Making decisions in a risky world

 

Senator Margaret Chase Smith stands up to Senator Joe McCarthy

People make choices among alternatives, and they can’t know the future. So they can anticipate that each option they face usually presents risks, but they can’t always anticipate those risks. Certainly they can’t guarantee that by pushing this button the desired outcome will happen; rather, there are likely to be several outcomes, each with its own value and probability. Rational choice theory offers a general theory of decision-making under conditions of risk and uncertainty, and this theory of choice underlies much of microeconomics. The assumption is that decision-makers are rational in calculating the “expected value” of each of the options they face (the value of a particular outcome times the probability of that outcome), and that they then choose the option with the greatest expected utility.

Aristotle, on the other hand, had a more nuanced conception of “rational deliberation” in action, which involve consideration of multiple factors in a situation of choice. Practical reason is more than a question of estimating probabilities and utilities; it is an extensive reflection upon the circumstances, values, outcomes, and meanings of the choices that we make. (Here is an earlier post on rational deliberation about important choices in life; link.)

Here is a simple example. It’s a considered risk to go on winter vacation for two months with the heat turned off — “save a little money and count on the weather not getting down to the frozen-pipes level”. You care about the $800 you might save in heating bills, and you judge that a disastrous freeze ($12,000 damage) is too unlikely to worry about. But managing risk is something we can think about analytically. We can assign value to the possible outcomes and we can make an estimate of the likelihood of success and failure, and then we can choose the plan or action with the greatest expected value. In the winter vacation example, we’ve already specified the value of the good and bad outcomes, so we just need to make an estimate of the likelihood of each scenario. If we leave the heat turned off, we have a 100% likelihood of a saving of $800. The best winter forecast of the likelihood of a deep freeze event in my neighborhood is only 1%. This means the expected value of the frozen pipes is -$120 and the net expected gain/loss is $680. On these estimates it is prudent to leave the heat turned off. But if the likelihood of a deep freeze event is greater — say 8% — then the situation changes. Now the expected loss is -$960, and the net loss is -$160. It is no longer prudent to leave the heat off during the winter vacation. I’m better off leaving the heat on for the duration and being sure of avoiding the disastrous freeze.

So what are some of the blindspots of the theory of expected utility as a general model for decision-making? On the rational-choice approach, prudence (wisdom in handling risky situations) means a choice among options ranked by the expected gain/loss of each option. This is one common way of thinking about choice under circumstances of risk and uncertainty. This what economists mean by the advice, “maximize expected utility!”. It is the scheme that underlies cost-benefit analysis. And within its domain it is guaranteed to produce the greatest overall utility when applied consistently over time. But as a rule of choice aimed at guiding a person’s life choices, it is plainly a loser’s maxim. It is appropriate only for “rational fools”, as Amartya Sen put the point in an article of the same name (link). Here are several problems.

First, many life choices involve incommensurable outcomes. A person choosing between career options illustrates this. Alice has a choice: to become an expert on financial systems, because this choice has a 95% probability of generating lifetime wealth holdings of $10 million; or to become a climate activist, because this choice will give meaning to her life and will lead to social relationships with people she can respect and trust. There is no common denominator here, and Alice’s choice cannot be guided by the expected utility rule. Alice simply has to decide: which eventual outcome will be most important to her when all is said and done, a large stock portfolio or a lifetime of meaningful and satisfying work?

Second, many important life choices cannot be fitted out with objective or numerical probabilities. We may be able to assign subjective estimates to outcomes — “It is more likely that my home will burn down as a result of electrical shorts than because it is struck by a small private plane” — but we can’t make a pretense of assigning a specific probability to each possible event. And this is even more of an obstacle when it comes to less tangible events. Imagine if Caesar responded to the soothsayer’s warning “Beware the Ides of March” by jotting down probabilities about these possible hazards: the legions in Britain may mutiny (5%); Mt. Vesuvius may erupt (1%); my friends may murder me (10%); I may get bad news from Gaul that gives me a migraine (15%); … Pointless!

Third, many choices involve values and normative commitments in their doing as well as tangible benefits in their outcomes. This is a point that Sen emphasizes in “Rational Fools”. Another example will help here. William the Haberdasher recognizes that he can make a few extra dollars in profits by stocking Chinese knockoff “Mani” suits where his clientele is expecting Italian “Armani” suits. But William believes he has a duty of honesty to his customers, so he refrains. This is a considered and deliberative choice on William’s part that does not depend upon a cost-benefit analysis. It is not “rational”, if the only relevant consideration is the amount of profit of one business practice versus another; but for William, this is not the case.

