Review of The Future of Risk Management

Editors: Howard Kunreuther, Robert J. Meyer, and Erwann O. Michel-Kerjan
Publisher: University of Pennsylvania Press, June 2019.  ISBN: 0812251326 eISBN: 9780812296228; Pages: 416; hardcover price $79.95.

Contributors: Mona Ahmadiani, Joshua D. Baker, W. J. Wouter Botzen, Cary Coglianese, Gregory Colson, Jeffrey Czajkowski, Nate Dieckmann, Robin Dillon, Baruch Fischhoff, Jeffrey A. Friedman, Robin Gregory, Robert W. Klein, Carolyn Kousky, Howard Kunreuther, Craig E. Landry, Barbara Mellers, Robert J. Meyer, Erwann Michel-Kerjan, Robert Muir-Wood, Mark Pauly, Lisa Robinson, Adam Rose, Paul J. H. Schoemaker, Paul Slovic, Phil Tetlock, Daniel Västfjäll, W. Kip Viscusi, Elke U. Weber, Richard Zeckhauser.

Reviewer: Irmak Renda-Tanali, D.Sc. is a risk management specialist and Editor-in-Chief of the Journal of Homeland Security and Emergency Management.

This new book is a collection of essays that shed light on the future direction of risk management from a multi-disciplinary perspective. It is written by leading thinkers in risk management. The authors come from the disciplines of finance, geography, history, insurance, marketing, political science, sociology, and decision sciences. Each chapter is written by a different author. The discussions are based on many years of research conducted by the authors.

The book is organized in five parts, each covering a different feature of risk.

Part one is about risk behavior. It specifically covers the behavioral aspects of risk which include psychological and cognitive factors that affect decision making under risk, and also risk-taking behaviors. The authors cover risk perceptions, risk-taking behaviors, how behavioral and analytical models can help with future risk-taking attitudes and choosing risk mitigation measures. They discuss nonrational psychosocial risk behaviors such as psychophysical numbing (insensitivity to large numbers of deaths), pseudo inefficacy (being deterred from helping one person because there are so many others that also need help), and the predominance effect (disconnect between the stated values and the values revealed by one’s actions).

Part two focuses on the improvement of risk assessment, including topics such as the use of models to set baseline risks and measuring progress against them;  learning from past experience in making future risk decisions both from a personal perspective and from community and country perspectives; how transparent leadership can help mitigate systemic risks that are of concern for industries by recognizing changes and advances in regulation, technology, and business models and making effective decisions; and advances in achieving economic resilience through cost-benefit analyses in risk-mitigating measures.

Part three covers the topic of risk communication. The discussion focuses on how better risk communication strategies can be built, especially by using stakeholder engagement; how more efficient warning mechanisms can be created; and how the accuracy of geopolitical risk assessments can be improved. The seven-point scale for expressing uncertainty recommended by the US intelligence community is put under examination in risk accuracy improvements. Part three also covers risk acceptance, especially in regard to consumer product regulations, and suggests ways to improve consumer understanding of product features and/or ingredients to make informed decisions in taking risks.

Part four covers risk mitigation, with specific emphasis on natural hazard insurance as a risk transfer mechanism. In this part, the role of insurance in risk management is for natural disasters is discussed with an emphasis on future policies. The role of the public sector in the face of catastrophic risks is scrutinized with special emphasis on affordability and with recommendations about incentivizing the insured with emphasis on the investment in mitigation. The complementary roles for both public and private sectors in the insuring mechanisms are discussed as well.

Part five looks ahead in risk management policies with topics like public-private partnerships, how insurance markets can be regulated under catastrophic risks and concludes with a chapter on suggesting a way forward for the government’s role in disaster relief in the U.S.

The book’s contribution is its fresh perspective on the current state and future predictions of risk management across the board, bridging the gap between industry risks and natural and human-induced disasters. Many books focus on either the disaster risk or on industry/business risks but fall short of making the connection between business risks and disaster risks. This book, with the top-notch experts providing research-based insight into the key areas of risk, provides a refreshing account of better ways of understanding, quantifying, communicating, mitigating, and managing risk across many different domains and operations.

The title captures the spirit of the book – The Future of Risk Management – which is not specific to any domain but underlines the global challenges in assessing and acting on the risks that have far-reaching ramifications than previously thought. In today’s increasingly connected world, this book successfully captures the state-of-the-art challenges and opportunities that lie ahead for managing risks that may trigger far-reaching catastrophic losses. I recommend it for educators and practitioners who specialize in disaster risk assessment, from an organization to enterprise to sector and all the way to local and state level risk assessments.