5.5 Risk perception

Question 1

What challenges are faced by organisations when estimating their risk exposure accurately?

Answer 1

• choice of statistical model
• assumptions made
• reliability and completeness of underlying data
• difficulty of quantifying certain risks, such as reputation
• personal biases when reviewing models

Question 2

U_________________ risk is risk that cannot be measured using conventional statistical methods.

Answer 2

Unquantifiable

Question 3

Ashby sets out 6 common perception issues that affect an individual’s reading of risks:

1 C_______ - reduced perception were a person chooses the risks they take.

2 C______ - people are more willing to take risks the believe they control, but they often overestimate the extent of control.

3 F___________ - If someone is used to living with a certain risk, they are more likely to accept it.

4 D_______ risks - the further a risk is in the future, the more willing people are to accept it.

5 M____ - risks ignored by the media are often not seen as important.

6 R_________ - “Act of God” versus human-made risks are perceived differently.

Answer 3

1 Choice
2 Control
3 Familiarity
4 Distant risk
5 Media
6 Randomness

Question 4

What is “cognitive bias”?

Answer 4

An influencing factor causing someone’s judgement to deviate from a norm or rationality.

Question 5

Ashby outlines 4 types of cognitive bias. What is group-think bias?

Answer 5

Individual decision makers strive for group consensus over alternative view points.

Question 6

Ashby outlines 4 types of cognitive bias. What is authority bias?

Answer 6

A senior member’s view point overrules the viewpoints of others.

Question 7

Ashby outlines 4 types of cognitive bias. What is status quo bias?

Answer 7

Bias favouring the preservation of the current state.

Question 8

Ashby outlines 4 types of cognitive bias. What is myopia bias?

Answer 8

An increased focus on smaller and less impactful risks at the expense of more strategic and impactful risks.