Why Do Smart People Deny Serious Risks (and What to Do About It)

9 min read
Why Do Smart People Deny Serious Risks (and What to Do About It)

When a threat seems clear to you, it’s hard to believe others will deny it. Yet smart people deny serious risks, even obvious ones, all the time.

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A case in point example comes from my experience helping a mid-size regional insurance company conduct a strategic pivot to thrive in the post-COVID world in January 2021. While doing a pivoting audit, I observed the underwriting department failing to address serious long-term risks for a number of industries resulting from the shifts in habits and norms due to the pandemic.

For example, a number of well-known companies committed to having all or many employees work from home permanently, ranging from innovative tech companies like Dropbox to traditional companies such as the insurance giant Nationwide. This growing trend changed underwriting risks for a number of industries dependent on in-office work. It’s more risky and less profitable to insure providers of commercial real estate, office furniture and technology, office-based services, and so on.

Given that 35% of consumers reported developing a new passion for cooking in the pandemic, we can safely assume that restaurants will not return to their pre-pandemic state. The rise of virtual fitness spells trouble for the future prospects of everything from yoga studios to gyms. With many people growing to like and even prefer virtual conferences to in-person ones during the pandemic, a cloud hangs over the long-term fate of the event industry. Moreover, given the long-term and potentially-permanent anxiety that people developed around crowded places during COVID and the growing popularity of the online entertainment industry, in-person entertainment such as movie theaters make for worse risks even after the pandemic.

Unfortunately, the company’s underwriting department proved resistant to clear evidence of such trends. With the department’s performance evaluation based on how many policies they approved, the Chief Underwriting Officer (CUO) did not want to adjust the company’s underwriting strategy according to what he termed “theoretical problems.” He argued that all the trends associated with the pandemic would be reversed shortly afterward, and that we would go back to our world of January 2020.

Such denialism in professional settings happens more often than you might think. A four-year study of 286 organizations that had forced out their CEOs found that 23 percent were fired for denying reality, meaning refusing to recognize negative facts about their organization. Other research shows that professionals at all levels suffer from the tendency to deny uncomfortable facts. Scholars term this thinking error the ostrich effect, after the (mythical) notion that ostriches stick their heads into the sand when they encounter threats.

The ostrich effect is one of over 100 dangerous judgment errors that result from how our brains are wired, what scholars in cognitive neuroscience and behavioral economics call cognitive biases. These mental blindspots impact all areas of our life, from health to politics and even shopping. Fortunately, recent research has shown effective and pragmatic strategies to defeat these dangerous judgment errors.

Cognitive biases represent a critically important yet greatly underappreciated source of risk, creating a strong imperative to practice effective cognitive bias risk (CBR) management.

To Overcome Denial of Serious Risks, Do Not Start With Logic or Arguments

Our intuitive action to overcome risk denial involves confronting people with the facts and arguing with them, but research suggests that’s usually exactly the wrong thing to do. When we talk to someone who believes something we are confident is false, we need to suspect some emotional block is at play. Unfortunately, despite extensive research about its importance in professional settings, too many organizations still fail to provide training in emotional intelligence, including how to deal with colleagues whose emotions lead them to deny reality.

A number of factors explain why people may hold false beliefs. For example, research on the confirmation bias shows that we tend to look for and interpret information in ways that conform to our beliefs, preferences, and incentives. Research on a cognitive bias called the backfire effect shows that when we are presented with facts that cause us to feel bad about our performance or other aspects of our professional or personal identity, we tend to dig in our heels and refuse to accept them.

In some cases, presenting the facts to people actually backfires, causing them to develop a stronger attachment to their incorrect beliefs, as scholarship shows. Moreover, we express anger at the person bringing us the message, a phenomenon researchers term shoot the messenger or the MUM effect. There are many other mental errors that inhibit professionals from seeing reality clearly and making good decisions.

So even if a CUO has clear evidence that previously low-risk candidates for insurance have transformed into more risky ones, it’s tempting to deny that reality, especially given the reward structure for underwriting. That’s the reason why so many underwriting departments have been delaying and obstructing the integration of the mounting risk of climate change into their policies, including the CUO at the company for which I consulted. Such problematic CBR management poses a serious threat to the future of insurance companies.

