Motivation and emotion/Book/2010/Risk-taking motivation

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Risk-taking motivation
This page is part of the Motivation and emotion textbook. See also: Guidelines.

Introduction[edit | edit source]

Car accident poland 2008 - Explain relevance of this image to the chapter content
Car accident poland 2008 - Explain relevance of this image to the chapter content

Life is full of risk. In fact, every decision contained in every moment necessitates an element of risk (Yates, 1992). Some risks are more obvious than others. For example, upon awaking in the morning you decide whether to get out of bed, whether or not to have breakfast, if you do have breakfast, you decide what you will consume and what you will drink, and whether or not to exercise. Maybe you have children, then you have to decide what your children will consume, or not, in the morning. Then you may decide to drive to your workplace or your children to school. These decisions entail subtle risks. What you eat, whether or not you exercise and the way you raise you children, may not have immediate and obvious risk-factors, but long-term, the accumulation of your day-to-day decisions will prove to be either fruitful or detrimental.

Let's say you are driving your children to school. The traffic light has just turned amber, in that moment you decide whether to drive through or stop. You then notice that you are going to be late, you start to feel some impatience to get to the school in a timely manner, so then, you must decide whether or not to speed. Reckless and fast driving is a more obvious risk-taking behaviour, as you could have a car crash and injury or kill yourself, your passengers or other people driving on the road. Everyday presents uncertainty. In one day your entire life could change from a decision to act or not to act.

The aim of this chapter is to look at what motivates risk taking behaviours. To begin with, this chapter will provide a definition of risk. Then the chapter will look at four major fields of risk-related study - adolescence, leadership, groups, as well as, procrastination and their risk implications. Then the chapter will highlight seven problematic risk taking behaviours, namely, alcohol and drug abuse, reckless driving, extreme dieting, gambling, violence, unlawful conduct and unprotected sex. The chapter will then look at the motivational determinants of risk taking behaviours. Utilising theories such as Maslow's Hierarchy of Needs, Drive Theory, Theory of Achievement Motivation, Risk Homeostasis Theory, and Expected Utility Theory. In addition, aspects of personality, emotionality, and neurobiology. As well as outlining situational, societal, and evolutionary contributors. To take a holistic approach toward understanding what motivates risk taking behaviours. Finally, the chapter will close with a brief overview of risk management. The risk management process along with theories, such as, Cost/Benefit analysis and Decision analysis will be discussed.

What is risk-taking?[edit | edit source]

Risk is been an integral part of life (Ale, 2009; Trimpop, 1994, Vaughan, 1997; Yates, 1992). In order to survive, our ancestors had to contend with the harsh realities of nature (Ale, 2009; Vaughan, 1997). Hunting food, building shelter, keeping warm, reproducing, raising offspring and overcoming sickness and injury, made everyday life risky (Vaughan, 1997). Contending with the elements meant people only had a life expectancy of 25 years, if not less. Since the eighteen hundreds people began modifying the environment to suit their particular needs. As a result people now live up to 90 years or more. However, due to population growth and longer life expectancy, people are now living in areas not previously habituated (Ale, 2009). This means that people nowadays experience risks relating to close proximity, industrialisation (Vaughan, 1997), technology, as well as, overpopulation (Ale, 2009). With every advancement there comes elements of uncertainty. Although our environmental conditions change, risk remains the same and is prevalent (Vaughan, 1997). Millions of people have lost, or will lose their lives due to plagues, starvation, diseases, accidents and wars (Ale, 2009).

Definition[edit | edit source]

Clay tablet used by the Asipu

Definitions of risk have been given as far back as 3200bc by the Asipu from Mesopotamia. Along with defining and understanding risk the Asipu also contemplated ways to manage risk. They would analyse a problem, come up solutions, take a course of action and then write up their findings on clay tablets. They used plus signs to show profit or success and minus signs to indicate loss and failure (Oppenheim, 1977 cited in Trimpop, 1994).

Nowadays defining risk is a controversial issue (Trimpop, 1994; Yates, 1992 ). People define risk in different ways. Some people view risk as the probability of losing money, other people view risk as possible lose of crop, damage to buildings and infrastructure, not keeping to a budget or a time constraint. Still, others view risk as potential loss of safety, health and life (Yates, 1992). Risk is essentially a subjective construct. Not everyone agrees on a set definition of risk and two people discussing risk may hold very different ideologies (Fischhoff, Lightenstein, Slovic, Derby & Keeney, 1983; Trimpop, 1994).

In order to define risk you would need to understand the relevance of risk in its context. Differing definitions of risk have been generated because risk has been analysed differently by individuals, groups, departments and organisations. Furthermore, risk has been classified into eight dimensions. Financial vs. non-financial, static vs. dynamic, fundamental vs. particular, speculative vs. pure. The diversification of risk has made it difficult to define risk precisely and has made the term risk conceptually specific to its context (Vaughan, 1997).

  • Financial vs. non-financial risks are concerned with financial loss or loss of assets.
  • Static vs. dynamic risks are concerned with changes to the economy.
  • Fundamental vs. particular risks are concerned with groups of people.
  • Fundamental risks are concerned with impersonal losses experienced by a group.
  • Particular risks, however, are concerned with loss which effects all or some members of a group.
  • Speculative risks are concerned with loss vs. advancement.
  • Pure risk assesses only the probability of loss or no loss.

Pure risk has been further divided into areas of personal, property, liability and failure of others.

  • Personal risk involves loss of income or assets.
  • Property risk involves loss or destruction of property.
  • Liability risk involves compensation to injured parties because of carelessness or negligence.
  • Risk by failure of others involves financial loss because a person did not fulfil an obligation.

However, there remains elements of risk that give meaning to its conceptualisation. For example, risk contains elements of uncertainty, potential loss, potential advancement and a cognitive component about whether or not to engage in risk-taking (Trimpop, 1994; Yates, 1992). However, Trimpop (1994) claimed risk-taking behaviours had an unconscious component. Trimpop (1994) defined risk-taking behaviour as: "any consciously, or non-consciously controlled behaviour with a perceived uncertainty about its outcome, and/or about its possible benefits or costs for the physical, economic or psycho-social well-being of oneself or others (pg. 9). Vaughan (1997) however, defined risk as "a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for (pg. 8). Both definitions contain elements of uncertainty, potential loss and potential advancement. Therefore, for this chapter, risk will be defined as engaging in any action, an individual has chosen to undertake, that has an uncertain and future-bound conclusion, which entails the potential for loss, as well as, advancement, and may be governed. For this chapter, risk was not considered as an unconscious behaviour because a distinction could be made between risk taking and bearing a risk. Risk taking meant an individual actively undertook a risk act, whereas, bearing a risk meant an individual experienced risk as a natural consequence of engaging in a behaviour (Yates, 1992) Governed risk simply meant that risk could be managed to some degree.

Major fields of study[edit | edit source]

The major fields of study of risk taking include adolescence, leadership, groups and procrastination. These areas have received a lot of research, and continue to be studied extensively, as they have serious implications in regards to an individual's health, community safety and business. Many of the adverse effects of risk-taking in these domains were deemed preventable.

Adolescence[edit | edit source]

The field of adolescence and risk-taking behaviours may have the most serious implications of risk-taking behaviours. Adolescence is a time of confusion due to changes in the body, as well as, family dynamic. Adolescents have not fully matured, yet are required to go out and experience the world, due to their growing need for independence and autonomy. Adolescence is time full of experimentation (Australian Bureau of Statistics, 2008). Adolescents experiment with drugs, sex, driving (Reach Out Australia, 2010), living away from home (Yates, 1992), violence and partying (Australian Bureau of Statistics, 2008). Sometimes the consequences are severe. For example, no other group dies from ‘death in vehicle’ as much as the adolescent population (Australian Bureau of Statistics, 2008), particularly males (Yates, 1992). Approximately 31% of fatalities on the roads were made-up of 15-24 year olds between 2004-2006 (Australian Bureau of Statistics, 2008). Interestingly, researchers have found that the brain of adolescents risk-takers were more mature than their conservative peers (please refer to external link). Despite this finding, adolescent brains are not fully mature, and therefore, they cannot comprehend risk to the same extent as an adult (Berns, 2009). The risks involved during adolescence is life, health and safety.

