Uncertainty

     ”Uncertainty, the one thing you can always count on. Life is full of risks. We risk 

getting into a car accident every time we get behind the wheel. We risk getting food 

poisoning every time we go out to eat. You risk getting killed by a car every time 

you cross a street. We even risk drowning every time we go to the pool to swim. Life  

is full of risks. Very few people stop and think about how many risks there are in life, 

and most people do not care. Why is this the case? If the world can kill you, why are 

so few people concerned for their lives every time they walk out of the house? It is 

because we have in our society safeguards to reduce risk. We have speed limits, 

health inspectors, crosswalks, and valiant lifeguards. These things reduce risk to a 

level that is acceptable to the people. Risk can never be fully removed, but things 

can be done to lower the risk. Throughout economics, everyone is constantly 

looking to lower the risks, but the lowering of one type of risk can actually create a 

bigger problem.

     When people think of risk reduction, they often think about insurance 

companies. Where the insurance companies we are used to today have not been 

around forever, throughout history there have always been those who, for a fee, will 

reduce the risk of an individual. Families, gangs, royalty, and mercenaries are all 

forms of ‘insurance.’ They all exact a ‘fee’ for their risk reducing services and, which 

equal todays insurance premiums. But, when the risk of an individual is reduced, 

that person is more likely and willing to take more risks, to increase his profits, that 

he would be too cautious to try without protection. Thomas Sowell writes, “Those 

who are in the business of selling insurance try to take into account not only the 

existing risks, but also the increased amount of risky behavior” (Sowell p. 135).  

Often times this amounts to larger ‘fees’ for protection, such as, young drivers being 

required to pay larger insurance premiums than older, more experienced drivers. 

This is because, with the risk of losing several thousand dollars on a totaled car 

lowered, more reckless behavior may be attempted. In todays world we have 

insurance companies and companies that insure insurance companies. All of these 

organizations are designed to reduce the risk on one another, and to enable a 

safer means for economic growth.

     To most people you can never have enough safety, but there are times when the 

reduction of risk in one area actually causes greater risk in another area. Sowell 

explains this principle by using an example of subways. He says that they can 

always be made safer, having fewer cars per train and running the trains farther 

apart, but if this were to happen, fewer people could use the subway system and 

would need to resort to other types of transportation, such as cars, that have a 

much higher risk of death. He also mentioned Japanese pilots in WWII who refused 

to wear parachutes because they reduced the pilots agility in combat, this is a good 

example of one type of risk reduction, the parachute, actually making combat more 

dangerous and hazardous for the pilot. 

We hear a lot of talk about, “If it saves just one life it is worth it.” Few people think 

about money as being one of the most valuable resources. “Wealth is one of the 

most powerful life saving factors” (Sowell p. 155). So in reality money spent of 

safety devises that might save only a few devices could be better used in other 

areas to save hundreds or thousands of lives. To properly reduce risk and ensure a 

greater level of safety we must look beyond stage one thinking.

     In economics lowering risk is vital to success, but caution must be exercised to 

ensure that one type of risk reduction does not cause further dangers. Two things to 

remember are that all types of risk reduction are designed to first, reduce the 

magnitude of risk, and second, to transfer risk to the one who can bear it at the 

lowest cost. All of society gains from the benefits of risk reduction.

Sowell, Thomas. Basic Economics.