strategy+business: The new behavioral science of risk taking


Understanding people’s tolerance for and approach to risk can help companies build teams and improve decision making, Gray Rhino & Company CEO Michele Wucker writes in her latest strategy+business column, “The new behavioral science of risk taking in business,” published October 9, 2019.

There’s something of a bull market in understanding attitudes toward risk. Last decade’s financial crisis spawned a slew of platforms — Riskalyze, FinaMetrica, Tolerisk, and a rapidly growing list of competitors — that seek to understand people’s tolerance for financial risk. It is now common for financial advisors to ask clients a set of questions about how much money they’re willing to lose in exchange for the chance to make more. The advisors then use the answers to assign clients a risk number and match them to appropriate portfolios. The practice represents an important step in the evolution of thinking about risk. In the wealth management industry, it’s become a given that it is not enough to analyze just risks themselves, but also how different people respond to them.

Now there are signs that all kinds of companies are delving more deeply into peoples’ attitudes toward risk as a way to improve operations and build more effective teams. Firms are using increasingly sophisticated behavioral science and personality profiling tools to better understand how their people think and feel about risk, so that they can tap into employees’ strengths and improve teamwork and decision making. By taking this more comprehensive approach, companies can reduce the risk that the threats they face on a daily basis might spiral into crises.



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