Possibilities And Probabilities

People confuse probability and possibility. Possibilities that are spectacular are treated seriously even if their probability is minuscule. Headline producing is remembered.

Events with small odds can be misused. The odds of being killed by lightning is about 1 in 6,000,000. If you are golfer trying to finish a round as a thunderstorm approaches, the odds become about 1 in 6. A bag full of lightning rods is a handicap.

Shark attacks are rare but make the front page. The odds of dying as the result of a mosquito attack is 72,500 times greater. Not spectacular, so ignored. Heart attacks, huge problem, little effort to prevent it. Car accident or airplane crash. You are more likely to be killed driving to the airport.

Attention is not everything. Misreading the nature of the numbers is a problem. If you are bitten by a dog, the probability is that the dog is a labrador retriever. Because they are vicious? No, but there are a lot of them. Pay attention to numbers more than attributes.

Sometimes tiny odds confuse.  If I fear Creutzfeldt-Jakob disease, the human version of mad cow disease, I should know the odds of catching it are about one in a million. If a vaccine comes along for $50 a shot and it reduces the odds to one in two million I might buy it. 50% reduction in risk. But the cost is not $50. To save one life, there must be 2,000,000 inoculated. Total cost $100,000,000 per life saved.

There are many other poor economic ideas that are initiated by spectacular things that have near zero probability. We need to have a conversation about the value of life. It would simplify many decisions in society.

Spectacular and emotionally intense outcomes misdirected us. Sound decisions require objective data, clearly explained.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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