On risk...

This post comes from something that I believe many of us can relate, Risk Aversion of the, so called, middle class and the need of thought about this idea. I will try in this post to make a reflection from my own self experience, one or two literary sources, some Wikipedia in the mix and some common knowledge.

Before venturing into the core of this post I find it reasonable to give to the readers some economical and social background explanation, so you know where does this come from.

I'm from Portugal, the sunny and nice country of Europe facing the Atlantic which is nowadays regarded for its touristic atractiveness and football prowess. The importance and weight of Portugal in the history of the world is now a pale shadow of what it was, once a thriving and powerful nation in the vanguard of technological innovations and "entrepeneurship" in the 16th and 17th centuries with the Discoveries, it is now sometimes regarded has some kind of spanish province or touristic-only (almost) destination for the wealthier Europe. Obviously this shift of importance has a gap of almost 500 years and it requires some deepening.

The political and economical power of the Discovery Era was, by no means, a People's power. It was something enjoyed and cultivated only by the elite and the People received only a meager share. This does not, I think, diminish the role that these events have in the portuguese self-conscience, self-esteem and culture.
The riches accumulated from that era were used with a bigger regard for ostentation then for public education and welfare and this has produced some very interesting and beautiful monuments, art, and also scientific advancements for the years to come at the same time it's population held almost still in terms of civilisational growth. While all this was being produced and the People still suffered, there was probably a strong feeling of collective identity marked by the ongoing valorization of the nation itself that allowed for these inequalities to prevail for a long time. This, somewhat relieving feeling, has suffered a massive blow in the 1755 earthquake which has destroyed Lisbon and with it a great part of the above mentioned advancements, specially more perishable objects such has paintings, written music, scientific papers and also lives, never disregarding the religious meaning these catastrophes had at the time.
This was the turning point that, in my somewhat feeble and in need for a better research, opinion has initiated a cultural and mental process that as always, from then on, put Portugal back "where it belong", in the tip of Europe, away from significant scientific achievements and recessing into a state of provincialism and eternal longing (Saudade) for past glories.

Many years after, skiping through the Republic implantation in 1910 which was caused by a "delayed" republican sentiment and a increasingly unbearable sense of injustice towards monarchy and nobleness we get to the creation of the dictatorial state "Estado Novo" in 1926 which, has most (if not all) dictatorships, further destroyed the People's sense of value and education.

We get to 1974 with the so called "Carnation Revolution" (Revolução dos Cravos), a military revolution with consisted of a series of well articulated operations that resulted in the overthrow of the regime with "almost" no casualties. This finally opened Portugal to the world and with this a great moment for political involvement from people in general and an economial potential never seen before.

A mix of political incompetence, foreign oportunism, a global crisis and general naivety as made room for 3 IMF (Internation Monetary Fund) interventions in 34 years (1977, 1983, 2011)! Meaning that economically and financially this country is still nowadays crippled.

This late intervention coincides with my political "awakening" and discontent and also with an increasing interest in these matters. I felt the stress, and the big fall of the standard of living of my family and of that of my friends, colleagues and of people in general. Poverty became much more apparent, despair was a reality.

This leads into what I want to directly address in this post, Risk. After reading the short historical briefing you can begin feel that there was not, perhaps, enough time and stability to create a stable and prosperous middle class in the XX Century, probably feeling that this class, as it gradually emerged from a working-class with the "boom" of services and offers after its emancipation in 1974, constantly kept being bullied by its own governments, external intervention and also mental and cultural aspects. This leads, in my humble opinion, to an agravation of a perfectly natural and biological Risk Aversion as it is written by D. Kahneman and A. Tversky, "(...) a preference for a sure outcome over a gamble that has higher or equal expectation is called risk averse, and the rejection of a sure thing in favor of a gamble of lower or equal expectation is called risk seeking.".

This brings me to a series of questions:
1 - What's the role of risk in my life? 2 - Is it something that is incentivised, seen has an opportunity for growth and discovery? 3 - What is the double facet of risk? 4 - Are people in general aware of their own Risk Aversion and how it affects their lives and decisions?

