The one-sentence summary

We can all use simple rules to avoid being manipulated into unrealistic fears or hopes, and to make better decisions.

Can’t be bothered to read it? Listen to the 5-minute summary.

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WHAT THE BOOK SAYS

  • This book is all about how to make good decisions.
  • Risk-taking is essential for innovation, fun, and the courage to face uncertainties in life. Yet for many important decisions we are often presented with statistics and probabilities that we don’t really understand.
  • We also inevitably rely on experts in relevant fields – policy makers, financial advisers, and doctors – but often they don’t understand the way information is presented either.
  • The author works through the psychology of risk, asking questions such as Are People Stupid? and Why do we fear what’s unlikely to kill us?
  • Certainty is an illusion, and so many predictions are effectively pointless.
  • There is a clear difference between risk and uncertainty:

~ Risk: If risks are known, good decisions require logic and statistical thinking.

~ Uncertainty: If some risks are unknown, good decisions also require intuition and smart rules of thumb.

  • In an unstable, globally connected world with many risk factors and small amounts of data, simple rules of thumb are tremendously helpful. Complex risk models based on large amounts of data frequently don’t work.
  • Defensive Decision Making involves taking as little risk as possible. It pervades many company cultures.
  • Companies have Positive and Negative Error Cultures. Positive learns from mistakes (aviation), negative covers them up (hospitals).

WHAT’S GOOD ABOUT IT

  • Intuition is not the opposite of rationality. And don’t ask anyone to explain their gut feeling, because they can’t. That’s why it’s a feeling.
  • “If everything on earth were rational, nothing would happen.” Fyodor Dostoevsky
  • When it comes to health, No Decisions About Me Without Me is a wise mantra. People should not agree to screenings and treatments that may not be helpful, or may involve unnecessary risk.
  • Percent of What? is a crucial question to ask. Most people don’t and are usually misled by statistics.
  • Ask doctors what they would do, not what they recommend.
  • NINJAs are No Income, No Job, No Assets. They were the people who lost everything in the subprime crisis.

WHAT YOU HAVE TO WATCH

  • Not much, but the chapters on decision making in romance, health, gambling, and game shows has been covered a fair bit elsewhere in the behavioural economics literature.