Track 1 Session 1

9:10 to 10:10 a.m. Wednesday, June 13, 2012

The Problem with Probability

Effective risk management is dependent on anticipating probable future events and determining which warrant action or planning to be prepared to respond to the unexpected. Highly resilient organizations are able to bound possibilities for abstract events such that they have a range of possible responses. This presentation will explore cognitive processes involved in future thinking and the act of constructing future scenarios. Our tendency to focus on past events and details can prevent us from more broad, general thinking that is needed to address uncertainty. We use episodic and semantic thinking for the future as well as the past. Episodic future thinking may help us imagine realistic possibilities for future events. Factors such as hindsight bias, optimistic bias, and the effect of timing (near versus distant) can influence our predictions. People tend to have difficulty identifying catastrophic, never happened yet, events but these risks can cause a company to fail (or come close to it). The BP oil spill and the Toyota mechanical issues are examples of catastrophic events that were extremely costly and were not responded to resiliently. Knowledge of cognition in regard to future thinking and uncertainty are used to suggest improved processes to bound future scenarios as part of a strategy to increase resilience.

Key Words: Cognitive Science, Probability, Risk Analysis, Resilience

Elizabeth Lay

Siemens Energy

Orlando, Florida