Distorted Risk Management: How Cognitive Biases Influence Human Decision-Making

Digitalization is driving a process of transformation with a major impact on risk management. On the one hand, existing risks are subject to change. On the other hand, new risks are emerging. Effective risk management requires several human decisions, e.g., to identify risks or select a mitigation strategy. Researchers in various disciplines have demonstrated, however, that human decisions are often biased and thus not fully rational. As a result, potential risks are overlooked entirely, their likelihood is underestimated, and inadequate mitigation strategies are applied. In this chapter, we examine the influence of cognitive biases on human decision-making in risk management to derive initial recommendations for practitioners.