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Rose-Colored Risk: Reducing Bias in ERM Risk Assessments

When it comes to enterprise risk management, it's important to understand that each of us sees the world with our own rose-colored glasses.

By Denise Tessier | Updated on June 27, 2011

Tornadoes happen to other people. Somewhere in Kansas, or in areas where there are flat plains and lots of mobile homes. At least that is what many of us thought in Western Massachusetts before June 1, 2011. Sure, we’ve hosted 152 tornadoes, averaging three twisters per year (similar to frequencies in Texas and Mississippi). But I certainly never thought a tornado could hit a city like Springfield, the “City of Homes” — until one did.

My disbelief—my self-deception—on this significant risk has a scientific name. It is called “optimistic bias.” It stands for the proposition that people expect things to turn out better for them than their peers. As many studies have shown, we generally believe that hugely bad things happen to other people, and expect our own lives to be better than statistical averages.

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