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Risk Savvy Book Summary – Gerd Gigerenzer

What you will learn from reading Risk Savvy:

– Why we regularly misunderstand risk and how to stop it.

– Why diagnosis and advice is often wrong leading to disastrous results.

– Why society promotes defensive decisions making and what this means for us all.

The Two Risk Problems:

1. We misunderstand risks. 

2. Risks aren’t communicated well.

Many doctors, financial advisers, and other risk experts themselves misunderstand risks or are unable to communicate them in an understandable way. Worse, quite a few have conflicts of interest or are so afraid of litigation that they recommend actions to clients they would never recommend to their own families. 

The problem is not simply in people’s minds, but in the failure of experts to state clearly what they mean. If experts don’t specify the reference class clearly, people will intuitively think of one and act on it. 


Absolute Risk vs Relative Risk 



Use frequencies instead of single-event probabilities. Use absolute instead of relative risks.

By using percentages financial advisers exploit he fact that few people ask the essential question: percent of what? 

This question is essential to risk literacy. Nine percent is not always more than 1 percent.


We crave Certainty:

Nonetheless many of us ask for certainty from our bankers, our doctors, and our political leaders. What they deliver in response is the illusion of certainty, the belief that something is certain even when it isn’t.

Humans appear to have a need for certainty, a motivation to hold on to something rather than to question it.

John Dewey, the great pragmatist philosopher, pointed out. Today, modern technologies, from mathematical stock prediction methods to medical imaging machines, compete for the confidence promised by religion and authority. 


Risk and Uncertainty:

RISK: If risks are known, good decisions require logic and statistical thinking.  

UNCERTAINTY: If some risks are unknown, good decisions also require intuition and smart rules of thumb. 

Calculated intelligence may do the job for known risks, but in the face of uncertainty, intuition is indispensable. 

Intelligent decision making entails knowing what tool to use for what problem. Intelligence is not an abstract number such as an IQ, but similar to a carpenter’s tacit knowledge about using appropriate tools. 


Filtering out unimportant Information:

The gaze heuristic illustrates how the mind can discover simple solutions to complex problems. It is called a heuristic because it focuses on the one or few pieces of information that are important and ignores the rest. 

The important point is that ignoring information can lead to better, faster, and safer decisions. 

Calvin: Once you become informed, you start seeing complexities and shades of gray.  

Hobbes: mmh  

Calvin: You realise that nothing is as clear and simple as it first appears. Ultimately, knowledge is paralysing. 


Error Cultures:

Risk aversion is closely tied to the anxiety of making errors. If you work in the middle management of a company, your life probably revolves around the fear of doing something wrong and being blamed for it.

Safety measures are one aspect of an error culture, reporting of actual errors another. Good question – Do they audit after error?

So, the two key elements of error culture:

  1. Safety measures
  2. Reporting of errors


Defensive Decision Making:

Defensive decision making: A person or group ranks option A as the best for the situation, but chooses an inferior option B to protect itself in case something goes wrong. 

Said differently: When individuals choose a second-best option to protect themselves if something goes wrong, this is called defensive decision making (“covering your ass”).

Defensive decision making draws on brand name recognition, but also on anything else that protects the decision maker.

Many committee meetings end with “We need more data.” Everybody nods, breathing a sigh of relief, happy that the decision has been deferred. 

Not making a decision or procrastinating in order to avoid responsibility is the most blatant form of defensive decision making. 

Fear of litigation and accountability has developed defensive decision making into an art. It’s the modern art of self-defense at the cost of the company, the taxpayer, or the patient. 

Key Point – Defensive decisions are imposed by the psychology of the system. 


Lawyers vs Doctors – The motivation behind defensive decision making:

There are far too many lawyers in the United States, more per capita than in any other country except Israel, and the number of law students is increasing steadily. 

In each case, good care is thwarted by doctors’ collective anxiety. 

What really happened was that Dr. Push made me sign in order to protect himself against me. Parents’ litigation culture forces him to do so. 

Rule of thumb: Ask Your Doctors What They Would Do, Not What They Recommend. 

Don’t ask your doctors what they recommend to you, ask them what they would do if it were their mother, brother, or child. 

Fear of blame, criticism, and litigation is the motivation for hiring the second best, making second-best management decisions, and practicing defensive medicine. To avoid blame, people hide behind “safe” procedures. 

Among doctors there is a saying: “No one is ever sued for over-treatment.” 

People need to be encouraged to talk about errors and take the responsibility in order to learn and achieve better overall performance. 

But if they can point to having done psychometric tests that did not detect any problem, then they are on the safe side. Procedure protects. Defensive hiring, like defensive medicine, puts procedure over performance. 

Zero tolerance for talking about errors produces more errors and less patient safety. 

