Calculated Risks – A Book Review

Summary: Few of us have a confident understanding of probabilities and statistics. I’d say most of us relate to a scene from Dumb and Dumber:

Loyd Christmas: What do you think the chances are of a guy like you and a girl like me… ending up together?
Mary Swanson: Well, Lloyd, that’s difficult to say. I mean, we don’t really…
Lloyd Christmas: Hit me with it! Just give it to me straight! I came a long way just to see you, Mary. The least you can do is level with me. What are my chances?
Mary Swanson: Not good.
Lloyd Christmas: You mean, not good like one out of a hundred?
Mary Swanson: I’d say more like one out of a million.
[pause]
Lloyd Christmas: So you’re telling me there’s a chance… YEAH!

Telling me theres a chance

And the reason we relate is because at some point it becomes meaningless to us. We play the lottery and we see commercials for wonder drugs. It all seems great, even if we don’t understand why.

Would I say this book is for everyone, no. It doesn’t rule anyone out, but it can be dry. The reader must want to improve their grasp of probabilities and uncertainty, to improve their innumeracy. This book provides a mental tool to help – natural frequencies.

 

Calculated Risks

Detail Review: Before I get to the contents of Gerd Gigerenzer’s book, I’d like to comment on the tangible book. It has many small numbers creating a grey pallet. The name of the book is reflected so two versions of it are represented on the cover. There’s also a symbol which appears to be a sigma, but I’m not sure. Together it makes for a busy visual. Within the book the font is of average size and there are helpful visuals sprinkled throughout. The result is 246 pages you can get through without feeling overcome by it.

The introduction sections of the book layout the ideas with the middle going into real world examples to explain them. The last few sections provide some funny and light hearted content.

Early on he sets the stage. I like the definitions, the philosophy, and the varying views of risk people have. Here are some examples:

The definition of innumeracy in general is the inability to do basic math, but this book is focused on the inability to understand statistical relevance. Gigerenzer breaks it into four types: illusion of certainty, ignorance of risk, miscommunication of risk, and clouded thinking. The excerpt from Dumb and Dumber was an example of clouded thinking since Lloyd understood the sheer magnitude of the chances Mary was giving him but didn’t know how to draw proper inferences from it.

The author also defines different views of risk. He describes three types – degrees of belief, propensities, and frequencies. Degrees of belief are similar to what a doctor would assign the chances of survival are to a patient who is undergoing a new surgical procedure. Propensities are more about the properties of an object like a die. The traditional die has six sides and given a uniform weighting and edge will result in a distribution of 1 in 6. The design dictates the likeliness. Six Sigma design and quality programs stress this sort of risk.

The last is Frequencies and it’s the focus of the book. Frequencies take actual events, defines a reference class, and observes what happens. Roll the die a thousand times and see how many sixes resulted. Frequencies are both powerful and flawed. They are powerful because they take design to the next level, the system. With frequencies you can draw conclusions with complex situations. The downside is the event has to happen… well frequently.

With frequencies the book then goes on to explain relative risks and conditional probabilities. The writings use health care as the back drop. Here’s an excerpt for Relative Risk:

What is the benefit of a cholesterol-lowering drug on the risk of coronary heart disease? In 1995, the results of the West of Scotland Coronary Prevention Study were presented in a press release “People with high cholesterol can rapidly reduce… their risk of death by 22 per cent by taking a widely prescribed drug called Pravastatin sodium. This is the conclusion of a landmark study presented today at the annual meeting of the American Heart Association.” The benefit of this cholesterol-reducing drug, just like that most medical treatment, was reported by the press in the form of a relative risk reduction. What does “22 percent” mean? Studies indicate that a majority of people think that out of 1,000 people with high cholesterol, 220 of these people can be prevented from becoming heart attack victims. This, however, is not true… Out of 1,000 people who took Pravastatin over a period of 5 years, 32 died, whereas of 1,000 people who did not take Pravastatin but rather a placebo, 41 died. The following three presentations of the raw result – a total mortality reduction from 41 to 32 in every 1,000 people – are all correct, but they suggest different amounts of benefit and can evoke different emotional reactions in ordinary citizens.

