Synopses & Reviews
Despite all its promise, the Information Age is also laden with a dizzying array of technological, economic, and political uncertainties. While the electronic spreadsheet brought the power of business modeling to tens of millions, in so doing, it also paved the way for an epidemic of what Sam Savage calls the Flaw of Averages. This set of systematic errors occurs in all types of business and scientific endeavors when smart people focus on single average values in the face of uncertainty and risk, and it is an accessory to the economic catastrophe that culminated in 2008. The Flaw of Averages also ensures that plans based on
averages of such uncertainties as customer demand, completion time, and interest rate are below projection, behind schedule, and beyond budget. In his book, Savage draws on recent breakthroughs in technology, along with new data structures and management protocols, to offer an approach to curing the Flaw of Averages.
Savage begins by providing a basis for intuitively grasping and visualizing risk and uncertainty, using simple everyday props such as game-board spinners and dice. He refers to such statistical jargon as standard deviation and covariance as Red Words, and instead uses straightforward, everyday language throughout the book. He does not assume any statistical background on the part of the reader, but claims that for those with extensive training in the field, the first section of the book will repair the damage. He then describes how risk and uncertainty are handled in the field of finance, where the Flaw of Averages was first systematically conquered by Modern Portfolio Theory. Savage describes how the recenteconomic turmoil was caused in part by clinging blindly to this early work while not adhering to its fundamental principles. He then shows how these principles still form an excellent foundation for managing uncertainty and risk in other areas of industry and government, and provides examples in supply chain management, project portfolios, national defense, healthcare, climate change, and even sex.
In the book’s final section, Savage reveals current developments in the emerging field of Probability Management—a path towards increased transparency and a potential cure for the Flaw of Averages. Finally, the book includes a Red Word Glossary that defines statistical terms in plain English to assist readers in defending themselves against those wielding technical mumbo jumbo.
The goal of The Flaw of Averages is to help you make better judgments involving uncertainty and risk, both when you have the leisure to deliberate, and, more importantly, when you don’t. Its approach of a more transparent representation of uncertainty is helping people and some big companies to make better decisions today.
Synopsis
Tomorrow's temperature, next week's sales, next month's stock price, next year's costs--these are all numbers we don't know yet. Everyday we base our personal and business plans on these kinds of uncertainties and as the financial collapse of Orange County, Barings Bank and Long Term Capital show, we are often ill-equipped to deal effectively with this uncertainty. The problem is that even graduates of statistics courses don't understand the fundamental concepts of uncertainty. This book enables readers to understand the elements of "statistics" vital to our everyday dealings with uncertainty.
Synopsis
A must-read for anyone who makes business decisions that have a major financial impact
Tomorrow's stock price, next month's sales, next year's costs–these are all numbers we don't know yet. Yet everyday, we base our personal and business plans on these kinds of uncertainties. And as the recent collapse on Wall Street shows, we are often ill-equipped to deal effectively with uncertainty and risk. The problem is that even graduates of statistics courses don't understand the fundamental concepts. That's why Sam Savage–known for his ability to teach difficult subjects in creative ways–has written The Flaw of Averages. Instead of using statistical jargon such as "random variable," which Savage calls a "Red Word," he uses everyday terms like "uncertain number." Along the way, Savage 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. Finally, he introduces the new field of Probability Management to help cure the Flaw of Averages.
Sam L. Savage (Palo Alto, CA) is a Consulting Professor of Management Science and Engineering at Stanford University, and a Fellow of the Judge Business School at the University of Cambridge.
Synopsis
The fundamental science and the latest developments in carbohydrate-based vaccines
The relatively new field of glycoimmunology has emerged from the marriage of glycobiology and immunology, in recognition of the important role carbohydrates play as antigenic determinants. Carbohydrate-Based Vaccines and Immunotherapies comprehensively reviews the state of this exciting field, offering a single source for both the fundamental science and the latest developments.
With contributions by leading experts, this resource covers the design, synthesis, evaluation, and applications of various carbohydrate-based vaccines, including polysaccharides, neoglycoproteins, and neoglycolipids. The text approaches vaccine design from a chemical and molecular focus, staying in line with current advances.
Key topics covered by Carbohydrate-Based Vaccines and Immunotherapies include:
Recent developments towards clinically useful vaccines against bacteria, viruses, parasites, and fungi
Using adjuvants to improve immunogenicity and/or immunological properties of vaccines
Choosing and designing proper adjuvants for specific targets
Abnormal carbohydrates expressed by tumors
Carbohydrate-based therapeutic cancer vaccines or cancer immunotherapy
Clinical trials results for synthetic cancer vaccines
Glycoengineering of cell surface carborhydrates and its anticancer applications
Using cell surface carbohydrates for disease diagnosis
A single, convenient source of state-of-the-art information from leading authorities in the field, Carbohydrate-Based Vaccines and Immunotherapies is an essential reference for organic chemists and biochemists, academic researchers, and other students and professionals involved in vaccine design.
