It’s only the first week of classes, and I already know that business school will be very different from my undergraduate studies. To illustrate, I will describe my first class, “Data, Models & Decisions” taught by Professor Lele. The course title is code for “A** Kicking Excel Modeling and Statistics.” During orientation the second year MBA students all smiled knowingly whenever Shreevardhan Lele’s name came up in conversation. He has a reputation for being tough, and one second year student told me that when she took his class, the average grade on the first test was a 45.
I prepared myself for Professor Lele. I got to class five minutes early and quickly opened a word document on my computer to take notes. My highlighter, black pen, and red pen were at the ready. I had installed the StatPro software on my computer and completed the homework, including an Excel tutorial (given my qualitative background, I rarely used Excel before business school.
As an undergraduate I had a constant hand cramp from hours of note taking in class. So I was shocked when Professor Lele started the class by handing out preprinted class notes. Then he began the first problem, which read:
1. The Sterling Fund and the Taurus Fund are two competing mutual funds. Each invests in exactly two sectors-industrials and utilities.
a. For the most recent quarter, Sterling has a higher (percentage) return on its industrials component than Taurus, while Taurus has a higher return on its utilities component than Sterling. Which fund has a higher overall return?
b. Instead, suppose Sterling has a higher return on its industrials component as well as a higher return on its utilities component than Taurus. Then, which fund has a higher overall return?
The answer to question 1a was obvious; it depends because there is not enough information to say which mutual fund has a higher overall return. The answer to question 1b was not as obvious, and it reminded me of Joe Bloggs and the GMAT. Everyone who did test prep with Princeton Review knows Joe Bloggs. He was the example of an average test taker; the test taker who chose obvious, too simple answers to complicated problems.
At first glance the answer to question 1b appeared to be Sterling, but it seemed too simple. No one in the class was happy choosing Sterling as the answer, but there was no clear reason to answer otherwise. So Professor Lele said we would come back to question 1b, and we moved on to the next question. I silenced my Joe Bloggs radar. After a quick read through of the next question, I began to rethink my decision to return to school for an MBA. Question two read:
2. Consider the annual salaries of 100 executives at a large modern corporation. Of these 100 executives, 50 have an MBA, while 50 do not. 29 Positions are classified as senior executive positions and the remaining 71 as junior executive positions. Among executives with an MBA, the average salary is $158, 172.00 and among executives without an MBA, the average salary is $133,616.00.
Ok, so far so good, although I would have liked to see a bigger difference between the average salaries of MBAs and non-MBAs. The question continued:
Among the junior executives, the average salary of those with an MBA is $120,431, while the average salary of those without an MBA is $124,867. Among the senior executives, the average salary of those with an MBA is $199,058, while the average salary of those without an MBA is $212,360. How is this possible?
As the professor read this last section aloud, rustling and whispering sounds filled the class. By now I was ready to go ask the bursar’s office for a refund. But then Professor Lele asked us to take another look at the question.
As a class we reasoned that since the averages in the problem were weighted, the proportion of employees with MBAs at the senior level was much greater than the corresponding proportion among the senior employees without MBAs. The benefit of having an MBA was getting promoted, not having a higher salary than employees without MBAs. Professor Lele explained that the seeming inconsistencies in the question were examples of Simpson’s Paradox.
While Professor Lele was discussing the second question, I kept thinking back to the first question. I suddenly realized that even though Sterling had a higher return on its industrials component as well as a higher return on its utilities component than Taurus, Simpson’s Paradox made it possible for Sterling to have a lower overall return than Taurus.
In this first class, I learned what business school classes will be like. Professors will ask that I solve problems with my classmates and then independently apply those lessons. My next two years at business school won’t be spent taking notes and memorizing theories. It will be active learning, and I’m looking forward to the next class.