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uh our guests today are Howard krather
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Robert Meyer and irwan Michelle kjan and
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we're going to talk to them about 30
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years of the Wharton risk Center
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gentlemen thank you very much for
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joining me today on the knowledge at
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Wharton show to be here be here uh so uh
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to begin with I i' wonder if we can
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start with you Howard uh what led to the
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starting of the risk Center 30 years ago
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well mul it's interesting that our Cent
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has always focused on low probability
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High consequence events and it was a low
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probability High consequence event that
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actually got the center started uh I was
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in the office of the CEO with my
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colleague uh Ned Bowman we were looking
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at uh this is the CEO of Roman hos and
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we were looking at the challenges that
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the company was facing in dealing with
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environmental risks and when we arrived
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there we were told that there had been a
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large chemical accident in pal that
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actually the company was very concerned
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about it involved Union Carbide but
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every chem chemical company was involved
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and that really was the St of the center
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because we actually worked very closely
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with Roman hos and the Signa corporation
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that was also in Philadelphia to
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actually have a partnership to begin to
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look at issues like chemical accidents
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as a way of beginning to try to figure
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out how we would deal with these extreme
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events so if you were to think about the
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catastrophic risks that businesses faced
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30 years ago what were some of the most
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important risks in addition
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to uh uh manufacturing accidents like
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Bal uh that you were concerned about
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well it was really the chemical
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accidents that got us started and I
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think technological accidents were
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clearly a very important uh part of how
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businesses had to think they weren't
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thinking as much about it as we would
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have liked them to think I think they
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were saying it wasn't going to happen to
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me uh but that was certainly on their
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agenda and anytime there was an accident
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like a BAL they then paid attention to
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it the other area that uh we focused on
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and that had been a lot of the research
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that a number of us had been doing and
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my colleague late colleague Paul kle
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offer was co-director of the center when
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we formed it were the natural hazards
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risks and natural disasters and those
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were risks again that were not
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predictable as to when they would occur
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but if there was a severe hurricane or
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flood or earthquake uh that actually
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might have an impact in terms of how the
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had to react and what were some of the
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research projects that you took on to to
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look into these risks well uh because of
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our start with uh the the chemical
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industry uh we had a very large project
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uh with uh the Environmental Protection
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Agency on chemical accidents how one
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dealt with that and technological
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accidents so we were certainly working
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on that we were also working on uh the
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natural hazards area and why uh
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individuals were not protecting
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themselves and and purchasing insurance
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that was something that um both Paul and
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I had been focusing on with others over
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a period of time and then the other area
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that uh emerged was the sighting of the
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high level radioactive waste facility in
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yucka Mountain there was a whole project
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that was formed and for 10 years there
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were a group of us who were working
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together in fact uh it was a it was very
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much of a a group that interdisciplinary
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group Paul slovic who was someone who we
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had work we worked with over the years
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was a part of that Roger casperson
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geographer a psychologist olist and then
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there were anthropologists and we were
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all working with the state of Nevada to
