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Probabilistic thinking can lead to improved decision-making

quantamagazine.org

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Re: Probabilistic thinking can lead to improved decision-making

#11

Post by hso9791 »

sillysaurus3 wrote: post #10
perseusprime11 wrote: post #7

Earlier quoted context omitted.

The thing is people need certainty. Imagine a guidance from Apple saying they would make $2 per share with 47% probability. Investors will freak out. Which is why most companies sandbag their results. I want to know if any orgs actually use probabilistic decision making in their day to day operations.

Imagine a guidance from Apple saying they would make $2 per share with 47% probability. Investors will freak out. So? People freak out all the time about things that are true. It doesn't change that it's true.

Strictly speaking, one may end up with a separate set projections for e.g. dividends. These may in a standardized way present ranges for each KPI with confidence intervals associated.

I'd rather invest if that type of data were included. :)

As this is a somewhat large topic, I'll elaborate further throughout the series of blog posts.

Re: Probabilistic thinking can lead to improved decision-making

#12

Post by sigstoat »

perseusprime11 wrote: post #7
hso9791 wrote: post #5

Thinking is hard. That's why we must strive to avoid it at all costs. :) Probabilistic thinking is useful to wrap one's head around. Having worked with decision support for a decade, I've come to realize that probabilistic thinking may or may not be useful to work into organizational decision making regarding change. It's still a thought experiment, but I'll put in a shameless plug for the first of a series of blog e…

The thing is people need certainty. Imagine a guidance from Apple saying they would make $2 per share with 47% probability. Investors will freak out. Which is why most companies sandbag their results. I want to know if any orgs actually use probabilistic decision making in their day to day operations.

> Imagine a guidance from Apple saying they would make $2 per share with 47% probability. Investors will freak out.

if that's all it said, sure, because that sounds like apple just made some insanely high-variance bet. if instead apple provided some nice smooth probability distribution over possible earnings, folks would react much more reasonably.

Re: Probabilistic thinking can lead to improved decision-making

#13

Post by kurthr »

perseusprime11 wrote: post #7
hso9791 wrote: post #5

Thinking is hard. That's why we must strive to avoid it at all costs. :) Probabilistic thinking is useful to wrap one's head around. Having worked with decision support for a decade, I've come to realize that probabilistic thinking may or may not be useful to work into organizational decision making regarding change. It's still a thought experiment, but I'll put in a shameless plug for the first of a series of blog e…

The thing is people need certainty. Imagine a guidance from Apple saying they would make $2 per share with 47% probability. Investors will freak out. Which is why most companies sandbag their results. I want to know if any orgs actually use probabilistic decision making in their day to day operations.

One big problem with that is that the uncertainty in the variance is probably larger than the uncertainty in the mean.

Re: Probabilistic thinking can lead to improved decision-making

#15

Post by jpeloquin »

> (From the article) Our brains reason better with causes, rather than with numbers. In variation B, the idea that Ones are more prone to the disease is a cause we can latch on to, and it helps us discount the results of the ethnicity test as we should.

The fact that variations A and B both have the same answer means that the likelihood of Ones having the disease is irrelevant to the problem statement. It's really funny that "Ones are more prone to the disease" in variation B is supposed to help us intuit the correct conclusion when it's not actually relevant information.

Writing the math out shows that P(disease=True) does indeed drop out of the P(identity=Two | disease=True, ethnicity-test=Two) calculation.

Edit: Adjust quote formatting.

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