Risk Savvy

Review of the book Risk Savvy by Gerd Gigerenzer.
2015-08-17 – ⁠2022-09-11 finishedSource published on: 2014

I started reading Risk Savvy this book because I noticed that I have become more and more averse to making decisions for fear of not finding the optimal choice. This was either because I felt that I didn’t have enough information or because I didn’t have the mental energy to follow my adopted ten steps way to making smart decisions.

Enter Gerd Gigerenzer, author of Risk Savvy.

Most of the decisions we face in the real world are full of uncertainty which our brains have been conditioned to rebel against. Two ways in which we try to get rid of this uncertainty are 1) by coming up with increasingly complex models that do more harm than good and 2) by postponing decisions in order to gather more information with the hope of knowing all the unknowns. However we have better options:

  • Use simple rules (heuristics). They won’t give us optimal solutions and they don’t always work but they are generally good enough and it’s easy to remember the cases in which they don’t work.
  • Trust our intuition or the intuition of an expert with no conflicts of interest. In many environments we have been trained to be rational and to ditch intuition because it can’t be explained rationally. However an expert’s intuition represents years of accumulated experience and hundreds or thousands of patterns encoded in our subconscious and that our consciousness simply isn’t designed to handle.

Risk Savvy is full of examples in all domains of life (health, finances, work, relationships) where these two tools give clear advantages over complex solutions.

Other useful ideas from the book that I found interesting:

Humans appear to have a need for certainty, a motivation to hold on to something rather than to question it. […] The quest for certainty is the biggest obstacle to becoming risk savvy. While there are things we can now, we must also be able to recognize when we cannot know something.

Risk is knowing all the alternatives and probabilities but not knowing which one will happen (eg: a slot machine). Uncertainty is when you don’t know all that can happen (stock market, choosing a partner, etc).

Research on high performing individuals and deliberate practice suggests that experts encode information more efficiently. Gigerenzer’s take on this is that experts’ brains have learned, either consciously or unconsciously, which information is essential and discard everything else.

An environment that considers errors bad and penalizes whoever makes them encourages defensive decision making: choosing the option that minimizes risk despite opportunity costs (think about U.S. airport security or, if you’re at a typical big company, the decisions that are routinely made).