How good are we at assessing Commercial Card risk? Broadly speaking, research shows we hold numerous risk misperceptions. Consider the study in which people rated a 12.86% mortality as more dangerous than 24.14%. Huh? This stems from research by Kimihiko Yamagishi Ph.D. in 1997. People tended to rate a disease that kills 1,286 people out of every 10,000 as more dangerous than one that kills 24.14%. Our minds can play tricks on us, impacting all types of decisions, including on the job.
Risk Psychology
In The Organized Mind, author Daniel Levitin commented on Yamagishi’s study outcome, observing, “In the first case, people focused on the number of people, likely imagining that many people in hospital beds. With a percentage, our brains tend to treat it as an abstract statistic with no human beings attached.”
Could we benefit from a mind metamorphosis? Do we always see what is in front of us or is our vision focused on one thing?
In a January 2013 article published by The Pump Handle, author Sara Gorman explored the work of psychologist Paul Slovic, who championed the psychological approach to risk perception theory. She shared, “Early research on risk perception assumed that people assess risk in a rational manner, weighing information before making a decision... Subsequent research has demonstrated that providing more information alone will not assuage people’s irrational fears and sometimes outlandish ideas about what is truly risky.” Further, “People tend to be intolerant of risks that they perceive as being uncontrollable, having catastrophic potential, having fatal consequences, or bearing an inequitable distribution of risks and benefits.”
Contributing Factors
Last October, Robert Leahy Ph.D. wrote the article, How Panic Spreads With Fears of Ebola, including 11 factors that contribute to misperceptions of risk. I noticed some similarities to our industry. Here are two examples from Leahy; read the complete article for more:
Recency
The more recent a negative event, the more likely we think it will happen again—and soon. Recurring media coverage of card fraud and related data breaches tend to cause knee-jerk reactions. Management might use such news to rationalize additional card restrictions without first considering the facts or internal impact.
Invisibility is Threatening
Our threat-detection system treats an invisible threat as a greater risk. If you can’t see it, you think you can’t prevent it. You can’t necessarily see card fraud coming, but you can assess your card programs for control gaps. Do a risk analysis. Most organizations who experience internal fraud and card misuse lack appropriate controls and/or enforcement.
Leahy concludes by suggesting, “When you are listening to the news, think about the fact that there are 325 million people without Ebola here.” Use the same advice on the job. Thousands of organizations use Commercial Cards without major incidents. Industry research (e.g., studies by RPMG Research) has consistently shown good news. The majority of organizations suffer no direct losses from P-Card fraud, internal or external.
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“Thoughtless risks are destructive, of course, but perhaps even more wasteful is thoughtless caution, which prompts inaction and promotes failure to seize opportunity.”
A Lighter Touch
Risk psychology/perception theory is serious, but interesting, stuff that helps explain some organizations’ aversion to Commercial Cards. However, I also appreciate the unencumbered thinking of children, which can often teach us a thing or two as well. Take an example from hilarious homework answers from kids. In response to the math homework question of “find the difference between 8 and 6,” one child wrote that eight is all curly, six is not. Based on how the question was phrased, this is not incorrect. While the teacher was looking for 2 as the answer, the child saw something else. It reminded me that problem-solving, including assessing risk, is not a one-dimensional exercise.
How Does a Child See It?
Does this call for a mathematical calculation or artistic critique? Perception is in the eye of the beholder.
About the Author
Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…