I will start by trying to answer these questions one by one, starting with the double facet of risk (3):

3- I believe that the way I have been educated about risk can be resumed in two portuguese sayings:
"Mais vale o pouco certo que o muito duvidoso." - which translates into "It's better little but sure than much and doubtful" (free translation). Risk Aversion
"A sorte protege os audazes!" - which translates into "Luck protects the bold!". Risk Seeking

This dichotomy is somewhat unbalanced because these two sayings are not applied in the same situations and paradigms of life. The first is used for our lives, the second is used for other's lives. Meaning that the wisdom of the first tells us to be content with little, aspire to a life where we are able to do some of the things we might enjoy but necessarily need to accept that it is better to have some than to have nothing and therefore perfectly fine to just try to maintain that state. The latter is used to glorify "unachievable" or past achievements such as the glorious ventures into the unknown made by the discoverers in our past or to flatter in some way the risk taking of some individual or organization that managed to succeed, such as an entrepeneur, or a feat such as a successful international competition win.

Now to the next question, is it incentivised?

2 - Clearly, if we accept that these two sayings correspond to some extent the general view of risk, we reach to the conclusion that we are not incentivised by our society to take risks. This is of course also because of the emphasis on the success of others and inversely in our own failures and those of the ones close to us, specially those that are not your closest friends or relatives but just friends or aquaintances (this could be argued!).

I will now to present the way I see risk, how I try to deal with it and how statistical analisys may help you improving you own mindset about risk:

1 - Risk has never been a very conscious element of my life until recently. While finishing the equivalent of a Bachelor's Degree I made it quite clear to myself that I had basically two paths in front of me:

• The "normal" path which dictated me to proceed with my academic studies in the same or in another institution of the kind, doing a Masters (required by law to exert an oficial teaching position in any school abiding to the oficial curriculum) first and possibly a Doctorate (not required). Security.
• The "adventure" path which did not dictate much except that I could proceed my studies in another area of my interest, firstly by informal learning, then, it needed, by a more formal learning. Risk.

I chose the adventure path and it lead me to start studying and imerse myself in a "voyage" of inner growth and exploration that has gone from psychology in general, business reads, to Poker studying and playing (where I learnt and still learn about risk and how to deal with it) and eventually, very recently, to Bitcoin and Blockchain technologies. The idea of investing in a still early state technology, understanding it from a philosofical but also from a technical point of view, made me willing to further embrace this adventure and (calculated) risk seeking that leads me hopefuly to a much more happier future than that of the "normal" path. I prefered to leave the "sure" and venture into the unknown, lead only by my natural curiosity and desire to participate in something greater than my individual "sphere", affairs and ideosynchrasies.
Regarding statistical analisys I can only say that sometimes it is better to check some facts about a specific situation one might be or is thinking to be than to go imediately into "personal evaluation" because it is quite proven that we are most of the times quite off instinctively.

This leads to my final question which is regarding the level of self-counsciousness and the ability to evaluate how many of our decisions are made out of fear for the unknown instead out of the will to get better or to just live better:

4 - I think that people in general are not aware of their own risk aversion and I think that culturally westerns, not just in Portugal, punish too severely the event of failure preventing growth from that. We are quick to judge an action that resulted in a poor outcome but that could be the best one regarding the circumstances it was made, with the information it was made, allowing the use of the universal "I told you so" to get some satisfaction from the failure of others. The best route to become free from this is to just learn to distinguish good advice from bad advice, or just seeing what is not advice at all and that is just a symptom of a society where the "others" are glorified for their risk and rewards and "we" are punished for our risks and failures.
I don't know if portuguese people suffer from that more than others but this is just my personal experience on the matter and reflection.

Concluding, I think that we many times think alot about the risks our action can have but seldom think of the price of not doing that action because of those risks. A reflection on risk applied to one's life is important and I think everyone should be serious doing it.

If you got this far I have to congratulate you for bearing with me in all this ramble and I now invite you to discuss and also share your own experience and how risk affects your life.

Cheers!
puzzledbytheweb

References:
https://pt.wikipedia.org/wiki/Sismo_de_Lisboa_de_1755
https://pt.wikipedia.org/wiki/Descobrimentos_portugueses
https://pt.wikipedia.org/wiki/Sebasti%C3%A3o_Jos%C3%A9_de_Carvalho_e_Melo
https://pt.wikipedia.org/wiki/Estado_Novo_(Portugal)
https://pt.wikipedia.org/wiki/Revolu%C3%A7%C3%A3o_de_25_de_Abril_de_1974
http://risco-continuo.blogs.sapo.pt/intervencoes-do-fmi-em-portugal-593413
Kahneman, D., Tversky, A."Appendix B: Choices, Values, and Frames" from the book: "Think, Fast and Slow" by Kahneman, D.