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Chapter 3 of A Short Guide to Risk Appetite (978-1-4094-4094-9) by David Hillson and Ruth Murray-Webster

Terminology Wars


We’ve seen in Chapter 2 that many different risk-related terms are used when people try to answer the question ‘How much risk should we take?’ There seems to be some convergence on ‘risk appetite’ as the right phrase, with regulators, standards bodies, professional risk associations and consultants all using it. But unfortunately these players use the term in different ways causing real confusion. We think it would be really useful to sort this out and have a consistent and coherent taxonomy of risk-related terms which clarifies how these relate to each other. We’ll address the full taxonomy in Chapter 4, but first we need to consider two central terms in this field. Risk appetite is one, of course, and the other is risk attitude.

Why these two? There are several important reasons. Firstly, as we listen to the emerging discussion around risk appetite, we often hear people talking about risk attitude in the same breath. The relationship between these two concepts obviously needs to be clarified, given that the words sound similar and therefore could easily be mistaken. Secondly, it seems to be very common for people to get confused between risk appetite and risk attitude in practice, even when they have some understanding of the concepts. And thirdly, our previous work on risk attitude has resulted in some important insights that are relevant to the risk appetite discussion.

The most important reason though arises from our review in Chapter 2 of the various ways people describe risk appetite. Looking widely across regulators, standards, professional bodies and consultants, we found two common themes emerging repeatedly:

  1. They say that risk appetite is something to do with an amount or level of risk.

  2. They also say that risk appetite is about willingness to accept or tolerate risk.


We agree that both of these aspects are important when considering how much risk an individual or organisation should take in a given situation. But we think the two elements are different in nature. As we’ll see below, the first is outside our control where the second is a personal choice.

We can unravel this distinction by addressing one simple question: what is the difference between risk appetite and risk attitude?

Non-Technical Origins

The terms risk appetite and risk attitude both have their roots in ordinary words that have everyday meanings. These roots are not accidental, and the common-use definitions give us important clues to what their risk versions mean. Let’s look in more detail at the two root words.

What is Appetite?

For most people, the word appetite is closely linked with being physically hungry. But dictionary definitions of appetite are wider. Of course they include a desire for food or drink, but appetite can also mean a desire to satisfy some other bodily craving, such as sexual pleasure. There are also non-physical appetites, where the desired result is intangible, such as an appetite for excitement or fame. And some appetites can be destructive, involving drugs or violent behaviour. The word appetite is derived from the Latin word appetere which means to desire strongly.

These roots immediately tell us something important about appetite, which most people don’t recognise. Appetite is not the same as hunger. Appetite is a desire, a psychological need that demands to be met. The external expression of appetite is hunger, which we experience as a lack of something, and which motivates our behaviour in an attempt to satisfy the internal desire.

One interesting variant on this topic is ‘specific appetite’, which is the term applied to a drive to eat foods that have particular flavours or contain specific nutrients. Scientists believe that specific appetite is an important part of regulating homeostasis in animals, for example to ensure the correct intake of sodium or calcium. Some suggest that specific appetite controls the amount of calories, vitamins, protein and water that an organism seeks in its diet. It appears that specific appetite in animals is innate, influencing behaviour without conscious choice, and there is speculation that something similar may operate in humans.

So what might influence appetite in a particular individual? There are a wide range of factors, including the following:

  • Physical characteristics (size, weight, age, and so on)

  • Metabolic rate (high, normal, low)

  • State of mind (anxious, calm, stimulated, and so on)

  • Underlying state of health (good, poor, diseased)

  • Lack of something that is required for good health (nutrients, vitamins, water, and so on)

  • Last experience when appetite was satisfied (how long ago, how fully satisfied, and so on).


Several of these influences are outside the immediate control of the individual, at least in the short term, since they arise from one or more inherent characteristics.

Finally in our review of physical appetite, we need to think about how appetite is regulated. This has been the subject of considerable research in recent years, starting with the discovery of the hormone leptin in 1994. The system that regulates appetite has many parts. The hypothalamus in the brain plays a major role, but appetite regulation also involves the gastrointestinal tract, the central and autonomous nervous systems, and a range of hormones. We’ll refer back to this complex regulatory system for physical appetite when we make the link to risk appetite later because this biological analogy has a direct link with how we make decisions in risky and important situations.

So we see that appetite is an internal desire or craving for food or some other physical stimulant. It exists within a person, and motivates them to meet a felt need. Appetite is the answer to the question ‘How hungry do I feel?’ But because physical appetite is intangible and has no units, it is hard to measure or express. It does result in outwardly measurable behaviour, though (eating, for example), and we’ll return to this in the next chapter. And although appetite is clearly affected by various other factors (such as metabolism or the time since our last meal), it is not something we can choose or influence as it happens. It just is what it is.

What is Attitude?

