The Big Risk In Too Little Risk

What do we think of when we think of risk? For most of us the initial thoughts may go to losses, downsides or doing things outside our comfort zone. Only few will think of the potential upsides of risk. But we should, as all risks have two possibilities – upside and downside. Payoffs and losses. This is where “calculated risk” comes into play. We hear this all the time from our sports commentators. The players or the team captain/coaches taking these calculated risks. What it means is that the risk- reward ratio is such that warrants taking an action that is different than normal times. The important thing to note here is that calculated risk does not mean it will turn out in our favor. As no outcomes are 100% guaranteed, if they are, where is the risk? Where is the risk if its popular and everyone is doing it? All decisions, even good ones, have some probability of things not going as per plan and going against us. Calculated risk means that we have thought through the possibilities, are aware of the consequences and we are now confident of making our move. If the situation is such that without a risky action, it cannot be redeemed, then it is not a calculated risk as our hand is forced and the risk should have been taken earlier.

We may think of risk as something that only businessmen/CEO/Politicians/Sportspeople take – anyone with high stakes, that is. Completely wrong. All decisions involve some payoff and hence some risk. All of us make decisions hence take risks. In fact, I believe, we do not take enough risks, as we become fixated with what can go wrong. Most everyday decisions don’t involve a life/death situation (unless you are a surgeon or at the border) are also easily reversible. Only a few big decisions need to be deliberated upon with adequate importance being given to the potential payoffs.

 

We Indians generally don’t like risk. Maybe risk has not paid off for us for too long. Most mothers (mine included) encourage kids to be risk averse. I believe it’s a sub-optimal way choose our professions. Or our lives. Our investments. Risk free is also upside potential free. Nothing ventured, nothing gained. We all can do with some dynamism and some discomfort to get to our desired optimal levels. Like exercise – we can be comfortable on the couch or get out for a workout and enjoy the upside of that discomfort. The other end of this spectrum is people who take too much risk – we all know some of those. This is equally bad and again, a review of the decision making process is highly recommended. Risk builds up slowly but unravels quickly. Panics, Manias, collapse, run on an institution are all outcomes of risk coming off rapidly in the economy. Destruction follows these events, followed by rebuilding and a new life.

 

Turns out, risk is like all good things in life. We need to have some of it to keep pushing ourselves. Too much is fatal. So take some risks. Approach that stranger that seems interesting. Evaluate that job opening. Back that venture. Follow your dream. Do bigger things. Push yourself. No pain no gain is totally true. Pushing the boundaries is totally cool. If there is no risk, things are not at their optimal yet. There are some segments in our lives that should be totally risk free – the choice of our major relationships, some of our investments, the choice of where you live etc. All other areas should be open to an audit of the risk in them. Any good decision can have a bad outcome and bad decisions can have good outcomes. The idea is not to turn speculative or a risk addict or an adrenaline junkie but to be able to review the payoffs and act when the same turns favorable.

 

This choice is ours to make - between a guaranteed mediocre outcome or some chance of a great one. The biggest risk is taking no risk at all and certainty of a sub-optimal outcome. There is no judgement if one chooses one over the other, as long as we are aware of the choices and are making them consciously. It’s a very personal choice as unique as our fingerprints. But these should keep changing over a lifetime, if they don’t, we are not thinking enough about them. We need to be conscious of the cycles too. Risk takers are sometimes felicitated and sometimes ridiculed, depending on where in the cycle one takes risk. Betting the house is definitely not a good risk, the quest is about doing things optimally to get a better outcome. To avoid regret of not taking that decision. So go back to your drawing board, put up your decision making matrix and see if it can do with a little bit of risk. When to take the risk and where are equally important. We can’t change the past but starting today, we can change the future, one decision at a time. The best promise we can make to ourself is to not repeat past mistakes. And the best favor we can do to ourself is to keep that promise. Fortune favors the brave and the well prepared. More power to you!!