Rational Expectations
W hen I was a doctoral student in economics at the Massachusetts Institute of Technology, a powerful theory known as rational expectations suggested that it was difficult to profit from widely anticipated, or predictable, events, since rational actors would already have taken the action necessary to arbitrage any such opportunities. When I become a student of management, I assumed that an extension of rational expectations would apply in business; that is, any straightforward profit-enhancing opportunity in competitive markets would already be exploited and hence unavailable at the margin. Well, thank goodness for me and the shareholders of Harrah’s Entertainment, Inc. that rational expectations is far from complete characterization of management behavior. In short, opportunities abound to employ simple analytic methods to marginally or substantially increase profitability, especially in large businesses such as mine where a single insight can ring the cash register literally thousands or millions of times. – Gary Loveman, Chairman of the Board, President and Chief Executive Officer, Harrah’s Entertainment I just wanted to share this passage as it’s written well and taken from the book, Competing on Analytics, The New Science of Winning by Harvard Business School Press (Thomas H. Davenport & Jeanne G. Harris). Expect more quotes from this book in the coming days/weeks as I finish it.
