Risk Intelligence: How to Live with Uncertainty
There is a special kind of intelligence for dealing with risk and uncertainty. It doesn’t correlate with IQ and most psychologists fail to spot it because it is found in such a disparate, rag-tag group of people such as weather-forecasters, professional gamblers, and hedge-fund managers.
Risk intelligence expert, Dylan Evans takes us into challenging the shadows of uncertainty. It is my first reading on such a topic.
Shadow of uncertainty
“At the heart of risk intelligence lies the ability to gauge the limits of your own knowledge – to be cautious when you don’t know much, and to be confident when, by contrast, you know a lot.”excerpt from Risk Intelligence: How to Live with Uncertainty
In our life, certainty is rare and we often have to make judgments and decisions based on the limited information that we do have. And at times even the information we have is to be questioned on its believability. The ability to accurately assessing our own level of knowledge and acting according is an important life skill — or otherwise known as risk intelligence.
The way to measure one risk intelligence is their Risk Quotient or RQ.
Those with poor-risk intelligence are most of the time seem confident. A classic case of ignorance is bliss. Most people are bad at estimating probabilities — while we might never achieve certainty, we often make poor decisions. But fear not, we can improve on our risk intelligence.
“The fact that risk intelligence can be developed and improved by means…shows us that it is not a fixed innate mental capacity, such as face recognition or locomotion.”excerpt from Risk Intelligence: How to Live with Uncertainty
Assessing opportunities are depending on our ability to judge risk and calculate the probability of success. Most of the time, we overestimate the probability of success since the magnificent success story is much more popular than thousand of stories with similar beginnings but opposite endings.
Be careful of Heuristics
Risk intelligence is affected by social, linguistic and conceptual factors that are often built into how people think. For example, we often use rules of thumb, or heuristics, to accelerate our reasoning.
These shortcuts, often as a result of our System 1 thinking, but various factors can distort them and affect our risk intelligence. Among popular examples, is the overestimating the risk of getting in an aeroplane crash just because we often see them in news coverage.
Wishful thinking meanwhile distorts our likelihood estimation. This typically happens when we want something to happen that we believe the odds are higher than they truly are in reality. Hence, it probably a good idea to make explicit estimates and record them before starting a project.
Confirmation bias is related to wishful thinking. We so often give more weight to the evidence that supports our current view and less evidence that contradict our opinions. Hence, as The Principle suggests, ask yourself, “How do I know I’m right?”
The illusion of mind-reading. The truth is we aren’t as good at reading others as we think and so does everyone else. We often misread other’s expression, gestures, and cues and assume that they can gauge what think and feel. The vice versa is also true. We often assume that we are more transparent and easier to read than they are in reality.
“Almost everyone overestimates how long both good and bad feelings last.”excerpt from Risk Intelligence: How to Live with Uncertainty
Known Unknowns Versus Unknown Unknowns
We need to recognize the gaps in our knowledge and that we might not even know what they are. By doing so, we would be able to differentiate between the known unknowns and the unknown unknowns. If you know the question but not the answer, that’s a known unknown. If you don’t know the question that you need to ask, that’s an unknown unknown.
“Awareness of the limits of our knowledge turns unknown unknowns into known unknowns.”excerpt from Risk Intelligence: How to Live with Uncertainty
Hence, the reason why the wise one never stops learning.
This book is a great starting point to learn how to better navigate the uncertainty of our life.