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The Great Ideas Letter Forum
Expectation Values
Posted By: Michael Ross In Response To: How to choose between different business projects... (Dien Rice)
Date: Thursday, 13 January 2005, at 2:42 p.m.
Dien,
Thanks for sharing the "expectation value" method.
Personally, I couldn't be bothered with that. Because any number I come up with would be pure guesswork and have no basis in reality.
What is the expactation I will make $500, $1,000, $2,000, or $4,000 a month, from running a small 3 line classified ad advertising shoe polishing?
Personally, I would NOT expect to make even $100 from such an ad. But then again, I like to expect the worst, so I won't be disappointed by a bad result. But I also know, what I think about the viability of something means nothing and only spending that $80 ($20 per ad times four insertions so I have advertised for at least a month) will actually tell me anything.
But many people expect (hope) for magic beans. That such an ad will immediately bring them greater than full-time income.
As such, they would be more likely to expect $2,000 a month than $500 or $4,000. And be disappointed if the ad brings in $500. And will probably even stop running the ad (and thus throw away a $500 a month income, which could be built upon with repeat servicing) because it didn't achieve the results they expected.
How does a person attribute a percentage to an income level? I don't know that doing such a thing is possible. For the market cannot be predicted or even guessed at. It does things for reasons you cannot fathom.
One of my businesses can have a generated revenue difference from one month to the next of over $1,000 dollars.
It could be said that maybe the result is seasonal. But when I check records going back years, there is no seasonal pattern. One January might make $4,000 and another January might make $3,000. With the number of customers changing accordingly, and the change not being due to the value of each customer served.
There are projects in which I do expect to make $x. However, those are based on experience. Such as if one project makes $2,000 a month and up, then I expect to make at least $2,000 a month from that project. I don't know that I would put a percentage on it. But I do have expectations based on experience. Anything else, to me, is guesswork. And not really condusive to comparing apples to oranges. But that's my opinion. If you find it works for you, then so be it. We must find what works best for us.
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