Risk Savvy: How To Make Good Decisions

Also by Gerd Gigerenzer Gut Feelings VIKING Published by the Penguin Group Penguin Group (USA) LLC 375 Hudson Street New York, New York 10014 USA | Canada | UK | Ireland | Australia | New Zealand | India | South Africa | China penguin.com A Penguin Random House Company First published by Viking Penguin, a member of Penguin Group (USA) LLC, 2014 Copyright © 2014 by Gerd Gigerenzer Penguin supports copyright. Copyright fuels creativity, encourages diverse voices, promotes free speech, and creates a vibrant culture. Thank you for buying an authorized edition of this book and for complying with copyright laws by not reproducing, scanning, or distributing any part of it in any form without permission. You are supporting writers and allowing Penguin to continue to publish books for every reader. Illustration credits appear here. LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Risk savvy : how to make good decisions / Gerd Gigerenzer. pages cm Includes bibliographical references and index. ISBN 978-0-698-15143-7 1. Decision making. 2. Risk-taking (Psychology) 3. Statistics. I. Title. BF448.G485 2014 153.8'3—dc23 2013036980 Version_1 For Raine and Thalia CONTENTS ALSO BY GERD GIGERENZER TITLE PAGE COPYRIGHT DEDICATION Part I The Psychology of Risk 1 Are People Stupid? 2 Certainty Is an Illusion 3 Defensive Decision Making 4 Why Do We Fear What’s Unlikely to Kill Us? Part II Getting Risk Savvy 5 Mind Your Money 6 Leadership and Intuition 7 Fun and Games 8 Getting to the Heart of Romance 9 What Doctors Need to Know 10 Health Care: No Decision About Me Without Me 11 Banks, Cows, and Other Dangerous Things Part III Start Early 12 Revolutionize School ACKNOWLEDGMENTS GLOSSARY NOTES REFERENCES INDEX ILLUSTRATION CREDITS The Psychology of Risk Creativity requires the courage to let go of certainties. Erich Fromm To be alive at all involves some risk. Harold Macmillan 1 Are People Stupid? Knowledge is the antidote to fear. Ralph Waldo Emerson R emember the volcanic ash cloud over Iceland? The subprime disaster? How about mad cow disease? Each new crisis makes us worry until we forget and start worrying about the next one. Many of us found ourselves stranded in crowded airports, ruined by vanishing pension funds, or anxious about tucking into a yummy beef steak. When something goes wrong, we are told that the way to prevent further crisis is better technology, more laws, and bigger bureaucracy. How to protect ourselves from the next financial crisis? Stricter regulations, more and better advisers. How to protect ourselves from the threat of terrorism? Homeland security, full body scanners, further sacrifice of individual freedom. How to counteract exploding costs in health care? Tax hikes, rationalization, better genetic markers. One idea is absent from these lists: risk-savvy citizens. And there is a reason. “Human beings are fallible: lazy, stupid, greedy and weak,” an article in the Economist announced.1 We are said to be irrational slaves to our whims and appetites, addicted to sex, smoking, and electronic gadgets. Twenty-yearolds drive with their cell phones glued to their ears, oblivious to the fact that doing so lowers their reaction time to that of a seventy-year-old. A fifth of Americans believe that they are in the top 1 percent income group and just as many believe that they will soon be there. Bankers have little respect for people’s ability to invest money, and some doctors tell me that most of their patients lack intelligence, making it pointless to disclose health information that might be misunderstood in the fi