Despite all its promise, the Information Age is also laden with a dizzying array of technological, economic, and political uncertainties. While the electronic spreadsheet brought the power of business modeling to tens of millions, in so doing, it also paved the way for an epidemic of what Sam Savage calls the Flaw of Averages. This set of systematic errors occurs in all types of business and scientific endeavors when smart people focus on single average values in the face of uncertainty and risk, and it is an accessory to the economic catastrophe that culminated in 2008. The Flaw of Averages also ensures that plans based on averages of such uncertainties as customer demand, completion time, and interest rate are below projection, behind schedule, and beyond budget. In his book, Savage draws on recent breakthroughs in technology, along with new data structures and management protocols, to offer an approach to curing the Flaw of Averages.
Savage begins by providing a basis for intuitively grasping and visualizing risk and uncertainty, using simple everyday props such as game-board spinners and dice. He refers to such statistical jargon as standard deviation and covariance as Red Words, and instead uses straightforward, everyday language throughout the book. He does not assume any statistical background on the part of the reader, but claims that for those with extensive training in the field, the first section of the book will repair the damage. He then describes how risk and uncertainty are handled in the field of finance, where the Flaw of Averages was first systematically conquered by Modern Portfolio Theory. Savage describes how the recenteconomic turmoil was caused in part by clinging blindly to this early work while not adhering to its fundamental principles. He then shows how these principles still form an excellent foundation for managing uncertainty and risk in other areas of industry and government, and provides examples in supply chain management, project portfolios, national defense, healthcare, climate change, and even sex.
In the book’s final section, Savage reveals current developments in the emerging field of Probability Management—a path towards increased transparency and a potential cure for the Flaw of Averages. Finally, the book includes a Red Word Glossary that defines statistical terms in plain English to assist readers in defending themselves against those wielding technical mumbo jumbo.
The goal of The Flaw of Averages is to help you make better judgments involving uncertainty and risk, both when you have the leisure to deliberate, and, more importantly, when you don’t. Its approach of a more transparent representation of uncertainty is helping people and some big companies to make better decisions today. --This text refers to the Unknown Binding edition.
"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 . . . the Distribution String . . . represents a major breakthrough in the communication of risk and uncertainty."
—Harry Markowitz, Nobel Laureate in Economics
"This is a book written for laymen with enough interesting insights to engage even the most scholarly professional."
—Douglas Hubbard, author of How to Measure Anything
"Sam Savage is the Edward Tufte of risk."
—Matthew Raphaelson, Executive Vice President, Wells Fargo
A GROUNDBREAKING MUST-READ FOR ANYONE WHO MAKES BUSINESS DECISIONS IN THE FACE OF UNCERTAINTY
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. He explains why plans based on average assumptions are wrong, on average, in areas as diverse as finance, healthcare, accounting, the war on terror, and climate change. Savage refers to anachronistic statistical jargon as Red Words, which he defines as things that may not be uttered in a singles bar. Instead, he presents complex concepts in plain English (Green Words), backed up by interactive simulations at www.FlawofAverages.com, which connect the seat of the intellect to the seat of the pants.
Savage also presents the emerging field of Probability Management aimed at curing the Flaw of Averages through more transparent communication of uncertainty and risk. Savage argues that this is a problem that must be solved if we are to improve the stability of our economy, and that we cannot repeat the recent mistakes of applying "steam era" statistics to "information age" risks.See all Editorial Reviews
This book was required for a business decision analysis class, but a great read none the less.Published 3 months ago by Terrance Kirkwood
We teach statistics at www.GraduateTutor.com and other business subjects to MBA students and find that the average is probably the most USED and MISUSED statistical parameter! Read morePublished 6 months ago by Senith Mathews
Easy to read. Great fundamental principles that elucidate the flaw of averages. Can be used as a tool across many industries.Published 7 months ago by JS
I didn't understand my college course on statistics for engineers, but I understood the presentation in this book.Published 13 months ago by Richard
Absolute best, executive-ready descriptions and examples of fatal traps and what to do about them that I've ever read. I can't recommend this book enough.Published 14 months ago by Scott McCaig
This is a well written even entertaining book on one of life's essentials - effectively managing risk. A must read.Published 18 months ago by Dr Anthony Sive
.... making it practical, like learning to ride a bike rather than the physics that describes the theory of how to balance and move a bike forward at the same time...Published 19 months ago by K.J.