Episode #9: Naked Statistics – How to Think Like a Venture Capitalist and Why You Should Cancel Almost All Your Insurance

Episode Notes:

  • Hey there, I’m Matt Clark and welcome to the “100 Books a Year” podcast
  • In this episode we’re going to discuss the book “Naked Statistics” by Charles Sheelan.
  • If you haven’t done it yet, please subscribe to the 100 Books a Year podcast on iTunes or Stitcher to get all the episodes for free.
  • This book, as the title says, is all about statistics.
  • The reason I wanted to read this is that the further we get along with Amazing.com, the more data we’re capturing. 
  • Just like a Netflix or Amazon, we need to use this data to make our platform better for our members.
  • When someone joins, we want to show them the absolute BEST course recommendation possible.
  • But sorting through all this data and deciding what to do with it isn’t easy.
  • You probably have a lot of data sitting in your business that you aren’t using. It could be data inside Google Analytics, your shopping cart, or even on a platform like Amazon or iTunes.
  • And, even outside of business, there are a lot of statistics thrown around and if you don’t know what you’re doing, you can be horribly mislead even by people telling the truth and just using statistics to tell a misleading story.
  • Example – Someone makes the claim that globalization has made income inequality worse
      • This means that we should pull back on globalization!
      • But not so fast…
      • The issue here is the unit of measurement
      • If you measure the income in the most prosperous countries (say the United States) versus the income in the poorest countries (Mauritius – population of 1.3 million), then yes, that difference has widen.
      • However, as the book says, we don’t care about poor countries, we car about poor people.
      • China and India are massive countries with over a billion each. As a result of globalization, their countries – and millions of people living in each – now enjoy more wealth and a higher standard of living.
      • More people now are better off, even if the difference in some countries has widened.
    • Example – not adjusting for inflation
      • Top 3 highest grossing films of all time? 1. Avatar (2009), 2. Titanic (1997), 3 The Dark Knight (2008)
      • Adjust for ticket prices (back in 1939 was about $0.50)
      • top 3: 1. Gone with the Wind (1939), 2. Star Wars Episode 4 (1977), 3. The Sound of Music (1965)
    • One way to make growth look explosive is to use percentage change over some small starting amount
        • For example, your sales: Start with $100, increase sales by $200, that’s a 200% growth!
    • How Netflix determines what movies to recommend to you
    • Productivity by calculating expected value (probability x expected payout)
        • Also, swinging for the fences vs. playing it safe = swinging for the fences is better if you can handle the risk
        • If expected payoff in your favor, more trials are always better.
            • 10% probability x $1 million payout = $100,000
            • Your cost = $20,000
            • Do this A LOT and you’ll come out ahead
        • Venture Capital = more bets = more chance of winning
    • Insurance – only protect against catastrophic risk, cancel all the rest
    • Don’t be fooled by statistics and, when possible, use it to your advantage.
    • The book “Naked Statistics” is a great place to start learning more.

Closing

  • If you got value from this episode and know someone else that would get value from it too, please share it with them.
  • Thanks for listening to the 100 Books a Year podcast. I’ll see you next time!

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