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

A must-read for anyone who makes business decisions that have a major financial impact.

Tomorrow's stock price, next month's sales, next year's costs–these are all numbers we don't know yet. Yet everyday, we base our personal and business plans on these kinds of uncertainties. And as the recent collapse on Wall Street shows, we are often ill-equipped to deal effectively with uncertainty and risk. The problem is that even graduates of statistics courses don't understand the fundamental concepts. That's why Sam Savage–known for his ability to teach difficult subjects in creative ways–has written The Flaw of Averages. Instead of using statistical jargon such as "random variable," which Savage calls a "Red Word," he uses everyday terms like "uncertain number." Along the way, Savage 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. Finally, he introduces the new field of Probability Management to help cure the Flaw of Averages.