Risk: How much could you win?
One of the most commonly replicated findings in psychology is how we deal with the idea of risk. And the findings make no sense. Maybe that’s why they keep testing it over and over again, but the findings are always the same.
Here’s the gist: we are willing to take increasingly large amounts of risk because we don’t want to admit when we’ve lost. And on the other side, we often settle for small wins because we’re scared that we will lose them.
The Prospect Theory, popularized by Daniel Kahneman and Amos Tversky, explains this. Let’s use a slot machine analogy to illustrate it. If you sit down at a slot machine and get a few wins, but ultimately lose $20, you’re likely to put in another $20 because you want the prospect of a chance to get it back and win some money. It’s classic gambling psychology, right?
Another side to this is people who are hesitant to even take the risk to pay that $20 for the potential to win in the first place. It makes me think of a story I read, which went like this:
Roommate 1: Don’t forget to buy your lotto ticket tonight! The jackpot is $1 billion!
Roommate 2: Yeah, but after taxes, that’s only like $400 million, so it’s not even worth it.
Roommate 1: … We’re literally just agreed that we can’t afford to run the AC during the day. I think we could both use $400 million even after taxes.
Roommate 2 wasn’t being ignorant so much as following typical human biology that the cost of a lotto ticket is a realized loss of whatever the cost was for the ticket vs. the potential reward of buying one. It’s classic loss aversion. You can’t lose if you don’t play.
Then there are people who end up addicted to lotto tickets and other forms of gambling because of the Disposition Effect. Obviously, all of us have different dispositions. Some people won’t take the chance at losing even $1, and others don’t know when to stop. And part of why they don’t know when to stop is because the losses don’t feel “real” until they decide they’ve quit; otherwise, there’s always a chance that a big win is right around the next corner.
Okay, enough about losses. Let’s talk about wins. Part of the consistent findings is that we take our wins too fast, we play too small. Because it feels better to lock in a win than chance it and end up back where we started. People tend to settle for something less than what they wanted.
And this is where we’re not talking about gambling anymore. Think of your 401k or other retirement accounts that are presumably “safe” and well taken care of. While they are reliable for the most part, we’ve all seen that the health of the economy has a very real effect on how large or small that investment account ends up being.
Or what about your job? You can choose to stay where you are right now, playing it safe, not rocking the boat, and taking that as a win. But if you do that, you’re also not seeing how much you can achieve or how much more you can make. Conversely, maybe you don’t like your job, but you’re scared to jump ship because you don’t know what to expect. So your small win is simply cashing a paycheck, never exploring what even a small step up might mean for you.
What about your relationships? There are so many ways we can play small here. You can miss connections, potential friendships, or more just because you wanted to play it safe; you didn’t want to “buy the lotto ticket” of life. People get stuck in marriages that they realize aren’t what they wanted for their lives, or in friend circles that no longer feel aligned with their goals and purpose.
One way I’ve tried to go for a bigger win lately is by working with a podcast booker who reached out to me. Here’s why: I’m introverted by nature. I love my friend group, and the balance of my social life is one of my biggest wins in life. BUT I find it difficult to enjoy networking, so I thought podcast appearances to spread the 1% Better message would be a great way to branch out and look for a bigger way to “win.” So far, I’ve been so grateful for the past version of me who took the chance. (Here’s my most recent one if you’re interested in checking it out)
This week, think of where your “disposition” may be getting in the way of you taking a risk and going for a win, instead of cutting yourself short. Or where can you cut back on the risk, realize something isn’t working, and walk away? And if that’s the case, you can still take it as a win. Knowing when to call it quits shows that you are taking responsibility for your well-being, and that’s empowering.
Life is full of areas where we’re fully in charge of how we choose to move forward. All you need to do is be 1% better today in one of those areas.
With gratitude,
Natalie
