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Information Myopia

Mark Edwards
25-08-2005

In the simpler days of our evolution, our skills at identifying risk stood us in good stead. When we recognised the signs of a predator we knew to steer clear or we would become lunch for someone, or something, else.



Our tribe or village educated us about plants to avoid eating or touching, usually as the result of bitter experience by another tribe member.



When our knowledge of dangers came from such a tight knit group, the information we learned about them was immediately relevant to our survival and needed close attention.



As humans, we have a powerful mental ability to use fear as a modifier of our behaviour. In addition, we have a good memory to ensure that our modified behaviour is long term.



In the modern world, many of our species survival skills lead us to inappropriate responses to risk.



For a start, our village is no longer measured by being within walking distance. Information travels to us from around the globe by a number a means. Television and newspapers were once dominant, however, the Internet is growing in influence as a source of immediate news.



The recent bombings in the London public transport network are a good example. My first knowledge of this came from a friend in London who emailed me to say that several bombs had gone off in the London Underground and that his girlfriend had just missed one of the target trains on her way home. He then went on to say that London had ground to a halt.



The immediacy of this message and its personal nature made the event more shocking to me.



Within an hour of this, there was television coverage of the immediate consequences of the attacks.



Over the next few days, the international news media had a field day talking about all aspects of the attack and its consequences. There were graphic accounts by survivors as well as the near miss stories by many lucky survivors.



In addition to the mass media, there were many online accounts in personal and public websites and web logs (blogs) with the experiences of survivors.



The ubiquity of mobile phones with inbuilt digital cameras allowed the more ghoulish of these people to take photographs of the chaos of the immediate aftermath, the injured and the dead which they posted online for the world to see. These sorts of images would not be allowed to be published in any newspaper or shown on television.



These exceptionally graphic images have a particular power over us. They evoke our primal fear response in ways that a story can never do.



According to Arieh Y. Shalev, a professor of psychiatry at Hebrew University and Hadassah School of Medicine in Jerusalem, "Grotesque images that evoke particular fear and revulsion, such as mangled or children's bodies, amplify the effects of terrorism. For this reason there is a strong argument for not broadcasting them."



Our "sense of security is what terrorism seeks to disrupt by making people fearful of when and where the next attack will happen. Here we can learn much from the science of animal behaviour. You can instil in free-roaming animals a permanent sense that predators are imminent by scattering their odours in unpredictable ways. This gives the sense that no territory is safe and nothing the animal does can effectively protect it from the threat. In a similar way, terrorism is an attack on our perception of reality. Randomly attacking improbable victims is designed to build a sense of permanent threat and disrupt the normal pattern of life."



From issue 2508 of New Scientist magazine, 16 July 2005, page 20



You might say, "we have all these sources of news and they make us afraid of terrorists. What is so wrong with that?"



The problem is there is little to fear from terrorism. Even though there is little to fear, the massive barrage of information we are subjected to after an event like this makes us unreasonably afraid. The fear in this case causes people to holiday elsewhere instead of London, or it might make you afraid to catch public transport and drive to work instead.



It distracts us from the things we really need to fear and leaves us worrying unnecessarily about what is in reality a minor risk.



When we look at the issue of terrorism rationally the statistics are sobering.



In the last 20 years there have been less than 5,000 civilian deaths in western countries due to jihadist and Arab insurgent violence. Most of these were in Israel and the United States, with the remainder due to the Lockerbie, Bali, Madrid and London atrocities.



The population of the western world is approximately 760,000,000 people. Thus your chances of being killed by jihadist terrorists stand at around 1 in 3,000,000 in a given year.



This is a miniscule probability. Let us put it in perspective.



In Australia, over 50,000 people die each year from heart disease. That is 1 in 400 Australians are killed by heart disease each year. That is 7,500 times the risk of being killed by jihadist terrorists.



In Australia, over 36,000 people die from cancer each year. That is 1 in 550 Australians are killed by cancer each year. That is 5,500 times the risk of being killed by jihadist terrorists.



