I constantly think of risk/reward of what I'm about to do and also what the opponent can do. As in, if they are in a spot where they can attack me, and I can't attack them, I shield or side step (depending on the attack they could land on me) or run away.
Another (perhaps better) example.
If I'm literally right next to the opponent, say as game and watch, and they are facing me, and are, say marth... It's a bad situation to be in. His swords dance and grab are both quicker than my short hop key/nair, or my turn grab or turn jab. I always assume my opponent is making the right choice (only to get better, in tournament play or when I'm ******* around this is not the case). So, back to the situation, I can way my options. I can't attack, so clearly I need to relocate and get some spacing. Perhaps sidestep? Well, that would avoid the grab, but if Marth sword dances, I'm going to get caught in that. Jumping? No, the sword dance will take care of that. Shielding? Well, grab takes care of that option. My solution? Dash away or short hop away followed immediately by an air dodge.
In any case, game and watch never wants to have his back turned toward an opponent right next to him, for most opponents (if not all...) will be able to land an attack before you can get one out (if they make the right choice).
Summary: I constantly weigh in one my opponent can do and what I think he can do, and also try to decide what I can do and if it is punishable or not.
Sorry if that's confusing... :/