Optimal stopping theory – how maths can help you maximise your decisions by Max Eskell
In life and business, there are many problems where the main issue is that there is a high number of available choices. In business, these could be finding deciding on a primary contractor, choosing a joint venture partner or even recruiting key individuals.
Optimal stopping theory possibly provides help. Briefly, optimal stopping theory suggests that you should reject the first 37% of all options, and then take the next option which was better than all previous options.
For example, if you have five weeks to choose a primary contractor. You could expect to see possibly four a week; that is an anticipated total of 20 suppliers. If you selected normally and selected the first ‘good enough’ option, the probability of finding the optimum supplier is just 5%. However, if you rejected the first 37% suppliers, in this case, 18 suppliers, and then selected the next supplier that was better than all the previous suppliers, then your odds of selecting the optimum supplier would increase to 40%.
You can now use this four-step formula to make better decisions:
- Take a realistic guess on how many options you want to consider
- Times that by 0.37
- Reject this number of options
- Then, accept the next option which is better than all previous options
While I would not recommend this approach for every decision, you could use optimal stopping theory to maximise your choice when you are faced with a problem where there is a high number of potential options.