Statistics, Psychology and the Risk Paradox
Are We Afraid of the Wrong Things?
Prof. Dr. Ortwin Renn [Universität Stuttgart]15.12.2015, 16:26
New technologies, sophisticated mathematical models and increasingly comprehensive statistical surveys have brought – and continue to bring – huge advances in our understanding of risk management. Ultimately, however, only human beings can use these to draw the right conclusions. Nonetheless, the evidence suggests that our assessments of risk are often inappropriate and not very rational. We overestimate many fairly minor risks and underestimate severe threats. Why is this the case, and what can we do to counter this risk paradox?
Europe 6,000 years ago: three representatives of the Homo sapiens species are sitting outside their cave, talking. "We have perfectly clean water," says the first. "Yes," agrees the second, "we eat purely natural food and don't have stressful jobs." "That's true," muses the third, "and this all sounds idyllic, but we won't live more than 30 years." Today, on the other hand, average life expectancy in Germany is 86 years for women and 82 years for men. This extremely positive trend can largely be attributed to four factors: a healthy and balanced diet, medical and technological advances, relatively good welfare provision, and high standards of hygiene. These factors alone account for the fact that the risks to life and health have steadily declined for decades and continue to do so.
Has life not become riskier?
Nonetheless, the latest surveys reveal how most Germans are convinced that our lives are becoming increasingly hazardous and risky. Is it not the case that new food scandals and environmental disasters occur with growing frequency, that more and more people are being threatened by modern technology and that their health is being endangered by environmental pollution? The answer to this question is categorically 'no'.
Let's take just one example. The latest statistics show that 26,000 out of every 100,000 Germans die of cancer. Cancer is therefore the most common cause of death for people in Germany under the age of 70. The immediate cause of this disease for 11,000 out of the 26,000 people who die of it is highly likely to be smoking or an unhealthy diet (in other words obesity). By contrast, the general medical opinion is that only 26 cases of cancer (with a confidence interval of roughly 0 to 120) can be attributed to residual pesticides or chemical preservatives in food. Some environmental organisations believe these figures are too low and reckon there are up to 240 such cases for every 100,000 people. Even this is still a vanishingly small number. Nonetheless, Germans polled on this subject cite residual pesticides as one of the greatest current health risks. The Swiss consider these to be the most important risk to life – ahead of even car accidents and smoking. By contrast, an unbalanced diet, lack of exercise, alcohol consumption and smoking – the four factors to which far more than half of all premature deaths in Germany can be attributed – figure hardly at all in the popular perception of risk.
How can this phenomenon be explained? Why do we fear hazards and risks which, according to the best scientific evidence, inflict little harm, and why at the same time do we close our eyes to – or, through our behaviour, largely ignore – risks that pose a significant threat? The plethora of media reports on the dangers of genetically modified food – to stay with this specific example – is one of the relevant causes. Given the huge coverage of robberies and violent crime in the media, most Germans believe that crime is constantly on the rise. In actual fact, the opposite is true. If we wanted to overstate this case a little, we could say that these misjudgements can have tragic consequences – so that, for example, elderly people in particular hardly ever leave their homes for fear of being attacked, thereby significantly increasing their risk of falling ill owing to lack of exercise.
A further explanation for this incorrect perception of risk is that the media are making us into constant eyewitnesses of anything that goes wrong. And human beings have learned – over the many millennia of their evolution – to interpret anything unsettling as a potential threat if it is in close proximity to them in terms of time or space. If this obvious, proximate factor is then classified as threatening by experts, we have soon made up our minds. Anyone who regularly suffers from headaches and lives near a mobile phone mast has usually already identified the cause even before their first doctor's appointment.
This direct-causality mentality was extremely helpful in the past, for example, in identifying stalking sabre-toothed tigers as a threat and escaping to safety in time. However, it is more of a hindrance to identifying the complex risks that are prevalent today. Obvious, proximate causes are often the wrong ones in our modern-day risk reality. This is because hazards such as an unbalanced diet, lack of exercise, smoking and alcohol consumption do not have an immediate impact and do not increase in a linear fashion. There are, for example, many examples of chain smokers who have reached a ripe old age without ever getting cancer. As human beings we take note of this and allow our causality mentality to lead us down the wrong risk-perception path. This, in turn, means that we ignore the real risks in our day-to-day lives and often behave recklessly.
