The metaphor for the theme of the entertaining book, “The Flaw of Averages,” by Sam Savage, is a drunk attempting to cross a dangerous highway. The state of the drunk at his average position (i.e. the center line) is alive. However the average state of the drunk, wherever he is on the road at a given point of measurement, is dead! The dead drunk embodies Savage's Strong Form of the Flaw of Averages.
FOA takes on the flaws of basic statistical thinking in the conduct of business, many of which derive from misuse of traditional measures of central tendency such as mean, standard deviation and correlation. It also mixes in a healthy dose of uncertainty and risk management, using precepts from basic economics and portfolio theory. The author's antidote to the current mistakes with statistical thinking in business? The emerging field of Probability Management, or PM, which uses simulation and Monte Carlo probability/statistical techniques to redress the naïvete of much of the current point-based statistical thinking. Instead of simplistic answers such as the mean and standard deviation, which often provide inadequate information for decision makers (the Weak Form of the Flaw of Averages), PM generally promotes an entire probability distribution that can be deployed more reliably.
Register or login for access to this item and much more
All Information Management content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access