Do we unknowingly breathe life into risks, making them seem more dire? On the podcast, we often talk about the stories we tell ourselves every day and the influence that has on the decisions we make, and we’re going to build on that today. Does the attention we give to a risk, knowingly or unknowingly, alter the validity or the urgency we apply to said risk?
A critical part of decision-making is the ability to judge the costs and benefits of your options. Some costs happen in the moment, some are long-term, and some have a delayed cost. You might spend money and time choosing an option; it might bring you emotional stress. Sometimes though, the costs of an option aren’t certain, making them risks that you have to weigh against the potential benefits.
There are two ways that risk affects our thinking. You can assess risks rationally by determining the probability of a bad outcome and giving it weight in a choice based on the severity of the outcome. More often, though, people assess risks based on how they feel about a particular option. If that option creates a sense of fear and anxiety, it is also thought to be riskier. In a paper by Kellen Mrkva, Jennifer Cole, and Leaf Van Boven in the Journal of Experimental Psychology: General published in 2021, they pointed out that when people pay attention to scary things, they increase their fear and anxiety over said things.
To read the details of the study, you can visit the article here.
The risk that was highlighted in the study, thus requiring more attention be paid to it, was rated as more severe, rated as being more of a priority for the government, and more frightening. When people pay attention to a particular risk, it seems more frightening, and so they feel like they need to do something about it. When they are not paying attention to it, other concerns can guide actions. Out of sight, out of mind.
understanding risk – Financial Planning
This is such a good explanation for the financial world and our state of living in general because information is being fed to us at all times. Risk management is not about not taking risks – it’s about how we interact with said risk. We’re reachable by news outlets and updates from Robinhood at any given moment in our day. If you’re seeing updates on cryptocurrency or you’re being told x stock is about to drop from something on your phone, that risk now feels very pressing to you.
The more time you spend obsessing over what to do, to sell or to buy, the more this decision starts to feel like everything is on the line. You work yourself up to the point where you have fed this scary thing so well that now it’s feeding on your peace of mind; now you’re stressed and not thinking logically or rationally. The way you remedy this is by being aware that this is a natural human tendency.
When it comes to risk management, observe the things you give your time and attention to – how does it make you feel.