Generally speaking, we’re rubbish at calculating risk. Which is a shame, considering how useful it is to know the risk when we’re assessing options and making decisions. For example, if you’re afraid of flying, you’ll think your flight is more likely to crash than the seasoned and relaxed flyer sitting next to you thinks. You can’t both be right. What’s more, you’ll think the flight you’re on is much more likely to crash than you would have done if you were still safely on the ground. I say ‘safely’, but statistically you could be much less safe on the ground – if you were driving, or crossing a road, or playing rugby. You won’t take that into account though.
We’re all the same, and to some extent it goes with being human. In any case even experts don’t always know exactly what the risks are. So I’m not suggesting that you can think your way to being perfect at calculating risk every time. However it is important to understand the pitfalls when it comes to assessing the risk of taking a particular course of action. You need to be aware of your own perception of risk, and also that of people around you who are trying to persuade you towards, or away from, a decision.
One of the critical considerations is balancing risk against gains or losses. A small risk that will, at best, bring a minimal reward and, at worst, be catastrophic is probably not worth taking. On the other hand, a significant risk might be worthwhile if it promises huge gains at the risk of minor losses. So when you’re thinking through risk, take this into account.
And bear in mind that people (yes, that’s you) are more inclined to take risks that promise big benefits, even if the potential losses are also significant. Also we underestimate risks that involve an activity we enjoy compared with the risk of an activity we don’t. You’re more likely to underestimate the risk of doing something you have control over, such as driving or skiing or running down stairs. In fact you’re more likely to underestimate any risk when you’re in a good mood compared with when you’re feeling upset angry or scared.
Here’s a risk in itself: if you don’t keep your brain primed and alert, you can fail to spot risks that you should be aware of. That’s especially true if you’re focused on a bigger risk. So if you’re worrying about your (perceived) risk of flying, you might overlook the risk of leaving your passport at home.
Keep an eye on cumulative risk too. Some decisions involve a series of potential risks – the risk of the costs increasing, the risk of crucial people leaving, the risk of it taking longer than planned, the risk of the quality falling short. If you underestimate all of these slightly, you could have significantly underestimated the risk of the whole project. And some of these may make others more likely to happen.
YOU NEED TO BE AWARE OF YOUR OWN PERCEPTION OF RISK