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20181230 – Risk Savvy

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MAIN IDEA:

The main idea of this book is that we live in the risk illiterate society and as result people often make decisions, which are not reasonable, sometime becoming victims of swindlers or just plain mass hysteria for practically no reason whatsoever, except for this illiteracy. Author also strives to educate people about real risks and how to deal with them and makes suggestions on how to deal with it on the scale of society.

DETAILS:

Part I The Psychology of Risk

  1. Are People Stupid?

It starts with an interesting observation that people generally do not understand risks and do not understand probabilities, even if they are use it all the time. Author presents a simple example of meteorologist predicting x% probability of rains. It turned out there are multiple ways to understand it and people do understand it differently including such hilarious statement that probability 50% of rain two days in the row means 100% probability of rain over the next 2 days. Author also looks at British contraceptive pill scare causing lots of damage because women stop using the pill, risks of terrorism that caused people to expose selves to much higher risk of driving, and so on. At the end author states that:

  • Everyone can learn dealing with Risk
  • Experts are usually do not understand risks either, so they are no help in risk evaluation
  • Less is more in terms of usefulness of simple solutions for complex problems.
  1. Certainty Is an Illusion

The point here is that complete certainty really does not exist, only illusion of it. Author discusses contemporary prediction industry in economics and elsewhere and he specifically looks at test results, which are also sort of predictions. One of the reasons for this is human propensity to seek certainty of the future, which is obviously not possible.  Author provides a nice take on Risk versus Uncertainty:

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After that author discusses probability and does it in very specific terms: “Probability is not one of a kind; it was born with three faces: frequency, physical design, and degrees of belief.”

He also makes two important suggestions in communicating and evaluation risk:

  1. Use frequencies instead of single-event probabilities.
  2. Use absolute instead of relative risks.

Then author discusses intuition as a way to apply unconscious rules of thumb based on experience, that generally work pretty well.

Finally author points out to negative effect that could occur due to unreasonable search for certainty such as in case of medical test results with false positives causing more problems than resolving to true positives. Another classic example: Turkey illusion.

  1. Defensive Decision Making

This starts with examples of mistakes made even by Einstein and demonstration of visual illusions, then continue to discussion of human errors, their quality: good and bad errors, and proceed to look at different cultures some more tolerant to errors, especially good, and some not, making the latter cultures stagnant due to fear of errors and defensive decision making. Author discusses in details the expression of defensiveness in medicine that leads to huge overkill in testing and expenses with priority given to procedures over performance.

  1. Why Do We Fear What’s Unlikely to Kill Us?

To answer this question author brings in amygdala and need to be very cautious with unknown. This brings in social imitation and cultural settings that make people to be afraid of some things but not others. Author provides example for X-mas candles that Americans afraid of, while Germans not. Then he goes through a number of similar cases like lucky numbers, GMO food, Radiation, medical symptoms and other. There is also an interesting piece on validity of questionnaires, especially the closed ones. Here is example for children answering to closed and open QA:

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At the end of chapter author looks at anxiety in young people, and concludes that it is mostly linked to difference between internal and external goals, when former are more typical for older people who less dependent on others approval, while latter for young people for whom fear of failure is a big cause of anxiety.

Part II Getting Risk Sa

  1. Mind Your Money

This starts with discussion of American optimism in financial area and statements that it is not supported by data. The author moves to useless experts that do slightly worse in prediction than chimps. Good example is that nobody was able to predict market crash in 2008. Author provides an interesting piece of information about Harry Markowitz who got Noble for his portfolio management math, but for himself used just plain diversification 1/N. So here is general interpretation:

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This follows by an Austrian retirement plan story when bank representatives recommended investment in fund despite bad conditions. In some cases it was because they did not understand these conditions, but in others because it was their job. From here author provides recommendation when to trust you banker:

  1. Banker understands the featured financial products, and
  2. Banker has no conflicts of interest.
  3. Leadership and Intuition

This is about decision making at the executive level. It turned out that lots of decisions are made not on the basis of formal analysis, but rather at the gut level with formal analysis used to justify decisions. After that author discusses defensive decision making typical for any bureaucratic entity and offers suggestions on what to do and what not to do. Finally author suggest that simple strategies work better:

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  1. Fun and Games

This is about various games involving risk, which starts with example of “Let’s make a Deal” when choice in condition of uncertainty often is dun without understanding of statistics and therefore is not optimal. Author also makes recommendation on dining and shopping choices like asking waiter “What would you eat here this evening?”

  1. Getting to the Heart of Romance

This is pretty much about finding mate. It starts with Darwin’s diary and his reasons to marry or not, then continuing with Ben Franklin’s recommendations to his nephew. After this author moves to some simple mathematics and brings in notion of “Satisficing”. Then author moves to parenting and show an interesting diagram about parent effort allocation between children:

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  1. What Doctors Need to Know

This is about doctors and quite low levels of their numeracy causing unsound recommendations. The good news is that doctors are trainable so they are capable provide statistically valid estimates. The bad news is that it is against doctors’ own interest and exposes them to lawsuits when similarly innumerate lawyers could inflict lots of damage. Author continue going through a number of medical / statistical issues and algorithmic methods to obtain better care, while decreasing exposure to negative impact from testing. Probably the most important here is that author provides reference to sources like (www.the cochranelibrary.com).

  1. Health Care: No Decision About Me Without Me

This is pretty much about misleading health statistics that causes people go into unnecessary procedures that have negative impact. Here is a sample:

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Author reviews in details screening for prostate and breast cancers, their promotion and results. He provides a nice summary of Facts and Fiction for cancer screening resulting in conclusion that one would be better off doing preventive measures rather than screening, which includes diet and exercise. The interesting example is Japanese who moved to Hawaii. They change diet and behavior resulting in dramatic decrease in cases of stomach cancer and increase in breast and prostate cancers:

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The final and most important recommendation is that doctors allocate only small share of their time and attention to each patient and do not suffer consequence of mistakes or unsound recommendation. The patients do, so only the ability of individual to control as much as possible of treatment activity could somewhat improve quality healthcare decisions.

  1. Banks. Cows, and Other Dangerous Things

Here author provides a few very reasonable rules for living in our world:

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Probably the most important rule is this: ”Think for yourself”.

Part Ill Start Early

12 Revolutionize School

The final part is about schooling and what author believes had to be done to produce Risk Literate new generation. For this author suggests instead of teaching for some nearly randomly selected testable skills, teach to “Problem Solving in Real world” so that students acquire specific levels of Health literacy, Financial Literacy, Digital Risk Literacy, Self-Control, digital and otherwise.

MY TAKE ON IT:

It’s a very good review of deficiencies of Risk understanding in contemporary Western world. It worth to add that despite all this problems the western world is much better able to handle risks and other problems than any other Cultural world either current or historical, mainly because of relative freedom of decision making and information distribution that allows wide range of opinions and potential solutions to be presented tried and, if proved successful, to be implemented. For me this book is very interesting by providing statistical confirmation to many of my gut feelings that I kind of acted upon by doing or not doing something, while feeling some very light concern that it is wrong. The statistical data and reminder to apply analytical skills to everyday life on more consistent basis kind of eliminated this light concern.


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