Risk involves threats to outcomes that we value. Sometimes we share the risk, like when we buy insurance. And sometimes we get an opportunity to reap the benefits of the upside of our decisions while someone else suffers the downside. And that’s when we get careless.
What’s the issue?
Humans – the vast majority of humans – get careless with decisions that have no downside for them. Sometimes it’s a case of simple carelessness but sometimes it’s a case of being calculatingly callous. If you don’t own the risk, your tendency will be to see the upside for you and to ignore the downside for others. There are some truly altruistic people; but the majority of us have a selfish streak that we hide from ourselves.
Give me an example.
The ownership of risk was at the heart of the 2008 financial crisis that engulfed the nations of the world. Without going into the esoteric points behind newer financial instruments like collateralized debt obligations, swaps and “tranches,” let me simply say that the financial industry players each figured out a way to shift risk away from them and to someone else for many years. Unfortunately, the entire industry didn’t realize the systemic risk they all collectively faced.
Risk was treated like a classic shell game and organizations around the world became more and more fragile. However, everything was OK as long as the price of houses kept rising. OOPS!
So what’s the proverbial bottom line to this shell game? It’s simple – as long as someone else has to bear the risk we can be as reckless with our decisions as we want to be. It’s a game of “I win and I don’t really care if you lose” and participants played it well.
What should I do?
We have to consider the ownership of the risk along with the ownership of the decision. Empathy is truly needed when someone else owns the risk associated with our decisions.
The glib answer is to put some of your own “skin in the game” for decisions that will impact others. But that may not always be practical. Another answer is to get to know the people who will be affected well enough so that you can truly develop empathy for their situation. Putting a face on the people you may hurt brings the downside of your decision a bit closer.
If you are in a leadership role you can make the downside real to the deciding parties by putting their bonus or advancement in jeopardy.