May

6

 In honor of Ralph who has occasionally pointed out that if risk is actually assessed the way financiers claim it is, we would never get on a plane, here is a list of activities that seem to me to have uncompensated risk embedded in them.

I have heard too many stories of each of the below, from friends, media or books, such that I would be reticent to engage in them. Can anyone add to the list, and am I being a chicken?

I was prompted to think them through by reading that Kirk Douglas nearly died twice in small planes/helicopters and twice on the set of action movies.

Horse riding

Cycling on roads

Small planes/helicopters

Motor car racing

Action movie sets

There was a line in the Ayrton Senna documentary where, in response to the accusation that he drives recklessly, Senna says "if you see a gap and you do not go for it, then you are no longer a racing driver." Sadly Senna died at age 34.

Charles Sorkin writes: 

That's more a question about decision making, as opposed to whether or not that flight improves my well-being (by getting me to a destination, and by possibly being enjoyable.)

If the risk was known to be that high, then clearly the distress associated with being on that plane (the marginal cost) would largely offset any benefit from flying. That would not be the case if the flight was in the same risk category as, say, that risk that we take when crossing the street.

Ralph Vince responds: 

Charles, I should have been clearer — the cost associated with a negative outcome on the plane, let's assume, be certain death. And my proposal on this is that being sane men, nothing is worth that in terms of risk assessment (I understand there are outliers — love of country, say, or certain death withing a finite x periods even in the positive outcome, but those aside for simplicity here) and that we get on a plane (or even cross a street) not because the risk is so low relative to what we might obtain (the risk of death being always too high a price to pay), but rather because we "expect" the positive outcome. In the limit, to continue crossing the street, to continue getting on planes, as the number of trials approach infinity, the probability of dying by such approaches 1. But in the very limited, finite space of our existence — say, x thousand flights in a lifetime — we don't "expect" a disaster, we expect, rather, to "get away with it."

And I think this notion of "getting away with it," is necessary to our survival, and we make and have been making decisions along these lines from the beginning, and the same type of assessment perhaps is present in how we trade (or, perhaps ought to be).

Take, for example, a famous big hitter commodity trader of yore who claimed that 90% of his profits came from 10% of his trades. Now, to be able to "expect" to be aboard on of those trades means you would mathematically have to sit through between 6 and 7 trades till you could have "expected" to have had one of those 10% of his big winning trades.


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