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Simplify Results For Management

“Simple can be harder than complex.” – Steve Jobs

Suppose you analyze a market and find four features that help describe a product’s value or sustainable price. Your power form equation reads Price = constant * feature 1^a * feature 2^b…feature 4^d. How can you simplify each expression so that more people can grasp its meaning?

Helicopters (A-C) come in many designs and sizes. You suspect their useful loads, cruise speeds, and the number of engines support their prices. Analysis confirms that, but the resulting equation is complicated. You want to know how noise, or its lack, contributes to prices too. You find data on cabin and sideline decibel levels, but it’s spotty.

You want to be both simpler and more thorough. What to do?

Poring over the data, you find that pound for useful load pound, helicopters with more main blades fetch more money. That’s because rotor systems with more and smaller blades disturb the air less and create less noise. In D, you can take that expression, Blades^d, and depict the projected Value increase as you add blades. Combining D (and like tables for features a-c) with Demand analysis (see the last post) permits fine-tuning against the market’s needs.

#hypernomics #markets #marketanalysis #innovation #future #futurism

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Don’t Leave Money On The Table

“The more you learn, the more you earn” – Warren Buffett

In this true story, we hide the names to protect the players and don’t tell you the venue, either.

In 2014 (A), we ran three market Y value equations (not shown).  All showed that Project X was under-priced.  We find validation of these projections in 2021, as used X versions sell for more than their original $1M price (also not shown).  X sold amply, with 300 units in the market by 2021, and if C’s assumptions were correct, it made a profit, too (D).  Joy in Mudville!  But wait a minute.

Had X’s producers studied Y’s Demand Frontier (B), they might have noticed its negative slope of -1.24.  That means that at the limiting slope, had X’s price been raised to $1.34M, it would have made more revenue, despite the sales drop.  Also, with fewer units, recurring costs fall (C).

The overall effect in D is that selling Project X too cheaply costs Y both revenue and profit.

Hypernomics notes it’s easy to think that if a project makes a profit, it is doing well. But if we learn about all the market forces at work, often we’ll find well isn’t well enough.  Don’t leave money on the table because you didn’t study your market thoroughly.

#hypernomics #innovation #markets #marketanalysis #pricing #analytics

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Improving Value By Adding Safety

Everything counts in large amounts – Depeche Mode

It’s hard to be flawless in human endeavors. You can bowl a perfect game, throw one in baseball, or get the equivalent in the NFL if your quarterback rating hits 158.3. Athletes who reach high performance levels get rewarded handsomely.

Hypernomics finds there is money in approaching perfection in transportation, too. In 2019, the National Safety Council found the lifetime odds of dying was 1 in 543 as a pedestrian and 1 in 107 in a car crash. But the NSC found the chances of dying in a plane crash too low to calculate.

The Tupolev Tu-204 series (A) has an excellent safety record. It holds more passengers than the Boeing 737 NextGen line (B) and goes faster. But it sells for less than NextGen and has made far fewer sales.

While Boeing’s huge network figures into these results, so, too, does its outstanding safety record. As we see in C, the B737-800 has greater than an order of magnitude reduction in hull losses than the Tu-204. It’s better than its predecessor, the B737-500. It took Boeing time and effort to get that safe. Now they are reaping the rewards.

You may not attain perfection, but it pays to try.

#hypernomics #innovation #businessintelligence #safety #sales

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How To Lose $1B

Irony is wasted on the stupid.
Oscar Wilde

In his 9/1/2021 article, Jon Hemmerdinger discovered Aerion, a company tied to its AS-2 supersonic business jet (C), was going to put its assets up for sale (E).  He further found Aerion had hired Development Specialists (DS) to manage the process, and DS had “not set a sale price, saying, ‘The market will tell them what their assets are worth.’”

I nearly choked on the irony – Now they knew market reactions counted.  They sure didn’t previously.

Had they studied their Demand Frontier (D) before they started, they would have known while there was a possibility of hitting their targeted sale figure of 300 units in a decade, those chances were slim.

The US Presidential Helicopter program had a similar fate, failing to realize its Demand limits (A, B), and lost over $4B. The USG sold it for parts at four cents on each dollar spent.

Aerion will sell intellectual property; its AS2 didn’t go into production.  Maybe they can get a dime on the dollar.  Based on their $4B development cost estimate, they likely spent $1B by the time they stopped.

Next time, model the market first.  It costs a tiny fraction of the losses suffered forgoing market analysis.

#hypernomics #innovation #technology #management #markets

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Hypernomics, Missing Dimensions, & Price Determination: 2nd in a Series

“Everything must be made as simple as possible. But not simpler.” ― Albert Einstein

In the last post, Paul Samuelson said equilibrium prices exist where supply meets demand.

While prices for simple products work that way, Value analyst Sheila (A) suspects markets for more complicated products behave differently.  She knows she can account for mountaintops using latitude, longitude, and altitude referencing the equator, prime meridian, and sea level, respectively (B).

With each of the 44 dots representing a unique flat screen tv’s features and price, she finds she can plot the model’s size (C) or cycles per second (D) against prices and get significant but mediocre R2s.  She works to improve her prediction.

In E, she discovers she can plot Price (Dim 3) against the tv’s refresh rate (Hz, Dim 1) and its size (Diag. “, Dim 2) as ordered triples, using an origin of (0,0,0) as a starting point.  With Hz and Diag. “ as Valued Features 1 and 2, respectively, she predicts flat-screen Value (as sustainable prices) with an R2 of 97.0% and a P-Value of 4.85E-32.  She accounts for other features as needed.

