Getting Ahead of the Security Poverty Line 3: Perceived and Actual Risk

The subject matter Andy Ellis focuses on here is the so-called Set-Point Theory of Risk Tolerance addressing the concept of perceived and actual risk.

The Peltzman Effect

Why are things getting worse for the organizations? And this comes back to the Peltzman effect. Sam Peltzman is an economist at the University of Chicago, who went into the United States when we were debating seat belt laws: should people be required to wear seat belt while driving? He said: “If you make people wear a seat belt, they will drive faster and kill more people.”

Sam Peltzman’s pretty much right. He says that if you take away risk, people will go and be riskier. NASCAR is a great experiment; for those who are not familiar with NASCAR – it’s a racing car league in the United States, people drive cars in a circle, 500 laps. I’m not really sure what the enjoyment about watching it is, but I can understand the thrill of driving one of the fastest cars on the planet 500 laps in a circle. But it’s an experiment, every year they drive on the same roads, it’s the same tracks; every year we give them better safety technology, and every year they drive more recklessly. There are more accidents in NASCAR than there used to be. They kill fewer drivers, the safety technology works, but the accidents are bigger.

If you’d like people to drive carefully, stick a spike on the steering wheel.

Peltzman’s solution for careful driving

Peltzman’s solution for careful driving

People have this mindset that if you take away risk, they will go absorb more risk. That’s very important to understand, because that’s the way businesses operate. Everybody will take risk if you take it away from them. Would you like to know how to make people drive more carefully? Peltzman had a solution for this: if you’d like people to drive carefully, stick a spike on the steering wheel. If I give you risk, you’ll take risk away. It’s a great model.

None of us would buy a car with a spike on the steering wheel, but I guarantee you everybody would be driving very slowly. In fact, I noticed this: I went for a run yesterday along the canals in Amsterdam. I should have asked somebody what all of the lines were for, because I realized I was running in the bike lanes. Probably not the wisest thing: I almost got knocked into the canal twice.

But I noticed something about bicyclists in Amsterdam: so, I’m from Boston, and in Boston we have tons of bicyclists, and some of them drive really fast, they’re moving more rapidly than cars. And some of them are driving very slowly. And in Amsterdam nobody was riding their bike very quickly. I attributed it to the fact that it was god-awfully warm out; but then somebody pointed out to me yesterday that these bikes don’t really have brakes. You have to sort of pedal backwards to slow the bike down. I didn’t quite grasp what it was, but slowing the bicycle down is hard. If you go fast, you’re at risk of not being able to stop if you need to.

In US bikes you have the handbrakes, just squeeze the brakes and the bike stops on a dime. Works very easily, people drive rapidly. Dutch bikes – you can’t stop, so you don’t drive quickly. You’ve taken risk out of the system by taking away something that brought in safety. None of you wear helmets, that was the amazing thing. In Boston, if you don’t wear a helmet, people look at you and they’re like: “You’re an idiot.” Here, I think if you wear a helmet people would look at you and say: “You’re ruining it, you’re getting hat hair.”

Set-Point Theory of Risk Tolerance

This leads to what I call the Set-Point Theory of Risk Tolerance. Basically said, people can perceive risk; a very important point is that perceived risk is not actual risk. I’m not trying to measure actual risk here; I’m measuring perceived risk. People have a set point that they want to live at. If you take risk away, they will absorb risk to get to that set point. If you introduce risk, they will act to remove that risk.

Optimal reaction to perceived risk

Optimal reaction to perceived risk

So, we can look at this and say: as perceived risk increases, we will apply security value to push it down. So, that’s why I’ve inverted security value here. It’s the pressure downward, risk is the pressure upward (see image).

We can think about perceived risk possibly as an impulse: we have some event, we’re going along, we get some risk, we act and we close the risk down. You can think about this as incident management: I have a breach, I act to remove the risk that I just discovered, and then I move on.

And you notice we returned to where we started from. We think we’re safe now, or at least as safe as we were going into our incident. This is a good mindset for humans to be in. It’s sort of like a lizard brain inside us: we want to act, we see risk, we deal with it, we move on. That’s how it’s going to operate.

Insufficient security response to risk

Insufficient security response to risk

Unfortunately, most of the time we don’t remove risk when we’re presented with it, so instead, what we see is something more like this (see image). We’re going along, we get some risk, we act, and we’re insufficient to remove the risk from our system. And worse: we know it. Now we have a problem: we have more risk in our system than we know what to do with.

Sometimes that perceived risk didn’t increase from an outside force, it increased because one of us went to our boss, we went to the CEO, and we said: “Look, we have more risk in the system. We’ve just discovered this thing we’ve had, and now we have to go fix it, and it’s a crisis.” And so, CEO says: “Great! Do something about it!” And it turns out doing something is very hard. There’s the reason that risk existed, just nobody knew about it.