A study of adolescent brain maturity

Leadership[edit | edit source]

FEMA - 39779 - FEMA Leadership -Inauguration Preperation at FEMA
FEMA - 39779 - FEMA Leadership -Inauguration Preperation at FEMA

Leadership is marked with risk as an individual or a group of individuals are required to organise and manage people in order to meet certain goals. The risks involved in leadership are loss of money, income, downsizing, not acquiring interest from potential clients, bankruptcy, workers compensation, law suits, debt, as well as, bankruptcy (Sweeney, 1985). Leadership is a highly responsible position and anyone involved in leadership, is therefore, accountable for their actions, as well as, the actions of the people they are managing (Vaughan, 1997).

Groups[edit | edit source]

A group of people go through a phenomenon called risky shift, also known as group polarization or group think. When people come together to form a group, research has shown, people often take more risks and the risks are often more serious in nature (McKnight & Sutton, 1994). This occurs because people go through a phenomenon known as deindividuation, and therefore, feel less personal responsibility. Instead, people identify the group as being responsible. People in a group setting often change a mediocre opinion into a strong belief if other people in the group hold such a belief (McKnight & Sutton, 1994). Some examples of bad decisions made by a group are Chernobyl (Kidder, 1995; Vaughan, 1997), Pearl harbour and shuttle launching (McKnight & Sutton, 1994). Risky shift is a serious phenomena as it has implications for juries and what happens to someone on trial.


In 1986, two electrical engineers, at the nuclear power station, experimented with reactor number four. The results were catastrophic. Many lives were lost and the estimated cost of the clean up was $14 billion (Kidder, 1995).


Space Shuttle Challenger

In 1986, NASA officials launched the space shuttle Challenger, despite knowing of design flaws and bad weather. Seven astronauts were killed (McKnight & Sutton, 1994)


Pearl Harbour

In 1941, the US military decided not to heed warnings of an immenient attack by the Japanese forces. Pearl Harbour was bombed. (McKnight & Sutton, 1994)

Pearl Harbour
Pearl Harbour

Procrastination[edit | edit source]

Lightmatter paperwork
Lightmatter paperwork

A decision not to act can be as serious and risky as a decision to act (Sweeney, 1985). Procrastination has implications for health, work and personal achievement. A person who procrastinates going to see a doctor when they are unwell can incur serious health problems. A person who procrastinates doing a report for work could jeopardise their position. Procrastination is often associated with student motivation, if a student procrastinates doing an assignment they risk a poor quality paper, lower grades and possible failure, if procrastination means they never get around to completing their assignment.

Risk-taking behaviours[edit | edit source]

Every risk situation entails uncertainty and possible adverse effects. However, not every risk situation is problematic. For example, students engage in risk by attempting to complete a subject. The risks involved could be poor grades or possible failure. However, these risks are not usually harmful to the students psycho-social well-being or harmful to others. However, problematic risk taking often involves harm to self, as in experimentation with drugs, or harm to others, such as, reckless and fast driving.

Problematic risk-taking behaviours[edit | edit source]

Problematic risk-taking behaviours are those behaviours that lead to serious health, economical and social problems. Behaviours such as alcohol and drug abuse, reckless driving, extreme dieting, violence and unprotected sex has serious implications for the individual’s health, family and community. Gambling has serious implications to a persons finances and family unit. Unlawful conduct has implications for the community. These behaviours are considered particularly problematic as they precipitate dysfunctionality in a person. By the time these behaviours are noticed as problematic the individual may not be able to stop their involvement.

Alcohol and drug abuse[edit | edit source]


More than four standard drinks of alcohol in one sitting is deemed to be alcohol abuse (Carey, 2008 cited in Heaton, 2008). Any drug that is illegal to consume is deemed as drug abuse, and consuming drugs that are prescribed, is deemed as abuse when the prescriptions are consumed for intentional misuse (Encarta: World English Dictionary, 2009). Alcohol and drug abuse often leads to serious health risks, such as death, cancers, brain damage, liver damage and heart problems (Australian Bureau of Statistics, 2008). People also neglect to care for themselves or their loved ones when they engage in drug abuse.

Reckless driving[edit | edit source]


Reckless driving involves speeding, driving under the influence of alcohol or drugs, driving in a vehicle not deemed safe, not taking care when overtaking or changing lanes and not obeying road rules (Department of Territory and Municipal Services, 2008). Reckless driving is considered dangerous because fatality and/or injury involves many people, not just the driver. Serious accidents can leave people with severe brain damage or broken limbs which require the community to cover the care and cost. Sometimes injuries from car crashes last a life time. The most prevalent group of risk-takers in a vehicle were adolescents (Australian Bureau of Statistics, 2008).

Extreme dieting[edit | edit source]

Diets are dangerous. Even a well intended diet to lose just a few kilos, through healthy eating and exercise, can spiral out of control (Dryden-Edwards, 2010). Extreme dieting leads to eating disorders, such as, compulsive binge eating, bulimia nervosa and anorexia nervosa. Other forms of extreme dieting involve abusing diet pills, as well as, laxatives. Dieting depletes the body of essential nutrients which maintain healthy skin and bones. If dieting is prolonged, the body will eventually begin to consume its own organs. Furthermore, people who diet also face osteoporosis at an early age because of a lack of calcium. Women can lose their reproductive ability and extreme dieting can lead to sudden death, as in the heart just stops, when a person is unhealthily underweight. Dieting is often undertaken by adolescent females and young women. However, an increasing number of men are facing the same concern with weight control (Jessen & Richardson, 2010).

The social impact of eating disorders

Gambling[edit | edit source]

Gambling chips
Gambling chips

Gambling is using money in order to generate more money via chance. Serious gambling has implications for children or other dependents of the gambler ( For example, the money needed to buy food is used to gamble. Pathological gamblers sometimes use all their available money and then borrow money from others in order to gamble. The borrowed money is used up and the person does not have the means to pay it back. In some extreme cases of pathological gambling, the gambler can use up all their available credit on their credit card/s (Deckers, 2005). Pathological gambling often leads to neglected children, loss of home, car and work (Deckers, 2005;

Violence[edit | edit source]

Violence includes domestic violence, child abuse, road rage and fighting. Violent behaviour is on the increase. Police are now concerned about the amount of young men engaging in drinking alcohol and then becoming violent (Jean, 2010; Knaus, 2010). Young men in our society are now taller, stronger (The Australia, 2008) and more aggressive than ever before (Scott & Dedel, 2006). Violence is predominantly orchestrated by males but an increasing number of women are becoming physically violent (Australian Bureau of Statistics, 2007; Scott & Dedel, 2006). Some violent attacks require hospitalisation and leave victims with physical and emotional scars. In some cases violent attacks lead to death (Hurst, 2009).

Unlawful conduct[edit | edit source]

Unlawful conduct occurs whenever a person disobeys the law. Criminal offenses are usually charged and convicted. Convictions makes it harder to gain work opportunities or hold down a job (Vaughan, 1997). Crime often involves the community. Unlawful conduct includes theft (Vaughan, 1997), violence, sexual assault, drug trafficking and drug use, reckless driving, fraud, identity theft, tax evasion and providing misleading information to authorities (Vaughan, 1997). An increasing number of adolescents engage in unlawful behaviour due to risk-taking.[factual?]

