Cars are Safer and Traffic Deaths are Up!

accident-v2Risk Homeostasis is back in the news.

We have previously written about how we accept a certain level of risk then use risk protection measures not to be safer, but to increase our risk taking so our net level of acceptable risk stays the same. That is risk homeostasis.

It has been broadly reported recently that there has been a huge increase in traffic fatalities in the United States in the first half of 2016 compared to the same period in 2015: 10.4%.  Understandably, many are gravely concerned.

How does this relate to risk homeostasis? By any estimation, vehicles and highways have become safer.  Significant effort and resources have gone into design improvements that have increased safety.  Cars have airbags, ABS breaking systems, crumple zones and even some now have automatic emergency driving features to help avoid accidents.  Highways have many more barriers that give way on impact to reduce the chances of injuries or fatalities.  Yet traffic deaths are up dramatically.

This is risk homeostasis. The safer things become, the more we take risks.  Knowing that we are less likely to die while driving a safer modern vehicle, we take more risks such as texting while driving.  Sad but true.

The administrator of the National Highway Traffic Safety Administration recently announced a goal of eliminating traffic fatalities in the U.S. – all of them – within 30 years. A laudable goal but exceedingly unlikely.  All the safety features in the world will not change human nature.

The High Price of Risk Aversion

Bright sunrise - croppedIn a recent column, the Wall Street Journal’s chief economics commentator Greg Ip decried the cost of risk aversion.  He presents a convincing case that risk aversion by corporate leaders is reducing investment which leads to reduced productivity and wages.

Risk Aversion charts

He goes on to make the point that resources that should be invested in new technologies and products are instead being used to fund mergers and acquisitions, buy back shares, and pay dividends. Ip asserts that the impact goes beyond the future growth prospects of the companies

These executive are paid to lead. The resulting lower productivity and wages leads to “growing worker dissatisfaction and political upheaval.”

Square in the cross hairs of this strategy is innovation which Ip artfully attributes to efficiently and creatively combining capital and labor. The impact of suppressing innovation is profound.  Ip references New York University economist Paul Romer’s work in which he makes a fascinating observation:

Unlike a machine or a worker, an idea, once conceived, can be reproduced and shared endlessly for free. The determinant of growth then is both how many ideas a society creates, and how quickly and efficiently they are distributed.

Contemplate how many valuable ideas have not yet surfaces due to excessive risk aversion.

Why are business decision-makers taking the more comfortable but ultimately less rewarding path? Beyond basic human nature that cherishes safety, Ip identifies a short-team mindset, the demands of activist investors, excessive government regulation and the challenge of getting sufficient returns on investments in technology.

Who is doing it right? Who is allocating capital well so they do not suppress the future growth if the companies they have been selected to lead?  Today, it is very hard to tell.  A few years from now, it will be apparent.  That will be when the bill for excessive risk aversion comes due.  And in many cases, the executives who ran up the bill will be nowhere to be found.

 

But We Really are Afraid!

Fear - cropped

Contemplate this statement for a moment:

“We cannot respond [to threats or risks or change] with pure emotion, but leaders can’t omit emotions entirely.  If only because people need validation of their legitimate fear and anger before they will listen to arguments for measured action.”

While this was written in reference to political leaders responding to threats from terrorism, it offers interesting insights about leading organizations through change and innovation. These words, slightly paraphrased, were written by Washington Post editorial writer Charles Lane.  The bracketed phrase is my addition.

Change is rarely welcomed or well-received. I have long contended that people ascend to leadership positions within organizations in part because they have superior risk-taking talents.  Part of utilizing those talents is helping those they lead to move past their limiting fears – to embrace the changes the leaders realize are unavoidable.

It is easy to say that taking risks well requires removing the emotion from the process and being more empirical. And you would be right.  But Lane provides us with a valuable insight.  You will be well-served to acknowledge and honor the fears and concerns of your team before moving forward with analyzing and deciding.

Supercharging Your Risk-Takers

hut v2The people in most organizations span the spectrum of risk inclination. Talented leaders adapt their management methods based on an individual team member’s risk inclination and tolerance.

There is some interesting new research that gives insights into how to better motivate the people you lead who happen to be more risk inclined. The research was conducted in the small African country of Lesotho. The country suffers by a devastatingly high level of AIDS cases among its populace. The study focused on more risk inclined people on the premise that they would be more inclined to engage in risky behaviors that could lead to AIDS infection. Their risk inclination was determined based on how they approached games of chance that were orchestrated by the researchers.

The research showed that the risk-inclined participants were more likely to change their behavior when they were offered a chance to win a large reward as opposed to a smaller but certain reward.

One group was given a monetary reward if they met certain criteria. A second group was given a ticket in a drawing in which four people in their village would win twenty five times as much as the first group. Obviously, this meant that only four people in the second group received a reward and most did not.

