Psychology of Risk Taking Behavior

Author: Rüdiger M. Trimpop

The topic – how the psychology of risk-taking behavior works – is split into questions.

Research implications of a motivation for risks

Is there a Personality Factor when taking risks?

The sample of people does not exist out of professional risk takers (soldiers, fire brigade, police, civil protection, stuntmen, race car drivers, …) but mainly of young white men and university students from a medium-sized Canadian city.

Evidence for a general risk-taking personality trait, statistically significant, was not as strong as some theories predicted. This may be due to the sample, but most theories had comparable samples, resulting in doubt that the level of influence that personality traits may have on risk taking.

The conclusion is that risk factors of personality traits play an important role in the risk-taking behavior, but that their role is less important than that of situational factors. The results have important implications for risk-taking research and for safety measures (eg Task-specific selection and risk training).

What is our motive for looking for risks?

Most theories of expected utility considered no emotional, nor physiological components, of the positive aspects of risk taking, nor the importance of non-materialistic rewards. The RHT (Risk Homeostasis Theory) also does not regard risk (taking) as something one can desire or a pleasant undertaking, but as a purely extrinsically motivated activity with risk tolerance. However, people look for intrinsic as well as extrinsic rewards. E.g. therefore also pleasant emotions and pleasant excitement. The literature on emotion, motivation and the interpretation of such studies suggest that these factors are more effective for adressing of motivations for risky or safe behavior than important rewards, which (the latter: rewards) one obtains with more focused behavior.

The tests also postulated that the subjects generally test their limits, try their luck and risk their chances by taking risks. Nobody took a completely safe course, everyone followed some too risky reactions. This explains the intrinsic need, desire and motivation of the subjects to take risks. However, the differences between where, how and how much risk they want are large.

The conclusion is that people feel intrinsic reward for taking risks, such as hormonal pleasure experiences, stimulation of a physiological pleasure center, emotional pleasure, the experience of small differences between the desired – and the target level of risk, of the unity of action-oriented – and targeted risk-taking behavior. We therefore take risks for both the intrinsic pleasure and the extrinsically favorable benefits.

The power of incentives

Risk motivation theory (RMT) and Risk Homeostasis Theory (RHT) both state that incentives for safe behavior are a powerful motive for reducing risk-taking trends. Changes in the risk content of a situation will lead to a higher involved control and therefore to compensation behavior. Externally introduced safety benefits are virtually canceled out. External incentives for safety also manipulate the intrinsic motivation of subjects by changing the desired target level of a risk. The target level of a risk is influenced by a higher advantage of safe behavior and higher cost of risky behavior, so the subject chooses a less risky strategy.

An additional finding is that target levels are constantly adjusted according to the perception of the risk level of the subjects.

This suggests that incentives should be used for safer behavior. Social rewards are stronger than financial ones. Social incentives are more likely to trigger intrinsic motivation. The data also suggests that incentives work better than punishments to stimulate safe behavior. So “Fame” works stronger than “Fortune” or “Pain”.

This also applies to phobias: people with a phobia keep their behavior until an alternative behavior is realized that is more rewarding than the avoidance behavior with regard to feelings such as fear.

Whether incentives work most effectively on a physical, economic or social level, or if being presented as conditional for good performance or rather as opportunities in a lottery, can depend on the individual, the situation, or the culture and is worth further investigation.

How can we master and control our risk motivation?

People strive for increasing control and we adjust our behavior according to the situation / needs, even when the perception of that control is an illusion. When a situation or an illusion of a situation with more uncertainty and unfamiliarity presents itself, we become more careful, until a less risky situation presents itself.

In gambling, such as throwing a die with a 50% chance of the outcome of three or less versus a result of four or more, many engaged in some form of superstitious behavior, such as throwing harder for higher numbers, or e.g. systematically gambling for low numbers after a few times high numbers. Or assigning their success to the previous course of the day, their happiness in love, the moment of the day, etc.

