The Algorithm - probability & decision-making

In this week’s issue of The Algorithm, I’d like to highlight the real-world importance of probability and its role in decision-making.

Probabilities are numbers that tell us how likely an event is to occur. They provide us with an easy way to quantify and communicate how certain or uncertain we are about things. 

As human beings figuring out how to navigate through life, we use probability all the time without even realizing it. 

• We check weather forecasts to see the probability of precipitation.

• When playing games, we choose our strategy based on the probability that it is going to help us win.

• We make decisions about how to deal with other people based on the probability of them reacting in certain ways.

• We buy specific items based on the probability that they will solve our problems better than their alternatives.

• We purchase insurance on our cars, homes, health, and lives because there are probabilities of accidents, illnesses, and catastrophic events occurring.

If we really think about it, just about every decision we make has some sort of subconscious probability calculation driving it.

One of the easiest ways we can improve our decision-making, both in business and in our personal lives, is being more aware of the decisions we are making, what factors will influence those decisions, and what probabilities we are assigning to each of those factors. 

When we become more aware of these, we can make adjustments to the factors and the probabilities based on the information available, better weigh our options, and better evaluate the different potential outcomes. 

My challenge to you…

• Think about some of the decisions you made in the last few days, the process you went through to make those decisions, and how probabilities may have influenced them.

• Next time you come across an important decision you need to make, note the factors and probabilities you are taking into consideration.

• Ask yourself whether those are the best available assumptions.

• Then armed with this information, start making some great decisions for yourself and your business!

Having a basic understanding of the role probability plays in our decision-making can help transform us from decent decision-makers to exceptional ones. With a little practice, you’ll find that you’ll not only start to make better decisions, but you’ll also develop more confidence in the choices you make. 

Tony Ojeda 
Founder
District Data Labs