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Risk

The Things We Do: Regret can trip us up- before we’ve even begun

Roxanne Bauer's picture

Few people doubt the merits of pausing to "think things through" before making a decision. Without doing so, we fear we may end up making a decision that leads to harm and misfortune.  However, this process is itself a double-edged sword that can lead us astray.

Boy thinkingWe've all been forced to make tough decisions in life. From career progression and where to live to which route to take on a trip, we navigate life's choices by considering our options and weighing them against each other. In the context of these decisions, we attempt to predict the negative consequences from an action or decision and the likelihood that those consequences will actually occur. 

Regret- we seek to avoid it when we can

In a famous study on Regret Theory, Loomes and Sugden present the idea that in making decisions, individuals not only consider the knowledge they have and the resources at their disposal, but also the likely scenarios that will result from their choices.  They further suggest that the pleasure associated with the results of their choices depends not only on the nature of those results but also on the nature of alternative results. Individuals consider the regret their future selves may feel if they know they would have been better if they had chosen differently. Likewise, they consider the joy their future selves may feel if the consequences of their decisions turn out to be optimal. Thus, both a cause and a consequence of our desire to avoid losses (loss aversion) is our desire to avoid the pain of regret. 
 
According to researchers, individuals exhibit “regret aversion” when they fear their decision will turn out to be wrong in hindsight. Sometimes, we engage in regret aversion before making a decision, leading us to hem and haw and lose out on opportunities. Other times, we engage in regret aversion after a decision is already made, leading us to hold on to losing assets or undesirable positions because we don’t want to admit our choice was not the best one. Many of the interventions that behavioral economists suggest, such as automatic enrollment, default options, and providing information to consumers, are set up to reduce the ex post regret individuals will face for not doing something that’s in their interest.

Thinking about stakeholder risk and accountability in pilot experiments

Heather Lanthorn's picture

ACT malaria medicationHeather Lanthorn describes the design of the Affordable Medicines Facility- malaria, a financing mechanism for expanding access to antimalarial medication, as well as some of the questions countries faced as they decided to participate in its pilot, particularly those related to risk and reputation.

I examine, in my never-ending thesis, the political-economy of adopting and implementing a large global health program, the Affordable Medicines Facility – malaria or the “AMFm”. This program was designed at the global level, meaning largely in Washington, DC and Geneva, with tweaking workshops in assorted African capitals. Global actors invited select sub-Saharan African countries to apply to pilot the AMFm for two years before any decision would be made to continue, modify, scale-up, or terminate the program. One key point I make is that implementing stakeholders see pilot experiments with uncertain follow-up plans as risky: they take time and effort to set-up and they often have unclear lines of accountability, presenting risk to personal, organizational, and even national reputations. This can lead to stakeholder resistance to being involved in experimental pilots.

It should be noted from the outset that it was not fully clear what role the evidence from the pilot would play in the board’s decision or how the evidence would be interpreted. As I highlight below, this lack of clarity helped to foster feelings of risk as well as a resistance among some of the national-level stakeholders about participating in the pilot. Several critics have noted that the scale and scope and requisite new systems and relationships involved in the AMFm disqualify it from being considered a ‘pilot,’ though I use that term for continuity with most other AMFm-related writing.
 
In my research, my focus is on the national and sub-national processes of deciding to participate in the initial pilot (‘phase I’) stage, focusing specifically on Ghana. Besides being notable for the project scale and resources mobilized, one thing that stood out about this project is that there was a reasonable amount of resistance to piloting this program among stakeholders in several of the invited countries. I have been lucky and grateful that a set of key informants in Ghana, as well as my committee and other reviewers, have been willing to converse openly with me over several years as I have tried to untangle the reasons behind the support and resistance and to try to get the story ‘right’.

Quote of the Week: Peter Drucker

Sina Odugbemi's picture

"People who don't take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year."

- Peter Drucker, university professor, writer and business guru. He has written numerous books on management and business and is considered to be the "father of modern management". 
 

