Don't over react to single events even if they are very dramatic

 

Often during business leadership training workshops, I will conduct a "dollar auction." I hold up a brand new dollar bill and tell participants that I will "sell" the dollar bill to the highest bidder regardless of the bid. If the high bid is 1¢, then that bidder gets the dollar bill for 1¢. The rules are: the high bidder must actually pay the amount bid and the second highest bidder must also pay the amount bid although he or she will not receive the nice crisp dollar bill. The bidding predictably begins with one and two cent bids. Eventually someone will bid 50 cents and someone else will have to bid 51 cents. At that point, the group realizes that I am going to make a profit on the exercise.

The bidding continues, of course, because a dollar bill for 51 cents or 75 cents is still a pretty good bargain even if the sly facilitator is going to make a killing. Inevitably, someone bids 99¢ forcing the other bidder (All but two bidders will have stopped bidding by now.) to bid one dollar for the dollar bill. So, the person with the 99¢ bid faces the dilemma of either losing 99¢ or bidding $1.01 for the dollar. Well, losing 1¢ is better than losing 99¢. The person who had bid one dollar now has a similar conundrum. On and on the bidding goes! I often have to stop the bidding at 3 or 4 dollars (I do have some sympathy for the poor chumps). This devious little exercise actually demonstrates several organizational phenomena. It stimulates a discussion of when to cut your losses on a losing project. But, it also helps illustrate how leaders can do a poor job of assessing risk.

Consulting, law firms, and insurance companies have made a fortune advising corporations how to manage their risks. While few would argue that you shouldn't remain vigilant, you have to wonder whether the billions spent on avoiding harm might not be better spent on more profitable activities like developing new products, improving the training and development of employees, conducting more research and the like. As our economy slowly (ever so slowly) recovers, the last component to improve has been employment. Companies have tons of cash but few are willing to be the ones to start hiring. Those that are hiring are more likely to look to temporary help than risk employing full-timers.

As a society, we are not so good at evaluating risk. We are afraid of terrorism, tainted food, odd flu viruses, and out-of-control Toyotas. Yet when you add up the actual damage done by the sum total of all of those threats, it is miniscule compared to the number of people killed in auto crashes. If a hundred years ago, someone had proposed a transportation system in which 40,000 people would be killed every year, we would probably still be riding in horse-drawn buggies. But, we see that as an acceptable risk. "We routinely overestimate rare risks and underestimate common risks….(1)" Humans seem to be hard-wired to act in the face of threats, no matter how unlikely or rare.

Psychologist Scott Plous said it well in "The Psychology of Judgment and Decision Making": "In very general terms:

1. The more available an event is, the more frequent or probable it will seem;
2. The more vivid a piece of information is, the more easily recalled and convincing it will be; and
3. The more salient something is, the more likely it will be to appear causal."

So, when faced with a very available and highly vivid event like 9/11 or the Virginia Tech shootings, we overreact. … We pass the Patriot Act. We think if we give guns out to students, or maybe make it harder for students to get guns, we'll have solved the problem. We don't let our children go to playgrounds unsupervised. We stay out of the ocean because we read about a shark attack somewhere. It's our brains again. We need to "do something," even if that something doesn't make sense; even if it is ineffective.(2)" In other words, in some ways we still think like our more primitive ancestors who needed to react strongly to threats in the wild.