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Risk Intelligence: How to Live with Uncertainty Hardcover – April 17, 2012


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Product Details

  • Hardcover: 288 pages
  • Publisher: Free Press (April 17, 2012)
  • Language: English
  • ISBN-10: 9781451610901
  • ISBN-13: 978-1451610901
  • ASIN: 1451610904
  • Product Dimensions: 9.2 x 6.4 x 1.1 inches
  • Shipping Weight: 14.9 ounces (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (18 customer reviews)
  • Amazon Best Sellers Rank: #678,364 in Books (See Top 100 in Books)

Editorial Reviews

About the Author

Dylan Evans is the founder and CEO of Projection Point, which designs risk intelligence training programs for corporate clients.  He has written several popular science books, including Emotion: The Science of Sentiment (Oxford University Press, 2001) and Placebo: The Belief Effect (HarperCollins, 2003), and in 2001 he was voted one of the twenty best young writers in Britain by the Independent on Sunday. He received a PhD in Philosophy from the London School of Economics in 2000, and has held academic appointments at King's College London, the University of Bath, the University of the West of England, and University College Cork. He is also a Distinguished Supporter of the British Humanist Association.

Excerpt. © Reprinted by permission. All rights reserved.

CHAPTER 1

Why Risk Intelligence Matters

He who knows best, best knows how little he knows.
THOMAS JEFFERSON

Kathryn, who is a detective, is good at spotting lies. While her colleagues seem to see them everywhere, she is more circumspect. When she’s interviewing a suspect, she doesn’t jump to conclusions. Instead she patiently looks for the telltale signs that suggest dishonesty. Even so, she is rarely 100 percent sure that she’s spotted a lie; it’s more often a question of tilting the scales one way or another, she says.

Jamie is viewed as a bit of an oddball at the investment bank where he works. When everyone else is sure that prices will continue to go up, Jamie is often more skeptical. On the other hand, there are times when everyone else is pessimistic but Jamie is feeling quite bullish. Jamie and his colleagues are not always at odds, but when they disagree it tends to be Jamie who is right.

Diane is overjoyed about her new relationship. When she phones her best friend, Evelyn, to tell her all about the new man in her life, Evelyn urges caution. “What’s the chance that you’ll still be with this guy in twelve months?” she asks, as she has done before. Diane’s reply is just as predictable. “Oh, ninety, maybe ninety-five percent,” she replies, as she always does. “I’m sure Danny is the one!” Two months later, she’s broken up again.

Jeff has just been promoted to the rank of captain in the US Army. Since he is new to the role, he often feels unsure of his decisions and seeks out his colonel for a second opinion. The colonel is beginning to get rather tired of Jeff’s pestering him, and has taken to playing a little game. Whenever Jeff asks his opinion, he responds by asking how confident Jeff is of his own hunch. Usually Jeff replies that he’s only about 40 or 50 percent sure. But nine times of out ten, the colonel agrees with Jeff’s opinion.

These four people display different degrees of risk intelligence. Kathryn and Jamie have high risk intelligence, while Diane and Jeff are at the other end of the spectrum. What exactly do I mean by risk intelligence? Most simply put, it is the ability to estimate probabilities accurately, whether the probabilities of various events occurring in our lives, such as a car accident, or the likelihood that some piece of information we’ve just come across is actually true, such as a rumor about a takeover bid. Or perhaps we have to judge whether a defendant in a murder trial is guilty, or must decide whether it’s safe to take a trip to a country that’s been put on a watch list. We often have to make educated guesses about such things, but fifty years of research in the psychology of judgment and decision making show that most people are not very good at doing so. Many people, for example, tend to overestimate their chances of winning the lottery, while they underestimate the probability that they will get divorced.

At the heart of risk intelligence lies the ability to gauge the limits of your own knowledge—to be cautious when you don’t know much, and to be confident when, by contrast, you know a lot. People with high risk intelligence tend to be on the button in doing this. Kathryn and Jamie, for example, are relatively risk intelligent because they know pretty well how much they know and have just the right level of confidence in their judgments. Diane and Jeff are much less proficient, though in different ways; while Diane is overconfident, Jeff is underconfident.

This is a book about why so many of us are so bad at estimating probabilities and how we can become better at it. This is a vital skill to develop, as our ability to cope with uncertainty is one of the most important requirements for success in life, yet also one of the most neglected. We may not appreciate just how often we’re required to exercise it, and how much impact our ability to do so can have on our lives, and even on the whole of society. Consider these examples, from the relatively mundane to the life-threatening:

You are buying a new 42-inch HDTV, and a sales assistant asks if you would also like to purchase an extended warranty. He explains that if anything goes wrong with your TV in the next three years, the warranty will entitle you to swap it for a brand-new one, no questions asked. When deciding whether or not to purchase the extended warranty, you should consider the price of the TV, the price of the warranty, and the probability that the TV will indeed go wrong in the next three years. But what’s the chance that this will actually happen? Here’s where your risk intelligence comes in.

