Plausibility vs. Probability: Just because it “makes sense” does not mean it is likely

In business, we have a particular weakness for good stories.

• • For a presentation where everything connects.
• • For a forecast with many decimal places.
• • For a strategy with a logical beginning, middle, and end.
• • For an explanation that convincingly answers “why did this happen?”

The more coherent a narrative is, the more we tend to believe it. And the more evidence and detail it includes, the more we feel it is accurate.

But there is a serious problem.

Making this distinction is one of the most important skills in business judgment.

The 3Ps of critical thinking

When faced with an estimate, a business case, an explanation, or a forecast, there are three different levels of thinking.

1. Possibility — Possibility

The first question is simple: can it happen? In theory, yes.

• • A competitor may lower its prices.
• • A new product may become a success.
• • An executive may leave.
• • A campaign may double sales.
• • A new customer may become the company's largest account.

But the fact that something is possible tells us almost nothing about whether it will happen. It is simply the first filter.

2. Plausibility — Plausibility

This is where the trap begins. We ask: “Does it make sense?” And we examine whether:

• • the story is logically consistent,
• • the source seems credible,
• • the explanation is simple,
• • there is enough detail,
• • we can easily imagine the scenario happening.

If all of these hold, we feel we have understood the situation. And very often we stop there.

Perhaps the real problem lies elsewhere:

• • in lead quality,
• • in pricing,
• • in conversion,
• • in the speed of follow-ups,
• • in the value proposition,
• • or even in a person who has become a bottleneck in the process.

The plausible story gives us the feeling that we have found the answer. Probability requires us to prove that it is indeed the best answer.

3. Probability — Probability

This is where real judgment begins. The question is no longer “Can it happen?” or “Does it make sense?” — but:

“How likely is it really to be the case?”

This changes the conversation entirely.

• — A sales forecast may look exceptionally well structured. But how many assumptions must hold true simultaneously for it to be achieved?
• — A new business idea may look excellent in PowerPoint. But what is the probability that product-market fit, pricing, acquisition, distribution, and execution will all work simultaneously?
• — A decline in an executive's performance may be attributed to a lack of motivation. But how much do we really know about the factors that may have caused it?
• — A campaign may be projected to increase sales by 30%. But what must remain constant for that to happen?

That is where we begin to see something important: many scenarios are highly plausible when we narrate them — and far less probable when we take them apart.

The problem of hidden assumptions

Every business story is made up of assumptions. We simply do not usually see them.

Let us say we are planning a new product and estimate that it will generate €1 million in new revenue. For that to happen, it may require:

• • the market to grow,
• • the price to be accepted,
• • the campaign to deliver,
• • the sales team to achieve a specific conversion rate,
• • production to meet demand,
• • existing customers not to be cannibalized,
• • and competition not to respond aggressively.

Each assumption on its own may seem logical. The problem is that we do not need each one to be logical in isolation. We need several of them to happen together. And that is where the overall probability can drop dramatically.

Where the quality of a decision lies

Good judgment is not the ability to create convincing explanations. People are excellent at that.

Good judgment is the ability not to fall in love with the first story that explains the data. To keep a little space between:

Much of the quality of a decision lies in that small space.

Because in business, we are not paid to construct the most coherent stories. We are paid to make better decisions under uncertainty.

And perhaps one of the most useful questions a leader can ask before approving a strategy, a forecast, or a major investment is this:

“Fine. It is plausible. But how probable is it?”

FAQ