Unprotected sex[edit | edit source]

Increasing numbers of adolescents engage in unprotected sex despite education about the problems of unprotected sex.[factual?] Unprotected sex can result in pregnancy, unwanted pregnancy, sexually transmitted diseases, acquired immune deficiency syndrome (AIDS), as well as, negative emotionality, if the experience was unpleasant (Yates, 1992). Many people also engage in sex with multiple partners. The devastating results of unprotected sex can be seen in Africa, where AIDS is rife (Sunstein, 2003). Many children are orphaned as a result of death of both parents and many children are born with AIDS. The tradition in their culture allows men to have multiple wives. A lot of work is being conducted there in order to educate the people of the importance of using effective contraception, namely condoms, to prevent sexually transmitted diseases (Walker, 2009; ANU Researcher and AIDS education in Africa). The AIDS Risk Reduction Model (ARRM) was just one of the educational programs employed (Yates, 1992).

Motivation and risk-taking[edit | edit source]

The aim of this chapter is to look at what motivates risk-taking behaviour. Why does a person not eat a healthy breakfast? What motivates a person to speed despite knowing the serious consequences? Why do people begin to take drugs despite knowing the adverse effects? Why does a person engage in unprotected sex? Why do people gamble?

In order to understand why someone engages in risk-taking, one must take a holistic approach by incorporating theories of motivation, personality, emotionality, neurobiology, as well as, situational, societal and evolutionary contributors (Trimpop, 1994; Yates, 1992). Even mental illness has a role in motivating risk taking behaviours, but it is an area beyond the scope of this chapter. It is difficult to identify precisely why someone chooses to engage in risk-taking. Risk-taking is multi-dimensional and many variables play a part. In some cases, a person may simply explain the risk act as fun or experimentation. However, when prompted, the person may express feelings of loneliness and boredom. The person may then state they thought they were immune to the adverse effects of risk.

This simple explanation incorporates sensation seeking, emotionality and risk homeostasis theory. If you look into this simple explanation a little further, you will see that drive theory and Maslow's hierarchy of needs explain some aspects. The person feeling lonely will be motivated to affiliate with others due to belongingness and love needs. Or maybe they are genetically predisposed to extraversion and need to be surrounded by others. Another explanation could be the Reward Deficiency Syndrome, whereby, the individual needs to engage in risk taking in order to increase dopamine levels. Each person is unique and the motivation to engage in risk taking will vary according to each individual (Yates, 1992). However, understanding aspects of the motivational influences on risk taking behaviour could help to identify why someone engages in risk taking and who is likely to continue to engage in risk taking behaviours despite averse consequences.

Review Questions

  1. How was the term 'risk' defined?
  2. What were the four major fields of study involving risk taking outlined in this chapter?
  3. What was the difference between risk taking and problematic risk taking behaviours?
  4. What were the seven problematic risk taking areas and what was their significance?

Theories of risk-taking[edit | edit source]

The theories used to help understand the motivation to engage in risk taking behaviours include, Maslow's Hierarchy of Needs, Drive Theory, Theory of Achievement Motivation, Expected Utility Theory and Risk Homeostasis Theory.

Maslow’s Hierarchy of Needs[edit | edit source]

Maslow’s Hierarchy of Needs (1954 cited in Ale, 2009; Deckers, 2005; Reeve, 2009; Vaughan, 1997) is often used to help explain why people engage in risk taking behaviour. Maslow’s Hierarchy of Needs is a system comprised of physiological, as well as, psychological needs (Maslow, 1970).

Physiological needs consist of air, food, water, warmth, sleep and sex. These are needed in order to sustain life and to create life. The second level of the hierarchy are safety needs. Safety needs consist of security, stability, dependence, authority, protection, freedom from fear and anxiety (Maslow, 1970), shelter, the well being of self, as well as, loved ones. The next three levels are comprised of psychological needs, as a person could survive without them, although they may not feel happy and could possibly suffer from psychological disorders, if the needs were not met for a prolonged period (Maslow, 1970; Reeve, 2009). Psychological needs are belongingness and love, esteem and self-actualisation. Belongingness and love needs consist of affection, affiliation, friendships, family, sexual intimacy, as well as, belonging in groups. Maslow also claimed that meeting love needs meant not only receiving affection but giving affection and love to others (Maslow, 1970). Upon meeting the needs of belongingness and love, esteem needs being to emerge, such as, self-esteem, confidence, respect of others and respect by others. Esteem needs may be divided into two categories; first, is the desire for achievement, competency, mastery, strength and independence. Second, is the desire for: status, prestige, attention, recognition, dignity and appreciation (Maslow, 1970). Finally, upon satisfying all the these needs, the need for self-actualisation begins to emerge. Self-actualisation means a person desires self-fulfilment (Maslow, 1970). Self-actualised people view life in terms of what they can give or contribute to help others. They are moralistic, less prejudiced and have concern for others. Self-actualisation is not attained by all people, as all other needs must be met and maintained. Often people fixate on certain levels for needs being met (Maslow 1970).

Maslow’s Hierarchy of Needs may explain why people engage in risk-taking behaviours. Some people engage in risk taking in order to satisfy physiological needs of gaining enough food to eat or water to drink. Other people engage in risk taking in order to gain psychological needs, such as self-esteem or love and belongingness, by joining a clique and engaging in behaviours that foster acceptance within that group. Needs for self actualisation necessitates risk as when working for a higher cause in a community of impoverished people.

Drive Theory[edit | edit source]

Tied in closely with Maslow’s hierarchy of needs is Hull’s Drive Theory (1943 cited in Deckers, 2005; Reeve, 2009; Trimpop, 1994). Drive Theory stipulates that behaviour is driven in order to met a person’s physiological needs. Drive is the psychological impetus that energises, directs and motivates behaviour in order to satisfy physiological needs. Drive energises behaviour to the same extent that a physiological need is intensified (Deckers, 2005).

Research conducted using rats running a maze whilst deprived of water for 2 to 22 hours, showed that the rats deprived of water the longest ran the maze the fastest. This experiment was used to support the assertion that the energy behind drive correlated with the intensity of need or physiological deprivation (Hillman, 1953 cited in Deckers, 2005).

Physiological needs also have unique internal cues that help to direct and guide a person’s behaviour. A person will be motivated to behave in order to satisfy their particular physiological need. For example, thirst and hunger have different internal cues to indicate to the person which needs must be satisfied (Deckers, 2005).

Again, an experiment using rats showed that rats would chose either an alley leading to water on water deprived days and an alley leading to food on food deprived days. This experiment was used to support the assertion that internal cues guide, as well as, direct behaviour, in order to satisfy a subjects physiological sensation of need (Leeper, 1935 cited in Deckers, 2005).

However, Hebb (1955 cited in Reeve, 2009) argued that drive energises behaviour but does not direct or guide behaviour. Instead, instrumental behaviours stem from habit which was a learnt consequence from reinforcement.

How could Drive Theory be used to explain why this baboon is drinking water from a swimming pool?

Hull (1943 cited in Reeve, 2009) also contented with this assertion and argued that instrumental behaviours which reduced drive through satisfaction of a particular need was reinforced, and therefore, learning would naturally occur. Hull then formulated an equation to show how drive and habit worked to motivate a particular behaviour: sEr = sHr x D x K. The strength of behaviour (sEr) is equal to (sHr) strength of learnt habit and (D) drive, as well as, (K) incentive. In this equation, D and K, refer to motivation (Reeve, 2009).

Drive motivates behaviour in order to restore homeostasis. Internal states of deprivation are deemed unpleasant, therefore, any behaviour that reduces unpleasant feelings associated with deprivation will be learnt and repeated. Drive Theory was unique as it specified that behaviour could be predicted because a person would be motivated to engage in that behaviour which satisfied physiological needs (Deckers, 2005).

