“We overestimate chances and underestimate risks”

From Homo periculans to Homo oeconomicus: business psychologist Christian Fichter on the relationship between economy and risk, the importance of gut instinct, the hazards of AI and famous risk-takers.

Interview: David Fehr & Adrian Schräder

Mr. Fichter, what unites business and risk?
Business would not work if people did not take risks. In principle, economic activity is about the production and exchange of scarce resources. Take the news, for example. If I cannot interest anyone in my news, I risk going bankrupt. But on the other hand: if I, as a consumer, consume fake or irrelevant news, I risk not understanding the world properly.

How do you define risk?
Risk is the likelihood of my actions succeeding. Unfortunately, in whatever we do, we are in competition with our fellow human beings. Nothing ventured, nothing gained. Then again: if you go for all or nothing, you may well end up with nothing. Or, to paraphrase Blaise Pascal: “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

Economic activities come with risk and competition. Many claim that it also means steady growth. What do you think?
Depending on the political ideology embraced by the respective party, the concept of growth can be interpreted in different ways. That is unfortunate because, in my opinion, growth should be understood as advancement and adaptation. We adapt to changing environmental conditions and thus become smarter, healthier, happier and better. In my opinion, by interpreting growth in these terms, humanity has considerably benefited over the last 200 years. Of course, not everything new is good. But anyone who wants to stop or even reverse growth has no understanding of the conditions under which our ancestors lived. Or would you like to return to a time without penicillin and a reliable food supply?

You write on your website that business is fifty per cent psychology. What do you mean by that?
Even our grandparents knew that psychology plays an important role in business. That is what I wanted to make clear with my statement. Nowadays we are given the impression that our understanding of human functioning relies on brain scanners. That is not the case at all.

How did you arrive at the figure of fifty per cent?
I don’t mean exactly fifty per cent, of course. I’m just trying to say that it is a large percentage. Far more than we would normally assume. That is the fascinating thing about psychology: it is everywhere where there are people, but it is usually invisible. After all, it would be terribly impractical if we had to constantly observe and analyse how we function.

Does that mean that gut feeling is just as important as facts and figures?
Let me advise some caution here: psychology is not just a gut feeling. The two are often confused. On the contrary, psychology also shows how we process facts and figures. We speak of two-process models, or System 1 and System 2. System 1 comprises reflexes and gut feeling and System 2 slow thinking and rational problem-solving. But to answer your question: yes, gut feeling, or System 1, is often just as important or even more important than facts and figures.

Is that the right approach in terms of entrepreneurship?
Ha, good question! I would say no. Calculating and carefully weighing up your options is better than relying on gut feeling or quick decisions based on rule of thumb. But sometimes you just don’t have the time, motivation, or knowledge, and sometimes it’s just not a priority. That is when relying on gut feeling is called for.

To what extent can the brain or evolutionarily trained behaviour be held responsible for business decisions regarding risk?
To a substantial extent. Our brains are trained to make quick, intuitive decisions in uncertain situations – this used to be essential for survival when we were still hunter-gatherers. These mechanisms are still at work today, both in our personal lives and in businesses. This is why we overestimate chances, underestimate risks or allow ourselves to be guided by fear of loss.

What risk behaviour does the ideal entrepreneur show?
There is a lot of research on this. Interestingly, it shows that the willingness to take risks is helpful for people founding their own companies. Later, however, when the company is up and running, it is more likely to be detrimental – at this point, you need people with a healthy dose of risk avoidance.

How do successful entrepreneurs deal with risk and uncertainty?
First and foremost, they are good at minimising risks and uncertainties – but not at avoiding them to such an extent that risk-taking and creative entrepreneurship are no longer possible.

Elon Musk is an entrepreneur who takes risks like no other. Does he embody the ultimate entrepreneur?
Elon Musk is probably pretty brilliant, but in his current phase of life he unfortunately also presents a hazard. I cannot recommend any entrepreneur to behave like Musk, as it could have disastrous consequences. Based on probability alone, there is always someone out there with a lot of talent, courage and luck, who then amasses so much fame and fortune that failure becomes unlikely or less significant. Musk is one of them.

As a business psychologist, how do you view the use of artificial intelligence? Does AI reduce the risk for organisations?
On the contrary, it actually increases the risk. AI is the most important invention humans have ever made. We will be surprised what consequences AI will eventually have. For better or for worse. At home, at work or for organisations.

Why does it increase the risk?
At company level, it necessitates massive adjustments. Not everyone will master these equally well. And then, of course, I see a very clear threat to organisations that will result from economic and social upheavals. This is because AI will revolutionise our economy and our society.

Christian Fichter is Head of the Institute of Business Psychology at the Kalaidos University of Applied Sciences in Zürich.

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