Facts matter but a collection of facts rarely tells a simple story. It is not as though any one analyst can look at the Toronto residential market and say that “the price bubble that will end on Thursday and will be followed by 3 years of decline”. Previous posts have noted that the not all data sources are equally important nor are they perfectly precise. Both of these reasons explain why good analysts attach weights to facts to measure their importance.
Thinking about the weight which should be attached to each fact helps when making decisions because there will be evidence both for and against a decision. Regardless of what the decision is.
Most decisions need to balance the effects on costs and revenue. Facts are used to measure which is high and which is low. For example, is the cost of building high or low? How many serious consumers are out there? Is the cost of adding an extra floor more or less than the willingness to pay by consumers? Knowing the cost of building specifically is not enough to make a good decision. Knowing what customers are willing to pay is not enough to make a good decision. The facts need to be combined and weighted.
It is possible to make a Yes/No decision by starting with a piece of paper, to write “Pro” and “Con” at the top, to list facts in one or other column and to make a decision based on whichever column is longer. But doing so would be silly. In other words, some points on a list are more important than others: the weights differ.
(Plus, if doing the analysis carefully, some facts should not fit neatly into either the Pro or Con column. And, to emphasize something noted in a recent post, some facts are Interesting because they are surprising or point to an unresolved question.)
These ideas are profoundly confusing to some people who do not think in terms of weights. (Such people are not ready to understand that, sometimes, the correct decision is “Wait”, especially if a decision is irreversible or that, the decision is usually more vs. less rather than Yes vs. No.)
Decision making is hard, especially since reality seems to send confusing signals. Most decision makers say that “these facts are important” and “these facts are not important”. Sometimes, as when facts tell you about revenue or about costs, it is important to remember that the weights are based on some public school arithmetic: profit= revenue minus cost.