What was the result? People in the second group that had only a chance at a reward were 21.4% more likely to adopt the desired behaviors than the people in the group who received a certain but smaller reward. That is powerful when you consider that most of the people in the second group received no reward.

So, what does this tell you about how to better motivate some of your team? Well, first identify the parts of your organization that are dominated by people who are more comfortable taking risks. To advance the idea, let’s assume your sales people fit this description. Sales professionals often have higher risk inclination than some people in other roles.

The research tells us that risk-takers are more responsive to a chance at a larger reward than a certainty of a smaller reward. So, let’s say you are structuring a sales contest. As with most such efforts, performance beyond a certain threshold yields a reward. Often the size of the reward increases as results increase.

Here is the insight from the research. In addition to the financial incentives you would usually offer add an opportunity for some of team members who exceed the performance threshold to be entered into a drawing for a significant prize, bonus or trip. The research suggests you will get significantly more performance. Why? Risk-takers like taking risks and appear to be excited by the opportunity to receive a larger though uncertain reward. It is a bit of the gambler’s mindset.

Please note that we are not suggesting that the drawing for a single reward be your only incentive. That could actually be demotivating with time. We are suggesting instead that the drawing opportunity be an additional incentive.

Give it us a try and let us know what results you get.

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More information on the research is available at: http://www.npr.org/sections/goatsandsoda/2015/05/12/406105602/what-might-make-young-people-practice-safe-sex-lottery-tickets

 

 

Risk Homeostasis – the impact on organizations

Leap-Cropped-SmallerIn the previous post, we talked about people risking more if they have an increased sense of protection from the possible negative outcomes of their actions.

The significance of this in organizations is obvious and powerful. If the leaders in an organization genuinely support their people when risks do not yield the desired results, they will get more initiative and innovation.

In this setting, the “safety devices” are not automobile airbags or seat belts, but a culture and leadership team that values initiative even when the results may not be as intended. The important qualifier is that poor outcomes cannot be due to flawed execution. Clearly, that is not acceptable. But if the execution was sound yet the results were not as intended, it is vital that the person or team that took the initiative be praised and rewarded. Not doing so will send the clear message that only successful risks are acceptable and since risk-taking is inherently an uncertain process, initiative and innovation will be stifled.

So, provide your people with “initiative & innovation airbags” and they will be much more inclined to drive assertively towards your organizations goals.

Risk Homeostasis – the more things change the more they stay the same

bubble wrapped car, croppedLet’s talk for a few minutes about risk homeostasis – a fascinating concept put forth by Gerald J. S. Wilde. The premise is that every person has a certain level of risk with which they are comfortable then use risk protection measures not to be safer, but to increase their risk taking so their level of acceptable risk stays the same.

An example would be driving a car with lots of safety features such as seat belts, front and side airbags, ABS brakes and sideview (blind spot) assist that lets you know a vehicle is next to you but hard to see with your peripheral vision or mirrors.

Now compare driving this car with driving a car from the late 1950s or early 1960s with none of these safety features. Risk homeostasis tells us that the same person would drive the car loaded with safety features in a riskier manner. The idea is that all the protection provided by the safety features allows for more risks to be taken yet the original level of risk tolerance is still maintained.

If risk homeostasis is valid, the same person would drive the older car without the safety features more cautiously and as a result achieve the same level of risk as driving the safety feature loaded car in a riskier manner.

The same idea would suggest that a motorcyclist wearing a helmet and protective leathers with carbon fiber armor plates would drive in a riskier manner than if the same person was on the same motorcycle in shorts, a T-shirt and no helmet.

I leave it to you to decide whether you think risk homeostasis is valid. Some researchers think it is not.

Here is one last data point as you consider the validity of risk homeostasis:

When drivers see bicyclists wearing helmets, research shows that they take slightly less care with passing them than bicyclists without helmets. The results of a study published in Accident Analysis & Prevention in March 2007 tells us that drivers give a bicyclist not wearing a helmet on average 3.35 inches more room when passing them than if the bicyclist is wearing a helmet. Consider that this all happens spontaneously as the driver passes the bike without much time for the driver to contemplate their behavior in advance. They likely do it all rather intuitively.

So, do you think risk homeostasis is valid?

 

Offer the Carrot – Bury the Stick

Risk taker v3, cropped

Earlier in this blog, I wrote a little in a post called Subjectivity in Risk Assessment about research showing that we accept greater risks from voluntary hazards than from involuntary hazards. I would like to expand on that topic because I think it is important in understanding how members of an organization respond to efforts to innovate.

Consider the following list of voluntary and involuntary hazards:

Voluntary Hazards

• driving or riding in a car
• recreational risks – such as cycling, motorcycle riding, white water rafting, rock climbing. SCUBA diving
• entertainment risks – amusement park rides, bungee jumping
• alcohol consumption
• smoking
• sun exposure
• flying in a plane

Involuntary Hazards

• air pollution
• hurricanes, tornados and earthquakes
• hydraulic fracturing (fracking)
• communicable diseases
• second-hand tobacco smoke

If you are like most people, you consider many of the involuntary hazards to be a more significant that the voluntary ones. A great deal has been written about the statistically verifiable impact of all the hazards listed. For this discussion, it is not necessary to discuss at lengthy the relative impact of each hazard. The point is that hazards that are imposed on us are commonly perceived as more significant or threatening than those we take by choice.

