by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
Steven Johnson, in his book “Where Good Ideas Come From”[1], outlines the academic work of Charlan Nemeth, a Berkeley psychology professor.
Dr. Nemeth would show research subjects a colored card – for example a blue card – and ask them to free-associate on the color card they had seen. When shown the card by themselves, the answers were fairly predictable. However when shown the colored card in a group where there was a research plant who would deliberately talk about the card in erroneous terms (It’s not blue, that card is green!), the responses from the other research subjects were much more nuanced and varied. Dr. Nemeth’s conclusion was that “… deliberately introducing noise into the decision making process ends up making more original connections than the groups that had been given only pure information.”
I believe that there is a lesson here for risk management departments. As I have argued in many different blogs – both explicitly and implicitly – risk management departments suffer from group-think. More specifically they suffer from model and mathematical group-think. I have argued for introducing sociologists (who are mainly qualitative, not quantitative in focus), and for eclectic modeling and thinking. Risk management in striving to become a rigorous discipline has perhaps become too dogmatic and pure. Perhaps, as Dr. Nemeth’s work shows, it is time to contaminate the field a bit with impure thoughts as to make newer and more efficient connections.
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