PREFACE

MY MATERNAL GRANDMOTHER was epic in her resistance to dealing with obvious health risks. Her doctors worried about an abdominal aneurysm that could have burst at any point. Normally, once an abdominal aneurysm grows to five centimeters, doctors believe the risks of operating are lower than those of leaving it in. Bobonne—a Belgian nickname derived from the French bonnemère for grandmother—didn’t let them operate until it hit 6.3 centimeters. Even then, her adult children had to beg her to agree to the surgery.

Another time, my mother visited Bobonne’s house after failing to get through on the phone. She found Bobonne, who was well into her eighties at this point, lying on the floor in pain after wrenching her back while trying to move a huge, old cathode-ray television set, having ignored the obviousness of this not being a good idea. Still, when my mother insisted on taking Bobonne to the hospital, she put up a fight. This was only one of many instances in which Bobonne avoided dealing with a medical issue until it escalated into a crisis. Her stubbornness became part of all of our memories of her.

Yet, despite her poor health risk skills, Bobonne was able to plan well in advance—arguably too well—for other possible dangers, namely the risk of going hungry. When she died in 2010, we found twenty pounds of butter in her freezer and another twenty pounds of sugar in her cabinets. It wasn’t hard for me to understand Bobonne’s hoarding of staples as a behavior learned from the food shortages in Belgium during the Second World War. Alongside the butter in the freezer were frozen vegetables harvested from her garden, a practice that made perfect sense.

I also could relate to her having actively decided to risk her life during the war as a teenager, when she delivered messages for the Resistance on her bicycle to keep the German occupation from becoming permanent. I tried to imagine what went through Bobonne’s mind as she rode back and forth. Helping those fighting the Nazis no doubt was a way for her to feel some sense of agency, the power to make a difference no matter how small. In a time of great chaos and uncertainty, it was a risk worth taking. So was following to the United States the handsome, young, entrepreneurially minded American soldier who tried to start a popcorn business in Belgium after the war. Alas, the idea was far ahead of its time; Europeans still thought of corn as pig food.

The health risks she took by omission were harder for me to get my head around. Like her husband, she was a longtime smoker and alcoholic, ignoring the dangers that those habits posed even after my grandfather died far too young of a stroke. Perhaps the aneurysm represented something of a danger in the present and future that made her feel powerless; her decision not to deal with it, or with her wrenched back, was a perverse way to gain power over a situation. After all, surgery to control the threat involved becoming totally powerless under anesthesia, which made her completely dependent on the surgical team. In fact, like her reluctance to have surgery, many of the biggest and most common risks most people take are passive risks: putting off dealing with known problems for reasons that are a combination of innate human biases, individual hang-ups, and all kinds of outside roadblocks.

In the decade since Bobonne died peacefully in her sleep—the aneurysm had long been repaired—the contradictions of her life and relationship with risk kept raising questions for me. How could the same person be so practical, proactive, and courageous in their risk decisions and behaviors in some areas of their life but so obstinate and self-destructive in others? I wondered how much of the explanation lay in her innate personality, in her experiences, and in the nature of the risks themselves. I also saw how her failure to face her health risks affected her family, particularly my mother, who often had to rearrange her schedule first because Bobonne canceled doctor’s appointments, and then because the avoidable problems escalated to a crisis that forced my mother to drop what she was doing.

My paternal grandparents were the opposite, their house and later the apartment where they retired always in perfect order. When they died in their late nineties, just a few months apart, everything had been arranged, from the gravestones pre-chiseled with everything but their date of departure to the funeral menu (Swedish meatballs and ham). Their finances were all in order, unlike Bobonne’s.

My parents each inherited many of their parents’ attitudes toward risk, uncertainty, and change. In hindsight, I can see how these differences explained their personalities, decisions, and conflicts over all sorts of issues, from seemingly mundane questions like how early to leave for church to other, more serious questions. Risk attitudes defined the family dynamic, both as individuals and as a group.

My own relationship with risk combines elements from both sides of the family. It evolved as I experienced new things, overcame new challenges, and learned new risk skills. By many people’s standards, I am a risk-taker. My risk choices, like everyone’s, are a mixed bag. I love trying new cuisines, but once I find something I like, I stick with it; I nearly always order the same thing at my favorite restaurants. I don’t jaywalk. I watch my diet; having been diagnosed with celiac disease in 2011, I have no choice but to avoid anything containing gluten or I get very sick. I don’t smoke. I exercise and get my annual medical checkups like clockwork. But my behavior and preferences over the years have changed along with my relationship with risk.

As I’ve gained more insight into how intimately risk lies at the very core of our identities, it’s become apparent both how short most of us fall in thinking about it and how much opportunity lies in taking the time to look at our thoughts and behaviors through a risk lens. Reflecting on the way people deal (or don’t) with risk has generated a slew of other questions not just about Bobonne but about all of us and the role that our relationships with risk play in the decisions we make. Which risks are worth taking? How good are you and others around you at recognizing risks and assessing their importance? Do you treat active risk-taking—say, bungee-jumping or day trading—differently from passive risk-taking—like putting off going to the doctor or doing your taxes?

Why do some of us fixate on reducing risks while others crumble in the face of possible failure? Why do some people avoid risk after major shocks, while for others the experience of facing down and conquering risk leads them to add more risks as it helps them to manage those risks better? How much of your risk personality is innate and how much derived from your experiences? How much is nature and how much nurture? Can we train ourselves to act differently in the face of known risks? What prompts us to change our risk behavior, and how do we make those changes stick? What obstacles must we overcome to achieve a healthy risk relationship? The answers to these questions are the reasons I wrote this book. Together, we’ll explore questions about what each of us is prepared to risk and how that defines and reflects our purpose, passions, priorities, and values: the very core of our being.

By thinking about your own relationship with risk and that of the people around you, you will learn more about what makes you who you are as an individual. You will come to better understand your organization’s values, culture, strengths, and weaknesses when it comes to risk, innovation, and strategy. You will think differently about how the risk dynamics in your community, country, and the world shape the choices available to you.

FROM POLICY TO PERSONAL GRAY RHINO RISKS

My professional obsession is understanding the dynamics of highly obvious, probable, impactful risks that typically don’t get their due and getting people to recognize how surprisingly vulnerable humans are to things that many of us wrongly assume we’ve got covered. It started with writing about sovereign debt and credit risk in emerging markets. When I became head of the World Policy Institute in New York in 2007, I spent much of my days thinking about organizational risks and governance, especially when the Great Financial Crisis hit shortly after the think tank was re-launched as an independent organization after sixteen years as part of a university. After another think tank stint at the Chicago Council on Global Affairs, I started Gray Rhino & Company. Now I focus full time on helping organizations and governments understand what makes the difference when leaders and teams acknowledge and respond to risks—and how they can do better. Over time, my interest has shifted to include not only the big policy risks but also the roots of our individual beliefs, attitudes, and behaviors involving risk and how they interact with the decisions that governments and organizations make.

I wrote about policy and business dangers in my 2016 book, The Gray Rhino: How to Recognize the Obvious Dangers We Ignore. The title came from the term I coined in 2012 shortly after Greece and its creditors reached a landmark agreement to avoid a catastrophic default. The gray rhino concept was a tool to explore why some of us step up to avert a crisis while others let themselves get flattened. By using an animal image, following the tradition of Aesop and other storytellers, I hoped to stimulate an emotional connection to the two-ton-plus, horned dangers charging at us, and to remind us all that we’re not nearly as good as we’d like to think at getting out of the way. I also wanted people to realize that not only is there no shame in recognizing this all-too-human failure, but that being aware of how vulnerable we are taps into a powerful source of strength: using the rhino’s weight to carry us forward instead of trampling us.

My work in global finance and policy led me to the question of what made the difference between government and business leaders who downplayed, neglected, denied, or outright ignored obvious risks, on the one hand, and on the other, the decision makers who acted in time to head off or at least minimize threats to their economy or security. A related popular metaphor, the black swan, described in an eponymous book about highly improbable events, caught on during the 2007–09 Great Financial Crisis. The black swan rightly inspired people to think harder about how prone we are to getting sideswiped by unimaginable events and crises that take us by surprise. But people started looking so hard for the unforeseeable—by definition, a fool’s errand—that they became even more likely to miss the often-avoidable problems that are right in front of us, and which we have a better chance at averting. This passive, fatalistic mindset paradoxically increased risks by giving financial professionals and policy makers an easy out: Ah, black swan; nobody saw it coming.

In July 2017, the Chinese government employed the gray rhino just as I had hoped policy makers might use the term I coined to help draw attention to the need to deal promptly with obvious risks. During the National Financial Work Conference, held every five years to shape economic policy, high-level government officials discussed the importance of avoiding highly likely gray rhino risks and announced their intent to head them off. The official newspaper, People’s Daily, reinforced the message with a front-page editorial using the gray rhino to signal a coming crackdown on financial risks. Traders took the warning seriously, driving down the prices of shares in companies seen as risky by around 5 percent in a single day. The gray rhino quickly went global, with headlines appearing in South Korea, Malaysia, Qatar, Turkey, Vietnam, Belgium, France, Germany, Luxembourg, Italy, Spain, Portugal, the UK, Brazil, and all across Latin America and Africa. As it was intended to do, the metaphor had focused attention and political will on highly obvious, potentially avoidable financial dangers.

As China was wrangling its financial-risk gray rhinos, the United States was pumping even more air into its financial-market bubbles and driving corporate debt and budget deficits to record levels. America responded to populist outrage over rising economic inequality and corporate malfeasance with policies that would make the rich even richer, even as Wall Street and policy makers downplayed the dangers at hand. It was as if investors and policy makers had learned nothing from their failures to accurately assess or respond to obvious risks that had led to the Great Financial Crisis just over a decade earlier.

The sharp contrast in the two countries’ attitudes and policies made me wonder why China was much more willing to acknowledge gray rhino risks and do something about them, while so many decision makers and voters in the United States seemed to be willfully denying clear and present dangers. My own country was particularly puzzling because so much of our national mythology involves a can-do spirit and the belief in our ability to take on challenges from which many other countries shied away in the past. What explained the difference?

It took me a while to make the connection between these questions and Bobonne’s story—and, ultimately, mine and yours. During my book tour, the conversation took an unexpected turn. Inevitably somebody in the audience asked how to apply gray-rhino theory to their personal life. One stormy summer evening in Shanghai, a hip twentysomething Chinese man asked for an autograph and a selfie. He thanked me for having helped him so much in his life. I was surprised and gratified that he had taken the message to heart in such a personal way. But he wasn’t the only one. One woman told me, “The end of my marriage was a gray rhino! All my friends saw it coming, but I didn’t want to admit it.” An Indiana man blogged about the marathons he was running to raise money for breast cancer research to try to defeat the gray rhino that one of his friends had faced and acted aggressively to fight (so far, successfully). My best friend used it to make good health care and life decisions after her mother was diagnosed with Parkinson’s. An eighth-grader in India used the gray rhino in a national “digital detox” campaign to help people break their addictions to their electronic devices.

Friends and family hemmed and hawed about financial problems they never quite got around to solving, about chronic health issues for which they hadn’t yet made a doctor’s appointment, or about relationships that everyone else knew had to go. I resorted to a fake-exasperated reprimand: “Haven’t you read my book?” It worked! Their problems didn’t disappear overnight, and their responses often were stop-and-go, two-steps-forward-one-step-back, but they were changing their behavior: going to the doctor, meeting their accountant.

The way readers applied the concept to their own personal gray rhinos was so compelling that I felt a pull to pursue this new angle on my central question: What makes the difference between people who act and the ones who freeze in the face of risks and crises in their own lives? Why do some people take the risk of letting a problem fester or erupt, rather than dealing with it? But after decades working on finance, business, and global economic and policy issues, I wondered if these questions would be too sharp a shift from what I knew well. Following this new personal direction felt, well, risky.

I turned to my inner circle for help figuring out where to go with this powerful, organic, and unexpected response to the gray rhino. A longtime friend, the respected CEO of a pioneering environmental private equity firm, helped me to understand that business strategy and personal challenges were anything but mutually exclusive. He had met not long before with his investment team about the companies in their portfolio that had, to put it politely, fallen short of their expectations. “For every single one, the warning signs were there in the due diligence we had done,” he told me. “But it wasn’t the business model, or the technology, or the market conditions that did them in. It was personal issues with company leadership that led to poor risk decisions: the driving under the influence, the domestic violence.”

The #MeToo movement certainly demonstrates the connection between poor personal risk decisions and business outcomes—not just the consequences when offenders are caught but also the impact on the victims. A friend shared the difficult choice that she faced after someone she met at a conference drugged her and sexually assaulted her, leaving her alone and bleeding in a foreign country. The trauma turned into a personal crisis that she could see would affect her professionally if she did not deal with it. Back at work, she was standing in front of an audience of two hundred people, giving a presentation while hiding the trauma she felt, and realized that she had to take a leave from work to heal emotionally. “If I had stayed at work, I would have brought my whole team down with me,” she said.

Those conversations led to my “Aha!” moment. I began to see the ways in which personal, business, and global gray rhinos were all connected to each other. I also came to recognize that my professional obsession with obvious risks that are too likely not to get their due had at least some of its origins in the clashing risk dynamics within my own family.

As I began to seek out risk-takers and risk-avoiders to better understand their experiences with risk and the influences that shaped them, it felt like I was seeing lightbulbs switch on above people’s heads. As people told me over and over again how much they had learned from what I had asked them, I realized just how important those conversations were. My questions were helping people understand more about who they were and what was important to them—and what they were willing to risk in order to protect what they valued in life. That went to the heart of each person’s identity.

PERSONAL AND PROFESSIONAL RISKS INTERSECT

Although I was moved by people’s stories about how they applied the ideas in The Gray Rhino to their lives, I was uncomfortable when interviewers asked me for examples of my own personal gray rhinos. Sharing my own vulnerabilities was too much of a risk for my taste! Most of the time, I stuck to the story I told in the book about how I finally learned to go to the dentist regularly after needing gum surgery.

But as I interviewed people for this book, I felt that it was only fair to delve deeper into my own relationship with risk, to the issues I wrangled or ignored, how those changed over time, and how my personal and professional gray rhinos intersected. The biggest risk for me has always involved the tension between my job choices and my health. Until I learned to manage this better, my workaholic tendencies affected my health, which in turn boomeranged into a big professional challenge. While I was doing my master’s degree, I scheduled six hours of sleep a night to accommodate working thirty-five hours a week at a Spanish-language newspaper while taking a full course load at Columbia University’s School of International and Public Affairs. I walked into the dean’s office just ahead of midterm break in the fall of 1991 with a list of my classes to announce that I was going to Haiti to cover the coup against President Jean-Bertrand Aristide but wasn’t sure if the airport would still be open when it was time to come home, so if that happened could they let my professors know where I was? I used my other midterm breaks to travel to cover the end of the war in El Salvador and protests in the Dominican Republic.

Taking those risks, however, paled next to ignoring friends’ warnings that I was pushing myself too hard and neglecting my personal life and health. Thinking of Bobonne, I know that I came by the health attitude honestly. After graduation, I was juggling an intense job as a financial journalist, the last gasp of a relationship, and writing my first book on the weekends. My friends kept trying to get me to slow down: “More being, less doing,” a college friend told me more than once. I refused to listen for too long. Though normally I can be stoic to a fault, one day I burst into tears and had absolutely no idea why. In hindsight, the amount of stress in my life should have made the answer obvious.

In 1995, I was diagnosed with chronic fatigue syndrome and took a medical leave from work on doctor’s orders. I finally had no choice but to pay attention to what had been obvious to everyone around me: I needed to take a break and learn to pace myself. Spending time with friends in Texas, I recovered and regained my strength as I did a lot of long overdue self-reflection. I realized that I had learned all I could at the job I had, and that what I really wanted to do was to write my first book. If I didn’t change the path I was on, I knew I would just get sick again. Even though what I was writing about was interesting and my stories were moving financial markets, the words of my friend Joel, an accomplished journalist, rang in my ears: “You can do so much better professionally.” A completely new relationship with risk was beginning, as I learned to find security not through the traditional path of relying on a regular paycheck and a corporate umbrella but rather in protecting myself and in doing what I did best.

When I was healthy enough to go back to work, the first thing I did was give notice. I went back and forth to the Dominican Republic and Haiti in the following months and got a book contract while freelancing and editing a financial newsletter part-time. You might think that I was now on solid ground and had learned my lesson. But no. Often after solving a problem, we forget that it takes work to keep it from happening again. That book, Why the Cocks Fight: Dominicans, Haitians, and the Struggle for Hispaniola, was well received when it came out in 1999. By the next year, however, I got tired of the instability of freelancing and took a job as editor of a biweekly magazine focused on Latin American capital markets. For the first year or so, I loved my job reshaping the magazine’s look and feel and increasing its influence. But soon my heart wanted more. I ignored my need for a new challenge, and soon paid the price. In the summer of 2001, I started facing symptoms similar to the ones that had prompted my medical leave six years earlier: insomnia, skin problems, migraines, and—terrifying for someone whose work depends on her ability to concentrate—losing focus and interest in my work. I found myself getting on the subway going the wrong direction and getting lost on familiar streets. Luckily, though it didn’t feel like luck at the time, I didn’t have to make a decision. The bursting of the tech bubble, followed by the Argentine debt crisis, doomed the magazine. So I was soon out of a job and left behind my office across the street from the World Trade Center, just two weeks before the 9/11 terrorist attacks.

In some ways, I’m fortunate that when I am unhappy or stressed, I feel it physically. It’s a great warning signal. But I had to learn to pay attention to those signs, and apparently learning my lesson once wasn’t enough. The relapse reminded me that I had to reinforce the lesson constantly.

What pushed me to face up to the risks I had been doing my best to ignore? Going through a health crisis was not the ideal way to get shocked into action, but it helped. Slowly, I developed new habits. I got a dog who helped keep my schedule under control and cheer me up when I was too tired to talk. I focused on projects that really excited me and let fall to the side things that didn’t feed my soul. I paid attention to my levels of stress or enthusiasm and shifted my energy to things that excited me and created “good” stress. I became more comfortable turning to friends when I needed to ask for help and insight.

That evolution didn’t happen by magic. It was a combination of my past experiences; of being blessed with a supportive network of friends and family; of access to good health care; of having invested in building the knowledge, skills, and networks that I knew would see me through; and of self-awareness and the willingness to change. It also involved weighing the risk of making overdue changes versus giving in to inertia. Slowing down was a big risk, as any ambitious twentysomething (or any-something, for that matter) knows. But it was the right decision.

RISK THROUGH DIFFERENT LENSES

In many ways, I have taken a big risk with this book. Publishers like books that fit easily into boxes: self-help, business, policy, politics, economics, psychology. This one does not fall easily into any single category though it is relevant to them all. Rather than trying to fit a square peg into a round hole, I have embraced the strengths that come from transcending traditional boundaries. Risk-taking looks different depending on the angle, and so to understand it we need a variety of lenses to help us see the whole picture.

As the COVID-19 pandemic has made clear, the biggest risks grow or shrink depending on the interaction among different groups. Individuals, businesses, and governments all play a role in keeping us safe or putting us in danger: whether or not your neighbors wear face masks at the grocery store, what sort of precautions the store takes to protect employees and customers, and what recommendations or mandates governments make. Nations have had quite distinct results depending on how their citizens, businesses, and governments see risk and responsibility and what they do based on those views.

Personal, policy, career, economic, organizational, and global risks intersect to shape our lives, work, and world, and ultimately, what we can do about them as individuals, in business, and in government. Understanding that dynamic feedback loop shapes what we can do to minimize the most dangerous risks and to give us the courage to embrace the most positive ones: to get out of our comfort zone, abandon counterproductive habits, and follow a path where we fulfill our potential.

You Are What You Risk is a mirror to The Gray Rhino, which resonated with many readers on a deep, personal level, even though I wrote it with policy and business audiences in mind. This book is intended for individual readers seeking to understand and improve their personal risk relationship, but the ideas in it are very relevant to policy makers and businesses.

You Are What You Risk is for readers like the young man I met on that stormy Shanghai evening; for readers wrestling with their career path or choices about their relationship, health, or finances; and for business and government leaders who want to better understand their employees, constituents, and customers. It is for the risk and business continuity professionals whom I’ve met on speaking engagements around the world and who echo a common refrain: they need better ways to get people across their companies to take risk as seriously as they do. It is for the financial planners and other advisors helping families harmonize risk attitudes and behaviors across generations as they work to finance education, homes, health care, and retirements. It is for policy makers thinking about how to support healthy risk-taking, strong economies, and a strong social fabric—and how to design and communicate the risk choices they make. It is for the citizens affected by those decisions and whose governments need to do the right thing even when it is unpopular.

The chapters to come will help business leaders to think about their customers, partners, and employees in a new way. Readers who work for a government or are otherwise in a policy decision-making role will learn how a risk lens can change the way you see your constituents’ needs, and thus your priorities. All readers will come to understand how your risk profile is part of something much bigger than you alone. This book will push you to think about how you can benefit from a clearer view of the risk beliefs and attitudes of those around you and the systems, processes, and policies that tip the balance between healthy and unwise risks.

First, we’ll examine the personality traits that determine how sensitive we are to risks and the light in which we perceive them: opportunity or danger, terrifying new ground or simply what needs to be done. We’ll delve into the origins of risk personalities and how they relate to trust, confidence, creativity, and uncertainty. How much of your risk personality is innate versus derived from your experiences—in other words, how much is nature and how much nurture? How good are you and others around you at recognizing risks and assessing their importance?

We’ll also look at how these personalities play out in group dynamics, whether in your personal or work relationships: how the people around you affect what you think about risk and the very real costs of risk stereotyping, from missed investment opportunities to poor medical outcomes. We’ll explore how risk empathy can change these dynamics.

Then we’ll move on to risk attitudes: the values and beliefs that shape how people from different demographics, cultures, and nations relate to risk, how the nature of the risk itself affects how much you are willing to tolerate, the difference between emotional and rational risk-weighing processes and the importance of recognizing both. We’ll explore the cognitive biases that affect the way people respond to different kinds of threats, as well as how to balance emotional and rational responses. We’ll also learn how neurobiological factors—the hormones, areas of the brain, and our physical state in general—affect your moods and ability to distinguish good from bad risks and whether you take the “right” amount of risk.

We’ll delve into tools and systems—personal, organizational, and policy related—that can optimize risk attitudes and behaviors across relationships, organizations, and communities. You’ll learn to recognize good risk habits and their crucial role in decision-making, teamwork, and strategy—as well as to be alert for unintended consequences of good habits (like being more likely to drive more aggressively when you’re wearing a seatbelt).

We’ll explore policies that can support a good risk ecosystem that promotes creativity and entrepreneurship, and strengthens economies while diminishing moral hazard—the danger that organizations will take advantage of systems that encourage systemic risk-taking. This includes what everyone needs to do to educate new, risk-savvy generations who have a healthy relationship with uncertainty, ambiguity, failure, and success.

Finally, we’ll trace the feedback loop between individual risk profiles and the health of the businesses and organizations where they work, and in turn how cultural attitudes and policy ecosystems make the difference between a healthy economy and society—or one that is teetering on the brink of disaster. How do societies shape members’ views about risk, morality, ethics, and agency? How can citizens, businesses, and governments work together to manage risks that affect others? How can we fairly distribute the gains and losses associated with risks so that they leave as many people as possible better off? How do risk ecosystems create the conditions that will allow an investment or a country to thrive? Throughout, we’ll touch on the roles of purpose, knowledge, sense of control and agency, and community dynamics on risk perceptions, attitudes, and behaviors.

Whether you’re a CEO or an employee, a policy maker or a citizen, a parent, sibling, or friend, you’ll come away from reading this book with a better sense of the answers to these questions: Is your relationship with risk healthy? How much power do you and those around you have to change the outcome of a risk? How can you better manage conflicts with people who see risk very differently from the way you do? And what does your risk fingerprint say about who you are and your relationships with your family, friends, colleagues, and community?

YOU ARE WHAT YOU RISK

1

You Are What You Risk

WHAT MAKES A sixty-three-year-old woman decide to try to become the first person to ride over Niagara Falls? That’s what Annie Edson Taylor did in 1901, traversing the iconic waterfall in a souped-up pickle barrel as part of a dubious get-rich-quick scheme. A schoolteacher from Auburn, New York, Taylor had enjoyed teaching stints from California to Tennessee, Indiana, Texas, and Alabama; from Mexico City to Washington, DC, to Chicago. Still, she’d had to supplement her living expenses for most of her life from inheritances: her father passed away suddenly when she was twelve, then her husband died in Civil War combat, leaving her widowed.

After late-in-life dance training, she opened a dance school in Bay City, Michigan. When that failed, she tried teaching music in Sault Ste. Marie on the US side of the Canadian border. When the idea of going over the Falls struck her, Taylor’s inheritance was dwindling, and she had been having trouble getting steady work. Tired of leaning on her sister-in-law for support, Taylor was searching for a way to make money honestly and fast.

The Pan-American Exposition was planned for Buffalo, not far from where she had moved for another job teaching dance, when she came up with a plan. “Reading the New York paper about people going to the Pan-American exposition, and from there to Niagara Falls, the idea came to me like a flash of light,” she later wrote. “Go over Niagara Falls in a barrel. No one has ever accomplished this feat.”

By the time Taylor decided to carry out the stunt, which took place on her sixty-fourth birthday, her funds were running so low she felt she had nothing to lose. She believed that she would benefit greatly if she succeeded, which led her to discount the risk. She reduced risks by making every preparation you could imagine.

A Times-Press reporter asked her what put such a suicidal idea into her head. She replied: “It is not a suicidal idea with me. I entertain the utmost confidence that I shall succeed in going over the Falls without any harm resulting to me. The barrel is good and strong and the inside will be cushioned so that the rolling movement will do me no harm. Besides, I shall have straps to hold fast to. There will be a weight in one end of the barrel so that air can be admitted through a valve in the upper end where my head will be located.”

Taylor customized a 4.5-foot-tall, 3-foot-wide pickle barrel made of Kentucky white oak, installing a leather harness and cushions for protection and air holes with cork stoppers and a rubber tube, and attaching a 200-pound anvil to the 160-pound barrel to be sure it went down bottom-first. She tested it by sending her cat over Horseshoe Falls in the barrel. The cat survived.

Annie Edson Taylor, the first person to go over Niagara Falls in a barrel and survive, standing next to the barrel and her cat who went over the Falls in a test run of the barrel. Photo credit: Bain News Service, 1901. George Grantham Bain Collection (Library of Congress).

She monitored the weather carefully, cutting short her first attempt because of strong winds the day before she finally succeeded. On her sixty-fourth birthday, October 24, 1901, shortly before 4:00 p.m., Taylor climbed into the barrel. Her crew towed it to the middle of the river at Grass Island, about a mile north of Horseshoe Falls. Her cat may or may not have been with her. Her crew pumped air into the barrel with a bicycle pump and released it at 4:05 p.m.

The carnival promoter Frank M. “Tussy” Russell, whom Taylor had hired to drum up publicity, watched particularly nervously since both Canadian and American officials reportedly had threatened to charge him with manslaughter if the trip failed. (She had responded by threatening to drown herself if they tried to prevent her from attempting the feat.)

Taylor, in her pickle barrel, made her way down the river through churning whitewater rapids until she finally pitched over the edge of the falls at 4:23 p.m. and reemerged a minute or so later from the mist at the foot of the precipice. Sixteen minutes later, the crew pulled it out from between two eddies and dragged it ashore, with several thousand people watching along the rapids and below the Falls.

Taylor was mostly unscathed during the 158-foot fall, save for a three-inch gash behind her right ear, likely suffered as her team sawed the top off of the barrel before helping her out. She claimed to have lost consciousness during the drop and complained of whiplash. “I would rather face a cannon knowing that I would be blown to pieces, than go over the falls again,” she told a reporter.

Despite all her planning, in the end, Taylor got sideswiped by a risk she hadn’t foreseen: betrayal by her manager. She didn’t even get to keep the barrel, which Tussy reportedly stole before traveling around the country with a younger woman whom he claimed was the one who had gone over the Falls in it. Tussy and Taylor had knocked twenty years off of her real age when she talked to reporters, so the imposter probably looked more like what people imagined based on who she had claimed she was.

Apart from a few speaking engagements, the stunt didn’t end with the fame and fortune she’d hoped in styling herself as “Queen of the Mist.” Despite her life of excitement, her stage presence was said to be, to put it kindly, lacking. To support herself, Taylor resorted to hawking mementos of her achievement—miniature barrels, photos of herself, and booklets describing her feat—on the streets of Niagara and posing for pictures in exchange for tips. She lived another twenty years and died in poverty in Lockport, New York.

Annie Edson Taylor’s life and legacy were all about risk. Her story, which bears many of the hallmarks of a classic risk-taker’s, offers some clues as to what experiences and attitudes shaped the choices she made about the chances she took. Two sudden deaths of loved ones had demonstrated how fleeting life was. A financial safety net for much of her own life had given her the freedom to take chances, which she chose freely, claiming to have crossed the continent coast to coast eight full times. Despite her earlier comfort, by the time of the stunt, she hardly had two pennies to rub together. The perception that the stunt was a ticket to financial success would have reduced how risky she thought it was because the more benefit we see to something the less risky we perceive it to be. Her detailed preparations gave her a sense of control, and thus a higher risk tolerance.

But her choice was as much a product of the times and the society as it was of her personal influences and experiences. Amid great economic and social tumult and ambition, her decision was part of the zeitgeist. The Gilded Age had been drawing to a close as a time of plenty gave way to scarcity, making it hard for Taylor to bring in an income. The stock market had crashed a few months earlier in the May Panic of 1901. In a time of instability—perhaps not so different from today—people who felt they had nothing to lose may have felt they had license to take bigger risks. The suffrage movement was beginning to regain momentum. President McKinley was assassinated weeks before her stunt, and the adventurous Theodore Roosevelt, the youngest president ever at forty-two, had just been sworn in.

Over the century after Taylor’s death, five people died trying to make the same leap over the Falls; another eleven survived it. Was their risk worth it? They are the only ones who can answer. But those of us who are still on the planet can benefit from asking similar questions of ourselves when we think about the risks we have taken and the ones yet to come, because they say everything about who we are and the world in which we live.

YOUR RISK FINGERPRINT

Just as Taylor’s risk decisions defined her life and legacy, each of the risks every one of us takes tells the world who we are. Risk explains everything from the mundane choices you make throughout the day—at home, work, and as a citizen—to the widely impactful actions of CEOs, mayors, presidents, and world leaders.

What you decide to have (or skip) for breakfast. Whether to go to the gym or sit on the couch and eat pizza. How much time to leave to get to the airport to catch a flight. Whether you speed or jaywalk or remember to look both ways when crossing; whether you wear a seatbelt in the car or pay attention to the bus driver or train conductor’s pleas for standing passengers to hold on.

Whether you’re going to procrastinate or meet that deadline. Whether to speak up in that important meeting where your boss is proposing a questionable course of action. Whether to keep your head down at your current job or stretch for a better position. Whether to push your clients for more business or to dump the ones that aren’t worth your time so that you can focus on landing bigger accounts. Whether to launch that new product even though you’re not sure you’ve worked out the bugs, or wait and take the chance that your competitor will get to market first.

Whether to tell your best friend that their significant other is bad news, taking the chance that you will upset them no matter if you are right or wrong, or to stay silent, and risk watching them make a big mistake. Whether to put your life savings into that penny stock your cousin has a hot tip about.

What makes people take risks? Why do some of us make the preparations we need to succeed, but others miscalculate, often with fatal results? Why do some of us think of danger where others see opportunity? The answer matters for decisions people and nations make every day, from the mundane to the existential, involving relationships, health, finance, safety, career, and community. The forces behind our risk decisions are especially relevant for businesses and investors, whose choices create and destroy wealth and livelihoods, careers, and reputations.

The reasons we choose to face or ignore the dangers and opportunities in front of us may surprise as much as they enlighten. So many things shape how we perceive and rank risks: demographics, upbringing, career choices, religion, geography, culture, past experiences, generations, media, decision processes, organizational design… the list goes on. But unexpected factors—your height, what you look like, what you ate today, what language you speak, and what music you listen to—play a bigger role than you might think. Even the people who consider themselves to be highly rational, are buffeted by emotions, cognitive biases, and the rush of hormones through our veins. We ignore them at our peril.

These often unconscious influences shape how sensitive we are to risks: that is, how likely we are to judge something as risky or not, how worried it makes us, and even whether we notice it at all. They mold our risk tolerance and attitudes: how much risk we think is worth bearing, and whether we distinguish between “good” risks—that is, opportunities like taking a new job or trying something for the first time—and “bad” or “dangerous” risks—like, say, making questionable bets with other people’s money or committing crimes. Finally, they affect whether or not we stay in our comfort zones and how we behave in the face of a risk. Heading off a risk can be risky in and of itself. So can staying in an extreme comfort zone by doing everything you can to avoid risks.

RISK FINGERPRINT: The combination of personality traits, experiences, and social context that is a core component of each person’s identity.

Each one of us has a risk personality that is as distinct as a fingerprint. Our risk fingerprints start with our underlying personality traits, which you might think of as the ridges, arches, loops, and whorls that give the fingerprint structure and make it distinctive. Our experiences alter the fingerprint much as a cut might leave a scar.

Just as a real fingerprint offers forensic analysts clues to identity, the risk fingerprint offers a window into who each of us is: how we feel about authority and power, about our sense of human agency, how we relate to each other in groups, and broader cultural differences that can make societies particularly risk sensitive or risk blind. It sheds light on what people hope and fear—and why—and how much power they feel they and their leaders have over the world around them.

RISK ECOSYSTEM: The cultural, social, policy, and economic environment that affects the risk decisions of individuals and organizations.

The ecosystem in which we live and work—the cultural, social, policy, and economic environment that heightens risk or provides a safety net—smooths out or accentuates our personality. Finally, our risk habits alter the print further, just as how well we care for our hands determines the softness or roughness of our skin.

Our lives depend on what we believe about risk and the choices we make because of what we believe. “Risk has everything to do with survival,” the British psychologist Geoff Trickey, who specializes in risk and personality and with whom we’ll spend more time shortly, told me. “The balance between risk and opportunity is the line between life and death.”

How we perceive and weigh the threats and opportunities in front of us, which ones we embrace and which ones we reject, shapes our futures as individuals, workers, communities, and nations. Risk personality traits are important to each one of us and our intimate relationships. Their dynamic becomes exponentially more complex and exaggerated when we come together in groups.

No matter where you work or what you do, you cannot separate your success or failure from your ability to respond to anticipated changes, what risks you are willing to take, how well you have created a safety net in case of unanticipated events, and how those attitudes complement or clash with the people around you. Risk defines nearly every aspect of our personalities, our work, our leisure time, and how our societies function. The better you understand and evolve your relationship with risk, the more likely you are to succeed in any of these realms.

THE BIGGEST RISK IS STANDING STILL

An adventurous young family I know is a great example of how awareness of your own risk fingerprint can help you to make important changes that help you to face uncertainty and thrive. While they were still in their twenties, Megan and Marty Bhatia built several real estate development businesses bringing sustainable practices to rough neighborhoods, including supplies, construction, and brokerage. They had fourteen employees and owned a nice home in Chicago’s trendy West Loop neighborhood.

But then the 2008 financial crisis and real estate crash hit. They had borrowed heavily and found themselves owing nearly twice what their assets were worth. Marty’s mentor in the industry blew his head off with a shotgun. On the street one night, they stopped to help a man who looked distressed and was wearing multiple hospital bracelets. He was suicidal after losing $100,000 and his restaurant when the market crashed, but he did not owe anything close to the Bhatia’s more than $1 million in debt. The interaction was powerful: “It was then that I realized that we were in much better position mentally and emotionally because Marty and I had each other and we had our family,” Megan said. “He was obviously someone who had recently been very professional, lost it all, and didn’t have a support system.”

They pushed through with the help of their families, renegotiating debts down, keeping things together with Megan selling real estate for another firm and Marty starting a technology services company, and focusing on what they were grateful for. They avoided foreclosure and bankruptcy. As the economy recovered, so did their business. It felt as if they’d lived seven lives, even before they were thirty. Still, as time went by, they began to feel trapped. Their home cost more than they wanted to pay, and they worried about a new recession. Once their twins were born in 2015, they began to worry that traditional approaches to raising kids wouldn’t cut it in the future economy. That feeling kept growing.

Finally, late in 2018, they decided to sell their home and everything in it and set out to spend a year traveling the world with the twins. They could think of no better way to teach the twins to have confidence in themselves in new situations. “In the past, the idea of losing our home would have caused massive stress,” Megan said over coffee at a Lincoln Park café as they were getting ready to set off around the world. “Now, the idea of owning a home stresses us out,” Marty countered.

Over the next year and a half, they lived in Brazil, Chile, England, Belgium, Spain, Portugal, the Netherlands, France, Hawaii, and Australia. They’d intended to stay longer in Australia, but wildfires were raging around Sydney and the air quality was terrible. So they cut their visit short and traveled on to New Zealand, where they found themselves when the COVID-19 pandemic hit. They’d been there for about six months when we caught up. The irony was not lost on them that embarking on what most others would see as an extremely risky endeavor had landed them in one of the safest places in the world to be. “Our friends and family were most worried about what we would do about school for the kids,” Megan said. “But our kids have been in school for the last six months straight!”

On one level, their life appears to be high risk. On another level, they don’t have some of the same worries they had in the United States, like school shootings. “When we left, we were nervous about our kids and school and health care,” Marty said. “That first six months we went through a lot of pain around asking ourselves if we were doing the right thing. That was until our kids started to show us how much they’re accelerating and how much they’re adapting.” He was proud that amid all the uncertainty, their family was living in and building a future from a place of emotional and physical safety that created a foundation for their twins. “One of the things that we refuse to do is use the fear factor. Fear can be useful, because it can tell you something about yourself. But it shouldn’t be the place of operating,” Marty said.

“We get to create our lives more than the average person that has a really set routine or stays in the same place,” Megan said. “For us, creation is everything; it’s our version of our future. Do we want to project it from a place of fear or project it from a place of feeling grounded and secure and knowing that we can handle whatever comes up?”

When we spoke in late summer 2020, they were living in Auckland, New Zealand, where they had bartered Marty’s digital skills for a place to live. But they were thinking ahead to when that project was done and where their next destinations might be, likely Costa Rica and Portugal.

Megan and Marty Bhatia likely would send many people’s risk radars off of the scale. But they have built a risk safety net that reduced the uncertainty that their decisions entailed, even as the risks they have taken have made them more at ease with uncertain environments. They had highly portable digital skills that they could use anywhere in the world. When making life decisions, they started by focusing on purpose and learning. They created security where it seemed that there was none. They took control over their future but left ample room for uncertainty. They leaned on a community of supportive friends and family. They are teaching their children how to thrive amid uncertainty and change and to take smart risks.

Even the most risk-averse among us can learn from Marty and Megan, who have weighed risks, learned from the ones that worked out and the ones that didn’t, and above all communicated with each other about what directions they want to go and how to harmonize their approaches. In their marriage, they’ve had to negotiate risks that they saw from different angles, particularly when Marty was pushing for bigger risks than Megan was comfortable with. They grew up in very different families with distinct risk educations and traditions: Marty with an alcoholic, inattentive Irish-Catholic mother and a high-achieving Indian doctor father, and Megan with a stay-at-home mother and an Army Ranger-turned-lawyer father. Marty was a tough kid on the streets, and Megan’s family took in international students in a cookie-cutter suburban Chicago neighborhood. But they’ve resolved their risk differences by focusing together on their purpose in life: having a good compass instead of just a good map, as the leadership guru Stephen Covey put it. “We’re both on the same page feeling that staying the same is the riskiest thing we can do,” Megan said. “In the future, the people with the hardest time will be the most rigid ones.”

These principles are relevant to each one of us, but also to the businesses, organizations, and societies that bring us together and anchor the way we talk about and manage risk. They pack a powerful emotional punch in a world where emotions too often seem to eclipse reason. And they have the power to bridge the gap between those who make risk decisions with their gut and those who stay in their heads.

WHY OUR RISK RELATIONSHIPS MATTER

Relationships can thrive or collapse if the people involved can’t reconcile their attitudes about risk. Would you get in the car with anyone who drinks and drives, or speeds and scoffs at traffic laws? If someone insists that you do something you feel is unsafe, would you still spend time with them? Or how about the friend or colleague who ignores pleas to stop self-destructive behavior like smoking, heavy drinking, or gambling?

In business, it’s not just talent or skills that make the difference: it’s character, which often shows up in risk judgments. One of the biggest reasons business partnerships fail is personality clashes. This often overlaps with diverging visions for the business. Risk attitudes are a big part of both. On the job, differences in risk sensitivities and experiences affect how well teams collaborate, and how well management handles tough choices—like whether or not to take big risks with safety, the law, and shareholders’ money. They are a major driver behind the behaviors of boards and CEOs. The headlines about bad corporate risk decisions never seem to end: emissions violations, trades gone wrong, scandal upon scandal. But the problem goes much deeper than the companies whose woes make the news.

A barrage of news and social media has increased public knowledge of risks as well as the misconceptions we might hold. New technologies bring great promise to those who control them while threatening to leave others behind. Fewer and fewer people see the nine-to-five job as a guarantee of safety as tectonic changes shake the future of work. Increasingly extreme weather threatens homes, communities, and businesses.

Potential global catastrophic risks can seem so overwhelming that many people tune them out. Our responses swing wildly between overprotecting ourselves from some risks, ignoring others, and embracing more and more questionable risks. These tensions will only heighten with the advance of technology and its widening impacts on society.

Our broken relationship with risk is widening some of today’s most dangerous global fault lines, not least of which is the rise of inequality and the related surge of populism. Citizens are overwhelmed, feeling ever less control over our fates amid political turmoil, economic pain, and the breakdown of global order.

The COVID-19 pandemic has only made this tenuous situation worse. An invisible pathogen, insidious and poorly understood, has upended life as we know it. As the novel coronavirus spread around the globe, countries responded in their own ways, closely tied to their leaders’ and citizens’ relationship with risk. Where government mandates are weak or nonexistent, individual citizens have made their own judgments about the risk to themselves and others and in turn contributed to increasing or minimizing the danger. Every decision by policy makers and businesses, and by each person—masks or no masks, social distancing or not, whether to order people to stay home and whether to comply—has affected everyone’s safety. Refusing to take precautions became a defiant statement against the disease and against those fighting to contain it.

But our uncertain reality also offers some hope, in the way that they say the darkest hour of the night comes right before dawn: Many people have realized just how bad things can get when governments and citizens fail to recognize obvious dangers and act to prevent or at least minimize the damage.

The risk decisions that governments and policy makers make influence whether businesses and economies are creative, innovative, and thriving—or hidebound, depressed, and decaying. They can support environments where consumers trust or distrust businesses. The risk-taking that societies encourage or bar has wide-reaching repercussions: creating or destroying fortunes, supporting sages or charlatans, unicorns or Ponzi schemes. So many policies are, at heart, about risk: taxes, education, laws and regulations, health care regimes, social insurance, immigration, infrastructure, technology. And too often, the Goldilocks of risk remains elusive, as governments promote either too much or too little of it.

