be passed by unnoticed, in order that it may be
understood that they do not account for the phenomena; or, to put it
reversely, that the phenomena contradict them.
When history begins to dawn, the first object the light strikes upon,
and which for a long time alone rears its form above the general
gloom, is the civilization of Egypt. It stands in isolation, like a solitary
palm by the side of a desert spring. It is also like that palm in being a
complete organism, and in producing abundance of good fruit. All
around is absolute desert, or the desert sparsely marked with the
useless forms of desert life. On inquiry we find that this thoroughly-
organized civilization, fully supplied with all the necessaries, and
many of the embellishments of life, and which is alone visible in the
dawning light, must have existed through ages long prior to the
dawn. It recedes into unfathomable depths of time far beyond the
monuments and traditions.
Some salient particulars at once arrest our attention. The people,
though African by situation, do not, at first sight, strike us as
possessing, preponderantly, African affinities. If there be any, they
are not so much moral, or intellectual, as physical. They appear to
be more akin to the inhabitants of the neighbouring Arabian
peninsula, from which there is a road into Egypt. But here also the
resemblances are not great: even that of language is far from
conclusive. Their complexion, too, is fairer. On neither side is there
any suspicion, or tradition of kindred. There is even deep antipathy
between the two. Their religion, again, and religion is the summa
philosophia—the outcome of all the knowledge, physical and moral,
of a people, is unlike that of their neighbours. The Greeks, however,
and this is worthy of remark, thought it only another form of their
own. They were laborious, skilful, and successful agriculturists; and
there was no record of a time when it had been otherwise with them.
They were great builders. They had always practised the ordinary
arts of life, spinning and weaving, metallurgy, pottery, tanning, and
carpentering. They had always had tools and music. They had a
learned and powerful priesthood. Their form of government was that
of a monarchy supported by privileged classes, or of an aristocracy
headed by a king, and resting on a broad basis of slavery, and a kind
of serfdom. Their social order was that of castes.
We cannot ascertain precisely at what point in the valley this
civilization first showed, or established itself. Of two points, however,
which are of importance, we are sure. It did not descend the Nile
from Ethiopia, and it did not ascend it from the coast of the Delta. It
is true that Memphis was the first great centre of Egyptian life of
which we have full and accurate knowledge. The founder, however,
of the first historical dynasty, and who appears to have made
Memphis his capital, came from This, or Abydos, in Upper Egypt. We
may almost infer from this that Abydos was an earlier centre of
Egyptian power than Memphis.
The idea, then, of an unmixed African origin may, I think, be at
once and summarily dismissed.
Something may be alleged in support of a Semitic origin. Where,
however, we may ask, is the theory on behalf of which nothing can
be alleged? If it were so it would never have come into existence.
What we have to consider in this, as in every doubtful or disputed
matter, is not what can be said in favour of certain views, or what can
be said against them, but which way the balance inclines when the
arguments on each side have been fairly put into their respective
scales.
To begin, then, with the language, which is the most obvious
ground for forming an opinion in a matter of this kind. It happens that
in this case nothing conclusive can be inferred from the language.
First, because in it no very decisive Semitic affinities have been
made out; and, secondly, because, had they been found to be much
more important than some have supposed them to be, this would not
of itself prove a preponderance of Semitic blood.
Colour is rather adverse to the Semitic theory. The Egyptian was
not so swarthy as the Arab; whereas, if he had been a Semite, he
ought to have been, at the least, as dark. In the wall-paintings a clear
red represents the complexion of the men, and a clear pale yellow
that of the women. In this clearness of tint we miss the swartness of
the Arab.
It is true he was darker than the Jew. Little, however, can be
inferred from this, for the Jews were an extremely mixed people.
Abraham came from Haran, in Mesopotamia, and is called in
Deuteronomy a Syrian. He must, in fact, have been a Chaldean. The
wife of Joseph was a high-caste Egyptian. The wife of Moses was a
Cushite. And when the Israelites went up out of Egypt ‘a mixed
multitude’ went out with them. This can only mean that in the
multitude of those who threw in their lot with them there was a great
deal of Semitic blood, through the remnant of the Hyksos, which had
been left behind when the great mass of that people had been
expelled from Egypt, and also a great deal of Egyptian blood. From
these sources, then, were derived no inconsiderable ingredients for
the formation of what was afterwards the Jewish nation. The great-
grandmother of David was a Moabitish woman. Solomon’s mother
was a Hittite, and one of his wives an Egyptian. And we know that a
very considerable proportion of conquered Canaanites were
eventually absorbed by their conquerors. No argument, therefore,
can be founded upon the complexion of so mixed a people as the
Jews.
In features, taking the sculptures and paintings for our authority,
the Egyptian was not a Semite. His nostrils and lips were not so thin,
and his nose was not so prominent. In this particular, which is
important, he presents indications of a cross between the Caucasian
and the Ethiopian, or modern Nubian.
Their social and political organization—that of castes, and of a
well-ordered, far-extended state—was completely opposed to
Semitic freedom and equality, in which the ideas of the tribe, and of
the individual, preponderated over those of the state, and of classes.
Religion is the interpretation of the ensemble. It takes cognizance
of the powers that are behind, or within, visible external nature, and
of the reciprocal relations between these powers and man. The mind
of man is the interpreter. As is the interpreter so will be the
interpretation.
Now, from the hard simplicity of nature in the Semitic region, or
from the simplicity of life and thought resulting from it, or from the
early apprehension by that part of the human family of the idea of a
Creator, or from other causes not yet made out (though, indeed, it is
the fact, and not the cause, that we are now concerned with), there
has always been a disposition in the Semitic mind to think of God as
one. In the earliest indications we possess of their religious thought
each tribe, each city, almost each family, appears to have had its
own God. They never could have created, or accepted, a Pantheon.
The idea of Polytheism was unnatural, illogical, repulsive to them.
The inference, therefore, is that in the large hierarchy of heaven,
which approved itself to the Egyptian mind, there could be nothing
Semitic. The religion, the religious thought of Egypt, which so stirred
the whole heart, and swayed the whole being of the people as to
impel them to raise to the glory of their gods the grandest temples
the world has ever seen, was, in its whole cast and character, an
abomination to the Semite.
Next after Religion, the most important effort of the human mind is
Law. Law is distinguishable from Religion. It is not an effort to
embrace and interpret the whole, but a general and enforced
application of some of the conclusions of that interpretation to the
regulation of the conduct of men towards each other. Its principles
are those of justice and expediency, but with very considerable
limitations—not absolute justice, but justice as then and there
understood; and not in every point and particular, but in those
matters only in which evidence is possible, and the observance also
of which can be enforced by penalties; nor absolute expediency, but
again, as it is then and there understood, and limited to such matters
as admit of being carried out, and enforced, by public authority.
This, it is plain, may be regarded—and as a matter of observation
and history is still, and has in all times been, regarded—either as
something distinct from, or as a department of, religion.
If treated as a part of religion, then either the very letter itself of the
law, or else the principles on which it is founded, and of which it is an
application, must be accepted as from God. In the former case God
is regarded as the actual legislator, and sometimes going a step
further, as the actual executor of His own law. In the latter case He is
regarded, because He is the primary source, at all events, of its
principles, as ultimately their guardian, and the avenger of their
violation.
The Semitic sentiment, looked upon law in the former of these two
lights. It formed this conception of it, because the people held in their
minds the two ideas, that God was One, and that He was the
Creator. A people who have come to regard God as one will
necessarily concentrate on the idea of God all moral and intellectual
attributes. Out of this will arise a tendency to exclude all merely
animal attributes, and, to a great extent, such phenomena as present
themselves to the thought as merely human—such, for instance, as
were the attributes of Mars, Venus, and Mercury. God then, being
the perfection of wisdom, justice, and goodness, is the only source of
law. He is, also, the actual Lawgiver in right of His being the Creator.
The world, and all that it contains, is His. His will is the law of His
creation. The gods of Egypt, however, like those of Greece, were not
anterior to Nature, were not the creators of Nature, but came in
subsequently to it, and were in some sort emanations from it; the
highest conception of them, in this relation, was that they were the
powers of Nature.
Now, in this important and governing matter of law, the Egyptian
mind did not take the Semitic view. God appeared to the Egyptian,
not so much in the character of the direct originator, as in that of the
ultimate guardian of the law, in our sense of these words. They had