Three Ways to Present the Benefit

Absolute risk reduction: The absolute risk reduction is the proportion of patients who die without treatment (placebo) minus those who die with treatment. Pravastatin reduces the number of people who die from 41 to 32 in 1,000. That is, the absolute risk reduction is 9 in 1,000, which is 0.9 percent.

Relative risk reduction: The relative risk reduction is the absolute risk reduction divided by the proportion of patients who die without treatment. For the present data, the relative risk reduction is 9 divided by 41, which is 22 percent. Thus, Pravastatin reduces the risk of dying by 22 percent.

Number needed to treat: The number of people who must participate in the treatment to save one life is the number needed to treat (NNT). This number can be easily derived from the absolute risk reduction. The number of people who needed to be treated to save one life is 111, because 9 in 1,000 deaths (which is about 1 in 111) are prevented by the drug.

Another situation described in the book is mammography screening for breast cancer. Several randomized trials of women 40 and older were conducted in Sweden. What the trial found was screening resulted in reducing the risk of dying from breast cancer by 25%. That’s a huge number and one that can change health behaviors. However, this number is the relative risk reduction. What the study found was out of 1,000 women, 4 would die without screening. With screening, 3 die. That’s an absolute risk reduction of 0.1%(1 out of 1,000) and a relative risk reduction of 25% (1 out of 4). Another way to think of these results is out of every 1,000 women who did not get regular mammography screening, 4 die of breast cancer. For 1,000 women who did get regular mammography screening, 3 die of breast cancer. If you’re one of the four, this is a big deal. If you’re one of the 996 then the screening made no discernible difference (may have actually led to false positives, pain, discomfort, or anxiety). Alternatively, for women between the ages of 50 and 69 who participate in breast cancer screening will average an increase in their life expectancy by 12 days.

For those who remember the OJ Simpson case, you’ll recall the name Alan Dershowitz. He was one of Simpson’s lead attorneys. After the case was over he penned a book describing how they strategized the defense. One aspect involved domestic violence. He used figures from the FBI crime reports for 1992 and found a ratio of 1 out of 2,500 battered women are killed annually by a husband or boyfriend. OJ had previously hit Nicole Brown Simpson, the murder victim. The defense used these figures to argue that men who beat their domestic partners rarely go on to murder them.

But these numbers aren’t quite right. Dershowitz is arguing what the chances are someone murders their spouse after they have beaten them – about 1 in 2,500. A low likelihood. But the question should be spun around and stated: what is the probability of a man murdering his domestic partner given that he battered her and that she was murdered. The part about Nicole Brown Simpson being murdered is relevant. Here’s the frequency tree illustrating it (for round numbers 1 in 2,500 equates to 40 out of 100,000):

 OJ2The book ends with fun accounts of how statistics can be used for game shows or brain teasers. I enjoyed them. Here’s an excerpt of one I got a chuckle out of:

In the late 70s, the Mexican government faced the problem of how to increase the capacity of the Viaducto, a four-lane motorway. Rather than building a new highway or extending the existing one, the government implemented a clever, inexpensive solution: It had the lines on the four-lane highway repainted to make it six-lanes wide. Increasing the number of lanes from four to six meant a 50 percent increase in capacity. Unfortunately, the much narrower lanes also resulted in an increase in traffic fatalities, which, after a year forced the government to turn the highway back into a four-lane road. Reducing the number of lanes from six to four meant a 33 percent decrease in capacity. In an effort at touting its progress in improving the country’s infrastructure, the government subtracted the decrease from the increase and reported that its action had increased the capacity of the road by 17 percent. In reality, of course the capacity returned to what it had been, resulting in no net benefits. The net costs were the price of the paint and increase in traffic fatalities.


