The Flaw of Averages Why We Underestimate Risk in the Face of Uncertainty

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2009-06-09
  • Publisher: Wiley
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Tomorrow's temperature, next week's sales, next month's stock price, next year's costs--these are all numbers we don't know yet. Everyday we base our personal and business plans on these kinds of uncertainties and as the financial collapse of Orange County, Barings Bank and Long Term Capital show, we are often ill-equipped to deal effectively with this uncertainty. The problem is that even graduates of statistics courses don't understand the fundamental concepts of uncertainty. This book enables readers to understand the elements of "statistics" vital to our everyday dealings with uncertainty.

Author Biography

Zhongwu Guo is a Professor of Chemistry at Wayne State University. The winner of the American Chemical Society's 2005 New Investigator Award in Carbohydrate Chemistry, Dr. Guo serves on the editorial board of the Journal of Carbohydrate Chemistry, speaks regularly at international conferences, and has authored more than ninety peer-reviewed publications.

Geert-Jan Boons is a Franklin Professor of Chemistry at the Complex Carbohydrate Research Center (CRCR) of the University of Georgia. The winner of the European Carbohydrate Association's Carbohydrate Research Award for Creativity in Carbohydrate Science, and the American Chemical Society's Horace Isbell Award, Dr. Boons serves on the editorial boards of Journal of Carbohydrate Chemistry and Advances in Carbohydrate Chemistry and Biochemistry.

Table of Contents

Prefacep. xv
Acknowledgmentsp. xix
Introduction Connecting the Seat of the Intellect to the Seat of the Pantsp. 1
The Big Picturep. 9
The Flaw of Averagesp. 11
The Fall of the Algebraic Curtain and Rise of the Flaw of Averagesp. 22
Mitigating the Flaw of Averagesp. 26
The Wright Brothers Versus the Wrong Brothersp. 34
The Most Important Instrument in the Cockpitp. 40
Five Basic MINDIes for Uncertaintyp. 45
MINDIes Are to MINDs What HANDIes Are to HANDsp. 49
Mindle 1: Uncertainty Versus Riskp. 52
Mindle 2: An Uncertain Number Is a Shapep. 55
Mindle 3: Combinations of Uncertain Numbersp. 67
I Come to Bury Sigma, Not to Praise itp. 78
Mindle 4: Terri Dial and the Drunk in the Roadp. 83
Who Was Jensen and Why Wasn't He Equal?p. 91
The Nuts and Bolts of the Strong Form of the Flaw of Averages
Mindle 5: Interrelated Uncertaintiesp. 98
Decisions and Informationp. 109
Decision Treesp. 111
The Value of Informationp. 118
Because There Isn't Anything Else
The Seven Deadly Sins of Averagingp. 127
The Seven Deadly Sins of Averagingp. 129
The Flaw of Extremesp. 133
Simpson's Paradoxp. 139
The Scholtes Revenue Fallacyp. 142
Taking Credit for Chance Occurrencesp. 147
The Flaw of Averages in Financep. 155
Your Retirement Portfoliop. 157
The Birth of Portfolio Theory: The Age of Covariancep. 163
When Harry Met Bill(y)p. 169
Mindles for the Financial Planning Clientp. 175
Options: Profiting from Uncertaintyp. 181
When Fischer and Myron Met Bob: Option Theoryp. 192
Prices, Probabilities, and Predictionsp. 200
Real Financep. 213
Holistic Versus Hole-isticp. 215
Real Portfolios at Shellp. 222
Real Optionsp. 228
Some Gratuitous Inflammatory Remarks on the Accounting Industryp. 236
The Flaw of Averages in Supply Chainsp. 245
The DNA of Supply Chainsp. 247
A Supply Chain of DNAp. 254
Cawlfield's Principlep. 257
The Flaw of Averages and Some Hot Button Issuesp. 263
The Statistical Research Group of World War IIp. 265
Probability and the War on Terrorp. 272
The Flaw of Averages and Climate Changep. 289
The Flaw of Averages in Health Carep. 299
Sex and the Central Limit Theoremp. 307
Probability Management
Toward a Cure for the Flaw of Averagesp. 317
The End of Statistics as You Were Taught Itp. 319
Visualizationp. 324
Interactive Simulation: A New Lightbulbp. 328
Scenario Libraries: The Power Gridp. 332
The Fundamental Identity of SLURP Algebrap. 341
Putting It into Practicep. 343
The CPO: Managing Probability Managementp. 354
A Posthumous Visit by My Fatherp. 364
Red Word Glossaryp. 367
Notesp. 371
About the Authorp. 382
Indexp. 383
Table of Contents provided by Ingram. All Rights Reserved.

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