ABSTRACT
Decision-making under risk and uncertainty is not straightforward. This paper investigates how people make decisions when they need to choose between prevention and production investments and the decision involves risks and uncertainties that could have major negative consequences.
A questionnaire was conducted among 405 students at the University of Antwerp, in Belgium.
With regard to decision-making under risk, the findings reveal that the respondents behaved in a more risk-averse manner than predicted by the theory of expected values.
Concerning decision-making under uncertainty, the respondents also displayed more risk-averse decision-making behaviour than anticipated, especially under circumstances of complete uncertainty.
The study also shows that men are more likely to behave in a more risk-seeking manner than women are, and that people with a high intuitive thinking style are less risk-averse than people with a low intuitive thinking style. Furthermore, people with a high rational thinking style are more risk-averse than people with a low rational thinking style, and respondents with a high sensation-seeking style make decisions in a more risk-seeking way than respondents with a low sensation-seeking style.
**********
From the full-text paper:
This looked at how people make decisions when choosing between prevention and production investments and where risk and uncertainty are involved and could result in major negative consequences.
Although the study talks about major accidents – note that it was based on a survey data from university students (and not industry practitioners/experts). Although this limitation must be considered, the findings do highlight how non-experts who will soon move into industry formulate benefit/loss trade-offs (at least theoretically).
Survey respondents were given scenarios involving investments and resultant major accident probabilities.
For definitions, “risk-seeking” choices is defined as “a preference for investing in production over prevention” and “risk-averse” choice is “the risk or uncertainty is judged unacceptable and a prevention investment is consequently chosen over a production investment”.
Key findings included:
- According to calculated cumulative expected values, the higher the accident probability and the higher the possible loss, the more advantageous it is to go with prevention investments. But in theory if the probability of an accident is remote, then, theoretically, decisions should opt for production. This study, using this sample, found people were generally more risk-averse than anticipated based on expected values.
- That is, “The majority of our respondents chose the production investment only when the possible loss caused by a major accident was equal to or less than €100,000,000” (p7)
- This risk averse preference was also found with higher likelihood scenarios (but lower losses). One explanation could be “people’s moral obligation to prevent harm to human beings and the environment. They argue that risk is related to the experience of something that people fear or regard as negative” and people may also try to minimise regret.
- As expected, the number of respondents decreased as possible losses increased. Further, when the scenario was marked by complete uncertainty (both the probability and losses were unknown), 95% of respondents went with prevention decisions
- Significant differences were found between male and female respondents. Males behaved in more risk-seeking ways, as in choosing more production decisions under various likelihood/consequence situations. As possible losses increased, the difference between males and females decreased.
- Males scored higher on rational thinking (defined as more effortful, deliberative reasoning and systematic processing of information) and sensation-seeking than female respondents. Female respondents scored higher on intuitive thinking (rapid decision making based more on evaluating the main features of the problem).
- Although males were more risk-seeking than females on average, people scoring higher in intuitive thinking were generally higher risk-seekers, whereas people scoring higher in rational thinking were more risk-averse. As an explanation for why intuitive thinkers may be more risk-seeking, it’s argued that these individuals “who are more adept at using their intuition may feel more comfortable dealing with uncertainty and risk and thus develop a higher tolerance for both” (p8).
- “predicting decision-making in uncertain situations remains a challenge. When there was uncertainty about the possible loss that could be caused by an accident, the majority of the respondents … opted for the prevention investment, regardless of the probability that the accident would occur. As the probability that the accident would occur increased, the number of respondents opting for the production investment decreased. The number of respondents choosing the production investment also decreased as the possible losses increased. When there was complete uncertainty … the majority (95.0%) of respondents chose the prevention investment” (pg. 7).
- Young people, contrary to what was expected, behaved in a more risk-averse way when making decisions that involved major negative consequences.
- Risk-seeking decisions and increased production investments were only made when low accident probabilities occurred with low potential losses.
- For decisions made under conditions of uncertainty, participants only chose production investments when they evaluated known and low possible losses. Otherwise prevention was preferred.
Authors: van Nunen, K., Reniers, G., Ponnet, K., & Cozzani, V. (2015). Safety Science, 88.
Study link: http://dx.doi.org/10.1016/j.ssci.2015.09.025
Link to the LinkedIn article: https://www.linkedin.com/feed/update/urn:li:ugcPost:6908903742276558849?updateEntityUrn=urn%3Ali%3Afs_updateV2%3A%28urn%3Ali%3AugcPost%3A6908903742276558849%2CFEED_DETAIL%2CEMPTY%2CDEFAULT%2Cfalse%29
SafetyInsights.org 