The picture becomes even more complex if we look at globally interconnected, non-linear risks such as those posed, for example, by climate change or the global financial system and the closely related growing inequality between rich and poor. In order to take account of this situation, the Organisation for Economic Co-operation and Development (OECD) recently introduced the new category of 'systemic risk'. Insidious systemic risks tend to be underestimated and do not attract the same amount of attention as catastrophic events that occur suddenly. There are three main sources of global hazards that we need to focus on: the growing extent of human intervention in nature (climate change, pollutant emissions, use of land and water); inadequate or ineffective control of central processes in the realms of business and politics (capital markets, corruption, capacity deficits); and adverse by-products of globalisation and modernisation (unequal living conditions, lack of security, loss of identity). People are not even aware of many of these systemic risks. Although we are usually familiar with them, we do not believe they are relevant to our behaviour. This can have disastrous consequences – and not only in financial markets.
Is there, for example, a link between the financial crisis of 2008 and the outbreak of the Ebola epidemic? What we can, at least, say is that this possibility cannot be ruled out. This is because the lack of attractive alternative investments during the crisis caused speculation in foodstuffs to rise sharply, which boosted the prices of rice and corn in world markets. This in turn meant that the poorest countries in particular had to get into further debt in order to feed their populations. Their desperate financial plight forced many west African countries to suspend virtually all capital investment in healthcare and infrastructure projects – with devastating consequences, as we now know. This example clearly illustrates how today's systemic risks are totally impenetrable for any layperson who thinks in direct causal chains. Even experts have found it challenging to model systemic risk with any degree of accuracy and to use such models to make reliable recommendations on issues such as how to manage risk.
Conclusions for risk management
What does this imply for our approach to risk? Risk management must strike a balance between efficiency and resilience, and the solutions devised must be fair for the people affected. This means that we have to factor uncertainty more into the way we capture risk, and we must offer solutions that are effective even when unforeseen events occur (resilience). We need a form of risk management that demonstrably mitigates risk, is economical with the scarce resources available, helps to overcome unlikely but possible setbacks, and enables the resultant benefits and risks to be evenly shared.
About the author
Ortwin Renn, born 1951, is full professor of environmental sociology and technology assessment at the University of Stuttgart, dean of the economic and social sciences department and director of the Stuttgart Research Centre for Interdisciplinary Risk and Innovation Studies at the University of Stuttgart (ZIRIUS). He is also the founder of the non-profit company DIALOGIK, a research institute for the investigation of innovative communication and participation strategies in planning and conflict-resolution issues.
[Source: The text is taken from the book "The measurement of the risk". We thank the Union Investment Institutional GmbH for the kind permission of publication on RiskNET]
Kommentare zu diesem Beitrag
Spieltheoretische Ansätze in der Praxis
Redaktion RiskNET15.03.2018, 08:00
Unsere Welt ist im Umbruch – sei es durch Kriege und Terror, die steigende Zahl an Umweltkatastrophen oder aufgrund von Cybergefahren und wirtschaftlichen Verwerfungen. Damit wird die Risikolandkarte...
Im Interview: Thorsten Kodalle
Redaktion RiskNET12.02.2018, 08:00
Oberstleutnant i. G. Thorsten Kodalle, Dozent für Sicherheitspolitik an der Führungsakademie der Bundeswehr, stellt die Frage, ob die Welt heute noch kontrollierbar sei? Seiner Meinung nach nein....
Im Interview: Herbert Saurugg
Redaktion RiskNET10.02.2018, 08:00
Der Experte für die Vorbereitung auf den Ausfall lebenswichtiger Infrastrukturen, Herbert Saurugg, erwartet in den kommenden Jahren einen europaweiten Strom- und Infrastrukturausfall. Das Risiko...
Merkwürdige Reaktion der Kapitalmärkte auf Populismus
Martin W. Hüfner, Chief Economist, Assenagon Asset Management S.A.07.02.2018, 21:34
Ray Dalio ist einer der reichsten Männer Amerikas. Er hat den Hedgefonds Bridgewater gegründet, der zu den erfolgreichsten der Branche gehört. Er interessiert sich aber nicht nur für Geld. Er ist...