One example it sun exposure. Many people actively seek to enjoy the warming rays of the sun. Yet it can be readily proven that doing so brings with it significant negative consequences.

How does this apply to encouraging innovation in organizations? The clear message is that you will be more successful if you create incentives as opposed to requirements. It is as simple as seeking action with a figurative “carrot” versus “a stick.” Whether it is change, uncertainty, temporary discomfort or hazards, people do not like them to be imposed upon them.

Message to Team: “Whatever you do, don’t take risks!”

caution-tape, croppedWhen I saw this article recently on the front page of the Wall Street Journal, I thought it was a joke. Unfortunately, it was not April 1st and the article was for real.

Here is the title: “Safety Cops Patrol the Office For High Heels.” Seriously? You can see why I thought it was a joke.

The article tells us that employees at some companies now have to document daily safety risks including “walking across the street, entering restaurant, sitting down and eating meal.” I’office helmetm not kidding.

At some companies, employees are required to document at least two safety infractions each month – like holding open an elevator door for a colleague. (How horrible!)

The article goes on to say that employees at Exxon Mobil Corp. in Irving, Texas recently positioned themselves in the stairway to determine if people were using the handrail. (Really? This was the best use of their time?)

Please understand that I do not mean to make light of workplace safety. It is a very real issue – for people operating wood chippers and stump grinders. These are office workers.

Now think for a minute about the message this sends to people in an organization with these ridiculous safety policies. That’s right – whatever you do, don’t take a risk. Don’t take initiative. Don’t do anything differently than in the past. Don’t step out of “the box”. And above all, don’t even think about innovating.

Someone in these organizations who sees the bigger picture needs to intervene.

Risk Protection = More Caution. Really?

snowboarder on the steep v2, cropped v2There is an interesting study published in the journal Injury Prevention on behavior change among skiers and snowboarders when they wear a helmet.

What would you guess?

> Option A:  Would you think that a person who wears a helmet would think they are better protected from injury and be more risk inclined?

> Option B:  Or would you think their decision to wear a helmet suggests they are more safety conscious and less risk inclined?

If you guessed Option B, you are correct.  The study tells us that helmeted skiers and snowboarders appear to ski or snowboard more safely.snowboard helmets

So, what does this tell us about human nature and intelligent risk-taking in an organizational setting?  The logical conclusion is that the better you prepare for the risk or initiative you are pursuing, the more comfortable you will be going forward.

The lesson:  prepare well before getting started.  One thing you can do is utilize the six steps of intelligent risk-taking presented in my books The Power of Risk (Maxwell Press), Business Lessons from the Edge (McGraw-Hill) and The First-Time Manager (AMACOM).

The second lesson:  Preparing well and proceeding intelligently is not likely to make you more risk-inclined and more prone to lapse into poor decisions.

Both good outcomes.

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The study was conducted by researchers at San Diego State University.  The full paper on the study is available on the National Center for Biotechnology Information (NCBI) website at:  http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2598370/pdf/173.pdf.  (The NCBI is part of the U.S. National Institutes of Health.)

Are Some People Born Risk-Takers?

tight_rope_walkerI have said many times in books, articles and speeches that there is no ideal level of risk inclination – no perfect Risk Quotient (RQ). The risk adverse can make a vital contribution by being more cautious and deliberative. The risk inclined can help others overcome uncertainties and provide a valuable bias for action.

But it is reasonable to wonder to what extent a person’s RQ is determined by genetics as opposed to by life experiences – the old nature versus nurture discussion.

You may have heard about the “risk-taking gene.” This is the research that indicates that a certain variation on the DRD4 gene correlates to a greater inclination to pursue risky activities and seek higher levels of physical stimulation.

Now there is more research that indicates that certain physiological traits influence our risk inclination. Researchers at University College London, the University of Sydney, the University of Pennsylvania, New York University and Yale University have determined that the density of the cells in one part of our brain influences our comfort level with financial risks. The thicker our right posterior parietal cortex the more we can tolerate financial risk. If it is thinner, the opposite is true.

Is this interesting? Yes. Is this important? Only somewhat.

The important point is that we all have different innate RQs. They can change significantly due to life experiences and our current situation. But research is showing that we are born with physical elements that influence our personal relationship with risk-taking.

How does this impact you? The next time you are at a loss to understand how someone sees the exact same facts and circumstances so differently than you, remember that some of the difference may be due to how you both were created. That may make it easier to deal constructively with the variance.
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More on this topic is available at: http://online.wsj.com/articles/so-you-think-youre-a-risk-taker-1414207254

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