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Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe
How the very things we create to protect ourselves, like money market funds or anti-lock brakes, end up being the biggest threats to our safety and wellbeing.
We have learned a staggering amount about human nature and disaster -- yet we keep having car crashes, floods, and financial crises. Partly this is because the success we have at making life safer enables us to take bigger risks. As our cities, transport systems, and financial markets become more interconnected and complex, so does the potential for catastrophe.
How do we stay safe? Should we? What if our attempts are exposing us even more to the very risks we are avoiding? Would acceptance of danger make us more secure? Is there such a thing as foolproof?
In Foolproof , Greg Ip presents a macro theory of human nature and disaster that explains how we can keep ourselves safe in our increasingly dangerous world.
We have learned a staggering amount about human nature and disaster -- yet we keep having car crashes, floods, and financial crises. Partly this is because the success we have at making life safer enables us to take bigger risks. As our cities, transport systems, and financial markets become more interconnected and complex, so does the potential for catastrophe.
How do we stay safe? Should we? What if our attempts are exposing us even more to the very risks we are avoiding? Would acceptance of danger make us more secure? Is there such a thing as foolproof?
In Foolproof , Greg Ip presents a macro theory of human nature and disaster that explains how we can keep ourselves safe in our increasingly dangerous world.
336 pages, Hardcover
First published October 8, 2015
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Displaying 1 - 30 of 49 reviews
September 21, 2015
If people are injuring their heads when they fall off their bicycles, the solution is to make them wear helmets. It's simple. But what happens then is not quite what you might think. It's true that when people fall off their bikes and hit their heads, their injuries are less severe with the helmet on. But since they feel safer, they ride faster and don't avoid traffic the way they used to. There are more accidents and injuries although there are fewer serious head injuries.
The same happens with football and ice hockey helmets, with anti-lock brakes, and government securities regulations. Apparently we factor in the precautions with the risks to find our level of comfort, and if that changes with new safety features, we factor that in and proceed accordingly.
Economics reporter Greg Ip (I enjoy his clear as a bell explanations of complicated financial news on Washington Week) looks into this phenomenon and although I expected it to steer back to finance in the end, it actually was about the tendency we have to balance risk, rather than eliminate it, in many areas of our lives. I found the chapter on aviation safety especially interesting, since it is an exception in some ways that throw light on the whole theory.
Quite fascinating!
The same happens with football and ice hockey helmets, with anti-lock brakes, and government securities regulations. Apparently we factor in the precautions with the risks to find our level of comfort, and if that changes with new safety features, we factor that in and proceed accordingly.
Economics reporter Greg Ip (I enjoy his clear as a bell explanations of complicated financial news on Washington Week) looks into this phenomenon and although I expected it to steer back to finance in the end, it actually was about the tendency we have to balance risk, rather than eliminate it, in many areas of our lives. I found the chapter on aviation safety especially interesting, since it is an exception in some ways that throw light on the whole theory.
Quite fascinating!
February 28, 2016
Final sentence sums it up: "Our goal should be to eliminate big disasters, not small ones, to accept a bit more risk and instability today in return for more reward and stability in the long run."
Nice book that ties different areas where risk (management & mitigation) play large roles: finance, air travel, forest protection, dikes/levees.
Ip argues that containing and preventing everything leads to a pressure cooker, so when things do go bad, the go bad enormously. So there is an overarching theme, but I found the different topics a bit disjointed; lot of talk about financial crises (to expected from someone who work(ed) at WSJ and Economist).
I did mark a lot interesting bits in the book:
“Best safety lies in fear,” Laertes tells his sister, Ophelia, by way of protecting her from Hamlet’s sinister overtures. “Only the paranoid survive” is legendary Intel chief executive Andy Grove’s advice to business leaders.
“Floods are ‘acts of God,’ but flood losses are largely acts of man.” (Gilbert White)
“What this country needs to shake us up and give us a little discipline is a good bank failure. But please, God, not in my district.” Volcker thought it would be healthier if people were a bit more scared: “We need that greater sense of risk within a structure of stability and resiliency—and it is awfully easy to say that and awfully hard to do.”
Since banks could not charge risky customers enough to compensate for the possibility of default, they simply didn’t lend to them. Starting in the early 1980s, state anti-usury laws were repealed and lenders began extending credit to groups that had long been denied, in particular minority and lower-income families.
And so the warning took the form of a few lines tucked into the speech, draped in the oblique jargon for which Greenspan was famous: “History has not dealt kindly with the aftermath of protracted periods of low risk premiums.” Translation: when lenders accept so little return in exchange for risk, bad things usually follow.
Experts often intone, “This is no time to panic.” But for an investor with no tolerance for loss and unsure which assets are tainted, panic has a certain logic.
Gorton tracked down a trove of nineteenth-century newsletters that listed the discounts at which bank notes were trading, relative to face value. He learned that contrary to popular belief, only a small number of banks that suspended convertibility actually failed. Those that reopened were usually able to repay all their depositors. The greatest loss to a depositor was during the panics of 1873, at a mere two cents on the dollar. From this, Gorton concluded that panics were about lack of information: people weren’t sure which safe assets were now unsafe, and thus redeemed them en masse. In time, though, many safe assets were proven to be safe.
one of Gorton’s PhD students, Sun Young Park, later combed through prospectuses and trustee reports of $1.9 trillion worth of subprime bonds issued between 2004 and 2007. As of late 2014, the realized principal loss on the AAA-rated tranches was just a fifth of a cent on the dollar. But during the panic, they were not perceived to be safe, and their prices (and the CDOs’ prices) plunged.
At the height of the panic, a popular index implied that the price of AAA-rated MBSs had fallen to between 20 and 60 cents on the dollar.
Gerald Wilde illustrated his point (“risk thermostat”) with the case of Sweden changing from driving on the left side of the road to the right side in 1967. The following year, death and injury rates plunged.
If the toll of natural disasters is going up primarily because of human development, it is more practical to deal with climate change by making cities and settlements more resilient rather than simply trying to reverse the buildup of carbon dioxide in the air.