Tectonic shifts in the way we work and for whom we work, the pace of change, and the way we make decisions on the job will make it even more important for everyone to better understand risk—whether we are working “for the man” or in the gig economy, leading companies or investing in them. As workplace safety nets shrink and more and more potential global crises seem out of citizens’ control, a public crisis in people’s relationship with risk has been growing. Poor risk literacy—difficulty sorting out how big or likely a threat is—makes it harder for each of us to protect ourselves when the people around us misjudge risks to themselves and others.

Western helicopter parents, or their nannies, hover over children in padded playgrounds. While American kids of Gen X and earlier generations had the freedom to roam more or less freely, too many of today’s parents keep their children on a much tighter rein, seeking to protect them from any possible risk. And college students demand “safe spaces” free from the possibility of emotional distress or offense.

Widespread uncertainty has produced knee-jerk reactions against experts and governments, both of which have seen trust in them plummet. Science has been replaced by anti-vaxxers and climate change deniers deciding for themselves what’s risky or not, in order to create a false sense of control for themselves while raising risks for the rest of us.

Even as some people make dangerous risk decisions in a futile attempt to defy an unwelcome reality, others crave positive risk experiences that they can control. This has spawned new and growing business trends: extreme sports and other high-risk activities, “escape rooms” mimicking captivity, violent video games that simulate risk, and risk-glorifying media.

Many observers have criticized overzealous efforts to limit risk and railed against the way that technology has replaced live experiences. They suggest that this cultural shift is behind the new obsession with risks that we voluntarily choose—and over which we have more control.

Western societies have tried so hard to control certain kinds of risk while letting others run rampant that we’ve deprived newer generations of the ability to accurately perceive and respond to them. In an increasingly uncertain world, too many people have lost the ability to accept that a degree of uncertainty remains in most matters, and instead have fallen into a toxic relationship with risk. “We live in a society where risk is systematically reduced, where risk is replaced by comfort. So I think if people could learn anything, it’s that risk remains crucial to an animated and intelligent society,” the Dutch architect and urban theorist Rem Koolhaas told The Guardian newspaper in 2016. He was speaking of the unexpected beauty and functionality that emerged from the chaos of Lagos, Nigeria. Throughout his career, Koolhaas has been a vocal critic of risk aversion in architecture and in society and an advocate of the roles of transgression and imperfection in nurturing creativity and a sense of human agency: the power to shape outcomes. Both are essential as technology changes human behavior and society.

It is no longer enough to talk only about specific risks, plural. It’s time to get real about the nature of risk itself and our relationship to it as individuals, organizations, communities, nations, and societies. Nor can we separate the conversation about our personal preferences from one about the cultures and relationships that mold us even as we shape them, in a complex dance and feedback loop. Our cultures and societies and the systems that reinforce their values affect how we relate to risk. But in turn, especially in today’s age of social media, we influence them back.

RESHAPING OUR RELATIONSHIP WITH RISK

More than ever, confronting and managing risk is a crucial skill. So are two closely related skills: creativity and judgment. As machines take over more and more tasks, humans will need to hone such skills, in which we have an advantage over machines. Executives must be able to assess and nurture your team’s risk management acumen.

RISK EMPATHY: The ability to relate to the ways others experience risks and adapt your own behavior to accommodate those needs.

Understanding how your own risk perceptions and attitudes shape your behavior and that of the people around you gives you power to decide for yourself and to negotiate more effectively with others about what risks to take and when to play it safe. It also allows you to practice risk empathy: relating to others’ risk attitudes and adapting your behavior so that you both can be more comfortable with whatever risks you are facing.

Taking an active role in your relationship with risk can change your life, helping you take more chances that lead to opportunities and make fewer dangerous bets that lead to nothing good. It can give you insights into other aspects of your personality and actions, like how well you cope with ambiguity and uncertainty, and what you value most: your fears and dreams. Insight into why you make the risk choices you do can help you to make better conscious decisions about risk and how you relate to the people around you. And seeing conflicts as the result of clashing risk personalities can resolve situations that otherwise might remain at an impasse.

What’s the right amount of risk? How much uncertainty is too much? The goal should be like Goldilocks’ quest for something not too hot, not too cold; not too big or small; but just right. But the empirical amount of stress is not the only thing that matters. How much risk each individual perceives is essential. For Mama Bear, the porridge that Goldilocks found to be too cold was, in fact, just right. For Papa Bear, what was too hot for Goldilocks was not at all for him.

For some people, there’s no such thing as too much risk. Were top traders, race-car drivers, fighter pilots, stunt performers, and daredevils born with a natural affinity for it? Or did they do something to learn to control their reactions? The likely answer is a combination of natural personality traits and life experience. These professionals train intensely to reduce uncertainty when they take risks, practicing so extensively that they can trust their gut reactions more than other people can.

When you’re familiar with a scenario, you can make decisions quickly. But people who don’t feel they have enough information and fear the risk of making the wrong choice will find the same situation hugely stressful. Personality still comes into play. Some people are masters of second-guessing: Even when they know the material backwards and forwards, they don’t have the confidence in their ability to respond well. In general, however, by facing a risk and learning to respond we can objectively reduce the danger it poses. Just think how much higher the odds of crashing and burning in a high-stakes race would be for an amateur, versus for a professional.

Many influences on our risk personalities and our ability to do something about obvious dangers have to do with experiences specific to each and every one of us: who we are, how we were raised, the perils we’ve faced in the past, successfully or not. Others have to do with the nature of the risk at hand, including how serious it appears to be, how wide its impact, and how much emotion it evokes. Still others have to do with the organizations and communities in which we work and live: what those around us think about the risks we all face, whose responsibility they believe it is to deal with them, and how much confidence they have in whoever is responsible.

RISK PERCEPTION: How risky you judge something to be.

RISK ATTITUDE: Chosen responses to a given set of risks.

Understanding what is behind the differences in our risk perceptions—how risky we see things as being and how closely our perception hews to reality—and risk attitudes—chosen responses that determine how much risk we can tolerate and what we’re willing to do about it—can make risk work for instead of against us in a world that feels increasingly insecure. And it can help us to move toward a new reality in which we are more aware of both the nature of the risks we face and what shapes our own reactions to them, and in which organizations, communities, and nations more intelligently and fairly manage risk and uncertainty.

In many ways, the uncertainty so many of us feel today echoes the social, economic, and political backdrop to Annie Edson Taylor’s Niagara Falls stunt. The world is changing in ways we cannot fully predict or understand. Things feel the most frightening for those with the most to lose and the flimsiest protections against risk and the unexpected. The COVID-19 pandemic has upended life as we know it and exposed the consequences of letting many risks go unaddressed.

These days, it can feel like things are more uncertain than they have ever been. But an email my uncle forwarded put things into perspective, especially for those of us who are fortunate enough to have been able to adapt to the pandemic shock. The essence of the email was that a person born around the time Taylor tumbled down Niagara Falls would have lived through two World Wars, the 1918 Great Flu Pandemic, countless smaller epidemics, the Great Depression, the Cold War, the invention of television and the internet, and many global social, political, and economic tectonic shifts. Will the changes ahead of us be as vast and disruptive as those? Will we deal with them as well as, better, or worse than our predecessors did?

2

The Meaning of Risk

LEARNING TO THRIVE in uncertain times makes you more willing to take risks. Taking risks makes you more comfortable with uncertainty. Before we delve deeper into our relationship with risk and our ability to thrive in these uncertain times, it’s worth spending some time making sure we know what each of us means when we talk about both terms.

Many people who experienced extreme uncertainty early on in their lives have a distinctive perspective on taking chances on the unknown. They see more of the upside. They are self-aware. They know what is important to them. Ironically, the people who have mastered risk and uncertainty have an entirely different vocabulary for those concepts.

“Entrepreneurs don’t calculate risk. We rely on resilience, hope, and trust,” the Senegalese-born businesswoman, technology investor, and education advocate Mariéme Jamme told me over lunch at London’s Waterloo train station. Her work as a technologist and social entrepreneur is impressive by any measure but even more so because of the adversity she overcame to become recognized globally for her business success and activism.

Mariéme has led a life of extreme uncertainty: so extreme, in fact, that she describes herself as an “out of order person.” Born in Senegal to a noble family whose mother abandoned her and her twin brother after she was raped at eleven years old by her Quranic teacher, Mariéme did not know her father, who was a prominent civil servant. At thirteen, she was trafficked from Senegal to Paris where she found herself in a refuge center near Saint-Denis with other young trafficked women and Rwandan genocide survivers. When French police raided the tube station where she was staying, she felt a surge of an emotion few might have expected: hope. “Many people who have been through a traumatic experience live by hope, because we can’t afford to dream,” Mariéme said. Yet dream she did.

Mariéme did not learn to read and write until she was sixteen; she had to teach herself. She survived by taking cleaning jobs at hotels, bars, and restaurants, earning enough money to move to London and improve her English. She learned to program computers and became a technology entrepreneur and consultant who has helped major technology corporations expand in Africa, the Middle East, and Asia. In 2017, she founded iamtheCODE, a social enterprise that aims to train one million women and girl coders by 2030, while mobilizing governments, businesses, and investors to support them in science, technology, engineering, arts, mathematics, and design careers. She wants them to have opportunities that will prevent them from having to go through anything like her own harrowing early adulthood.

Though entrepreneurs take risks every day, the word risk barely even makes it into her vocabulary. It held such a tenuous place that Mariéme had to take a moment to answer when I asked how she defined risk. “I see it more as ‘hope’,” she finally said. “I have a deep, deep belief that I will achieve what I want. Like a badge inside my heart.” Instead of thinking of risks or uncertainty, she places this hope in something that she wants to happen and puts her energy into making it reality.

Her story, including the way she talks about risk as not being risk at all, is part of an incredible, untold story of what risk really is, and how it applies to your own life, to organizations, and to governments and societies. When I began to delve into the etymology of the word, I got as far back as the 7th century, when the idea of risk began to take form as an economic concept. When I shared my etymological findings with a writer friend, he raised a challenging question: What was risk before there was a word for it? Perhaps, he suggested, risk was simply “life.” It was a fascinating iteration on Mariéme’s view of risk-taking as simply the things you do to get by. My writer friend’s idea held a powerful truth that is at the heart of this book: Your life is made up of the risks you take, just as your life is who you are. Let’s delve further into what risk actually means and how its meaning has evolved over time.

A WESTERN ETYMOLOGY OF RISK

As used in Western languages, the word “risk” comes from Persian, Arabic, and Greek origins that meld military and nautical meanings. These distinctions play out in the choices that societies have made in reconceiving the world according to their own views of risk and responsibility, in the role of the individual and society in the choices we make to deal with uncertainty and change.

The linguists Henry and Renée Kahane traced the word’s origins back to a Persian-Arabic military term rogik, which evolved into the Arabic rizq. “[R]izq, an expression of military government, referred to the sustenance of the Arabic officials and soldiers in newly conquered Byzantine Egypt; they had to live on the land by taking what they could get,” they wrote. In the late 7th century, the word migrated to Byzantine Greek as ῥιζικό, ριζικό (rhizikó, rizikó). Its meaning shifted as well. Significantly, it no longer represented a soldier’s right to requisition, but now suggested reliance on “luck, good or bad, in finding maintenance, eventually generalizing it to ‘chance, fate.’ ” In modern use, the word suggests livelihood or sustenance, which is granted by divine provenance. As the Kahanes noted, “modern risk still preserves the two semantic roots of its past, the military and the nautical, the chance and the danger.”

The Persian-Arabic concept merged with the Greek ῥίζα (rizha), for root or stone; and the Latin resicum, for cliff, both used as nautical terms describing potential threats to boats. Fittingly, the first commercial use of the term would be in the maritime industry. The expression then migrated to Italian (risco, for “danger”), and then to French (the verb risquer), Spanish (riesgo), and Portuguese (risco), and then to German (risiko) around the 17th century. “We think it is worth noting that these expressions were spread to different European languages in a time of daring and discovery of new seaways and continents,” the scholars Ove Njå, Øivind Solberg, and Geir Sverre Braut have written. “In the 16th century it seems that risk had a positive connotation. For example in middle-high-German, Rysigo (1507) was a technical term for business, with the positive connotation ‘to dare, to undertake, to hope for economic success’.”

The history of the mathematical and commercial development of risk in Western society is recounted brilliantly in Peter L. Bernstein’s book Against the Gods: The Remarkable Story of Risk. “The revolutionary idea that defines the boundary between modern times and the past is a mastery of risk,” Bernstein argues, correctly. He ably recounts how the 17th-century mathematician Blaise Pascal, working with fellow mathematicians, the nobleman and gambler Chevalier de Méré and the lawyer Pierre de Fermat, developed a method for analyzing probabilities, an early attempt to quantify risk, and thus tame it. They drew on the work of both the astronomer Galileo, the physician and gambler Girolamo Cardano, and the “Precious Mirror of the Four Elements” device created by the 14th-century Chinese mathematician Chu Shi-Chieh, which later would become known as Pascal’s Triangle. Pascal and his associates developed what today is a pillar of risk theory: that fear of harm—in other words, risk—depends on both the probability and the gravity of the event in question.

The Swiss mathematician Daniel Bernoulli in 1738 introduced the concept of objective versus subjective decisions based on utility, or the desirability of a given risk. He recognized that how anyone perceives the costs versus benefits of a risk depends on their own particular circumstances and what is useful or satisfying to them, which in turn depends on what they already have. He devised a way to measure what previously had been unmeasurable: the motivation of a risk-seeker or avoider. Bernoulli built on insights by the French mathematician Abraham de Moivre, who in 1711 incorporated in risk calculation the concept of probability of loss. Referencing “adventure,” which sometimes appears in lists of synonyms for risk, de Moivre uses the expression “the sum adventured.”

As the economic historian Jonathan Levy argues, the concept of risk is central to the development of American trade and commerce, and by extension the global economy. It’s not just America: much of the Western conversation about risk has taken place using the language of mathematics and commerce, and risk as an asset to be claimed and owned. “Risk made its appearance in the English language in the 16th century, but in the United States even as late as the 1820s it had yet to be fully anglicized from ‘risque’—the commodity exchanged in a marine insurance contract,” Levy wrote in Freaks of Fortune. But soon risk took on a moral and commercial life as part of the modern economy, from maritime contracts to personal accident insurance in the 1840s, to corporate risk management at the end of the 19th century (and, not long afterward, widespread life insurance and ethnic burial societies in the early 20th century). “Liberal notions of selfhood had long emphasized the need for self-mastery, even in the face of uncertainty,” Levy wrote. “But only in the 19th century did self-ownership come to mean mastery over a personal financial ‘risk.’ The moral conundrum that posed, and still poses, is that individual freedom required a new form of dependence. Dependence, that is, upon a new corporate financial system, the central nervous system of a rising capitalism that fed off radical uncertainty and ceaseless change.”

Through this lens, it becomes clear that risk is the foundation of the modern global economy. That makes it all the more important for people to share a common understanding of what risk means and how it affects daily transactions and decisions: its moral, financial, commercial, and other implications. Yet agreement on the meaning of risk remains startlingly elusive.

Risk professionals have spent their careers thinking about probability, uncertainty, and how to properly assess risks as both dangers and opportunities. But so many have expressed to me how frustrated they are in trying to get others in their organizations to take it as seriously as they do. In fact, lay people and risk professionals think and talk about risk so differently that it’s as if they don’t even speak the same language. That’s why it’s so important to establish common ground. A quick review of the meaning of risk can help risk professionals to better explain key principles in simpler terms. For non-professionals, a quick study of the meaning of risk can open up a whole set of brand new perspectives.

CONTROLLING THE DEFINITION OF RISK

Dangers may be very real, but the actual risk any of them poses is subject to debate. “Humans have invented the concept [of] risk to help them to understand and cope with the uncertainties of life,” Paul Slovic, the eminent psychologist and scholar of risk perceptions, wrote in The Perception of Risk. “Whoever controls the definition of risk controls the rational solution to the problem at hand.”

RISK APPETITE: The amount and type of risk you are willing to take—particularly the loss you are willing to suffer—in exchange for the opportunity to pursue a specified possible gain.

RISK ASSETS: Any financial asset whose return is not guaranteed, typically used to describe stocks, high-yield bonds, commodities, and other assets whose prices are volatile.

That insight suggests that the biggest obstacle to good risk management may have less to do with any particular risk at hand, and more to do with the fact that people are not even on the same page about what risk means. Experts in different professions don’t have a common way of talking about risk, even when they seem to speak the same language. To an actuary, risk is a very specific term measuring the probability that, say, a fifty-year-old woman will die within the next ten years. To a trader of derivative securities, risk is a calculation of the potential profit or loss. Money managers love to talk about risk “appetite”: how much risk people are willing to take, which in financial terms implies how much they are willing to risk losing in return for a particular potential gain. Risk appetite often translates into an obsessive search for investments that can make more money, often in so-called “risk assets”: things like stocks, high-yield bonds, and other assets whose return is not guaranteed. Lawyers want to minimize or even eliminate risky behavior, but too often forget that avoiding “bad” risks at all costs presents a countervailing risk: that we will fail to take “good risks.”

Mathematicians and scientists want to calculate, model, and measure risk even when there is more uncertainty than anyone would like to admit. Economists care about how people choose among risk trade-offs. Social scientists seek to understand the cultural context. Historians, humanists, and novelists want to tell its story. And philosophers ponder risk in search of wisdom. Psychologists want to document how people visualize and process information about risks and probabilities. Risk managers, insurance companies, and Wall Street largely have kept risk in a silo: quantitative, technical, and deceptively precise.

Though the gap between the social and mathematical sciences worlds is large, the distance between technical and real-life conversations is even wider. In common conversation, risk overlaps with many concepts. There’s a strong tension between negative and positive definitions of risk. On the one hand, people might think of a risk as something to avoid: a hazard, liability, peril, or danger that puts in jeopardy and threatens the potential loss of something important. This version of risk often goes hand in hand with uncertainty, randomness, exposure, and lack of control. On the other, risk embracers might describe it in terms of an adventure, dare, or thrill, seeing it in positive terms of opportunity, possibility, prospect, venture, wager, or gamble, closely tied to trying one’s luck, taking a chance, or seeking your fortune. Hope is embedded in this optimistic version of risk. Both views are intertwined with notions of trust, confidence, and predictability.

Then there is the distinction between risks of action and inaction. Active risks are the ones we take. Going skydiving or driving over the speed limit are choices. Whether we are aware of it or not, we are constantly calculating how much risk is too much, too little, or just the right amount. Passive risks are the ones we face whether we like it or not. They involve the threat of bad things that could happen to us if we fail to act in a certain way: that we will crash our car if we don’t call a taxi instead of driving drunk; that we will die broke if we don’t save for retirement; that if we eat too many cheeseburgers we will have a heart attack; that if we don’t meet our performance targets we likely will get fired or our business will fail. Passive risks also represent the failure to take an active risk: to invest in education, to start a business, to ask for that raise. Because passive risks are defined by inaction instead of the wild leap of many active risks, they are dangerously deceptive and the ones we are most likely to underestimate.

The sociologist Jens O. Zinn defines three categories of risk-taking: “Risk as an end in itself, as a means to an end, and as a response to vulnerability.” The first is the domain of thrill seekers who take risks for the adrenaline rush. The second involves people who are aware of the risks in front of them but deem those risks to be worth taking as they pursue a goal like greater social good. The third is the kind of choice that may pit one unbearable risk against a barely bearable one, such as refugees fleeing their homeland or desperately poor people turning to criminal activity because they see no other way to survive.

RISK VERSUS UNCERTAINTY

Most people tend to think of risk and uncertainty as inseparable. If you take that new job, will it be as perfect on paper as it seems to be, or is the reality something quite different and not nearly as appealing? If you invest in that mutual fund, will it perform better than wherever else you might have invested your money? If you buy that house, will it require surprise expensive maintenance? We know that if we don’t follow a budget, we may run out of money, unless something dramatic happens, like winning the lottery, inheriting money, or getting a new job; but the outcome depends on our actions. The same goes for relationships or health, just as for careers and finances. Your ability to handle uncertainty shapes how well you can manage risk and, in turn, change.

“When we’re looking at risk and risk tolerance, one of the markers is ‘How well do people manage uncertainty?’ ” Barbara Reynolds, a crisis and emergency risk communication consultant who teaches at the Tulane School of Public Health and Medicine, told me. In her work around the world over the years, Reynolds has found that individuals, organizations, and countries that have a greater tolerance for uncertainty handle risk and crisis better.

In sharp contrast to the way most people think about risk and uncertainty, the finance profession draws a stark line between the two. In finance, uncertainty is a threat that is hard to measure. That can mean we don’t know if it will happen at all; when it will happen; or what exactly will happen. We all know that we will die no matter what: Death involves “when” and “how,” but not “if.” Risk, by comparison, supposedly is measurable: an attempt by economists, financiers, and insurance companies to tame uncertainty, and thus to trade in it. The distinction is an illusion that creates enough of an imagined element of certainty to allow investors to trade in risk and insurers to protect assets.

In his seminal 1921 book Risk, Uncertainty and Profit, the University of Chicago economist Frank Knight, established a formal definition of the difference between risk and uncertainty and profoundly shaped the field of risk management. For him, risk proper was an uncertainty whose probability could be calculated with “effective certainty”—which depends on what you mean by “effective” and “certain,” two concepts whose scopes vary widely depending on the observer. By contrast, it is impossible to calculate or measure true uncertainty. “ ‘Risk’ means in some cases a quantity susceptible of measurement,” he wrote. “It will appear that a measurable uncertainty, or ‘risk’ proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all.”

KNIGHTIAN RISK: A measurable uncertainty.

UNCERTAINTY: A state of limited knowledge characterized by the inability to measure probabilities.

Knight, who considered both the ability to foresee the future and an active role for governments to be highly overrated, wrote extensively on the role of risk and uncertainty in catalyzing and rewarding entrepreneurial action. Risk, after all, is central to capitalism: Investors put capital at risk in endeavors they believe will pay off, but may not—and as a result, expect a significant reward when it does.

The eminent British economist John Maynard Keynes, who published A Treatise on Probability the same year as Knight’s book, similarly divides risks into definable and undefinable. These two giants of the economics profession, Knight and Keynes, would clash later in their careers, pitting left versus right, as their views on risk and uncertainty offered competing perspectives involving certainty and measurement versus perception and meaning. Drawing on earlier work by Adam Smith, Keynes was comfortable with a much higher level of uncertainty. He accepted a much broader range of possibilities in calling something “probable,” similar to the way many of us might speak of the probability of a rainstorm. He looked at the degree, or weight, of probability; that is, a range of values instead of in zero-sum terms, a much more nuanced definition. “A large portion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic,” Keynes wrote in 1936. “Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits—of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

The tension between an absolutist definition of risk and probability and a more general, flexible one is crucial today. People who hew to the Knightian definition tend to put too much faith in our ability to estimate risk, and thus to control it. That’s partly how so many people came to rely on the subprime mortgage risk ratings of the mid-aughts, which, of course, turned out to be catastrophically off base. But too many investors and analysts insist too tightly on a precise prediction for it to count as a prediction at all. The market’s going to crash? Okay, what day and by how many points and what’s the trigger? If you don’t have that information, it doesn’t “count” as a prediction.

Keynes emphasized the importance of acting as if there were some degree of certainty, even when that certainty did not exist. And he acknowledged the role of emotion in decision-making, much as many behavioral economists have done recently. The entire concept of risk is a construction to help humans function in an uncertain world: to provide an illusion of certainty when there is none, and to compensate people who treat risks as opportunities.

Knight and Keynes both would have recognized that risk is inseparable from creativity and innovation. Societies and economies are engaged in a complex dance between uncertainty, control, and risk, which can combine to create a vicious or virtuous spiral. Too much uncertainty stifles investment; too little stifles innovation and growth. Governments, economies, and societies are built on a set of decisions about which risks their members believe we should encourage or discourage, and whom to protect from which risks and how to do it. Underlying these decisions are assumptions about who bears responsibility for risks gone wrong: which risks should be left to individuals and organizations to decide, and which governments should regulate and supervise.

People may think that they don’t like taking risks. But their real issue often is not that they are not comfortable with risk but rather that uncertainty is what makes them squirm. And despite what the economists and actuaries would have us believe, taking a risk means assuming uncertainty.

PROBABILITY, CERTAINTY, AND IMPACT

The degree of likelihood and the size of potential impact are two of the biggest lies we tell ourselves. That’s a problem because risk is a function of likelihood multiplied by potential impact. Human biases tend to distort both of these concepts. How we perceive impact depends on who a risk might affect and how we feel about them; how close or far in time and distance; and how widespread and severe effects might be. All of these are extremely subjective. We tend to discount events far away as measured by distance or time; pay more attention to threats to a single person with whom we have an emotional connection than to hundreds, thousands, even millions of people far away or from a different culture. And our brains are programmed to shut out unwanted information. (We’ll go into this in more depth in chapter 10.)

We calculate likelihoods all the time, usually based on some kind of data and past occurrences: chance of rain, odds that a given horse will win a race or that a team will win a game, a rating suggesting how likely a bond issuer is to default, and whether a flipped quarter will come up heads or tails. Most people see likelihood as more like a coin flip—in which there are only two options—than as being on a spectrum of possibilities. Either something is or is not likely. People outside of the realm of finance and economics tend to have a hard time with the gray area in between.

Over lunch in Manhattan, a friend and I were discussing a conference we’d attended a few months earlier on global catastrophic risks: the ones that will have immense impact if they come to pass: irreversible climate change, weapons of mass destruction, and the like. As risk professionals know, risk equals probability times potential impact. But most people—even very smart ones—struggle to think in those terms. “I have trouble seeing risk that way,” he confided. “For me, it’s binary: either something is going to happen or not.”

For many people, risk decisions are binary: either you do something or not based on the information you have. When the forecast says there’s a 30 percent chance of rain, you either take an umbrella to work or you don’t. When you know there’s a chance the stock market could go up or down, you either invest or you don’t. In essence, we “flatten” a complex set of information into something much simpler. Risk professionals and a broader risk-literate population, however, are able to see a spectrum of probabilities and consider what they are going to do based on that large gray area. This dichotomy, between people who see risk as binary and those who see it as a spectrum, helps explain some of the disconnect when risk professionals try to get others to understand their perspective.

Changes in the nature of prediction, and in our recent experiences with predictions that turned out to be accurate or not, affect where we draw the line between too risky or not too risky. New data techniques may allow us to predict things that we couldn’t before. But these predictions depend on the accuracy of the underlying data, and on how well the prediction algorithm works.

RISK SOCIETY

Our attitudes toward specific risks and even our definition of risk itself depend in part on the information that bombards us. Governments, media, and our peers play a big role in highlighting or downplaying risks and in how confident people feel that they or others can handle those risks. The late German sociologist Ulrich Beck argued that governments “stage” risks, crafting citizens’ perceptions by the way they communicate and prioritize risks. In many cases, there is a huge gap between what governments say is risky and what the populace fears. In the 1980s, Beck and the English sociologist Anthony Giddens coined the term “risk society,” to reflect a world that is constantly in struggle with the human-created side effects of modernization, including “inscrutable threats that affect everybody and against which nobody can adequately insure.” Beck, who died in 2015, was a rock star in academic circles. He described a dystopian world that threatens poor and wealthy alike, where markets collapse, legal systems prove inadequate, scientific progress consists of subverting experts even as it makes risks more and more visible. Financial markets have socialized risk and privatized profit.

RISK SOCIETY: A world characterized by risks caused by humans.

Beck and his acolytes have argued that society is overdue for a reevaluation of the systems that regulate and distribute risk. They are spot-on. Globalization brings together people of different cultures and views, which feeds into a dangerous mix of often clashing attitudes and perceptions of risk: which are real, which are not; which are acceptable, which are intolerable.

“The less calculable risk becomes, however, the more weight culturally shifting perceptions of risk acquire, with the result that the distinction between risk and cultural perception of risk becomes blurred. The same risk becomes ‘real’ in different ways from the perspective of different countries and cultures,” Beck has argued. “The more the world contracts as globalization progresses, the more these clashing cultural perceptions stand out as mutually exclusive certainties.” Beck sees this clash of risk cultures and realities as one of the most fundamental problems of geopolitics today. Indeed, the range of responses to COVID-19 reinforces this argument.

The concept of colliding risk cultures and realities helps to explain the political chasm between red states and blue states in the United States and among nations whose citizens have distinct fears and ambitions. Politicians pay attention to what their constituents think about risk, but they also stoke fears or downplay other risks to shape what their constituents believe is a chance worth taking or not. Nations’ futures depend on whether their citizens and leaders can agree on which risks they will tolerate and which ones they bring as close to eliminating as they can. Similarly, when it comes to global risks, considering national risk attitudes can help to reframe negotiations among nations in new ways that could lead to agreements that otherwise seem impossible.

THE MEANING OF “RISK-FREE”

The idea of eliminating risks is tantalizing but as much of a fantasy as the idea that risk and uncertainty can be separated. Think of that offer on late-night TV portrayed as a risk-free trial, which is anything but. Either a product works or doesn’t, but if you decide to return it you’ve lost time, have to wait for your money to be refunded, and probably have to walk to the nearest mailing facility and pay for return postage.

Americans bought into the heavily marketed idea of homes as a “risk-free” investment at the tail end of the post–Great Depression bull market in housing, not long before housing prices fell sharply in 2007–10. “Risk-free” turned out to be a dangerous illusion.

Or look at government bonds. Bear with me, if this seems a bit technical; it’s important. Regulators require banks to document the risk level of the securities and other assets on their balance sheets, and to reflect changes in their value regularly in a practice known as “marking to market.” But because governments depend on banks for financing, and want to get funds as cheaply as possible, banks are allowed to list sovereign government debt on their balance sheets as “risk-free.” This is a wink-wink-nod-nod solution that becomes a problem because, of course, governments default on their bonds from time to time, just like people and companies declare bankruptcy. When countries get into trouble, they have to pay more interest to compensate investors for the added risk on debt that on paper is “zero-risk.” This means that banks’ books and the risk they hold get further and further apart.

ESTIMATED PROBABILITY: Risks to which we can assign a likelihood, even though that likelihood is highly variable.

CALCULATED PROBABILITY: Likelihoods determined by clear methodologies and observable data.

PURE RISK: A hazard or possibility of loss.

CONTEXT RISK: A choice in which both opportunities and dangers are actively considered.

We need a new vocabulary to reflect how humans relate to risk in everyday life. To start, I suggest doing away with the term “zero risk” where risk in fact does exist. We also need to do away with the century-old Keynesian/Knightian distinction between risk and uncertainty, instead referring to “estimated probability” for those risks to which we can assign a likelihood but which are far from certain and often are mere guesses. Estimated probability reflects both the subjective judgment that went into the number. For more precision, we might distinguish estimated probabilities from “calculated probability” for likelihoods derived from datasets like actuarial tables or weather maps.

Some risk professionals use the term “pure risk” for risk with a downside only (i.e., a hazard) and “context risk” that presents both opportunities and dangers. But this distinction still suggests that risk is more negative than positive.

NEGATIVE RISK: A danger.

POSITIVE RISK: An opportunity.

Throughout this book I will use the term “risk” as a value-neutral concept: one that can be good or bad. For “negative” risks—things to be avoided, which people are likely to perceive as having more of a potential downside than an upside, like continuing to eat cheeseburgers when your doctor says you are showing signs of heart disease, or standing in the middle of a golf course in a thunderstorm—I’ll use the term danger. For “positive” risks—those seen as having more of an upside, like taking a promotion or starting a business—I’ll say opportunity. But in both cases, it’s important to remember that both involve uncertainty: Failure or success is not a given.

DANGER AND OPPORTUNITY

Motivational speakers often use a trope that may not be entirely accurate. Even John F. Kennedy himself probably oversimplified things when he used it in multiple campaign speeches, inspired by 1930s Western missionaries. You’ve likely heard the saying that the word “crisis” in Chinese is made up of two characters, one representing danger and the other opportunity. This trope has inflamed a semantic battle over whether the Chinese expression used for risk as well as crisis, wēi jī, indeed combines elements of characters for danger and opportunity. Furthermore, the linguist Ben Zimmer (along with many others) has further criticized the trope as being tired and essentially meaningless. I’m not going to wade into that particular fight. Language is intricate and fluid, and there often is no single “correct” translation for any word in any language: While danger/opportunity is not an exact or complete translation, it does indeed include an element of what could be considered “opportunity.”

For our purposes, however, the logographs in question—which combined can be translated not only as crisis but also as risk—holds a fascinating story that is highly relevant to the meaning of risk and how it has evolved over time.

The character on the left is wēi (dangerous). “Think of the character as one person sitting on his haunches at the top of a cliff, looking down the precipice at a kneeling person at the bottom,” Eiho Baba, a philosopher who teaches at Furman University in South Carolina, told me over Skype. He had sketched the character for me, with arrows pointing to different elements conveying a sense of impending danger. “The person at the top has the power to toss a boulder down, crushing the person on the bottom who is surrendering to fate. The person below might be cringing after seeing the person above looking downward from the edge of the cliff; or the person below might be hesitating to climb the cliff upon seeing the person above on their knees.” he said. The cliff separates active and passive attitudes toward agency: the sense that one has the power to shape the future. Though the Chinese imagery shares a cliff with the Western version, the sense of risk is very different: an impending danger that holds potential for profit, versus a conversation about human agency. It made me wonder how those nuances of language affect the differences between the relationships that China and the West have with financial and other risks.

Baba himself straddles both Asian and Western world views, having been born to Taiwanese and Japanese parents though he teaches in the US. His research has focused on philosophy of the Song dynasty in China, the period beginning in the 12th century when key concepts of the Chinese civil service exam were developed. He added that there is another interpretation of the wēi logograph that sees the component parts as a person and yoke: “The person is either trying to stop the cart by pulling the yoke to prevent it from danger or the person is controlling the cart to avoid danger.” Like the cliff interpretation, the image suggests agency: the power and choice to change an outcome.

He continued, explaining to me the story behind the second character, jī (changing point). “The top of the right-hand side of the character represents thin threads,” Baba told me. “Below it are two people connected by a horizontal line representing a dagger-axe. The thinness of the threads indicates the ‘closeness’ or ‘narrowness,’ as it were, of the situation. The character depicts a tense scene where a person’s knife-axe is almost reaching another’s person’s throat.” (Combining jī with another character as jī hui does mean opportunity, which the linguist Gary Feng has characterized as providing a “kernel of truth” to the version that other critics see as merely apocryphal. The other kernel is that, in his view, jī has more positive than negative connotations.)

Both characters express a crucial concept: the interplay of agency and powerlessness, and implicit decisions as the characters are suspended in time. Baba described these as representing what is inchoate and incipient; in other words, that which is not yet fully formed, or a situation in its early stages.

For a deeper understanding of the characters, Baba referred me to the I Ching, the Book of Changes that explains the universe, sets out core values and philosophies, and lays out principles for extracting meaning and divining the future. It is perhaps the most widely read Chinese text in the West. “Spirituality in the community arises from a penetrating understanding of the workings of change, and the quality of appropriate conduct that such an understanding can inspire,” Roger Ames, the eminent I Ching scholar, has written. “Simply put, spirituality is the product of inspired living: of reading initial conditions while they are still inchoate, anticipating their possibilities, and of aspiring to make the most of them.” Ames praises people who are sensitive to the beginnings of change and respond quickly: “The incipient is a hint of movement from which one can see in advance impending fortune. Exemplary persons having seen the incipient are aroused to action without waiting to see what happens.”

The I Ching also is a guide to divination: predicting the future and creating some degree of certainty where they may not be any—an important function for humans facing risk, uncertainty, and the unknown.

WHAT RISK MEANS TO YOU

The meaning of risk shifts shape between hope and fear, opportunity and danger, thrill and dread. Each of our personalities and sets of experiences combined with our professions, cultures, and the chatter around us will always color the way any of us sees risk. Some of us thrive on uncertainty and uncharted waters. Others become unstable when pushed out of narrow comfort zones.

No matter what your natural inclination is, some things stay constant: Risk and uncertainty are inseparable. Any probability we assign to a risk is a guess at best. A century after Messrs. Knight and Keynes tried to define risk as separate from uncertainty, it’s time to lay their notion to rest as a mere attempt to insert the illusion of certainty and, to some extent, control: In reality, Knightian and Keynesian “risk” is merely a guess that involves a lot more uncertainty than their delineation implies.

A risk is something over which we have limited control. We hope the outcome is good and fear that it will be bad. Risks are both opportunities and dangers, and which Janus face we see depends on our moods, both individual and collective. Risk depends on the angle from which you look at it: from your own perspective, how it affects those you care about, how it affects strangers. It can represent something good or bad, a danger or an opportunity, an asset or a liability. But risk itself is value neutral.

Risk may involve a core element of certainty surrounded by uncertainties. That we will all eventually die is not a risk—it is a certainty. But how our demise occurs remains opaque. Peacefully in our sleep? The result of making a bad risk decision like playing with fire (literally or figuratively)? After a diagnosis assigned a range of probabilities of survival? Leaving behind chaos for loved ones to clean up, or thoughtfully arranged reminders of life that feed memories?

Risk is relative, but compared to what? A refugee deciding to seek life and work in a new country is taking a big risk, but next to the certainty of an awful life at home and the possibility of losing their life, the decision to flee looks like the least risky option on the table. Risk also involves privilege—the availability of feasible options.

The most important thing is that you know what risk means to you personally. Do you see a risk as good, bad, or “it depends”? How much uncertainty are you willing to accept? What probability calculation pushes you to say yes or no to an option? And when you are talking with others about risk, are you sure you’re talking about the same thing?

RISK PERCEPTIONS AND PERSONALITIES

3

The New Science of Risk and Personality

OUR RELATIONSHIPS WITH risk rely on a complex interaction between the personality we were born with, our upbringing, and our experiences. We don’t control most of the nature and nurture factors in our lives. But we can control how thoughtful we are about the role that risk plays—and by understanding ourselves and our individual risk fingerprints, we can better navigate the challenges we face.

Risk professionals divide the motivations behind our risk responses into two distinct categories. First, they look at how sensitive people are to a given risk; that is, how risky they judge something to be and how much anxiety or excitement it generates. Second, they look at risk tolerance; in other words, how comfortable people are with a given level of risk and how much they are willing to assume. That depends in part on their personality, their experiences, their knowledge of the situation, their social and cultural environment, and their training and conditioning. You could think of these two types of responses, which work in tandem with each other and with the surrounding circumstances, as risk perception or sensitivity versus risk propensity or tolerance.

RISK SENSITIVITY: A combination of how risky you perceive something to be and how much anxiety or excitement it generates.

RISK TOLERANCE: How much risk you are willing to assume under given circumstances.

Think of three friends—let’s call them Pat, Chris, and Taylor—who have an opportunity to go skydiving. Pat, who generally is up for trying just about anything, doesn’t think twice before enthusiastically agreeing. Chris has to think about it a bit more, weighing the odds: In 2018, the United States Parachute Association reported thirteen fatal skydiving accidents out of 3.3 million jumps, or one out of 253,669 jumps. What’s more, half of all deaths in the first six months of 2019 happened at a single airport in Colorado: Vance Brand Municipal Airport in Longmont. Luckily, they are in Wisconsin, so won’t be using that airport. That effectively doubles the odds of surviving. By comparison, the odds of dying from being hit by lightning are one in 161,856. Taylor is absolutely terrified by the idea of skydiving but is even more afraid of being seen as boring and afraid. (Because there are a lot of gender stereotypes around risk—we’ll get into that in chapter 6—I’ve intentionally used gender-neutral names and pronouns here.)

In the end, all of them agreed to go. But their risk decisions were very different. Pat’s sensitivity was very low, and thus getting to “yes” involved a much lower risk tolerance level. It makes you wonder what Pat would consider high risk! Chris’s sensitivity was high enough to prompt some research, but once the data was in hand, Chris judged the risk to be low enough, so ultimately their risk tolerance was not that much higher than Pat’s. Poor Taylor, trembling at the prospect, was extremely sensitive to the risk, but still said yes—ultimately showing a much higher risk tolerance than Pat or Chris.

A third dimension of your risk personality and fingerprint involves how you behave once you have recognized a risk and decided that it’s more than you want to tolerate. What do you do about it? Do you think it’s riskier to act to reduce the risk, or to do nothing? Many people see taking action to avoid a risk as risky in and of itself, which triggers a whole new level of risk calculations.

A final important element is the way our risk attitudes and behaviors change across domains: We may be willing to take financial but not health risks, safety risks but not social risks, to take big career risks but not to patronize casinos, and so on.

Once you examine why you feel and act the way you do when it comes to different kinds of risk, a window opens up into other parts of who you are: from your relationship with the need for control and comfort with ambiguity to self-confidence and impulse control. Whether you’re an introvert, extrovert, or ambivert. How religious you are. The differences between the way you behave in groups versus when you are alone. Whether fear or hope motivates you more strongly. How calm or anxious you are.

All of these factors shape the careers and relationships we choose and how much we are willing to risk for the things we care about the most. Whether we become CEOs, pilots, police, acrobats, stage actors, librarians, or information technology specialists, personality matters more than you may realize. As we saw with Pat, Chris, and Taylor, you can’t tell from someone’s actions whether they are risk-averse or risk-seeking, the labels we often use when describing someone’s relationship with risk. You need more information about their motivations and feelings to understand what’s really going on.

RISK-SEEKING: A tendency to prefer risks, all other things being equal.

RISK AVERSION: A tendency to avoid risks, all other things being equal.

Think about stunt performers and so-called “daredevils.” We might call them risk-seeking, but in reality, they typically have taken so many precautions that they have dramatically reduced the risk. Conversely, just because someone doesn’t take a particular risk doesn’t mean they are risk-averse. Think about deciding to invest in the stock market when it’s tripled in the past ten years, corporate earnings are falling, and recession indicators are flashing. Is it risk-averse to put your money in bonds instead of stocks? Or is it risk-savvy? The same risk might be very different for two people: one who tends to be anxious or calm, or one who has thought about the potential scenarios and made preparations so that they can act quickly should things go the wrong direction. Walking down a dark, deserted street at three in the morning is not the same risk for a five-foot-two-inch woman as it is for a six-foot-tall man who happens to be an ex-Marine.

SUBJECTIVE RISK: The level of risk that you perceive, which includes both emotional and empirical inputs.

OBJECTIVE RISK: An assessment of risk based on empirical evidence and reason.

This brings us to a very important point: Not everyone perceives the same risk in the same way. Sometimes that is because the risk is clearly distinct for, say, a man or a woman walking down a street at night, or an experienced pilot versus someone who has never flown a plane before. This is the difference between subjective and objective risk. “Subjective risk” is the way we perceive a threat or opportunity; “objective risk”—insofar as such a thing exists—is an assessment of how likely and impactful that threat or opportunity may be.

THE BIG FIVE

It’s worth stepping back a bit to understand the science of personality analysis and how it explains why we perceive things the way we do and what we do about the risks we see. You probably know the Myers-Briggs Test, which breaks down personalities into sixteen types based on four axes: evaluating Introversion versus Extroversion, Sensing versus Intuition, Thinking versus Feeling, and Judging versus Perception. Each of these sheds light on personality traits that suggest how you might act in a given situation, including certain risks. But that schematic is only one of the many ways that psychologists describe our personalities.

Businesses spend $500 million annually on psychometric testing to learn more about personality traits of employees, a number that is growing 10 to 15 percent yearly, according to Harvard Business Review. These tests have generated controversy over how effective they are and over the ethics of their use. Yet personalities do range widely, and each of us finds more in common with some types than others. Used as a rough guide rather than as scientific be-all and end-all, personality tests have a useful role in explaining different perspectives, needs, and compatibilities and navigating among them.