Other Book Reviews by Ben Leeson:

Simple Heuristics That Make Us Smart / The IBM Data Governance Unified Process: Driving Business Value with IBM Software and Best Practices – A Book Review / How Pleasure Works – A Book Review / Why We Make Mistakes – A Book Review / Drive: The Surprising Truth About What Motivates US – A Book Review / Rules of Thumb – A Review / I Hate People – A Review / The Job Coach for Young Professionals – A Review / A Review of The Fearless Fish Out of Water: How to Succeed When You’re the Only One Like You / A Quick Review of Johnny Bunko (a manga story)

 

Spotting Innovative Talent – External and Internal to Your Company

The job market is a lagging indicator for the economy. And over the last several months, readings from each of the different national surveys have been positive. To accompany those reports is an underlying uptick in stories about how to hire innovative personnel. These individuals will always command a market for their skills, so its especially important to have a plan for this talent. Here are a couple articles I found valuable.

————————

Geil Browning

Inc.com ran an article titled How to Spot Innovative Hires by Geil Browning. In it she has a few recommendations:

In resumes: Look for “I enjoy developing solutions that are fresh and new,” “I’m an idea person,” or “I’m a visionary.” She also suggests that you don’t be scared off by stops in different industries.

In the interview: Observe who the person is making connections in their mind. When explaining a point or telling a story they seem to go off on a tangent, be OK with that. They are most likely connecting the dots in their minds – creating associations. They’ll also pepper the conversation with terms like brainstorming, big picture, global, vision, hunch, oneness, synchronicity, and cutting edge.

Here are a few blurbs from the piece regarding Interview questions to ask:

If you were to assemble a piece of furniture from the directions, how would you go about it?
I love this question because each thinking type answers it so differently. Someone whose thinking is very innovative will often say, “I look at the picture on the box, dump the pieces in a pile on the floor, and then begin. When the project is complete, I use the directions to start a fire.”

When a deadline is a month away, how do you finish a project—and when?
An innovative thinker will say something like, “First, I search the Internet for ideas. Then I’ll take a walk or ponder until a solution makes itself known. This may happen immediately or it may happen three days before the deadline, but when the solution surfaces, it will come all at once—and it will come.”

What would you do if you showed up ten minutes early for a meeting?
Does this individual talk about striking up a conversation with the nearest person, or quietly prepare for the meeting? Only you know which trait would offer an appropriate balance at your company.



———————–

Bill J. Bonnstetter & Ron J. Bonnstetter

The Harvard Business Review is providing some guidance about how to identify the people who in your organization are the entrepreneurs. In a blog post titled Who are Your Organization’s Entrepreneurs? Bill J. Bonnstetter and Ron J. Bonnstetter label the problem solvers within the company as Entrepreneurial-Minded People (EMPs) and Serial Entrepreneurs (SEs). The risk they see is in the likeliness of an entrepreneur leaving the team. An interesting stat is that 42% of of entrepreneurs have determined they want to own their own business before the age of 12, so companies are facing tough odds.

Entrepreneurial-Minded People (EMPs): They tend to work well in teams, have an organized workplace and enjoy consistency. These individuals are happier within organizations or within a group of people working together to achieve a goal.

Serial Entrepreneurs (SEs): The second group is made up of potential serial entrepreneurs who have a desire to own their own business. Serial entrepreneurs tend to be more individualistic, have a greater sense of urgency and a desire to control. They have demonstrated an ability to sustain a business past the first year, into the higher growth job production years of a young firm.

But how do managers identify entrepreneurial types? It’s often helpful to put these questions to use, especially during the hiring process or a performance review.

  1. Describe your career goals. The EMP’s answer would more likely indicate he could care less about being in management and is happy where he is or where he is applying for. The SE will tend to say she is looking for advancement.
  2. Describe your professional strengths. An EMP will focus on strengths directly related to the job in question. An SE will talk more about leadership and personal identity.
  3. Describe things you’re not good at. Honesty is important for both. Listen closely: If she claims to not have any weaknesses, she is likely more SE-driven. The more weaknesses he confesses to having, the more EM-driven he is.
  4. What activities do you do to keep current in your profession? The EMP is interested in keeping up within his profession and industry. The SE is more focused on keeping up on broader scope, going beyond just her career and may discuss things she is reading, experiencing or sharing.

Entrepreneurs — whether EMPs or serial — already possess the behaviors, attitudes, and values to build successful businesses. Finding out whom within the workforce possesses the traits of an entrepreneur — and which type they are — will allow business leaders to work with their unique approach to business. Recruiting and retaining entrepreneurs will pay big dividends not just for individual companies, but also for the economy as a whole.

