Why take risk?

Taking risk is an essential part of success and personal development. Whether it is a new job opportunity or significant lifestyle change, risk involves eschewing the status quo to pursue bold action. Taking risk involves discomfort and fear. The outcome is not certain. Sometimes even highly calculated risks result in failure. Yet, measured risk taking on average unlocks new opportunities and delivers significant reward.

Consider the following:

  • Investing in the S&P 500 from 2007 to 2016 delivered a 6.9% return compared to 0.74% for T-bills and 4.6% for bonds. This is despite the S&P falling 36.6% in 2008 due to the global financial crisis
  • The average salary increase an employee receives in a job change is 10% to 20%. Staying with the same company and getting an average ~2% raise annually means that there is a 50% lifetime earnings gap with someone who changed jobs five times
  • Leveraging linkedin data, a study of 459,000 management consultants found that working in different functional areas (variety of roles and responsibilities) significantly improved odds of becoming a senior executive. Experience in one additional functional area was equivalent to three years of extra experience in the same area
  • Taking interpersonal risk in opening up yourself and being vulnerable is essential for friendship and love. Someone has to say ‘I love you’ first to make a relationship work
  • Bill Gates, Jeff Bezos, Elon Musk, John Rockefeller, Henry Ford…many of the most successful enterprises of the time required significant disruptive risk taking

However, it’s not just about taking risk. Haphazard risk (often with hubris/overconfidence) can have very negative consequences. After a string of military victories that gave him control over most of Europe, Napoleon invaded Russia with 610,000 men. In six months time, freezing temperatures, disease, and food shortages left him with barely 100,000 soldiers. According to the US Small Business Administration, about 50% of small business no longer exist after five years. Only one third make it past ten years.

The key is taking calculated risk and assessing risk/reward. My hope is that in sharing stories and research on calculated risk taking, this blog inspires you to act and take risks that open up new opportunities for personal and professional development.

Some of the key questions and areas that I hope to address include:

  • How risk taking shapes career advancement, wealth, and personal development
  • With studies that show that humans feel losses 2x more than gains, what are some of the prime examples of irrational behavior that occurs and the negative consequences of such loss aversion?
  • How gender and socioeconomic background shapes attitude and willingness to take on risk, and whether this becomes an impediment to advancement
  • Different approach and willingness to take on risk across government, nonprofit, and for-profit
  • Context in which extreme risk aversion is merited
  • Whether risk taking can be a learned behavior with ‘desensitization’ over time to better handle the stress of change