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Cognition: Minding Risks
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Cognition: Minding Risks

Why the Study of Behaviour Is Important for the Insurance Industry

Mario Weick, Tim Hopthrow, Dominic Abrams and Peter Taylor-Gooby
Lloyd’s, 2013
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8

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Lloyd’s sponsored this report on risk identification for the insurance industry, but don’t let that fool you. This is a focused, methodical overview that a wide range of readers will find useful. It explains the current understanding about human behavior in assessing risk. It addresses the impediments to clear thinking and identifying risk accurately that arise from organizational structures, human nature and society. getAbstract suggests this enlightening study to insurance and finance professionals, investors, innovators and anyone charged with “minding risks.”

Summary

Seeing What You Don’t See

A US government commission, formed to investigate the roots of the 2008 financial crisis, concluded that both individuals and enterprises, particularly lenders, “took excessive risks.” Organizations did not follow regulations, “and ethical principles were ignored.” Numerous voices on Wall Street and in Washington, DC, argued that no one could have predicted the crisis, but the commission held that “warning signs” were there; people just didn’t see them.

In a Harvard experiment, observers watched a video of people playing basketball and focused on the players passing the ball to one another. At one point, someone in a gorilla suit walked onto the court, stopped, pounded the costume’s chest in ape-like fashion and left, all while the players continued their game. After the video, most observers did not recall seeing the gorilla. This experiment illustrates “inattentional blindness.” You don’t see what you don’t pay attention to, and so you don’t know that you are missing anything. Just as in the gorilla experiment, people did not see the warning signs of the 2008 crisis because they didn’t know to look and missed them.

Expectations Risk...

About the Authors

University of Kent professors Mario Weick and Tim Hopthrow teach psychology, Dominic Abrams teaches social psychology and Peter Taylor-Gooby, OBE, teaches social policy.

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