What Horse Racing Can Teach the Warfighter about Prudent Risk

When commanders accept risk, they create opportunities to seize, retain, and exploit the initiative and achieve decisive results.

Army Doctrinal Reference Publication 3-0

By Tom Flounders

In the closing days of December, 1776, George Washington faced a dire situation. His army’s enlistments were expiring in a few short days and the American rebellion seemed to be ending before it began. Washington had suffered defeat after defeat, being routed on Long Island and Manhattan and then hastily withdrawing across New Jersey into Pennsylvania. General Washington now faced a decision: could he risk losing the Continental Army in battle to allow for the continuation of the egalitarian American dream?

Washington, with a clear understanding that both doing nothing and being defeated in battle led to the same strategic American defeat, boldly executed a brilliant plan that maximized surprise, speed, stealth, and shock. He recognized that the reward inherent in even a minor tactical victory justified crossing the treacherous Delaware River and attacking the Hessian brigade at Trenton: an extremely high-risk operation. However, this was a prudent risk for him to take, because the survival of the Revolution itself was worth taking any risk necessary. Subsequently, the Battle of Trenton was the most important strategic victory any American general has won in the history of the Republic.

Washington understood that risk is inherent to military operations and that commanders must assume prudent risks to achieve their desired end state(s). But in today’s operating environment, how do commanders understand and visualize the differences between a risk and a prudent risk? How and when is a risk defined as “prudent?” And how can taking risks change from being a gamble to a prudent risk? While doctrine may not comprehensively discuss this topic, horse racing can help illustrate the differences between risk and prudent risk, how to assess when a risk is prudent, and how this assessment informs decision making so commanders can effectively seize opportunities that present themselves on the battlefields of the present and future.

2012 Kentucky Derby: An Example of Prudent Risk

The 2012 Kentucky Derby was, like nearly every Derby, a tumultuous affair. The favorite to win the race was a colt named Bodemeister who was coming off a spectacular victory several weeks before. Challenging him were blazing fast sprinters, winners of the various Derby prep races throughout the country. Traditionally, the betting favorites in the Kentucky Derby – those that bettors believe are most likely to win and therefore are the lowest risk wager – are winners of the major prep races in California, Florida, New York, Arkansas, and Kentucky. From a risk perspective, the 2012 looked no different.

Favorites are the lowest prices in the wagering market since they are considered most likely to win and therefore are the lowest risk wager. In this race, Bodemeister (winner of the Arkansas Derby) was 4-1, Union Rags (2nd in the Florida Derby) was 5-1, and Gemologist (winner of the Wood Memorial in New York) was 8-1. Each had their pros and cons, but all were considered likely to win mostly based on previous performances. Bettors are relatively good at picking winners as the wagering favorite won about 37.5% of all contested races in 2012. However, low risk options provide low reward outcomes. (Author’s note: all data related to racing herein is publicly available on the internet, and is from the Daily Racing Form, Equibase, and KentuckyDerby.com)

These lower-risk betting propositions are contrasted by the highest-risk options. In 2012, Prospective was 57-1, Liaison was 56-1, and Optimizer was 42-1. Each had major negatives associated with their likely performance in the Kentucky Derby. But each of these three offered extremely high rewards for an exceedingly low-probability result. Backing these horses was a gamble in the most extreme sense of the word: betting on an uncertain, improbable outcome.

Meanwhile, way back as the 9th choice of 20 participants was I’ll Have Another, winner of the Santa Anita Derby in Los Angeles, at 15-1. I’ll Have Another, despite winning one of the major prep races strongly correlated with success in the Kentucky Derby, was not considered to be a prime candidate to win. His last race in California received a Beyer Speed Figure (a mathematical representation of how fast a race was run) of 95, whereas Bodemeister received a 108 for his Arkansas Derby win. His jockey was inexperienced and he only won the California race by a nose. But at 15-1, the possible reward for wagering on him far outpaced the possibilities on the other more likely/lower-odds winners. Bettors considered I’ll Have Another a medium-risk proposition.

Why pick I’ll Have Another if bettors and experts considered him less likely to win? At 15-1 the payout was sufficiently high to warrant a wager based on his victory in a traditionally strong prep race. He had already defeated several other horses also running in this Kentucky Derby’s field. Further, his running style was an advantage as it suited the way the race was likely to unfold. There was a realistic chance that I’ll Have Another could win the race with a high payoff to those that backed him. The risk of wagering on him was worth the possible payouts and the outcome was likely enough that it was prudent to accept the risk. The outcomes were better than the lower-odds/lower-risk options and far more realistically achievable than the higher-odds/higher-risk horses. Wagering on I’ll Have Another was a prudent risk relative to the other available options.

risk iha winI’ll Have Another did win that first Saturday in May, 2012 by a length and a half over Bodemeister. He followed it up by winning the Preakness Stakes two weeks later, proving his Derby victory was no fluke. Favorites can win the Kentucky Derby (the last five have from 2013-2017), but in a race that tests horses at that distance and in those circumstances for the first – and perhaps only – time in their racing careers, looking for value (higher payouts) amongst possible winners means incurring risks in your wagering strategies. This does not universally mean playing against the favorite, but it does mean seeking value in every wager made.

