You have been blown-out for 4 weekends in a row and you now have an opportunity to dive this weekend as the weather is fabulous and the visibility has been reported as 10m+. However, you aren’t due to dive for another four weeks for a variety of reasons. Just as you getting your gear ready to put on, you notice that you have a malfunction with your gear, something manageable but will cause you additional workload and reduce your margin of safety on the dive. This is a failure you wouldn’t normally accept because you get to dive lots. If you don’t dive, your buddy will have to sit out too as there isn’t anybody else to dive with them at such short notice. What do you do?
At this point, you are managing uncertainty not a risk because the numbers are not calculable. You decide to dive and nothing adverse happens and you have an awesome dive.
Are you reflective of your management of uncertainty? Did you think it was ‘good’?
But what if two or three other minor issues had happened on the dive, leading to a very serious incident? How well do you think your uncertainty management would have been then?
Certainty is only 100% after the event but we often consider that we have an illusion of certainty beforehand based on previous experiences and stories we have heard from others.
Besides, due to the way our brain is wired, no-one really thinks that the physical pain is going to happen anyway! Psychological pain (or loss) is much easier to conjure up!
These sorts of decisions happen all the time in diving and the losses we face aren’t just physical or financial, they are also psychological in nature. We are dealing with “mixed” options: there is a risk of loss and an opportunity for gain, and because time is marching on, we must decide whether to accept the gamble or reject it.
For example, you are offered a gamble on the toss of a coin.
- If the coin shows tails, you lose $100.
- If the coin shows heads, you win $150.
Is this gamble attractive? Would you accept it?
Most people would say no because the psychological loss is perceived as greater than the gain. It is possible to determine where your own threshold is by looking at the smallest gain you would be willing to have compared to a loss of something like $100. Kahneman and Tverskey showed that on average the smallest gain is about $200, with the range being approximately $150-$250. Therefore, on average, we need about 1.5-2.5x the benefit before we will even consider the taking the risk/gamble.
An interesting aspect of this is that the baseline or centre-point is important, especially when it comes to losses.
If you have a 50:50 gamble in which you would lose $10, what is the smallest gain that makes the gamble attractive? If you give a number less than $10, you are risk seeking. If it is above $10, you are risk averse.(See note re: risk in different domains at the bottom). What about $500 on a flip of a coin? Or $2000? At some point, the gamble is just not worth it, even if it was millions. Why the centre-point is important because it is the perceived psychological loss or gain that is important. If you have millions of dollars, losing $2000 means very little compared to someone who doesn’t have much money.
Kahneman and Tversky produced a graphical model which looks at this relationship and the gradient of the curve is an important feature, called Prospect Theory. At the centre-point, the loss gradient is steeper than the gain gradient which means the impact of a psychological loss is great than a gain. However, as you move further from the centre-point, the impact gets less and less.
At this point, you are managing uncertainty not a risk because the numbers are not calculable. You decide to dive and nothing adverse happens and you have an awesome dive.
Are you reflective of your management of uncertainty? Did you think it was ‘good’?
But what if two or three other minor issues had happened on the dive, leading to a very serious incident? How well do you think your uncertainty management would have been then?
Certainty is only 100% after the event but we often consider that we have an illusion of certainty beforehand based on previous experiences and stories we have heard from others.
Besides, due to the way our brain is wired, no-one really thinks that the physical pain is going to happen anyway! Psychological pain (or loss) is much easier to conjure up!
These sorts of decisions happen all the time in diving and the losses we face aren’t just physical or financial, they are also psychological in nature. We are dealing with “mixed” options: there is a risk of loss and an opportunity for gain, and because time is marching on, we must decide whether to accept the gamble or reject it.
For example, you are offered a gamble on the toss of a coin.
- If the coin shows tails, you lose $100.
- If the coin shows heads, you win $150.
Is this gamble attractive? Would you accept it?
Most people would say no because the psychological loss is perceived as greater than the gain. It is possible to determine where your own threshold is by looking at the smallest gain you would be willing to have compared to a loss of something like $100. Kahneman and Tverskey showed that on average the smallest gain is about $200, with the range being approximately $150-$250. Therefore, on average, we need about 1.5-2.5x the benefit before we will even consider the taking the risk/gamble.
An interesting aspect of this is that the baseline or centre-point is important, especially when it comes to losses.
If you have a 50:50 gamble in which you would lose $10, what is the smallest gain that makes the gamble attractive? If you give a number less than $10, you are risk seeking. If it is above $10, you are risk averse.(See note re: risk in different domains at the bottom). What about $500 on a flip of a coin? Or $2000? At some point, the gamble is just not worth it, even if it was millions. Why the centre-point is important because it is the perceived psychological loss or gain that is important. If you have millions of dollars, losing $2000 means very little compared to someone who doesn’t have much money.
Kahneman and Tversky produced a graphical model which looks at this relationship and the gradient of the curve is an important feature, called Prospect Theory. At the centre-point, the loss gradient is steeper than the gain gradient which means the impact of a psychological loss is great than a gain. However, as you move further from the centre-point, the impact gets less and less.
