Thinking Analytically

Ian Ayres, author of Super Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart has an interesting post at the Freakonomics blog.  In response to Tiger’s dramatic win at the U.S. Open, Ayres wonders why we don’t see more probability analysis of sinking a put from certain distances by certain players.  We seem to be obsessed with statistical minutia in other sports but golf is relatively untouched.  Granted there may be a few more variables in putting such as the cut of the green, location of the ball, direction of role, etc. but it would be fun to make some predictions.  Better yet, how about a hypothesis or two?

For instance and for my own game…

• Do I have a better shot at sinking a mid-range put than a short put because I feel I have less at stake so I relax more on the longer put?
• Does the number of stokes taken to get to the green have a bearing on the probability of making certains puts?  Do I relax more when I’ve already blown the hole versus when I have a shot at an eagle?
• What’s the relationship between warm up time on the practice green to puts made on the real greens?

What do you think?

On the Freakonmics blog, Justin Wolfers discusses some of the progress made related to the adoption of prediction markets in the US. Like many innovative ideas, progress can be stalled through legal hurdles. Wolfers’ asks:

Are prediction markets legitimate business tools, an alternative set of securities markets requiring SEC regulation, illegal betting markets, allowable games of skill, or something else altogether?

That’s a meaty question if there ever was one. Wolfers’ goes on to describe actions taken by the Commodity Futures Trading Commission to help sort it out including determining whether or not the markets fall into their jurisdiction.

This is a bit of an experimental post. I have been mind mapping How to Measure Anything: Finding the Value of “Intangibles” in Business while reading the book. I use FreeMind because it is free and easy to use. While trying to find a way to publish my mind maps to the web (eventually to http://wikibooknotes.org) I found MindMeister.com which allows editing maps online by multiple people. I signed up for a free account, uploaded the FreeMind file, and clicked share. Now I can embed this map into my blog. Try repositioning the map by dragging within it’s window. Expand and contract nodes by clicking.

If you’d like to try editing the map, leave a comment for this blog post with your email address and I’ll send you an invitation. (Your address will not appear in the post.)

Here goes…

See How to Measure Anything for a direct link to the map or click the map above.

BusinessWeek published an interesting interview with Jeff Bezos, founder of Amazon.com. As a big Amazon.com customer/fan, I’m intrigued by his thoughts on innovation. Here are a few tid-bits:

• There’s no bad time to innovate.
• Frugality drives innovation. One of the only ways to get out of a tight box is to invent your way out.
• You have to be willing to be misunderstood if you’re going to innovate.
• Skills-focused companies focus on what they can do which puts a finite lifetime on a company. A more stable strategy is to start with “what do my customers need?”
• You know that when your harshest critics are among your best customers, you can’t be doing that badly.

He includes examples of innovation at Amazon.com such as the Kindle e-book reader. Which, by the way, is on my wish list. I’d love to review one for you but first I’d need to get one in my own hands. Check it out at Kindle: Amazon’s New Wireless Reading Device.

The Freakonmics blog has teamed up with Predictify to offer a prediction market for their readers. Using Freakonmics-related freebies as incentives, participants weigh in with their own predictions and see how they stack up compared to other predictions and eventually, reality. Find the center here.

Guest poster, Justin Wolfers, said a few words recently on the Freakonmics blog about prediction markets at Google.  I found the linked Googleblog post, “Putting crowd wisdom to work” quite interesting as it described how Google was “walking their own mission talk”…

At Google, we’re constantly trying to find new ways to organize the world’s information, including information relevant to our business.

This article describes how Google uses prediction markets to forcast product launch dates and other important strategic events.  What struck me about the more recent Freakonomics post, however, is that the question changed:

So we decided to move beyond asking, “Do prediction markets work?” and instead use them as a tool for better understanding how information flows within a (very cool) corporation. Information is terrific to theorize about, but hard to measure. That’s where the prediction market is useful: if you and I trade similarly on a market, then we can infer that you share similar information.

Yes!  It’s all in the asking the right questions.  How often have we improved our understanding of a system or event, just by asking the questions from a different perspective?

I enjoyed Tom Davenport’s (author of Competing on Analytics) recent predictions on prediction markets in his Next Big Thing blog at Harvard Business Press.

Predictably, he asks if prediction markets are “the next big thing.”  (Ok, enough with the prediction puns.)

Here are his observations regarding culture and markets:

For a company culture to value prediction markets, its culture would need to have certain (rare) attributes:

• Confidence that executives have valuable roles to play even if they don’t always have the right answer;
• A high level of trust in the intelligence and capabilities of employees;
• The willingness to follow numbers and analysis wherever they lead (as long as they are more-or-less consistent with common sense);
• A pretty strong analytical and financial orientation (since futures markets aren’t something that every Joe or Jane understands).

If you catch his post, be sure to check out the discussion that follows.

This month, McKinsey Quarterly published eight technology-enabled trends they feel will help shape businesses and the economy. Trend seven is near and dear to my heart – or should I say head? Putting more science into management falls under the heading of leveraging information in new ways. The authors explore some of analytical topics that are all the buzz in recent best sellers: “ideagoras”, customer segmentation, experimentation, prediction markets and recommendation engines.

Leaders should get out ahead of this trend to ensure that information makes organizations more rather than less effective. Information is often power; broadening access and increasing transparency will inevitably influence organizational politics and power structures. Environments that celebrate making choices on a factual basis must beware of analysis paralysis.

The close by suggesting the following books:

• Thomas H. Davenport and Jeanne G. Harris, Competing on Analytics: The New Science of Winning, Boston: Harvard Business School Press, 2007. (see my entry on wikiBookNotes.org)
• John Riedl and Joseph Konstan with Eric Vrooman, Word of Mouse: The Marketing Power of Collaborative Filtering, New York: Warner Books, 2002.
• Stefan H. Thomke, Experimentation Matters: Unlocking the Potential of New Technologies for Innovation, Boston: Harvard Business School Press, 2003.
• David Weinberger, Everything Is Miscellaneous: The Power of the New Digital Disorder, New York: Times Books, 2007.

I’ve only read the first.  I’m interested in any reviews of the others.

You know you are a analytical, statistical or economic geek when you analyze the probabilities related to the game Monopoly! See these sites for related articles and tips. Freakonomics blog, fool proof strategy, and probabilities related to the game.

Don’t have the game? You should!

A few years ago Barry Nalebuff and Ian Ayres published Why Not?: How to Use Everyday Ingenuity to Solve Problems Big And Small. The book challenged everyday folk to use everyday ingenuity to solve problems. This innovation primer outlined a simple framework for generating solutions to existing problems and applying existing solutions to new problems. I recently stumbled upon the Why Not web-site. Checkout the idea exchange. Here visitors are encouraged to post great ideas while other visitors vote on their favorites. Most of the traffic is from 2003 (the year the book was published.) It is amazing to see why items were merely “ideas” back then but have now been implemented. Here are a few of my favorites.

• Audio-in jacks in cars – I’ve been asking for this for probably 10 years. It is now a reality.
• Dashboard Tire Pressure Gauge – Done. My wife’s Caliber has it.
• Chip bags with a Zip Lock top – This is such an obvious idea, why are we just starting to see a few of them?
• Fridge door open alert- The Maytag we bought last year has this one!

I’d add to the list an MP3 podcast/audio book player that can book mark and annotate files on the fly (see post on 10/26/07 ). What would you add?

(cross-posted on Random Thoughts)