How to Measure Anything: Finding the Value of Intangibles in Business

By Douglas W Hubbard (2014)

I have heard managers say that since each new product is unique, they cannot extrapolate from historical data… therefore, they have to rely on their experience. Note that this is said with no hint of irony.

My Notes

Define the decision which measurements aim to influence.

Value of information.


When we decompose a decision this way we get new insights. First, you find that there are several other important variables that pertain to the judgment. You might find that there are a lot of other things to measure besides what you first thought you needed to measure, and that one of these new variables is the most important measurement of all… Second, it turns out that merely decomposing highly uncertain estimates provides a huge improvement to estimates.

Examples of low-value measurements:

Examples of high-value measurements:

Confidence intervals to express uncertainty: e.g., 80-85% (low uncertainty), 50-80% (higher).

Monte Carlo simulations for calculations with confidence intervals.

Our intuitions about sampling are way off.

Rule of five. Poll a sample of five, and the median of the complete population will be in the range of the five values with 93.75% probability (no matter the population size).

Single sample majority rule, with values being equally likely (uniform distribution),

If you randomly select one sample out of a large population, even a population that numbers the thousands or millions, where you initially believed the population proportion can be anything between 0% and 100%, there is a 75% chance that the characteristic you observe in that sample is the same as the majority.

Types of measurement (Stanley Smith Stevens, psychologist),

The more homogeneous the population, the fewer samples needed.


Examples where statistical prediction was shown to outperform experts (Paul Meehl and Robyn Dawes),

From worst to best: