I just finished a stats assignment using decision trees, so I'm going to devote this blog to statistics. Stats is interesting to me because it's a science of uncertainty. It's not trying to prove one thing or another, it's simply trying to say something about those things. In that way, it's unpretentious.
I have to admit--there's something therapeutic about making a decision tree. You can lay out a problem on a piece of paper and break it down into the root probabilities and then fold back the tree and presto-chango, you have a decision. No one can really claim that it's definitely the right decision, the profitable one, the ethical one, or the strategic one...but at least you know that probabilistically, the odds are in your favor. Of course, the probabilities that you start out with have to be reasonably accurate or else you're dealing with fallacies and your tree isn't worth the paper it's scribbled on.
Business people, namely CEOs, are always talking about "going with their guts." They seem to go with their guts far more than they should, and it often gets them into trouble. The main problem is that we all have natural biases, no matter how many times we tell ourselves that we are objective. CEOs, investment bankers, et al. want to make money and they want to make as much money as they can as soon as they can, so they get bigger bonuses. "Going with their guts" necessarily coincides with this reality, whether they are conscious of it or not. Instead, they could be sitting in their corner offices jotting down probability trees, using realistic probabilities, vetted by unbiased market research. Then, they could fold back their trees and make decisions that are actually good for the firm, the employees, the stockholders, etc.
I think these special trees will come in handy down the road for me and many of my peers.
1 comment:
I made a decision tree the other day. I was deciding between a chicken club sandwich and a meatball sub. I'm trying to get in better shape, so I probably should've gone with the turkey wrap with the low-fat mayo (or maybe no mayo at all, but that's just crazy talk), but I'm a man and that's not what I do. So I made a decision tree -as mentioned- and gave the chicken club a 65% probability of being better for me than the meatball sub (35%). But then I listened to my gut, and my gut said to get the meatball sub. And I listened to my gut and my gut was happier for it. I compromised by getting some baby carrots instead of potato chips. I think sometimes one needs to follow their gut instinct.
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