Changing Attitudes Toward Attitudes Toward Risk

Amid an article about the GM bankruptcy, Mark Ambinder (political correspondent for the Atlantic Magazine) has the following offhand comment:

Purists — and virtually every academic economist one happens to encounter — wonder what happened to the once inviolate principle of rewarding risk-takers.

On a literal level, I don’t think that’s correct: the idea is that risk-takers can win big if they win, but if they lose, they lose: that’s what “risk” is all about. I don’t think anybody (except the risk-takers themselves, along with their friends and families) think that risk-takers should be rewarded when their bets lose.

But that’s all obvious and fits in with all the moral-hazard, perverse-incentives things we’ve been hearing about for awhile.

Why I’m going on about this

What interests me is the centrality of “risk” in the world of economics now. Until being pointed to the article linked to above, I had never heard of the “once inviolate principle of rewarding risk-takers.” Then again, it’s been almost 30 years since I’ve taken an economics class. In that class, the idea of “risk” wasn’t mentioned at all, I think. We learned about about supply and demand, inflation and unemployment, money, investment, the stock market, etc. But the whole “risk” thing didn’t come up.

Since then I’ve read enough to know that academic economists have been talking about risk for awhile, but I don’t think it was in the forefront of discussion. For example, I don’t think a magazine columnist 30 years ago would’ve written about the inviolate principle of rewarding risk-takers, or anything of the sort. Things have changed–a lot.

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About Andrew Gelman 26 Articles

Affiliation: Columbia University

Andrew Gelman is a professor of statistics and political science and director of the Applied Statistics Center at Columbia University. He has received the Outstanding Statistical Application award from the American Statistical Association, the award for best article published in the American Political Science Review, and the Council of Presidents of Statistical Societies award for outstanding contributions by a person under the age of 40.

His books include Bayesian Data Analysis (with John Carlin, Hal Stern, and Don Rubin), Teaching Statistics: A Bag of Tricks (with Deb Nolan), Data Analysis Using Regression and Multilevel/Hierarchical Models (with Jennifer Hill), and, most recently, Red State, Blue State, Rich State, Poor State: Why Americans Vote the Way They Do (with David Park, Boris Shor, Joe Bafumi, and Jeronimo Cortina).

Andrew has done research on a wide range of topics, including: why it is rational to vote; why campaign polls are so variable when elections are so predictable; why redistricting is good for democracy; reversals of death sentences; police stops in New York City, the statistical challenges of estimating small effects; the probability that your vote will be decisive; seats and votes in Congress; social network structure; arsenic in Bangladesh; radon in your basement; toxicology; medical imaging; and methods in surveys, experimental design, statistical inference, computation, and graphics.

Visit: Andrew Gelman's Website

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