Theory of Achievement Motivation[edit | edit source]

A person’s need for achievement may determine whether or not a person will engage in risk-taking and the type, as well as, degree of risk a person will take. People with a high need for achievement value success, excellence and mastery (Reeve, 2009). People high in the need to avoid failure, worry and fret over achievement related tasks (Deckers, 2005).

Students working on class assignment in computer lab
Students working on class assignment in computer lab

Atkinson’s Theory of Achievement Motivation stipulates that people will either approach success or avoid failure. If a person is to approach success, three other variables play part in the person’s cognitive appraisal of achievement motivation: their need for achievement (Ms), the probability of success (Ps) and the incentive for success (Is). According to Atkinson (1957) the tendency to approach success (Ts) can be formulated as: Ts = Ms x Ps x Is. However, the tendency to avoid failure (Taf) can be just as strong as the tendency to approach success. The variables used in the appraisal of failure avoidance are: motivation to avoid failure (Mf), probability of failure (Pf) and the incentive, or cost, of failure (If). The tendency to avoid failure is formulated as: Taf = Mf x Pf x If. When a person has a tendency to avoid failure, they will not engage in the activity. This could be seen as avoidance, procrastination or quitting. (Atkinson, 1957). Combining these two formulas gives an estimate of how likely it is that a person will approach a certain activity. The overall formula for the tendency to achieve is the algebraic summation of: Ta = Ts + Taf = (Ms x Ps x Is) + (Mf x Pf x If. Atkinson, 1957).

Interestingly, Atkinson postulated that when a person was free to choose an achievement task, the person would always search for new and more complex tasks to engage in, so as to increase their sense of mastery. If a person was not free to choose an achievement task, and therefore were constrained, the person with a strong need for achievement would experience a slow decrease of interest in the task. Furthermore, if the task was of intermediate difficulty or was considered relatively easy, the person with a high need for achievement, would show a gradual decline of interest in the task after initial successes. However, if a person with a strong achievement motivation failed in a task, they would subsequently increase in their motivation to succeed, but only in a limit number of attempts (Atkinson, 1957).

Risk Homeostasis Theory[edit | edit source]

The term risk homeostasis is a bit of a misnomer as it does not mean that people have a certain level of risk they must engage in. Instead, Risk Homeostasis Theory (RHT) maintains that people engage in risk because they have cognitively weighed up the costs and benefits of engaging in risk, as well as, the costs and benefits of not taking a risk. Once a person has evaluated the costs and benefits of taking a risk, the person then acts accordingly (Trimpop, 1994).

2009-03-11 Beat up car driving in Durham
2009-03-11 Beat up car driving in Durham

Wilde (1982 cited in Trimpop,1994; Yates, 1992) postulated that the safer people felt the more likely they would engage in risk-taking. In particular, Wilde (1982 cited in Trimpop, 1994; Yates, 1992) studied motorist and speed levels. Wilde (1982 cited in Trimpop, 1994) found that people would adjust their speed according to conditions such as rain, narrow roads, freeways, and vehicle reliability. This was because people were not comfortable speeding when the conditions were deemed dangerous. However, people resumed speeding during conditions in which they felt safe.

Wilde (1982) developed a formula to predict the target level of risk adopted by a particular population of road users. The formula was: A/T = K. (A) represented the traffic accident toll which was a sum of all accidents multiplied by the severity of those accidents. (T) represented the amount of time the aggregate population spent in traffic and (K) referred to the target level of risk the population of traffic users were willing to adopt under those conditions.

NYC Taxi
NYC Taxi

Further support for the RHT came from a study conducted by Aschenbrenner and Biehl (1988 cited in Trimpop, 1994). The researchers conducted a study using taxi drivers and their vehicle control abilities. Half the taxi fleet were fitted with an anti-braking system (ABS) and the other half was not. (ABS is used in cars to prevent wheels from locking due to sudden braking. This allows drivers to continue to steer the vehicle). The taxi drivers drove the ABS fitted taxis on alternative days. The results revealed that the taxi drivers had better vehicle control and manoeuvrability whilst driving in taxis without the ABS fitted. On the days which the taxi drivers drove in ABS fitted taxis, they tended to brake harder and over-steer. Aschenbrenner & Biehl (1988 cited in Trimpop, 1994) concluded that the taxi drivers overestimated their safety whilst driving in ABS fitted taxis. Thus, this research supported Wilde’s assertion that feeling safe either increased or decreased risk taking behaviours with levels of perceived safety.

The RHT received much criticism because people often confused the term homeostasis with isostasis: a fixed state (Trimpop, 1994). Wilde (1982) maintained that people did not engage in a constant state of fixed traffic risk-taking, instead, changes in the environment, levels of arousal, stimulation, and behavioural variables, such as, sleep, leisure and work, created changes in the motorists’ levels of risk taking. However, Wilde (1982) defended his formula, and justified it by stating, that each country adopted a particular risk level in response to its desired level of road usage and luxuries afforded to motorists.

Expected Utility Theory[edit | edit source]

The Expected Utility Theory maintains that people undertake a rational decision-making process, when faced with a risky situation, in order to optimise their chance of success (Von Neumann & Morgenstern, 1980 cited in Yates, 1992). Expected utility theory states that the decision-making process entails certain axioms, namely, completeness; transitivity; independence; reducibility and continuity (Yates, 1992).

  • Completeness means that a person either has a preference for one particular option, despite other options available, or the person is indifferent to whichever options were available.
  • Transitivity means that if one alternative is the preferred option then that option will override all other options available.
  • Independence means that outside options that a person has not yet recognised should not interfere with the person’s preferred option.
  • Reducibility means that a person’s preferred option is concerned only with the outcome it will produce and not the course it takes.
  • Continuity means that a person would be indifferent between a gamble and a sure prize, as either way, the person is in a position of gain.

The Expected Utility Theory assumes that people engage in rational decision-making processes, however, Tversky & Kahneman (1986, cited in Trimpop, 1994; Yates, 1992) found that people were not so rational when making decisions. The researchers revealed that the way a problem was presented, along with the wording used to describe the options available, influenced a person’s preferred option. For example, the researchers presented subjects with a scenario concerning a deadly disease which was expected to kill 600 people. The first group of subjects were given two options to choose from: Program A: 200 people will survive; Program B: 1/3 probability 600 lives will be saved and 2/3 probability no-one will survive. 72% of subjects chose Program A as their preferred alternative. However, when the options were reworded: Program C: 400 people will die; Program D:1/3 probability of no deaths and 2/3 probability 600 will die. 88% of subjects chose Program D. Programs A and B were the same as Programs C and D, however, the wording was constructed according to gain or loss (Goldstein, 2008; Yates, 1992).

Tversky & Kahneman, (1981 cited in Goldstein, 2008) found when problems were worded according to gain, individuals would engage in a risk aversion strategy to generate a solution. However, when a problem was worded according to loss, the individual would engage in a risk taking strategy.[for example?] This illustrated the importance of the framing effect whereby people were influenced by the wording and presentation of a problem.

Personality[edit | edit source]

Personality plays a large part in determining who is likely to engage in risk-taking behaviours. Individual differences and personality patterns influence how a risk situation is perceived (Trimpop, 1994) and whether the risk is appraised as a type of benefit, harm or threat (Lazarus, 1991 cited in Reeve, 2009). Furthermore, personality may determine whether or not a person enjoys or dislikes the risk experience (Trimpop, 1994). Personality also plays a part in how a person reacts, selects and shapes their environment to suit their particular disposition (Deckers, 2005).

