Sociology,risk and the environment: a material-semiotic approach

Abstract

Sociology has made significant contributions to the conceptualisation of risk and critique of technical risk analysis. It has, however, unintentionally reinforced the division of labour between the natural/technical and social sciences in risk analysis. This paper argues that the problem with conceptualisations of risk is not a misplaced emphasis on calculation. Rather, it is that we have not adequately dealt with ontological distinctions implicit in both sociological and technical work on risk between material or objective risks and our socially mediated understandings and interpretations of those risks. While acknowledging that risks are simultaneously social and technical, sociologists have not, in practice, provided the conceptual and methodological tools to apprehend risk in a less dualistic manner. This limits our ability both to analyse actors and processes outside the social domain and to explore the recursive relationships between risk calculus, social action and the material outcomes of risk. In response, this paper develops a material-semiotic conceptualisation of risk and provides an assessment of its relevance to more sociologically informed risk governance. It introduces the ideas of co-constitution, emergent entities and enactment as instruments for reconciling the material and social worlds in a sociological study of risk. It further illustrates the application of a material-semiotic approach using these concepts in the nuclear industry. In deconstructing social–material dualisms in the sociology of risk, this paper argues that a material-semiotic conceptualisation of risk enables both technical and social perspectives on risk not only to coexist but to collaborate, widening the scope for interdisciplinary research.     

Risk as perceived by the German public: pervasive risks and “switching” risks

In 2001, a major project on the perception and evaluation of risks in southern Germany was conducted consisting of survey data as well as of semi‐structured interviews. With reference to the psychometric paradigm, this article analyzes public risk perception, pointing out the perceived risk semantic for nuclear energy, GM‐food, mad cow disease (BSE), crime, global climate change, mobile telephony and its radiation risks. These hazards reveal different patterns of risk perception and different levels of risk acceptability. Secondly, a comparison of qualitative and quantitative findings will be conducted: qualitative analyses indicate that the results of quantitative rating scales on the perception, evaluation and acceptance of technical and environmental hazards might be misleading since the public's focus on risks as elicited by open association stimuli relies much more on ‘everyday‐life’ and ‘pervasive’ risks than for instance on hazards emerging from new technologies. The relevance of technological risks tends to be dependent on the context: If explicitly mentioned in newscasts, in debates or listed in questionnaires memories, fears or other immediate responses become activated, yet they may be forgotten a short time later. We have called this phenomenon “switching effect” and the respective risks “switching risks”. In standardized opinion polls such ‘switching effects’ may evoke firm judgments, even if the importance in the interviewee's mental representation seems marginal.     

Risk association: towards a linguistically informed framework for analysing risk in discourse

This article addresses a fundamental feature of risk discourse, namely, risk association, defined as the process whereby an agent establishes a connection between something, x, and the notion of risk. In addition, risk association can be defined as the result of such a process, i.e. an established connection between x and risk. A special case of risk association is when x is linked to harmful properties and thus is represented as a risk. Although fundamental to any analysis of socio-cognitive attention to risks, the process of risk association is often taken for granted in risk research. A layered model of risk association is presented taking linguistic practices, i.e. the use of words, as the point of departure. Accordingly, there are both central and more peripheral means of risk association. The central means include the morpheme ‘risk’. More peripheral means of risk association are close synonyms and antonyms of risk (e.g. ‘hazard’, ‘danger’, ‘safety’ and ‘security’) and other related words (e.g. ‘crisis’, ‘protection’ and ‘threat’). For an illustration, the model is applied to an empirical example: the instructions for Swedish government agencies. The example illustrates how the exact vocabulary considered for operationalization in analysis has important consequences for the conclusions that follow with respect to the extent to which government agencies are associated with risk.     

A Framework for Identifying (and Avoiding) Fraudulent Financial Reporting*

This commentary analyzes the relationship of fraud risk assessments to other risk assessments by auditors. The Public Company Accounting Oversight Board notes that this is a problem area of current practice. Effective detection of fraudulent financial reporting requires an integrative accounting/auditing conceptual framework. As a result, this paper is as much about accounting theory as it is about auditing. To simplify the development of such an integrated framework, this paper uses an expanded risk model. This effectively results in a risk perspective on fraudulent financial reporting. There are many potential implications but the major findings are as follows. First, the study identifies the crucial role of benchmarks based on acceptable levels of risk to help differentiate between intentional and unintentional misstatements. Such differentiation is critical to successfully implementing the American Institute of Certified Public Accountants' Statement on Auditing Standards (SAS) No. 99 and international standards ISA Nos. 240, 540, and 700. Second, the paper shows the importance of not allowing the major categories of risks identified here from getting too high. This paper explains the need to set acceptable levels of these risks, either by standard‐setters as a matter of broad policy, or by individual practitioners as part of the terms of specific engagements. I propose that a major factor in the concept of “present fairly” be the acceptable levels of accounting risks that are defined here, especially the risks due to intentional forecast errors. Third, this paper clarifies how the fraud risk of SAS No. 99, and similar international standards, relates to the current audit risk model framework.     

