Why we’re thinking about worst-case scenarios in the wrong way

18th October, 2019

Such excitement this week. I was about to stand up to give a talk, when I received a text message: I’d been hoping for a lift back from London to Oxford, but the motorway had been closed by an accident. Normally, I’d have cycled on my folding bike to the station, then hopped on the train. But I had not expected to need my lights and cycling after dark without them seemed ill-advised.

So I flagged down a black cab, first checking that it took credit cards because I didn’t have cash. Alas, the card machine went on the blink. I sat outside the station as the minutes ticked away while the cabbie kept turning the thing off and on again. Sprinting the length of Marylebone station in a suit and tie, with a Brompton bike under one arm, was not how I had envisaged the evening unfolding.

This brings me to a question some of us ask all too often, and some of us not often enough: what if it all goes wrong? The motorway, the bike lights, the card machine — when the fates seem stacked against me. Some friends of mine are prone to anxiety over the most unlikely contingencies. Others, particularly the Antipodeans, shrug off risks with a “she’ll be right”.

But I’ve become convinced that we don’t think about worst-case scenarios in the right way.

The first problem is that our sense of risk is pretty crude. The great psychologist Amos Tversky joked that most of us have three categories when thinking about probabilities: “gonna happen”, “not gonna happen” and “maybe”. Much of our intuitive thinking about worst-case scenarios seems to revolve around anxious people upgrading “maybe” to “gonna happen”, while the careless downgrade “maybe” to “not gonna happen”.

Tversky, alas, died before witnessing the UK prime minister Boris Johnson adjust his estimate of the probability of failing to agree a deal with the EU from “a million to one” to “touch and go”. I suspect the probabilistic acrobatics would have made him chuckle.

It would be helpful if our sense of risk was a little more refined; intuitively, it is hard to grasp the difference between a risk of one in a billion and that of one in a thousand. Yet, for a gambler — or someone in the closely related business of insurance — there is all the difference in the world.

And research by Barbara Mellers, Philip Tetlock and Hal Arkes suggests that making a serious attempt to put probabilities on uncertain future events might help us in other ways: the process makes us more humble, more moderate and better able to discern shades of grey. Trying to forecast is about more than a successful prediction.

But there’s another trap here: we can become sidetracked by the question of whether the worst case is likely. Rather than asking “will this happen?”, we should ask “what would we do if it did?” The phrase “worst-case scenario” probably leads us astray: anyone can dream up nightmare scenarios.

On my journey home this week, I could have been killed in the crash that closed the motorway. Oxford could have been hit by a nuclear strike. Neither is a helpful scenario for the purpose of travel planning.

Instead, I should have thought: what if the lift does not work out? What if small change and a card won’t do? Neither contingency was likely, but both were possible and easily dealt with. Worrying about nuclear strikes would not have helped me — but neither would shrugging and assuming nothing could go wrong.

To help us think sensibly about these worst-case possibilities, Gary Klein, psychologist and author of Seeing What Others Don’t, has argued for conducting “pre-mortems” — or hypothetical postmortems. Before embarking on a project, imagine receiving a message from the future: the project failed, and spectacularly. Now ask yourself: why? Risks and snares will quickly suggest themselves — often risks that can be anticipated and prevented.

Contingency planning is not always easy. The UK is currently wrestling with the prospect that the government will fail to agree terms for leaving the EU, triggering disruption in the short-term. The government’s own Operation Yellowhammer planning documents have described the woes that would result both as the “base case” (the truth) and a “worst-case scenario” (the government sucking in its stomach while posing for a selfie).

For a rational policymaker, the difference between base case and worst case is irrelevant: since there are few benefits to the back-to-square-one quagmire of negotiations that no-deal would bring, the short-term disruption is something to be avoided, whether or not it is likely. But since our government set rational policymaking aside some time ago, the rest of us must contemplate the risks and do what we can to prepare. That is true whether the chance of a Halloween horror is 5 per cent or 50 per cent.

In a febrile political atmosphere, it is hard to step back and ask: what if this all goes wrong? But we must try. And we can only regret that David Cameron didn’t perform a pre-mortem before calling a referendum in the first place.

Written for and first published in the Financial Times on 20 September 2019.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop.

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