The Illusion of Rationality

Cognicent | 31, May, 2024 | Newsletter

Earlier this year, the world farewelled a giant in the world of psychology, Daniel Kahneman. His work on decision-making and judgement spanning 50 years, shaped our understanding and opened our eyes to the sometimes irrational and unpredictable ways humans make decisions. His recent publications, ‘Thinking, Fast and Slow’ and ‘Noise’ made his theories and knowledge accessible to millions around the globe, and if you haven’t read them yet, do yourself a favour and take a look.

Partnering with Amon Tversky, in the late ’60s, he developed Prospect Theory, which highlighted the errors that can affect decision making, in particular, highlighting the impact of loss aversion on our decision making. Many years ago, a brilliant colleague of mine (who I will leave unnamed to save her any embarrassment), introduced me to the theory, and we spent many hours talking through its application to risk-taking in the context of workplace safety.

As a tribute to an amazing scientist, I thought I’d have a go at summarising the theory and some simple ideas about its application to safety at work. It’s a bit of a long one, and I hope you find some of it interesting and useful.

Understanding Prospect Theory

Prospect theory, developed by Daniel Kahneman and Amos Tversky, challenges traditional economic theories that assume individuals make rational decisions based on the expected utility of outcomes. Instead, Prospect Theory suggests that people evaluate potential losses and gains relative to a reference point, typically the status quo, and that they are more sensitive to losses than to equivalent gains—this phenomenon is known as Loss Aversion.

Key components of Prospect Theory include:

Reference Dependence: People evaluate outcomes based on their relative position to a reference point, which significantly influences their decisions.

Loss Aversion: Losses loom larger than gains, meaning that the pain of losing is psychologically more impactful than the pleasure of gaining.

Diminishing Sensitivity: As the amount of a gain or loss increases, the additional impact or value of each extra unit decreases.

Applying Prospect Theory to Workplace Risk and Safety

Prospect Theory offers a valuable framework for understanding and influencing employee behaviour related to risk and safety. Here’s how its principles can be applied in organisational settings:

Risk Perception and Decision Making

• • Reference Points: Employees’ perceptions of risk are influenced by their reference points, such as previous experiences, current safety standards, and organisational norms. Recognising and adjusting these reference points can help manage risk perceptions more effectively. For example, if the norm is high safety compliance, deviations from this norm will be perceived more negatively.
  • Loss Aversion: Employees are likely to be more motivated to avoid safety incidents (losses) than to achieve safety improvements (gains). Safety programs that emphasise the potential losses from non-compliance, such as injuries or financial penalties, might be more effective than those highlighting positive outcomes alone.

Behavioural Interventions

• • Framing Effects: How safety information is presented (framed) can significantly influence behaviour. Framing safety protocols in terms of potential losses (e.g., “Not wearing protective could impact on your ability to enjoy ‘X’ in the future”) can be more persuasive than framing them in terms of gains (e.g., “Wearing protective gear ensures safety”).
  • Feedback Mechanisms: Providing immediate and tangible feedback on unsafe behaviours can leverage Loss Aversion. For instance, real-time alerts or visual indicators that signal when safety procedures are not being followed can create a sense of immediate loss, prompting corrective action.

Safety Culture and Norms

• • Establishing Safe Reference Points: Cultivating a strong safety culture involves setting high safety standards as the normative reference point. This can be achieved through leadership commitment, continuous training, and visible reinforcement of safe practices.
  • Social Proof and Peer Influence: Employees are influenced by the behaviours of their peers. Highlighting safe behaviours as the norm and using social proof (e.g., “98% of employees consistently follow safety protocols”) can shift the reference point towards higher safety compliance.

Incident Reporting and Learning

• • Encouraging Reporting: Loss Aversion can also affect incident reporting, with employees potentially fearing negative consequences. Creating a non-punitive reporting environment where the focus is on learning and improvement rather than blame can mitigate this fear.
  • Learning from Near Misses: Near misses should be framed as critical learning opportunities rather than non-events. Emphasising the potential losses that were avoided by a near miss can highlight the importance of continuous vigilance and adherence to safety protocols.

Individual Decision-Making and Self-Esteem

Individual decision-making in the workplace is not solely influenced by cognitive biases but also by social and psychological factors, such as self-esteem and the desire for social acceptance. These factors can significantly affect an employee’s likelihood of taking unnecessary risks.

Self-Esteem and Risk-Taking

• • Influence of Self-Esteem: Employees with low self-esteem may be more susceptible to taking unnecessary risks if they believe that such actions will improve their standing among peers or secure their acceptance within a workgroup. High self-esteem individuals, conversely, may feel less pressured to conform and more confident in adhering to established safety protocols.
  • Peer Acceptance: The desire to fit in and be accepted by colleagues can lead to riskier behaviour, especially in environments where taking shortcuts or ignoring safety measures is endorsed by the group. This peer pressure can overshadow individual risk assessments influenced by loss aversion, leading employees to prioritise social acceptance over personal safety.

Mitigating Unnecessary Risk-Taking

• • Building a Supportive Culture: Creating a supportive work culture where safety is a shared value can help mitigate the influence of low self-esteem on risk-taking. When safety compliance is recognised and rewarded, employees are less likely to feel that they need to take risks to gain acceptance.
  • Positive Reinforcement: Regularly acknowledging and rewarding safe behaviours helps reinforce the notion that adherence to safety protocols is valued and respected by the organisation and peers alike.
  • Peer Role Models: Encouraging employees with high self-esteem and strong adherence to safety practices to act as role models can positively influence their peers. This can create a ripple effect where safe behaviour becomes the norm and is associated with social acceptance.

Prospect Theory provides a rich lens through which to understand and influence risk-related behaviours in the workplace. By recognising how employees perceive risks and losses, and considering the impact of individual self-esteem and social dynamics, organisations can design more effective safety interventions, establish stronger safety cultures, and ultimately create safer work environments.

We hope you have a safe, well and productive rest of your week.

– The Cognicent Team