Decision-Making: Vegas Edition

By / March 8, 2014

Winners play probabilities; losers play possibilities.

For those readers who may have accidentally stumbled onto my website, www.LBMResearch.com, this month’s column will sound a little familiar. I didn’t plan to write about this yet, but I just returned home from the International Builders Show in Las Vegas and it seemed appropriate.

Here’s a basic tenet: Winners play probabilities; losers play possibilities. Nowhere is that more obvious than in Las Vegas, where the house always has the edge. The house is playing probabilities— and of course the house is winning. From time to time, someone will beat the odds—but not consistently and not for long. Winners don’t win by beating the odds—they win by understanding the odds.

Making a Decision

The trick to playing probabilities successfully is having the information relevant to the decision at hand. We all know that a bet makes sense if the potential return is greater than the actual odds. For example, the chance of pulling an ace from a deck of cards is 1 in 13. If you can get 20:1, it’s a good bet. But, if you didn’t know there are 52 cards in a deck, four of which are aces, you wouldn’t be able to make that calculation. You wouldn’t know it was a really good bet. That’s the value of information.

We need to apply this same logic to business decisions. The problem here is that the probabilities are more difficult to evaluate and the nature of our industry means we’re not always playing with a full deck. Still, we need to do the best we can—or we risk making bad, potentially costly decisions.

Most of us do this instinctively. Faced with a decision, we know what information we’d like to have. Sometimes we gather the facts, but often, we go with our gut—with the facts, as we know them. My favorite quote is from Mark Twain: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” According to Mark, it’s a really good idea to question and confirm what you think you know.

Small decisions with little downside don’t require much analysis. If you make a mistake, the consequences are minimal. Big decisions, on the other hand, require a solid foundation of facts. Think about the important decisions you make—and think about the information you want in front of you when you make those decisions.

Gather the relevant data to confirm what you think you know and to fill in the blanks. Then lay it out in such a way that makes logical sense—in a way that if your colleagues looked at it, they’d all come away with the same picture.

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Al Sherman

Al Sherman is the founder of LBM Research, a Chicago-based company that tracks and analyzes market data and trends for companies in the lumber/building material industry. To learn more about LBM Research,visit: www.LBMResearch.com