Analyse this! An analysis of an analysis: Part – 1

In the previous post “Two tales: A buy and a no-buy”, we saw how amazed was I with my student’s complex & incredible spread-sheet that had a set of car 15 brands and for each brand a set of 15 features, e.g., mileage. Her idea was to use that evaluation sheet to choose a car.

Probably most of us would engage in such an analysis because it directly elevates the quality of the buy. We would engage so, if not so elaborately, at least briefly; and if not in a physical spread-sheet, at least in a mental one.

Such ‘spread sheet’ analysis, especially how well it is constructed and used, has a serious implication: it impacts an individual’s quality of decisions and thereby her/his quality of life. So let’s analyze the analysis!

Instead of the gigantic 15×15 table for a car-buy situation that my student produced, I have constructed a very simplified and hypothetical home buying task illustrated in table below.

Evaluations of objective information are subjective. For an individual a floor area of ‘1,200 sq ft’ may be ‘very small’ and ‘1400 sq ft’ ‘very large’. Similarly, a kilo meter away from office may be ‘very far’ may be  and ‘very near’ may be just two blocks away. That is, for e.g. five houses within a square kilometer zone, within 10% variation in floor area, price, etc. may result in the above table of analysis. The values in the table are subjective and on an imaginary (and personal) scale of 1 to 7, where 1 is the lowest value in terms of benefit and 7 the highest. Individuals will most likely not use such a scale but it has some utility to us in understanding how decisions are actually made.

We will now analyze how the quality of the decision may get impacted.

1. Larger the set of alternatives (in the above example there are five alternative houses), more difficult will the analysis of the spread-sheet be. The set of alternatives is a function of how good the memory is and how deep & wide will search for information be. I am told that a lazy person will rely more on memory.

The advent of search engines and portals may result in a large number of alternatives. For instance, lists as many as 25,000 new properties to be purchased in my city of residence, Chennai.

The type of problem being solved will also impact the number of alternatives considered; for e.g., in a home buying situation a person will want more alternatives than in a cold-beverage buying situation. In the latter case, it may just be repeating the last decision.

2. Analysis will be more difficult with larger number of features (in the above table they are “Floor Area”, “Location”, etc.). I just saw today a car advertisement that listed twenty eight features and called itself “fully loaded”. It included features such a “puddle light”, “remote key-less entry”, etc.

However, a person may list a few to several features for an alternative. The list depends upon a person’s ability to pay attention, learn, keep it in memory, etc. The list also depends on what is being bought.

3. A feature may be more or less important than another. For e.g., “location” may be more important than “floor area”. Possibly a person may have a couple of features that are most important. Large number of important features will render analysis difficult. In such cases, it may be difficult to decide upon a suitable alternative since there may be no alternative that match such strict criteria.

If there are too many important features, there may be too few weak features that can possibly be traded-off. It may also be emotionally difficult, e.g., if both price and quality are important, what will a person trade-off?

4. Each of the features has a potential pay-off to a person. The question is whether is person is clear about such pay-offs. For e.g., a person may be clear about whether a “Location” is near or not. But, one may not be so sure about “Quality of Construction”. Lack of clarity about the potential pay-offs hampers quality of decision.

5. Sometimes a person may not have much information about a feature; for e.g., what exactly is the quality of construction? In such cases, the feature runs the risk of being rated poorly or inaccurately.

A person may ignore information about several features. For instance, s/he may consider “Internal Design” to be the most important and ignore collecting or analyzing information about every other feature. In which case, alternative house 2 will be selected.

6. Sometimes an alternative will have features that are absent in other alternatives. For example, only one house may be in a high-raise building and the rest may be single-storey. More the non-comparable features, more difficult the analysis.

While we just saw how the construction of the spread sheet may impact the quality of decision making, it is also true that even if the spread-sheet was constructed exactly similarly, two individuals may decide very differently based on what decision strategies each adopts.

More of that in the next post

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