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

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Synopsis

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 Savage­known 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

 

About Sam L. Savage

See more books from this Author
Sam L. Savage is a Consulting Professor of Management Science and Engineering at Stanford University, and a Fellow of the Judge Business School at the University of Cambridge.
 
Published March 13, 2012 by Wiley. 416 pages
Genres: Business & Economics. Non-fiction

Unrated Critic Reviews for The Flaw of Averages

Seeking Alpha

As Benjamin Disraeli, once said, “There are three kinds of lies: lies, damned lies, and statistics.” This book will help you avoid the last sort of lie.

Aug 28 2009 | Read Full Review of The Flaw of Averages: Why We ...

Seeking Alpha

Sam Savage's latest offering Flaw of Averages is a useful book and set of thought tools he calls mindles.

Aug 10 2009 | Read Full Review of The Flaw of Averages: Why We ...

Seeking Alpha

Thus the profit of a mortgage portfolio based on what are expected to be average property values will overestimate average profit."

Aug 30 2012 | Read Full Review of The Flaw of Averages: Why We ...

The Finance Professional's Post

As a pioneer in the emerging field of probability management (the practice of managing risk in a corporate environment), he has produced what, in essence, is a general management book disguised as a dissertation on statistical analyses.

Mar 19 2010 | Read Full Review of The Flaw of Averages: Why We ...

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