The lack of personal experience with relatively infrequent events leads people to systematically underestimate their probability, and their estimates of that probability decline the longer they go without experiencing one. Howard Kunreuther, a risk expert at the Wharton School, calls this “disaster myopia,”
The experiment found that people with no impairment to the brain’s emotional center were much more conservative. After losing money on one coin toss, only 40 percent of them agreed to invest on the next—but 85 percent of the brain-damaged patients did. By the end of the game, the brain-damaged patients had earned an average of $25.70 while the healthy players averaged $22.80.
Swiss researchers conclude that by far the safest energy, by fatalities per gigawatt per year, is precisely the sort of nuclear power that could, in that rarest of accidents, kill the most people. Thus, the decision by Japan, Germany, and Switzerland to idle or phase out nuclear power will almost certainly cause thousands of deaths due to the ill effects of pollution and a warming climate.
The message, Marlon says, is that over the course of the past century, until recently, there have been unusually few forest fires in the western United States. This is not because climate change has no impact. But the amount of fire that has actually occurred has been less than climate change would have predicted, because humans have been interfering.
The dilemmas raised by forest fires and bacterial infections are similar to those raised by financial crises. Should the government intervene to save a bank, a hedge fund, or a country from failing, knowing that this would create expectations that future banks, hedge funds, or countries might be saved?
The basic message of the Northridge earthquake, the 1987 stock market crash, and the 2008 subprime mortgage meltdown is that no system can insure itself against collapse.
Flying is now so safe that there are fewer opportunities for pilots, regulators, and others in the industry to learn from accidents. Aviation experts call this “the curse of ubiquitous normalcy.” Since aviation safety advanced by counting tombstones, the lack of tombstones interferes with learning.
Nice book that ties different areas where risk (management & mitigation) play large roles: finance, air travel, forest protection, dikes/levees.
Ip argues that containing and preventing everything leads to a pressure cooker, so when things do go bad, the go bad enormously. So there is an overarching theme, but I found the different topics a bit disjointed; lot of talk about financial crises (to expected from someone who work(ed) at WSJ and Economist).
I did mark a lot interesting bits in the book:
“Best safety lies in fear,” Laertes tells his sister, Ophelia, by way of protecting her from Hamlet’s sinister overtures. “Only the paranoid survive” is legendary Intel chief executive Andy Grove’s advice to business leaders.
“Floods are ‘acts of God,’ but flood losses are largely acts of man.” (Gilbert White)
“What this country needs to shake us up and give us a little discipline is a good bank failure. But please, God, not in my district.” Volcker thought it would be healthier if people were a bit more scared: “We need that greater sense of risk within a structure of stability and resiliency—and it is awfully easy to say that and awfully hard to do.”
Since banks could not charge risky customers enough to compensate for the possibility of default, they simply didn’t lend to them. Starting in the early 1980s, state anti-usury laws were repealed and lenders began extending credit to groups that had long been denied, in particular minority and lower-income families.
And so the warning took the form of a few lines tucked into the speech, draped in the oblique jargon for which Greenspan was famous: “History has not dealt kindly with the aftermath of protracted periods of low risk premiums.” Translation: when lenders accept so little return in exchange for risk, bad things usually follow.
Experts often intone, “This is no time to panic.” But for an investor with no tolerance for loss and unsure which assets are tainted, panic has a certain logic.
Gorton tracked down a trove of nineteenth-century newsletters that listed the discounts at which bank notes were trading, relative to face value. He learned that contrary to popular belief, only a small number of banks that suspended convertibility actually failed. Those that reopened were usually able to repay all their depositors. The greatest loss to a depositor was during the panics of 1873, at a mere two cents on the dollar. From this, Gorton concluded that panics were about lack of information: people weren’t sure which safe assets were now unsafe, and thus redeemed them en masse. In time, though, many safe assets were proven to be safe.
one of Gorton’s PhD students, Sun Young Park, later combed through prospectuses and trustee reports of $1.9 trillion worth of subprime bonds issued between 2004 and 2007. As of late 2014, the realized principal loss on the AAA-rated tranches was just a fifth of a cent on the dollar. But during the panic, they were not perceived to be safe, and their prices (and the CDOs’ prices) plunged.
At the height of the panic, a popular index implied that the price of AAA-rated MBSs had fallen to between 20 and 60 cents on the dollar.
Gerald Wilde illustrated his point (“risk thermostat”) with the case of Sweden changing from driving on the left side of the road to the right side in 1967. The following year, death and injury rates plunged.
If the toll of natural disasters is going up primarily because of human development, it is more practical to deal with climate change by making cities and settlements more resilient rather than simply trying to reverse the buildup of carbon dioxide in the air.
The lack of personal experience with relatively infrequent events leads people to systematically underestimate their probability, and their estimates of that probability decline the longer they go without experiencing one. Howard Kunreuther, a risk expert at the Wharton School, calls this “disaster myopia,”
The experiment found that people with no impairment to the brain’s emotional center were much more conservative. After losing money on one coin toss, only 40 percent of them agreed to invest on the next—but 85 percent of the brain-damaged patients did. By the end of the game, the brain-damaged patients had earned an average of $25.70 while the healthy players averaged $22.80.
Swiss researchers conclude that by far the safest energy, by fatalities per gigawatt per year, is precisely the sort of nuclear power that could, in that rarest of accidents, kill the most people. Thus, the decision by Japan, Germany, and Switzerland to idle or phase out nuclear power will almost certainly cause thousands of deaths due to the ill effects of pollution and a warming climate.
The message, Marlon says, is that over the course of the past century, until recently, there have been unusually few forest fires in the western United States. This is not because climate change has no impact. But the amount of fire that has actually occurred has been less than climate change would have predicted, because humans have been interfering.
The dilemmas raised by forest fires and bacterial infections are similar to those raised by financial crises. Should the government intervene to save a bank, a hedge fund, or a country from failing, knowing that this would create expectations that future banks, hedge funds, or countries might be saved?
The basic message of the Northridge earthquake, the 1987 stock market crash, and the 2008 subprime mortgage meltdown is that no system can insure itself against collapse.
Flying is now so safe that there are fewer opportunities for pilots, regulators, and others in the industry to learn from accidents. Aviation experts call this “the curse of ubiquitous normalcy.” Since aviation safety advanced by counting tombstones, the lack of tombstones interferes with learning.
