How Your Biases Prevent You From Taking The Risks You Need To Take - The Break Issue 50
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Today At A Glance
How your biases affect risk
Top biases to be aware of for better risk taking
Tactics for overcoming biases
Top questions to ask to take better risks
How Your Biases Affect Your Analysis of Risk
We all dream of making a big change. We wonder how others do it.
At the heart of making any change is the battle in our minds between belief and fear.
Having some fear is healthy, but too much paralyzes us.
Having too much belief can lead us to make big mistakes.
We need to be in balance, and the key to balance is seeing risk clearly and putting it in its place.
We can’t escape risk, but we can become comfortable with it.
Top Biases that skew your reality of risk
1. Optimism/Pessimism Bias: We all skew one way or another. I was born more of a pessimist. It’s easier for me to see what might go wrong, which makes it harder for me to see upside.
If you know your bias, you can take steps to check it before you make a decision.
If you’re a pessimist, you might overestimate the likelihood of negative outcomes while underestimating the probablility of negative events. This can make people less confident in their decisions and lead them to not take proper risks.
I believe most people skew more towards pessimism.
If you’re an optimist, you might overestimate the likelihood of positive outcomes while underestimating the probability of negative events. It can make people overly confident in their decisions and lead them to ignore potential risks.
2. Loss Aversion Bias: Loss aversion bias causes individuals to be more sensitive to potential losses than gains. When evaluating risks, people tend to be overly cautious to avoid losses, even if the potential gains outweigh the risks.
Studies show people will avoid losing $10 more than they will try to gain $10.
I believe this stems from our more pessimistic slant. We clearly see the downsides, but have a harder time imagining the upsides.
3. Confirmation Bias: Confirmation bias involves seeking out information that supports pre-existing beliefs and discounting or ignoring data that contradicts those beliefs. This bias can lead to selective attention to information, hindering a comprehensive and unbiased assessment of risks.
How to Overcome Your Biases When Evaluating Risks:
1. Fear set:
Author Tim Ferriss uses this tool when analyzing any change he wants to make. All you do is think about what are the worst things that could possibly happen from making that change. List them out. Then he asks himself if he can live with those outcomes.
2. Ask is it true? Knowing your biases above, for each “worst thing” ask how true that really is. If you are a pessimist, you may imagine yourself homeless living in a van if you leave your job, but that’s probably not true.
If you’re an optimist, you might not be drilling deep enough on the worst case scenario.
Update and adjust based on your bias.
3. Find a Counterbalance: If you’re biased in a certain way, try to find someone you trust who is biased in the opposite way to balance you out and check your thinking.
One of my best friends, always sees the upside. I always see the downside. We invest together and make great partners because we balance each other out. We see past our blind spots together.
4. Mitigate: If your risk of change is still too high, you need to scenario plan how to reduce the risk. My study of investing masters reveals several risk mitigation strategies that we can apply to our career decisions. I will detail them in a future post, but here are a few strategies:
Use options - ie. have a few ways of attacking the change
Size your bet - can you do something to make the change smaller?
Diversify - can you do two things at once (ie. freelance while freeing up time for your side hustle)?
Remove other risks to make room for something bigger - ie. pay down debt
Stay close to your circle of competence - make a change, but understand how you have an advantage in making that leap instead of making a complete 180 degree change into a completely unknown field.
5 Key Questions That Have Helped Me Uncover Potential Biases in Risk Evaluation:
Am I Overlooking Potential Negative Outcomes? Assess whether you are overly optimistic about the potential success of a decision and whether you have adequately considered the risks and potential downsides.
Are My Decisions Driven by Fear of Losses? Evaluate whether you are making risk-averse decisions solely to avoid losses rather than objectively weighing potential gains and losses.
Am I Seeking Information That Confirms My Initial Beliefs? Reflect on whether you are selectively seeking information that aligns with your pre-existing beliefs and whether you have explored alternative viewpoints.
Have I Engaged Diverse Perspectives? Consider whether you have sought input from individuals with diverse backgrounds and expertise to gain a broader understanding of potential risks.
Is it true/what can I do about it? Imagine the worst-case scenario and ask if that fear inducing scenario is actually true, and what can you do about it.
By asking these key questions and implementing the strategies mentioned earlier, you can enhance the objectivity and accuracy of your risk evaluations, leading to better decision-making outcomes.
When you do this, you start to see that you have way more ways of influencing and reducing risks to an acceptable level, which will help you take more informed, calculated risks to Break some rules and find more fulfillment through your work.
To go deeper, I suggest creating a Map of your advantages, and think about how you can use those to influence your luck.
If you respond to this email with the word “Advantage” I’ll send you my Advantage Mapping Template for free.
Here’s to breaking your old habits and becoming the best version of yourself!
P.S. My Advantage Mapping Program is all about betting on yourself and using signal to guide your decisions - giving you tools to evaluate what progress and success looks like so you can have confidence in your path. We aim to deal well with uncertainty and create a systematic, high odds approach to aligning who you are with what you do. I'd love you to check it out Join the waitlist
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The Latest Conversation on THE BREAK Pod
So I made a new friend. We’re kindred spirits. My new friend is called the fairy godmother of career breaks and sabbaticals.
Katrina McGhee is a Career Break and Sabbatical Expert, creator of the Break Blueprint and the author of the upcoming book, Taking a Career Break for Dummies. As a certified master coach with an MBA, Katrina helps mid-career professionals create happier, more fulfilling lives by designing bold and transformational breaks. Her clients return from their breaks recharged, inspired, happily-employed and forever changed. On their time off, her 60+ clients have traveled the world, launched a business, changed careers and more.
Katrina's work was inspired by her own 20-month career break where she saved $40,000 in just 18 months to quit her corporate job to travel the world. She's now an enthusiastic world traveler and digital nomad. Her advice on career breaks, money, and travel has been shared across various outlets including Forbes, Smarter Travel, Thrive Global, and Yahoo.
We obviously jammed on this idea of a career break and how we both come at that word from different points of view. Katrina has an amazing life story spanning heartache and triumph, and she shares it all.
I look forward to having her on again when her book comes out, but for now, I hope you enjoy this episode with Katrina McGhee.
You made it to the end! Hopefully you learned something about breaking your career today! If so, please share this with someone you care about.
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⭐️⭐️⭐️⭐️⭐️ This was super helpful!
⭐️⭐️⭐️ Could be better.