Different Dispositions: Subjective Risk

By Geoff Trickey

In the Winter Edition of the Enterprise Risk magazine, from the Institute of Risk Management, Geoff discusses subjective risk and how diversity of risk dispositions on a team can be a great strength.

Financial professionals know a great deal about risk. The risk they know about is numerical, statistical, probabilistic and based on precedent and economic history. This is the world of economists, actuaries, underwriters, financial intermediaries and many risk managers. This analytic view of risk is designed to improve financial prediction and decision-making. It might be referred to as objective risk – although, at every point, professional judgment is a necessary component.

Subjective risk, on the other hand, is something that financial professionals do not specialise in and often know very little about. Rather than focusing on the dangers and uncertainties that may upset our plans in the outside world, subjective risk focuses on individuals and how they are wired. It is about individual risk dispositions: the personal and intimate experience of risk; the way that an individual reacts; their feelings and emotions; and their resilience, expectations and the way personal perceptions of risk are calibrated. How do these dispositions influence interpretations of events? How do they impact on the thousands of decisions a person makes every day at different levels of consciousness?