Question

About Risk Perceptions versus Risk Preferences, and Predictably Irrational

1. What lessons should risk professionals draw from these concepts?
2. How can risk professionals combine analytical methods with emotional influence?
3. It is important to know your audience. What is the importance of Risk Perception when attempting to influence decision-makers?

Answer 1

1. Risk perception is basically the perceived value of the risk, as observed by the risk analysers. Risk preference is more about acceptance of certain risks by the users and analysers, based on their level of comfort and feasibility. The risk professionals must make sure that their risk perception must not be based on any kind of pre-conceived notion. The risk professionals must have an unbiased outlook towards risk. After the risk assessment is done and risk perception has been made, the risk professionals must illustrate the risk preference, based on which risk treatment strategy can be developed.

2. Predictive analytics can be used to evaluate the various types of risk, which can impact or influence a system in future. Before considering any future projects, the management of the company uses predictive analytics to estimate the risk proneness for a project. Based on the results of the analysis, the project for the company is selected. The management, then tries to align the mindset and thought process of the employees with the project at hand, using emotional influence. The management highlights the benefits which the employees can gain, from successful implementation of the project. The analytical methods long with the emotional influence helps in successful acceptance and implementation of the project by the company.

3. Having an understanding about the audiences in the decision making panel is quite critical . This is so because the risk perception of each decision maker will be quite different from the other. Hence risk professionals conduct a thorough analysis of the decision makers and then try to project the risk so that it gets a favourable risk perception in their minds. The risk acceptance by the decision makers would help the risk professional to gain approval as well as capital for implementing the mitigation strategies in the project, quite readily.