BUSS 5292 Current thinking on risk 代写

1  BUSS 5292 Current thinking on risk 代写 Risk Management BUSS 5292 Topic 2 Current thinking on risk: Implications for managers 1 Course Facilitator: Kesten Green Study Period 1, 2016 Dealing with risk: 20 th Century perspective The aim of science is to predict the future for the purpose of making our conduct intelligent. Frank Knight, p 16. RUP. 4 Use findings from scientific research for risk analysis and management Technical risk assessment Ø Use evidence from history & experimental studies Types (from Renn 1998) q Actuarial (e.g. Analysis of statistical records) q Environmental (e.g. Toxicological & epidemiological studies) q Technological (e.g. Judgmental “fault trees”) 5 2 Limitations of technical analyses: Why only expected physical harm? “Confining undesirable consequences to physical harm excludes [from analysis] other consequences that people might also regard as undesirable, but physical harm may be the only consequence that (almost) all social groups and cultures agree is undesirable” Renn (p.54, 1998) 6 Psychology and Sociology of risk § Heuristics and biases of individual risk attitudes, intuitions, and perceptions (Kahneman, Tversky, Fischhoff, et al.) § Diverse understandings of what “risk” is § Poor decisions under risk § Social and cultural group differences in perceptions of risk and trade-offs vs other values § What implications for risk management? § Costs vs benefits of efforts to accommodate diverse perceptions? 7  BUSS 5292 Current thinking on risk 代写 Losses versus gains: What we now know on prospect theory § Kahneman & Tversky (1979) proposed prospect theory as an alternative to expected utility theory*, implying people are more averse to losses than attracted to gains. § Armstrong (p. 304, 2010) describes the failure of researchers to identify conditions when loss-framing is more persuasive than gain-framing. § Levy & Levy (2002) presented evidence that there is no such problem when more realistic choices are offered. *On which, more later. 8 3 Conservatism and base rate neglect, or problem framing? Q. The problem of revising probability estimates in response to new information*, do you… A. Not revise (stick to “base rate”, a.k.a. historical “relative frequency”)? B. Ignore base rate (use new information only)? C. Something in between? A. Depends on framing and familiarity of the problem (Gigerenzer et al. 1988). *E.g., You see a picture of your lecturer. What is the probability he was born in Australia? You hear him speak… 9 Different perspectives on a current risk management issue Too many people in the corporate sector are still in denial about climate change, according to Katherine Garrett-Cox, the CEO of investment firm Alliance Trust. Speaking at a Guardian Sustainable Business debate on the role of business in tackling climate change, she said: “Within the last 12 months, I’ve had conversations with CEOs of major corporates in Europe and they just say, ‘It’s not real, it’s not something I should be bothered about’.” It is “scary” how little discussion there is at boardroom level about whether climate change is a risk at all, she added. Emma Howard, The Guardian, 15 January 2016 10 Different perspectives on a current risk management issue, II The greenhouse effect raises the Earth's temperature by about 40ºC above what it would otherwise have been. Without the greenhouse effect the Earth would be locked into a permanent ice-age. This fact gives the lie to those renegade scientists, who in their anxiety to get their hands into the public purse, are seeking to persuade the public that the greenhouse effect is a bad thing greatly to be feared. The reverse is true. The greenhouse effect is an exceedingly good thing, without which those of us who happen to live in Britain would be buried under several hundreds of metres of ice. Hoyle & Wikramasinghe (1999) CCNet http://abob.libs.uga.edu/bobk/ccc/ce120799.html 11 4 Economics to the rescue! Markets and “expected utility” § Allows comparison of options § Includes individual perceptions of value of non-physical (social) aspects How? § Via prices (e.g. how much extra would you pay for: “Organic” food? Non fossil fuel energy? A safer car?) § How much to pay to reduce the expected harm or increase the expected benefit? 12 Economics to the rescue, II When others are affected Are there situations where markets cannot ensure efficient allocation of resources? § Externalities § Common pool resources § Public goods But are these truly exceptions? And is any alternative better? 13 How to deal with risk: 20 th Century perspective This is the way our minds work; we must divide to conquer. Where a complex situation can be dealt with as a whole—if that ever happens—there is no occasion for "thought." Thought in the scientific sense, and analysis, are the same thing. Frank Knight, p 16. RUP. 14  BUSS 5292 Current thinking on risk 代写 5 How to deal with risk: 21 st Century elaboration on conditions, I Decomposition (“divide to conquer”) can simplify a complex problem But that only helps if the parts can be better analysed that the whole 15 How to deal with risk: 21 st Century elaboration on conditions, II Simple methods provide more realistic analysis (more accurate forecasts) for complex uncertain situations than do complex ones Green & Armstrong (2015) 16 How to deal with risk: 21 st Century elaboration on conditions, III Commonly used heuristics (“rules of thumb”) are superior to complex analytical methods for many complex and uncertain situations [Gigerenzer] But whether or not they are superior for a particular type of situation, and whether or not they are superior to simple evidence-based alternative methods …are empirical questions. 17 6 Examples of heuristics • Take the best • Recognition • Simple hiatus rule • Your examples… 18  BUSS 5292 Current thinking on risk 代写 How to deal with risk: 21 st Century elaboration on conditions, IV Are there complex situations that can be best assessed without “thought”? i.e. “intuitions” of the unconcious mind Relevant experience? As “alerts” to possible opportunities and threats?? – i.e. Look again? 19 How to deal with risk: 21 st Century elaboration on conditions, V What about “black swans” and the limitations of induction and predictability? • Inductive turkey vs poor framing • Markets, statistical analysis, and bubbles 20 7 Risk management versus risk avoidance § In a world of scarce resources, resources… and risks, must be allocated § Trade-offs are unavoidable (What are you willing to give up?) § Unintended consequences (costs and risk redistribution) of safety (risk reduction) regulations § No limit to risks that can be imagined, therefore costs § Collectivization of risk vs individual choice, trial & error § Redistribution of resources towards elites See Wildavsky (1979) 21  BUSS 5292 Current thinking on risk 代写