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Is The Simplest Answer Always the Right One?

by Mark Nassi, 9/9/20

While Occam’s Razor states that the simplest answer is usually correct, it doesn’t say that it is always correct. At NCS, we pride ourselves on identifying outliers. While it’s easy to say that those who have outliers in their data are all bad actors, that just isn’t true.

As an example, we routinely see a cannabis retailer selling an eighth of their flower product for $0.01. This is an outlier because how can a company stay in business if they are selling their products for a penny?

I subscribe to the theory of the “Rule of Five.” It is a lot like Occum’s Razor- there is an obvious reason, and then the four other plausible reasons why something happened. In the example above, the obvious answer is that the retailer is ringing up a smaller amount and pocketing what the customer is paying. However, there are other likely reasons for the penny sale; buy-one-get-one for a penny, frequent buyer programs, new customer deals, miskeying at the register, etc.

If we go the other way and see a transaction for an eighth of flower for $90, we could use the Rule of Five strategy to rationalize the transaction before making an accusation. The assumption is that the retailer miskeyed the sale. The other four reasons could be only ringing up 3.5 grams while giving the customer more, selling a new or specialty strain, miscoding the product type, etc.

While none of these reasons absolve the retailer of their wrongdoing, we have narrowed our thinking to ask the appropriate questions and gauge what an acceptable response would be.

About the Author:
Mark Nassi

Mark has a 17-year career spanning across technology, public accounting, and financial services. He holds a Bachelor of Science degree in Mathematics from the University of California-Davis as well as... more