Obviously, prudent risk in relation to military operations is not gambling. In fact, ADRP 5-0 says specifically, “[g]ambling, in contrast to prudent risk taking, is staking the success of an entire action on a single event without considering the hazard to the force should the event not unfold as envisioned.” However, the analysis of the assumption of risks is very similar. The major difference is that commanders in combat must consider a larger number of variables than bettors in horse racing.

Yes, the devil is in the details in terms of understanding the difference between risk and prudent risk.

Risk (absolute) versus Prudent Risk (relative)

Risk — Probability and severity of loss linked to hazardsDoD Dictionary

Prudent risk is a deliberate exposure to potential injury or loss when the commander judges the outcome in terms of mission accomplishment as worth the costArmy Doctrinal Publication 6-0

Risk is the evaluation and understanding of the costs of any action. Every decision, course of action, and mission order has associated consequences. Frequently, commanders account for risks in risk matrices, as part of the commander’s intent, or they mitigate them to an acceptably low impact. These risks are absolute and typically phrased as “if unit X conducts a flank attack, the risk is high.”

However, Prudent Risk is relative. These are not necessarily the minute risks inherent to an action, but instead the overarching macro-risk associated with choosing a specific form of maneuver, tactic, or objective, to name a few. The risks a commander selects to assume are those that she/he deems prudent to take to achieve the desired end state. It is the relationship between the absolute risk of an action and the relative outcomes based on the mission and operational variables in play that define whether a risk is prudent to assume or not.

Many risks are foolish. In the vignette above, blindly gambling on a longshot to win the Kentucky Derby is a foolish wager as its probability of success is extremely low. But many risks are worthwhile relative to the advantage gained in the outcome. If a bettor assesses that Bodemeister has a 25% chance of winning at a 4-1 payoff, then his/her expected payout is 1-1. But at the same time, if the same bettor assesses that I’ll Have Another has a 10% chance of winning at 15-1, then the expected payout is 1.5-1, 50% higher than the lower risk option of backing Bodemeister, but still within the many realistic outcomes of the race. The bettor must be able to rationalize the relative relationship between the costs and benefits of assuming each risk within all courses of action and commanders on the battlefield must be able to do the same.

Underlays Versus Overlays or: How to “Calculate” Prudent risk

Horse racing:

Overlay: A horse racing at a higher price than he appears to warrant

Underlay: A horse racing at shorter odds than he appears to warrant

Horse racing is not combat, but the terminology about the possible costs and rewards of an action (or inaction) is very useful. An overlay is a situation where the actual value of an outcome is higher than the anticipated value. In the case of I’ll Have Another, this means that a bettor with an expected payoff – determined during his/her analysis of the race – of 10-1 will be very happy with an actual payout of 15-1. Conversely, one that finds I’ll Have Another’s chances to be more remote might expect 25-1 odds, and seeing 15-1 as actual value will deem I’ll Have Another as an underlay where the payoff is less than anticipated. Overlays are always more desirable than underlays.

The actual calculation of the situation for any horserace is extremely subjective and is based on the analysis of any number of environmental and competitive factors. In this way, it is similar to a commander and staff analyzing courses of action, risks, and outcomes within the frames of the operational and mission variables. Therefore, one can reframe these terms as risk ratios.

Prudent Risk Evaluation:

Risk Overlay: an outcome that has a lower risk::reward ratio than anticipated/acceptable

Risk Underlay: an outcome that has a higher risk::reward ratio than anticipated/acceptable

Both portions of the ratio are variable. For example, if a commander expects a 3::5 risk-reward ratio, but determines it is 1::5 when executing a mission, the risk overlay means a commander should immediately seize on the emergent opportunity to achieve the same outcome at significantly lower risk to his/her force. Similarly, if a risk the commander previously deemed prudent now has less desirable outcomes than expected, the previous assessment must change. This opportunity becomes an underlay and a commander must reevaluate the acceptability of her/his course of action. However, this does not necessarily mean that the objective must change. The commander should change his/her understanding of the risks associated with the mission and decide to accept the new range of possible outcomes or to proceed along a branch or sequel plan. Prudent risks are not fixed and will vary as time progresses. Therefore, staffs must inform a commander’s decision making appropriately.

This dynamic assessment of risks allows commanders to focus pre-planned decisions at points where prudent risks may be available to pursue. With this preparation and emphasis, commanders can achieve the maximum results at the lowest relative risk and outmaneuver an adversary in the physical and human domains. This is the essence of commanders assuming prudent risk. As a commander and her/his staff analyze the operational variables and make assumptions, they must understand the risks they are accepting and build possible decision points, dynamically adjusting to meet the changing circumstances of any operation.

Commanders and Understanding Risk: Yorktown and Little Bighorn

The willingness to incur risk is often the key to exposing enemy weaknesses that the enemy considers beyond friendly reach. Understanding risk requires assessments coupled with boldness and imagination. Successful commanders assess and mitigate risk continuously throughout the operations process.

