The components of risk

I’ve been in a lot of arts discussions lately that wander around the question of risk. Most have been about risk-taking in audiences or communities. Some have been about risk tolerance and philanthropy. In these conversations, our language suggests that risk is a single variable, and that the individual is the best unit of analysis (a person is generically either risk-averse, risk-tolerant, or risk-seeking). But that increasingly feels like an inelegant and unproductive path.

Crevasse

Flickr user Didrik Johnck

Rather than being a personal trait that is somehow encoded within us, ‘risk’ feels more to me like an intersection of several different perceptions. Risk relates to our confidence about an outcome to a situation or experience (aka, our predictive ability or uncertainty). It also relates to our perceived capacity to bridge the uncertainty (which informs our confidence, but also has unique dynamics). And it involves our expectation of consequence — either for successfully bridging the distance, or for falling short. Each of these aspects includes an internal and environmental assessment. So our assessment and reaction to ‘risk’ can change as we change, and as our situation changes.

You could think of confidence as the distance to be leaped (the farther the jump, the less we can predict what’s on the other side), of capacity as our perceived ability to jump and the resources available to help us jump successfully, and of consequence as the depth of the chasm between us and the other side (measured against the pleasure awaiting us if we make it).

The word ‘risk’ comes from the French word for ‘danger.’ But even ‘danger’ is a context- and person-specific noun. Lighting a match on an open beach isn’t as dangerous as lighting it in a hay-barn near a leaking propane tank. And your capacity to light a match without dropping it or burning your fingers also informs the danger or risk. Finally your confidence about predicting the outcome of dragging the match across a rough surface in that environment rounds the circle.

So, if you’re seeking to inform risk tolerance or risk response — of audiences, artists, funders, board members, administrators, civic leaders, and such — you’ve got multiple variables to manage and probably multiple problems to solve. Let’s explore the variables in a bit more detail:

  • Confidence
    Here I mean certainty about predicted outcomes, not the ‘can-do’ quality of self-help books or Sound of Music songs. Our brains, as it turns out, are rather sophisticated ‘prediction machines,’ constantly guessing about the next moment, or the trajectory of various variables in space and time. Most of this we do subconsciously, so we’re not aware of how much we’re doing. Our ability to correctly predict outcomes depends quite a bit on our experience in certain situations or domains. A professional baseball player can make a good guess of the speed and location of a pitch as it’s leaving the pitcher’s hand. A novice will have no clue. Predictive ability also connects to our innate or developed abilities, or even our multiple intelligences. That same professional baseball player may be a complete wreck when navigating a complex social situation or cocktail reception.
  • Capacity
    Our perceived capacity to engage an unknown or a potential danger also has multiple parts. It involves our assessment of our own ability, but also our assessment of the environment (Is there someone to help me? Will I be caught on the other side? Do I see tools available to increase my chance of success? Have other people like me made it?).
  • Consequence
    This variable is a combination of the upside of success (pleasure, reward, return) and the downside of failure (death, disappointment, social ridicule, financial loss). If you are considering a long jump to a nice reward (ice cream on the other side), it matters whether there’s a small indent between the lines, or a 100-foot-deep crevasse. If you don’t like ice cream (what’s wrong with you?), there’s no need to make the jump at all. Clay Shirky offers a great perspective on two approaches to avoiding bad consequences, institutions often reduce the possibility of failure (by vetting and filtering early on), collaborative forms reduce the cost of failure (by making space for lots of experiments of small consequence).

If these variables are useful, then an arts organization has many paths to fostering different risk responses in audiences, artists, administrators, and others. We can influence the confidence or predictive capacity through experience, exposition, and expression. We can influence capacity by offering tools, resources, and human support for those eager to explore the unknown. We can influence consequence by defining and delivering the upside more effectively, and mediating the downside.

Finally, we can open our approach to recognize that people, by themselves, are not risk averse or risk seeking (although they may have tendencies or propensities). Rather, risk is a product of people in context in time.

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Comments

  1. says

    Thanks Andrew, even just taking the time to notice and investigate risk is useful.

    I also like Frank Partnoy’s corner office take on risk assessment in the book, Wait: The Art and Science of Delay. Partnoy explain why studying a decision makes for a better outcome. He also offers a simple calculation for how to identify the last possible moment to make up one’s mind. Megan Gambino interviews the author for the Smithsonian here: http://www.smithsonianmag.com/science-nature/why-procrastination-is-good-for-you-2102008/#ixzz20yUYUEu2

  2. says

    Hi Andrew,
    Great post. I also think that the multi-dimensionality of risk taking also relates to the type of risk and how we define it. So, with a show, for instance, one could incur financial risk (show could lose money); artistic or reputational risk (show could be poorly produced, could be panned, could be deemed irrelevant); social risk (show could be controversial, unpopular, may harm social ties); mission risk (show could somehow undermine, weaken, or cause people to lose trust in the purpose of the organization, or its aims) … I’m sure you could think of many more. It’s interesting to think about your framework across these various types of risk. Also, in light of all the conversations these days about diversifying programming (more women, more writers of color, etc.) I am curious as to how risk-aversion or risk-management (and if so, in which areas) may feed into the decisions that lead theaters to repeatedly program male, white seasons … D

    • says

      Great points, Diane. I agree that there are many, overlapping forms of risk, and each is subject to context, person, and time. Complex calculus. I also think there are issues beyond ‘risk’ that inform the equity and diversity issues, but we often translate and conflate those issues under the ‘risk’ umbrella.

  3. says

    I also like Peter Sandman’s formula: risk = hazard + outrage. It’s not as nuanced in the way that you are discussing, but it offers a tool to consider how various stakeholders might respond to a failure situation.

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