The Flaw of Averages

Name: The Flaw of Averages | Why We Underestimate Risk in the Face of Uncertainty
Brand: Wiley
Price: 15.99 EUR
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Why We Underestimate Risk in the Face of Uncertainty

Sam L. Savage(Autor*in)

Wiley (Verlag)

Erschienen am 13. März 2012

416 Seiten

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Beschreibung

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

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Inhalt

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

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