We all take risks everyday in both our personal and professional lives. We put money in one investment instead of another, we hire one person and not another, the list goes on and on. One saying that always resonated with me was that if you don’t want risk, stay out of business. Diane Greene, an American technology entrepreneur and executive who co-founded VMware, said it better, “The riskiest thing a company can do is not take risks.” So, if we all have to face risk everyday we should be thoughtful students of how to manage risk. This is particularly problematic for us humans. Our brains have been evolving for millions of years and the older parts like the amygdala are responsible for processing base emotions like anger and fear. They do this very quickly, which is helpful for survival, as there is little time to ponder when a saber-tooth tiger is charging you. The newer parts of our brains like the neocortex provide intellect, reasoning, and analytical abilities. These parts can make more nuanced trade-offs but they are much slower. This architecture of our brains results in humans reacting to risk, at least in part, from an emotional perspective.
It’s been widely documented how bad humans are at calculating risk. Humans often overestimate the odds of unlikely or rare events, while underestimating the risk of more common events. As an example, according to the National Safety Council, the deaths per 100M in 2020 were 0.56 for vehicles and 0.002 for airlines. Despite the actual numbers, approximately 25% of Americans experience nervousness due to aviophobia (fear of airplane travel) and as little as 6% have amaxophobia (fear of driving). There are a lot of theories for why this is the case. According to notable risk researcher, Peter Sandman, risk = hazard + outrage, implying that people are less able to accurately assess risk when faced with strong emotions. In a recent article Sandman et al. state, “The outrage…significantly affected affective and cognitive components of perceived risk, but not hypothetical behavioral intentions. Seriousness and technical detail had very little effect on perceived risk.”
In a recent podcast, retired General McChrystal had an interesting take on risk. As a leader who has led troops at every level in both peacetime as well as war, he’s clearly someone who has had to deal with uncertainty and risk. McChrystal said, “We’re not very good at predicting all the threats and when they will come, but you can do a lot about your vulnerabilities to those threats.” McChrystal, like Sandman, also has a formula for risk: risk = threat × vulnerability.
This equation isn’t meant to be exact but rather the aim is to provide a shorthand for assessing risk quickly. He wants to emphasize that it’s not just the threat which we often cannot control but our vulnerability to the particular threat that counts.
As similar approach to risk comes from Todd Rose and Ogi Ogas in their book Dark Horse: Achieving Success Through the Pursuit of Fulfillment, where they debunk the standard formula for success and highlight folks, that they refer to as dark horses, who achieved impressive success despite following a different path. Rose and Ogas state, “In the standardization mindset, risk is determined by odds. But in the dark horse mindset, risk is determined by fit.” Put another way, when the person blazing their own path finds the opportunity that fits like a hand in a glove, then the risk is lower. They note that the fit can be determined by the person’s skills, passion, and talents and that by choosing carefully what opportunity they pursue they lower the risk of failure significantly.
From researchers as well as practitioners, the takeaway is that there are ways that we can significantly control and reduce risk. Three approaches that seem to have some basis in both theory and practical application are:
Find situations that play to our strengths
Increase our skills to make ourselves less vulnerable
Manage our emotional reaction to the threat.
Leveraging one or more of these tactics can help lower the risk both for our personal as well as our professional lives.
Great post! Have you come across any Brene Brown? I'm pretty sure she quotes McChrystal on his threat equation. I love her definition of vulnerability: "Vulnerability is having the courage to show up and be seen when we have no control over the outcome. Vulnerability is not weakness; it's our greatest measure of courage." Reading 1-3, it looks like ways to impart some control on the outcome or at least our reaction to it (3).
Would love your thoughts on Uncertainty- very much related!