Thinking About Risk

In his book, Thinking, Fast and Slow, psychologist Daniel Kahneman says that people are generally risk averse. That we feel the pain of loss more intensely than we feel the joy of gain. Which causes us to protect what we have, rather than go after what we don’t have, even on the occasions when the odds are in our favor to go after them.

The evidence that he provides is compelling. More often than not, it’s true that we’re risk averse.

Being risk averse is generally a good thing though, and in some cases we aren’t risk averse enough. The problem is that we’re not very good at judging risk.

That’s why casinos and other forms of gambling are attractive. That’s why we pull money out of good investments prematurely. That’s why we stay in jobs that are destined to be disrupted or terminated by technological and social change. That’s why we go “all in” on a new business, even though the vast majority of new businesses fail. That’s why we damage relationships with our words, etc.

It’s the result of allowing our emotions and immediate impressions to guide our decisions.