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

INTRODUCTION

Connecting the Seat of the Intellect to the Seat of the Pants

The only certainty is that nothing is certain.

—Pliny the Elder, Roman scholar, 23-79 CE

 

 

As the financial meltdown of 2008 has demonstrated, Pliny is still pretty much on target two millennia later. Despite all its promise, the Information Age is fraught with a dizzying array of technological, economic, and political uncertainties. But on the flip side, the Information Age also offers electronic extensions of our intuition that can provide a new experiential feel for risk and uncertainty. This book shows how.

Let’s start off with a simple everyday example in which most people’s intellects fail. Imagine that you and your spouse have an invitation to a ritzy reception with a bunch of VIPs. You must leave home by 6 p.m. or risk being late. Although you work in different parts of town, each of your average commute times is 30 minutes. So if you both depart work at 5:30, then you should have at least a 50/50 chance of leaving home together for the reception by 6 o’clock.

This thinking sounds right. But your instinct warns that you will probably be late. Which is correct: your brain or your gut?

Your gut is correct, but not being particularly good with words, it may have difficulty winning the argument intellectually. So here, in terms that even a brain can understand, is why you’ll probably be late.

Suppose there really is a 50/50 chance that each of you will make it home by 6:00. Then the trip is like a coin ...