Consultation & Decision Making

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BE AWAREKurtosis risk: fewer observations cluster near the average and more observations populate the extremes either far above or far below the average compared to the bell curve shape of the normal distribution.

Ludic Fallacy (Taleb): Unstructured randomness found in life resembles the structured randomness found in games.

ASSUMPTION: the unexpected can be predicted by extrapolating from variations in statistics based on past observations, especially when these statistics are assumed to represent samples from a Bell Curve.

More generally, decision theory based on a fixed universe or model of possible outcomes ignores and minimizes the impact of events which are "outside model". Known knowns: Things we know that we know. Known unknowns: Things that we know we don’t know. Unknown unknowns: Things we do not know we don’t know.Some scholars extrapolate from these three categories a fourth:4. Unknown known: Things we don't know or intentionally refuse to acknowledge that we know.

Black Swan Theory (Taleb) Concerns high-impact, hard-to-predict, and rare events beyond the realm of normal expectations. Unlike the philosophical "black swan problem", the "Black Swan Theory" (capitalized) refers only to events of large magnitude and consequence and their dominant role in history. "Black Swan" events are considered extreme outliers. An outlying observation, or outlier, is one that appears to deviate markedly from other members of the sample in which it occurs.Coping with Black Swan eventsTaleb’s main idea does not attempt to predict Black Swan events, but to build robustness to the negative ones, while being able to exploit positive ones. A Black Swan event depends on the observer—a Black Swan surprise for the turkey is not a Black Swan surprise for the butcher, hence his idea is to "avoid being the turkey" by finding out where one may be exposed to being a turkey and "turn the Black Swans white".Black Swan CriteriaThe event is a surprise. The event has a major impact. After the fact, the event is rationalized by hindsight, as if it had been expected.

Normal Distribution ReminderXDark blue is less than one standard deviation from the mean. For the normal distribution, this accounts for about 68% of the set (dark blue), while two standard deviations from the mean (medium and dark blue) account for about 95%, and three standard deviations (light, medium, and dark blue) account for about 99.7%.

Recall Probability Distribution TheoryRiskKnowledgeContinuous Random Variables - Uncountable

Discrete Random Variables - Countable

Mixed Random Variables – Both Complexity

Look a Look at Decision Making

Consultation & Decision Making

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