We Suck at Math

Morgan Housel has a great column on how people are terrible at perceiving risks:

We generally just suck at math.

Americans were widely worried about growing government spending in 2009. After the federal government passed a $3.5 trillion annual budget to mass protests, a group of economists asked 1,000 Americans a simple question: “How many millions are in a trillion?” Only 21% answered correctly. The rest either didn’t know or answered wrong. Most Americans were worried about spending $3.5 trillion, but most had no idea how much a trillion actually was.

People deal with statistical illiteracy by reacting with their gut. Sometimes that’s good — I don’t need to calculate risks to know that driving blindfolded is stupid. But it can be dangerous, too. It makes us overreact to things that seem dangerous only because they’re unknown, and underreact to things that are dangerous but look benign.

Financial adviser Carl Richards says “risk is what’s left over when you think you’ve thought of everything.” Wherever you’re not looking, or not thinking, that’s where it is.

Posted by on August 6th, 2014 at 10:10 am


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