Reflecting on a Job Market – Employee and Employer

To gain significant wealth in the US you have to take significant risk. Usually that means starting your own business or being on the ground floor with someone who is. The individuals who put their neck on the line deserve the spoils of that risk. The last three years proves the fittest survives in business.

We can somewhat reflect now. The once in a generation economy is behind us, so it’s time to see what the new world looks like. It’s lean and flexible. But a chasm is growing between the employer and the employees. Here are some stats from a Mercer survey I read about by Ben Rooney on CNNMoney called  Half of Workers Unhappy in their Jobs:

  • 32% of US workers are seriously considering leaving their job. Up from 23% in 2005.
  • Of the age group 25-34, 40% are seriously considering leaving. Within that number is 44% of employees who are 24 and younger. The cheap labor is ready to bolt.
  • And more alarming, 56% of senior managers are considering leaving. This compares to 34% of managers and 30% of non-managers. The experienced are also looking to jump to other opportunities.
  • A slightly different take, but 21% have disengaged from their employer, meaning they are not looking for a new job, but they are apathetic toward their current one. This could be burn out and it could mean the productivity gains via personnel has reached it’s limit.

Workers are getting disenfranchised by the circumstances of their employment. In addition to that, there are business owners who have moved away from the proper perspective. They’ve had leverage for over three years. Chances are they laid off some people. Those that remain should have a debt of gratitude. It could be worse.

The business owner who has survived is entitled to some fun, but they need to realize no one does it alone. I was out to dinner with a friend in the industrial fabrication and installation field of work. He had an exchange with his boss similar to the one in the movie below. I embellished it for effect, but much of this exchange is true, particularly the part about the water skis

A Resignation Story
by: Ben Leeson

When Ideas Come Together

I sit here and type. Sometimes I have inspiration and sometimes its a slog. I do it because I love when ideas come rushing in. It’s like the end of the Usual Suspects when everything comes together. Its powerful and rewarding.

Good mysteries are fulfilling because we have to hunt for clues. They are rarely obvious and they are as much a study of logic and circumstance as anything else. It’s in our DNA to problem solve this way.

For this reason I’m optimistic about the long term future. The connectedness of the world is bringing figurative detectives together, each with their own clues, to solve problems. Ideas have a better chance to grow. Incremental improvements are good, but we are after leaps forward.

Take this chart from CNNMoney.com about Cisco’s prediction on the expansion of the internet.

And check out these videos from Steven Johnson about where ideas come from. The first one is a short artistic explanation and the second is a TED Talk. I really enjoy the story at the end.

[youtube=http://www.youtube.com/watch?v=NugRZGDbPFU&w=560&h=349]

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Defining the Future for the Class of 2011

Congratulations to the class of 2011. You’ve earned the gratification of moving your tassel from one side of the cap to the other.

What does the future hold? What is out there? You’ll be told to find yourself, follow your passion, and chase your goals. And many of you will wonder what those are. There’s debt, perhaps an entry level job, and monthly bills. Before you can commit to your boundless dreams you already have these torments and everything that goes along with it. Chances are you’ll be figuring out credit cards, bad bosses, and hung over early morning meetings. Every day is a new day.

If you learned anything in school, I hope you’ve learned how to think. To ask why? Anyone can follow directions, good thinkers are people who understand why they exist. Great thinkers design the instructions. What is the path? What are the steps? “If this happens, then do this” and the decision tree associated with it. Working through these scenarios develops an ability to cope with complexity. Said another way – for greater enlightenment, do you want a happy meal toy or a jet engine?

And I beg you to create something. The world is a better place when people work to assemble rather than tear apart. If you’re a business person I’d start with thinking about value proposition. Think about a situation and how things work together. What is the context for which a transaction operates? Consider the decisions people are making and the information they are using. What drives them to act and is the desired behavior? Is there a status quo? Have people accepted things as they are?

The world you experience is very different than the world I know. And that is good. There are generally two types of knowledge explicit and tacit.

