Yesterday, during the height of the latest European Football cup frenzy, I was driving around listening to a dreadful local radio station, and people were ringing in to the show to give their thoughts and opinions about the final between England and Italy. Some chap rang up and explained he was ‘absolutely convinced that England was going to win’.
Absolutely convinced! Convinced by what? I suppose he reviewed all the data possible, had done caluclations, advanced predictions and had become ‘absolutley convinced’ that the only outcome could be an England win.
Obviously this is tongue in cheek. The point is that this way of thinking seems to be quite typical. What’s more ridiculous is that this was a football game where just anything could happen (sudden fainting in the penalty box, red cards, own goals, … all sorts).
If we had asked him, okay, what probability does England have of winning? I doubt he would have said “100% chance of winning”, and yet that’s what his statement was. What’s more, he probably made a financial decision based on his conslusion by probably putting money on it.
This example demonstrates beauitfully how we actually make many decisions, especially in circumstances which have so many variables and where we have absolutely no influence. By thinking probabilistically we can step back from that comfortable position of certainty and start looking at a problem (i.e. an investment) in terms of probability – which, over the longer term should give us better outcomes for our decisions.