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try to figure out how one would site
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this facility and so the center played a
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role in that we had been looking at
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sighting of la liquefied natural gas
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facilities before the center had been
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formed and what would you say with some
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of the key findings of your earliest
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research projects well I think the key
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findings are findings we may want to
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talk about even today uh that really
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what was happening is it wasn't until a
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disaster occurred that there was really
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a lot of attention that was paid there
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was a tendency to say this is not going
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to happen to me and the firms were
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behaving that way certainly consumers
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and homeowners were behaving that way
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and as a result we as a center were
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trying to figure out ways that we could
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really focus on the issue that these
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were important things to think about
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beforehand and what kinds of programs
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and policies could be put forward to try
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to deal with them so we didn't have to
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be in a reactive mode after a disaster
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occurred well I I I know would love to
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turn to all of you and say I mean if you
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were to just look back over the past 30
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years uh how would you say the nature of
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risk has evolved and changed from Bob
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would you like to start us off well the
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N the risks have always been there and I
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think one of the things that we uh that
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sort of building on what what Howard was
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saying that I think that one of the
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things we've observed as a center is
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that that often when you talk to
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companies you talk to individuals what
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are the risks that they're most
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concerned about uh typically they're the
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things that just happened yesterday so
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people tend to focus on the disaster
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that just happened and often and and so
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one of the things we try to do as a as a
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center is to get uh people and
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organizations to focus not just on the
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event that just happened but kind of
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refocus their their interest on on
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unseen risks the ones that they're not
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currently focusing on now um that just
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kind of give you an example the um uh
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what we work with the world economic
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Forum um and uh and every year they come
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out with a a very very large stud survey
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of about 900 uh CEOs and and academics
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to ask them what are the risks that
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they're most concerned about um and
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typically what you find is an awful lot
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of great year-to-year variability in
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what is hitting the radar screen uh so
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for example what's an interesting result
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was that uh last year the the number one
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thing that that um uh that came up was
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uh State unrest and and particularly in
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Europe and and if you think about it
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that makes sense because what what are
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the big news items and for that would be
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concerned to people in Europe last year
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here while unrest in the Ukraine and so
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forth and what's interesting is so that
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sort of makes sense but what's
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interesting is uh a risk which was very
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important two or three years ago cyber
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terrorism suddenly dropped to number 10
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on the list and so in some sense I I I I
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think that one of the things that we're
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one of our challenges as a center is to
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get people in organizations to think
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about not just focus on the thing that
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just most happened most recently but get
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a real good long-term view of of what
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are real risks and and often the things
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you have to worry about are the things
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that you're not currently thinking about
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nowan what do you think uh no I think
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both Howard and how and Bob say it right
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uh I think what has made the center
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unique is really two things one is uh we
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all of us conduct very good research so
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uh it's not just a series of conference
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going on it's uh we publish interp
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reviews and we have the expertise uh you