The ubiquity of these tests stems from our fascination with the varied styles, needs, and compatibilities of different personalities—and that we need to pay attention to them. Using personality types as a rough guide can be a useful tool for better understanding yourself and the people around you. Though risk has been implicit in much of the work on personalities over the years, psychologists have only recently begun to focus explicitly on risk.

The English polymath Sir Francis Galton is often said to have been the founder of psychometric studies—the measurement of human psychological characteristics—in the late 19th century, when he began compiling lists of personality traits. He was primarily interested in intelligence, and his later application of his theories to eugenics cast a dark shadow over his legacy.

The American psychologists Gordon Allport and Henry S. Odbert in 1936 identified nearly eighteen thousanad terms describing human behavior. They then sorted this encyclopedic list into five categories: inherent and enduring traits; transitory internal states of mind, physical states; activities, effects, roles; and evaluations of whether these traits and conduct are good or bad. Building on their work over the following decades, other scientists culled and sorted the list further into smaller and smaller lists of variables. By the 1980s, they had whittled it down to what is now known by Lewis Goldberg’s term “The Big Five” factors: a set of personality traits that, when combined, map out the vast combinations of human personalities. Loosely, since some scholars still prefer slightly different terms for some of them, these are Extraversion, Agreeableness, Conscientiousness, Emotional Stability (Neuroticism), and Culture. This last factor is controversial, with other psychologists also describing it as Intellect, Openness to Experience, Creativity, Originality, Imagination, Rebelliousness, Spirit, and Autonomy.

A study of fifty fifth graders concluded that the personality traits most correlated to risk-taking were high extraversion and openness to experience, combined with low conscientiousness. The admittedly small study aligns with what intuition might suggest. But, although other studies suggest a connection between extraversion and risk-taking, they are not unanimous. A study of 178 undergraduates, using the Eysenck Personality Inventory test, found that extraverts were more likely to prefer higher financial risks than were introverts, and that the higher the risk, the greater the difference. Another study found a correlation between risk-seeking and both extraversion and neuroticism. The authors, Andreas Oehler and Florian Wedlich, cite studies suggesting that extraverted individuals are more prone to emotions like enthusiasm and joy, have stronger self-control, and in general are more optimistic and excitement-seeking than introverts. Furthermore, they pay more attention to positive and less attention to negative information. Oehler and Wedlich cite other studies, however, that find no correlation, or that conclude that although extraverts are more likely to invest more in stocks than introverts, their portfolios are not more volatile; that is, riskier.

Some studies have uncovered evidence that extraverts were more likely to refuse to comply with public health measures like mask wearing or social distancing during the COVID-19 pandemic. So were people who score lower in openness, conscientiousness, and agreeableness. The pandemic provided a real-world laboratory for the connection between Big Five personalities and risk-taking.

Delve deeper and you’ll see the trouble with measuring risk personalities, which has proved to be devilishly difficult. Are extroverts really bigger risk-takers? For an introvert, going to a party and talking to strangers feels like a much bigger risk than it does to an extrovert. Although the action of going to the party is the same for extroverts and introverts, the introvert feels the risk much more intensely. Which one of them is really more risk-averse?

The same goes for conscientiousness. You would expect someone conscientious to feel more bound by rules and expectations than someone cavalier. But a strong sense of what is “right” can lead to taking more risks: As every whistleblower can tell you, following your conscience and doing the right thing is anything but risk-free. Because risk involves value judgments, whistleblowers’ actions are based on a calculation of risk that weighs the risk of doing the wrong thing as greater than the risk of losing their job or otherwise being ostracized for doing what their conscience tells them to do.

Economists want to measure concrete results: whether you did something or not. Psychologists measure attitudes but are skeptical of self-reporting. While actions are easier to measure and may suggest whether people are more likely to take a certain action, they fall short in describing personalities because they don’t delve deeply enough into motivation. Many risk perception and attitude studies thus use a combination of approaches, balancing questions about how people rate different risks with lottery challenges or games where study participants are asked to choose among options judged to be of different risk levels. Most studies lose the real-life context that makes the way people handle risks so complex and nuanced. They don’t always get at the “how” of our risk decisions.

PUTTING PERSONALITY SCIENCE INTO PRACTICE

Financial advisers used to give clients a simple risk wheel that showed you what risk allocation (usually measured by a certain mix of “riskier” stocks and “less risky” bonds) you should hold depending on your age. That was all you needed to know. While age does roughly determine both your financial needs and your risk attitudes, that old risk wheel is about as relevant today as the first wheel made of stone is compared to today’s high-tech tires and mag-lev systems used on trains. Since the 2007–09 Great Financial Crisis, a huge industry has grown around testing risk attitudes.

Riskalyze is a software platform that generates a number describing investors’ risk tolerance, which helps financial advisers to construct appropriate investment portfolios. It’s similar to an eye exam in that you choose option one or two, two or three, three or four, until you get to the one that is the best match. The choices are along the lines of how much you would risk losing in order to gain other amounts.

Tools like Riskalyze help financial advisers to better understand their customers and customize portfolios. A slew of competitors––Advicent, Rixtrema, StratiFi, Syntoniq, Totum, Tolerisk, Dynamic Planner, Envestnet, FinMason, FinaMetrica (Australia), Stackup (UK), Pocket Risk (UK), and Oxford Risk offer similar products as the financial services industry comes to understand how important it is to engage their clients in talking not just about specific risks, but about their relationship with risk itself. These risk tools have another important function. By assigning numbers to help each of us see what our real preferences are, they also give clients a sense of control, even if an illusory one, that can make them more comfortable with whatever level of risk they take on.

Another personality scale, developed by Standard Chartered Bank and the consultancy Oxford Risk, includes risk tolerance along with a broader set of traits: how much they enjoy speculation or gambling, their composure (how calm or anxious they are), confidence in their decisions, financial comfort, desire for guidance and input, impulsivity, desire for legacy, and views about whether success comes more from ability or luck. They distilled these into three investing personality types: Conservative, Comfortable, and Enthusiastic.

In a CFA Institute report, Greg Davies of Oxford Risk writes of both the promise and pitfalls of the many new financial risk attitude assessment tools, which reflect a still-evolving field where people do not yet agree on definitions or best practices. “Much of the problem lies in the rather imprecise and ambiguous way the industry uses the terminology around risk profiling, with terms such as risk tolerance, risk capacity, risk appetite, and risk attitude applied to a range of different concepts in different parts of the world, in different organizations, and, indeed, sometimes within an organization in different conversations with a single client,” he wrote. He recommends looking at risk capacity, which combines how an investor thinks and feels about risk with a measure of how much they can safely take. That depends on how much of a financial cushion they have, the financial demands corresponding to where they are in life, and how much flexibility they have. Yes, building and improving dynamic models of risk capacity and tools to help investors understand and articulate their own goals is important, Davis argues. But it’s a mistake to require them to express these goals precisely. Instead, he urges, advisers should concentrate on simpler measures of risk tolerance and on understanding what clients really care about over time—not just how a model describes them at a single point in time, but rather adjusting investments and advice dynamically to meet constantly changing needs.

Financial advisers are using other behavioral tools, like text messages to take a pulse check when the markets drop sharply, to better help calm clients and meet their needs. Added to the mix, new biofeedback and neuro-mapping tools can give us even more insights into our financial behaviors and how to manage them. We’ll explore these more in chapter 10.

RISK TYPE COMPASS

Uses of risk personality psychometrics go beyond finance, however, to decision-making, teamwork, and capitalizing on our strengths and compensating for weaknesses. The British psychologist Geoff Trickey and his team take an innovative approach to studying risk that focuses on the personality traits that shape our responses. They make a clear distinction between risk type and risk attitude. Risk type is based on personality and is considered to be a constitutional disposition that remains fairly constant over adult life. By contrast, risk attitude is influenced by one’s situation—for example, wealth and other circumstance—by public opinion, by safety campaigns to promote using seat belts or to deter drunk driving or, in the COVID-19 era, for social distancing. Investors’ behavior responds to market sentiment, which can lead attitudes to flip overnight.

RISK TYPE: A set of personality traits and constitutional disposition that determine how anxious or calm and how impulsive or methodical you are in dealing with risk.

Relying on self-reporting involving real-life situations, Trickey and his team ask a series of about one hundred questions about what people would do when faced with choices involving health, safety, financial, ethical, and other risks. They draw heavily on themes from the Big Five factors but take a different approach that sidesteps the problematic risk-averse, risk-seeking dichotomy. They instead look at two axes that map onto current views about the neuroscience of decision-making, emotion, and cognition, which better account for individual differences in risk perception and tolerance: how anxious or calm people are, how sensitive to uncertainty, and how they make decisions—by impulse or deliberation. These axes resemble a compass, hence the name for their measurement system: Risk Type Compass.

Trickey is easy to talk to and passionate about his work. Our first conversation, over Skype, went much longer than expected, the way it does when someone cares deeply about their subject and that passion comes across. The next time I was in Europe, I popped over to the UK so that we could continue our conversation in person.

After several years working for The Psychological Corporation, at that time the largest and most influential psychometric test publisher, and then working closely with Bob and Joyce Hogan in the early days of Hogan Assessment Systems, one of the best-known consultancies applying the Big Five personality factors to real life, Trickey identified a clear need after the 2008 financial crisis, when British regulators asked financial advisers to take into account their clients’ risk appetites. To meet that need, Psychological Consultancy began the research leading to the development of the Risk Type Compass, which is used not just by financial firms but by risk- and safety-conscious heavy industries and by corporate boards and other groups looking to improve team dynamics. Today, he and his colleagues work out of airy, light-filled offices in the charming town of Tunbridge Wells, about an hour’s train ride south of London.

Using about a hundred questions drawing from Big Five personality themes, they measure where people fall within the 360° spectrum of the compass and interpret results according to placement among the eight Risk Types—Excitable, Deliberate, Intense, Composed, Adventurous Wary, Prudent, and Carefree—including how close they lie to the axis or to the outer rim of the compass.

Images © Psychological Consultancy Ltd (PCL). Used with permission.

They have tested more than seventeen thousand people in the first decade since initiating research on the Compass. They’ve found that certain types of personalities tend to make their way into professions that fit them. Air traffic controllers, as you might expect, are typically very analytical and like to do things “by the book”; they tend to be calm, calculated, and not easily unnerved. More than three-quarters of them can be described by “Deliberate,” one of eight categories in the Risk Type Compass, a tool to determine how much risk people are willing to tolerate and how they decide to respond. Deliberate risk-takers are analytical, investigative, calm, and business-like. Their habit of planning, preparing, testing the ground thoroughly, and following established processes makes them not easily unnerved. Engineers and bankers also often fit this profile.

Though air traffic controllers face tremendous pressure and the consequences of a mistake would be tragic, they stay cool. “They don’t fret about being responsible for four hundred happy holidaymakers,” Trickey told me. Pilots can find controllers’ apparent lack of emotion maddening and have said they wish that air traffic controllers could express more urgency at times when it’s needed. Recruiters tend to be Adventurous (intrepid, enterprising, undaunted, with a tendency to get impatient) and carefree; engineers composed and deliberate. Many performance artists, including Shakespearean actors, by contrast, may “literally get sick before they go on stage,” Trickey said. “They can be self-doubting but determined.” These actors tend to be emotional, extremely sensitive to risk, but motivated by the potential approval and applause and determination to push through anyway: in other words, Intense and Excitable Risk Types. Police officers and lawyers fall disproportionately into the Wary category: shrewd, vigilant, controlling. “Ultra-sensitive about vulnerability and exposure to risk in any situation, they are zealous about eliminating uncertainty and fervently seek to establish order and control events.”

Auditors are a combination of composed, prudent (systematic, orthodox, process-oriented, and detailed, with low tolerance for ambiguity), and deliberate: not easily rattled. They are generally calm, resilient, and optimistic, while also being analytical and businesslike.

The Carefree Risk Type is audacious, curious, and unconventional: “They see opportunity before risk and relish the adrenaline of the on-the-fly decision-making required in fast-moving situations and at times of urgency or change.” James Hunt, the flamboyant Formula One driver, was so confident that he didn’t always show up for practice, Trickey said. Yet he was also extremely anxious (probably an Excitable Risk Type), so much so that he often threw up before a race. The mechanics prepping the car for a race would feel the car vibrating and thought it was the engine until they realized the engine wasn’t even on. The vibrations were from his shaking.

People who place near the outer rim of the compass will be strong examples of their risk type but those falling toward the axis are more varied and more diluted in their characteristics. Their personality might reflect sub themes from several different risk types. For example, I am mildly Intense; a seeming contradiction in terms, which naturally I love. That means that I lie closer to the axis and so share more characteristics with other types. Intense types are apprehensive, risk-aware, and ardent: We invest enthusiastically but cover our bases and are unlikely to make the same mistake twice. My Risk Tolerance Index is 43, in the middle of the range.

“We recognize that risk behavior changes because of the development of skills (bike riding, rock climbing), experience, exposure and knowledge—which progressively transform uncertainty into certainty and extend our comfort zones,” Trickey wrote me in an email after my trip to Tunbridge Wells. “Risk Type doesn’t choreograph our every move (we are sentient beings), but it is a consistent and persistent influence, and it does write our biographies.”

YOUR LIFE DEPENDS ON YOUR RISK ATTITUDE

“My attitude toward risk saved my life,” the crisis consultant Davia Temin told me in her offices perched high above midtown Manhattan. I asked her what she meant. Her answer, which included a harrowing story, was all about acknowledging the risks none of us want to admit so that we can do something about them. “It’s human instinct not to see the truths we don’t want to see because they are inconvenient or unpleasant and they rob you of the map you have in your head of the world and replace it with something you don’t want to acknowledge. The challenge is: can you see the truth and let it in?” I’ll share her story in a moment, but first wanted to delve deeper into the risk personality elements that prepared her for it.

Temin graciously agreed to take the Risk Type Compass test, which classified her as Carefree but close to the central axis. Psychological Consultancy describes this personality type as not naturally methodical or attentive to detail, while providing a challenge to dogma and relishing opportunities to break new ground. Though Temin would describe herself as methodical, upon reflection she realized that it was an acquired skill and approach to risk. But the description of Carefree types as excited by opportunities, new ideas, and change; being quick-witted and thinking on their feet; and rarely lost for words, was spot-on. The Risk Type opposite of her is prudent and the closest one is excitable but given her axial tendencies she can exhibit characteristics of many of the other types as appropriate; when it comes to her clients, for example, she is very prudent. She has the kind of confidence and ability to act quickly that come from a strong sense of purpose and decades of observing, learning, putting what she knows into practice, and adjusting as needed. All of these characteristics shone through in the story she’d told me about how her risk attitude saved her life.

Years earlier, Temin recounted, she was taking a cab west from Manhattan’s Upper East Side to Columbia’s journalism school to give a lecture. Practicing her speech, she was in the back seat with no seatbelt, sitting horizontally with her feet stretched across the width of the car. When she looked up, she realized the cab driver was running red lights. She started screaming at him to stop. As he crossed Park Avenue, another car glanced off of the cab and sent it spinning. As it came to the stop and the driver regained control of himself, he jammed his foot onto the accelerator. Temin realized that he had been driving dangerously on purpose and her crisis management sense kicked in. What was she going to do?

Luckily, she had learned from her father, who was an electrical and metallurgical engineer, that the chassis of a car is many times stronger than the rest of the car. With that in mind, she rolled off of the seat onto the floor, getting all of her body except for her right leg under the seat. That swift move saved her when the car crashed. When the fire department extracted her from the wreckage and loaded her into the ambulance, she kept her senses together enough to fight, not to just let fate take over. Temin demanded that the ambulance drive take her to New York Hospital, which was farther away than the nearest hospital. When he balked, she negotiated with him to get her way.

“That’s how you help control your risks: by having agency,” she told me. “You have to claim control that you have over the situation. You’ve got to counteract randomness.” She was wearing a pink Nina McLemore jacket with a pair of knit St. John pants in just the right shade of beige for which she’d searched high and low until she found exactly what she wanted. Miraculously, the pants were intact when she arrived at the hospital.

The nurses wanted to cut them off. When she refused to let them, they gave her more morphine and came back twenty minutes later and asked again. She still refused. The third time they asked, she asked them if they thought she could possibly be in any more pain than she already was and they said no. At that point she told them the pants had an elastic band so they could just pull them off. They did.

She survived (obviously) but now has eighteen pieces of metal in that leg. As she finished the story, Temin asked me, “Do you want to see the pants?” She walked over to a closet and pulled them out—sure enough, intact, and a fabulous shade of beige. “These pants became a symbol,” she said. A symbol of determination, quick thinking, resilience, and a healthy relationship with risk. A symbol that represented the very core of who she is.

YOUR RISK PERSONALITY AND FINGERPRINT

Your risk fingerprint is the combination of your underlying personality disposition, your experiences, and how you choose to act in a variety of situations. Understanding the influences behind your relationship with risk is a lens into your hopes and fears, your motivations and the reasons behind them. In turn, these insights can help you to build on your strengths and find ways to compensate for your weaknesses.

Your risk fingerprint also includes the people around you: what’s behind their attitudes and behaviors, and how well you conform to your group’s expectations whether that group is your clique of friends, your team at work, or your neighbors down the street. Peer pressure and culture hold powerful influences over your risk relationship. The more sensitive you are to outside pressures, the more likely you are to try to think and act how other people think you are “supposed to” related to risk. That may not always be the right fit for you. You’ll want to take risks consistent with your personality, but when you need to stretch yourself you can turn to people whose personalities complement yours.

The principles behind understanding your own risk fingerprint extend to your organization, to your community and broader society. In this chapter we’ve seen how some businesses are applying the new art and science of risk personality to understanding clients and team dynamics. We’ll explore later on how national and organizational risk cultures—personalities writ large—affect their citizens. But first, let’s hear from a few extraordinary risk-takers and how their risk fingerprints have imprinted the big decisions they have made in life. Their stories are examples of how awareness of their own relationship to risk dovetails with the risk relationships of those around them. They are powerful arguments for surrounding yourself with people with complementary risk attitudes, beliefs, and behaviors, while making sure that your own risk decisions are the right match for your personality, experience, and circumstances.

4

Risk Fingerprints Magnified

WORKING AS A journalist in a conflict zone is precarious by nature, even when you have the deep pockets and influence of an international news organization behind you. It’s even more dangerous for freelance journalists, the path that many young writers take to break into international assignments. News organizations save a lot of money from this less-than-ideal system, which also acts as a form of hazing to make sure that aspiring war correspondents have the steel gut that it takes to do one of the world’s most dangerous jobs.

It takes a certain kind of personality to choose this kind of work. Veteran journalist Frank Smyth is one classic example. He has a reputation for fearlessness developed over decades of reporting from conflict zones like El Salvador, Guatemala, Colombia, Rwanda, Eritrea, Ethiopia, Sudan, and Iraq—where he spent eighteen days in detention in the notorious Abu Ghraib prison.

I met Smyth in the early 1990s at a party with friends who had spent time in Central America writing about human rights and the civil wars that tore the region apart. With a belly laugh, assertive eyebrows, and intense blue eyes, Smyth is the kind of person it’s hard not to like immediately. We became good friends over the years.

After quitting law school and ending a relationship to immerse himself in covering Central America as a journalist, Smyth began writing investigative pieces for the legendary New York City newspaper The Village Voice and other publications. His people skills, intellect, sense of humor, and passion helped him develop a network of sources including elusive guerrilla leaders who were slow to trust and quick to anger. He soon became known for his unparalleled network of sources among the rebels.

During the first Gulf War, news editors lost interest in Central America. So Smyth talked his editors into paying part of his airfare to Amman, Jordan, and a very modest monthly guarantee. CBS News let him stay in one of the hotel rooms they had booked but were not using. As the war was winding down in February 1991, Smyth and photographer Gad Schuster Gross, a rising star on assignment for Newsweek magazine, became fascinated by Shiite and Kurdish uprisings in Iraq, which the George H. W. Bush administration had helped inspire but did not support. The young journalists started planning to travel with some of the rebels to tell a story they felt the world needed to hear. “I had taken up this notion of accompaniment: that the way to get the story was to embed and share their daily life and their risks. It sounded cavalier in 1991 but it’s what embedding with US troops is about,” Smyth told me nearly three decades later. That model later would become the way reporters covered the second Iraq conflict alongside US troops.

As the trio prepared, CBS News in New York offered to let Smyth use one of the eight-millimeter video cameras in the Damascus bureau, but they wouldn’t commit to buying his work, much less offering him danger pay. The plan was to get some great combat footage that Gross’s agent would sell for both of them as a team. “Taking that risk was the way to get paid,” he says now. “But we completely miscalculated. We never gave ourselves a margin of error.”

And so, in March 1991, Smyth, Gross, and another photographer, Alain Buu, who was working for a French photo agency, rode a makeshift raft across the Tigris river into Iraq. The three of them, accompanied by a Kurdish guerrilla, were in Kirkuk when Saddam Hussein’s tanks and helicopter gunships arrived in a ferocious counteroffensive to push the rebels back. It took only seven hours for them to retake the city, from which Kurds were fleeing in droves.

As a tank advanced toward them, Smyth and Buu dove into a ditch, where they spent the night before soldiers apprehended them. Gross and the Kurdish guerrilla who had been accompanying them sought shelter in houses nearby. Smyth and Buu awoke the next morning to hear shouts coming from the houses, then gunfire, a scream, more gunfire, and silence. They saw a group of Iraqi soldiers walking away, one of them with Gross’s blue camera bag—bloodstained press credentials hanging from it—slung over his shoulder. The soldiers soon discovered the two journalists’ hiding spot and apprehended them.

Smyth and Buu were blindfolded, interrogated, and accused of being Western spies. They spent eighteen days in detention in Abu Ghraib prison before they were released. The experience made Smyth much more aware of the trade-offs involved in his decisions. “I had to promise my mother I wouldn’t take any more dangerous assignments unless I had a job, an actual commitment to pay me for it,” he said. He passed on covering the Balkans wars that were raging in the 1990s, focusing instead on recovering psychologically from his ordeal. Smyth pledged to himself: No more transactional journalism, assignments taken just for the money. He wouldn’t continue to do that to himself or his family.

He threw himself into investigative journalism, which carried nowhere near the level of physical risk, though both financial and security risks remained. Over the years, Smyth struggled with post-traumatic stress disorder, turning to yoga, Buddhism, and the poetry of Rumi, combined with a large dose of introspection to make sense of his life choices and the path forward.

Reflecting on what brought him to that ditch in Kirkuk, Smyth could clearly see the genetic and cultural influences that had fed his appetite for risk. When he was growing up in New Jersey, his middle-class mother and father were “fireballs” whose behavior set an example and whose encouragement instilled a strong sense of confidence that he could do anything he set his mind to. His Italian American mother cultivated a macho pride in her son. “It was about you’re the best: having that supreme confidence,” he said. Smyth’s father showed him by example how to stick up for himself; a memory that stands out is his dad in the store he owned having to punch a man who threatened and grabbed him. “My dad told the guy to let go of him and the guy didn’t, so my dad popped him,” Smyth recalled.

Smyth’s innate temperament and upbringing primed him for risk-taking, while his experience in other conflict zones had made him more comfortable with things most people wouldn’t dream of doing. The way news organizations used freelance journalists normalized the risks he took. The financial pressures made him more risk-seeking because he felt he had no choice.

“There’s something thrilling about risk: the personal challenge. But there’s also a lot of hubris that goes with risk,” Smyth said. “There are some downsides to that later in life which you learn about. You learn to calibrate.” Smyth now wonders how much hubris played into that fateful decision to embed with the Kurdish rebels in 1991. Certainly, some of it was financial need. But was the story he was trying to tell that important, or did he have something to prove? “You’ve got to learn to ask yourself: ‘How much of this is my ego and how much is my sense of duty? If it doesn’t work, what are the consequences?’ ” he told me. He still frets over the vote his trio took when deciding whether to remain embedded in Kirkuk with the rebels. In hindsight, Smyth wonders if his companions were indeed comfortable with the risk or had reservations but kept silent.

What he learned from that catastrophic decision, combined with the wisdom that years bring, taught him to temper himself and made him want to help others to benefit from those lessons. Smyth founded Global Journalist Security in November 2011 to help journalists and international organizations to reduce their risks in conflict situations. He teaches them skills from surveillance detection to cyber-security measures to sexual assault avoidance. But the psychological and decision-making skills are just as important as the technical ones.

He’s showing people how to reduce the risk of working in conflict zones—because their preparedness makes it less likely that things will go wrong beyond their control—while increasing their comfort level with necessary risks. At the same time, he encourages people to think about the delicate balance between their own sense of how much control they have over a situation and the need to accept uncertainty and things out of their control. “The other thing I teach people is that you have to own your risk,” Smyth said. “When you’re in the field, it’s on you, it’s everyone for themselves. Take responsibility for your own actions and own security. Own it or don’t do it. Your life is on the line and it affects the people who care about you.”

Risk is as much a part of Smyth’s identity as it is for emergency first responders, stunt people, extreme athletes, demolition workers, or any number of dangerous careers. But even though it might not seem as obvious to those of us with tamer lifestyles, we all take risks that say everything about who we are and what’s important to us. Investing money and time in a college education, promising to spend the rest of your life with someone for better or for worse, starting a company, putting your lot in with an employer or career choice… the list goes on and on. In turn, the risks you take shape you in a never-ending feedback loop. When you make the right bet, you get a dopamine rush that entices you to take more risks. When you roll the dice and they don’t come up as you had hoped, your reaction is telling: Either you shy away from future risks or you learn that failing isn’t the worst thing in the world.

PURPOSE AND THE POWER OF LETTING GO

Rosanna Figuera and her husband Thomas DeGeest are cofounders of the popular waffle business Wafels & Dinges, whose name translates roughly to “Waffles & Stuff” in the Flemish language of DeGeest’s native Belgium. They and their company are an inspiration. Figuera moved to the United States from her native Venezuela for a job at the United Nations when she was twenty-five years old. It was the first time she considered herself to have taken a big risk, even though everyone who knew her likely would have said otherwise. “My friends always described me as fearless in a way I didn’t know I was,” she told me. “Things that were natural to me, other people considered unthinkable. I never thought I had anything to lose, but instead everything to win,” she told me. She had blinders to the downside of risk and only saw opportunities.

“When we were starting Wafels & Dinges, the idea was so exciting that we didn’t even pause to consider the risks,” she recalls. They didn’t have children yet, they both had business experience, and they had assets they could put in to bootstrap it. Because they didn’t need to raise outside money, they also did not have a formal business plan. Nor did they have a “Plan B” in case it didn’t work out.

DeGeest cashed out his retirement funds, sold his Lower East Side apartment, and emptied his bank accounts. “We thought, if there’s anything worth investing in, it’s ourselves,” she said. “This is going to be the best 401(k) we’re ever going to have.” Still, they had backstops: Figuera kept her job, where she was making good money as a talent recruiter, and her 401(k) retirement plan. Three years in, their first son was born. The business was doing well. “That’s when we sat down and ran the numbers,” Figuera told me. “And that’s when I said, ‘I’m all in.’ ” She quit her job.

Their risk personalities and attitudes complemented each other. “It was the combination of me the dreamer and him the doer that ultimately brought us together. At the beginning our risk decisions were on the same page. The dream was so exciting and big,” she said. But as the business grew, their differences began to show. He pushed harder to expand to new locations, while she toned down her dreamer side and found herself drilling deep into practical issues and focusing much more on the risks they needed to consider. “I became a lot more aware of risk. I wouldn’t necessarily say risk-averse. But I gave a lot of thought to anything that could have an impact on my family since I’m now a mom with two kids. I became a lot more aware of the blurred line between business and family.” They also no longer had a fallback income in case anything went wrong.

After a decade of bootstrapping, they decided to take things up a notch and expand nationally. They relocated from New York City to Denver, Colorado, one of the cities where they planned to open a new store. Wafels & Dinges was in major expansion mode, adding new brick-and-mortar restaurants, including one at the iconic Mall of America, when the COVID-19 pandemic national emergency was declared March 13, 2020. Figuera and DeGeest had exactly enough cash on hand to give their workers two weeks’ severance pay. She told me they cried as they said goodbye. Next, they made arrangements with creditors and landlords and applied for government funds under the pandemic relief package that Congress had authorized. That gave them the mental space to focus on what they could do to help others in an awful situation. They found the answer in the purpose that had inspired them from the start: to give people the happiest moment of their day.

“In crises we’re always solving problems, but suddenly it hit me that there was nothing we could solve. There was nothing we could do. That’s when the acceptance began,” Figuera told me as we caught up over the phone several weeks in. “That’s not something you learn: it’s something you are supposed to fight. But on the other side of surrendering, there was peace. Very contrary to what you would expect. In that peace, we found clarity.”

They pivoted to online ordering, which until then had been a very small side business. They moved operations from New York City to Denver, Colorado, where they had moved their home a few years earlier. Their customers enthusiastically embraced the option to donate waffles to front-line health-care workers, enabling the company to bring back some employees. Wafels & Dinges is not only bringing joy to front-line healthcare workers at hospitals but building a stronger online business that will last long after the pandemic.

As the pandemic dragged on and on, over the summer they were heartbroken at having to close their Wafels & Dinges spots in New York City at Times Square, Central Park, Pier 45 in Hudson River Park, and many of their seasonal locations. “The grief is so real. For all that has been lost, after thirteen years of growth fueled by pure passion and hard, hard work,” Figuera wrote on her Facebook page. “And yes, we still stand strong. Somehow I feel we are walking down a path that will make us stronger than ever… but today, I grieve. And that’s okay.”

Their experience taking risks, following their purpose, and relying on each other for balance and emotional support helped to get them through the intense uncertainty and fear of the pandemic. Less than six months after the lockdown was imposed, they finally were able to open their long-planned Minneapolis store at the Mall of America.

ENTREPRENEURS AND RISK

It’s not an accident that the stories I’ve included so far have been entrepreneurs. We tend to think of entrepreneurs as risk-takers. The fingerprints of the most successful ones have many of the elements we associate with risk-taking: strong personalities, confidence, courage. They also adopt many behaviors that support their decisions: finding people who can help them, assembling networks, weighing costs and benefits.

Objectively the risks we see entrepreneurs take seem to be bigger than those that anyone working a more traditional job might accept. But the reality turns out to be more nuanced. Risk is subjective. One person might see something—say base jumping, having a child, getting married, writing a book—as a huge, pointless, or even unacceptable risk to take. Someone else might shrug their shoulders and see it as no big deal.

The nature of risk changes the moment we observe it, just like in quantum mechanics. By recognizing, analyzing, and considering how we might respond, we change how likely it is that the possibility at hand could spin out of control—and thus reduce the risk. Similarly, as we’ll see in chapter 9, the more we know about a risk, the more in control we feel, and the less threatening we perceive it to be. Entrepreneurs perceive risks differently from the way the rest of us do; they also take steps that reduce those risks.

Research on the relationship between entrepreneurship and risk-taking has delivered mixed conclusions. Partly this is because many studies have involved small sample sizes. But it also has to do with what “risk-averse” actually means. Risk aversion is very hard to measure because for someone to be more risk-averse than someone else, they have to choose a less risky approach under exactly the same conditions. That’s hard to do, because conditions rarely are the same.

The organizational behavior scholar Hongwei Xu of Stanford University and sociologist Martin Ruef of Princeton University compared data on more than twelve hundred new entrepreneurs against the general population. Given stereotypes about entrepreneurs being risk-takers and the high failure rate among start-ups, they found something surprising, given popular stereotypes of entrepreneurs as risk-seekers: new entrepreneurs are more reluctant to take financial risks than the rest of the population.

Why? They suggest that entrepreneurs are motivated not so much by money but rather by other factors like personal fulfillment and autonomy. Keeping their business running rather than taking big risks therefore is a priority. “As long as the business survives and runs smoothly, the entrepreneur will be respected as a business owner in the community, will have personal autonomy, and can fulfill various purposive goals associated with his or her identity. But if the entrepreneur takes large financial risks and fails, he or she may not have the second chance to restart a business to achieve those nonpecuniary goals,” Xu and Ruef wrote. Another reason, they suggest, is that entrepreneurs have different information and different cognitive biases than non-entrepreneurs. The general population usually sees more media coverage of successful entrepreneurs than of unsuccessful ones, but entrepreneurs are more likely to do firsthand research and learn from other business owners. Thus, they may have a much more realistic view of the possibility of failure.

But taking financial risk may not be the right measure of entrepreneurs’ risk attitudes. For people who are more used to working for someone else, or just maintaining the status quo, starting a new business in and of itself is a huge risk far beyond the financial elements alone, no matter how conservative the founder is in their financial risk decisions. Research indicates that entrepreneurs are more likely to take that big leap because they see the odds of success as being higher than reality or others’ feelings might suggest. Eminent scholars including Max Bazerman, Daniel Kahneman, and Amos Tversky have shown that most decision-makers overestimate their own capabilities and underestimate risk.

In his study of new business owners in New Zealand, John Pinfold has presented evidence that self-enhancing biases tend to make nascent entrepreneurs overconfident. He surveyed people who had started a business in the previous three months or expected to do so within the next six months, asking them what they thought the odds were that the business would still be operating in five years. On average, they gave their own businesses a 75 percent chance, but judged the odds that other new businesses would last five years to be only 52 percent. In reality, only 42.5 percent of New Zealand businesses last beyond five years.

In the end, entrepreneurs may make some decisions that appear risk-seeking to others. But because they see the risk as less than non-entrepreneurs do and weigh the elements of the decision differently, it’s hard to say that they are more or less risk-averse. They’re just using different criteria to make a decision.

In a survey of nearly three thousand new business owners, the scholars Arnold Cooper, Carolyn Woo, and William Dunkelberg found that despite the stereotype, entrepreneurs did not have a greater preference for risk. Instead, entrepreneurs had an overly optimistic perception of the risks involved. “They perceived their prospects as very favorable, with 81 percent seeing odds of seven out of ten or better and a remarkable 33 percent seeing odds of success of ten out of ten. In considering the prospects for other businesses like their own, they perceived odds which were significantly lower, but still moderately favorable,” they noted. Interestingly, they found a “remarkable” lack of relationship between an entrepreneur’s belief in themselves and other indicators of how successful they might be, such as how well they had researched the market and otherwise prepared themselves. “In fact, those who were poorly prepared seemed just as optimistic as those who were well prepared.”

In extensive research on entrepreneurs, Robert H. Brockhaus found that a propensity for risk-taking may not correlate with either the decision to become an entrepreneur or being successful at it. Instead, he suggests, entrepreneurs are likely to share personal values—like the need for achievement, independence, and effective leadership—that may not be as strong in the general population. He found that entrepreneurs often had had bad experiences (not pay related) at previous jobs but also positive role models. He also found that entrepreneurs tended to be better educated than the rest of the population; as we’ll see repeatedly throughout this book, education plays a big part in risk perceptions, judgment, and preferences. He concluded that when perception differences are taken into account, entrepreneurs are only moderate risk-takers.

THROUGH THE LOOKING GLASS

The conclusions suggesting that entrepreneurs simply see the world through different eyes struck home when I caught up with my college friend Randall Terrell. Classmates had nicknamed him “Random Terror” for his spontaneous, impulsive, and often unconventional decisions. The first time I met him, he was (successfully) recruiting a group of students to run naked down Main Street in Houston. “How do I risk thee?” he asked. “Let me count the ways… I’ve almost died several times, but most of those were unplanned. Biked in Houston and LA? Run the Bulls? Rock Climbed? Thrown rocks at bears to keep them away from my food? Driven a car while over the limit? Sued the Texas governor, lieutenant governor, Senate, sitting county judges, Texas Rangers, CIA (all separate cases on behalf of clients).”

The biggest one was pouring all of his life savings into a start-up. When we spoke, Terrell was deeply involved in a start-up turning waste wood chips into fuel pellets. The project had been on the verge of securing large commitments a number of times, but things always fell through. He had gone into debt, pouring his and his wife’s savings, along with family-and-friends money, into the project. “I don’t think I am an adrenaline junkie, but certainly there is some attractiveness to risk,” he said.

He describes entrepreneurship as being like Alice stepping through the looking glass like in Lewis Carroll’s classic children’s book in which a young girl is transported into a world where nothing seems to make sense. “So many businessmen in companies freak out whenever a risk gets presented. When you come up to a big decision and step through the looking glass, it feels like you are in reality and they are in Wonderland,” he said. “Once you step through the looking glass, it makes more sense when you realize it wasn’t such a big step in the first place.”

Risk-taking went way back in Terrell’s family lineage. His mother’s ancestors were adventurers: His great grandmother rode sidesaddle in the Oklahoma land rush, and others headed to California to pan for gold. Some of his father’s ancestors arrived in Texas even before Stephen F. Austin; they were among the first Anglos to cross the Colorado River. His father’s father had founded a hospital, and then became a silent partner in a laundry because there was none and the hospital needed clean linens. At the dinner table, Terrell’s family often talked business, weighing risks and opportunities. His siblings became a teacher, a lobbyist, and an independent lawyer; most of the rest of the family is self-employed.

After graduating college, Terrell went to law school and became an environmental protection lawyer for the state. Then he started his own law firm. Then he became an activist. Eventually he combined his environmental passion with his family’s entrepreneurial streak and found folks who knew a way to use as fuel pellets a type of wood that Texans largely see as a pest.

“It really helped to have fabulous supportive parents who told us that we could do anything,” he said. “There’s a lot of white privilege tied into that. If it all goes to hell, I know that at least I have some kind of safety net.” Though his wife—who herself is a talented arts entrepreneur—and family were supportive, not everyone in his social circle was. “When we started as entrepreneurs, we lost friends,” he said. “There were those who totally understood the opportunity and failed to see the risk. There were those who only saw the risk and are too scared to move or to see the opportunity. And then there are those who ‘get it.’ ”

What his family and supportive friends understood was that Terrell had weighed the positives and negatives and defined the risk this way: “If you don’t do this, you’ll always wonder what you might have missed. You want to have that attitude toward whatever is in front of you.”

Like Terrell, many entrepreneurs have the freedom to choose that path because they know they have a support network to fall back on. Their risk fingerprint includes the community around them and the resources they know can get them through the dry spells. What about the entrepreneurs who don’t have such a robust safety net? They make their own, intentionally seeking out people who can help them.

MAKING YOUR OWN LUCK

The Chicago-based designer Jermikko Shoshanna, known in the industry simply as JERMIKKO, invented the SwapOut hoodie that the music megastar Beyoncé wears in her ground-breaking “Lemonade” video. The hoodie’s innovative design uses two zippers that divide the garment in half, allowing wearers to swap out different colors to create their own combination, or to unzip the hood part of the hoodie. It made her the first African American to be awarded a patent for a wearable garment.

Unlike Terrell, Jermikko did not start out with a supportive risk ecosystem born of privilege; far from it. She always knew she wanted to be a designer, but her high school guidance counselor discouraged her. It took a combination of determination and the luck to find the people who helped her to pursue her dreams. Of course, as they say, you make your own luck. “You’ve got to have a lot of people to take a lot of risks on you. And then you have to be accountable to those people. I recognize when somebody steps out and opens the door for me, I walk through with dignity, honesty, and tenacity,” she told me. “And then when somebody doesn’t open the door, I walk up and open that door myself. I’m not sitting around waiting on you.”

When I asked Jermikko about the first risk she remembered taking, she paused a moment then laughed. She was eight or nine years old and living in Louisiana with her grandmother, who always wore plain white dresses to church. Jermikko wanted her grandmother to be as stylish as a woman she often saw at church and coming and going at the only hotel for colored people—in the vernacular of the time—in the tiny town of Tallulah. Without asking permission, she took a white dress out of the closet, cut it apart and sewed it back together, then “dyed” it red using the red clay along the river near their home. When her grandmother discovered it, she did not say a word but put it on and wore it to church. “When the sisters of the church asked, ‘Julia, what you got on?’ my granny answered ‘Hush, my grandbaby made me this.’ ” When she slid from one end of the church bench to the other, the dress left dried bits of mud on the seat. Later, after they got back home, her grandmother told Jermikko, “Little gal don’t you touch another one of my white uniforms, you hear me?” but never scolded her beyond that.

When Jermikko was ten, she and another friend stopped on their way home from school to climb a pecan tree. When a group of white boys told them not to, Jermikko replied that it wasn’t their tree and ignored them. The boys attacked, beating them so badly that the other girl died. Jermikko’s leg was seriously injured. Her grandmother called her mother, who had been working in Chicago as a textile weaver, and said it was time to come get Jermikko because as long as she refused to listen to the word “can’t” she would not be safe in the Deep South on the plantation where they lived.

Fast-forward to high school, by which time Jermikko knew what career she wanted. “I wanted to manufacture tons and tons of clothes,” she said. “I didn’t want to be a dressmaker, like for one person at a time. I wanted to do whatever people did when they supplied clothes stores.” But the school guidance counselor told her that was not possible; there were no role models, no colored people in that industry, no simple career path. So she explored other options. Being a doctor wasn’t an option because she was squeamish; nor was being a lawyer, since she was pretty sure she’d end up being declared in contempt of court because she wouldn’t be able to be quiet when the judge told her to. When her uncle asked her, “So, Little J, what do you want to do?” she recalls, “I said, ‘I could do clothes. I just want to design and make things pretty.’ And he said, ‘Well, why don’t you do that?’ I answered, ‘Because nobody wants to help me do it.’ And he says, ‘Well, if you want to do it you will one day.’ ”

Jermikko took a job at the Illinois Bell Telephone Company as a switchboard operator. In between directing calls, she sketched clothes designs on the back of the six-by-two-inch sheets of paper used for billing hotels. She had been there about two years when one day a customer called her the n-word, so she disconnected his phone and got called in to her supervisor’s office. What her supervisor said next surprised her and changed her life: “You know, Jermikko, I don’t understand something. Why are you at this phone company? You are so talented.” Jermikko said it was because she couldn’t do what she wanted to do and so she needed a job. Her supervisor thought for a moment, then let Jermikko off of work with instructions to either go find a school that would teach her how to become a designer and manufacturer, or to be fired.

Jermikko went home, changed into platform shoes and an outfit she had made herself, then marched into the Saks Fifth Avenue store on Michigan Avenue downtown and asked to see someone who could hire her as a designer for the store. She ended up in the office of the fashion coordinator, Nena Ivon, who explained that the department store bought clothes from designers who worked with manufacturers, and that there was a program at the School of the Art Institute of Chicago that could teach Jermikko what she needed to recognize. Ivon was the first person who had told her how to do what she wanted to do and be the person she should be.

To get in, she needed a portfolio, a compilation of sketches, which she had never heard of before. When she went back to work and explained what she had learned, the supervisor opened her desk drawer and pulled out a pile of the sketches that Jermikko had been throwing in the trash. “I could have fired you for this alone,” the woman said. “But take these. This is your portfolio.”

Jermikko was admitted to the Art Institute, but as a backup, she concurrently earned a psychology degree at the University of Chicago, with scholarships at both schools and while working three jobs. She won many awards and a prestigious apprenticeship at the Stanley Korshak luxury clothing store, which got her started designing clothes for Chicago’s social elites. She later was a designer for several different companies until 1979, when a friend commissioned her to design a dress for the first Chicago Emmy awards and invited her along to the ceremony. Jermikko designed herself a pair of jeans and a jacket from the three yards of gold lamé fabric she had, then headed to a trendy Oak Street boutique to find a blouse to wear with it.