It also seems that the expected utility rule is questionable when the unlikely negative outcome is very, very bad. (This seems particularly relevant in the case of a decision to implement highly dangerous technologies like first-generation fission reactors.) Suppose there is a choice between action A and B. A has an 80% probable benefit of $1000 and a 20% possible loss of $1,500. The expected utility is $500. B has a 99.9% likelihood of a return of $2000 and a 0.1% likelihood of a return of -$10,000, with a discounted loss of -$10. The expected return of option B is $1,990 — apparently a no-brainer from the point of view of the expected utility rule. But here the choice depends upon more than the dollars and cents (or rupees), because the unlikely outcome is also extremely bad. In the context of an agrarian society, for a poor landless tenant a debt of $10,000 means debt bondage for life. The landless tenant would surely be prudent to avoid that risk altogether and go with option A. The return on this option will be much less, but it rules out lifetime debt bondage completely. (Some development economists argue that the relatively slow adoption of Green Revolution technologies in rice farming followed from just such a risk-averse strategy. It was called the maximin strategy: choose that option with the least-bad worst outcome. This is the decision rule that John Raws recommends in arguing for the Difference Principle in his two principles of justice.)

And what if the pending choice is a one-off situation — you will never be faced with this choice again? Now the rationale for the expected utility rule disappears, because that rule depends on repeated similar choices. But for a unique choice you will never get the chance to make up for the unlikely roll of the dice. There is only the action and the outcome. The actor needs to ask: is there a best choice here and now, that I will not regret even if the dice rolls against me?

So Aristotle was right: wisdom in action within a risky world of choice cannot be reduced to simple arithmetic. Rather, reflection and deliberation about means and ends, moral and personal commitments, and the context of action and its consequences are needed in order to make genuinely wise decisions. “Self-interest” is only one part of wisdom; character and commitments are also part of the process of choice in important decisions. Phronesis rather than calculation is unavoidable in life’s more complicated and multifaceted situations of choice. (Here is a post on the topic of character that is relevant to decision-making; link.)

On the Fourth of July

 

Selected materials removed from National Park sites at instructions from Trump administration (legal cases underway) (Gemini generated)

It is quite difficult to celebrate the 250th anniversary of our country under the current conditions. The occasion has been hijacked by a president and a political party that have no dignity, no respect for the basic values of our country, no allegiance to our Constitution and the rule of law, and no benevolence for our people, and no respect for the international system and other nations that have been loyal partners throughout times of crisis in the past and present.

Like many Americans, I am ashamed of the lies told every day by our president, the cruelty and lack of compassion he and his administration show to the people of the United States and in other countries, the crassness of his constant efforts at self-promotion in attacking the great monuments of our capital city, and the corruption and massive conflicts of interest shown by the $1.2-$1.5 billion he has gained since taking office through industries he has promoted as president. Even the day of national celebration itself has been hijacked by his party’s Freedom 250 organization, converting the July 4h celebrations into a rally on the president’s behalf.

And yet this sense of shame about our nation’s current leader and his administration does not extend to a sense of disillusionment about our nation itself. My thoughts go first to Abraham Lincoln and the words of his Gettysburg Address on November 19, 1863.

So many lines in this brief speech demonstrate a fundamental contrast to our current president. "The world will little note, nor long remember, what we say here" -- can we imagine the current occupant in the White House making such a humble remark? And just a moment later, Lincoln expresses a fundamental aspiration for the nation -- not for himself, not for his followers, not for his party, but for the nation: "That we here highly resolve that these dead shall not have died in vain; that this nation, under God, shall have a new birth of freedom, and that the government of the people, by the people, and for the people, shall not perish from the earth." Lincoln's thoughts in 1863 were for the people of the United States, for the institutions through which their freedom and equality is secured, and for our unity as a democratic people. Have we ever heard the current president make a sincere effort to speak to and on behalf of the whole of the people of the United States, not simply his "base"?

Recall as well the closing lines of Lincoln’s First Inaugural Address in 1861:

I am loath to close. We are not enemies, but friends. We must not be enemies. Though passion may have strained, it must not break our bonds of affection. The mystic chords of memory, stretching from every battlefield, and patriot grave, to every living heart and hearthstone, all over this broad land, will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.

