In Experiments We Trust: From Intuit to Harrah’s Casinos

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Regular readers of MIT Sloan Management Review will recognize the name Gary Loveman.

Loveman earned a Ph.D. in economics at MIT and went on to become CEO, president, and chairman of Caesars Entertainment, owner of Harrah’s casinos and other resorts worldwide.

In MIT circles, Loveman is famous for saying that while theft is a firing offense at Caesars, so too is running an experiment without a control group. (See our conversation from last April with MIT Sloan’s Erik Brynjolfsson, “The 4 Ways IT is Driving Innovation.”)

In a new interview with MIT Sloan’s Michael Schrage for Technology Review, Loveman talks about the company’s continued focuses on data analysis and small-scale testing that can scale into company-wide initiatives. These tests run from the use of coupons to offers of free meals or hotel stays, all designed to get customers to spend more money during their playtime.

Two key questions and answers excerpted from the interview:

What makes so many executives prefer to rely on their experience and analysis over simple experiments?
There’s a romantic appreciation for instinct and, frankly, an absence of rigor for the application of more scientific approaches. What I found in our industry was that the institutionalization of instinct was a source of many of its problems.

. . .What do you like to tell your academic colleagues about the challenges of real-world experimentation and innovation?
Honestly, my only surprise is that it is easier than I would have thought. I remember back in school how difficult it was to find rich data sets to work on. In our world, where we measure virtually everything we do, what has struck me is how easy it is to do this. I’m a little surprised more people don’t do this.

And yet, this “no brainer” is tricky business. Many companies do resist any kind of aggressive trial-and-error.

Why? Partly, it seems, because of simple aversion to change. In a Harvard Business Review column last April, Dan Ariely, a behavioral economics professor at Duke University and the author of Predictably Irrational (HarperCollins, 2008), outlined some of the resistance to experimentation that he’s come up against.

“I’ve often tried to help companies do experiments, and usually I fail spectacularly,” Ariely writes.

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Comments (5)
The House Sometimes Wins » Blog Archive » Can Obama’s braintrust really help a casino?
[…] Gary Loveman, flaunts its expertise in technology and analytics any chance it gets. In magazine articles, books, blogs and in person, it loves to brag that it’s the leader in the gaming industry […]
Leave room for trial and error | Pourquoi
[...] happens when you cross a scientist with a CEO? You might produce someone like Gary Loveman, CEO, President and chairman of Caesars Entertainment, owner of Harrah’s global resort network. A [...]
Mike Parr
Many executives prefer to rely on their experience and analysis, simply because being in the senior position like CEOs, CFOs and Board of Directors don’t want to take risk on new things.  What I noticed in our organization is that top management focus on things which they knew would deliver results.  They just want to show people they are capable and right.

Loveman is absolutely right; the institutionalization of instinct was a source of many of its problems.  Considering the unpredictable market in recent years, top executive decisions are very conservative blocking the way for innovation.
sue
My belief is that so-called 'intuition' is often guided only by theory and proven methods of doing things, or experience as you say. Rather, one can really listen to one's true intuition that may be talking to you about how to do things differently. Then take this further with experimentation to see if your intuition is guiding you into something valuable.
I like the approach of Cook, which seems to encourage new thinking without letting fear of failure take hold and stunt an innovative approach.
Gavin Corbet
"What makes so many executives prefer to rely on their experience and analysis over simple experiments?
There’s a romantic appreciation for instinct and, frankly, an absence of rigor for the application of more scientific approaches. What I found in our industry was that the institutionalization of instinct was a source of many of its problems."

Although I agree completely with Loveman, I think that what really is behind the preference of experiece over experimentation is that most top executives have high egos by design. Rather than having a "romantic" appreciation for instinct... they just always think they are right.