What is Risk?

1. What is Risk? Paul Beninger Spring 2012

2. A Multi-faceted View of Risk and Risk Communication

3. Disclaimers • Personal reflections • Not a comprehensive survey of ideas • Focus on a few themes described by others • Not necessarily representative of Genzyme

4. Definition • Risk < Fr risque < It risco • Possibility of suffering harm or loss; danger. • A factor or element involving uncertain danger; a hazard. • Broader (more recent) scope • inclusion of opportunity

5. Themes I • Perspectives on Risk • Mathematics & Economics • Psychological and Social Sciences • Cultural Sciences

6. Mathematics & Economics Peter Bernstein (1996)

7. Peter Bernstein Against the Gods (1996) • Antiquity • Past – Present | Future • Future: domain of oracles • Greeks • Sought their wisdom from oracles • Believed that future was determined by the Fates • Clotho, who spun the web of life • Lachesis, who measured its length • Atropos, who cut it • Modernity • Mastery of risk • Past – Present – Future • Future: at the service of the present

8. Divination • Desire to receive direct divine guidance for prediction by supernatural means of future events and interpretation of past occurrences • Natural • Dreams, prophecy by oracle or ecstasy • Artificial • Animate: birds (augury), entrails (haruspicy), involuntary movements (seizures) • Inanimate: incense, egg shells, casting lots, astrology

9. Antiquity • “Dice” < ME < Latin: dare – to give • “Astragalus” < Greek: ankle bone, dice • Egypt (3500 BCE) • “Hazard” < Arabic: al zahr – dice

10. Antiquity • “0” • Cipher < Arabic: cifr < Hindu: sunya • Abacus • < Greek: abax – sand-tray • Calculate • < Latin: calculus - pebble

11. Modernity • 1494: Paccioli • Double entry bookkeeping • How to divide the stakes in an unfinished game. • 1545: Cardano: 1/6 x 1/6 = 1/36 • Liber de Ludo Aleae • 1650: Pascal’s “Triangle” • coefficients to (a+b)n

12. Pascal’s Triangle 11 11 2 11 3 3 11 4 6 4 11 5 10 10 5 11 6 15 20 15 6 11 7 21 35 35 21 7 11 8 28 56 70 56 28 8 1 Khayyam (1100); Yanghui (1303); Pascal (1655)

13. Modernity • 1700’s: • J Bernoulli • sampling data and making inferences • certainty equivalent: utility of incremental wealth inversely proportionate to wealth already possessed • Leibnitz: the importance of uncertainty • “Nature has established patterns originating in the return of events, but only for the most part.” • de Moivre: normal distribution

14. Modernity • 20th Century • Franklin Knight: Risk, Uncertainty and Profit (1921) • If you don’t know for sure what will happen, but you know the odds, that’s risk • If you don’t even know the odds, that’s uncertainty • Primary Uncertainty: the unknown unknowns • Secondary Uncertainty: the known unknowns

15. The final frontier… There are things we know we know. We also know there are known unknowns: We know there are some things we do not know. But there are also unknown unknowns:   The ones we don’t know we don’t know. Donald Rumsfeld

16. Modernity • 20th Century • Kenneth Arrow [father of Risk Management] • How we make decisions under conditions of uncertainty and how we live with those decisions; “clouds of vagueness” • John von Neumann • Game theory • Certainty equivalent (Bernoulli) is akin to risk aversion • Chaos theory • “non-linearity”: results are not proportionate to the cause • “butterfly effect”

17. Risk Communication • Historical Notes • 1960’s: anti-establishment tones; e.g., • Rachael Carson: Silent Spring (’62), DDT • Paul Ehrlich: The Population Bomb (’68) • Barry Commoner: The Closing Circle (’71) • Natural Resources Defense Council (‘70) • Innovations • Public appeal • Use of public medium – television

18. Psychological & Social Sciences Peter Sandman (1993)

19. Science of Risk Management Risk = Impact x Probability

20. Peter SandmanResponding to Community Outrage (1993) Risk = Hazard + Outrage

21. Risk = Hazard + Outrage • Hazard: science/probability • Quantification assigned by the “experts” • Outrage: all other factors ignored by the “experts” • Circumstances identified by the “public”

22. Importance of Outrage • Risk = Hazard + Outrage • Outrage • As real as hazard • As measurable as hazard • As much a part of risk as hazard • As manageable as hazard

23. 12 Independent Components of Outrage

24. Examples

25. Build Trust • History • Hard to build up, easy to tear down • Intent • Transparent, honest • Quality of information • Value added, complete • Judgment • Open, objective, fair • Delivery on promises • Follow through, timely

26. Responsive Process • Components • Open, and not secretive • Proactive vs waiting for FOIA • Apologetic, and not defensive • Admission, contrition, compensation, penance • Courteous, and not arrogant • Shared values, and not confrontational • Compassionate, and not technical • Anecdote vs facts