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know some of us Teach as well and
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obviously the third pillar is that
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Outreach activities that both uh Bob and
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Har mentioned which is that instead of
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just doing the research internally we
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have collaboration with uh World
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economic Forum the oecd the world Banks
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United Nation many industry many
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government around around the world so we
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remain relevant as well and the
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challenge has been said I think the
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nature of risk management has changed a
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lot uh over the past 30 years from
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something that that was and exclusively
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almost technical to something that
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remained technical of course but becomes
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more more strategic today uh whether
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it's a world econic for or whether uh
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board of directors around the world more
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risk committees are being formed as we
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speak in many Industries across the
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world so the topic the topic itself
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changed which means that as researcher
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we need to change the way we approach
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these issues um as well so whether it's
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natural disasters cyber risk uh inter
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dependencies between these risks so
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maybe you look at what's happening now
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in Syria thinking well that was just a
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geopolitical issue and then three months
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later that becomes a immigration issue
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an economic issue uh in Europe and then
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maybe in two months that become a big
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issue in the US so uh the world is
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becoming more and more interdependent
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somewhat of a cliche people talk about
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it but I think we're living it um every
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every day an earthquake in China 30
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years ago would have been an earthquake
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in in China well an earthquake in China
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has massive impact on Global Supply
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Chain worldwide uh from uh frankurt to
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Detroit today I wonder if I could turn
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to each of you and ask you to speak
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about a current research initiative that
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you're involved in and and why it is so
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important
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uh to business practitioners Howard
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could we start with let me let me just
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add one comment to what Bob and aan has
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said about sort of where the center was
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focused I think one of the things that
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uh the center was focused on has the
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decision processes and we have it in the
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title we always are thinking about
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essentially how uh people are whether
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it's an in a consumer a homeowner
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whether it's a manager in a firm or
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whether it's the government and the
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public sector how they're behaving so
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that we can develop strategies for
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dealing with that and I think think in
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that sense the center is somewhat unique
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in that we are really trying to tie
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together the risk assessment part which
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we' which Bob and everyone were
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emphasizing but also the risk perception
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along with risk management and it's that
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theme coming together and then to talk
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about uh a current project related
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really to some of the points that uh
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were just made uh we have been
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interviewing uh the CEOs of uh 100 of
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the S&P 500 firms and a a large project
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that had been f really uh funded by The
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Travelers Foundation uh and that
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involves also the leadership Center and
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we do like to work with other centers
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and the leadership Center that Mike eim
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co-directs is a is a part of that
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project and what we've been asking these
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uh uh managers of firms is what is the
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most important risk that they are
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concerned about that would that have
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been concerned about not just
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necessarily yesterday but where they've
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been concerned about in terms of an
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adverse or that might have adverse or
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catastrophic consequences to them and
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you get a whole variety of different
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answers from them and as Bob had
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indicated often it is a more recent
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disaster and just to illustrate one
