Features of the Influence of the Internet Space on the Information

Support of Risk Management

Victoria Alexandrovna

Komaricheva and Ivan Dmitrievich

Machikhin

Financial University under the Government of the Russian Federation, Moscow

Keywords: Risk management, risk assessment, behavioral economics, heuristic management, Internet information.

Abstract: The reasons for the irrational market behavior of an individual are different and are often related to the

perception of information about the state of the environment. The information in the Internet space has its

own peculiarity. Currently, the issues of developing the theory and methodology of interaction between

behavioral economics models and the methodology of information assessment and risk management in the

activities of organizations are becoming more acute. Summarizing the research of various groups of scientists,

all the psychological and motivational factors that, in one way or another, affect the behavior and decision-

making of managers of organizations can be divided into two groups. The first group includes an erroneous

perception of reality or an incorrect assessment of the situation, as a result of which incorrect decisions are

made. These factors are inherent in absolutely all people. The second group includes emotional factors that

determine the behavior of people in certain circumstances. The role of emotional factors increases in situations

of risk and uncertainty that prevail in management tasks using information from the Internet space. Together

with possible errors, these factors carry an essential element of creativity and the potential for difficult-to-

predict heuristics, acceptable risk levels, and creativity in managerial decision - making.

1 INTRODUCTION

Many errors in assessing risk outcomes when using

information on the Internet are associated with the

definition of a so-called representative sample of data

for analysis. The practice of analyzing risk situations

shows that the mathematical statistical rules for

estimating the probability of samples that have been

popular in recent years (and even decades) are very

limited for use in assessing risks in the activities of

organizations as probable events leading to a

deviation from the management goal. A note on the

specifics of understanding the terms "probability" and

" possibility "in the English version of ISO/IEC

31000: 2018" Risk Management " and the translation

of these terms into other languages are discussed

specifically. However, not all experts understand the

reasons and the essence of this remark. This is also

confirmed by risk management consultants when they

talk about the features of the assessment, the specifics

of determining the ensemble probability, the

qualitative differences in the statistical risk

assessment of repeated events and the probabilistic

risk assessment of rarely repeated or unique events.

Many errors are caused, on the one hand, by the

peculiarities of the perception of information data by

analysts in the Internet space, and on the other hand,

by the peculiarities of decision-making by analysts

related to their personal qualities, the so-called

"irrational and heuristic" decisions. The study of

these features that define such a new phenomenon as

behavioral economics is the goal of this paper. From

the analysis of risk management practices and such"

heuristic " intuitive methods, the assessment of

subsequent risk outcomes was underestimated, was

less significant than in reality. This phenomenon of

cautious risk assessment was called "conservatism"

by the Nobel Prize winner in Economics, D.

Kahneman. Other examples of heuristic estimates

(according to D. Kahneman and his co-author A.

Tversky), for example, the emergence of an estimated

illusion of control as a result of people's tendency to

see patterns where they do not exist: or an example of

a heuristic (in fact, erroneous) acceptance of an

overestimated risk for profit (house money). This

effect is reflected in the economically irrational

behavior of investors: they tend to risk more on the

profits already received from the investment. Another

example, the deviation of estimates and, accordingly,

decisions due to diversification (diversification bias,

Komaricheva, V. and Machikhin, I.

Features of the Inﬂuence of the Internet Space on the Information Support of Risk Management.

DOI: 10.5220/0010696700003169

In Proceedings of the International Scientiﬁc-Practical Conference "Ensuring the Stability and Security of Socio-Economic Systems: Overcoming the Threats of the Crisis Space" (SES 2021),

pages 201-206

ISBN: 978-989-758-546-3

201

diversification/choice heuristic). These and other

features of the individual assessment of information

have been studied in detail in numerous subsequent

works, so there is no need to describe them in detail.

Taking into account the topic of the article, it is

possible to continue studying these issues based on

the results of the analysis, taking into account the

peculiarities of perception of information obtained

from Internet sources of varying degrees of reliability

and completeness.

