Risk Management Kills
It seems a noble goal of risk management to not only help an organization to survive large losses, but also to save lives. Unfortunately, human beings are not always good at judging risk, especially where death is involved. Risk management can kill you.
Of course, death by risk management is not a catchy headline.
Shark attack, however, is a great headline.
This summer the press picked up the story of two shark attacks in the same day in North Carolina. The risk managers of the world leapt into action. One news story covered one agency that is patrolling the beaches of the Carolinas with drones.
So what could possibly be wrong with pouring resources into the prevention of shark attacks?
Christopher Ingraham of the Washington Post published an excellent blog, “The animals that are most likely to kill you this summer.” In it he showed the statistics from the Centers for Disease Control on death by several animals.
It turns out that, on average, one person per year is killed by a shark. Twenty people per year are killed by cows, and 52 are killed by deer (excluding car accidents!)
Unfortunately, human beings are not always good at judging risk, especially where death is involved. Risk management can kill you.
I looked, but could not find any governmental agency monitoring murderous deer via drone. In fact, it is hard to imagine someone shouting “DEER!” and hordes of people running from the park screaming and dragging their children to safety like a scene from the movie Jaws.
The truly interesting thing about Mr.Ingraham’s article was how readers reacted. Most felt that he had twisted the facts and was “lying with statistics.” He was not.
The reason readers felt that his statistics had to be false was because of something called cognitive bias. A cognitive bias is like a bug in a computer program, only it affects how our brain processes probabilities around outcomes where risk and reward are involved.
The specific cognitive bias involved here (there are over 200 of them) is called availability bias.
Here is how it works: If a person is asked to judge which is more likely to occur — death by shark attack or death by deer attack — their brain starts searching for memories of these events. Whichever event can be called up first is deemed as being more likely. In this case, it is almost impossible to image a murderous deer pouncing on its unexpected victim. So the brain decides quickly and subconsciously that shark attack must be the more likely event.
After the 9/11 attacks, people were bombarded with images of the planes smashing into the Twin Towers. As a result, the most available risk in their minds was a plane crash.
In order to avoid the risk of death by plane crash, many people chose to drive instead of fly. As a result, auto deaths increased by well over 3,000.
In the end, the seemingly prudent choice to drive instead of fly killed more people than the 9/11 attacks.
In other words, risk avoidance killed more people than the terrorists.