How entrepreneurs estimate the probability of picking a red ball from a urn?

Stay with me on this till the end of this article.

Suppose you asked me the probability of picking a red ball from a urn that has 10 red balls and 10 green balls, I would say the answer is 1/2. I cannot say with certainty what the next pick will be but if you picked a ball enough times I can say 50% of those instances will be red balls (yes you return the ball after each pick).

But what if you brought a mystery urn (of unknown size) and didn’t reveal how many red and green balls are in the urn? Heck, what if there were lot more colors than just red and green? I would have no idea. My best approach would be to guess a number (using my gut feel or intuition) and say something like  1/1000.

But as someone too analytically bent I would find it hard to play this game. You didn’t tell me how many total balls, the different colors and whether the urn had a red ball or not. I cannot even apply Bayesian reasoning to refine my answer.

Entrepreneurial outcomes,  says Saras Sarasvathy, is like estimating chances of picking red balls from such a mystery urn. According to Sarasvathy entrepreneurial thinking is

Whatever the initial distribution of balls in the urn, I will continue to acquire red balls and put them in the urn. I will look for other people who own red balls and induce them to become partners and add to the red balls in the urn. As time goes by, there will be so many red balls in the urn that almost every draw will obtain one. On the other hand, if I and my acquaintances have only green balls, we will put them in the urn, and when there are enough, will create a new game where green balls win

It is hard not to imagine someone you know doing exactly this – hustling to find those with red balls to add to their urn (discover a few early adopters and build on them) or pivoting to redefine the game as picking green balls not red balls.

That is the clear distinction between the mind of an entrepreneur with irrational optimism and that of rational person. And I do not use rational and irrational to say one is better than other rather  use irrationality as equally positive trait as rationality (or rationality as equally negative trait as irrationality), like the way Dan Ariely did.

Rational people, there are many of us, refuse to play the guessing game of picking red balls from unknown mystery urns. But if picking red balls is important to significantly improve our lives, someone has to do it. However no single person can keep on trying with a single urn. And most run out of cash and time before they can add enough red balls to their urn.

That is why we need many many entrepreneurs with irrational optimism to keep picking balls from their own mystery urns. Most end up picking all kinds of different balls but a few will find urns and change it in such a way to always draw red balls.

Where do you fall?

 

One thought on “How entrepreneurs estimate the probability of picking a red ball from a urn?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s