Monday, November 2, 2009

Pay more attention to the statistics!

My personal hero, Scott Shane, crunches the numbers and advises entrepreneurs that, given the choice, you should start your business in a favorable industry that you know well.

Allegedly a response was tweeted: "...pick the sector you love and go for it and (don't) worry about the stats."

Who is right? Certainly there are advantages to liking the sector you're working in. But "don't worry about the stats?" Sorry, but it part of a rationalist's duty to concern himself with the stats, and with the Base Rate Fallacy.

The Base Rate Fallacy: People tend to under-utilize, or even ignore, statistical base-rate information in favor of other data. For example, if given a random individual's personality traits and asked whether they are more likely to be an engineer or a lawyer, people over-rate the relevance of the description and under-rate the relevance of what percentage of the population decides to become an engineer, vs. what percentage of the population decides to become a lawyer.

Relevant statistics should be vetted and verified, but they should not be ignored. Our ancestors didn't have access to statistics at the click of a mouse, so I don't find it surprising that modern man is slow to take advantage of the improved decisions that statistics can help us make. Take the extra effort to think through your decisions, and don't ignore inconvenient statistics.