Zero-Risk Bias
The year was 1953 and behavioral economist March Allais was trying to find out if our brain is good at objectively assessing risk. He asked research participants to choose between two options:
Option A: Win $100 for sure.
Option B: A 10% chance to win $500.
An 89% chance to win $100.
A 1% chance to win nothing.
The participants routinely chose option A, despite the fact that the average payout from option B is substantially more. Our brain has a tendency to focus on that small 1% risk.
Our brain really doesn’t like risk because risk makes us worry, and worrying uses up a lot of brain energy.
You might think that our brain would be happy if we reduced the risk level to a minuscule amount, but that’s not your brain’s preference. It’s much happier when that risk is COMPLETELY gone. Then, that worry can be totally eliminated and your brain can rest easier.
That’s why the zero-risk cognitive bias is so corrosive to our health, happiness and wealth. All of us have a powerful inclination to seek out absolutes and dismiss better options because they have even a small amount of risk. The truth is that we love certainty just too darn much, and it tends to hurt us in the long run.
Low risk usually means low rewards. What most people fail to realize is that time usually mitigates risk. The most prosperous people are those who consciously add well-considered risk to their plans for career, money and life in general. The key is to combine boldness with careful study and patience. Build a moderately risky long-term plan.