Managing risk through the veil of ignorance

Background. We view overconfidence within risk management as a problem likely to manifest within philosophical preferences for anticipationism over resilienism, and in assumptions that risks are objectively real external powers or potentialities rather than subjective knowledge propositions. Methods. We argue that the realist tradition within Italian social theory, first crystallised by Niccolò Machiavelli and later elaborated by the sociologist Vilfredo Pareto, offers valuable lessons for corporate risk management praxis by demanding that we map out the complex relations between the risk subjectivities of risk managers, and their objective risk environments, from a standpoint of psychological and sociological realism which stresses the risk ignorance of practitioners. We caution that risk management efforts to improve risk subjectivities to achieve perfect veridicality to objective risk environments might often amount to a wishful bildungsroman of epistemological growth, reflecting the common aspirations of risk managers to demonstrate professional competence. We suggest that the profession should control this overconfidence problem by stressing the corrigibility of risk subjectivities with reference to sociological understandings that reflect on the widespread risk ignorance that can persist and even intensify where risk management effort is made. Results. Following the macrosociological framework sketched by Pareto, we show how two common ‘modes of uncertainty’ can be scrutinised for their adaptive fitness to two common types of risk environment. Conclusions. It can be helpful to think sociologically of organisations as engaging with some highly significant strategic risks blindly through a veil of ignorance.     

Four questions for risk communication

The ‘relational theory of risk,’ proposed by Åsa Boholm and Hervé Corvellec in Journal of Risk Research in 2011, offers a theory of human constructions of risk, a theory that has not only sociological, but also ethical implications. Drawing upon interdisciplinary sociological and philosophical material, the present article suggests three ways to refine the relational theory of risk. First, I call attention to threatening relationships that are dangerous rather than risky. Second, I argue that a risk relationship only implies the ‘exclusion’ of the threatening object if the person who constructs the risk relationship chooses to distrust the threatening object rather than to trust it. Third, I amend the relational theory’s explanation of social risk conflicts by raising the question of the origin of the harm, either in the injured party itself or in the external environment. These refinements strengthen the explanatory power of the relational theory both regarding sociology and ethics. In consequence, I propose a Relational Theory of Risk and Danger.     

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.     

The effects of power relationships: knowledge,practice and a new form of regulatory capture*

Abstract

In the wake of disasters, criticism tends to target regulatory failures and regulatory capture. In this status quo, the roles of regulators are black-boxed and criticism fails to explore what has been happening within and around regulatory institutions. This paper explores how relationships between regulators of hazardous industry and those who interact with them affect regulatory practice. Actor-network theory was utilised to generate findings drawn from a study of the Australian pipeline industry in order to reveal perspectives and the approaches of regulators in regulating pipeline risks. The findings indicate that pipeline regulators have a particular logic in practicing risk analysis. This paper argues that such a logic can be theorised as a new form of regulatory capture that limits the way regulators regulate risks and constrains the potential of regulatory outcomes. It is urged that a new form of logics of practice needs to be developed so as to improve the process of risk regulation in preventing catastrophic accidents.     

Exchange rate and inflation risk premia in the EMU

This paper tests the effects of exchange rate and inflation risk factors on asset pricing in the European Union (EU) stock markets. This investigation was motivated by the results of Vassalou [J. Int. Money Finance, 2000, 19, 433–470] showing that both exchange rate and foreign inflation are generally priced in equity returns, and it studies the opportunity of evaluating the causality between these sources of risk after the elimination of the EU currency risks because of the adoption of the single currency. Our results show that both exchange rate and inflation risks are significantly priced in the pre- and post-euro periods. Moreover, the sizes of exchange rate and inflation risk premiums are economically significant in the pre- and post-euro periods. Futhermore, the UK and excluding-UK inflation risk premiums explain, in part, our evidence concerning a large EUR/GBP exchange rate risk premium and the existence of an economically significant domestic non-diversifiable risk after euro adoption. Hence overlooking inflation risk factors can produce an under/overestimation of the currency premiums and a miscalculation of the degree of integration of stock markets.     

