20120227_Emerging Risks for Business From Trends in Attitudes_Rajeev Gowda

8/2/2019 20120227_Emerging Risks for Business From Trends in Attitudes_Rajeev Gowda

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Emerging Risks for Business from

Trends in Attitudes and Regulations

Prof. Rajeev Gowda

Indian Institute of ManagementBangalore

February 27, 2012


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Psychological Perspectives on Risk

Perception


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Lay people overestimate rare events &underestimate frequent events

Relationship between judged frequency & actual number of deaths/year (Lichtenstein et al., 1978)4


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What Affects Risk Perception

The opinions and actions of friends, family, co-workers, and respected public

officials all contribute to perception of risk

Other causes of misperception of risk include the source of the risk information,

the credibility of the source of the information and the psychological

interpretation of risk information. The vast majority of the public rely on the media for their information on risk and

yet this is admitted by the public to be the least credible source of information.

The perceived credibility of expert sources influences to a great extent how the

information is received.

To cope with the vast amount of information, people often rely on inferentialpsychological rules to cope with uncertainty and to reduce difficult mental tasks

to simpler ones. Although valid under certain circumstances, use of these

processes in assessment of risk can lead to serious and persistent biases.


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Interpreting Psychometric Studies

People are not irrational

People care about qualitative aspects of risk:

Unfamiliarity

Dread

Number of people exposed

Risk perceptions are expressions of peoples values and

cannot be rejected as irrational


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Outrage Factors*

HIGH OUTRAGE LOW OUTRAGEInvoluntary Voluntary

Artificial/Industrial NaturalExotic Familiar

Hard to understand Well understood/self-explanatory

Memorable Not memorable

Dreaded Not dreaded

Potentially catastrophic Diffuse in time & space

Not reversible reversible

Unknowable / Uncertainty Knowable / Well-known

Delayed effects Immediate effects

* Courtesy of Peter Sandman and Vincent Covello, with interpretation by Mary McDaniel, and Barry Connell.


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Outrage Factors (continued)

HIGH OUTRAGE LOW OUTRAGEAffecting children (and mothers) Not affecting children

Affecting future generations Not affecting future generationsIdentifiable victim(s) Statistical victim(s)

Personal stake No personal stake

Controlled by system or others Controlled by individual

Unfair Fair

Morally / ethically objectionable Morally / ethically neutral

Associated with untrustworthy Associated with trustworthy

History of major accidents Little or no such history

Closed process Open process

More media attention Less media attention

No visible (or diffuse) benefits Visible benefits


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Social Amplification of Risk

Social dynamics influence how risk events are represented and

communicated.

Risk events have a signal value that is propagated through a social network.

Eventcharacteristics

Type of impact(company level)

E

Ec1Ec2Ec3...

Ecn

Interpretation of

E----------------------

Signal

Victims

CompanyIndustry

Other technologies

Event Interpretation Spread of impact

Stigma

Loss of salesRegulatoryconstraints

Litigation

Communityopposition

Investor flight

Source: Kasperson, R.E., Ortwin, R.,Slovic, P., Brown, H., Emel, J., Goble, R.L.,Kasperson, J.X., & Ratick, S.J. (1988). Thesocial amplification of risk: A conceptualframework. Risk Analysis, 8(2), 177-187.

Special Reference:

Stigma and the Social Amplification of Risk: Toward a Frameworkfor Analysis. A chapter from Risk, Media, and Stigma. J. Flynn, P.Slovic, H. Kunreuther (Eds.)
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Risk is Amplified When

A new and possibly catastrophic risk has emerged

The managers try to conceal the risks: they cannot be trusted

The risk managers are not in control of the hazard

The experts do not understand the risks or do not understandthe long-term cumulative effects of chemicals


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Worldviews: Implications for Risk Attitudes


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Risk & Culture: Implications for Environmental

Conflict

Douglas & Wildavsky: People select certain risks forattention and disregard others in a way that reflectsand reinforces the particular worldviews to whichthey adhere.

Egalitarians are sensitive to environmental risk. To reducerisk, they feel it is justifiable to regulate commercialactivities that cause social inequality.

