Gustavo Ballvé on January 29th, 2013
Food for thought, Home, Mental models, Portfolio Management, Risk management

Great article by Jared Diamond in the New York Times (H/T Abnormal Returns, I think). The author of Collapse: How Societies Choose to Fail or Succeed writes about “constructive paranoid”, i.e., a state of “hypervigilance” to events of seemingly small risk but high frequency, such as (in his example) falling in the shower. As he argues (and as my 2-3 regular readers certainly know by now), humans are terrible at estimating risk anyway, so it pays to be cautious and vigilant. The analogies to investing are obvious, but I am like this in all dayly aspects of life, so I was pretty happy to be able to call my “condition” something so nice as “constructive paranoia”…

Food for thought: are we as a society underestimating the risk of sustained periods of unhealthy eating and exercise habits?

Inside: a few excerpts and Jared Diamond’s 2008 TED presentation on “Collapse”.

Excerpts:

“(…) the importance of being attentive to hazards that carry a low risk each time but are encountered frequently. (…) Consider: If you’re a New Guinean living in the forest, and if you adopt the bad habit of sleeping under dead trees whose odds of falling on you that particular night are only 1 in 1,000, you’ll be dead within a few years. (…) I now think of New Guineans’ hypervigilant attitude toward repeated low risks as “constructive paranoia”: a seeming paranoia that actually makes good sense.”

“Studies have compared Americans’ perceived ranking of dangers with the rankings of real dangers, measured either by actual accident figures or by estimated numbers of averted accidents. It turns out that we exaggerate the risks of events that are beyond our control, that cause many deaths at once or that kill in spectacular ways — crazy gunmen, terrorists, plane crashes, nuclear radiation, genetically modified crops. At the same time, we underestimate the risks of events that we can control (“That would never happen to me — I’m careful”) and of events that kill just one person in a mundane way.”

“My hypervigilance doesn’t paralyze me or limit my life: I don’t skip my daily shower, I keep driving, and I keep going back to New Guinea. I enjoy all those dangerous things. But I try to think constantly like a New Guinean, and to keep the risks of accidents far below 1 in 1,000 each time.”

Video:

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