Rewards

| High Risk Opportunity | Guidelines | Definition | RewardsMotivation | Opportunity Leverage |
| Risk & Return Risk & Opportunity Scale | Regret |

The prospect of gaining rewards - what we think we want and need - is the reason behind all of our behaviors.  All rewards are gained at a cost or an expenditure of resources.   The resources we pay to acquire rewards includes the expenditure of time, energy, and financial cost (investment capital).    Most rewards of value to humans are not free (even clean air now has a cost) and requires at least some cost to acquire.    For example, meeting one's economic needs for food, clothing, and shelter are certainly not found in nature ready for consumption but require than people take other natural resources and convert them into useable form.   The act of converting raw resources into finished products ready for consumption to satisfy economic needs has a cost in time, energy, or investment capital for someone.  Those who own consumable goods, in excess of their own needs, can trade or sell them for something they don't have or money that can be stored to exchange for economic goods later.  

 There are fundamental rules that guide the human quest for the satisfaction of needs by trading one's resource for them:.   
1) More is better than less,
2) Getting what you want sooner is better than later, and
3) There is no such thing as a free lunch.

A sound decision-rule for selecting amongst competing choices for satisfying any need is based on the human inclination to seek opportunities that offer the most gain for the least cost.  Alternately stated, the ultimate golden rule of decision-making is to maximize  reward and minimize cost.  Other good decision rules are these:
1) For a fixed reward, spending less cost or investment is better than more.
    - A corollary to the first decision rule: more benefit is better than less for the same cost or investment. 
2) Accept alternatives only if the reward is as proportionately high as the cost. 
3) Seek choices that have a high benefit-to-cost ratio is  frequently used to screen out the better choices.   

The four quadrant matrix in Figure 1 below illustrates those decision rules graphically.    Decision choices are plotted in the graph according to their benefits and their cost to attain those benefits.    Quadrate I contains the ideal or best decision choices, because the benefit is high and the cost is low.  On the other hand, decision choices that plot in Quadrant IV offers the worst decision choices, because the balance between rewards and costs are reversed - the costs are high and the benefits are low - exactly the conditions most rational people want to avoid.  Decision choices that plot in quadrants II and III offer a commensurate balance of benefits to costs.  

Those choices whose projected benefits-to-cost lie above the diagonal arrow (blue and green regions) are better than those that plot below it (yellow and red).   Thus, for decisions with certain outcomes, use the following guidelines in selecting between alternative (each of which partially satisfies a decision-maker's set of needs).  
1) Spend time looking for alternatives that fall into quadrant I and accept as many of them as you can afford.  Decision choices that plot in Quadrant I are most preferred, because they offers both higher benefits and lower costs. 
2) Accept alternatives whose  benefit-to-cost ratios fall into the green areas. 
3) Generally avoid the yellow areas unless a need can not be deferred or satisfied any other way.
4) Avoid choices from quadrant IV as there are better choices in both quadrant II and III.  Choices that fall in quadrants II and III offer choices that will either result in higher benefits or a lower costs than alternative that plot in quadrant IV.  

 

In a world of uncertainty, and most decisions are uncertain to some degree, uncertainty can represent either more cost than expected or opportunities for higher gain than anticipated.   Generally, people dislike uncertainty or risk almost as much as they dislike cost and investment.  Again, an opportunity-to-risk ratio is  frequently used to screen out the better choices.   The four quadrant matrix in Figure 2 above illustrates a corollary to the first decision rule: more opportunity is better than less for the same risk.  Stated slightly differently, for a fixed opportunity, less risk is better than more.   Accept alternatives only if the opportunity is as proportionately high as the risk.  Quadrate I contains the ideal or best decision choices, because the opportunity is high and the risk is low.  On the other hand, Quadrant IV offers the worst decision choices, because the balance between opportunity and risks are reversed - the risks are high and the opportunities are low - exactly the conditions most rational people want to avoid.  Choices in quadrants II and III offer a commensurate balance of opportunities to risks.  Those choices above the diagonal arrow (green) are better than those below it (yellow).   Thus, for decisions with certain outcomes, the following decision rules should guide one's decision making quest:
1) Spend time looking for alternatives that fall into quadrant I and accept as many of them as one can afford. Quadrant I is most preferred, because it offers both higher opportunity and lower risk. 
2) Accept alternatives whose  benefit-to-cost ratios fall into the green areas. 
3) Generally avoid the yellow areas.
4) Defer or avoid alternatives the plot in quadrant IV as these decision choices are dominated by those in both quadrant II and III.  Both of these quadrants II and III offer choices that will either result in higher opportunity or a lower risk than the alternatives that plot in quadrant IV.  

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Website last updated on 10/19/08
Copyright 2005 Charles W. Sooter.  All rights reserved.