Wednesday, February 4, 2009

Risks and Rewards

What if you take a creature that has been programmed to deal with scarcity and surround it with abundant resources?

According to Philip Pearlman you get a collective cognitive dissonance. Link here.

Pearlman offered this thought in response to the work of Nobel-prize winning psychologist Daniel Kahneman. Where Kahneman demonstrated that people often avoid risks when it would be more rational to take them, Pearlman responds that if we look at the larger evolutionary picture, we see that our psycho-biological make-up was formed to deal with scarcity. In time of scarcity it is rational to avoid risk.

And yet, when resources are abundant we become more confident and more willing to take on risks. Obviously, abundance increases the chances that we will be able to recover losses.

In the last decades we got used to abundance and took on far too much risk. And this, Pearlman posits, has bred complacency and has made us psychologically ill-equipped to adapt to our new era of scarcity.

As it happens, yesterday I also received via email a link to a discussion that Daniel Kahneman had with Nassim Taleb in Munich last week. (Taleb invented "black swan" theory. See yesterday's post.)

If you are not familiar with the work of either man, this conversation provides a useful introduction. Here is the link. Scroll down a bit to find the video.

1 comment:

ppearlman said...

watching vid right now... cool tx.