Risk Savvy summary

When faced with a difficult situation, people sometimes think they’re taking a risk, but in actuality they’re facing uncertainty.

This often happens when people mistakenly believe they’ve accounted for all possible outcomes of a given situation but have nevertheless missed something crucial.

If you truly understand a situation’s risk, i.e., you know all the possible outcomes and their probabilities, you might think it’s easy to choose your best option: all you have to do is pick the possibility with the best odds, right? Unfortunately, it’s not that simple.

This has to do, in part, with the fact that risk can be calculated in more ways than one. In order to determine the probability of an outcome, you’ll need to consider things like frequency, design and believability.

Sometimes, you have to make choices even when you can’t be certain of their consequences. So how do you choose the best course of action? It’s simpler than you think:

In situations when you’re faced with high uncertainty, you can make fast, sound decisions by using a rule of thumb, or a simple rule that only considers one piece of information and can be used without conscious effort.

As we’ve seen, you can use rules of thumb to make sound decisions even in the case of uncertainty. But what if you’re stuck between a rock and a hard place where there simply is no best decision?

In order to choose the best of many options, you first have to be aware of all possibilities. But sometimes it’s impossible to know all the possibilities. Instead, try to pick one that’s “good enough,” knowing full well that it’s not necessarily the best.

But no matter how varied and airtight our decision-making strategies are, people make mistakes. Still, there’s no reason to fret: mistakes are just as much a part of the decision-making process as logic and probability.

In fact, mistakes are important because they always teach you something. Indeed, many scientific discoveries were stumbled upon by mistake. Remember Christopher Columbus? He wanted to find a new route to India, but his entire expedition was based on entirely false assumptions about the diameter of the earth.

As we’ve seen, the way that we calculate risks can change how we perceive them. Equally important to our perception of risk is how that information is conveyed.

In medicine, risk can be presented in terms of relative risk, which is measured in relation to previously known facts, or absolute risk, which describes the probability of a medical event. Choosing one presentation over another can entirely change our perception of an event.

Becoming risk savvy isn’t something that only the best and brightest of us can achieve. In fact, anyone can understand risk if the information is presented properly and if they ask the right questions.

As we’ve seen, understanding risk isn’t about having all the information – it’s about understanding that you don’t have it all. In fact, having all the information you need to make a completely informed decision is generally impossible.

If we want our society to be risk savvy, we can never start too early. Teaching children about risk is the best way to ensure that they’ll make good decisions.

Just like with adults, getting children to understand risk comes down to presenting them with the right information in the right way.