Ron Lieber of The New York Times asks, Could the current financial crisis be breeding an entire generation of risk averse traders?

Kevin Brosious, a financial planner in Allentown, Pa., polled the students in his financial management class at DeSales University on the percentage of their portfolios they would allocate to stocks right now. The majority would put less than half in stocks; among their reasons were fear of job loss, lack of accountability on Wall Street and economic fears amplified by the news media.

The problem with their approach, according to Mr. Brosious, is that by investing conservatively they are probably guaranteeing themselves a smaller return and a more meager standard of living in retirement.

Or, as Robert N. Siegmann, chief operating officer and senior adviser of the Financial Management Group in Cincinnati, wrote to me in an e-mail message, “Why would you consider taking less risk NOW after most of the risk has already been paid for in the market over the past 12 months?”


So what kind of risk should you take on with the savings you have left over? To Moshe A. Milevsky, […] risk should have less to do with the era in which you live and more to do with what you do for a living.

On the topic of reasonable risk assessment, the UK Professor of the Public Understanding of Risk, David Spiegelhalter, believes it may be time to teach risk literacy as part of the mainstream academic curriculum.

“I regard myself as part of a movement we call risk literacy. […] It should be a basic component of discussion about issues in media, politics and in schools.

“We should essentially be teaching the ability to deconstruct the latest media story about a cancer risk or a wonder drug, so people can work out what it means. Really, that should be part of everyone’s language.”

As an aspect of science, risk was “as important as learning about DNA, maybe even more important,” he said. “The only problem is putting it on the curriculum: that can be the kiss of death.”

Like Schneier, this reminds me of John Allen Paulos excellent ‘manifesto’, Innumeracy.