Good life, bad science

May 06

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It may seem odd to start by talking about homeopathy - do not fear, I have not gone New Age in my approach, but some recent headlines have brought up an interesting debate about science vs. opinion that has relevance to property investment.

On the 23rd May, a group of leading doctors and scientists wrote an open letter to NHS trusts asking them to stop spending money on homeopathy.

In the media frenzy that surrounded this, there were the inevitable results - firstly a bunch of reporters who decided that homeopathy was too difficult a word, and that they should instead report about Alternative and Complementary therapies.

The second result was a whole bunch of phone-ins on local radio, full of people whose personally experience had proved that such therapies work.

If I can briefly outline why the established scientific profession is very dubious of such proof, it will, I hope, cast some interesting light on many of the things we hear about property.

The logic runs as follows...

Rather than talk specifically about any particular type of treatment, I am going to invent a marvellous new cure called Wibble Therapy.

The believer says something like:

My aunt / brother / cat was sick for 6 months, and doctors were not able to help. After 6 months, (s)he tried Wibble Therapy, and then got better.

The aunt or brother (and sometimes, it appears, cat) phone in to say that this is a true story. All their friends and relations know how much they had suffered for the six months until they had Wibble therapy.

The Wibble Therapist is then interviewed as an expert, and explains that he or she has used Wibble Therapy in tens of cases, and had many great results.

Then the bad scientist steps in:

The scientist looks at, say, 100 people who had the disease for six months, and then received Wibble Therapy, and notes that 80 of them recovered within a month.

The bad scientist notes, therefore that Wibble Therapy is 80 per cent effective (which is a lot better than much conventional medicine.)

Then the good scientist steps in:

The good scientist looks at the same figures that the bad scientist did, but also looks at what is called a control group.

That is to say that that good scientist looks at 100 people who had the disease for six months, and then received Wibble Therapy... ... but also looks at 100 people who had the disease for six months and DID NOT have Wibble Therapy.

The good scientist notes that, yes, in those who had Wibble Therapy after six months, there was an 80 per cent recovery rate... ... but will also discover that in those that DID NOT have Wibble Therapy, the recovery rate was X.

If it turns out that X was, say, 40 per cent, then we have good evidence that Wibble Therapy works.

If, however, it turns out that X was pretty much 80 per cent, then actually, it looks as if Wibble Therapy did not make any difference at all...

... except to the 80 people who have had it, and swear by it...

... and will spend the next 40 years arguing, loudly, that it is fantastic, and should be made available free of charge on the NHS.

What has this got to do with Property Investment?

Well, one of the things I teach on my Property Negotiation course is that you should never offer the asking price (because of the phsychological effect doing so has on the vendor.)

One of the questions I am inevitably asked goes along the lines of

I once missed out on a deal which I would have got if I had offered the asking price.... I could have bought that house for 60k, and now it is worth 200k... is this not bad advice?

This is Wibble Believer, thinking, and the only way to answer it is with another question:

Firstly, how do you know what WOULD have happened?

If you HAD offered the asking price, maybe someone would have come along the next day and gazumped you. It is impossible to tell what might have happened, only what DID happen.

Good evidence is not based on looking at a single case, but on looking at large numbers of cases, and seeing what happened when you DID do something, and how that compared to when you DID NOT do that something.

The reason that I teach that opening by offering the asking price is a bad idea is that it is something I have tested properly, and researched (ie - paid attention to the testing by other people) in detail.

The other point worth making is that, if you have been looking at so few deals, that one missed deal some years ago looms large... then you are not looking at anything like enough deals.

The serious property investors I know report figures along the lines of 1 in 20 for the ratio between those properties they view and those they end up buying. The ratios for those they rule out after just a phone conversation, and do not even waste time viewing are often much higher.

If you are only looking at a couple of deals a month, then the problem is not your negotiation style!

By the way, if you are interested in rigorous review of different treatments, then have a look at the University of Oxford Bandolier site

... while they are not impressed with homeopathy, they have come down very strongly in favour of the use of honey to treat wounds!

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