Taking Risks

One of the things that people tend to have trouble with when making decisions is evaluating risks – mathematically humans are just bad at it. Between zero-risk bias, the sunk-cost fallacy, and half a dozen other behavioural quirks, the human brain is a poor judge of risk. To quote Bruce Schneier in the linked article (well worth reading):

People are not computers. We don’t evaluate security trade-offs mathematically, by examining the relative probabilities of different events. Instead, we have shortcuts, rules of thumb, stereotypes and biases — generally known as “heuristics.” These heuristics affect how we think about risks, how we evaluate the probability of future events, how we consider costs, and how we make trade-offs. We have ways of generating close-to-optimal answers quickly with limited cognitive capabilities.

Unfortunately, these “close-to-optimal” answers are occasionally not just sub-optimal but truly and utterly wrong. When you think about how little work we do in evaluating most risks, the surprising point isn’t that we sometimes get it wrong – it’s that we sometimes get it right! But this is necessary – rigorously evaluating risks is extremely slow, and it simple isn’t practical to evaluate every possible risk in this way.

So next time you see someone taking a stupid risk, don’t judge them – think about what shortcuts and biases they must be using in order to miscalculate the risk involved, and make sure that you’re not falling under some bias in the other direction.

And remember, the ultimate payoff for the risk they’re taking may be larger than you think, since it probably feeds into one of their secret goals.

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