Synopsis
Wiley Series in Drug Discovery and Development Binghe Wang, Series Editor
Carbohydrate-Based Vaccines and Immunotherapies
Edited by
Zhongwu Guo
Geert-Jan Boons
Synopsis
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
A Groundbreaking must-read for anyone who makes business decisions in the face of uncertainty
As the recent collapse on Wall Street shows, we are often ill-equipped to deal effectively with uncertainty and risk. Yet every day we base our personal and business plans on these kinds of 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. He explains why plans based on average assumptions are wrong, on average, in areas as diverse as finance, healthcare, accounting, the war on terror, and climate change. Instead of the usual anachronistic statistical jargon, Savage presents complex concepts in plain English, connecting the seat of the reader’s intellect to the seat of their pants.
Savage also presents the emerging field of Probability Management aimed at curing the Flaw of Averages through more transparent communication of uncertainty and risk. Savage argues that this is a problem that must be solved if we are to improve the stability of our economy, and that we cannot repeat the recent mistakes of applying “steam era” statistics to “information age” risks.
Synopsis
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 Savageknown 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
About the Author
Sam L. Savage is a Consulting Professor of Management Science and Engineering at Stanford University, and a Fellow of the Judge Business School at the University of Cambridge.
Table of Contents
Preface.
Acknowledgments.
Introduction: Connecting the Seat of the Intellect to the Seat of the Pants.
You cannot learn to ride a bicycle from a book, and I claim the same is true for coping with uncertainty. Paradoxically, this book attempts to do what it claims is impossible.
Foundations.
Part 1: The Big Picture.
Chapter 1: The Flaw of Averages.
In planning for the future, uncertain outcomes are often replaced with single “average” numbers. This leads to a class of systematic errors which I call the Flaw of Averages, which explains among other things why forecasts are always wrong.
Chapter 2: The Fall of the Algebraic Curtain and Rise of the Flaw of Averages.
The electronic spreadsheet brought the power of business modeling to tens of millions. In so doing it also paved the way for an epidemic of the Flaw of Averages.
Chapter 3: Mitigating the Flaw of Averages.
New technologies are illuminating uncertainty much as the light bulb illuminates darkness. Probability Management is a scientific approach to harnessing these developments to cure the Flaw of Averages.
Chapter 4: The Wright Brothers Vs. the Wrong Brothers.
The success of the Wright Brothers airplane was the result of carefully constructed models that they tested in their wind tunnel. Similar models can help us manage uncertainty and risk.
Chapter 5: The Most Important Instrument in the Cockpit.
The proper use of models, like the instruments in a plane, are not obvious.
Part 2: Five Basic Mindles for Uncertainty.
Chapter 6: Mindles are to Minds what Handles are to Hands.
Just as industrial designers develop handles to help us grasp the power of physics with our hands, informational designers develop Mindles (first syllable rhymes with mind) to help us grasp power of information with our minds. Section 2 will povide some important Mindles for grasping uncertainty.
Chapter 7: Mindle 1: Uncertainty vs. Risk.
These two concepts are often used interchangeably but they shouldn't be. Uncertainty is an objective feature of the universe, while risk is in the eye of the beholder.
Chapter 8: Mindle 2: An Uncertain Number is a Shape.
Even graduates of statistics courses have a hard time visualizing uncertainty. A shape, a simple bar graph called the histogram, does the trick. Try running a simulation in your head or better yet, on your web browser at lawOfAverages.com.
Chapter 9: Mindle 3: Combinations of Uncertain Numbers.
When uncertain numbers are added or averaged, the chance of extreme events goes down. I cover a case study in the film industry.
Chapter 10: I Come to Bury Sigma Not to Praise it.
Just as the height and weight of a criminal suspect has been superseded by surveillance videos and DNA samples, Sigma is pushing obsolescence.
Chapter 11: Mindle 4: Terri Dial and the Drunk in the Road.
A banking executive discovers the Strong Form of the Flaw of Averages: average inputs don’t always result in average outputs. Designing an incentive plan around your average employee is systematically erroneous.
Chapter 12: Who Was Jensen and Why Wasn't he Equal?
The Nuts and Bolts of the Strong Form of the Flaw of Averages.
This chapter shows how to identify the Flaw of Averages before it occurs by understanding your options and restrictions.
Chapter 13: Mindle 5: Interrelated Uncertainties.
Interrelated uncertainties are at the heart of modern portfolio theory. They are best understood in terms of scatter plots.
Part 3: Decisions and Information.
Chapter 14: Decision Trees.
Decision Trees are a powerful Mindle for thinking through decisions in the face of uncertainty.
Chapter 15: The Value of Information.Because There Isn't Anything Else.
The Flip Side of Decision Trees. Information is the compliment of uncertainty. What is it worth to find things out?
Part 4: The Seven Deadly Sins of Averaging.
Chapter 16: The Seven Deadly Sins of Averaging.
So here they are the Seven Deadly Sins, all eleven of them. And the 12th deadly sin is believing there won't be even more tomorrow.