To summarise – The average doctor or financial adviser has conflicting interests, practices defensive decision making, or does not understand the evidence. 


Errors in Medical Diagnosis:

Certainty is attached to a medical technology. But no test is absolutely certain.

Physicians don’t do the best for their patients because they: practice defensive medicine (Self-defense), do not understand health statistics (Innumeracy), or pursue profit instead of virtue (Conflicts of interest).

If I participate in screening, I will reduce my chance of getting cancer. No, screening is not prevention. Just as accident insurance does not reduce the chance of an accident, screening does not reduce incidence; it can only detect cancers that are already there.

Publishing only the positive result fosters exciting but shoddy science. The reason for this violation of scientific honesty is a system with the wrong incentives: Publishing in prestigious journals pays, whether or not the results are correct. Replication does not.

Cigarettes cause about one death per million cigarettes smoked with a latency of several decades, and tobacco companies earn about a penny in profit for each cigarette. One million times a penny is $10,000. That is the price tag on a person who dies from smoking.


Fear is spread socially:

Social learning of prepared fear involves this chain: Prepared object → other human expresses fear of the object → acquire fear. 

We have some biologically ingrained fears. These include fears of animals (spiders, reptiles), fears of physical objects or events (wide open spaces, thunder), and fear of other humans (threatening faces, being socially rejected).

Parents often underestimate the emotional prominence of school life and peer opinions: fear of humiliation, wetting their pants in class, and embarrassment in front of their peers are real fears.

Gerds’ Hypothesis: In situations where errors have been deadly in human history, we have developed a tendency to avoid learning from experience. Instead, we rely on social learning of what to fear. 

Underlying this wisdom is an unconscious principle, the social imitation of fear: Fear whatever your social group fears. 

Remember, all cultures share the conviction that their own tradition is the right thing to do.


Example of fear in the nineteenth century:

What would your greatest nightmare most likely have been? Being buried alive—the same tragedy your friends feared. 

In fact, until the early 1900s premature burials were discovered weekly, and not all cases were found. Horror stories of claw marks found inside caskets and splinters of wood from the coffin lid embedded underneath the victims’ fingernails gave people chills. Before his death George Washington asked to “not 

Clever inventors saw market opportunities and designed safety coffins with breathing pipes and ropes with which the living dead could ring bells when they awoke in darkness. 

Cultures don’t only differ in what they fear but in what they find reassuring. Much of what reassures us is also socially learned. 


The myth of risk-takers:

In risk research people are sometimes divided into two kinds of personalities: risk seeking and risk averse. But it is misleading to generalise a person as one or the other.  

The very same person who is averse to the risk of genetically modified corn may be a chain smoker.  

Therefore, risk seeking and risk averse behaviour is relative to the individual. There isn’t a personality type.  


Internal Vs External Goals a link to happiness:

The best explanation can be found in what young people believe is important in life: in the distinction between internal and external goals. 

People’s goals have shifted steadily since the end of World War II toward more and more extrinsic goals. 

With this shift, young people have less control in reaching their goals. 

This has led to an unhappier population as goals that are outside of our control are harder to achieve. 


Fear of Personal Responsibility – The True Cost:

If a company takes losses because of a swing in exchange rates, a manager can say that the banks had predicted otherwise, making the bank, not the manager, accountable. 

Fear of personal responsibility creates a market for worthless products delivered by high-paid experts.

Bank analysts and asset managers are in charge of managing the world’s money. Can they predict exchange rates and stocks? No. But customers want to believe that they can, and banks do their part to maintain this illusion. 

Mark Twain explained the secret of foolproof predictions. “October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.”  

A somewhat more subtle method is: Keep making predictions, but don’t keep records. 


Conflicts of Interest:

Trust is a good idea only if your banker: understands the featured financial products, and has no conflicts of interest. 

Conflicts of interest are the rule rather than the exception. They are built into the system, and customers need to understand them. 


Intuition Vs Rationality:

‘If everything on earth were rational, nothing would happen’ Fyodor Dostoevsky

Is Intuition inferior to deliberate thinking?

Deliberate thinking and logic is not generally better than intuition, or vice versa. Logic (or statistics) is best for dealing with known risks, while good intuitions and rules of thumb are indispensable in an uncertain world


Intuition in Business decision making:

What keeps executives from following their gut feelings? When asked, three reasons were mentioned again and again:  

  1. Rational justification is expected, intuition is not.
  2. Group decision making conflicts with gut feelings.
  3. The deep anxiety of not having considered all facts.


How decisions are made in business context:

Produce reasons after the fact. An executive has a gut feeling about an alternative to pursue but fears admitting that it is what it is. So she asks a trusted employee to spend two weeks finding reasons after the fact. 

