Eye Of The Beholder: Understanding The Psychology Of Risk Perception To Improve Risk Management

 Monday, April 13, 2020

 Risk Management Magazine

Individuals perceive risks in markedly different ways. One person may consider a risk to be critical, while another could consider it inconsequential.

Often rooted in psychology, these differences in risk perception can create challenges for risk professionals, especially when designing and implementing an effective risk management program. After all, if the program is focused on the wrong risks from the outset, the consequences to the organization could be dire.

It is therefore critical for risk professionals to understand the psychological aspects of risk perception and develop techniques to address the resulting challenges.

Our reaction to risks can be traced to early humans, who were either the hunter or the hunted and responded to danger by fighting or fleeing. Our ancestors’ survival depended on responding quickly and correctly. A part of the brain—the amygdala—helped humans’ survival by bypassing cognitive processes and initiating immediate responses.

Today, we generally have the time to obtain information, analyze risks and develop a reasoned response. Yet we still seem to let our innate reactive-mode override our cognitive thinking.

Many factors impair our ability to develop an accurate assessment of risks. Chief among these are heuristics and biases, which can overtake reasoned analyses and decisions.
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