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example the Fukushima earthquake was one
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that you do hear from these firms uh as
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something that was important it
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highlighted the points that aan was ma
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raising on interdependencies uh these
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firms are very concerned uh the
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automobile industry was really hurt very
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hard by the supply chain problem with
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respect to that and so we've been
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interested in that and the reason for
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doing that project is to try to develop
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some benchmarks with respect to how they
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firms could behave differently in the
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future so that's one project that is
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currently underway we're finishing that
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up now and we hope to publish our
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results over the course of the next year
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or so thank you Howard Bob and yeah um
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one project I've been involved in
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recently that was actually ongoing that
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we're I'm pretty excited about is one of
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the things I've I've discovered and
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we've discovered in the course of
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research is that often one of the
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reasons that people have a difficult
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time um making good decision to prepare
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for rare events uh is the fact that
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people have very poor mental models of
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how these events are going to unfold uh
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a great example is um in Hurricane Sandy
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uh one of the the real surprising
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results is even though this is a an
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event which everyone in the world knew
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about uh and there was a front page
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Banner headlines telling people that
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this huge storm was coming in uh and
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there was no shortage of warnings what
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was really surprising is is that um uh
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that that there's an awful lot of uh of
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deaths and uh and damage that were
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primarily due to flooding and one of the
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things we did was uh uh just as the
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storm was approaching was we ask people
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uh what is this is before the storm
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actually hit what is the threat that you
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think is going to you're most worried
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about and even though the main threat
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actual threat that they faced with
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flooding what people tended to say was
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we were mainly worried about wind okay
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and that is a fundamental mistake
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because in some sense they the storm is
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coming in it's a flood threat but they
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are going out boarding up their Windows
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when and at the same time leaving their
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car on the street and the next day they
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wake up and of course their car is
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ruined or or they don't evacuate and
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they don't understand why they've been
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asked to evacuate so one of the things
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we're involved in doing is is developing
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uh virtual web-based simulations that
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allow people to eventually experience um
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uh events like uh a very severe storms
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and so forth which they otherwise
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wouldn't be able to and in these
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environments people are are for example
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uh put into a virtual living room and
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they're told that uh there's a storm out
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in the in the distant uh in the distant
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Horizon and they have the opportunity to
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gather information as they normally
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would and they basically get to
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experience what it would actually be
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like to go through one of these events
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uh for people who who normally would not
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have that opportunity so we see that as
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a kind of a great vehicle for as a
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teaching vehicle and also as a research
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vehicle um uh for studying very very
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rare rare events which uh and and these
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are things which you you want people to
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know about this before they occur not
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learn from unfortunate experience after
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they occur absolutely and you want
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something that can be used anywhere in
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the world which is what building which
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is pretty cool uh the other I mean we
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have many project as you know M but
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another one is related to which is which
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one is your favorite uh we have two
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briefly uh when you look at natural
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disasters around the world flood is by
