Before we go any further,
I'd like to discuss what I mean by risk.
Because it's a term that means different things to different people.
When I use the term risk,
I mean something that threatens things we value,
things like finances, health,
social status, or things like psychological well-being.
A risk is measured on two dimensions.
The first is a dimension of uncertainty regarding whether something bad will happen.
We measure uncertainty with probabilities.
The second dimension concerns the severity of that something bad.
We measure the magnitude of severity,
how bad might the possible consequences be,
in terms of some kind of potential loss:
lives, money, environmental damage, reputation.
Why do we care about biases and limitations in our risk perceptions and risk decisions?
Because when organizations experience some kind of disaster,
often after the fact investigations blame bad decision making and poor risk management.