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Foundations of Decision Analysis

Bostonâ•…Columbusâ•…Indianapolisâ•…New Yorkâ•…San Franciscoâ•…Hoboken

A01_HOWA9691_01_GE_FM.indd 1 27/02/15 5:46 PM

Pearson Education Limited

and Associated Companies throughout the world

Visit us on the World Wide Web at:

© Pearson Education Limited 2016

British Library Cataloguing-in-Publication Data

ISBN 10: 1-292-07969-X

ISBN 13: 978-1-292-07969-1

Typeset by Integra in 10/12 Times LT Std.

Printed and bound in Great Britain by Clays Ltd, Bungay, Suffolk

A01_HOWA9691_01_GE_FM.indd 2 27/02/15 5:46 PM

Part 1 Defining a Good Decisionâ•…

Part 2 Clear Thinking and Characterizationâ•…

Part 3 Making any Decisionâ•…

Part 4 Building on the Rulesâ•…

Part 5 Characterizing What you Knowâ•…

Part 6 Framing a Decisionâ•…

Part 7 Advanced Information Gatheringâ•…

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Part 8 Characterizing What You Wantâ•…

Part 9 Some Practical Extensionsâ•…

Part 10â•‡ Computing Decision Problemsâ•…

Part 11â•‡ Professional Decisionsâ•…

Part 12â•‡ Ethical Considerationsâ•…

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Chapter 1 Introduction To Quality Decision Makingâ•… 23

Chapter 2 Experiencing A Decisionâ•… 44

Chapter 3 Clarifying Valuesâ•… 63

Chapter 4 Precise Decision Languageâ•… 77

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Chapter 6 Handling Uncertaintyâ•… 100

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Chapter 8 Rules Of Actional Thoughtâ•… 178

Chapter 9 The Party Problemâ•… 198

Chapter 10 Using A Value Measureâ•… 216

Chapter 11 Risk Attitudeâ•… 239

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11.8â•… Direct Assessment of Risk Toleranceâ•…254

Chapter 12 Sensitivity Analysisâ•… 269

Chapter 13 Basic Information Gatheringâ•… 287

Chapter 14 Decision Diagramsâ•… 314

Chapter 15 Encoding A Probability Distribution On A

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15.3â•… Fractiles of a Probability Distributionâ•…338

Chapter 16 From Phenomenon To Assessmentâ•… 349

Chapter 17 Framing A Decisionâ•… 356

Chapter 18 Valuing Information From

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19.8â•…Sequential Information Optionsâ•…411

Chapter 20 Detectors With Multiple Indicationsâ•… 421

Chapter 21 Decisions With Influencesâ•… 447

Chapter 22 The Logarithmic u-Curveâ•…464

Chapter 23 The Linear Risk Tolerance u-Curveâ•…495

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Chapter 24 Approximate Expressions For The Certain

Chapter 25 Deterministic And Probabilistic

Chapter 26 Decisions With Multiple Attributes

Chapter 27 Decisions With Multiple Attributes

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27.4â•… Cash Flows: A Single Measureâ•…570

Chapter 28 Decisions With Multiple Attributes