Everyday we are confronted with both problems and opportunities, from quite mundane to complex, but decisions still need to be made.  How do we make these decisions?  Sometimes it is to defer until more information is to hand, perhaps think smarter, or even go with 'decisions under uncertainty' (or guess and hope as some describe it).

Some useful information is in the three economics texts from Levitt and Dubner: Freakonomics, Super Freakonomics, and Think Like a Freak.  Wait!  You don't have to be turned on by economics to get value from these authors.

There are 4 key ideas which drive much of their work, and you can apply these to the daily problems and challenges of business.

1. Incentives

A cornerstone of motivation of modern life, so an understanding of what incentives are present are the key.  We need to understand our own too because when we do we can understand what might not at first seem logical.  Levitt found many US street gangs did not attract members for the easy money from drugs, but for the belonging to a group.

2. Measure what Matters

Knowing what to measure and how to measure it can make the complicated less so.  Many measure what's easy to obtain (eg., sales) but what may be more important is what matters to customers (on time supply or accessing a guarantee).  Yes, we have to measure what is important to operations but we also need to know what matters to customers.  We need to know the sales trend over several years, but we really need to know how many leads there are, conversions to sales, transactions etc., as these are the foundation for making sales.

3. Conventional Wisdom is Often Wrong

Group think or following the herd may seem safe, but conventional thinking mostly leads to conventional, even ordinary, results.  Real success comes from looking at things from a different angle but also understanding the risks of that approach.  Look at Apple, it challenges the status quo in every product it makes.

4. Correlation does not mean Causation

Sometimes things happen together or progress at the same time, but it does not necessarily mean one causes the other.  Look for the real causes for insight and opportunity.  There is a story (perhaps now urban myth) that a statistics student found a link between the number of words in Papal Encyclicals and the number of people using ferries on Sydney Harbour for several years in the future.

Better decisions can be made with these four simple concepts.  Sorry for the journey into philosophy, but I hope it may be useful.