A presentation given at the Ontario Library Association SuperConference on January 28, 2015

1. Tony Horava, AUL (Collections)
University of Ottawa
OLA SuperConference
Jan. 28, 2015

2.  Organizational risk
 Prospect Theory - Major principles
 Implications for risk assessment
 Implications for academic libraries
 Conclusion
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3. “Society values risk taking but not gambling,
and what is meant by gambling is risk taking that
turns out badly. From the point of view of managers and a
society dedicated to good management, the problem is to
develop and maintain managerial reputations for taking "good"
(i.e., ultimately successful) risks and avoiding "bad" (i.e.,
ultimately unsuccessful) risks, in the face of (possibly inherent)
uncertainties about which are which.”
James G. March and Zur Shapira, “Managerial Perspectives on Risk and Risk
Taking,” Management Science 33, no. 11 (1987): 1413.
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4. The ARL 2030 Scenarios :
 A sustained reflection upon the risks and opportunities for
academic libraries, based on four possible scenarios.
 A call for academic libraries to assess the probability of any
scenario occurring and consider the impacts
 “Organizations act on what they know or what they believe
they know to be certain. Many of those certainties are in
actuality uncertainties. Those false certainties become the
basis for an organization’s strategic decision-making. “

5.  Frames - lenses that filter some things and allow others to
pass through, help us order experience.
 Each frame comes with concepts and metaphors for
organizing our understanding of the world, esp organizational
culture
 Four frames – Structural; Human resource; Political; Symbolic
 Looking at organizations this way can help us assess what is
working and what isn’t – and addressing risk in reframing

7. Technological -
 rapid obsolescence and the hype cycle;
 inadequate or dysfunctional tools;
 lack of interoperability with other systems;
 foreshortened life cycles for development;
 the quality of maintenance and support
Financial -
 the institution’s degree of support of the library;
 the foreign exchange rate;
 Ontario’s and Canada’s economic performance;
 investments made by the institution;
 the global economy & inflation
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8. Political -
 institutional strategic agendas shifting in direction;
 changes in senior administration and therefore shifting loyalties and power
balances;
 a range of stakeholders in the academy with different/complementary interests;
 Assessment standards and measurement of impacts;
 unpredictable directions/pressures for post-secondary education;
 new governments with new agendas
Socio-cultural –
 new patron attitudes and preferences in their use of information and devices;
 new learning styles based on use of social media and other technologies;
 new purposes for using library spaces and collections, such as collaborative work
 shifting demographics that can lead to a new mix of the student population;

9. Mental paradigms affect risk assessment and decision-making in
libraries. The historian of science Thomas Kuhn asserted that a
paradigm is "the entire constellation of beliefs, values, techniques, and
so on shared by the members of a given community.”
- In a library context, this constellation is typically conservative,
reactive, and risk-averse (but changing…)
The importance of process: "The less things are predictable the more
attention you have to pay to the strategy process. Uncertainty has the
effect of moving the key to success from "the optimal strategy" to the
"most skilful strategy process.” Kees van der Heijden, Scenarios: The
Art of Strategic Conversation vii-viii.

10.  “Prospect Theory: An Analysis of Decision under Risk”
Econometrica 1979 47(2): 263-291.
http://www.princeton.edu/~kahneman/docs/Publications/pro
spect_theory.pdf
 The authors Daniel Kahneman and Amos Tversky, awarded
the Nobel Prize for Economics in 2002
 Originally applied to behavioral economics; then applied to
other contexts
 Has led to a more nuanced understanding of how we grapple
with uncertainty and make decisions in the face of risk.

11. 1 - Probability weighting;
2 - Reference dependence;
3 - Loss aversion;
4 - Diminishing sensitivity

12.  The role of probability weighting in decision-making is quite
crucial.
 Typically, “the weighting function overweights low
probabilities and underweights high probabilities.” Generally
speaking, people are overconfident about expected outcomes
related to risk, and make decisions with particular biases
 Interview with Daniel Kahneman:
◦ “People systematically violate the predictions of expected utility
theory.”
◦ “The emotional tail wags the rational dog”

13.  People derive utility from gains and losses, measured relative
to some reference point, rather than from any absolute
standard for economic well-being.
 All gains and losses are therefore relative; no one size fits all
 Think of your Collections budget, or Operations budget, or
staff complement, as the reference point for your library’s
experience in any given year – versus previous years.

14.  Loss aversion - people are much more sensitive to losses—
even small losses—than to gains of the same magnitude, eg
“people tend to be risk averse over moderate probability
gains: they typically prefer a certain gain of $500 to a 50
percent chance of winning $1,000.”
 People hate losing much more than they love winning (by a
factor of about 3 to 1, based on Kahneman and Tversky’s
research)

15.  Replacing a $100 gain (or loss) with a $200 gain (or loss) has
a significant utility impact, replacing a $1,000 gain (or loss)
with a $1,100 gain (or loss) has a smaller impact.
 As numbers scale upward – think of budgets or collections-
this implies that we become less sensitive to the impact that
variations from expectations can produce
 A serial that costs $100 this year and jumps to $500 next
year is seen as a dramatic increase, versus a serial that costs
$5,000 this year and $5,400 next year. Scale of perception is
different.
-

16. Kahneman and Tversky asked subjects to choose between the
following two options:
A) a 5% chance to win a three-week trip to England, France and Italy;
or
B) a 10% chance to win a one week trip to England.
 67% of participants chose Option A, and 33% chose B, even though
the odds are in favour of B.

17. In a second test, subjects were asked to choose between the
following two options:
A) a 20% chance to win a gamble for $4,000; or
B) a 25% chance to win a gamble for $3,000
 Result: 65% of participants chose Option A, and only 35%
chose B, even though the odds are in favour of B.

18.  Collection strategies, eg the possible end of the Big Deal
 Funding challenges/existential threats
 Consortial initiatives
 The galloping horse of technology
 Transformation of services
 Contingencies such as natural disasters
 Staffing shortfalls
 Etc....

19.  These principles can be useful in our mental toolkit for
decision-making in a climate of difficult
choices/opportunities
 Prospect Theory can make us more aware of our default ways
of understanding risk
 Imperfect knowledge : dealing with risk
 Speaks to the importance of evidence-based approaches,
both for short and long term planning & decision-making

20.  There’s too much evidence
 There’s not enough good evidence
 The evidence doesn’t quite apply
 People are trying to mislead you
 You are trying to mislead you
 The side-effects outweigh the cure
 Stories are more persuasive anyways
Pfeffer and Sutton, Hard Facts, Dangerous Half-truths, and Total Nonsense:
Profiting from Evidence-based Management, Harvard Business School Press,
Boston, MA.2006.

21.  Risk is baked in to the academic world, and increasing in intensity
with each year
 The more aware we are of risk dynamics, the better equipped we are
with dealing with tough constraints and choices.
 Important to review the full spectrum of risk factors to better
understand the landscape
 Developing an evidence-based organizational culture is crucial
 Prospect Theory can provide us with some insights on human
decision-making under risk. Can this transfer to our world and be
useful?

22. “Risk-taking in Academic Libraries: The Implications of Prospect
Theory” Library Leadership & Management 28(2) 2014
https://journals.tdl.org/llm/index.php/llm/article/view/7055

23. Tony Horava
thorava@uottawa.ca
(613) 562-5800 ext 3645