"What's the math that you do?"

Most of us want the perfect analysis to justify a decision.

The analysis that's "mathematically correct".

The long-to-build, complex model that gives the right answer

Yet, as I argued in this article, you'd often benefit from building a back-of-the-napkin model before going straight into a 16-tab excel model that's "more precise".

One of the reasons for this (though it's not the only one) is that other people (often senior people) use back-of-the-napkin math and other heuristics to make decisions all the time.

Today I want to go a bit deeper into this:

How others make decisions.

See, as useful as it is to know the "precisely correct math", sometimes it's even more useful to know how others make decisions (even if their logic is, as Dwight from The Office would say, "incorrect").

And here's why…

"What's the math that you do?"

This is one simple question that I learned early in my career that I find myself using over and over again.

Younger me couldn't care less about what kind of math other people did. I'd care about what's the "right" math to do.

Nowadays, I don't start most analyses without asking this question to multiple people on the field.

Usually, I get simple answers: a quick equation, a heuristic, a quick ratio.

There's usually a lot of wisdom in them.

But more importantly, I know what simplifications other people are making.

Here is how this can be useful besides knowing a quicker way to do the math:

• If you work in the financial markets, the "simplified math" other people make is often what moves the markets (and also where the opportunity lies).

• If you buy or sell things, knowing how the other side of the table makes sense of the transaction (and it's often not the "right math"), gets you leverage over those negotiations.

• If you do pricing, knowing how the buyer does the math lets you be much smarter about your pricing.

Knowing how others do the math (even if "it's wrong") gives you an edge both on not being naive on doing complex first-principle calculations and also on knowing how they operate so you can exploit unseen opportunities.

If you can combine that knowledge with (1) knowing the "right" math that should be done and (2) what other non-math things they take into account to make the decision, you become a force of nature in terms of decision making.

And it all starts with one simple question: "I'm curious… What's the math that you do?".

Keep working smarter.