Probabilistic Thinking & Local Economic Development
One of the things I try to encourage in all students and develop in all my classes is an appreciation for probability. The inclusion of this is obvious in a statistics class, but it is something vital for understanding the world around us, particularly when it comes to economic and business policy. For those that listened to my show with JT at the end of September much of this may seem repetitious, but it is important enough that it bears repeating.
Of course only two things in life are certain, death and taxes. Well, in this election cycle, who even knows about those. Until you reach death however, the probability surrounding the event is variable. Every day you undertake activities that could, and in some situations may, lead to death. Driving a car, riding an elevator, taking a bath, and so on. Pretty much no matter what you do, or don’t do, there is a chance you will die. (Dismal scientist, right here) Before this becomes a plug for a Final Destination movie lets consider the broader approach.
Thinking in a probabilistic fashion simply means seeing various options, and weighing likely outcomes. If you played cards and evaluated the likelihood of winning a hand based on your cards, you were thinking probabilistically. If you watched a baseball game and looked at the options facing the hitter given the different strengths of the pitcher, you were thinking in a probabilistic fashion. Truly understanding the possibility of different outcomes is a very powerful tool.
Side political rant: this type of thinking is almost never encouraged by elected officials. In order to convince you of their credentials they tell you that policy is easy and that a straight line can be drawn from A to C, never considering whether or not it is necessary to go through B. How do you think that makes B feel? I mean really. B got up with the rest of the alphabet and was there on time but here comes the politician and totally leaves B out. End rant (For now).
Let’s pivot to the realm of economic policy. At the local level economic policy often focuses on incentives for business location, housing policy, tax policy, and maybe a few other items. I have no studies to back this up, but this is what callers to the Jarrod Thomas Show ask me about with the highest frequency. Just like an individual stock investment, an economic development undertaking has a host of different possible outcomes with a probability attached to each one of them. At some level, it really should be the case the policy maker provides a frank assessment of these probabilities and what can be done to maximize the positive outcomes. It is really difficult to talk about changing the probability distribution instead of changing the outcome due to tax changes. I’ve seen the eyes glaze over of students and the general public when I am giving a talk.
I know it is an easier sell (or oversell) to suggest the upside outcomes are the only possible outcomes, but it is a significant disservice to the public to not give the entire picture and explain what the city, county, or state face in terms of possible outcomes. In my world this necessitates a discussion of probabilities and how different outcomes might actually come to pass, and that what seems to be missing in the discussions of economic development at the local level.