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.

A Keen Eye for the Obvious

Back when I was a young’n in New Mexico, it was a mild insult to tell someone, “You have a keen eye for the obvious.” That phrase was usually used when somebody stated something everybody already knew or should have known. OK, I’m going to plead guilty to having a keen eye for the obvious. Sadly, I must also state that most of our national leaders seem quite blind to the obvious, making it necessary that we remind them of a very apparent problem they are studiously ignoring. I’m speaking of our national energy policy or lack thereof, and the possible consequences of that lack.

Energy is something we absolutely must address in the US. It is an economic problem when we import so much of our oil. However it is even more important as a national security issue. Much of our energy comes from parts of the world ruled by tyrants who do not like us, and where governments are not very stable. Just one of those tyrants could throw the entire western world into an economic tailspin and possibly at the same time weaken our national defenses.

Can you imagine what would happen if, for example, Iran were to go to war with its neighbors and cause them to stop or curtail oil shipments? All it would take is closing the Strait of Hormuz to make a major dent in world oil supplies. Energy prices would go through the roof and our economy would tank.

Worse, if we needed that oil for national defense we might have to curtail our response to a military attack. How would we defend against some rogue state like North Korea if we didn’t have enough fuel for our tanks, warships, and military aircraft?

It might not even take a national ruler to cause such problems. If the Islamic fanatics get the right weapons they could disrupt our oil lifeline.

All this is pretty obvious when you think about it. Yet many in congress and the administration seem not to have thought about it. Our “energy policy” in this country seems to be based on what we will not do rather than on what we will do. We will not drill for more oil. We will not build new refineries. We will not put windmills where Senator Kennedy can see them from his vacation home. We will not build nuclear plants. About the only sources of new energy allowed are a few things like solar cells. Those help somewhat, but it will be a long time before they come anywhere near meeting our energy demand.

Of course conservation is also mentioned and is important. However we aren’t going to conserve our way out of our dependence on foreign oil, at least unless we all stop traveling and turn our thermostats down to about 50 in the winter. Those who think conservation will solve the problem should look at what it realistically might save. Then they should check that against our energy needs, both now and in a hopefully growing future economy.

In fact there is almost certainly no single solution to our dependence on foreign energy. Conservation must play a part but so must new energy sources like wind, solar, geothermal, and tar sands. We must also expand domestic production from current sources by opening up more areas to drilling and by allowing more refineries and nuclear plants. There is something there to offend almost every special interest, but we must not let those special interests determine our policy. We will all have to conserve. Kennedy may be able to see a windmill from his vacation home. The nuclear Nervous Nellies will have to accept some modern nuclear power plants. We will have to allow offshore and other drilling.

All this will take time so we should start now. President Clinton objected to some increased drilling because he claimed it would take ten years to pay off. Well, the drilling was prohibited and ten years later we were in an energy crisis. Had drilling been allowed ten years earlier, that crisis would have been at least somewhat ameliorated.

I’m reminded of a statement attributed to Napoleon. He wanted to plant trees along a certain street to beautify it and provide shade. An aide objected, “But sir, it will take 20 years to get the benefit of those trees.”

Napoleon is said to have responded, “In that case, plant them immediately!”

Like Napoleons’ trees, our energy programs will take time to pay off. That is all the more reason to start now – we need the results as soon as we can get them. Now is the time to initiate a multi-pronged attack on this problem. It is near criminal for the president and congress to ignore it. We can understand the reasons of course. Real solutions to the energy problem will step on a lot of toes. However the risk of being cut off from our foreign energy sources demands an all-out response.

Sadly, few in congress or the administration have the guts to stand up to the special interests blocking our improved energy production. I fear we will pay for this when some mid-eastern tyrant causes more trouble. The only solution is for the citizens to hold the politicians’ feet to the fire on this subject.