Are We Overvaluing Probability in Risk Decision-Making?

Abstract

Do we give more credit to the impact of probability?¹ Are we stuck in our risk ways?². I propose that we are. If we ignore the “What if” and justify it with the “Never will”, we then add insult to injury with what we could never have foreseen when it does happen. Do we spend too long trying to decide if it’s a black swan, a grey rhino, or a risk ferret, and the book sales we can do from publishing the idea, or less trying new ideas and testing old ones?

Reasoning Behind the Idea

Even back in 1997, the question of modelling problems and lack of success and improvement was discussed³, with a dynamic society speaking of this. But has really anything changed? Risk is still thought of as financial, and that the cost management should be the only voice with it, which holds it back and doesn’t accurately represent what risk really is. Risk is a separate paper, but it encompasses more than just cost; it also involves its impact and reputation. Yes, this all feeds back to a cost, but I disagree on whether to use that as the baseline for the decision⁴. Only 2 years later, the last paper highlighted the lack of consideration for risk in other, more quantitative ways. Speaking of the BSE outbreak and others. How ironic that 20 years later, an outbreak known for longer than that caused havoc around the world ⁵. Speak of contingency planning in 2014, and this could have started the idea of this notion of ‘what if’, but just 6 years later, the ‘what if’ became the now, and it had no planning set for it.

Inadequate risk handling within a corporation not only precipitates a decline in asset value but also has the potential to propagate failure across other entities, potentially culminating in a broader collapse within capital markets⁶. I believe this quote stemmed from the frustration caused by the lack of adequate risk planning for the pandemic ⁷ spoke about early warning of this type of disaster nearly two decades earlier, yet again, the “Never will” was louder than the “What if.” I can now hear all those reading this saying about the cost of planning for something that will never happen or not for a very long time. To those, I would say, what’s the cost when they do happen and you have no plan?

Given the probability of such events, it was a relatively straightforward task to develop a waste plan in collaboration with organisations such as Bournemouth University’s Disaster Management Centre (BUDMC) ⁸. We are developing risk management simulation systems to facilitate learning from both communication and actual actions, which could reveal not only the gaps in our planning that we are unaware of, but also highlight risks we had not considered. They are showing the benefits of asking what if and taking this into disasters with methods that have been tested and polished in less strenuous environments, and allowed to learn from mistakes without the repercussions. Does this, with all that has happened in the last 5 years with pandemics, wars, attacks, not show a need and cost for not thinking or even starting to think ‘What If’?

With so many systems looking in retrospect to make better plans such as Swiss cheese should, it not only makes sense that once a risk is discovered, even if this probability is near zero, not be planned for as with bigger impact risk becoming more and more prolific or the identification of these previous black swans become better, that we should plan for when they occur rather than use the swan to pass the risk blame. If the chaos of 3 body means we can’t account for all, and probability therefore becomes so inaccurate as to lose its importance, why don’t we look at the part where we can be sure of the impact?

Conclusion

This article is not a paper of answers, but I hope one that starts questions, one that ignites new ideas and concepts in risk, so that as we enter the next quarter of the 21st century, we show we have learnt from the last and are looking towards the 22nd.

Reference Literature

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