Religion is about Risk
Before I begin, I would like to make it clear that I am not trying to be controversial by discussing a sensitive subject such as religion. I want to share with you my findings in my quest to understand risk and more importantly, how to manage it effectively.
It was 1:57 am. I was desperately trying to find a means to put my thoughts to rest. After all, it was late and I needed to either sleep or be productive. I chose to immerse myself in my search and found it to be ironic that religion found it’s way into the equation.
It all started on June 19, 1623 in one of France’s oldest cities Clermont-Ferrand, when baby Blaise Pascal was brought into this world. Pascal was a child prodigy and is a celebrated mathematician, physicist, and religious philosopher. [1] He was also the first to develop the idea probability and more importantly Pascal’s Gambit, which is the area of this topic’s focus.
Peter Bernstein describes Pascal’s Gambit very eloquently by saying:
Pascal spent half his time leading an unsavory life and half the time being very ascetic. In the end, he came to the conclusion that he must give up the sinful life and retire to a monastery. While in the monastery, he asked himself the following question: ‘‘God is, or God is not?’’ He said that reason cannot answer this question—an important statement to come from a mathematician. He said belief in God is not a decision. I cannot wake up one day and say, ‘‘Today I will believe in God,’’ or ‘‘Today I will not believe in God.’’ It does not work like that. The answer to Pascal’s question comes from within, but you can decide how you will live your life. You can act as though there is a God, or you can act as though there is not a God. This is your choice. If you act as though there is a God, you lead a life of virtue. If you die and you find out that there is no God, well, you gave up a few things but you lived a good life. Look at it from the other point of view. Suppose you act as though there is not a God and lead a life of sin and lust, and then you die and discover there is a God; you are in big trouble. Thus, Pascal argued that the better bet, the better wager, is to behave as though there is a God. So, in many instances, the consequences of decisions must outweigh the probabilities. Even outcomes with small probabilities may have big consequences. [2]
What does this all mean in trying to understand risk?
- It is those events that have low probabilistic outcomes but catastrophic consequences that cripple companies [Credit Crisis]
- We should always be reminded of these risks and formulate our investment thesis accordingly and if possible hedge or mitigate these risks
- Believing in a GOD is the better wager.
Sources
[1] Wikipedia
[2] Peter L. Bernstein. Risk: The Hottest Four-Letter Word in Finance. The CFA Institute Risk Symposium. New York City. 22–23 February 2006.
11 Comments to Religion is about Risk
فكره مثيره للاهتمام
يمكن تكون صحيحه حق الامور الحياتيه
مثل المثال اللي حطيته آخر شي
(الشركات)
بس اتوقع اذا حاولنا نطبقها على الدين تكون وايد سطحيه
الدين ايمان وعقيده
ومايصير تكون مؤمن بس لأنه
its your best bet
واللي يفكر جذي اكيد راح تكون فكره عدم وجود الله في
باله دايما
هذا مو الايمان اللي يتطلبه الدين
Where have you been, Hammour? And what a splendid re-blog-entry! I had never thought of my faith as a playing the odds kind of thing, but it gave me a big grin to see faith evaluated in such a risk-averse fashion. 
fSeptember 8, 2009
Welcome Back It didn’t cross my mind that religion and risk could be linked in this way. Very interesting, keep up the good work.
ZahedSeptember 8, 2009
Great Topic amazing how simple things in life can lead you to what are and what you will be.
MARSeptember 8, 2009
@f: Thanks, it has been a while but I will be posting more regularly.
@Zahed: Glad you enjoyed it!
MARSeptember 8, 2009
@Intlxpatr: It has been too long, but I am back now and hope to continue writing about interesting topics.
MARSeptember 8, 2009
@Mohd: I agree that it only scratches the surface of the belief in religion. However, I did not want to make this post about faith. I simply wanted to take a concept like religion, which is widely understood, to explain something such as risk which is not. You are right though, without the faith you cannot just pretend to believe in God.
peteybSeptember 8, 2009
If people are good only because they fear punishment, and hope for reward, then we are a sorry lot indeed.
MARSeptember 8, 2009
@peteyb: I believe that human nature in fickle like that. Having said that, the primary goal should always be to have good intentions. When running a business, not many people are out to rob their customers. However, by not addressing the risks that could affect the overall business, business owners are in essence not behaving in the best interest of stakeholders.
peteybSeptember 9, 2009
they key in human psychology - and possibly success - is for persona/personality divergence to be minimized. for those of you that don’t understand the distinction: persona is the part that is exposed to the world or what people see you as whereas personality is what a person really is as the total of their experiences, beliefs, thinking and abilities.
the persona/personality case is only of relevance to the physical world of the living whereas all divine teachings i have seen suggest god’s omnipotence and ability to peer into man’s real intentions hence rendering the mismatch moot for salvation purposes.
the preceding point is an oft-cited flaw in pascal’s wager even though i am attracted by its simple elegance and practicality.
MARSeptember 9, 2009
@peteyb: You bring up a great point and do feel that Pascal’s wager only scratches the surface of faith and religion. However, as this applies to business, finance, and risk, the question is do firms adopt best risk practices due to regulatory requirements or because it is engraved in their culture? And, is there a difference?
September 7, 2009