Probability Management*
Or
I come to bury Jensen's inequality, not to praise it.
Sam L. Savage
Consulting Professor of Management Science & Engineering, Stanford University
Government agencies and corporations typically model uncertain future economic and political factors in terms of single "Average" scenarios. This leads to systematic errors known as the Flaw of Averages. Probability
Management is an emerging area of managerial focus that provides a framework for avoiding these problems. Based on interactive simulation and stochastic libraries of probability distributions, it is hoped that Probability Management will change management's perception of uncertainty as profoundly as electricity and the incandescent bulb changed our perception of darkness. Live computer demonstrations will outline the application of this approach to modeling retirement portfolios and the
exploration portfolio of a global petroleum firm.
* Reflects joint research with Stefan Scholtes of the Judge Business School and Daniel Zweidler of Shell Exploration and Production.
Bio
Sam Savage received his PhD in the area of Combinatorial Optimization from
Yale University in 1973. He taught at the University of Chicago Graduate
School of Business from 1974 to 1990, during which time he switched to the
field of Combinatorial Obfuscation with the introduction of the Shmuzzle
Puzzle (see www.Shmuzzles.com). He then moved to Stanford where he is a
Consulting Professor in the School of Engineering. He consults and lectures
extensively and has served as an expert witness. He is the founder and
president of AnalyCorp Inc. (www.AnalyCorp.com), a firm that develops
executive education programs and software for improving business analysis.
He has been published in refereed journals and the popular press - with
recent articles in the Harvard Business Review, the Journal of Portfolio
Management and Financial Planning Magazine. Sam has recently been appointed
as a Senior Associate of the
Judge Business School, Cambridge University.
Dr. Savage's home page is
http://www.stanford.edu/dept/MSandE/people/teaching/savage/index.html