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order of magnitude the largest of of all
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in term of number of people affected
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economy cost and that's true in the in
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the world that's true in the US as well
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so uh the center is doing a lot of work
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on flood related risk both on the
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assessment of the flood coastal flooding
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Inland flooding trying to better
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understand the the risk a lot of work on
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flood insurance as well touching on some
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of the appoint that Howard and mentioned
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as well uh for instance we have access
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to uh s collaboration with fima and DHS
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through their entire portfolio of data
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so we can actually crunch the data and
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trying to better understand through uh a
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few million data points for the national
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flood insurance program and then publish
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the work and then work with the industry
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and all so the um the public sector
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federal government trying to improve
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that program related to that project we
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um there is a bir word out there called
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resilience um you know everybody talks
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about resilience I'm still uh having a
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hard time finding one person who's
00:14:12
against resilience which tells me that
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maybe we have an issue here but jok
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aside we uh we decided as a group to
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take a serious look at at at flood of
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resilience maybe in a more quantitative
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manner than just talking about
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resilience and uh we have a few project
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related to flood resilience we have done
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some work in New York City
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we're doing some work with the Zur
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Foundation a Swiss company uh in five or
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six different countries uh and and in
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all of this project instead of having I
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think that's what makes the center
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somewhat unique as well one person or
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two people working on the paper which
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some of us tend to do we recognize we
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need expertise from a large number of
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individuals so uh most of our large
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projects tend to involve five six 10
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people with different backgrounds which
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obviously is much more interesting for
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us because you can really tackle large
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scale issue uh in a way that you
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couldn't if you were just writing your
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own paper by um by yourself right now
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let's let's turn from the present to
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maybe look three the next three to five
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years in the future uh given everything
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that we've discussed about the
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interdependence uh factor and and uh not
00:15:19
just in the US but globally what do you
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think will be the biggest risks that uh
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people and companies around the world
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should be thinking about for the next
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three to five years well there's there's
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no doubt I think that a risk that we've
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all been thinking about but have a very
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hard time dealing with is climate change
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and that is something the sener has been
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paying attention to over the last few
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years more so than in the past uh it
00:15:46
became really a very important theme in
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the 30th Anniversary that we just had
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for the risk Center uh there was a long
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discussion at the end of the of our
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conference uh related to a question that
00:15:59
had been posed we did a little polling
00:16:01
exercise over lunch and one of the
00:16:04
questions that was asked in that
00:16:05
exercise was how serious does one think
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the climate change problem was uh when
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this was done with MBA students entering
00:16:13
a couple of years ago there were a
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number there were a significant number
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maybe 8% who actually coming in felt it
00:16:20
was not a problem at all which was very
00:16:22
surprising no one in the room felt that
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way and no one in the room felt that it
00:16:27
was not serious but they were a group of
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people who felt that it was serious and
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not very serious and so we had a long
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discussion at the end that I think will
00:16:35
be a focus on what we'll be doing over
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the next 3 to five years as a general
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question how do you instill the fact
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that there are these problems that may
00:16:44
not happen for uh 50 uh years in terms
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of very serious impacts but we have to
00:16:50
worry about now how do we deal with them
00:16:53
and this is something that Bob and aan
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have both mentioned in the context of
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earlier research and I think Bob's the
