Your Perception of Risk Is Broken – Let’s Fix It Now ✓

Welcome everybody! In this week’s episode, I’ll prove it to you how your risk bias is making you vulnerable to threats and miss out on opportunities. Enjoy!

 

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I took these pictures during my trip to Afghanistan.

It was year 2012.

I stayed in a compound called the Green Village. It was the compound mainly used by United Nations employees and consultants.

After I left Afghanistan. Green Village was attacked by Taliban and most of the security guards whom I had the opportunity to meet, along with many United Nations employees were killed.

And this event happened only 2 days after I left the place. So, if I stayed for another 2 days, I would have been dead.

Take a look at the men in this picture. There is only 1 of them is alive today.

In case you didn’t get it, that’s me. I am the one in the middle.

The reason why I told you this story is to make a point. The point that, our brains have this incredible bias to make us overestimate the likelihood of bad things happening to other people, and underestimate the likelihood that those bad things will happen to us. We feel invincible. And I almost became a victim of this invincibility feeling.

Now, this experience had a profound impact on the way I perceive risk. Both the opportunities and threats.

But this video isn’t going to be an emotional story. On the contrary, I want to share with you how our brains deceive us and lets us miscalculate the gravity of the risks; both opportunities and threats and make us prone to making wrong decisions. Make us miss out on the opportunities and be vulnerable to threats.

I am confident, by the end of this video, your perception towards risk will change.

And as a result, your career will significantly benefit from it.

Before I make my point, I want to give you 2 inputs.

First one is this;

do you smoke cigarettes? If not, do you know anyone who does? from your family and friends? You probably do.

Now statistically speaking, according to W.H.O, cigarettes kill 7 million people each year. That’s roughly around 1 person for every 140 smokers. That’s almost 1 percent. It’s a scary high number.

But as I mentioned earlier, our brains have the ability to make us underestimate the likelihood of bad things happening to us.

That’s why people still smoke cigarettes.

But now, if I still keep the same tobacco related mortality rate, but present you the data in a different way, I wonder if you would still smoke.

Now, imagine a world cigarettes are harmless. Hmm? It gives you no health concern. But there is a catch. And the catch is 1 cigaratte pack out of every 18,000 packs contains a dynamite, when lid, blows your head off. And not just yours also people around you.

Now, it would still be the same number of tobacco related deaths every year. Nothing really changed. But would you still smoke? Probably not.

Your hand would shake so bad that you wouldn’t even be able get near any cigarette pack. nor a cigarette smoker so you don’t get caught up when his face explodes and turns into a smush.

What changed though?

Your perception of risk changed.

Now, let’s move on to input number 2.

Just like the first example, your brain also plays tricks on you in different ways. There is a bias in the way your brain perceives gains and losses. Most people weigh a loss around twice as heavily as a gain. 2X is sort of at the bottom end. And for some people it’s 10 times. So, to risk their 5 dollars in a 50/50 bet, they would need the other person to bet 50 dollars.

This is known as loss aversion. It’s not that you don’t have the luxury to lose 5 dollars, but you are built that way. You evolved to pay extra attention to threats that are clearly visible instead of paying attention to opportunities. All of us are this way.

Now, my channel is all about your career. It’s all about making you a superstar performer. So, let’s take these 2 inputs and let’s see how they apply to your work environment.

It’s about to get a lot more interesting.

I am sure you have been in this situation before;

Like your manager is asking a report from you. He gave you the outlines or the outcome he wants. And from your past experience, you know that if you give that report in a certain way, he’ll be fine with it. He won’t be impressed. But he’ll be fine.

And because of the loss aversion bias that is built into you, you don’t want to take the risk of going out of your way to increase the quality in the report. You don’t want to talk with subject matter experts, your coworkers from other departments, other stakeholders, include published research data, further analysis, you don’t wanna do any of these. You simply don’t want to go extra mile. Because going extra mile may be risky.

Your manager may not like them. So, why go extra mile?

Or another scenario, you are in an important meeting, you know that if you just open your mouth and say what you know, it will help the team. But then you start thinking about. What if they don’t like it? What if they turn me down. What if I am missing something. What if they laugh at me. And so on and so forth.

Again there is a risk. However small it is, it’s a risk. It’s a threat.

I am sure you have been in that situation before right?

Well, let’s look at it from a risk reward ratio. Let’s calculate the Expected Monetary Value of Risks;

EMV= Probability X Impact

Let’s say there is a 20% risk of your manager not liking your extra efforts, and as a result you create a 2% probability of losing your job.

Now here in this example, we have a 2 tier probability, first tier is your manager not liking it and the 2nd tier is that if he doesn’t like it, then 2% probability of firing you.