All multi-attribute markets have similar “lost dimensions.”

#markets #innovation #hypernomics #prices #dimensions #wsu

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Hypernomics Observations: 1st In A Series

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Josh Billings

Paul Samuelson (A) wrote, “the equilibrium price, i.e., the only price that can last, is that at which the amount willingly supplied and the amount willingly demanded are equal.  Competitive equilibrium must be at this intersection point of supply and demand curves (Economics, 9th Ed., p. 63).”  We see an example of this phenomenon in B, as iron mines with progressively more costs form an upward-sloping supply curve intersecting a Demand curve at a single point.  For single-feature markets such as this one, Samuelson’s argument makes sense.

But Hypernomics researcher twins Cristina (C) and Sheila (D) (both played by my daughter, Meagan Swanson) observe dozens of prices for scores of flat screen TV models (E).  Cristina, who studies Value, suspects their sustainable prices and costs rise with desired features.  Sister Sheila, a Demand analyst, has a hunch that as quantities sold go up, prices and attendant costs must fall.  They both agree that the markets’ multiple and frequently changing prices negate a single-point equilibrium.  What takes its place?

#hypernomics #innovation #markets #management #economy #wsu

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Hypernomics Fund

“Price is what you pay, value is what you get” – Warren Buffett

In the last post, as we studied the Aerion AS2, we found out how
Hypernomics could help avoid losses.

Someone asked me how Hypernomics could be used to make money. A stock fund is one good example.

Value analysis is a critical component of this new discipline. As Mr. Buffett is quick to point out, we need to distinguish a product’s price versus its value. In today’s red-hot real estate market, an underpriced house would be sniffed out by anxious buyers quicker than a drunken gazelle tripping into a bar full of lions. Comparable sales of several homes sold down the street take care of that.

Stocks are more complex. With hundreds of financial metrics for each company and thousands of competitors, it is easy to get lost in all the data. Hypernomics sorts through that information to find and buy undervalued stocks.

Below are metrics comparing how we’ve done since we began trading with our algorithms nearly a year and a half ago, all growth-indexed from the same starting point beginning 2/20/2020.

This fund is not open to the public.

#hypernomics #stock #stockmarket #innovation #value #valueanalysis

Hypernomics 1, Funny Math 0

“Everybody funny, now you funny too” – George Thorogood

This is sad.

In December, I showed how the Aerion AS2, A, had a 1 in 40 chance of making its sales goal of 300 supersonic business jets at $120M in 10 years.

They shut down Friday.

Crucially, all 55 aircraft over $80M that sold over the ten years in Figure C were specially modified “green” airliners, based on long-standing Boeing and Airbus models. Each one requires only a few million added dollars in design and modifications, a tiny fraction of the AS-2’s estimated $4 billion development cost.

Aerion said that “in the current financial environment, it has proven hugely challenging to close on …large new capital requirements to finalize the transition of the AS2 into production.” That hints they are pointing to the pandemic as their primary dilemma.

But the low sales for the Concorde (B) reveal a more pervasive problem. Yes, it was worth every penny spent on it, as its buyers confirmed when they bought them. The issue for the Concorde then and the AS2 now is that there are not enough pennies to go around to make the optimistic sales goals each company set.

Demand analysis lets you know that before you spend $1B and find out the hard way.

#hypernomics #demand #market #aerionAS2

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Structure Turns Up

Things don’t turn up in this world until somebody turns them up.
James A. Garfield

In the mid-1900s, there was a race to find the mechanism that passed on genetic instructions.  The double helix structure of DNA that James Watson and Francis Crick discovered was a simpler solution than many biologists thought possible and caught many of them by surprise (A).

Imagine the surprise of many, then, when no one else thought to look, the law of supply and demand is supplanted by the Law of Value and Demand from Hypernomics, which, like DNA, is a long-standing structure which only turns up with lots of hard work and a little imagination.  As shown in B, two market dimensions, Dividends and Earnings Per Share, describe a surface (P-Value 1.55E-06) that drove the Value of the Dow 30 stocks yesterday (stocks above it may be overpriced, those below it, undervalued).  That Value determines Price, a third market dimension, which, in turn, limits the Quantity sold, a fourth market dimension.

The secret, such as it is, is that such structures occur in mathematical, not physical space.  But they turn up in all markets since they began, just as our DNA has always been with us.

#marketDNA #technology #markets #innovation #hypernomics #4D

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Got Guano?

If you try any preversions [sic] in there, I’ll blow your head off.
Col.” Bat” Guano, Dr. Strangelove

Hypernomics notes that of all the perverted ways to start a war, Bolivia’s imposed tax on Chile is one of the most strange. I mean, who fights for bat poop? Countries looking for saltpeter, that’s who.

Hungry for part of the burgeoning saltpeter trade, Bolivia imposed a tax on a Chilean company mining bat guano from its soil. That violated a treaty to which both countries were parties. It started the War of the Pacific. In it, Chile took on a secret alliance of Peru and Bolivia.

Before the War, Bolivia had sea access, and Peru’s lands included part of the Atacama Desert (A). When the conflict ended, both countries lost ground to Chile, Bolivia became landlocked, and Peru surrendered its Atacama claims (shaded areas in B).

Scant years later, Fritz Haber (C) worked out a catalytic formation of ammonia, for which he won the Nobel Prize. The process drove Chilean nitrate mining employment and prices down by two-thirds.

Looking for a quick buck, Bolivia and Peru endured tens of thousands of casualties for a technology that quickly became outdated. Don’t go to war for short-term gains without considering long-term consequences.

#technology #markets #innovation