A Business Fable
Once upon a time a boy went to business school. The boy was not sure he wanted to go into business, because what he most loved was writing stories about aliens and monsters and girls who did not love him back. But he knew he could not hope to earn a living from such stories, so business school it was.
The boy learned many interesting things, until he began to think perhaps business was for him after all. One day, he attended a class in which students were divided into groups and asked by the lecturer to solve the following puzzle:
“A man buys a horse for $400. He feeds it, trains it, and sells it to a racetrack manager for $500. However, soon he regrets his decision, and asks the racetrack manager if he can have the horse back. The racetrack manager, being a good capitalist, asks for $700. The man objects, seeing no reason why the horse should be worth so much more than the day before, but eventually he relents and accepts the loss. Some years later, he finally sells the horse to neighbor for $800. Question: What is his total profit or loss?”
The boy’s group began to discuss this puzzle. The boy thought the solution was fairly obvious: the man bought and sold the horse twice, making $100 profit each time. However, his teammates were seduced by the puzzle’s suggestion of a loss, and insisted this be accounted for. They thought the man broke even.
The boy tried to explain his reasoning a different way. He added up the man’s outlays and revenues, showing the difference was $200. The group agreed, but insisted this was then canceled out by the loss. The boy tried again. “Imagine it’s not the same horse,” he said. “The man buys and sells one horse, then buys and sells a second horse.” The debate became heated. There was no second horse, the group insisted. There was one horse, and the man broke even.
After a few minutes, the lecturer halted the exercise and asked each group for its verdict. Only unanimous decisions would be accepted. Every other group in the class declared their belief that the man broke even. The boy’s group hissed at him to bow to the majority opinion, but he could not bring himself to do it. They informed the lecturer that they could not agree.
The answer, said the lecturer, was that the man made $200 profit. However, the exercise was not about that. It was designed to test teamwork. He had observed most groups working effectively: establishing leadership roles, managing divergent opinion, and finding common ground to reach a shared solution. The boy’s team, however, was a textbook example of failure: it had allowed a disruptive element to block them from consensus. It was then that the boy decided business was probably not for him.
Comments
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Chris McBride (#1977)
Location: Belfast, N.Ireland
Quote: "Plagiarism saves thinking time"
Posted: 5116 days ago
Location: Spokane, Washington
Quote: "Corgis are like potato chips"
Posted: 5116 days ago
Stable + food + time.
The man surely lost out big time.
The boy, on the other hand, is win!
This post is another reason why I am an engineer instead of business.
Niccalo (#2313)
Location: Duluth, GA
Quote: ""STOP! Don't Shoot!""
Posted: 5116 days ago
I'm a poor engineer too.
Location: SF, CA
Quote: "Good sex is like good Bridge: if you don't have a good partner, you'd better have a good hand." -- Mae West"
Posted: 5116 days ago
But yeah, not buying the horse in the first place and putting the money in savings would make more money total. Get a cat instead. ^_^
Perrorist (#3640)
Location: Central Coast, NSW
Quote: "No flow, no go."
Posted: 5116 days ago
Sale of horse: $500 - Gross profit: $100.
Repurchase horse: $700 - Net loss: $600.
Resell Horse: $800 - Gross profit: $200.
Until I worked it out that way, I thought it would break even, too.
Joe (#2270)
Location: Campbell, CA, USA
Quote: "I'm subverting the system from the inside. I think."
Posted: 5116 days ago
Simon (#3192)
Location: Melbourne
Quote: "I'd rather be arrogant than wrong"
Posted: 5116 days ago
Posted: 5116 days ago
Additionally, one might consider additional factors like what Alan W, said, expenses, vet ... and profit!?
After all, if he raced the horse, did it win? Did he rent the horse to riders? Did he ride it to work and replace automobile expenses?, ..., probably the only expenses that would far surpass the cost of maintaining a horse. ( Ok, I might have gone too far with that one. )
I do use the elipsis too much, hehe.
Location: 127.0.0.1
Quote: "That's not change! That's more of the same!"
Posted: 5116 days ago
if the item in question was a block of steel, i'd agree with the $200 profit... seeing as steel doesn't need to eat.
Robert (#413)
Location: Los Angeles
Quote: "A positive attitude will not solve all your problems, but it will annoy enough people to make it worth the effort."
Posted: 5116 days ago
Ihor (#4349)
Location: Ukraine
Quote: "All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind Adam Smith"
Posted: 5116 days ago
That's what I got when I read this.
shabooty (#637)
Location: D.C./V.A/M.D.
Quote: "I will shake your foundation. I will shake the f**cking rafters. Nobody'll be the same -Danny Bonaduce ....& go visit my blog @: http://www.shabooty.com"
Posted: 5116 days ago
Location: Melbourne, Australia
Quote: "I'm my number one fan!"
Posted: 5116 days ago
Dave (#4589)
Posted: 5116 days ago
The failing was with me (and you, in your example). It's one of hardest parts of being smart and correct - convincing the wrong and stupid. If you (or I) couldn't get the true answer across to the rest of the group, then that's something that you're doing wrong, rather than the rest of the group.
It's the most important business lesson I ever learnt. It's not enough just to be right, you have to be able to convince others that you're right.
Hugo Edwards (#3925)
Location: Philadelphia
Quote: ""Science!""
Posted: 5116 days ago
Dave (#4589)
Posted: 5116 days ago
Location: new york general sort of vicinity
Quote: ""It's not working" -- Joseph Clark"
Posted: 5116 days ago
Location: Alberta, Canada
Quote: "I don't wanna ride the elevator."
