As I mentioned in how to act with uncertainty, every action comes with some amount of risk because we never know for sure how the future is going to work out.
In general, the more information you have, the smaller the risk you’re taking. But the less information you have, the bigger the risk you’re taking.
And the bigger the risk you want to take, the more information and advice you should try to gather before reaching a final decision.
Therefore, when we have a lot of doubt about a decision, that can often be a sign that we need to step back and evaluate the situation more before moving forward.
This article is going to cover the main things to consider when trying to evaluate a “smart risk” vs. a “dumb risk.” Use these guidelines to evaluate the risks you take in your own life.
Do a rudimentary cost-benefit analysis
Start by coming up with a simple cost-benefit analysis for the decision based on what you already know. First ask yourself:
– What are the possible benefits of taking this risk?
– What are the possible costs of taking this risk?
Write these answers out in a Word Document, then try to rank each “benefit” and “cost” based on: 1) How big of a “benefit” or “cost” is it to you? and 2) What is the perceived likelihood that this “benefit” or “cost” will actually occur in the real world?
This first step is just based on your current level of knowledge. You will probably need to update this list as you seek more information about your decision. This is just a starting point.
Find people and places to get more information and advice
Once you’ve written down what you already know about the decision, next it’s time to identify new sources of information to expand upon.
The bigger the risk, the more time you’re going to want to spend finding new information and advice. Ask yourself:
– Do I know any people who have a lot of knowledge and experience in this area?
– If not, where can I find people who have a lot of knowledge and experience in this area?
– What are some possible books, articles, websites, guides, and videos I can find that will provide me with more knowledge?
As you discover new information, be willing to change your cost-benefit analysis based on this information. Don’t stay stuck in your old beliefs and cling to wrong information.
This is because there’s a good chance that your initial impressions of the situation won’t be entirely accurate, so you have to be flexible in changing any false beliefs or errors you may have made in the first step above.
Don’t underestimate the power of doing diligent research. For more, check out how to become an expert at anything.
Imagine the worst that could happen if things don’t work out
You can often tell the magnitude of the risk you’re taking based on the “worst case scenario.” If the worst case scenario is both “reasonably possible” and life-shattering, then it may be a risk you are better off avoiding.
For example, the worst that could happen if you invest all of your life savings in a new technology is that you lose ALL of your life savings. That is a situation that most people will find really difficult to bounce back from.
Instead, you may want to minimize the risk by investing less. In which case, if things do happen to take a turn for the worst, you’re still able to survive and bounce back from it.
The popular cliché “don’t put all your eggs in one basket” applies here – because the worst case scenario if something bad happens is that you lose all of your eggs. If you follow this simple principle, then worst case scenarios won’t be as devastating to you.
Know when to follow your intuition – and when not to
We rarely base our choices solely on facts and reasoning, but also on our intuition, commonsense, and “gut instincts,” so it’s important to know when we should follow these feelings and when we shouldn’t.
Intuition is a type of “fast thinking” that our brains calculate below the surface of our consciousness. It’s when we feel we know something without knowing exactly why we know it.
A general rule when following your intuition is that the more experience you have in a particular area in life, the more trustworthy your intuition likely is.
Our intuition has a tendency to misguide us when it is based on something we have little experience in, but it can also be a source of insight when it’s based on something that we have a lot of experience in.
For more, check out how to improve your intuition.
Ask yourself, “What’s my next best option?”
Ask yourself, “If I don’t take this risk, what’s my next best option?”
If you can settle for that next best option and still be happy, then maybe the risk isn’t worth it. But if you don’t have any other choices that interest you or excite you, then maybe this risk is exactly what you need to reinvigorate your life.
Keep in mind: the riskiest thing you can do is try to avoid taking any risks at all. Often times to live a truly fulfilling life you need to sometimes put yourself out there and just see what happens.
You may end up taking a risk and losing – but it’ll teach you more about yourself and life in general. And as long as you don’t risk everything, you’ll probably end up smarter and stronger from the experience.
Don’t be afraid to take some risks every now and then, but be wise about it.
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