I was privileged last week to speak with two experts on risks of different kinds, Professor Bent Flyvbjerg (Linkedin, Twitter) and Michele Wucker (LinkedIn). They both have new books out or coming out, How Big Things Get Done and You Are What You Risk, respectively. Wucker’s earlier book The Gray Rhino is what drew my attention to her, and while Flyvbjerg’s work helped me see how black swans might be considered as fat-tailed risks in projects, and hence useful, I found the gray rhino concept much more useful and actionable in strategy discussions. The contrast of spending quality time with both of them exploring their thinking and theses was illuminating and valuable.
But this discussion is about You Are What You Risk‘s premises, or at least a subset of them, and how it can help us as we consider climate solutions, inhibitors to solutions, and clean tech.
First, some basic definitions. We tend to think of risks as having only negative consequences. We talk about impacts and magnitudes, mitigations and avoidance. But taking risks is done for a reason. With risk, frequently there comes opportunity, a reward. Investing GICs is low-risk, but also low-reward, or at least, that’s what it seems like to someone who wants a higher return on their money.
Then there’s risk fingerprint. Like the whorls of flesh on our fingers, it’s distinct to us as individuals. Our risk fingerprint is forged by the odd combination of nature and nurture that is unique to us. If you are highly imaginative, one of the things that quick visualization of potential outcomes can bring is caution as you consider the downsides. Or it could make you delight in the potential upsides. No two people have the same fingerprints.
My fingerprint is pretty obvious to anyone who knows me. I was constantly working on the most interesting and challenging proposals at the global tech firm I worked for because I was interested in the new and not locking myself into major accounts where I’d have security and career progression. That’s why I was a great project startup and fix-it resource, but also a head-scratcher for my various bosses to deal with. Need someone to drop into Canada’s Phoenix payroll disaster and forge and deliver a sophisticated recovery report out of a team’s scattered insights in 48 hours, then participate in shepherding it through to execution? I was your guy. Need someone to manage an IT maintenance account and its relationships for three years? I was so not your guy.
And that’s true outside of my professional career as well. Wind surfing in snow storms. Paragliding the southern cliffs of Bali. An awful lot of Texas Hold’em at casinos around North America and online. Motorcycles. Dropping into black diamond bowls at Whistler on a snowboard. Studying improv and singing, and doing both on stage and even singing a couple of times on tv.
That’s a big part of my fingerprint. But at that, I’m not a hard core entrepreneur, someone who risks everything and puts everything into a massive single role of the dice. Frequently a big part of their fingerprint is that they don’t believe that they can fail, they just haven’t figured out how to succeed. I’m usually aware of how I can fail, and always want a safety net. And I took very calculated risks that I’d worked up to. I was five years into my paragliding development before I spent 90 minutes floating back and forth along the 15 km stretch of Bali and looked down on the temple of Uluwatu and the Shark’s Fin. (GoPro footage here.) I spent an awful lot more time on the ground wishing I was in the air than the reverse, which is the correct ratio.
Of course, there is a joke about Silicon Valley entrepreneurs, that they all have trust funds. It’s more true than not for the ones who made it really big. They don’t have rags to riches stories, they usually have riches to absurd levels of riches stories. Bill Gates got a lot of money, help, and introductions from his very affluent and well-connected family. Their stories often involve, even if they drop out, education at some of the most expensive institutes of higher education on the planet, and mostly not on full ride scholarships but family money. Their risk fingerprint may be to move fast and break things, but they often and perhaps usually have a safety net that isn’t visible or available to most people. It’s about breaking things for other people, not themselves.
And survivor bias rears its ugly head here. We know names like Musk, Thiel, Zuckerberg, Gates, and the like because they are the ones who made it. That’s why reading biographies of how they succeeded and the lessons that they impart is usually a worthless exercise. Very few of them address the massive luck that they’ve had at multiple steps along the way. Their risk-taking succeeded. For every Zuckerberg, there are a million people who are toiling at relatively thankless and anonymous jobs because their big idea was too late or wrong. Thiel is an especially self-congratulatory specimen of the breed.
So there’s a fingerprint we all have. I’m clearly a person with an identifiable one, as is the person who spends 40 years in an insurance office and collects stamps, never leaving the city that they were born in. This doesn’t make us better or worse, just different. They also serve who simply sit and philatelize, or at least I think that’s how the saying goes. And certainly no one except me derived benefit from my private life risk-taking, except for the occasional schadenfreude when I took massive prat falls of one kind or another, and the better poker players of course.
And then there’s risk profile, a harder to pin down term, and not only for me. Wucker quotes Greg Davies of Oxford Risk on the problem, who points out that it’s used differently through the industry and around the world. There are a few aspects of it. One is stereotyping. Men are assumed by many, especially VCs, to be less risk averse and hence better founders. That this blatant misogyny is rampant is no surprise, but that it’s completely wrong is interesting as well.