Confidence in such" objective "observations and

heuristics, as well as the use of well-established

evaluative "cognitive stereotypes", is characteristic

not only of people at the household level.

Experienced researchers and experts share the same

"intuitive biases" (according to D. Kahneman) or

make mistakes when relying on such heuristic

estimates. Usually, specialists who know the methods

of statistics make fewer elementary mistakes, but,

nevertheless, the general rule is that an individual

makes decisions based on the established

relationships of facts and events, believing that he

acts rationally, taking into account the revealed

subjective features, acts irrationally both for the

purposes of management and for the subject of

management itself. This is especially evident in the

analysis and intuitive judgments in complex,

confusing or new and non-standard situations that

have arisen, characterized by a high level of context

uncertainty. Such situations are becoming common

today in conditions of instability of the context of the

functioning environment and the turbulent flow of

many socio-economic processes.

2 THE CONTENT AND RESULTS

OF THE STUDY

The methodology and models of decision-making

taking into account the risk-based approach still do

not take into account the creative properties and

qualities of the economic phenomenon called capital

among the factors of uncertainty. Its properties and

mechanisms of influence on management decision-

making are the content of the study. The purpose of

the study is to develop a methodology for taking into

account the creative quality of capital when assessing

its value. Behavioral economics can also be

considered through the functions performed as a

paradigm of economic and financial management,

which explains the influence of psychology on

economic activity and its results. This approach has

emerged in part in response to the growing difficulties

associated with the limited effectiveness of regulation

in the face of increasing instability and shocks based

on the traditional financial paradigm. Consider the

traditional and behavioral financial and economic

management paradigms in a comparative way.

The traditional concept of corporate finance

management offers a set of different tools and

mechanisms for managing the company's activities.

These include value management, portfolio

investment theory, project investment selection

criteria model, and others. These tools help you

calculate the necessary indicators, choose a strategy

for the company's behavior, however, the results of

calculations and models very often differ

significantly from what happens in the real world.

When analyzing the reasons for this discrepancy,

the approach to reduce the complexity of

management comes out in the first place, as if

simplifying the picture of reality for the adequacy of

the created models, which leads to erroneous

decisions with a higher complexity of the object of

regulation.

The classical economic paradigm postulates the

initial assumption that individuals act in their own

interests and are rational in this sense. The behavioral

paradigm assumes that financial events can be

explained by other model representations, in which an

individual's behavior is characterized as not

completely rational. This determines the need to

introduce a new methodological apparatus for risk

management in the outline of the general

management of the company, which could take into

account the irrationality of employee behavior.

It is worth noting that this approach did not arise

from scratch. For many years, the classical financial

paradigm could not answer a number of questions that

arose in various empirical studies. The accumulated

problems led in the mid-90s of the twentieth century

to the explosive appearance of different formats of

risk management standards in several countries

(Australia, New Zealand, the United States, South

Africa, the United Kingdom, Japan, Austria, and

others). The theory of behavioral economics has

gradually been able to offer models that provide

answers to many of the newly raised questions. The

main purpose of behavioral models so far is to modify

existing financial theories at the request of business

practice. However, the potential for the formation of

fundamentally new solutions in the theory and

methodology of economics is gradually accumulating

(Simon, 1957; Anishchenko, 2014; Vashchenko,

2006). The behavioral approach plays an important

role in the management of corporate finance, and

currently almost all processes of complex socio-

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economic systems at any level, moving from the

micro-level of the enterprise to the regional and

national levels of regulation.

From the point of view of the psychological

paradigm, as noted in their research by many authors

(V. V.). Avtonomov, V. Pareto, K. Arrow, Rabeck,

and Vargler (Avtonomov, 1998; Simon, 1957; Pareto,

2007)], there

are two different approaches to the

application of behavioral concepts in corporate

finance. The first suggests that external investors are

irrational, while the firm's managers are rational. In

this case, managers are forced to make decisions in

response to the actions of irrational investors. The

second approach indicates that the managers of the

firm can also be influenced by various behavioral

factors, so the decisions they make are the result of

the influence of these factors. For example, managers

may make certain decisions because they are

overconfident in assessing their abilities or the

prospects of the company (Lukashov, 2004). In

various works, these approaches are also called

internal and external obstacles to maximizing the

company's shareholder value.