Most people do not realistically perceive their own situation, but have a positively colored illusion about themselves, their skills, and their ability to control the environment. Such findings confirm the importance of involving individual perceptions of personal control, even illusory, when analyzing risk-taking behavior. They show that the perception of control, or lack of control, leads to corresponding risky or safe behavior. “Don’t worry, I’ve got it all under control” is a famous final phrase just before an accident. Giving the feeling of control with seat belts, ABS, four-wheel drive and helmets, etc., therefore leads people to riskier, ill-considered, or even careless behavior.

How do we compensate for perceived risks?

An important underlying assumption of Risk Homeostasis Theory (RHT) and Risk Motivation Theory (RMT) is the behavioral compensation for observed changes in risk content. People show compensation behavior to reduce a difference between their perceived and their desired level of risk. The risk-taking strategy variable DFO (Deviation from Optimal Response Pattern) also showed these behavioral shifts as a result of changes in the probability of punishment. This was predicted by the RMT, which states that each change results in a new perception and the target level of risk reset.

What distinguishes RMT from RHT?

RMT is based on RHT with its compensation behavior feedback loop for perceived difference between desired level and target level of risk. RHT, on the other hand, does not take into account the frequent, continuously shifting target levels of risk nor the risk-seeking tendency of people.

RMT is an extension of RHT by stating that physiological and emotional processes undergo the same compensation functions as the rational cognitive processes on which the RHT primarily focuses.

RMT states that people take risks for intrinsic rewards associated with performing risky activities, and that this process also has a compensation feedback loop.

All in all, the RMT extends the RHT with the following:

  1. a) Postulating multi-target levels of risk that require constant compensation and may never achieve a homeostatic controlled risk optimum.
  2. b) The strong emphasis on individual motivation processes, rather than collective behavior of a larger population.
  3. c) The importance of emotional and physiological aspects in the assessment and evaluation of risk-taking behavior.
  4. d) The addition of action-oriented rewards (desire for risk) to the goal-oriented rewards (risk tolerance).

Can we describe risk-taking behavior holistically?

The big difference between the RMT and other theories is that it combines many facets of risk taking in a single holistic model. It takes into account the desire to take risks, as well as the desire to control it. It involves processes that do not consciously take place, such as physiological and basic emotional processes. RMT emphasizes emotional, physiological and cognitive aspects of risk-taking, and a behavioral compensation feedback loop, designed and developed to optimize the overarching benefits of risk-taking.

The components of the ‘Risk Motivation Theory’ (RMT)

Implications of a Risk Motivation for the “Real Life”

Although it seems obvious that people are more cautious when there is great danger, this theory also implies that people voluntarily increase their exposure to danger when the perceived risk is low. This has implications for industry, traffic, health issues, and personal life. The findings teach us that if we make the environment safer, people will compensate for this increased safety by taking more risks.

Implications for reducing accidents

This is important for the design of the workplace for the reason of reducing accidents. The less active input an employee has when working with machines, the higher the chance of boredom, too little excitement and therefore compensation with risky behavior. E.g. duels with oil barrels, or races with fork lifts.

That is why it seems important to involve the employees in the design and execution of their job. The amount of responsibility that one experiences is probably proportional to the amount of risk that one experiences. Risk-seeking behavior must therefore be considered if accidents are to be avoided.

Although programs for encouraging safe behavior have some long-term effect, habituation can be expected that people simply get from the (increased) rewards, and after a while they take more risks. It can help to periodically change the nature of the rewards, and make them flexible, tailored to the person’s needs, individual needs and differences, and by using non-material incentives in addition to material ones. Praise and fame often have a greater effect on intrinsic motivation than material rewards.

Security measures, controlled and imposed by the government, may best be used in family circumstances. By learning from childhood safe behavior and rewarding them for displaying risk-conscious behavior, one could be much more effective than changing adult behavior. The same is true for forming the desired behavior of an employee from the start of employment.

Another important factor in risk-taking is risk perception. If a risk is not seen as such as a threat, one cannot respond to it as such. So recognizing danger must be learned and trained, otherwise accidents will happen anyway. An example is the difference in the handbrake-wheel combination in a bicycle compared to a motorcycle. With a bicycle, the right hand brake belongs to the rear wheel. With a motor, it is the front wheel. If this is not known, this will lead to accidents.

