I wanted to start with some typical math problems in school:

  • Two cars started from the same point, at 5 am, travelling in opposite directions at 40 and 50 mph respectively. At what time will they be 450 miles apart?
  • At 9 am a car (A) began a journey from a point, travelling at 40 mph. At 10 am another car (B) started travelling from the same point at 60 mph in the same direction as car (A). At what time will car B pass car A?

Or how about a geometry problem:

  • Find the length of the unknown side, a, of the right triangle below.

Triangle_a_9_12

  • A rectangle has an area of 96cm2. The width is four less than the length. What is the perimeter?

What’s wrong with those problems?

Let’s take this problem as an example: At 9 am a car (A) began a journey from a point, travelling at 40 mph. At 10 am another car (B) started travelling from the same point at 60 mph in the same direction as car (A). At what time will car B pass car A?

What is the answer? Most kids and their teachers would tell you it’s 12pm. Sure… in an academic world. What’s the probability that car B would pass car A at exactly 12pm in real life? It’s close to zero of course. Traffic jams, punctured tires, accidents, weather, none of that exists in the academic world.

Our kids are taught that problems have precise single possible solutions. Every problem in school must have a single correct answer. Nothing could be further from the truth in reality.

What should we be teaching our kids?

We need to teach kids about uncertainty and optionality. Being alive means making decisions under uncertainty, something that kids in school are completely unprepared. The real life rarely, if ever, has a single correct answer, there are usually multiple good choices and multiple bad choices. A distribution one might say.

Every real life decision is a trade off between risk and reward. We need to teach kids to make choices under uncertainty to choose the options which have greater probability of positive outcome. We also need to teach kids to appreciate the role of the chance on the outcomes of their decisions. It should be ok to make a good decision and just be unlucky. Kids should also learn that lucky outcomes happen to even the worst decisions and that’s also ok, but it’s not a sustainable life strategy.

Uncertainty needs to be appreciated, not ignored. Appreciating uncertainty teaches kids to stop blaming others and learn to take advantage of the situation instead.

Many years ago I wrote a chapter for the Ministry of Finance sponsored high-school textbook on risk management. Now that I have kids of my own, I think I will start teaching probabilistic thinking and optionality much earlier.

That’s why I created RAW2020, an online place to learn about better decision making and quantitative risk analysis. Even for kids.

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Alex Sidorenko is an expert with over 15 years of private equity, sovereign wealth fund risk management experience across Australia, Russia, Poland and Kazakhstan. In 2014 Alex was named the Risk Manager of the Year by the Russian Risk Management Association.

YOUTUBE: <a href="https://www.youtube.com/channel/UCog9jkDZdiRps2w27MZ5Azg">https://www.youtube.com/channel/UCog9jkDZdiRps2w27MZ5Azg</a>
BLOG: <a href="https://riskacademy.wordpress.com">https://riskacademy.wordpress.com</a>

Alex specializes on integrating risk management into strategic and investment planning and decision making at venture capital, private equity, investment authorities and sovereign funds across the world. Alex worked as a Head of Risk Management at RUSNANO, one of the largest private equity funds in Russia, specializing in technology investment. Alex won an award for best ERM implementation at RUSNANO in 2014.

As a VP at Institute for strategic risk analysis in decision making, Alex is responsible for risk management consulting, training and certification across Russia and CIS. Alex is the co-author of the global PwC risk management methodology, the author of the risk management guidelines for SME (Russian standardization organization), risk management textbook (Russian Ministry of Finance), risk management guide (Australian Stock Exchange) and the award-winning training course on risk management (best risk education program 2013, 2014 and 2015).

In 2012 Alex created RISK-ACADEMY <a href="http://www.risk-academy.ru">www.risk-academy.ru</a> a web portal dedicated to risk management training across Russia and CIS. Since then RISK-ACADEMY became a global brand providing risk management services to some of the largest organizations in the world.

Alex recently published his second risk management book called “Effective Risk Management 2.0”. Alex also regularly presents at risk management conferences in the Middle East, Russia and Europe. In November 2012 Alex short a TV series dedicated to risk management in start-ups. Alex teaches risk management at major Russian business schools as well as corporate universities.

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