Have you ever made a bad decision? One that cost you more than you would like to remember? Something as simple as a graph could have saved you from the frustration and pain!
Most business owners use some type of forecasting model to help them make decisions that will affect the future of their business. Too often, they rely on static financial statements and statistical averages to guide their way and as a result miss out on opportunities to grow their business. Or worse, they fail to see roadblocks that negatively impact their bottom line and hinder their capacity to sustain in a competitive marketplace. So the question is, which forecasting model provides business owners an accurate picture of the future to help them make confident business decisions?
The answer lies in the human brain and how it processes and understands probabilistic data. According to a recent Harvard Business Review Blog by Justin Fox, there is empirical proof that “we tend to understand probabilistic information better when it is presented in visual form than if we’re just shown the numbers.” Fox came to this conclusion after reviewing Emre Soyer, Ph.D in economics and decision making at the Universitat Pompeu Fabra in Barcelona, and his professor Robin Hogarth’s paper, “The illusion of predictability: How regression statistics mislead experts.”
Here is a breakdown of Soyer and Hogarth’s study:
- 257 economists were presented with a regression analysis that related independent variable X to dependent variable Y
- The economists had to answer questions about the probabilities of various outcomes
- When the results were presented as numerical averages the economists did a poor job of answering the questions
- When the results were presented as numerical results and scatter graphs of the same data they did slightly better
- When the results were shown only in graphs they got most of the answers right.
So, what does this tell us? Even the experts need graphs! And, a picture really is worth 10,000 numbers. Our brains are much better at predicting relationships between variables when data is presented in graphs.
We didn’t need this study to know that graphs are the way to go. But, it’s nice to have a recent academic reference to support our approach. Prosperity INC fosters growth in businesses and one of our tools for success is to display data in graphical format to help business owners make confident and accurate decisions. If you would like to see your business in a new light please call us today to learn more about Prosperity INC.