“Optimistic people play a disproportionate role in shaping our lives. Their decisions make a difference; they are inventors, entrepreneurs, political and military leaders – not average people. They got to where they are by seeking challenges and taking risks.” – Daniel Kahneman

 

There are two main risk mistakes that people make.

Risk mistake number one: Risk means failure.

People (cynics) who believe this equate any risk at all with a certainty – failure. If there is a 99% chance that nothing will go wrong, they focus on the 1% chance that it will. So long as there is a 1% chance, there isn’t a 99% chance of success. End of story.

People who believe this believe that any uncertainty is bad.

Risk mistake number two: Low risk events don’t ever happen.

If I’m guilty of one of these two mistakes, it’s this one. I’m a little bit too optimistic, but if I had to choose between being too optimistic or even just a little pessimistic, I’d take too optimistic every time. I’m sure of it!

This is the stock investor who gets anxious when the market doesn’t go up the way he expected it to. The reason that some investments offer higher returns is that they’re not guaranteed to work. Implicit in that high return, then, is the clear warning that sometimes you won’t get what you hope for.

This is not what distinguishes optimists from pessimists. Optimists are well aware of risks, but deep down, we believe that things will get better. The risk-blind person, though, is willfully (or maybe ignorantly) unaware of what risk actually is.

Most of the things we do have two possible outcomes: They might work or they might not. Being able to live with the possibility of either is essential if you’re going to move forward.

Have a great weekend.

 

 

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