Internal and external pressures force organizations to adapt their decision-making process concerning risk, sometimes with potentially unfavorable results. The author explores the causes and consequences of paradigm blindness that contribute to misguided risk decisions.
The development of risk policy in organizations can lead to paradigm blindness, or unquestioning adherence to a particular point of view. Such allegiance to a particular view among an organization’s participants can lead to potentially misguided decisions in its approach to risk management.
How Is This Research Useful to Practitioners?
Paradigm blindness is similar to groupthink in that adherents accustomed to a particular worldview do not accept any challenges to the prevailing orthodoxy. The author explores the challenges of this stance in the development of organizational policy concerning risk and uncertainty. Individuals need to be open to alternative points of view because if indecision and misdirected mindsets prevail, failure in the decision-making process and a misevaluation of risk can occur.
The author reviews frameworks for policy decision making as a basis for determining how to overcome paradigm blindness within an organization. He begins by considering the circumstances that can lead to failure. An organization can move off course when external pressures lead to shocks, or what the author calls “perturbations.” The resulting actions of agents within the organization to deal with these disruptions may or may not be framed by certain prejudices and subject to the will of the most powerful faction, to the exclusion of all other interest groups.
How risk policy is shaped in an organization is a critical determinant in its approach to risk. The author discusses evolving terminology that frames resisted challenges with an understanding of science. He starts with the word “paradigm,” moves to the concept of “Weltanschauung,” or worldview, and ends with “hegemony” (i.e., a dominating influence). He then diagrams the origin of such unyielding orthodoxy in an organization by depicting its dispersion through concentric organizational circles, which represent resistance to any challenges to mainstream thinking. Causality, power, and uncertainty all create problems for effective risk management.
The author goes on to suggest a relevant framework for creating risk policy. His framework incorporates multiple forces in the decision-making and technical-verification process, including discussion and ongoing debate, rather than relying on an approach that is subject to a restrictive outlook. Risk managers and policymakers in investment management firms and government would find this paper insightful and worthy of further study.
How Did the Author Conduct This Research?
The author’s discussion draws heavily on the scientific and social science literature regarding scientific processes and policy development. To avoid a closed, dogmatic thought process, the development and assessment of risk policy must be open and allow questions of causality and verification of data. Policy development runs on a continuum from what is called an “under-critical model,” in which one prevailing group suppresses debate to safeguard policy consensus, to what is called an “over-critical model,” in which policy and scientific debate are ongoing with no one school of thought dominating.
Management of risk and uncertainty equates to management of knowledge and its technical verification in the policy development, which needs to be sufficiently open to consider alternative propositions but not so much so that it results in decision gridlock.
An organization in which the decision-making process with regard to risk management is driven by unquestioned consensus is doomed to failure. Risk management is both art and science. Yet, scientific dogma has given rise to intellectual hegemony—“techno-rationalism of organizations and their attendant expert cohorts,” as the author says—which crowds out potentially relevant alternative views in the approach to managing uncertainty. This issue occurred more than once during the recent financial crisis, in which agents whose input was critical to the organization’s future either willingly or unwillingly failed to act. Examples are the ongoing debate on the relevance of neoclassical economics and such concepts as the efficient market hypothesis.
Calamity ensued, from which the world is still recovering. Policymakers and key decision makers should consider the implications of the author’s work, lest history repeat itself.