Risk Savvy: How to Make Good Decisions

by Gerd Gigerenzer

there is a simple cure to this ailment, although it requires courage to admit to ignorance: Don’t buy financial products you don’t understand. If Americans had used this rule, few would have lost huge parts of their retirement funds. If European bankers had relied on it, they would not have bought the junk, and the financial crisis would not have happened as it did. A top executive once explained to me how for years she was hesitant to admit when she did not understand an investment, for fear of looking stupid. Having learned her lesson, she has now found the courage to protect herself from “financial weapons of mass destruction.” When someone offers her an investment option, she responds: “You have fifteen minutes’ time to explain how it works. If I still don’t understand it, I won’t buy it.” A simple rule like that can reduce global spread of damage.