Risky business: the five things that keep me awake at night
RISK is an inevitable fact of life. Every day we evaluate – consciously and unconsciously – all kinds of risks, from investment decisions and career changes to whether or not to overtake another car or make a tackle on the playing field. We weigh up the chances of things working out well and things working out badly.
We humans should be quite good at this because, unlike all other creatures, we have a capacity for rational thought. But our capacity for assessing risks in the things we do is often quite poor. One reason it because we are prone to all sorts of biases.
Entrepreneurs, for instance, tend towards optimism bias, often projecting revenues and profits to be higher than they turn out to be. Bureaucrats, on the other hand, tend to be risk-averse, often preferring inaction over action because supporting an action that goes wrong can damage career advancement more than doing nothing.
Another reason we can be poor at evaluating risk is because we don’t understand the dynamics and processes we are weighing up, or think we understand them better than we actually do.
Collective understanding of complex human systems – such as economies, polities and financial systems – is particularly poor, despite there being large numbers of people who spend their professional lives trying to understand them.
Examples abound. Almost nobody – at home or abroad – foresaw the scale of the meltdown of the Irish economy, despite the obvious risks and precedents. The unprecedented nature of the global financial earthquake that struck in 2008 illustrated both an intellectual failure and a failure of imagination – just because something has not happened before does not mean it can never happen.
Political events, such as the collapse of communism and uprisings in some Arab countries in more recent years, were unpredicted by people whose job it was to predict such things, including diplomats and intelligence analysts.
But because assessing risk is inherently difficult and there will always be “unknown unknowns” that cannot be predicted, that does not mean governments should not think about what could go wrong, what can be done to reduce the chances of bad things happening and how to be best prepared to limit the damage if they do happen. It is, after all, a state’s first duty to provide security for its citizens.
It is in that context, and having learnt the lessons of officialdom’s dismissing of the risks associated with the construction/credit/property frenzy, that the Government will publish its first comprehensive National Risk Assessment document next month. In so doing, Ireland will join a growing number of countries that are creating structures to assess the risks they face that go beyond the traditional security threats, such as military invasion or terrorist attacks.