Humans are simply bad at assessing risk
By Adam Taggart at Peak Prosperity
In business school I had to take an introductory class in statistics we colloquially called "D&D". The official course name was Data & Decision-making.
In retrospect, it was a truly valuable class (one of very few I encountered in b-school). If you can figure out how to use statistics to determine the most probable outcome from a set of scenarios, or find predictive correlations from within a sea of data — that's real power. You can take a lot of the guesswork out of decision-making and consequently make the "right" call much more often.
I performed miserably in this class. But I had a lot of company; it was perennially voted the hardest in the school's core curriculum.
While I sometimes fantasize (masochistically) about taking the class again to master the black magic of statistics, I realize I did learn a valuable lesson: humans are innately poor at estimating probability.
This was proved to me time and again throughout that course, starting on the very first day.
A gifted young professor taught D&D. I was 27 at the time and he was only a year or two older than I. Wicked smart guy.
Given his age, he had a few things to prove to us on that first day of class. He wanted to demonstrate he was a little more fun and hip than the stuffy older profs who taught our other courses. He also intended to show that, even though he was the same age as us, his was the Alpha cerebrum in the room.
So as we took our seats for the first time, he asked: "Who wants to bet me $5 that two folks in this room have the same birthday?"
Keep reading: A Short Lesson in Bad Decision-Making | Peak Prosperity.
