One of the most important equations of your life...

Most people struggle with making rational decisions.They stay at the job they hate for too long, they miscalculate if it was better to take the train or bus to get home and  continue with bad relationships out of their inability to look at the situation from a unemotional, rational perspective. Many don't realize that there is a very simple, mathematical equation that can help them narrow down their efforts to achieve their wildest dreams in the most effective way possible. Think of the implications of such an equation. How often do you feel the pinch of time and not know what to decide? How often, after deciding, do you get the outcome you desired?

Think about...

How do you determine what the most logical decision is?

How do figure out whether it is better to go to Harvard for law or to Yale for a PH.D. in physics?

How can you mathematically determine if it's better to go to Duke for basketball on a full sports scholarship with the intention of going pro or if it's better for you to go to the University at Buffalo and not play basketball, with the goal of being an entrepreneur?

It's a tool, that if used correctly, can help you determine how you should spend your next 4 hours to get more business or to get a new job, which school will best help you land a job in engineering, hell- probably even which girl to marry or date based on past histroy!

Let' see this in action:

The scenario: Tanya needs to decide where she wants to go to college. She has 2 options. As a first option, she can go to Harvard to become a doctor or a poet. As a second option, she can spend only 1 year at Erie Community College in Buffalo, NY to become a successful business person or become a cop. She sees the benefits to both, but she doesn't know which option would give her the best future.

The Facts: Tanya has done extensive research to find out the various statistics of people pursuing both paths as well as the value of each outcome (in this case we are looking at it from a monetary perspective). She has discovered the following:

  • Harvard Option:
    • Med School:
      • There is a 1/5 chance that she would get accepted into Harvard med school.
      • If accepted into med school, there is a 90% chance she would become a doctor.
      • VALUE =  $10,000,000
    • Poet:
      • There is a 1/3 chance that she would get accepted into Harvard.
      • If accepted to  Harvard, there is a 100% chance she would get accepted into the poetry program.
      • VALUE = $0  (Poets make very little)
  • 1 year at Erie Community College (ECC)
    • Entrepreneur:
      • There is a 100% chance she will get into ECC
      • If accepted, there is a 57% chance she will become a successful entrepreneur
      • VALUE = $1,000,000
    • Cop:
      • There is a 50% chance she will become a cop
      • VALUE =  $100,000

Now how does Tanya determine which route is the best? She uses this equation. She takes the odds of winning and multiplies it times the benefit or cost.

[(ODDS of WINNING) x (BENEFIT or COST)]+[(ODDS of WINNING) x (BENEFIT or COST)] = Overall Value

For each option given above, there are 2 desired outcomes per choice, so she will use this equation two times per option (4 times in total). Then, she adds the sums of each option together to arrive at a numerical value for each choice (e.g. Harvard vs. ECC). Whichever number is greater in the end is the answer she should choose.

Let's solve Tanya's predicament from above:

Harvard Option:

[( 1/5 x 90% x 10,000,000)] + [(1/3 x 100% x $0)]

= $1,800,000 + $0

= $1.800,000

ECC Option:

[(100% x 57% x $1,000,000)] + [(50% x $100,000)]

=  $570,000 + $50,000

= $620,000

Results = $1,800,000 (Harvard Option) > $620,000 (ECC)

Therefore, the better option would be to pursue Harvard.

** It is important to note, however, that is not including the cost of attendance, joy and satisfaction or time required to achieve each goal for simplicity reasons. I want to show you the equation at its most basic form so that you understand the fundamentals.

Some Implications

Some paths are inherently riskier than others.

The more steps you need to undergo to obtain your desired outcome, the less likely it is to occur and  therefore the riskier it becomes. For example, if you wanted to become a a movie star and it required you to make the call back at x show, become the lead at x show, have the show sell out and seen by John Doe, this inherently makes the probability of your success smaller. Mathematically it makes the most sense.

The more "chances" (odds)  you have to beat, which show up as fractions in the equation, the higher the denominator is, which means your final answer  (value) will be smaller, because it now must be divided by a larger denominator.

For example: If the  math to being a movie star, using the steps needed from above are 1/5, 1/8 and 1/3, the math looks like:

1/5 x 1/8 x 1/3 = 1/120.

That means that your gain (the numerical value of the benefit) will be divided by 120.

Now, if that equation only had 2 sets of necessary steps, as opposed to 3, the math would look like:

1/5 x 1/8 = 1/40.

That means that your gain (the numerical value of the benefit) will be divided by 40.

Now, if the benefit prescribed to becoming a movie star equaled $100,000,000, you would now multiple that number times the fractions (which represent the chances of your goal happening) to reach your overall value.

If you had 3 steps:

100,000,000 x 1/120 = 833,333

versus

If you had 2 steps:

100,000,000 x 1/40 = 2.500,000

One step makes a difference of $1,666,667.

And, the lesser the probability of an individual chance from happening (e.g. 1/20 vs 1/200) is, the less valuable overall your outcome is as well.

The equation implies that the overall value prescribed must be large enough in relation to the cost, steps involved and chances of defeating the odds ro be worth your while. The fewer steps required and the better the probabilities of achieving your goal, the better your outcome will be assuming you've prescribed significant value to its success.

Think about this the next time you approach your next venture or the next time you make a plan that requires Oprah, the NBA or a music label's vote to get you in. Do the math (literally).

If applied correctly, this is a game-changer for sure.