Thursday, May 14, 2009

Of Risk and Reward - and Rationality

Why is human response to risk so frequently irrational?

Harvard Business Review editor Scott Berinato makes a highly pertinent point: Society's response to risk should be rational. In particular, he says, when confronted by admittedly horrendous possibilities such as those the Swine Flu scare threw up, overreaction is likely to result in wasted resources that could have been better used elsewhere.

I agree that resources should be allocated in perfect consonance with the risk-reward equation. However this is easy to say but very hard to do. In most real-world cases it is difficult to conclude whether a threat response was commensurate with the threat, even in hindsight.

Read my full opinion here.