On alpha, flak, and jack
This month’s issue of Nuclear News focuses on the role of probabilistic methods in assessing and mitigating the risk of adverse events at nuclear plants and facilities. It’s a timely topic as we move to launch a new generation of nuclear technologies, but it is only half of a larger question that is universal to the human condition: Are the rewards of a particular thing worth its attendant risks?
Nuclear engineers use hard technical terms like “probabilistic risk assessment” and “core damage frequency,” but other industries have much more colorful ways of describing the holistic risk-reward construct in their world. In finance, it’s known simply as “alpha.” A zero alpha investment suggests that its returns are commensurate with the associated risks. Negative alphas get pushed to the curb, and “high alpha” deals get Wall Street hedge fund managers their house in the Hamptons.