Psychology of risk

The Economist interviewed cognitive scientist professor Gerd Gigerenzer of the Max Planck Institute for Human Development, author of a new book called Risk Savvy: How To Make Good Decisions, about how we frequently make terrible choices based on misinterpreted information:
UntitledYou also talk about an unconscious rules of thumb, or intuition. What role does intuition play in assessing risk?

In our society, intuition is looked upon as suspicious. I have done a number of studies with large international companies and asked the decision-maker how often do you make important decisions with your gut? A gut decision is not arbitrary, or a sixth sense. It’s based on lots of experience, but it is in the unconscious. On average, we found that about 50% of all these big decisions were gut decisions. But the same managers would not admit this in public. There is anxiety because they could be made responsible. And intuition, even if it’s better than calculation, has a bad name in our society.

Aren’t anecdotes about people who successfully used their intuition to make an important decision prone to survivorship bias? We only get to hear their success stories because they survived or their company survived or were successful in some way.

My point is not that intuition is always superior. My point is that we need more tools. And for me intuition is equal with statistical calculations. The real question is: can we identify the problem where it is better to go after your first gut feeling, and the type of problem where it’s better to go and think about the problem and collect data? So a strategy like a heuristic is not better or worse, it’s just that you need to figure out where it works.

Risky Business (The Economist)

Risk Savvy: How To Make Good Decisions (Amazon)

Notable Replies

  1. how we frequently make terrible choices based on misinterpreted information

    I recently saw a reddit thread about a Red Bull Rampage Mountain biking video here (also embedded at bottom). The armchair warriors within the reddit thread proceeded to tell everyone it wasn't as steep as it appeared because the GoPro video uses a fish-eye style lens.

    This was my response:

    ITT - People who have never mountain biked on anything even close to this steep in their life yet keep claiming that the fishyeye lens is overly exaggerating the risk, etc.

    Trust me, it's 1000x more steep in person when your ass is actually on the bike, peanut gallery. If anything, the fisheye doesn't do it justice compared to reality. The hilarious thing is the people saying this crap about the lens would piss themselves on something half this steep.

    No one has ever won the Rampage twice in a row because of injuries preventing it. It's hairy as hell.

    This is the same course right here:

    It really IS steep as hell and dangerous as hell. The only reason some of you think the fisheye exaggerates the risk is because your ass is planted firmly in a chair or sofa. You bastids.

  2. Kimmo says:

    Fuck me, that's bananas.

    But as a roadie, I know I don't know shit.

    As for intuition and when to use it, seems to me it's called for when you have a lot of experience in relevant contexts, and explicit investigation is precluded due to time, money or hard data constraints, or it's a trivial application that doesn't justify anything more than pulling an answer out of your arse.

    Concerning risk, I'm still trying to get hold of a doco I saw in the late 90s that tackled the subject from every conceivable angle, for instance MAO enzyme levels in the blood, to the difference between actual and perceived risk, in lots and lots of contexts... it was bloody brilliant. I remember factoids from it like more people die in the UK from putting their socks on than from ecstasy (there was a UK tabloid scare in the 90s), and that in Canada where they have all these level crossings without boom gates, they tried cutting back trees to provide more visibility but people just sped up to maintain the risk level they were comfortable with.

    If someone could tell me the name of this doco, I'd be bloody stoked.

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