Humans are terrible at evaluating and judging risk. We overestimate our chances of winning contests while underestimating the chance of something bad happening. Compensating for this natural tendency isn’t easy, but the Wall Street Journal suggests one way to train your brain might be to track your skills like a gambler.
Photo by Adrian Sampson.
The first step to compensating for your poor risk assessment abilities is to recognise your tendency to be overconfident and underconfident with most estimates. Doing so is hard, but the Wall Street Journal suggests a tactic often employed by successful gamblers:
[W]e could estimate the likelihood of various events in a given week, record our estimates in numerical terms, review them the next week and thus measure our risk intelligence in everyday life. A similar technique is used by many successful gamblers: They keep accurate and detailed records of their earnings and their losses and regularly review their strategies in order to learn from their mistakes.
Basically you start the week with a list of estimates about what will happen that week. That means everything ranging from the weather to world events. At the end of the week, take a look at how often you were right.
The result might surprise you when you realise how bad at prediction you are. However, as you go over your data you’ll be able to review your logic and improve on it. You’ll never be able to estimate every probability, but a little practice will make you better at judging risks in your daily life.
How to Beat the Odds at Judging Risk [Wall Street Journal]