Risk Aversion

From Huffington Post

Are you risk averse? Hopefully if you’re a Part 1 student you’ll have already selected on a scale of 1 to 10 how likely you are to take a risk in your quiz for Settlers next term. If not, here’s the link again for the survey.

Google provides me quickly with a definition for being risk averse: “disinclined or reluctant to take risks”. So what is a risk? Again, from Google, “a situation involving exposure to danger”. A situation where something bad might happen with some probability. It could be a very low probability. Generally we also think about the potential rewards of situation also – expected payoffs, to use some economics speak.

We might thus think about the likelihood of something good happening (positive payoff), and the likelihood of something bad happening (negative payoff), and our decision to take part depends on whether we are risk averse or not – willing to accept the probability of the bad thing happening given the probability of the good thing happening. Will we accept a bet where with 10% chance we get £100, but with 90% chance we lost £1?

Why does this matter today? Today, MPs are debating about an extension of UK involvement in bombing campaigns in Syria. We can reduce this down to a situation where with some likelihood something good happens (Isis is defeated), but with some other likelihood something bad happens (Isis not defeated, long costly war). Should we get involved as a country?

You should respond that that is too simplistic. As the Defence Secretary points out (fairly, too, it has to be said), the UK is already a target for IS anyhow, meaning that to decide to bomb Syria doesn’t affect that dimension.

The simple two possible outcomes model seems woefully inadequate for a situation as complex as the Syrian conflict. Yet is it? If we choose to bomb, we have again two possible distinct outcomes (with shades of grey in-between): Our bombs only hit the right targets (IS installations) and there are no civilian casualties (a very good outcome, indeed), or our bombs miss all the right targets and only civilian buildings (a very bad outcome indeed).

What, of course, is more likely is something in-between – but then, if that happens, that means the loss of many innocent lives (more than is currently happening?), and the potential radicalisation of others witnessing these events (more than is currently happening?). Assuming that despite this mixed success, IS is essentially eliminated as a threat, what is left? Is the power that moves into the vacuum (presumably, the Syrian state that we were thinking about bombing just a few years ago) any better?

The graphic at the top of this post is stolen from the Huffington Post, and is really too flippant for the severity of the situation, but it makes a pretty clear point – it’s very difficult to know what the right thing to do is here, and we as the West have been intervening in the Middle East for decades now without any obvious signs of success.

A risky decision, one with a low probability of success – should our MPs be voting for it tonight???