Wednesday, August 8, 2012

Risky or kindly?


In a recent FT article, Gillian Tett reflects on the contributions to risk management that the social sciences, in this case anthropology, has to offer.  Namely, that risks are defined by those that perceive them to be a problem.  Such perceptions act as built in biases in the risk quantification and characterization process.  In Tett's words, "risk management is not an exact science."

For instance, risk perceptions differ amongst those that believe the power to control risk is centralized or dispersed and whether or not such means of control lead to desirable outcomes.  Views on this dynamic vary between industry, the public, and government, but also between different members of each (e.g. different governments).  Not only may interests disagree on the existence or importance of a risk presented by a social dynamic, but so too on the source of the risk and the best means of control.  As well, perceptions can change over time and space causing inconsistent acceptability of risk management policies.

Pragmatic fatalists, who assume that everyone is inherently selfish, assume that the best way to manage risk in a dog-eat-dog world is to trade those risks. Societies which believe in egalitarian co-operation, however, tend to control losses and share the pain, if disaster strikes.  
Similarly, when it is assumed that hierarchies are wise and benign, there is faith in the ability of leaders to steer towards better outcomes. But when people view power structures as capricious and dangerous, they tend to be fatalist. This creates an assumption that the only way to protect against unknowable, unpleasant dangers is to diversify your portfolio.  
Attitudes can change over the course of an economic cycle: pragmatists dominate when life is uncertain but in more moderate periods there is greater faith in benign controls. 

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