What Does Risk Actually Mean (And Why Should We Care)?
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I’ve been thinking a lot about risk recently. As a lawyer, risk is something we deal with on a daily basis. We have entire procedural rituals in place to guard against it. We draft contracts to distribute it appropriately. But do we really think about it regularly? Sadly, I’ve concluded that the answer is no.
Wikipedia defines risk as: “The possibility of something bad happening.” It goes on to discuss uncertainty and how it may affect us. While this rings true, it’s not all that helpful.
We know there’s risk in everything we do i.e., the possibility something bad will happen while engaged in any activity. We know that driving involves risk. But we don’t engage in the evaluation of that risk when we’re driving. I bet you that most of us don’t even think about the risk of getting into an accident when we get behind the wheel.
Theoretically, we know what it means and that something bad may happen to us, but I expect that most of you are like me and don’t think about it that often.
We also talk about minimizing risk. Let’s take the example of driving again. Sure, we can minimize risk by controlling our actions. We can wear seatbelts; we can avoid driving after consuming alcohol or drugs; we can avoid driving at night. In that sense, we reduce the probability that an accident will happen or if it happens, we can reduce the probability of serious injury or death.
But if we break risk down in this situation to two subsets of risk: the risk that we will engage in unsafe behaviour and the risk that someone else will engage in unsafe behaviour, we find that our risk is not shared equally between both. While we can reduce the probability of serious injury in the first subset, we cannot control the behaviour of others.
We talk about taking calculated risks. How do we calculate risk? How do we know if some random event will occur? I’ve often heard this. I’ve even used it myself. It’s a calculated risk! But in retrospect, I now believe I simply said that to myself so I could feel better about my decisions. We have no way of “calculating” risk. If we were able to reduce risk to a mathematical formula, we could simply calculate and then avoid the random event.
I believe that part of the problem is that we fool ourselves into thinking that we must figure out the probability of something bad happening. While statistical models can provide us with numbers, these can be misleading. For example, according to the Canadian Government, there were 5.2 fatalities caused by vehicle accidents per 100,000 people in 2019. Extrapolate that to Winnipeg (estimated population of 815,000) and we have 42 fatalities in a year.
If we looked at the probability of dying, we would see that it was pretty low and therefore conclude that driving is safe enough. But, we fail to properly consider the consequence of falling into that probability. While the probability is low, the consequence is death. This is a form of Russian roulette.
Rather than thinking of probability, I believe we should be asking what are the potential consequences. If the consequences of an activity are minimal, then who really cares about probabilities. However, if the consequences are severe, then making a decision becomes much easier. By looking at risk through the lens of consequences, the decision is simple: Is this a consequence that I am prepared to accept? If the answer is yes, then engage in the activity. If the answer is no, then don’t. You don’t need to rely on any formula. You are not engaged in “calculating”.
Simple enough then, right? We know that driving can cause death. We don’t want to die. That is not a risk I am prepared to accept. Then why do I drive? Though I don't drive as often as I did before, I do drive.
I don’t have any scientific answer for this other than to conclude that it’s human nature. Unless we experience something “extraordinary” we can’t really understand the impact. Let's reconsider the driving example. We grew up riding in vehicles. As children we never thought about it. It becomes a habit. As adults, we probably drive everyday. The behaviour is so routine, we barely think about it. It becomes part of our daily routine, like brushing our teeth. The routine lulls us into thinking the same result will occur day after day. We know that statistically, this is not true. We know that at least some Winnipeggers die in car accidents every year. But we don't apply that possibility to our reality because it has not been part of our experience. At least until the day someone we know or love dies. Then the reality of this risk hits us. It's uncompromising and absolute.
Let's look at another example, we keep hearing that we could not anticipate the effects of COVID-19. But that’s not correct. Specialists have been screaming from the roofs that we are one virus away from the next Spanish flu. We also know that viruses can be incredibly contagious and deadly. All we needed to do was consider the consequences of a deadly virus to know how it would impact society, and our economy. In fact, many specialists had computer models.
But those inconvenient facts were not politically appropriate. Prior to the pandemic, I don’t think any of us would have supported government action (to spend money on preparing for a pandemic) for something, like the Spanish flu, that hadn’t happened in 100 years.
While it’s not easy, I believe that if we really sit down and think about the potential consequences of any action, we can mitigate risk. We need to forget about probabilities. Who cares if something is likely or not likely to happen. Rather, we need to spend time thinking about how bad can it get. If the answer is really, really bad, then we need to take the time to seriously consider changes that would avoid the risk altogether (insofar as possible. An asteroid can hit us tomorrow, there’s not much we can do about that).
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