Sunday, May 13, 2012

Risks: From Wall Street to Our Families and Schools

Thinking of risk, J.P. Morgan Chase's blunder which surfaced this past week takes center stage. Interestingly, there were two articles in this past Saturday/Sunday Wall Street Journal (May 12-13, 2012) address risk-taking.  My intention is to present excerpts from these articles on risk taking and relate how we as parents and educators can address our kids' school-related risks.

The Intelligent Investor column by Jason Zweig (Sat/Sun May) "Polishing the Dimon Principle" discusses James Dimon's (J.P. Morgan Chase's chief executive) failed reasoning, comparing it to what he calls "The Feynman Principle." (Richard Feynman was a Nobel Prize-winning Physicist who worked on the Manhattan Project, quantum physics, discovered the source of the Space Shuttle disaster, and in his spare time was an artist and musician.) According to Zweig:
The Feynman principle, however, is simple: "You must not fool yourself—and you are the easiest person to fool," as the Nobel Prize-winning physicist Richard Feynman put it.
The article continues:
The moguls of J.P. Morgan, in letting a complex risk run wild and denying any potential for error until it was too late, are a reminder that one of the biggest dangers in finance is self-deception.
...You can also fool yourself by placing too much faith in the findings of supposed experts.  Mr. Feynman recounted the story of an influential formula for measuring the charge of an electron ...devised by...pioneering physicist Robert Millikan. The result was slightly wrong, but it took many researchers years to prove it wrong - since Millikan's successors assumed that he had to be right."
Alex Nabaum www.
In section C (page C1) of the WSJ, there is a second article by Dylan Evans, "How to Beat the Odds at Judging Risk:  Fast, clear feedback is crucial to gauging probabilities; for lessons, consult weathermen and gamblers."
Whether as a trader betting on ... a stock, a lawyer gauging a witness's reliability or a doctor pondering the accuracy of a diagnosis, we spend much of our time—consciously or not—guessing about the future based on incomplete information. Unfortunately, decades of research indicate that humans are not very good at this. Most of us, for example, tend to vastly overestimate our chances of winning the lottery, while similarly underestimating the chances that we will get divorced.
The article continues noting, however, that
"...certain groups of people—such as meteorologists and professional gamblers—have managed to overcome these biases and are thus able to estimate probabilities much more accurately than the rest of us.
The article continues noting that Sarah Lichtenstein, an expert in the field of decision science, points to several characteristics of groups that exhibit high intelligence with respect to risk.
  • They tend to be comfortable assigning numerical probabilities to possible outcomes (in 1965, for instance, U.S. National Weather Service forecasters have been required to predict weather patterns such as chance of snow or rain in percentage terms);
  •  They tend to make predictions on only a narrow range of topics (probability of rain - a narrow prediction vs. the probability of a drug's effectiveness, which involves many more factors and is therefore a much more complicated prediction);
  • They tend to get prompt and well-defined feedback, which increases the chance that they will incorporate new information into their understanding.
This, in part, may explain Dimon and J.P. Morgan's recent trading failures: placing too much value on possibly faulty 'formulas' set by other 'giants', fooling oneself into believing what we want to believe, and making faulty predictions on a complicated 'bets'.

Translating Risk Research for Home and School: 

Risks are important to take.  As parents, we make and take risks all the time - in choosing schools and summer programs, and evaluating and acting upon professionals' recommendations, to name a few. Students must also take risks: in choosing school-project  topics, books to read, deciding what comments to share and how best to share them.  Students take risks when taking tests - knowing what answers to answer and how to select the 'best' response.  Kids take risks in sports, socially, even dressing.  We need to empower our kids to take risks, while teaching them how best to do this. 

I am not an investor or an economist, but Feynman's Principle and the research by Sarah Lichtenstein and Dylan Evans rings true for me as a parent / educator:

Avoid fooling yourself: While this is intrinsically difficult to do, here are some things to help you better understand your kids, their teachers, their health, their skills:
  • look at and listen to various sources to better understand our kids' strengths and weaknesses. 
  • look at their actual successes and failures in and out of school - review their homework assignments and tests once graded; meet with teachers;
  • listen and weigh teacher/physician/professional evaluations; while 
  • talking and listening to our kids to get their perspectives as well.  
This is important to constantly monitor as parents while modeling and teaching these skills to our kids as well.