Another version is to hire a consulting firm. It will deliver a two-hundred-page document analysing reasons for the gut decision—of course without mentioning that there was ever such a thing in the first place. 

One executive justified his behaviour in this way: “I want to be part of the majority, to protect myself from personal attacks. Perhaps I fear my own courage.” 


Simplicity Vs Complexity in Business:

Can we find a simple solution for a complex problem? This question is rarely asked. The reflex is to look for complex solutions first and, if they don’t work, to make them even more complex.

As Nassim Taleb says “People who are bred, selected, and compensated to find complicated solutions do not have an incentive to implement simplified ones”

The conventional idea is to solve a complex problem with a complex analysis. One such tool is the Pareto/NBD model featured by marketing experts.

This point is key – The more complex something is, the more variables it has. Therefore it has more room for error!


Here are three rule of thumbs that some CEOs use to develop and maintain institutions: 

Hire well and let them do their jobs. 

Decentralise operations, decentralise strategy. 

Promote from within.

The decentralisation rule serves the goal of making better decisions by benefiting from local knowledge while at the same time increasing responsibility by distributing it. 


Other Rules for business:

People: First listen, then speak. If a person is not honest and trustworthy, the rest doesn’t matter. Encourage people to take risks and empower them to make decisions and take ownership. 

Strategy: Innovation drives success. You can’t play it safe and win. Analysis will not reduce uncertainty. When judging a plan, put as much stock in the people as in the plan. 


Why use Rules of Thumb:

Take-the-best is a simple rule of thumb that relies on only the best cue and ignores the rest.

Probability theory provides the best answer only when the rules of the game are certain, when all alternatives, consequences, and probabilities are known or can be calculated.

One way to reduce uncertainty is to rely on rules of thumb. For instance, the “minimax rule” says: Choose the alternative that avoids the worst outcome.


Gerd’s Rules of Thumb:

Always ask for the reference class: Percent of what?

Always ask: What is the absolute risk increase? 

Ask Your Doctors What They Would Do, Not What They Recommend.

Choose the alternative that avoids the worst outcome.

My experience is that it can pay not to open the menu. If it’s a good restaurant, I use this rule of thumb: Ask the waiter: What would you eat here this evening?

One class of rules of thumb is one-reason decision making: Find the most important reason and ignore the rest.

Gerd’s first law of risk communication in the media is therefore: The more the media report on a health risk, the smaller the danger for you.


Unconscious intelligence and how to effect others performances:

If you are highly proficient at a sport, don’t think too long about the next move. If you are a beginner, take your time in deciding what to do.  

If you want to play it mean in sport: Make your expert opponents feel as if you are studying them so they think rather than follow their gut. 

The rationale is this: Expertise is a form of unconscious intelligence. The moment one succeeds in making the expert’s conscious thought intervene, performance is likely to decrease. 


Looking for a mate:

Some look for psychological strengths such as intelligence and humour, others for physical cues such as male jaw size and female waist-to-hip ratio.  

Ultimately, the success of a relationship will depend on both partners’ behaviour.


More Information doesn’t help:

The Internet hasn’t helped; it offers easy access to an overabundance of misleading health information, often funded by those with commercial interests. 

Once people make clear that they can no longer be fooled, those interested in retaining their credibility will have to get their act together and provide trick-free information.


Reactions Post Crisis:

What you will likely see when you pop your head back out is more bureaucracy, more technology, and less individual freedom. What you will likely not see are more competent citizens who have learned to deal with uncertainty. 


Complexity Hides Bad Practice:

The fact is that complex rules have been gamed by banks, and more complexity makes it easier to find loopholes and twist the thousands of estimates. All this has led to unproductive activities such as an adverse complexity race between bankers and regulators. Violations of simple rules are, in contrast, easier to detect. 


Distributed events don’t get attention: 

Example, Children who drink flavoured oil don’t die in sudden streaks but distributed over the years, and consequently little attention is paid.

However, what does get attention is when multiple casualties happen in one fell swoop. Action is then taken, yet it is the distributed events that overall do the most damage as they attract the least attention.


We don’t learn important ideas:


We teach our children mathematics but not the mathematics of uncertainty, statistical thinking. We teach them biology but not the psychology that shapes their fears and desires.   


Thoughts on Enlightenment:



Enlightenment is man’s emergence from his self-imposed nonage. Nonage is the inability to use one’s own understanding without another’s guidance. 


Favourite Quotes from Risk Savvy: 

‘Creativity requires the courage to let go of certainties.’ Erich Fromm 

‘Nothing in life is to be feared. It is only to be understood. Now is the time to understand more, so that we may fear less.’ Marie Curie 

‘Solving a problem simply means representing it so as to make the solution transparent.’ Herbert A. Simon 

‘The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honours the servant and has forgotten the gift.’ Attributed to Albert Einstein