Commitment versus Cutting Your Losses

When is the best time to handle loss?


Investors put a stop-loss in place. Policy makers put ceiling and floor limits on future activity. Engineers design pressure values. People choose an engagement period and sign pre-nuptial agreements, before they get married. Insurance companies design cover contracts & premiums, after first assessing probability of claim & likely claim amount. Public health agencies vaccinate populations to prevent epidemics.


Insurance assessors & claims handlers limit their firm’s liability to reimburse for loss. Firefighters prioritise saving lives over fire control. People urgently call in favours owed, to minimise further damage. A&E medics act to stabilise patient injuries in the short term. Before more comprehensive surgery takes place at a later date. Battered wives seek refuge, to escape a dangerous conflict.


Politicians spin losses into non losses, to minimise political damage. Estate lawyers, funeral directors & therapists help grieving relatives deal with loss. Gardeners prune and dead-head plants after blooming. People sever their relationships, when they discover unhealth character attributes. Builders & decorators repair actual house damage, after a hurricane or flood.

In other words, a ‘horses for courses’ approach to loss applies.

When do you put a value on losses?

When you recognise type of loss. And when you can value such loss, with a reasonable degree of certainty.

For ‘greatest good for the greatest number’ situtions e.g. vaccination programmes, it tends to be beforehand. For ‘saving the World one person at a time’ type situations, it tends to be during, or after actual loss is encountered. ‘Tends to be’ doesn’t mean exclusively. But ‘tends to be’ is perhaps a guide on the ideal approach.

Customised approaches can work well, for ‘greatest good for the greatest number’ situations. And clearly work well for ‘saving the World one person at a time’ situations, where every encounter may be different.

Does the loss-handling approach depend on what view you take on how long the (expected or actual) losses will endure for? Should you stick to the plan or get out early?

Ripples in a pond may radiate with enough force to erode the edges of the pond. The backwash of water draining back into the pond can cause further erosion. As can cross-ripple effects. If you are an insurance company, selling loss of profits insurance to a client and a pandemic, stock market crash or banking credit crunch suddenly cripples that client’s industry, the ripples will fly in all directions, for an unknown period. Possibly followed by extra shocks causing fresh primary ripples. The solution for the client is not to mitigate such risk using insurance cover alone. Instead, become resilient to multiple kinds of external shock. And multiple kinds of shock hitting at once. That is a recipe for sustainability. And ‘last man standing’ growth too.


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