Fear, Rationality and Risk

Mark Davis writes about Fear, Rationality and Risk

"The difference between fear and danger is psychological. It is like the difference between perception and reality. Perceiving that the potential worst case scenario is what should be dealt with as if it were reality leads to a tremendous waste of resources at a time when resources are scarce. Proximity, as you clearly point out in your posts Mike, to the real problem certainly alters the calculus of any risk management decision. In the end, "better safe than sorry" is a luxury that depends on your available resources, but honorable people will also weigh their responsibilities. The rich guy managers abandoning ship are wussies. Like you said: go ahead and send your families away, but consider those you serve (Japanese people) and employ.

I find it funny how people will freak out about doses of radiation that are far less than what the scanners at the airport give you; and that these same people say nothing about the scanners. So getting on a plane to avoid radiation is self-defeating. Fear and danger, indeed. - 

Many people don't consider how to respond to danger or manage risk until they are faced with the "unimaginable". Here is a primer for those not familiar with risk management basics. It is better for people to make calm, rational decisions based on facts instead of emotional, knee-jerk reactions based on fear of the unknown. In risk management jargon, there are three ways to deal with risk: avoid, assume or transfer it. Before you decide which way to go, first you need to know:

1) What could happen (threat event)?

2) If it happened, how bad could it be (threat impact)?

3) How often could it happen (threat frequency)?

4) How certain are the answers to the first three questions (recognition of uncertainty)?

Then:

1) What can be done (risk mitigation)?

2) How much will it cost (over a time period)?

3) Is it cost effective (cost-benefit analysis)?

I hope this will help ease some anxiety and/or anger by offering a rational means of dealing with danger for those consumed with an irrational fear of uncertainty. Note that we must all assume some risk in life."

 - Mark Davis

Mark Davis is a husband, father and real estate analyst/investor enjoying the freedoms in Longwood, Florida.