Play prediction games with your kids - assigning specific numbers or values to what it is you are predicting.  This will help them understand 'number' concepts, better understand variables effecting the outcomes they are predicting, and better understand their own skills.  Here are some examples of what they might predict:
  1. Have them predict on how well they will do on a test or paper. Make sure they assign themselves a number or letter grade. Then check for immediate (or relatively immediate feedback).  Chart these predictions to see if they improve in accuracy while reviewing and incorporating teachers' comments. 
  2. Predict how long it will take them to complete homework assignments. Here too, chart their predictions and monitor their accuracy.  Not only will this give them a better sense of their skills in that subject, it will help them develop a keener sense of time, all while helping them analyze their skills and (homework) risks. 
  3. Play games of chance and risk.  Discuss options and probabilities.  Assign numbers or 'grades' to your 'chances'.
These are just a few suggestions.  I'd love to hear your suggestions and reactions. Please share them in the comments.  Thank you for your visit and have a wonderful week.


  1. What an interesting way to apply the concepts/conclusions of these sources. I think fooling ourselves is a huge problem in every arena of life. We can fool ourselves into depression, false pride, mediocrity, etc. Thanks for sharing this insightful post. I'm a new follower.

  2. Excellent post ~ many good points to reflect on and yes we fool ourselves more than anyone else ~ thanks, namaste, ^_^

  3. This comment has been removed by the author.

  4. great blog! I am your newest follower. Visiting from the blog hop. Would love a visit/ follow back.

  5. New follower, I love your blog! Hope you stop by and follow my blog.

  6. Great makes me think :)

    New follower.

    Sandie lee

  7. Very thought provoking and insightful post, Meryl! We do seem to fool ourselves so much in many areas. Thank you for your great suggestions!

  8. Great post,thanks for linking up with us at Creative Mondays :)

  9. Good post for R day. Self deception is so easy and so important to avoid. Glad you included that issue.

  10. I always love the lessons I learn here in your corner! Risk was an interesting choice as I could not have expounded on it as you have-so eloquently.

    1. Strangely enough I never took risks, and I am am still very careful to avoid running risks. I always studied so hard that I was convinced to pass my exams.Silly isn't it?! I know that it is necessary to take risks if you want to invent something or reach a goal.

  11. It seems the older I get the more of a risk taker I have become.
    Others opinions and how I will appear seem to be less of a concern to me now.
    Sometimes I think we definitely are our own worst enemy.
    Great, thought provoking post.
    Its always a pleasure to visit.

  12. I play the prediction game with Princess Nagger when she brings homework home that she's not thrilled about - and it always works every time. :) Love this insightful post, Meryl! Thanks for playing along and being a Rebel. ;)

    Mother's Day Snap-Happy, Network Upfront Disappointments and Mindless TV, Non-Natural Aubrey O'Day, The Hunger Games Enjoyment

  13. My daughter tends to be very risk averse, initially, then ventures out when she sees others appreciating it.
    ROG, ABC Wednesday team

  14. Thanks for joining Flock Together today!

  15. i've learned in life that the risk is directly proportional to the moral fiber of the person who got you into the risk

    radiation rampage

  16. I myself am a random risk-taker. Thanks for linking up for WW!!


  17. I love taking risks, it's a challenge and it's exciting!

    R is for RED, come and see.
    Rose, ABC Wednesday Team

  18. I thought I left you a comment? I know I did...stupid Blogger!

    Thanks for linking up with us!

  19. Swinging by from the Tuesday Train.

    Great ways to introduce risk!

  20. New follow from the blog hop :) Can't wait to catch up on your posts! Hope you'll take a look at my blog and follow back <3

    xo, Jersey Girl

  21. New follower from the blog hop - hope you'll come and visit me

  22. New Follower from the Friday Blog Hop! Come check us out

    Posting for Shannon, Sweepstakes Mama

  23. Thanks for joining us at welcome to the weekend hop too :)have a great weekend :)

  24. Very interesting information! Thanks for sharing with us at Trivium Tuesdays. =)

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