Turns out cognitive bias is making a nonsense of our decision-making skills – and that extends to who we hire for key roles in business says Lauren Gow in the latest edition of StrategicRISK
Cognitive bias is one of the most fascinating ‘new’ areas of occupational psychology and one I think deserves a lot more scrutiny. I must confess that the first few times I heard the phrase, I rolled my eyes with resounding sarcasm. It sounded like the kind of mumbo-jumbo phrase tossed around by people in large corporates to sound intelligent. Some of my other favourites include ‘blue sky thinking’, ‘core competency’ and ‘cascading relevant information’, but I digress.
Contrary to popular belief among those who know me well, I am willing to admit that I was wrong about cognitive bias. A piece in this quarter’s edition by Risk Academy principal Alex Sidorenko has really opened my eyes and inspired me to research what cognitive bias is all about – minus the eye rolling.
I believe this new psychology is going to prove vital in ensuring that our workplaces of the futures are truly diverse by choice, rather than a target-hitting tick-box exercise like it is now.
Sidorenko discusses why overcoming the cognitive biases inherent in all of us is important to the risk profession. He notes that the significant role of risk perception and research into cognitive biases in risk management have finally been acknowledged by both ISO31000:2018 and COSO:ERM 2017.
He also says that, overall, research into cognitive biases suggests that people are often irrational when making decisions under uncertainty, which significantly reduces the value of information that risk managers receive from management. If expert opinions, rankings and ratings are the only or main source of information for the risk manager, the results of risk analysis are guaranteed to be inaccurate.
Apparently applying small doses of electricity applied to the Wernicke’s area of our brain significantly reduces the effect of cognitive biases on our decision-making. Unless things drastically change, we won’t be able to electrocute anyone in risk workshops, so
Sidorenko suggests other ways of approaching the problem – including removing humans as much as possible from the decision-making process.
He goes so far as to suggest using mathematical methods that require no human input at all.
I am not sure I agree entirely with that though, partly because I believe humans add emotional intelligence and empathy to situations and partly because I am not ready for risk management to go completely iRobot just yet.
Having said that, I wonder what would happen if computers used facts to make decisions in other areas of business, such as recruiting – would we still have the prevalence of ‘stale, male, pale’ (not my words) in senior positions in the insurance and risk industries?
Lloyd’s of London chief executive officer Dame Inga Beale will be vacating the role in 2019 following a five-year tenure. Beale, who came into the role in 2014, was rumoured to be unpopular among the traditionalists for her stance on inclusion, diversity and banning boozy lunches in Leadenhall. And
many accused her of taking her eye off the ball when the market was struggling with the softest market conditions of a generation.
As we go to press with this edition, the Dive-In Festival is about to be held globally, which aims to increase diversity and inclusion in the insurance industry. I think Beale was right to put pressure on not only the insurance industry but the wider risk community to be more inclusive.
I want my son Atticus’ generation to work in a global community of accepting professionals; where age, size, shape, colour, sexual preference, nationality or any other factor is genuinely not taken into account when hiring. We talk a good talk at the moment with our anti-discrimination laws, but look around your offices and see whether yours could really be described as diverse. Maybe, just maybe, we are already taking small steps towards this by openly taking exception to the cognitive bias ingrained in all of us.
You can download the latest edition of StrategicRISK below. Happy reading!