Risk Savvy: How to make good decisions
By Gerd Gigerenzer
Allen Lane, 2014
In this combative yet elegantly argued book Gerd Gigerenzer extols ‘the power of simple rules in the real, messy world’.
He rails mightily against the notion that all risks in any real-world situation are, or can be, known – even going so far as to dub it the ‘turkey illusion’. During the course of the book, Gigerenzer parades a number of such situations where this notion proved misguided and costly. Naturally, pride of place goes to the financial crisis of 2008. Perhaps this crisis or something like it could not have been wholly avoided, nonetheless the suffering arising from it (and still to come) could have been considerably allayed if the banks had followed Mervyn King’s rule: Don’t use leverage ratios above 10:1.
The thrust of the book is that you can use such straightforward rules to cope with and take control of almost any real-world situation, from choosing how to invest your money, to picking a spouse, to deciding what to order from a restaurant menu.
A strength of the book, alongside the insights into statistics and frequent practical advice, is that Gigerenzer doesn’t mince his words. Of banks, for example, he says at one point that:
Fear of personal responsibility [by managers] creates a market for worthless products [here, he is specifically talking about currency predictions] delivered by high-paid experts [financial
He is also fairly scathing about doctors and the medical profession generally. Overall, one gains the impression that, when it comes to experts, the line about a broken clock being right twice a day is never far from the author’s lips.
Professionals, including journalists (if they count), get it in the neck because they don’t understand the nature of risk. But, then again, nor do we, the general public. On this point, Gigerenzer’s closing words are also worth quoting in full:
Critical thinking requires knowledge. To get it running we need courage, the courage to make our own decisions and take on the responsibility. Dare to know.
An empowering book, which is described by the publisher here.