Moral Risk

Human morality has evolved over centuries, with worldviews generally based on culture and religion

The forces of globalisation have led to confrontation between these different worldviews, a trend likely to increase as environmental, political and economic pressures rise.

We have identified several key issues central to understanding moral risk, namely:

  • Where to draw the lines between public acceptability and technological possibility?
  • Can we devise equitable effective strategies to balance the benefits of individual risk taking with the greater collective risk without stifling innovation?
  • How should society balance its immediate interests with the risks to future generations and those in other geographic locations?

Anticipating and understanding moral risk is critical for any organisation likely to find its processes or services scrutinised and questioned by an interconnected global public. Today, there are many aspects of human progress that have become controversial to certain stakeholders as systems become increasingly transparent and risks become more diffuse and global.

An example of our work

Conceptions of Fairness and the Forming of the Common Ground

Elahi, S (2008); in Ramirez, R, Selsky, J.W, van der Heijden, K (eds) Business Planning in Turbulent Times: New Methods for Applying Scenarios. Earthscan, London.

What is fair? Fair to whom?

Fairness is embedded in our social vocabulary. Fairness can be defined as "free from bias, fraud or injustice, equitable, legitimate, impartial", but this definition begs the fundamental, intractable question - "Fair to whom?" In any group interaction, there are implicit - if not explicit - perceptions about fairness.

Scenario exercises would be wise to consider this question explicitly because scenarios can potentially create fair process and deliver fair outcome. Process (procedural) fairness is achieved when the method by which a decision is reached is fair, while outcome (substantive) fairness is the result of a decision that is intrinsically fair. The result is generally more important than the means, so achieving outcome fairness is more desirable than achieving process fairness.

Conceptions of fairness have deep roots in philosophy. There are three major philosophical doctrines on which the concepts of fairness are based, equality, equity and priority. Parties tend to view fairness from their own distinct vantage point, so preferences will depend on the parties' perceptions of power and status.

Equity (proportionality)

Resources (rewards such as honours, public property or profits) or burdens are distributed proportionally to relevant contributions (inputs).

Equality (egalitarianism)

All parties receive an equal share of rewards and burdens, irrespective of their needs, differing resources and contributions.

Priority (compensatory or redistributive justice)

This doctrine maintains that fairness cannot be achieved and resources distributed until the basic human necessities of the worst-off members of society have been met. This concept was most famously studied by Rawls (1972).

Other principles of fairness

These include precedent - particularly in common law countries, and super-fairness or envy-free distributions, which are based on the principle that no party should prefer the portion of another to his own.

Procedural fairness

Procedural fairness or fair process refers to the ability of all parties to participate in the decision-making process, and it concerns the methods used for arriving at an acceptable decision. In law this is termed 'audi alteram partem' - hear the other side. Many argue that even when a fair outcome cannot be achieved, a fair process will go a long way to ensure acceptance, linked to perceptions of respect and fair treatment. Ideally, scenario projects should incorporate all of the aspects mentioned below, thereby making the process fairer and enhancing the impact and reach of the scenario work.

  • Attendance
    i.e. whether all stakeholders affected by, or who affect the situation are represented and able to participate in the process.
  • Initiation
    i.e. whether all parties have an equal chance to formulate and agree upon these structures and codes.
  • Discussion and decision
    i.e. whether there is open and frank discussion, so that all parties are heard and multiple issues are part of an integrated whole.
  • Achieving
    i.e. whether the quality and extent of information is equally available and accessible to all parties. Knowledge is the currency of power, and if there is information asymmetry or information is withheld or manipulated, no decision will be considered fair.

Outcome fairness

Outcome (substantive) fairness requires that the principles underpinning the distribution of goods or rewards and burdens or risks are fair. However, all too frequently, the value of goods requiring allocation is unequal, and one of the various mechanisms set out below will be utilised.

Fair outcomes enable stakeholders to find a means to coexist without conflict, by establishing a new shared set of beliefs, working out a modus vivendi or building a community of trust - in essence, enlarging the group with whom there is shared identity and forming the 'common ground'.

  • Division, i.e. whether the division is based on reciprocity. This can take the form of equal sacrifice, tit-for-tat, split the difference or an exchange of equal concessions.
  • Destruction or delegation to a third party, i.e. when parties cannot agree on how to distribute a resource, it might be fairest to destroy it or give it to a third party.
  • Random chance, i.e. in cases where assets or liabilities that cannot be divided simply are shared by random chance, such as by means of a lottery.
  • Rotation, i.e. whether joint custody or rotation could provide a fair division of an indivisible resource.
  • Ownership in common, i.e. the collective ownership of an indivisible asset, e.g. the 1959 Antarctic Treaty signed by all twelve powers that had laid claim to the continent.
  • Sale, i.e. whether the value of an indivisible asset could be realized and the proceeds shared among the parties.

Turbulence, scenarios and using fairness to form the common ground

Turbulent environments can be characterised by dynamic interaction between the many disparate parties. This causes amplification and attenuation, which results in values becoming questioned, identities being redefined and relationships reorganised. As parties compete in order to thrive, or simply survive, the result is increasing turbulence. (Emery and Trist, 1965) Responding to turbulence is a challenge, and the optimal means is by formation of the 'common ground'. This requires a new set of "values that have overriding significance for all members." Emery and Trist believed that the search for new shared values was a "slow process requiring something like a generation, unless new means can be developed." Scenarios offer such a means. Shared values require social trust and social trust is underpinned by conceptions of fairness.

Establishing these new social values requires new forms of cooperative relationships. Parties have to find shared goals and align their interests in order to create a common future they all desire. Should they be successful in forming the 'common ground' they will have succeeded in transforming the turbulent field into a less complex environment, underpinned by a shared set of values or a common ethical code. This transformation will not be a return to more placid environments though: at its heart are new and important shared values. If this cannot be achieved, the environment could change to a super-turbulent environment, where survival, i.e. maintaining an enclave in the face of vortexes becomes the optimal strategy.

Scenario building offers a unique opportunity to incorporate fair process by bringing together multiple worldviews and projecting these into the future, thereby creating the framework for the common ground and the architecture that can facilitate a fairer outcome. The scenarios can act as a robust framework from which a range of competing perspectives can be viewed together as a whole. Many people will have preferences for one particular scenario, but the framework enables them to evaluate their ideas alongside those that might, under other circumstances, provide cognitive dissonance and thereby be rejected out of hand. By using a systemic perspective, there is more potential to align values. Traditional negotiations tend to be adversarial, presenting two opposing views and inspiring greater competition. By contrast, scenarios adopt an integrative process, so enhancing the possibility of creation of the common ground. Although attaining perceived fairness in both the process and outcomes with a group - particularly in a time of turbulence - can be a difficult task, the rewards are great. The formation of the common ground creates the climate for cooperation and social adaptability and offers a positive response to the challenges of turbulent environments.

Risk is often a code for inequity. Risk aversion is often inequity aversion: people discover that they were exposed to a risk they were not even aware of...In studies of risk perceptions, inequity is typically correlated with involuntariness; you get a worse deal if you are not in control.

Professor Baruch Fischhoff,
Department of Social and Decision Sciences and Department of Engineering and Public Policy, Carnegie Mellon University, RiskWorld Interview