Broken Windows: Mending the Cracks

Leonard McCarthy's picture

When the World Bank investigates and sanctions a major corporation for corruption related to one of its project, the deterrent impact is readily apparent. However, not every case the World Bank investigates is a major corruption case. In the past year, the World Bank Integrity Vice Presidency (INT) received many complaints related to fraud, and it is important to demonstrate responsiveness to complainants who report credible allegations as well as fix the weaknesses identified. Sanctioning cases of fraud also sends a strong message about abiding by high integrity standards in World Bank-financed projects. 

Left unchecked, fraud erodes development effectiveness. It often coincides with poor project implementation, which can result in collapsing infrastructure or the distribution of counterfeit drugs. It causes costly delays and can lead to direct financial losses for countries which cannot afford it. Fraud also fosters a negative enabling environment, creating opportunities for more serious and systemic misconduct to occur.

People think it’s easy to contract HIV. That’s a good thing, right? Maybe not. Guest post by Jason Kerwin

This is the fourteenth in our series of posts by students on the job market this year.

People are afraid of HIV. Moreover, people around the world are convinced that the virus is easier to get than it actually is. The median person thinks that if you have unprotected sex with an HIV-positive person a single time, you will get HIV for sure. The truth is that it’s not nearly that easy to get HIV – the medical literature estimates that the transmission rate is actually about 0.1% per sex act, or 10% per year.

Saving your way to a better state

Markus Goldstein's picture
People in developing countries, much like people everywhere, save.   And in Sub-Saharan Africa, beyond banks, folks save through a bunch of techniques -- ranging from the less sophisticated under the mattress savings to the more complex community-based rotating savings and credit associations (ROSCAs).    Given this plethora of savings options, one might wonder if an NGO program that set up savings groups but injected no capital or lockboxes or any other capital intensive intervention might make a

Quote of the Week: Raghuram Rajan

Sina Odugbemi's picture

Central bankers have had enormous responsibilities thrust on them to compensate, essentially, for the failings of the political system. And my worry is we don’t have sufficient tools to do that, but we’re not willing to say it. And, as a result, we push as hard as we can on the existing tools, and they may create more risk in the system.” 

- Raghuram Rajan, Governor of the Reserve Bank of India since 4 September 2013. Prior to his post at the Reserve Bank of India, Rajan was chief economic adviser to India's Ministry of Finance in 2012 and chief economist at the International Monetary Fund from 2003 to 2007.
 

Risks and Opportunities of Participation in Global Value Chains

Xubei Luo's picture

Since the first industrial revolution, waves of technological improvement have changed the boundary of production and redefined the role of the state. The information and communication technology revolution has not only increased productivity, but has also reinterpreted the function of time and distance—billions of activities are now linked with “one-click,” and new transactions become possible with “just-in-time” delivery. If the technological revolution has made participation in Global Value Chains (GVCs) somewhat inevitable, it has also accentuated both the risks and opportunities associated with this involvement. On the one hand, participation in GVCs creates new opportunities for profits and expands the market horizon; but on the other hand, it exposes the enterprise sector to risks previously shielded by market boundaries and geographic distances, while increasing the scale of information asymmetry.

Brazil, Korea: Two Tales of a Macroprudential Regulation

Otaviano Canuto's picture
The pervasiveness and relevance of asset price booms and busts in modern economies has now been fully acknowledged. So has the case for combining prudential regulation and monetary policy in the complementary pursuit of financial and macroeconomic stability.

Seeing the Human Face of the Global Financial Crisis

Inci Otker-Robe's picture

The collapse of a US investment bank in the fall of 2008 turned a severe credit crunch into the worst financial crisis since the great depression, providing a blunt reminder that mismanagement of risks does not go unpunished. What is more, mismanaged risks do not respect boundaries in a tightly interconnected world, damaging anything they touch on their path, hurting especially the poor and vulnerable. While financial systems can contribute to economic development by providing people with useful tools for risk management, such as credit, savings, and insurance, they can create severe crises with devastating social and economic effects when they fail to manage the risks they retain.


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