The Role of Mutual Benefit in Informal Risk Management

Introduction

Some have criticized formal mechanisms for being overly proceduralized (Goddard et al., 1999; Hardy & Maguire, 2016), while others have called for a more holistic approach to corporate risk management (Wamsler & Lawson, 2011; Cervantes-Godoy, 2013; Hardy & Maguire, 2016). In a crisis, Perrow (1984) advocated that expertise should be the dominant approach, removing formal structures. Besides, risk management often succeeds by using informal networks. The important role informal networks play in risk management has been stressed by many researchers, see Hacking (1986), Peng & Heath (1996), Peng (2003), Broadhurst et al. (2010), Andreeva et al. (2014), Fischbacher-Smith & Fischbacher-Smith (2014) and Dawson et al. (2015). Another group of scholars has pointed to trust (Hood (2010), Uslaner, 2002; Poortinga & Pidgeon, 2003), and social validation (Levine et al., 2000; Lee & Dry, 2006; Jansen et al., 2011) as important aspects for decision making within informal networks. Indeed, the literature on both informal networks and risk management have engaged in a large number of conversations regarding risk eradication or minimization going much beyond the references already given.

An aspect less often studied is the role of ‘mutual benefit’ in informal networks while managing risk. Whether it is about informal risk management techniques among poor households (Moser, 1996; Trarup, 2012) or established corporations (Broadhurst et al., 2010; Fischbacher-Smith & Fischbacher-Smith, 2014), why would people activate their network(s) to overcome risks? What motivates participating in these networks to respond to this call for assistance? While trust and social verification are crucial in informal risk management, this paper gives the same importance to mutual benefit. Yet, this concept has not received the same volume of attention. Hence, this ‘undervalued’ aspect of informal risk management drives the current research presented in this paper.