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Mercers’ School Memorial Professor of Commerce Michael Mainelli

Mercers’ School Memorial Professor of Commerce Michael Mainelli. Does Society Risk My Life Through Safety? The Perils Of Too Much Risk-Aversion. Outline. Universally risk-averse Who’s playing God? Precautionary Principle The risk industry Risk-seeking or risk-averse?

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Mercers’ School Memorial Professor of Commerce Michael Mainelli

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  1. Mercers’ School Memorial Professor of CommerceMichael Mainelli Does Society Risk My Life Through Safety? The Perils Of Too Much Risk-Aversion

  2. Outline • Universally risk-averse • Who’s playing God? • Precautionary Principle • The risk industry • Risk-seeking or risk-averse? • Risk supply and demand • Regulating risk regulation “Get a detailed grip on the big picture.”Chao Kli Ning

  3. Universally Risk-Averse

  4. Odds Of Dying [focus on Accidental Deaths, does not sum to 100%] Source: US National Safety Council

  5. Risk Changed My Life

  6. Unintended Consequences [Source: Better Regulation Commission]

  7. Government’s Desired Risk Policy “In its policies, regulations, announcements, correspondence, targets, performance agreements and actions, the government should: a) emphasise the importance of resilience, self-reliance, freedom, innovation and a spirit of adventure in today’s society; b) leave the responsibility for managing risk with those best placed to manage it and embark on state regulation only where it represents the optimum solution for managing risk; c) re-examine areas where the state has assumed more responsibility for people’s lives than is healthy or desired; and d) separate fact from emotion and emphasise the need to balance necessary levels of protection with preserving reasonable levels of risk.” [Better Regulation Commission, “Risk, Responsibility and Regulation - Whose Risk Is It Anyway?”, 2006]

  8. May You Live In Interesting Times wéijī = wéixiăn +jīhùi =  crisis = dangerous +opportunity

  9. Modern Tradition • Strategic options: • avoid • pool • mitigate • eliminate Strategic Decisions High Monitor SEVERITY Cost Ignore Low High Low Information LIKELIHOOD Disinformation

  10. “Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns - the ones we don't know we don't know.” Donald Henry Rumsfeld [1932-*] Philosophy Of Perception

  11. Who’s Playing God?

  12. Apocalypse Now “We are running out of oil; we’re extracting annually more than we discover …” “Asteroids are going to crash into the earth and destroy all mammalian life …” “Avian flu is going to kill tens of millions …” “Global warming is going to destroy civilisation …” [Picture from The Sunday Times, “To The End Of The Earth” (climate change), 11 March 2007]

  13. Precautionary Principle “For every difficult question, there is an answer that is clear and simple and wrong.” George Bernard Shaw

  14. Risk/Reward Calculation For Engineers • RISK: public humiliation and the death of thousands of innocent people • REWARD: certificate of appreciation in a handsome plastic frame

  15. Stern Discounts

  16. Illusion Of Control

  17. Risk Industry

  18. Consensus Science

  19. Jammed Gears Risk Averse Risk-Seeking

  20. Back To The Future Hard Savings Risk-Seeking

  21. Risk/Reward Management?

  22. Bad FramingProspect Theory On A Postcard • People evaluate rewards and losses relative to a neutral reference point • People adopt risk-averse behaviour concerning gains • People adopt risk-seeking behaviour over losses • People’s response to loss is greater than their response to gain • People tend to give too much emphasis to low probability events

  23. Value Gains (Chooser’s Units) +550 +500 Risk-Reward Neutral -200 -100 Objective Gains (£’s) Objective Losses (£’s) +100 +200 -500 -600 Value Losses (Chooser’s Units) Prospect Theory On A Curve

  24. Risk – Supply and Demand Demand Supply Price Quantity

  25. Risk – Supply and Demand Demand Supply Price Quantity

  26. Under Or Over Protected?

  27. Perception = Risk “Of course I don’t believe in it! But I understand that it brings you luck whether you believe in it or not.” Niels Bohr (1885 - 1962), Danish physicist, when asked why he had a horseshoe on his wall

  28. Discussion • Is it inevitable that debates about science, safety and risk are political? • How might we encourage more informed debate without being submerged by the detail? • What potential do micro-risk markets have for you?

  29. Does Society Risk My Life?The Perils Of Too Much Risk-Aversion Thank you! “Get a big picture grip on the details.”Chao Kli Ning

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