I feel like there’s a relationship here between this and the concepts brought out in Mullainathan and Shafir’s ‘Scarcity’. The costs of daily survival as born by someone in poverty (Buddy) are both the same as, but simultaneously significantly less than, someone with plenty (Rich). Both have “skin in the game” but Buddy is more sensitive to ruin than Rich.

Buddy doesn’t see the value in bulk-buying of household goods or insurance because both actions look forward to a point in the future that may not be reached. Additionally, both tactics increase the likelihood of ruin more than they protect against it.

Rich sees the value in bulk-buying and insurance because both actions look forward to a point in the future that will probably be reached, but both tactics can be engaged with, or not, as neither course will lead to ruin.

Buddy, by dint of circumstance, does not look at time series, but his own actions, and the ensemble of people around him. Rich, on the other hand, does not really have “skin in the game”, and so can afford to look at the time series, and is somewhat insensitive to the ensemble. So insensitive, in fact, that he is likely to engage in risky behaviour, where the risk is ultimately born by the ensemble.

This insensitivity to risk, in effect a lack of “skin in the game”, reminds me of the Kobayashi Maru game in Star Trek. Rich can stack the deck, or bribe the Casino manager, and actively push ruin further and further from his thinking, accruing greater and greater ruin for those, like Buddy, that cannot afford such thinking.

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Psychology graduate with interests in values and morality, cognition and executive function, and High Functioning Depression. Kiwi living in London, UK.

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Alan Duval, MBPsS

Alan Duval, MBPsS

Psychology graduate with interests in values and morality, cognition and executive function, and High Functioning Depression. Kiwi living in London, UK.

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