Saturday, 2 January 2010

Many things we fear are stories written by marketeers (Part 2 of 3)

Reason is the most powerful tool for dismantling falsehoods. If we grow convinced that we stand a good chance of accomplishing our goals, we will become less worried and more adventurous. Logic is our cardinal ally for contesting overblown concerns. The best way to face fear is to demonstrate its irrationality, namely:

1. INTENSITY VERSUS LIKELIHOOD. The intensity of a potential catastrophe is independent of the likelihood of its occurrence. Salesmen promote insurance policies by painting vivid pictures of misfortune, but their sales presentations seldom mention the actual statistical probability of such misfortune taking place.

2. OBJECTIVITY VERSUS CULTURAL BIAS. The perception of risk is heavily influenced by cultural stereotypes. Saving rates differ from country to country according to how citizens see their future; the willingness to change jobs and move to a distant city is higher in the US than in Europe; the proportion of the population that invests in the stock market also varies from country to country.

3. EMOTIONAL VERSUS MATERIAL DAMAGE. Potential dangers need to be quantified in order to be properly assessed. If emotions take control, they will exaggerate the negative consequences of risk. On many occasions, the material damages that people actually suffer are minor compared to the accompanying psychological discomfort.

4. RISK PERCEPTION CHANGES THROUGH MARKETING. Many things we fear arise from stories written by marketeers. Why do California residents protect themselves more often against earthquakes than against divorce? Because salesmen market earthquake insurance very effectively, while at the same time, few couples are aware that a pre-nuptial agreement can protect them against a devastating divorce.

To be continued in Part 3


[Image by ynskjen under Creative Commons Attribution License. See the license terms under]