Valuing Risk

Love and Marriage

Love and marriage, Love and marriage

Goes together like a horse and carriage

Something things just go together.  Risks can’t be understood unless you understand both likelihood AND  consequences.

Understanding and properly valuing risks has become very important during the corona virus crisis.  We are being asked to properly quantify risks.  Part of the reason is that people don’t understand both components of risk and part is because people are approaching risk from a framework that can best be understood by viewing a previous blog post. https://dbeagan.blogspot.com/2020/06/a-framework-for-human-behavior.html.

Risk is based on the likelihood of an event occurring and the consequences if that event does occur.  The response to COVID-19, the disease caused by the corona virus, include measures to reduce the likelihood and to minimize the consequences.  The likelihood of catching the corona virus is lower if the chances for contracting it are lowered. That is why people are urge to wear masks and social distancing have been promoted, because they lower the likelihood of contracting the corona virus.

The other component of risk are also best understood by actions taken during the pandemic.  The ultimate consequence is that one could die from COVID-19.  That consequence is lowered if ventilators and Intensive Care Unit beds are available at hospitals treating those with COVID‑19.

However both the likelihood and the consequences are not the same for those with a user optimal or a system optimal framework.  Those with a user optimal perspective (“what’s in it for me”) can agree that they lower their likelihood by visiting places where others socially distance and wear masks.  They do not lower their own likelihood appreciably by wearing masks themselves.  Those with a system optimal outlook ( “I do this not for myself, but for others”) wear masks to protect others, not because it lowers their own likelihood of contracting the coronavirus. Even if both user and system optimalists agree on the likelihood  of contracting the coronavirus if they social distance and visit only paces wear other wear masks,  they may not agree on the value of the reduction in  likelihood of their own wearing of a mask.

Similarly consequences are viewed differently by those with a user or system optimizing perspective.  Those with a user optimal perspective only value actions that reflect consequences to themselves.  Acquiring ICU Beds or Ventilators that they will not use will have no value to them.  Those with a system optimal perspective place value if anyone in the system uses them.

The inclusion of others in the system also takes on a perspective in likelihood and consequence.  There is no value in reducing the likelihood for members not included in one's definition of a system.  Similarly there is no value in lowering the consequences of those not included in one’s definition of a system.

Even when individuals properly value likelihood and consequences, which means they properly value the risk, they may arrive at completely different values for the risk depending on their own framework.  Just because likelihood and consequences  go together like a horse and carriage when valuing risk, individuals can arrive at different assessments of risk depending on their framework.