Category: Decision Making

Decision Making

What Are the Reasons Small Businesses Need Financing?

Gregory Pearl

There are four main reasons Small Businesses need financing, and to take on debt. There are variances within these four reasons. But most of the time the reason can be put under one of these categories. The four main reasons are: 1) Starting a business.  Some types of businesses are more expensive to start than others. Service businesses that do not require specialized equipment are less capital-intensive than ones that do require such investment. 3) Expanding the business to capture new opportunities. Sometimes an opportunity will present itself and the businesses cannot take advantage of the situation without additional capital.…

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Decision Making

Do Professionals Think Like Hammers?

Gregory Pearl

How many times have you encountered a marketing professional that thinks all of business is nothing but marketing? Or the engineer that thinks that all you need to have a hit product is superior functionality or quality? Or the lawyer that considers nothing but litigation risk? Or the tax professional that recommends a company reorganizes in an operationally inefficient way because saving money on taxes is all that matters? An informal way of describing this is that when the only tool you have is a hammer,  every problem requires a nail. When perhaps a saw or wrench would be better.…

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Decision Making

Chance favors the Prepared Mind?

Gregory Pearl

“Chance favors the Prepared Mind” – Louis Pasteur We’ve all heard that saying but often do not know who originally said it. I think that saying is somewhat misleading. Taken out of context. The entire quote is actually quite different: “Where observation is concerned, chance favors the prepared mind.”  People have mostly heard only the last part of that quote. Be prepared and when luck presents an opportunity not only will you notice it, but be able to act on it. That misses the observation part. Observation is extremely important – without doing a good job of observing to recognize…

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Decision Making

Luck and U

Gregory Pearl

The relationship between our awareness of the roles of luck (chance) and skill yields a horseshoe. It’s a U curve. Assume there are different levels of skill at a task, profession, trade, or whatever. As a person progresses in their skill, their attitude towards luck and chance changes. It starts out where the beginner feels they have no impact on the outcome.  Next, after gaining skill the person may become overconfident and feel they are in command. Skill conquers all. Luck doesn’t play a role. The highest level of skill – mastery – is realizing that the more they learn…

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Alternative Investments, Decision Making

Streaks and Probability. Does the “Hot Hand” exist?

Gregory Pearl

In a previous post, I talked generally about the usefulness of gaming theory for business decision-making. The situation where a gaming sponsor – the casino – controls all aspects affecting the outcome. To the determinant of the ‘player.’ There are many mental traps decision-makers fall into that create bad decisions. A lack of understanding of probability and statistics is a big one. Let’s examine “streaks” and “hot hands”. Statistics students are taught about the normal distribution. Investopedia defines a normal distribution as “a probability distribution that is symmetric about the mean, showing that data near the mean are more frequent…

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Alternative Investments, Decision Making

Luck, Casino Gambling and Decision Making

Gregory Pearl

I’ve known a few people with gambling problems.  Some research indicates that 4% of active gamblers develop a problem. A gambling problem is never good.  Observing their gambling issues stimulated my interest in the psychology of gambling and how it affects those people. More interesting is how the same psychological traps that gamblers fall into also affect business decision-making in a broader sense.   There is a wider application than just the “controlled” setting of gambling games. Decision theorists have developed an entire field of study called Game Theory that, in part, looks at this.  Applying game situations and their related…

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Decision Making

Another Way To Decide If Debt is Worth It

Gregory Pearl

As Warren Buffet said, “the only way smart people go broke is through leverage”. But how smart people get to the point where they go broke is an interesting study in psychology. The trick is knowing how to balance off the risks and rewards. The most important factor to consider is that the amount of the debt needs to be less than the value of the reason why you took it on. Here is a consumer example: one individual took on a six-figure student loan debt to gain a professional credential in a low-paying niche healthcare field. The field is…

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