The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty

CHAPTER 5

The Most Important Instrument in the Cockpit

Mike Naylor, a vice president at Shell, has compared the oil exploration business to flying a glider. “In both cases you are taking calculated risks in search of energy,” says Naylor, and he points out that in either case an academic education is inadequate. “A degree in physics might help you understand how a wing generates lift, but it won’t necessarily make you a good pilot,” he writes.

I like the analogy between flying a plane and managing a business—and I believe they are pretty close together on seat-of-the-intellect- seat-of-the-pants continuum, as shown in Figure 5.1.

This chapter extends Naylor’s analogy to cover analytical business models: They are the instruments of the plane. Many managers are skeptical of analytical business models, and they should be.

To understand why, I will provide a short flying lesson, including time in a flight simulator for those with Internet access.

Figure 5.1 The seat-of-the-intellect-seat-of-the-pants continuum.

Learning About Learning

The pilots of small airplanes try to rationalize flying, even if the mission involves burning $50 worth of gas to buy a hamburger at a neighboring airport. Not so with glider pilots. There is no possible rationale for what they do other than the excitement of getting from point A back to point A in the longest time possible. In this particularly pure ...