“Consider: If you’re a New Guinean living in the forest, and if you adopt the bad habit of sleeping under dead trees whose odds of falling on you that particular night are only 1 in 1,000, you’ll be dead within a few years. In fact, my wife was nearly killed by a falling tree last year, and I’ve survived numerous nearly fatal situations in New Guinea.
“I now think of New Guineans’ hypervigilant attitude toward repeated low risks as “constructive paranoia”: a seeming paranoia that actually makes good sense. Now that I’ve adopted that attitude, it exasperates many of my American and European friends. But three of them who practice constructive paranoia themselves — a pilot of small planes, a river-raft guide and a London bobby who patrols the streets unarmed — learned the attitude, as I did, by witnessing the deaths of careless people.
“Traditional New Guineans have to think clearly about dangers because they have no doctors, police officers or 911 dispatchers to bail them out. In contrast, Americans’ thinking about dangers is confused. We obsess about the wrong things, and we fail to watch for real dangers.
“Studies have compared Americans’ perceived ranking of dangers with the rankings of real dangers, measured either by actual accident figures or by estimated numbers of averted accidents. It turns out that we exaggerate the risks of events that are beyond our control, that cause many deaths at once or that kill in spectacular ways — crazy gunmen, terrorists, plane crashes, nuclear radiation, genetically modified crops. At the same time, we underestimate the risks of events that we can control (“That would never happen to me — I’m careful”) and of events that kill just one person in a mundane way.”
– Jared Diamond, That Daily Shower Can Be a Killer
How might “constructive paranoia” play a role in trade selection and risk management? Should traders be more like New Guineans (who have no one to bail them out)?
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