In the work of R. Thaler (Thaler, 2017), it is the

internal factors of behavioral irrationality that cause

errors in the assessment and losses in the

capitalization of the firm, in particular, caused by the

mistakes of the company's managers due to limited

cognitive resources or under the influence of

emotions. As a result, managers can often make risky

or even wrong decisions. Thus, there is a conscious

need to take into account the psychological factor in

the process of developing and making corporate

decisions. This process was gradual, accumulating

both unresolved management issues and individual

approaches and methods for solving some private

applications. Historically, behavioral interpretations

have appeared in some studies by authors such as J.

M. Keynes (Keynes, 2007) V. Pareto (Nenasheva,

2008). But in a systematic form in the first half of the

XX century, the psychological aspect did not find

application in economic model constructions. Since

the second half of the XX century, as already noted,

the active integration of psychology into various

sciences, including economics, management, and

finance, began. In our opinion, the behavioral theory

of decision-making under conditions of uncertainty,

which began in the United States in the 1950s, can be

attributed to the forerunner of behavioral economics

(Hardy, 2010). In the 60-70s of the XX century,

research on the development and development of a

new theory, which was supposed to be an alternative

to the theory of expected utility, received the support

of the US Department of Defense, which also helped

the development and development of the Internet (see

the work of Herbert A. Simon "The Behavioral model

of rational choice" and others) (Nenasheva, 2007;

Pareto, 2007). In the study "Perspective Theory:

Analysis of Decision-making under risk conditions",

D. Kahneman and A. Tversky investigate decision-

making under risk conditions, using cognitive

psychological methods to explain a large number of

uncertainties in the field of decision-making. In

particular, it has been proven that people tend to

overestimate small values of probabilities, attach

more importance to losses than gains, even if their

mathematical probability is the same. The most

important conclusion of the perspective theory is that

the formulation of the problem affects people's

preferences and their attitude to risk. If the task is

presented in terms of acquisitions, then people try to

avoid risk. If the task is presented in terms of losses,

then people prefer to take risks as a so-called "framing

effect". The first application was the use of the model

in explaining the riddle of dividends (1984, H.

Shefrin and M. Statman) At the same time, a

behavioral finance section was created within the

American Financial Association, and in 1985, it

became brokers, and in 1972. the results of his

research were published in the Journal of Finance.

In Russia, due to the more recent development of

the market economy compared to other countries,

interest in behavioral finance has emerged only

relatively recently. The transition to a new model of

behavioral economics in most domestic economic

research centers is quite gradual. Nevertheless, some

research centers, such as the Financial University, the

Higher School of Economics, and the Faculty of

Economics of the Lomonosov Moscow State

University, conduct systematic research in the field of

behavioral finance.

Most of the works on behavioral finance

published in Russia are a review of foreign articles

published abroad (D. Repin, A. Lukashov, E.

Nenasheva, A. Solodukhina, etc.) (Lukashov, 2004;

Nenasheva, 2008; Nenasheva, 2008).The author

considers such concepts and models of behavioral

finance that affect the company's capital structure,

initial placement of capital or IPO, the policy of share

repurchases, the issue of debt obligations and the

policy of paying dividends in the company. The

review also compares the models of traditional and

behavioral finance. Almost in parallel, the

development of the theory and methodology of risk

management of organizations was carried out, which

paid considerable attention to the assessment of

human behavior when making management decisions

in the unstable environment of their functioning. It

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203

can be noted that to date, the main postulates of

behavioral economics and finance have been

formulated, but the interaction of these theoretical

constructions has not been theoretically discussed.

