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Decision-Making 101: Evaluating Risk vs. Reward

As human beings, we are almost universally less than stellar at evaluating risk and reward.

Are you ever willing to bet $10 on a roulette wheel or the slot machine even though the odds are better than 50% that a loss will occur? What about buying lottery tickets? Are those wise decisions according to logical assessments?

On the other hand, how willing are you to take social risks, like going up to an attractive member of the opposite sex and saying hello?

The risk is almost exactly zero, but the potential payoff is huge. Yet not many people will take this perceived risk even though this is a nearly perfect situation: very low risk and very high reward potential.

Are you assessing your life choices wisely? Our actions are largely determined by where we choose to focus our attention. If you emphasize the positive aspects of something and minimize the downside, you’re likely to take that action. If you have the opposite focus, you’re unlikely to do it.

For any big decision you’re currently facing, try walking through the quick exercise below and see if it gives you new perspective.

The Positives

Are you considering all the ways the risk could pay off? In our example above, you could make a new friendship. You might get a new career out of it. You might meet your spouse or a new golfing buddy. Think about all the potential benefits of taking the risk you have in mind. Make a list if that will help.

Some people try to minimize the upside as an excuse not to move forward. Strive to be accurate with yourself. Avoid giving in to anxiety and making light of the potential rewards. People that are guided by fear tend to have smaller, less satisfying lives.

The Negatives

Are you maximizing or minimizing the downside of your decision? Are you focused on the fact that you might be embarrassed or rejected? Or do you tell yourself that it’s no big deal and that at the very least they’ll probably be flattered? One approach will get you where you want to go. The other will likely keep you where you are.

Maximizing the imagined risk is a sure way to stay stuck. Minimizing the risk will make it much easier to move forward. Again, be accurate with yourself. If you’re 100 percent honest, you’ll see that you probably have nothing to lose and everything to gain.

Letting Go of Ego

Imagine if you were completely free of any concern for what anyone thought about you. Really consider this for a moment. What would you do that you don’t do now? How would your life change? Imagine the freedom you would have to move through the world according to your deepest needs and desires.

If you can learn to laugh at yourself and not take these types of things too seriously, you’ll be much better off. You can either laugh now and smile when you get older, or you can kick yourself when you get older because you squandered so many opportunities. Be brave!

So the next time you’re faced with a decision that involves your ego, think about the real risk involved rather than an imagined risk. The average person’s aversion to embarrassing himself is a huge handicap to reaping all the great things that life has to offer.

Do your best to accurately assess risk and then take the action that makes sense. This gets easier every time. Before you know it, your friends will say you’re the bravest person they know.

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