Book description
A must-read for anyone who makes business decisions that have a major financial impact.
As the recent collapse on Wall Street shows, we are often ill-equipped to deal with uncertainty and risk. Yet every day we base our personal and business plans on uncertainties, whether they be next month's sales, next year's costs, or tomorrow's stock price. In The Flaw of Averages, Sam Savageknown for his creative exposition of difficult subjects describes common avoidable mistakes in assessing risk in the face of uncertainty. Along the way, he shows why plans based on average assumptions are wrong, on average, in areas as diverse as healthcare, accounting, the War on Terror, and climate change. In his chapter on Sex and the Central Limit Theorem, he bravely grasps the literary third rail of gender differences.
Instead of statistical jargon, Savage presents complex concepts in plain English. In addition, a tightly integrated web site contains numerous animations and simulations to further connect the seat of the reader's intellect to the seat of their pants.
The Flaw of Averages typically results when someone plugs a single number into a spreadsheet to represent an uncertain future quantity. Savage finishes the book with a discussion of the emerging field of Probability Management, which cures this problem though a new technology that can pack thousands of numbers into a single spreadsheet cell.
Praise forThe Flaw of Averages
"Statistical uncertainties are pervasive in decisions we make every day in business, government, and our personal lives. Sam Savage's lively and engaging book gives any interested reader the insight and the tools to deal effectively with those uncertainties. I highly recommend The Flaw of Averages."
—William J. Perry, Former U.S. Secretary of Defense
"Enterprise analysis under uncertainty has long been an academic ideal. . . . In this profound and entertaining book, Professor Savage shows how to make all this practical, practicable, and comprehensible."
—Harry Markowitz, Nobel Laureate in Economics
Table of contents
- Title Page
- Copyright Page
- Dedication
- Preface
- Acknowledgements
- Introduction
- PART 1 - THE BIG PICTURE
-
PART 2 - FIVE BASIC MINDLES FOR UNCERTAINTY
- CHAPTER 6 - MINDles Are to MINDs What HANDles Are to HANDs
- CHAPTER 7 - Mindle 1: Uncertainty Versus Risk
- CHAPTER 8 - Mindle 2: An Uncertain Number Is a Shape
- CHAPTER 9 - Mindle 3: Combinations of Uncertain Numbers
- CHAPTER 10 - I Come to Bury SIGMA, Not to Praise it
- CHAPTER 11 CHAPTER - Mindle 4: Terri Dial and the Drunk in the Road
- CHAPTER 12 - Who Was Jensen and Why Wasn’t He Equal?
- CHAPTER 13 - Mindle 5: Interrelated Uncertainties
- PART 3 - DECISIONS AND INFORMATION
- PART 4 - THE SEVEN DEADLY SINS OF AVERAGING
-
PART 5 - THE FLAW OF AVERAGES IN FINANCE
- CHAPTER 21 - Your Retirement Portfolio
- CHAPTER 22 - The Birth of Portfolio Theory: The Age of Covariance
- CHAPTER 23 - When Harry Met Bill(y)
- CHAPTER 24 - Mindles for the Financial Planning Client
- CHAPTER 25 - Options: Profiting from Uncertainty
- CHAPTER 26 - When Fischer and Myron Met Bob: Option Theory
- CHAPTER 27 - Prices, Probabilities, and Predictions
- PART 6 - REAL FINANCE
- PART 7 - THE FLAW OF AVERAGES IN SUPPLY CHAINS
- PART 8 - THE FLAW OF AVERAGES AND SOME HOT BUTTON ISSUES
-
PART 9 - TOWARD A CURE FOR THE FLAW OF AVERAGES
- CHAPTER 40 - The End of Statistics as You Were Taught It
- CHAPTER 41 - Visualization
- CHAPTER 42 - Interactive Simulation: A New Lightbulb
- CHAPTER 43 - Scenario Libraries: The Power Grid
- CHAPTER 44 - The Fundamental Identity of SLURP Algebra
- CHAPTER 45 - Putting It into Practice
- CHAPTER 46 - The CPO: Managing Probability Management
- CHAPTER 47 - A Posthumous Visit by My Father
- Red Word Glossary
- Notes
- About the Author
- Index
Product information
- Title: The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty
- Author(s):
- Release date: June 2009
- Publisher(s): Wiley
- ISBN: 9780471381976
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