Business Quote by Daniel Kahneman
““Richard Thaler tells of a discussion about decision making he had with the top managers of the 25 divisions of a large company. He asked them to consider a risky option in which, with equal probabilities, they could lose a large amount of the capital they controlled or earn double that amount. None of the executives was willing to take such a dangerous gamble. Thaler then turned to the CEO of the company, who was also present, and asked for his opinion. Without hesitation, the CEO answered, “I would like all of them to accept their risks.” In the context of that conversation, it was natural for the CEO to adopt a broad frame that encompassed all 25 bets. Like Sam facing 100 coin tosses, he could count on statistical aggregation to mitigate the overall risk.””
About This Quote
Source Book: Thinking, Fast and Slow by Daniel Kahneman, 2011
A leader can reduce perceived risk by aggregating many independent bets, relying on the law of large numbers to smooth out extremes.
In simple terms: Aggregating many risks lowers overall danger.
Key Takeaway
Use diversification to manage risk.
Themes
risk management
decision making
leadership
Mood
analytical
cautious
Type
advisory
strategic
When to use this quote
- investment portfolios
- corporate strategy
- project portfolios
- insurance underwriting
Key Concepts
statistics
behavioral economics
diversification
Questions to Reflect On
- How does diversification affect your perception of risk?
- When might aggregation be misleading?
A Different Perspective
Aggregation may hide individual large losses and create overconfidence.
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