First, male and female risk profiles overlap a lot. Any individual is just that, an individual. A startup led by some of my male friends would have a much lower chance of success because they are at most wantrepreneurs, or are people with no aspiration to entrepreneurialism at all. And it’s trivially easy to point at female risk-takers globally, although they rarely get as much attention. But statistically, female entrepreneurs (not individual ones again) are much better at managing assets and have much more nuanced risk assessments. They aren’t more risk averse, they are, on average, better at dealing with risk.
Second, however, is understanding your own risk fingerprint, how it is perceived by others, and also profiling others and organizations for their attitudes, positive and negative, to risk.
And now we enter into the realm of empathy and fossil fuel companies. As Wucker and I discussed, when climate change was a gray rhino risk as opposed to the spinner off of fat-tailed climate disasters and gray rhino climate impacts, different groups saw it very differently.
The fossil fuel industry, to empathize with them if not to sympathize, saw global warming and climate change as a threat to their revenue and profits, and much less something that they cared about otherwise. So some drill rigs would have worse weather, or an oil tanker or two more might founder in harsher seas? That was just a minor increase in normal risk. But virtually their entire business model disappearing? That was a risk with consequences most of them considered as very negative, and they treated it appropriately by their lights.
And so, they entered into a decades-long disinformation campaign to spread doubt, delaying the inevitable quite successfully.
There are two additional aspects to draw out of this. The first is Kahneman’s prospect theory, for which he won the Nobel Prize in economics and created more than not behavioral economics from outside of it in psychology. His absurdly obvious insight, foreign to the models of classical economics, was that humans don’t make fully rational decisions with all of the information treated equally. He didn’t put a stake through the heart of homo economicus, so that fallacy is still taught to economics students globally, but he did at least introduce real human behavior into the mix.
What does prospect theory say? That the average person fears loss more than they desire gain. Give the average North American the chance of winning $1,000 or losing $1,000 on a coin toss, and they’ll shy away from it because they fear losing the grand more than they desire winning it, under most circumstances. There are lots of edge conditions. People who feel that they have nothing to lose take extraordinary risks. People with absurd amounts of money don’t care about losing some of it as much. Professional stock traders and poker players have trained to turn themselves into homo economicus in their narrow fields.
But for the average person who works in the fossil fuel industry, they personally fear losing their incomes, bonuses, pensions, and stock portfolio values more than they desire solving climate change and gaining those benefits for their families and the rest of the world. It’s a no-brainer. Hence the reason that so many otherwise intelligent and well educated people who work in fossil fuels are climate change deniers or minimizers. They have to find a way to square the cognitive dissonance. They are strongly motivated thinkers. Among other things, their confirmation bias is usually working overtime.
But there are outliers too. Orsted used to be Dong Energy, a Danish fossil fuel major. It looked at climate change, it looked at its portfolio, and it saw the positive opportunity of the new energy economy. So, staying within energy, it built a massive renewables portfolio and dropped its fossil fuels portfolio, mostly in the 2000s, with some laggards in the 2010s. Its 2022 revenue was $2.1 billion, so it and its 6,400 employees are not suffering negative consequences, although change is hard.
The other thing to pull apart psychologically is that it’s very easy to distract people from gray rhino risks. They aren’t impending, they aren’t urgent typically, they are just important and often somewhat abstract. There’s something called the ambiguity effect, where our cognitive biases lead us to shy away from or ignore things where the outcomes are hard to predict. Adding noise to the system enhances the ambiguity effect. The fossil fuel industry exploited this human cognitive bias ruthlessly for decades, to our global detriment. (Of course, the fossil fuel industry sees it differently, with nonsense like Epstein’s The Moral Case for Fossil Fuels and Alberta’s assertion that it has “ethical” and absolutely necessary oil.)
Wucker’s thesis, very well supported, is that you can predict better what people and organizations are going to do if you intentionally create a profile of their perspectives on risk. Once you understand their risk fingerprint better, you can find ways to work with them or deal with the negative consequences of their behavior better. In the case of the fossil fuel industry, a good idea would be to ban them from UN IPCC conferences, where they typically outnumber the largest national contingents. Even ‘virtuous’ Canada had fossil fuel people in its posse at the last COP.
But for the rest of us, as we work with new people and new firms, figuring out how they think about risk helps. And as Wucker’s book points out, a lot of that is listening and asking. Once you understand them, you can have empathy for them. You can put yourself in their shoes, see through their eyes, even if it gives you sore feet and crossed eyes occasionally. You can find more effective ways to make decisions. You can bring more people into discussions. You can have better outcomes.
So if you are working in clean tech and other areas that are working to address the climate crisis we’ve allowed to develop out of the gray rhino of climate change, spend some time understanding and learning to communicate your risk profile, and time asking about and understand the risk profiles of the people and firms you are dealing with. If you believe some stereotype about a group and their risk profile, ditch it. It’s wrong, and it doesn’t apply to the person sitting at the other end of the Zoom call. Figure out their unique risk profile and share yours.
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