The Story Economy Blog

My Waltz With Risk

I just spent two days with the most fantastic people—clients of mine I’m collaborating with on a project. I knew the shell of their story before I met them in person. But I didn’t know about the risk part (not really). You can’t get a sense of the risks an entrepreneur takes until you meet them and meet their significant other and/or business partner and hear the way they talk about the decision to do The Crazy Thing. This particular business has a familiar entrepreneur story: a couple of people with a fantastic idea that gives consumers a whole new way to do things. They had no cushion of funding and no safety net (except for their brilliance and resourcefulness), and they went ahead and did The Crazy Thing anyway. And it worked. And then it worked some more. And now we’re going to tell the story of all the cools ways in which it works.

After our first day of meetings, I was on such a high. All I could think about was how more people needed to take risks and do The Crazy Thing, and that you only get to rewards when you take risks. I also thought about how I was really excited to be doing some things in my business that felt like risks, like turning down work that wasn’t in line with the direction I want to take my business, being much more bold in how I communicate with clients, and organizing a virtual conference.

Then I got back to my hotel room, where I did a terrible thing. I turned on the TV and watched the news for a minute. Everything was grim. A hit and run. A murder. A break-in. Then, I called home to talk to my husband—who I always enjoy talking to. But he was having a day where he was freaking about things like saving for retirement and The Future. And then, because I hadn’t learned my lesson with the TV, I watched a little bit of the coverage of Whitney Houston’s death.

Suddenly, the world felt like a scary place. Drugs, violence, thieves, savings accounts that weren’t full enough, poverty-stricken golden years: all I could see was risk everywhere, and I didn’t want any part of it. “Risks are scary!” that voice in my head said. “You are crazy to take any risks!”

But just 30 minutes before that, risk-taking felt inspiring. Was I just being flaky? Maybe. But it’s more likely because of a phenomenon behavioral economists call loss aversion (Dan Ariely, who’s sort of a quirky rock star in this field, once explained to me in an interview).

It’s like this: When you win because you took a risk, and things are going your way, you feel pretty good. You might even feel intensely good. But when you lose—when the risk doesn’t work out—you feel rotten. Really rotten. In fact, the rotten feeling of losing is more intense than the good feeling of winning. Bottom line: you’re not as happy as you think you’ll be when risk pays off and every bit as miserable as you think you’ll be if things go south—and you anticipate that you will be just that miserable. Hence, you avoid risk.

Finding Neutral Ground

I’m not saying loss aversion is bad. It’s pretty much why I don’t gamble. Or do drugs. Or daytrade. Or sing karaoke. But when it comes to livelihood-type risks, the kind of risks where resourcefulness and effort make the difference, this kind of thinking seems like a problem.

So what if we could just be risk neutral? What if we took the language of risk out of it altogether, and thought of it another way? What if we approached decisions about whether or not to proceed with something with this question: “If I don’t do this, what else will I be doing?” Not, “what will happen if this fails?” (Because if you fail, you’ll figure out very quickly what to do.) For example, instead of assessing the risk of going back school for two-years for another degree, think of it this way: you have to live your life for the next two years anyway. What else would you be doing? And is that thing better than the thing you actually want to do? Is it equally as good, equally as interesting, and equally filled with opportunity?

It’s really not different if you are facing the decision about spending money on a rebranding campaign, narrowing down your ideal client, launching a new product, or starting a business. What would you be doing if you don’t do it? Is that thing equally as good, equally as interesting, and equally filled with opportunity? So for me, if I don’t turn down the work that takes me in another direction, it means I have to do that work. It means I will be resentful. It means I will lose focus. It means that I will be cranky with my husband and kids. Those things are not as good as doing the work I really want to do.

We can’t insulate ourselves from news of risks gone bad. You can avoid watching the news (I recommend in fact), but at any minute, a conversation can still jerk you right back into “risk is scary” mode. That’s why risk neutral ground is a good place to hang out for a while. You don’t have to build a permanent settlement here, but try it out, just for a bit.

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