I don’t portray myself to be either a statistician or an actuary but I do have the (mis)fortune of having some idea about how probabilities and odds work and often in risk management you have to evaluate the likelihood of things happening. In our everyday lives and business we often fabricate decisions to treat risks when we really don’t know the probabilities associated with the risks nor have a mechanism for measuring them; we pull subjective values out of the air (read: arse) and we do a pretty terrible job at it.
Against this backdrop, it’s fun to watch how excited people get when they buy a lottery ticket or games of chance even though they are unaware of the odds of winning. I am part of a group of folks who buys weekly tickets in the office and while it’s nice to dream about winning, I don’t really expect to win. Here are some examples why:
- For $2.50 I have a 1-in-29 million shot at $50 million in Lotto Max.
- For $2.00 I have a 1-in-14 million shot at $7 million in the 6/49.
- For $100 I have 1-in-10 chance at winning a $2 million house or a barbecue in the Princesss Margaret Hospital Lottery.
- For the price of a cup of coffee, I have a 1-in-7 million shot at a Toyota Matrix or 1-in-6 shot at winning a doughnut or cup of coffee in Tim Hortons’s ubiquitous Roll Up the Rim contest.
My cousin recently portrayed me as Dr Doom for suggesting that because he won 2 free coffees with the first two cups he bought at Tim Hortons (likelihood 1/6 * 1/6 = 1/36), he was pretty unlikely to win again – on average – until he bought 15 more losing cups of coffee. (It’s not me but the odds talking.)
The way I see it, in our everyday lives we pay for the chance to win without really understanding the probabilities and similarly we spend resources (time and money) on projects to treat risks in our organizations without having a mechanism for knowing if that’s the “riskiest thing” we are fixing relative to all the other risks in our organizations.