{"id":7500,"date":"2019-05-08T16:18:47","date_gmt":"2019-05-08T16:18:47","guid":{"rendered":"https:\/\/www.worxogo.com\/?p=7500"},"modified":"2021-08-10T11:07:28","modified_gmt":"2021-08-10T11:07:28","slug":"risk-decision-making-and-performance","status":"publish","type":"post","link":"https:\/\/worxogo.xogoweb.com\/legacy\/risk-decision-making-and-performance\/","title":{"rendered":"Risk, decision making… and Performance?"},"content":{"rendered":"

The way individuals process risk impacts their performance and consequently the business outcomes they deliver to you.<\/em><\/p>\n

Some people see risk as a way of life while others try to avoid it at all cost. Despite the differences in disposition, the truth is that the way one evaluates risk is subjective, unique and, as science now tells us, heavily influenced<\/a> by that which is not rational.\"\"<\/a> Take the recent instance of the grounding of Boeing 737 Max planes. While two national government bodies – that of the US and EU – had the same information following the devastating crash in Ethiopia in March 2019, both bodies chose to react differently to the situation<\/a>. One halted all 737 Max flights effective immediately, and the other chose to continue operations of the aircraft until more evidence could be uncovered.<\/p>\n

This is because risk perception is subjective. Even for nations!<\/p>\n

Behavioral science tells us that one\u2019s propensity for risk is directly affected by our grasp of the information about a situation and our inherent biases. When the risk-rewards are clear and consequences known, making a choice seems fairly straightforward. But when there is a small element of doubt, some choose to go with their intuition while others end up looking for stronger evidence of danger\/rewards. Add to this mix the irrational aspect of an individual and (Daniel Kahneman Thinking fast and slow<\/a>) decision making grinds to a halt, or worse, goes all wrong. You can read more about the irrationality that characterizes human decision making here.<\/a><\/p>\n

In this post, we\u2019ll focus on the degree of influence of non-rational factors like intuition and heuristics on risk evaluation and the (almost) silver bullet solution that can help overcome the dilemma of choice. Additionally, how it can be (and is) applied to the organization and your team context.<\/p>\n

Intuition and Heuristics: The way we calibrate risks<\/strong><\/h3>\n

In a situation where you are required to evaluate risk – much like the 737 Max incident – every action becomes a choice to either exercise precautionary bias<\/a> – hoping to cut your losses as much as possible – or look to gain better proof\/information to decide.<\/p>\n

Too often individuals rely on \u2018intuition\u2019 or instincts \u2013 which is basically siding with that \u2018inner voice\u2019 telling you to do or not do something.<\/p>\n

And while this is a perfectly okay way to go, \u2018judgment calls\u2019 have severe limitations, as we will find out.<\/p>\n

For starters, in situations where decisions need to follow a set of rules or when expertise is essential, it makes lesser sense to \u2018go with the gut\u2019. You shouldn\u2019t be out on a slope skiing despite an avalanche warning just because the weather \u2018feels alright\u2019. In this situation, you\u2019d be better off abiding by the rules of the activity (and the weather warnings).\"\"<\/a>In other situations where objective criteria for evaluating risks are known but you lack expertise, to get the decisions, it helps to depend on \u2018heuristics\u2019. Heuristics are mental shortcuts we internalize as a result of learning and\/or experiences. An example of heuristics is when you choose to go with a particular financial investment because of the experience you\u2019ve had with comparable investments in the past.<\/p>\n

Heuristics work because they help prioritize and structure information based on your learnings and experiences. It does this by helping you make sense of the information at hand and allowing you to adjust the risk to your appetite in a meaningful way.<\/p>\n

Yet again, it is not a lens through which to view each and every risk-based decision. For one, it is easy to fall for the cognitive illusion<\/a> that heuristics create. There is also always that chance that you are unable to retrieve instances<\/a> on which to base the current one. Being aware of the cost of heuristics sure helps get a better sense of your exposure to risk, but then what does one do when neither heuristics nor intuition can be effectively relied on? What does one do in the face of doubt? How does one effectively embrace the risk without being irrational about it?<\/p>\n

The dilemma of choice<\/strong>\"\"<\/a><\/h3>\n

Nowhere else is this feeling of doubt and confusion more apparent than in an organization today.<\/p>\n

It is not uncommon to see employees, especially, feeling frazzled when faced with decisions on their jobs (Think of a sales rep and her or his daily tasks). This happens mostly because of<\/p>\n