November 11, 2016
Over the years Greg Ip had transitioned in my perception from financial journalist and follower of the latest economic news to something higher. His surveys of the US economy were well worth pulling out of the middle of the Economist and keeping as a reference.
This book calls that judgement into question.
During the crisis many people commented that we could draw an analogy between the work of forest fires for the health of the forest and recessions for the health of the economy. It was rather interesting.
Greg Ip takes this analogy and turns it into a book.
The book fails because analogies are just that: analogies. At some point they break down and at 280 pages this opus stretches them way past the point where that happens.
So if you want to get a smattering of knowledge about the Peltzman Effect, ecological systems, forest fire management, the insurance business, the European lending crisis, the AIG debacle, levies on the Mississippi and in Holland, how to run an airline and the role of capital in banking mixed in with interviews only the phenomenal access Greg Ip and his ilk enjoy, then that’s cool, this book is for you.
If it’s serious analysis you want, if you want to be able to hold a conversation with somebody who works in Immunology or Psychology or Forestry or Medicine or Insurance or Aviation or Banking or even Central Banking and do not want to come off as a dilettante who is merely parroting easy-to-digest platitudes, best you don’t read this at all.
I can only comment on the stuff I understand well: So for example Germany is allegedly to blame for the fact that Greece has borrowed money it cannot pay back because it is the lender who makes it possible for the borrower to borrow. That’s plainly ridiculous. It’s a macroeconomic explanation for microeconomic ills which mainly affect Greece, Portugal, Italy and Spain (and the north of Europe too, of course, but at least they can afford the sundry inefficiencies in their market structure) And it's, of course, an argument the financial press has put forward to justify the unjustifiable solutions that are currently being pursued, namely the official sector’s perpetuation of the rot in the south of Europe in the interest of avoiding overall change.
Banks Greg Ip really really really does not understand. He thinks banks take depositors’ money and lend it to borrowers. That was true, dunno, five hundred years ago, and even then it was half true. It’s certainly not how M3 is generated, for example. With most of the money that goes around, both the deposit and the loan are generated in the banking system itself, of course. M3 arises when you come to the branch to ask for a loan, I approve it, I open you a bank account and stick the money in there (my liability) in exchange for expecting you to pay me back one day with interest (the bank’s asset). Then you buy stuff, your money moves to the bank account of whoever sold you the stuff, the bank’s asset remains your loan but the bank’s liability is in the bank account of the guy who sold you the stuff. No saver ever got involved in this, and that’s where 90% (actually more) of all money in the world comes from. This totally escapes Greg Ip’s simplistic discussion.
This misunderstanding sets the scene for him to mis-prescribe capital as the ultimate solution. DUH, I say. Obviously, if for every loan I’ve given I hold an equal amount in shareholders’ capital my enterprise is safe. And if I hold no capital whatsoever I’m in trouble and so is the guy who has a bank account with me. So the answer is somewhere in the middle. Ergo, “capital” is the answer to a question nobody asked. The correct question is “how much capital?” This he does not even attempt to answer, other than to say we did not have enough during the crisis. You don’t say, Greg.
If you want to read about the ills of portfolio insurance and the “fallacy of composition,” get a hold of Richard Bookstaber’s “A Demon of our Own Design,” a bloody good book on the subject. If actually explains how to deal with these things. If I’m not mistaken it’s also covered in Derman’s book “My life as a Quant,” but I read that some time ago, so I can’t vouch for it. Both books certainly spare you the tour of Yellowstone Park and Alexander Fleming’s petri dish, which I count as a positive.
Let’s put it another way: it’s taken me two weeks to read this book. I found it to be the opposite of a book you can’t put down. I could not pick it up. It was like "what is he going to get half-right next?"
Positives?
I liked page 212, which explains rather well why hedging risk with zero-sum derivatives cannot protect the system as a whole: if you stand up in the stadium you can see the game better, but if everybody stands up then we’re back to where we started.
I was also quite excited that, after pages of fawning at Goldman’s allegedly incredible risk management he dares to mention the fact that their protection against AIG failing had been bought from other banks like Citibank that would go down together with AIG and was thus a sham. Given how many interviews this will cost him from the ban on him that will ensue, that’s kinda cool.
The overall feeling?
The book was like being harangued at a party by an investment banker who knows everything because he’s rich.
It had its moments, but it robbed me of reading time that won’t come back.
This book calls that judgement into question.
During the crisis many people commented that we could draw an analogy between the work of forest fires for the health of the forest and recessions for the health of the economy. It was rather interesting.
Greg Ip takes this analogy and turns it into a book.
The book fails because analogies are just that: analogies. At some point they break down and at 280 pages this opus stretches them way past the point where that happens.
So if you want to get a smattering of knowledge about the Peltzman Effect, ecological systems, forest fire management, the insurance business, the European lending crisis, the AIG debacle, levies on the Mississippi and in Holland, how to run an airline and the role of capital in banking mixed in with interviews only the phenomenal access Greg Ip and his ilk enjoy, then that’s cool, this book is for you.
If it’s serious analysis you want, if you want to be able to hold a conversation with somebody who works in Immunology or Psychology or Forestry or Medicine or Insurance or Aviation or Banking or even Central Banking and do not want to come off as a dilettante who is merely parroting easy-to-digest platitudes, best you don’t read this at all.
I can only comment on the stuff I understand well: So for example Germany is allegedly to blame for the fact that Greece has borrowed money it cannot pay back because it is the lender who makes it possible for the borrower to borrow. That’s plainly ridiculous. It’s a macroeconomic explanation for microeconomic ills which mainly affect Greece, Portugal, Italy and Spain (and the north of Europe too, of course, but at least they can afford the sundry inefficiencies in their market structure) And it's, of course, an argument the financial press has put forward to justify the unjustifiable solutions that are currently being pursued, namely the official sector’s perpetuation of the rot in the south of Europe in the interest of avoiding overall change.
Banks Greg Ip really really really does not understand. He thinks banks take depositors’ money and lend it to borrowers. That was true, dunno, five hundred years ago, and even then it was half true. It’s certainly not how M3 is generated, for example. With most of the money that goes around, both the deposit and the loan are generated in the banking system itself, of course. M3 arises when you come to the branch to ask for a loan, I approve it, I open you a bank account and stick the money in there (my liability) in exchange for expecting you to pay me back one day with interest (the bank’s asset). Then you buy stuff, your money moves to the bank account of whoever sold you the stuff, the bank’s asset remains your loan but the bank’s liability is in the bank account of the guy who sold you the stuff. No saver ever got involved in this, and that’s where 90% (actually more) of all money in the world comes from. This totally escapes Greg Ip’s simplistic discussion.
