MisUnderstanding Risk

A recent study out of the University of Florida demonstrates how people misperceive risk.

"This research has implications for risk-taking and self-protective behavior," she said. "If people make decisions based on their perceptions of risk and it seems that they do, misperceptions of risk are particularly interesting and important."

Although the chances of someone being attacked by the snipers that terrorized the Washington, D.C., area in 2002 were less than one in 30,000, for example, many people were so paralyzed with fear they kept their children out of school and never left their homes, Dockery said. Yet in the case of divorce, which has a much higher risk of 50 percent, few couples who are about to marry think they'll end up splitting, she said.

"Young couples who are in love and about to marry who ignore the high divorce rate thinking it won't happen to them may make serious mistakes in the choices and preparations they make."

We wonder why businesses and governments make so many bad decisions… it's because they are composed of people, and people make a lot of bad decisions. The funny thing is, we often think they are good decisions (like driving when we could fly, which is much safer). That's why if you run a business, it helps to be a little paranoid.

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