The Dynamics of Risk-Taking

“Choose policies not for what they intend to do, but for how people react to them.”

To be able to design policies, technologies and organizational structures that protect us from risk rather than exposing us to it after second-order effects are taken into account, we need to understand why people and organization take risks and how they become more or less vulnerable to them.

People and organization are complex entities, and damage has complex effects upon them. Some forms of damage kill them and other ones make them stronger. Some form of protection protect them, whereas others make them take more risk, eventually resulting in tragedies.

Classical behavioral economics often uses one or more assumptions not representative of the real world: static monolithic players playing single gambles single times with known static odds. This paper discards these assumptions and instead considers complex players made of multiple levels of components (e.g., muscle fibers for humans or citizens for cities) with non- homogenous and anisotropic internal structures, exposed to multiple risks (social, financial, reproductive, etc), engaged in multiple repeated interactions with unknown dynamic odds and who undergo plastic changes in both their physique and in their behavior when dam- aged or rewarded.

This paper adopts a bottom-up approach to build a coherent and comprehensive framework to estimate the long-term effect of policies, technologies and organizational structures on the risk-taking behavior of people and organization in the real world and on their ultimate survival. In particular, it focuses on how damage can both make them stronger or weaker, more or less prone to take risks, and on what it depends.