27. The Role of Outrage • People care more about outrage than about hazard • Rationale • We all die • We are interested in how we are treated along the way • High outrage is high risk • High outrage motivates action

28. Goals of Risk Communication in a High Outrage Situation • Reduce the outrage • Acknowledge the bad news • Share information • Share control • Share benefits fairly • Apologize

29. Robert Fulghum* (1986) • Share • Play fair • Clean up after your own mess • Say you’re sorry • *Everything I Know I Learned in Kindergarten

30. Be proactive • Develop trust • Anticipate issues • Be open and courteous • Communicate feelings more than facts

31. Cultural Sciences Douglas & Wildavsky (1983) Schwarz & Thompson (1990) John Adams (1995)

32. Patterns in Uncertainty • Douglas & Wildavsky (1983) • Beliefs about humankind’s place in nature • Risk is culturally constructed • 4 myths • Nature benign • Nature ephemeral • Nature perverse/tolerant • Nature capricious

33. Nature benign • Predictable, bountiful, robust, stable, forgiving • Nature is the benign context of human activity, not something that needs to be managed, especially by government regulations • Management style: non-interventionist, laissez-faire

34. Nature ephemeral • Fragile, delicate, precarious, unforgiving • Nature is in danger of being provoked by human carelessness into catastrophic collapse; government controls needed • Management style: precautionary principle

35. Precautionary Principle • The 1998 Wingspread Statement on the Precautionary Principle summarizes the principle this way: • “When an activity raises threats of harm to the environment or human health, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically.” • All statements of the Precautionary Principle contain a version of this formula: • When the health of humans and the environment is at stake, it may not be necessary to wait for scientific certainty to take protective action. • "Be careful." "Better safe than sorry." "Look before you leap." "First do no harm."

36. Nature perverse/tolerant • Within limits, nature can be relied upon to behave predictably • Regulation is required to prevent major excesses, while leaving the system to manage itself in minor matters • Management style: interventionist

37. Nature capricious • Nature is unpredictable • Nature is beyond our control • Management style: what will be, will be

38. Schwarz & Thompson (1990) • Relationships • Individual vs Collectivist • “Choosing” behaviors • Prescribed Behaviors vs Freedom to Choose

39. Patterns The Fatalist The Hierarchist The Individualist The Egalitarian Prescribed Behavior Individual Collective Freedom to Choose

40. The Fatalist • Little or no control over one’s own decisions • Does not belong to groups that make decisions about others • Accepts fate and sees no point in changing it

41. The Hierarchist • Lives in a world that imposes strong group boundaries and binding instructions for behavior • Social relationships are hierarchical

42. The Individualist • Self-made • Drives to control one’s own environment and the people in it • Success is measured by wealth and influence/power over other people

43. The Egalitarian • Strong group loyalties • Respect for the rules of nature • Democratic decision making • Leadership rule by charisma

44. John Adams Risk (1995) Prescribed Behavior Nature Capricious The Fatalist Nature Perverse/tolerant The Hierarchist Collective Individual Nature Benign The Individualist Nature Ephemeral The Egalitarian Freedom to Choose

45. How might risk be better managed?It depends upon the perspective. • Fatalist • We cannot manage risk better; life is unpredictable. • Insights • The only law is that there is no law. (John Wheeler) • It may well be better to be dead than confronted with the daily toll of man’s irrationality. (Norman Dixon) • Efforts by risk managers to measure our fates are futile. (Richard Feynman)

46. How might risk be better managed?It depends upon the perspective. • Hierarchist • “More research” and “More regulation” • Insights • Belief in the quantifiability of risk • Principle effort of intervention is not reduction of risk, but redistribution

47. How might risk be better managed?It depends upon the perspective. • Individualist • Devolution of responsibility from bureaucracy to the individual • Insights • Greater interest in rewards of risk-taking • Champions free markets • Espouses a trial-and-error approach to life

48. How might risk be better managed?It depends upon the perspective. • Egalitarian • More caution and cooperation • Insights • Redress current injustices • Impossibility of value-free science • Applies the precautionary principle • Genuine efforts to reduce the risk

49. Quotes • Carson • Man's attitude toward nature is today critically important simply because we have now acquired a fateful power to alter and destroy nature. But man is a part of nature, and his war against nature is inevitably a war against himself…[We are] challenged as mankind has never been challenged before to prove our maturity and our mastery, not of nature, but of ourselves. • Commoner • The first law of ecology is that everything is related to everything else.

50. Cultural model: fruitful tensions • The 4 models cannot be persuaded to agree • The 4 models should not be persuaded to agree. • Each possesses a small window on the truth • The importance of the “loyal opposition” • Each curbs the excesses of the other 3