A bank manager is explaining to you the various options available for investing a windfall that has just come your way. Riskier investment funds pay more interest, but there’s also a higher chance of making a loss. How much of your money should you allocate to the high-risk funds and how much to the low-risk ones? It’s partly a question of risk appetite, but you also need to know more about how much riskier the high-risk funds are. Are they 2 percent or 10 percent riskier? You need, in other words, to put a number on it.

Doctors have discovered a tumor in your breast. Luckily, it is not malignant. It will not spread to the rest of your body, and there is no need to remove your breast. But there is a chance that it may recur and become malignant at some time in the future, and it might then spread quickly. In order to prevent this possibility, the doctor suggests that you do, after all, consider having your breast removed. It’s a terrible dilemma; clearly you don’t want the cancer to recur, but it seems a tragedy to remove a healthy breast. How high would the chance of recurrence have to be before you decided to have the breast removed?

When making evaluations in situations of uncertainty, people often make very poor probability estimates and may even ignore probabilities altogether, with sometimes devastating consequences. The decisions that we face, both individually and as a society, are only becoming more daunting. The following cases further illustrate how important it is that we learn to develop our risk intelligence.

THE CSI EFFECT

The television drama CSI: Crime Scene Investigation is hugely popular. In 2002, it was the most watched show on American television, and by 2009 the worldwide audience was estimated to be more than 73 million. It isn’t, however, such a hit with police officers and district attorneys, who have criticized the series for presenting a highly misleading image of how crimes are solved. Their fears have been echoed by Monica Robbers, a criminologist, who found evidence that jurors have increasingly unrealistic expectations of forensic evidence. Bernard Knight, formerly one of Britain’s chief pathologists, agrees. Jurors today, he observes, expect more categorical proof than forensic science is capable of delivering. And he attributes this trend directly to the influence of television crime dramas.

Science rarely proves anything conclusively. Rather, it gradually accumulates evidence that makes it more or less likely that a hypothesis is true. Yet in CSI and other shows like it, the evidence is often portrayed as decisive. When those who have watched such shows then serve on juries, the evidence in real-life court cases can appear rather disappointing by contrast. Even when high-quality DNA evidence is available, the expert witnesses who present such evidence in court point out that they are still dealing only in probabilities. When the jurors contrast this with the certainties of television, where a match between a trace of DNA found at a crime scene and that of the suspect may be unequivocal, they can be less willing to convict than in the past.

The phenomenon has even been given a name: “the CSI effect.” In 2010, a study published in Forensic Science International found that prosecutors now have to spend time explaining to juries that investigators often fail to find evidence at a crime scene and hence that its absence in court is not conclusive proof of the defendant’s innocence. They have even introduced a new kind of witness to make this point—a so-called negative evidence witness.

Unrealistic expectations about the strength of forensic evidence did not begin with CSI, of course. Fingerprints led to the same problem; they have been treated by the courts as conclusive evidence for a hundred years. In 1892, Charles Darwin’s cousin Francis Galton calculated that the chance of two different individuals having the same fingerprints was about 1 in 64 billion, and fingerprint evidence has been treated as virtually infallible ever since, which means that a single incriminating fingerprint can still send someone to jail. But, like DNA evidence, even the best fingerprints are imperfect. After a mark is found at a crime scene, it must be compared to a reference fingerprint, or “exemplar,” retrieved from police files or taken from a suspect. But no reproduction is perfect; small variations creep in when a finger is inked or scanned to create an exemplar.

More important, fingerprint analysis is a fundamentally subjective process; when identifying distorted prints, examiners must choose which features to highlight, and even highly trained experts can be swayed by outside information. Yet the subjective nature of this process is rarely highlighted during court cases and is badly understood by most jurors. Christophe Champod, an expert in forensic identification at the University of Lausanne in Switzerland, thinks the language of certainty that examiners are forced to use hides the element of subjective judgment from the court. He proposes that fingerprint evidence be presented in probabilistic terms and that examiners s...

More About the Author

Dylan Evans is the founder and Chief Visionary Officer of Projection Point, a global leader in risk intelligence solutions. He has written several popular science books, including Risk Intelligence: How to Live with Uncertainty (2012) and Placebo: The Belief Effect (2003), and in 2001 he was voted one of the twenty best young writers in Britain by the Independent on Sunday. He received a PhD in Philosophy from the London School of Economics in 2000, and has held academic appointments at King's College London, the University of Bath, and the American University of Beirut. He is also a Distinguished Supporter of the British Humanist Association

Customer Reviews

Helps improve performance and business communication.
mulatdood
The reader should be prepared for a rapid-fire array of real-world examples and research sources from an author who is about as well-read as they come.
Douglas W. Hubbard
I enjoyed reading the book from cover to cover and taking my time with it.
Phil