This misunderstanding sets the scene for him to mis-prescribe capital as the ultimate solution. DUH, I say. Obviously, if for every loan I’ve given I hold an equal amount in shareholders’ capital my enterprise is safe. And if I hold no capital whatsoever I’m in trouble and so is the guy who has a bank account with me. So the answer is somewhere in the middle. Ergo, “capital” is the answer to a question nobody asked. The correct question is “how much capital?” This he does not even attempt to answer, other than to say we did not have enough during the crisis. You don’t say, Greg.
If you want to read about the ills of portfolio insurance and the “fallacy of composition,” get a hold of Richard Bookstaber’s “A Demon of our Own Design,” a bloody good book on the subject. If actually explains how to deal with these things. If I’m not mistaken it’s also covered in Derman’s book “My life as a Quant,” but I read that some time ago, so I can’t vouch for it. Both books certainly spare you the tour of Yellowstone Park and Alexander Fleming’s petri dish, which I count as a positive.
Let’s put it another way: it’s taken me two weeks to read this book. I found it to be the opposite of a book you can’t put down. I could not pick it up. It was like "what is he going to get half-right next?"
Positives?
I liked page 212, which explains rather well why hedging risk with zero-sum derivatives cannot protect the system as a whole: if you stand up in the stadium you can see the game better, but if everybody stands up then we’re back to where we started.
I was also quite excited that, after pages of fawning at Goldman’s allegedly incredible risk management he dares to mention the fact that their protection against AIG failing had been bought from other banks like Citibank that would go down together with AIG and was thus a sham. Given how many interviews this will cost him from the ban on him that will ensue, that’s kinda cool.
The overall feeling?
The book was like being harangued at a party by an investment banker who knows everything because he’s rich.
It had its moments, but it robbed me of reading time that won’t come back.
October 19, 2015
Foolproof was excellent and much more subtle and thought provoking than its subtitle “Why Safety Can Be Dangerous and How Danger Makes Us Safe” would lead you to think. Instead of a retread of the well known Peltzman effect (the idea that innovations design to enhance safety just lead to greater risk taking without necessarily increasing safety) the book is actually a subtle and wide-ranging exploration of when it is true, when it is not, and its implications (e.g., seatbelt—the original Peltzman claim—actually don’t have the effect because people forget they are wearing them so don’t actually alter their behavior much, but antilock breaks are something you directly engage with while driving and lead to less safe driving). The wide-ranging aspect is a substantial amount of economics which is Greg Ip’s speciality, especially the recent financial and eurozone crises, but also safety in areas like food, floods, wildfires, automobiles, airplanes and professional football. Although Ip somewhat heroically tries to extract some lessons from all of this, the real strength of the book is tying together disparate topics and making you realize that there are no easy answers to any of these questions. That said, I personally find myself generally more sympathetic to what Ip calls the engineers (i.e., the people who try to make innovations to increase safety) rather than the ecologists (i.e., the people who worry about preserving the ecosystem as a whole without disturbances like new safety innovations). But overall an exciting read and thought provoking whether or not you agree with every part of it.
March 11, 2016
Warning for people who read or listen to books on airplanes: The second-to-last chapter of this book is about airplane safety. While the comforting general conclusion is that airplane travel is one of the safest activities a person can engage in, the narrative includes disturbing details of accidents and close calls which I think would make the average reader/listener nervous if actually on an airplane. Consider other reading/listening, or do not read/listen the second-to-last chapter until you are safely on the ground.
New topic: Recently, I found myself suddenly about to receive a great lucky break. Then, just as suddenly and reasonlessly as it appeared, the lucky break vanished. The total elapsed time between advent and disappearance of the lucky break was less than a week. I lost nothing at all. I still had a job, a good home, a happy marriage. Yet I felt as if I had suffered a great blow. I felt, in a word, depressed.
Listening to this book while exercising short after, I became upon this description of “The Endowment Effect”, coined (says Ip) by an economist named Richard Thaler: “People put greater value on something when they own it than when they don't. They also feel worse about losing something they already own than failing to get it in the first place.” A sentence or two later, Ip says: “The more imminent and tangible the possibility, the more painful it [i.e., the loss] becomes.”
This information did not restore my unearned lucky break, but it made me feel better. People more eloquent than I have remarked upon the power of books to break through our personal isolation. They can let us know that our fates, our ups and downs, often have precedents and analogs. This book lets us know that complex life phenomena been named and claimed, and even on occasion been given dignified and penetrating analysis. Knowing that makes me feel better. It might make you feel better too.
Available as a well-read nine-hour audio download from Audible.
P.S. A few days after I posted this I learned that Richard Thaler, the economist referred to above, was "the father of behavioral economics" who appeared in the movie The Big Short with Selena Gomez at a blackjack table, explaining synthetic CDOs.
New topic: Recently, I found myself suddenly about to receive a great lucky break. Then, just as suddenly and reasonlessly as it appeared, the lucky break vanished. The total elapsed time between advent and disappearance of the lucky break was less than a week. I lost nothing at all. I still had a job, a good home, a happy marriage. Yet I felt as if I had suffered a great blow. I felt, in a word, depressed.
Listening to this book while exercising short after, I became upon this description of “The Endowment Effect”, coined (says Ip) by an economist named Richard Thaler: “People put greater value on something when they own it than when they don't. They also feel worse about losing something they already own than failing to get it in the first place.” A sentence or two later, Ip says: “The more imminent and tangible the possibility, the more painful it [i.e., the loss] becomes.”
This information did not restore my unearned lucky break, but it made me feel better. People more eloquent than I have remarked upon the power of books to break through our personal isolation. They can let us know that our fates, our ups and downs, often have precedents and analogs. This book lets us know that complex life phenomena been named and claimed, and even on occasion been given dignified and penetrating analysis. Knowing that makes me feel better. It might make you feel better too.
Available as a well-read nine-hour audio download from Audible.