Chapter 17: The Flaw of Extremes.Viewing uncertainties solely in terms of non-average outcomes also leads to devastatingly wrong answers and policy decisions.
Chapter 18: Simpson's Paradox.
Imagine a weight loss treatment that makes people lose weight on average, unless they are either male or female, in which case it makes them gain weight on average.
Chapter 19: The Scholtes Revenue Fallacy.
Suppose you have various product lines with different unit sales. The average unit sales times the average profit per unit might be positive while your average profit might be negative.
Chapter 20: Taking Credit for Chance Occurrences.
If your retirement fund will last you 20 years given average returns, then you are just as likely as not to suffer financial ruin before you get there.
Applications.
Part 5: The Flaw of Averages in Finance.
Chapter 21: Your Retirement Portfolio.
If your retirement fund will last you 20 years given average returns, then you are just as likely as not to suffer financial ruin before you get there.
Chapter 22: The Birth of Portfolio Theory: The Age of Covariance.
Harry Markowitz started a revolution in Finance in the early 1950s by explicitly recognizing risk return tradeoffs.
Chapter 23: When Harry Met Bill(y)
Bill Sharpe extended the work of Markowitz, and brought it into widespread practice.
Chapter 24: Mindles for the Financial Planning Client.
How the pros explain this stuff to their clients.
Chapter 25: Options: Profiting from Uncertainty.
The idea behind options is to exploit uncertainty through an understanding of the Strong Form of the Flaw of Averages.
Chapter 26: When Fischer and Myron met Bob: Option Theory.
The theory of three economists led to the Trillion Dollar Derivatives industry.
Chapter 27: Prices, Probabilities and Predictions
The new phenomenon of Prediction Markets is changing the way we perceive and report uncertain events such as political races.
Part 6: Real Finance.
Chapter 28: Holistic vs. Hole-istic.
When people invest in portfolios of oil exploration sites, they often use the hole-istic approach. That is, they rank the places to drill hole by hole, then start at the top and go down the list until they run out of money. This ignores the holisitc effects of portfolios.
Chapter 29: Real Portfolios at Shell.
For several years, Shell has been using Probability Management to manage its portfolios of petroleum exploration sites in a more holistic manner.
Chapter 30: Real Options.
An example of a Real Option is the gas well in which you have the choice of whether or not to pump depending on the price of gas.
Chapter 31: Some Gratuitous Inflammatory Remarks on the Accounting Industry.
You can't rely on accountants to detect risks because Generally Accepted Accounting Principles are built on the Flaw of Averages
Part 7: The Flaw of Averages in Supply Chains.
Chapter 32: The DNA of Supply Chains.
The inventory problem introduced in Chapter 1 is at the heart of all supply chains.
Chapter 33: A Supply Chain of DNA.
When stocking out is not an option.
Chapter 34: Cawlfield's Principle.
A manager at Olin creates a simulation to get two divisions of his organization to work as a team and discovers a general principle in the process.
Part 8: The Flaw of Averages and Some Hot Button Issues.
Chapter 35: The Statistical Research Group of WWII.
In which I describe the exciting environment in which my father became a statistician.
Chapter 36: Probability and the War on Terror.
Two inescapable statistical trademarks of the war on terror are the problem of false positives and implications of Markov Chains.
Chapter 37: The Flaw of Averages and Climate Change.
The earth's average temperature may actually be going down, not up, but you won't be happy when you find out why. The Flaw of Averages permeates this issue.
b>Chapter 38: The Flaw of Averages in Healthcare.
Treating the average patient is not healthy.
Chapter 39: Sex and the Central Limit Theorem.
Women have a diversified portfolio of two X chromosomes while men have only one. Apparently it makes a difference.
Probability Management.
Part 9: Towards a Cure for the Flaw of Averages.
Chapter 40: The End of Statistics As You Were Taught It.
The 19th century statisticians confirmed their theories by simulating uncertainty with dice, cards and marked balls. Today, computerized dice, cards and balls are bypassing the very theories they were trying to confirm.
Chapter 41: Visualization.
Visual Statistics provides a window into distributions. You need to see it to appreciate it.
Chapter 42: Interactive Simulation: A New Light Bulb.
Imagine simulating 100,000 rolls of a die before your finger leaves the key. A new technology does for probability distributions what the spreadsheet did for numbers.
Chapter 43: Scenario Libraries: The Power Grid.
New data structures allow the results of simulations to be added together like numbers, providing a more practical approach to enterprise wide risk models.
Chapter 44: The Fundamental Identity of SLURP Algebra.
This looks like math. Feel free to skip it.
Chapter 45: The Third Generation: Distribution Strings.
Perhaps the most important outcome of Probability Management is new way of storing probability distributions in the single cell of a spreadsheet.
Chapter 46: The Chief Probability Officer.
The CPO must strike the correct balance between transparency of presentation, data collection, and statistical rigor.
Chapter 47: A Posthumous Visit By My Father.
Some comments from the hereafter.
Red Word Glossary.
Notes.
About the Author.
Index.