The insurmountable desire for challenges in our daily lives

However, one must also realize that no matter how high the reward or punishment may be, most people still take risks. After all, taking risks is important for survival, and is intrinsically and socially rewarded. Instead of eliminating all risks, one should therefore channel into equally risky actions for the individual, but which are less risky for society. E.g. taking risks with a race car are more tolerated than taking the same risks with a truck with toxic waste.

We must therefore try to let people actively choose which risks they take, and limit the situations in which they take them, as well as look for other situations or locations where and when they want to take risks. People must learn to estimate the costs and benefits of this action.

Anticipation of having fun, and the actual experience of emotions and physiological arousal are very intense under risky circumstances. The increased pleasure provides a powerful incentive to sort out situations that can give us that feeling back.

However, how much risk and intensity is still felt by someone as pleasure is subject to situational and personal differences. Testimonials show that the higher the perceived risk, the higher the pleasant excitement, and the higher the amount of energy spent on controlling the hazard. E.g. how much people think, test, buy protection and spend money to control the dangers for public figures on a race track is probably proportional to the danger for the individuals involved.

The effects of illusion of control has potentially important implications. Most of us have the illusion of control, optimism and skills. We may all be at risk to the level that we feel comfortable with. As we overestimate this level, we may all take too high risks. This has consequences for our survival as a species. Namely, if no other factor compensates for this phenomenon, we should have died out already, or this will happen soon.

A personal conclusion from the author

Given the insatiable motivation of people to do more, he hopes that our drive for more risks will be accompanied by a proportionately strong drive to master and control risks and the environment, so that one does not have to take the ultimate risk, just to to know what happens in the hereafter. Perhaps the consequences of taking that risk would ignore the optimum level of the challenge.

Agile Project Management with Kanban

Authors: Eric Brechner; James Waletzky (contributes to a chapter)

The objective of Kanban is to add value to the product or service for the benefit of the customer at all times during the operation of the employees. It is therefore a sort of optimization of the efforts of the team members, for the benefit of basically all parties.
The author (Eric Bechner) writes from his experience as a pioneer of Kanban at Microsoft in the “Xbox engineering team”. From his experience he shows how it could work for other teams.

In the first chapter, the author indicates a hands-on way to convince management that Kanban is a way of managing that fits in well with the way of working in the present time. These arguments are packaged as a letter to management, which can be used almost instantaneously copy-paste, provided that adjustments are made for your organization.

In the second chapter “Kanban quick-start guide” you can get started with Kanban right away. The simple principles of Kanban are explained, so that the learning curve to get started with it is minimal. Of course, as with all management methods, sometimes problems need to be solved, such as bottlenecks or slow progress of things, or things that have an impact on the entire team. To address this, the most common problems are included in the “Troubleshooting” section where the reader can draw on the experience of the authors.

In chapter three, the reader learns Kanban’s management techniques to make time estimates, including how long the project will last. Concepts such as MVP (Minimum Viable Product), Number of tasks required to complete a product, “Task Completion Rate”, “Expected completion date”, “Current Task Estimate”, “Task Add Rate” are introduced … Unfortunately, formulas are always described textually and are not included in formula form, which would benefit some programming.

Chapters four and five respectively deal with the necessary adjustments when switching from the waterfall method or the Scrumm method to Kanban. Since it is generally human to resist change, each chapter at the end provides a “direct” Q&A section for answers to difficult questions from employees.

Chapter six deals with typical things for IT teams, such as “continuous integration”, “continuous publishing” and “continuous deployment” when developing components, apps and services. In addition, the dependence of a team on other teams can determine its own performance.

Chapter seven is about how you use Kanban in large organizations, with hundreds of engineers or more. In addition, interdependencies are even more determining factors for team collaboration.

Chapter eight is about sustained engineering. It has to do with the use of Kanban once the project has been delivered, but aftercare is still needed such as additional bug fixes or stabilization of the application.

The final chapter, chapter nine, looks at other sources and further: what can you improve once you have adopted Kanban? It tells about the use of Kanban in combination with Agile and Lean. It tells about the principles that Kanban uses such as visualization, minimization, “Little’s Law”, “Single Piece Flow”, and “Theory of constraints” and “Drum, Buffer Rope”. In this chapter the author gives tips for further literature on each topic for the reader that is interested in learning more about it.

