Chauncey Starr was an electrical engineer, nuclear energy expert and dean of the UCLA School of Engineering in the 1960s. His research on risk analysis was pioneering and is still highly relevant today. Starr stressed the major difference in risk tolerance between voluntary and involuntary activities.
“When people think that they are in control (a perception that may be incorrect but that is based on previous experiences and here on the belief that they can assess the likely outcome), they engage in activities–climbing vertical rock faces without ropes, skydiving, bullfighting–whose risks of serious injury or fatality may be a thousand-fold higher than the risk associated with such dreaded involuntary exposure as a terrorist attack in a large Western city.”
He goes on to explain that most people have no problem in engaging daily activity that temporarily increases their risk by significant margins: hundreds of millions of people drive every day and an even higher risk is tolerated by an even larger number of smokers (1 billion worldwide), but we try to avoid wrongly perceived risks of involuntary exposures.
Statistically, our societies tolerate a global toll of 1.2 million deaths per year from driving because it’s something within our “control” or voluntary but we would never accept the same number of deaths resulting from collapsed buildings or bridges “even if the combined annual death toll of such disasters was an order of magnitude smaller—‘just’ in the hundreds of thousands of fatalities.”
Our relationship with risk has a powerful ability to shape who we are, what we accomplish and how much progress we make living out our mission and vision as an organization.
Inside the strongest, most-successful and growing organizations you will find people who have accurate perceptions about and tolerance for risk. Their weaker, less-successful and shrinking competitors get this wrong, refusing to acknowledge or failing to appreciate the difference between voluntary and involuntary risks. On one side of the coin, a false sense of confidence can emerge. On the other, analysis paralysis. Thus, a tightrope appears which effective leaders must learn to walk.
To become a better tightrope walker, make a list of known risks (i.e., first order) in your industry, market and business model. Then make a list of unknown risks (i.e., second order). Exponential growth happens when firms are either smart or lucky enough to be aligned strategically and operationally when the third order risks (i.e., unknown unknowns) appear.
As a result of AI, rapid prototyping, technological advancements in biomedical engineering, the democratization and commoditization of everything, etc. dentistry and orthodontics will have more unknown unknowns arrive in the next ten years than we’ve seen in the last one hundred. If you want to survive, let alone thrive, become the best at understanding risk and taking consistent action based on what you know (and that others have ignored).