Risk Mimimizers

= the opposite of Gain Maximizers

Description

From Roberto Verzola in Undermining Abundance:

"Corporations maximize their gain (i.e., profits) through efficiency and scale.

Another concept, however, could be more important than efficiency. This is the concept of reliability, the quality of “being available when needed”, of “lasting for a long time”. This common concept may further clarify how the two goals of social justice and sustainability can be met.

When abundance fails and becomes unavailable to some sectors of society, or to subsequent generations, this failure is a loss of reliability. Reliability is measured in terms of “mean time before failure” (or “mean time between failures”). Improving reliability means reducing the risk of failure. A more familiar formulation is the “precautionary principle”.

To prevent abundance from turning into scarcity, maximizing gain (efficiency) should give way to minimizing risks (reliability) from threats to the sources of abundance. This suggests a “riskaverse” strategy, which precisely is a strategy common among ancient tribes and traditional societies. Perhaps, they instinctively recognized that their goal was to preserve the natural abundance which sustained them and to minimize any risk that may cause such abundance to end.

Under conditions of abundance, the ideal economic agent is not the gain maximizer competing for self interest and incidentally making markets efficient, but the risk minimizer cooperating with others to intentionally make their common resources more reliable.

Often, a resource that a community considers optimally used because the risk of failure has been minimized will appear underutilized to a corporation because gain is not being maximized. This is probably the cause of resource conflicts in many areas, especially where corporations intrude into community resources.

To get optimum yield, gain maximizers keep increasing production towards the “carrying capacity” of the resource. However, imperfect knowledge, uncertainties and lags inherent in natural systems can lead to oscillatory behavior and overshoots. Exceeding carrying capacity, even temporarily, can trigger a major mindset shift that can lead to a race that ends up in a breakdown of the commons.

Guided by the precautionary principle, risk minimizers focus not on carrying capacity but on the impact of extraction on the resource. Individuals evaluate the negative impact as risk to their perpetual source of abundance – risk being the probability of failure times the present value of their income stream that would be lost – and weigh this against their own need. This self regulating mechanism, where individuals limit their gain as they minimize the risk of losing a perpetual source of abundance, can keep the system in equilibrium. Even pure self interest should drive them to cooperate with others to make sure the rate of extraction stayed well below the carrying capacity, which represents a near 100% risk of failure. Should dire need push one to extract beyond acceptable risk, he will have to contend with the wrath of others whose perpetual income stream he is putting to risk. Or perhaps they will cooperatively chip in to help meet a member's dire need, given their common interest to protect the resource that gives each of them a perpetual income stream." (http://rverzola.files.wordpress.com/2008/11/verzola-on-abundance1.pdf)