The Flaw of Averages: Sam L. Savage On Why We Underestimate Risk in the Face of Uncertainty

[MacAttackX]

Hmmm...I wonder what the Vegas odds makers think of this?

[XCritonX]

I loved this interview. Mr Sam Savage (such a cool name) has got his own sort of funny. And it was short and to the point. Nice job.

[thomaserossi]

Anyone can makeup statistics, seven outta ten people know that.

[Shadyhunter04]

Haha, gotta love stats, especially when they're used with no common sense -- like the assumption that home prices would consistently trend upwards forever.

In actuality, I would say that the housing issue is a case people ignoring both variance and averages -- which bit us in the ass when the long run* data is taken into account. If you get a few data points extremely high I would say it would be reasonable to expect the next readings to crash back down below or near the average.

[MarcusCMarcellus]

This is over the top BANAL! Wow! This is a book; this is a career?

[wimscheers]

Savage, too bad he has to bare that name.

[RogerOnTheRight]

The wandering drunk analogy is pretty dumb. Nobody seriously imagines crossing a busy highway is particularly safe while sober, much less while drunk. Even drunks know that.

What he is really observing here is lack of appreciation for the effect of variance when analyzing statistical probabilities.

Here is the essence of risk management: understanding the probability of an event while weighing the impact of that event.

Multiply the two to get risk factor.

[goten1201]

I really liked that interview, I think I might buy his book.