9 Oct 2023
As a serial entrepreneur risk has always been a big part of my journey. In the early days, I was probably more risk averse than I am now, or maybe I've learned how to understand and mitigate the risks better.
Being risk averse can show up in many ways and for me it was not 'shipping', sharing my projects or ideas with the world, primarily because of a fear of failure and what other people would think. Therefore, unconsciously I thought if I don't share my ideas, then I can't fail, the converse being, if I don't share neither can I succeed.
Increasing my awareness of my tendency to be risk-averse, helped me to overcome this barrier. In cognitive psychology, this is known as Risk Aversion Bias and developing an awareness of this, can help us transform it into a powerful catalyst for personal growth.
Good for: becoming aware of self-imposed limitations
Best used by: You; a trained practitioner
In our pursuit of personal growth and success, we often encounter a formidable adversary called risk. This cognitive bias, deeply rooted in our psychology, inclines us to prefer the familiar and predictable over the uncertain and potentially rewarding. While it may safeguard us from immediate harm, it can also hinder our progress and limit our potential for growth.
People develop this bias due to a combination of psychological, evolutionary, and environmental factors. Here are some key reasons:
Fear of loss means humans are naturally wired to be more sensitive to potential losses than gains. The fear of losing something valuable, whether it's financial resources, social status, or personal well-being, can trigger a strong aversion to taking risks.
Uncertainty and the unknown is inherently uncomfortable for many individuals. Uncertainty about the outcome of a risky decision can create anxiety and a desire for stability, leading to a bias towards avoiding risks altogether.
Past experiences and conditioning as a result of previous negative experiences or failures. If someone has encountered significant setbacks or experienced adverse consequences from taking risks in the past, they may develop a tendency to avoid similar situations in the future.
Society and culture play a role in shaping individuals' risk attitudes. Cultural norms, family upbringing, and societal expectations influence our attitude. For example, if a person grows up in an environment that values conformity and stability over exploration and innovation, they may develop a stronger aversion to risk.
Loss aversion refers to the tendency to value avoiding losses more than acquiring equivalent gains. Therefore, individuals may prioritize safeguarding what they already have over potential gains that come with uncertainty.
The availability heuristic is a mental shortcut where people base judgments on readily available examples or information. If individuals can easily recall instances of negative outcomes or failures associated with taking risks, they may perceive the potential risks as more significant than the potential rewards.
It's important to note that risk aversion bias is not inherently negative and serves a protective function in certain situations. However, when it becomes excessive and hampers personal growth and exploration of opportunities, it is crucial to develop awareness and challenge this bias to reach one's full potential.
Daniel Kahneman has extensively researched cognitive biases, including risk aversion bias. His book "Thinking, Fast and Slow" explores the workings of our minds and the impact of biases on decision-making.
Risk aversion is a common attitude in the face of uncertainty. But by succumbing to this bias, we often miss out on valuable opportunities for growth and progress. Embracing calculated risks, stepping outside our comfort zones, and being open to the unknown can lead to remarkable personal and professional achievements.- Daniel Kahneman
As with any cognitive bias, risk aversion bias carries both advantages and disadvantages. Let's explore them further:
Pros:
Protection from immediate harm. It acts as a protective mechanism, preventing us from engaging in reckless behaviours or making impulsive decisions that may lead to detrimental consequences.
Preserving stability. By avoiding unnecessary risks, we can maintain a sense of stability and security in our lives, which can be comforting and conducive to productivity.
Cons:
Missed opportunities. Causes us to overlook potentially rewarding opportunities that lie beyond our comfort zones. Growth and success often require taking calculated risks and stepping into the unknown.
Stagnation. Constantly adhering to the familiar can result in a lack of personal growth, as we confine ourselves to a limited range of experiences and avoid challenges that foster development.
As I mentioned earlier becoming aware is the crucial first step towards transforming it into a catalyst for personal growth. Here are some strategies to help you overcome this bias for the purpose of personal growth.
Recognize the bias. Acknowledge it's presence in your decision-making process. Reflect on past situations where you may have let fear of the unknown guide your choices.
Analyse potential outcomes. When faced with a decision involving risk, assess both the potential gains and losses objectively. Consider the long-term benefits that may arise from taking calculated risks.
Start small. Gradually expose yourself to controlled risks that lie just outside your comfort zone. Embrace new experiences and challenges, fostering resilience and adaptability along the way.
Seek diverse perspectives. Engage with individuals who possess a more adventurous mindset and learn from their experiences. Surrounding yourself with risk-takers can help shift your perspective and inspire you to embrace calculated risks.
Embrace failure as a learning opportunity. Recognize that failure is an inherent part of growth and success. Rather than allowing fear of failure to hold you back, view it as a stepping stone toward improvement and personal development.
Overcoming risk aversion bias has been a transformative journey for me and has allowed me to break free from self-imposed limitations and embrace the possibilities beyond my comfort zone.
By cultivating awareness of this cognitive bias and consciously challenging it, we open ourselves up to a world of opportunities for personal growth and self-discovery. Remember, it is through calculated risks and facing our fears that we truly thrive and unlock our full potential.
Thank you for reading.
Dionne
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