The End Of Risk And The End Of Civilization

Human beings aren’t great at assessing risk.

In 1979, psychologists Daniel Kahneman and Amos Tversky posited a new branch of behavioral economics, which they titled prospect theory. One of their key findings was that human beings are naturally loss-averse — we generally are willing to forego the probability of gains in order to minimize the chance of losses. Because of our loss aversion, human beings are also subject to what Kahneman and Tversky label the “planning fallacy”: our self-serving bias toward believing that we are capable of planning for contingency more successfully than we are. As Kahneman writes, “Exaggerated optimism protects individuals and organizations from the paralyzing effects of loss aversion; loss aversion protects them from the follies of overconfident optimism.” If we feel that we can solve problems, we might be more likely to take risks — and if we feel that risks are a problem, we might be more cautious with our plans.