Sunday September 9, 2012
Review by MENG YEW CHOONG
Risk Intelligence: How To Live With Uncertainty
Author: Dylan Evans
Publisher: Free Press, 276 pages
FIRST, there was IQ, the “intelligence quotient” that was theorised and tested at the turn of the last century. Then came EQ, or “emotional intelligence”, a concept developed by American psychologist Dr Daniel Goleman in his highly-acclaimed 1995 book, Emotional Intelligence (Bantam Books). Now we have a new acronym on the block: risk intelligence, or RQ.
Risk intelligence can mean different things to different people. For example, American business writer David Apgar defined it as the capacity to learn about risk from experience, having coined the term in 2006 through his book Risk Intelligence: Learning To Manage What We Don’t Know.
Recently, American financial executive, author, and Columbia University professor Leo Tilman redefined risk intelligence as “the organisational ability to think holistically about risk and uncertainty, speak a common risk language, and effectively use forward-looking risk concepts and tools in making better decisions, alleviating threats, capitalising on opportunities, and creating lasting value.”
In the April 2012 issue of The European Financial Review, he argued that “financial institutions and investors must develop a new competence – risk intelligence”.
The author of Risk Intelligence: How To Live With Uncertainty, Dylan Evans, who is a British philosopher and psychologist, paints risk intelligence as “a special kind of intelligence for thinking about risk and uncertainty”, and says that this ability is not at all correlated with IQ. “There is a special kind of intelligence for dealing with risk and uncertainty, and most psychologists fail to spot it because it is found in such a disparate, rag-tag group of people – weather forecasters, professional gamblers, and hedge-fund managers, for example,” he wrote on his business website, projection point.com.
Evans proposes that risk intelligence is measurable, and the scale is called risk quotient or RQ. In the book’s appendix, there are various tests that can help the reader to determine where he stands, including a simple one called a calibrated probability assessment (also available at the author’s website).
Evans makes a great presentation for his case by easily demonstrating how risk intelligence is vital to making good decisions, all the way from earth-shattering decisions that can affect global climate and combat terrorism (such as assessing what is the next probable terrorist target) to more personal decisions, like when to walk away from the betting table.
At the risk of stating the obvious, many professionals are in need of risk intelligence – doctors, financial regulators and bankers, and even journalists, for instance. To put it another way, just because they are relatively educated, it does not always follow that they are able to navigate what Evans calls the “darkened room”, his way of describing the domain of doubt and uncertainty. At the same time, the author also debunks the notion that risk management is strictly for technical specialists.
Overall, this is a highly accessible book on risk management, one that should serve most people rather well as they grapple with life’s many difficult challenges that have no easy answers.