11.20.2005

TIP: How you frame the problem is the problem

A businessman walks into a bank in NYC and asks for the loan officer. He tells the loan officer that he is going on a business trip for two weeks and needs to borrow $5,000. The bank officer tells him that the bank will need some form of security for the loan, so the man hands over the keys to a new Ferrari parked on the street in front of the bank.

He produces the title and everything checks out. The loan officer agrees to accept the car as collateral for the loan. The bank's president and its officers all enjoy a good laugh at the man for using a $250,000 Ferrari as collateral against a $5,000 loan. An employee of the bank then drives the Ferrari into the bank's underground garage and parks it there.

Two weeks later, the man returns, repays the $5,000 and the interest, which comes to $15.41. The loan officer says, "Sir, we are very happy to have had your business, and this transaction has worked out very nicely, but we are a little puzzled. While you were away, we checked you out and found that you are a multi-millionaire. What puzzles us is, why would you bother to borrow $5,000?"

The man replies: "Where else in New York City can I park my car for two weeks for only $15.41 and expect it to be there when I return?"

Framing his parking problem as a loan one, the man clearly has the last laugh. Problem framing is similar to when you frame a picture - you presume that the viewer will examine everything within that border. But before you frame the problem, you must not only consider what objectively makes up the problem itself, but also what subjective tendencies influence your view of the situation. Recognise and gather information about a problem so that all contingencies are accounted for and all subtleties considered. Uncover the various assumptions, both conscious and unconscious, that are typically made about problems.

Diagnose before you prescribe. Frame problems effectively so that your line of sight is aimed straight at the solution. Ask youself, "Am I looking for a parking space or a loan?" In the end, your ability to frame problems will be of museum quality and your success will be greatly enhanced.

Category: C++ Quant > Fix the Job You Got > Street Smart

1 comment:

  1. This is great. I had seen this before as a "joke," but you've gone the extra step to use this as a metaphor for how we see things differently.

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