Randomized Testing

Randomized Testing

 

Tobias Baer explains why the lack of randomized testing hampers businesses and raises the costs of the COVID-19 pandemic. 

The lack of randomized testing again and again hampers businesses because it means executives need to make decisions half blind – and Covid-19 is no different, only that in the case of Covid-19, the cost of not doing randomized testing literally might run into the trillions of dollars.

Randomized testing is nothing new – and widely considered best practice in the business world:

 

  • Marketing executives should run A/B tests to make sure that ads and other marketing outlays actually influence purchasing decisions and isn’t wasted on customers who would have bought the product anyhow (or worse, even discourage buyers);
  • Banks and insurers randomly approve a small sample of credit or insurance applications rejected by their policy rules because otherwise they cannot know how many errors these rules make and if they lose any profitable business;
  • Online sellers use randomized pricing experiments to test how much more or less revenue and profit they would make by raising or lowering prices a bit.

 

Read the full article, Why Covid-19 illustrates once more the need for randomized testing: Paying the price for biased information, on LinkedIn.