Optimal company selection (stopping) time

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by a searcher from Princeton University
in San Francisco, CA, USA

5yrs ago

Optimal company selection (stopping) time

The problem of choosing deals when you come across them sequentially is well studied and has applications in many fields - I am sharing links here because someone starting out may find it useful to think about their process from this lens.

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reply by a searcher 5yrs ago
from Massachusetts Institute of Technology in New York, NY, USA

My understanding is that the "37% algorithm" applies when you can't go back to a deal you've passed. I don't think that's the case in a search - maybe the seller is just not ready right now (esp in non-brokerd deals). Plus, you realistically look at multiple deals concurrently over some time. I'm sure there is a mathematical formulation that reflects these changes in constraints but I bet the optimal answer would look different

reply by a searcher 5yrs ago
from Massachusetts Institute of Technology in Miami Beach, FL, USA

Yes, so long as the searcher can't ever go back to a "passed" company. But in reality, a searcher can go back to a company she initially passed on (although sometimes the company will get snapped up by another buyer, the seller will be annoyed by the delay, etc.). Still, the secretary problem is a useful mental model even if it provides no optimal solution for searching: it's not a bad idea to start your search by contacting a handful of random targets just to get an idea of average quality (e.g. a initially sampling from 4 target industries in a broad geo range rather than just contacting the plastics manufacturers in the Nashville metro area).

I'd argue that the secretary problem, which is also called the marriage problem, applies more strongly to dating and marriage. I've told my girlfriend that she's beats the first 37% of girlfriend/dating candidates I've dated which, given she majored in economics, she both enjoyed and rolled her eyes at. Your mileage may vary with your significant other!