The Dangers of Living in a Chicken Little Society

Bruce Schneier explains why basing decisions solely on "worst case scenarios" is not a good thing.  

There's a certain blindness that comes from worst-case thinking. An extension of theprecautionary principle, it involves imagining the worst possible outcome and then acting as if it were a certainty. It substitutes imagination for thinking, speculation for risk analysis, and fear for reason. It fosters powerlessness and vulnerability and magnifies social paralysis. And it makes us more vulnerable to the effects of terrorism.

Worst-case thinking means generally bad decision making for several reasons. First, it's only half of the cost-benefit equation. Every decision has costs and benefits, risks and rewards. By speculating about what can possibly go wrong, and then acting as if that is likely to happen, worst-case thinking focuses only on the extreme but improbable risks and does a poor job at assessing outcomes.

h/t to Ed Cone for the link.

9 thoughts on “The Dangers of Living in a Chicken Little Society

  1. Lex

    I’m starting to think that risk management should be something they start teaching in middle school, like civics and personal finance.
    Oh. Wait.

    Reply
  2. Jon Lowder

    Had a discussion with my son, who is a junior in H.S., pertaining to his class schedule for next year.  Hes taking AP economics and I told him that while he might not enjoy the class at the time, hell probably find himself applying it later in life than just about any other class hes taken (outside of the givens like English and math).  Then he reminded me that hes in the Finance Academy, a pilot program at his school that has a business/finance focus.  As a result he knows more about business, personal finance, etc. at the age of 17 than I knew five years after college. 

    Reply
  3. Jim Caserta

    People have problems assessing risks & probabilities. Take the housing market. I read a piece today where a bond manager was talking to someone at Fitch Ratings (one of the big 3). The bond manager asked Fitch what assumptions were in their model, and Fitch replied consistent low-to-mid single digit home price appreciation. The manager asked what a flattening or 2% decline would do, and the answer was pretty much ‘destroy the models’. We’ve seen bigger declines than that, and the damage that spread from it.
    Was home prices declining a low-probability event? But it’s one few people prepared for.
    Was a hurricane hitting New Orleans really low probability?
    Any training in risk management should advocate the taking of some risks. Importantly to show that you’re always taking risk.

    Reply
  4. Jon Lowder

    Youre absolutely right Jim.  People are scared to death of things like the next terrorist attack, but the reality is they should be far more concerned about being mugged, and they should be far more concerned with getting in a car crash than getting mugged.  Yet how often do people stop and think about the risk theyre taking when they pull out of their driveways?  I know theres lots of literature out there that addresses this lack of risk assessment, but it never seems to penetrate our societys thick collective skull.

    Reply
  5. 4thbg

    I see it every day in the markets. Particularly the talking heads who consistently substitute fear and greed for reason. They serve it up and people cannot get enough.

    Reply
  6. Jon Lowder

    I once had a boss in the publishing industry who said that people are
    motivated almost exclusively by fear and greed and that was what we
    were to remember when marketing our products. Ive never liked that
    outlook, but there are too many people who do and prey on those
    emotions for their own gain.

    Reply

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