George Bernard Shaw, the Jack of Spades, and BP

Why would BP take the risk of a major disaster – one out of all proportion to the cost to avoid it?  The answer may lie in a combination of two jokes.

You may have heard George Bernard Shaw’s story where he asks a woman if she would sleep with him for a million pounds.  When she says yes, he asks if she would sleep with him for sixpence.  Outraged, she says “Certainly not!  What sort of woman do you take me for?”  “We’ve already established that”, he says, “Now we’re just haggling over price.”

In Guys and Dolls, Sky Masterson turns down a proposed bet, saying:  “Let me tell you a story.  When I was a young man about to go out into the world, my father says to me a very valuable thing.  ‘Son’, the old guy says, ‘I’m sorry that I am not able to bankroll you a very large start.  But not having any potatoes to give you, I am going to give you some very valuable advice.  One of these days in your travels, you are going to come across a guy with a nice brand new deck of cards, and this guy is going to offer to bet you that he can make the Jack of Spades jump out of the deck and squirt cider in your ear.  But, son, do not take this bet, for if you do, as sure as you are standing there, you are going to end up with an ear full of cider.’ ”

Conventional economic theory says that BP should invest in safety only up to a certain point – where the marginal benefit equals the marginal cost.  There is no point in spending another ten million in safety if it saves you only seven million in expected disaster costs.  Following this path leads you to risk management and profit maximization.

In practice, however, this turns out to be exactly the wrong approach – the probabilities cannot really be estimated, and you get sloppy and the Jack of Spades jumps out of the deck.  BP should have learned the lesson of the first story, and acted as if safety were its top priority, incomparable with any monetary benefits.  Exxon and Chevron learned this lesson the hard way, and now have an almost ridiculous obsession with safety (in the West, at least).  Of course, safety is never truly an oil company’s top priority – the oil is safest in the ground.  So this is a lie, but a noble lie, the sort that people tell themselves all the time.  And if you’re running an oil company, you should tell it to yourself all the time, until you come to believe it.  Because the alternative only gets you an ear full of cider, every time.


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