Tuesday, July 29, 2014

Gambling and the Dynamic Nature of Risk

The other day we were teaching a class at a client’s site, where the primary hazards tend to be health hazards from chemicals and fire hazards are minimal (but still possible), we asked the group the following question:

Does the fact that fires are so unlikely at this site make them more likely to happen?

One student was emphatic that the answer to this question is “no.” His argument made sense – if we estimated the risk to be, just choosing a random number, 1 in 10,000 then that is the number. Simple knowledge of the risk shouldn’t change it because risk is static – knowing a probability should not change the probability of an event.

This line of thinking is very rational and in line with the common approach to risk management. An analogy often used to understand traditional risk thinking is gambling. Take, for example, the game roulette (if you’re unfamiliar with the game, here’s a short explanation - click here). If you decide that you want to place all your money on the number 20, knowing that the likelihood of winning is 1 in 38 times (depending on the specific setup the casino uses) does not make you more or less likely to win. The probability is the same whether you realize it or not because your knowledge has no effect on the speed of the wheel, the speed with which the dealer spins the ball, the rotation of the Earth, or any of the other myriad factors that may effect where the ball lands.

So, why should the likelihood of having a fire in a chemical plant be any different?

The thing is, it is very different. As we said above, the probability, or risk, you could call it, in roulette is static. It doesn’t change from one spin to the next. But in real life that’s not what happens.

To illustrate this, consider a different game found in the casino – poker (if you’re unfamiliar with the game, here’s a short explanation - click here). Poker, as it is traditionally played, is a very different game that most other games found in the casino, because you are no longer playing against the casino, but instead are playing against other players. In some ways, the math underlying poker is not different than the math of other casino games, such as roulette – the odds of getting the card you need do not change whether you know them or not. However, poker is an interesting game, because poker requires players to make more decisions than almost any other game in the casino and these decisions have a very important effect on the outcome of the game. By introducing those decisions you introduce interactions between players that are complex and dynamic.

As an example, imagine you play a hand against a player where you bet with your strong poker hand and you win. The decisions made during that hand have consequences on your opponent. They have formed new impressions of you, how you play, their perception of how lucky you are, how unlucky they are, etc. All of this will cause them to make adjustments, consciously and/or unconsciously, changing the probability of a given outcome on the next hand. The probability of the cards coming a certain way doesn’t change, but your chance of winning or losing does.

And this is the case with risk in the safety world. We would like to believe that things are static and easy, but they are not. The minute we tell someone about a risk that they face we have changed the risks because the person will make an adjustment based on what you told them (and not always the change you want them to make).

So, for example, if someone at a chemical plant knows that the likelihood of a fire happening is low what effect will that have on them? Chances are they will let their guard down (understandably). They will be vigilant with other hazards, but not as much regarding fire hazards. They will be less likely to support measures to prevent fires, because they perceive the risk to be low enough already. Therefore, without the added vigilance and prevention measures that may have been there before, by knowing the probability of an event, the probability changes.

This isn’t to say that we should keep information about risks from people, or that the people who are less vigilant are bad or stupid (you could argue the opposite is true). Rather, it’s to say that we have to understand that when you introduce people into a system you introduce complexity. The system becomes dynamic because people are noted for their innate ability to adapt to their environment.

Our job is not to stop this from happening (because that’s impossible), but provide people with the tools need to make more informed adaptations. This includes providing a clear picture of the risks people face, understanding that the risks we faced yesterday may be different today, and may change again tomorrow, as well as making systems more tolerant of the performance adjustments people make. Furthermore, our tools for assessment of risks must not be based on static measures of risk. This means that many traditional risk assessment tools may no longer be applicable to the dynamic risks we face. New tools and approaches are needed, ones based on sociotechnical systems-thinking and complexity.

How does your organization cope with dynamic risks?

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