She couldn’t afford even their cheapest blouse. But when the sales staff saw the jeans and found out that she had made them, they ordered five pairs. Jermikko accepted the order and started her design manufacturing business that day. She calculated that she needed $480. A kind fabric salesman, Harold Singer, arranged the credit she needed; she used the money her friend paid for the Emmy Awards ceremony dress to be sure the bill was settled on time.

Then she went back to Oak Street. Soon she had an order for five pairs of pants and five blouses, then another for three skirts, two pants, and ten blouses. She designed the skirts and blouses on the spot. The next week she quit her job and set about filling the orders in her small Gold Coast apartment with two tree trunks for chairs and a home sewing machine on a metal card table. Her Aussie Terrier, Lonesome, helped by holding the fabric in place. She turned to people in her network to help her get started.

Then she “ran into the race thing,” as she put it. She recalls asking a sales representative not to tell clients who she was because they wouldn’t order from a black woman. The rep didn’t believe her until a $5,000 order came in from Indiana—the biggest by far at that point—and the rep encouraged the buyer to meet the designer. The next day, the buyer called to say she’d overbought and “had to” cancel the order.

Unlike many of the other choices she’d made in business and life, when it came to race, Jermikko was acutely risk conscious. One of Jermikko’s mentors was the late Dorothy Fuller, a Chicago fashion industry pioneer who started the Apparel Industry Board in 1987. Fuller asked why she didn’t participate in fashion shows or allow her photo to appear in articles. Jermikko told her why; she’d learned her lesson from that Indiana buyer, but that when the time was right to go public, she’d know. One day, Fuller called to let her know that Women’s Wear Daily was planning to launch its Chicago coverage and that they wanted to feature Jermikko. “I’m listening to her and I’m freezing up on the inside, and said, ‘No, because I already told you, Dorothy, that the way I have managed to get my clothes and all these stores by keeping my face out of the room.’ But I also had told her that when God was ready for me to let people know who I am, he’d let me know.” When Fuller reminded her of that, she finally agreed.

Awards started pouring in for her work as a designer, manufacturer, and history maker. After the Library of Congress inducted her as a Stylemaker in 2014, a nonprofit organization reached out to ask her to meet with young people to teach them about entrepreneurship. When a quiet, bashful young man from the program showed up at her studio with his pants wrapped around his hips, his rear end showing, the first thing she did was to order him to pull the pants up. She then showed him the SwapOut hoodies. Once he got over his amazement that she had invented and patented them, he began to emerge from his shell, coming up with all sorts of ideas. He told Jermikko that he wished he could have a job with her because he did not want to die; in his neighborhood the language of the streets was guns and trouble followed kids with nothing to do. His words weighed heavily on her and inspired her to create a program combining art, design, and business skills training for youth.

“What goes on in my mind was that this kid has no one to tell him that talent is worth something,” Jermikko said. “His parents are busy trying to earn some money to put food on the table, a roof over his head, and they know absolutely nothing about business.” And so, just as people had gone out of their way to share with her what she needed to know, people who have taken risks and succeeded need to pay it forward. “For those of us who have gotten there, then it’s up to us to reach back and pull them up. Those of us who have done this, those of us who have failed our way to wherever it is we’re going, to walk that path, need to reach back and give young people opportunities.”

Jermikko’s powerful story goes to show that when you don’t have privilege, you make your own. And when you succeed, you pay it forward to create privilege where it did not exist before. Imagine if everyone with a dream to reach their potential had an ecosystem that made it possible to do what they were best at.

YOUR OWN RISK FINGERPRINT

What is the biggest risk you’ve ever taken? Take a moment to think about the answer to this question. It doesn’t have to be starting a business or going around the world or reporting from a war zone. It could involve getting married, starting a family, changing careers, buying a house, getting a degree.

The answer will say a lot about who you are. Did you think of it as a choice? How did you feel about it as you were deciding whether or not to leap? Did you feel enthusiasm or fear? How do you feel now about the risk you took? Did you think of it as a risk when you took it, or only in hindsight? Did it turn out the way you had hoped? If not, with hindsight, would you have done it anyway?

After Entrepreneur magazine named Cindy Chin, a Taiwanese-born technology pioneer, one of “most daring” entrepreneurs of 2018, she told me that she didn’t think of herself as daring at all. In her mind, she was just following a path. When I asked her what the biggest risk was that she’d ever taken, her answer was intriguing: It was giving herself the permission to be happy. “When you’re faced with a choice, there’s an element of unknowing, an amount of naivete, coming at it from the scientists’ point of view,” she said. “These moments bring you down a path and at some point, you either follow it or get off. The key is to show up: to get on the path in the first place.”

Her answer, and the stories I’ve shared in this chapter, illustrate some key principles behind how people’s risk fingerprints determine their futures. First, people may see risks as good or bad even though the same risk might appear to be precisely the opposite to someone else. Our experiences and personalities shape whether we look at risk in a positive or negative light, when in reality it is value neutral. Whether a risk is good or bad depends on what each person makes of it.

Second, risk-takers often don’t see their behavior as “risks” because risk involves a choice of options. For them the “risk” was the only feasible path, leaving them no other choice but to pursue it. People who are driven by whatever mysterious force of personality—whether curiosity, ambition, greed, or fear—choices often are so clear that there effectively is no real choosing to be done. They tended to be certain of where they needed to go, even though they may have no idea of the twists and turns that their path might take.

What motivates us? What do we think is worth taking a risk for? What will we take risks to avoid? After a crisis, do we become better at embracing good risks and avoiding bad risks, or do we shrink back from any risk at all? Why do some people shrivel up after a shock event, while others embrace risks with a newfound confidence? What makes the difference whether or not we can spring back from a risk gone terribly, terribly wrong?

The answers to these questions draw our risk fingerprints. Our innate personality traces the outline of how confident we are, how anxious or calm, how impulsive or methodical. Our experiences either accentuate or smooth out the inclinations that come to us naturally. The risk ecosystems around us further affect our feelings and actions; just like a glove might protect our hands, the safety nets or lack of them expand or restrict our risk choices. The habits we adopt and careers we choose further mold our risk fingerprints.

But just as the risk fingerprint is intimate, unique to each of us, it also is the product of the people who surround us. Let’s take a look now at some risk perceptions and attitudes common to different demographic groups.

5

Who Thinks What about Risk and Why

WHEN I ASKED a group of dynamic Chicago twentysomethings what was the biggest risk they had ever taken, there was silence for a moment. Then one raised his hand: “I quit medical school to become a stand-up comic.” Even among a risk-tolerant group of entrepreneurs, consultants, strivers, and do-gooders, Agam Arora’s example was hard to beat. It also bucked the stereotype that the millennial generation is risk-averse.

His risk attitudes had been ingrained by Punjabi Hindu-Sikh immigrant parents, his father a cardiologist and mother a counseling psychologist, each with a thriving practice in Los Angeles. Despite their career choice, they advised their sons that becoming a doctor or lawyer, where you could expect to make a solid six figures, was not a good risk compared to starting a business, where you could make much more. Still, they prioritized their children’s happiness and fulfillment as the primary goal over any monetary gains. Their attitude questions the point of having made so many sacrifices if at the end their kids are unhappy. “My father also firmly believes that we should endeavor to be the best at whatever it is we decide to do, and the money will follow naturally once we get to that level of expertise,” Arora told me.

Their attitude contrasted with typical attitudes among first-generation immigrants, who often urge their children—the first generation born in the host country—to pursue professions like doctor or engineer that they perceive as being more stable and less uncertain than their own path was. As a group, immigrants tend to be perceived as risk-takers by virtue of the act that defines them: leaving behind a life in one country to start a new one in a foreign land, often one that is hostile to immigrants and where people speak a different language. That’s why they have tended to prefer stability for their children rather than the potentially greater income. Their grandchildren—the second generation born in the host country—tend to be the ones who re-embrace risk and go on to become entrepreneurs.

I met with Arora over coffee to hear his full story, which in some ways was more in keeping with that traditional first-generation story than I had expected. But it also shed light on how socioeconomic status, community, and circumstances shape what and how we think about risk.

Arora originally had wanted to be a writer, a discipline he studied as an undergraduate at Syracuse University along with biology, with his parents’ blessing. During college he had done some stand-up and found it to be a great outlet for his writing. But he graduated into the chaos of the global financial crisis in spring 2009. Even in good times, writing jobs are not the easiest to come by nor by far the best paid. And the unstable economy made him deeply anxious. He told me: “I was asking myself, ‘Will I say no to a family business that’s up and running?’ ”

With that in mind, he took a job doing research for UCLA as preparation for medical school and was accepted to a program based in the Caribbean island of Dominica. Once he was there, however, it quickly became obvious that he was “a car in the wrong race,” as he put it. At the end of the first year, he found out that he’d been accepted to a much stronger program at a prestigious school in the United States. He struggled with what to do, but ultimately knew deep down that it was not for him. His brother, who had taken their parents’ advice and gone into venture capital, advised Arora not to worry about the sunk costs of his year in medical school. That was liberating, and helped him decide to return to Los Angeles, where he threw himself back into the creative life. He signed up for a stand-up class and cobbled together a series of odd jobs to support himself: “a lot of weird Craigslist gigs” selling knives, ghostwriting, and eventually a full-time job as a career counselor. He spent his evenings at comedy shows, practicing material that his older self now finds cringeworthy, and doing a lot of waiting around for those brief moments of euphoria behind the microphone. “It was awesome and terrifying,” he said. “I liked being good at it, but I hated being the center of attention.”

That meant he had to face the music once again. A family friend connected him with a job at DirecTV that gave him business experience. At the same time, he threw himself into his parents’ philanthropy supporting schoolchildren in rural India. Then lightning struck, so to speak. After a young girl at one of the schools died of malaria, he decided to try to solve a problem that had kept her and many other young malaria victims from getting help in time. In overcrowded schools, teachers rarely noticed symptoms quickly, which meant that by the time a child with malaria made it to the hospital, they already were on borrowed time. They didn’t have two weeks to wait for blood tests to determine which strain to treat. The worst part was that in many cases, foundations had provided the medicine that could save children, but it sat idle on shelves in the schools.

With his biotech and medical experience, Arora put together a plan to use rapid diagnostic tests that could diagnose the strain within twelve hours so that children could get the treatment they needed to stay alive. He left his job and went to India to pilot a project to use those tests to help children in immediate need of care and to collect data that foundations could use to distribute the most effective medications. It was a learning process, like the time he didn’t think ahead to realize that he would need power banks so that his laptop would work when collecting data in communities without electricity. Even so, his team got nearly five hundred children tested when they came to the grim realization that the test kits he’d bought were faulty and the data was no good. He kicked himself over his decision to buy the cheaper kits instead of the more expensive ones. That’s when he realized he needed business skills.

By the time I met him, Arora was working as a business analyst after completing an MBA degree at Northwestern University’s Kellogg School of Management. On the side, he was working on a social enterprise to help homeless people access health care and other services. It had been a long, winding, uncertain path, but the risks that Arora took got him to where he needed to be. Though he could tolerate the uncertainty that often goes hand in hand with creative personalities, it’s impossible to separate his story from the people around him—for better and for worse.

Arora had a supportive family who provided a safety net that gave him the freedom to fail forward. His aunt taught him the scientific approach he needed, his parents backed him financially, and his brother and cousins supported him with advice and encouragement. He felt the expectations of the Indian community to become a fully formed person who knew his strengths and wasn’t afraid to apply them.

His biggest misstep, ironically, had been in pursuing the supposedly “less risky” alternative of medical school. It goes to show just how important it is to understand how closely your risk decisions are tied to how the people around you see risk, and how well you understand how much of your thought process comes from you and how much from the collective influence and expectations of those around you.

THE COMPANY YOU KEEP

Parents of teenagers try to keep their children from running with the wrong crowd because they know that we make very different decisions on our own compared to our choices when we are part of a group—especially a group not known for their caution. Their basic principle makes sense: The way you approach risks depends on who you are and the company you keep.

How you see and respond to risk is a combination of experiences, expectations, and cultural conditioning, and how those factors interact with your own attitudes and beliefs about risk. People of the same gender, generation, or ethnic group often share certain experiences. But once you change a person’s experiences, you change the ingredients of their risk attitude.

That’s part of why your demographic category, gender, or nationality shapes your relationship with risk. You share experiences with people with whom you have other things in common. But while there are many similarities, not everyone in a group has the exact same experiences or underlying personality. And so the group you belong to only explains so much. Often there is as much variation within a group as there is between groups.

What you think about your own risk attitude and those of the people around you matters more than you might guess. Peer pressure is a powerful force. So are stereotypes, biases, and assumptions we often don’t even realize are shaping our relationships and team dynamics. As we’ll see, those forces matter in determining your actions on your own and as part of a group. They matter in the decisions that companies make, which in turn affect their customers, employees, suppliers, and partners. Not paying attention to the group dynamics of risk can turn into a big mistake.

RISKY SHIFT: The tendency of groups to make more extreme decisions when together than the choices individual members would make on their own.

We behave differently in groups than we do when we are alone. Social scientists call this phenomenon “risky shift” to describe the way that groups often make decisions that are much more extreme—either much riskier or much more conservative—than their members would choose on average if they made the decision independently. In other words, risk is a social phenomenon. The people around us change the way we perceive and feel about risks in ways that most of us don’t even think about.

What do we believe about how others around us think about risks? Think for a moment about how you’d predict how rich and poor, men and women, and young and old would respond to a particular risk. Research shows that the realities are likely much more nuanced than you think, and that these subtleties matter. Sometimes, it’s fairly safe to make assumptions. It’s a pretty good bet, for example, that a teenage boy will take more risks than, say, a forty-five-year-old woman. But relying too heavily on stereotypes can be dangerous. They can lead you to make the wrong choices in who to hire or where to invest. Stereotypes that others buy into and that we may not even realize we hold about ourselves can encourage too much or too little risk.

We might think of a lawyer as being highly risk-averse. But a conservative contracts lawyer likely has a very different approach from an aggressive litigator who is used to taking big risks. A corporate attorney and a lawyer who starts an independent law firm are two very different profiles. And a lawyer who really pays attention to what a client sees as risk is worth their weight in gold. One American attorney who has held roles both as corporate counsel and as head of distribution told me that looking at risk from those two very different perspectives made him better at his job.

Experience and context matter, as we saw in chapter 4. An entrepreneur who undertakes a new venture with the support of a family and friends and alumni network is dealing with a reality very distinct from one without those support networks. A refugee making a dangerous trip on a rickety boat is taking a big risk—but likely weighs the risk of not getting on the boat as even greater.

Fairly or not, your risk attitudes and what people think you think about risk are related to how tall, strong, or good-looking you are, or even how much you weigh. A 2010 study published in the Journal of Risk and Uncertainty showed, not surprisingly, that taller and stronger people in a gambling challenge were more likely to have higher risk preferences than their shorter and weaker counterparts. Interestingly, the subjects who were judged to be more attractive also took more risks. Overweight women (though not overweight men) tended to be less risk-seeking than their fitter counterparts. The authors concluded that much more than gender was at work in producing risky choices. “Men may be slightly more likely to take higher risks, but this result reverses when gender/strength interactions, survey measures of prowess, and personality are taken into account,” they wrote.

Different demographic and socioeconomic groups experience risk very differently depending on their generation, ethnicity, income, and gender. We are prone to making assumptions about all of them, just as those assumptions are likely to be wrong. Those stereotypes often are nowhere near as accurate as we might think (if we are even aware of them in the first place). Yet they affect the investment, employment, and other decisions we make about individuals in those groups. In this chapter, we’ll look at some of the risk attitudes and behaviors common to different demographics, what influences them, and the differences within each group. Gender stereotypes are so pervasive—and controversial—that we’ll deal with those in chapter 6.

RISK-AVERSE VERSUS RISK SAVVY

But first, we need a temperature check on the way we talk about risk attitudes. We tend to sort people into risk-seeking or risk-averse. Risk aversion is the tendency to choose the less risky option, all other things being equal. Risk-seeking is the opposite: the tendency to make the riskier choice, all other things being equal. There’s the rub: all other things rarely are equal. Not everyone experiences, judges, or prioritizes risks the same way.

Investing in stocks presents very different risks to someone with a rainy-day fund or to someone with debts to pay down and no cushion; or in a market that has tripled in ten years versus one that has just fallen by thirty percent. Women and men face very different consequences for speaking out assertively in a group or for taking jobs in which people typically picture the other gender, and that doesn’t even factor in racial dynamics. The emotional impact of a risk choice varies wildly depending on what anyone’s past experiences are.

Unfortunately, much of the research into demographics and risk attitudes evokes this binary risk-seeking versus risk-averse language. You’ll quickly pick up on how problematic this is, particularly in the use of “risk-averse,” which often comes with a pejorative connotation. That distorts the conversation, particularly around risk and gender, where there are other issues with the way research has been conducted and communicated.

Read the headlines about millennials and Gen Z—sometimes known as second-wave millennials—and you could be forgiven for assuming they are a bunch of coddled, shrinking violets. Here are just a few: “Millennials Are Risk Averse and Hoarding Cash” (Investopedia), “Yes, Millennials Are A ‘Risk Averse Generation’ ” (Hedgeye), and “Overcome Risk Aversion to Optimize Millennial Investment Behavior” (T. Rowe Price). Like everything involving risk, the story of the younger generations is not exactly what the headlines would have you think.

Millennials (born between 1981 and 1996) and Generation Z (born after 1997) approach risk distinctly from the way their parents and grandparents did—as their parents no doubt have figured out already. Newer generations’ attitudes toward risk affect their career choices and job performance, their shopping behavior, the investments they make, and their political choices.

Generational differences happen for three reasons: first, the appropriateness of different kinds of risk changes with your age; second, changes in how our brains work as we grow older; and third and most important, the experiences that shaped each generation. So many of a child’s experiences are new that they are more likely to have little if any knowledge of the nature of risks. Measured by objective risk, children are bigger risk-takers than adults because everything is new. But if we look at subjective risk, we have to understand that the younger someone is, the less experience they have to inform how they judge risks. As a result, they may not know just how dangerous something is, and thus don’t perceive it as a risk in the first place. This is yet another example of why we need to pay attention to the gap between risk perception and action.

Teenagers are notorious for taking ill-considered risks. They combine a sense of invincibility with a lack of life experience in things that could go wrong. Plus, peer pressure is intense, with risky shift more likely to lead to even riskier behavior rather than producing more conservative decisions. Typically, as they mature, they tend to moderate their risk behaviors. What they bring into adulthood depends on what happened when they took risks as teenagers.

As we get older, we may become more comfortable with some risks, both because we have more knowledge and because, as our inevitable mortality approaches, we have less to lose and less to fear. Retired people control their time much more than they did when working for a company—even running their own company—and a feeling of control helps people to be more comfortable with risks. And after a lifetime of (hopefully) earning and investing, older generations often have a much bigger cushion in case something goes wrong.

Risk calculations change with age in other ways as well. Because there’s less time to wait for the stock market to come back if it takes a tumble, someone approaching retirement can’t make the kind of stock market bets that a younger person could. Financial advisers rightly advise people to keep a rising portion of their portfolios in more conservative investments as they get older.

People also base investment decisions on how much time people think they have left to live and, in turn, how much money they will need to live on. The neuro-economists Steven Albert and John Duffy confirmed this in their 2012 study of differences in risk attitudes between younger and older adults. “In the main frame, older and younger adults are equally likely to decide on the gamble and hence demonstrate no difference in risk aversion,” they wrote. “But in the long frame, older adults are much less likely to gamble than younger people.”

Research suggests that older people’s decision processes differ in other ways, too. Seniors may have a harder time adjusting their decisions when circumstances change, and are more likely to be swayed by recent events, particularly when their decision worked out well. While they are as likely as younger people to gamble on a gain, they are more likely to minimize risks when they focus on losses. These and other recent research findings offer a new twist on prospect theory, famously developed by Nobel Laureate Daniel Kahneman and Amos Tversky, who saw people’s risk decisions a combination of value (that is, how much they care about a particular outcome) and probability (how likely that outcome is). Kahneman and Tversky demonstrated that people are more willing to gamble to avoid a loss than to pursue a gain.

Recent research has added context and nuance to prospect theory, suggesting that not everyone has the same amount of loss aversion. These differences are inextricably tied to risk attitudes: what we most fear losing and the probability of that loss happening. The reasons behind what people are willing to risk or lose—and the associated thoughts and emotions—are very different from one generation to the next, both because of where someone is in the timeline of their life and because each generation experiences a very different world, with different obstacles and opportunities.

Within each generation, experiences are wildly different depending on the circumstances. The experience of adult children of survivors of the Holocaust, whose parents experienced a special kind of horror, pays tribute to the generation who came before them and experienced an unimaginable loss. “In survivors’ families, it’s customary for one kid to be the ‘memorial candle,’ that is, the repository of memories,” Linda, a Midwestern marketing vice president, told me. “The worry is assigned to a person in each generation.” Her father’s family had been well-to-do before the war but became working poor after they fled to Shanghai and eventually to the United States in the early 1940s. They had no debt but lived paycheck to paycheck, and her family always had the feeling that the rug was about to be pulled out from under them.

As the oldest child, she became that memorial candle: the person who shows up fifteen minutes early to avoid being late, who has been in the same job for more than two decades, who lives in a brick house, who overplans everything as her way of dealing with uncertainty. “I overreact to small things but if it’s a crisis, I’m cool as a cucumber.” Her brother is the opposite—completely laid back about packing or planning.

She married a musician, the youngest child in a family that had been in the United States for generations and implicitly felt the freedom to pursue a creative—you might say risky—career as a freelance musician. When it comes to things like needed dental work or replacing the roof—things that will eventually need taking care of but start out not being urgent—she asks herself, “If this waits, could it get worse?” By contrast, her husband takes a more philosophical approach, doubting whether the worst-case scenario will happen and dealing with problems when they erupt as a matter of routine.

In this case, their differing roles complement each other; he has assumed more of a plan-conscious role as his parents have gotten older, and she has adopted a more one-day-at-a-time approach. “As time has gone on, I’ve tried to be more informed and made decisions not just out of fear. Now, I often think, ‘Am I going to feel worse if I do it or if I don’t and regret it?’ ” And now the things she fears most are not what could go wrong but rather the possibility of lost opportunities.

This goes to say that within each generation, family, and group, people may be assigned to play different roles and evolve within those roles. Understanding why each person prepares for or responds to risks the way they do creates an opportunity to appreciate how we complement each other. Seeing things through the eyes of someone whose life has been dramatically different and trying things the way someone else does them can help each of us to expand our boundaries and grow.

MILLENNIALS AND RISK

Bruce Tulgan, founder of the workforce consultancy Rainmaker Thinking and author of several business strategy books, says that twenty- and thirtysomethings are caught between opposing forces. On the one hand, their smartphones give them so much information at their fingertips that they are hyperaware of risks but also have access to the tools to solve at least some problems themselves. On the other, many were raised by helicopter parents trying to reduce their risks and raise their confidence.

“The first wave’s view of risk shaped first by the nineties, in a period that seemed like low risk, characterized by peace and prosperity,” Tulgan told me. Then the Global Financial Crisis erupted in full force in 2008. Banks collapsed. Global stock markets lost nearly half their value. Millions and millions of Americans lost their homes to foreclosure. At the worst of it, nearly one in ten Americans was out of work. As a result, “millennials have an underlying foundation that was formed in a very low-risk environment, then had to adapt to a high-risk environment,” Tulgan told me in a phone conversation. The youngest cohort of millennials and Gen Z right behind them had their risk attitudes shaped by the financial crisis and its aftermath, when they saw parents and siblings losing jobs and savings—and having very little control over the outcome.

The result is an intense focus on the things they can control, but also the paradoxical combination of deep anxiety and a blind eye when they feel they have no influence over a problem. “What millennials have a very heightened sense of is their susceptibility: the effects on them of factors outside their control,” Tulgan said. Because of the deluge of information available, they are acutely aware of factors outside their control, and feel helpless. Hiring managers worry that this anxiety often causes millennials and Gen Z to focus too much on things they can’t do anything about instead of on what they can fix.

On the plus side, however, growing up with uncertainty has made millennials more flexible when it comes to challenges that they can control. They thrive in roles that demand creativity and reward autonomy. And a sense of purpose is important to them; they want good reasons to justify their choices of jobs. A strong sense of purpose helps to drive healthy risk decisions and is a powerful leadership trait.

More used to risks and more confident of their ability to shape the world around them, millennials are more likely to work independently, to choose jobs that have the potential to change the world, and to use products from companies that similarly are concerned about minimizing their negative impact and maximizing the positive.

RISK SIGNS OF THE TIMES

Young people in the early 21st century are growing up with more debt and a less certain outlook than earlier generations. They cannot safely assume that they will be better off than their parents, as previous generations did. And these socioeconomic differences matter. Ulrike Malmendier and Stefan Nagel of the National Bureau of Economic Research measured how past experiences affected investment choices, and their results confirmed that “Depression babies” (those who were children in the 1930s and 1940s) indeed made investment decisions based on their past experiences. People who have only experienced stock market booms were more likely to invest a higher portion of their liquid assets in the stock market, Malmendier and Nagel found. People who have lived through inflation are less likely to invest in bonds and more likely to put their money in highly liquid, stable, and inflation-proofed assets. “Our results can explain, for example, the relatively low rates of stock-market participation among young households in the early 1980s (following the disappointing stock-market returns in the 1970s depression) and the relatively high participation rates of young investors in the late 1990s (following the boom years in the 1990s),” they wrote. In other words, past experiences shape our expectations of the future.

When it comes to finances, millennials tend to make decisions that are wrongly described as risk-averse when they are simply risk-appropriate. Millennials in 2018 tended to funnel less money into retirement savings than did people between the ages of twenty-five and thirty-nine in 2007, and instead favored putting it into rainy-day funds or paying down debt. The financial crisis left many of them owing staggering amounts of money, with 63 percent of millennials still owing more than $10,000 in student loans in 2017. With a stock market that had more than tripled over a decade, paying down loans is simply a smart financial decision. And with an uncertain immediate future, a rainy-day fund is more practical than saving for retirement.

Dennis Nolte, a financial adviser at Florida-based Seacoast Bank, sees that kind of behavior as simple common sense, not risk aversion. It’s reasonable to make sure you have a solid foundation to protect you before investing in the stock market, especially one that has been roaring along despite signs of the business cycle and a likely slowdown. But he encourages starting as early as possible to invest because it’s an important experience that helps to understand your risk tolerance. “If your first skin in the game was 2006 and you lived through that and it didn’t change your behavior, you learned something about your risk tolerance. If you went through and it bothered the heck out of you and pulled out, you learned something too,” he told me.

But it’s hard to take on stock market risk if you don’t have the resources. “Gen Zs are broke,” Nolte said. “How do you manage when everyone is telling you you’re never going to make anything?” That makes it hard to follow the traditional trajectory of starting a 401k, buying a house, paying down student loans, staying out of debt, and keeping an emergency fund on hand. They also fear that Social Security is not going to be there by the time they retire, or if it’s there, the money they receive will be less and will start later.

When it comes to social issues, there is evidence that millennials and Gen Z are more conservative than earlier generations, partly because they perceive the risks differently and partly because social media heightens the risk to their reputations. Some research shows that the youngest millennials and the teens immediately behind them are less likely to have sex or drink than previous generations were at the same age.

San Diego State University psychology professor Jean Twenge dubs the generation born after 1995 “iGen,” in her eponymous book, because “they grew up with cell phones, had an Instagram page before they started high school, and do not remember a time before the Internet.” The biggest changes in teenagers’ behavior began around 2011 or 2012, she noticed during her research on generational differences. Why? She attributes the shift to the fact that this was when the number of Americans using smartphones reached a majority. That brought higher risks of loneliness, depression, and anxiety because of social media use.

In the past, Twenge noted, more teens drank alcohol than thought it was safe. Today, the opposite is true: there are more teens who think drinking is safe than there are teens who imbibe. “That’s an attitude many of us associate more with older people than with teens, a vivid illustration of the generational shift toward safety,” she wrote. Twenge points to iGen teens’ awareness of the risks to their reputations, the possibility of legal consequences, and even losing the chance at a job if potential employers saw their activity on social media.

iGen also began to demand “safe spaces” where people don’t have to worry about offensive ideas. Twenge and her graduate assistant surveyed college students and found that 86 percent agreed that “it is the responsibility of the university administration to create a safe space for all students to thrive.” Interviews revealed that students felt “emotional safety” was important. In this sense, iGen certainly is risk-averse. And that has important implications for their ability to cultivate creativity, innovation, and the kind of people skills that are increasingly essential in today’s economy. “When students want to ban anything that challenges them, they are questioning the core idea behind higher education and requesting to live in a protected, childlike world,” Twenge warned.

RELATIONSHIPS AND RISK

The nature of risk-taking in relationships has changed along with social mores, attitudes about uncertainty, economic shocks, and fear of failure. Millennials in the United States are slower to marry than their Baby Boomer and earlier predecessors. In 2017, the average age of women at their first marriage was 27.4 years and for men 29.5 years—the oldest age ever. In the 1950s, by comparison, women married on average at only twenty years old. This is part of a global trend. In Japan, where by 2015 one in seven women were still unmarried by the time they turned fifty, compared to one in twenty in the 1990s. In Scandinavian countries, the average age of marriage is well over thirty.

Some researchers have interpreted younger generations’ relationship reticence as risk aversion. But millennials’ relationship attitudes represent just how much society is changing. Not so long ago, not marrying was the bigger social risk. But younger generations—many of whom lived through the unhappy marriages or divorces of their parents or their friends’ parents—want to get marriage right.

Millennials and some of Generation X (millennials’ immediate predecessors) get married later than their Boomer predecessors and are less likely to get married at all. Waiting until they are established in their career, finances, and adult identity increases the chances of finding a match that lasts, and lowers the risk of failure. That approach is working. Divorce rates in the United States have fallen from 4.8 per 1,000 marriages in 1992 to just 3.2 in 2016. Between 2008 and 2016, the divorce rate fell by 18 percent according to a study by Philip N. Cohen of the University of Maryland. Some analysts attribute that to changing behavior. But Cohen suggests that decline in divorces might be closely tied to the overall decline in marriages: that marriages are becoming increasingly selective, and people who don’t have a certain level of economic stability simply don’t risk it at all.

Relationships change your risk equation by providing a safety net, by adding complexity to your decisions because they now affect those around you, and by making the relationship itself something you risk losing. Instead of just thinking of the risk to yourself, the risk equation now includes your significant other, and, if you have them, your children. How will your decision affect those around you? Good relationships, whether significant others or friends, also provide a sounding board for your decisions, which can help to steer you away from ill-considered risks and encourage you to go for your stretch goals. They can help you take more positive risks because you have a fallback and an audience: someone to pick you up if you fall or cheer you on when you make the right bet. But the wrong one can drag you down.

Relationships bring their own inherent risks. Bad ones can be a millstone dragging you down if you stay in. And good ones become something you do not want to put at risk. As the composer and musician Ned Sublette sings in a style he calls cowboy rumba: “I never was fearful or timid, never backed down from a fight. My things all used to fit in a suitcase, but now I don’t travel so light/Now that I’ve found you to love me, now I have something to lose.”

HOW MUCH YOU HAVE TO LOSE

How you think about risk depends on how much you have to lose and what you care about losing. Someone with nothing to lose may make choices the rest of us would see as risky. They do so precisely because they operate under the calculus that whatever happens couldn’t be worse than what they face now. The operative question should be “risky compared to what?”

How much you have shapes how much you can afford to risk. This is painfully true for subsistence farmers in developing countries. Ruth Vargas Hill of the International Food Policy Research Institute studied how much labor time poor farmers in Uganda were willing to invest in higher-risk, higher-return crops. These farmers and their families, she points out, are both consumers and producers. As consumers—particularly of food—they need to ensure that they have enough income or savings to be able to survive if a crop goes bad. “Susceptibility to risk is a distinguishing feature of what it means to be poor,” Hill wrote. “Poor households in rural areas of developing countries have little access to formal credit or insurance markets with which to fully insure their consumption.” When they don’t have a cushion, their priority when they decide what to produce is to avoid risk, often at steep costs. They are more likely to think twice about planting coffee, which takes three years to yield its first crop, even though it continues to produce for decades and fetches a higher price than “safer” crops like yams.

This can create a vicious circle: The less of a safety cushion the farmers had, the more likely they were to underinvest in higher-risk, higher-return crops like coffee. This in turn reinforces poverty traps, in which the inability to tolerate risk, even “good” risk, keeps people from getting ahead. The wealthier farmers were, Hill found, the less likely they were to be make these impossible choices.

When people have a cushion, they can tolerate more financial risk, whether in their own business or investment portfolio. To be sure, it’s quite possible that they became rich in no small part because they paid close attention to risk through analysis and management. More likely, they simply may have started out with a bigger cushion in the first place.

Statistically, white men do tend to be wealthier and are more likely to hold CEO or other leadership positions than other demographic groups. That means that they have a significant cushion against risks and more control over situations, both of which make risk-taking comparatively safer for them. Social scientists even have a term for this: the “white male effect.”

This may explain why research shows that women and nonwhite men are much more sensitive to many risks than are white men. For example, a study of more than fifteen hundred Americans asked to rate risks as little or no risk, slight, moderate, or high risk to society showed women and nonwhites rating most risks as much as 20 percent higher than male and all-white cohorts. Second-hand cigarette smoke, nuclear waste and accidents, suntanning, chemicals, and pesticides were among the concerns with the biggest difference in rating.

BUT CLOSER EXAMINATION revealed that about 30 percent of the white male participants accounted for the lion’s share of the differences with women and nonwhite men, suggesting that it may not just be a “white male” effect but rather “wealthy, highly educated and politically conservative male” effect. “In sum, the subgroup of white males who perceive risks to be quite low can be characterized by trust in institutions and authorities and by anti-egalitarian attitudes, including a disinclination toward giving decision-making power to citizens in areas of risk management,” the social psychologist Paul Slovic has written. Suggesting possible explanations for why a substantial percentage of white men see the world so differently, he theorized: “Perhaps white males see less risk in the world because they create, manage, control, and benefit from many of the major technologies and activities. Perhaps women and nonwhite men see the world as more dangerous because in many ways they are more vulnerable because they benefit less from many of its technologies and institutions, and because they have less power and control over what happens in their communities and their lives.”

CHANGING OUR RISK MAPS

It’s impossible to separate group behavior and attitudes from the wider cultural, social, and economic environment. Being aware of risk attitudes across cultures, demographics, and professions, while being conscious about the importance of keeping from getting tripped up by stereotypes about those groups, can help you better navigate negotiations, business, family, and friendships. Groups often share experiences or traits that suggest they might perceive or respond to certain risks similarly. But then again, there are a lot of differences, too. Context is important.

Wait a minute, you might say. These are mixed messages: pay attention to different risk cultures and personalities, but don’t make assumptions. Fair enough. Take it as a given that a colleague thinks differently about risk from the way you do, but don’t rush to hasty conclusions about what their thoughts might be and why. That can send you down a rabbit hole where you don’t want to go.

You’re likely to size up someone tall and strong as more likely to take bigger risks than someone who appears to be short and weak. But you don’t know. The small person may be highly trained in martial arts. The tall person may be distracted or feeling under the weather. Their skills and experiences are distinct.

If there are such wide differences within groups, should we bother trying at all to understand them? Absolutely, yes. If enough people take to heart those studies about millennials and Gen Z supposedly being so “risk-averse,” that stereotype could affect the decisions members of those generations make, and the responsibilities and choices that people offer them. Testing your own attitudes against what we are “supposed” to think about risk helps you to understand yourself and the stereotypes others might be imposing on you and other colleagues. You also will benefit from challenging yourself on how you might be making mistakes in your judgments of others’ risk attitudes, and in turn jeopardizing personal or professional relationships and goals.

It’s important to be aware if you are being stereotyped by others, and especially if you find that you are letting risk stereotypes affect your own choices. If you are, find ways to override what people think you are supposed to think and do, and own your behavior. Though the group we belong to plays a role, not everyone is as susceptible as others to group dynamics.

The different experiences of groups go to show how risk ecosystems—the support systems, the events that define the era, the preconceptions others have of us—all affect our risk fingerprints. Being aware of those influences can help each of us to consider risk more wisely and to be more understanding of why our friends, relatives, and colleagues make the risk decisions they do.

The good news is that most of us are more capable of improving than we might think. People trained to recognize their biases can overcome them. Understanding how our own pasts have shaped how we perceive risks and respond to them helps us to develop empathy toward others with different stories and lives, which is a powerful, so-called “soft skill.” We’ll explore this more in chapter 12.

It’s not easy to both be aware of group differences and avoid stereotypes, but it is possible to find a healthy balance by remembering that what many groups share is a common set of experiences: not all exactly the same, but enough to relate. When you’re working with a team member or client, think about what in their experiences might have shaped how they think, feel, and act about different risks. Don’t assume: ask for their story.

Think also of your role in a group. Are you the memorial candle or the trail blazer? How do you fit or challenge stereotypes? How do you adapt your behavior depending on the other people in the room? Are you comfortable playing a risk role different from the one with which you are most familiar? If not, push yourself to picture yourself in your team member’s shoes.

6

Gender, Risk, and Stereotype Threat

GENEVIEVE THIERS, COFOUNDER of the pioneering gig-economy caregiving web platform, sittercity.com, recalls a meeting in Chicago several years ago with ten top women CEOs. “All ten had to have a man in the room to raise capital,” she said. “Luckily mine was Dan, so I didn’t think twice about it.” She was referring to Dan Ratner, who now is her husband, a successful tech entrepreneur and investor in his own right and was SitterCity’s cofounder and chief technology officer when they were raising money. “We had to bring a man with us because the man’s supposed risk profile raised the VC’s estimates of you as a woman.”

We spoke shortly after Thiers announced the sale of SitterCity to the day care chain Bright Horizons. Not long before, Entrepreneur had named her as having raised the most capital—over $48 million—of any female founder in the state of Illinois. She’s an active investor and had put her own money into fifteen tech start-ups run by women. “I know the risk profile and what works,” she said.

Women have a lot of experience dealing with risks, she said—starting with the risk of what men will think when they get pregnant. “You have to immediately cover yourself by saying ‘Yes, I’m pregnant but I already have a plan,’ ” she said.

A woman’s attitude toward different risks changes over time, Thiers noted. When she was starting SitterCity, she had nothing to lose. She was sharing a room with her two sisters, pizza was a luxury, working at Lotus Notes was the only job she’d ever had, and she wasn’t encumbered by MBA-style thinking. “I grew it like a garden,” she said. She met Ratner shortly after she finished the first prototype of the website. “Would I do this now? Absolutely not!”

As we spoke, the pandemic had made it impossible even for the founder of a caregiving company to rely on a nanny. She was juggling her civic engagement, new media ventures, and support of women in tech with caring for her eight-year-old special-needs twins. “As a mom you learn how to manage when you have exactly forty-four minutes and get done ten times as much as other people,” she said. We normally don’t think of time management as risk management, but in essence that’s what it is: every choice you make about what you do risks being the wrong one. “Moms are lethally good at business! All of that procrastination energy is gone,” Thiers said with a laugh.

In her view, the varied challenges of motherhood make many women even better risk bets than they were in their twenties. But most men—and often, women too—ignore that experience and overlook women entrepreneurs once they hit their forties. “There is no acceptance of the value of a woman even though her experience level goes up as she gets older—and they think it’s the opposite,” she lamented. Women’s risk management skills extend to all aspects of management.

Working with many company boards, Thiers has found that women are the ones who are most willing to recognize risks and step up to deal with them, from business strategy to personnel errors. “Guys are super risk-averse,” Thiers told me. “Women are the ones who grow these gardens.”

MISSED INVESTMENT OPPORTUNITIES

Just as Thiers experienced, risk stereotypes have held back investors from funding women and companies from promoting them. Businesses who fall prey to gender risk stereotypes are overlooking human capital and missing out on some of the best new minds.

A 2017 study of male and female entrepreneurs challenged stereotypes that many venture capitalists hold about women supposedly being risk-averse and reluctant to take on big financial obligations. The research looked at companies’ hard financial risk indicators like the use of bank overdraft facilities; risk buffers; collateral; and debt-to-equity, mortgage, and long-term borrowing ratios. “According to these measures, our results indicate no statistically significant differences between the ventures run by the women and men who applied for finance,” the authors wrote for Harvard Business Review. They demolished the investors’ reasoning that “women entrepreneurs were not willing to fully commit to business exploitation.” That reasoning, the study showed, was misguided, and suggests that many investors may be missing big opportunities because they let stereotypes and biases guide them.

Many investors also may be taking unwise risks in start-ups if they overlook women founders. Firms led by female first founders are more likely to survive than are those founded by men, a 2010 study of nearly thirty thousand Austrian start-ups suggested. “Start-ups are small, dynamic, and risky enterprises, which are particularly sensitive to business decisions,” the labor economists Andrea Weber and Christine Zulehner wrote. “A single bad decision can lead straight to the exit.” Female first founders decrease the rate of early failure by 19 percent, they discovered. This study is further evidence that venture capitalists who let gender stereotypes sway them are making big mistakes with their money.

Venture capitalists are far from the only ones who discriminate based on flawed ideas about what women think about risk. Other scholars have found evidence that women are denied promotions because of flawed assumptions about their risk attitudes. Relying on stereotypes and misguided notions is costly both to the women who bear the brunt and to the investors and organizations missing out. It’s time to pay attention to the clear and growing body of evidence that women are better at managing risk.

GENDER-ATYPICAL RISK BEHAVIORS

Risk stereotypes affect how both genders think they are supposed to behave and can create conflicts when one member of either gender is not acting typically. In other words, they hurt men as well as women. Q McCallum, a US-based data science consultant, is one of the most thoughtful people I know; he’s confident and very good at what he does, and doesn’t feel he needs to use bravado to get his ideas across. He worries that too many men hew too closely to the idea that they are not supposed to bring up potential problems.

Men often are more likely try to show false overconfidence and talk their way out of a problem. “I’ve been the other man to point out when there are obvious problems ahead and I’ve gotten dismissive hand-waving in return. Oh, and then they lose confidence in me because I am not ‘being a team player,’ ” he told me. “If this is how men treat another man who brings up risks, it underscores how much confidence they lose in women who do the same.”

He recalls one meeting where a brash team member, who was used to getting his way with a hard-sell approach, brought one of his ideas to a meeting. “He made the mistake of asking us, ‘what do you think?’ And I gave him my honest approach, which was along the lines of ‘sounds good overall, but have you thought about potential risk x?’ And he lost it. You would think that I’d attacked his family. He went off on a rant: ‘Of course, I’ve thought of that. And that wouldn’t be a problem. Why would you bother thinking about that anyway? Do you think I’m stupid?’ ”

Like the stereotypical man of pre-GPS times who always refused to ask for directions when clearly lost, many men often avoid asking for help in mitigating a risk; because of gender stereotypes, they are not rewarded for doing so. By contrast, McCallum has found that women are more likely than men to seek outside expert advice on areas outside of their expertise as a smart risk-mitigation strategy to head off both known and unknown dangers. “It’s almost as though they are confident enough in their own abilities and their own knowledge of what they do, that they are not rattled by having someone provide guidance.”