Beyond under the dome: an environmental documentary amplified public risk perception about air pollution in China

Abstract

Air pollution is a major environmental problem in China and it poses serious risks to public health. Based on the social amplification of risk framework (SARF), this study examines how media, in particular, an impactful environmental documentary titled Under the Dome, influenced Chinese citizens’ risk perception about air pollution. Survey results showed that exposure to the documentary amplified risk perception and risk perception was significantly related to viewers’ information seeking behaviors, policy support, and individual mitigation action about this issue.     

Beck’s creative challenge to class analysis: from the rejection of class to the discovery of risk-class

Abstract

Beck’s rejection of the relevance of class in Risk Society has had an immense impact on both the fields of class analysis and the sociology of risk. In outlining a novel theory of the systemic importance of risks as side-effects and in making bold claims about how the production and distribution of risks are undermining class inequalities, Beck posed a highly influential challenge to both risk and class studies. Beck’s impact on class analysis however has not been mainly due to widespread acceptance of his original claims about risk and class; rather, it has been research building upon Beck’s work so as to critically depart from his conclusions through which Beck has made his contributions to the study of class. In seeking to identify the impact of Beck’s work on the study of risk and class, this paper, firstly, outlines Beck’s challenge to class analysis. It then proceeds to identify three key areas of research whose development was motivated by their critical engagement with Beck’s work: the literature on risk and the continuity of class; the critical theory of the individualization of class inequality; and the political economy of risk-class. This paper then concludes by critically evaluating Beck’s more recent, partial acknowledgement of risk inequalities by arguing that there are significant limitations in his account of class, but that his work continues to offer a valuable opportunity to inspire future work on class and inequality.     

The constitutive element of probabilistic agency in risk: a semantic analysis of risk,danger, chance,and hazard

Defining central concepts with accuracy is crucial to any scientific discipline. A recent debate over risk definitions in this journal illustrates the far reaching consequences of divergent definitions. Aven and Renn define risk as a social construct while Rosa defines risk as an ontological fact. Both claim that their definition reflects the common usage of the word risk. Through a semantic analysis this paper points to a constitutive element of what is termed probabilistic agency in the risk concept. In this respect, risk is distinct from danger, and because Rosa’s main argument is based on the apparent synonymy between risk and danger, the premises for his risk ontology are not valid. The paper furthermore argues that Aven and Renn’s attempt to bridge between epistemology and ontology is based on a distinction between a conceptual level of risk and its practical application which is impossible to uphold if a risk definition is to be in accordance with the ordinary usage of the word. The paper concludes by arguing that risks are only real within a subjective ontology.     

Community social capital and individual disaster preparedness in immigrants and Canadian-born individuals: an ecological perspective

Abstract

Psychological research on the predictors of disaster preparedness has mainly focused on individual-level factors, although the social environment plays an important role. Our goal is to provide a systemic perspective to help improve risk communication and risk management for natural disaster risks. We examined how community-level social capital related to individual-level disaster preparedness in immigrants compared with Canadian-born individuals. We characterised participants’ communities’ social capital by conceptually linking two national surveys using postal codes. We performed sequential linear multiple regression analysis to examine the relationship between community social capital and individual disaster preparedness. Results revealed three components of social capital: societal trust, interaction with friends, and neighbourhood contact. Societal trust positively predicted the extent to which immigrants and Canadian-born individuals knew someone who would search for them post-disaster. Interestingly, results revealed that Canadian-born individuals were more likely to uptake emergency planning when living in a community with strong societal trust, while the reverse was true for immigrants. Results suggest that some components of social capital may have an effect on certain preparedness behaviours. Societal trust could have both positive and negative effects on emergency planning depending on individuals’ immigrant status. Risk communication and risk management should consider social capital as part of the framework for effective disaster preparedness.     

