“Ceteris paribus.” I still remember my first year in B-school, hearing this phrase being bandied about like everyone in the room knew what it was. I learned later that I wasn't the only one Googling the phrase after class.Ceteris paribus is a Latin phrase that roughly translates to English as “all other things held constant,” or “all things held equal.” It's used in scientific experiments, finance, economics, and complex models of several stripes. Ceteris paribus is a quick way to say that, if nothing else in the world changes at all, then a change in variable X will create a change in variable Y.
Some examples:“If bond prices fall, then yields go up.”“If taxes are lowered, then the private sector is more productive.”“If debt is increased as a percentage of a firm's capital structure, the firm has taken on more risk.”
Over time, the second greatest lesson I learned is that all of these levers do not occur in a vacuum. In project-management-speak, it's the realization that there is more than one X that gets us to Y. And because the different Xs tend to react and interact with one another, the effect of all these causes is not a summation of the inputs – it's the synthesis of the inputs.
The greatest lesson I learned is that there are multiple effects as well, and we can never know them all. Some are intended, and some are unintended. Understanding how each input (X) affects a specific output (Y) is extremely useful, but only if applied within the context of the rest of reality.
So let's keep our eyes open, consume information voraciously, and think through our actions. And if you haven't yet...why not earn your MBA?
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