“Good risk mitigation starts with risk assessment, and risk assessment involves identifying ways we might deviate from our intended result,” he said. “So if you refuse to acknowledge that something might go wrong, if you refuse to hear other people’s views, then by definition you’re exposing yourself to greater risk. And when it comes to gender differences in approaching risk, that’s the biggest one I’ve seen: men are more likely to pretend that problems simply will not occur.”

McCallum added that these dynamics differ somewhat depending on geography and industry; European men, for example, are less likely than American men to descend into chest-thumping bravado when someone raises a risk concern. People whose work by definition involves risk, for example, in insurance and trading, also are more open to recognizing and discussing risks.

DEBUNKING STEREOTYPES

Many people have long assumed that men are more “risk tolerant” and that women are “risk-averse.” You already know what I think about the problems with the “risk-averse” label. To be sure, there are clear gender differences involving risky activities. Some of this is neurobiological, into which we’ll delve in chapter 10. But the nutshell version is that men have much higher levels of testosterone, which can correlate to aggression and egocentrism and influence their risk behaviors, than do women.

There is extensive evidence that men are far more likely than women to engage in many risky behaviors: from drinking and smoking to choosing careers that involve risk-taking, to participating in extreme sports, to risky sexual behavior. They are involved in more vehicle accidents, are more likely to speed or drive under the influence of alcohol or drugs. Women are more likely to report that they wear seatbelts when driving or riding in vehicles, while men (in the United Kingdom, at least) are far more likely to be involved in pedestrian traffic accidents, and Western men in general are more likely to drown or be poisoned than are women.

These examples can be misleading, because the relationship between risk and gender is not that simple. Recent research shows that many stereotypes about men, women, and risk often miss the mark. Highly respected scholars are successfully challenging the notion that women are more risk-averse than men.

Context matters. The social psychologists Elke Weber, Ann-Renée Blais, and Nancy Betz have assessed the risks that men and women perceived in financial, health/safety, recreational, ethical, and social decisions. In four of those five areas, men were likely to perceive lower risks than were women and were more likely to engage in those behaviors. Social decisions, like disagreeing with a parent or friends or raising a hand in class, were the exception.

NOT SO FAST

A much-cited 1999 meta-study of 150 research papers on gender and risk is responsible for many generalizations about men and women. Sixty percent of those papers concluded that men took more risks, while 40 percent found that women took more risks or that both genders took similar amounts of risk. But there are problems with the way that report interpreted data and characterized its findings, according to Julie Nelson, an economist at the University of Massachusetts at Boston, who has analyzed that report and other studies on gender and risk. She cites titles like “Will Women Be Women?” (Beckmann and Menkhoff, 2008) and “Girls Will Be Girls” (Lindquist and Säve-Söderbergh, 2011) that perpetuate gender stereotypes. “The apparent presumption in such titles is that were a group of women or girls found to not be relatively more risk-averse, they would somehow be abnormal relative to their own female natures,” she wrote in her 2018 book, Gender and Risk-Taking: Economics, Evidence, and Why the Answer Matters. Nelson has called out the way many papers headline women’s supposed “risk aversion,” even when the data is minimally, if at all, statistically significant.

Nelson makes a compelling case that academics have fallen victim to confirmation bias in their assessments of men’s and women’s risk attitudes. She also argues that most academic studies have looked at the average risk attitudes of men and women, while ignoring just how much variety there is within each gender. When Nelson applied newer, expanded statistical techniques to the underlying data, the picture was quite different. Her research suggests that 95 percent of the risk preferences of men and women overlap. So much for that big difference. “Women are far more different from other women, and men from other men, than average women and men are from each other,” Nelson told me.

Her thinking made me look differently at the research I plowed through in writing this chapter. For example, Gerald Hudgens and Linda Fatkin found in their 1985 study that women made riskier decisions than men in situations in which the probability of success was low, though they took longer to decide, and that the reverse was true when the probability of success was higher. But look at the contradictory language the abstract uses to describe their results: “No significant sex differences were found in the participants’ ability to estimate probabilities or in their total scores for decisions made on the risk-taking task.… The findings support the growing body of evidence that men are more inclined to take risks than women in a variety of situations.” This is exactly the kind of issue about which Nelson warns.

THE COST OF STEREOTYPING

In her fantastic 2016 book, How Women Decide: What’s True, What’s Not, and Why It Matters, the cognitive psychologist Therese Huston makes the important point that even if men and women engage in the same behavior, they do not face the same amount of risk.

In male-dominated careers, men often respond to women speaking up with derision or disdain, or—in one of the best words coined recently—taking credit for an idea by “he-peating” it. This is a social risk that women face in meetings, but men do not. “For a man to take a risk in one of these meetings, he has to say something risky. For a woman to take a risk when she speaks up, she just has to say something,” Huston wrote.

That makes it harder to measure differences between men and women, because the act itself of taking risk is, in fact, a bigger risk for women than for men. So even if both behave the same in face of a particular risk, their risk tolerance is not the same: A woman shows herself to have a higher risk tolerance for the same behavior, because the risk it entails is bigger for her than it would be for a man. This reinforces the point raised in chapter 2: Our risk attitudes depend both on how dangerous we perceive a risk to be, and how much risk tolerance we have overall. And the danger in situations often is not the same, going back to the hypothetical difference between a six-foot-three man and a five-foot-two-inch tall woman in walking down a dark alley at 3 a.m. The same often is true in professional situations.

Women are judged more harshly when they take risks seen as non–gender typical. The Yale psychologist Victoria Brescoll and her colleagues have shown that men and women are judged differently when they fail at tasks that are not seen as traditional for their gender. They presented research participants with case studies of gender typical roles like male police chiefs and female presidents of women’s colleges, and nontypical gender roles like female police chiefs and male presidents of women’s colleges. In some of the case studies, the subject was described as successfully carrying out his or her task. In others, the subject failed; for example, not sending enough police officers to provide security at a protest event.

Brescoll found that people in jobs that are strongly associated with the opposite gender are penalized more harshly for making mistakes. For example, they were more likely to recommend a demotion for a woman police chief than a man who had made the same error. “When the subject made a mistake, study participants accorded less status to and judged as less competent female police chiefs and male presidents of women’s colleges, than those in gender-congruent jobs,” they wrote.

Similarly, relationships entail very different kinds of risks for men and women. “Historically, female risk-taking has always been through another person, namely, a husband. We took one giant risk in yoking our lives to theirs; they took risks in interacting with the world,” the psychiatrist Linda S. Austin has written. In the past, marriages required women to make their finance, personal security, and emotional stability dependent on someone else. That, of course, has changed in recent decades, as have the ways couples share responsibilities (though not, I suspect, as much as many women would like).

Other economic and social factors differ as well. Given the differences in objective risk to women in different situations, you might even say that in many cases, they are more risk tolerant than men even when at first glance they might appear to be making similar decisions. “Women may require a higher threshold of risk tolerance than men to be willing to start a business,” wrote the authors of a 2017 World Bank study of Peruvian small businesses. “Household income is more variable for women, and they may need to be more risk-taking to be willing to start a business,” they suggested.

AMBIGUITY: A form of uncertainty that arises from a lack of knowledge or incomplete information.

Other research, consistent with the broad theme that women take more variables into account when judging risk, suggests that the context matters involving ambiguity, a form of uncertainty arising from lack of knowledge. (For example, in an experiment asking participants to bet on drawing a yellow or blue ball without knowing the number of each color.) One group of scholars, for example, concluded that women are more ambiguity averse than men when it comes to investments, but not insurance decisions.

Generational changes in risk attitudes and behaviors also are shifting the relative risks that men and women face. As women’s roles have changed in society, so has the nature of their risk-taking.

AN UNDERAPPRECIATED ASSET

In the aftermath of the bursting of the dot-com stock market bubble, Fortune magazine called Sallie Krawcheck “the last honest analyst.” At the time, she headed the research boutique Sanford C. Bernstein, which she had taken independent from the underwriting business that gave so many other analysts serious conflicts of interest. She went on to become chief financial officer for Citigroup, where, true to her reputation, she raised risk red flags and insisted that the bank return money to clients after it ignored clear warnings during the run-up to the subprime mortgage debacle. And she paid the price for being a threat to the groupthink that defined the still mostly male bastion of Wall Street. “I was fired for being different, for challenging the majority opinion, for speaking up, for daring to go against the grain,” she wrote in her 2017 book, Own It, which recounts the story and reflects on risk-taking. “I was fired for calling out the risk, prioritizing the long term, and for putting client relationships ahead of the short-term bottom line.”

That led her to an epiphany: the traits she’d been fired for were an underappreciated asset representing the very strengths and competitive advantages that women can bring to work. “I began to believe that recognizing the strengths every individual brings to the table, and allowing to play to those strengths, might be a more successful personnel strategy than training everyone to act the same way… I also began to believe that allowing us women to act like ourselves in the workplace, to own and double down on those strengths, rather than downplay them, could be more effective, too.”

Krawcheck went on to create Ellevest, a digital investment platform, and its sister company Ellevate, a networking platform. Both incorporate her insights and experiences into solving the problem that women often do not meet risk stereotypes—and they, their organizations, and the economy all pay the price. So-called “gender neutral” platforms are anything but: they generally are geared to men’s life expectancies, career paths, decision-making styles, information needs, time horizons, and priorities.

Krawcheck sees women as bringing six key strengths to our relationship with risk: “Healthy risk awareness, the ability to see things holistically (and thus manage complexity), our relationship focus, a longer-term perspective, a love of learning, and a drive for impact and meaning.” Krawcheck is right. The challenge is to get people to see past gender risk stereotypes, see the potential that she does, and help to unlock it.

GENDER AND FINANCE

The discussion of gender and risk all too often includes value judgments: in effect, that women take too little and men take too much. Some research suggests that when it comes to investments, there is some truth to the stereotype that men take on more risk, including more dangerous risk. But look deeper into the research and, once again, the findings are not quite so simple. The results can be contradictory and only come anywhere close to making sense once researchers correct for age, education, marriage status, and experience.

Some of women’s financial risk decisions may be related to how advisers market to them—an example of self-reinforcing risk stereotypes. Some research, indeed, has found financial advisers tend to offer women less risky investment alternatives than men. With companies like Ellevest and an increasing number of banks marketing to women, this may change.

A 2003 study found little difference between male- and female-managed funds in terms of performance, risk, and other characteristics of the funds in question. The authors noted that the managers in the study had similar education levels, and thus theorized that differences in investment behavior often attributed to gender may instead be the result of differences in finance knowledge, as well as of wealth constraints.

The scholars Peggy Dwyer, James Gilkeson, and John List similarly found in a 2002 study of nearly two thousand mutual fund investors that knowledge of financial markets and investments was a key factor in any gender differences in investment choices. In other words, any apparent risk aversion disappeared when researchers controlled for education and knowledge.

In fact, education and knowledge feed into gender differences in another fascinating way when comparing inexperienced men and women. Men who are novices are more likely to make riskier choices than women are. But when they are experts, this gap disappears. In other words, men are more comfortable at “faking it till they make it,” until they don’t.

In a study of nearly seven thousand US commercial banks from 2007 to 2010, Ajay Palvia of the US Comptroller of the Currency and the Finnish finance scholars Emilia Vähämaa and Sami Vähämaa tested their hypothesis that female-led banks would show higher levels of equity capital and lower default rates. After controlling for the bank’s asset quality profile, growth rate, size, local economic conditions, and other variables, they found that banks led by women indeed took more “conservative” stances. “Furthermore, while neither CEO nor Chair gender is related to bank failure in general, we find strong evidence that smaller banks with female CEOs and board Chairs were less likely to fail during the financial crisis,” they wrote. “This suggests that conservatism is particularly important for the survival of smaller banks which may be less able to absorb external shocks and often face less stringent market and regulatory oversight.”

They raise the possibility that their findings may be influenced by a self-selection bias: that is, if women self-select into less risky banks that have more conservative capital ratios. This may be another example of self-reinforcing stereotypes. They also warn that decisions may differ in business cycles that were not characterized by the crisis culture of the period they studied. Nevertheless, their analysis provides food for thought. Too many conversations about lower-risk choices often include an unspoken assumption that less risk equals “aversion”—not meant as a compliment—when in some circumstances taking less risk is the right thing to do. In the cases examined in this study, conservative decisions reflected an appropriate amount of risk judgment and not necessarily a bias toward risk aversion.

In fact, the Great Financial Crisis shed new light on the benefit of sometimes erring on the side of caution, and that this is not risk “aversion” but rather wisdom and appropriate behavior. “Maleness has become a synonym for insufficient attentiveness to risk,” Christopher Caldwell wrote in Time magazine in 2009, amid the crisis. It remains to be seen how long Caldwell’s value judgment will last or if it has already dissipated. During the record bull market that followed the crisis, loose monetary policy cast caution to the wind once again.

Comparisons of behavior and judgment suggests that men and women respond differently to stressful situations. The cognitive psychologists Mara Mather and Nichole Lighthall cited experiments in which subjects chose between safer options (that is, in which both potential gains and losses were smaller) and riskier options (higher potential gains and losses). “Stress enhanced males’ performance when increased risk-taking was beneficial but impaired males’ performance when increased risk-taking was detrimental, and vice versa for females,” Mather and Lighthall concluded. In one study, participants “inflated” balloons shown on the computer screen. Each pump inflated its value but also the odds of an explosion of the balloon and the related earnings. Half of the subjects had to put their hand in an ice bucket twenty minutes before playing the game. The men who had endured the ice bucket pumped the balloons for longer and earned more, while the women who had been stressed stopped pumping the balloons earlier. In a similar experiment involving gambling, men took more cards from a “risky” deck and lowered their overall earnings. And in yet another, male ex–heroin addicts made more “bad” risky decisions under added stress than without it.

OVERCONFIDENCE

The management scholars K. C. Mishra and Mary J. Metilda set out to study gender differences around overconfidence—defined as unwarranted faith in one’s judgments, and thus risk perception—and self-attribution bias, wherein people are more likely to take credit for positive events and blame external forces if things don’t go the way they would like. Surveying more than three hundred mutual fund investors, they found that overconfidence is higher among men than women. Both men and women were more prone to self-attribution as their education levels increased. The findings also showed that self-attribution and overconfidence were closely related.

Other research also suggests that men tend to be more likely to appear overconfident than women. However, the socio-linguist Deborah Tannen cautions that “women are more likely to downplay their certainty and men are more likely to minimize their doubts.” That’s why it can be hard to compare based on what men and women say. A 1994 study found both men and women to exhibit overconfidence, but men tend to be more overconfident than women.

Overconfidence can lead to risky decisions that can be harmful to financial health and otherwise. Brad Barber and Terrance Odean of the University of California-Davis analyzed the trading behavior of thirty-five thousand households via a large discount brokerage over a seven-year period in the 1990s. They found that men traded 45 percent more than women. This trading reduced men’s net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women. They also found that women turned over their portfolios roughly 53 percent annually versus approximately 77 percent annually for men. They attribute those differences to overconfidence and to men (as other research suggests) tending to be more overconfident in financial matters in particular than are women. They also found that differences were larger between single women and men than between married women and men—likely because married partners consult their partners on at least some financial decisions. Barber and Odean argue that overconfident investors—who believe that the precision of their knowledge about the value of a security is greater than it actually is—trade more than investors whose sense of confidence is closer aligned to reality. They found overconfidence to be greatest for difficult tasks, for those involving highly uncertain forecasts, and for decisions for which fast, clear feedback was unavailable.

Interestingly, research suggests that gender differences in confidence depend on the kind of task at hand: both whether it is perceived as gender typical and whether clear, immediate feedback is available. In typically “male” fields like finance, or arenas like the stock market where feedback is ambiguous, women often underestimate their abilities. Given the more than two decades since Barber and Odean’s study, however, newer studies might produce somewhat different results.

As women have become more present and comfortable in areas once seen as more appropriate for men, gender differences have been shrinking in some areas and, if trends hold, the perceived risk-taking differential is doing the same. Ingrid Waldron at the University of Pennsylvania and her colleagues have demonstrated that gender differences in accident-related mortality have decreased in some areas, like motor vehicle and occupational accidents as women have spent more time driving. In other cases, gender differences have increased, as in illicit drug use in the 1980s, where men continued to be more likely to use illicit drugs and availability rose. In other cases, improved medical care techniques have benefited women in particular—for example, older women recovering from falls—and so have reduced some mortality rates.

THE DAMAGE STEREOTYPES CAN DO

The economists Catherine C. Eckel of Texas A&M University and Philip Grossman of Australia’s Monash University found that men and women both overestimated the risk aversion of both genders, while men did even worse than women did at predicting women’s risk preferences. Neither one was better than the other at predicting their own gender’s preferences. And both were bad at recognizing the wide range of risk preferences within each gender.

Their research further suggests that women are much more sensitive than men to the context of risk decisions—which may explain why studies on gender and risk vary so widely. “The potential economic impact of risk preferences and others’ assumptions about those preferences can be quite large. A greater awareness of the true distribution of risk attitudes within and between sexes has the potential to lead to better decision-making by women and men,” Eckel and Grossman argued. They point out that many studies that purport to show gender differences in risk attitudes fail to control for knowledge, wealth, marital status, and other demographic factors that might bias the results. “While more research is clearly necessary, the findings thus far shed serious doubt on the existence of risk attitude as a measurable, stable personality trait, or as a domain-general property of a utility function in wealth or income,” they concluded.

Eckel and Grossman believe that these stereotypes are causing real damage: “[B]oth women and men are likely to condition their treatment of women and men according to their (fairly accurate) perceptions about the average differences between the sexes, while there is considerable heterogeneity within sex groupings that is largely not picked up or taken into account.” Disturbingly, doctors may prescribe less aggressive treatments for women than for men based on their assumptions about women’s risk preferences. Those assumptions may very well not match up with what their female patients actually want.

WHAT WE THINK ABOUT WHAT OTHERS THINK ABOUT RISK

Stereotypes can hurt individuals who may not even be aware of the gap between other people’s false impressions of them and reality. We’re not immune to what we think other people think we’re supposed to think about risk. Psychologists even have a word for this: stereotype threat, or “the situational threat of confirming as self-relevant a negative stereotype about one’s group.”

Some research even suggests that gender stereotypes about risk aversion can make some women more risk-averse. Priyanka B. Carr of Stanford University and Claude M. Steele of Columbia University studied the impact of stereotypes and found that they can affect behavior. In their experiment, they developed cues expected to trigger negative stereotype reactions—for example, telling women they would be tested on their mathematical and logical abilities, at which men are perceived at being better—and stereotype-neutral cues, like describing the tests as puzzle solving. The team then tested the subjects’ risk preferences and found that those who had been exposed to the stereotype cues were more risk- and loss-averse. They theorized that the stereotyped cues lowered ego defenses and pushed subjects to rely more on intuition. That has a significant impact on decision-making—and not, alas, for the better.

In situations when men feel their manhood is threatened, they may take unwise risks. Huston cites another study in which men were divided into groups and were asked to hold a power drill or to put some scented hand lotion on, and then given the chance to gamble on dice. The lotion smellers took much higher risks than did the power drill group.

Happily, in other contexts, being around women may lead men to temper their risk-taking. Researchers have found that when a woman is in the car, males drive more slowly and conservatively—for example, leaving more distance between them and the car ahead.

GENDER DIFFERENCES ACROSS CULTURES

The management scholars Do-Yeong Kim and Junsu Park of Ajou University in South Korea studied differences between South Koreans’ and Australians’ views of and responses to risks. They asked participants to rank how risky they believed various behaviors to be, from extreme sports to taking illegal drugs to shoplifting, gambling, and driving drunk. They also presented scenarios from business, individual careers, and relationships.

Not surprisingly, given Crocodile Dundee stereotypes of Australians versus the more reserved Korean culture, Australian men and women reported being comfortable with higher risks than the Koreans overall. But when the researchers compared decisions by individuals alone or in groups, things got quite interesting. Koreans increased their willingness to take risks when they were in groups than when they were alone, no matter whether the group was all-male, all-female, or mixed gender. Among Australians, by contrast, only men increased their risk preferences in groups compared to when they were alone; Australian women showed no difference whether in groups or alone.

Why were Australian men and women so different from each other when the Koreans were not? In this case, social rules that shape risk perceptions could have reinforced the difference as well. For example, Australia allows people to participate in risky activities at a younger age than Korea does: a driver’s license at sixteen and drinking alcohol and smoking at eighteen in Australia, versus twenty in South Korea.

Ultimately, Kim and Park attributed the difference to the contrast between individualist Western attitudes and collectivist Asian values. Western relationship styles are independent, while Asian cultures emphasize the interdependence of relationships. Individualist cultures see expressing opinions as an important way to build and project their identities, while in collectivist cultures it’s more important to pay attention to others’ opinions, to conform to and maintain group cohesion.

Collectivist cultures also are more likely than individualist cultures to believe that group decisions are superior. Thus, the Koreans—both men and women—weighted collectivist norms and interdependent relationships more than they did gender differences as rationale for their decisions. (We’ll explore this individualist-collectivist contrast more in the following chapter.)

In individualist cultures, by contrast, stereotypical males derive a sense of belonging and esteem from groups—and thus, for men from individualist cultures, greater confidence led to greater risks in the group setting than on their own. By contrast, stereotypical “female” attitudes devalue risk-taking, a belief that groups reinforce. In other words, in an individualist culture, groups made men more likely to act like stereotypical men, and women more like stereotypical women.

A WORLD WITHOUT GENDER RISK STEREOTYPES?

What would the world look like if we were to pay more attention to the damage that our stereotypes about gender and risk are doing, and then cast them aside?

As we saw in Thiers’ story, even in the caregiving industry, which typically people associate with women, the founder ironically still needed a man to clinch early investments. In fact, when you think of fashion and hair care companies, which typically are associated with women, many of the marquee names are men: Calvin Klein, Giorgio Armani, Paul Mitchell, Vidal Sassoon. My hunch is that this has a lot less to do with their risk-taking abilities than it does with investors’ willingness to take a risk on them. This reinforces the way that risk and privilege go hand in hand.

GLASS CLIFF: The trend of companies choosing women for CEO positions when the organization is in crisis.

In other cases, boards and investors tend to take a risk on women only in situations where men fear to tread. Despite the stereotype of women being risk-averse, the trend of companies turning to women to lead through crisis in challenging, potentially career-suicidal CEO positions has become so common that it has its own name. The organizational psychologists Michelle K. Ryan and Alexander Haslam of the University of Exeter in the United Kingdom coined the term “glass cliff” to describe the precariousness of these poison-apple jobs offered to women and often minority CEOs.

Think of Ginny Rometty at IBM, Mary Barra at GM, Carly Fiorina and later Meg Whitman at Hewlett-Packard, and Marissa Mayer at Yahoo. All were brought in under daunting, even impossible, conditions to try to bring their companies back from the precipice. Women have often been elected to lead countries out of the shadows of authoritarian regimes: Corazon Aquino in the Philippines, Violeta Chamorro in Nicaragua, Michelle Bachelet in Chile. Theresa May was tapped to navigate the United Kingdom through Brexit, a politically fraught task in which there was no good outcome; she was excoriated. Recall Victoria Brescoll’s research showing that women are punished more harshly than men if they fail in so-called gender-atypical jobs. That makes the risk these women took on even higher.

What’s the answer? To start, it’s time to bust up the gender stereotypes so that people are used to seeing women in leadership positions. That also will bring women’s unique strengths into more corporate and policy leadership roles, and perhaps keep some companies and countries from reaching the kind of disaster state that created the glass cliff phenomenon. “The presence of women in the boardroom, in the seminar room, and at the negotiating table on an equal basis with men would create a very different atmosphere,” Julie Nelson has written. “If finance, economics, and policymaking were no longer considered stereotypically masculine spheres, the assumption that one-sided, stereotypically masculine, norms and behaviors are best would disappear. Perhaps then everyone might be more willing to face the real issues and get down to work.”

RISK SAVVY: The ability to recognize and assess dangers and opportunities reasonably accurately while balancing emotion and reason, and taking smart precautions so as to avoid being either foolhardy or overcautious.

While we’re at it, we could throw out the problematic term “risk aversion” and focus on risk savvy, or the ability to recognize and assess dangers and opportunities reasonably accurately while balancing emotion and reason, and taking smart precautions so as to avoid being either foolhardy or overcautious. We’ve seen how misperceptions around women and risk can lead investors to miss opportunities, steer women wrong in health and investments, and pass them over in careers. Taking these ideas one step further, what if we were to take what we have learned about risk stereotypes and applied those insights to other groups that we might stereotype or not even consider at all? Moving from risk stereotypes to risk empathy can give us a clearer picture of reality, avoid misunderstandings, and resolve conflicts. It also gives us an opportunity to learn from other perspectives that might help us to do better. To that end: Let’s now take a look at how societies around the world view and respond in their own ways to risks and opportunities.

7

Geographies of Risk

THE COVID-19 PANDEMIC has shown in stark relief the difference among states’ risk responses: How they prepare ahead of time, how seriously they take it once a possible danger becomes a clear and present one, and how quickly and aggressively they act. But why? What are the root causes of these differences, both among and within places with very different histories, cultural backgrounds, political systems, and demographic and geographic realities?

It’s not easy to correlate precisely infection and death rates with how stringent countermeasures were, partly because no country’s circumstances were exactly like another’s. But speed of response did make a difference. How fast and aggressively each responded depended on its national risk fingerprint, including cultural influences on how sensitive citizens and policy makers were to risk. It also depended on the risk factors specific to their circumstances, like demographic profile, density, and health of their population combined with the strength of their health system, level of travel in and out of the country, and recent experiences. Those risk factors also included bigger cultural influences, like how much citizens could be trusted to act responsibly, how much they cared about risks to others, not just themselves, and how much difference each citizen felt they could make. Risk Culture varied widely within countries as well, particularly between rural and urban areas.

Many observers have noted how many of the most effective responses have been those managed by women leaders, both in the United States and around the world. As we saw in the previous chapter, women tend to be more risk aware and often make better decisions in crises. There may be a chicken-versus-egg phenomenon here: Perhaps the kinds of countries that choose women leaders also are more risk aware and open to alternative approaches.

“What if countries led by women are managing the pandemic more effectively not because they are women, but because the election of women is a reflection of societies where there is a greater presence of women in many positions of power, in all sectors?” Louise Champoux-Paillé and Anne-Marie Croteau asked in an article in The Conversation. “Greater involvement of women results in a broader perspective on the crisis, and paves the way for the deployment of richer and more complete solutions than if they had been imagined by a homogeneous group.”

Finland—governed by Prime Minister Sanna Marin and a coalition of four female-led parties—has had fewer than 10 percent as many deaths per million population as nearby Sweden, whose government is led by men. New Zealand was the first country to eliminate the coronavirus. Its young leader, Jacinda Ardern, has been widely praised for her swift response: a two-week quarantine imposed on all foreigners entering the country March 14, followed by a strict lockdown when nobody had died and not even 150 people had been affected. New Zealanders have indicated more than 80 percent trust in her government, a number that would be unheard of in the United States.

Trust cuts two ways. If people trust their government, it makes risk messaging more effective. But too much trust in the government to care about and solve a problem may lead people to underestimate the threat and not play their part in controlling risks. That’s what Catherine Mei Ling Wong and Olivia Jensen of the Institute for the Public Understanding of Risk, National University of Singapore, suggest in analyzing the study they carried out between January and April 2020 as the COVID-19 pandemic accelerated around the world. Trust in government in Singapore, they noted, is much higher than other high-income countries, as measured by the 2014 World Values Survey Wave: 24 percent of people in Singapore reported that they had a “great deal of confidence” in their government, versus 5.8 percent in South Korea, 5.5 percent in Germany, and a dismal 3.7 percent in the United States. With the memory or the 2003 SARS outbreak still relatively fresh, the Singapore government acted swiftly, with “defensive pessimism” in face of the new pandemic threat.

“Government communications consistently emphasized the seriousness of the risk rather than seeking to downplay it, with the expectation that the public would make appropriate changes in their behavior,” Wong and Jensen wrote. “However, public compliance with institutional guidance has been variable and the government has had to incrementally tighten controls on activity and movement.” In the three days after the government announced a set of “circuit breaker” policies to contain the virus, authorities had to issued 10,000 advisories, 3,100 warnings, and 40 fines for social distancing violations. Part of this was because people were not clear on just how much social distancing was enough, and part because public spaces were not big enough to allow people to keep a safe distance apart. But Wong and Jensen also found that in the focus groups they ran and in their social media analysis, many people believed the risk was lower than in reality because of their perception that the government was on top of things so less responsibility fell on individuals.

Trust also backfired in Sweden, which adopted a relatively laissez-faire policy toward the virus based on its belief, not entirely misplaced, that people would respect social distancing and other rules. In Asian countries, by and large, people respected the importance of wearing masks for public safety. Some of that was because of collectivist cultural values, and some because of the not-too-distant past experience with SARS, and some because mask wearing was already normal. In the United States, mask wearing became a badge of resistance for too many people, disastrously so. But in Asia people knew that they worked for protecting from smog and pollution or allergies; I learned the benefits over a decade ago, when I scheduled a research trip to Japan to coincide with cherry-blossom season without thinking ahead about how my sinuses react to pollen.

Countries that paid attention to alarms tended to fare better. Part of the reason that New Zealand was so alert to the need to act decisively may have been a warning just months before the pandemic when the Global Health Security Index gave New Zealand only 54 points out of 100 possible for pandemic preparedness, or just 35th in the world.

A similar dynamic may have been in play in other countries as well. “Some have suggested luck has a lot to do with South Korea’s comparatively successful coronavirus response: Less than a month before the country identified its first case of COVID-19, it had completed a tabletop exercise on emergency preparedness for a viral pneumonia, and its first cluster of cases was among young, relatively invulnerable attendees of a single church,” the epidemiologist and infectious disease physician Keren Landman wrote for Elemental. “But if South Korea’s success is attributable to luck, it’s mostly in the sense that luck favors the prepared.” Preparedness, too, varies considerably among countries, as does awareness and interest in whether a country is ready for threats that are a matter not of “if” but of “when.”

Similar to individual risk fingerprints, we might think of a national risk fingerprint as its cultural, economic, social, and governmental risk sensitivities, attitudes, and behaviors, combined with the impact of history and experience. The sum of the individual risk fingerprints of its citizens also affect the national version, just as national risk fingerprints shape the individual ones. Both shift over time. The economic consequences of variations among countries and cultures are huge, whether in how quickly they recover from natural disasters like hurricanes and earthquakes, how well they respond to and bounce back from a pandemic, how nurturing their risk ecosystems are to businesses and innovation, and how vulnerable they are to financial shocks and other economic risks.

Understanding each country’s risk fingerprint therefore is hugely important to residents whose daily lives are affected, to policy makers within each country and to diplomats from its partners and adversaries, and to businesses trading with or operating there. Just as with individuals, self-awareness within a country or culture can be a strong building block for understanding peers and averting or resolving potential conflicts that can arise from these crucial yet too often underappreciated differences.

IS IGNORANCE BLISS?

Each nation’s habits and experiences with different kinds of risks made a difference, too, for better and for worse. Global surveys show wide differences of opinion around the world about what the biggest risks are, how knowledgeable people are about those risks and how closely their perceptions match reality, how much power citizens and governments have to deal with known dangers, and how much control people believe that they and their leaders have over the perils they face. We’ll explore these factors further in chapter 9, but for now let’s look at how countries differ in their ability to assess risks and their responses to them.

The Ipsos MORI Perils of Perception study compares global perceptions of crime and violence, sex, climate change, the economy, health and transport risks, and other key issues with respondents’ confidence in their estimates. Each year, thousands of people in more than thirty countries and territories answer questions about their perceptions on issues including health, violence, immigration, prison overcrowding, population growth, and the environment. The gap between their guesses and what empirical evidence suggests is often large. As a result, the index is informally known as the “Ignorance Index.” Ipsos MORI, not wanting to sound judgmental, has tried valiantly to encourage the name “Misperceptions” instead.

Most countries tend to overestimate immigration by an average of more than twofold, guessing that 28 percent of their population is made up of immigrants when the actual average figure is just 12 percent. The countries where survey participants that thought immigration was higher than in reality often are the same ones that fear newcomers the most. People in all of the countries surveyed in 2017 underestimated how many of the last eighteen years have measured the hottest on record, guessing between four and ten years short of the reality, which was seventeen out of eighteen.

In Great Britain, 71 percent of people thought knives caused the most deaths at the hands of other humans. Knives actually account for just 25 percent of homicides. Ironically, in South Africa, where knives actually DO cause more deaths than any other weapon, people believed guns were the biggest culprit. The United States and Colombia, two of the countries where gun deaths make up the vast majority of homicides, both underestimate that percentage. This is only part of the explanation for why these countries have not been able to reduce gun deaths—but it is a significant part.

Respondents in Hong Kong, New Zealand, and Sweden made the best guesses, while Thailand, Mexico, and Turkey were the least accurate in estimating the seriousness of various issues. Some misperceptions persist across borders. In the 2020 report, for example, people in all thirty-two countries in the study underestimated deaths from cancer and heart disease. “But the public in many countries also overestimates the scale of other causes of death such as those resulting from murder, transport injuries, suicide, or substance abuse,” Gideon Skinner, head of politics research at Ipsos MORI noted while announcing the report.

Crimes or accidents that get lots of attention in the media, along with salacious stories like sexual behavior by teenagers, naturally grab people’s attention and make them see those things as more likely than official statistics suggest they should. But not all headlines make people overestimate the prevalence of a problem; they still underestimate how common sexual harassment toward women is. Since the 2008 Great Financial Crisis, people have overestimated unemployment rates and underestimated the size of their national economies relative to other countries. But they have long been more complacent than reality suggests they should be when it comes to climate change and renewable energy sources. No doubt the COVID-19 pandemic will change many of these perceptions.

Other studies bear out just how varied citizens’ concerns and perceptions are on issues of risk. In the 2017 Pew Global Attitudes Survey, a strong majority, 89 percent of Spaniards, saw climate change as a major threat, versus just 38 percent of Israelis. The global economy was the top concern for 88 percent of Greeks and 77 percent of South Koreans, versus 37 percent of Americans and just 20 percent of Swedes.

The 2019 PwC CEO Survey showed how different risk attitudes are among CEOs in different regions—particularly toward the impact of artificial intelligence and other new technologies on jobs, but also in worries about other kinds of threats and in changes in expectations for global economic growth. The 2018 survey showed Asian CEO risk sensitivities being higher across the board than Western sensitivities. The PwC results are consistent with a 2017 survey of more than three hundred artificial intelligence experts that asked how soon they expected High Level Machine Intelligence—in other words, when machines would be able to do virtually all tasks better than humans. Asian experts on average predicted thirty-one years (2048); North Americans, seventy-four years (2091).

All of these concerns appeared closely in line with contemporary news coverage, not surprisingly, especially considering the role that media plays in shaping concern. But media is only one of many factors shaping how people in different cultures and regions respond not just to any particular risk, but to risks in general. For example, other research has shown that Asians tend to be more aware of and sensitive to risks than Westerners. Neither Asian nor Western cultures are monolithic, of course. There is a wide variety among them in how they perceive risks and the structures and systems they create to deal with it.

A 2012 citizens’ survey in Tokyo, Beijing, and Seoul revealed differences in perceptions of likelihood and magnitude of disasters. The average response was above 2.5 on a scale of 1 to 5, indicating that respondents in all three cities were quite concerned about risks overall—Seoul being the highest, followed by Tokyo, and then Beijing. In Tokyo, earthquakes and nuclear radiation understandably were the biggest concerns, with environmental pollution and adult diseases following the 2011 Fukushima earthquake, tsunami, and nuclear crisis that shook Japanese society. “Even before this triple disaster, Japan was deeply sensitive to environmental risks and natural hazards,” wrote the Korean sociologist Sang-jin Han, who led the study. Beijing respondents worried most about contaminated food, environment and pollution, economic disparities, and health risks. Seoul, by contrast, showed the highest concern about corruption, economics, income polarization, pollution, and violence.

On other issues, a combination of experience and raw economic interest explain differences. For example, the United States grows roughly three-quarters of the world’s genetically modified (GMO) crops, which include genes implanted by scientists to add traits like drought or insect resistance or nutrients. As GMO crops were being developed in the 1990s, food safety regulators largely took a hands-off approach.

Europeans, by contrast, have been more skeptical of GMOs, though their concern seems to be ebbing. Timing played a part: As European scientists developed early generation GMOs, memories of mad cow disease in the UK and radiation-contaminated food after the Chernobyl disaster loomed large. Politics and economic interests also had a role. The integration of the European Union meant that farmers were now competing directly with food products from other countries that were now freed of trade barriers. Policy makers paid close attention to both of these dynamics when developing GMO regulations. The European Union has required companies to label GMO foods since 1997, and in 2002 tightened labeling requirements including all animal feed from GMO crops.

Other observers argue that the role of food in culture and attitudes toward science are important reasons for the difference in opinion, “In general, Americans’ perception of food is more utilitarian and less aesthetic than Europeans’,” C. Ford Runge, Gian-Luca Bagnara, and Lee Ann Jackson wrote in The Estey Centre Journal of International Law and Trade Policy. “In contrast to a humanistic or aesthetic bias, Americans think of food in nutritional terms linked to science and sustenance, with quantity often preferred to quality.” Thus, food safety has more emotional salience in Europe, making people more sensitive to risks.

Though recent survey data is scarce on European attitudes, there are some indications that US and European views on GMOs are converging. In a 2019 report by the European Food Safety Authority, GMOs fell from the fourth to eighth highest food safety concern among Europeans surveyed. Meanwhile, just shy of half of Americans surveyed in 2018 believed GMOs were bad for their health, up by 10 points from 39 percent just two years earlier. As with other public policy issues, no doubt news headlines played a role in changing risk perceptions on both sides of the Atlantic. Changing US attitudes toward science likely are part of the trend as well.

WHAT EXPLAINS RISK VARIATIONS AND WHY IT MATTERS

Why are risk perceptions and their accuracy so different among countries? Why do Europeans value scientists more than Americans when it comes to climate change? Why are Asian countries more concerned with technological change than Western countries? Just as personality traits and group affiliations affect individual risk attitudes, broader factors shape attitudes among people who share nationalities and cultures. These differences matter for everything from human resources to global and local strategy, to product design and marketing, to partnerships and mergers, to policy and government relations.

The way countries distribute risks equitably or not, how much choice their citizens have in being exposed and how much control they have over minimizing it, how well they understand the likelihood and potential impact of various kinds of risks (this ties in to their overall risk literacy), and the emotional resonance or “dread factor” of a risk also affect the way their citizens perceive risks. We’ll delve deeper into these factors in chapter 9.

Media, public debate, social movements, and politics combine with whether residents experienced each risk personally to influence these attitudes. “The definition of risk depends on knowledge. People become aware of hidden, implicit risks as knowledge progresses, changing perceptions,” Han, the Korean sociologist, has written. “Changes in culture sensitize attention to hitherto unrecognized risks.”

Scholarly research bears out how important culture is in influencing risk perception and decisions. A team of social and organizational scholars presented financial gambles of various risk levels to students and security analysts from the United States, the Netherlands, Hong Kong, and Taiwan in a 1997 study on cross-cultural differences in risk perception. They found that the cultural background of the study participants had more of an influence on their risk perceptions than did their occupation or income.

Culture infuses your risk sensitivities and attitudes through its shared values and assumptions and the choices that they imply. It also shapes the government and community institutions that in turn materially change the amount of risk you run. This can create a self-reinforcing cycle of risk behaviors that can set up a country or company for success or failure, influencing the choices made along the way. In turn, culture reflects many reasons why people from different societies care about particular issues and how proactive they are about protecting the things they feel are most important. There are both practical and philosophical influences that change over time.

Geography determines the kind of risks a country faces: vulnerability to attack or being cut off from resources, ease of trade or isolation, even temperature. A landlocked country and one with an ocean border, for example, will make very different choices from one with mountainous borders or one with flat plains.

The long shadows of history shape how nations respond to global events and mold their own economies and key industries. “World War II deprived Germany of the sense that they can expect to be coming out on the good side of history. When you’re convinced that you’re on the right side of history, you have a higher tolerance for failure,” the German policy analyst Jan Techau told me as we caught up when he visited Chicago to give a presentation. “The first question is always ‘Can we fail again?’ Germany is trying to avoid any chance of failure, or even running the risk of moral failure.” That’s why, in his view, Germany didn’t get involved in the military intervention in Libya in 2011. “Because we have no confidence in being the good guys, we always want moral clarity upfront. But in foreign policy, moral clarity is very hard to get. As a consequence, Germany mostly remains passive on foreign policy. Lack of confidence breeds risk aversion.”

That point of view extends to many aspects of German culture and infuses its economy. “Since risk is so threatening to the wobbly sense of German confidence, you don’t take a risk,” Techau said. “That’s why German engineering and construction tends to be so reliable. You build the certainty you seek in the products you make. It’s why a small German company is the global market leader for syringes. It has engineered all weaknesses out of a simple but crucial product. It owns 80 percent of the world market. In other words, Germany has sought mightily to construct a world with as much predictability and freedom from risk as possible.”

Unpredictability has affected Middle Easterners similarly and extends to investment and other decisions. Sami J. Karam, a Lebanese American investment manager, sees the impact of political and other instability in many of his clients’ investment decisions. “The Lebanese middle and upper class don’t like investing in equities, which they see as riskier. They prefer the certainty of real estate or gold,” he told me. Forget about hedge funds, which despite their name coming from a strategy of “hedging” or protecting against risks, have a reputation as risky vehicles. He’s seen similar national differences in investment preferences: the French are similar to Middle Easterners in their more conservative preferences for real estate or bonds, combined with their tendency for deep-seated skepticism “toward exaggerated flights of optimism.” He’s also noticed that some of the more notorious market “bulls,” or aggressive optimists, were nearly all Americans or Northern Europeans, while the “bears,” or pessimists, were almost all foreign born.

“A person’s risk tolerance in the markets is related to some extent to their life experience and their parents’ life experience. My generation growing up in Lebanon experienced a very special time in the 1960s and early 1970s in a place that was nearly magical. We lived a solidly middle-class or upper-middle-class life. The economy was booming. And nearby you had the beach and the mountain. But then, unexpectedly, the bottom fell out. The civil war started in 1975 and many of us were displaced from their homes. Many lost loved ones. Some families chose exile, others chose to stay. The Paris of the Middle East was for over a decade a place of death and destruction. This sort of thing teaches you that things can change very quickly even when they seem safe and promising,” Karam said.

“Americans are natural risk-takers. Popular mottos such as ‘the biggest risk is not taking any’ and ‘half of life is showing up’ all point to an aggressive appetite for getting and staying in the game, even the risk game,” he said. Moving from Europe to the United States for college and staying for his MBA and a career as an engineer then in finance, he found his risk preferences evolving as he acclimated culturally and gained work experience. “When I was younger, I was more risk-averse than my peers who were all American and didn’t have similar experiences [with political upheaval],” he said. That caution helped him during the lead up to the implosion of Long-Term Capital Management during the 1998 financial turbulence. “I was the only portfolio manager at my firm at the time who didn’t lose money during the LTCM crash,” he said. “You had these super seasoned incredible money managers charged with investing hundreds of millions of dollars who suddenly found themselves in a situation that they were not equipped to handle, for lack of precedent in their lives. They were savaged during the market correction but made their losses back and more, with a vengeance, like true optimists.” But as time has passed, his risk tolerance has gone up. He worries less about out-of-the-blue, unpredictable shocks and more about known risks.

