Quotes About Risk

risk-averse decision maker will choose a sure thing that is less than expected value, in effect paying a premium to avoid the uncertainty.

Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.

Prospect Theory: An Analysis of Decision Under Risk

Losses are weighted about twice as much as gains in several contexts:

Leaders who have been lucky are never punished for having taken too much risk. Instead, they are believed to have had the flair and foresight to anticipate success, and the sensible people who doubted them are seen in hindsight as mediocre, timid, and weak.

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.

Jumping to conclusions is efficient if the conclusions are likely to be correct and the costs of an occasional mistake acceptable, and if the jump saves much time and effort. Jumping to conclusions is risky when the situation is unfamiliar, the stakes are high, and there is no time to collect more information. These are the circumstances in which intuitive errors are probable, which may be prevented by a deliberate intervention of System 2.

The reason you like the idea of gaining $100 and dislike the idea of losing $100 is not that these amounts change your wealth. You just like winning and dislike losing—and you almost certainly dislike losing more than you like winning.

the likelihood that something will go wrong in a big project is high.

Decision makers tend to prefer the sure thing over the gamble (they are risk averse) when the outcomes are good. They tend to reject the sure thing and accept the gamble (they are risk seeking) when both outcomes are negative.

Jumping to conclusions is efficient if the conclusions are likely to be correct and the costs of an occasional mistake acceptable, and if the jump saves much time and effort.

In a paper titled "Trading Is Hazardous to Your Wealth," they showed that, on average, the most active traders had the poorest results, while the investors who traded the least earned the highest returns.

the response to losses is stronger than the response to corresponding gains. This is loss aversion.

An unbiased appreciation of uncertainty is a cornerstone of rationality—but it is not what people and organizations want.

the decision weights that people assign to outcomes are not identical to the probabilities of these outcomes

Although hindsight and the outcome bias generally foster risk aversion, they also bring undeserved rewards to irresponsible risk seekers, such as a general or an entrepreneur who took a crazy gamble and won.

A few lucky gambles can crown a reckless leader with a halo of prescience and boldness.

we quickly realized that we were just as risk seeking in the domain of losses as we were risk averse in the domain of gains. We were not the first to observe risk seeking with negative prospects—at least two authors had reported that fact, but they had not made much of it. However, we were fortunate to have a framework that made the finding of risk seeking easy to interpret, and that was a milestone in our thinking. Indeed, we identified two reasons for this effect.

Leaders of large businesses sometimes make huge bets in expensive mergers and acquisitions, acting on the mistaken belief that they can manage the assets of another company better than its current owners do.

Consistent overweighting of improbable outcomes—a feature of intuitive decision making—eventually leads to inferior outcomes.

We were not the first to notice that people become risk seeking when all their options are bad, but theory-induced blindness had prevailed. Because the dominant theory did not provide a plausible way to accommodate different attitudes to risk for gains and losses, the fact that the attitudes differed had to be ignored.

In this view, people often (but not always) take on risky projects because they are overly optimistic about the odds they face. I will return to this idea several times in this book—it probably contributes to an explanation of why people litigate, why they start wars, and why they open small businesses.

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.

THE VALUES ARE UNEQUAL BECAUSE OF LOSS AVERSION