“Want Better Forecasting? Silence the Noise,” interview with Wharton’s Barbara Mellers and INSEAD’s Ville Satopӓӓ, in Knowledge@Wharton

“Unfortunately, in the real world we are not rational consumers of information. There are bound to be errors in our predictions. Statistically speaking, we like to separate errors into two different types. We have bias and we have noise. Bias is a systematic error. For instance, in this context of making predictions about political events, I might be making predictions that are systematically too high. That is, I systematically predict too high probabilities for the events to occur. This means that I have a positive bias. Similarly, my predictions could be systematically too low. Then I have a negative bias. The key here is to understand that bias is systematic. Because of that, we should be able to predict the direction and magnitude of bias in the forecaster’s next prediction.

“Noise is a very different type of creature. It is not systematic. In fact, it is an error that randomly increases or decreases my predictions. For instance, one of my predictions may become randomly too high. For another event, it might suddenly become too low. The idea here is that no matter how much we know about the forecaster, it is impossible for us to predict the exact direction and magnitude of noise. This also introduces variability in the predictions. This variability is not based on any actual relevant information about the outcome. Therefore, it is not useful and does not correlate with the outcome.”

Why does this matter to the future of learning?

Heads of School, Boards of Trustees, and strategic planning teams all need to understand that their forecasts about their school’s future varies because of three factors:

• Noise = 50% of variability

• Information quality = 25%

• Bias = 25%

One way to reduce noise? Diverse, inclusive teams that demonstrate psychological safety.

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Tweet by Jon Boeckenstedt

“38, or 2.4% of all private institutions, enrolling 6.56% of all undergrads and 8% of all freshmen, and controlling 57.62% of all endowment assets, had admit rates of 15% or less in 2018. (IPEDS data, which is not exact, but close).”

Why does this matter to the future of learning?

38 colleges out of 1583.

2.4%.

That’s how few school control 57% of endowment assets and nearly 100% of the public’s mindshare when it comes to talking about higher education.

When schools create artificial scarcity to burnish their brands, they are gaming the system.

And when someone tries to game the system for their own benefit, it usually means that there are significant opportunities for those willing to look for real value in hidden places.

What if you didn’t need to pay $70,000 a year to attend one of those 38 colleges and earn a diploma from a well known brand?

What if you could do just as well spending half as much (or less) going to a lesser known college (and let’s face it, 97.6% of colleges are “lesser known”).

For those who seek status, the good news is that most people won’t get into the schools you care about.

For those who seek results, the good news is that an abundance of lesser-branded colleges can provide the high quality education a motivated students seeks. And you might just save money in the process.

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Question of the week:

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