A False Sense of Insecurity

Handling risks is a core part of any business. A company that does this badly is unlikely to survive for a long time, a company that does this well has a competitive edge over other companies. Naturally there is a great interest in this topic.

Risks also affect other parts of our life, whatever we do or don’t do has its inherent set of risks. However all research show we are very bad at judging risks, this is an abstraction our brains have not been properly adapted to. Evaluating risk has been a crucial part of our personal survival (if you see a leopard you are in grave danger, if you stand at a cliff falling down is a bad idea), but our psychology greatly overestimate the spectacular danger (the leopard, the cliff, the plane crash, the drive-by murder) and similarly underestimate the persistent killers (the stumble, the allergic reaction, the flu).

Thus in addition to the real risks, risk management must also take care of perceived risks. Air travel may be safer than other modes of travel, but each plane crash will get a much greater exposure than other types of accidents. I have taken the title of this entry from an article on the real risk of terrorism, a particularly spectacular form of risk that hardly affect anyone (How many do you personally know who was killed by cancer? How many by terror attacks?), but is in the awareness of everyone. Perceived risks matters, possibly as much as real risks. A company believed to have dangerous products is in as much trouble as one really having them.

A common observation is that in areas with falling crime rate the gerneral perception is still that crime is rising. We live in the most peaceful of all times. The risk of dying a violent death is lower now than ever before. There are also indications that the risk of dying a violent death in pre-historic times was vastly higher than in more recent time when we have records.

Does this matter? It surely does. Many people live in an atmosphere of fear greatly reducing their quality of life, and causing them to make detrimental decisions. Analyses of the cost per life saved for different protective measures show that many could have been alive today if resources were spent where the real risks are instead of wasting them on imagined ones. Are there any solutions? Well, the best way of reducing risks present in your life might be to watch less TV.

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  1. you’d probably enjoy reading “Freakonomics” by Steven D. Levitt and Stephen J. Dubner I think sometimes they’re jumping to conclusions a bit fast, but it’s sure an interesting and entertaining read – and some stuff they write about in the book is quite related to what you have written here.Cheers

  2. Excellent post, and I agree wholeheartedly. Particularly with regard to the corrosive pyschological effects of TV.

  3. Anonymous writes:Curious coincidence between this post and a spectacular fall in Opera’s share price yesterday, after disappointing second quarter results were released.


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