Business model innovation requires high-quality decision making. Sometimes, it is very challenging to apply the often counter-intuitive techniques to everyday decisions. Here’s a personal story meant to highlight the application of a different way of thinking in an everyday context:
One of the interesting facts about explicit decision making techniques is they can be applied in everyday life, even though it seems difficult sometimes. Our last several blog entries have focused on EAST 2014 and its conference in Naples, Florida. Interestingly EAST 2014 had more than just lessons to teach from the podium during the conference. For example, on my way back from the conference, I flew home on Spirit Airlines. Spirit Airlines has a different restriction on bag sizes etc. and looks to charge you for different bag sizes. Spirit has some useful bag sizing techniques for you to size your bag appropriately prior to attempting to board the plane. If your bag is oversized they look to charge you for bringing the bag on the plane. $50 for smaller bags.
I had flown down to Naples on Spirit Airlines with the same bag with which I was flying back. Importantly, my bag had fit in the sizer at the airport on the way down. I knew that it would do so again as it was not overstuffed, it was actually smaller than it had been on the way down. In checked in online and went to a kiosk to print my boarding pass because the printer where I was staying did not work.
The woman looked at my bag and said “You will need to pay $50 for your bag.” I explained that the bag had fit in the sizer and had done so on the way down as well. This bag was to be considered my carry-on and could fly for free. The woman said to me that the bag could not extend above the sizer at all, which was not clear from the signage either at the Orlando Airport or at the airport from which I had flown. It fit in the sizer but was slightly taller than the cage style sizer they had available. It was approximately an inch or two. I explained nicely to the woman that the bag had fit on the way up and had fit in the overhead compartment on the jet, had fit in the sizer, and I had not been charged or even questioned on the way down. The woman then gave me a puzzle without realizing it: she said that the bag would be $50 there or $100 if there was an issue at the gate. I then considered the different ways in which the scenario could go.
Consider a decision tree, similar to the decision trees we have had on the blog before in other entries. This has become my habit over time and I wanted to use this tongue in cheek example to demonstrate how this can be useful in everyday life. The question was, at that time, do I pay $50 for the bag at this kiosk or do I take a chance and bring the bag to the gate where it may cost $100? I envisioned the situation as a decision tree. The expected payoff was listed and the rough probabilities to my estimation where included.
From my experience of flying with Spirit (no data available on this so I had to use probability estimates) and out of the MCO Airport let me know that the gate was sparsely manned, often overwrought with people, and that the staff were unlikely to give me any issues even if I tried to carry an elephant on the plane. So with the decision tree in mind the expected utility was best for me to thank the woman and tell her I would bring my bag with me. I thanked her and left. My expected utility from the branch “take your chances at the gate” was higher overall.
Sure enough, at the gate 30 minutes later, the situation was as expected: the gate was overwrought with passengers, and no one paid attention to many of the bags that were much larger than mine which were being brought onboard. And even though only zones 1 and eventually 2 were being called, passengers from zones 3 and 4 boarded right from the beginning and sort of crashed the gate en masse.
The lesson here: Decision making techniques like the decision tree can be useful in everyday life. I don’t tell you this story to tell you how I was right or claim victory. I tell you this because the woman at the kiosk had used some powerful techniques to cajole me into paying $50 for a bag which was unlikely to be a problem. She used such techniques as anticipated loss to attempt to get me to pay for a bag which was likely, in fact, to make it through the gate situation. Anticipated loss is a powerful psychological technique where the anticipation of loss in the future is used as a strong motivator to get us to do something now. The idea that it will be ‘worse in the future’ can be used as a motivator even when this is statistically unlikely.
From this and many other experiences I recommend a moment to think through different decisions with conditional probability. Yes I may have had to shell out $100 at the gate if we ran the scenario over and over again. In fact, if we had a computer run the scenario hundreds of times there would be some instances where I was out $100. However, based on the statistics involved and experience it was exceedingly unlikely that this was going to happen in this particular scenario. I invite you to use techniques like this in your everyday life for such things as purchasing insurance from Best Buy for new electronics etc. These techniques are especially useful when you are deciding whether to invest in a company, the market, or making decisions with your innovative business model.
Questions or comments? Please feel free to give your thoughts beneath. Do you have any instances where rigorous thinking helped you avoid unnecessary expense or issue? I would love to hear them.