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Blog > Assessing Risk: Is your brain deceiving you?

Assessing Risk: Is your brain deceiving you?

posted on Jun 1, 2018
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by Maria Lahiffe

We humans are terrible at assessing risk accurately. Basically, this is because the human brain evolved when we lived in caves, hunting and foraging to keep ourselves alive long enough to pass our genes along to the next generation. Our mental skills are excellent at avoiding sabre-toothed tigers and remembering which berries are good to eat; we’re much weaker in assessing if it is riskier to fly or drive to Manitoba, or in evaluating an investment decision.

Heuristics – a scholarly word for gut instinct

There is no criticism implied in saying that the human brain is not perfectly suited to modern life. The brain is the exquisite result of millions of years of evolution. It takes up 1/40 of our body mass [1] but up to 1/5 of the body’s total energy [2]. Plus, our evolution took place in a very different environment, with very different challenges, than we face today. These two reasons explain why the brain has evolved to think quickly, based on just a little bit of information.

It is important, though, to understand the ways in which our fantastic brains limit us in decision-making situations, so that we can make sure to check those decisions in a different way.

Psychologists have coined a word for these mental shortcuts: heuristics. Here are a few examples of ways in which our heuristics lead us astray:

We perceive causes where there are none

An important way we make sense of the world is by finding causes for things. This tendency means our brains often come up with causes which are not valid.- which means, for example, that we are really bad at calculating the randomness of truly random events.

This misperception can lead to actual results: for example, during the London Blitz in World War II, there were some significant gaps in where German bombs landed, leading many people to believe that the Germans were avoiding certain parts of London. Statistical analysis showed that the patterns were completely consistent with a truly random pattern; however, there were people who deliberately moved to the “gap” areas during bombing raids. They may have lost their lives as a result of their misperception. [3]

We are not good at evaluating sources

Our brains store information the same way, no matter how or where we heard it [3]. This means, for example, that we remember what was said in advertisements in the same way as we remember the news show in between the ads.

We over-depend on emotion

We over-assign risk to things which cause a strong emotional reaction and under-assign risk to things which we are used to. For example, the lifetime risk of a North American being killed during air transport is 1 in 7,032 while the lifetime risk of dying in a car accident is 1 in 88. However, because plane crashes are rare and (justifiably) cause a strong emotional reaction, many people choose to drive instead of fly because they feel safer in the familiar environment of their car. [4]

So what?

It is important to be aware of the ways our brains deceive us because that way we can examine our decisions, to make sure they really are what is best. This becomes even more important for people in leadership roles. Leaders make decisions on behalf of many people.

What now?

Quality decision-making takes time. We essentially have two types of thinking systems: fast and slow. [3]Fast decision-making is really useful when running from danger, but you need to rely on your slower brain when making decisions which will take effect over more people or a longer time. Don’t give blind trust to your gut – ask questions. In the context of a management team or a board of directors, cultivate a team culture which rewards skepticism and constructive criticism.

For example, if you feel reluctant to move your organization into a new area of endeavour, check with yourself: is this reluctance simply a normal human reaction to change, which is difficult? What would happen if you did not change course? Will your organization still be relevant in 5 years? I certainly do not mean to recommend change for its own sake: many changes are ill-advised. The point is, you won’t know unless you take the time to check your assumptions.

Risk assessment is a skill which is becoming more and more relevant as external forces force charities and non-profits to diversify their revenue sources, and defend their value in society.

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Related blog posts:

[1] P. A. Kinser, "Thinking about brain size...," Serendip Studio, 2000. [Online]. Available: http://serendipstudio.org/bb/kinser/Int3.html. [Accessed 1 June 2018]. [2] N. Swaminathan, "Why does the brain need so much power?," Scientific American Mind, 29 April 2008. [Online]. Available: https://www.scientificamerican.com/article/why-does-the-brain-need-s/. [Accessed 1 June 2018]. [3] D. Kahneman, Thinking, Fast and Slow, Canada: Anchor Canada, 2011. [4] Cogency, "Why are Humans bad at calculating risk?," [Online]. Available: https://www.cogencyteam.com/news/2018/02/why-are-humans-bad-at-calculating-risk/. [Accessed 1 June 2018].
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