The Irrationality Of Risk

2020 was risky. COVID-19 posed a threat for many, not only to fall sick and threaten your health but also to destroy you economically. However, not all people did respond rationally. I think that how to take calculated risk is one of the most important skills to learn. But it seems that this skill is not as common.

People hesitant wearing a cloth mask to protect themselves often say the masks are inconvenient. They never mention that they might have avoided getting sick or spreading the disease to a risk group. They trade long-term health risk with short-term comfort. And they have no idea how to deal with risk. That’s risky.

how-to-deal-with-the-irrationality-of-risk This Japanese Macaque knows the risk of his jump. Do you also know the risks of your actions? And most decisions are in some kind risky or at least a trade-off. And often we either ignore risk or get emotionally and exaggerate it.

👼 Underestimating risk

We sometimes like to ignore well-known threats. One day I watched one guy wearing a mask but then stopping to smoke. Life expectancy for smokers is at least 10 years shorter than for nonsmokers. 1 He probably knows that but ignores it because it is a probability in the future, hard to grasp. He protected himself from the rather unlikely event to catch a virus in public spaces (at least in Germany during that time) but inflicting long-term damage without further thought.

If a risk is not emotional or not directly tied to the damage we even ignore a high probability risk in the future as we think will not happen to us.

👹 Overestimating risk

Some risks are exaggerated, especially if they are loud and emotional, e.g. Terrorism. Also if the damage happens in an instant it seems more dangerous. Terrorism get’s far more news coverage than health damages related to smoking. But smoking kills about 300 times more people than terrorism per year 2 3. Yet smoking is still legal and measures to try to prevent terrorism cost an unbelievable amount of money to taxpayers. So no wonder that scientists “found that attack probabilities had to be much higher than currently observed to justify additional protective measures.” 4

If a risk is emotional and directly tied to the damage we think of it as more dangerous than it is.


How to rationally deal with risk

Don’t over- or underestimate risk. Don’t ignore information that hints that you are wrong. If you do something risky often, don’t take the outcome for granted every time. Prepare yourself for all risks, and remember the riskiest stuff is what you don’t see coming.


Challenge your risky assumptions as soon as possible

The biggest risks are things that are hiding from plain sight. Some of our assumptions we hold about ourselves are bullshit (e.g. I will never get COVID, I am not in the risk-group and therefore invulnerable). Be clear with yourself that your brain does not cheat on you. You are probably as vulnerable as the average.

🚨 Ignoring information that tells you there is a risk. Thinking only others are affected.

✅ If you get new information challenge your assumptions. Constantly update your risk projection. Be aware that you might judge risk emotionally and not rationally.


Don’t risk long-term for short-term

If you don’t separate the long-term from the short-term you will never be able to flee the trap of joy vs happiness.

🚨 Skipping important things because we could do something more fun.

✅ Prioritize and act accordingly.


Don’t take a risk without a plan

Think about what might happen. Understand the possible outcomes. Have backup plans if stuff goes wrong.

🚨 Ignore risks and assume everything will go right.

✅ Don’t take on risks until you’ve made a clear plan based on a solid analysis of the situation.


Understand and believe

”If a leader does not believe, he or she will not take the risks required to overcome the inevitable challenges necessary to win. And they will not be able to convince others.” That’s what Jocko Willink writes in (Extreme Ownership link to summary). Often you just don’t understand what could go wrong and with what power you should try to avoid that. If the worst outcome is really bad (like dying or facing bankruptcy) you need to be ready to take a big risk to avoid that. Wearing a mask is certainly not a big risk to take for you to possibly avoiding dying. So get yourself together and think more rational.

🚨 You don’t know what risks are involved in a situation and don’t bother to find out.

✅ Figure out what could go wrong. Try to understand why. Be clear what you could lose if something goes wrong.

How to take calculated risks - Fear Setting and The Risk Analysis

The belief that you can not do something is simply the unwillingness to take a risk

“[People] keep waiting for someone else to give them permission. That someone doesn’t exist. The only person who can give you permission to take risk is you.” - Jim Rohn

“Action may not always bring happiness, but there is no happiness without action.” - Benjamin Disraeli

The permission to take risks is given alone by yourself. Humans take more risks to avoid losses than to gain profit. We are people of habit and defend our standard. It seems scary to try stuff that might not work. However, be clear about the possible outcomes. The good and the bad. What is the worst thing that might happen? What is the best thing? Rate them from 1 (nothing permanent happens) to 10 (permanently life-changing nightmare/benefit). Compare them, and then decide. Often it feels scary to take a risk even if you are mostly fine if it does not work out.

I like this quote by Tim Ferris:

“I realized that on a scale of 1–10, 1 being nothing and 10 being permanently life-changing, my so-called worst-case scenario might have a temporary impact of 3 or 4. I believe this is true of most people and most would-be “holy sh*t, my life is over” disasters. […] On the other hand, if I realized my best-case scenario or even a probable-case scenario, it would easily have a permanent 9 or 10 positive life-changing effect.”2

Do not choose unhappiness over uncertainty. Give yourself permissions to take risks. Most things seem riskier than they are. Even though results might be bad, they might be not that bad (And if yes, you just might want to lower your standards). But be aware, we are also great at underestimating risk. Keep both in mind try to be as rational as possible.

  1. https://www.cdc.gov/tobacco/data_statistics/fact_sheets/health_effects/tobacco_related_mortality/index.html 

  2. Check out the TED Talk by Tim Ferris on Fear Setting 2

  3. WHO estimates 8M deaths/year related to tobacco https://www.who.int/news-room/fact-sheets/detail/tobacco 

  4. https://politicalscience.osu.edu/faculty/jmueller/JATMfin.pdf 


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