Getting comfortable with new set point

Getting comfortable with new set point

So, you do some things, and 9 months later it turns out you’re up high. So, what happens? The human brain cannot tolerate this. This is not a state of affairs that is acceptable to it. One of two things happens. One is we tell ourselves a story, and we say to ourselves: “That risk was always there, I knew about it. That episode that I had 9 months ago when you told me about it – that was the aberration. That risk has always been in my system. I have a new set point; I am now comfortable with the risk, let us move on.” Long-lived risk is a problem for you, because this is what will happen: you will change your set point and you will believe you didn’t.

Underestimating the risk

Underestimating the risk

Or, and this is what gets most security professionals in trouble, we tell ourselves a different story: “You’re lying to me; that’s not really a risk. What do you mean this person could do something bad to me? They’ve always been able to, we’ve been in business for 10 years and it still hasn’t happened. So, clearly it’s not as bad as you think it is.” Everybody’s probably heard a story like that before. Or we can say: “Can you quantify? What’s the percentage chance it’s going to happen?” And you say: “Well, 5%.” And somebody looks at it and says: “Well, 5%, we’ve been 20 years, we should expect it to have happened once, it hasn’t, so why don’t we call it 3%? Are you sure it’s not 3%? Oh, good, 3%. Oh, wait, you’re sure it’s 3%, maybe not 1%?” We negotiate ourselves down into a different state, and while we’re doing it you’ll notice we actually got lower. We actually wrote out more perceived risk. Because while we’re doing that, we’re taking our expert and we’re saying: “We don’t trust them; they tell us lies, so we’re going to take more risk out of the system.”

Handling risk in small chunks

Handling risk in small chunks

So, what we’d like to see is a way of dealing with problems in a business as something a little bit more routine. We move along; we have some risk – we remove it; we have more risk – we remove it; we have more risk – we remove it; we get into a habit of removing risk from our system in small chunks, it’s digestible, it’s not disruptive. This is how businesses like to operate (see image).

Perceived Risk vs. Actual Risk

Now, I’ve talked about perceived risk, and there is also actual risk. I don’t pretend to be able to measure either one of these, but I would posit that ideal set points are where our perceived risk and our actual risk approximately equal one another. And I think 6 different things can happen here (see image below).

One is the really bad thing: we add risk in, something like an undisclosed breach. You break into my network, you do something, you walk away with it, you go sell that information, and I never find out about it. My actual risk just increased, but my perception didn’t change. So set point theory doesn’t help me here: I don’t act.

Another thing we might look at is known vulnerabilities. Tomorrow Apple is going to go up this way: they have a known vulnerability, they will know about it, their perceived risk and their actual risk, in theory, will move in the same direction. This is good for our brains, we can act with this.

‘FUD’ is one of the favorite tactics of security managers all throughout the industry.

Then, of course, we have everybody’s favorite: fear, uncertainty and doubt (‘FUD’): “Let me scare you with some things that could possibly happen to you. I will make you scared, I will increase your risk perception.” Your actual risk didn’t change. This is one of the favorite tactics of security managers all throughout the industry. It’s really bad, because when you get caught doing this, you have no credibility.

There are some good things that can happen on this as well. Sometimes we fix things. Sometimes we fix things and don’t tell people. These are awesome: perception doesn’t change; actual risk does. Sometimes that’s good. In the long run that’s bad, because at some point somebody will catch up and say: “Oh my goodness, things are much safer than I thought they were. Let’s stop doing security.” But this happens all the time. Sometimes systems that gave you problems get decommissioned and nobody tells you about it. I actually had that happen once. We were tracking a whole bunch of security problems with a system that didn’t exist anymore. And it took us, like, 9 months to find out that somebody had gotten rid of this system for us. We were very happy, we threw them a party.

Correlation of perceived and actual risk

Correlation of perceived and actual risk

Sometimes you know about your risk reduction. Sometimes you actually manage to line up perception of reality in the good direction.

And finally, we have security theater: activities that we take that claim to reduce risk, that do not. Anybody flown through the States recently? Been through the TSA? Mostly, security theater…I’d say TSA is actually more efficient than BAA’s security, I have to actually give them some props for that. I flew through Heathrow here and it was very inefficient.

Read previous: Getting Ahead of the Security Poverty Line 2: Degrees of Security Value

Read next: Getting Ahead of the Security Poverty Line 4: Effecting Long-Term Change

Like This Article? Let Others Know!
Related Articles:

Leave a comment:

Your email address will not be published. Required fields are marked *

Comment via Facebook: