The challenge in some organizations is not enough risk taking: Employees are too cautious and not willing to try new things even if it is beneficial, in general, for the organization. In other organizations, the problem is excessive risk-taking: Risky behavior spreads throughout an organization until something goes wrong. From poor financial decision-making to unethical behavior, excessive risk-taking can sink a company.
So how does risk taking spread through an organization? The intense uncertainty surrounding Covid-19 provides a unique environment for studying that question. At the beginning of the pandemic, people around the world simultaneously asked what behaviors are appropriate to reduce the risk of individual and societal exposure to the virus. It allows us to test how canonical learning theories are consistent with the prevalence of risk taking.
In a study of human behavior post-lockdown and pre-vaccinewe document a phenomenon we call “risk creep.” it refers to a growing tolerance of risky behavior, possibly due to almost missor events that could result in a negative outcome but, in the event, do not.
Our research elucidates two important channels through which risk-taking spreads: from social learning and from experiential learning, or trial-and-error. Companies need to understand both and how they can interact to encourage or discourage risky behavior. The more managers understand what drives employees’ behavior, the better they can predict it. Finally, it helps them anticipate downstream consequences to communicate with employees earlier and calibrate risk more accurately.
Theories of Risk Taking
Decades of work on social norms have shown that people are often influenced observing what others are doing. These observations help people to understand characteristics FREQUENTLY and which tend to get them social rewards or pUNISHMENT. They are often considered sufficient for learning something new behaviors. Researchers call inferences based on observing others “social learning.”
As any manager knows, employees respond less to what they are told is appropriate behavior and more to what they see others doing in the workplace. In strong cultures, these two go hand in hand, reinforcing each other. For example, Southwest Airlines instructs its flight attendants to take risks and have fun, but new flight attendants actually learn how to behave by observing their unscripted colleagues with safety announcement or playing practical jokes. By observing others, they learn the appropriate level of risk in trying something new.
But what happens when there are no clear signs from the social environment? This happens in situations where the culture is weak or during times of great change, so there is little or no information to help people judge what is socially acceptable behavior. Here, people tend to rely on their own trial-and-error learning experience. People can “test the waters,” taking a small risk and then assessing the outcome – an assessment guided by emotions more than rational calculation.
How does it work? If someone takes a risky action one week, do we expect them to do the same thing the next week?
The answer lies in how dangerous the consequences of the risky action feel. Imagine you were distracted by a text while driving and accidentally swerved into the other lane. Once you catch your breath, you’ll probably put the phone down for at least a few minutes. On the other hand, if people engage in risky behavior without serious consequences, they may develop a sense of safety and become less cautious in their behavior. Imagine you’re responding to a text that’s stuck in your path. You may feel more emboldened to continue texting. We call this the latter phenomenon”risk creep.”
The academic literature on the psychology of decision-making examines both whether people become more risk-averse and more risk-tolerant (see this 2012 and 2016 papers). It also examines how social learning or experienced trial and error may account for these results. However, these are studied separately rather than in the same context. Our study of Covid-19 behavior helps us measure whether risk avoidance or risk tolerance wins, accounting for two possible mechanisms of social and experiential learning.
“Risk creep” in the time of Covid-19
In a five-month longitudinal field study after the lockdown and before the vaccines, we tracked what people did when they left their homes. We collected eight surveys from 304 students who recently returned to campus and the neighborhood to take classes remotely. They took a baseline survey and seven-week follow-up “pulse” surveys, which included a subset of the questions from the baseline survey. The seven wrist surveys allowed us to track changes in behavior and attitudes over time. In all surveys, participants reported how many times they left their home to participate in any of six categories of activities.
We classified the activities into 1) non-discretionary activities, which are necessary for daily living (going outside the house for food, running errands, or school activities) and 2) more discretionary activities, which are relatively less essential on a daily basis. -in daily life, and abandoned by many during the lockdown (going outside the house to exercise, gathering with others in small social groups, attending large events). To assess social learning, we asked participants how many people they had seen engaged in similar activities in the previous week. To assess the learning experience, we measured people’s perceptions of the danger of their own behavior in the previous week.
We found that the level of people in non-discretionary activities (tasks for things like groceries or drug stores, school study groups) did not change during the period of time. However, people who saw others participating in activities that were not desirable outside the home (exercise, social gatherings, and large events) did more of the same activities the following week, evidence showed. of a creeping risk tolerance associated with social learning.
Likewise, people who said they participated in riskier public activities one week progressively engaged in more discretionary activities the following week. Again, people show a creeping risk tolerance from the trivial results of their own experiment.
The results from our study suggest that although social learning is stable and influences behavior, it does not preclude experiential learning. This can be especially true if social learning is interrupted by random events (forgetting a mask and thus arriving at a new decision that has not yet been made). Thus, it is always necessary to guard against excessive risk taking.
Implications for Companies
The lesson for companies is, in a nutshell: Beware of close calls. If someone does something dangerous, whether on purpose or not, and the situation is good, they are more likely to do it again. If someone puts in an insecure password and nothing happens, their intuitive brain has “learned” that it’s OK. If someone accidentally overbills a client but no one notices, they are more likely to do it again. If someone makes a risky trade and it goes through, it’s more risky the next time.
In effect, “Cutting corners” – even if it’s accidental to begin with – leads to more corners being cut down the road. When things are going well, we tend to ignore or discount our luck, and so the behavior or process no longer feels dangerous to us.
This pattern is most dangerous when the risk is relatively low, because of how it combines with social learning, as perfectly illustrated by the pandemic. Even in 2020, a person who forgets a mask and therefore does not have a mask at work is still unlikely to catch the virus. The “risk creep” effect then makes them more likely to go unmasked the next time. Then social learning amplifies the effect, as others see the unmasked person and incorporate that into what they think is socially acceptable. A little luck starts a chain reaction that ends in more risky behavior.