You decided to start a 3 year math study at City University in London. From your brand new apartment in Southall, it's a 12.5 mile drive to the University at Southhampton Street. As a passionate cyclist you consider the Risk of cycling through London for the next three years.
Based on your googled " DFT's Reported Road Casualties 2009" research (resulting in a cycling death rate of 36 per billion vehicle miles), you first conclude that the probability of getting killed in a cycle accident during your three year study is relatively low : 0.1% (≈ 3[years] × 365[days] × 25[miles] × (36 [Killed] ÷ 109[vehicle miles]).
Hmmmm...this comes closer; it makes things a little different, doesn't it?
Its looks like 'subjective probability' - on reflection - is perhaps somewhat different from 'objective probability'.
While your left and right brain are still in a dormant paradoxical state of confusion, your left (logical) brain already starts to cope with the needs of the right (emotional) half that wants you on that bike at all costs!
Aha!.... Let's compare it with 'Russian Roulette', your left brain suggests. Instead of 6 chambers we have thousand chambers with one bullet. Heeee, that makes sense, you talk to yourself.
With such a 1000 chambers Russian gun against my head I would pull the trigger without hesitating.... Or wouldn't I?..... No.., to be completely honest, 'I wouldn't risk it', my right brain tells me.
Hé... my left brain now tells me my right brain is inconsistent: It wants me on the bike but not to take part in a equal 'death probability game' of Russian roulette. Why not?
My left half concludes it must be the 'feeling' of my right side that makes me feel I'm 'in control' on my bike, but not in case of Russian Roulette. That makes sense, tells my left brain me. Of course! Problem solved! My right and left brain finally agree: It's only a small risk and it's I who can control the outcome of a healthy drive. Besides, this way the health benefits of cycling massively outweigh the risks as well, my right brain convinces me superfluous.
A final check by my right brain tells me: If I can't trust myself, who can I?
This rhetorical question is the smashing argument in stepping on the bike and to enjoy a wonderful ride through London City.
After returning from my accidentless bike trip, I enjoy a drink with a colleague of mine, the famous actuary Will Strike [who doesn't know him? ;-)].
After telling him my 'bike decision story' he friendly criticizes me for my non-professional approach in this private decision problem. Will tells me that I should not only have analyzed the probability (P), but also the Impact (I) of my decision. Remember the equation: Risk=P×I?
Yet, 'when' a car hits you full, the probability of meeting St. Petrus at heaven's gate is 100% and the Impact (I) is maximal (I=1; you're dead ...)
Probability × Impact = 0.1% × 1=0.1%
I'm finally relieved... it always makes a case stronger to have a taken decision verified by another method. In this case the Risk=P×I method confirmed my decision taken on basis of my left-right brain discussion. Pff....
The next morning, after my subconscious brain washed the 'bike dishes' of the day before, I wake up with new insights. Suddenly I realize I tried to take my biking decision on the wrong variable: Probability, instead of Impact.
Actually, in both cases and without realizing, I took my decision finally on basis of the Impact and the possible 'Preventional Control' (not damage control !!!) I could exert before and during my bike trip.
I had to conclude that in cases of high Impact (I>0.9), nor my left-right brain chat, nor the 'Risk=PxI' formula lead to a sound decision, because both are too much based on probability instead of Impact. In other words:
From now on this 'bike conclusion' will be engraved in my memory and I will apply it in my professional work as well.
If you're convinced you would take the risk of firing the 1000 chamber Russian gun against your head, you probably valuate the fun of the bicycle trip higher than probability of the loss of your life or good health.
In this case, suppose someone would offer you an amount of money if you would take part in a 1000 chamber Russian roulette instead of a bicycle tour. At which amount would you settle?
Let's assume you would settle at € 10.000.000 (I wouldn't settle for less). In this case you really value your bicycle trip!!!!
Interested? read more at Actuary-Info
This post first appeared on Selfbetterment, please read the originial post: here