The Decision Book by Mikael Krogerus

Author:Mikael Krogerus
Language: eng
Format: epub
Publisher: W. W. Norton & Company

HOW TO ANALYzE RISKS MORE EFFECTIVELY

One of the more interesting risk analyses comes from a man who made massive misjudgments in risk analysis on several occasions. This man is Donald Rumsfeld, who was US Secretary of Defense under George W. Bush. For a press conference in 2002, he used a model to help him answer a journalist’s question about whether Iraq was harboring terrorists. He spoke of:

1. Knowns.

2. Unknowns.

These parameters result in four fields of risk:

1. Known knowns: These are risks that we know and against which we have developed countermeasures. For example, somebody who is afraid of thieves locks up their bike.

2. Known unknowns: These are risks that we know exist but cannot foresee. For example, we know that the stock market crashes occasionally, but nobody can precisely predict when or how far it will crash.

3. Unknown knowns: For example, scientists assume that there is part of us that knows more than we think we know. Whatever you call this part – intuition, inner voice, gut feeling – the following is important when it comes to decision-making: we are more likely to forgive mistakes made intuitively than mistakes that we spent a long time thinking about. In other words: we forgive our gut more than our brain.

4. Unknown unknowns: The things we don’t know that we don’t know. These are risks that we hadn’t considered, because it did not even occur to us that they could exist. For example, when Pearl Harbor was attacked by Japanese kamikaze pilots in 1941, the USA wasn’t prepared because it never would have imagined such an attack. And, according to Rumsfeld, it was an “unforeseen” threat of this kind that the USA was dealing with in Iraq.

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