Long‐Run Stockholder Consumption Risk and Asset Returns

We provide new evidence on the success of long‐run risks in asset pricing by focusing on the risks borne by stockholders. Exploiting microlevel household consumption data, we show that long‐run stockholder consumption risk better captures cross‐sectional variation in average asset returns than aggregate or nonstockholder consumption risk, and implies more plausible risk aversion estimates. We find that risk aversion around 10 can match observed risk premia for the wealthiest stockholders across sets of test assets that include the 25 Fama and French portfolios, the market portfolio, bond portfolios, and the entire cross‐section of stocks.     

Dispute and morality in the perception of societal risks: extending the psychometric model

The psychometric paradigm has identified two classic dimensions, dread and unknown risk, structuring the perception of risks. We propose that disputed risk and morality are two additional dimensions that are relevant to describe the cognitive representation of societal risks. Disputed risk captures two aspects of a societal risk: first, that consensus about scientific evidence is low, and second, that the public debate about the risk issue is highly controversial. Morality refers to judgments of reprehensibility, capturing the fact that societal risks frequently involve violations of moral principles. In a survey study employing two samples, a household sample (N = 418) and a student sample (N = 88), participants evaluated 24 societal risks on 23 psychometric scales intended to assess the four constructs dread, unknown risk, disputed risk, and morality. Principal component analyses yielded three dimensions: a common dimension of dread and morality, a disputed risk dimension, and unknown risk. We also assessed judgments of overall riskiness for all risks. Morality and dread both proved to be strong and distinctive predictors of perceived overall riskiness in regression analyses; disputed risk and unknown risk, in contrast, do not play a substantial role as predictors. These findings were replicated across both samples. We conclude that disputed risk constitutes a novel and unique psychometric dimension; morality, on the other hand, coincides with dread in the cognitive representation of societal risks, while still showing a distinct and strong effect in the prediction of risk judgments.     

Perception of technological risk: insights from research and lessons for risk communication and management

Technology has become a familiar companion in all areas of life. Production consumption, administration, education, communication, and leisure activities are all shaped by the use of technologies. However, people often associate with the term ‘technology’ attributes, such as catastrophic and potentially dangerous, and tend to take the benefits of technological products for granted. This asymmetry in risk–benefit perception is one of the main reasons why many consumers are concerned about ‘hidden’ risks of technologies and why they demand stringent regulatory actions when they feel unduly exposed to potential emissions or waste products associated with the lifecycle of technologies. This situation is often aggravated by social amplification processes, by which even small risks receive high media attention and are blown out of proportion in the public arena. At the same time, however, one needs to acknowledge that many technologies have the potential to harm the human health and the environment. The purpose of this article is to review our knowledge about risk perception with respect to technologies, in particular emerging technologies, and to suggest possible strategies to use this knowledge for improving our risk management practice. Technological risk perception is defined in this article as the processing of physical signals and/or information about a potentially harmful impact of using technology and the formation of a judgment about seriousness, likelihood, and acceptability of the respective technology. Based on the review of psychological, social, and cultural factors that shape individual and social risk perceptions, we have attempted to develop a structured framework that provides an integrative and systematic perspective on technological risk perception and that may assist risk management and regulation in taking perceptions into account.     

An Associative Approach to Risk Perception: Measuring the Effects of Risk Communications Directly and Indirectly<1?tpb=-6pt?>

Risk perception is often measured by a direct method, e.g., a questionnaire. This mainly reveals the deliberate evaluation of a risk (a so‐called secondary evaluative process), whereas risk perception can also be based on a first, spontaneous reaction (a primary evaluative process). An indirect test such as the Extrinsic Affective Simon Task (EAST, De Houwer, 2003 De Houwer, J. 2003. The Extrinsic Affective Simon Task. Experimental Psychology, 50: 77–85. [Crossref], [PubMed], [Web of Science ®] , [Google Scholar]) may be needed to reveal this first, spontaneous reaction. In this study, a questionnaire and an EAST measured the effects of varying risk communications (high risk, low risk or control article), about high‐voltage power lines. The results of the EAST showed that the respondents associated power lines stronger with unhealthy than with healthy. However, the questionnaire results did not seem to indicate that the respondents considered power lines as risky. The EAST did not reveal an effect of article variation on the associations of power lines with (un)healthy. Conversely, the questionnaire results showed that article variation influenced the secondary evaluative process. Further, our findings demonstrated that the direct and indirect measures were unrelated. An indirect test may complement a direct test to get an overall picture of how people evaluate risks.     