Attitude has two distinct meanings in the dictionary. One definition is about people, where ‘attitude’ is ‘state of mind, mental view or disposition with regard to a fact or state’. But another definition is about the positioning of objects such as aircraft, submarines, spacecraft or missiles, where ‘attitude’ means ‘orientation of axes in relation to some reference plane, usually the horizontal’.

At first sight mental views and aircraft positioning do not seem to have much in common. But if we think of people as pilots of their own attitudinal aircraft, some interesting comparisons emerge:

  • The aircraft pilot decides what attitude to adopt in order to position the aircraft to execute the desired manoeuvre. In the same way people can choose a mental attitude that leans them towards a desired response, behaviour or outcome.

  • Positioning an aircraft with a particular attitude does not make it move, although it does influence the direction of travel. Some other force is needed to move the aircraft. Similarly the mental attitudes of people need to be combined with motivation if any change is to happen.

  • The number of possible attitudes for a moving aircraft is almost unlimited within the three dimensions of space. The same is true for people’s mental attitudes, with many possible options that can be chosen in any given situation.

  • Extreme attitudes make an aircraft unstable, resulting in loss of control and potentially catastrophic consequences. Similarly a sense of balance is required for individuals and groups if their mental attitudes are not to lead to undesired outcomes.

  • A pilot may have a preference for how to position the aircraft, or may usually respond in a particular way by habit. But it is always possible to choose a different attitude if the pilot decides to do so. The same is true for the mental state adopted by people in a given situation – we often react habitually but we could choose differently if we wanted to.


In all of these comparisons, one word appears repeatedly – choice. Attitudes are always chosen responses to situations. Some people’s attitudes may be deeply rooted and arise from core values or beliefs, where others may be more easily changed. We can always choose which attitude to adopt, although often we just react by habit without intentionally deciding how to respond. But the ability to choose our attitudes is an important part of being human. If our attitudes were fixed then we wouldn’t be like aircraft pilots freely flying through the air. Instead we would be like cruise missiles pre-programmed to strike a fixed target, with no responsibility for the outcome and no ability to change.

Comparing Appetite With Attitude

Now that we’ve explored the underlying concepts of appetite and attitude, we can start to see some of the important similarities and differences. Let’s pick out just one vital way in which they are alike, and one crucial difference, before we move on to look at the risk-related versions.

The one obvious common factor shared by both appetite and attitude is they are internal factors that exist within people. This means that they are invisible to the naked eye. You can’t tell for certain just by looking at someone how hungry they are or how they are positioning themselves in relation to a particular situation, although there may be external clues in their behaviour or appearance. This makes appetite and attitude hard to talk about and even harder to measure. It may even be the reason that people confuse the two, since both are invisible.

So appetite and attitude clearly share something in common. But clearly they are not synonyms, and we can’t just interchange them freely. The two terms have different meanings, so they must have dissimilar characteristics. We might consider a number of detailed ways in which these two differ, but there is one absolute distinction: attitudes can be chosen but appetite just is what it is. Although both appetite and attitude are influenced by a complex set of other factors, it is hard to intervene consciously to change or control your appetite, whereas changing attitude can be a matter of simple choice.

Risk Versions

So is this relevant to risk management? We firmly believe so. Let’s translate this general discussion about appetite and attitude into the risk arena. What does this mean for risk appetite and risk attitude? What can we learn about the way that individuals and organisations decide how much risk to take in a given situation?

Rather unhelpfully, the IRM in its 2011 report on risk appetite chooses to distance itself from the natural metaphor. The report explains that although ‘appetite’ brings connotations of food, hunger and satisfying one’s needs, the specific phrase ‘risk appetite’ should rather be interpreted in terms of ‘fight or flight’ responses to perceived risks, and not in terms of ‘hunger for risk’. We disagree, and we believe that the appetite metaphor can usefully be applied to the risk arena.

So let’s develop definitions of risk appetite and risk attitude, based on our earlier ‘non-risk’ definitions of general appetite and attitude.

What is Risk Appetite?

Just as natural appetite is an internal desire for something, so risk appetite is something to do with how hungry we are for risk. How much risk do we feel that we can take on in a given situation? Our bodies may have specific cravings for missing nutrients, and risk appetite may also be focused on taking particular types of risk. Our appetite for risk is likely to be influenced by a wide range of other factors, just like our physical appetite, but it exists as an internal drive or desire that is not visible externally. And just as appetite is expressed outwardly through hunger, so risk appetite can be seen in the external decisions we make about how much risk to take. In the physical realm it is useful to separate appetite from hunger, so in the risk world we should make a similar separation, using another term for the external measurable expression of our risk appetite – we suggest either risk tolerance or risk threshold.

Drawing these thoughts together, we define risk appetite as:

Tendency of an individual or group to take risk in a given situation.


What is Risk Attitude?

