Worlds of Risk: Science Fiction Economics

Abstract

This article analyzes fundamental forms of economic risk in the unusual form of a science fiction narrative. This frame makes it possible to develop very explicit physical and environmental circumstances under which decision making and its consequences can be studied. We first cover risk arising from the actions of individuals. Here, the interactions of risk-avoiding and risk-seeking agents set the stage for stages of prosperity or crash. The second account deals with the tradeoff between growth and stability in the presence of external shocks. The last form of risk covered concerns resource extraction. Fundamental to all cases studied is the issue of rationality of choice. So, for example in the case of resource extraction, we study simple, smart, and optimal decisions. Further, we discuss a centralized analysis unit that distributes information on ways to improve decision making under risk. Such an arrangement in the tradition of behavioral economics clearly offers a less intrusive approach compared to the limiting of individual freedom by a central governing institution.