P.S. A few days after I posted this I learned that Richard Thaler, the economist referred to above, was "the father of behavioral economics" who appeared in the movie The Big Short with Selena Gomez at a blackjack table, explaining synthetic CDOs.
June 3, 2018
This book sounded very interesting, and it was, but not as much as I expected. It focused a lot on financial risk, with some discussion of safety (driving and air travel) as well as medicine (antibiotics). Essentially, the point is that as we act to make our environments safer, we humans take more risks, feeling safer than we really are instead of using the restrictions as signs of the need to be more careful. And we will find ways to work around the restrictions, creating new risks along the way.
The author spends a lot of time describing the circumstances under which certain policies and procedures have been put into place, and then the unintended consequences of how people did not benefit as much as expected as they took on more risks, or found unregulated ways around the restrictions. It was thought provoking, but didn't go into any ways that the underlying behavior or culture can be affected to make a real improvement instead of the reality of constantly chasing people who keep making bad decisions.
The author spends a lot of time describing the circumstances under which certain policies and procedures have been put into place, and then the unintended consequences of how people did not benefit as much as expected as they took on more risks, or found unregulated ways around the restrictions. It was thought provoking, but didn't go into any ways that the underlying behavior or culture can be affected to make a real improvement instead of the reality of constantly chasing people who keep making bad decisions.
June 20, 2015
Note: this is a GoodReads "first reads" review
Foolproof — like "Freakonomics" without the filler.
Greg Ip, former economics editor for the Economist, and current economics commentator for the Wall Street Journal delivers an impressive perspective on economics which really shines in this book.
Before I even began reading I found the topic in itself fascinating. Is there a way to truly make something 100% safe? From preventing forest fires, all the way to preventing market crashes, Ip tackles the question by thoroughly citing an extensive amount of references and detailed research.
Overall, if you enjoy the subject and study of economics, you'll love this book. I honestly wish more economics books could have this level of balance, being serious and facts-based, while still being enjoyable and reachable to someone who might not have an extensive knowledge of the inner workings of economics.
I look forward to seeing more of Ip's work in the future!
Foolproof — like "Freakonomics" without the filler.
Greg Ip, former economics editor for the Economist, and current economics commentator for the Wall Street Journal delivers an impressive perspective on economics which really shines in this book.
Before I even began reading I found the topic in itself fascinating. Is there a way to truly make something 100% safe? From preventing forest fires, all the way to preventing market crashes, Ip tackles the question by thoroughly citing an extensive amount of references and detailed research.
Overall, if you enjoy the subject and study of economics, you'll love this book. I honestly wish more economics books could have this level of balance, being serious and facts-based, while still being enjoyable and reachable to someone who might not have an extensive knowledge of the inner workings of economics.
I look forward to seeing more of Ip's work in the future!
January 19, 2019
This was not the book I thought it was going to be. Per the title, I was looking forward to a study of the many ways in which industry and government safety regulations aimed at increasing safety actually turn out to heighten vulnerability. While there is a small smattering of compelling outside examples contained within which support this idea, up to three quarters of the chapters focused specifically on the financial crisis of 2007-08, and to this non-economist those chapters were almost unbearably dry. Somehow, I still managed to finish.
September 28, 2018
Overall a decent book but it had a few key flaws that really prevented me from wanting to rate it higher. For starters the deepest, most useful insight of the whole book was contained on the very last page and was sort of washed over as if the author hadn't really realised it's own significance. The book also spends a lot of time talking about financial matters in a somewhat dry manner which tends to weaken the author's main points and ideas through too many long sentences that dont really build on each other in a meaningful way.
I feel like Tim Hartford's Adapt: Why Success Always Starts with Failure is a much better book that explores many of the same ideas but in much clearer and more eloquent detail. I certainly feel that i would have gotten more out of re-reading his text than I did in reading this book which i had hoped would explore similar ideas but in more detail.
I feel like Tim Hartford's Adapt: Why Success Always Starts with Failure is a much better book that explores many of the same ideas but in much clearer and more eloquent detail. I certainly feel that i would have gotten more out of re-reading his text than I did in reading this book which i had hoped would explore similar ideas but in more detail.
August 8, 2017
A nice breezy read and overview of the dilemmas of risk and problems inherent in risk planning. This uses a lot of financial examples which can and are likely familar elsewhere, I know I have read the same narrative and risk lessons elsewhere.
If you have read a few books on this subject area there isnt much new, other than topic areas such as forest fires and american football, but it was fun and achieves its goal of being an overview of the paradoxes of safety.
I have had familarity with aviation disasters and management elsewhere, but I found this book did delve a little deeper into considering why this sector was safer than many others and the reasons explored have not been acknowledged elsewhere. That was a nice comparative bonus for me in reading this book.
If you have read a few books on this subject area there isnt much new, other than topic areas such as forest fires and american football, but it was fun and achieves its goal of being an overview of the paradoxes of safety.
I have had familarity with aviation disasters and management elsewhere, but I found this book did delve a little deeper into considering why this sector was safer than many others and the reasons explored have not been acknowledged elsewhere. That was a nice comparative bonus for me in reading this book.
March 10, 2019
The book is fine, but I had higher expectations.
It failed on giving a general "theory" of failure; it just sums up a series of interesting anecdata, with unnecessary character's descriptions, probably a remnant of the author's journalist journey.
The last chapter gives a hint of deeper enlightenment, but to reach it I had to wade through the previous-to-last one on air travel safety, too long and full of jargon.
I'd certainly like to see a followup on the last chapter's contribution, the idea of building "space", which I find related to extra capacity guidelines of Lean Thinking.
It failed on giving a general "theory" of failure; it just sums up a series of interesting anecdata, with unnecessary character's descriptions, probably a remnant of the author's journalist journey.
The last chapter gives a hint of deeper enlightenment, but to reach it I had to wade through the previous-to-last one on air travel safety, too long and full of jargon.
I'd certainly like to see a followup on the last chapter's contribution, the idea of building "space", which I find related to extra capacity guidelines of Lean Thinking.
