Risk Management

Catching the Wind: How to Understand Risk Perception

Getting a handle on how stakeholders and employees view risk is difficult, but there are ways to come close.
Rick JonesNovember 17, 2011

The world of reality TV recently spawned a corporate offering. Undercover Boss features the captains of leading service industries who spend a week disguised as frontline trainees in order to learn about the nitty-gritty of their companies’ operational details from a new perspective. At the same time, the show illustrates how the employees’ perceptions change after they discover that the new employee they were working with was actually the boss.

In the face of a clear epiphany in understanding – or misunderstanding – a situation, we can expect people’s perceptions to change. But changing people’s perceptions in our day-to-day and less manipulated reality is seldom as simple as an experiment played out in a one-hour TV show. And it can be an even harder task when it comes to understanding people’s perceptions of risk.

Risk perception is the subjective nature of how we interpret uncertainty in what we experience. As with preferences for clothes and views on the world, people have different risk perceptions. Different people react differently to the same situation, the same information, or the same doubt or uncertainty.

Our ability to perceive risk is, in part, what separates us from the rest of the animal kingdom, and it can be a powerful risk management ally or foe. Understanding the drivers of risk perception can help you manage and perhaps utilize this volatile, powerful, and purely human characteristic. Here is a short list of items you can use as a checklist to gauge the risk perception of potential events, products, and even information that you may communicate about your business.

Media. Social media has given news-reporting opportunities to anyone with a mobile phone. The rapid, unfiltered, and prolific nature of event reporting from this medium is a double-edged sword that cannot be ignored.

Technology. The more esoteric, unfamiliar, and complex an activity, technology, or process is, the more risky it will appear to people. In addition, the degree of public trust in the company behind a product or service will influence its consumer acceptability.

Control. It’s commonly accepted that people perceive lower risks for activities where they believe they have a degree of control. In other words, the higher the degree of control they have, the lower the perceived risk. Driving a car, driving a motorcycle, drinking alcoholic beverages, and even smoking are risks that people perceive they can control at some level. These are also voluntary acts, which have lower risk perception levels. More personally uncontrolled, involuntary acts — such as having a chemical plant built near your home — are experiences where people often perceive higher risks.

Time. When are the effects of the behavior or event (both the benefits and costs) experienced? For example, if you drive a car and choose not to wear a seat belt, the effects can be observed immediately. However, you can experience the “benefits” of smoking for years before you experience any disease. How many people do you think would smoke if the health effects were immediate instead of delayed?

This short list is helpful for understanding some risk perception attributes and is just the beginning. Another way to get a handle on the concept is through the long-studied phenomenon of phantom pain. Pains perceived coming from the removed limbs of amputee patients were first documented in the 16th century, but no successful treatment was ever identified. While sufferers have a series of pain-relief measures at their disposal today, they may also see a cure at some point. This new treatment comes from the use of simple, low-tech mirrors. Patients are shown images of their healthy limb, giving the brain the illusion of seeing it still in place. In some cases, this treatment has resulted in almost instant pain relief.

Neurologists theorize that neurons controlling pain sensation in the amputated areas have been turned “on” from the trauma. With the nerve receptors severed, the brain receives no direct, nerve-transmitted information to turn the pain sensors “off,” and so the pain persists. The mirror therapy provides the brain additional, visually received information indicating that all is well, and that perception somehow turns the pain neurons off. Recurrent treatments are needed, but the treatment protocol is showing promising success.

Our perceptions are more complex than nerve on-off switches, but the medical example can help us understand the elusive nature of risk perception. We maintain a risk perception based on the information we’ve previously received, and that perception remains until we receive new data. And even then, the new data may be insufficient to alter our view or behavior.

We choose our actions and develop opinions based on our view of reality, never knowing for sure that what we perceive is actually real or complete. But these weaknesses often don’t translate into views that are easy to change. Risk perceptions are invisible and unpredictable. And trying to alter this aspect of human behavior can be as difficult as trying to catch the wind.

The short list above can help you understand how people react to future’s uncertainty, but changing or maintaining their perceptions can require more than data, facts, and information. This is a challenge that demands a lot of talent and skill, and more than a little patience. American writer and Civil War soldier Lew Wallace once wrote, “Beauty is altogether in the eye of the beholder.” Extending his thought, I think it is safe to say with certainty that risk perception is in the mind of the perceiver.

Rick Jones has spent the past 30 years applying risk analysis and management techniques to industrial and business problems. He has presented at several conferences and is the author of numerous articles and technical research papers. His third book, 20% Chance of Rain: Exploring the Concept of Risk, was recently published.