All this goes to say that potential dangers have different emotional impacts depending on what a country has experienced. In some cases—like countries more or less prone to earthquakes and tsunamis, drought and flood, or those with more or less financial resources—risks are objectively different. Disasters are more likely to happen, so countries with the resources to do so often invest in earthquake or flood-resistant infrastructure.

Lack of resources is not the only reason that some countries do not invest in resilient infrastructure. Ali Ansari, an Iranian-European professor of history at the University of St Andrews in Scotland, sees a complex feedback loop in which instability discourages people from thinking long-term, which in turn makes them less likely to pay the attention they need to risks that build up over time. Ansari’s Iranian father lost everything he had over a period of just six months during the Iranian revolution, bringing his family to the United Kingdom to start afresh. High volatility in daily life in the Middle East, combined with the possibility of everything going away, promotes a “live for the day” mentality, encourages fatalism, and discourages long-term thinking. “The distinction is not social. It’s a direct consequence of political realities and lives very much subject to the whims of rulers,” he said. “In the West, we have been quite lucky in the relative stability we’ve had.”

Perhaps because of their lack of infrastructure that can protect them from droughts and storms, many developing countries tend to be much more concerned than developed countries about climate change. This is not surprising since poorer countries contribute less to global greenhouse gases than developed countries but geographically are more likely to bear the brunt of extreme weather, on top of having fewer resources to devote to protecting themselves and recovering. Not surprisingly, 57 percent of developing country participants in a 2018 survey commissioned by the Stockholm-based Global Challenges Foundation thought artificial intelligence was a global threat, compared to a slight minority of 48 percent in developed countries.

Similarly, countries that are more likely to see jobs displaced by technology are more sensitive to the risks that automation and artificial intelligence carry. The World Bank estimated in 2016 that two out of three of jobs in developing countries were vulnerable to automation, higher than in developed countries where more jobs already have become automated. The bank estimated that 77 percent of China’s jobs are vulnerable to automation, 69 percent in India, and 85 percent in Ethiopia.

Each nation has its own relationship with risk steeped in its own history, geography, culture, government, and current challenges. Yet while countries may diverge wildly in some aspects of their relationships with risk, they often—though not always—share some broader characteristics and patterns. Carried out for the first time by Gallup and Lloyd’s Register Foundation in 2019, right before COVID-19, the World Risk Poll compared the risk concerns expressed by more than 150,000 respondents about seven kinds of everyday hazards (the World Worry Index) with how often different kinds of risk materialized (the Experience of Harm Index) in 142 countries.

Mozambique, Guinea, and Malawi topped the list of countries that worried the most, with several other African nations and other developing countries not far behind. Perhaps not surprisingly, there was a big overlap at the head of the list of countries that had experienced the most harm, topped by Liberia, Zambia, and Mozambique. It’s harder to discern relationships among the countries that worried the least, which included Sweden, Singapore, and Uzbekistan, whether by geography or form of government. There was, however, some overlap with those that reported the least experience of harm, including Turkmenistan, Singapore, and Uzbekistan.

The survey found that people’s worries tended to be higher than the harms they had experienced, but that this gap varied widely around the world. Countries with the widest gap between perception and experience—you might call them “over-worriers”—include Mongolia, Myanmar, Cyprus, Chile, and South Korea. Those with the smallest gap included Sweden and other Scandinavian countries with strong social safety nets. “Knowing what these gaps are and how they differ between countries and regions is an important part of devising effective communication about risks,” the survey report’s authors wrote. “It also empowers individuals and communities to focus attention on actions most likely to reduce harm.”

In terms of overall concerns globally, severe weather topped the list, with 34 percent of people saying they are very worried about experiencing serious harm as a result of extreme weather. Perhaps not surprisingly, extreme weather also was the risk that the most respondents reported having experienced, particularly in African countries. Globally, another 32 percent put violent crime high on the list. Food and water safety also were significant worries, as was harm by power lines. People’s worries relate to their experiences and cultural factors, but also to the strength of the risk umbrellas protecting them: the set of measures put in place by governments, businesses, and individuals that, in effect, insure people against the possibility of harm. To that end, the World Risk Poll also asked how well people thought their governments were doing in protecting them from harm from tainted food, unsafe water, and power lines. The results, reflected in the Government Safety Performance Index, revealed that one in four people around the world do not trust their governments to keep them safe in these three critical infrastructure areas. The most trusted governments were Singapore, the United Arab Emirates, Bahrain, and the Philippines; the least trusted governments were Yemen, Afghanistan, Lebanon, and Iraq.

RISK UMBRELLA: The set of measures put in place by governments, businesses, and individuals to, in effect, insure people against the possibility of harm.

Not surprisingly, residents of high-income countries tended to have the highest levels of trust in their governments to keep them safe. The nature of concerns also varied depending on nations’ wealth. “People in high-income countries and territories were more likely to identify road-related risks as one of the top two threats to their safety than people in lower-income countries,” the report’s authors wrote. “However, official statistics show high-income countries generally experience lower traffic-related fatality rates. People in low-income countries worried about traffic-related risks, but they often raised other risks—such as violence and crime and health—as being more significant.” Similarly, because of the differences in occupations in developed and developing countries, respondents in wealthier economies tended to report more concerns about harassment at the workplace than physical risks of injury on the job.

While nations’ economic, social, cultural, and political climates all affected how much people trusted them, responses also varied by education levels, gender, and household income. This all reinforces the difference between subjective and objective risk and the role of perception in shaping how people respond to the dangers around them, and how that varies by country. We’ve just looked broadly at experience and protection from risk. Government protection can explain some of the gap between experience and worry, but cultural factors come into play as well.

NATIONAL CULTURES

In the 1970s, the Dutch organizational psychologist Geert Hofstede carried out a massive study of cultural attitudes among employees at subsidiaries of IBM in more than fifty countries. This gave him a remarkable vantage point from which to understand how attitudes varied from country to country within a single organization. While he did not specifically look at risk, many of the patterns he found are highly relevant to how countries perceive and relate to risks. Based on his findings, Hofstede developed a model of what he called “dimensions” of national cultures. The first dimension, Power Distance, represents the way the less powerful members of society feel about inequalities, hierarchies, and interdependence. Uncertainty Avoidance involves how threatened members of a society feel about ambiguity and the strategies they use to alleviate anxiety over the unknown; in other words, how much they feel a need for predictability and rules. Individualism/Collectivism weighs the relative roles of individuals and groups. The final dimension, Masculinity/Femininity, is loosely translated as competition versus fairness, or assertion versus modesty.

All of these come into play in affecting risk perceptions and behaviors, particularly Uncertainty Avoidance and Individual/Collective values. We’ve already seen how the individualist-collectivist distinction can override other factors, like gender. These attitudes interact with community and government structures, creating a risk–attitudes feedback loop. Hofstede found that young Western cultures with frontier mentalities (say, the United States) score extremely high on country individualism. Older European cultures, like Germany and Poland, score lower. Asian cultures score lower still on individualism and high on collectivism.

Individualist and collectivist cultures perceive risks differently, but they also are likely to create different family, social, and government structures and safety nets that materially change how likely citizens are to be affected by certain risk factors and how disruptive those threats may turn out to be. Some societies, particularly those reeling from disaster, are focused on short-term risks, while others look further into the future to head off perils that are less urgent but potentially more impactful.

One of the biggest differences involves how different decisions are when they are made independently or as part of a group. Recall the “risky shift” concept introduced in chapter 5: that groups are likely to be either much more conservative or much more risk tolerant than their members would be when making those decisions on their own.

Building on the Australian and Korean studies we mentioned in chapter 5, a team of researchers from Ajou University in Korea tested differences in risk attitudes in a study adding comparisons to China. Korea’s “dynamic collectivist” and action-oriented values, combined with its concept of nunchi—the ability to listen and read others’ moods—differs from China’s classic Confucian ideal of zhongyong, or Doctrine of the Mean, which emphasizes the importance of finding a middle point after listening to all opinions. (Japan’s wa, typically translated as “harmony,” offers yet another subtle but important variation.) The Ajou University team wanted to see if the cultural influence of zhongyong would make Chinese participants less likely than Koreans to show a “risky shift” even though they were both collectivist cultures. And that, indeed, is what they found.

Why would this be? One possible explanation was that social networks can be a double-edged sword in collectivist cultures. On the one side, people expect others to share responsibility for possible losses. On the other, they accept financial obligations to help others if a riskier decision hurts everyone. Perhaps, the researchers theorized, the difference had to do with attitudes about the quality of social networks; or perhaps collectivism was more salient among Chinese participants than among the Koreans. They also speculated that Korean action-oriented cultural norms made participants fear being left behind.

The researchers theorized that individualist cultures have fewer restrictions on individual acts. “This allows people from these cultures to be self-assured and self-determined when presenting their ideas, feelings, and decisions, and encourages them to challenge uncertainty, as this is viewed as an opportunity for potential gains,” they wrote. “Hence, individualistic cultural forces have a self-enhancing effect on individualists’ responses toward socially desired traits—in this case, risk.” Hierarchical and bureaucratic cultures, by contrast, impose more social constraints and “have many externally mandated social constraints, encompass individualistic acts that are considered deviant, and exhibit a preference for procedures that conform to social customs.”

Members of a close social network, such as those found in collectivist cultures, feel pressure to conform but also are willing to support each other and share responsibility if things go wrong. By creating lending circles whose members collectively guarantee all of the loans in the book, the Grameen Bank and other microlenders have used this principle to both lower lending risk and to encourage the kind of risk that entrepreneurs take all the time.

People in individualist cultures like Australia’s feel less pressure to conform and take more personal responsibility. When gender is a more important part of identity than is a wider group affiliation, men and women are likely to make decisions that are aligned more with gender stereotypes than with a collective group identity.

Comparisons of Asian and Western subjects point to other ways that the individualist versus collectivist cultural divide comes into play. The social psychologists Elke U. Weber and Christopher Hsee have compared Chinese and American students’ attitudes toward risky choices or certain outcomes. They presented study participants with potential financial investment options, each with a mix of potential losses and gains, and asked them to choose. They also asked participants to guess which group would make riskier decisions. Chinese and American students both thought that Americans would make riskier decisions than Chinese, but the opposite turned out to be true.

Weber and Hsee concluded that the Chinese students were significantly less risk-averse than Americans, and that these differences persisted whether the prospective outcomes involved gains or losses. But a new question occurred to them: What exactly was the root of the differences in attitudes? Did Chinese and Americans perceive the same scenarios as being equally risky? If so, their different preferences would suggest that Chinese had a higher tolerance for risk. But if they didn’t perceive the risks the same way, their risk tolerances might be closer than they appeared. Indeed, when they looked into how risky their subjects judged the options to be, Weber and Hsee found something fascinating: the Chinese participants judged the same options to be much less risky than the Americans did. “Chinese respondents were significantly less risk-averse in their pricing than Americans when risk preference was assessed in the traditional expected-utility framework. However, these apparent differences in risk preference were associated primarily with cultural differences in the perception of the risk of the financial options rather than with cultural differences in attitude toward perceived risk,” they wrote. To explain this difference, the scholars proposed what they called the “cushion hypothesis,” in which they argue that in collectivist cultures, family or other group members will help out any member who makes a bad bet on risk. Therefore, the potential impact of taking a risk is lower because of the safety net. When they designed a follow-up study comparing responses of students at urban universities in the United States, Germany, Poland, and China, they found similar results.

The social psychologist Richard Nisbett cites a study by Susumu Yamaguchi, who found that Japanese study participants thought they were more likely to escape an unpleasant situation in a group than when they were alone; the reverse was true for Americans. Echoing other research on the impact of culture on gender preferences, Yamaguchi found more differences between Western men and women than between Asian men and women.

Paradoxically, individualist societies can lead to less feeling of control even though their members insist on the freedom to do what they want. And, as we’ll see in chapter 9, a sense of control shapes how likely we are to recognize and assess a risk accurately and what we’re likely to do about it.

CHANGE AND UNCERTAINTY AVOIDANCE

We’ve explored the complex relationship among risk, uncertainty, and ambiguity, particularly the way in which risk aversion and ambiguity aversion interact. Hofstede’s exploration of cultural attitudes toward uncertainty and ambiguity sheds light on risk attitudes as well. “Uncertainty is to risk as anxiety is to fear,” Hofstede wrote. “Fear and risk are both focused on something specific: an object in the case of fear, and an event in the case of risk.… Anxiety and uncertainty are both diffuse feelings.” As we saw in chapter 2, recasting “uncertainty” as “risk”—transforming ambiguity into clearly defined parameters, even if that clarity is a mere illusion—can reduce anxiety.

Generally speaking, countries in Latin America and the Mediterranean, as well as Japan and South Korea, have high uncertainty avoidance. The rest of Asia, North America, and Northern Europe registered much closer to the middle of the scale. Globally, Singapore, Jamaica, Sweden, and Denmark were the least uncertainty avoidant. On the other end of the spectrum, Guatemala, Uruguay, Greece, Portugal, and Belgium registered high uncertainty avoidance.

Attitudes toward uncertainty are closely tied to how comfortable people are with change. Richard Nisbett, with a colleague and student, set out to study whether Chinese and American students had different attitudes toward change. They asked questions about how likely the participants thought different changes would happen (for example, two dating classmates breaking up). The Chinese students predicted change 50 percent of the time, versus 30 percent for Americans. In another study, the team showed students graphs of changes over time and asked them to predict what would come next. The Americans were more likely to predict that a particular trend would continue in the same direction, while the Chinese students were more likely to say that the trend would shift or even reverse.

Some research suggests that Westerners are likely to address a problem in a linear way, while Asians are more holistic. When participants in a study Nisbett designed were shown pictures, including one of a tiger against a field of grass, Westerners spent more time looking at the foreground image—like the tiger—while Asians took in the entire context including the background. He concluded from the study that Westerners are more likely to focus on one particular thing, while Asians are used to looking at the whole picture. In other words, they see the universe of risks in completely different ways and act accordingly, Westerners using a silo approach and Asians a systems approach. To solve a complex problem, you need both. The tight focus helps to identify the problem, analyze strategies and tactics to deal with it, and then to break the response down into small enough pieces to make it manageable. But without systems thinking, you may temporarily solve a problem but find that it comes back because you didn’t pay enough attention to other possible root causes.

A complex systems dynamic means managing more uncertainty because each new element makes the challenge that much more dynamic. People used to linear problem-solving may have trouble relating to complex systems but would benefit greatly by getting out of their comfort zone and making a point of considering how a particular challenge at hand relates to others. Conversely, people who think in systems could consider how they communicate with linear thinkers; breaking down parts of a complex challenge and presenting each part separately could help to bridge the gap.

PERCEPTIONS OF TIME

Hofstede later collaborated with Michael Harris Bond, a Canadian based at Chinese University of Hong Kong, who had developed a Chinese Values Survey. Bond looked at short Long Term/Short Term Orientation instead of Uncertainty Avoidance. Short-term outlooks tend to be more certain than long-term, so there is significant overlap between these dimensions.

Humans weigh the present more heavily than we do the future; that is, we typically pay more attention to urgent risks than to slow-moving ones. Sometimes this makes sense: If a tiger is chasing you down, and you don’t escape, then it doesn’t matter how prepared you are for other dangers, because you won’t live to see them. But if you have the foresight to build a fence to keep tigers out or pay attention to where tigers lurk and avoid that area, you’ll never face that danger in the first place.

The gap between short-term and long-term perceptions and priorities is not the same for everyone. Some people are better at looking out into the future to head off any risks before they become critical. Like any risk skill, this ability comes from a combination of innate personality, experience and practice, and the cultural environment. Some cultures and societies are much better at thinking long-term than others. In some cases, the system of government offers a clear explanation: short electoral cycles in democracies discourage long-term thinking. But the differences go beyond that structural explanation. Much wider cultural factors come into play.

Ken Chen, a professor at Yale University, asked this intriguing question: “What if the way you see the future depends on the language you speak?” Could it affect your ability to save money and plan ahead? Whether you exercise, smoke, use a condom, or otherwise make “good” or “bad” decisions? In German, for example, you would use the present tense to talk about it raining tomorrow; while in English, you must add “will” or a form of “is going to.” The West Greenlandic language Kalaallisut uses at least twenty-eight different ways of marking the future. Mandarin, Finnish, and Estonian do not use tenses at all. Chen decided to test a hypothesis: that if a language that requires you to speak differently about the future and the present, you will be less focused on the future. He studied participants from seventy-six countries, some with languages using strong future-time references (like English) and others with weak future-time references (like Mandarin), and compared their attitudes about savings and resulting behavior.

His results were astonishing: People whose languages did not require them to add a future-time reference were much more future-oriented than those whose languages distinguished between present and future tense. In countries that shared both strong and weak future-time references (FTR), like Belgium, language had a strong impact on retirement savings. “Weak-FTR speakers are 31 percent more likely to have saved in any given year, have accumulated 39 percent more wealth by retirement, are 24 percent less likely to smoke, are 29 percent more likely to be physically active, and are 13 percent less likely to be medically obese,” Chen concluded. Across national borders, the effect was magnified. Countries with weak FTR languages saved 6 percent a year more than their counterparts. The results were similar when asking about health-related sexual behaviors: strong FTR languages made survey participants less likely to use contraception or condoms. The effect was even stronger among male participants than women.

If, as it seems, the languages people speak shape the way they think, the short-term versus long-term orientation embedded in languages certainly could explain some of the differences across cultures and regions when it comes to risks, particularly when it comes to slower-moving, longer-term threats.

HOW COUNTRIES SEE EACH OTHER

How does the risk culture of the organization where you work match up with your country’s or region’s? What strengths or weaknesses does that imply? Doing this analysis will help businesses to develop a human resources strategy that can build on your strengths and offset your weaknesses. If your culture lends itself to avoiding risks, you may be cheating yourself of opportunities for innovation and creativity. But once you’re aware, you can find ways to make up for that: for example, by bringing in people who don’t fit the stereotype of your company or national culture, or by encouraging your team members to get out of their comfort zones. In chapter 12, we’ll explore ways to support a healthy organizational risk culture including through cultivating risk empathy.

Local operations and international suppliers of multinational corporations may have very different risk cultures from the one in the company’s headquarters. In a world where information travels from one side of the globe to another in an instant, a risk misstep in a subsidiary can create a reputational tsunami: a safety accident at a factory in a developing country, a daredevil trade gone wrong in a global financial hub, a regulation exploited in a country with lax rules.

Because people are less likely to trust the products of most other countries, multinational companies may be at a disadvantage, particularly when it comes to food or products intended for children, for whom safety is paramount. With this in mind, companies marketing their products in other regions should consider the risk and safety attitudes of all of their potential markets and design to the highest standard. The negotiations between the United States and European Union over the Transatlantic Trade and Investment Partnership (TTIP) are a case in point. The German-based Bertelsmann Foundation and Pew Research Center found in a survey that Americans and Germans both distrusted the others’ ability to protect consumers from risks.

Germans strongly disliked American standards on data privacy and auto, environmental, and food safety. This is why they strongly opposed harmonizing standards, which they felt might hurt their own protections. Americans also preferred their own standards to European ones, though the difference was not nearly as pronounced. This mutual distrust was one of many obstacles to the agreement, which three decades after it was initiated in 1990 still had not been finalized. Interestingly, just over three-quarters of Americans (76 percent) supported harmonizing standards for products and services as much as possible, with 35 percent strongly in favor and 18 percent opposed. Across the Atlantic, however, only 45 percent of Germans (including a mere 13 percent strongly in favor) wanted to see common standards; 51 percent were opposed.

As nations around the world reevaluate both existing and proposed trade agreements, risk attitudes across borders will continue to be important—perhaps even more so as safety and standards get more attention within trade talks.

COUNTERING RISK STEREOTYPES

Risk attitudes and responses differ across cultures. Both giant multinationals and smaller companies who work with international suppliers, investors, and buyers come across these dynamics every day, even if they may not immediately recognize them as being specifically risk related. After more of them read this book, hopefully that will change!

Risk stereotypes often come into play because people are likely to judge what they hear about other countries not by facts, but by what they think they know. “There are different perceptions of country risk. People have a lot of assumptions that are not accurate,” said Li Xu, a consultant specializing in international mergers and acquisitions, particularly in renewable energy and medical devices. When it comes to clinical trials, for example, most American investors often are not aware that China’s approval process is more stringent.

Though individual CEOs and teams each have their own way of looking at risk, through her work Xu has noticed broad trends in the decision-making styles and risk tolerance among businesses from different countries and regions. In many ways, these loosely track the Risk Type Compass methodical-impulsive axis we explored in chapter 3. One of the biggest differences she sees among regions is how they make decisions. “Americans have a very systematic way of looking at things. There are checklists for all kinds of risk, and they involve more team members in the process,” she said. Overall, Americans tend to be more cautious in where they invest abroad, and they need more time to evaluate deals than do Europeans or Asians.

Europeans tend to be systematic in their deal analysis—particularly the Germans, perhaps because many of their best-known exports tend to involve engineering—but are more likely to invest in frontier markets like Africa. Because Europeans travel more than Americans do, they tend to be more comfortable in new and unfamiliar situations, Xu said. But Europeans still tend to need more time to evaluate deals than do Asians. Thus, for an opportunity that comes up and needs a quick turnaround, the buyer most likely will end up being Asian. In general, she has found that Chinese make decisions from the top down and thus tend to move much more quickly than Americans, with Europeans somewhere in the middle between the two. “Other major Asian buyers, Japanese and Korea, are slow movers. They usually require group consensus, with many decisions done at headquarters back home,” Xu said. “They are similar to Germans: systematic, slow, very strategic, and usually doing big deals.”

Asian CEOs and investors are more likely to pick up the phone or answer an email at all hours and on the weekends. But these styles are not static; a decade ago, she might have given you a different answer. “In the last ten years, the Chinese have become much bigger risk-takers, more entrepreneurial than anywhere in the world. You can feel the hunger,” Xu said. This translates into where they invest and the speed of their dealmaking. In Africa, for example, Chinese companies are by far the most active, followed by Europe, and then the United States far behind.

As with any generalization, there are exceptions. Just as you should be alert to how individual risk stereotypes can lead you astray, it’s important not to assume that any particular country or CEO for a particular reason fits a cookie cutter mold. But it’s smart to be aware that you may find different risk attitudes and behaviors when interacting with companies and teams from other parts of the world. You can have some idea of where possible differences might lie while assessing each situation on its own merits and remembering that a particular company or person may or may not be typical of their compatriots.

Xu has seen all sorts of personalities among companies exploring mergers and acquisitions. But having a rough idea of what you might expect when doing business with other countries helps you to understand that what might seem like an impasse becomes navigable when you recognize the cultural basis behind decisions and negotiations. The challenge lies not only in managing differences in risk attitudes and awareness, but also in understanding the problem-solving and decision-making styles that organizations and leaders have adopted. “Asians still need a more personal relationship style to keep the deals flowing, while Westerners require or expect much less,” Xu said. She also has experienced that risk personalities and tolerance vary significantly among different industries as well, with technology, bio-health, and energy investors and companies each having their own flavor.

Recognizing these dynamics is an opportunity to achieve things that will elude less perceptive competitors. An important part of working across cultures involves the underlying values and beliefs that each nation or group holds about risk. Let’s explore those now.

ATTITUDES, JUDGMENT, AND TOLERANCE

8

Beliefs, Values, Purpose, and Risk

IN THE BIBLE, the Parable of the Talents in the Book of Matthew gives a clear admonition to take risks that may bear fruit. A master has three servants to whom he gives bags of gold before he leaves on a trip. One gets five bags, another two, and another a single bag. When he returns, he gathers them around to ask what each has done with the gold. The man with five bags invested the gold and doubled the money. The man with two bags also doubled his. But the third man, afraid of losing any of it, buried his bag in the ground. When the master returned, he praised the servants who invested their gold: “Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master’s happiness!” he said to each. When the third man returned the single bag he had been given, he met the master’s wrath: “You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. So take the bag of gold from him and give it to the one who has ten bags. For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them. And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.”

None of the options in this telling included a risk that failed, leaving readers to wonder what the master’s reaction would have been if a servant had invested money and lost. Would he have been forgiving had the first servant come back to him with fewer than five bags, or worse yet having lost them at all? I can’t help but be curious if the authors purposely left out that option because there was no good outcome. It certainly would have muddied the pro-risk-taking message if, as I suspect is most likely, the master punished that servant for taking a chance that went wrong.

On the other hand, without the context of how the servant decided to risk his five bags and what he spent them on, it’s hard to know whether the master ought to punish him for having made a bad choice, or to acknowledge that sometimes even bets that appear reasonable end up disappointing, and we have no way of knowing without hindsight. Unfortunately, this kind of nuance doesn’t work well in parables or fables.

What’s more, a cautionary tale about a servant who risked and lost certainly doesn’t fit the theme that runs throughout the Bible: that the Christian God wants humans to accept uncertainty and to trust in divine providence. “Can any one of you by worrying add a single hour to your life?” Jesus asked the crowds gathered to hear his Sermon on the Mount. “Take therefore no thought for the morrow: for the morrow shall take thought for the things of itself. Sufficient unto the day is the evil thereof.”

It’s a pity that the Bible failed to extend the Parable of the Talents to shed more light on how the master might have handled different outcomes. We humans could use more guidance on how to decide what risks are worth it or not: in other words, what we care about most and why we take chances that may not pay out. While risk itself is value neutral, the logic behind what we risk and why is all about what we hold dear: not just our values but how we assign and communicate value.

Risk and moral assumptions around it are at the heart of the world’s value systems, and by extension economies and societies. Religions and philosophical frameworks give humans an anchor in face of uncertainty and encourage them to take certain risks. They also define social risks and set guidelines about what risks are worth taking, often specifically in a business context.

Both the Hindu concept of karma and the Christian heaven and hell, for example, make clear what people will lose if they violate key rules of society. Islamic finance prescribes strict rules around sharing the losses and profits that result from taking financial risk, and in the process lays out an ethical framework. Confucianism, the philosophy underpinning Chinese society, establishes a hierarchy of responsibilities for managing change and lays out principles intended to promote harmony rather than strife. The very name of China’s I Ching—the Book of Changes—underscores the importance of making good decisions in face of uncertainty.

We’ve looked at how individual human personalities shape our relationships with risk. Along those lines, we could think of philosophies and religions as a reasonable proxy for the “personalities” of societies and cultures. These values and belief systems establish rules around the ethics of risk, moral judgments around risk-takers, and responsibilities for managing change and uncertainty.

They shaped early economic mores. As secularism has grown and as businesses have gained preeminent power, their leaders have developed value systems tied specifically to commerce—value systems that have evolved as societies debate the moral and ethical roles of businesses and the people who make them run. Societal values and belief systems, in turn, have drawn the outlines of expected and acceptable economic and business behavior. Given the influence of businesses on government policy, that becomes a self-reinforcing feedback loop.

Whose responsibility is it to manage risks? What risks does society encourage or discourage? How much is fair to reward those whose risk pays off? And what are the appropriate consequences for those whose risk-taking fails? Should those be different for people who take risks judged to be reckless or not? The answers shape the risks people take, good and bad: whether they become inventors, entrepreneurs, explorers, or speculators; and whether they invest what they have in ways that create abundance or hoard it in fear of losing it. Societies and economies become what they are willing to risk. So do their citizens.

RISK SOCIETIES

Ancient humans built the earliest civilizations to protect themselves from risks around them: starvation, animal predators, natural disasters, rival humans, and tribes. From prehistoric humans gathering around the first fires and taking shelter in caves, to the evolution of tribes and early societies, to the development of religions and shared beliefs, to the creation of the city-state and later nation-state, and today’s concepts of citizenship, the concept of shared risks is central, even when unspoken.

Rulers and citizens have forged agreements—what we today call social compacts—on how to share the responsibility for heading off risks, for managing change, and for picking up the pieces when crises happen. These social compacts have evolved over time, changing the risk backdrop for citizens and governments.

Under medieval feudalism, lords sheltered and protected their serfs from dangers in exchange for the rights to the fruits of their labor. Eventually, risk came to shape commerce, leading to the creation of insurance; first maritime, then agricultural, industrial, and broader financial. Commercial insurance enabled the expansion of trade. And, in recent decades, bankers developed new financial products—“derivatives”—designed to reduce risk, but that inadvertently created even greater new risks when investors used them to make even bigger bets.

Immigrants from Europe to the United States during the 1880–1920 Great Wave of Immigration shared risk through life insurance and burial societies risk-sharing pools that helped my own immigrant relatives. In 1919, my great-uncle was killed when the horse pulling the cart he rode on was spooked and upset the vehicle, throwing him out and cracking his head on the street. He and my great-aunt had owned a Milwaukee tavern and were in a difficult spot, needing to find a new line of business because Prohibition had just made theirs illegal. Family lore had it that he had fallen off of a beer truck, but because of the delicate legal situation, the newspaper article about his death diplomatically called it a “moving” truck, and the coroner’s inquest said it was an ice truck. The life insurance was enough for my great-aunt to live on, convert their tavern to a rooming house, and sponsor other relatives from Austria to come to America.

Immigration also brought public investment in education, with the recognition that failing to do so posed a greater risk: that of a restive population unprepared for the jobs available and disgruntled by being left out of the wealth creation all around. This has shaped the workforce, and, as we’ll see in chapter 10, the decisions we make about who shoulders the risk of education investment will have huge implications for our future.

With the Great Depression came a deep sense of lost control and an imperative for governments to play a bigger role in protecting citizens. The US government’s eventual creation of the New Deal was intended to restore at least some sense of security to citizens. The economic shock and its aftermath thus led to a whole new set of social and financial safety nets. It also led to the Glass-Steagall Act, which required banks to separate their retail and investment activities. It created the Federal Deposit Insurance Corporation and strengthened regulation and supervision designed to protect people if others’ excessive risk-taking went wrong. It also created the Social Security Administration. In the 1960s, the Medicare and Medicaid programs were created to provide basic health insurance to Americans who didn’t have it, and were expanded over the 1970s.

But starting in the 1980s, US politicians began to chip away at various risk protections. In 1997, under President Bill Clinton, Congress cut the capital gains tax to encourage more investment in the stock market. In 1999, amid the dot-com market boom, Congress repealed Glass-Steagall, removing an important financial safeguard. The 2008–09 Great Financial Crisis brought with it the recognition that some financial institutions were taking risks that ultimately put taxpayers on the hook for bailing out companies that were “too big to fail” because of the domino effects their collapse could case. With this came renewed calls for more stringent regulation of financial risk-taking. The crisis also began a debate, never fully resolved, over the question of moral hazard: when companies believe that they will be bailed out, they are more likely to behave in dangerous ways, creating a vicious circle.

The Great Financial Crisis also brought into office President Barack Obama and his ambitious plan to expand health insurance to more Americans, expanding the risk umbrella provided by the US government. The battle over Obamacare, as his health initiative was called, intensified the debate over the respective responsibilities of government, businesses, and citizens in managing the costs of falling ill. Early in 2018, as the Trump White House fought to undo Obamacare, a Milwaukee nurse told me she’d seen a big increase in people who were upset because they were uncertain about whether they would continue to have access to health care. (This was another example of the feedback loop between individual and societal risk.)

The COVID-19 pandemic has raised many issues surrounding the social compact among governments, businesses, and citizens. The question of who provides the risk umbrella and how big it should be swiftly has become the defining debate of our time. Often the debate is tinged by moral judgments.

Who should provide for those who are physically or mentally ill, whether because they lost the genetic lottery, ended up on the wrong end of the socioeconomic scale, or failed to take care of themselves? Who should bear the financial risk associated with the cost of decades of education? Who must carry the burden of externalities like pollution or financial instability? How should we share the financial risk of financing infrastructure? Whose responsibility is it to provide for social stability?

All of these questions involve risk management but are tied intimately to other aspects of culture and society. They boil down to: What risks are worth taking? What is our obligation to take risks? Who is at fault for making a bad decision? Who is responsible for protecting citizens from the consequences of failed risks? How much risk is the right amount of risk? How responsible is each one of us for the risks of our fellow citizens? What right do any of us have to judge the risks that others take?

The pandemic has brought all of these into stark relief as governments have poured money into businesses forced to shut down or that were otherwise struggling for reasons out of their control, but also into businesses that had borrowed money to buy back their own shares in an overheated stock market. It played out as college students partied on beaches over their spring breaks even as the novel coronavirus raged; as some people sheltered in place and wore masks in public while others chose not to wear masks in defiance of the virus and scoffed at social-distancing guidelines.

Societies make their own choices about whose responsibility it is to manage risks—especially catastrophes like the pandemic—and support opportunities: individuals; businesses; civil society and social service organizations; local, state, and national governments; and increasingly, multinational and global organizations and coalitions.

These decisions determine how creative or bureaucratic, how innovative or hidebound, how entrepreneurial, economically vibrant, cohesive, and socially stable a community or nation will be. They determine who will reach their potential and who will struggle, who will sink and who will swim. Everything involves a risk trade-off. We navigate those trade-offs based on our underlying beliefs and values about who reaps the profits and bears the cost of risk-taking; who deserves to have a chance taken on them; and who gets the credit or blame for success or failure.

It’s not uncommon for people to think that social safety nets are a waste of money on those whose own fault it is that they are down on their luck. But those safety nets also are investments. “Protected by the welfare state people engage in risky and profitable activities which they otherwise would not have dared to undertake,” the German economist Hans-Werner Sinn has written. “Risky occupations might not be chosen without the protection of the welfare state, and it would be difficult to find entrepreneurs to supervise risky investment if the debtor’s prison were all the society provided in the case of failure,” he continued. “It is perhaps the most important function of the social welfare net that it makes people jump over the dangerous chasms which otherwise would have put a halt to their economic endeavors.”

ETHICS AND RISKY BUSINESS

The free-market economist Milton Friedman famously wrote that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” Friedman’s championing of the principle of shareholder primacy became not only conventional wisdom in the corporate world but a rallying cry against addressing the desires or needs of any other stakeholders. Thinking of anyone besides shareholders, the thinking went, was a zero-sum game that could only leave shareholders worse off. Invoking shareholder primacy was an admonition not to put profits at risk.

What usually gets left out, though, is the rest of that sentence: “… so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Unfortunately, the rules of the game encourage anything but. Western democracies, in particular, pride themselves on the illusion that their economies are based on free markets when in reality the rules of the game tip the playing field in favor of companies and industries with well-paid lobbyists.

Recently, thinking has evolved, taking a complex systems approach that uses a risk lens. The new approach considers businesses’ roles in adding to or mitigating both their own and community and global risks. Environmental social governance (ESG) and impact investing movements have grown, pushing more businesses to disclose risks to their supply chains and operations as well as their own contributions to global risks like water scarcity and climate change.

A group of CEOs of many of the largest companies in the United States, the Business Roundtable, challenged this orthodoxy in Summer 2019. The purpose of a corporation, they declared in a statement signed by two hundred leaders and counting, was not just to protect shareholders’ interests but also those of a much wider set of stakeholders. This new set of principles includes delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, supporting the communities in which they work—and last, generating long-term value for shareholders. The Council of Institutional Investors, a trade group, denounced the new principles, saying they undercut managerial responsibility to shareholders and that “accountability to everyone means accountability to no one.” But the tide against this point of view is growing.

While many observers quite reasonably remain skeptical about how much of the Business Roundtable statement is sincere and are waiting to see concrete actions backing it up, it’s clear that the statement has struck a chord. The 50th anniversary of Friedman’s article produced a robust media debate over how relevant it continued to be. Like many others, I believe that Friedman’s argument has outlived its usefulness, but as the always eloquent Joe Nocera put it in his Bloomberg article, “Old habits die hard.” Nocera hit the nail on the head: “I have asked the question before, but it’s worth asking again: What is an economy for? It’s not simply to shovel profits to shareholders. The purpose of an economy is to allow people to prosper. In the end, Friedman’s doctrine has warped our understanding about the people an economy is supposed to serve. It’s not just shareholders. It’s all of us.”

Not long after the Business Roundtable statement in 2018, two former Nike executives, Lisa MacCallum and Emily Brew, convened a gathering in New York City of investors and other key stakeholders for a conversation about the role of companies. MacCallum and Brew are consultants and coauthors of the book, Inspired INC: Become a Company the World Will Get Behind. Their point is that being accountable to their shareholders requires companies to also take into account the needs of other key stakeholders, which they call “the new CEOs”: Customers, Employees, and traditional Outsiders. They began the evening with a challenge to think about a company we love and would evangelize for, and another one that we hate and would warn our friends—even perhaps our enemies—away from. One particular company came to mind immediately in the hate column: one whose core customers counted on their gluten-free products for medical reasons, but which used wheat to make an essential baking ingredient and did not disclose it on the label. There were several I liked, though not as intensely as I disliked the bad apple. To me, this suggested that it’s harder for companies to generate absolute loyalty, but if they take a risk with customers’ goodwill (in this case a serious issue of health and safety, which is crucial to the group who in theory makes up their core customer base), it is very hard to repair the damage once it happens.

MacCallum and Brew’s work brings the concept of risk into a completely different light. By risking key relationships, more broadly defined, companies also put profits at risk. Social media means that reputations can rise or fall on the whims of a viral tweet—and failing to take into account stakeholders can make the difference between strangers piling on in the attack or rising together in a company’s defense. And failing to manage reputational risk ultimately destroys value. MacCallum and Brew cite studies showing that only one in ten people has “a lot of trust” in major corporations. Further, 21 percent of US employees say they don’t trust their employers. This rises to 40 percent in France and 43 percent in Japan. Employees’ livelihood is tied to the well-being of their companies. Just think of the customers and outsiders whose loyalty does not lie in a paycheck. But too many companies don’t think of any of these three groups.

Their solution? Inspired, or purpose-driven companies: those whose mission includes making a difference. Companies that do not anchor their behavior in purpose will find themselves losing value—and, in turn, profits. Pursuing short-term gains over long-term purpose, they will waste resources on “reactive crisis management, constant onboarding to manage turnover, scrutinizing and monitoring business partners, and scrambling to eliminate the hurdles government and society put in the way.” The result? Falling returns and, ultimately, failure.

LEADERSHIP AND PURPOSE

As defined by Leaders on Purpose, a collaboration between the London School of Economics, Harvard University, and the World Bank, purpose is “the ambition to create value by contributing to the welfare of society.” The organization works with companies to calculate how global risks and challenges affect their profit and loss results, and in turn use that information to guide their global relationships and decisions.

“What we see in purpose driven leadership is a reframing of risk: for example, that the risk of not taking climate action is greater than the risk of doing something about it,” cofounder Christa Lynne Gyori told me. “It’s a question of the risk of staying as you are or just taking incremental changes versus the risk to innovate. What would be perceived as a risk by some would be viewed the opposite way by others.”

The earliest purpose-driven leaders took a big risk going to their boards and shareholders, who believed that doing the right thing would cost them money. Slowly, the purpose movement is changing that old mindset. “If risk is defined by an old model, what is perceived as risk will be very different,” cofounder Tatjana Kazakova added. “Some risks on balance sheet can be reframed as opportunities, not risks.”

“Think of all pioneers—they are the ones who have created everything we have built society on. They are risk-takers,” Gyori said. “But there is a distinction between the Isaac Newtons of the world and people who are taking, shall we say, career limiting decisions. Pioneers are taking calculated, smart risks based on their understanding of the system and its fault lines. We don’t want to discourage risk-taking but to get people to do it not for personal gratification but instead for a bigger purpose.”

Over and over again while researching this book, I have heard that word: purpose. It’s a beacon pointing to the risks worth taking, and a tool for navigating through uncertainty and danger.

RISK MAKERS, TAKERS, AND BEARERS

In her book The Middleman Economy, Marina Krakovsky writes of the role middlemen play in distributing risks: “It is a general principle that when the party that’s best able to bear the risk does so, both parties are better off.” That doesn’t always happen; when it does, the terms are not always fair. There are, of course, the powerful predator middlemen shifting risks to the little guys, like general contractors with pay-if-paid clauses, or insurance companies weaseling out of claims. She calls these “predators” because of the way they use their power to push around those whom they are supposed to serve. As another example, she cites the high-frequency traders that Michael Lewis portrays in his book Flash Boys, which tells the story of traders who have found ways to get an unfair edge over their investor clients.

Krakovsky distinguishes these predators from what she calls Admirable Risk Bearers, who prosper only when their partners prosper—and share in the losses when their partners do. The Admirable Risk Bearers she profiles include fish wholesalers at Tokyo’s Tsukiji fish market who manage risk in a way that individual restaurants could not, or art dealers and book publishers who pool the risks of marketing artwork and books and fickle economies and markets in a way that no single writer or artist could do. They pool and diversify risk, offsetting losses with gains and vice versa. This risk spreading is as important a function as are the marketing and logistical support—and of course hosting fashionable launch cocktail parties—that we’re more likely to think of as the value they add.

The internet has made it easier for risk bearers to do their jobs by making it easier to pool risks both on the supply and demand side of a market, whether for odd jobs or ridesharing or truckload capacity. Their role as connectors and brokers smooths out risks for both parties. “Each individual outcome is hard to predict, but the aggregate outcome is quite predictable,” she explains.

Who plays the role of risk bearer depends on the systems countries choose and the values behind those systems. Is risk bearing the role of business and solely a profit function? Is it the role of the government? Or is there no risk bearer, leaving each individual on their own? Most of the time it’s an evolving mix among these three. These questions accompany a related set of choices. Who is worthy of having a risk taken on them? Who gets access? Who is allowed to take which risks and at what price? Which choices maximize the benefit and minimize the risk to everyone? The answers to these questions determine not just who plays the role of the risk bearer, but who gets access to a risk umbrella and in turn the fate of economies and communities.

Krakovsky tells the story of an insurance company that started out with admirable motives: they wanted to make auto insurance available in poor neighborhoods of Chicago where people complained about sky-high rates. Unfortunately, a big part of the reason the rates were so high was that the risks in that neighborhood also were high. As a result, the insurance company had to pay out more than it took in and went out of business. In this case, social benefit and profit motive collided over the price of risk. “The industry view was that risk classification is an equitable practice, since it means that low-risk individuals don’t have to subsidize those known to pose a higher risk, but the public saw risk classification as unfair,” Krakovsky wrote.

There is a clear social and economic benefit to making auto insurance affordable in low-income neighborhoods, where many people could not afford an emergency expense and the loss of their car could lead to them losing their job and ability to support their families. But a pure market solution only addresses the transaction between the insurer and insured, not the broader community context. The individual, insurer, and government all have stakes in lessening the risk, but unless all three are involved, a solution remains elusive. This example shows that when profit motive and greater social and economic good come into conflict, the values of a society come into play, along with how well its government reflects those values. Risk bearers should be fairly compensated for their role; the numbers need to match up. But in a situation where pure market logic fails, a society and, by extension, its government, may or may not make up the difference.

We saw this dynamic come into play during the market shock caused by the COVID-19 pandemic, when share prices fell by 30 percent in just twenty-two days. In spring 2020, as the US Federal Reserve held the benchmark Federal Funds rate at between zero and 0.25 percent, average credit card rates were significantly higher, at around 16 percent. Banks tightened lending standards on personal loans, auto loans, and mortgages. The market logic was clear: the economic shock caused by the pandemic had significantly raised risk. And when risk goes up, so do interest rates. Left to its own devices, this logic can create a vicious downward spiral. Higher rates increase the possibility that the borrower will default. Lack of access to credit slows the economy and increases the risk that many businesses will fail and consumers will lose their jobs and go bankrupt; and so on and so on as the circle tightens. Amid the crisis, businesses with the best credit could still borrow, but the doors slammed shut for small- and medium-sized enterprises until the government stepped in to fill the void.

