The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty

CHAPTER 8

Mindle 2: An Uncertain Number Is a Shape

Next month’s sales, tomorrow’s price of your favorite stock, or the time it will take you to get to the airport are typical of the uncertain numbers we face daily. And as discussed earlier, risk is often associated with uncertainty, but risk is subjective. If the sales are your own, the risk is that they will go down, whereas if they are your competitor’s, the risk is that they will go up. If you own the stock, the risk is that it will go down, but if you have shorted the stock, the risk is that it will go up. If traffic on the way to the airport is worse than expected, you risk missing a flight to Europe for which you have a nonrefundable ticket. If traffic is lighter than expected, the airline risks not being able to keep your money, while reselling your seat to that standby passenger with the backpack.

This chapter presents a widely used Mindle for visualizing and communicating uncertain numbers. It is a shape with its own distinctive patterns, easily viewed from the right side of the brain.

New Brunswick Hold ’Em

“Invest $500 million to acquire a company; if it performs true to its acquisition scenario, the investment yields $1 billion in net present value. Do you want to bet?” This is how Bob Ameo began his internal executive training sessions on new business evaluation when he was director of business development for the Medical Devices & Diagnostics Group of Johnson & Johnson in New Brunswick, New Jersey. The give-me-a-number ...