November 2, 2023
Great concept to wrap your head around, but this book is more complex and financial than the cover or blurb would suggest. Ip also doesn’t fully explore certain issues, it feels biased at points, but the basic concept is a sound one. I just wish more time was spent on, like, the sports injury stuff, as opposed to another example of perverse incentives in finance. Again- expect some financial lessons, expect to disagree with some takes, but the fundamental idea that increasing safety increases risk taking, or introduces new, more complicated problems, is a good lesson to learn.
September 15, 2018
3.5 stars
At the heart of the book is the idea that all choices have consequences, even when the argument for a choice is a powerful as increased safety. Ip uses good examples and clear language to make his point in a very readable manner. While I would appreciate a meatier and more academic take on the subject, this is a worthwhile read for anyone that sets policy or judges those that set policy.
At the heart of the book is the idea that all choices have consequences, even when the argument for a choice is a powerful as increased safety. Ip uses good examples and clear language to make his point in a very readable manner. While I would appreciate a meatier and more academic take on the subject, this is a worthwhile read for anyone that sets policy or judges those that set policy.
September 25, 2018
This book inspired a significant amount of thought about how safety crosses over into other areas, and particularly what risk and risk mitigation mean in the context of what they make possible. The book ranges significantly further than the title would let you believe and there is something in it for everyone.
Greg Ip writes very clearly and makes a very dry subject both interesting and easy to understand, surprisingly, I found this an absolute page turner.
Greg Ip writes very clearly and makes a very dry subject both interesting and easy to understand, surprisingly, I found this an absolute page turner.
January 10, 2018
This book is mostly about danger as it relates to financial markets and economics. And I guess this shouldn't be surprising, but the reality is that mitigating danger can be both difficult and dangerous. This book is also partly about human nature and how we are a bit odd at times.
March 13, 2019
This is a really REALLY good book. If you're an economist.
Ip managed to cover topics other than economics, but only barely. So I found it kind of disappointing even though I almost whole-heartedly agree with his conclusions.
Ip managed to cover topics other than economics, but only barely. So I found it kind of disappointing even though I almost whole-heartedly agree with his conclusions.
October 25, 2021
The title is intriguing and the book explains the details. A lot of financial examples (Greg's specialty, I suppose) are illustrated with clarity and understandable details. Enjoyable all the other examples that Greg sprinkled throughout the book
March 10, 2023
I appreciate his core thesis, aptly summarized in the title, but found the scope far too ambitious, glazing over complex topics like a rock skipping across water. It's a provocative concept, however, to inject into different conversations.
June 6, 2017
If you like Greg Ip's columns, you will probably like this book. Although you may feel like you read it already if you are a regular consumer of his columns.
November 5, 2018
Really enjoyed this one! Ip used a variety of stories to tell how less safety sometimes is better for us. Managing risk is tricky and Ip offers personal and societal reflections on the subject.
March 7, 2019
An interesting book in the vein of anti-fragile and while counter intuitive, the examples certainly make a lot of sense. Well worth reading.
July 20, 2019
I like counter-intuitive truths, so couldn't resist the subtitle.
On the other hand, was bored some of the time reading it.
On the other hand, was bored some of the time reading it.
May 29, 2021
Focused more on fiscal matters than I was expecting but still interesting.
May 16, 2021
[Imported automatically from my blog. Some formatting there may not have translated here.]
Yet another shout out to the intrepid librarians at the University Near Here: I requested this book on Interlibrary Loan, but it turned out to be unavailable. So UNH ordered it for its own shelves, and put it on hold for me. This is pretty good service, especially when you consider I'm not a paying-customer student or a faculty member, just an IT droid from Sector 7-G. (But an intrested droid: please see my 2014 discussion of The Norm Chronicles for details on my interest.)
Hopefully, people with more serious academic needs will check it out in the near future.
The author, Greg Ip, is a writer for the WSJ, so it's not surprising that his prose is accessible and understandable to a wide audience. The book's subtitle is "How Safety Can Be Dangerous and How Danger Makes Us Safe". (Which you can see over there on the book's cover, unless you've blocked ads, which you shouldn't because they are completely tasteful.) Paradoxical! But, as it turns out, completely sensible. The pattern that Ip explores is (roughly):
People detect a situation that puts their lives, health, or property at risk; Steps are taken to mitigate the danger; These steps make previously-risky behavior less risky; Lulled, people respond to the new less-risky environment by engaging in more of said behavior. But, since the risk was only mitigated, people still get bit! (Or, alternatively, get bit by a new risk that suppressing the previous risk revealed.) In either case, however: return to step 2.Ip shows how this pattern develops in all sorts of situations: natural disasters (floods, hurricanes, fires, …); finance (personal, national, global); transportation (automobiles, airplanes,…); etc. Once you understand the process, you start to see it everywhere.
Note that "minimizing risk" is not a good option. People voluntarily taking on risk is a driver of prosperity; denying that path would make us all poorer.
Note also the involuntary assumption of risk: this happens mostly when government steps in, offering bailouts for "too big to fail" institutions, underprices flood insurance, or lends tuition money to womens' studies majors. As taxpayers, we're all on the hook for that stuff, and we didn't ask to be.
But Ip argues, semi-convincingly, that even the occasional bailout has its benefits, if it tides over an institution that can straighten out and fly right in the future. Moral hazard, sure. But if other options (again) make everyone else worse off, saying "well, at least we avoided moral hazard" is cold comfort.
I've been interested in this topic for years, and Ip's general thesis is not new. For example, I remember reading Aaron Wildavsky's Searching for Safety[image error], a similar discussion, back when it was written in the late 1980's. In fact, my major quibble with Ip's book is that he doesn't acknowledge Wildavsky at all, and makes only a brief reference to Nassim Nicholas Taleb, who's also done popular work in the area.
February 15, 2016
A friend of mine has a theory that if all cars had a sharp spike in the middle of the steering wheel pointed at the driver's chest, our roads would much safer as people did everything in their power to avoid an accident. However, instead of a spike we have airbags, and so the cost of poor driving goes down drastically, resulting in people taking for more risk. "Foolproof" is a deep discussion of that basic idea.
The core of Foolproof the balance between what author Ip calls the engineers vs. the ecologists. "Engineers" are driven by a desire to improve systems, and when they see a way to make a system safer, they take action. They build levees, manage economies, make cars safer, and generally use the full extent of human knowledge to try and fix the world as best they can. "Ecologists" see the world as a complex system with feedback loops of nature and of human behavior creating unexpected consequences from trying to "fix" problems. Worse yet, many of the unexpected consequences may be worse than the original problem, and so ecologist want to see more evidence of the efficacy of a solution before accepting its benefits.
