Risk intelligence is our ability to measure the limits of our own knowledge- to be cautious when you don’t know much, and to be confident when, by contrast, you know a lot. People with risk intelligence tend to be on the button in doing things. RI concept is important to important as we are so bad estimating probabilities of risk events and how we can be better at it. We all have skill to apply probabilities in evaluating decisions which can be as simple as purchase of large screen TV to ones which are life threatening involving medical issues. These situations require us to make evaluations in situations of uncertainties, people with poor probability estimates may end up making decisions with devastating consequences.
Classic instance where we can question the risk intelligence of authorities are:
- Security associated with Air travel, each new instance of attack or attempted attack using liquid explosives or plastic explosives results in a knee jerk reaction of authorities asking passengers to take off their shoes and walking through the body scanners or disallow liquid on board and now laptops computers are banned. Though roughly 63% of the passengers are fine with these security precautions and hassle, many other disagree. There are costs apart of ones directly associated to facilities to search the passengers but in form of time spent waiting in queues and productivity loss. There have been around 2000+ deaths due to road fatalities which are caused due to people taking roads to avoid flying. This is a clear win for the bad guys who want security theater to expand.
- Global warming and climate change: Nobody knows precisely how increasing levels of greenhouse gases in the atmosphere will affect the climate across the various regions of the world. Though there is no doubt that the earth is getting warmer, but taking decisions in form of enhanced regulations may back-fire as there is always risk on both sides; inaction can be danger but so can be action. A high ax on carbon emissions would increase the hardship on the people who can least afford it and probably lead to more unemployment and persistence level of poverty. Any rational discussion is often trumped by emotional responses triggered by the Hollywood movies showing images of dramatic climate changes. If we are to contribute to the clause of global warming, we need to have better estimates and to craft policies that are sensitive to the different scenarios.
- Computers are here to save us from ourselves – Really!! During early 1990s lots of risk assessment were passed from Humans to models run by computers who were fed time tested formulas – Fisher Black and Myron Scholes, “quants” teams were setup across the banks for analysis. This led to an ironic situation in early 21th century wall street where wall street hemorrhaged risk intelligence. People who were used to think risk intuitively left the banks and they were replaced by the analysts who were more at home in the world of equations and formulae. This is also one of the important cause of the 2007 GFC. It’s fair to state that greater reliance on IT systems lead to a “de-skilling of the risk process”. We continue to hear news of the electronic systems making trades which were outright incorrect but machine entered into the same till some human trader intervened to stop the bleeding money.
We are aware of IQ and EQ which assess persons’ intelligence and social emotional skills but both these test fail to test people for risk intelligence i.e. their ability to take decisions under uncertainty.
How to measure your RI?
Risk intelligence test are available on site www.projectionpoint.com which would help one gauge how good one is in taking decisions while facing uncertainty.
Tips one can follow to assess the probability of a particular statement being true or false:
- First identify the issue and gather information directly and indirectly a both the situation.
- Next to eack of the information gathered make a assessment the extent to which it could be true.
- Outcome of this process should be a hunch or feeling, the strength of which varies according to belief.
- Lastly translate this feeling into a number that express the degree of certainty.
If you are more interested on this topic you may want to read “Risk Intelligence- How to live with uncertainty” by Dylan Evans.