In Australia, over 1,500 people die in car accidents each year. That is 1 in 13,000 Australians are killed by car accidents. That is 230 times the risk of being killed by jihadist terrorists.



Yes, that is correct. You are hundreds of times more likely to die in a car accident than to be killed by acts of terrorism.



Do you feel scared, or that you are in imminent danger of death, whenever you get into your car?



If not, then perhaps you should? Or perhaps we should worry less about the threat of terrorism?







In all of the causes of death above, measures can be taken to prevent many of the deaths.



The risk of heart disease is reduced by, amongst other things, maintaining a healthy weight and diet. The risk of many cancers is reduced by similar means as well as avoiding excessive sun exposure and smoking. The risk of dying in a car accident is reduced is you don't speed, or drive whilst tired, or under the influence of alchohol or drugs.



Education measures to reduce the incidence of risk factors such as smoking in Australia help to save lives. Due to such measures, the incidence of smoking in Australia is declining, with corresponding health benefits.



Education about maintaining a healthy diet and bodyweight also help to save lives.



Medical research has major impacts on the lives of those who suffer from these and other potentially fatal conditions.



Programmes to reduce Australia's road toll, as well as increases in vehicle safety, mean that today our road toll is about half what it was 20 years ago, despite the fact that there are more vehicles on the road.



All of these measures provide demonstrable benefits to our society.



All of these areas constantly request more funding to continue their work.



So this is the real cost of the myopic view of risk that we suffer from.



When the media hype a story like the terrorist bombings in London out of all proportion, the public become irrationally scared. They demand a response from government. Governments, being the animals they are, react by introducing measures to combat this plague (terrorism). Thus, we have a "war on terror."



The cost of waging this war is immense.



The human life toll is terrible.



As of the 22nd August, 2063 coalition troops have been killed in Iraq and a further 287 in Afghanistan.



Estimates of the number of civillian deaths in Iraq place the figure at around 25,000 since the millitary intervention began.



The monetary cost is staggering.



The Department of Homeland Security in the United States has an annual budget of about $40 billion Australian dollars.



Even without regard to the additional sums spent by other countries on increased security measures, or the amount spent on prosecuting the conflicts in both Afghanistan and Iraq, this is an enourmous amount of money.



If the number of deaths due to terrorist acts over the next 20 years was the same as the previous 20 this figure alone represents spending of $160,000,000 per death to reduce that number.





There are certainly costs associated with our increased level of security as almost any person who travels by air knows, however, it is debateable as to whether we are significantly more secure than previously.



What is certain is that we are more afraid!





So how does this relate to our attitudes toward investment, wealth creation and saving for retirement?



The first lesson from this is that fear is a powerful motivator.



The second is that letting your actions be ruled by fear does not always result in making the right decisions.



The way people choose an investment vehicle is profoundly influenced by their relative fear of risk.



For example, left to their own devices, many investors will choose bank deposits as a low-risk investment for the long term. The risk to initial capital may well be low, however, the risk that this investment will be outperformed by others is 100%. This makes such an investment "very risky" in that respect.



The role of a financial planner is not just to ascertain a client's risk profile, but also to educate that client about the relative risk of various investments.



The media love to portray the "risky" nature of the stockmarket.



The emotive terms used like "crash" or "collapse" or "slump" seem to be equally applied to small movements seen in normal daily trade.



For example, today (25th August 2006) BHP Billiton is currently trading at $20.11 being 45c or 2.19% down on the previous night's closing price. This is a significant movement for a 24 hour period and no doubt, the evening news commentators will use one or more of their stock disaster terms to describe this small fall. This reinforces the fear in people's minds that stocks are risky.



They will no doubt fail to remind their audience that BHP Billiton has more than doubled in price over the past 3 years. This small fluctuation should be immaterial to any investor who has a good understanding of the long term risk of owning shares in large, soundly managed companies.



Whilst it is a hard road to travel, risk education is key to a client's long term future. Failure in this endeavour is like letting them remain overweight, drive to work and smoke instead of dieting, exercising, quitting smoking and catching the Tube.

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