What Surfing Can Teach Us About Risk : Planet Money Surfing and financial markets have a lot in common when it comes to taking and managing risk.
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What Surfing Can Teach Us About Risk

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What Surfing Can Teach Us About Risk

What Surfing Can Teach Us About Risk

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CARDIFF GARCIA, HOST:

Brian Keaulana lives in Oahu, Hawaii. He's a stuntman and a stunt coordinator for movies. And he's also an accomplished big-wave surfer. Big-wave surfing usually means riding waves bigger than about 20 feet high. And Brian has been surfing for a really long time.

BRIAN KEAULANA: Right now, I am 58 years old, and I've been surfing 58 years.

(LAUGHTER)

KEAULANA: So my dad took me out when I was 3 months old.

STACEY VANEK SMITH, HOST:

The summer after Brian finished high school, he was a lifeguard at a beach when he saw a surfer wipe out on a massive wave. The surfer was struggling to stay afloat, and Brian tried to swim out towards the surfer to save him, but he just couldn't get close enough.

KEAULANA: Each wave kept hitting him and holding him underwater. And he kept popping up and screaming for help. And he survived four waves, and we kept screaming back-and-forth. When the fifth wave came, hit him, he's gone - never found his body. But till this day, I still hear his voice. I see his face. I see his eyes, you know, so I - it's that kind of loss that you wish you could've done something, but you couldn't, you know, at that time.

GARCIA: Brian never forgot that. And he never stopped thinking about ways to make surfing safer. And years later, it was Brian himself who wiped out on a massive 60-foot wave. He survived. He was fine. But he had a realization that day, one that changed the sport of surfing forever.

This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.

VANEK SMITH: And I'm Stacey Vanek Smith. The way that Brian changed surfing offers a surprising lesson for how all of us nonsurfers deal with risk.

(SOUNDBITE OF JEROME FABY'S "BLACK SURF DUEL")

VANEK SMITH: Allison Schrager is an unexpected guide to the history of surfing. She is an economist who studies risk.

GARCIA: Have you ever surfed?

ALLISON SCHRAGER: No.

(LAUGHTER)

GARCIA: Allison writes about the history of big-wave surfing in her new book "An Economist Walks Into A Brothel: And Other Unexpected Places To Understand Risk." To Allison, the history of surfing is about how technologies that are designed to make the world safer and less risky can have the unexpected result of sometimes making it more dangerous, more risky.

VANEK SMITH: In the early days of big-wave surfing, around the 1940s and 1950s, surfers had to be really fantastic swimmers. And Allison says that was because back then, if you lost your surfboard in a wipeout, you had to keep yourself above water without it.

SCHRAGER: And if they wiped out, they might have to swim 3 or 4 miles in really rough surf to get back to shore. So back then, it was a very small, very elite group of people with these superhuman swimming skills.

GARCIA: But then, surfers started using a leash, which attaches their leg to the surfboard, allowing them to keep that board even after a wipeout. Allison says the leash did make surfing safer, but it also made it more likely that weaker swimmers would take up surfing in the first place.

VANEK SMITH: And those weaker swimmers might take risks they didn't understand because they thought the leash made them safe. Brian Keaulana says he sees this every time a new technology makes surfing a little bit safer - when people think they can try to surf without a lot of training.

KEAULANA: They're there to fulfill a fantasy, but they get back to reality. You know, their fantasy's to go out there and, you know, just reach the stars. But, you know, all of a sudden, they're eating the reefs and the bottom of the ocean.

GARCIA: But the really big innovation in big-wave surfing came later, and it came from Brian himself in the late 1980s and early 1990s. Brian was surfing at a tournament called The Eddie, a prestigious event where only a couple dozen of the world's best surfers were competing.

VANEK SMITH: And that is when Brian wiped out on that huge 60-foot wave. And while he was in the water, wave after wave kept crashing down on him. And he was in what surfers call the impact zone. That is the area where the waves are breaking, where the waves are the strongest and where it is the hardest to swim out.

Brian was starting to get nervous. But then, he saw something that he didn't expect.

KEAULANA: So you know, I looked up, and one of my friends came up with a stand-up Jet Ski - a single man. And he zoomed right in and looked at me and asked me if I was all right. And I was just amazed that someone came into the impact zone.

GARCIA: His friend couldn't grab him because the Jet Ski was too small. But Brian says that seeing his friend completely calmed him. And he had an epiphany. If the technology now existed to get someone into the impact zone, then that same technology could be used to rescue someone and get them out.

VANEK SMITH: So Brian learned everything he could about the new models of WaveRunners and Jet Skis. And he started buying them and trying to attach sleds to the back of them - turn them into rescue vehicles to pull drowning surfers out of the waves.