Individualists dismiss claims of environmental risk asspecious, in line with their commitment to the autonomy of

markets. Hierarchists, perceive warnings of environmental

catastrophe as threatening the competence of social andgovernmental elites.


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Douglas and Wildavsky

On its surface, conflict over environmentalregulation focuses on competing empirical

claims of threats and dangers. Butbecause the positions people take reflectand reinforce their cultural worldviews,disputes over environmental risks are in

essence the product of an ongoing debateabout the ideal society.


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More on Worldviews

Egalitarians Live in voluntary associations where everyone is equal; good of group comes

before that of individual. See nature as fragile.

Hierarchists

Society has a well-defined role for each member, (like caste?). Believe in asystem of rules, and fear social deviance (eg crime) that disrupts those rules.See nature as "perverse/tolerant which can be exploited within limits; ifexceeded the system will collapse. Rely heavily on experts to identify thoselimits.

Individualists Their choices are unconstrained by society. They value individual initiative inthe marketplace, and fear threats like war that would hamper free exchange.Their view of nature is described as cornucopian or resilient.


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Interdependency: Barry Schwartz:

Each way of life undermines itself. Individualism would mean chaos

without hierarchical authority to enforce contracts and repel enemies.

To get work done and settle disputes the egalitarian order needs

hierarchy, too. Hierarchies, in turn, would be stagnant without the

creative energy of individualism, uncohesive without the binding force

of equality, unstable without the passivity and acquiescence of fatalism.

Dominant and subordinate ways of life thus exist in alliance yet this

relationship is fragile, constantly shifting, constantly generating a

societal environment conducive to change. It is therefore important that all the ways of life be taken some sort of

account of in the policy process


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Implications for the Climate Change

Debate

The current positions in the debate on climate change can be

read as threepolicy stories (three, because the fatalist solidarity

has no voice; if it had it would not be fatalistic).

Each policy story provides a setting (the basic assumptions), a

villain (the policy problem), heroes (policy protagonists), and, of

course, a moral (the policy solution). Each story emphasizes

different aspects of the climate change issue. What is more, each

story defines itself in contradistinction to the other policy stories.


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The Egalitarian Story on Climate Change:

Profligacy Setting/Assumptions:

Nature is fragile; environment on brink of precipice

Humans not above nature; integral part of Earth ecosystem

Villain/Policy Problem: Inequitable economic systemprofit and growth compulsionslead to unsustainable production

and consumption Human treatment of the environment is part of a larger social malaisehow we treat weaker

members of society

Heroes: organizations/networks of protest (e.g., Earth First!)

Moral/Policy Solutions: Drastic cuts in carbon dioxide emissions

Industrialized North produces most emissions; hence must bear costs

Reform political institutions and unsustainable life-styles.

Rather than professionalized bureaucracies and huge centralized administrations, decentralizedecision-making down to the grassroots level.

Conserve the fragile natural resources: move away from a waste society

What are real human needs? Simple, they are the needs of Planet Earth.


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The Hierarchical Story on Climate Change:

Failure of Global Planning Setting/Assumptions:

Population and economic growth have environmental limits

Irresponsible use of fossil fuels will destroy ecosystem

Enough time is left to plan a gradual, incremental change towards technologies and energyresources that do not emit greenhouse gases

Villain/Policy Problem: Tragedy of the Global Commons; lack of global governance mechanisms

Heroes: Dispassionate scientists, experts, civil servants, NGO representatives and enlightened politicians

who are building the global bureaucratic structures that will rectify global markets, and usher inthe non-carbon age gradually

Moral/Policy Solutions: Solution to global issues (such as climate change, biodiversity or international terrorism) must

consist of global intergovernmental treaties, based on scientific planning and expert advice

Need stronger UN system, global central bank, world investment trust with redistributivefunctions and transfer mechanism, world environment agency, revised fairer World TradeOrganization with expanded mandate.


