Why We Underestimate Risk in the Face of Uncertainty
E-Book, Englisch, 416 Seiten, E-Book
ISBN: 978-1-118-37357-6
Verlag: John Wiley & Sons
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)
As the recent collapse on Wall Street shows, we are oftenill-equipped to deal with uncertainty and risk. Yet every day webase our personal and business plans on uncertainties, whether theybe next month's sales, next year's costs, ortomorrow's stock price. In The Flaw of Averages, SamSavage-known for his creative exposition of difficultsubjects- describes common avoidable mistakes in assessingrisk in the face of uncertainty. Along the way, he shows why plansbased on average assumptions are wrong, on average, in areas asdiverse as healthcare, accounting, the War on Terror, and climatechange. In his chapter on Sex and the Central Limit Theorem, hebravely grasps the literary third rail of gender differences.
Instead of statistical jargon, Savage presents complex conceptsin plain English. In addition, a tightly integrated web sitecontains numerous animations and simulations to further connect theseat of the reader's intellect to the seat of theirpants.
The Flaw of Averages typically results when someone plugsa single number into a spreadsheet to represent an uncertain futurequantity. Savage finishes the book with a discussion of theemerging field of Probability Management, which cures this problemthough a new technology that can pack thousands of numbers into asingle spreadsheet cell.
Praise for The Flaw of Averages
"Statistical uncertainties are pervasive in decisions wemake every day in business, government, and our personal lives. SamSavage's lively and engaging book gives any interested readerthe insight and the tools to deal effectively with thoseuncertainties. I highly recommend The Flaw ofAverages."
--William J. Perry, Former U.S. Secretary ofDefense
"Enterprise analysis under uncertainty has long been anacademic ideal. . . . In this profound and entertaining book,Professor Savage shows how to make all this practical, practicable,and comprehensible."
---Harry Markowitz, Nobel Laureate inEconomics
Weitere Infos & Material
Preface xv
Acknowledgments xix
Introduction Connecting the Seat of the Intellect to the Seat ofthe Pants 1
FOUNDATIONS
Part 1 The Big Picture 9
Chapter 1 The Flaw of Averages 11
Chapter 2 The Fall of the Algebraic Curtain and Rise of the Flawof Averages 22
Chapter 3 Mitigating the Flaw of Averages 26
Chapter 4 The Wright Brothers Versus the Wrong Brothers 34
Chapter 5 The Most Important Instrument in the Cockpit 40
Part 2 Five Basic MINDles for Uncertainty 45
Chapter 6 MINDles Are to MINDs What HANDles Are to HANDs 49
Chapter 7 Mindle 1: Uncertainty Versus Risk 52
Chapter 8 Mindle 2: An Uncertain Number Is a Shape 55
Chapter 9 Mindle 3: Combinations of Uncertain Numbers 67
Chapter 10 I Come to Bury SIGMA, Not to Praise it 78
Chapter 11 Mindle 4: Terri Dial and the Drunk in the Road 83
Chapter 12 Who Was Jensen and Why Wasn't He Equal? 91
Chapter 13 Mindle 5: Interrelated Uncertainties 98
Part 3 Decisions and Information 109
Chapter 14 Decision Trees 111
Chapter 15 The Value of Information 118
Part 4 The Seven Deadly Sins of Averaging 127
Chapter 16 The Seven Deadly Sins of Averaging 129
Chapter 17 The Flaw of Extremes 133
Chapter 18 Simpson's Paradox 139
Chapter 19 The Scholtes Revenue Fallacy 142
Chapter 20 Taking Credit for Chance Occurrences 147
APPLICATIONS
Part 5 The Flaw of Averages in Finance 155
Chapter 21 Your Retirement Portfolio 157
Chapter 22 The Birth of Portfolio Theory: The Age of Covariance163
Chapter 23 When Harry Met Bill(y) 169
Chapter 24 Mindles for the Financial Planning Client 175
Chapter 25 Options: Profiting from Uncertainty 181
Chapter 26 When Fischer and Myron Met Bob: Option Theory 192
Chapter 27 Prices, Probabilities, and Predictions 200
Part 6 Real Finance 213
Chapter 28 Holistic Versus Hole-istic 215
Chapter 29 Real Portfolios at Shell 222
Chapter 30 Real Options 228
Chapter 31 Some Gratuitous Inflammatory Remarks on theAccounting Industry 236
Part 7 The Flaw of Averages in Supply Chains 245
Chapter 32 The DNA of Supply Chains 247
Chapter 33 A Supply Chain of DNA 254
Chapter 34 Cawlfield's Principle 257
Part 8 The Flaw of Averages and Some Hot Button Issues263
Chapter 35 The Statistical Research Group of World War II265
Chapter 36 Probability and the War on Terror 272
Chapter 37 The Flaw of Averages and Climate Change 289
Chapter 38 The Flaw of Averages in Health Care 299
Chapter 39 Sex and the Central Limit Theorem 307
PROBABILITY MANAGEMENT
Part 9 Toward a Cure for the Flaw of Averages 317
Chapter 40 The End of Statistics as You Were Taught It 319
Chapter 41 Visualization 324
Chapter 42 Interactive Simulation: A New Lightbulb 328
Chapter 43 Scenario Libraries: The Power Grid 332
Chapter 44 The Fundamental Identity of SLURP Algebra 341
Chapter 45 Putting It into Practice 343
Chapter 46 The CPO: Managing Probability Management 354
Chapter 47 A Posthumous Visit by My Father 364
Red Word Glossary 367
Notes 371
About the Author 382
Index 383
