How to Make Risk Your Friend
by Deepak Chopra, MD
In a competitive society, success is all but impossible without taking risks. There are few cushions or guarantees in the corporate workplace, but looking at the larger picture, all of us face decisions that could turn out badly. We take leaps of faith, large and small. We place trust in others. We count upon predictions and trends that could reverse at any moment. Risk is simply another word for uncertainty, and it has been shown many times that uncertainty increases stress. Therefore, how you handle risk will be vitally important to your comfort, your stress level, and ultimately your success.
Psychologists have shown that it is impossible to remove emotions from decision-making. Therefore, to handle risk well, you must consider your psychological reaction to it. If you know yourself well enough, you can make risk your friend. Here are the guidelines:
- Know your anxiety level and be honest about it.
- Be patient with your emotional reactions.
- Be rational, but don't be fooled that reason can defeat risk.
- Gather as much useful information as possible.
- Take in other points of view.
- Don't trust the crowd.
- Don't believe that trends are the same as certainty.
One of the reasons that Warren Buffett has become an iconic investor is that he follows all of these guidelines, which puts him squarely in his comfort zone. Any profile of him shows that he is patient, rational, a gatherer of information, not swayed by what the rest of the market thinks, and psychologically at ease with who he is.
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At first glance, it's hard to see how risk could be anybody's friend, which is why there has been such a push to remove the human element. "Rational risk" seems preferable to the kind of risk that keeps people up at night and promotes a nagging state of anxiety. Far better, it would seem, to turn risk into a matter for the number crunchers. The rise of computerized trading on Wall St. testifies to the popularity of quantified risk.
But at the same time, rational risk has proved to be an illusion. The complex financial instruments that led to the economic collapse of 2008 were devised with the input of physicists and mathematicians, who supposedly had reduced risk to a sliver. Human greed intervened, however, along with other psychological factors - denial, competitiveness, temptation, and over-reaching. Irrational forces toppled the whole rationalist scheme - as it was bound to do.
The psychological downfall of those who misjudged risk is writ large in the 2008 debacle. Look in yourself to see the factors that even the most prominent figures feel prey to.
- Denying that there was a problem with their decisions.
- Freezing in the face of crisis.
- Inability to deal with anxiety.
- Fixation on profits, which blinded them to process - the ends justified the means.
- Competitiveness - refusing to lose, no matter what it took.
- Over-attachment, making the crisis personal.
- Over-controlling, focusing on details while losing sight of the big picture.
At the risk of over-simplifying, these psychological blind spots can be overcome by asking every day, "How am I doing?" I don't mean this in the sense of how you are performing but rather how do you feel? Are you in your comfort zone? Do you detect signs of stress or anxiety? If so, what are you doing about it? We're not talking about psychoanalyzing yourself. We're talking about being in touch with yourself. The psyche is constantly dynamic. This is a huge benefit if you want to keep up with the shifting scene at work or in the markets. When you are flexible, open, and alert, you are becoming the master of risk.
In the end, risk becomes your friend when you have enough self-awareness to be comfortable with change, uncertainty, and unpredictability. These are inescapable aspects of life. It's up to you whether they create stress inside or the very opposite - out of uncertainty can come creativity, new solutions, discovery, and the fulfillment of your inner potential.
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