Author Spotlight: Rich Lauria and John Burkhardt, A Behavioral and Cognitive Approach to Enterprise Risk Management

Enterprise risk management (ERM) frameworks operate on the assumption that investors, managers, and all other types of decision-makers within an organization are rational individuals who make optimal decisions within the context of the organization. In recent decades, however, abundant evidence has emerged from behavioral economics, psychology, neuroscience, game theory, and judgment and decision-making (JDM) that challenges this assumption by demonstrating that the rational choice framework embedded in ERM is not sufficient to explain the balance of human behavior. It has been shown that decisions are motivated by a complex array of nonrational factors, which can give rise to systematic errors known as cognitive biases. Accounting for these variables is crucial for describing and better predicting various aspects of decision-making relevant for ERM: Organizations are defined by the coordinated decisions of multiple individuals, all of whom are susceptible to irrational behavior. These behaviors are particularly salient in the case of risk identification, risk quantification, and setting risk appetite, essential core activities of ERM.

In their newly published textbook A Behavioral and Cognitive Approach to Enterprise Risk Management, authors Rich Lauria, FSA, CFA, and John Burkhardt, Ph.D., highlight key findings in the developing field of behavioral economics, with a focus on application of what the field has learned about cognitive biases to both traditional and value-based enterprise risk management approaches. In broad strokes, the text introduces ERM students and practitioners to terminology, concepts, and technical aspects of behavioral economics theory. It explains how behavior emerges and manifests in individuals and how these compound within organizations. It discusses manifestations of various cognitive biases. All of this is combined within the text to present more robust predictive, decision-making, communication, and mitigation approaches for ERM practitioners and is brought to life through real-world examples and case studies. The textbook is the sole required reading source for all students taking the ERM program elective “Cognitive Bias and ERM.”

During this event, the authors will discuss their motivations for writing the textbook, outlining how insights about cognitive biases and other factors complement both traditional and value-based ERM frameworks. Their remarks will touch on related topics covered extensively in the book including how biases can be managed or mitigated, how incentive structures can ameliorate or exaggerate biases, how to effectively incorporate ERM into performance analysis and business objectives to offset preexisting biases, and identifying approaches to risk messaging that improve communication and decision-making. They will conclude by offering attendees an outline of a “behavioral” ERM perspective, which considers less-than-rational beliefs, nonstandard preferences, and various social or environmental impediments to rationality in order to ensure better risk management decisions.

Moderators:

Rich Lauria, Associate Director and Lecturer, Enterprise Risk Management

H.S. Bob Kostakopoulos, Deputy Program Director & Part-Time Lecturer, Enterprise Risk Management

Speaker:

John Burkhardt, Ph.D., CEO, Capita Solutions

This is a hybrid event and will be hosted both in person and via Zoom. Registered guests will receive a Zoom link prior to the event.

THE FIRST 30 IN-PERSON ATTENDEES WILL RECEIVE A FREE COPY OF LAURIA and BURKHARDT’S BOOK.

In Person Location:

Earl Hall, Auditorium

2980 Broadway, New York, NY 10027

For questions about this event, please contact Joshua Gleich, jg4173@columbia.edu.

To obtain additional information about program offerings at Columbia University’s School of Professional Studies, please contact an Admissions Counselor at inquire@sps.columbia.edu.

If you require closed captioning, sign-language interpretation, or any other disability accommodations, please contact Disability Services, disability@columbia.edu, at least 10 days in advance.

Please visit Columbia University’s Hub for Emergency Preparedness to stay up to date on the latest campus health and safety policies.

This event is open to individuals irrespective of identity and sex.