The summer is over. The nights are drawing in. ‘Winter is coming,’ and the northern nations start preparations for hunkering down.
Scientists have long known that we respond in a biological way as our exposure to daylight diminishes. Those with Seasonal Affective Disorder (SAD) or winter depression experience severe mood changes that can have a significant impact on their day-to-day activities. But, researchers from the University of Toronto have also shown that as the days get shorter we feel less inclined to take risks.
Their research has shown that the further a stock exchange is from the equator, the more conservative they become in the winter months, with traders in Stockholm getting far more skittish in the autumn than those in Frankfurt. They concluded that autumn and winter are not such good times to make that risky pitch! However, other researchers have shown that darkness triggers changes in our cognitive processes, which are highly beneficial to creativity.
Advances in neuroimaging have confirmed that we are hardwired to be risk averse. Why is this? What stands in our way, preventing us from being daring, from stepping out of our comfort zone, from breaking free of the status quo?
- Fear – of failure, criticism, rejection, of making mistakes, of embarrassment, of upsetting others
- Needs – for certainty, control, approval, to avoid feeling guilt and to justify or rationalise
- Habits – of procrastination, perfectionism and relying on others
Where do you sit on the continuum of risk averse, to risk taker, or even risk seeker? Some of it may be down to your DNA.
Israeli scientists in 1996 identified a gene called DRD4 that helps determine the density of dopamine receptors in the brain, and linked it to 10% of our risk-taking behaviour. Dopamine influences our feelings of pleasure, reward and gratification.
Cynthia Thomson and Jim Rupert at the University of British Columbia linked a variant of this gene to calculated risk-taking behaviour in skiers and snowboarders. Other research linked it to sensation-seeking behaviour in gamblers and drug addicts. Nicknamed “The Daredevil gene,” 15-25% of people have the gene variant associated with high risk-taking behaviour, 50% with medium, and 25-35% with low. Further research by Kellogg management professor Camelia M. Kuhnen found that “If you carry the long version of DRD4, you tend to take about 25% more risk in your (stock) portfolio than other people.”
Meanwhile, scientists at the California Institute of Technology identified people with low levels of the MAOA-L gene variant (tagged the Warrior gene) as more likely to take financial risks, if doing so was beneficial to them explicitly.
But people tend to be more complicated on the whole, and are not generally risk seeking or risk avoiding, but a blend of both. Columbia University psychologist Elke Weber suggested a model called “domain-specific risk propensity.” It holds that everyone has a unique risk propensity in each of five categories: financial, health/safety, recreational, ethical and social.
These can change over time, but a person’s risk propensity in one category is independent of their propensity in another. What they share is that a person’s tendency to take risks correlates with how much they expect to benefit from the outcome.
Behavioural science has taught us that our cognitive biases, part of our psychological DNA, also have a role to play. These lead us to both overestimate risks whilst at the same time underestimating our ability to deal with them.
We overestimate the possibility of failure of something going wrong, on what we could lose rather than on what we could gain, encapsulated in the expression “losses loom larger than gains” (Kahneman & Tversky, 1979).
We overestimate or exaggerate the consequences of these failures. We imagine the worst-case scenario, when the reality is far more manageable. The world doesn’t tend to end if we choose green tea rather than our usual builder’s tea and we don’t like it! Nor will we find ourselves destitute or shunned by our family and co-workers.
We underestimate our ability to handle risk. We lack confidence and are full of doubt. We avoid new challenges because we don’t believe or trust in our capabilities to succeed.
We underestimate or discount or even deny the cost of doing nothing and staying with the status quo. If something isn’t working, then ignoring it won’t make it disappear or get better. It will make it worse!
Lastly, we have a tendency to keep investing our time or money into activities, things or even people, because we want to make our investment worthwhile and don’t want to feel that we’ve wasted it. So we carry on doing it rather than cut our losses and stop. This is termed ‘sunk cost fallacy’ (Arkes & Blumer, 1985).
It’s also down to personality. Frank Farley, an expert on the psychology of risk, has divided personalities into two types. There are “big-T” people, who enjoy the thrill (“T”) of seeing what they can do. Some are “T-mental” (Albert Einstein); others are “T-physical” (Evel Knievel) whilst those who veer towards more destructive risks are “T-negative.” Big-T personalities tend to be more creative, extroverted and risk-oriented than most others, and represent about 10% of the population. At the other end, there are “small-t” people who are risk averse and live their life dictated by fear. Most of us sit somewhere in-between!
How can you overcome these challenges and become better at taking risks?
- Be true to who you are, your values and priorities at that precise time. Push yourself out of your comfort zone, but be honest with yourself about what you can handle. What matters is your comfort level, not anyone else’s.
- Be realistic about what could go wrong. What’s the worst case scenario? Can you live with that? Know that you can always back out if you realise the risk is not worth taking or a better alternative presents itself.
- Think through what it’s costing you to do nothing, to not take the risk. How will this affect your health, happiness, relationships, fulfilment and creativity?
- Be prepared. Be clear on the results you want. Do your research. Do a trial run. Talk to others. Get help. Visualise everything going well. What is Plan B? What’s your safety net?
- Trust your gut. In the end, does it feel right?
One of the most common things that people regret before they die is that they wish they’d taken more risks. Don’t let that be you! Everyone has their own idea of what’s risky, but only you know when you’re living too much in your comfort zone. When you look back at your career or your life, what do you want to say? Taking risks is an essential part of both our personal and business life. Risk is by nature, scary. It’s uncertain, ambiguous, unpredictable and volatile. But, success won’t walk up to you and tap you on the shoulder – you have to chase it!
How can we look at risk differently? In a Forbes article celebrating the New Year, Margie Warrell suggested five ways to get you out of your comfort zone.
- “Risk mistakes” – make decisions with incomplete information.
- “Risk awkwardness” – discuss the sensitive issues or the indiscussable.
- “Risk ignorance” – unlearn what you think you know to relearn what you need to know.
- “Risk quitting” – call it quits if something isn’t working and start again.
- “Risk rejection” – stop conforming, stand out from the pack.