All economic decisions embody some degree of risk. Risk can be defined as the associated probabilities of various outcomes, both positive and negative, that arise from any given decision. The more limited is the range of probabilities, the less the degree of risk, as in the comparisons of distributions A and B in comparison to distributions C and D above. Although most individuals and societies display risk averse behavior, how much they are willing to pay for more certain outcomes in comparison to less certain ones is a function of their underlying attitudes toward risk as well as the level and degree of instruments that are available to respond to a given degree of risk. As long as the distribution of risk is symmetric between buyers and sellers, it is possible for markets to devise relatively efficient choices to undertake decisions in the presence of risk.

One difficulty that most societies confront is that the distribution of risk may not be symmetric. When there is an asymmetric distribution of information, markets may not work well to allocate resources. Where asymmetric information is present, two kinds of market failure may arise. One is moral hazard, in which insured agents adopt riskier choices than they would in the presence of symmetric information, thus raising the potential losses to the insurer. Adverse selection is another example of potential market failure. In this case, those who purchase insurance tend to have higher loss probabilities than those estimated by the insuring agent. In both cases, losses tend to be higher than they would under a symmetric distribution of information.

Although moral hazard and adverse selection may generate market failure, it does not follow that government intervention can necessarily restore economic efficiency. Such was the case in the East Asian financial crisis of 1997, where implicit government guarantees themselves served to generate moral hazard and the general collapse of financial markets. What may be equally important is a set of transparent rules that provide symmetric cost access to the underlying degree of risk in any given decision. Universal accounting standards, prudential capital reserve ratios, and improved oversight are examples of the kinds of reforms that may reduce the prevailing degree of informational asymmetry.

In the early fifteenth century, China developed seagoing ships with lengths up to four hundred feet and explored the Indian Ocean as far as the east coast of Africa. Such feats were not duplicated by Europeans until the arrival of Vasco da Gama in Calicut in 1498, with ships that had lenghts of far less than one hundred feet. European shipbuilding did not match Chinese standards until the construction of the Great Eastern in 1859. The message of Zheng He for today is clear: the act of discovery is an engagement with risk, and countries that adopt prudential policies for the management of risk can look forward to exceptional economic advance.

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