I always had been curious about what a prepper is and does. I know, I know, preppers have a bad rap, conspiracy theorists, weird religious sects, crazy war vets with beards and AK-47s in their hidden cabins in the woods. Thus, I went out to scout the websites and literature about prepping.
Economic and finance theory to analyze preppers
I also started analyzing preppers with the tools I know – risk/benefit analysis, real options theory, and opportunity costs analysis. The first one simply states that every decision in life comes with both benefits and risks or a downside. Options theory is all about finding asymmetric payoffs, a fancy way of saying that you look for investments in something that either might give you outsized returns without the possibility of you losing your shirt, or acts as an insurance policy if things go south. Finally, thinking in opportunity costs forces you to compare alternatives and ask yourself what option (or possibility) you forego when picking A over B, and vice versa. You can’t go to the movies while going to the opera, it’s one or the other.
The fundamental idea of prepping
At its core, prepping is an investment in an unknown future. The investment is intended to act as an insurance policy. It should protect against future threats to your well-being, maybe even your life. What gives prepping sometimes a bad name is many events that preppers are defending against, are considered low event risks. Typical examples are WWIII, a biblical flood, civil war, economic collapse, or any other form of Armageddon. In mathematical terms, we call these risks tail risks with high impact. It is not very likely that any of them occurs, but if it does, the impact could be massive. The great living thinker Nassim Taleb, a trader turned philosopher turned best-selling author, shows in his books “The Black Swan” and “Antifragile” how to think about these kinds of events.
Thus, are preppers crazy? For our purposes, it is sufficient to say the core of prepping is a very rational decision and not crazy at all. More and more Silicon Valley billionaires see it this way; they have bought bolt houses in New Zealand to hide out during any significant trouble in the US.
How easy and effective would it be for you and me to prep for the future? Let’s take a look tomorrow at what makes prepping so difficult.
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