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The Reality of Statistics

I snipped this table from Business Insider – it shows the likelihood of various sorts of maladies befalling the average American. Apart from the appalling statistic for gun violence my guess is that it is roughly transferable to Australia.

threat

It highlights the profound disconnect between true risk as expressed as a number that is harsh and immutable and our perception of risk. Granted our perception of risk is amped up by Politicians who wish to distract us and news outlet who simply want to shock us. As an example here is a surprise poll you can spring on people at parties. Get them to name the most deadly animal in Australia – this is a particularly fun exercise to play with foreigners who believe that everything that walks, crawls, flies or swims in this country is out to kill them. The answer to the question is surprisingly horses between 2000 and 2010 there were 77 horse related deaths, in a distant┬ásecond behind horses were cows with 33 deaths for the same period. Ask yourself the question when was the last time you heard a public service announcement warning you to be vigilant about horses – my guess is never.

The point here is our perception of risk is not the reality of risk and this is true in trading. In trading we bring a veritable cornucopia of vague ideas about risk to the table. Yet in reality none of them are real. For example I know traders who will not invest because of the coming crash – I might add this crash has apparently been coming for about a decade. Granted they might be right one day but nobody ever got rich by waiting for that one day to appear. And this is the point of the lesson, accept risk and play or dont accept risk and dont play.

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Comments

  1. “Cornucopia” eh. I gotta admit i had to look that one up ! ­čśŤ

  2. It is not only politicians who amp up our perception of risk. Let me prove this to you. Have fun and count the number of times the print and electronic (TV) media news services use the word “horrific”.

  3. james hay says:

    I will make sure I don’t go horse riding while walking my cow

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