Harm-advocating online content and subjective well-being: a cross-national study of new risks faced by youth

Harm-advocating online content includes pro-eating disorder, pro-self-harm, pro-suicide, and the positive portrayal of the deaths of real people (snuff or death sites). This material is often user-generated and easily accessible for an average online user, therefore offering a potential source of risk for many Internet users. This cross-sectional study examined the association between exposure to harm-advocating online content and users’ subjective well-being (SWB) among American (n = 1032) and Finnish (n = 555) young people aged 15–30. Exposure to different types of online harm-advocating content was prevalent in both countries. Lower SWB was associated with exposure to this material even when controlling for social networking site (SNS) activity and online and offline victimization. In the US sample, seeing death sites was not associated with SWB, but seeing other harm-advocating sites was. In both countries, those with high SNS activity were more likely to be exposed to online harm-advocating material. These results from two advanced information societies underline the importance of recognizing the existence of harmful online communities. These communities are grounded on social interaction that might involve risks for the well-being of adolescents and young adults.     

Determining overall risk

The risk journal literature lacks a clear and simple account of the conceptual issues involved in determining the overall risk of an action, and in explaining how risk is additive. This article attempts to bring a measure of clarity to these issues in as basic and non‐technical a way as possible. First of all, the view that risk is ‘expected harm’ is explained. The view that risk is a quantitative concept is then defended. The distinction between the risk run by doing action A in respect of possible outcome x, and the overall risk run by doing action A in general is explained, as is the position that the overall risk of A is determined by summing the risks of each possible harm that A could give rise to. The article then explains how risks can be summed over time, as long as the probabilities involved are determined according to probability theory. Finally, the article explains that in a doing a risk‐benefit analysis of A, positive aspects of a possible outcome x, where x is harmful on balance, must be incorporated into x's level of harm rather than incorporated into the benefit side of the risk‐benefit analysis of A.     

Revisiting local responses to mass violence

This study examines the extent to which individual and sociological factors relate to worry about mass violence, which, in this study, is investigated as worry about the recurrence of school shootings. First, it is expected that socio-demographic and vicarious event-related factors explain individual variation in worry about mass violence. Second, responses to a localized event may associate with negative perceptions of community solidarity. In addition, individual responses regarding school shootings cannot easily be separated from other forms of insecurity, such as concerns about societal disintegration (e.g. eroding moral values) and popular discussions about crime (e.g. terrorism). Two independent postal surveys were collected from the small Finnish community of Jokela approximately 6 (N = 330) and 18 (N = 278) months after the rampage school shootings in the local high school. Independent samples t tests and linear regression are used as analyses methods. Results from regression analyses of the six-month post-event responses indicate that knowing a victim of a school shooting event relates to increased worry about mass violence. Decreased perceptions of social solidarity are also associating with increased worry after controlling for other individual and sociological factors. After 18 months, both knowing a victim and having school-aged children within one’s household explain even more of the variation in worry, while perceptions of solidarity is no longer a statistically significant predictor. In addition, at both 6 and 18 months, the higher the perceptions of risks to Finnish society from social change and from crime, the higher the worry about mass violence at schools. Surprisingly, the positive association between self-reported subjective anxiety and worry about mass violence does not reach a statistical significance.     

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.     

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.     

Social Security with Heterogeneous Populations Subject to Demographic Shocks

In a previous paper, we showed how a pay-as-you-go social security scheme, based on voluntary contributions, can be an appropriate institution to reach an optimal sharing of risks among generations in the presence of demographic uncertainties. We study here the functioning of such schemes when there are different population strata, with different demographic shocks and wages. We show that while a collective voluntary pay-as-you-go scheme can provide efficient intergenerational risk sharing, it is likely to be destabilized by pensions funds specialized by agents' types. This is true both when there is a complete set of contingent markets, where the risk pooling capabilities of a collective fund are potentially of less interest, and when markets are incomplete. In this last circumstance, a collective fund may help the living agents to share their intragenerational risks. However, we show that the resulting allocation does not Pareto dominate the outcome of individual funds by agent types, and that there are incentives for agents to separate from any collective organization.     

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.     

