Tuesday, June 16, 2009

To Risk or Not to Risk

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“Do no harm.” As discussed yesterday that is the first rule of rescue. However that rule does need some moderation, the most obvious exception being if the risk of inaction is extreme. For example if a car is on fire, it makes sense to do whatever is feasible to get the occupants out. In that case, the risk of spinal injury is preferable to the certainty of a painful death. By doing nothing potential rescuers would do no harm, but they wouldn’t do any good either. The problem of course is how to decide when to take a risky action and when doing nothing is appropriate.

That question faces us in many of life’s situations. Should we take a new job, perhaps in a different location? Invest in the stock market? Marry? Have children? All have risks and the “Do no harm” motto would imply that we should avoid the risk. The job might not work out, leaving us worse off than before. Our investments might lose money. A marriage may end in early death or disability of a spouse or in divorce. Children might turn out to be expensive delinquents.

However all those risks have their positive sides as well. We face a situation of “Nothing ventured, nothing gained. The new job might be rewarding, both financially and in terms of satisfaction. The investment might pay off handsomely. Marriage and children might increase our happiness.

That gives us two incompatible mottos, “Do no harm,” and “Nothing ventured, nothing gained.” Each has its uses but how do we reconcile them? Clearly there are risks to avoid and risks worth taking. How do we decide? One way is to consider what are technically known as “alpha” and “beta” risk (also known as type 1 and type 2 risk).

Alpha (type 1) risk is what we usually think of as risk. It is the risk that something we do will cause a problem. We pull the accident victim from her car at the risk of causing paralysis. When we make an investment, alpha risk is the risk that we will lose some or all of the money invested. “Do no harm” pays a lot of attention to alpha risks.

Beta (type 2) risk is a bit subtler. It is the risk that we will forego some good by not taking action. If we do not pull the accident victim from her car we may not save her from the fire. It is the risk that if we do not invest, we will forego the profit we might have had. If we don’t take the new job, marry or have children we forego the benefits they might have brought us. “Nothing ventured, nothing gained” considers the beta risks.

Now a blog is not the place for a mathematical treatise on the probabilities involved in alpha and beta risks. However it is a good way to communicate the concepts of these risks. We’ve already mentioned some examples but a couple of other situations may be instructive.

Consider a search and rescue team about to head into the wilderness to look for a lost hiker. Until they find him they won’t know if or how seriously he is injured. They don’t know what medical equipment they will need. Now they could consider only the alpha risk that if they find him they won’t have the needed gear. They could go equipped to deal with bleeding, back injury, fractured limbs etc. By carrying all that stuff they have a low alpha risk of not being able to provide proper care once they find their subject. The problem: that equipment will add weight to their packs and slow them down.

On the other hand, that team may look at the beta risk. If they do not move fast they will not be able to find the subject quickly. By carrying only what they need for their own safety they can move faster. They might even find that the subject is not injured and needs only someone to show him the way back. By going lighter they lower their beta risk of not finding the subject quickly. That however comes at the expense of a higher alpha risk of not being able to treat a seriously injured subject. Most rescue teams lean toward reducing beta risk, carrying some basic first aid gear, but not enough to slow them significantly. By so doing they accept the alpha risk that they will find the subject and not have the right gear to treat his injuries.

An example of something more likely to affect large numbers of people is that of a company that has developed a treatment for some disease. The alpha risk to the public is the risk that releasing that treatment will cause harm to patients. The beta risk of not releasing it is the risk that patients who might have benefited will not be helped.

Of course there are also risks to the company. If they release the treatment and it has previously unknown bad effects, the company will have to pay reparations for the harm done. Those reparations might even bankrupt the company. Bad medical treatments tend to get lots of publicity as well. Even if the company survives, that publicity will cause financial damage. The company’s beta risk, on the other hand, is limited to the risk of loss of income if the treatment were released and worked well.

“But wait,” you ask. “Why not just test the medication until they know if it is safe?” That would be nice, but such testing takes time. What about the patients who might have benefited during that time? If the medication treats some minor malady, such as the common cold, that would not be much of a problem. But what if the treatment is for cancer, AIDS or some other potentially deadly disease? How many people might die during the testing process? By not releasing the treatment, that company has accepted the beta risk that people who might have been cured will die.

In our society we tend mostly to pay attention to alpha risk. If you lose money in the stock market you will feel terrible about it. In fact psychological studies have shown that the bad feelings from loss exceed the good feelings that might have come from a gain. In the medical field, companies get sued for treatments gone wrong. However nobody ever got sued for failure to release a medication that might have cured someone. In fact, the treatment not released is invisible to the public and we never know who it might have helped.

Fortunately, most of us do not have to decide on such things as release of medical treatments. Our decisions are usually less momentous, at least for the country as a whole. However they are important to our own lives. Investment is one example, but we also face alpha and beta risks in other cases. A new job, especially in a different location? Marriage? Children? Those decisions come with alpha and beta risks.

This life is risky and we can never be 100% sure most decisions will work out. However by thinking carefully about what we stand to gain or lose and how likely those gains or losses are, we can improve our decisions and live better lives. In my next blog I intend to expand on this somewhat, adding more tricks from the decision-making consultant’s toolbox.

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