Investing involves risk. Risk means there are things you know and things you do not know. For most of us, the risk is manageable, but what if your task involved the macro level? Fortunately, we have books and articles written on the subject, and one book is called Averting Catastrophe by Cass R Sunstein, published by New York University Press, NY, 2021.

Mr. Sunstein is a professor at Harvard, and for a few years worked in the White House to develop a social cost of carbon. Mr. Sunstein focuses on public policy and regulation, and he believes in the maximin principle which calls for choosing the approach that eliminates the worst of the worst-case scenarios

For certain regulatory problems, many people accept the Precautionary Principle. The central idea is that regulators should take aggressive action to avoid certain risks, even if they do not know that those risks will come to fruition.

People tend to be loss averse, which means that they view a loss from a status quo as more undesirable that they view an equivalent gain as desirable. When we anticipate a loss of what we not have, we can become genuinely unhappy or afraid in a way that greatly exceeds our feeling of pleasure when we anticipate some addition to what we have.

Loss aversion is closely associated with another cognitive finding: people are far more willing to tolerate familiar risks than unfamiliar ones, even if they are statistically equivalent.

John Maynard Keynes wrote you are dealing with “uncertain knowledge”, there is always information while it is possible to consider what is probable, there is no scientific basis on which to from any calculable probability whatever. We simply do not know.

The Principle of Insufficient Reason holds that when people lack information about probabilities, they should act as if each probability is equally likely.

Linking to dividend paying stocks, investing is about risk and the more you understand the principles and psychology of risks, ideally the more you can deal with it. There are a number of different principles, and your investing style will determine which ones you fit into. When you buy dividend paying stocks, there are two ways to control the risks – buying a profit company and receiving a cash payment on a regular basis. Profitable companies tend to trade at higher multiples and receiving a payment allows choices – buy more, diversify, and the list goes on.

There are more questions than answers, till the next time – to raising questions.