Saturday, 28 February 2009

Get other gamblers on board

“When people are in groups, they make decision about risk differently from when they are alone.”

If you want support for a risky decision, then present it for approval to a board full of gamblers. Corporate governance codes imply that collective decision making is a way to reduce, or at least control, risky random decisions. You might think that is obvious. But psychology research suggests the reverse. In a group, accountability is reduced and each gambler is reassured by the support of other gamblers.

An individual is likely to make riskier decisions in a group, since the shared risk makes the individual risk less. Various researchers have suggested that:
  • greater risks are chosen due to a diffusion of responsibility, where emotional bonds decrease anxieties and risk is perceived as shared.
  • high risk-takers are more confident and hence may persuade others to take greater risks.
  • social status in groups is often associated with risk-taking, leading people to avoid a low risk position.
  • as people pay attention to a possible action, they become more familiar and comfortable with it and hence perceive less risk.

Ref. “The Risky Shift Phenomenon”

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