A must-read for anyone who makes business decisions that have a major
financial impact.
As the recent collapse on Wall Street shows, we are often ill-equipped
to deal with uncertainty and risk. Yet every day we base our personal
and business plans on uncertainties, whether they be next month's sales,
next year's costs, or tomorrow's stock price. 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. Along the way, he shows why plans based on average
assumptions are wrong, on average, in areas as diverse as healthcare,
accounting, the War on Terror, and climate change. In his chapter on Sex
and the Central Limit Theorem, he bravely grasps the literary third rail
of gender differences.
Instead of statistical jargon, Savage presents complex concepts in plain
English. In addition, a tightly integrated web site contains numerous
animations and simulations to further connect the seat of the reader's
intellect to the seat of their pants.
The Flaw of Averages typically results when someone plugs a single
number into a spreadsheet to represent an uncertain future quantity.
Savage finishes the book with a discussion of the emerging field of
Probability Management, which cures this problem though a new technology
that can pack thousands of numbers into a single spreadsheet cell.
Praise for The Flaw of Averages
"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."
---Harry Markowitz, Nobel Laureate in Economics
