The Full Monty

 

The classic ‘Monty Hall Problem’ is one of the most debated paradoxes in recent years. It is a probability puzzle based on the American television game show ‘Let's Make a Deal’ that was originally hosted by Monty Hall. Here is how it goes,

If you are attempting this problem for the first time, there is a good chance you will get it wrong. The good news is you are not alone as there is a horde of great mathematicians and physicists that tripped over this veridical paradox as well. Most people will think that it is a 50-50 chance and it does not make any difference to switch. The correct answer is you should always go for a switch as it will give you a higher probability (66.7%) of winning the car. For those who are not convinced, you may read up the solutions given in Wikipedia or watch this clip in YouTube that explains it clearly.

There are two interesting observations from the Monty Hall Problem that provide us insights on how people handle risk in decision making. A good understanding on the factors underlying all these may help to improve risk management in projects. Let’s start by first defining what risk is. In general, risk can be defined as a future event with a probability of occurrence and a potential impact on our environment (or project) that results from the consequences of our actions. In other words, there are two key factors to consider when we analyze risk – occurrence and impact (there are other factors but we will leave them out for now). The key question in Monty Hall Problem is simple – switch or stay? The impact involves is straight forward and is an extreme case of all (car) or nothing (no car). The tricky part is on the occurrence and this is what those debates are all about.

The first observation from Monty Hall Problem shows that when people are under immense pressure with little time to think, just like those in live shows, they will tend to follow their hearts and make hasty decisions based on emotional intuition. This was what actually happened in the game show for most of the participants. They had skipped the process of thinking and jumped straight into conclusion based on guts feel. If they had done some basic probability calculations, they would have gotten a better chance to win the car. However, given the situation in the game show, it is not surprising that most people had gone for the hunch. What we may learn here for project management is we should rely more on objective statistical estimation than natural instinct when we analyze risk. In addition, we should always conduct risk identification, analysis and assessment earlier so that we have sufficient time to plan and prepare ahead of time instead of reacting to the situation.

The second observation suggests that even if we are given enough time to do a proper probability calculation we might still get it wrong if the information we have is insufficient or the way we perceive the problem is incorrect. Many people had attempted the Monty Hall Problem and read the solution given, but still unable to accept the reasoning behind it despite that there is a host of strong supporting mathematical proofs. They are those who got stuck with the 50-50 chance argument and failed to perceive the problem from another angle. When we conduct risk analysis and assessment in projects, we have to be extremely careful that we base our analysis and assessment on the right information through the right perspective. A way to make this more effective is to have the risk analysis and assessment done with a group of people represented by different stakeholders instead of a single person. This will help to reduce errors that are due to lack of information, biases and differences in perception.

One last thing to take note – even with proper risk analysis and assessment, there is no guarantee that the decision we make will turn out good. In other words, we can only manage risks but not always possible to eliminate them completely. How are you conducting your risk analysis and assessment?