Risk Intelligence III

Risk Intelligence Definition: A general mental capability that, among other things, involves the ability to reason, plan, solve problems, think abstractly, comprehend complex ideas, learn quickly and learn from experience in matters involving risk and uncertainty. It is not merely book learning, nor is it primarily about a gut feel for risk. Rather, it reflects a broader and deeper capability for comprehending risk and uncertainty in our surroundings—”catching on,” “making sense” of things, or “figuring out” what to do in the face of both presenting and emerging risks.*

In an earlier post, RISKVIEWS told of the capabilities of the Risk Intelligent.  To acquire capabilities, one must start with beliefs that (a) there is a need for such capabilities and (b) that such capabilities can be effective in satisfying the need. Common Beliefs of the Risk Intelligent that led them to acquire their capabilities:

  • The world is dangerous enough that we are motivated to control risks, and also predictable enough that systematic management and exploitation of risk can be worthwhile.
  • The characteristics of risks will drift over time (and occasionally jump unexpectedly) requiring constant vigilance to adapt risk exploitation and management processes.
  • Preferences for risk and reward are asymmetrical: the aversion to a large potential loss is always higher than the preference for the same sized potential gain
  • Opportunities for profit via risk-taking exist because firms can find opportunities to exploit risks that the market has miss-priced, and/or opportunities to exploit diversification effects
  • It is bad for organizations to fail, so risk management objectives should be a part of all company strategies and should involve the company’s CEO and board of directors
  • Risks can and should be measured; this measurement is a technical exercise that requires expertise
  • Management of risk requires diligent attention to any choices to accept risks and actions to mitigate or transfer risk; more significant risk decisions should be approved at more senior levels of the company hierarchy
These beliefs differ from standard economics beliefs.
As RISKVIEWS said in another post, the capabilities are gained via Education, Experience and Analysis.  The next several posts on this topic will explore each of those paths separately.  After that, RISKVIEWS will come back to the beliefs and discuss how they come about.

*It turns out that there are almost as many definitions of intelligence as there are psychologists.  But on one day in 1994, almost 50 agreed with this definition, put forward by Linda Gottfredson:

Intelligence: A very general mental capability that, among other things, involves the ability to reason, plan, solve problems, think abstractly, comprehend complex ideas, learn quickly and learn from experience. It is not merely book learning, a narrow academic skill, or test-taking smarts. Rather, it reflects a broader and deeper capability for comprehending our surroundings—”catching on,” “making sense” of things, or “figuring out” what to do.

As you can see, RISKVIEWS based our definition of Risk Intelligence on this wording.
Explore posts in the same categories: Enterprise Risk Management

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