  • Explicit Knowledge – is knowledge that has been or can be articulated, codified, and stored in certain media. It can be readily transmitted to others. The information contained in encyclopedias (including Wikipedia) are good examples of explicit knowledge.
  • Tacit Knowledge – involves learning and skill but in a way that is difficult to transfer from one person by means of writing it down or verbalizing it. Tacit knowledge can consist of habits and culture that we do not recognize in ourselves. I can tell you how to ride a bicycle, but you won’t know how until you learn to balance.

Graduation means you’ve probably spent close to $1,000 on books over the last few years acquiring explicit knowledge. You’ve studied in your dorm room and memorized facts about amortization. You’ve read what the top of Kilimanjaro looks like.

Now is the time to look yourself. It doesn’t have to be the top of a mountain, a high point works just fine. Experience the edge and feel the risk. Trace the path you’ve taken to this simple point. Once you’ve climbed one high point, you’ll climb another and another.

Nothing worth doing is easy and life isn’t fair. Your experience is unique, always ask why, and focus on creating something, anything. And remember, every day is a new day.

Using Data as a Predictor of Sports Success

There’s a huge celebration going on this week – a celebration of decision making. You see the NFL Draft starts Thursday (4/28/11) and runs through Saturday (4/30/11) and fans tune in to see who their team selects. No games are played, just people’s names being called.

Why do we care? The simple answer is hope. We’ve entrusted the future of our favorite teams to a room full of guys with spreadsheets. We want to believe they have the magic formula for selecting the players who succeed in the NFL. They’ve studied film, measured height, weight, speed, interviewed the candidates, and surveyed other experts. They’ve quantified all these inputs and ranked the candidates. Most of the time they tier them for purposes of trading up or down. Teams win Super Bowls because of these three days.

It’s a lot of data and yet every year mistakes are made. As a General Manager, the person ultimately making the decision, you need the hits to be proportionally more successful than your misses. And you need to learn from your data year over year to see which inputs pan out and which ones do not. From there you can use heuristics to simplify the ranking order and reduce the risk of missing on a selection.

Below are two videos. One is from the Sloan Sports Conference and it features Peter Tingling. I’m a fan of Mr. Tingling and his company, Octothorpe Software (this is not a paid endorsement). Peter provides a presentation about how how successful NHL drafts are.

The second video is from the most famous sixth round pick ever – Tom Brady. He is your classic case of not using the data correctly.

http://www.kaltura.com/index.php/kwidget/wid/_203822/uiconf_id/1898102/entry_id/1_bukfpvkn/

[youtube http://www.youtube.com/watch?v=vGF4l3hcgBg&w=640&h=390]

Simple Heuristics That Make Us Smart – A Book Review

Quick Take: Simple Heuristics That Make Us Smart is a collection of academia based essays proving the comparative value of decision making based on good enough information. The examples and anecdotes are good, but there is complex math to wade through. It isn’t a leisure read. However, each section can be consumed on it’s own. If you’re a student of decision making, whether it’s group dynamics or individual situations, then this book is a good heuristics reference.

Detail Review: Many of us have a comfortable chair which serves as our place to relax. Its great for 40 winks. But why do we relish peacefully falling asleep in a chair? Most of the time it’s because we are mentally exhausted. Everyday we are faced with an ever changing list of choices to make and each has a list of known variables and all kinds of factors which are unknown. We try to streamline choices that have worked so we don’t need to concentrate on it. I take the same route to work everyday even though there are probably another ten ways to get there, for instance.

I wish I had a computer in my head to compute all the different inputs into making a decision. I could continually collect data and analyze it practically to a 100% decision certainty. But I don’t have a computer or unlimited time, instead I rely on heuristics. Heuristics are simple methods for using particular cues and constraints to make a choice. Gerd Gigerenzer, Peter M. Todd, and The ABC Research Group authored this tome as a study of how accurate specific heuristics are.

Here are a few heuristics covered in the book:

Recognition
Definition – If one of two objects is recognized and the other is not, then infer that the recognized object has the higher value with respect to the criterion.
Example – If I ask 100 Americans which city in Germany is more populated Berlin or Saarburg? The results will be close to 100% correct – Berlin is more populated. Of the 100 people few, if any, will recognize Saarburg as a city, but practically all of them will have heard of Berlin. Because of that recognition they will answer Berlin even though they know little about the actual number of people who live in either city.

