Who knows more about risk?

The Wisdom of the CrowdsIn important matters of uncertainty involving predictions we need to hear from a diverse group of people that have different perspectives, and perhaps a stake in the decision that causes them to think before offering their views.

Collectively, the diverse group is smarter than individuals. This is the core message of The Wisdom of the Crowds by James Surowiecki.

Surowiecki provides a framework with examples of when and how the knowledge of the crowd can impact decisions positively.

This idea applies well to regulation. Why? Because regulators are generally a step or two removed from the uncertainties they need to know about. First-hand knowledge about these risks reside with the regulated parties.

As well, the sources of uncertainty in most jurisdictions are dispersed and mostly invisible until they are brought to the attention of the regulator. The collective knowledge of constituents (regulatees and individuals who are affected by what regulatees do) is far greater than the regulator. Effective new methods for capturing this knowledge will improve regulatory oversight.

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Faster, more accurate decisions

DNA model
Many years ago we would never have thought that there is code that determines who we are. Now we understand that DNA is the ultimate example of structured information.
Thin slices of related information paint a composite picture

The way the human the brain serves up the right information in a split second is truly inspiring. How do you explain now retired Magic Johnson’s court sense and ability to float through a seemingly impossible line of guards and then sink a basket making it look like poetry in motion? How do you account for Wayne Gretzky’s renowned ability to anticipate where the puck will be at a critical moment?

Malcolm Gladwell in Blink uses examples like these to illustrate the brain’s capability to process thin slices of related information and make fast and accurate decisions. “Blink” is Gladwell’s metaphor for split second decision making.

This capability to thin slice accurately is based an acute understanding of what’s important and what’s not. The composite picture that the thin slice represents may include seemingly trivial information and exclude other information that just doesn’t fit. It’s the right bits of information and relationships between them that matters.

The concept applied to regulatory organizations, and in particular to the development of risk profiles, can be very effective. Continue reading

Do we need to autheticate the source or what the source reports?

I spoke at a conference in Ottawa today that was focused on the topic of stakeholder consultation. An observation from one of the participants in one of the sessions raised the question about how to authenticate and validate comments from participants received via an online forum, wiki, or blog. If the comments are to be used to inform policy, the need to know the author of a comment is clearly important. If one individual or group were able to represent themselves as many individuals or groups, the consultation process is clearly suspect.
This brings up the question of the purpose of the consultation. In risk management, we need to consult to understand matters that would otherwise be invisible, to see and understand more clearly what and how certain unexpected events could happen that will advance or retard goals. The authenticity of the individual who helps you understand or see more clearly may not be important. However, the truth of what they tell you is. So we need to validate the information. It’s less likely that we need to validate the reporter. Indeed, knowing less about the reporter means that it is less likely that we will be influenced by the things that shouldn’t influence us, but easily can. For more on this point about risk and perception read this blog about Joshua Bell.