More and more researchers are coming to the

conclusion that behavioral factors play a huge role in

finance and are expressed in decision-making, the

choice of alternatives, and information processing,

thus directly addressing the issues of risk

management in the activities of organizations. Due to

the novelty of behavioral economics and finance

models, there are few studies and models that search

in this area. But their relationship with the risk

management models of organizations was not

considered. As it was mentioned in the first part of the

article, there are practically no published studies in

Russia at the moment. As for the works of foreign

authors, most of them considered the influence of one

or two factors on the decision-making by the

management of organizations, as well as on the

financial results of companies without a systematic

approach to the models of systemic risk management.

The problem of the influence of the factor of

optimism on the risks of decision-making by

managers in the organization requires a

comprehensive study of the theoretical provisions and

systematization of the accumulated practical foreign

experience of conducting empirical research. As

noted above, the pioneer is Herbert Simon (Simon,

1959). He proposed the theory of bounded rationality,

which is a generalized descriptive model of economic

behavior. In it, the decision-making process is divided

into two stages: the search and the adoption of a

satisfactory option. Simon assumes that in the

decision-making process, there are no ready-made

alternatives in front of the person making these

decisions. Therefore, you need to build them yourself.

It is not assumed that in the process of searching for

options, it is possible to maximize the usefulness due

to the lack of necessary (and sufficient) information.

It is in this part that the information field of decision-

making can be supplemented by the evaluation

information generated when applying risk

management methods. It is at this stage, in our

opinion, that it is useful to include risk management

methods to justify solutions. And therefore, in the

concept of the level of claims, the assumption about

the possibilities of choice at each moment in a person

is based on a more representative base. We can also

use the results of the work of D. Kahneman and A.

Tversky (Kahneman, 2000) to build bridges of model

relationships.

This work is largely fundamental to the disclosure

of the content of behavioral economics. The theory

describes the decision-making of people, in

conditions of risk. This theory refuted the previously

existing concept of decision-making, based on the

theory of probability and the rationality of decision-

making subjects. The study is a critique of expected

utility theory as a descriptive theory of risk-based

decision - making, and develops an alternative model.

In contrast to the generalizations of the "theory of

expected utility", the "theory of prospects" was

derived from the empirically revealed features of the

behavior of individuals in risk conditions.

Meanwhile, it was concluded that individuals make

decisions under a different measure of the influence

of emotions, thereby generating additional

management risks. In the course of the study, the

mechanisms of decision-making under conditions of

uncertainty, called decision-making heuristics, were

identified, which can be defined as the use of

experience to make decisions or improve the result. It

should be noted that the use of methods and means of

regulation based on risk management standards that

summarize the best management practices of

organizations increases the level of creativity of

solution methods. Heuristics means a quick, selective

interpretation of information, almost equivalent to

intuition, taking into account the fact that conclusions

may not give the desired result due to the speed of

decision-making and/or incomplete knowledge of

information. But the application of risk management

reduces the uncertainty of the context, leaving

intuitive solutions less regulatory space and

improving the quality of management in the

organization.

One of the main conclusions of the work of D.

Kahneman and A. Tversky is that the cost can be

fairly reliably estimated in terms of gains and losses.

The value function establishes the relationship

between objectively determined losses or profits (i.e.,

losses or profits expressed in monetary units) and the

subjective value that, based on these losses and

profits, the individual evaluates for himself.

Moreover, the cost function in terms of losses is

different from the cost function in terms of gains. This

is reflected in the methods of assessing risk

consequences, in particular, it can explain the fact that

when constructing numerous scenarios for the

development of complex socio-economic systems, in

practice, the average forecasts are not implemented,

as it might seem with the classical approach, in the

scenario under more negative modeling conditions

(explaining the well-known statement of V. S.

Chernomyrdin "we wanted the best, but it turned out

as always"). It was also found that people's attitude to

risk depends on the formulation of the choice task.

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The form of task formulation thus affects people's

preferences and their attitude to risk. If the task is

presented in the form of winnings, then people shy

away from the risk. If the task is formulated in terms

of losses, then people prefer to take risks. As it was

already written above in this paper, this phenomenon

is called the framing effect.

