Behavioural biases

There are many subconscious thoughts and unintended filters which distort the way people think about risks. A new report attempts to identify errors in human reasoning and suggests actions to help mitigate against these biases.

Using behavioural theory, the report examines a variety of typical biases in human thought processes which, once known, can help organisations to manage risk better.

Lloyd’s, who commissioned the report, named "Behaviour: Bear, Bull or Lemming?", believes a deeper understanding of these issues will benefit the risk and insurance industry.

Human beings, whilst often rational, are also subject to well studied behavioural biases. The key findings of the report are:

1 Perception of risk drives behaviour. Risks that people dread are given a higher priority as are unfamiliar and new risks, such as nanotechnology.

2 Personality affects perception of risk. Certain personality traits lead to a reduced perception of risk. Risks that are seen to confer benefits on individuals are seen to be lower.

3 Some groups perceive risk differently to others. People from different gender, ethnic, religious or class backgrounds have different risk perceptions. Diversity in the workplace can help mitigate these biases.

4 Human beings often misjudge risk. A number of factors affect people’s assessment of risks, including their familiarity with the risk and how evidence is represented to them.

5 Attitudes to risk depend on how it is presented. The presentation of risks leads to powerful biases.

6 Emotion is a driver of behaviour. Gut feeling is a powerful driver of decisions, particularly when time is short and information limited. Keeping the public intelligently informed during a crisis is often very positive.

7 Communication of risk is challenging. The use of emotions and imagery can play a powerful role in communicating risk. Conversely, and perhaps surprisingly, technical communication is a relatively weak tool.

8 Groups tend to make more extreme decisions than individuals. Being in a group tends to narrow the range of options expressed by members. Individuals in a group often don’t speak out if their views are at odds with the rest of the group.

9 When managing risk, the culture within a firm is critical. Attitudes within an organisation are critical to setting the tone.

10 Behavioural science is highly relevant to emerging risks management. The report concluded that behavioural issues are particularly relevant in the context of the extremely uncertain.