UNDERSTANDING AND MANAGING RISK PERCEPTIONS

1. UNDERSTANDING AND MANAGING RISK PERCEPTIONS A/Prof Ian Glendon School of Applied Psychology Griffith University – Gold Coast Quarantine and Market Access Conference Maximising Trade – Minimising Risk Canberra, 24-25 September 2003

2. Increasingly becoming a ‘Risk Society’, characterized by… • Increased quest for cause and effect – greater demands on science • Demand for ever greater safety • Inherent tendency to apportion blame to human agency – e.g., via legislation or insurance

4. However,….. • Nature of risk is problematic • Many different approaches exist, each with their own conceptual basis • Meaning of risk perception differs according to which approach is adopted • Implications for risk management – and for trade risk – also differ for each approach • May seek to compare essentially non-comparable risks

6. Approaches to risk perception First order concepts / approaches Expanded / developed approaches Meta-approaches Technical Economic Rationalist Social Amplification Cultural Theory Psychometric Political (includes trade) Social Constructionist Basic Risk Perception Model Individual Differences Socio-emotional Evolutionary

7. Technical Approach • Risk perception constitutes probability x magnitude • Assumes rationality; utility principle • Seeks “objective” assessment of risk • Reduces risk to checklists & audits • Most appropriate for hazard identification

8. Implications of Technical Approachfor Risk Management Risk management involves reducing risk to measurable components and seeking to impose control measures

9. Possible uses of Technical Approach for Trade Risk • Import Risk Analysis – for specific products and source countries • Assess/rate risks of various countries as trading partners • General level only • As initial filter?

10. Economic Rationalist • Mathematical, statistical, historical • Ignores emotional and developmental aspects • Ignores power, culture, political, etc • Implicit that risk perceptions are universal

11. Implications of Economic Rationalist Approach for Risk Management Risk management assumes that people are rational in the long run – e.g., in response to markets, otherwise that insurance will cover risk transfer

12. Economic Rationalist Approachand Trade Risk Be aware of other factors if adopting this approach: • Cultural • Religious • Political/power relations • Historical alliances • Contemporary expediencies • etc

13. Social Amplification Framework • Risk as a social construct or property of a hazard or event • Risk notions percolate through society • Vague - reflecting elusive nature of risk? • Cannot be scientifically tested

14. Implications of Social Amplification Framework Approach for Risk Management Risk management may involve amplification of, or desensitization to, risk issues by powerful agencies through strategic release of “scientific” information

15. Applying Social Amplification to Trade Risk Selective application of scientific findings to support trading position (e.g. biosecurity, quarantine, inspection, precautionary principle + media, sanctions) Understand interplay between science, politics, economics, media, social attitudes in creating/ amplifying trade risk

16. Cultural Theory • Anthropological – risk perception is a group phenomenon • Risk constructed – similar to Social Amplification • “Grid” (regulation – high/low)and “Group” (strength of allegiance – high/low) dimensions toclassify four types

17. Cultural Theory – Four Types

18. Implications of Cultural Theory for Risk Management Because group attitudes differ, risk information does not impact uniformly Need to understand interests and motivations of each type

19. Application of Cultural Theoryin Trade Risk • Hierarchy = large corporations and government – seek to control trade • Individualists – seek freedom to exploit resources to trade • Egalitarians – selectively disrupt trade • Isolates – seek to destabilize world order

20. Features of Political Approach to Risk Perception • Information overload • Conflicting goals, values, constituencies • Chronic fear of failure • Attribution of superhuman qualities to political agents

21. Implications of Political Approach for Risk Management Risk assessment inherent in all political decision making allows for “practical wisdom” to be applied

22. Application of Political Approach to Trade Risk Endemic conflict between political expediencies and economic pressures, represented e.g., by… • Protectionism – e.g., tariffs, subsidies • Trade sanctions • Bureaucracy • Demonstrations • Cultural barriers Apply “political wisdom” – e.g., use bi-lateral approach in seeking free trade agreement if multi-lateral talks stall

23. Social Constructionist Approach • Risk is continually created, re-created and constructed • Context is complex, non-linear and organizational • Cannot be subjected to full rational or objective analysis • Based on perceptions and assumptions

24. Implications of Social Constructionist Approach for Risk Management Risk management involves recognizing the non-linearity and non-rationality of risk, the complexity of decision making, and the political negotiation of “reality”

25. Social Constructionist Approach and Trade Risk Trading partners seek to appreciate how key elements (perceptions, culture, political structures, etc) affect the other’s position

26. Evolutionary Paradigm • Risk behaviours explained via human pre-history cognitive development • As risk perception is universal, advantages flow from being better at it • Risk perception based on “hard wired” drives – attitudes/ behaviours more appropriate to an earlier period of human pre-history (“brain lag”)

27. Implications of Evolutionary Paradigm for Risk Management Risk management involves understanding the importance of: • Groups • That emotions drive behaviours • That hierarchies are universal

28. Applications of Evolutionary Paradigm to Trade Risk • Identify fundamentals of human behaviour – those that are superordinate to culture • Our brains developed to comprehend individual or group exchange but not the complexities of international trade

30. Some Conclusions • Risk perception can mean many different things • Each of these has different implications for managing risk • All approaches have something to offer the field of trade risk • A combination of approaches is likely to offer the best way forward

31. Thank you