The Five Factor Model[edit | edit source]

The five factor model highlights five core personality traits considered relevant to motivating behaviour. In order to help people remember the five personality traits, the traits were arranged to spell out the acronym OCEAN: Openness, Conscientiousness, Extraversion, Agreeableness and Neuroticism. Personality traits were subsumed into taxonomies, ranging from low to high levels, for each of the personality dimensions. For example, a person high in the neuroticism dimension was seen to be anxious, emotional and moody. Whereas, someone low in neuroticism was seen to be calm and contented. In addition, a person high in neuroticism was more likely to engage in risk taking behaviours than someone low in neuroticism (John, 1989 cited in Deckers, 2005). Mohr (2001 cited in Deckers, 2005) found that people high in neuroticism were more likely to drink alcohol alone, than people low in neuroticism, because people high in neuroticism were affected by daily stressors more negatively. In fact, the more daily stressors experienced, the more solitary drinks consumed.

Dimensions of Personality (Deckers, 2005)

Openness Conscientiousness Extraversion Agreeableness Neuroticism
Shallow Careless Quiet Cold Calm
Simple Disorderly Reserved Cruel Contented
Unintelligent Forgetful Shy Unfriendly Unemotional
Artistic Cautious Active Affectionate Anxious
Clever Deliberate Assertive Cooperative Emotional
Curious Dependable Dominant Friendly Moody

Eysenck’s Theory of Personality[edit | edit source]

Eysenck’s theory of personality (1967 | 1990 cited in Burger, 2004; Deckers, 2005; Trimpop, 1994) stipulates that all personality traits could be subsumed into three personality trait dimensions, which Eysenck called super-traits: extraversion-introversion, neuroticism (emotional stability vs. in-stability) and psychoticism (asocial vs. altruism. Burger, 2004; Trimpop, 1994). Eysenck’s Theory of Personality was organised hierarchically. The bottom of the hierarchy was called the specific response level and was characterised by specific behaviours to situations. The second level was called the habitual response and was characterised by consistent responses to situations. The third level was called the trait level and it determined personality traits. Finally, the personality traits were organised into the three super-traits dimensions.

Sensation Seeking[edit | edit source]

Parachuting Tel Aviv 60 Independence day 01
Parachuting Tel Aviv 60 Independence day 01

Sensation-seeking has been identified as another personality trait which motivates behaviour. In particular, sensation seeking was recognised as contributing to risk-taking behaviours. It was distinct from the Five Factor Model and Eysenck's Theory of Personality. Originally, Sensation Seeking was defined as the need for varied, novel, and complex sensations and experiences and the willingness to take physical and social risks for the sake of such experiences (Zuckerman, 1979, p.10 cited in Trimpop, 1994) however, later on Zuckerman added other terms, such as, intense sensations and experiences and the willingness to take legal, and financial risks into the original definition (Zuckerman, 1994). This then identified the importance of powerful and stimulating experiences and the areas of risk-taking in which these experiences could be had. Included in sensation seeking was sociability and impulsiveness (Yates, 1992).

Generally, Sensation Seeking was classed as a normal trait dimension. There was nothing intrinsically wrong with either high or low Sensation Seeking traits. High or low Sensation Seekers were not necessarily maladjusted, psychopathic or anti-social. However, psychopathology, substance abuse and anti-social personality correlated with high Sensation Seeking, whereas, schizophrenia and some anxiety disorders correlated with low Sensation Seeking (Zuckerman, 1994).

The Sensation Seeking Scale (SSS) devised by Zuckerman, Kolin, Price and Zoob (1964 cited in Trimpop, 1994; Zuckerman, 1994) comprised 40 items relating to four sub-factors: Thrill and Adventure Seeking (TAS), Experience Seeking (ES), Disinhibition (Dis) and Boredom Susceptibility (BS). TAS referred to the desire to engage in high risk adventure sports, such as driving fast cars. The ES referred to Sensation Seeking through the mind and senses. Dis referred to Sensation Seeking through social engagement and BS referred to the aversion felt toward boring or monotonous situations. These four sub-factors assessed high or low levels of optimal stimulation arising from a person's interests, preferences, as well as, activities (Trimpop, 1994). High SSS scores were associated with engagement of high risk sports, travel, drug and alcohol use, high risk job occupations, anti-social behaviour and flamboyant fantasies. Psychopathic people scored high on TAS and DIS but scored low on sociability scales. Delinquency and criminality showed no significant relation to the SSS (Trimpop, 1994).

Optimism versus Pessimism[edit | edit source]

Optimism refers to a positive outlook on life. A person who is optimistic believes they are capable of not only overcoming life’s challenges, but flourishing in the process. Pessimism refers to a negative outlook on life. A person who is pessimistic believes they do not possess the skills necessary to overcome life’s challenges. A person who is pessimistic conveys a sense of helplessness. They worry and fret when faced with a challenge. Optimistic people, on the other hand, view failure and setbacks as challenges to learn from (Burger, 2004).

Dispositional optimism refers to the continuum of highly optimistic through to highly pessimistic. Ideally, it is better to be optimistic, as there are numerous benefits, such as, achievement, health, longevity and mental well-being. However, due to inflated self-beliefs, optimistic people often take risks because they do realistically assess the possibility of adverse outcomes. Pessimistic people, on the other hand, are less likely to engage in risk-taking as they assess the risk situation more pragmatically (Burger, 2004; Seligman, 1998). Interestingly, some people deliberately employ a pessimistic outlook as a strategy to achieve, known as defensive pessimism (Burger, 2004).

Seligman (1998) believed a pessimistic person could change their explanatory style to an optimistic explanatory style. However, Seligman provided stipulations as to when an optimistic explanatory style should be used and when it should not to be used. For example, Seligman (1998) stated optimism should not be used in relation to risks associated with significant failure, death defying sports or adultery. In these risk situations it is much better to use a pessimistic explanatory style.

Emotions and risk-taking[edit | edit source]

Emotions play a large part in determining risk taking behaviours. In particular, emotions determine whether or not a person will approach or avoid certain situations, as well as, how a person will respond reactively to certain kinds of risk situations. From an evolutionary viewpoint, emotions have been genetically programmed because they served a crucial role in adaptation and survival (Trimpop, 1994).

Darwin (1872 cited in Reeve, 2009) maintained that emotions had adaptive value . Emotions were evoked in the certain situations for a reason. Emotions aided survival through exploration of the environment, engagement and facilitation of meaningful relationships, adapting to, coping with and overcoming potentially harmful situations, avoiding injury or sickness, as well as, fighting or fleeing from a rival. The behaviours needed to cope effectively with life tasks, was essentially laden with emotion. The emotions subsequently facilitated adaptation to an environment (Reeve, 2009).

Plutchick (1980 cited in Reeve, 2009) found eight emotions were essential for adaptive purposes: fear, anger, joy, sadness, acceptance, disgust, anticipation and surprise.

Fear was evoked when faced with a threat. The behaviour of fear was running away from the situation. Fear functioned as a protective mechanism. Anger was produced when faced with an obstacle. The behavioural response was fighting. Anger functioned as a destructive mechanism. Joy was elicited when faced with a potential mate and the behaviour was mating. Joy functioned as a reproductive mechanism. Sadness was elicited whenever loss was experienced. The behavioural response was crying. The function of sadness was reuniting with the lost object. Acceptance was aroused by joining a group. The behaviour was grooming and sharing. The function of acceptance was affiliation. Disgust was experienced when faced with a gruesome object. The behavioural response was vomiting or moving away from the object. The function of disgust was rejection. Anticipation was experienced when exploring the environment. The behaviour was investigation and the function of anticipation was exploration. Finally, surprise was elicited whenever a novel situation was presented. The behaviour was arousal and alertness. The function of surprise was orientation. The interchange of emotion, situation, behaviour and adaptive function are summarised below:

Functional View of Emotional Behaviour, adapted from Reeve, 2009, pg. 318.