Extrapolating understanding of food risk perceptions to emerging food safety cases

Important determinants of risk perceptions associated with foods are the extent to which the potential hazards are perceived to have technological or naturally occurring origins, together with the acute vs. chronic dimension in which the potential hazard is presented (acute or chronic). This study presents a case study analysis based on an extensive literature review examining how these hazard characteristics affect people’s risk and benefit perceptions, and associated attitudes and behaviors. The cases include E. coli incidences (outbreaks linked to fresh spinach and fenugreek sprouts), contamination of fish by environmental pollutants, (organochlorine contaminants in farmed salmon), radioactive contamination of food following a nuclear accident (the Fukushima accident in Japan), and GM salmon destined for the human food chain. The analysis of the cases over the acute vs. chronic dimension suggests that longitudinal quantification of the relationship between risk perceptions and impacts is important for both acute and chronic food safety, but this has infrequently been applied to chronic hazards. Technologies applied to food production tend to potentially be associated with higher levels of risk perception, linked to perceptions that the risk is unnatural. However, for some risks (e.g. those involving biological irreversibility), moral or ethical concerns may be more important determinants of consumer responses than risk or benefit perceptions. (Lack of) trust has been highlighted in all of the cases suggesting transparent and honest risk–benefit communications following the occurrence of a food safety incident. Implications for optimizing associated risk communication strategies, additional research linking risk perception, and other quantitative measures, including comparisons in time and space, are suggested.     

From risk to vulnerability: the role of perceived adaptive capacity for the acceptance of contested infrastructure

Infrastructure projects such as repositories for nuclear waste or hazardous waste sites impose risks (in the form of potential burdens or losses) over extensive timescales. These risks change dynamically over time and so, potentially, does their management. Societies and key actors go through learning processes and subsequently may be better able to deal with related challenges. However, social scientific research on the acceptance of such projects is mainly concerned with (static) risk perception issues and does not include dynamic aspects. Adaptive capacity, which is part of the concept of vulnerability, therefore represents a promising complementing facet for this line of research. The aim of this paper is to examine the role of perceived adaptive capacity (PAC) for the acceptance of contested long-term infrastructure for the two issues of nuclear and hazardous waste. In an online experimental survey (N?=?300) examining either the acceptance of a nuclear waste repository or of a hazardous waste site, we demonstrate that (i) PAC can be separated empirically as a psychological construct from risk and benefit perception, and (ii) PAC explains a significant additional share of variance in the acceptance of both waste types beyond risk and benefit perception. Furthermore, we report what adaptation mechanisms of PAC participants expect to occur in the future. We conclude that such a dynamic perspective yields important insights in understanding individual decision-making regarding long-term infrastructure projects.     

More on Properness: The Case of Mean-Variance Preferences

This paper focuses on the situations where individuals with mean-variance preferences add independent risks to an already risky situation. Pratt and Zeckhauser (Econometrica, 55, 143–154, 1987) define a concept called proper risk aversion in the expected utility framework to describe the situation where an undesirable risk can never be made desirable by the presence of an independent undesirable risk. The assumption of mean-variance preferences allows us to study proper risk aversion in an intuitive manner. The paper presents an economic interpretation for the quasi-concavity of a utility function derived over mean and variance. The main result of the paper says that quasi-concavity plus decreasing risk aversion is equivalent to proper risk aversion.     

Long‐Run Risk and Its Implications for the Equity Premium Puzzle: New Evidence from a Multivariate Framework

This paper investigates the empirical evidence of long‐run risk and its implications for the equity premium puzzle. We find that the long‐run risk model is generally weakly identified and that standard inferences tend to underestimate the uncertainty of long‐run risk. We extend the LM‐type test of Ma and Nelson (2010) that remains valid under weak identification to the bivariate VARMA‐GARCH model of consumption and dividend growth. The results cast doubt on the validity of long‐run risk as an explanation for the equity premium puzzle. We also evaluate the approach of Bansal, Kiku, and Yaron (2007a), which extracts long‐run risk by regressing consumption growth and its volatility on predictive variables. The results using the Bonferroni Q‐test of Campbell and Yogo (2006) suggest that consumption and dividend growth are generally unpredictable by the price‐dividend ratio and risk‐free rate. This casts doubt on the validity of the BKY approach.     

