Culture, Institutions and Risk Management

I've got a lot of ideas buzzing around in my head around the general area of how does risk management interact with corporate culture, institutional architecture (from largest e.g. IMF, to smallest e.g. how you report to your boss), human psychology (with its sub-discipline of behavioural economics), ethics and morality, and neuroscience.
If I had 5 or more people who were willing to come along to a lunch time meeting in the CBD, maybe once every 3 or 4 weeks, for the next few months then I'd be very tempted to run an informal (free, and so possibly I'd just talk off the top of my head sometimes) seminar session on the topic of risk management and culture, behaviour, institutions etc. I find I need a catalyst to do this sort of work, and having to talk to people about something is an excellent catalyst.
Here are some of the ideas that I’d like to discuss:
□ In naïve economics we could just as easily see workers hire capital as capital hiring workers, but we almost always see the latter. What do the various theories that explain this observation imply about the risk management culture? See Chapters 8 and 10 of Bowles .
□ Elinor Ostrom’s work has considered how societies have developed diverse institutional arrangements for managing natural resources and avoiding ecosystem collapse in many cases, even though some arrangements have failed to prevent resource exhaustion. The risk taking ability of a firm can be thought of as a resource. Does Ostrom’s work say anything about the possible design of a risk culture?
□ Animal spirits have been blamed for many things going wrong and right in an economy. Discussion can be made on Akerlof and Shiller’s treatment of fairness, corruption and bad faith, why do central bankers have power, and why are there people who can’t find a job.
□ Vernon Smith’s analysis of the interplay of constructivist rationality (the deliberate use of reason to design structures) and ecological rationality (emergent structures from small scale, non-teleological interactions) and its relationship with Hayek’s ideas.
□ Viewing Adam Smith’s two works as two sides of the same coin – trading in reputation and social status, and the trading of goods and services.
□ What do we make of Don Ross’s idea that we have a major economic question in saying how an individual makes a decision given that there are a number of semi-independent modules in the brain that may have conflicting goals? And what about his idea that it makes sense to ascribe some psychological attributes as emotions and drives to firms? This seems intimately involved in the concept of a corporate culture, and gives us some philosophical arguments that we can use to put a corporate culture on a firmer analytical foundation.


Akerlof, G. A. and R. J. Shiller (2009). Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism, Princeton University Press.

Bowles, S. (2004). Microeconomics: Behavior, Institutions and Evolution, Russell Sage Foundation & Princeton University Press.

Ostrom, E. (2005). Understanding Institutional Diversity.

Ross, D. (2007). Economic Theory and Cognitive Science, The MIT Press.
In this study, Don Ross explores the relationship of economics to other branches of behavioral science, asking, in the course of his analysis, under what interpretation economics is a sound empirical science. The book explores the relationships between economic theory and the theoretical foundations of related disciplines that are relevant to the day-to-day work of economics—the cognitive and behavioral sciences. It asks whether the increasingly sophisticated techniques of microeconomic analysis have revealed any deep empirical regularities—whether technical improvement represents improvement in any other sense. Casting Daniel Dennett and Kenneth Binmore as its intellectual heroes, the book proposes a comprehensive model of economic theory that, Ross argues, does not supplant but recovers the core neoclassical insights and counters the caricaturish conception of neoclassicism so derided by advocates of behavioral or evolutionary economics.

Because he approaches his topic from the viewpoint of the philosophy of science, Ross devotes one chapter to the philosophical theory and terminology on which his argument depends and another to related philosophical issues. Two chapters provide the theoretical background in economics, one covering developments in neoclassical microeconomics and the other treating behavioral and experimental economics and evolutionary game theory. The three chapters at the heart of the argument then apply theses from the philosophy of cognitive science to foundational problems for economic theory. In these chapters economists will find a genuinely new way of thinking about the implications of cognitive science for economics and cognitive scientists will find in economic behavior a new testing site for the explanations of cognitive science.

Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations, Bantam Books.

Smith, A. (2007 (1749)). The Theory of Moral Sentiments, Dover Publications.
The foundation for a system of morals, this 1749 work is a landmark of moral and political thought. Its highly original theories of conscience, moral judgment, and virtue offer a reconstruction of the Enlightenment concept of social science, embracing both political economy and theories of law and government.

Smith, V. L. (2008). Rationality in Economics: Constructivist and Ecological Forms. Cambridge, Cambridge University Press.