Many firms have mechanisms and tools for

solving the agency problem based on the established

past practice, so that the financial management of the

firm is focused on maximizing its value. The problem

is that, most likely, these mechanisms do not affect

managers, since the latter make irrational decisions

and actions. Decisions and actions resulting from

these decisions do not increase the value of the firm,

although this may not be entirely true for managers.

In this case, they think they are already doing the right

thing, so various mechanisms aimed at eliminating

the agency problem will not have an effect. An even

more difficult task arises when formulating the

organization's development goals, if the issues of

increasing profits have become a priority. And if there

is a conflict of interest between the owner and the top

management of the organization, the management

risks increase, and the consideration of the behavioral

component in management becomes critical.

The most popular work on the topic of behavioral

phenomena of management decision-making in

corporate finance is the study of R. Roll. The

hypothesis of arrogance in mergers and acquisitions

that he identified is based on the assumption that

managers are inherently overconfident. This leads to

managers overestimating the profits from future

transactions. Excessive self-confidence of managers

can lead to an increase in the activity of acquisitions.

A study of the studies carried out (Malmender and

Tate, Heaton. Bertrand and Skoar (Malmendier,

2002)) in the field of behavioral finance showed that

the greatest attention was paid to the optimism factor.

An exploration of the phenomenon of optimism can

also be found in Weinstein's work. All the existing

works of Russian authors are qualitative studies that

systematize the works of foreign authors. But an

acceptable unified classification of the various

behavioral phenomena studied by various authors in

the context of risk management has not yet been

created.

3 CONCLUSIONS

Considering the approaches to solving the issues

listed in the introduction, we can note the following.

The reasons for an individual's irrational market

behavior vary. They change over time, changing as

the socio-economic context of the functioning of

complex socio-economic systems develops.

Currently, the issues of developing the theory and

methodology of interaction between behavioral

economics models and risk management

methodology in the activities of organizations are

becoming more acute. Summarizing the research of

various groups of scientists, all the psychological and

motivational factors that, in one way or another,

affect the behavior and decision-making of managers

of organizations can be divided into two groups.

The first group includes an erroneous perception

of reality or an incorrect assessment of the situation,

as a result of which incorrect decisions are made.

These factors are inherent in absolutely all people.

Errors can vary in their consequences, and the use of

risk management methods and tools is an important

component of the sustainability and economic

security of these systems.

The second group includes emotional factors that

determine the behavior of people in certain

circumstances. The role of emotional factors

increases in situations of risk and uncertainty that

prevail in corporate financial management tasks.

These factors are inherent in human nature and are

inherent in most individuals. Together with possible

errors, these factors carry an essential element of

creativity and the potential for difficult-to-predict

heuristics, acceptable risk levels, and creativity in

managerial decision - making.

It is also necessary, based on the results of

research presented in a number of our works

(Avdiyskiy, 2020; Anishchenko, 2014), to identify

the third group of reasons associated with possible

mistakes of the "blunder type", accidental blunders

and/or internal misconceptions or ideological

attitudes (for example, managerial conservatism in

the organization). These possible errors can lead to

deviations from the goal of the organization's

development, and their allocation to a separate group

is associated with the need for their regulation in risk

management by special methods that differ from the

risks and methods of their regulation in the first two

groups.

When people have to make decisions in

conditions of uncertainty, they are forced to estimate

the probability of a particular event in the future, to

predict the values of unknown quantities based on the

information available to them. As a rule, people do

not use mathematical formulas, but use a set of a

certain number of psychological motives and intuitive

heuristic methods that, based on the use of decision-

making stereotypes, simplify the task of making a

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205

judgment about a certain event based on the limited

information available, previous experience and

stereotypes.

Heuristics as a set of research methods that

contribute to the discovery of the previously

unknown, as an approach to solving a problem based

solely on intuition and human experience, has a

significant potential for creativity and creative

solutions. But their feasibility (selection, evaluation,

processing, and application) can only be established

using risk management methods and tools. The

combination of these two approaches is the most

important condition for further progress in this

direction.

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SOCIO - ECONOMIC SYSTEMS: OVERCOMING THE THREATS OF THE CRISIS SPACE"

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