Risk Measures for Hedge Funds: a Cross‐sectional Approach

This paper analyses the risk‐return trade‐off in the hedge fund industry. We compare semi‐deviation, value‐at‐risk (VaR), Expected Shortfall (ES) and Tail Risk (TR) with standard deviation at the individual fund level as well as the portfolio level. Using the Fama and French (1992) methodology and the combined live and defunct hedge fund data from TASS, we find that the left‐tail risk captured by Expected Shortfall (ES) and Tail Risk (TR) explains the cross‐sectional variation in hedge fund returns very well, while the other risk measures provide statistically insignificant or marginally significant results. During the period between January 1995 and December 2004, hedge funds with high ES outperform those with low ES by an annual return difference of 7%. We provide empirical evidence on the theoretical argument by Artzner et al. (1999) that ES is superior to VaR as a downside risk measure. We also find the Cornish‐Fisher (1937) expansion is superior to the nonparametric method in estimating ES and TR.     

Risk as feelings or risk and feelings? A cross‐lagged panel analysis

This article focuses on affective and cognitive processes underlying the perception of risk. A limitation with most process models of affect/cognition is that they include only concurrent emotions. By following a group (n?=?129) of military sailors prospectively during an international operation, we explored longitudinal relations between perceived risk and related feelings.

Longitudinal cross‐lagged path models were estimated to explore the relationships between perceived risk, worry, and emotional distress. Results gave support to earlier studies by showing that cross‐sectional measures of risk and worry were weakly related. Across time, worry and emotional distress were reciprocally related. Perceived risk had impact on worry but not on emotional distress. Neither worry nor emotional distress influenced perceived risk.

The risk‐as‐feelings hypothesis postulates a direct effect of feelings onto behavioural choice, and a reciprocal relation between cognitive evaluations and feelings.

Our findings do not support a reciprocal relation between judgements of risk and feelings, but an impact from risk on to worry. Between various measures of feelings reciprocity seems to exist. Further replications, including also behavioural measures, are needed.     

Delayed Expected Loss Recognition and the Risk Profile of Banks

This paper investigates the extent to which delayed expected loan loss recognition (DELR) is associated with greater vulnerability of banks to three distinct dimensions of risk: (1) stock market liquidity risk, (2) downside tail risk of individual banks, and (3) codependence of downside tail risk among banks. We hypothesize that DELR increases vulnerability to downside risk by creating expected loss overhangs that threaten future capital adequacy and by degrading bank transparency, which increases financing frictions and opportunities for risk‐shifting. We find that DELR is associated with higher correlations between bank‐level illiquidity and both aggregate banking sector illiquidity and market returns (i.e., higher liquidity risks) during recessions, suggesting that high DELR banks as a group may simultaneously face elevated financing frictions and enhanced opportunities for risk‐shifting behavior in crisis periods. With respect to downside risk, we find that during recessions DELR is associated with significantly higher risk of individual banks suffering severe drops in their equity values, where this association is magnified for banks with low capital levels. Consistent with increased systemic risk, we find that DELR is associated with significantly higher codependence between downside risk of individual banks and downside risk of the banking sector. We theorize that downside risk vulnerability at the individual bank level can translate into systemic risk by virtue of DELR creating a common source of risk vulnerability across high DELR banks simultaneously, which leads to risk codependence among banks and systemic effects from banks acting as part of a herd.     

Risk Allocation in Retirement Plans: A Better Solution

The corporate world is reconsidering the cost‐effectiveness of defined benefit pension plans while contemplating a change to defined contribution plans. This article begins by examining the three primary risks faced by sponsors of most DB pension plans—investment risk, interest rate risk, and longevity risk—and shows how shifting these risks to employees through a DC plan would affect both the corporation and the individual. Although DC plans clearly help companies manage risks, they provide at best an incomplete solution for individual participants. This article describes an innovation in pension design—the Retirement Shares Plan (RSP)—that combines many of the best features of DB and DC plans. An RSP provides:

• ? predictable and stable cost to the plan sponsor, with little chance of unfunded liabilities;
• ? lifetime income, guaranteeing that retirees will never outlive their benefits;
• ? a benefit accrual pattern comparable to that of traditional pension plans that preserves value for older, long‐service employees; and
• ? potential inflation protection for retirees.