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simulation project is an example of how
00:17:01
do you get people to pay attention so we
00:17:03
are really I think uh going to focus on
00:17:06
that issue but I think other issues as
00:17:08
well as to how do you stimulate concern
00:17:10
today so that one needs to take
00:17:12
protection and so we had a discussion at
00:17:13
the end of our our meeting on what how
00:17:16
we could make everyone feel this is a
00:17:19
very serious problem in this country in
00:17:21
order for people to for us to be able to
00:17:23
take some steps now to deal with this
00:17:25
because if you have enough people who
00:17:26
feel it it it isn't very serious and
00:17:29
this was a group of people who really
00:17:30
should have felt that it was very
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serious and so we know there are a
00:17:34
number of people who feel it isn't a
00:17:36
problem at all and are convinced that it
00:17:38
isn't a problem and so the the challenge
00:17:40
I think we face with our Senator is how
00:17:42
do we stimulate uh uh a long-term
00:17:45
strategies uh and people to take
00:17:47
protection organizations countries to
00:17:49
take protection and then uh in but at
00:17:51
the same time recognize that one has to
00:17:53
address the short run concerns that
00:17:56
people have if we're going to be
00:17:58
successful and we may have to use new
00:17:59
technologies and and videos and and and
00:18:03
pictures rather than words to be able to
00:18:05
sort of get that across yeah I think one
00:18:08
of the things that climate change is is
00:18:09
in fact it's a it's enormously difficult
00:18:12
and it's a fascinating topic I think
00:18:13
that one of the things that's involved
00:18:15
in in dealing with it is I'm encouraging
00:18:18
both communities individuals and uh and
00:18:20
organizations to basically to develop a
00:18:22
much more of an Adaptive mindset than
00:18:24
has traditionally been the case in the
00:18:26
past and it's sort of interesting that I
00:18:28
think that that if you think kind of
00:18:29
longterm historically that human
00:18:32
civilization emerged at a time of very
00:18:35
extreme rapid climate change uh that for
00:18:37
example as recently as 7,000 years ago
00:18:40
which is not you know not that really
00:18:42
that long ago uh if you lived in the
00:18:44
Netherlands you would walk to uh to
00:18:46
Great Britain okay and and and so during
00:18:48
that period sea level was coming up very
00:18:51
rapidly after the the melting of the
00:18:53
last glaciers uh and and so what would
00:18:55
happen of course is is that we lived in
00:18:57
uh in tents and we lived in we wandered
00:18:59
around everywhere and if the water came
00:19:00
up we just moved to a new place of
00:19:02
course what sort of happened since then
00:19:04
is suddenly going from this mindset of
00:19:05
the world is constantly changing and
00:19:08
we're very much part of that change kind
00:19:10
of went to kind of a mo more modern view
00:19:12
of the world is static and that we put
00:19:14
up cities uh right at sea level uh and
00:19:17
and so forth and we have an enormous uh
00:19:20
civilization which is built all on the
00:19:22
premise that nothing ever changes number
00:19:24
one and that the climate is invariant
00:19:27
and number two is the fact that we
00:19:28
somehow or another are independent of
00:19:31
the climate that the actions that we
00:19:32
take the things that we build the the
00:19:34
things we put into the air isn't having
00:19:36
any effect on climate and I think that
00:19:38
what what should have happened is is in
00:19:40
recent years there suddenly come this
00:19:42
big Awakening that no uh in fact all of
00:19:45
the that the world is constantly
00:19:47
changing and and basically if we don't
00:19:49
have this adaptive mindset we're going
00:19:51
to be facing enormous trouble and and
00:19:54
unfortunately the cost of getting from
00:19:56
here to there suddenly uh is a
00:19:58
significant one because now you're going
00:20:00
to have to take large cities like Miami
00:20:02
and New York and say well what are you
00:20:04
going to do when the sea level comes up
00:20:06
by another six feet you know what are
00:20:07
you going to do with all these buildings
00:20:09
and these are fundamental
00:20:11
problems so quickly I think to answer
00:20:14
your question in addition to that one
00:20:15
which is kind of big one cutting across
00:20:17
actually uh many others uh the list is
00:20:20
pretty long from Cyber attack uh Big
00:20:22
Data uh risk related to new technologies
00:20:25
overregulation we hav been talking about
00:20:27
that it's clearly something on the mind
00:20:28
of of many people around the world even
00:20:30
though overregulation is obviously um
00:20:33
depends on on where you sit on the topic
00:20:36
terrorism is not I mean given what Isis
00:20:38
is doing in the Middle East we know it's
00:20:40
not over so the list is long I think one
00:20:42
big question we'll have in the future in
00:20:44
addition to what has been done already
00:20:46
is um who's paying for all of these
00:20:49
catastrophes at the end what type of
00:20:51
optimal res sharing Arrangement can you
00:20:53
put together in a world where more and
00:20:55
more uh governments are running very
00:20:57
large public deficit
00:20:59
where uh more people ask for their
00:21:01
government to help them during disaster
00:21:03
time but you know we don't have
00:21:04
necessarily the money so reforming the
00:21:06
uh our own mindset not only just in here
00:21:09
in the US but around the world on uh
00:21:11
who's supposed to pay for these
00:21:12
disasters how do we incentivize people
00:21:14
firms government cities as was mentioned
00:21:17
before to actually start investing
00:21:19
before a catastrophe happened and again
00:21:21
we're not just talking about natural
00:21:23
disasters here so that all mindset about
00:21:25
reforming that disaster financing and
00:21:27
also one one thing I would say we talked
00:21:29
a lot about risks uh there are great
00:21:31
opportunities coming with that as well
00:21:33
um 80% of the world population by 2050
00:21:36
will be in cities so thinking about
00:21:38
cities as small Pockets here and there
00:21:40
is totally irrelevant so there are great
00:21:42
things with concentrating people in
00:21:44
asset in the same place but as B
00:21:46
mentioned uh when something eat that
00:21:48
very City whether it's a pandemics an
00:21:50
earthquake a natural disaster terrorist
00:21:52
attack uh that would be a catastrophe
00:21:54
almost by definition so U and then we
00:21:57
need the other 20% because the other 20%
00:21:59
is basically agriculture so we need we
00:22:01
need to feed as people as well so there
00:22:03
are amazing amazing challenges and
00:22:05
opportunities U ahead of us let let me
00:22:07
add one point to what aan was just
00:22:09
saying on the who should pay because I
00:22:11
think it's a really critical issue that
00:22:13
we have been struggling with and I want
00:22:15
to sort of raise it as we have raised it
00:22:17
in the center on issues of inequality
00:22:20
which is now a real Challenge and it's
00:22:22
not just the low income people as we all
00:22:24
know the middle class is a part of that
00:22:25
as well and I think that one of the
00:22:27
areas uh we like to focus in the center
00:22:30
on case studies and examples and
00:22:32
concrete problems as I think you've
00:22:34
already heard from all of us and you
00:22:36
take the flood problem as an example
00:22:38
which is obviously related to the
00:22:40
climate change issue and what's going to
00:22:41
happen to a city like Miami which is
00:22:43
clearly uh with sea level rise and some
00:22:46
of the things that are going occur and
00:22:47
we have really a challenge here with
00:22:49
related to the affordability issue we as
00:22:52
a center have been focusing from almost
00:22:54
the outset on the role that insurance
00:22:56
can play as a way of getting people to
00:22:59
take protection but if you but the way
00:23:01
that insurance could play that role is
00:23:03
the premiums have to reflect essentially
00:23:05
the risk to let people know how serious
00:23:08
the hazard is but at the same time
00:23:10
