How Accurately Can You Assess Risk?

Most people do not understand what risk intelligence is about. It is our brain’s ability to estimate possibilities in order to make an “educated guess.” Actually, that is a simple definition, and it is much more complicated than that. It is our ability to take limited information in an uncertain world, and knowing your limitations.

Psychologists Daniel Kahneman and Amos Tversky have laid the groundwork for a lot of what we know about judgment and decision-making. One of the things they found was that humans are terribly bad at estimating probabilities. If we were, there would be more lottery winners, more who can guess the handicaps at race-tracks, and we would all make better decisions.

It is a possibility, however, which is why there are some successful people who do win at gambling, the stock market, and make excellent business ventures. The link to their success is that they work hard, do research, and are disciplined.

An expert gambler is able to make money at his craft, but the emotional aspects are different from impulsive gamblers who bet numbers on a lottery. Although they may appear to be compulsive gamblers, they are not. Expert gamblers know when to bet, and when not to (remember the Kenny Rogers song: The Gambler, “You’ve got to know when to hold ‘em; know when to fold ‘em; know when to walk away; know when to run.”). They weigh their options and evaluate their risks before proceeding.

There is also a mental rush a problem gambler will get when they win, which gives them the boost to take more risks. Experts are just the opposite, their pleasure comes from the competition and not the winning, it is more cognitive. They do hate to lose, however, so are constantly re-evaluating their methods in order to improve their game.

Things you learn by developing high-risk intelligence in one area can carry over into other areas of your life. People who are able to develop this kind of intelligence have learned how to take their mistakes and use that knowledge. They are not overconfident, but have enough to believe they can succeed because they have the knowledge to do so. There is no guesswork involved. You can’t have high-risk knowledge if you don’t have self-knowledge, and a modest degree of self-confidence.

An appetite for risk is an emotional thing, while risk intelligence is a cognitive skill. You could have people with both an appetite for high risk and a high-risk intelligence, or people with low levels of both. A particularly dangerous combination would be high-risk appetite and low risk intelligence.

In order to improve your ability to assess risk, take a deep and hard look at yourself, do your homework before you make any decisions, and understand the reality of the consequences if what you choose fails.

Memory Training

About the author:

Ron White is a memory speaker


New Scientist – The Man Who Gave Us Risk Intelligence:

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