BUSS 5292 Current thinking on risk 代写

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  • 1  BUSS 5292 Current thinking on risk 代写
    Risk Management
    BUSS 5292
    Topic 2
    Current thinking on risk:
    Implications for managers
    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.
    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”)
    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
    Renn (p.54, 1998)
    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
    § What implications for risk management?
    § Costs vs benefits of efforts to accommodate
    diverse perceptions?
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    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
    *On which, more later.
    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…
    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
    Emma Howard, The Guardian, 15 January 2016
    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
    Hoyle & Wikramasinghe (1999) CCNet
    Economics to the rescue!
    Markets and “expected utility”
    § Allows comparison of options
    § Includes individual perceptions of value of
    non-physical (social) aspects
    § 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?
    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?
    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
    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
    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)
    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.
    Examples of heuristics
    • Take the best
    • Recognition
    • Simple hiatus rule
    • Your examples…
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    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?
    How to deal with risk:
    21 st Century elaboration on conditions, V
    What about “black swans” and the
    limitations of induction and
    • Inductive turkey vs poor framing
    • Markets, statistical analysis, and
    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)
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