We’ve seen that in general terms attitude is defined as the chosen response or positioning of a person in relation to a reference point. From here it is a simple step to define risk attitude, which describes the position we adopt in relation to a particular risky situation. It is common to speak about only a few specific risk attitudes, such as risk-averse, risk-seeking, risk-tolerant or risk-neutral. But in fact risk attitude exists on a continuous spectrum with an infinite number of possible positions, as illustrated in Figure 3.1. Faced with a given risky situation, a particular individual or group might exhibit a risk attitude anywhere on this spectrum. They might adopt a risk attitude explicitly or their position could be driven by habit, but it is important to remember that a different risk attitude can always be chosen.

Figure 3.1 The risk attitude spectrum (from Murray-Webster and Hillson, 2008)



Of course there are many influences on this choice, including conscious, subconscious and affective factors, as summarised in our ‘triple strand’ model (Figure 3.2) which we have explained in detail elsewhere (Murray-Webster and Hillson, 2008). While the three parts of the triple strand overlap and interact in complex ways, it is helpful to tease out each of the three elements so that they can be examined and understood.

  • Strand 1 – Conscious factors. These are the visible and measurable characteristics of a particular risky situation that influence our rational assessment. We also take account of situational factors such as whether we have done anything similar before (familiarity), the degree to which we have control of the situation (manageability), or how soon the situation is expected to affect us (proximity).

    Figure 3.2 Triple strand of influences on risk perception (from Murray-Webster and Hillson, 2008)



  • Strand 2 – Subconscious factors. These include heuristics and other sources of cognitive bias. Heuristics are mental short-cuts based on our previous experience. Some heuristics help us to reach an appropriate position quickly, while others can be misleading. Unfortunately because heuristics are subconscious, their influence is often hidden, and they can be a significant source of bias. Common heuristics include memory of significant events (availability), or the conviction that we already know the right answer (confirmation trap).

  • Strand 3 – Affective factors. These are gut-level visceral feelings and emotions which tend to rise up automatically or instinctively in a situation and influence how we react. Fear, excitement or attraction can lead us to adopt risk attitudes which a more rational assessment might not consider.

    This complex web of influences combines to shape our perception of risk, which in turn affects our choice of risk attitude.


This leads to our definition of risk attitude as:

Chosen response to a given risky situation, influenced by risk perception.


Comparing Risk Appetite and Risk Attitude

Risk appetite and risk attitude are clearly different concepts. And yet we frequently find them confused, even by risk experts and specialists, as Chapter 2 has shown.

There are at least three ways in which risk appetite and risk attitude are alike, and these might help to explain why these two concepts are so often confused:

  1. The first and most important similarity is that like their non-risk relatives, both risk appetite and risk attitude are internal factors. They exist inside people and can only be seen through some external expression or behaviour. We’ll come back to this vital characteristic again later.

  2. Another similarity is that risk appetite and risk attitude don’t exist in isolation or in a vacuum. They both only exist in relation to an external situation which is perceived as both risky and important, and which demands some sort of response. So you have a level of hunger to take risk (or not) in a particular setting, and you then adopt a risk attitude to match the situation. Again we’ll see the importance of this later.

  3. Lastly, both risk appetite and risk attitude relate to groups as well as individuals. It is obvious that each one of us will have a level of risk that we feel comfortable in taking, and that as individuals we can choose what attitude we will adopt in response to our perceived risk exposure. But groups also have risk appetites and risk attitudes. Each project team, management board, family or social club will have a shared view on how much uncertainty they can handle, which we might call their group risk appetite. And these same groups can also adopt a common position in how they intend to deal with the risks they face, which is their group risk attitude.


But despite these similarities the two concepts are essentially different in nature. The fundamental distinction is that risk appetite is a tendency that just is, but risk attitude is a chosen response. This difference is crucial in understanding how the two relate, especially when we look at how they operate in a decision-making context.

Both risk appetite and risk attitude play a central role when we have to make decisions in situations that are both risky and important. But their roles are complementary not identical, and they need to work together if we are to make the best possible decisions with good outcomes.

So when we face a risky and important situation and we need to decide how much risk to take, it is inevitable that we will be driven by our internal desire for risk as individuals and/or as an organisation. We could just ‘go with our gut’ and make an intuitive decision, and of course that might lead to a good outcome. But it might not. This is where risk attitude comes in, allowing us to choose an appropriate positioning towards the risk, modifying our gut reaction if necessary.

These two central steps in the decision-making process form the heart of the matter. There is no doubt that our internal risk appetite will have a strong influence over the way we answer the question ‘How much risk do we want to take in this situation?’ But as intelligent decision-makers we ought also to be sufficiently mature to ask a further question: ‘How much risk should we take?’ The way we answer these two related but different questions will determine how we respond to the risks before us.

It’s time to put the various pieces together into a cohesive model that shows the way risk appetite and risk attitude fit into the picture. We’ll do that in the next chapter.



Murray-Webster R. and Hillson D. A. 2008. Managing Group Risk Attitude. Aldershot, UK: Gower.

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