Drivers of flood and climate change risk perceptions and intention to adapt: an explorative survey in coastal and delta Vietnam

Abstract

This article contributes to current research about determinants of climate change and flood risk perception, and intentions to take adaptive measures. We propose a research model that distinguishes between vulnerability and severity components of perceived risks, and adds perceived adaptive capacity as a third factor to predict the intention to take adaptive measures. We used this combined model as a conceptual lens for an explorative survey among 1086 residents of coastal and delta communities in Vietnam. Pairwise analyses revealed a significant association of flood and climate change risk perceptions with individual’s flood experience, climate change knowledge, frequency of community participation and socio-demographic factors. However, in multivariate analysis, the influence of most socio-demographic factors became weak or patchy. Flood experience was the most influential driver of flood-related risk perceptions but weak for climate change-related risk perceptions and behavioural intentions. Knowledge strongly increased the intention to adapt to flood and climate risks and the perceived vulnerability to and severity of climate change risks, but reduced the perceived capacity to adapt to climate risks. Frequency of community participation increased the perceived vulnerability and severity of climate change risks, the intention to adapt to both climate and flood risks and the perceived capacity to adapt to flood risks, but reduced the perceived capacity to adapt to climate risks. Our research confirms earlier findings that individuals’ knowledge, place-specific experience and social-cultural influences are key predictors of both flood and climate change risk perceptions and intentions to take adaptive measures. These factors should therefore receive ample attention in climate risk communication.     

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.     

Collective efficacy and natural hazards: differing roles of social cohesion and task-specific efficacy in shaping risk and coping beliefs

Abstract

Previous research in non-disaster contexts has shown that the concept of collective efficacy, which is a group’s sense of its ability to achieve a specific objective, assists understanding of community readiness and households’ decisions to take preparedness actions. Collective efficacy expands the concept of social capital, which refers to social resources such as trust, norms and networks, by addressing how likely communities are to activate these resources for specific tasks. This paper empirically investigates the effect of three distinct collective efficacy components on risk perception, fear and self-efficacy regarding natural hazards in Austria. The three components have differing impacts on risk and coping beliefs: (1) Social cohesion decreases risk perception and fear but has no effect on self-efficacy; (2) Efficacy belief in social support increases self-efficacy; (3) Efficacy belief in citizen groups increases risk perception and fear. The combination of efficacy belief in social support and citizen groups seems to be most promising for stimulating protective action, as they together promote both risk and coping appraisal. However, overreliance on social support may have the undesirable effect of creating a false sense of safety among disaster-prone households. The findings demonstrate that collective efficacy provides a meaningful perspective from which to examine risk and coping beliefs but caution against treating it as an umbrella concept, given the differing effects of its components. Future studies are needed to investigate the impact of collective efficacy on other key explanatory factors of protective action, such as response efficacy or non-protective responses.     

Cosmopolitan risk community in a bowl: a case study of China’s good food movement

Abstract

Ulrich Beck fundamentally transformed our way of thinking about human interdependence through his three core theses on risk, individualisation and cosmopolitanisation. However, two commonly observed deficiencies in Beck’s grand theory were its Eurocentric orientation and a lack of empirical grounding. Based on 5 focus groups and 14 interviews with participants of the emerging Clean Food Movement in China, this paper extends the Beckian discussion outside Europe. Through examining how individuals understand both ‘traditional’ and ‘new’ risks associated with contemporary food consumption, this paper demonstrates that in the face of unpredictable and incalculable harms, risks are not seen as a ‘thing’, but are translated into ‘causal relations’. Subsequently, for Chinese stakeholders, the best way to safeguard food risks is to enact more visible and functioning interdependent relations in the food system. This in turn has given rise to new forms of communities which cut across conventional geographic, socio-economic and political boundaries. The paper deepens a Beckian theorisation in two ways. First, it demonstrates that the ‘enabling’ effect of risk towards a cosmopolitan society is not limited to obvious global crises, such as climate catastrophes and financial meltdown. In fact, the mundane yet intimate concern of putting ‘good’ food in one’s dinner bowl already presses actors to form new social solidarities that are cosmopolitan in nature. Second, it goes beyond Beck’s assertion that the risk society has culminated in a cosmopolitan moment, and explores how a performative cosmopolitan community reshapes the ‘relations of definition’ to mitigate risks on the ground.