All decisions are about probabilities.

For me, probabilistic thinking has long been a highly conscious process. I imagine the mind as a virtual legal pad, with the factors involved in a decision gathered, weighed, and totaled up.

To describe probabilistic thinking this way does not, however, mean that it can be reduced to a mathematical formula, with the best decision jumping automatically off a legal pad. Sound decisions are based on identifying relevant variables and attaching probabilities to each of them. That’s an analytic process but also involves subjective judgements...

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The tool used for probabilistic thinking is decision tree analysis. Consider the following worked example:

A company that wishes to conduct a 10,000 piece test marketing campaign and must decide between mail and email. The company obtains pricing from its vendor for both options - $4,000 for mail campaign and $1,500 for email.

The company then asks its vendor what the average, best case and worst case orders would be in each case.

The vendor is confident of its mail figures due to a large body of prior experience and the nature of delivery (physical address); and therefore informs the company that the average rate is 3%, best case would be 8% and worst case 0.25%.

The vendor feels that email is much more unpredictable due to spam filters and the quality of the email list; and therefore informs the company that the average order rate is 1%, best case would be 10% and worst case 0.25%.

Now the company has a better idea of the possible outcomes in each case. So finally it must judge just how likely each outcome will be. Based on its conversations with the vendor, it judges the chance of each outcome as per the figure shown...

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In 'Take The Risk', Dr. Ben Carson illustrates his approach to probabilistic thinking:

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