The social, economic, and political consequences can be devastating if nobody steps up to be a risk bearer of last resort. But while crises intensify this dynamic, it’s also present in normal times. Small and medium enterprises make up more than 99 percent of US businesses and provide nearly half of all jobs, according to the JPMorgan Institute. Of these, 88 percent have fewer than twenty employees, and more than 40 percent bring in less than $100,000 a year. It takes much less credit to have a huge impact on any one of these businesses; at the same time, none of them is big enough to create a huge risk for the entire economy the way Lehman Brothers and AIG did during the Great Financial Crisis. Wider access to credit doesn’t just help individuals or businesses; multiple studies by the World Bank, Asian Development Bank, and other institutions have demonstrated that financial inclusion helps the whole economy.

Policy and business decisions about who gets access to credit and at what prices are rooted in societal values and priorities, which determine who gets bailed out and who is left to flail helplessly when risk decisions go wrong. If they are poorly designed, the price of credit is too low for those who least need it and can do the most damage, and too high for the people who most need it and pose the least threat.

NEW APPROACHES TO RISK

New business models are experimenting with different approaches to these questions: changing the definition of who is “worthy” of having a risk taken on them, rethinking the cost of bearing risk, and finding ways to reduce the risk to a level that encourages economic activity but not so much that it causes reckless behavior. People who do not meet corporate standards for credit have found alternative ways of raising resources for daily life and for taking investment risks. Bridgett Davis’s fantastic memoir of her mother’s life as a Detroit Numbers runner in the 1950s, The World According to Fannie Davis, shows clearly how systems are set up so that some people profit from risk and get access to credit more than others. These systems have far-reaching domino effects. The family breadwinner, Fannie Davis, could not get a mortgage on her own so had to trust a family friend—a man with good credit and a job—to put it in his name. Luckily, he did not betray her. Nevertheless, in order to get her home, she had to take a huge risk on top of the mortgage.

Fannie Davis made a living from the Numbers, a betting system that existed in the shadows in parallel to legal wagering. Formal lotteries had existed since before the thirteen colonies became the United States of America. But from 1894 until 1964, they were illegal in the United States. During that time, illegal lotteries flourished in various forms, including bets on composites of racetrack payoffs, financial market results, and other numbers that bordered on impossible to rig and were widely published.

“Once the game as we know it today was introduced to Detroit, it quickly became a de facto informal economy, filling the void left by a formal economy that largely excluded African Americans,” Davis wrote. “Pushing against rampant discrimination, local Numbers operators used their profits to found legitimate business, providing migrant blacks with all kinds of access they wouldn’t otherwise have had.”

Numbers were illegal despite serving a social and economic purpose; they existed to fill a financing need that often was difficult or impossible to attain legally. They served a world where some people faced more daily risks in their lives than others, through no fault of their own but rather as the result of a legal system designed to keep them out. “[O]ur middle-class prosperity was tenuous, always under threat, because Mama’s livelihood was based on a win-or-lose daily gamble,” Davis wrote. “Nowhere was that threat more evident than in our household’s nightly ritual: as dusk fell and we all waited for the day’s winning numbers to come out, a tense silence moved through our home like a nervous prayer.”

Other excluded populations also have found alternative paths to credit and creating the trust others need to take a risk on them. Developing countries with gaps in financial access, and in turn immigrants to developed countries who don’t have financial access because of their immigration status, income, or education have long shared risk through saving and lending circles, known as sou-sous in Africa and parts of the Caribbean, tandas in Latin America, and kye in Korea. In these lending circles, a group meets regularly and each member pays into a shared fund. The group then pays money out regularly according to criteria it sets—sometimes through a random drawing, sometimes by need—and the recipient eventually pays back the difference between the loan and the money they already contributed. The microfinance industry, pioneered by India’s Grameen Bank, has used lending circle principles to achieve very low default rates even though its low-income clients are what most banks would consider “high risk.” (Microfinance has generated controversy for the high interest rates it charges, some of which cover the high cost of servicing small loans or reflect high rates in their country. It is another example of how market and social values do not always align when it comes to proper pricing and compensation of risk.)

These approaches are spreading as banks and investors have sought to establish creditworthiness among communities where people don’t have traditional records, especially women and minority entrepreneurs. In the 1990s, I wrote for América-Economía magazine about how banks were expanding financial access to immigrant communities by taking into account household rather than individual income in multifamily homes; looking at utility bills and other records of reliable payment history; and otherwise looking beyond the traditional credit report.

The Denver, Colorado–based nonprofit lender Colorado Lending Source has been using a character-based lending model that replaces more traditional credit scores or collateral with a requirement that the borrower provide references, with whom the lender has extensive conversations to determine the borrower’s ability and likelihood of paying back the loan. Other community lenders, like the Portland, Oregon–based XXcelerate Fund, have adopted this approach to determining who is creditworthy, and combined it with training and technical assistance to increase the odds that their bets pay off.

These ventures look at the whole picture of risk—not just the individual business, but how it fits into an ecosystem and community. “When we talk about risk we look at the risk of not getting the money back and we think we’re finished with the risk conversation,” said Deborah Frieze, founder of the Boston Impact Initiative Fund, which seeks to ease racial inequality by taking risks on people ignored by the traditional models. “We have to look at the risk of doing something and of NOT doing something.”

A serial entrepreneur who graduated with a Harvard MBA into the dot-com boom of the late 1990s, Frieze is acutely aware of how her pedigree made it easy to convince people to take risks on her. Before she had even graduated from business school, investors gave $2 million in funding to her start-up. After graduation, when the business still only had $1 million in revenue, they showered another $100 million. It was a very big risk, with a very predictable outcome. She’s acutely aware that not everyone gets the automatic assumption that they are a good bet, nor the easy forgiveness—even celebration—when they fail. “The entrepreneurs I work with live in a world that has no tolerance for failure,” she told me in a call. “It’s not that they can’t tolerate risk—they tolerate enormous risk. It’s that they are not rewarded for failure, the way I have been rewarded my whole career.”

Part of Boston Impact Initiative’s mission is to create the support network for budding entrepreneurs who do not come from a world of privilege. They seek to encourage wise risk-taking for people who have been discouraged from taking risk even though they live under great uncertainty and take risks all the time, often in situations that would not pose a threat if their skin were a different color. “I’ve always been told, ‘take a lot of risk and you’ll be rewarded for it,’ ” Frieze told me. “Society has come back to the folks I work with and said, ‘You better not fail. We expect you to fail.’ Also, there’s no safety net.”

It makes me think back to the three men in the Parable of the Talents and wonder if the man who buried the coins underground had been taught that he had better not lose them.

Frieze seeks to address racial inequality by flipping the relationship between risk and return, thus making it easier for people to take “good” risks. The business model is based in part on “from each according to their ability, from each according to their need.” The Boston Impact Initiative charges higher interest rates to companies that are far enough along to afford to pay more, so that those most in need can pay less. Early stage entrepreneurs pay only 5 percent interest on their loans, even though they may not have a track record showing success. Small businesses with some credit history pay 6 percent. And established, growing businesses that may be close to getting their first venture investment round pay 7 percent. The fund also makes equity investments but caps the amount of upside so that the surplus accrues to the enterprise’s owners and workers, rather than the fund’s investors.

She uses a similar approach for investors: “Instead of saying those who take the most risk should get the most return, we’re saying those who can least afford risk should get the most return and take the least amount of risk in the financial structure.” Smaller investors are protected by a 50 percent loan loss reserve but get paid the same interest rate as those who are better off; and philanthropic investors who can afford the most get the lowest rate and less protection. It’s the opposite of how things normally work. This type of structure works for investors who measure their return not just in dollars and cents, but in whether they create positive or negative effects on communities. Reflecting this, Frieze’s organization is set up as a 501c3 not-for-profit organization, so is exempt from taxes.

What’s fascinating about her work is the way it defines risk, recognizing that each business is part of an ecosystem, and that its success or failure affects a whole community and wider stakeholders. And its pricing structure recognizes the fluidity of risk-taking, which though it might look the same on paper actually is not the same for each person.

A FAIR PRICE OF RISK

Islamic law, or Sharia, bars riba (usury, or charging unfair interest rates) and gharar (trading in risk; that is, speculation). In turn, finance that complies with Sharia in principle is based on the “fair” sharing of risk and return. This question of fairness is, at its root, a question of values and beliefs.

Following the Great Financial Crisis, with all of its implications of the morals (or lack thereof) in the financial industry, Islamic finance took off. “Islamic financiers now brag that their ethics steered them away from the risky ventures that have caused so much havoc, and will make them more attractive to investors going forward,” the distinguished scholar Vali Nasr wrote in his 2010 book, The Rise of Islamic Capitalism. “In place of charging interest, Islamic finance relies on forming partnerships that demand that borrowers, lenders, and investors take an equity position in business ventures, sharing in the risks and rewards of those investments.”

Nasr points out that, of course, theory is one thing and practice quite another. The system is full of workarounds, like car prices being increased to reflect the amount of interest that would have been paid. But even so, the surge in interest in Sharia finance suggests that something important is going on. In 2006, only 300 firms had roughly $14 billion under management. By 2018, total assets under management using Islamic finance had grown to an impressive $2.4 trillion under 1,389 Sharia-compliant companies in 56 countries, a survey by Thomson Reuters found.

Islamic finance scholars have warned that speculation can lead to unexpected and unfair losses, and in turn lead to disputes, hatred, and social disruption, hence the reason for the ban. Mahmoud El-Gamal, an economist based at my alma mater Rice University, argues that there is another compelling reason to discourage speculation: that the trading of risk is simply economically inefficient when risk is mispriced.

Certainly, the speculation that led up to the Great Financial Crisis was based on extreme mispricing of risk. It continued to be the case as the prices of stocks and bonds escalated tremendously from 2016 through 2019—and even more so as US stock prices remained perilously high relative to the body blows that companies and the economy suffered as the case counts and deaths from the novel coronavirus escalated in late winter and early spring 2020.

The same has been true for financial markets in the roller-coaster months following the appearance of the novel coronavirus escalating to a full-blown pandemic. In the United States, small investors used their government stimulus checks to invest in the dizzying stock market rally that followed massive money printing and government spending intended to boost financial markets and the economy until the pandemic was over. Lots of that money went straight into financial markets. Millions of people signed up for small brokerage accounts. One particularly ego-driven day trader boasted in testosterone-driven videos that he was using his stock market exploits to impress women. After the rental-car agency Hertz declared bankruptcy, small investors bid its shares up so high that the company decided to issue new shares until the Securities and Exchange Commission intervened.

It was immediately clear to many in the financial world that this would not end well. In June 2020, Alex Kearns, a twenty-year-old day trader, committed suicide when he saw a three-quarters-of-a-million-dollar negative balance in his brokerage account. How a twenty-year-old with no income got access to enough credit to rack up a debt like that is baffling.

THE RISK-SOCIETY FEEDBACK LOOP

A community’s or nation’s values lead it to choose policies that encourage or discourage different types of risk—sometimes good, sometimes bad, sometimes a mix of both. In a mirror image, the risk decisions its members take contribute to their collective success or failure, and ideally create financial value. In other words, economic value depends on social values.

Each one of us is a product of the norms of our society and era, which together shape our feelings and judgments about what risks are “worth” taking: our sense of purpose and beliefs about what is important and fair, and even what is right and wrong. Those norms, in turn, shape the fortunes of societies and the organizations and people from which they are composed.

Take a moment to think about how your beliefs and values, and those of your peer group, community, or nation affect your risk fingerprint. What risks are appropriate to take? What justifies weighing one risk over another? How do public policies encourage or discourage risk-taking, whether “good” or “bad”? Is there a support system to make it easier for people to invest in education and fulfil their potential? Do governments clean up after those who take dangerous risks that go bad and let them go on endangering others? Do they punish people who are financially ruined because of events out of their control? Do they provide a safety net where the market fails? When some citizens take risks and fail, who cleans up the mess?

With the benefit of hindsight, we judge based on whether risk-takers succeed or not. When someone takes a big risk and it pays off—like entrepreneurs who drop out of college and start companies in their parents’ garages, say—we celebrate them. But if that risk goes tremendously wrong, we may condemn them or not, depending on our relationship to them and our biases and assumptions.

Take another moment to consider how these same beliefs and values come into play when you think about the risks others take. Here is an opportunity to practice risk empathy; that is, relating authentically to the reasons people take or shy away from risks. Do you judge yourself on your own decisions using the same standards as you apply to others? Do you judge someone based on whether they succeeded or not? On whether their failure was because of something they did or did not do, or because of something out of their control? On whether their success was a mighty stroke of luck or the result of hard work? On whether they took a reasonable, even noble risk?

And here are a final set of questions, taking us back to the beginning of this chapter. How would you have judged the three servants in the Parable of the Talents? And what if one of them had invested and lost the money? Would you punish them or not? Would knowing why they made the decisions they did change your opinion of them? What kinds of support—education, insurance, mentorship, encouragement—might have affected whether they invested the money or buried it in the ground? What other factors might have affected them? In fact, as we’re about to see, social scientists have identified all kinds of things—from how much say we have in whether we are exposed to how well we understand a risk—that affect how risky we perceive something to be and whether we’re willing to take it or not.

9

Emotion, Reason, and Acceptable Risk

LIKE ABOUT ONE in one hundred other people in the world, I suffer from celiac disease, an auto-immune reaction to the protein gluten, found in wheat, barley, rye, and related grains. The only cure is a strict gluten-free diet. If I do not follow it, the reaction will destroy my intestines; cause intense blisters, pimples, and boils, along with migraines, fatigue, and “brain fog”; increase the risk of lymphoma and colon cancer; and cause painful digestive symptoms, the details of which I will spare you. As an everyday, chronic condition, celiac disease is similar to other health challenges that require making longtime lifestyle changes and forming new habits. With a gluten-free kitchen and a shopping list of fresh ingredients, celiac disease becomes a low-level, manageable condition. Processed foods are more dangerous: labels can be printed in error and gluten lurks in unexpected places. Food companies have gotten much better at adding warnings to labels if their factories or equipment also process wheat or barley. I used to avoid products with shared-equipment or shared-facility warning labels (for which I am grateful). But then Gluten Free Watchdog, an advocacy group, found that products with that kind of warning label were less likely to contain gluten than ones that didn’t. So what’s a hungry celiac to do?

The decision to eat out at a restaurant creates a whole series of choices and requires active, acute risk-management decisions. Is the restaurant in question likely to have food that I can eat? Once I get there, will the waiter convey my condition to the kitchen? Will the kitchen respect it? Are the waiter and cooks informed enough to catch hidden gluten lurking in soy sauce, bleu cheese, and other places most people wouldn’t think to look? Is that “gluten free” bread really gluten free? (You would be surprised by how often it is not.) Was regular flour floating around the room at the same time that they were mixing the dough for the gluten-free bread? Will my dinner companions roll their eyes listening to me put the waitstaff through the Celiac Inquisition? Questions like these explain why people with celiac disease are reported, by one estimate, to cut the number of meals they eat at restaurants by as much as 90 percent after they are diagnosed.

At a gala dinner where the hosts had alerted the kitchen staff that I required a gluten-free meal, I nearly jumped for joy when a waitress showed up with two gluten-free rolls. But then she proceeded to put them on the bread plate while two regular rolls were still on the plate, and to touch practically the entire surface of the previously gluten-free rolls to the wheat rolls. I was so stunned that I couldn’t even open my mouth to tell her to stop. The couple sitting next to me, whose son also had celiac disease, stared wide-eyed with exactly the same reaction. Though I had no doubt of her good intentions, in her ignorance she had just poisoned the gluten-free rolls. Yes, just a few crumbs are enough to make people with celiac disease sick.

This brings me to the difference between personal risks and risks to others. People with food sensitivities get a lot of grief because not everyone understands how serious these health threats are. Perhaps you’ve read one of those articles about how you don’t need to avoid gluten if you don’t have celiac disease—supposedly well-meaning “service journalism” that in reality reinforces the notion that avoiding gluten is a fad. This makes life harder for people whose health depends on it, because then companies think a gluten-free diet is a marketing trend and not a medical necessity and don’t take safety seriously.

When someone posted on a Facebook sustainability group describing a new biodegradable and edible plate made out of wheat, I commented that this was a terrible idea. Given that roughly 1 percent of the population would not be able to use the plates, and that the odds of people unwittingly serving food on dangerous plates were high, the risk was too great. Why not use a less dangerous source? I was surprised by how immediate and swift the backlash against me was. It was based on pure selfish, emotional reactions from commenters who did not know the facts and had no interest in hearing them.

The incident reminded me of the people who mock schools that bar peanuts because of the rising number of allergies. Some go even further, expressing self-righteous indignation that their inalienable right to eat peanuts wherever they want is being violated. This allergy backlash doesn’t happen in a vacuum. It is an overreaction to a cultural shift and a rebellion against myriad efforts to reduce risks.

It’s also part of a dangerous culture of risk denial and a lack of awareness of the roles that emotion and reason play in assessing risk. Humans have a hard time distinguishing between perception and reality and matching our emotional reactions to evidence and analysis that contradicts our “gut feeling.”

There is a real divide between people who rely primarily on emotion and those who rely on data. “Some take risk as objectively given and determined by physical facts, whereas others see risk as a social construction that is independent of physical facts,” the philosopher Sven Ove Hansson has written: “Risk is both fact-laden and value-laden, and it contains both objective and subjective components.”

That emotion-reason distinction and divide matters immensely in today’s world. It separates the premodern from the modern from the postmodern. It explains political rifts, family and relationship conflicts, corporate mistakes, and failed negotiations. It’s also related to whether people think a risk applies to them or only to other people, especially people they don’t know. People have a hard time engaging in risk empathy even with people they know, much less strangers, and even less so with strangers who are different from them. We’ve seen this play out in the United States with COVID-19, especially when New York, San Francisco, and Chicago were hit early on. In a country already divided between urban and rural, red state and blue state, people who did not feel immediately affected resented the strict measures put in place to slow the spread of the pandemic in places that, although part of the same nation, felt “foreign.” Younger people, who were much less likely to die than older people, resented not being able to go to bars and beaches. And the different stories told by liberal and conservative media only made things worse.

Bridging the risk chasm could be the most important thing a society can do: to convince those driven by emotions to rely more on facts, and those tethered to data to recognize that emotions are important. The first step is to understand what affects our emotional responses to different kinds of risks and how we can bring reason into play, balancing our subjective and objective risk responses.

Individual preferences, experiences, and priorities come into play. Stranded at the Dallas-Fort Worth airport because of an ice storm in Chicago, a colleague and I waited it out at a Tex-Mex restaurant near the gate. Many Tex-Mex dishes are naturally gluten-free, and having lived in Texas for a decade I was feeling nostalgic for the local cuisine. So I was comfortable ordering dinner once I put the waiter through the Celiac Inquisition and made sure that the kitchen knew how to avoid cross-contamination. But my colleague, also celiac, was not. She travels with a plug-in cookpot, packaged rice noodles, shelf-stable hardboiled eggs and condiments, fruit, and other food to avoid having to take even the risk that I judged to be acceptably small. We each made the choice that was right for us: distinct and legitimate.

But later, once we were airborne, I could not stop thinking about how the difference between subjective and objective risk had come into play in our different food safety choices. I wondered why some people see some dangers as more powerful than others, and whether better understanding those influences could help people to make better risk decisions. It really was about balancing emotion and reason based on our distinctive risk fingerprints. What you believe about the risks you face and how you react depends on whether you tend to be more rational or emotional, knowledge seeking or denying. Past experiences are important, too, but the same shock or loss might push one person to avoid a similar risk in the future while freeing a different person of their reservations.

JUDGING RISK

Geoff Trickey, the psychologist we met in chapter 3, told me the story of a woman he met on the beach in Bali who told him about the traumatic experience she’d just had. She was traveling on a plane from Perth, Australia, to Malaysia when the cabin lost pressure, leading to oxygen masks dropping automatically and sending the passengers into a panic. It didn’t help that the announcements were all in Malaysian languages while cabin crew “mimed” getting into the crash position. Following procedure, the pilot rapidly took the plane down from 30,000 feet to 3,000 feet of altitude. For those nine minutes, passengers were afraid that they were going to die. But after they landed safely, the airline put out a statement to the effect that because the pilot had perfectly executed the recommended procedure, there had been no risk at all. That wasn’t how it felt to the passengers. The woman on the beach had been so badly shaken that she realized that if she didn’t get right back on a plane, she might not ever have the courage again. That’s how she ended up on the beach in Bali. Recalling the woman’s story, Trickey told me: “That was when the penny dropped for me on the difference between subjective and objective risk.”

David Spiegelhalter, professor of public understanding of risk at the University of Cambridge, says it’s important to be aware of the magnitude and likelihood of risks. Criticizing sensationalist headlines about the latest flavor-of-the-day study of what might or might not kill us, he echoes the statistician Hans Rosling in warning how important it is to distinguish between what’s frightening and what’s actually dangerous. Spiegelhalter, popularly known as “Professor Risk,” likes to measure danger in “micromorts.” The decision theorist Ronald Howard coined that term to describe a one in a million chance of death: say, riding a bicycle for ten miles, eating one hundred char-broiled steaks, living for 150 years within 20 miles of a nuclear plant.

In a charming YouTube video in which he appears smoking a cigarette while riding a bicycle no-handed—two risky activities in which he engages simultaneously—Spiegelhalter talks about the relationship between eating bacon and the risk of bowel cancer. Based on past evidence, there is about a 5 percent chance that a man of his age would develop bowel cancer. Eating bacon regularly likely increases that to six in one hundred. “I think that harm is not large enough for me to stop eating bacon,” he said, then picked up a bacon sandwich to prove his point. He discussed the trade-offs he’s made, factoring the pleasure he derives from risky activities into his calculations about how much risk is too much: “I’ve come to the conclusion that one of the biggest risks is being too cautious.”

Spiegelhalter bases his approach on information, analysis, and reasoning involving the nature of risks themselves. But the way most of us judge risks involves not just likelihood, but rather a set of emotional considerations associated with the risk. To be fully rational in managing our judgments of which risks are acceptable or not, we need to factor in why we react in certain ways.

RISK PERCEPTION AND ACCEPTABLE RISK

The social psychologist Paul Slovic, an eminent scholar of risk perception, has challenged the notion that risk experts know the “real” risk and public perceptions are largely ignorant or irrational. He argues that we cannot properly understand risk unless we recognize its subjective, value-driven nature, and acknowledge that risk is socially negotiated in specific contexts.

Slovic and his colleagues have pioneered work around what scholars call the psychometric paradigm: a theoretical framework assuming that individuals subjectively define risk, based on various influences. In earlier chapters, we looked at how our personalities, experiences, group affiliations, national and cultural affiliations, and beliefs and values all affect the way we see risk in general as well as specific risks. Now we’re going to look at the characteristics of the risks themselves, using Slovic’s framework, to understand how aspects of the risks themselves affect our responses.

Slovic has identified several factors that affect how seriously we take a risk in front of us and how much of that risk we will tolerate. These include voluntariness (how much choice we have in whether we are subject to the risk, like smoking or our diet versus, say, a natural disaster) and controllability (how much we can control the outcome once exposed). Immediacy involves how soon we expect it to happen and how close it is to us. How well-known a risk is to each of us and how well-understood it is by scientists or experts shapes how risky we perceive it to be, along with how new the risk is, whether it is chronic or one time only, and how dreaded. Closely related is the nature of its impact: how severe it is. Finally, we pay attention to how equitable its impact may be, the extent of both its primary and secondary impacts, including on future generations. By looking at each risk through these lenses, we can get a sense of the biases that shape our responses to them. Once we understand our biases, we can adjust for them.

THE REAL HEROES

Matthew Tweardy-Torres had been an emergency room nurse for nearly seven years and was working at New York Presbyterian Hospital when COVID-19 struck. He went on vacation in Spain as planned in late February 2020, when people around the world, even most in the medical profession, were nowhere near being aware of how serious a threat the novel coronavirus was. In early March, he developed a slight cough and brief gastro-intestinal symptoms; “nothing sinister” that suggested it might be more serious. (He briefly lost his sense of smell, but this was before that was widely known to be a symptom.) He stopped working and set out to get a test, which at the time was hard to come by. Several days later, the result confirmed his fears. He was mortified to learn he’d been working while sick, even though he’d worn a mask. It took seven weeks before he tested negative and could go back to work in late April. Though public anxiety was higher and lockdowns were in place by then, he still felt confident. Part of that was his innate personality; he rarely got sick, was a runner and an equestrian, and had a generally positive outlook on life. “We still thought if you’re young and healthy and have no underlying conditions you are going to be fine, which is, you know, as we learned really not true,” he told me. The death of Nick Cordero, the Broadway actor who was about the same age and in good health before the virus struck, hit Tweardy-Torres hard. He also assumed he had antibodies that would protect him, though the science around that became more and more confusing and uncertain as time went by.

When he got back to work, at least half of Tweardy-Torres’s patients tested positive for the virus. The strain of treating—and losing—so many people was taking its toll on people’s frame of mind: “Everyone seemed like the wind had been knocked out of their sails for sure.” Dr. Lorna Breen, an emergency room doctor who had been his boss and mentor for many years, contracted the virus, recovered, and then committed suicide because of the emotional exhaustion and her anguish over her weakened stamina to help her colleagues as she wanted to. When she died, in late April 2020, New York City had registered more than 300,000 cases and 22,000 deaths.

Health care professionals were still struggling to get the personal protective equipment they needed. Tweardy-Torres recalls everyone getting one mask a day before supplies eventually caught up. His coworkers each responded in their own ways to the risk to their own safety. Some people, especially emergency room workers, resigned themselves to it, accepting that there was only so much they could do. “A lot of science-trained people—in other words, a lot of people in healthcare—are good at recognizing this is totally out of my control so there’s really no point in me obsessing over it or letting this dominate my mental health. Other people were really freaked out,” he said. A few people sent their kids to stay with loved ones. Others took up offers to stay in hotels for free. “I know two couples that did not see each other in that entire acute time until around the end of June.” The biggest factors were whether health-care workers were in high risk groups themselves—older workers or those with underlying conditions—and whether they had kids or not. “Some nurses would be in a simple surgical mask, unless the patient was known positive and then they put on the N-95 mask. But I would see people with kids, wearing the N-95 for 12 hours which is really hard. But they just were super. I would ask them about their plans and they’d have this whole decontamination protocol; whenever they get home they go into their garage, take off all their clothes, wipe down with wipes, go right into a shower before like they ever saw.”

Some older nurses retired, which was a perfectly reasonable choice. Tweardy-Torres was shocked, however, to see that some nurses came out of retirement to help. “This has happened to be what I do for a living. This is how I support my family and I’m a young, healthy guy. But if you’re sixty-five, you know what’s happening, and you come out of retirement and your safe little bubble? That’s a hero, for sure.”

All of them, of course, faced what “objectively” was the same risk. But their individual personalities and circumstances intersected differently with the framework Slovic laid out to explain their risk perceptions and tolerances.

VOLUNTARINESS AND CONTROLLABILITY

The American electrical engineer Chauncey Starr concluded that the more people seeing themselves as accepting a risk voluntarily, the more exposure they will accept. By his calculations, we are a thousand times more likely to tolerate a risk we believe we have a choice to accept or not. “As one would expect, we are loath to let others do unto us what we happily do to ourselves,” Starr wrote wryly. “The rate of death from disease appears to play, psychologically, a yardstick role in determining the acceptability of risk on a voluntary basis. The risk of death in most sporting activities is surprisingly close to the risk of death from disease—almost as though, in sports, the individual’s subconscious computer adjusted his courage and made him take risks associated with a fatality level equaling but not exceeding the statistical mortality due to involuntary exposure to disease. Perhaps this defines the demarcation between boldness and foolhardiness.” He points to the Vietnam War, in which the risk of death to the general population approximated the risk of death by disease. For men in their twenties and thirties—that is, military service age—however, the risk of death was ten times the rate of the general population. “Hence the population as a whole and those directly exposed see this matter from different perspectives.” Though Starr’s insight seems obvious, it nevertheless is worth pointing out.

Just as people are more likely to tolerate a risk they believe they take voluntarily, people are more likely to accept a risk they believe that they can control.

Once the COVID-19 pandemic spread, many people had no choice about whether or not it was a daily risk. But they did have a choice about what to do to minimize it. Paradoxically, that may be why some of them decided not to wear masks or socially distance. They controlled what they could, even though it made things worse instead of helping and did nothing to control the bigger problem.

Similarly, after the 2019 Ethiopian Airlines crash, the US flight attendants’ and pilots’ associations put out very different statements about whether the Boeing 737 Max was safe to fly. The pilots, who felt in control of the planes, were far more comfortable flying the planes than were the flight attendants.

But that sense of control likely was illusory, as studies repeatedly show that we humans believe that we are more in control than we are in reality. For example, people view the risk of winning the lottery as higher if they pick the numbers themselves; drivers see the risk of having a car accident as lower than do passengers. Scholars also have linked this illusion of control to unrealistic optimism and overconfidence.

Whether we feel control is just part of the equation. How comfortable we feel with lack of control is the other half. As we saw in chapter 7, some cultures are better than others at that. So are some professions. Risk professionals focus on things that can be quantified and measured. Actuaries, rating agencies, and portfolio managers all spend their time trying to connect probabilities and prices to risks. While important, this kind of work can seem far from reality. But the risk professionals have it right in this aspect: counting things is a kind of control as well as a useful strategy when we are trying to come to terms with the risks we face. It’s not all about numbers, of course; risk professionals also spend significant time putting in place structures and processes that make it easier for companies to respond to unanticipated things.

As we saw in chapter 4, entrepreneurs tend to judge risks differently from people who have not started businesses. Some of this may be because as founders, they have a significant amount of control over the decisions that will shape the company’s future. A sense of control leads to confidence. When we lack confidence, we may be too prone to pass up opportunities that we ought to take. Or we may fail to act quickly enough to avert an obvious danger. When people are overconfident in their decisions, it can lead to taking dangerous risks. The Cornell University psychologists David Dunning and Justin Kruger identified this tendency in 1999, and it now bears their name. The Dunning-Kruger Effect appears more and more frequently in popular culture and media, as the concept apparently has struck a chord in our times. In the radio host Garrison Keillor’s fictional community, Lake Wobegon, “all the women are strong, all the men are good looking, and all the children are above average.” The same is true of risk. We’re more likely to think that we make better decisions than those around us, are better drivers than others on the road, and so on.

Confidence can be an individual personality trait, one exhibited across groups (as we saw with certain professions) or society-wide. Scholars have identified some fields as being particularly prone to overconfidence: clinical psychologists, physicians and nurses, investment bankers, engineers, entrepreneurs, lawyers, negotiators, and managers.

SHIFTING CONFIDENCE

Our confidence levels also shift over time, both within individual lifespans and along with social mood, which involves shared mental states among groups and societies produced by social interactions. Being aware of your confidence level and keeping it tethered to reality helps you to avoid a false sense of invincibility. Underestimating your own fallibility also can lead you to even more dramatically misjudge risks. And being aware of how each of your experiences shapes how you perceive and respond to the next one.

Rajiv Pant is a brilliant chief technology officer—in other words, someone very good at making logical, rational decisions and bearing lots of responsibility—who has worked for big media corporations and for start-ups. But he’s intensely aware of the role of emotion in making risk decisions and of how his own relationship with risk has evolved over time: from imposter syndrome and low confidence early on, to acceptance of loss, to newfound overconfidence and willingness to leap without looking, to a new and more measured approach based on an understanding of how each milestone in his life has changed his risk relationship.

Pant was working as a software engineer in San Jose, California, early on in his career, when a cousin called with the news that his family home in India had burned down. Everyone was safe but nearly all of their possessions were destroyed, with the exception of a suitcase full of important papers and a small piece of furniture on which Pant had scrawled his name with finger paint when he was a toddler. One of the saddest parts of the loss was the family library. “I had always thought one day after I had moved to America, I will ship those books over keep because I was very attached to those books. I had a little blue teddy bear that went with me everywhere I went as a kid,” Pant told me. “Even in my twenties, after I had moved to the United States, I thought someday when I have a family, that would be a gift to my son.”

In a way, the tragedy liberated him by taking away a fear of certain kinds of loss: “After I learned about this all my deep attachment toward all these belongings that I one day wanted to ship to me in America at no matter what cost.… They didn’t seem important anymore. Having lost all that stuff helped me understand attachment toward things.” Later on, after he had moved to Pennsylvania and his home was destroyed in a flood, he took this second calamity in stride. “When it came to making decisions about what to do with this house, whether I should try to salvage everything, or let it be, I was fine letting it be. So this helped shape my framework for thinking about whether to take certain risks or not in life.”

The two property losses were not the result of risks he took actively, but they nevertheless accelerated his career by making him more comfortable with the idea of loss, and thus giving him the freedom to take big risks—for example, when he tried to quit a job that might have left him without a work visa, or when he left a senior position at The New York Times for a job at a start-up. In a way, the bad luck involving property offset a series of what early in his career felt like merely a stroke of good fortune to someone who is humble about his considerable talent. When he was in his twenties and rapidly promoted to a vice president position, Pant was much more cautious because of a twinge of imposter syndrome: feeling that he’d gotten into his job mainly because of a lucky break, and that he might not be given such a chance again. As time went by and he ended up in increasingly responsible positions, his confidence grew to a point that he now sees as perhaps a bit excessive, like when he took the start-up job without thoroughly thinking through the odds that it would get the funding it needed. But when it failed, he bounced back. “What was key about these risks was that while they would have hurt me financially, I didn’t feel that these things these experiences would completely ruin me,” he said. “It wasn’t a risk like jumping off a bridge where my life might end. This was a thing where at worst I’d end up sleeping under a bridge. And there are many people in this world who would be happy even with that situation.”

HOW WELL-KNOWN AND UNDERSTOOD

Research suggests that the more we understand something, the less risky we are likely to perceive it to be. The 737 Max case is a good example of this. In the aftermath of the Ethiopian Airlines Flight 302 crash in March 2019, the reactions of countries, airlines, airline employees, and the maker of the airplane in question showed how important it is to get risk right. Experts or insiders with more information and control are more likely to see threats as less risky than their customers, who have limited information and even less control.

Understanding of a particular risk is important. So is the ability to get information along with education in general, which studies have shown makes people less risk-averse. Ben “Lucky” Schlappig was scheduled to fly on a 737 Max 8. As a business travel writer with access to extensive information about flight safety, he researched the plane and was comfortable with flying on it. But his family was not at all happy with the idea, so he switched to another, less convenient flight. “I’ll avoid the 737 MAX not because I’m worried I’ll die, but rather because it’s worth me going out of my way to put my loved ones at ease,” he wrote in a thoughtful essay on his rationale, noting that his response might have been different if he were single and parentless. Even if he did have safety concerns, he noted, he knew that the worst-case scenario odds were slim: “Because statistically just about any air transportation is still safer than just about any car ride you’ll take.”

Schlappig’s dilemma and response demonstrate both the impact that knowledge can have on risk decisions, but also how important it is to recognize that not everyone feels the same way and to find solutions that work for everyone. Let’s hope his family appreciated just how considerate he was being.

SURPRISE AND SHOCK FACTORS

To be sure, we tend to ignore familiar risks, like car crashes. The same goes for chronic or repeating risks like cancer, diabetes, or other seemingly mundane risks. The way people perceive risks depends on how new, familiar, or dreaded a risk may be. Severity and dread are the operative emotional triggers, not likelihood.

When the first reports of possible links between cell phone use and brain cancer came out, people were much more worried than they are now: the newness of the idea was scary. It’s the same reason my family was the last one on the block to get a microwave oven, because in the early 1980s, the now ubiquitous kitchen appliance was new and unknown.

Our own experience also matters. Anyone who has experienced a risk without significant harm is less likely to worry about it in the future. Children who injured themselves falling from heights when they were young, for example, are less likely to be afraid of heights at age eighteen.

Immediacy similarly affects how strongly our emotions kick in, as we discount risks that seem to be far in the future. When people see climate change impacts as years away, it’s one thing. But the massive floods, wildfires, and heatwaves of 2019 made people snap to attention. Our increased sensitivity to new, surprising, or shocking risks is an example of the availability bias, in which people make a mental shortcut—or “heuristic”—that brings easily retrieved memories to the forefront. That is a big part of why humans are so bad at accurately estimating risk probabilities.

Slovic and his colleagues presented participants in a study with forty-one low probability causes of death, ranging from botulism, with a probability of 1 times 108 to much more likely heart disease with probability of 8.5 times 103. Interestingly, subjects were roughly consistent in how they ranked likelihood of various causes of death—but their subjective rankings often were far off the mark of the real probabilities. Subjects could only consistently identify the greater of two risks if the differences between the most and least likely was more than two to one, the team found.

These results were consistent with the availability bias: People over-weighted the events that cause the greatest emotional impact, whether because of their shock value or because they get a lot of attention in the media. “The frequencies of accidents, cancer, botulism, and tornadoes, all of which get heavy media coverage, were greatly overestimated; asthma and diabetes are among the events whose frequencies were most underestimated,” Slovic wrote.

The nature of the potential impact also comes into play. Several studies have shown that the more severe the potential consequences of a risk are—even if it is highly improbable—the more likely people are to demand that governments protect them from it.

Whether a risk affects some groups more than others makes a difference in how seriously people take it. Naturally, if a risk affects someone else, we’re more likely to ignore it. But if the impact affects some groups unfairly, we might pay more attention, particularly if one of those groups is our own! This effect depends, too, on cultural values. A country with strong egalitarian leanings might demand more protections against risks that have unequal effects than would a country whose citizens are comfortable with higher levels of inequality.

“People holding an egalitarian preference for wealth and power to be distributed equally in society had higher perceived risk for a wide range of hazards and were particularly concerned about nuclear power,” Slovic has written. “People who prefer a hierarchical social order, in which experts and authorities are in control, had much lower perceptions of risk and more favorable attitudes toward nuclear power.”

These preferences boil down to what people see in it for themselves. This, like so many aspects of risk, has a strong social component to it.

EMOTION AND CONFIDENCE

Most teenagers have a sense of invincibility—especially involving cars—that subsides as they grow older, at least if it doesn’t kill them first. But it turns out that it’s not that simple: teenagers, like adults, react to different kinds of risk in different ways. There are “hot” risks, which involve emotion, and “cold” risks, which involve reasoning. You might think of these as System 1 and System 2 risks, per Daniel Kahneman’s framework for understanding cognitive processes. Teenagers make riskier decisions under “hot,” high emotion, conditions (for example, social situations)—but under “cold” conditions, their decisions are similar to those of adults.

How sensitive people are to loss also comes into play, an offshoot of the innate personality traits we discussed in chapter 3. “Loss aversion is often an exaggerated emotional reaction of fear, an adapted response to the prospect of genuine, damaging, survival-threatening loss,” the neuro-economist Colin Camerer has written. “People overreact to small losses in their long lives that are not truly life threatening.… Many of the losses people fear the most are not life threatening, but there is no telling that to an emotional system that is over-adapted to conveying fear signals. People hate losing jobs, ending relationships, and delaying delivery of rewards, though they rarely die from those ‘losses’ or from broken hearts.” Though the concept of loss aversion has come to be widely recognized through the work of Daniel Kahneman and Amos Tversky, observers often neglect to recognize that not everyone has the same amount of loss aversion. How much we dislike losing something depends on how much we care about it, how anxious or calm we are: in other words, on what we are willing to risk or not. It also depends on how much benefit we see to ourselves.

The 18th-century Swiss mathematician Daniel Bernoulli sought to create rules to help people estimate the odds of succeeding. In particular, he introduced the concept of utility: the benefit—whether usefulness, desirability, or satisfaction—that people perceived getting from various levels of risk. “Utility was such a powerful concept that over the next two hundred years it formed the foundation for the dominant paradigm that explained human decision-making and theories of choice in areas far beyond financial matters,” Peter L. Bernstein wrote in Against the Gods. It became central to game theory, to psychology and philosophy, and even to defining human rationality.

The higher the potential gain, the riskier an enterprise is likely to be—but the less likely we are to perceive the risk as being as high as it actually is. And, as the social psychologists Bernd Figner and Elke Weber point out, the riskier an enterprise is, the worse the least attractive outcome is likely to be. Most important, they note: “The riskier options involve greater uncertainty about the resulting outcome: The term risk-taking refers to choosing the option with the higher outcome variability—that is, with the wider range of possible outcomes.”

Our thinking often changes dramatically when we consider a wider range of possible outcomes. This often is the result not of deliberately opening our minds but rather of being confronted by an unpleasant and unwanted likelihood.

LIFE SHOCKS

Life shocks often lead people to dramatically change how they weigh risks and which ones they are willing to take. Critical health risks involve a balance between passive and active risk decisions: the passive risk of doing nothing versus the active risks to a patient choosing an aggressive treatment that exposes them to side effects, financial ruin, pain, failure, and even death.

Dr. Sucharu “Chris” Prakash, a Texas-based oncologist, remembers a young woman from Colorado who was only around forty when she was diagnosed with advanced colon cancer. Luckily, she responded very well to treatment and went into remission. She told him that she had always wanted to hike the Rockies. “She went and hiked and did very well for several years afterward. I think it helped her prognosis,” he said. “It’s like being reborn. I was told I am going to die—so what do I have to lose?” Her diagnosis completely changed her risk calculations and priorities.

He’s found that to be true of many of his other patients as well, for all kinds of risks. These may be things they want to do in life or treatments they are willing to undergo or forswear. “One used to smoke, quit a few years back, then once diagnosed started smoking again. He just wanted to enjoy the time he had left: ‘I’ve got nothing to lose, I already have the cancer,’ ” Prakash told me. Other older patients might hop in a recreational vehicle and travel, or board a plane to see countries they have never visited before.

Echoing a theme that we visited earlier, people’s responses depend on the support network they have in place. “Patients who have a lot of family support are more willing to go through treatment. They are doing it for their family, but they also realize that their family is there to support them. Without that, people are less likely to want aggressive treatment.”

Knowledge and control, two other recurring themes, play into it as well. “Patients who have done the research and learned about the treatments do much better,” Prakash said. Not only are they willing to push forward harder with difficult treatments, but their pain is less than comparable patients’ and often less than their families might believe.

The longer patients are in remission, the more they revert back to their previous risk-taking behaviors and attitudes, he said. “The most inspiring are the ones who have the advanced disease and know they are not going to be around in a year. Seeing their fight and resilience, I wonder if I could be that strong. I feel like they are happier than their family members are.”

RISK AND JUDGMENT

The social context profoundly affects what we see as risky or not, as well as our judgment of others. I remember the media frenzy when a Danish-American couple were arrested and jailed for thirty-six hours for leaving their toddler daughter, Liv, in a stroller outside of a restaurant in New York City’s East Village in 1997. The baby had been crying, so her mother, Annette Sorensen, took Liv outside, where the child fell asleep in her stroller. Rather than risk waking her, Sorensen left the baby in the stroller. Her mistake was simply not knowing that although in Copenhagen, nobody would have batted an eye at what she did, it was not seen as normal in Manhattan. Certainly, there are different risks to take into consideration in a big global metropolis versus a small Scandinavian city where many people know each other and where there is a high culture of trust. As we learned in chapter 7, countries vary widely in their attitudes toward risk and views of risk as collective or individual.

