How to Beat the Odds at Judging Risk

Fast, clear feedback is crucial to gauging probabilities; for lessons, consult weathermen and gamblers:

Most of us have to estimate probabilities every day. Whether as a trader betting on the price of a stock, a lawyer gauging a witness’s reliability or a doctor pondering the accuracy of a diagnosis, we spend much of our time—consciously or not—guessing about the future based on incomplete information. Unfortunately, decades of research indicate that humans are not very good at this. Most of us, for example, tend to vastly overestimate our chances of winning the lottery, while similarly underestimating the chances that we will get divorced.

Psychologists have tended to assume that such biases are universal and virtually impossible to avoid. But certain groups of people—such as meteorologists and professional gamblers—have managed to overcome these biases and are thus able to estimate probabilities much more accurately than the rest of us. Are they doing something the rest of us can learn? Can we improve our risk intelligence?

Yes. One of my better efforts at explaining that yes.

Article Excerpt: Source.

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