essentially to help them to maybe take
00:23:12
some steps to reduce that risk to
00:23:15
elevate their house or to make their
00:23:16
house FL flood proof in some fashion
00:23:19
because they'll get a premium discount
00:23:21
now the challenge that I think we see in
00:23:23
this relates to the who is going to pay
00:23:25
when you have a lot of lowincome and
00:23:27
middle- inome people who are living in
00:23:29
high Hazard areas who cannot afford that
00:23:31
insurance when the premiums reflect risk
00:23:34
and so the center has been focusing on
00:23:36
that issue and we'll be doing a fair
00:23:37
amount more in the in the coming years
00:23:40
with the inequality issue in terms of
00:23:42
are we going to in some fashion
00:23:44
subsidize the lowincome people can
00:23:47
should we do it through an insurance
00:23:48
premium should we do it through other
00:23:50
mechanisms such as vouchers or other
00:23:52
ways that are not tied to insurance and
00:23:54
that issue is going to be a central part
00:23:57
of the issue and at the end of the day
00:23:58
the who should pay is going to come on
00:24:00
the table which is what we know Congress
00:24:02
is facing today when they are actually
00:24:04
making decisions on what programs
00:24:06
they're going to support exactly and we
00:24:08
also know that the answer will depend on
00:24:09
where you are I mean us may have
00:24:11
different view on the matter that um the
00:24:13
British or German or in China exactly
00:24:16
yeah and I think one thing that makes
00:24:18
the whole thing kind of complicated uh
00:24:20
Howard was talking about the importance
00:24:21
of decision processes in all of this and
00:24:24
and I think at the end of the day uh
00:24:26
that that a lot of decisions that people
00:24:28
all the decisions that people make about
00:24:30
whether or not they want to buy
00:24:31
insurance or undertake protection uh is
00:24:34
rooted very much in kind of what they
00:24:35
believe the risks are that they're
00:24:37
facing and so in some sense in addition
00:24:39
to the the affordability issue that you
00:24:41
have one thing that's compounding with
00:24:42
it is the fact that an insurer may come
00:24:44
in and say uh this is what we think or
00:24:47
we've calculated objectively your risk
00:24:49
to be and So based on that here is the
00:24:52
price of this coverage but then of
00:24:54
course the people who are who are living
00:24:55
in a in the home look at that and they
00:24:57
say well not at all my risk okay and in
00:25:00
fact I don't have anything near the risk
00:25:02
that you think I face and so therefore
00:25:04
it's grossly overpriced and so therefore
00:25:06
they don't buy the coverage and so in
00:25:08
some sense you could do risk-based
00:25:09
prates but basically if people sort to
00:25:11
feel that it's mispriced and they don't
00:25:14
buy the coverage then you still have
00:25:16
then insurance doesn't work okay and
00:25:17
then essentially then you still have to
00:25:19
ask the question then when the disaster
00:25:21
comes in and uh and you have all these
00:25:24
people that are uninsured who sort of
00:25:27
pays for that at that point and that's a
00:25:29
that's that's a major problem and that
00:25:31
problem is compounded when you have a
00:25:33
highly subsidized premium because then
00:25:36
people think that they're safer than
00:25:38
they actually are so you have a
00:25:40
combination of saying here's a premium
00:25:42
that has a risk and they say that isn't
00:25:44
really my risk but then you also have
00:25:45
the reverse problem and which is true in
00:25:48
the flood case where the premium is very
00:25:50
low for many individuals and they say
00:25:52
well I'm really a lot safer than I
00:25:54
actually thought I was and they aren't
00:25:56
really that safe correct so given all
00:25:58
the risks that you identified that uh
00:26:01
the world will be facing over the next 3
00:26:04
to five years what advice would you give
00:26:06
say Chief risk officers or security
00:26:09
officers about how do you protect uh
00:26:13
people and property against these risks
00:26:16
well I want to just follow on Bob's
00:26:19
comment on decision processes and the
00:26:21
challenges which I think something that
00:26:23
managers as well as in homeowners let's
00:26:26
say and people face and I think the the
00:26:29
biggest advi the advice that we have
00:26:31
been trying to get across a piece of
00:26:34
advice there's lots of advice in it
00:26:36
you'll hear Bob and aan will have some
00:26:38
additional points I'm sure uh is how do
00:26:42
you get people to think longterm how do
00:26:45
you get managers to think longterm but
00:26:48
at the same same time recognize that
00:26:50
there are all sorts of reasons why
00:26:52
they're going to want to think shortterm
00:26:55
because their own tenur and they may
00:26:57
even feel as the short term and whatnot
00:26:59
and they're not thinking 50 years or 20
00:27:02
years out and how do we develop the
00:27:05
kinds of programs with incentives that
00:27:08
will enable them to think longterm but
00:27:10
at the same time reward them or reward
00:27:13
their company let's say if you're
00:27:15
talking about firms or reward the
00:27:17
homeowner if you're talking about
00:27:18
families to take some steps today so
00:27:20
that would be one question we have
00:27:22
thoughts on that but it would be one
00:27:24
area that we'd want to think about yeah
00:27:25
I'm in uh my actually my main position
00:27:27
is in the marketing department and we're
00:27:30
kind of in the business of trying to
00:27:31
think about how do you persuade people
00:27:33
to buy products and undertake certain
00:27:35
sorts of actions and I think that one of
00:27:37
the real challenges that exists in the
00:27:38
area of protective Investments is the
00:27:40
fact that that there's probably no
00:27:42
harder sell uh effectively what you're
00:27:44
asking people to do is to invest a large
00:27:47
amount uh in different sorts of
00:27:50
instruments such as insurance or
00:27:51
protective measures that uh that you
00:27:54
hope they're never going to use at all
00:27:56
okay and so in some sense you're you're
00:27:58
it's a very very difficult thing and
00:28:00
you're having to convince them based on
00:28:02
Credence that somehow or another in the
00:28:04
long run uh 5 years 10 years 50 years
00:28:08
from now this investment that you're
00:28:10
making now will prove beneficial in
00:28:12
helping you avoid a loss that you might
00:28:14
otherwise face and and that's just such
00:28:17
a very difficult thing to do to try to
00:28:18
get people to think of those terms of
00:28:20
long-term benefits and uh so that's one
00:28:23
of the great challenges and we basically
00:28:25
and and how do you get people to think
00:28:26
to shift their mind set from focusing on
00:28:29
what's the best use of my money today
00:28:32
which will almost never be to buy
00:28:34
insurance will almost never be to to
00:28:36
build a stronger house and to say no no
00:28:38
no no you can't think about today you
00:28:40
have to think about maximizing utility
00:28:42
over a 50-year horizon right yeah know I
00:28:45
mean all of that is is right and uh you
00:28:47
already talk about insurance at a dinner
00:28:49
table except to complain about it rarely
00:28:52
oh my gosh I get a great insurance
00:28:54
contract uh well I think your question
00:28:57
depend very much on whether you talking
00:28:58
about individuals and we talked a lot
00:29:00
versus Corporation especially large
00:29:02
corporation I think the challenge with
00:29:03
individuals is that uh yeah there have
00:29:05
been more floods there have been more
00:29:07
natural disasters around the world but
00:29:09
still the likelihood of of you being hit
00:29:11
by a flood today and the next 10 years
00:29:14
uh hopefully it's not you know it's not
00:29:16
100% and it's not 20 times during 10
00:29:19
years so uh the the silent of the U of
00:29:22
the event is important uh when you move
00:29:24
from individuals to which makes which
00:29:26
make it complicated as as I was said
00:29:28
before when you move from these
00:29:29
individuals to let's say the opposite or
00:29:31
the other extreme large multinational
00:29:34
corporations doing business in one 100
00:29:36
