In a recent article, I laid out some of the important ways of thinking that my co-author, Charles Hooper, and I discuss in our book, Making Great Decisions in Business and Life. Here are a few more.

Many people are familiar with Pareto's Law of income distribution, named after Italian economist Vilfredo Pareto. The law, which states that 20 percent of the population earns 80 percent of the income, is now called the 80/20 rule. We point in our book that this rule applies to far more than income distribution.

For example, it will often be the case that 20 percent of your customers cause 80 percent of your problems and that another 20 percent of your customers (possibly overlapping the first 20 percent) give you 80 percent of your business. We derive a straightforward mathematical implication of this rule to get what we call "Factor 16." It states: "The individuals in the 20-percent group are 16 times as important as those in the 80-percent group."

This simple fact can be very powerful. What if you could single out the 20 percent of your customers who give you the most difficulty and -- assuming that they're not also the ones who give you 80 percent of your business -- quit dealing with them or even just reduce your dealings substantially? Or what if you could figure out the 20 percent who give you the most business and figure out how to cater to them better? This is what Best Buy is doing. Best Buy has categorized its customers into angels and devils, which is self-explanatory, and is figuring out how to discourage the devils and cater to the angels. And what if this relationship also applied to employees and you could figure out which is which? In the extreme, you could fire the 80 percent who are less productive and give a 1500-percent raise to the high performers.

Another of our insights is on the distinction between good decisions and good outcomes. Naturally, you want to achieve good outcomes, and the best way to get there is to make good decisions. That's obvious -- to us. But you've probably heard people say, "I'd rather be lucky than good." That statement is nonsensical. You can choose to be good, but you can't choose to be lucky -- which is why it's called luck.

So the good decision is not the one that gave you the good outcome by luck but, rather, the one that you would (should) choose again given the circumstances. In our book, we give a simple example of a teacher telling two students to choose a number between 1 and 10 and promising a special treat to the one who comes closer to the teacher's hidden number. Addie picks 2 and then Greer picks 1. The teacher announces that Greer won. Should Greer choose 1 the next time? No. He was lucky this time. If Addie picks 2, he has the best odds of winning if he picks 3: he will win as long as the teacher has chosen any number but 1 or 2. And, by the way, whoever goes first next time should choose 5 or 6.

This might all seem obvious to you. But consider a professional basketball coach faced with a decision that just might cost him his job. In a sense, he took Greer's approach above -- and lost.

Twice.

Twice this season, Mike Montgomery's Golden State Warriors (unofficial motto: they'll break your heart) were up by 3 points with less than 4 seconds left and the other side having possession: first in a game against Houston and then in a game against Utah. Consider two strategies. The first is to have one of his players foul on the inbound pass. Then the other team's only realistic strategy for tying the game would have been to attempt the following: make one free throw, try to miss on the second free throw but hit the rim, grab the rebound, and then make a two-pointer to put the game into overtime. Think of the odds of all that happening. Let's say the probability of hitting the first free throw is 80 percent. (I'm overstating all probabilities to bias it against my conclusion.) Hitting the rim on purpose is tough, but let's say it's as high as 90 percent. Then come two really tough parts. The shooting team has to rebound off the rim: let's put that probability at 50 percent given that the Warriors have their rebounders closer to the rim. Then, once they rebound, they have to make a basket in less than 3 seconds. The probability of a successful shot under those circumstances must be less than 50 percent. When you put all these events together, you multiply probabilities. So you get 80% times 90% times 50% times 50%, which is 14 percent or one in 7.

Montgomery's second possible strategy is let the opposing team attempt a 3-point shot to tie the game, but to make it difficult without fouling. Montgomery chose the second strategy. The other team's odds, even for a lousy 3-point-shooting team, are about 30 percent. Both times, the opposing team made the three-pointer unmolested, forced the game into overtime, and beat the dispirited Warriors.

Interviewed about his strategy, Montgomery defended it, saying, "I believe as long as I've coached that you don't stop the clock and you don't give people free points." In other words, Montgomery had formulated a rule but failed to adapt to the context. During the Utah game, having laid out the case for the first strategy and seeing Montgomery err by trying the second strategy, one of the two FSN Bay Area television announcers put it well: "We're going to overtime -- but why?"

And Montgomery's decision-making gets even worse. In the same interview, Montgomery continued, "But since that's not worked twice, I owe it to try something different." But he reached a correct conclusion on faulty reasoning. In a fundamental sense, he had still failed to think clearly. The reason Montgomery should have tried something different is not that his strategy didn't work twice. A sample size of two is incredibly small and not a good guide to probabilities. The reason he should rethink his strategy is that the probabilities are against his strategy versus the other one.

I know this is "just" basketball. But we're talking about a serious high-stakes business. It's not hard to imagine a CEO making similar mistakes based on rigid rules or a President doing the same with even bigger stakes.

David R. Henderson is an associate professor of economics at the Naval Postgraduate School in Monterey, California and a research fellow with the Hoover Institution. He is co-author of Making Great Decisions in Business and Life. (Chicago Park Press, 2006.)