Making Bigger Decisions Better: Cheryl Einhorn’s AREA Method

Featured Events | Feb 20, 2020 | Gabelli School of Business

Before author Cheryl Einhorn began helping people around the world to make financial decisions, she made a critical decision that would change her career trajectory.

After making her way through college by working at the division of the Federal Trade Commission’s complaint department – informing customers of how various laws would be able to offer them protection or address their claims – Einhorn knew that she wanted to research and write.

But while studying at Columbia’s Graduate School of Journalism, she was sent to interview a grieving mother who had just lost her son. She realized that was not the type of journalism she wanted to concentrate on.

In an event sponsored by the Gabelli Center for Global Security Analysis, on Monday, February 10, Einhorn spoke to a room of students and alumni about how her transition from metro journalism to investigative financial research. For her, this journey involved feeding a growing hunger for business knowledge by learning from leaders in financial journalism and taking courses at the Columbia Business School.

“There are a lot of interesting and important stories about people, places, and things in business,” said Einhorn. She realized that, “I can use my business background and learn more.”

After spending several years as an award-winning journalist covering international political, business, and economic topics, at Barron’s, she realized the impact of the stories she published – and, what’s at stake.

“Sometimes the stock exchange would halt the shares of a company, or the stock price would fall precipitously, regulators might get involved, companies went out of business, and one company was raided by the FBI,” said Einhorn.

“What I realized is it’s not just somebody’s investment portfolio,” said Einhorn. “It could be somebody’s retirement account or, if you’re an employee, it’s your ability to get up and go to one of these places in the morning. If you’re a consumer, it’s your ability to buy the company’s products or services.”

The AREA Methodology

She then created the AREA Method, a decision-making system for individuals and companies to solve complex problems.

The AREA Method, an acronym made up of the words Absolute, Relative, Exploration, Exploitation and Analysis, offers a roadmap, perspective, tools, and logic for individuals and organizations to be equipped to spot the incentives and motives of others, she said.

After rather intensive and sometimes tense investigations of various companies, Einhorn said she needed to find a way to better check and challenge her own biases while conducting researching and reporting.

Einhorn said, “I started to think about, ‘how can I have greater confidence and conviction of my own decisions? How can I have a better sense of the incentives and motives of the sources I spoke to?’ Given my background, I realized that maybe I could put together a research methodology that could hold me accountable to do a more ethical job at work.”

And she did.

Her book, Investing in Financial Research, is a guidebook for conducting financial investigations; it lays out Einhorn’s AREA Method. In it, readers are empowered with a decision-making system that uniquely controls for bias, focuses on the incentives of others and expands knowledge while improving judgement—all with an eye toward investigating financial situations.

AREA is applicable to all types of financial investigating, whether for investment analysis or investigative journalism. It allows the reader to be the expert in his or her own life.

“It gives you a two-for-one, putting you in someone else’s shoes so you can get up close on their incentives and motives, and also pushing you out of your own perspective so you can gain distance on your own thoughts and feelings,” she said.

The result is a decision-making tool that helps guide better judgment, across a wide range of professional fields. “This will give you a better opportunity to assess whether you’re making assumptions and judgements and then allows you to challenge those to see whether they can be backed up by evidence or not.”