Risk – It’s Not a Game

I must admit my heart sinks whenever I sit through a presentation that makes great use of slides with pictures of playing cards, chess pieces and pensive players, all used to reinforce the speaker’s message on strategy, or the way forward (sigh!) or the particular business mission they are espousing.

Anyone with an ounce of experience knows that business, risk and indeed life, is not a neatly packaged and defined game. In fact, it’s the exact opposite.

Consider some of the main features of chess; It has defined rules, is played in a totally linear fashion, has only one opponent and has a defined objective. Risk is almost the exact opposite of these conditions; rules are slippery and sometimes incomplete or non-existent, you are frequently up against multiple competitors, and whilst avoiding losses and trying to make worthwhile profits, objectives can change or be driven off course with little or no notice. And perhaps most devastating of all – risk is not linear, it doesn’t move around on nicely defined tramlines, indeed our attempts to build such structures to somehow contain risk is often the cause of huge problems and losses.

So why the game analogy and the players with furrowed brows? Well it’s a comfortable image, somehow we can become the clever player in a difficult game. You need skill and brains – and the presenter sells his ideas that will give you these if you follow his mantra. So yet again we are being sold what we most crave – certainty!

Certainty always sells – it is a desire very close to the human heart and mind. We feel uncomfortable with uncertainty, and to address that we try to build rules and structures we can monitor and measure, and tell ourselves we have a robust risk management regime.

Well up to a point Lord Copper – some areas of risk do lend themselves to such measures, but only if there are deep past data that behave in a predictable fashion in the future. A good example would be tide tables; from massive past data we can predict with a high level of confidence when tomorrows high tide will occur. In this very narrow example the game metaphor works, but in the slippery non-linear world of business risk such models can and do come unstuck.

In The Black Swan Nassim Taleb coined the term Ludic Fallacy to illustrate how misleading it can be to overuse games as a framework with which to consider risk. It is important that use much more agile thinking when tackling risk and uncertainty. It is frequently a world with few neat rules, lacking in past data and no amount of torturing that data will give rock solid certain guidance for the future.

One little rule of thumb I like to use, is to remember “The Map is Not the Territory”. However good your risk model it is always an approximation, an estimate built on assumptions and possibly insufficient data and can be riven with spurious accuracy and curve fitting.

Risk cannot always be solved like a puzzle, it can be more akin to riding a tiger.

Time to drop the Chessmen slides please!

Advertisements

2 thoughts on “Risk – It’s Not a Game

  1. As usual a good message elegantly presented. However, I wonder about your chess analysis. Chess is played under well defined rules but with infinite possibilities. It highlights the difficult of strategy without flexibility as your opponent will utilise multiple move sequences to achieve an advantage.

    1. Well only “infinite possibilities” within the rules of the game. Risks or perhaps more precisely uncertainties don’t have a rigid code of rules. Humans hate this, so we often try to impose certainty by creating models that we believe capture and can contain the risks

Comments are closed.