Making Decisions in Risky Situations

We make decisions all day every day. At times we do this on automatic pilot. At other times the process is much more deliberate. We are mentally more engaged and weigh up the pros and cons.

No doubt we also take risks every day. Some would say the simple act of getting out of bed in the morning involves risk, although it is equally true that staying in bed incurs risk as well.  You might just miss the bus and the opportunity just passes you by.

Perhaps we simply do not think about the risks involved in our day to day activities and it is only scenarios that involve making decisions whilst at the same time as taking risks that really get us to sit up and pay attention.  Just thinking about taking a risk has implications of hazards or chance of bad consequences.

Some risk taking might better thought of as rash or reckless beahviour.   Young people are believed to be more likely to take risks perhaps through experimentation, excess alcohol, drug use and partying too hard.   Although we all know of young people who come through unscathed so  perhaps the stereotype of youth as reckless is not entirely justified.  We may need to consider if assessing risk is a skill that can be acquired. Perhaps some are more likley to pay attention to warning signals?

Do we ever consider the term risk as something that might have some reasonable outcomes rather than carrying with it the notion of excess and loss?   Is there such a thing as a reasonable risk? This notion certainly lives in the business world.  To be  empowered to take reasonable risk is suggested as a pathway to profit.   If there is reasonable risk how do we determine what this is?  And given there is unreasonable risk what are unacceptable levels of loss or harm?

There are many questions raised when considering decision making in the face of risk. We might want to think about  how much of a role our emotions play in decision making?  Do you listen to you gut feeling or try to overide this with a logical analysis? Alternatively we might want to develop some creative ways of thinking about risk.

Perhaps the  decision making models that researchers use  can help witb some understanding of the processes you encounter with the practical day to day circumstances you find yourself in?

And of course does an optimism about finding your way through the maze get safely home?

Your thougths on these issues are welcomed. Certainly the dialogue we have will be interesting.  I look forward to some lively discussion.

3 thoughts on “Making Decisions in Risky Situations

  1. Nada

    When I put this subject into debate I got some interesting feedback.
    Here are some thoughts offered in our team,

    Being empowered to take reasonable risk is suggested as a sensible pathway to profit and consensus was, it reduces risk.

    Certainly the “No pain, No gain ” concept has popular following for weeding out under performers.
    But some question remained were

    How do we determine reasonable risk especially with the failures of recent times that have bumped confidence off the perch a bit? And how can we minimize risk of unacceptable levels of loss? And indeed, what is an acceptable level or risk?

    Some other basic questions posed on variables in risk based decisions up for consideration. These included:

    •How much of a role do emotions play with risk decisions?

    •How best to develop creative decision making pathways in organizations?

    •What do our responses to warning signals show us?

    •How can decision models help us understand and are they used effectively?

    •Does the inclusion of formal metrics and monitoring systems in the planning stage reduce risk?

    •Is capability relevant and are captious or optimistic styles advantageous?

    In the end we concluded before we take the precarious steps three things were critical :

    .1. Accurate data to understand more and mitigate risk by modeling predictable outcomes.

    2.A well aligned strategy for outcomes with key options considered using fact based debate.

    3.Making a choice on steps must take into account all facets, not only fact based considerations, to be sure the decision approach to executed it is well accepted and hence more likely to succeed.

  2. Risk Taking Is Necessary Says Dimon of JP Morgan Chase

    This is an interesting post by Joyce Routson from
    Stanford Graduate School of Business

    Here is an excerpt

    January 2009

    STANFORD GRADUATE SCHOOL OF BUSINESS—Having survived the banking industry meltdown hasn’t soured Jamie Dimon, JP Morgan Chase & Co. CEO, on taking risks. In fact Dimon, who has been lauded for steering the company away from toxic securities that brought down competitors like Lehman Brothers, told a Stanford Business School audience that he’s made plenty of mistakes.

    “We’ve made the same dumb mistakes, just smaller and less of them,” Dimon said.

    for the fulltext go to: http://www.bettermanagement.com/library/library.aspx?l=14965

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