Risk Insider: Andrew Bent

Assuming Rationality Is Probably Irrational

By: | August 29, 2016 • 3 min read

Andrew Bent is the Manager of the Alberta Energy Regulator’s Enterprise Risk Management Team. He leads the enterprise risk practice for the AER, and supports operational risk management activities. The views expressed in this article are those of the author, and not necessarily of the employer. He can be reached at [email protected]

How often do we assume the people required to make decisions under pressure will do so logically, calmly and in a consistent way?  How often do we design critical risk controls and processes that require a rational, thinking mind to execute them?  How often do we get surprised when this doesn’t happen?

The answer: probably more often than we should.

Let’s imagine for a moment that we wanted to model the behaviour of a pinball as it rocketed around the table. In theory, you could predict how the ball would bounce off the flippers, bumpers and spinners using not much more than basic high school physics and math.

In reality, each interaction of the ball with a table component creates a dizzying array of input variables for the next interaction. We would likely throw up our hands in despair and proclaim that the movement of the ball was beyond our ability to model with any degree of certainty.

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Yet, if you watched a pinball wizard at work you would see that it is exactly their mastery of these interactions that makes them so effective – a flick here, a bump there, and the unpredictably of the balls seems to have vastly diminished.

So how does this relate to our opening questions? It comes down to our willingness to truly understand the complexity in our systems, including the effect of irrational decision making by those people we entrust with our organizational resources.   The challenge for the risk manager if they try to model irrational behaviour is often incredibly complex – far more so than the modelling of a pinball.

So what do we do? We ignore the abundance of evidence that shows people don’t always make logical decisions (or at least decisions that are logical from the organization’s point of view) and assume instead that they will.

For example, economic theory tells us that it is illogical to expand resources beyond the value of the benefit you will obtain from the use of those resources – but how many of us have spent 45 minutes on hold to argue about a $5 charge?

How many of us have an irrational fear of spiders (or swans) that drives us to make irrational decisions? All of which raises the important question: is it irrational to assume rationality in our risk management activities?

It comes down to our willingness to truly understand the complexity in our systems, including the effect of irrational decision making by those people we entrust with our organizational resources.

As risk managers it is important that we have these conversations with our organizations. While it isn’t always easy, we have an obligation to highlight all of the potential failure mechanisms that can cause harm to our organizations, our communities or our environment.

By recognizing that people can be both rational and irrational, we can help to improve the design and effectiveness of our risk treatments. Who knows – this approach may just help improve the bottom line too if it helps manage situations that have hit the up-kicker.

The views expressed in this article are those of the author, and not necessarily of their employer.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]