Take the Best
Definition – When making a judgment based on multiple cues, the criterion are tried one at a time according to their cue validity, and a decision is made based on the first criterion which discriminates between the alternatives.
Example – Suppose we ask the question about population again, but instead of Saarburg we use Frankfurt. Berlin and Frankfurt are both recognizable so we must use other reasons to discriminate population. We pose a list of usual indicators of large populations – historical relevance, it’s a capital, tourism, sports teams, and so on. From that list we rank the list based on which ones usually are more of an indication of population and try to separate the two. We compare Frankfurt and Berlin for tourism and realize that Berlin is much more of a destination than Frankfurt is. We stop there and don’t review the other reasons. We take the best separator – tourism – and decide to invest no more time in evaluating. Berlin is the answer.

Take the Last
Definition – When making a judgment based on multiple cues, the criterion are sorted according to what worked last time. It uses memory of prior problem solving instances and works from what was successful before.
Example – I’m now comparing Frankfurt and Munich in population. I’ve heard of both so I can’t use Recognition. I use Tourism as the candidate since it worked with Berlin and Frankfurt. This time I go with Munich because they’ve hosted an Olympics and is more of a destination than Frankfurt. This answer is correct and time and energy was saved because I didn’t need to sort through all the other criteria.

In addition to those there are:

  • Franklin’s Rule – calculates for each alternative the sum of the cue values multiplied by the corresponding cue weights (validaties) and selects the alternative with the highest score.
  • Dawes’s Rule – calculates for each alternative the sum of the cue values (multiplied by a unit weight of 1) and selects the alternative with the highest score.
  • Good Features (Alba & Marmorstein, 1987) selects the alternative with the highest number of good features. A good feature is a cue value that exceeds a specified cutoff.
  • Weighted Pros (Huber, 1979) selects the alternative with the highest sum of weighted “pros.” A cue that has a higher value for one alternative than for the others is considered a pro for this alternative. The weight of each pro is defined by the validity of the particular cue.
  • LEX or lexicographic (Fishburn, 1974) selects the alternative with the highest cue value on the cue with the highest validity. If more than one alternative has the same highest cue value, then for these alternatives the cue with the second highest validity is considered, and so on. Lex is a generalization of Take the Best
  • EBA or Elimination by Aspects (Tsersky, 1972) eliminates all alternatives that do not exceed a specified value on the first cue examined. If more than one alternative remains, another cue is selected. This procedure is repeated until only one alternative is left. Each cue is selected with a probability proportional to its weight. In contrast to this probabilistic selection, in the present chapter the order in which EBA examines cues to determine by their validity, so that in every case the cue with the highest validity is used first.
  • Multiple Regression is a statistically analysis of how the typical value of the dependent variable changes when any one of the independent variables is varied, while the other independent variables are held fixed. This is beyond the capacity of a normal human and usually requires a resources like a computer.

The book uses the city example to run a test against a few heuristics and Regression testing (computing intensive). The results are startling when you consider the number of cues needed to reach the decision (a low number for Take the Best and Take the Last and a high number for the other three).

Here’s a chart showing relative performance for this particular case study:

As you can see, Take the Best and Regression Analysis are very similar in performance. This means if you pick the right Heuristic to use for the situation you can save time and resources and still get the performance that is comparable for the trade off (time and energy).

So what does this mean? Sometimes it’s the difference between life and death.

A man is rushed to a hospital in the throes of a heart attack. The doctor needs to decide quickly whether the victim should be treated as a low-risk or a high-risk patient. He is at high risk if  his life is truly threatened, and should receive the most expensive and detailed care. Although this decision can save or a cost a life, the doctor does not have the luxury of extensive deliberation: She or he must decide under time pressure  using only the available cues, each of which is, at best, merely an uncertain predictor of the patient’s risk level. For instance, at the University of California, San Diego Medical Center, as many as 19 such cues, including blood pressure and age, are measured as soon as a heart attack patient is admitted. Common sense dictates that the best way to make the decision is to look at the results of each of those measurements, rank them according to their importance, and combine them somehow in to a final conclusion, preferable using some fancy statistical software package.