Army Doctrinal Reference Publication 3-0

Commanders must understand the absolute risks to the force that exist, visualize how those risks allow (or disallow) the accomplishment of the desired end state, and describe the criteria by which risks become prudent to assume. This aids in the development of decision points in addition to a better understanding of the dynamic nature of risk analysis and mitigation.

risk washington yorktownWashington’s decision to mass his coalition’s forces at Yorktown in an attempt to deal the British a decisive blow demonstrated a mastery of this risk calculation. After spending years avoiding a conventional battle with the British, Washington boldly maneuvered south and leveraged the French Navy’s control of the York River in order to fix Lord Cornwallis and force his surrender. Washington previously assessed that facing the British in open battle was an underlaid opportunity: the extreme risk to the Continental Army far outweighed the possibility of a victory. However, that calculation changed with the arrival of the French Navy and Regulars. Washington recalculated the risk, and decided to do exactly what he avoided for years. Only once the possibility of victory was high enough and the forces available suitable did the opportunity become an overlay. Washington acted wisely and assumed the prudent risk of massing at Yorktown.

Conversely, the campaign against the Lakota Sioux, Arapaho, and Northern Cheyenne tribes in 1876 was built on an assumption that the tribes could only muster 800-1,500 warriors and could be easily dealt with by any one of three US Army elements that numbered between 450 and 1,000 troopers. This assumption led to a miscalculated prudent risk, and ultimately to the disaster of the Battle of Little Bighorn and the annihilation of George Custer’s 7th Cavalry Regiment. After an initial estimate of 800-1,500 warriors was provided to General Sheridan, commander of the Military Division of Missouri, he decided to piecemeal his force under the assumption that all of his three subordinate elements each had the relative combat power required to defeat the combined tribes’ forces. However, after moving the 7th Cavalry towards the tribes’ village, the reality was that there were between 1,500 and 1,800 warriors present. While the initial risk::reward calculation determined this was anticipated to be a low-risk campaign, the changing enemy disposition quickly changed this to an underlaid risk opportunity. A poor understanding of the risks being assumed in the operation by Sheridan, and ultimately by Custer, led directly to perhaps the most infamous military failure in American history.

risk custer

Modern day commanders can adapt historical lessons such as these to the present-day battlefield. Commanders must consider decision points as a critical element of an overall course of action that are informed by the accepted, analyzed, and mitigated risks. Understanding when risks change and how that affects the mission, where and how commanders can change them, and when a risk the commander seeks to avoid turns into a prudent risk he/she can now assume is fundamental to developing an adaptable, flexible course of action.

Developing this shared understanding of prudent risks aids subordinate commanders to exercise disciplined initiative within the commander’s intent. This is accomplished by being able to see how the commander described risks to the mission and force and adjust their subordinate mission appropriately in the face of a changing, complex environment.

Risk and the Future Multi-Domain Environment

Opportunities will be fleeting in the future operating environment, and therefore, every echelon must have the best and quickest possible understanding of the risks associated with their actions. There will not be enough time or maneuver space to ensure that higher echelon commanders could authorize, assume, and/or mitigate risk in the same manner as they can in the contemporary operating environment.

Commanders at every echelon must understand, visualize, and describe risks to know which risks are prudent to assume during the conduct of operations. Additionally, to seize upon opportunities, commanders must tie preplanned and emergent decisions to their ever-changing risk calculations. The dynamic relationship between prudent risks and decisions should be captured in the Decision Support Matrix a commander and his/her staff produces. This product not only allows staffs and subordinates to anticipate possible decisions and develop branch/sequel plans, but increases the shared understanding of the possible deviations from the original course of action. (However, if a branch or sequel does not allow a commander to ultimately still move towards an acceptable outcome, it moves closer to being a gamble and away from being a prudent risk.) Together, it promotes the flexibility of the force and allows for continued unity of effort as the command changes direction, shifts priorities, and reorients on new objectives.

PR Diagram

Additionally, commanders must be increasingly willing to delegate authorities for subordinates to assume risks. History has shown the more delegation and decentralization a force uses, the more successful it is on the battlefield (here, here, and here). There are obvious caveats that go along with this idea, beginning with the inculcation of initiative and trust amongst every echelon of any force, but this basic principle remains true: commanders must be willing to allow risk to be assumed at every echelon and to encourage prudent risk taking throughout his/her command. On an increasingly unpredictable battlefield, commanders must seek every opportunity to rapidly and effectively seize, retain, and exploit the initiative. An understanding of the risks associated with any and all actions must be thoroughly understood in order to most effectively seize on overlaid risk opportunities while avoiding underlaid ones.

Tom Flounders is an armor officer in the United States Army. He is a graduate of the Multi-Domain Operational Strategist concentration at the Air Force Command and Staff College and a Senior Editor of Over the Horizon. 

Disclaimer: The views expressed are those of the author and do not necessarily reflect the official policy or position of the Department of Defense or the US Government.

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