Economics: Why most crack dealers live with Mum!
Discussion
Rob_F said:
Is it just me that read that and thought most of it was blindingly obvious then? You can show almost anything with statistics if you're good enough at processing the figures anyway. 
Cheers,
Rob.
I run my business almost entirely based on numbers - it drives my staff nuts. Absolutely everything is measured, from enquiry generation to the number of meetings, through to nine month cash flow forecasts. What you can't measure you can't control.
If you have a big enough sample it's astonishing how accurate your forecasts can be. It also means that if you see a slight change in the market, or staff perfomance, you can do something about it very early on. Equally, you can reward staff who are performing and educate staff who are struggling.
Rob_F said:
Is it just me that read that and thought most of it was blindingly obvious then? You can show almost anything with statistics if you're good enough at processing the figures anyway.
Cheers,
Rob.
I don't think most people would call linking the legalising of abortion with falling crime rates blindingly obvious, and who knew how little street level crack dealers made?
Interesting how the BBC called the abortion argument distateful, in the BBC mindset, something can be true but you are not allowed to say it. Alternatively something can be false and we all have to pretend to believe it.
srebbe64 said:
I run my business almost entirely based on numbers - it drives my staff nuts.
Numbers can mislead if they do not take account of psychology - example from prospect theory:
You have a choice of three options. Option A gives you a guaranteed £100,000. Option B gives you a 50:50 chance of winning £200,000. Option C gives you a 50:50 chance of winning £210,000. Which do you choose?
Mathematically, A and B are identical. C is much better.
Most would choose Option A. Go figure.
>> Edited by GasBlaster on Wednesday 13th July 21:50
GasBlaster said:
I run my business almost entirely based on numbers - it drives my staff nuts.
Numbers can mislead if they do not take account of psychology - example from prospect theory:
You have a choice of three options. Option A gives you a guaranteed £100,000. Option B gives you a 50:50 chance of winning £200,000. Option C gives you a 50:50 chance of winning £210,000. Which do you choose?
Mathematically, A and B are identical. C is much better.
Most would choose Option A. Go figure.
>> Edited by GasBlaster on Wednesday 13th July 21:50
I'd offer 25% of option C in exchange for further information from the person who organised the options.
srebbe64 said:
srebbe64 said:
I run my business almost entirely based on numbers - it drives my staff nuts.
Numbers can mislead if they do not take account of psychology - example from prospect theory:
You have a choice of three options. Option A gives you a guaranteed £100,000. Option B gives you a 50:50 chance of winning £200,000. Option C gives you a 50:50 chance of winning £210,000. Which do you choose?
Mathematically, A and B are identical. C is much better.
Most would choose Option A. Go figure.
>> Edited by GasBlaster on Wednesday 13th July 21:50
I'd offer 25% of option C in exchange for further information from the person who organised the options.
In another experiment, researchers offered a choice between Option A : 80% chance of losing £4,000 and 20% chance of breaking even, and Option B : 100% chance of losing £3,000. Which do you choose?
92% of respondent chose Option A, even though its mathematical loss is greater than Option B's.
(taken from a book called 'Against the Gods' by Peter Bernstein, definite recommendation if you're into risk analysis).
Incidentally, the first example is meant to show that most people are risk averse on potential upside, but risk takers on potential downside, which is probably why most business start-ups fail and most people lose at poker.
GasBlaster said:
You have a choice of three options. Option A gives you a guaranteed £100,000. Option B gives you a 50:50 chance of winning £200,000. Option C gives you a 50:50 chance of winning £210,000. Which do you choose?
Mathematically, A and B are identical. C is much better.
Most would choose Option A. Go figure.
Sorry, but I don`t understand how A & B are identical.
Option A gives you something, option B may not. Or am I just being dense?
The whole point of statistics, from my perspective, is to enable me to make decisions which will allow me to beat the odds. In effect, that's what 'card counters' in Black Jack do. For example, if I know the average enquiry rate of a mailed proposal, I also know the percentage of enquirors that will want to meet. I also know the number of meetings which will generate an offer. I know how many offers it takes to generate an 'acceptable' offer. I know the value of the final deal. If my income, after these calculations, is greater than my outgoings, then I will make a profit more often than not. The real trick is having large enough samples which can give reliable predictors. Once you've got the 'raw data' it's a back of a fag packet calculation.
towman said:
GasBlaster said:
You have a choice of three options. Option A gives you a guaranteed £100,000. Option B gives you a 50:50 chance of winning £200,000. Option C gives you a 50:50 chance of winning £210,000. Which do you choose?
Mathematically, A and B are identical. C is much better.
Most would choose Option A. Go figure.
Sorry, but I don`t understand how A & B are identical.
Option A gives you something, option B may not. Or am I just being dense?
Not at all, that's the point exactly!
But mathematically, 100% x £100,000 = £100,000 and
50% x £200,000 = £100,000 so each option has the exact same value. You as a rational person see Option A as being more attractive. Therefore I as a sneaky investment designer could sell you Option A with a small margin and buy from you Option B. And make lots of money. If you have ever bought any 'guaranteed investments' that is exactly what has happened!
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