Natech Risk Assessment and Management – Reducing the risk of Natural-hazard Impact on Hazardous Installations

Authors: Elisabeth Krausmann; Ana Maria Cruz; Ernesto Salzano
The problem that is currently on the rise is that of technical disasters triggered by previous natural disasters or natural events. Examples include frost, heat, drought, rainfall, floods, earthquakes, whether or not combined in tsunamis, lightning strikes, etc.
In an extensive introduction, the authors give a number of examples of what these natural phenomena can do. And that is quite something: ranging from power cuts and pipe breaks, to destruction of storage tanks and explosions. These in turn give rise to an evacuation of the employees of the company, the environment, with or without death toll, as well as a possible enormous economic damage and the stagnation of (parts of) the economic activity in the affected area. It is therefore not for nothing that people want to arm themselves against the even worse domino effects of such events. To this end, these so-called Natech events are studied. To make the world a little safer.
Unfortunately, no two Natech disasters are the same. Although performing risk assessments makes progress in this regard, according to the authors, it remains (for the time being) an impossible task to compare the results of risk assessments. That makes it difficult to prioritize. Yet there are some standard works that the authors regularly refer to, among many other things in their detailed literature lists. Namely the so-called purple book, red book, green book and yellow book from TNO. But perhaps more important for their discussion are the software packages RAPID-N, PANR, the methods of TRAS 310 and TRAS 320, risk curves and ARIPAR-GIS. These contain qualitative, semi-quantitative and quantitative risk assessment modules.
After a number of chapters in which RAPID-N, ARIPAR-GIS and RISKCURVES are illustrated with discussion of the results, two chapters deal respectively with structural (technical) measures and organizational (more administrative) measures.
An innovative framework, which the authors say is worthwhile, was proposed by IRGC and consists of the following five elements:

  1. Risk preassessment: an early warning and “framing” of the risk to provide the problem with a structured definition. Or how it is framed by the various stakeholders and interested parties, and how best to deal with it.
  2. Risk assessment. By combining a scientific risk assessment (of the hazard and the probability of it) combined with a systematic ‘concern’ assessment (of public concerns and perceptions) to form the basis of knowledge for taking subsequent decisions.
  3. Characterization and evaluation: making use of scientific data and a thorough understanding of the societal values ​​affected by the risk to determine whether the risk is acceptable, tolerable (with or without mitigation of the risk as a requirement) or intolerable (unacceptable).
  4. Risk management: all actions and remedies that are necessary to avoid, reduce, share or retain a risk.
  5. Risk communication: how stakeholders and interested parties and society understand the risk and participate in the risk governance process.

The work is, in particular, a piece of “compulsory” reading material for continuity managers and risk managers of large companies that are important for the economic motor of a region or country with large industrial installations. It requires a healthy portion of common sense, but also a sufficient knowledge of process engineering to grasp the storylines. In addition, an open view of a wide range of sciences, technical and non-technical, and of society, is necessary to correctly assess the importance of this work.

Adaptive Business Continuity – A New Approach

Authors: David Lindstedt; Mark Armor
Adaptive Business Continuity wants to blow a new wind through the BCM world. To this end, they throw, among other things, the BIA and the risk assessment overboard. When I read the arguments why they do this, it’s not clear why. After all, if I read the authors’ arguments in Appendix B (the manifesto), then there is the following in B.5.1 page 154:
“Adaptive BC discourses a sequential approach. Continuous value, coupled with the core mission of continuous improvements in response and recovery capabilities, leads to the adoption or a non-linear approach that adjusts to ongoing feedback from all participants. … “.
The manifesto in https://www.adaptivebcp.org/manifesto.php also states that things are becoming increasingly complex:
“How long can an organization without a particular service almost always depend on an integrated combination of factors too numerous to identify and too complex to quantify. Moreover, the changes that result from the exact timing and actual impact of a disaster on a service will dictate different judgments about applicable recovery strategies, priorities, and time. Definitive changes to a service’s holistic “ecosystem” cannot be foreknown. ”