Emotion: Fear Anger Joy Sadness Acceptance Disgust Anticipation Surprise
Situation: Threat Obstacle Available mate Loss Clique Gruesome Object Environment Novelty
Behaviour: Mating Fighting Mating Crying Grooming Vomiting Investigation Attention
Function: Protection Destuction Reproduction Reunion Affliation Rejection Exploration Orientation

According to Trimpop (1994) emotions were integral to the risk taking experience. If a person did not experience some level of uncertainty and arousal, a risk would not be perceived. Without emotions, the risk situation would be reduced to an abstract cognitive evaluation of a hypothetical problem. Therefore, without the emotional component of risk, risk would not represent a risk taking experience (Trimpop, 1994).

Numerous studies have been conducted to determine how emotions influence risk taking (Trimpop, 1994). A study conducted by Johnson and Tversky (1983 cited in Trimpop, 1994) found that participants experiencing happiness regarded risk situations as less serious than participants induced into a sad mood. This finding was used to support the assertion that emotions overrode rationality when making decisions in regards to risk acceptability (Trimpop, 1994).

However, a study conducted by Isen and Geva (1987 cited in Yates, 1992) found that positive affect did not contribute to risk taking behaviour. In fact, the opposite was true. People experiencing negative affect were more likely to engage in risk taking and take greater risks (Yates, 1992). The influence of priming effects was conducted by Isen and Geva (1987 cited in Yates, 1992). The researchers gave participants, in the experimental condition, a MacDondalds voucher for a hamburger or a bad of lollies, to induce a positive mood. The participants in the control group did not receive anything for their participation. All participants had a choice to gamble in a high, medium and low risk condition. The participants were then asked what level of probability would incite them to gamble. In the meantime, all participants were required to write down their thoughts about the gamble and the risk. Participants in the experimental condition, the positive mood state, thought more about loss and the possibility of loss then did the control group, the neutral affect participants. However, participants in the positive mood state thought less about loss in a low risk condition than did the control group participants (Isen & Geva, 1987 cited in Yates, 1992).

Neurobiology[edit | edit source]

The brain is the hub of all emotions, decisions, and actions taken by a person. Variations of neurotransmitters have been shown to cause variations in personality and whether or not a person will engage in risk taking. For this section, the limbic system will be discussed along with variations of dopamine and its effect on personality.

The Limbic System[edit | edit source]

The limbic system is important for regulating emotions, memory, as well as, motivating behaviour (Kalat, 2007; Weiten, 2004). The limbic system comprises of loosely connected structures (Weiten, 2004) which forms a border surrounding the brainstem (Kalat, 2007), cerebral cortex and other sub-cortical areas (Weiten, 2004). The Latin word for limbic is limbus which means border (Kalat, 2007). Parts of the thalamus (Weiten, 2004), hypothalamus, hippocampus, amagdala (Kalat, 2007; Weiten, 2004), the olfactory bulb and the cingulate gyrus of the cerebal cortex (Kalat, 2007) are located in the limbic system. The motivation for some behaviours may stem from the pleasure-reward-centres found in the limbic system. The medial forebrain bundle, which passes through the hypothalamus, is concentrated with dopamine-releasing neurons. Dopamine is responsible for rewarding certain survival behaviours with pleasure, such as eating, drinking and sex (Deckers, 2005). However, people may stimulate the release of dopamine with drugs, such as, opiates, cocaine or amphetamines (Weiten, 2004) and with low doses of nicotine and alcohol (Deckers, 2005). Because dopamine rewards and reinforces certain behaviours, people continue to engage in those behaviours that provide them with pleasure (Deckers, 2005).

Neural structure Function
Thalamus receives all sensory information except smell (Weiten, 2004).
Hypothalamus regulates fight or flight, eating and sex (Weiten, 2004).
Hippocampus learning and memory (Weiten, 2004).
Amagdala regulates emotions and aggression (Weiten, 2004).
Olfactory bulb receives all sensory information concerning smell (Kalat, 2007).
Cingulate gyrus regulates aggression and the emotional response to pain (

Personality and the brain[edit | edit source]

There are approximately 100 neurotransmitters working in various parts of the brain. Variations of neurotransmitters lead to variations in personality. For example, variations of the neurotransmitter dopamine in the D2 dopamine receptor site has been linked to pleasure seeking behaviours (Kalat, 2007). In particular, Blum, Cull, Braverman & Comings (1996) found people who were born with the A1 allele, the genetic anomaly of the D2 dopamine receptor site, had lower levels of dopamine. Consequently, people with the A1 allele did not receive sufficient pleasure from everyday activities and were required to go to extreme measures to activate their dopamine system. These people often engaged in addictive, compulsive and impulsive behaviours. Furthermore, people with lower levels of dopamine commonly displayed symptoms of discomfort, anxiety, anger and cravings for substances that alleviated feelings of negativity. Blum, et al. (1996) called this the Reward Deficiency Syndrome.

Reward Deficiency Syndrome (Blum, et al. (1996)

Addictive Behaviour: Compulsive Behaviour: Impulsive Behaviour: Personality Disorder:
Alcoholism Sexual Disorders Attention Deficit Hyperactivity Disorder Conduct Disorder
Drug Abuse Pathological Gambling Tourette Syndrome Anti Social Personality Disorder
Smoking Autism Aggressive Behaviours

Likewise, variations of dopamine in the D4 dopamine receptor site, has been associated with Sensation Seeking (Kalat, 2007). More specifically, Zuckerman (1994) found that arousability, when faced with a novel situation, was attributable to catecholamines, dopamine, norepinephrine and neuroregulators, such as, monoamine-oxide (MAO) systems. The catecholamine pathways influenced approach motivation and the pursuit of rewarding experiences. Furthermore, high arousability was accounted for by noradrenergic pathways, stemming from the pleasure-reward system in the limbic system to the cerebral cortex. Zuckerman (1979 cited in Zuckerman, 1994) postulated that neocortical arousability was attributable to the activation of norandrenergic and dopaminenergic pathways and the absence of MAO working in the limbic system. Zuckerman (1994) however, changed his postulation with increasing evidence that dopamine alone was the crux of neural reward and that norepinephrine served only to alert the sensation seeker of possible arousing stimuli (Zuckerman, 1994).

Contributing factors in risk-taking behaviours?[edit | edit source]

Contributing factors in risk taking include situational, societal and evolutionary factors. Situational factors affect risk perception and risk acceptability. Society often influences risk taking behaviours by rewarding risk-seekers. Also, evolution has played a large part in risk-taking behaviours as risk-seekers were intrinsically rewarded through survival and well-being.

Situational[edit | edit source]

Situational factors influence the way a risk situation is perceived and whether or not a risk is deemed acceptable. Situational factors include external, physical and internal variables. External variables include: weather and extreme heat or cold. Physical variables include drugs and alcohol. Internal variables include cognitions, emotions and mood. Extreme heat or cold, as well as, fear dissipates the desire to engage in risk-taking, whereas, drugs and alcohol often instigate risk-taking behaviours (Trimpop, 1994).

Societal[edit | edit source]

Society contributes greatly to risk-taking behaviours. Society often rewards risk-seekers by giving them fame, fortune and honour, i.e., racing car drivers, boxers, astronauts and stuntmen. Consequently, society labels these risk-seekers as brave or heroic. However, society punishes risk-avoiders with ridicule and by labelling them as cowards (Trimpop, 1994; Wilde, 1982).

Evolutionary[edit | edit source]

If people did not take risks the human species would have died out a long time ago. Risk is integral to life. Risk taking was a necessary adaptation to explore, manage, and control certain aspects of the environment. By engaging in risk-taking the person was intrinsically rewarded with arousal, achievement, survival, and well-being (Trimpop, 1994; Wilde, 1982).

Risk management[edit | edit source]

Risk management is the scientific approach concerned with the comprehensive coverage of all known aspects of risk. The aim of risk management is to protect oneself, others, as well as, assets. The process of risk management entails describing risks, anticipating uncertainties and designing, as well as, implementing procedures which aim to eliminate or minimise the effect of loss or adverse outcomes (Vaughan, 1997).

