Being in the Risk Response Line

Just imagine for a moment that you have just committed a crime, say you have pinched a very expensive item from your office or a shop. Let's assume the item is worth £5000. Obviously you know you did it but the uncertainty is whether it would be found out that it was you. You took the item carefully when no one was watching and you have either hidden it in a very secret place or have sold it to someone. Despite all your efforts, you have been arraigned as a suspect. 

As with most event risks, there is a certainty of outcome in this situation known as the impact. If you are found guilty, you will be sentenced to five years in prison. However, being a risk, there is a lot of uncertainty surrounding being found guilty.
You do not know if there was a CCTV records of your action, you do not know if you have left your fingerprints somewhere, you are not sure if anyone saw you stealing it or selling it. In the absence of this certainty, you conclude that the likelihood of being found guilty is 30%. Your risk exposure of going to prison is therefore 30% x 5 years which gives 18 months. This is your perception of what faces it. As explained in a previous post, this exposure  of 18 months does not exist in reality. You are either found guilty which lands you 5 years in prison, or you are found not guilty and set free.

Unknown to you, your accusers aren't really sure whether you did it or not, and may be suspecting other people as well. You are a suspect because you happened to be in the office when it happened, and there was no evidence of intruders or burglary. There is a lot they can do to find who the culprit is such as detailed forensic investigation and telephone signals around the office at that time. However, this can be very expensive and time consuming. Let's say the cost of this investigation is £2000. They just hope that the threat of prison will make you confess and return the item. £2000 is the risk response cost. Spending it might help the accuser reduce the uncertainty and therefore follow a definite course of action, but they can't be sure. This is a measure of their risk appetite: how much are they willing to spend to know the truth? So they report the case to the police and you end up in court.

As the legal mantra is "innocent until proven guilty", the court needs to gather evidence and sit through expensive deliberations. Your know very well that the onus is on your accusers to provide evidence, but you don't know what they have got. So through negotiations with the judge, they suggest plea bargaining as a quick way to get this sorted: if you confess to the crime immediately, you get two and half years instead of five through a thorough court process. You say no of course. Your perception of the punishment is only 18 months. So they keep offering you  a lower sentence and so on for outright confession. The big question is: what will make you confess in the absence of hard evidence?

This is exactly how risks work. There is often initially an uncertainty of the event but a certainty of outcome.  Responding to risks create additional sets of uncertainty in outcome. It is also common that there are at least two parties involved, and they perceive the risks in various ways. Your risk appetite drives how you respond to the risk.