Most people don’t understand risk. Not that they don’t know what the actual term means. What they typically got wrong is their understanding of what is risky and what is not. How big the risks is? When to take risks? How to manage risk? These are all things that most people got wrong.
They don’t understand the risk vs reward concept which is fundamental in life. And in many cases they are also driven by the wrong type of fear which is affecting their perception and makes them make bad decisions and take bad actions.
Risk is everywhere
There is a risk when you are crossing the street, when you are driving your car, when you are investing, when you are eating mushrooms, when you experiment with your hair. Risk comes in different types of forms, but it’s there. When you realize that risk is everywhere and everything you do has a certain percentage of risk you better take it to the account every time. That doesn’t mean you have to consciously calculate your odds every time you do something, you will go crazy. Most of the time we evaluate risks subconsciously without realizing it or at least without paying attention to the fact the we do it.
People evaluate the risk using fear
The thing is that fear is driving our life. There are all kind of fear and it’s affecting our perception of risk. Unfortunately fear is not always correct, it’s just a perception that we have. That affects our beliefs and the risk evaluation. That’s why many times people things extremely risky when they are not and they see very risky things as great options.
Risk vs reward
In order to understand when to take risks and when not we have to understand the concept of risk vs reward. It’s everywhere in our life. It’s a simple concept but once you start applying it, wonderful things can happen. But in order to apply it correctly, you should be able to determine the right odds.
Answer these questions:
What am I risking?
How likely is that the things will go wrong?
What are going to be the consequences if things go wrong?
What is going to happen if I do nothing?
What are my chances of success?
If I succeed, what am I going to gain?
When you give answers to these questions you should have a clear picture of whether to take the risk or not.
It’s not always about having the right odds. It’s about having the right odds when you are not risking everything. Here is an example:
You wouldn’t play Russian roulette with one bullet. Your chances of surviving are over 80%, odds are in your favor, but that doesn’t mean you have to risk your life.
That’s why you have to evaluate everything, including the alternatives of taking the risk.
The game of poker is probably the greatest example of life. It has everything. It’s about knowledge, adaptation, flexibility, risk evaluation, fear, stupidity, risk management, winning, losing. The best thing is that it’s easy to measure. It’s not gambling, unless you are stupid. But we can say life is a gamble, in that case you would be correct. If you want to learn taking risks, learn poker.
The truth about taking risks is that you have to know what you are doing. You must have at least an idea about your odds and the possible rewards. And then you will know if taking risks is worthy in your situation.
Category: COMMON SENSE