The claim of the modern science of decision theory is that most mysteries can be reduced to puzzles by the application of probabilistic reasoning. Such reasoning can provide solutions to puzzles, but not to mysteries. How to think about and cope with mysteries is the essence of managing life in the real world and is what this book is all about.

an injunction to maximise shareholder value, or social welfare, or household utility, is not a coherent guide to action. Business people, policy-makers and families could not even imagine having the information needed to determine the actions that would maximise shareholder value, social welfare or household utility. Or to know whether they had

Probabilities become less useful when human behaviour is relevant to outcomes. We can consult statistics on the number of pedestrians killed crossing the road, or the life expectancy of a man aged sixty-five, but that does not help us much in deciding whether to cross the road, or how much to save for retirement.

The everyday meaning of risk refers to an adverse event which jeopardises the realistic expectations of the individual household or institution. And so the meaning of risk is a product of the plans and expectations of that household or institution. Risk is necessarily particular.

With experienced decision-makers, the focus is on the way they assess the situation and judge it familiar, not on comparing options. Courses of action can be quickly evaluated by mentioning how they will be carried out, not by formal analysis and comparison. Decision-makers usually look for the first workable option they can find, not the best

Rational behaviour is not defined by conformity with a set of axioms set down even by such distinguished thinkers as John von Neumann and Milton Friedman.

Chicago’s Frank Knight, who understood radical uncertainty well, took a different view: The saying often quoted from Lord Kelvin4 . . . that where you cannot measure, your knowledge is meagre and unsatisfactory; as applied in mental and social science is misleading and pernicious. This is another way of saying that these sciences are not science in

He suggested that one way in which people might approach decisions in a radically uncertain world was to use a rule of thumb to search for a ‘good enough’ outcome. Such behaviour was described as ‘satisficing’, and in practice can deliver superior outcomes to actions selected by optimising behaviour. The reason is that to pretend to optimise in a

Modern weather forecasters make statements of the kind ‘there is a 40% probability that it will rain tomorrow’ and this is sometimes useful information. But what people really want to know is whether they should carry an umbrella or plan a picnic. The repeated experience of both authors is that many people are unwilling to accept that precise