One example are anti-lock brakes in cars. When they were introduced, the initial studies found that, disappointingly, the accident rates did not go down. Why? Because with the added safety factor people tended to drive faster on slippery conditions then they would have without the brakes.
Another example are levees, built to control floods. Often they have been built to handle the largest flood that has ever been experienced, and they do control a fine job of flood control. So fine, that people begin building in places they never would have previously, because of they feel much safer given the protection of the levee. That all works fine, until the flood comes along that is larger than any ever experienced, and because of all the building, the subsequent disaster is actually much larger than it would have been otherwise. The feeling of safety because of the "fix" of the levees leads to greater damage.
The author's background is financial reporting, so plenty of the book is spent looking at topics like how Fed and Eurozone policies led to the major financial problems in the 2000s. Howver, he also generalizes this idea with examples of the environment (floods, forest fires and other natural disasters) and vehicles (autos and planes).
The core message here is to question the assumption that making things safer / better / more reliable is always the best course of action, and that we have to understand that taking such actions may end up causing even worse problems in the long. This is something that most people and politicians don't think much about when demanding changes. It will change your thinking along those lines.
A recommended read, especially if you are someone who wonders why the problems, meltdowns, and disasters of today seem to be larger and more intense - we may have created the environment for those with well-intended actions taken in the past.
The core of Foolproof the balance between what author Ip calls the engineers vs. the ecologists. "Engineers" are driven by a desire to improve systems, and when they see a way to make a system safer, they take action. They build levees, manage economies, make cars safer, and generally use the full extent of human knowledge to try and fix the world as best they can. "Ecologists" see the world as a complex system with feedback loops of nature and of human behavior creating unexpected consequences from trying to "fix" problems. Worse yet, many of the unexpected consequences may be worse than the original problem, and so ecologist want to see more evidence of the efficacy of a solution before accepting its benefits.
One example are anti-lock brakes in cars. When they were introduced, the initial studies found that, disappointingly, the accident rates did not go down. Why? Because with the added safety factor people tended to drive faster on slippery conditions then they would have without the brakes.
Another example are levees, built to control floods. Often they have been built to handle the largest flood that has ever been experienced, and they do control a fine job of flood control. So fine, that people begin building in places they never would have previously, because of they feel much safer given the protection of the levee. That all works fine, until the flood comes along that is larger than any ever experienced, and because of all the building, the subsequent disaster is actually much larger than it would have been otherwise. The feeling of safety because of the "fix" of the levees leads to greater damage.
The author's background is financial reporting, so plenty of the book is spent looking at topics like how Fed and Eurozone policies led to the major financial problems in the 2000s. Howver, he also generalizes this idea with examples of the environment (floods, forest fires and other natural disasters) and vehicles (autos and planes).
The core message here is to question the assumption that making things safer / better / more reliable is always the best course of action, and that we have to understand that taking such actions may end up causing even worse problems in the long. This is something that most people and politicians don't think much about when demanding changes. It will change your thinking along those lines.
A recommended read, especially if you are someone who wonders why the problems, meltdowns, and disasters of today seem to be larger and more intense - we may have created the environment for those with well-intended actions taken in the past.
March 8, 2024
This is a great book because the author shows how we can use key concepts to analyze different policy issues. The key concept is stated in the title of the book. When I first started reading the book I thought the author was going to focus solely on examples that have been covered by other economists. But in going through the examples covered by others he brings greater insight into the topics (why seatbelts do not seem to result in more accidents but antilock brakes do) and he applies the concept to the financial sector.
The writing throughout is wonderful. He is able to explain complicated concepts in a clear fashion.
The author also demonstrates the value of having a writer who seeks to find out the truth about things without having a partisan cause to advance. I have no idea, based on the book or the author's writings in the Wall Street Journal, what his political views are. That is great.
This book should receive much attention and is perfect for introductory economic and finance courses.
Second time through. I didn't find this as insightful the second time through, possibly because the second time through the points were ones that had already been thought about due to the first reading.
I do think though that his most effective chapter was the chapter where he begins by looking at the outbreak of food poisoning attributable to spinach. That resulted in people not distinguishing between lettuce that was safe or unsafe but everything was thrown away.
He makes the argument that this was because people had assumed that the food system was perfectly safe (protected by government regulators) and unaware that our body provided protection against various bacteria that are routinely encountered in much of the food we eat.
He then, and this is the brilliant part of the chapter and the book, argues that in the financial system people sought safety and began to believe that repurchase agreements secured by mortgage backed securities were as safe as repo agreements secured by T bonds. Once it became apparent that the belief was wrong, people overreacted to the information and there was a blind panic that resulted in many financial institutions being under great pressure.
I think this may explain the reaction to driverless cars. People, including myself, believe that driverless cars can be 100% safe. Then when an accident occurs we overreact and shut them down or stop trying to pass laws that would allow driverless cars on the roads.
Overall worth reading but many of the insights have been written about many times by other authors.
The writing throughout is wonderful. He is able to explain complicated concepts in a clear fashion.
The author also demonstrates the value of having a writer who seeks to find out the truth about things without having a partisan cause to advance. I have no idea, based on the book or the author's writings in the Wall Street Journal, what his political views are. That is great.
This book should receive much attention and is perfect for introductory economic and finance courses.
Second time through. I didn't find this as insightful the second time through, possibly because the second time through the points were ones that had already been thought about due to the first reading.
I do think though that his most effective chapter was the chapter where he begins by looking at the outbreak of food poisoning attributable to spinach. That resulted in people not distinguishing between lettuce that was safe or unsafe but everything was thrown away.
He makes the argument that this was because people had assumed that the food system was perfectly safe (protected by government regulators) and unaware that our body provided protection against various bacteria that are routinely encountered in much of the food we eat.
He then, and this is the brilliant part of the chapter and the book, argues that in the financial system people sought safety and began to believe that repurchase agreements secured by mortgage backed securities were as safe as repo agreements secured by T bonds. Once it became apparent that the belief was wrong, people overreacted to the information and there was a blind panic that resulted in many financial institutions being under great pressure.
