Risk

I think the concept of risk, and how we manage it, has received far less attention (outside of economics) than it deserves.

Steven DenBeste has a good (though long) post about this here. I encourage you to read it. While I think he over-generalizes the U.S. vs. EU differences, there is an element of this difference reflected in recent policies.

Extreme risk aversion is an irrational over-valuing the expected costs and under-valuing the expected benefits of proposed actions (or inactions) of our own, and of events beyond our control. In the long run, extreme risk aversion will definitely lead to less success.

Most of us are risk averse to some extent in some areas. That’s why good financial planners assess an investor’s tolerance for risk before devising an appropriate plan for him. Psychological comfort is important, and it often makes sense for us, individually, to pursue a plan that might be sub-optimal, theoretically, but will make us happier given our hard-to-change psychological tendencies.

That’s also one of the reasons that I think it’s wrong to dictate to (and impose on) others what level of risk they should accept for themselves in their personal lives.

However, in the area of government policymaking I think it’s wrong, often disastrously so, to allow extreme risk aversion to guide policy. We should be understanding of those citizens with the worst risk aversion problems, but we should not let them dictate policy and impose massive costs on the rest of us.

One problem I noticed immediately with Rawls’ A Theory Of Justice (and later learned that many others observed this too) is that his person in the Original Position was extremely risk averse; fanatically focusing on the worst-case scenario (via his difference principle).

I think Virginia Postrel is right to suggest that the distinction, politically, between liberals and conservatives is less important than the difference between those who try to impose an irrational resistance to the risks of change on us (stasists), and those who embrace changes and suggest managing the risks rationally (dynamists). These groups do not correspond to liberals vs. conservatives (e.g. Ralph Nader and Pat Buchanan united against international trade).

Whether DenBeste recognizes it or not, we’ve got many stasists in America; and much of the government is involved in enacting their agenda.

There’s a lot more to say about these things. But, if I try do it all at once, I might never post anything.

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