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Risk: The Morbidity Principle

Risk: The Morbidity Principle


    (Editor’s Note: The following is an excerpt from the book Acts of God and Man: Ruminations on Risk and Insurance by Michael R. Powers. Powers is professor of risk management and insurance at Temple University’s Fox School of Business, and distinguished visiting professor of finance at Tsinghua University’s School of Economics and Management. He serves as chief editor of the Journal of Risk Finance and the Asia-Pacific Journal of Risk and Insurance. In the book, Powers discusses how risk impacts our lives, health, and possessions and proceeds to introduce the statistical techniques necessary for analyzing these uncertainties. This excerpt (originally posted on the Columbia University Press Blog) is from the chapter The Alpha and the Omega of Risk: The Significance of Mortality, where Powers discusses the morbidity principle. For more information please visit http://www.cup.columbia.edu, and follow the author on Facebook.)

    In today’s business world, professional risk managers often construct extensive lists of pure and speculative risks, including every imaginable type of uncertainty to which individuals and firms are exposed. Among pure risks, one finds traditional “insurance” perils such as fire, wind, theft, disease, and professional negligence, along with more complex hazards such as substandard construction, inadequate security, technological obsolescence, and political instability. Speculative risks include real estate, common financial securities (stocks, bonds, commodities, etc.), and interest and currency-derivative products, as well as market- specific changes in the prices of raw materials, human capital, and end-of-line goods and services.

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    Fortunately, a remarkable simplicity underlies these myriad risks. Despite the great number of individual sources of risk, there are only a very few exposures subject to risk. These fundamental exposures are life, health, and possessions.

    One then might ask: Why should we be concerned about the quality of life? I would argue that the following two principles provide the answer:

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    1. The Morbidity Principle. An individual/corporation/society whose quality of life is damaged will have a greater chance of imminent death.
    2. The Lost-Gratification Principle. An individual/corporation/society whose quality of life is damaged may not have the opportunity to enjoy recovery of health or restitution of possessions before death occurs (i.e., “a good quality of life today is worth more than a good quality of life tomorrow”).

    In short, the life exposure underlies all other types of exposures. For individuals and societies, the morbidity principle would have been particularly evident in the Old Stone Age, when human beings had developed useful tools, but were still primarily hunter- gatherers. At that time, quality-of-life exposures, although they existed, could not be separated easily from the life exposure because the loss of health (through injury or illness) or possessions (clothing, shelter, or hunting implements) would increase significantly the chance of death in the near future. Hence, in many cases loss of quality of life would be tantamount to loss of life.

    The morbidity principle continues to apply to individuals and societies today, but not as dramatically. Despite the various “safety nets” that modern governments provide for their more vulnerable citizens, it is still an empirical fact that the injured and ill, as well as the economically poor, die at faster rates than others. This is also true for societies at large, as can be seen in the declines of certain populations in Eastern Europe since the dissolution of the Soviet Union. With regard to corporations, reductions in revenue, market share, and/or profitability are in many cases harbingers of bankruptcy. Although a cursory review of today’s financial products might give the impression that quality-of-life exposures actually overshadow the life exposure — after all, the only financial product that specifically addresses mortality is life insurance — the lost-gratification principle belies such a conclusion. If anything, the role of mortality is difficult to discern because it is so prevalent that we tend to overlook it.

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    The life exposure underlies all traditional insurance policies, whether held by individuals or commercial enterprises. This is because the policies are designed to provide reasonably quick medical attention or restitution of property, presumably before the policyholder’s life terminates. In addition, the life exposure is fundamental to all financial transaction risks. Lenders, whether they be individuals, corporations, or government bodies, must be compensated for the possibility that they will cease to exist before their loans are repaid; and the early death of a borrower can transform this possibility into a certainty. In other words, mortality is the essential reason, even in an economy with no expected change in either income or prices, “a dollar today is worth more than a dollar tomorrow,” and thus the reason the nominal risk- free rate of return (oft en taken to be the nominal return on a U.S. Treasury bill) must be strictly greater than 0.

    (Photo credit: Dice rolling on Business via Shutterstock)

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    Last Updated on February 25, 2020

    15 Personal Goals for Work to Help You Succeed

    15 Personal Goals for Work to Help You Succeed

    It’s easy to blend into the crowd at work. The majority of workers choose to settle for mediocrity and anonymity; especially if they work in a large or virtual work environment. It’s much easier to go to work every day and contribute just enough to meet your job’s requirements than it is to leave a lasting impression on your coworkers.

    What isn’t easy is standing out.

    By setting personal goals for work, you can intentionally work towards getting noticed which will propel you towards getting your dream job.

    Do not settle for mediocrity and do not settle for anonymity. Dream big and stand out from the crowd. Here are 15 examples of personal goals for work to help you stand out from your coworkers and lead a successful career.

    1. Self-Mastery

    Self-Mastery is all about deepening your awareness of your skills, strengths and weaknesses. Once you identify what makes you unique and what you’re most passionate about, use that awareness to develop your skills even further.

    Use your awareness of your weaknesses to identify areas of improvement. By practising your self-awareness in these areas, you will demonstrate an ability to self regulate your development and growth.

    2. Being Grateful for Where You Are

    Take a moment and reflect on how hard you worked to get where you are today.

    How many times did you apply to your job? How many interviews did you go through? How many hours have you put in?

    You’ve worked hard to get to where you are today. Be grateful of all of the hard work you’ve put in to get you where you are today.

