Wednesday, May 22, 2013

North Korea’s Risk-Taking Explained

An interesting theory of the "counter-intuitive marriage of risk-taking and rationality."  I find his conclusion sound.

As such, North Korea has taken the high-risk, high-potential-reward approach of seemingly irrational but ultimately rational action of provocative behavior to try to win further gains for regime survival. 
We may not like it, but North Korea’s risk-taking strategy is more likely to continue than end.
  • May 22, 2013, 6:27 PM KST
North Korea’s Risk-Taking Explained

By Jasper Kim

After a period of relative calm, North Korea’s short-range missile tests this week were a reminder that the Stalinist state is never far from the headlines with a fresh bout of provocative behavior.

Most commentators who track the country say it would never aim to initiate a war with South Korea and its allies because that would inevitably lead to the end of the Kim Jong Un regime. Self-preservation is something the Pyongyang leadership has been very successful at over the last six decades.

So what explains the North’s apparent affinity for risk in routinely confronting the South, mostly verbally but occasionally with deadly force?

Mathematical modeling helps explain the counter-intuitive marriage of risk-taking and rationality at the heart of decision making in North Korea.

Consider you have one of the two choices:

A: Receive $80 guaranteed; or
B: Receive a 90% chance to receive $100

Which option should a rational decision maker chose? Studies show that most people would decide to take option A, the sure thing. The thinking is that it is generally better to receive a guaranteed return even if it means receiving less.

But the rational choice is actually option B. Getting to the answer requires what’s called a standard expected value calculation. The expected value of option A is $80 (100% x $80 = $80). The expected value of option B is $90 (90% x $100 = $90). So, because $90 (option B) is greater than $80 (option A), option B would be the rational choice even though it involves taking a risk.

The stakes are much higher for North Korea than a token sum of money, of course.
(Continued at the link below)

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