Or recall Dr. Martin Luther King, Jr.’s speech in the same place as the current “Great American State Fair” has been staged — to a crowd of some 250,000 men, women, and children from around the country on August 28, 1963. What a dignified and affirming set of aspirations were articulated on the steps of the Lincoln Memorial on that day, and what a stunning contrast to the scene on the same location today. Here are a few of MLK's words on that day:

I say to you today, my friends, though, even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream. I have a dream that one day this nation will rise up, live out the true meaning of its creed: “We hold these truths to be self-evident, that all men are created equal.”

I have a dream that one day on the red hills of Georgia sons of former slaves and the sons of former slave-owners will be able to sit down together at the table of brotherhood. I have a dream that one day even the state of Mississippi, a state sweltering with the heat of injustice, sweltering with the heat of oppression, will be transformed into an oasis of freedom and justice.

Or go back to Susan B. Anthony’s words in 1873 affirming women’s equality and demanding the right to vote for women after her own arrest for the crime of voting in the 1972 U.S. presidential election:

Friends and fellow citizens: I stand before you tonight under indictment for the alleged crime of having voted at the last presidential election, without having a lawful right to vote. It shall be my work this evening to prove to you that in thus voting, I not only committed no crime, but, instead, simply exercised my citizen's rights, guaranteed to me and all United States citizens by the National Constitution, beyond the power of any state to deny.

The preamble of the Federal Constitution says:

"We, the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquillity, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America."

It was we, the people; not we, the white male citizens; nor yet we, the male citizens; but we, the whole people, who formed the Union. And we formed it, not to give the blessings of liberty, but to secure them; not to the half of ourselves and the half of our posterity, but to the whole people - women as well as men. And it is a downright mockery to talk to women of their enjoyment of the blessings of liberty while they are denied the use of the only means of securing them provided by this democratic-republican government - the ballot.

Think finally of a fearless defender of freedom and the rule of law in the U.S. Senate, Senator Margaret Chase Smith of Maine. She spoke up against Senator Joseph McCarthy's unconscionable and cowardly attacks on the loyalty of other Americans in these words in June, 1950:

I speak as a Republican. I speak as a woman. I speak as a United States Senator. I speak as an American.

The United States Senate has long enjoyed worldwide respect as the greatest deliberative body in the world. But recently that deliberative character has too often been debased to the level of a forum of hate and character assassination sheltered by the shield of congressional immunity. ...

I think that it is high time that we remembered that we have sworn to uphold and defend the Constitution. I think that it is high time that we remembered that the Constitution, as amended, speaks not only of the freedom of speech but also of trial by jury instead of trial by accusation.

Whether it be a criminal prosecution in court or a character prosecution in the Senate, there is little practical distinction when the life of a person has been ruined.

Those of us who shout the loudest about Americanism in making character assassinations are all too frequently those who, by our own words and acts, ignore some of the basic principles of Americanism:

• The right to criticize;
• The right to hold unpopular beliefs;
• The right to protest;
• The right of independent thought.

The exercise of these rights should not cost one single American citizen his reputation or his right to a livelihood nor should he be in danger of losing his reputation or livelihood merely because he happens to know someone who holds unpopular beliefs. Who of us doesn’t? Otherwise none of us could call our souls our own. Otherwise thought control would have set in.

Abraham Lincoln, Susan B. Anthony, Martin Luther King, Jr., Margaret Chase Smith -- these were all Americans with a deep and enduring commitment to the values of equality, freedom, and the rule of law upon which our nation rests. And they all spoke in terms that recalled the language of the Declaration of Independence and the U.S. Constitution. They recognized very clearly the distance still to travel before those values are more adequately realized. In their various ways, they stood courageously in the face of threats, violence, and unsettled times. And they did not stand alone. Countless other leaders, citizens, officials, and ordinary citizens stood up in their own times and places to support equality, freedom, and dignity for all.

The values that we share as Americans are profound, their goals are incomplete, and they are under attack today. The rule of law, the responsibility of government to act justly and in support of the common good, and the political morality of mutual respect and dignity are all threatened by the current administration and its supporters in Congress and in the nation.

So, yes, let us celebrate the 250th anniversary of our nation on this Fourth of July, 2026. Let us embrace with renewed understanding the core values of equality and freedom, dignity and mutual respect, that are fundamental to a democracy that embraces all its citizens. And let us each take the actions that we can to help to ensure that our democracy survives these many challenges.