The world is a risky place where all sorts of nasty things could happen. So, how do we decide what to do when there are risks at every turn? Luckily, there’s a widely accepted theory that tells me when it’s rational to take a risk. It says that a rational person is someone who maximizes expected utility. The basic idea is that an agent does something and, depending on circumstances, it may have several outcomes we can rationally assess.
What is it
There is an element of risk – either to ourselves or to others – in almost everything we do. By deciding to go to the grocery store, for example, we take a (very small) risk of getting into a car accident. Many risks are acceptable, of course, but how do we know when a risk is worth taking? The most important decisions, after all, are often risky ones. What about risks to others' welfare? How do we, and should we, take risk into account when we make decisions? John and Ken take their chances with Lara Buchak from UC Berkeley, author of Risk and Rationality.
We inevitably take risks all the time: every time that we act without knowing what the result will be, we are taking a risk. Are some risks more rational to take than others? If so, what determines the rationality of a risk? John and Ken discuss the complex nature of risk and risk assessment with UC Berkeley professor of philosophy, Lara Buchak. Despite the common belief that expected utility theory is the best guidance to risk-taking, Buchak argues that it allows too little of an individual's preferences to come into the equation.
Given that expected utility theory can account for how much individuals value possible outcomes in light of their probabilities, John and Ken question what could possibly be missing from the theory. Buchak explains that the theory neglects how much value the individual can place on the safety of a sure bet or the grand potential of a more chancy one. A person may be more risk-averse or more risk-seeking, and this aspect is left unaccounted for by expected utility theory. While John questions this with an example involving Russian roulette, Buchak stands by her conception of rationality in risk assessment.
When an audience member brings up the issue of how to assess risk on behalf of others, Ken notes that the discussion around this form of risk is likely to be about ethics rather than rationality. Buchak agrees, and further addresses this in response to more of the audience's questions. As the show nears its close, Buchak argues for the unintuitive stance that, in some cases, gathering less information about a choice is actually the best option. John and Ken remain somewhat skeptical.