How to Calculate Whether a Risk Is Worth Taking
It’s basic math, really
Life is a constant series of trade-offs: Everything you do is something you choose at the expense of something else.
Many of these choices, especially on a day-to-day level, are meaningless — for instance, both a banana and an apple are perfectly fine snack options, and your selection probably won’t alter the course of your life. Yet some choices come with profound implications. Say you’ve been offered an exciting job, but accepting would require moving to a city you might not like. You have just a few days to decide. What should you do?
To make the best decision possible, the one that will get you closer to the life you envision, you need to understand risk. But in order to do so, you need to know why we’re so terrible at assessing it in the first place. Let’s look at three main reasons.
The first is that we don’t know how to define risk. We associate risk with the word “danger,” but the fact is that all of life is uncertain. Risk is everywhere, so we might as well get better at analyzing it.
The second reason is that we don’t know how to calculate risk. It’s basic math, really. Say I offer you a choice between two gambles:
- We flip a coin, and if it lands on heads, you’ll get $100,000. If it lands…