    By practising gratitude, you open yourself up to receive what’s next.

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    3. Staying Excited for What’s Next

    The perfect vibrational stance to be in to be actively working towards your goals is to practice gratitude for your current situation and to feel excitement for what’s coming next.

    Expect better things to come. Anticipate that you will accomplish your goal and that you’re working towards your dream job. Be open to receiving what’s coming your way next.

    4. Celebrating Each Others’ Differences

    As coworkers, we all bring different strengths to a team environment. Introverts bring deep thought to current issues and extroverts do well in busy meetings and discussions. The Myers-Briggs Type Indicator is an excellent measurement of personality differences and brings an interesting review of your team’s personalities interact with each other.

    If possible, request to have an MBTI done with your coworkers so that you can learn more about your similarities and differences; or recognize the differences in your team’s personalities and appreciate that they each contribute different values to the group.

    5. Using Your Team’s Differences to Your Advantage

    Once you learn more about the different personalities on your team, you can work more strategically with your coworkers. Some coworkers may present as introverts who prefer to take time away to review information before making decisions. Other coworkers may present as extroverts who excel in group discussions and facilitating presentations.

    Once you identify the different strengths of your coworkers, you can plan projects and group work according to each other’s personality strengths.

    6. Managing Conflicts Effectively

    If conflict arises between yourself and another coworker, take time to assess how you’d like to work through the situation rather than reacting in the heat of the moment.

    Request a private meeting with the other coworker and present the facts in an objective manner. Initiate a practical conversation to discuss the issue of conflict and then find a mutually-beneficial solution together.

    Doing so will show your coworkers and your boss you’re capable of dealing with emotionally-sensitive discussions while keeping a cool head.

    7. Becoming a ‘Yes’ Person

    Volunteer for new projects and special assignments. Be the first person to put up your hand.

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    If your boss is looking for someone to step up, be the first to volunteer. It shows you’re engaged and gives you the opportunity to learn new skills.

    8. Saying ‘No’ When Necessary

    This may seem contradictory to the previous point, but this is not!

    If you’re close to burnout or have a lot going on in your personal life, choose to say no to additional work if you must.

    Be aware of your own mental state of wellness. If you’re incapable of taking on more, say no rather than saying yes and being unable to submit impeccable work.

    If necessary, share with your boss privately that you’re not in the right place to take on work but you intend to get back on track and as soon as possible.

    9. Showing Humility

    It’s not possible to be perfect at everything all the time. If you make a mistake, own up to it.

    Let your boss know or coworker know that you made a mistake and you want to correct it. Tell them that you have learned from this experience and you will do things differently going forward.

    Practice humility so that you may demonstrate a willingness to do better.

    10. Modeling Work Life Balance

    Make your own self care a priority so that you’re allocating time out of the office to your exercise, health and nutrition goals.

    Carve out time before or after work to taking care of you. Propose walking meetings during the day or try organizing a group fitness classes at lunch. Invite your coworkers to join you in trying a new yoga class.

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    Show your coworkers that you’re committed to work life balance so that you can show up as your best self while at work.

    11. Under Promise, Over Deliver

    If you commit to finishing a project by a certain time, be certain that you will do what you said you’re going to do when you said you’re going to do it.

    Do not commit to completing a project using an unrealistic time frame. If you’re unable to deliver, you will inevitably harm your reputation and will negatively affect others’ expectations of your abilities.

    Rather than committing to more than you can accomplish, commit to what you’re capable of or slightly less so that you can over deliver on your promises.

    12. Finding Your Own Answers

    Rather than quickly turning to your coworkers or your boss when you have questions, do your best to find your own answers.

    Review company policies, best practices and previous situations. Use critical thinking to determine how to best handle a situation and demonstrate that you’re able to make sound decisions when it’s required.

    After doing your research, present the situation to your boss and share how you would handle the situation. Ask for guidance to see if you’re on the right track. By doing so you’ll demonstrate drive and ambition.

    13. Asking for Help

    If a situation arises that is above your pay-grade and you must ask for help or guidance, do so with humility.

    Respectfully ask your boss or coworkers for their help. Let them know that you are grateful for their assistance and that they’re willing to share their knowledge. Offer to be of assistance to them if it’s needed in the future and repay the favor.

    Here’re some tips for you: How to Ask for Help When You Feel Silly to Do So

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    14. Offering Help

    If you can see a fellow coworker is struggling, offer to help them out. Offering your help will demonstrate your ability to work as a team player.

    If your workplace has hired a new employee, offer to take them under your wing and show them the ropes. Let your boss know that you’d be happy to show them around.

    It will demonstrate your seniority in the workplace and your interest in fostering teamwork and morale.

    15. Taking a Brain Break Regularly

    Take a few moments whenever you can for a mini meditation. In the bathroom, the coffee room, or on the subway on your way to work, take a few deep breaths and center your mind.

    Slow down your heart rate and tune in to your inner self. Remind yourself that work can be stressful but we don’t need to let the stress affect us. Return to this grounded and centered state whenever you feel out of alignment.

    The Bottom Line

    Use this list of personal goals to skyrocket your career path at work. Let your actions speak louder than words.

    Demonstrate to your boss and your coworkers that you don’t intend to settle for mediocrity; you intend to stand out from the crowd and will do so by implementing personal goals and actively working towards your dream job.

    More Tips About Goals Setting

    Featured photo credit: NORTHFOLK via unsplash.com

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