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The Individualist Story on Climate Change:

Much Ado About Nothing Setting/Assumptions

Wonderfully robust and bountiful natural world

Diagnosis of climate change incorrect; consequences not catastrophic

Lacunae in climate sciencemodels flawed, natures impacts are more

Villain/Policy Problem

Scare-mongering by nave idealists who erroneously believe world can be made better, & byinternational bureaucrats looking to expand influence.

Heroes risk-taking individuals/enterprises inventing cleaner/cheaper technologies

Moral/Policy Solutions Compare the costs of prevention to costs of adapting a few decades hence.

Money not spent on preventing climate change can be used to tackle other, more pressingenvironmental and social ills.

Technological progress and the unpredictable forces of creative destruction will make fuss overclimate change irrelevant; e.g., cheap renewable energy

Until the science of climate change is better understood, no government action beyond theelimination of subsidies and distortions of the market


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Implications for Policy Change


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The Bhopal Tragedy1984


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Social Amplification of Bhopal: Right-

to-Know Law in the USA

After Bhopal there was public pressure on the US government to

provide people with information about the risks they faced from

industries in their areas

In response, the US government imposed an information disclosure

requirement on companies

SARA Title III-1990

The Community Right to Know Act

Companies had to report data to the Environment Protection Agency

about their emissions into air & soil

After years of costly, people- and information-intensive command-

and-control regulation, this was a different type of law that only

mandated reporting.


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NGOs and Right-to-Know Data

The data provided by companies is in raw form that is

difficult for the public to access and interpret

Environmental Defense, an NGO, has created a web-

based interface that helps the public make better senseof the emissions data

Interpretation of the data may reflect the perspective of

environmentalists on risk ranges rather than a scientific

consensus


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EPA Compiles Emissions Data in Toxics

Release Inventory


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NGOs Make TRI Information Easier to

Interpret: e.g., RTK Network


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www.scorecard.org


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Context is Favorable to Disclosure

Right to Information Law passed in India

Transparency and Accountability promoted by Rio and Aarhus

Declarations

Corporate Social Responsibility increasingly influencingcorporate behavior

Era of leaks

Whistleblower protection measures being enacted


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Rationales for Disclosure

Normative:

Citizens right to know

Substantive:

Data lead to insights and understanding ofenvironmental problems and remedies

Instrumental:

Improves corporate compliance andenvironmental performance

Enables citizens to protect themselves


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But can people readily understand and

interpret risk data?


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Risk Communication Challenges

Asim Parekh, a vice presidentof Coca-Cola India, said his"heart sank" when he firstheard the allegations

because he knew consumerswould be easily confused .

"I have tried my level best tocommunicate this information.But even terminology like

PPB - parts per billion - isdifficult to comprehend. Thismakes our job verychallenging.


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The Contested Landscape of Risk

Management


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The Case of


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Joe CamelSmooth Character

But Joe

Camel was

taken to

court on the

charge ofinducing

children to

smoke!


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And Now?


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What Happened In Between?


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This did not happen by itself

It took a sustained campaign by the Surgeon

General and anti-smoking interest groups to

end the coolness factor of smoking


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Today!

For forty years tobacco companies had won

every lawsuit brought against them and

never paid out a dime. In 1997 that all

changed. The industry agreed to a historic

deal to pay $368 billion in health-relateddamages, tear down billboards and retire Joe

Camel.

The Charges:

Campaign of misinformation & deceit.

Denial that nicotine is addictive

Targeting of children in their ads.


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Governments Will Keep Collecting Big

Bucks from Big Tobacco


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In India Too One Policymaker

Hammered Through a New Law

Which, surprisingly, seems to work and is more or less enforced!


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Attempts to Achieve A Middle Ground

Requires that we move beyond Decide-

Announce-Defend and NIMBY

Requires that multiple perspectives are

respected, e.g., Niyamgiri tribals view of hill

Requires that importance is given to two-way,

open, consensual process

But even then, we may not be able to achieve

solutions or compromises that work


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As We Saw in Case of Biotechnology Risk:

The Bt Brinjal Consultations

20120227_Emerging Risks for Business From Trends in Attitudes_Rajeev Gowda

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