This is the final piece of our mini-series on The Risk of Inaction, and Type 1 and Type 2 errors. With a final word about luck.
Last week we talked about the Null Hypothesis (Part 1), and Type 1 and Type 2 errors using the example of appendicitis, and we talked about the often-reciprocal relationship between Type 1 and Type 2 errors - when you reduce one, the other rises (Part 2).
(By the way, Here's a site that discusses in detail how Type 1 and Type 2 errors work, in the judicial system.)
And I mentioned that it seems to be human nature to focus on the risks of action more than on the risks of inaction. It's as if we have a bias for the Null Hypothesis, and a wishful neglect of False Negative errors. "Don't worry about it." "If it ain't broke, don't fix it." Or, in the words of Mark Twain, "I have known a great many troubles, but most of them never happened." Oftentimes, that is true. Not always. Inaction is just a special sort of action.
Today, a few more examples from regular life.
1. I have heard Bob Brinker say this many times: If you own a stock, but would not buy that stock today at its current price, sell it (unless tax considerations trump that logic). Traders and professional investors think as much about selling or shorting as they do about buying, but my experience is that the regular retail investor puts much more thought into buying than selling.
Thus the amateur tends to think of the risk as being front-loaded - it feels as if the risk lies in the buying. (There is a huge literature on the psychology of perceived risk.)
However, the truth is that the risk of buying and of selling are comparable. Somehow, owning the stock psychologically comes to feel like a new Null Hypothesis, and the default position. That is illogical, Captain.
2. One of the wisdom themes that I hand out to my grandkids is this: Life is just a conveyor belt of opportunity, but they only pass by once. Jobs, friends, fun - everything. You usually get only one chance - well, sometimes more if you're lucky - before the thing or the moment passes you by. But we often let them pass by, for fear of error, or for excessive bias towards the Null Hypothesis (eg "there is nothing here"). Thus life gradually fills up with the regrets of lost chances.
When I was young, I was timid with charming girls. I'd gin up some courage to say "Hey" to one, and end up with pain and humiliation (False Positive, Type 1 error). I said "Hey" to another, and ended up with a year of grief and confusion (False Positive, again, in the end). Eventually, I said "Hey" to one, and it worked out just fine, to this day. But you always wonder - how many False Negatives did I overlook, for fear of the unpleasant False Positives?
Risk-aversion can be a blessing, but also a paralyzing curse. The most relevant example below.
3. Invading Afghanistan and Iraq, to bring the fight to "them." Man, those were some tough decisions: I wouldn't want the job of making them, (but I have no problem second-guessing them after the fact, from my armchair). The evidence for the Null Hypothesis - "There is nothing of concern here" was adequately disproven by evidence. Bill Clinton was paralyzed by fear of Type 1 errors, although he had little reason for that. In the process, he ignored the risk of inaction - which was extremely serious.
Recently in the news, Bill Clinton complained that he had no chances to deal with terrorism - no opportunities to be a hero. Wrong. Truth is, he was too worried about False Positives, and doing something in error. But what about the False negatives concern on the other side of the debate?
As Anchoress reminds us, he had plenty of opportunities to deal with terrorism, but wimped out, while blaming history for not giving him chances to do something. Didn't WTC 1, and the Cole, and Somalia happen while he was Pres? He had opportunities, but declined to engage them, like someone who is so fearful of buying stocks that they end up ten years behind.
Mitchell at Democracy Project points this out with great clarity. What are the risks of NOT taking the fight to the jihadists? Well, the risk would be, probably, getting more of the same from an emboldened Jihad. When we focus too much on error and risk, we can miss taking account of Opportunity Cost: there is a life price paid for every missed opportunity, as all grown-ups know - to their chagrin.
Decisions that involve life and death are tough. But fear of error can cause many missed opportunities to do what might be best. Yes, there is risk. Always. However, chosing not to act can be as consequential a decision, in life, as chosing to act.
As I see it, the people who take Opportunity Costs and False Negatives into account when making their choices are often called "lucky."
I knew a Beagle named Lucky. Got hit by a car but survived, grew old, and died.
