The Flaw of Averages (PDF)

A must-read for anyone who makes business decisions that have a
major financial impact.

As the recent collapse on Wall Street shows, we are often
ill-equipped to deal with uncertainty and risk. Yet every day we
base our personal and business plans on uncertainties, whether they
be next month's sales, next year's costs, or
tomorrow's stock price. In The Flaw of Averages, Sam
Savage-known for his creative exposition of difficult
subjects- describes common avoidable mistakes in assessing
risk in the face of uncertainty. Along the way, he shows why plans
based on average assumptions are wrong, on average, in areas as
diverse as healthcare, accounting, the War on Terror, and climate
change. In his chapter on Sex and the Central Limit Theorem, he
bravely grasps the literary third rail of gender differences.

Instead of statistical jargon, Savage presents complex concepts
in plain English. In addition, a tightly integrated web site
contains numerous animations and simulations to further connect the
seat of the reader's intellect to the seat of their
pants.

The Flaw of Averages typically results when someone plugs
a single number into a spreadsheet to represent an uncertain future
quantity. Savage finishes the book with a discussion of the
emerging field of Probability Management, which cures this problem
though a new technology that can pack thousands of numbers into a
single spreadsheet cell.

Praise for The Flaw of Averages

"Statistical uncertainties are pervasive in decisions we
make every day in business, government, and our personal lives. Sam
Savage's lively and engaging book gives any interested reader
the insight and the tools to deal effectively with those
uncertainties. I highly recommend The Flaw of
Averages."

--William J. Perry, Former U.S. Secretary of
Defense

"Enterprise analysis under uncertainty has long been an
academic ideal. . . . In this profound and entertaining book,
Professor Savage shows how to make all this practical, practicable,
and comprehensible."

---Harry Markowitz, Nobel Laureate in
Economics