Tuesday, March 17, 2015

This is What It Means

On a marquee over the highway was the message: "1 in 5 accidents caused by drunk drivers". I said to myself (and now you), "Does that mean sober drivers cause 4 out of 5 accidents? Should we be ban sobriety on the road?"

You could say that. But you'd be wrong. Sobriety isn't a cause of accidents. The probability of being accident free is quite high when sober compared to the probability when you're drunk. And operating a cell phone--talking or texting--while driving has the same or worse probability of an accident.

Recently a single mother of two kids played the lottery for the first time...and won. Shouldn't everyone be playing the lottery and eventually win?

You could say that. But you'd be wrong. In a crossword puzzle was this definition: "The lottery is a tax...on people who don't understand statistics." People don't understand that the expected outcome of the lottery is a loss. The payout x the odds of winning is less than the cost of the lottery ticket. Playing frequently is a money loser.

With similar calculations, the news this week is that a 24 year-old professional football player is hanging up his cleats. He apparently calculated the probability that his quality of life would be reduced through concussions against the potential earnings playing the sport. He thinks the better decision is to earn less but have a much higher probability of a lengthy quality of life.

Expected outcomes are rarely calculated for our decisions in life...or business. I rarely see management teams put together decision trees with the payouts and the probabilities of success for different options and events. Yet I know it's taught in business schools.

Oh, well. Another example of how little training and education is actually used in practice.

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