Abstract
Risk management procedures exist in part to create objective, abstract answers without bias. This is an important objective, but as we have seen it runs up against a number of powerful realities of human organizations, from personalities to cognitive biases. Behavior is a function of many variables; avoiding risk is one, but there are many others that can be equally powerful. In many ways the essential story of the financial crisis can be boiled down to economic agents acting according to perverse incentives. In particular, judgments do not take place in a vacuum; the human factors that influence the perception of risk take root in a social and institutional context. Peoples’ perception of risk is also a function of these broader environmental factors. A critical lesson of the crisis is that different environments can generate different levels of incentive to take risk.
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Notes
Mary Douglas and Aaron Wildavsky, Risk and Culture: An Essay on the Selection of Technological and Environmental Dangers (Berkeley: University of California Press, 1982), 9, 186, 80, 88.
Andrew Ross Sorkin, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves (New York: Penguin, 2010), 14, 88, 125–126, 146–147.
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Clark Murdock, Becca S. Smith, Matt Squeri, and Chris Jones, Risk Management in Non-DoD U.S. Government Agencies and the International Community (Washington, DC: Center for Strategic and International Studies, 2011), 12.
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Mazarr, M.J. (2016). Risk, Incentives, and Culture. In: Rethinking Risk in National Security. Palgrave Macmillan, New York. https://doi.org/10.1007/978-1-349-91843-0_10
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DOI: https://doi.org/10.1007/978-1-349-91843-0_10
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