The RSP accomplishes this by allocating risk to sponsors and individuals differently than either a traditional DB plan or a DC plan. Unlike most DB plans, the RSP shifts investment and interest rate risks from plan sponsors to participants. Unlike DC plans, the RSP keeps longevity risk with the sponsor.     

Has Finance Made the World Riskier?

Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much greater access to finance for firms and households. On net, this has made the world much better off. Concurrently, however, we have also seen the emergence of a whole range of intermediaries, whose size and appetite for risk may expand over the cycle. Not only can these intermediaries accentuate real fluctuations, they can also leave themselves exposed to certain small probability risks that their own collective behaviour makes more likely. As a result, under some conditions, economies may be more exposed to financial‐sector‐induced turmoil than in the past. The paper discusses the implications for monetary policy and prudential supervision. In particular, it suggests market‐friendly policies that would reduce the incentive of intermediary managers to take excessive risk.     

Application of early risk detection concepts and methods to environmental health. A German feasibility study

Early risk detection is essential for being able to address the most important environmental health risk‐topics in a persistent and prospective manner. In support of the action programme “Environment and Health” (APUG) of the German Federal Ministry of Health and Social Security (BMGS) and the Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU) which recommended that a detection and evaluation system for the timely recognition of emerging risk problems be developed, a qualitative feasibility study was commissioned. The results of this study are presented here and support the development of an early risk detection system based on the insights gained from the investigation of case studies and the differentiation and presentation of a risk typology, methods, tools, and suggested organizational processes.

The study has shown that early risk detection includes the identification, characterization, evaluation and dissemination of information on possible risks as well as the circumstances of appearance and distribution. The goal is the recognition of possible risks in order for risk management to be able to introduce swift and appropriate measures. Consequently, it can also serve as an instrument towards further development of a balanced and structured implementation of the precautionary principle in the environmental health policy.     

Credibilistic risk aversion

In the probabilistic risk aversion approach, risks are presumed as random variables with known probability distributions. However, in some practical cases, for example, due to the absence of historical data, the inherent uncertain characteristic of risks or different subject judgements from the decision-makers, risks may be hard or not appropriate to be estimated with probability distributions. Therefore, the traditional probabilistic risk aversion theory is ineffective. Thus, in order to deal with these cases, we suggest measuring these kinds of risks as fuzzy variables, and accordingly to present an alternative risk aversion approach by employing credibility theory. In the present paper, first, the definition of credibilistic risk premium proposed by Georgescu and Kinnunen [Fuzzy Inf. Eng., 2013, 5, 399–416] is revised by taking the initial wealth into consideration, and then a general method to compute the credibilistic risk premium is provided. Secondly, regarding the risks represented with the commonly used LR fuzzy intervals, a simple calculation formula of the local credibilistic risk premium is put forward. Finally, in a global sense, several equivalent propositions for comparative risk aversion under the credibility measurement are provided. Illustrated examples are presented to show the applicability of the theoretical findings.     

Shadow Banking,Risk Transfer,and Financial Stability

Shadow banking is the process by which banks raise funds from and transfer risks to entities outside the traditional commercial banking system. Many observers blamed the sudden expansion in 2007 of U.S. sub‐prime mortgage market disruptions into a global financial crisis on a “liquidity run” that originated in the shadow banking system and spread to commercial banks. In response, national and international regulators have called for tighter and new regulations on shadow banking products and participants. Preferring the term “market‐based finance” to the term “shadow banking,” the authors explore the primary financial instruments and participants that comprise the shadow banking system. The authors review the 2007–2009 period and explain how runs on shadow banks resulted in a liquidity crisis that spilled over to commercial banks, but also emphasize that the economic purpose of shadow banking is to enable commercial banks to raise funds from and transfer risks to non‐bank institutions. In that sense, the shadow banking system is a shock absorber for risks that arise within the commercial banking system and are transferred to a more diverse pool of non‐bank capital instead of remaining concentrated among commercial banks. The article also reviews post‐crisis regulatory initiatives aimed at shadow banking and concludes that most such regulations could result in a less stable financial system to the extent that higher regulatory costs on shadow banks like insurance companies and asset managers could discourage them from participating in shadow banking. And the net effect of this regulation, by limiting the amount of market‐based capital available for non‐bank risk transfer, may well be to increase the concentrations of risk in the banking and overall financial system.