In this case, the P will be 20%x2%

The impact would be you losing your job. Let’s say you make 60,000 dollars per year and it would take you 6 months to find a new job. So, the impact here would be 30,000 dollars.

Now, let’s calculate it.

So, from this formula, we know that our Expected Monetary Value of this risk, specifically threat; is 120 dollars

Now this doesn’t look so bad right? 120 dollars. Not so bad.

Let’s now look at the same scenario from an opportunity perspective.

The probability of your manager liking the fact that you go extra mile and take initiatives is 70%. And if he likes it, there is a 30% probability that you will get a promotion. And if you get a promotion, your new salary will be 100,000.
This would be 40,000 dollars more than what you are receiving now. And let’s say you get to stay in that position for 2 years. Now, 40,000 dollars added salary times 2 years would be 80,000 dollars. That would be your “I” score. Impact score.

Let’s calculate the EMV of this opportunity

EMV = (0.70 X 0.30) X 80,000 dollars.

Now, as a result, the expected monetary value of this opportunity is 16,800.

So in simple terms, if this was a bet, it would be similar to you risking 120 dollars to make 16,800 dollars.

And the odds are also on your favor.

0.4% of losing 120 dollars versus 21% of winning 16,800.

Would you take that bet?

Do you wanna think about this?

You are probably saying yes now. Yes, Deniz I would definitely take the bet of winning 16,800 dollars at 21% probability by risking 120 dollars at 0.4% probability.

Now you say that. But you know what, if you were in that situation, you would still think twice.

Because of that built-in loss aversion. But you know what, it wouldn’t actually be such a bad idea to think twice or just don’t take the bet..

Do you know why? It’s because of statistical confidence.

Even when the odds are so favorable, like in this example, It’s still a risk you are taking. And it’s a big risk. Because if you just do it once, or twice, there is still a random chance at play. Just pure chance. If you don’t have statistical confidence, it’s just pure chance. Or as we call it; Pure luck or bad luck.

You know what’s interesting.

This phenomenon is one of the reasons why many people underperform at work. They don’t take initiatives, they don’t go extra mile.

It’s most often because they have done it before, maybe you have done it before, and you didn’t get rewarded and worse maybe you got punished. And as a result, you stopped taking initiatives. It happens all the time.

But now I want to change a single variable here.

And changing that single variable will guarantee that you win. You win that 16,800 dollars and also you win at your career.

It’s so good that it’s impossible that you will lose. Guaranteed to win.

Do you know what I change?

I change “n”. N number. I change the sample size.

Instead of playing once, I’ll let you play let’s 5 times. And let’s see if your manager will still act negatively.

Let’s do it. What did we say, we said that there is a 20% chance that he doesn’t like you going extra mile and you taking initiatives.

The probability of him not liking your initiatives at first try is 20%,

Second time in a row is 0.20*0.20 = 4%

Third time in a row is 0.20*0.20*0.20= 0.8%

Fourth time is .16%

Fifth time is .03%  (point zero 3 percent)

That’s as close as it gets to impossibility.

But Deniz you are calculating it in a repetitive manner, I mean maybe he won’t like it 5 times in a row, but he won’t like it 4 out of 5 times. Or 3 out of 5 times. That’s still bad, isn’t it?

you are right.

I don’t want to go into degrees of freedom, chi squares, sigma operators but I ran a rough calculation and that roughly showed if you played around 100 times, you’d have about only 1 in 3,000 chance of losing in the aggregate. 1 in 3,000 so, that’s again as close as it gets to impossibility. Meaning, you are guaranteed to win!

So, what does that mean for you career? It means, you took an initiative once in your career. You went extra mile once. And you didn’t get rewarded.

That’s fine. Continue to increase your sample size until you reach statistical confidence. You will see that odds will eventually become incredibly fair to you. You will get that promotion, you will make that sale, you will get transferred to the department you want,

you will get what you want.

You just need to be patient enough to continually increase your sample size, meaning you multiply that event, and constantly take initiative, constantly over deliver, make that report better every time, eventually you are guaranteed to win.

If you can just come this realization right now, that each little event, those reports, or your initiatives, you speaking smart in the meeting as 1 of a series of 100 events, instead of an independent one-off event,  then you will realize that you have no possible outcome other than winning in the aggregate, meaning getting what you want.

Thanks for being with me.

If you haven’t already, please remember to subscribe to my channel and if you liked this video, please share it in LinkedIn or Twitter. And if you share in LinkedIn, please feel free to send me an invitation. I’d love to connect with you.

And finally as always, if you are unemployed or believe you are underemployed, or you are simply looking for a change in your career. I suggest you take a look at my LIG program. The results are incredible. Just take a look and see if it’s right for you. It’s definitely not for everyone.

Very well, See you next week!