Often during leadership training workshops, I will conduct a “dollar auction.” I hold up a brand new dollar bill and tell participants that I will “sell” the dollar bill to the highest bidder regardless of the bid. If the high bid is 1¢, then that bidder gets the dollar bill for 1¢. The rules are: the high bidder must actually pay the amount bid and the second highest bidder must also pay the amount bid although he or she will not receive the nice crisp dollar bill. The bidding predictably begins with one and two cent bids. Eventually someone will bid 50 cents and someone else will have to bid 51 cents. At that point, the group realizes that I am going to make a profit on the exercise. The bidding continues, of course, because a dollar bill for 51 cents or 75 cents is still a pretty good bargain even if the sly facilitator is going to make a killing. Inevitably, someone bids 99¢ forcing the other bidder (All but two bidders will have stopped bidding by now.) to bid one dollar for the dollar bill. So, the person with the 99¢ bid faces the dilemma of either losing 99¢ or bidding $1.01 for the dollar.
Well, losing 1¢ is better than losing 99¢. The person who had bid one dollar now has a similar conundrum. On and on the bidding goes! I often have to stop the bidding at 3 or 4 dollars (I do have some sympathy for the poor chumps). This devious little exercise actually demonstrates several organizational phenomena. It stimulates a discussion of when to cut your losses on a losing project. But, it also helps illustrate how leaders can do a poor job of assessing risk. Consulting companies, law firms, and insurance companies have made a fortune advising corporations how to manage their risks. While few would argue that you shouldn’t remain vigilant, you have to wonder whether the billions spent on avoiding harm might not be better spent on more profitable activities like developing new products, improving the training and development of employees, conducting more research and the like. As our economy slowly (ever so slowly) recovers, the last component to improve has been employment. Companies have tons of cash but few are willing to be the ones to start hiring. Those that are hiring are more likely to look to temporary help than risk employing full-timers.
As a society, we are not so good at evaluating risk
We are afraid of terrorism, tainted food, odd flu viruses, and out-of-control Toyotas. Yet when you add up the actual damage done by the sum total of all of those threats, it is miniscule compared to the number of people killed in auto crashes. If a hundred years ago, someone had proposed a transportation system in which 40,000 people would be killed every year, we would probably still be riding in horse-drawn buggies. But, we see that as an acceptable risk. “We routinely overestimate rare risks and underestimate common risks….” Humans seem to be hard-wired to act in the face of threats, no matter how unlikely or rare. “Psychologist Scott Plous said it well in “The Psychology of Judgment and Decision Making”: “In very general terms: (1) The more available an event is, the more frequent or probable it will seem; (2) the more vivid a piece of information is, the more easily recalled and convincing it will be; and (3) the more salient something is, the more likely it will be to appear causal.”
So, when faced with a very available and highly vivid event like 9/11 or the Virginia Tech shootings, we overreact. … We pass the Patriot Act. We think if we give guns out to students, or maybe make it harder for students to get guns, we’ll have solved the problem. We don’t let our children go to playgrounds unsupervised. We stay out of the ocean because we read about a shark attack somewhere. It’s our brains again. We need to “do something,” even if that something doesn’t make sense; even if it is ineffective. ” In other words, in some ways we still think like our more primitive ancestors who needed to react strongly to threats in the wild.
The same kind of thing happens at work. One employee falsifies an expense report so management makes a rule that all expense reports must be audited. One study indicates a small increase in the risk of heart attack, so the drug is pulled off the market. One tire blows out causing an accident so the company refuses to purchase anything from that vendor. I am not saying that we shouldn’t be prudent. We should. But, we often exaggerate the potential harm of a single or a small number of incidents and spend exorbitant amounts of time and money trying to prevent the inevitable. Sometimes a product will not work properly. Once in a while, an employee will do something dishonest. But the reaction can often do more damage than the “crime.” While overreacting to these relatively rare events, we often completely overlook and underestimate the damage done by the little “crimes” committed every day. Managers who ignore their team members. Leaders who don’t listen. Human resource departments who routinely turn down requests for employee development. Team leaders who will not confront poor performance. And so on and so on!
Managers routinely block attempts to implement self-directed work teams because they fear that employees will use their new freedoms to “take advantage” of the company by working fewer hours or taking longer breaks. Certainly a few will do just that. But, the evidence is overwhelming that self-directed work teams routinely outperform traditionally organized work groups. They also fear that the reduced supervision may lead to violations of the rules or produce safety concerns. Again, that may happen in isolated cases, but the overall productivity and safety records show that kind of behavior to be the exception rather than the rule.
In one circuit board factory, a team process had been implemented and was quite successful. Their quality and productivity had steadily improved. One week, the parent plant had an unusually high demand and the factory manager was asked to meet a goal that had never been attained. Through extraordinary effort, the team members were able to meet and exceed the new demand. Most managers and executives praised the factory, the manager, and the team members. But, a few declared that if they could reach that level on this occasion, they should be punished for not performing at that level all along. They believed that the team process was allowing them to under perform. The fact that even before the extra goal had been met, their output was superior to all the other satellite facilities was not considered. These managers mounted a campaign to eliminate the team process. “Too risky,” they said. Fortunately, they were in the minority.
The lesson for your leadership training may be that vigilance is good but don’t over react to single events even if they are very dramatic (The level of drama seems to exaggerate overreaction.). Yes, exercise reasonable precaution but don’t “make mountains out of mole hills.” Take a few risks. Let your people make a few decisions. Try something new. It is the only way you really make progress. Teach your kids to be cautious but let them go Trick or Treating!
 Campos, Paul. Undressing the Terror Threat: Running the numbers on the conflict with terrorists suggests that the rules of the game should change. The Wall Street Journal, January 9, 2010.
 Schneier, Bruce. Rare Risk and Overreactions. John Anderson Online. http://www.cs.umanitoba.ca/~andersj/risk.html