Posted: 5116 days ago
@coolpillows - I agree.
C B (#4591)
Location: USA
Posted: 5116 days ago
http://en.wikipedia.org/wiki/Group_think
It's actually a really bad thing to have. If the teacher thought this was a beneficial exercise, he was incompetent and/or sadly mistaken.
I know just how you feel, though. I enjoy computer science, software engineering, and databases, but I'm stuck in the IS program at my university with the business students. These sorts of stories are all too true for me as well. The incompetence that runs through the business schools makes me want to go postal sometimes.
Kyle Towns (#4590)
Location: Tasmania
Posted: 5116 days ago
Posted: 5116 days ago
Posted: 5116 days ago
Phill Sacre (#1822)
Location: London, UK
Quote: "Computers are like air conditioners. Both stop working, if you open windows."
Posted: 5116 days ago
"None of us are as dumb as all of us"
http://despair.com/meetings.html
Location: Brossard, Qc, Ca
Quote: "Smile, Tomorrow Will Be Worse... - Murphy"
Posted: 5116 days ago
The validity of what you say is not what matters. What matters is WHO is screaming, and how loud he can scream it.
@Phill Sacre: I took all those despair things, I put them as my wallpaper and each day (well, not each day, but once in a while..) I change them.
Nowdays is « Dysfunction : The only consistent feature of all your dissatisfying relationships is you. » :-P
Jack (#2443)
Location: Australia, Bendigo
Posted: 5116 days ago
In this instance I think the boy who refused to be a team player should be congratulated, he didn't go along with the stupidity of everyone else, didn't agree for the sake of agreement.
towr (#1914)
Location: Netherlands
Posted: 5116 days ago
Posted: 5116 days ago
nicely written but I cannot really imagine a group of people getting it so wrong ~
Dave (#4589)
Posted: 5116 days ago
Abgrund (#3357)
Location: Atlantis
Quote: ""Redeem your mind from the hockshops of authority." - Ayn Rand"
Posted: 5115 days ago
Engineers can't hide behind committee reports when a bridge falls down. We have to do it right. If companies weren't run by business majors, they might not need trillion dollar bailouts to survive.
Location: Melbourne, Australia
Quote: "I'm my number one fan!"
Posted: 5115 days ago
Some good debate in these comments! Personally, I can see the argument for making a decision and going with it, even if it's sub-optimal, over paralysis. That's probably important in organizations. But I weep for the idea that you can have an opinion about addition.
Posted: 5115 days ago
(I would never have made that mistake, but I can see how it came about. On the assumption that the posters acting bemused really are, and aren't doing it for rhetorical effect... the people who said the man broke even were either subtracting the 700 from the 500 after subtracting the 400 from the 500 and then subtracting the 700 from the 800 instead of subtracting the 500, or (more abstractly) they were subtracting the amount by which the revenue was less than it might have been from the actual revenue. This may have some significance in business, but it's certainly not profit.)
@Max: What did you do immediately after this epiphany?
John Reynolds (#2534)
Location: New York, USA
Posted: 5115 days ago
Location: Melbourne, Australia
Quote: "I'm my number one fan!"
Posted: 5115 days ago
Rene (#2458)
Location: Austria
Quote: "To live is to die - Cliff Burton"
Posted: 5115 days ago
Location: Darwin, Australia
Quote: "Inconceivable!"
Posted: 5114 days ago
$100 profit, $200 loss, $100 profit = break even, failing to take into account the fact that the third transaction includes (and offsets) the $200 loss (without it his position would be up $400 buying the horse at $400 and selling it at $800).
Yes Max, you were RIGHT dammit! I have always valued being right over consensus, but consensus is important, but not to the point of being more important than being right.
Location: Brossard, Qc, Ca
Quote: "Smile, Tomorrow Will Be Worse... - Murphy"
Posted: 5114 days ago
For example :
Would the guy have had only 1000$ to invest, and would have had an opportunity to invest 800$ risk free and get a 50% return over the same period of time, he would have LOST 200$ by « investing » in that horse.
Would the inflation have been 50% over each « buy-sell » period, he would have lost about half his purchasing power with those investments.
As for the risk, it wouldnt have changed the profit made after the facts, but it would have made it a wise (or stupid) decision, at the time of the investment.
But hey, who am I to talk about risk in Max Barry's blog.. he's the one to blow minds with a lecture on risk! :-P
Posted: 5113 days ago
Joe Sherrod (#947)
Location: Rockville, Maryland, USA
Posted: 5110 days ago
Location: Calgary AB Canada
Quote: "Where's Lola? WHERE'S LOLA?!?!"
Posted: 5108 days ago
Karan (#1376)
Location: Sydney, Australia
Quote: "Quid Quid Latine Dictum Sit, Altum Viditur - Anything said in Latin sounds important"
Posted: 5105 days ago
Manssour (#4634)
Quote: "Price of Greatness Is responsability"
Posted: 5092 days ago
Cost of horse: $400. Feeding: $100 (Total costs = $500)
Sale of horse: $500 - Gross profit: $0
Repurchase horse: $700 - Net loss: $200
Resell Horse: $800 - Feeding: 500$ (after years)
Gross profit: $100
And not $200.... Sorry it's my businessman side who make me answer you like this :D
Johnny Ringo (#4850)
Posted: 4949 days ago
1. Spends $400
2. Receives $500
3. Spends $700 (that's $200 more than he received)
4. Receives $800
He spent $1,100 total out of pocket for the horse. He ended up getting $800 back but then he doesn't have the horse. He lost $300 on his trades in addition to the expenses of maintaining the horse.
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