## Five "Neglects" in Risk Management

1. Probability neglect – people sometimes don’t consider the probability of the occurrence of an outcome, but focus on the consequences only.

2. Consequence neglect – just like probability neglect, sometimes individuals neglect the magnitude of outcomes.

3. Statistical neglect – instead of subjectively assessing small probabilities and continuously updating them, people choose to use rules-of-thumb (if any heuristics), which can introduce systematic biases in their decisions.

4. Solution neglect – choosing an optimal solution is not possible when one fails to consider all of the solutions.

5. External risk neglect – in making decisions, individuals or groups often consider the cost/benefits of decisions only for themselves, without including externalities, sometimes leading to significant negative outcomes for others.

Seth • August 22, 2012 1:46 PM

It’s quite possible to choose an optimal solution when one fails to consider all the solutions. It is only necessary that the optimal solution be in the set of considered solutions (and the best of that set be chosen). You just can’t know that you chose the optimal solution (there might be a better one you didn’t consider) but that’s also the case when you happened to consider all the solutions, but you just can’t prove there aren’t others.