Consider in contrast the simple decision tree below, which was designed by Breiman and colleagues to classify heart attack patients according to risk using only a maximum of three variables. A patient who has  a systolic blood pressure of less than 91 is immediately classified as high risk – no further information is needed. Otherwise, the decision is left to the second cue, age. A patient under 62.5 years old is classified as low risk; if he or she is older, the one more cue (sinus tachycardia) is needed to classify the patient as high or low risk. Thus, the tree requires the doctor to answer a maximum of three yes/no questions to reach a decision rather than to measure and consider 19 predicators, letting life-saving treatment proceed sooner.

 

To wrap up, the book has many interesting essays as chapters, ranging from bicycle races, hindsight bias, ants, mate selection, and bargaining. It’s a solid 365 pages with small font. The math and the science can be dense, but the applicability of the results are real. It doesn’t sugar coat what goes into making heuristics worthwhile – a lot of up front analysis. It does however show how powerful those paths or decision trees can be once they are implemented.

Gerd Gigerenzer has other books that are probably more digestible for the heuristically curious (Gut Feelings: The Intelligence of the Unconscious and Calculated Risks: How to Know When Numbers Deceive You) but if you’re into behavior and why particular decision paths are more economical than others, then this book is a good educational read.


Other Reviews:
The IBM Data Governance Unified Process: Driving Business Value with IBM Software and Best Practices – A Book Review / How Pleasure Works – A Book Review / Why We Make Mistakes – A Book Review / Drive: The Surprising Truth About What Motivates US – A Book Review / Rules of Thumb – A Review / I Hate People – A Review / The Job Coach for Young Professionals – A Review / A Review of The Fearless Fish Out of Water: How to Succeed When You’re the Only One Like You / A Quick Review of Johnny Bunko (a manga story)

Differentiating Using Strategy and Technology

The Academy Awards were a few weeks back and the popular movie The Social Network was nominated for Best Picture. It didn’t win the award, but it did elevate Facebook into a cultural phenomenon. It’s no longer another website – it’s Facebook. People care about it like their Nike running shoes, Apple iPod, and Starbucks coffee.

Each of these brands has used slight advantages in their products to become the dominate company in the space. How or why does this happen? Well, first I’ll mention luck. It always plays a role. In addition to luck, it’s the people.

Individuals and teams within these companies differentiate their offerings. They do so within a cost structure that maintains competitiveness and they do so with an eye toward value. Most people think of value as what Wal-Mart offers. One product 10 cents cheaper than a competitor and that is true in a commodities evaluation. Paper towels are paper towels. Value becomes much more abstract when the offering – product or service – has an association related to it. Starbucks originally pulled people in because the coffee was stronger. The association was that it woke up better than other options. And Apple combats technophobia because they create electronic devices that are easy to use.

This value is marginal at first, but then it snow balls. Getting it to snow ball is the key and then building on that is paramount. Facebook used exclusivity as the differentiator and then opened up the site to ride the network effect. Now it can exploit it’s pure numbers for monetary gain.

Earlier this year Goldman Sachs in a backroom deal valued Facebook at $50 billion dollars. Valuations like this have some to speculate that there is another tech bubble. Groupon, Google, Facebook, and others are the poster children.

In the world of the internet, small differences in your products can be the difference in sinking or swimming. Because of that Silicon Valley is leading the way in an escalating war for tech talent. Google is offering $20,000 more than average to the people they’ve targeted. Some firms are teaching their employees how to be entrepreneurs. In Silicon Valley it’s an inevitability, might as well make it a perk.

Do I think its a new tech bubble? I don’t. How engineers are using the internet now is very different than 15 years ago. Now it’s used to implement strategies that were inconceivable just three years ago. New approaches can separate and new technology can accelerate. What goes into the making of a Best Picture? It’s more than just film, it’s artistry.

Your Greatest Weakness

I’m the type of person who relies on metaphors and analogies. It’s just the way I absorb information. So as the sun shone on my face this past weekend, I couldn’t resist comparing the first warm up of the season to the optimism of a reborn employment market. Just like Chance the gardener said in Being ThereIn the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.”