I think this may explain the reaction to driverless cars. People, including myself, believe that driverless cars can be 100% safe. Then when an accident occurs we overreact and shut them down or stop trying to pass laws that would allow driverless cars on the roads.
Overall worth reading but many of the insights have been written about many times by other authors.
February 28, 2017
Interesting read on the side effects of safety measures, with a main emphasis on the financial system and the 2007 meltdown. 3.5 stars
September 18, 2016
I enjoyed this book. He spends the most time in this book explaining the recession, essentially saying there are almost always externalities to decisions of regulators and legislators. The rules, or lack thereof, that led to the recession sometimes encouraged risk taking. He spends a lot of time on the banking sector, covering a wide variety of topics, but he generally didn’t go too deep, which means laypeople like myself don’t fully understand everything he’s saying. Talked about how our country’s decision to suppress fires out west led to worse fires. Antibiotics end up making things worse due to over prescription. The aviation industry is generally safe because they spend so much time and effort figuring out what has gone wrong in the past and they share the information with everyone. People have a false sense of security from levees and other flood control structures. It’s not particularly that climate change has made storms worse, it’s that more and more people live along the coast and in flood prone areas.
One of the issues that led to the recession was that banks and investors would buy stocks or CDOs or mortgage backed securities, and then insure them against losses. Well when the housing sector tanked, insurers like AIG, who sold lots of insurance on these derivatives, owed a world of money because they didn’t think all of these derivatives were correlated (they didn’t think the whole housing market could fail, maybe regional failure at worst). There is great risk when there is a correlation like there ended up being on a large number of insureds.
New capital requirements at banks help make the bank more secure against failure, but there are still consequences. More money is tied up and not able to be lent, so if the economy is struggling and needs access to capital, banks will be limited. And when many companies are risk averse, they hoard cash, much like we are currently experiencing, which is money not being put to use in the economy.
Overall good book. It gave me a better understanding of the financial meltdown from a new perspective.
One of the issues that led to the recession was that banks and investors would buy stocks or CDOs or mortgage backed securities, and then insure them against losses. Well when the housing sector tanked, insurers like AIG, who sold lots of insurance on these derivatives, owed a world of money because they didn’t think all of these derivatives were correlated (they didn’t think the whole housing market could fail, maybe regional failure at worst). There is great risk when there is a correlation like there ended up being on a large number of insureds.
New capital requirements at banks help make the bank more secure against failure, but there are still consequences. More money is tied up and not able to be lent, so if the economy is struggling and needs access to capital, banks will be limited. And when many companies are risk averse, they hoard cash, much like we are currently experiencing, which is money not being put to use in the economy.
Overall good book. It gave me a better understanding of the financial meltdown from a new perspective.
November 21, 2015
I enjoyed the discussion about moral hazards (where risk is transferred from those exposed to it to those that are not) and how it relates to finance, hazard insurance, seat belts, etc.
If enough people read the book they may demand action in congress to stop encouraging people to take risks whose consequences are paid for by the government--think flood insurance.
A quick example, to avoid the property damage floods cause people build levies. In the absence of flooding people build more buildings, plant more crops, etc. But levies can't really contain a river so it eventually breeches the levies causing more damage in the same flood plain than it did before.
Or NY is actually prone to hurricanes, but sea-side property is hard to resist. Property owners couldn't afford the insurance on their homes in the private market so the government provides it--at far below the cost of repair. The lower insurance costs encourage more growth, which in-turn inflates the costs of repair when the inevitable weather event happens--requiring taxpayers to pay to rebuild swanky homes and commercial properties on the coast.
There are more examples--especially as it relates to the 2008 financial bomb, and they're worth reading. I was surprised how panic caused more damage than the actual financial crisis, and how moral hazards related to government interference creates too-big-to-fail bank--which only get that big and critical because of government promises--or the misplaced confidence in government promises to rescue failing institutions.
Good read. Another good recommendation I picked-up from listening to WNYC's Brian Lehrer show.
If enough people read the book they may demand action in congress to stop encouraging people to take risks whose consequences are paid for by the government--think flood insurance.
A quick example, to avoid the property damage floods cause people build levies. In the absence of flooding people build more buildings, plant more crops, etc. But levies can't really contain a river so it eventually breeches the levies causing more damage in the same flood plain than it did before.
Or NY is actually prone to hurricanes, but sea-side property is hard to resist. Property owners couldn't afford the insurance on their homes in the private market so the government provides it--at far below the cost of repair. The lower insurance costs encourage more growth, which in-turn inflates the costs of repair when the inevitable weather event happens--requiring taxpayers to pay to rebuild swanky homes and commercial properties on the coast.
There are more examples--especially as it relates to the 2008 financial bomb, and they're worth reading. I was surprised how panic caused more damage than the actual financial crisis, and how moral hazards related to government interference creates too-big-to-fail bank--which only get that big and critical because of government promises--or the misplaced confidence in government promises to rescue failing institutions.
Good read. Another good recommendation I picked-up from listening to WNYC's Brian Lehrer show.
July 21, 2016
I liked learning about the basic premise of this book: that when we make things safer, we become complacent and engage in riskier behaviors. Whether that means taking less care riding a bike because you're wearing a helmet, building in historic floodplains because massive levees give a false sense of security, or investing in high-risk financial vehicles with the idea that the government will not let big banks fail, we can make costly decisions when we believe we are insulated from danger.
My biggest education in this book came in the economic area. Ip devotes at least half of his pages to financial crises, particularly the melt-down of 2008. I am a financial ingenue, and Foolproof introduced me to so many new terms and products that my head was spinning. I know I didn't understand the details of everything, but I followed well enough to grasp the ideas. It was easier for me to fully comprehend the illustrations dealing with food, floods, wildfires, automobiles, airplanes and professional football!
3.5 stars.
My biggest education in this book came in the economic area. Ip devotes at least half of his pages to financial crises, particularly the melt-down of 2008. I am a financial ingenue, and Foolproof introduced me to so many new terms and products that my head was spinning. I know I didn't understand the details of everything, but I followed well enough to grasp the ideas. It was easier for me to fully comprehend the illustrations dealing with food, floods, wildfires, automobiles, airplanes and professional football!
3.5 stars.
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