Risk Savvy: How to Make Good Decisions

by Gerd Gigerenzer

When making decisions, the two sets of mental tools are required: 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. Most of the time, a combination of both is needed. Some things can be calculated, others not, and what can be calculated is often only a crude estimate. Figure 2-3. Certainty, risk, and uncertainty. In everyday language, we make a distinction between “certainty” and “risk,” but the terms “risk” and “uncertainty” are mostly used as synonyms. They aren’t. In a world of known risks, everything, including the probabilities, is known for certain. Here, statistical thinking and logic are sufficient to make good decisions. In an uncertain world, not everything is known, and one cannot calculate the best option. Here, good rules of thumb and intuition are also required.