In one of my previous posts I’ve written on David Hillson’s concept of decision taking: Risk Appetite and Risk Attitude (RARA) Model which can be applied to any decisions: personal, operational, strategic or the community decision.
In today’s post I would like to focus on risk perception which influence our decision on how much risk we think we should take, called risk attitude.
Risk attitude is the chosen response (that’s the main difference between attitude and appetite, which in not chosen) to a given risky situation, influenced by risk perception. Believe or not, but risk is about peoples’ perception.
Have I seen this before? What is my automatic reaction? How do I feel about it? That’s “Triple Strand” by Murray- Webster and Hillson 2008. There 3 types of factors that can influence our perception and risk attitude: situational, subconscious and affective. Let’s explore it in more details.
|Triple Strand - 3 factors: rational, subconscious and affective|
I. Situational factors – rational considerations.
How familiar you are with the situation? Do you know how to manage it? What would be the effect? For example: you change your job every 2 years and you’ve done it 10 times in your life (familiarity), and you know how to handle it (manageability). Moreover, the effect on your life was insignificant (severity of impact).
So, if you’ve enjoyed doing something risky in the past, You are likely to downplay the risk in the future. The reverse also applies. If no experience or bad experience (never changed my job or a new job was a disaster), likely to be more cautious in the future.
Other factors are proximity (it will happen soon, so need to act now or wouldn’t happen for long time, so have time) and personal propinquity (would really matter to me personally).
II. Subconscious factors - Heuristics
My gut feeling tells me I will like this new job, so I trust my intuition and will not look for any more data. This must be like the other one I’ve seen before – representativeness.
Availability – most recent data is most memorable, linked to “reality traps”, where too much value is attributed to existing situations. After a plane crash some people might fear flying.
Confirmation trap – trust me, I’m am an expert. This can become a self-fulfilling prophecy.
Lure of Choice – leaving too many options open, not taking the decision.
Affect heuristic – seeking pleasure, avoid pain.
II. Subconscious factors - Cognitive Bias
Repetitive bias – it’s everywhere, so must be true.
Illusion of control or knowledge. We believe that we control the situation and undermine luck or we believe that we should know even we do not.
Intelligence trap – intelligent people know the best.
Some people are too optimistic or too pessimistic (Optimism/Fatalism bias)
Precautionary Principle – ignore probabilities, focus on impact – for sure worse thing will happen.
Hindsight bias – fail to learn – I knew it all along, but did not do anything.
III. Affective Factors - Emotions and Feelings
Fear (worry). I’m afraid of job change due to concern of loosing financial independence.
Love (lust, adoration). I love changes, new job, new people, new challenges
Hate (dislike). I hate changes.
Joy (happy, care free) – life is good, something good will happen in the new company.
Sadness (depressed) – life is bad, so more bad things happen in this new job.
To sum up, when taking a risky decision or accessing the project risk take into consideration people’s perception of risk. Bear in mind that all: rational, subconscious and affective (emotions & feelings) factors, can impact your decision. Additionally, when in a group, the group dynamics and organizational culture – the norms of the group and groupthink (we all think this way) need to be taken into account.