To Deal With Denial of Serious Risks, Use EGRIP (Emotions, Goals, Rapport, Information, Positive Reinforcement)

How do you deal with risk denial and the cognitive biases that prompt it? Rather than leading with facts or arguing, I developed a much more effective, research-based, and easy-to-remember strategy called EGRIP, an acronym that stands for Emotions, Goals, Rapport, Information, and Positive Reinforcement).

Step 1: Model Their Emotions

Some might ask: if emotions are the problem, shouldn’t the solution be to suppress them? After all, we’ve all heard that emotions have no place in business.

Let me be clear that emotions are not the inherent problem. They are fundamentally important to the human experience, including in the workplace. We need both reason and emotions to achieve our professional and personal goals, according to the research.

Instead, your goal should be to show emotional leadership and try to figure out what are the emotional blocks inhibiting others from seeing risks reality clearly. Use curiosity and subtle questioning to figure out their values and goals, and how these tie in to their perception of self-identity. During a discussion, focus on deploying the emotional intelligence skill of empathy — understanding other people’s emotions — as a way to determine what emotional blocks might cause them to stick their heads into the sand of reality. Focus especially on empathetic listening, a vital skill, to both grasp how they feel and later show
your understanding to them.

Having spent over 30 years in the company, and over a decade in his current role, the CUO became well-known as strongly attached to “the way we do things around here.” Such emotional investment has its upsides, especially in more heavily-regulated industries such as insurance, where innovation breeds compliance threats. Yet in times of disruption, this attitude poses serious risks for successful adaptation
to new situations.

This emotional attachment combines several cognitive biases. One, known as the sunk cost fallacy, causes us to grow emotionally attached to our previous investments, such as our pre-existing clients, policies, and processes. We don’t want to cut our losses and stop throwing good money after bad even when, objectively speaking, cutting out losses would be much better for us financially. After all, if we cut our losses, we have to admit we’re wrong. And the egocentric bias, our tendency to be excessively self-centered and have too high opinions of ourselves compared to reality, inhibits our ability to admit we’re wrong and need to update our beliefs. Finally, the status quo bias refers to us resisting change – even if we don’t know whether the change is good or bad – due to fears about uncertainty and instability. While not much of a problem during times of stability, the CUO’s status quo bias obstructed adaptation to this time of change.

Another emotional factor stems from the CUO’s skepticism toward altering underwriting policy based on climate change risks. The CUO felt it would be bad for business profits – and his department’s ability to deliver results – to revise the underwriting methodology to incorporate this threat. He frequently expressed a worry that climate change risks are overblown.

To support his points, the CUO had his staff look for information denying climate change, even though there’s an overwhelming scientific consensus backing substantial human-caused climate change. Searching for such evidence that he wanted to see, despite it not corresponding to reality, illustrates the impact of two related cognitive biases. First, belief bias: when we believe a certain conclusion desirable, we interpret evidence in such a way as to fit that conclusion. Second, confirmation bias: we look for evidence to confirm our beliefs.

He’s not alone among insurance leaders in minimizing climate change risks. Despite the National Association of Insurance Commissioners (NAIC) encouraging insurance companies for over a decade to address this issue, less than half of all firms responding to a 2018 NAIC survey on this topic report having a climate change risk plan; over 20% have not taken any steps to manage climate change risks.

It was only in 2019 that the company’s claims department, especially its Chief Claims Officer (CCO), successfully led the charge to overcome the CUO’s reluctance to integrate climate change risks into underwriting policy. Such tensions between claims and underwriting occur frequently, since the performance evaluation of the claims department stems from its ability to minimize claims payouts; the less risk, the less payouts, leading to claims departments showing strong and sometimes excessive risk aversion.

Once again during the COVID strategic pivot audit, the CUO brought up how bad it would be for business to adjust underwriting policy based on risks he felt overblown. Just like for climate change, he had his team look for biased evidence that everything would go back to normal. The predisposition to believe that everything will proceed normally, and the future will be much like the past, is called the normalcy bias. It often leads us astray during times of major disruption.

By contrast, the CCO strongly pushed for more heavily weighing the risks of industries negatively impacted in the long term by the pandemic. The CUO and CCO engaged in harshly-worded exchanges more than once in my presence, and I’m sure did so much more in private settings. So, we can safely assume that worries about the performance of his department played a strong role in the CUO’s risk denial.

