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

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

A must-read for anyone who makes business decisions that have a major financial impact. As the recent collapse on Wall Street shows, we are often ill-equipped to deal with uncertainty and risk. Yet every day we base our personal and business plans on uncertainties, whether they be next month's sales, next year's costs, or tomorrow's stock price. In The Flaw of Averages, Sam Savage-known for his creative exposition of difficult subjects- describes common avoidable mistakes in assessing risk in the face of uncertainty. Along the way, he 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.

Instead of statistical jargon, Savage presents complex concepts in plain English. In addition, a tightly integrated web site contains numerous animations and simulations to further connect the seat of the reader's intellect to the seat of their pants.

The Flaw of Averages typically results when someone plugs a single number into a spreadsheet to represent an uncertain future quantity. Savage finishes the book with a discussion of the emerging field of Probability Management, which cures this problem though a new technology that can pack thousands of numbers into a single spreadsheet cell.

Praise for The Flaw of Averages

"Statistical uncertainties are pervasive in decisions we make every day in business, government, and our personal lives. Sam Savage's lively and engaging book gives any interested reader the insight and the tools to deal effectively with those uncertainties. I highly recommend The Flaw of Averages."
--William J. Perry, Former U.S. Secretary of Defense

"Enterprise analysis under uncertainty has long been an academic ideal. . . . In this profound and entertaining book, Professor Savage shows how to make all this practical, practicable, and comprehensible."
---Harry Markowitz, Nobel Laureate in Economics

Title:The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty
Edition Language:English

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

  • Blakely

    If you've read this book you'll find it quite ironic that I'm giving it a rating of 4. A real rating of the book would look like this:5 xxxxxxxxx4.5 xxxxxxxxxxx4 xxxxxxxxxxxxx3.5 xxxxxxxxxxxxxxx xxx3 ...

  • Syed Ashrafulla

    Sam Savage's flaw in the Law of Averages is roughly two-fold: dependence between variables and nonlinearity in the payoff. He forgets about the big one (small samples & non-Gaussianity kill the law), ...

  • Fvandrog

    I was tremendously disappointed with this book. I got the false impression that it would focus on statistics in all aspects of life -- instead it is on discussing business cases, which makes it rather...


    “Consider the state of a drunk, wandering around on a busy highway. His average position is the centerline, so the state of the drunk at his average position is alive, but the average state of the d...

  • John Petrocelli

    Review: Opted not to read pages 173-243 (much of which focuses on applications in Finance and Real Finance - probably useful advice for investing, but very boring). The book has a few nice examples of...

  • Johan Dahlbck

    The average value disease is alive and well in management. I knew it before and I see it even clearlier after reading this book. Getting from taking mean values for truth to using distribution is a lo...

  • E A

    Don’t just check the book’s score; check the variability of it tooThis is an excellent and mostly easy to read book on common traps we fall in by guiding our decisions using a single figure, mostl...

  • Willis

    A layman's version of the problems underlying the usage of the average without recognizing the variation in that average. Uses a lot of examples from financial investments and probability but there ar...

  • Preston

    I was recommended this book by one of my Operations Research Professor's and found it to be pretty entertaining while educational. I think for someone who isn't familiar with Operations Research or St...

  • F_alsaad

    What a disappointment!!!! ...