Originally published March 2022.

Today, insurance, social security and modern medicine help us cope when something bad happens. As we manage risk in our day-to-day lives, we can afford to take fewer precautions than our forebears. They faced very different trade-offs. How different were our ancient ancestors’ approaches to risk management? And what lessons would they have for those that manage investment risk?

The premise of Jared Diamond’s book, The World Until Yesterday, is that by exploring how traditional societies live, we gain insight into the lives our ancestors experienced. Diamond shares stories from his trips to the highlands of New Guinea. The isolated lives of such people provide a “window onto the human world as it was until a mere yesterday, measured against the time scale of 6,000,000 years of human evolution”.

He shows that there are many lessons traditional societies can teach us about bringing up children, conflict resolution, diet and attitudes to risk. Here I highlight some lessons our ancient ancestors may provide for today’s investors. Judging by tribal societies, they knew to be highly selective in risk-taking, to learn from others’ experiences to inform their decision-making and to accept the costs of diversification.

Constructive paranoia and highly selective risk-taking

Once, when Diamond found what he thought was the perfect base camp, he was astonished by the New Guinean’s steadfast refusal to sleep there. 

The problem was the giant tree looming over the would-be campsite. The tree was dead and the New Guineans feared it would fall on the camp. 

Diamond thought their fears were “absurdly exaggerated”, but he could not convince the New Guineans to sleep near the tree. He was perplexed by their overreaction – the tree was huge, looked strong and was not rotten. There was not even any wind to worry about. 

However, in time, Diamond became much more understanding of the New Guinean’s attitude. As he spent more time in the forest, he heard trees falling. Also, he heard stories of New Guineans killed by tree falls. So, while the probability of a tree falling on you in your sleep was very low, it was not zero. 

And, given the absence of emergency and medical services, the costs of being struck by a falling tree were high for New Guineans. Even if you escaped death, broken bones would not be set by a surgeon and they would be permanently impaired.