Most Helpful Customer Reviews

27 of 27 people found the following review helpful By Aaron C. Brown TOP 1000 REVIEWERVINE VOICE on April 17, 2012
Format: Hardcover
There are many books discussing how to deal with risk in the sense of future events that cannot be predicted with total accuracy: dice rolls, stock price movements, whether you will get cancer or be injured in an automobile accident. The focus of this book is on a different but easily confused topic: how to make decisions when your knowledge is uncertain. The first topic is the studied by probability theorists and statisticians. The second topic concerns the underlying information on which you base decisions. This book takes us through the fields of philosophy and both individual and social psychology. Outside of some highly structured risk-taking activities, as are found in casinos and financial markets for examples, dealing with uncertainty is a more useful skill than probability analysis. It is also much easier to learn, primarily because it depends on common sense and simple logic rather than abstract mathematics.

It's possible to enjoy this book as an account of popular science, similar to those written by Malcolm Gladwell and Daniel Kahneman. There are colorful accounts of fascinating research conducted by the author and others including why US weather forecasters have better risk intelligence than those in the UK, the difference in risk thinking between ordinary serious tournament bridge players and top international champions and specific defects in medical risk intelligence that lead to less-than-optimal patient care (this is a particular focus of the author as he taught in a medical school).
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9 of 10 people found the following review helpful By Book Fanatic TOP 500 REVIEWERVINE VOICE on April 21, 2012
Format: Hardcover
First of all let me state that I think the subject of this book which is basically understanding the probability of every day life of the individual and society is extremely important. I love books that discuss probability and risk and try to teach people how to deal with them better. It's such an important part of modern life because our native skills were not made for the 21st century.

This is a very easy read, almost too easy for someone who already has some understanding of the subject matter. My only complaint is that the author treated the topic too lightly. However, I understand that to do otherwise would probably have eliminated many potential readers. So for the general reader he probably took the right approach.

My favorite parts were the chapters on why risk intelligence matters, Bayes's Theorem, and expected utility.

This is a very good overall introduction to everyday reasoning about probability and therefore I recommend it.
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2 of 2 people found the following review helpful By Douglas W. Hubbard on July 29, 2012
Format: Hardcover Verified Purchase
I should disclose that I am briefly mentioned in the acknowledgements of this book. I suppose I'm further biased by how closely the author's views match my own on the topic. Still, I honestly believe that any intelligent reader with an appreciation of great scholarly work and an interest in this topic will find this book to be well worth the time to read. This is an expansive treatment of a topic of the psychology of risk and uncertainty from one of the best researchers in the field.

The centerpiece of the book is Evans' derivation of a "risk quotient", a measure of intelligence dealing with all matters of risk. The author sought out the best examples of experts who have a knack for assessing risk (the horse handicapping examples are a great illustration) and developed a measure of this skill. He then points out that this particular measure of intellect may not be closely related to traditional measures of IQ and yet is critical to dealing with uncertainty in any area of life.

The measurement method of "RQ" alone would be worthy of a book. But Evans also discusses the consequences of poor RQ and focuses on helping the reader improve their own risk quotient. Part of the book is a basic introduction to how to think about probabilities using such tools as Bayes Theorem and the book provides several examples of common fallacies and poor thinking about risk.

One of the joys of reading this book is the numerous, relevant references spanning psychology, economics, management, history, philosophy, current events and science in general. The reader should be prepared for a rapid-fire array of real-world examples and research sources from an author who is about as well-read as they come. This book is thoroughly sourced and, at the very least, the reader should expect to come away with a broad knowledge of virtually all key components of the entire body of work in the psychology of risk.
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2 of 2 people found the following review helpful By Heath Nieddu on June 19, 2012
Format: Hardcover Verified Purchase
Escape the hamster-wheel of risk management

The current conversation regarding risk management sometimes sounds like it's going in circles. The logic spins upon itself and doesn't seem to really take traction, like a hamster spinning away on his wheel, in a cage. We can't really put our finger on it, but we know that something is still missing.

The shame is that the topic is usually approached with such hubris, that risk managers fail to see just how behind the curve they are in some areas, the holes they are digging that have already been dug many times over, or the overreach of their inferences.

Dylan Evans transcends the current discussion. "Risk Intelligence" does many things well, but its most refreshing gift is the acknowledgement that risk intelligence requires a mix of intuition and rationality. He reinforces his acknowledgement by going to great lengths in his discussion to appreciate both sides of this coin.

Sometimes it seems as if Evan's is only providing a nice introduction of risk management by synthesizing many established concepts in a digestible format. I'll admit I never understood Bayes' theorem so well until after I read the explanation here. He also does a good job with cognitive bias. Don't be fooled though. Evans' is making it look easy and only warming up.

When I step back, I recall just how much I've learned. The concept of Risk Intelligence itself is novel, and Evans' own creation. Instead trying to provide another framework for risk management, he's actually approaching a new slice of the puzzle by performing original research and providing an original concept. Over 50 thousand people so far have taken his risk intelligence battery.
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