To Risk or Not To Risk

take a chance or play it safe

Risk is not one of my friends. I prefer meticulous analysis and the resourceful decision making that comes with it. I did not use to make risky decisions, most of my decisions in the past were very safe I must say. But when you have a life like mine and dreams like mine it usually helps to throw some risk into the mix.

But not many people realize that any form of risk can have one of two significant elements that if not quantified will lead to your downfall. I have learned that missing up one is not too bad but missing up both makes the risk a pointless venture and I am glad I know now. The two elements are how accurately you can measure the chances of success and the consequences of the offset outcomes. Where a disadvantage can lie if the risk is either hard to measure and the outcomes lend towards your further doom.

To illustrate risk with irrelevant outcomes I am going to use the riskiest thing on the planet, gambling. I used to gamble then I started taking it seriously and studied it, then I realized why the companies that put these lotteries still make an island load of money regardless of the fact of someone possibly winning a big jackpot and many people winning mini jackpots every day. The bets are hedged toward the house you are not suppose to win, meaning your chance is so low for the big jackpot, thousands to millions play almost no one wins (technically 70-99% of the time depending).

The lower chance games give very little money it makes no relevance, especially when you played multiple times just to win that small amount one time. You cannot cover all possible bets either by buying many slips with many different arrangements of numbers because trust me when I tell you they predicted that.

They either make the winnings so low you cannot do it more than a certain amount (then you would just be surpassing your threshold lose money even if you win) and/or increase the numbers you choose so it is like trying to decipher the matrix. Then you have to take in consideration again the fact of playing multiple times just to win one time. All the money spent before add up, you did not win you lose trust me.

That illustration was to show risk where the outcomes spell doom either way unless you have the luck of the Irish. But that risk of success is easily measured, hey it is even printed on the bet slips, the odds of you winning. What about risk you cannot measure, well such risk is more common when human beings are involved. This is why economics, which is a science, ends up being one of the most inaccurate sciences around. Because measuring human behavior accurately is like measuring the weight of some sand with a ruler.

It is not possible plain and simple, so since you cannot measure the processes and extenuating circumstances that rely heavily on humans accurately. You can only guess the outcomes, at least with the lottery you know the outcome you either win or lose. When people are involved the outcomes tend to blur between good and bad, it also depends on whom you are talking to. So the consequences tend to be just as good as they are bad. As some people value seemingly bad things as good, vice versa.

But guessing these consequences is difficult I must say due to current and changing trends in the culture, attitudes, demographic, wealth of the people and the business climate. So we use the next best thing, the past. Yup that is right folks, history is the real secret to the power of marketing professionals, economists and business leaders.

Study the past behavior and events of people and you will be able to guess more accurately how will people behave and what is most likely to happen next. Just like when there is financial uncertainty in a country the natural reaction is fear which cause people to withdraw their investments, hence stocks fall, they spend less, hence demand falls leading to lesser goods being bought, more pressure on the business as they make less money etc.

So when governments make their economic decisions it is laden in risk as people may not react and do the exact thing they are inclined to do. Like how my government of Jamaica is promoting entrepreneurship and using policies to help MSMEs (Micro-small- and medium-sized enterprises.) grow. They have not been successful due to a few reasons.

  1. Many banks and small loan businesses have been resistant to providing loans to this sector of society, their behavior really is caused by fear that the investment in an unknown starter business might not pan out well or default.

  2. There is a lack of appreciation for doing business on the legal level due to the relative cost of starting a typical brick and mortar business.

  3. Instead of many young businesses starting, mature businesses are only getting bigger because they are the ones mostly getting loans.

  4. To fill the void left in many underserved and/or costly services, many unregulated businesses have started up, some are not healthy to the populace in general (subpar products, services etc).

This is not what they planned, but it happened anyway. Looks like a domino effect, happening one after the other. Well, this has happened before in some variety in other countries in the past and currently, they could have predicted this but that does not mean they know how to change it effectively. As one method tried in one country might not work in yours, as the cultures are different and the extenuating circumstances would likely be different.

So it is both a case study on how they do it and how to apply it. Politicians then run the risk of offsetting a new problem or a current one being worsened with that policy. This is why politicians try to promote and encourage the people to push the country themselves. Rather than them getting involved, they would make law and legislation that retroactively, influence people to do certain actions. Because if it fails, it is their fault and they are removed in the next election.

Risk is around us and ahead of us, we have to try to make as much sense of it and not jump in without a lifeboat. To be honest, it might not help or it might help, regardless the more you study the risk you going into, the higher likelihood you will know it is worthless or you cannot handle it. If you can and you want, go right ahead. Good luck.

David Shaw is a certified nerd and scum of the earth. Jamaican by birth, he enjoys long walks and the simple things in life. He is also an entrepreneur, writer and graphic designer. You can follow his mundane madness on twitter @davidcs_aw

To Risk or Not To Risk

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