Risk entanglement and the social relationality of risk

Contemporary societies are pervaded by risk, understood as the uncertain potential for unfavorable outcomes. Objective risk assessment quantifies probability and magnitude of loss, but subjective perceptions vary considerably based on factors like information, experience, and coping mechanisms. Subjective risk interpretations are shaped by social and cultural contexts, as argued by Douglas and Wildavsky (1982), who emphasize the influence of societal structures and cultural conditions on risk definition. Beck's (1992) Risk Society concept aligns with this, defining risk as a systematic response to hazards arising from modernization. Recent relational theory of risk (RTR) attempts to reconcile cultural and macro-social perspectives with individualistic views, defining risk as a relation between "risk objects" (hazardous things or events) and "objects at risk" (valued goods endangered by risk objects). Boholm and Corvellec (2011) posit that these relationships are socially constructed by observers, involving causal reasoning and decisions under uncertainty. While RTR acknowledges social construction, it primarily focuses on cognitive relations between risk objects and objects at risk. This paper argues that risk is also relational because it establishes observer-independent social relations between actors, a concept termed risk entanglement. This occurs when actors are linked through their constructions of risk objects and objects at risk, becoming mutually interdependent. A specific case, risk reciprocity, occurs when actors mutually construe each other as risk objects. This extends RTR to encompass not only cognitive relations but also social relations and risk practices, providing insights for policymakers and organizations.

The paper critically examines existing theories of risk, starting with the cultural theory of risk proposed by Douglas and Wildavsky (1982). This theory posits that risk perception is significantly influenced by the social institutions and cultural practices of a society, leading to systematic cultural risk biases. However, research has shown only weak evidence supporting this hypothesis, prompting a shift in focus towards the social construction of "risk objects" as proposed by Hilgartner (1992). This perspective, along with the work of Boholm (2003, 2015) and Corvellec (Boholm and Corvellec, 2011), forms the basis for the Relational Theory of Risk (RTR). RTR emphasizes the importance of not just risk objects but also "objects at risk" and the socially constructed relations between them. The paper argues that RTR, while valuable, needs extension to incorporate the social relations arising from risk assessment and practices, going beyond cognitive representations to encompass observer-independent social relations and risk practices.

The study employed a qualitative-interpretive methodology to investigate risk practices and relations within and between the German state and financial sectors (finance-state nexus). Data collection involved 68 narrative, problem-centered interviews (Witzel and Reiter, 2012) and ethnographic observations (Hammersley and Atkinson, 2007) between 2017 and 2020. The sample comprised diverse actors: 25 from the financial sector (banks, insurance companies), 26 from the political sphere (federal and state parliaments), and 17 from the state executive branch (regulators, supervisors). Ethnographic observations of the Finance Committee of the German Bundestag complemented the interviews. The data was analyzed using Maxqda software and Grounded Theory principles (Corbin and Strauss, 2015), focusing on how actors in the state and finance fields mutually observed, interpreted, and evaluated each other's risk-related expectations, actions, and routines. A comparative approach ensured consistent data acquisition and analysis across actors in both fields.

The study focuses on the "regulation dilemma" in the finance-state nexus, where the state must balance curbing risky financial activities with maintaining a healthy financial system. The analysis reveals a model of risk entanglement (Figure 1 in the paper) illustrating how actors in these fields mutually construct each other as risk objects. For state actors (politicians and regulators), maintaining political power is a central object at risk, threatened by various financial risks. In the financial field, the flow of payments generating profit is the key object at risk. The research highlights a risk reciprocity relationship between regulators and banks. Regulators view bank non-compliance as a risk object, while banks see regulation as potentially hindering their profitability. This is illustrated through interviews revealing the challenges of balancing regulatory demands with operational freedom. The "dialogical approach" to supervision is characterized by uncertainty and potential interventions by regulators, perceived as threats by banks. Conversely, regulators face the risk of failing to detect non-compliance. The risk reciprocity between politicians and bankers also manifests as a regulatory dilemma for politicians. The aim of minimizing systemic risk through regulation may inadvertently create new risks (unintended consequences) and stifle economic activity (over-regulation). Bankers perceive over-regulation as a risk object impacting profitability and market participation. Conversely, politicians view bankers' potential circumvention of regulations as a threat to their objects at risk (economic stability and political power). The study underscores the longer-term interdependence and mutual expectations that characterize risk entanglement in the finance-state nexus.

The findings demonstrate the empirical relevance of risk entanglement and risk reciprocity in the finance-state nexus, extending the RTR beyond cognitive relations to encompass social relations and practices. The "regulation dilemma" exemplifies how mutual risk attribution between state and financial actors shapes their interactions and actions. The interplay of regulation, non-compliance, unintended consequences, and over-regulation reveals a dynamic and interdependent relationship. The study highlights that actors are not only influenced by their perceptions of risk objects and objects at risk but are also actively involved in constructing and shaping these relations. The findings contribute to a more nuanced understanding of the complex risk dynamics within and between social fields.

This paper extends the relational theory of risk by introducing the concept of risk entanglement, highlighting the observer-independent social relations created by risk assessments. The empirical analysis of the German finance-state nexus reveals risk reciprocity between actors, emphasizing mutual threats and interdependencies. Future research should explore risk entanglement across different levels of collectivity (individuals to social fields), varying degrees of institutionalization, networked structures, levels of interlacing, and evolving temporal dynamics. This framework offers valuable tools for understanding complex risk relationships in contemporary societies.

The study focuses on the German finance-state nexus, limiting the generalizability of the findings to other contexts. The qualitative nature of the data limits the potential for quantitative analysis and broad statistical generalizations. While the sample is diverse, it may not fully capture the spectrum of actors and perspectives within the finance and state sectors.