Against the Gods: The Remarkable Story of Risk

Chapter 5

The Remarkable Notions of the Remarkable Notions Man

We all have to make decisions on the basis of limited data. One sip, even a sniff, of wine determines whether the whole bottle is drinkable. Courtship with a future spouse is shorter than the lifetime that lies ahead. A few drops of blood may evidence patterns of DNA that will either convict or acquit an accused murderer. Public-opinion pollsters interview 2,000 people to ascertain the entire nation’s state of mind. The Dow Jones Industrial Average consists of just thirty stocks, but we use it to measure changes in trillions of dollars of wealth owned by millions of families and thousands of major financial institutions. George Bush needed just a few bites of broccoli to decide that that stuff was not for him.

Most critical decisions would be impossible without sampling. By the time you have drunk a whole bottle of wine, it is a little late to announce that it is or is not drinkable. The doctor cannot draw all your blood before deciding what medicine to prescribe or before checking out your DNA. The president cannot take referendums of 100% of all the voters every month before deciding what the electorate wants—nor can he eat all the broccoli in the world before expressing his distaste for it.

Sampling is essential to risk-taking. We constantly use samples of the present and the past to guess about the future. “On the average” is a familiar phrase. But how reliable is the average to which we refer? How representative ...