Wed 3 Oct 2007
I know JP has talked about this area before and I think I may have done at one point but that may have been over a coffee or in a dream rather than in a more public forum. In any case, can’t find any previous post so at the risk of repeating myself or, as always, becoming a master of “the bleeding obvious” here we go …
I was once asked the question at a previous employer: what is your capacity for risk? I gave what I though was a wonderful answer in that I explained I did not recognise risk intrinsically as being in any way separate from reward so the question was malformed and could not be honestly answered. (I am entirely sure they were stunned into submission by the wit and exactitude of my answer). The issue we have in society currently (and I do believe it is more of a recent development) is that we believe it is possible to assess risk independent of reward or maybe more exactly that the reward part of the equation can be discounted to zero leaving only the risk.
In Investment Banking (an industry well-tuned, whatever you may read or hear, to risk and the understanding of risk) the units used to measure risk and reward are the same. Money. In fact, there is no intrinsic difference between risk and reward. The calculations one makes shows that you will make a known amount of money if this and that happen and lose a known amount of money if this, that and the other occur. Of course, this is not true in life. A child climbing a tree gains the reward of adventure, curiosity and learning and runs the risk of a broken limb - it is clearly more difficult to understand the relationship between risk and reward and concomitantly more difficult to provide a balance.
But if the reward part is removed or discounted then the risk part becomes easy to quantify and the obvious result is you never let your child climb a tree. Parents are generally excellent at balancing the risk and reward - society (by which we mean elected or otherwise appointed governments serving as proxy) are not.
Society itself has of course changed drastically over the last few years (since the end of the Second World War). Previous to and during this event life was hard and life was fraught with risk. Death was common. The further back one goes the more common death becomes to a point, one assumes, where people lived with it and the threat of it every day. One must also assume that a society such as this with risk everywhere (seen and unseen) would have a much different attitude to a tiny bit of extra risk (such as climbing a tree). As society becomes (every year) more and more inherently de-risked through better health-care and other measures that tiny extra little bit of risk becomes measured against an ever-decreasing total risk. This is, of course, a good thing but the unwanted side-effect is that we concentrate far too much on this little extra bit of risk. It is far, far more important to us than it would be to a society 100 years ago.
I have a few more posts on this subject.