countries what is the likelihood of that
00:29:38
firm being eat by a th crisis next
00:29:40
months very close to one today so uh
00:29:44
going back to Howard's starting the
00:29:46
center 30 years ago where these issues
00:29:48
were discussed but maybe every 10 20
00:29:50
years you had a big event sounds like
00:29:52
now every six month you have another one
00:29:54
I mean just about you know what's
00:29:55
happening in Syria and the migrants uh a
00:29:58
year ago it was all about U Ebola people
00:30:01
almost forget about ebola and then you
00:30:03
have Volkswagen cheating the system so
00:30:06
the nature of the crisis will be
00:30:08
different but every time there is a
00:30:09
disaster I think that makes risk
00:30:11
management and opportunities at better
00:30:14
managing the risk even more silent at
00:30:16
the level of the uh of the firm which
00:30:18
explain why so many companies have
00:30:20
created that that conductor position
00:30:23
called the chief risk officer
00:30:24
recognizing that we cannot just look at
00:30:26
these risk in silos we have to agregate
00:30:28
them and uh more and more countries and
00:30:31
or cities at least start thinking the
00:30:33
same way saying as a city as a mayor of
00:30:35
the city I canot just about think about
00:30:37
flood uh unemployment is a big risk for
00:30:39
me health is a big risk so having this
00:30:42
integrated approach of risk management
00:30:44
and there are tools new methodologies
00:30:46
obviously that some of that has been
00:30:47
developed by our team but there are
00:30:49
other teams around the world working on
00:30:50
these issues today it's very exciting
00:30:52
time great and I have one last question
00:30:54
for each of you uh which is that any
00:30:57
Research Center uh exists to do research
00:31:00
but also to make an impact on the
00:31:01
practice of management uh so so if you
00:31:04
were to think about the work uh being
00:31:07
done at the risk and decision processes
00:31:09
Center uh what would you say has been
00:31:13
the impact on the practice of management
00:31:15
so far and what kind of impact would you
00:31:17
hope to have in the
00:31:20
future well I think I'd come back as we
00:31:24
all have been coming back to some of the
00:31:26
studies that we've done uh that actually
00:31:29
are more optimistic than we would have
00:31:32
thought when we started 30 years ago and
00:31:34
I think uh I'll just use the S&P 500
00:31:38
study that I mentioned earlier which is
00:31:40
looking at how uh firms have behaved I
00:31:43
think one of the major changes that have
00:31:45
occurred and aan alluded to it in his in
00:31:47
his comments just now is that firms are
00:31:51
really seeing this issue as being
00:31:53
important on the firm side maybe not the
00:31:57
consumer at all as Bob was sort of
00:31:59
saying maybe they're still Facing The
00:32:01
Challenge on how to deal with it but
00:32:02
firms are really focusing on this now
00:32:05
and I think what we've heard in almost
00:32:06
all of our interviews with uh Chief risk
00:32:09
officers CEOs or highlevel uh uh people
00:32:12
in these firms is that now we are in a
00:32:16
new era of catastrophes we've got to be
00:32:18
thinking about these issues it's an
00:32:20
important issue for the board it's an
00:32:22
important issue for us to pay attention
00:32:24
to and most important we're learning
00:32:26
from our past experience which is one of
00:32:28
the decision processes that we always
00:32:30
focus on there are a set of biases that
00:32:33
exist when you have a serious disaster
00:32:35
then you pay attention and firms are now
00:32:37
paying attention to it in a way that
00:32:39
they haven't paid attention before and I
00:32:41
think that what we would like to see as
00:32:43
a challenge for the cater is that if we
00:32:45
can somehow get that take advantage
00:32:49
really of the fact that people are now
00:32:52
be serious about these issues to begin
00:32:54
to suggest some policies and programs
00:32:57
that are a lot harder to actually adopt
00:32:59
not only for these firms but for
00:33:01
countries I think the interdependency
00:33:03
the global issues are important for our
00:33:06
work uh not only on climate change but
00:33:08
on a lot of other risks that take place
00:33:10
and how do we actually take some steps
00:33:12
so that we are able to change a system
00:33:15
that's not just for the for the
00:33:17
corporations or for the individuals it's
00:33:19
for legislation it's for governments and
00:33:20
for the public sector and we have played
00:33:22
a fair put a fair amount of attention
00:33:25
into trying to work in the US with
00:33:27
Congress and with other countries with
00:33:29
their leading with the governments to
00:33:31
try to deal with that as as Bob and aan
00:33:33
have said the world economic forum and
00:33:35
the oecd are groups that we are paying
00:33:38
that we really have an integral uh
00:33:40
working relationship with and and are
00:33:42
involved with in order to make this an
00:33:44
international and Global problem and I
00:33:46
think that's what we really have to do
00:33:48
is to try to figure out how we take
00:33:50
advantage of where we are today to make
00:33:53
some very important changes as we go
00:33:55
forward yeah I think in terms of impact
00:33:57
uh how at the very beginning Howard
00:33:58
indicated and try to emphasize the fact
00:34:00
that the center does have this name
00:34:02
these two names it's uh risk management
00:34:04
and decision processes and the idea that
00:34:06
this uh uh the synthesis of the two is
00:34:08
sort of the thing that really made the
00:34:10
center unique from its founding and one
00:34:12
of the things to me that's been really
00:34:13
reassuring is to find out that the same
00:34:15
recognition of the importance of this
00:34:17
synthesis has really spread out to the
00:34:19
the the general treatment of risk
00:34:21
management like for example uh uh one
00:34:23
major development we were just talking
00:34:25
with uh people at Noah um uh the the
00:34:27
National Weather Service and so forth
00:34:29
and in the development of warnings it's
00:34:31
become all of a sudden aware to them
00:34:33
that in some sense if you want to
00:34:34
develop effective warnings it's not just
00:34:37
simply a matter of having good computer
00:34:39
models and having good meteorologists
00:34:41
basically to say this is the objective
00:34:43
probability that something's going to
00:34:44
happen but you have to find a way of
00:34:47
communicating this to people so that
00:34:48
they really understand what the impact
00:34:50
is going to be and then so and and how
00:34:53
do you get that who are the who are the
00:34:55
people that you need to bring to the
00:34:56
table to have that happen well
00:34:58
it it's not just meteorologists but you
00:35:00
also need psychologists who understand
00:35:02
how people understand messages and that
00:35:04
Fusion I think is is one of the real
00:35:05
more positive steps that I've seen
00:35:07
across the board in a wide variety of
00:35:09
areas great yeah and just to compliment
00:35:13
I I think after 30 years of good work
00:35:15
and not just the three of us but bunch
00:35:17
of people here and across the school
00:35:18
across the university as well uh we are
00:35:20
fairly visible as an entity which means
00:35:22
that people come to us we have we have
00:35:24
remained neutral uh when we start a
00:35:26
project we don't know what the output
00:35:28
will be that's a beuty of research and
00:35:30
sometime we have uh we have been
00:35:31
surprised in one way and other but when
00:35:33
we work with cooporate Partners or
00:35:35
governments or a large International
00:35:37
Organization we we start the
00:35:39
collaboration with them saying okay what
00:35:41
are the question we're asking here and
00:35:43
how can we help you make better
00:35:45
decisions uh all of that being published
00:35:47
so we can work with one organization but
00:35:49
you know all of that will be published
00:35:51
and then Advance the knowledge and uh
00:35:53
you know that's our Moto knowledge for
00:35:55
Action great gentlemen thank you so so
00:35:57
much for speaking with knowledge at
00:35:59
Warton really appreciate you thank you m
00:36:01
thank you
00:36:13
[Music]
