In his excellent book, The Flaw of Averages (review), Sam Savage identifies the seven deadly sins of averaging. How many of these sins have cropped up in your recent decisions?

• The family with 2.4 children: the average scenario doesn’t exist and it is ludicrous to make predictions about it.
• Why everything is behind schedule: risks in parallel compound dramatically.
• The egg basket: the failure to diversify.
• The risk of ranking: if you accept investments only at the top of a ranking of profitability, you will reject fire insurance, because on average it loses money. But it is not so bad if you are also investing in a house.
• Ignoring restrictions: if demand is less than average, profit falls, but if demand is above average (and above your capacity to produce) sales and profit may be constrained. Thus there is downside without a corresponding upside and average profit is less than the profit associated with average demand.
• Ignoring optionality: if you are producing a product (eg, natural gas) with an uncertain price, if the price drops below the marginal cost, you have the option to stop production and to limit losses. Now there is an upside without a corresponding downside. If the value of the business is a function of price, the average value will be more than the value associated with the average price.
• The double whammy: if your goods are perishable and your production process is tuned to average demand, with average demand there may be no cost associated with inventory management. If demand is less than average there will be spoilage losses, and if demand is above average there will be stock outage costs, eg, air-freighting in an alternative supply. The cost associated with average demand is zero, but the average cost is positive.
• The Flaw of Extremes: no VP will submit a budget request based on expected need. Who wants to risk a 50% chance of running out of budget? So the CEO gets sandbagged with budget requests that are routinely inflated.
• Simpson’s Paradox: the BMJ reported on a kidney stone treatment where, over the entire population, treatment B had a higher success rate than treatment A. However, looking only at patients with small (< 2 cm) kidney stones, treatment A was more effective. And treatment A was better for patients with larger (≥ 2 cm) kidney stones. What the ...?
• Scholtes’ Revenue Fallacy: If two uncertain numbers (eg, price and quantity sold) are inversely (negatively) interrelated, the average revenue will be less than the revenue associated with average price and average quantity. And vice versa if they are directly (positively) interrelated.
• Taking credit for chance occurrences: you might be impressed with someone who tossed a coin ten times and got ten heads. There’s only a 1-in-1024 chance of fluking this. Does he have some special skill? But suppose there are thousands of people all tossing coins. It would be more remarkable if no-one achieved ten heads in a row.

Hmm... That makes eleven. Sam Savage proposes a twelfth: Believing there are only eleven deadly sins. Are there any other suggestions for a twelfth deadly sin?