Quotes About Risk

This start-up looks as if it could not fail, but the base rate of success in the industry is extremely low. How do we know this case is different?

Human beings have invented the concept of "risk" to help them understand and cope with the dangers and uncertainties of life. Although these dangers are real, there is no such thing as "real risk" or "objective risk.

The example also shows that it is costly to be risk averse for gains and risk seeking for losses. These attitudes make you willing to pay a premium to obtain a sure gain rather than face a gamble, and also willing to pay a premium (in expected value) to avoid a sure loss.

Because of the coincidence of two planes crashing last month, she now prefers to take the train. That's silly. The risk hasn't really changed; it is an availability bias.

people tend to be risk averse in the domain of gains and risk seeking in the domain of losses.

Many unfortunate human situations unfold [. . .] where people who face bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. The thought of accepting the large sure loss is too painful, and the hope of complete relief is too enticing, to make the sensible decision that it is time to cut one's losses.

The premortem is not a panacea and does not provide complete protection against nasty surprises, but it goes some way toward reducing the damage of plans that are subject to the biases of WYSIATI and uncritical optimism.

In the standard rational model of economics, people take risks because the odds are favorable—they accept some probability of a costly failure because the probability of success is sufficient.

probably contributes to an explanation of why people litigate, why they start wars, and why they open small businesses.

In terms of its consequences for decisions, the optimistic bias may well be the most significant of the cognitive biases. Because optimistic bias can be both a blessing and a risk, you should be both happy and wary if you are temperamentally optimistic.

optimistic bias plays a role—sometimes the dominant role—whenever individuals or institutions voluntarily take on significant risks.

The Alar tale illustrates a basic limitation in the ability of our mind to deal with small risks: we either ignore them altogether or give them far too much weight—nothing in between

But the main problem was that we failed to allow for what Donald Rumsfeld famously called the "unknown unknowns

Betty is much more likely to take her chances, as others do when faced with very bad options. As

When you take the long view of many similar decisions, you can see that paying a premium to avoid a small risk of a large loss is costly. A similar analysis applies to each of the cells of the fourfold pattern: systematic deviations from expected value are costly in the long run – and this rule applies to both risk aversion and risk seeing. Consistent overweighting of improbable outcomes – a feature of intuitive decision making – eventually leads to inferior outcomes.

Plans are best-case scenarios. Let's avoid anchoring on plans when we forecast actual outcomes. Thinking about ways the plan could go wrong is one way to do it.

Even when they are not sure they will succeed, these bold people think their fate is almost entirely in their own hands. They are surely wrong: the outcome of a start-up depends as much on the achievements of its competitors and on changes in the market as on its own efforts.

People who buy lottery tickets in vast amounts show themselves willing to pay much more than expected value for very small chances to win a large prize.

In simple words, prospect theory cannot deal with disappointment.

Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match.

He weighs losses about twice as much as gains, which is normal.

She's suing him for alimony. She would actually like to settle, but he prefers to go to court. That's not surprising—she can only gain, so she's risk averse. He, on the other hand, faces options that are all bad, so he'd rather take the risk.

When a venture capitalist looks for "the next big thing," the risk of missing the next Google or Facebook is far more important than the risk of making a modest investment in a start-up that ultimately fails.

Mutual funds are run by highly experienced and hardworking professionals who buy and sell stocks to achieve the best possible results for their clients. Nevertheless, the evidence from more than fifty years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker. Typically at least two out of every three mutual funds underperform the overall market in any given year.