Whether we realize it or not, the majority of our everyday decisions revolve around curbing and managing risks – be it something as small as rechecking the knob of the stove or wearing seat belts before driving. Professionals use mathematical and statistical methods to calculate and measure risks and accordingly propose coping strategies. However, no one can go about calculating risks with these methods daily. For that, we generally rely on our intuitions and experiences. This is what is called risk perception.
Anybody who has studied or understands human behavior would know that since the beginning of time, humans have tended to deal with any stimulating environment with either of the two actions allowed by our impulse’s bandwidth – fight or flight.
However, in today’s era, now that we have the resources, capabilities, and time to study a situation from all angles, we can put in our cognitive potentials to analyze risks and come up with the best solution. However we still, sometimes, allow our innate impulse responses to overpower the cognitive responses.
The inception or causes of risks have always been open to subjective interpretations, considering the different thought processes, experiences, and perceptions of individuals studying these aspects. These differences in perception of risks tend to create obstacles for the professionals in the way of coming up with accurate and relevant psychological safety and risk management strategy.
The Effect of Our Innate Impulses
To begin with, certain determinants may hamper the understanding of existing risks, preventing us from looking at the situation from different angles. The most significant ones are called heuristics. Heuristics is a part of one of the three major risk perception theories- Psychology Approaches. It is defined as specific problem-solving techniques or learned methods that have the potential to overpower logical analysis and pragmatic aspects. Despite the impact they have on our decision-making, we must be aware of the heuristics to know the direction we’re heading in or could head in if we were to sideline these.
Say there are four steps to reaching a conclusion or solution to a certain problem. Heuristics take us directly from first to fourth. If the matter is in correspondence with the root of the issue, then heuristics are beneficial, without a doubt. But if a comparatively complicated problem is dealt with by means of heuristics, then being oblivious of the second and third steps can lead one to an erroneous conclusion.
Biases directly affect heuristics and influence the way we look at and evaluate problems. A few of the biases include:
- Anchoring Bias- This is generally related to the very first familiar aspect that one observes in a situation. It opens a bracket for the person within which he contains his perceptions. For example, if you’re buying something for the very first time and have no idea what the best price to pay for it should be, then the very first price that someone puts before you would give you a bracket to compare the other options of prices with.
- Verification or Confirmation Bias- If there exists a theory or statement or any credible content, for that matter, that endorses our beliefs, we tend to believe it immediately – This is called Confirmation Bias.
- Availability Bias- We tend to incline new or trending information while the older information gets erased or gets hazy over time.
There are many more biases and other subtle factors. The diagram below gives a quick idea of about the same:
Source: Risk Perception – Wikipedia
Risk Management Techniques Against Psychological Barriers
In the chapter, Psychology of Risk Perception of the book Wiley encyclopedia of operations research and management science, the authors, i.e, Kortenkamp, K. and Moore, CF, highlight that it is important for risk managers and communicators to understand the subliminal factors involved in risk perception to accurately gauge public’s response to risks and come up with a well-designed, informative and effective strategies and messages related to risk and its management.
The risk assessment process is subjective. It considers psychological, social, cultural, and even political factors. The dynamics and formulation of risk management strategies require risk analytics and qualitative and quantitative response methods.
- Technicality-oriented: Risk perception being an amalgamation of aforesaid factors plus science and subjective judgments, a certain degree of objectivity can be brought by raising knowledge about mathematical understanding in the world of risk management.
Justice Stephen Breyer suggests, “Create a small centralized administrative group charged with creating uniformity and rationality in highly technical areas of risk management. This group would be staffed by civil servants with experience in health and environmental agencies, Congress, and the Office of Management and Budget (OMB).”
- Consumption Oriented: It involves framing the same question in different ways. Presentations and language have an impact on the way we react to something. By figuring out the differences or discrepancies in response to the same issue in a different set of words can define the credibility and validity of the response.
- Diversity Oriented: Present the people from different backgrounds with the same problem and gather the responses. This could provide a wide spectrum of plausible methods to approach the problem. The differences do not indicate the incorrectness or correctness of one response or another. Instead, it presents a wider array of factors to take into consideration when coming up with an optimum management plan.
- Timing Oriented – The risk management process is supposed to be an incessant process and as dynamic as the risks themselves. Every organization has different agendas, mechanisms, and driving forces, so the risk management strategies for each of these are congruent to their specific factors and their position at a specific point in time
Nonetheless, we live in an era where artificial intelligence and machine learning reside at the intersection of almost everything that humans are managing to create. Allowing the involvement of data analytics in calculating, identifying, and measuring risks can provide ample cost-effective solutions and give crucial insights into the world of risks and their analysis. Constantly trying to restore the objectivity lost in the perception of risks due to psychological differences can improve the effect and validity of risk mitigation strategies.
Blog Published By: Prerna Arora, Student Risk Committee Member