Learn to Think probabilistically to improve Decision Making

Ismail Ali Manik
3 min readJan 31, 2018

Walter Frick writing recently in the Harvard Business Review notes;

Rule #3: Think probabilistically — and learn some basic probability.

The first two rules can be implemented right away; this one takes a bit of time. But it’s worth it. Research has shown that even relatively basic training in probability makes people better forecasters and helps them avoid certain cognitive biases.

If you’re not comfortable with probability, there’s no better investment to improve your decision making than spending even 30 minutes to an hour learning about it. You can start with Khan Academy’s introduction on coin flipping.

Many people have given credit to their “probabilistic’ style of thinking as the basis of their good decision making and success. Economist Brad DeLong reviewing Robert Rubin’s memoirs comments;

The factor Rubin himself sees as most important is his habit of “probabilistic thinking”: a willingness to always ask questions like “What else might happen?”, “What if we’re wrong?”, “What could happen next?”, and to look at the full range of situations that might come to pass — and at their costs and benefits — rather than to assume that things will go as planned or as the fashionable ideology or favorite administration model would have predicted. For all forecasts turn out to be wrong along at least one important dimension. Pounding the table and talking more loudly does not make unwanted facts disappear. Rubin’s recognition that the world is a complicated and poorly-understood place, where lots of unexpected and surprising things happen (as opposed to a place to which John Maynard Keynes or Milton Friedman or Irving Kristol has already drawn us an accurate map we need merely to consult), seems to have been the most powerful of his secret weapons.

Internalizing such an approach is not as easy as one thinks. Rubin explains in his book, In an Uncertain World: Tough Choices from Wall Street to Washington ;

The best explanation I can offer for why this discussion drew the response it did is something Larry Summers once suggested when we were both at the Treasury Department: that while a great many people accept the concept of probabilistic decision making and even think of themselves as practitioners, very few have internalized the mind-set. For me, probabilistic thinking has long been a highly conscious process. I imagine the mind as a virtual legal pad, with the factors involved in a decision gathered, weighed, and totaled up. To describe probabilistic thinking this way does not, however, mean that it can be reduced to a mathematical formula, with the best decision jumping automatically off a legal pad. Sound decisions are based on identifying relevant variables and attaching probabilities to each of them. That’s an analytic process but also involves subjective judgments. The ultimate decision then reflects all of this input, but also instinct, experience, and “feel.”

For Discussion: Discuss the following quote from Joe Biden in terms of statistical reasoning;

If we do everything right, if we do it with absolute certainty, there’s still a 30 percent chance we’re going to get it wrong.” — Joseph R. Biden, Vice President of the United States, 2009

Some additional books and online courses (The Great Courses) that we recommend.

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Ismail Ali Manik

Uni. of Adelaide & Columbia Uni NY alum; World Bank, PFM, Global Development, Public Policy, Education, Economics, book-reviews, MindMaps, @iamaniku