Nobody can deny that the problems are becoming increasingly complex. However, it can be denied that linear problems no longer occur can be denied. That is why I would like to look back at the picture of the full spectrum of possible disasters. I tried to discuss this in a previous blog, at http://www.emannuel.eu/en/artikels/resilience-strikt-genomen-disaster-management-red-ants-gray-rhinos-black-swans-de-verhouding-van-bcm-risico-management-rm-en-crisis-management-cm/ in question 6:

However, when I get the idea of linear issues, difficult or complicated issues and complex issues from the article of http://www.emannuel.eu/en/artikels/herhaalt-de-geschiedenis-zich-of-niet/# then I come to the next figure:

I believe that Traditional BCM has a linear approach. This is extremely suitable for linear issues and systems with a (well) known impact and linearisable systems from the complicated part of the spectrum. The question that remains is whether the arguments of the authors are clear enough to put this linear approach aside. This I deny: the objectives of Adaptive BC are not clearly defined enough to throw traditional BCM overboard here. After all, no arguments are given. The BIA simply refers to an article by Rainer Hübert, the authors of which do not reflect the line of thought.
Mutatis mutandis, I think the argument to drop the risk assessment is a non-argument.
After all, they write:
“Administering a proper risk assessment and implementing the resulting action items may necessitate deep knowledge of actuarial tables, information security, insurance and fraud, state and federal regulations, seismological and meteorological data, and the law. Typical continuity practitioners do not possess such deep kn owledge; those who do are most likely specifically trained as risk managers. Adaptive BC practitioners as such should eliminate the risk assessment from their scope of responsibility. ”
I do not agree with this: a BC manager does not need to be an expert in all these matters. Rather, he / she must be able to know the right experts within the company, gain their trust, facilitate and coach them in order to achieve results. Then making a risk assessment is not hopeless and not unusable. I leave the criticism of the readers to judge a lot of other claims to the detriment of traditional BCM: it is clear that the authors are trying to declare the traditional BCM dead for reasons they unclearly articulate.
Has the Adaptive BC depreciated for me? No, not at all. Because they offer an answer to issues from a different part of the disaster spectrum: possibly, provided that they have a solid foundation, a solution can be distilled here for complicated and complex systems where I think traditional BCM has a harder time answering as follows:

So in my opinion, the time of traditional BCM is not over as long as there are linear issues. In addition, Adaptive BC will have to develop further into a more mature activity, which can claim its own part of the spectrum of disasters, together with monitoring, building scenarios and future scanning. But next to Traditional BCM. Not instead of.
So there is still work to be done.

Managing Outside Pressure – Strategies for Preventing Corporate Disasters

Authors: Matthias Winter; Ulrich Steger

In Chapter 1, the authors offer a historical statement of the Nobel Prize Laureate Economy Friedman from 1962: “In a free society, there is one and only one social responsibility or business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” With that, organizations became dominant in society. But more and more people believe that today the same organizations are causing much of society’s problems. This creates groups of activists and they start to exert pressure. A number of questions follow from this:

  • What is the stakeholder concept and how can they influence organizations?
  • What is the difference between a “transactional” and a “contextual” environment?
  • How do we evaluate the situation from the point of view of the organization?
  • How do we evaluate the situation from the point of view of the activists?

The authors provide answers to these questions in the course of a number of chapters.

The “Stakeholders” can be an extensive number of groups: consumers, customers, competitors, employees, shareholders, environmental organizations, local communities, local authorities, suppliers, special interest groups, owners, the media, the legislature, scientists and researchers, banks, … they all have an interest somewhere in the results and the operation of the organization.
These can be divided into two groups: the transactional environment and the contextual environment: the first has some professional business relationship with the organization. Normally they can negotiate with the management about the rules for the transaction. The contextual environment has no direct market or business relationships.

There are also activists: these can be loosely classified into environmental activists, health-related activists and socially motivated activists. That way they are mainly in the contextual environment. How can they influence an organization? The authors describe this with “Transmission belts”. The first is direct pressure of protest. A second is the search for associates in the transactional group, for example the customers. This impact can cause the organization a financial hangover. They can also find supporters in the contextual environment, for example with the legislator. They can best use both, since the clients can work flexibly in the short term, while the legislator works more decisively with regulations but more in the long term.

