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RISK INTELLIGENCE by Dylan Evans

RISK INTELLIGENCE

How to Live with Uncertainty

By Dylan Evans

Pub Date: April 17th, 2012
ISBN: 978-1-4516-1090-1
Publisher: Free Press

Risk analyst and popular-science writer Evans (Placebo: Mind Over Matter in Modern Medicine, 2004, etc.) analyzes the fallacy of the quest for certainty in making decisions.

[“M]ost of us simply aren't comfortable with or adept in making judgments in the netherland of uncertainty,” writes the author. We tend to over-react when it comes to assessing uncertainty and ambiguity and when we are faced with daunting challenges. Evans attributes this unwillingness to deal with uncertainty to “our reluctance to gauge the limits of what we know” and make judgments accordingly. Our comfort zone is located at either extreme of the spectrum: overconfidence or the expectation of doom. While the cost of over-optimism has been showcased by the recent financial crisis, we may suffer losses from missed opportunities when we refuse to accept a reasonable amount of risk. Though some of our difficulty in dealing with risk can be attributed to the tendency of our brain to overestimate dramatic events and indulge in wishful thinking, as well as our susceptibility to after-the-fact confirmation bias, these tendencies can be overcome. Evans looks at the improvement in weather forecasting in the past 50 years as a case in point. He suggests that one way to raise our risk intelligence is to carefully assess the limits of what we know, assess the reliability of sources, critically evaluate the accuracy of our estimates and learn the rudiments of probability theory. Financial speculation has become a dirty word, he writes, but in many circumstances it is valuable to make an educated guess.

A provocative critique of the power of positive thinking and a solid addition to the behavioral-economics shelf.