GARCIA: After enough trial and error, it worked. The Jet Ski changed the sport of big-wave surfing. Eventually, it was just understood that rescue teams using Jet Skis would be nearby anytime surfers were riding big waves. And one day, Brian and another lifeguard even used Jet Skis to rescue seven surfers who could not get back to shore.

KEAULANA: But technology, for me, is a double-edged sword because without proper training or proper mental attitudes, it also sends a false sense of safety also out in the lineup, also, too. So I also see people taking more of a risk because they see the use of the Jet Skis there, as well as flotation devices.

VANEK SMITH: Not only were weaker surfers now getting into big-wave surfing because of the Jet Ski, but strong surfers were using Jet Skis to get to bigger and bigger waves, like 80-foot-tall waves. This is called tow-in surfing, where the surfer's actually pulled behind a Jet Ski to these humongous waves.

GARCIA: In other words, these strong surfers were using the Jet Ski, which was supposed to make surfing safer, to take bigger and bigger risks.

VANEK SMITH: And, in fact, this is what reminded economist Allison Schrager of financial markets. Just like a Jet Ski can make it safer to ride a big wave, there are financial products that can make it safer to invest your money because they limit how much money you can lose. And just the same way a Jet Ski can be used to take on bigger and bigger waves, those same financial products can also make it easier to take a bigger risk with your investments.

So you can make a lot more money if the investment goes up, but that also means that you can lose a lot more money if your investments go down. In fact, this is kind of what happened during the financial crisis.

GARCIA: That's right. And so the question is, what can be done to make sure that people are taking the right amount of risk, either in surfing or in finance? Well, if you're a surfer, you educate other surfers and you participate in something called the Big Wave Risk Assessment Group safety summit on the North Shore of Oahu. That's right. Surfers have their own risk summit.

VANEK SMITH: That is amazing and wonderful.

GARCIA: It really is.

VANEK SMITH: I want to go to the Big Waves For Risk (ph) summit. I mean, normally, the idea of a risk summit is not appealing, but throw surfing in there, it just sounds interesting.

GARCIA: Yeah. And Allison had the same thought. She actually attended a recent summit. One of the founders was Brian Keaulana. And Allison says she was, like, kind of the odd person out there.

SCHRAGER: There were three women there.

GARCIA: Out of?

SCHRAGER: Probably, like, maybe 50 people.

GARCIA: OK.

SCHRAGER: So again, like a pension risk conference.

(LAUGHTER)

SCHRAGER: No light slides with a lot of math on it. Mostly men, but they were way better-looking and in much better shape than at a pension risk conference.

GARCIA: Probably had better tans, at the very least.

SCHRAGER: Super tan.

GARCIA: Yeah.

SCHRAGER: Not a closed-toed shoe in the room.

VANEK SMITH: At this summit, surfers go over basic safety and rescue techniques, things like CPR. And they also learn about how waves break. And they color-code different surfing zones based on safety. And they even discuss how to use drones to signal where a fallen surfer is drowning to alert a rescue team - all kinds of things.

GARCIA: Yeah. So education is one way to help people manage risks. Another way is government regulation, which is what's used in finance. For example, sometimes there are restrictions imposed by the government on what kinds of financial products you can invest in. And those restrictions are based on how much money you have or whether you understand the risks that you are taking or other variables.

Now, in surfing, there are some regulations about using Jet Skis to ride big waves in Hawaii. But Allison says that generally speaking, surfers are opposed to regulation.

VANEK SMITH: Although the whole idea of, like, tons of surfing regulation just seems counter to surfing.

GARCIA: To the whole ethos, yeah.

VANEK SMITH: Right. Supposed to be, like, laid-back and relaxed, not filling out things in triplicate.

GARCIA: True, though surfers do still have debates, for example, about whether surfing should require a training certification like scuba diving does, or more recently about who should be allowed to wear new inflatable vests to ride big waves.

VANEK SMITH: And Allison's main point is that whether it is surfing or financial products, these debates are definitely going to continue because even when people learn how to manage the risk that comes with a new technology, either through education or regulation or just from getting used to a new risk, another technology can come along that introduces new risks.

GARCIA: That is surfing. It's also, by the way, the whole history of finance. A new financial product is introduced, people take more risks. Sometimes there's even a crash or a wipeout.

VANEK SMITH: Oh.

GARCIA: Yeah. Yeah.

VANEK SMITH: Oh.

GARCIA: Nice.

VANEK SMITH: (Laughter).

GARCIA: And then new regulations are imposed until the next new financial product. And then the cycle starts over.

(SOUNDBITE OF JEROME FABY'S "BLACK SURF DUEL")

VANEK SMITH: This podcast was produced by Darius Rafieyan, edited by Paddy Hirsch and fact-checked by Willa Rubin. THE INDICATOR is a production of NPR.

(SOUNDBITE OF JEROME FABY'S "BLACK SURF DUEL")

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