Organizational Risk Perception of Disasters: Do Risk Managers Matter?

Abstract

Previous research on risk perception suggests that individual neglect of disasters is likely due to an inability to process information about low-probability, high-consequence threats and moral hazard. As a result, it is important to study the quality of organizational responses to disasters, since they may be crucial to compensating for the frailty of individual choice. Preliminary evidence suggests that an organizational risk manager is important in disaster planning, but there is no empirical evidence (to our knowledge) that having a designated risk manager leads to the adoption of risk-reducing measures in organizations. Additionally, there is limited research on the relationship between risk perception and the adoption of risk-reducing measures at the organizational level. The goal of this study is to empirically answer two questions. (1) “Does having a risk manager in an organization predict the adoption of risk-reducing measures?” (2) “What is the relationship between risk perception and the adoption of risk-reducing measures at the organizational level?” Using data collected from a sample of public, private, and non-profit organizations in the Memphis/Shelby County area, Tennessee in 2006, we find that organizations with risk managers adopted more risk-reducing measures than organizations without risk managers and that risk perception is a significant predictor of risk-reducing measures. This study builds on a small, but growing literature on how organizations perceive risks and respond to them.