Risk management practices have been with us since civilisation first began. In the 1950’s the term risk management became officially used as corporations began hiring personnel,. Specially for the purpose of risk management. Prior to the 1950‘s, corporations hired ‘insurance managers’ whose duty was to procure and maintain insurance policies (Vaughan, 1997).

With the revolution of risk management came changes to the philosophy of insurance purchasing, the managerial sciences along with a renewed interest for decision theories, namely, cost benefit analysis, expected utility and decision analysis. In addition, academic curricula in business schools changed in order to introduce students to the concepts of operations research and management sciences (Vaughan, 1997).

Although the scientific approach behind risk management stemmed from businesses, risk management approaches can be generalised to include individuals facing risk situations. The approaches to risk management, including risk management techniques, the risk management process and decision theories, such as, cost benefit analysis and decision analysis will be outlined in this chapter because they are applicable to generic problems (Fischhoff, et al., 1983; Vaughan, 1997).

Risk management techniques[edit | edit source]

The techniques used in risk management usually focus on pure risks. Pure risks are concerned with the possibility of loss or no loss occurrences (Andersen & Terp, 2006; Vaughan, 1997). Pure risks are considered highly aversive, as their consequences deal only with loss, compared to speculative risk, which entails potential benefits and advancement (Andersen & Terp, 2006; Vaughan, 1997). Hence, pure risks have serious implications to individuals or businesses who could jeopardise property, money, health and well being of self or others. The techniques developed to combat pure risks are risk avoidance, prevention, reduction, segregation, retention and transfer (Andersen & Terp, 2006; Vaughan, 1997). Risk retention and risk transfer can be combined to produce another technique known as risk sharing (Vaughan, 1997). Risk avoidance, reduction (Vaughan, 1997), prevention and segregation are used in risk control approaches (Andersen & Terp, 2006; Vaughan, 1997), whereas, risk retention, transfer and risk sharing are techniques used in risk financing approaches to risk management (Vaughan, 1997).

The techniques used for risk management are summarised below:

  • Risk avoidance: Risk is not accepted under any circumstances (Andersen & Terp, 2006; Vaughan, 1997).
  • Risk prevention: Reduce the ‘’probability’’ of loss occurrence (Andersen & Terp, 2006).
  • Risk reduction: Measures are in place to minimise the severity loss or adverse outcomes (Andersen & Terp, 2006; Vaughan, 1997).
  • Risk retention: The burden of risk is retained because no other alternative exists (Vaughan, 1997).
  • Risk transfer: Liability of risk is transferred to another person or organisation who could afford to bear the risk (Andersen & Terp, 2006; Vaughan, 1997).
  • Risk sharing: Risks are partly retained and partly transferred (Vaughan, 1997).
  • Risk segregation: Risks are dispersed either among a group of people, or by the duplication of assets, in order to reduce the severity of loss (Andersen & Terp, 2006).

Risk management approaches[edit | edit source]

Risk management approaches aim to set the parameters for risk acceptability (Fischhoff, et al., 1983). This is done by establishing, as well as, implementing procedures which minimise loss or the severity of financial loss. The two main approaches used in risk management are risk control and risk financing (Vaughan, 1997).

Risk control[edit | edit source]

Risk control is concerned with preventing, as well as, minimising loss or adverse outcomes that a person or business is exposed to. Methods of risk control include risk avoidance, risk segregation, as well as, various risk reduction techniques (Andersen & Terp, 2006; Vaughan, 1997). In engaging in risk avoidance the individual refuses to partake in a risk. Risk-reduction consists of techniques designed to minimise loss, as well as, counteract the severity of loss occurrence. The techniques used in risk reduction are loss prevention and loss control. Loss prevention consists of refraining from risk where losses are too great. Loss control aims to minimise loss, and the impact of loss, if it were to occur (Vaughan 1997). Included in loss control is risk segregation, which focuses on separation or duplication of assets, in order to reduce loss severity (Andersen & Terp, 2006).

Risk financing[edit | edit source]

Risk financing is focused on funds being available to cover the costs of loss if it were to occur. Essentially, risk financing is a form of financial protection (Andersen & Terp, 2006) Any risks that cannot be avoided or reduced must be either transferred or retained (Andersen & Terp, 2006; Vaughan, 1997). Therefore, risk financing focuses on techniques, such as, risk transfer, risk retention and risk sharing. When risks are retained an individual may allocate a budget to cover the cost of loss. When risks are transferred, an outside source will ensure finances are available in the event of loss, for example, purchasing insurance (Andersen & Terp, 2006; Vaughan, 1997). When risks are partly transferred and partly retained, known as, risk sharing, an individual may purchase insurance to cover the cost of some risks (Vaughan, 1997). In deciding whether to retain or transfer a risk, an individual will need to consider the probability of loss occurrence, the severity of loss occurrence and whether resources will be available to cover the cost of loss. In addition, an individual will need to evaluate the costs and benefits of engaging in a particular risk (Andersen & Terp, 2006; Vaughan, 1997).

Risk management process[edit | edit source]

The risk management process uses six steps to evaluate, manage, monitor and remedy a potential risk situation (Ale, 2009; Henriksen & Uhlenfeldt, 2006; Vaughan, 1997). The risk management process encourages foresight rather than hindsight (Starr, 1984). The steps will be briefly outlined below, however, it is important to note that when the process is used in practice, the steps tend to merge with one another (Vaughan, 1997).

1 Determine objectives

To determine the objectives, an individual will need to decide exactly what they want the risk management process to do. To begin with, the individual will need to create a plan. Without a plan the risk management process will be fragmented and inconsistent, with focus on isolated problems, rather than a logical process to deal holistically with risk (Vaughan, 1997). For example, an individual may determine health and safety as key issues in risk management. Therefore the goal would be physical and emotional well-being. In order to determine the objectives of health and safety, the individual could determine first the objectives of health: the absence of disease and physical injury or premature death, and the objectives of safety: living in conditions where physical injury and threat are absent (Starr, 1984).

2 Identify potential risks

The next step would be to identify potential risks and adverse outcomes (Ale, 2009; Henriksen & Uhlenfeldt, 2006). This includes identifying events that could potentially interfere with the attainment of the objectives and goals identified in step one. Events could emanate from internal or external environments, actions and decisions (Henriksen & Uhlenfeldt, 2006). For example, an individual may identify drug consumption as affecting internal health and well-being, and peer pressure as external environmental conditions which deviates from the goal of physical and emotional well-being.

3 Evaluate risks

Once objectives and possible risks have been identified, the individual must then evaluate the size of potential loss and the probability that loss will occur. In addition, an individual could rank the priority of losses into critical risk, important risk and unimportant risk (Vaughan, 1997). For example, critical risk could be exposure to carcinogens due to drug consumption, such as, cigarette smoking. Important risks could be regular alcohol consumption with friends and unimportant risks could be drug consumption in the form of pain relief, when one has a head-ache, or drinking a cup of coffee when out with friends.

4 Consider alternatives and select risk treatment approach

The next step is to decide which risk management techniques should be utilised to best deal with the kinds risks outlined in the previous steps (Ale, 2009; Henriksen & Uhlenfeldt, 2006; Vaughan, 2006). This involves quantifying the consequences and probabilities by assessing the severity of loss, the likelihood of loss and the resources available to reduce the impact of loss (Ale, 2009; Vaughan, 1997). For example, an individual could decided to use risk avoidance when addressing the concerns of drug consumption, or the individual may decide to retain the risk, and instead use risk reduction techniques, by controlling the amount and frequency of drug consumption, such as, number of cigarettes smoked or standard drinks consumed when out with friends.