Here, we see the horns effect, a sense of dislike for those we perceive as opposed to our in-group. The underwriting department forms one in-group within an insurance company, and the claims department another in-group. They have institutional incentives to oppose each other; these institutional incentives frequently develop into a sense of personalized animosity between these groups and their leaders. In many cases, the claims department automatically opposes whatever the underwriting department supports, and vice versa, regardless of the issue at hand.

Step 2: Figure Out Their Goals

Next, you’ll want to figure out the goals motivating their emotions. What goals does the false belief inhibit for them? The goals might be personal or professional; the person might or might not realize these goals. You want to continue using curious questioning to understand, at least in broad strokes, their aspirations.

While talking to the CUO about his goals and aspirations, he expressed a strong desire to grow the company as a whole, and his department in particular. He resented what he felt as the unnecessary increases in threat assessment for climate change, and saw the COVID-related industry trends in a similar light.

He also wanted to leave a positive legacy behind him tied to the department’s traditions and customs. Intending to retire within five years, the CUO did not want to see the department suffering any major changes. He perceived his department’s work as the core of what the insurance company did, and felt passionate about defending his legacy against the winds of change buffeting the company.

Step 3: Put Yourself on the Same Side By Building Rapport

Next, you’ll want to communicate to them that you have shared goals and are on the same side, building rapport. Doing so is crucial, as scholarship shows, for effective knowledge sharing in professional environments.

Practice mirroring, or echoing in your own words the points made by the other person, which helps build trust. You’ll also want to deploy what you learned earlier in your empathetic listening to show you understand how they feel, without necessarily agreeing with the accuracy of their assessment of the situation.

With the CUO, I empathized with his desire to grow the company and especially the underwriting department as a praiseworthy aspiration. I echoed, without saying he was correct, his frustration with the claims department, which led the charge on reducing underwriting risks for climate change and COVID-related trends alike. We discussed, and I commended, his desire to leave the legacy of a strong department that provides an anchor in the storm of change buffeting the insurance industry.

Step 4: Lead Them Away From False Beliefs Through Sharing Information

After placing yourself on the same side, building up rapport, and establishing an emotional connection, move to the problem at hand — their emotional block. The key is to show them, without arousing a defensive or aggressive response, how their risk denialism will lead to them undermining their own long-term goals, a research-driven approach to CBR management.

Highlighting our shared goal of the growth of the company and the underwriting department, I pointed to the positive flip side of addressing the threat of long-term industry adjustments after COVID. While permanent remote work threatened commercial real estate and products and services for the office, it promised a brighter future for private real estate construction, and products and services targeted at work from home. Similarly, businesses producing products and services aimed at virtual fitness and entertainment, as well as at-home activities such as cooking and DIY projects, deserved an improved risk assessment. In other words, the pandemic spurred trends that had as many long-term winners as losers.

The CUO told me he didn’t think of it from this perspective before. He focused on the loss to underwriting from incorporating pandemic-related future developments, not the gains. In doing so, he fell for a cognitive bias called loss aversion, our brain’s tendency to weigh losses much more heavily than gains. Loss aversion poses a particular challenge for risk-oriented industries such as insurance.

Knowing the CUO to be highly competitive, I challenged him to find other industries that would benefit from long-term COVID trends. He felt excited about that prospect, and wanted to dig in right away. Finding ways to approve more policies was his kind of challenge!

At that point, I reminded him of the flip side of the coin. Celebrating the winners also meant acknowledging the losers, as part of a broader shift in underwriting. I highlighted how doing so would strengthen his department going forward by building up its competency, so critical in our increasingly disrupted modern environment, to adjust flexibly its underwriting as various forces created new winners and losers. While that competency wasn’t part of the department’s current customs and norms, wouldn’t he want that to be a legacy that he leaves behind? Besides, it would help get the claims department off his back.

After much discussion, he agreed this was the way to go, both regarding the pandemic and more broadly. In fact, he realized he should also look for the winners of climate change, such as infrastructure-hardening companies, as the 2019 underwriting changes only addressed the losers.

