Catastrophic rectangles
Risks are bad. You probably noticed this if you’ve ever lost your wallet or gone through a pandemic. However, wallet-loss risk and pandemic risk are not equally worrying.
To assess how bad a risk is, two dimensions matter: the probability of the bad thing happening, and how bad it is if it happens. The product of these two dimensions is the expected badness of the risk.
Our intuitions are pretty bad at making comparisons of expected badness. To make things more intuitive, I introduce a visual representation of expected badness: catastrophic rectangles.
Here are two catastrophic rectangles with the same area, meaning they represent two risks with the same expected badness.
