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Collective Approaches to Risk in Business: An Introduction to Plural Rationality Theory

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  • David Ingram
  • Elijah Bush

Abstract

This article initiates a discussion regarding Plural Rationality Theory, which began to be used as a tool for understanding risk 40 years ago in the field of social anthropology. This theory is now widely applied and can provide a powerful paradigm to understand group behaviors. The theory has only recently been utilized in business and finance, where it provides insights into perceptions of risk and the dynamics of firms and markets. Plural Rationality Theory highlights four competing views of risk with corresponding strategies applied in four distinct risk environments. We explain how these rival perspectives are evident on all levels, from roles within organizations to macro level economics. The theory is introduced and the concepts are applied with business terms and examples such as company strategy, where the theory has a particularly strong impact on risk management patterns. The principles are also shown to have been evident in the run up to—and the reactions after—the 2008 financial crisis. Traditional “risk management” is shown to align with only one of these four views of risk, and the consequences of that singular view are discussed. Additional changes needed to make risk management more comprehensive, widely acceptable, and successful are introduced.

Suggested Citation

  • David Ingram & Elijah Bush, 2013. "Collective Approaches to Risk in Business: An Introduction to Plural Rationality Theory," North American Actuarial Journal, Taylor & Francis Journals, vol. 17(4), pages 297-305.
  • Handle: RePEc:taf:uaajxx:v:17:y:2013:i:4:p:297-305
    DOI: 10.1080/10920277.2013.847781
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    Cited by:

    1. Sedar Olmez & Akhil Ahmed & Keith Kam & Zhe Feng & Alan Tua, 2023. "Exploring the Dynamics of the Specialty Insurance Market Using a Novel Discrete Event Simulation Framework: a Lloyd's of London Case Study," Papers 2307.05581, arXiv.org.
    2. Iqbal Owadally & Feng Zhou & Douglas Wright, 2018. "The Insurance Industry as a Complex Social System: Competition, Cycles and Crises," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 21(4), pages 1-2.

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