Slipperiness of the term "risk aversion" - thoughts of Andrew Gelman

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[ For the purposes of this post, I am defining "risk" as a "non-zero probability of a undesirable outcome. I believe this definition is consistent with everything in this post, including Andrew Gelman's original comment. ] Interesting post by Andrew Gelman: Slipperiness of the term "risk aversion" - Statistical Modeling, Causal Inference, and Social Science: "

But I'm bothered by the term 'risk aversion.' Why exactly is it appropriate to refer to strict rules on drug approvals as 'risk averse'? In a general English-language use of the words, I understand it, but it gets slippery when you try to express it more formally.

I understand what Alex is saying--people are afraid of the risk of an adverse drug reaction, with this fear being 'risk averse' rather than simple rational prudence if the cost of the risk aversion outweighs, in expectation, the risk being avoided. (After all, we don't call it 'risk averse' to avoid going down Niagara Falls in a barrel. The idea of 'aversion' is that one is evaluating a tradeoff using a rule that is more stringent than the calculation of expected values.)

Still, it's tricky to refer to this as 'risk aversion' in a general sense. In the drug-approval context, there are two risks--the risks from an adverse drug reaction, and, on the other side, the risk of something bad happening that could've been prevented by taking the drug. It's risk vs. risk. What if someone said we should approve just about every drug, so as to avoid the risk of some otherwise-preventable condition? That would be risk-averse in another way, right?

This stance might seem fanciful, but I actually think it's pretty common, if you shift the context just slightly. Having done some (academic) work on pest control, I've learned that the most effective method of reducing home roach infestation is to clean the place, put poison in the cracks in the walls, and seal the cracks. 'Bombing' the apartment doesn't really do the trick. It kills some roaches but then the others come back. And this is beyond whatever poisoning you might get from the pesticide that's sprayed all over.

Nonetheless, people just love, love that bombing. Every month in our building they put up a list asking who wants their apartment bombed, and lots of people sign up. (And, beyond these individual choices, there's an institutional choice to bomb people's apartments for free. Nobody's offering to clean and seal our apartments for free.) Every month they do it, so I'm pretty sure the roaches are coming back.

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To get back to the main point of discussion, this behavior can be viewed as risk-seeking or risk-averse. Risk-seeking because people are taking on a risk of being exposed to poison and basically getting nothing out of it. Or, risk-averse because people are willing to do something pretty extreme to avoid the risk of roach exposure. In general, the 'take a pill for it' or 'bomb it' attitude can be seen as risk-averse. Or not, depending on how you look at it.

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My Comment:

Yes, I think I understand what you are saying. Converting your wealth to *any* basket of goods has risk. Turn all your wealth into gold, fearing inflation, and you are badly situated for a Mad Max Carmageddon rapid societal collapse (if you try to trade gold for firearms, you will simply have the firearms pointed at you). Turn *all* your wealth into gasoline and Chevys and firearms, and you are badly situated for any other possible world. Any action carries risk, any bout of inaction carries risk. So I understand your point to be: instead of having the cultural norms pick which risks count and which risks don't count, and describing some actions as "risk averting", rigor demands specifying the risks for all actions and also for inaction, and specifying how you rank or discount risks relative to each other. I meant to open up my copy of Sam Savage's _Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty_ and see what he wrote about "risk aversion". The whole book is commendable - readable and rigorous.