3 Cures For Binomial Bias: “25% of wives are smarter than their husbands.” I tell people that, and invariably the reaction from women is outrage than I am implying that 75% of men are smarter than their wives. The reaction from men is less strident disagreement or even bemusement. People think of two possibilities – smarter or dumber. That’s the binomial bias. Let’s categorize men and women as being either smart or stupid. Now, assume that men and women are equally smart (and the research shows that the median for men and women is equal), and assume that marriage is randomized (and that is a topic for someone else). If a smart woman marries a smart man, they are equal. If a stupid woman marries a stupid man, they are equal. If a smart woman marries a stupid man, the woman is smarter, and if a smart man marries a stupid woman, the man is smarter. Then 25% of wives are smarter than their husbands, 25% of husbands are smarter than their wives, and 50% of husbands and wives are equal. Why some smart women marry dumb men and some smart men marry dumb women is left to your conjecture. Binomial bias is strong. Cure # 1: Any question that has only two answers such as yes / no should be reformulated to create at least three possible answers. The English legal tradition is that a trial concludes with Guilty or Not Guilty (two choices), but other traditions may see a trial conclude with Guilty, Not Guilty and Not Proven (three choices). Cure # 2: Pose the question or problem at a higher conceptual level. If the question is posed: Should we invest in China? the automatic response is Yes / No. However, if the question is re-framed as Where should we invest? then China, US, EU, Brazil, Canada, Nigeria and Russia may be considered. And, if we re-frame the question as Should we invest or pay large dividends? then the choice is posed at a higher conceptual level. Cure # 3: Never start to answer the question before getting the question robust. Should our company buy a new integrated milling center ? directs the Board of Directors thinking to Yes / No. Reformulate the question as What are the six best capital expenditure options available to us? before attempting either analysis or assessment. A decision of two choices is a flawed process and only good luck can save a flawed process. To see all posts by Peter McCann: https://linkedin/today/author/2287869
Posted on: Sun, 21 Dec 2014 14:58:49 +0000
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