We all suck at math

I’m currently reading Morgan Housel’s newest book called Same as Ever. His last book The Psychology of Money was probably one of my favorite reads in the last few years. I was not surprised to see that I’d be hooked into his newest book as well. While the themes build a bit upon his last book, this one strays a bit out of the finance and money world.

I’m only about a quarter of the way through the book, but the first chapter that blew my mind was around probabilities around big events. In summary, Morgan makes a great point in that we all suck at math especially when it comes to large numbers, specifically when calculating probabilities.

For example, a once every hundred year event does not mean it happens once every hundred years, but every year there’s about a 1% chance of that event happening. While those odds are low, combined with all the potential events, the odds of one of those once every hundred a year events happening every year is relatively high.

Given the basic math, we’re going to see a lot of these “low probability” events in our life times. The world hasn’t changed and this has always been the case, but due to the internet, we as humans now believe that the world has gone crazy. In reality, it’s just the world and it has been the same since the beginning of time.

Reading that chapter was one of those simple but thought provoking realizations that I’ll never forget the rest of my life.