Measuring Risk Objectively?

In order to manage the complexity of life and the accompanying uncertainties, we build models.  Models by their very nature are reductions, that is, we throw out a certain amount of information.  A historian writing a history of Frankfurt, Germany is not going to concern himself with spots on the floor of the Rathaus in 1888 (unless he is a post-modern reductionist).

Risk is itself an abstraction, it is certainly not real.  Being the victim of a  specific risk, however, is real enough.  A more interesting topic is whether or not risk is objective or subjective.  How we measure matters.  It may impress to show on a slide that the mail gateway anti-virus blocked ten million attempts in the last year, but it matters little when the consequences of a single failure can end the business.

The U.S. legal scholar Cass Sunstein, who coined the term “libertarian paternalism” has commented on how small risks can become distorted in the mind of the public and amplified to the point (normally via mass media) that they influence public policy.  He uses the terms “availability cascade” (from the availability bias) and “probability neglect” to describe the basis for the entire process. The exact same thing happens in any organization where one bad experience leads to ridiculous changes in policy.  In the US think Love Canal or Times Beach.

So when we model a certain risk, it is often driven by emotion or prejudice and key elements are included/excluded.  It may take years to identify the errors.  I could be wrong but I do not think that risk can be measured objectively even with panels of experts since they are subject to the same problems as the lumpenproletariat they feel superior to, bias, group-think, emotional amplification, poor statistical reasoning, priors etc. Because of this, I agree with Paul Slovic, risk is subjective.

Blind to Collapse

There is a very good article on the fall of the Roman empire by Ugo Bardi (h/t Vox Dei).  He applies system dynamics to explain the collapse.

Let’s start from the beginning…with the people who were contemporary to the collapse, the Romans themselves. Did they understand what was happening to them? This is a very important point: if a society, intended as its government, can understand that collapse is coming, can they do something to avoid it? It is relevant to our own situation, today.

In business people use the myth of the boiled frog to explain our inability to see and adapt to the deleterious effects of change.  And while there are those who unflinchingly pursue the truth, they may be only recognized as such in the post collapse analysis.  Decline is inevitable; the venal, the power hungry will eventually seize control (it’s for your own good or the children), the virtue of a culture will be replaced by hedonistic calculus,  technological sophistication reaches its zenith while education its nadir, and everyone tries to saw off a limb while the tree falls.  “I got mine.”  Yes, you did.

Regardless of  how much knowledge we accumulate, no matter how many collapsed civilizations, technological failures or business cases we study, there will always be a new generation who, as Russell Kirk described, “are like flies of the summer” caring little what went before them and nothing for what comes after, who are curious only and I mean that in the medieval sense.   The more complex a system becomes the higher cost to maintain the status quo.  Eventually complexity reaches the point that the problems become insurmountable and from what I have seen the more centralized the decision making authority, the faster the demise.