How to predict the future with probabilistic decision-making
The Six Percent Entrepreneur
How to predict the future with probabilistic decision-making
May 16, 2021
In this episode, we go a little bit deeper into decision making and we discuss probabilistic decision-making.
All right today, we are going to go deeper into decision making and we're gonna be talking about probabilistic decision making and I'm gonna make this really simple for you to digest. But this podcast was inspired by a night out with one of my friends. We were going out and she made all of these really intricate plans and her plans had a lot of elements of chance in them. 

So for our final outcome, it was dependent on a bunch of other things happening. And I kept on telling her, I don't think, I don't know, I don't think this is going to happen. I wanted to ground her back to reality and say, Hey, don't get your hopes up. I don't think this is going to happen. And she snapped at me because she was like, How can you say that? Why are you being so pessimistic? Why can't you just think optimistically and think that this is going to happen? 

And I was kind of taken aback because I'm just, to me, I'm just like doing a mathematical decision and nothing more. Um maybe that's the wrong approach. Maybe that's correct approach. But good thing that I have a podcast that I can explain myself. So, that's what I'm gonna do. And this podcast will help you figure out how to make better decisions using probability as well. 

So my thought process is every time you introduce an element of chance, what you're doing is you're introducing a probability and probabilities are multiplicative when you are putting elements of chance together, so I'll give you an example, let's say that I have a two-step process. I want to go and pull money out of the ATM. And I'm mentioning this because this is something that I was trying to do earlier today and it didn't happen for me, but I'm trying to pull money out of the ATM. For this to happen for me. I need to be able to get a taxi to the ATM machine and let's say that there is a 50% chance that I will be able to get a taxi. And then once I'm at the ATM let's say that these ATMs run out of money really quickly. Which happens in Tulum, especially on Sundays. Let's say that the ATM runs out of money and there's a 50% chance that I actually might be able to pull out money. 

So there's a 50% chance that I can get a taxi and a 50% chance that I'll be able to pull out money from the ATM. So what percentage chance do I have actually getting money out of the ATM? So the way that you do this is you multiply those two probabilities. So you're multiplying .5 times .5, which gives you .25, which is a quarter. So you have a 25% probability of getting that cash out based on these two things; and the more you start introducing elements of chance, the more probabilities are multiplying together, which means that expected outcome that you're hoping to get, well the chance of getting that outcome, will start decreasing. 

So if you want to increase your confidence in an outcome, what do you do? What you do is you try to simplify the process is as much as possible and you try to eliminate elements of chance. The more areas where you can eliminate areas of chance, the more confident you can be in the final outcome so that it's kind of like two different takeaways that we got from this podcast. One we thought about how we can improve our decision making by thinking about all the different elements of chance and realizing that the more elements of chance that we introduce, the lower the probability is for our expected outcome. And at the same time if we're trying to build a process where we have high confidence in the output, then we want to eliminate areas of chance, elements of chance of that helps. This is Robin Copernicus. Boom, Bam. I'm out. 

Oh before I forget, I should probably add that the plans that my friend and I had that night, they actually did not pan out. There were way too many things that needed to get done and none of that got done and we were basically just waiting around for things to happen and nothing ended up happening. So that's how you use probabilistic decision-making to predict the future. Now. Boom. Bam, I'm Out. For real, for real.

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