5 Implement the decision

Once the risk management techniques have been decided upon then the individual will need to implement them (Ale, 2009; Henriksen & Uhlenfeldt, 2006; Vaughan, 1997). The decision to retain a risk could come with or without appropriate funds to manage adverse consequences. The decision to utilise loss prevention techniques would need a specific plan. The decision to transfer risk would require an appropriate source willing to bear the risk (Vaughan, 1997). For example, an individual may decide to transfer their risk to an insurance agency, in the event, they need finances to cover medical treatment due to exposure to carcinogens from drug consumption.

6 Evaluate and review

Finally, the risk management process must not be thought of as a one-off activity. Instead, safeguards must be in place to control for the ever changing environment, as new risks emerge and other risks become obsolete (Henriksen & Uhlenfeldt, 2006). Also, risk management techniques must be monitored and reviewed frequently in order to determine its continual effectiveness (Ale, 2009). For example, an individual who decides to stop smoking no longer has risks associated with the smoking habit itself, but will have to instead, manage health risk associated with possible damage to organs.

Cost/Benefit analysis[edit | edit source]

Cost/benefit analysis is concerned with determining the costs and benefits of taking a risk. If benefits outweigh the costs, then a risk is worth taking. The reverse also applies, if the costs outweigh benefits, then a risk is not worth taking (Ale, 2009).

Cost/benefit analysis is generally used in businesses as a decision support tool (Ale, 2009). When cost/benefit analysis is used in business, the analyst must determine whether benefits exceed the costs, whether costs could be lower for expected benefits (Vaughan, 1997) or whether expenditure could be used to supplement benefits (Fischhoff et al., 1983). Ideally, benefits and costs will balance out.

Cost/benefit analysis has been criticised because costs could be measured, whereas, benefits could not (Vaughan, 1997) and some businesses have neglected safety concerns due to the costs outweighing the benefits (Sunstein, 2003).

Decision Analysis[edit | edit source]

Earlier in the chapter, one of the theories used to explain risk taking behaviours was the Expected Utility Theory. The Expected Utility Theory maintained that people were capable of making rational and logical decisions when faced with a risk situation (Yates, 1992). That is, people could determine the utility from expected outcomes. Decision analysis is a derivative of the Expected Utility Theory (Fischhoff, et al., 1983). Decision analysis uses subjective evaluations of risk. However, it also uses a sequential formal analysis to structure decision making in a systematic way (Fischhoff, et al., 1983).

Decision analysis uses a five step approach for decision making in conditions of uncertainty. Decision analysis borrows heavily from the axinomies used in Expected Utility Theory. To reiterate, the axinomies were completeness, transitivity, independence, reducibility and continuity (Yates, 1992) . According to the Expected Utility Theory, if the axinomies were true and correct, then one ought to be making sound and logical decisions when faced with a risk situation. However, decision analysis also implements techniques used in economics, operations research and management science (Fischhoff et al., 1983).

Decision analysis is intuitive. However, the formality of a structure to determine decision-making helps a person to consider all relevant information and courses of action. The formality of decision analysis has been shown to improve consensus among two, or more people, who aim to set a parameter for risk acceptability. That is, two people may intuitively assess a risk situation differently from one another, but when they go through the steps of decision analysis, their disagreements usually disappear. People usually come to an agreement as they work through the steps together. This has caused decision analysis to be criticised, as people have claimed that decision analysis, ultimately leads polarization of views. Indeed, some people use polarisation to the their advantage, such as, leaders who want followers allegiance. However, measures can be put in place to ensure sound judgements are made, such as, acquiring technical expertise on a subject matter.

1 :Structuring the problem.

Formal analysis of a risk situation always begins with a thorough definition of the problem. In order to define the problem, the individual will need to identify all relevant information concerning outcomes, alternatives and uncertainties. Careful consideration of the problem will help eliminate mismanagement due to omitting potential risk scenarios, as well as, through the incorporation new information, options and ideas (Fischhoff et al., 1983).

2 :Assessing probabilities.

The next step is then to assess the likelihood that the uncertainties identified in step one will eventuate either presently or in the future. The probabilities generated are based only on subjective estimations of the likelihood of these occurrences. That is, probabilities are concerned only with intuitive guesses (Fischhoff et al., 1983).

3 :Assessing preferences.

For this part of the process, an individual will need to determine which strategies will best suit the risk situation. For example, the individual may choose either risk aversion or risk taking strategies (Fischhoff, et al., 1983). At this point, the individual can incorporate personal preferences, values and experiences into the decision making process (Vaughan, 1997; Fischhoff et al., 1983). There is no right or wrong way to determine a solution, however, there may be flaws in thinking due to ignorance, lack of experience and other unknown psychological factors (Vaughan, 1997). However, it is completely up to the individual what they hope to achieve from this process.

4 :Evaluating alternatives.

Each alternative is merited on its expected utility. Alternatives are evaluated in terms of benefits expected, along with the expected probability of the outcomes occurring . Upon evaluating the alternatives, an individual will then choose that alternative which has the greatest expected utility (Fischhoff, et al., 1983).

5 :Sensitivity analysis and value of information.

The decision is reviewed once again, in order to eliminate unnecessary components from the analysis, as well as, to determine whether changes could be made to the strategies, utilities and probabilities, that could ultimately lead to an alternative outcome.

For the first part, an individual will need to repeat evaluations by either adding or subtracting one or more components and then, for the second part, the individual will need to re-assess expected utilities and probabilities. Upon discovering a critical component, the individual would then need to gather further information that could potentially change their recommended decision (Fischhoff, et al., 1983).

Review Questions

  1. What theories were used to help explain risk-taking?
  2. How does emotion affect risk-taking and to what degree?
  3. How does personality contribute to risk-taking behaviours?
  4. What were the situational, societal and evolutionary factors contributing to risk-taking?
  5. How can risk-taking be managed?.

Conclusion[edit | edit source]

The aim of this chapter was to identify and explain the motivational causes of risk taking behaviours. The chapter began by introducing the topic of risk. Risk was an integral part of life but the diversification of risk has meant that people generally disagreed upon a set definition. However, for this chapter, the key elements of risk were used to provide a definition. Risk was defined as: engaging in any action, an individual has chosen to undertake, that has an uncertain and future-bound conclusion which entails the potential for loss, as well as, advancement, and may be governed. The chapter then identified four major fields of study, involving: adolescence, leadership, groups and procrastination. These fields of risk taking were studied extensively, and continue to be studied, as the risks involve a person’s health, community welfare, as well as, business prosperity. Furthermore, the adverse effects of risks in these domains were deemed preventable, because a person could have chosen not to engage in certain risk taking behaviours. Then the chapter identified and explained problematic risk taking behaviours. First, a distinction was made between risk taking and problematic risk taking behaviours. Problematic risk taking behaviours involved serious health, economical and social problems. Problematic risk taking behaviours included seven areas of: alcohol and drug abuse, reckless driving, extreme dieting, gambling, violence, unlawful conduct and unprotected sex. These areas of risk taking were addressed in this chapter because of the serious and detrimental effects the risks had to a person’s psycho-social wellbeing, as well as, the wellbeing of others. Then major theories addressing the motivational influence on risk taking behaviours were discussed. Included was: Maslow’s Hierarchy of Needs, Drive Theory, Atkinson’s Model of Achievement, Expected Utility Theory and Risk Homeostasis Theory. In addition to these theories, areas of personality, emotionality, neurobiology, as well as, other contributing factors, such as, situational, societal and evolutionary, were discussed. It was expressed in the chapter, that in order to grasp the motivational causes of risk taking, one must understand and acknowledge all the relevant theories as being tied into a holistic approach. Finally, the chapter addressed risk management in the form of risk management process and theories of Cost/Benefit analysis, as well as, Decision analysis. These risk management constructs used logical, step-by-step, approaches to identify, evaluate and regulate risk taking behaviours.

References[edit | edit source] Biology. (2010). Cingulate gyrus. Retrieved from:

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