With hiring thawing out, the inevitable uptick in interviews will commence and we’ll see more media stories about the topic. For instance, over to HBR.org Priscilla Claman has a great blog entry called The Worst Interview Question (and How to Answer It). The focus of the writing is on the question:

 “What is your greatest weakness?”

The question from an interviewer standpoint is intended to show how the interviewee handles uncomfortable interactions. If an interviewee has prepared well, then it’s hard to gauge whether the interviewee can perform when unknown circumstances come up, which is bound to happen in the workplace. This type of awkwardness can paint the picture of how this person would react.

But as noted in the blog article, there’s downsides to the question. The first is that it can be embarrassing. And starting off a relationship with embarrassment is not usually a good idea. There’s lots of movies like this. The second is that strengths and weaknesses change depending on the culture and function the person is involved with. For instance, I love analogies is that a weakness? It depends. Because of this grey area interviewees create work around answers like “I’m a workaholic” so they don’t paint themselves into a corner.

However, as the blog states, there are a few good ways to reply. Check
out the cheesy xtranormal video I created this weekend while messing
around for an example.

 

 

http://www.xtranormal.com/site_media/players/jw_player_v54/player.swf

Working Thoughts 2/15/09
NatGeo Has Me Hooked Lately

Working Thoughts 2/15/08
Teachers Who Have the Creative Freedom to Teach

A Dan Pink Speaking Experience

A couple of weeks ago I was staring at my computer screen and in comes an Instant Message asking if I knew Dan Pink was speaking in Charlotte? The IM was from Jill, a work friend for over 10 years. I had no idea about the event, but I was excited. She sent me the link to the UNCC NEXT Speaker Series and I promptly bought a $40 ticket.

The day of the event arrived, but I wasn’t sure where to go. The Blumenthal has several stages and the one I was looking for was the Booth Playhouse. Luckily, there was an event before hand for networking, so I figured I could follow the crowd. It was easy. There were several people standing in the hall welcoming Dan Pink fans and pointing to will call for picking up tickets. I was in extrovert mode and introduced myself to several other attendees, but the response I got was uncomfortable friendliness, forced smiles and all. After a few of these interactions, I realized the people I was trying to chat up were college professors. Maybe they aren’t used to networking in a real business world? Undaunted, I bought a beer and spotted someone who wasn’t part of the school clique. I introduced myself to Darren and we discussed Pink’s books.

Although we are standing in the lobby of a small theatre, it sort of feels like a post modern fashion store. There are doors at the ends, but the entire area is visible through clear windows. I wasn’t at the mall, but I could have sworn I saw some t-shirts on sale for $250. Thankfully, Jill arrived and we discussed our day of work.

We decided to head in early to get a good seat. I heard it was interactive so I wanted to be near the front. However, when we walked in I was very stunned to see the first eight rows or so were reserved for VIPs. It isn’t a big venue so this preferential seating situation was a bit much. For $40 I should be able to sit close.

I met another friend as we were deciding where to sit. My inner voice was screaming “yea!” that this friend showed up. There’s always a rewarding feeling when someone else tries out music, a book, or a restaurant you suggested and this was the same appreciation.

The lights dimmed and the last few seats were taken. I noticed Peter Gorman, the Superintendent of the Charlotte-Mechklenberg schools, sitting across from us – not a VIP either. I’m not sure who kicked it off. It was either the Chanceller or the President of UNCC. He was kind of funny. The Dean of the Business School then introduced Dan to the audience.

I’ve viewed most of the videos for Drive and was nervous that Dan would stick to the script. He mostly followed the themes but he certainly was able to ad lib. He did his homework and talked about the local area some. He quizzed the audience about motivation and interacted with a few different guests. Throughout the session some slides were used to highlight the research that reinforced his points. Time flew by and it felt like it was short, but he spoke for about 70 min.

Overall, I enjoyed my first Dan Pink speaker series. I went with friends and made some connections. Next time I’m going to penetrate the inner circle though :)

Working Thoughts 2/10/09
Sustaining Large Economic Growth is Key for the US