In chapter 3 the authors talk about “Corporate Early Awareness Models”. They state that the traditional model of the stakeholder analysis is outdated. After all, a number of things vary over time: the agendas of the various stakeholders, the importance and influence of different groups, how the organization behaves in the sector, and social values. The new analysis models try to make the difference between early identification versus a late intervention. One advantage on the first is that you can avoid the difficult things so that they are no longer relevant. The second means that you as an organization do not waste time and energy on what is not relevant. In addition, it is good to make a distinction between strong and weak situations. Strong situations are best identified early, while weak situations can usually be dealt with later on. The strong situations run the risk of going through the following stages:

  • “concern”
  • “issue”
  • “crisis”
  • “scandal”

Because it can become a “scandal”, it is necessary to intervene quickly. Weak situations do not usually reach this final stage.

To make a difference between a “strong” and “weak” situation in a systematic way, the tool has been proposed by the authors, from the perspective of the organization. This covers the following eight sections:

  • Are the arguments against the issue plausible?
  • Does the issue cause emotion? Is this understandable – visually and touching – to the public?
  • Is the issue media friendly?
  • Are there links with other issues of the organization or of other involved organizations or within the sector?
  • How strong is the “key” activist group?
  • How isolated is the organization?
  • How far have the dynamics of the crisis already developed?
  • How easy is it to find a solution?

To complete their “world view”, however, the organizations also need a picture of the situation through the eyes of the activists. Which factors make the situation “attractive” for them? And for which type of campaigners? For this, the authors brought the activists into four groups along two axes. First: integrating versus polarizing. Do they integrate the role of the business and the public interest in their own system of objectives or not? Integrators place a high priority on developing a productive win-win relationship with the business, while the polarizers simply push through their minds and do not cooperate with the organizations. The second axis shows whether the action group discriminates between organizations within an industry with regard to a genuine or perceived commitment of the organization to environmental issues, health issues or social issues. “Discriminators” look at the progress of the organizations with regard to benchmarks in their sector. The non-discriminators focus on the problems that the organizations and entire industries cause, without distinction between the good guys and the bad guys. These four groups have their own modus operandi.

  • Sharks arbitrarily attack organizations. They are not very organization-specific in their target and are generally harmless to individual organizations.
  • Sea lions are usually even less dangerous for organizations because they tend to only address weak situations and discussions about social values ​​in general.
  • Dolphins focus more on a single situation and work with the organizations to find a win-win solution.
  • The really dangerous activist groups are the orcas. They isolate the organization and humiliate them in public for their sins. They choose symbolic situations and use a lot of symbolism in their campaigns.

The authors’ research shows that most activist groups, but especially orcas and dolphins, have a collection of guidelines for when to engage in a situation.

When a situation meets the requirements of this or a similar list, the danger of a confrontation increases:

  • The campaign must have a clear goal.
  • The issue must be easily understood by the general public.
  • The issue has a symbolic value.
  • The issue has the potential to damage the image of the organization.
  • The opponent is strong enough (no “underdog” effect).
  • The issue can be packed in a campaign in which the public can be involved.
  • There are solutions that are confrontational, not gradual (political concepts, management concepts, product or process concepts, that are competitive in terms of price and quality).
  • There must be a drama element to the campaign to engage the media.

In chapter six the authors give a number of tips and examples of the application of these checklists. A possible template for a signal description of an upcoming issue includes a place for the following questions:

  • What is the issue?
  • Who is affected? (Internal? External?)
  • Who discovered the situation?
  • When did the signals occur?
  • Where did the signals occur?
  • What are the signals that have occurred?
  • Why can this become an issue that is relevant to the organization?

In Chapter 7, the authors present nine cases of issues that occurred, or were to act potentially in the near future at the time, arguing that the model works.

In chapter eight, the authors indicate that the organization always has the choice between two options:

  • Drop the project / action.
  • Carry out the project / action anyway.

In addition, they provide advice in both cases.

A possible template for these tools can be found in the attachment.