Clearly, the CUO’s challenge here stemmed in large part from his framing of the situation. The cognitive bias known as the framing effect refers to our evaluations of the situation depending on our perspective of the broader context. If we’re presented with a negative framing – losing out on underwriting business – we see the situation as negative, and try to avoid it. However, a more positive framing – the opportunity to gain underwriting business from pandemic winners – prompts us to see the bright side of life, and welcome that outcome.

Keep that in mind when you’re presenting challenging information to others. If you want them to reject a situation or decision, frame it negatively; if you want them to accept it, frame it positively.

Step 5: Help Them Associate Good Feelings With Changing Their Minds Via Positive Reinforcement

Conclude your conversations with positive reinforcement for those accepting the facts about risks, an effective research-based tactic. The more positive emotions the person associates with the ability to accept hard truths as an invaluable skill, the less likely anyone will need to have the same conversation with them in the future.

In the case of the CUO, I applauded him for changing his mind. Then, I told him of how research shows that strong leaders welcome learning negative information and updating their beliefs toward reality, so that they can fix the problem effectively; in turn, failing to identify negative facts is a sign of a weak leader. Knowing that case studies often speak as strongly as research findings, I shared about how top CEOs, such as Alan Mullaly at Ford, succeeded due to multiple course corrections. My goal was to help the CUO incorporate a new character trait into his perception of what makes a good leader.

Many beginning practitioners of EGRIP feel tempted to ignore this last step. They got what they wanted with the previous four steps, why do the extra work? They fall into the empathy gap, the dangerous judgment error of underestimating the impact of other people’s emotions on their decisions and behaviors. Emotions determine the large majority of what we think and feel. If you care about making sure that the person you help convince of the truth becomes more committed toward true beliefs and changing their mind based on new evidence, you need to work hard on this important step.


Our typical methods of dealing with the frequent occurrence of smart people who deny risks is wrong. Don’t lead with facts, reason, and logic. Focus on their emotions above all, as it’s their emotional block that inhibits them from acknowledging reality. Use the 5-step research-based strategy called EGRIP to 1) discover their emotions; 2) then their goals; 3) build up rapport; 4) provide information to change their mind; 5) finally, offer positive reinforcement for them updating their beliefs to match reality. It’s not as easy as trying to argue, but it’s much, much more likely both to change their mind and to preserve and even strengthen your professional relationships.

Key Takeaway

When dealing with smart people who deny serious risks, focus on their emotions, help them acknowledge reality, then positively reinforce their acceptance of risks. Click To Tweet

Questions to Consider (please share your answers below)

  • Do you have a difficult time dealing with smart people who deny serious risks?
  • How do you plan to show a person denying risks that you’re on the same side?
  • When was the last time you applauded someone for welcoming, and fixing problems related to, negative information?

Image credit: victorvote

: Dr. Gleb Tsipursky is an internationally-renowned thought leader in future-proofing and cognitive bias risk management. He serves as the CEO of the boutique future-proofing consultancy Disaster Avoidance Experts, which specializes in helping forward-looking leaders avoid dangerous threats and missed opportunities. A best-selling author, he wrote Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters (Career Press, 2019), The Blindspots Between Us: How to Overcome Unconscious Cognitive Bias and Build Better Relationships (New Harbinger, 2020), and Resilience: Adapt and Plan for the New Abnormal of the COVID-19 Coronavirus Pandemic(Changemakers Books, 2020). His writing was translated into Chinese, Korean, German, Russian, Polish, and other languages. He was featured in over 550 articles and 450 interviews in prominent venues. These include Fortune, USA Today, Inc. Magazine, CBS News, Business Insider, Government Executive, The Chronicle of Philanthropy,Time,Fast Company, and elsewhere. His expertise comes from over 20 years of consulting, coaching, and speaking and training for mid-size and large organizations ranging from Aflac to Xerox. It also comes from over 15 years in academia as a behavioral scientist, including 7 as a professor at Ohio State University. You can contact him at Gleb[at]DisasterAvoidanceExperts[dot]com, LinkedIn, Twitter @gleb_tsipursky, Instagram @dr_gleb_tsipursky, Medium @dr_gleb_tsipursky, and gain free access to his “Assessment on Dangerous Judgment Errors in the Workplace” and his “Wise Decision Maker Course” with 8 video-based modules.