Jkimball, that's a tough question, as every single situation is fluid and different.
Each time you've got to make a judgement call about the person you're dealing with. In some situations you've got the aggresive drunk who you can just be friendly and apologetic with. Other cases you've got somebody who's high on who knows what and the voices in their head tell them to swallow your soul. Him, you're gonna have to shoot.
As a rule of thumb, shooting is always what you want to use last. So if you can solve a problem by walking away, backing down, apologizing, whatever, you do it.
This is not an easy thing to explain on something like an online forum, but is better learned through training and practice. Cops spend a lot of time working on their "verbal judo".
That said, people who have no clue will often think that every situation can be solved peacefully. People like FCFC, or Barack Obama, for example. In reality, you de-escalate whenever possible, but when you're in fear for your life, you take immediate action, or you pay for your hesitation.