In addition, some of the news stories about the case reported that she and the baby’s father had been drinking, adding to the public outrage. This brings us to the ways in which moral judgment colors how risky we think things are. Barbara W. Sarnecka, a cognitive scientist at the University of California-Irvine, presented participants in a study with various scenarios in which parents left their child unattended and asked them to rate how much danger the parents’ action presented to the child. In some of the scenarios, the parents had a legitimate reason for leaving the child alone. In others, the parents did so because of selfish reasons that trigger moral judgment, like an illicit tryst. Sarnecka found that the higher people’s moral outrage at a parent’s reason for leaving, the more danger they are likely to estimate that the parent’s behavior posed to a child.

Sometimes people don’t care what parents’ reasoning is. I stumbled on Sarnecka’s research in Kim Brooks’s terrific 2018 book, Small Animals: Parenthood in the Age of Fear, about her harrowing experience being judged for leaving her four-year-old son alone in a car for a few minutes at the end of a trip to visit her parents in Virginia, just as they had done with her when she was young. As they were getting ready to fly back to Chicago, she couldn’t find his headphones, which they needed for the airplane to keep him entertained and happy on the flight. He insisted on coming with her to the store to get a new pair, but when they got there he refused to get out of the car. Running out of time and wanting to avoid a tantrum, she did a quick risk analysis: It wasn’t a hot or cold day, nor a dangerous neighborhood. He was absorbed in a game on the iPad and didn’t know how to unbuckle the seatbelt so would be unlikely to get into trouble. There was a car alarm in the improbable event that anyone tried to break into the car in the few minutes that she would be gone. The risk to her son was negligible, at least to anyone with common sense. She found out the hard way that the biggest risk at hand was to her. A self-styled Good Samaritan saw the child alone in the car and called police to report her license plate number. As a result, the State of Virginia issued a warrant for Brooks’s arrest, starting an ordeal that she recounts in the book.

Brooks sees the nanny state as a knee-jerk reaction to an uncertain world in which information bombards and overloads human systems: “Knowledge without power, foreseeing things we can’t forestall. We now live in a moment where it is infinitely easier to know than it is to do. We are living in an age of fear,” Brooks wrote.

This touches on the question we raised in chapter 8: Whose responsibility is it to protect us from the risks we fear? And who determines what risks are acceptable? Many commentators have warned that modern societies are so tightly focused on creating environments that are so “safe” that they don’t teach kids the skills they need, which has created a backlash.

In Britain, some schools purposely are bringing risk back in to children’s environment, Ellen Barry reported in The New York Times: “[T]eachers at the Richmond Avenue Primary and Nursery School looked critically around their campus and set about, as one of them put it, ‘bringing in risk.’ Out went the plastic playhouses and in came the dicey stuff: stacks of two-by-fours, crates and loose bricks. The schoolyard got a mud pit, a tire swing, log stumps and workbenches with hammers and saws.” The idea—embraced by the British agency overseeing school safety—is to give children the experience of assessing and dealing with limited risks in a relatively safe environment, as a way to build resilience and counter what many people feel is a culture of risk aversion so extreme that it is unhealthy. Australia, Canada, and Sweden have followed a similar path to British schools. As the article points out, however, the highly litigious United States has pointedly not done so.

“It’s hard to absorb how much childhood norms have shifted in just one generation,” Hanna Rosin wrote in The Atlantic about the “adventure playground” movement, built around the idea that facing risks and conquering them builds courage and confidence in kids—skills that have been neglected. “Actions that would have been considered paranoid in the ’70s—walking third-graders to school, forbidding your kid to play ball in the street, going down the slide with your child in your lap—are now routine. In fact, they are the markers of good, responsible parenting.” Rosin cited a study of “children’s independent mobility,” conducted in urban, suburban, and rural neighborhoods in the United Kingdom, that found that between 1971 and 1990 the percentage of third graders who walked to school alone had fallen from 80 percent to 9 percent. “When you ask parents why they are more protective than their parents were, they might answer that the world is more dangerous than it was when they were growing up,” Rosin wrote. “But this isn’t true, or at least not in the way that we think. For example, parents now routinely tell their children never to talk to strangers, even though all available evidence suggests that children have about the same (very slim) chance of being abducted by a stranger as they did a generation ago. Maybe the real question is, how did these fears come to have such a hold over us? And what have our children lost—and gained—as we’ve succumbed to them?”

Building risk literacy into our education systems nurtures creative, inquisitive citizens who can adapt to the rapidly changing world—both by accurately assessing risks and being fluent in the skills needed to manage them.

RISK LITERACY: The ability to appropriately assess risk probability and weigh it against our perceptions, taking into account both empirical and emotional factors.

Risk literacy comes in two parts. First is raising children to accurately assess the potential for harm involved in various activities so that they respond appropriately with a balance of emotion and reason. Second is ongoing education about new and evolving risks: both how serious a threat they pose to each of us and to others, and what we can do to reduce the risk to ourselves and others.

The consequences of weak or poor risk literacy became painfully clear during the course of the COVID-19 pandemic. We saw in chapter 7 how much responses differed across countries and cultures. Indirectly, those cultures were related to how risk-literate their citizens were. But risk literacy and behaviors also varied wildly within countries—particularly within the United States, where political persuasions, the news sources to which people turned, and the decisions of each state’s government were very different. The interdisciplinary Risk and Social Policy Working Group surveyed more than 3,000 people in six US states in May and June 2020 about how likely they thought it was that they would get sick with COVID-19. The average respondent thought there was a 28 percent chance they would get the disease in the next three months and, if they got it, a 34 percent chance they would become seriously ill and a 22 percent chance that they would die. The odds of catching the virus, getting sick, and dying vary widely, depending on risk factors and behaviors, but even taking those into consideration this was a dramatic overestimate of risks from the pandemic. But as a ballpark figure, at the time the survey was run, about 3 percent of confirmed cases resulted in deaths in the United States. Because not everyone is tested or even shows symptoms, the number of actual cases may have been ten times as high as those reported, which would put the case fatality rate at just 0.3 percent.

The numbers go to show, however, that even when people believe that a risk is high, they don’t always make good decisions about how to reduce that risk for themselves and others. Despite overestimating the personal risk, survey participants did not always wear masks, stay at home, or practice social distancing. People reported wildly different behavior depending on where they lived. In relatively “blue” (i.e., more likely to vote Democratic) Massachusetts, 85 percent of respondents said they always wore a mask in indoor public spaces, versus just 52 percent in relatively “red” (i.e., more Republican) Iowa.

Messaging—and the news sources people relied on—played an important role as well. At least some of the difference depended on how well local governments were communicating to their citizens that simple, everyday behaviors are both easy and do work. “Even if people perceive high risk, they’re unlikely to engage in risk reduction unless they are getting messages about efficacy,” Elizabeth Koebele, assistant professor of political science at the University of Nevada and a member of the Risk and Social Policy Working Group, told me. This circles around to what we learned about how important a sense of control and whether a risk is taken on voluntarily are to whether people accurately perceive risks and decide to do something about them. People told that they could take simple actions every day that worked were the most likely to report wearing masks.

We saw in chapter 7 how well New Zealand did combating the virus, which also is credit to effective communications about public health risks and what people could do to protect themselves and others. Prime Minister Jacinda Ardern sent a clear message that everyone had a part to play in beating it: “We’re a team of five million.” She spoke to both individual and collective power to fight back against the virus and to both reason and emotion. She emphasized what works and the feeling of safety that comes with trusting both leaders and fellow citizens to do the right thing.

Societal taboos against specific risks, like depression and mental health, also make people more likely than they should be to ignore them. The emotion that piles up around confronting uncomfortable emotional truths becomes just too much for many people: emotion to the nth degree. I’ve seen over and over again how people refuse to recognize the dangers that go with putting off mental health issues. It may be getting harder to continue to ignore that risk, which hurts productivity and destroys lives. COVID-19 has drawn attention to the very real need to pay attention to the risks that depression and anxiety pose. In its smash global hit album “Be,” the Korean musical phenomenon boy band BTS put mental health solidly on the map as a pandemic-era risk in urgent need of attention. The single “Blue & Grey” described depression as an approaching gray rhino, alluding to how big and impactful yet too often ignored this common ailment is. The phenomenal response, breaking several industry records, spoke to just how much damage COVID-19 had done to people’s psyches because of the isolation and loneliness that came with quarantine, lockdowns, businesses forced to close, and livelihoods destroyed. BTS also illustrated how powerful alternative means of communication can be in getting people to talk about risks they might otherwise be afraid to acknowledge.

Tapping into the importance of balancing reason and emotion, combined with a sense of agency and understanding of what works to reduce risks, is a crucial skill for the future for every single one of us, for every company, and for every country. To be able to do so, we also need to understand risk at a much more intimate level: in our brains and bodies.

10

The Neurobiology of Risk

RISK ISN’T JUST in your head. It’s a physical experience, whether you’re about to bungee jump, sign a mortgage, seal a big business deal, pop the question, or go onstage. Risk-taking affects our bodies, which in turn affects our ability to deal with threats and make good choices about them. You might be surprised by how much your body controls your brain’s response to risks. Risk is tied to stress, thrill, anxiety, and worry, and the way risks unleash forces in our bodies and brains that scientists have only recently begun to understand. Did you know that when you eat spicy food, your risk tolerance goes up? Or that the music you listen to or the temperature of the room affects how you feel about a particular risk presented to you? Or that the smells wafting through the room can make you more or less amenable to risks?

Participants in a study by Nanjing University psychologists believed that people who liked spicy food were more likely to be risk-seekers. To test that theory, they designed a study and found that people who said they liked spicy foods indeed were more likely to be more comfortable with risks related to gambling, health and safety, recreation, and social, investment, and ethical decisions. Attitudes toward sweet, sour, and bitter tastes failed to show a similar connection. These findings reinforced other research that has found a strong correlation between liking spicy food and sensation seeking, which is closely related to risk-seeking. In this case, the stereotype turned out to be right: spicy food preferences do indicate how likely you are to take risks. No matter whether the study subjects liked spicy food or not, they were more likely to take more risks shortly after eating spicy food.

The researchers cited other findings that in Sichuan and Chongqing provinces of China, people view locals who like spicy food as “big-hearted, brave, and irritable.” Similarly, Mexicans stereotype fans of chili peppers as “more masculine.” And, in the United States, people associated chili peppers with risk-seeking activities like gambling and riding roller coasters. People who are used to eating spicy foods tolerate them better, so as they get accustomed to them and eat more, their risk preferences may indeed rise, at least for the few hours after they eat. Just like in other types of sensation seeking, hot spices take more and more intensity to create the same result. Reality thus suggests that the stereotypes associated with spicy foods are at least partly based in reality.

Many countries in hot climates are known for their spicy food: Thailand, India, and Mexico, just to name a few. The hot climate is thought to explain part of why spicy food is so prevalent in those countries. They can slow spoiling, which was important in the days before refrigeration was widespread. Spices also mask flavors of foods that may be going bad, which can stretch food further when it is scarce. So, paradoxically, spices both increase and decrease the risk of getting sick from food at the same time. Hot spices also make skin conductivity go up, causing sweating, and thus cooling off the body. The need for cooling makes sense in hot climates. But it may also explain how intense flavors affect risk-taking.

Among humans, cold exposure triggers a response in the periaqueductal gray, the mid-brain nucleus that plays a part in controlling motivation and behavioral responses to threats. When it receives cold signals, the periaqueductal gray releases cannabinoids and opioids to decrease pain perception and soothe anxiety, which in turn can increase risk-taking. Researchers studied the “Iceman,” Wim Hof, an adventurer who has trained his mind and body to withstand exposure to cold water. He meditates to generate expectations that the cold will invigorate him. In turn, this releases additional opioids and cannabinoids, which in turn activate the neurotransmitters serotonin and dopamine, which, as we’ll see, play an important role in risk decisions.

Among birds, low temperatures and high metabolic rates lead to more risk-taking. Ornithologists measured how small wren-like birds called great tits responded to the threat of a sparrow hawk lurking nearby as the great tits sought food. They found that the colder it was outside, the more risks the birds took to forage. The lower a bird’s basal temperature, the higher its risk-taking was, perhaps because waiting to eat simply was not an option.

Other environmental factors, like the music we’re listening to or the temperature, influence our risk sensitivities and behaviors. “We drive, shop, and walk differently depending on the music we are listening to at the time. As the musical tempo rises, our decision-making threshold lowers and as a result risk increases in almost every decision,” the cognitive neuroscientist Mariano Sigman wrote in his fascinating book The Secret Life of the Mind. “Drivers change lanes more frequently, go through more amber lights, overtake and exceed the speed limit more while driving as the speed of the music they are listening to increases.” Researchers have, in fact, identified fast-tempo songs that can lead to erratic driving. Green Day’s “American Idiot,” at 189 beats per minute, was considered the “most dangerous,” with other offenders including Miley Cyrus’s “Party in the U.S.A.” and Bruce Springsteen’s “Born to Run.” The volume counts too; loud music also has been shown to increase risky driving behavior, while softer, calming music or no music at all can make your ride safer.

This should come as no surprise, but how stressed, tired, or hungry we are also affects our risk behavior. Researchers have found that when strenuous mental or physical activity draws down the glucose levels in our brain, our capacity for self-control falls along with it. Of course, so then does our ability to make smart risk choices.

Fragrances also can affect our risk responses because the olfactory system connects directly to some parts of the brain involved with emotion regulation, and thus influences our moods and stress levels. Electrophysiological activity studies have found that aromas can affect blood pressure, muscle tension, pupil dilation, skin temperature, and pulse rate, all of which stimulate and respond to brain activity. Ylang-ylang oil, for example, can decrease blood pressure and increase skin temperatures. Orange aroma can reduce anxiety. Lavender has been shown to lower heart rates and skin conductance, while neroli (a citrus aroma) has the opposite effect. Fragrances that are seen as “masculine” or “feminine” also can kick in gender stereotypes and expectations that affect our risk decisions; recall the study mentioned in chapter 6 that found men who were asked to put on lotion with a flowery (i.e., “female”) scent made riskier choices than others.

What about smoking? The act in and of itself is a risk, but it also can affect our responses to risks because of the way nicotine triggers the brain’s pleasure centers by stimulating dopamine activity. W. Kip Viscusi and Joni Hersch of Harvard Law School found that smokers select riskier jobs than nonsmokers but get paid less for those jobs. They also found that smokers were more hazard-prone on the job than nonsmokers, even after controlling for different job risk levels, and took greater risks in other personal behaviors as well.

There is, of course, a chicken-versus-egg dynamic here. Do people smoke because they have higher risk preferences or are they more prone to risk-taking because they smoke? I suspect that it is both, in a mutually reinforcing feedback loop. Smoking also involves an interesting dynamic between short-term and long-term risk preferences, with smokers generally caring more about the short-term pleasure of smoking (and loss of that through quitting) than the long-term health risks. Trying to understand how to better approach addiction, a team of economists from the University of Cape Town, Georgia State University, and University College Cork in Ireland investigated the relationship between time and risk preferences of smokers and nonsmokers. They reviewed thirty-seven studies comparing smokers and nonsmokers who participated in lottery experiments involving real money and risk choices involving different time periods. Of those, twenty-nine confirmed the theory that smokers discounted the future more than did nonsmokers. Their study of student smokers and nonsmokers at the University of Cape Town found that the two groups did not differ in their risk preferences. However, smokers discounted the future much more heavily than did the nonsmokers; that is, smokers cared much more about the short term than the long term. (Ex-smokers were somewhere in the middle.) Among male participants in the study, the heavier the smoker, the more heavily they discounted the future; interestingly, light and heavy female smokers’ risk and time preferences were the same. Since smoking damages lungs over a long period of time, it seems reasonable to conclude that the long-term risk did not register as strongly with the smokers, who thus perceived the risk as being smaller.

A team of Israeli researchers contend that the link between smoking and risk-taking lies in the person’s ability to resist temptations. They cite a body of literature that similarly established a pattern of risk-taking by smokers. “For example, smokers tend to be more involved in traffic accidents, are less likely to wear seatbelts, and are more likely to engage in risky sexual behavior. In addition, women smokers report 12–15 percent lower rates of mammography checks than nonsmokers.” They also cited research demonstrating that smokers scored high on “risky” personality traits: impulsivity, psychoticism, defensive optimism, and sensation seeking.

Whether cigarettes, spicy foods, smells, the tempo of the music in your ears, or the temperature in the room, all sorts of unexpected influences act on our brains and bodies in ways that subtly change how well we avoid threats or seize opportunities. Being aware of the neurobiology behind your risk decisions can help you to take control and make better decisions. It also can help you to predict and perhaps even influence the risk behaviors of those around you. Want your boss to say yes to that big new project or give you a raise? Have that conversation over Thai food for lunch at a restaurant where the music is upbeat, ask the staff to turn down the thermostat, and order a big side of hot peppers.

THIS IS YOUR BRAIN ON RISK

Our brains often register risks before we are conscious of them, the trader-turned-neurobiologist John Coates has argued in his superb book about how our bodies respond to and shape our reactions to risk, The Hour Between Dog and Wolf. Coates and his colleagues studied stress hormones in a group of traders to see how high volatility and losses in financial markets affected them. Not surprisingly, they reported, “Traders’ stress hormones were remarkably sensitive to uncontrollability in their trading results, and to uncertainty and volatility in the market.”

But when the team asked traders to fill out a questionnaire evaluating their stress levels, there was a huge gap between how stressed the traders said they felt and what their hormones suggested. “[T]he traders’ hormones seemed to register risk far more accurately than did their opinions.” Coates theorized that the traders were drawing on gut feelings and preconscious processing, not on active understanding, when they traded.

Your senses transmit indicators to your brain before you are even aware that a risk is rising. Stress and panic prompt the locus ceruleus, located in the brain stem, to secrete the stress hormone noradrenaline and increase your awareness. This sets off a chain reaction of increased activity in other parts of the brain, like the hypothalamus and amygdala, which handle our emotions and risk attitudes. Similarly, the ventromedial prefrontal cortex (vmPFC) is crucial for reward processing and decision-making in risk decisions. Researchers found that patients with lesions in the vmPFC region were more risk-seeking in emotionally charged situations.

Brain centers—particularly the “fight or flight” center, the amygdala—respond to risk by triggering stress reactions: heart rate variability, sugar regulation, rising skin conductance, and changes in digestion. The real action comes from a set of hormones, chemical messengers in our blood that all kick in to control our bodies and brains in the face of risk: dopamine, serotonin, testosterone, estrogen, the short-acting adrenaline, the long-term stress responder cortisol, and the pleasure responder ghrelin.

The common term “adrenaline rush” describes the physical results of excitement. As your adrenal glands release this hormone, it increases your pulse rate and, in turn, blood circulation and breathing. It also affects how your body processes carbohydrates. Adrenaline comes into play in immediate, short-term stress situations. Its cousin, cortisol, builds up during long-term stress. Cortisol at first helps us, but too much for too long will create anxiety, oversensitivity—a “Chicken Little” effect—and risk aversion. Coates suggests that cortisol is “the molecule of irrational pessimism.”

Cortisol’s opposite, serotonin, sometimes known colloquially as the “happy chemical,” is a neurotransmitter you may recognize from its role in many antidepressants. It’s best known for contributing to our mood and sense of well-being. But it also plays a role in learning, memory, reward anticipation and response, appetite, sleep, and libido. Serotonin affects physical functions like vomiting, bone health, blood clotting, and the constriction of blood vessels. Most of your body’s serotonin lies in your digestive tract. It thus explains the expression “gut reaction,” reflecting the connection between the brain and the digestive system. A study of serotonin levels in monkeys suggested that serotonin is closely linked to risk-taking; lower levels made risky options more attractive, and vice versa. This suggests that compulsive gamblers who keep betting when they are losing may suffer from low serotonin. It also raises interesting questions about how the millions of people who take antidepressants that affect serotonin uptake might be silently changing their risk decisions and behaviors.

When the brain associates a particular stimulus with pleasure, it then pushes us to act when it anticipates a new reward. Another neurotransmitter, dopamine, acts during this process.

All of them work in concert to shape our risk decisions. Scientists are still working to understand these dynamics better and to improve ways of tracking our physiological reactions so that we can master them when we face risks. “Someday we will be able to listen to our bodies and the subconscious regions of our brains and heed their warnings,” Coates wrote.

GENDER HORMONES AND RISK

While many of the influences on the neurobiology of risk come from the world around us and the skills we develop to master our responses, some of them lie deep within the genetic code. Genetics’ biggest influence on risk likely lies in the X and Y chromosomes: in other words, whether you are a man or a woman, an accident of birth. We’ve already seen that the relationship between gender and risk is not simple. But gender hormones definitely play a role. In the debate over gender differences and risk-taking, researchers have homed in on hormones, particularly testosterone, which some researchers have called the “hormone of irrational exuberance.”

High-testosterone CEOs take both more “good” and more “bad” risks: their companies show higher profits, but also more malfeasance like financial misreporting. Some research has shown that higher-testosterone day traders and high-frequency traders perform better than lower-testosterone counterparts. But those studies focused on a specific subset of investment that rewards taking higher risks, when fund management styles span a range of approaches and time spans.

In a broader study of fund managers, which involved a range of investment types over more than two decades, researchers at the University of Central Florida and Singapore Management University concluded that male traders with higher testosterone levels were more likely to take risky bets, more reluctant to sell losing stocks, more likely to buy and sell frequently and to disclose violations—and end up with worse returns overall than lower-testosterone managers. Using facial structure as a proxy for testosterone (wider faces correlate highly with testosterone levels) to categorize fund managers, the team found that high-testosterone managers returned 5.8 percent less annually, after adjusting for risk, than did lower-testosterone managers. The high-testosterone managers also were 13 percent more likely to report violations when making mandatory activity reports to securities authorities. Using wider faces as a proxy for testosterone levels, researchers found that higher-testosterone traders tend to trade more frequently, invest in riskier securities, and hold onto losing bets longer than their lower-testosterone counterparts. Between 1994 and 2015, they found high-testosterone underperformed low-testosterone fund managers by nearly 6 percent per year.

GENETICS OF RISK

Despite the recognized role of genetically determined hormones, overall genetics likely plays a smaller role in risk behavior than you might think. A study published in the scientific journal Nature Genetics, drawing on more than one million records in twelve different genetic databases, identified 124 different genetic markers, located in 99 different areas of the human genome, that affect our risk personalities. Yet they are not enough to predict your risk behavior. “The most important variant explains only 0.02 percent of the variation in overall risk tolerance across individuals,” said senior author Jonathan Beauchamp, an assistant professor of economics at the University of Toronto. “However, the variants’ effects can be combined to account for greater variation in risk tolerance.”

Researchers from the Social Science Genetic Association Consortium (SSGAC) led an international team that estimated that genetics accounts for only about 1.6 percent of the differences in people’s willingness to take risks. They studied the 124 genetic variants associated with people’s tolerance for risks like automobile speeding, drinking alcohol, smoking, and number of sexual partners. Of those markers, 99 affected general risk attitudes; the others involved more specific traits. The genes affected other neurotransmitters including glutamate, which produces excitement and is associated with learning and memory, and GABA, which helps to control anxiety and reduce stress reactions. Both naturally affect how we respond to risk.

Some evidence suggests that the receptor gene for dopamine, the reward-related hormone discussed above, plays a part in how we respond to risks. Located on Chromosome 11, this gene (DRD4) affects the release of and the brain’s uptake of dopamine. Some studies show that people with the easy-absorption version of the gene, known as 7R+, are less sensitive to dopamine, and thus may need more risk stimulus to feel the same amount of pleasure. Others require larger amounts of dopamine to absorb the same amount. However, the research is contradictory on this point and on how genetics affects our risk relationships.

A 2011 Harvard Kennedy School study tested how DRD4 affected how 237 serious tournament bridge players reported their general risk-taking behaviors, including smoking and drinking, how much they invested in stocks versus bonds, and whether they had ever started a company. The team was surprised to find no correlation at all. “Perhaps part of the explanation is that as national bridge championship participants, these subjects were expert and experienced risk-takers,” the authors suggested. They were surprised at the results given that other researchers had found some evidence of correlations. Three studies involving gambling for money found a link between monetary risk and DRD4. This work suggested that people whose brains were less sensitive to dopamine were more risk-seeking. One of those studies, however, found a correlation only with the behavior of men, but not women. Two studies showed no correlation at all. And a fifth study showed contradictory results: People with the less-sensitive genes were less likely to be risk-seeking, except in situations when the probabilities are uncertain and when the task is framed in terms of losses rather than gains, in which case they are more risk-seeking. Clearly, there’s more research to be done.

The Canadian high-risk sports specialist Cynthia Thomson and other researchers have established a link between the DRD4 dopamine receptor gene and participation in activities considered to be risky, like snowboarding and skiing. But exactly how DRD4 operates may not be in risk-seeking nature and impulsivity; it may be more in the skills building, determination, and practice needed to build physical strength and skills.

“The media portrays high-risk sports people as being reckless, as being adrenaline junkies who are out to get a high no matter what,” Thomson told National Geographic. “But what I found is that my high-risk sports group, they’re not impulsive. They’re not reckless. Compared to my low-risk group, I found no difference in impulsivity.” This demonstrates the powerful results when we combine physical and mental conditioning with practice and preparation, which together act to objectively reduce the risk at hand.

LEARNING FORWARD

The way our brains learn—particularly how they process and anticipate rewards—also determines how well we handle risk. Gunnar Newquist uses his knowledge of the brain to develop ways to optimize our risk decisions. He understands risk-taking both firsthand, as a musical virtuoso, extreme skier, and motocross racer; and as a neuroscientist and machine intelligence entrepreneur. As a skier, he jumped off of a nine-story building and a record-setting 130-foot cliff in California. Like many so-called extreme athletes, he is not so much a risk-taker but rather more of a risk manager. “I looked at that cliff at Squaw Valley and the building for four years before I did the jumps. So, it wasn’t just a snap judgment thing,” he told me. “I never skied anything blind. I always looked at everything first and understood the snowpack. I thought I was in probably a little more control than I had, but I managed the risk by starting with small pockets of danger, with a lot of safety around, and gradually built up.”

When Newquist pursued his doctoral degree in neuroscience, focused on how the brain learns, he began to see the risk choices he’d made in a whole new light. When he prepared for a jump, he had not just been learning the technical side; he had been training his brain to make good risk choices. That led him to a more nuanced view of how dopamine works to influence risk choices, and in turn how we can make that “reward” biochemical work for us. “When most people talk about learning, they think of a specific event when you do something and then you get a reward for it so you do it again. I don’t think that’s true at all,” he said. He sees dopamine as more of a reward predictor that helps people to anticipate what might come, propelling people into a state of mind that pushes them to do whatever it takes to achieve that goal. “It’s not a reward and punishment system anymore. I think it’s something more general, more of a change signal.” In other words, if people want to change their risk behaviors, they need to create new risk-reward pairings that will break them out of whatever cycle they are in.

Newquist recommends aligning your habits and environment to trigger the optimal dopamine response: that is, the social groups that enable or discourage certain behaviors, the warning signals you watch, the steps you take to achieve your goals and obtain the things you desire. “You don’t learn one particular behavior from dopamine, you learn to adjust your whole system,” he said. “It’s not just one behavior, it’s a suite of behaviors as you’re thinking about how to anticipate using a whole suite of things that you can do,” Newquist said. “You’ve got to look at the whole structure and the whole behavioral repertoire that changes to really understand what’s going on.”

Creating a supportive environment for making good risk decisions might involve changing the lighting or colors around you; choosing a job with a supportive boss and peers; making sure that you have a full stomach or have enough sleep; or making sure the temperature is comfortable. This approach to risk is more holistic than one you might normally take, but it is very much in keeping with the core lessons in this book: that the risks you take are bigger than just the risk but rather the product of many influences that you have the power to shape.

BEHAVIORAL TOOLS TO MANAGE YOUR BODY’S RISK RESPONSE

By being aware of the physiology of risk, we can train our nervous systems to better manage it. We can also create environments and systems to better match our risk strengths and weaknesses. To start, the simple act of acknowledging stressors and checking your reaction to them gives you a feeling of control; if you pay attention to those indicators and act on them, you’ll have not only the sense but some degree of actual control. Mindfulness practice and breathing exercises can change your heart rate, blood pressure, and even skin temperature.

The performance coach Steve Ward specializes in working with traders but has also worked with poker players and athletes: three categories of risk-takers. He helps them to understand how their physiological state, which is affected by stress and fatigue, affects their performance, and to make a habit of tracking data like heart rate variability to help them to get themselves to the best state possible. “If your physiology is out of whack it’s hard for you to work effectively,” he told me in a phone call from London. “Sleep well, eat well—you know that. But when you see the data it’s more impactful.”

He encourages them to keep tabs of how they feel physically and mentally each morning, after a big win or loss, and when they feel they might be run down. “As heart rate variability goes down—that is, as stress and fatigue increase—we see greater levels of risk aversion as the body is in a low energy state,” Ward said. “When people do take risks in that state, they are more likely to make suboptimal decisions because they are not as alert or as rigorous in evaluating risks. They might trade too much or too little or make bad bets.” Conversely, the higher an individual’s heart rate variability is, the more risks they are likely to take. He recalled one trader who was in the “red zone,” where stress and fatigue were maxed out: “He traded less and made less money.”

In order to manage risk more effectively, Ward urges people to pay more attention to their bodies. Over time, chronic stress increases cortisol levels and makes traders more risk-averse. Short-term stress, like a bad trade, can lead to excessive risk-taking. Fatigue can lead traders to be less active—which can mean fewer trades overall, whether good or bad. When they recognize the physical warning signs of stress and fatigue, Ward recommends that they use that information data to confirm or adjust their assessments of their physical and mental state. Then they need to do something to change it. “If their numbers are lower, there are actions they can take to give themselves a bit of a boost,” he said. This may involve going for a walk, using guided breathing, or hooking up to a biofeedback machine. “It’s about increasing awareness of their physical and mental state in decision-making and risk-taking so that they are not to a slave to that state,” Ward said.

Scientists are developing a new generation of tools that can make stress measurement even more sophisticated. The California-based neuro-informatics company, EMOTIV, makes headsets that monitor brainwaves and can help to warn you when you’re too distracted or distressed to make good risk decisions. EMOTIV president Olivier Oullier recommends that you measure when you are distracted or stressed. This allows you to predict when you are going to make mistakes. These headsets are being used to help monitor state of mind for traders or workers in high-risk situations—like heavy industry or chemical manufacturing—in real time and even prevent computers or machines from switching on if workers are not in the right state of mind to make good risk choices.

THE POWER OF PRACTICE

A longer-term approach to managing your physical response to risk involves conditioning your body not to respond to stresses. There are two ways to do this. The first is to practice until an activity becomes second nature. The second is to focus on reimagining stressful situations while focusing on your physiological reactions and concentrating on reprogramming those reactions.

The more you practice, the more you move your brain activity from Kahneman’s deliberate, complex, rational System II to the automatic, instinctive, seemingly involuntary System 1. Because there is less activity required to make a decision, the less stress there is. You get the benefit of System II thinking, which conditioned your response, along with the speed and simplicity of System I. It’s like the way a trained muscle works: the same effect with less strain.

Your goal should be to build up this risk decision muscle by practicing skilled anticipation. One study of brain scans of people playing the video game Tetris, for example, showed much more activity as people were learning the game. As actions became second nature, there was much less activity in the brain cortex. And of course, the more players had practiced, the better they got.

The same goes for trading. John Coates and the behavioral economist Lionel Page tracked groups of traders over their careers by looking at their Sharpe Ratios, a measure of how much money they made adjusted for how much risk they took on in the process. It’s sort of like comparing a slow-but-steady tortoise and erratic hare who get to the same place at the same time. The best traders in the study had earned much better risk-adjusted returns (i.e., they had higher Sharpe Ratios than did indexes for the same asset class). Coates and Page concluded that this was not just dumb luck, but skill. “We found that the experienced traders who consistently made money, even through the credit crisis, were ones whose Sharpe Ratios had risen over their careers,” Coates wrote.

In a similar vein, a study that tracked the psychophysiological reactions of foreign-exchange and derivatives traders, the less experienced traders reacted much more strongly to stressful market events than did the more experienced ones. “Years of automatizing apparently enabled seasonal traders to react calmly to dramatic events that send a novice trader on an emotional roller coaster,” the neuro-economist Colin Camerer wrote about the study.

Tracking the mind-body connection through biofeedback is not just helpful for understanding how experience shapes reactions to stress. It is a powerful tool for reconditioning those reactions. Brett Steenbarger, a psychologist who works closely with traders, has argued convincingly that relying on biofeedback information is a best practice for three purposes: relaxation, concentration, and controlling reactions to exposure. Traders can use a biofeedback monitor to track their body’s responses while they mentally rehearse problem patterns, concentrating closely on controlling their physiological state—lowering their heart rate, muscle tension, brain waves, or skin temperature, for example. In the process, they ultimately can succeed in reprogramming their physical reactions to stress.

“When we care about an outcome that is uncertain—and especially when we perceive a threat to that outcome—our bodies mobilize for action, with adrenaline pumping, muscles tensing, and heart rate accelerating,” Steenbarger wrote on his blog. “That is an adaptive response for dealing with physical threats, such as avoiding an oncoming car, but often gets in the way of careful, deliberate action when the threats we perceive are coming from the trading screen. It is ironic that, just as we most need to be grounded in the rational activities of our frontal cortices, we typically activate our motor areas and risk acting before thinking.”

The dopamine rush and other chemical reactions that comes with risk-seeking can be addictive. That’s why it’s important to make decisions when you are calm, if possible: well ahead of time, before a situation gets to panic stage. If you are stressed, take some time to recover.

Keeping a cognitive journal can be a useful supplement to biofeedback practice. The mere act of recording what situations are stressful, how you felt in that situation, what you did to respond, and what you felt afterward is powerful. It confers a sense of control, which even if merely an illusion, builds our confidence in our ability to make good risk decisions.

CREATING HABITS

As a high school student, Kashfia Rahman noticed her peers’ risky choices: eating Tide Pods in response to viral online challenges, driving dangerously, experimenting with illegal drugs, or having sex. What really puzzled her was why some students could excel in school but still take so many careless risks in other parts of their lives. To try to understand why, she explored research that showed kids between thirteen and eighteen years of age are more comfortable taking risks than adults. But she knew that not all teenagers were the same. She couldn’t stop wondering: Why do some teenagers take more risks than others?

Rahman read about teenage brains still being malleable and wondered how this risky behavior affected their decision-making processes, especially because it had the potential to last their whole lives. She also read about what psychologists call “habituation,” under which repeated exposure to risks could blunt people’s emotional reactions to those risks—in other words, getting used to things can make you blind to dangers. She fretted as she noticed that the more risks teenagers took, the more comfortable they became with more and more dangerous behaviors. As they took risks successfully, they would feel less fearful and guilty. Her worries about her peers inspired her to delve deeper and find out more about them. In the process, she learned more about herself.

The daughter of Bangladeshi immigrants in a very homogeneous town—Brookings, South Dakota—Rahman already stood out from the other students. She also quickly found that her high school was not set up to encourage students to do the kind of research she had in mind. But she found a couple of teachers willing to coach her as best they could. Using allowance money that she had saved up, she bought an EMOTIV electroencephalography (EEG) headset to track brain activity as her peers made choices in a risk simulation.

She asked fellow students a series of questions about risk choices, and then repeated the experiment to see if they made different decisions once they had more experience. In the first run-through, they experienced the emotions you might expect from people taking risks: fear, stress, guilt, nervousness, and high levels of attention. “This curbed their temptations and enforced self-control, which prevented them from taking more risks,” she noted. “However, the more they were exposed to the risks through the simulator, the less fearful, guilty, and stressed they became. This caused a situation in which they were no longer able to feel the brain’s natural fear and caution instincts.” In other words, as her fellow students took risks without experiencing negative consequences, they indeed became more likely to take risks. It was exactly what she had feared.

Rahman submitted her research to the 2017 Intel International Science and Engineering Fair, where she not only won top honors in the behavioral and social sciences category but also recognition from the National Institute on Drug Abuse and the American Psychological Association, and as a Google Science Fair finalist and a Regeneron Science Talent Search scholar. A National Geographic documentary that featured her got the attention of curators who invited her to give a TED talk. I met her at a TED Salon in New York City. Though soft-spoken, she lit up the stage when she started speaking about her research. She was in her freshman year at Harvard University and had arrived late because she had to take a midterm exam before heading to New York.

Rahman certainly learned a lot about how her peers found themselves tempted by dangerous risks, but the most compelling lesson was how important it is to take “positive” risks: following a path where it’s not certain you will succeed, but where the goal is to seize an opportunity instead of taking the kind of risk where the goal is to survive and get a dopamine rush without something bad happening.

Her next passion project is trying to see if taking positive risks can help young people to enter adulthood being comfortable with taking these good risks: not just following the path laid out for them but exploring what moves and excites them and taking risks for the sake of what they care about.

PUTTING WHAT YOU KNOW TO WORK

Our mental and physical biocircuitries are fundamental parts of our risk fingerprint, like the ridges along the whorls that create a distinctive stamp. While we cannot alter those any more than we can change our underlying personality, physiology, and the experiences that have shaped us, tracing them can help us to better navigate the intricate maze behind our risk responses.

You can learn from your experiences with risk and improve the odds of making good decisions, just as veteran traders do. Just like with other physical functions, practice and use makes your risk muscle stronger. As in more traditional fitness training, measurement can be a powerful tool in your risk fitness regimen. Personal tracking devices and apps already let you track your heart rate, steps, and other physical activity, and even your brain waves. Many of these will help you with guided breathing, meditation, and other exercises that help you to control your heart rate and stress level. These devices both help you to track your physical state and to reward yourself for good behavior. Every time you hit a target you get a little dopamine rush. And the more of a habit you make of optimizing your body’s responses, the easier it gets.

Tests that monitor physiological changes like hormone levels, glucose and sodium levels, and other indicators, can give you helpful information, but are too invasive to be used on a day-to-day basis. Brain wave technology, however, works in real time, and already is advanced enough to help you make immediate changes to put you in top shape for making risk decisions.

Just as important as tracking your own internal physiological state is paying attention to the environment around you, which can either prime your body and mind or make it harder to make good risk decisions. Do you have the right job to fit your risk fingerprint, combined with a boss and peers who work to lift each other up instead of browbeating and dragging each other down? Do the people around you raise your blood pressure or reassure you? Is the room you are in poorly or well lit; too warm, too cold, or just right?

Making good risk decisions depends on keeping your brain and body in good shape. When you pay attention to the feedback loop between stress, hormones, and risk behaviors, you can design an environment that helps you to improve your physical and emotional responses to stress and uncertainty. Being aware of your stress level and how your physical environment adds to or ameliorates it gives you important clues to whether you’re likely to be at your best for making risk decisions or if you’re being pulled toward or away from questionably aggressive or passive approaches.

11

Risk and the Future of Work

WHEN MY FRIEND Michael—a Gen Xer like me—got dressed for his first interview for an important consulting job, he put on a clean pair of pants and matching blazer with a T-shirt underneath. It was a clean, fashionable, even trendy T-shirt, with no tears or messages or pictures that people might take the wrong way. But it wasn’t the dress shirt and tie most people would have chosen. And this was in the late 1990s, before the technology boom made business casual—and even casual casual—more common in work environments, and formal business wear could get you laughed out of some interviews.

The man interviewing Michael asked him if he knew he was taking a risk with his wardrobe choice. Michael answered that in his mind, he hadn’t taken a risk because, in his view, “A risk is the possibility of an unwanted outcome.” You see, Michael wanted to work someplace he knew he could be himself. So if the company didn’t take him as he was, he didn’t want the job. They hired him.

Michael’s attitude wasn’t typical for the time, but today millennials and Gen-Z job applicants might not even bat an eyelash at his attitude. As we saw in chapter 4, recent generations think differently from most Gen Xers and Boomers about what they want in a job and the company they work for—and if they don’t like it, they see the risk of staying and stagnating as bigger than leaving. They also are more likely to be interested in creative or tech jobs where business formal would be off-putting, than to the staid finance, law, or consulting that my classmates were more likely to pursue.

Millennials’ logic is not the old one that too often involves gritting your teeth in a job you’re not crazy about because it’s the expected price of rising up the corporate ladder to better jobs. The new mentality is grounded in knowing what you care about and taking the risks you need to achieve it. That means defining risk differently. In my friend Michael’s view of a risk as the possibility of an unpleasant outcome, the thing to avoid is a job you hate around people you’d rather not be around. In other words, the risk is not losing that job. It’s being stuck in it.

This new approach is tailor-made for an uncertain world. As we saw in chapter 8, a sense of purpose can act as an anchor when it seems like everything is in upheaval. And in chapter 9, we explored how our risk perceptions and attitudes change depending on how much control we have over a situation. We can’t control much in the crazy world around us. But we can control the choices we make. This may explain another trait common to younger generations: the desire to take on a leadership role.

Seven in ten millennials aspire to be CEOs, according to a 2017 American Express study. The training consultancy VirtuAli, working with the human resources membership organization Workplace Trends, found in a 2015 study that more than nine in ten millennials seek more broadly defined leadership roles. I see these aspirations as a way to feel more control over their careers and workplaces. What might seem to some to be a risk-increasing strategy is actually a way for younger generations to feel that they have some control over the risks around them.

While she was a junior at Claremont McKenna College, Yoana Sidzhimova organized a career workshop for aspiring financial professionals in Chicago, where she was astonished by how few of the participants wanted to work for big corporations, the kind of path that would have been considered a “safe” job when I was their age. Several months later, Yoana made a tough decision, using a thought process that weighed risks very differently from the way I had learned when I was her age. In the way that she mixes some very conservative habits with taking some seemingly big risks, Yoana said that her methodical approach to decisions resembled that of her Bulgarian parents whose memories of the Soviet era cast a long shadow after the family moved to the United States in 2005. Preparing for a career in finance, she had been testing her own risk tolerance by investing in penny stocks. In the process, she learned a lot about herself—above all that she was most comfortable starting any new endeavor with small steps and a support system around her. She saw risk as a positive thing, but she wanted to set herself up for success. That required a team of confident, trustworthy colleagues. “The only way you can succeed is if you all trust yourselves,” Yoana said. “Take a lot of risk as a team and make and keep a return. That’s the kind of risk I can take and get behind.” Like so many of her generation, she’s better characterized as risk-savvy than risk-averse.

The decision she’d just made was whether or not to spend a semester abroad. “I had a six-month conversation with myself over the risk of not focusing so much on where I would end up,” she told me. “I realized that I needed to be focusing on mental health and happiness versus just a job. It’s better for me to get a break instead of burning out.” With her priorities in mind, she learned to better plan how much time she had committed to various things versus how many hours there were in a day or week. She gave some serious thought to what was most important. Improving her language skills and getting experience abroad were an investment in her future. The process gave her clarity: “It made me realize there was more of a risk in staying,” she said. “I don’t want it to be something I regret.” It became obvious that the semester abroad was the right decision for her.

I wish that I’d been able to analyze risk this way when I was Yoana’s age. She had wisely realized that taking a step back was by no means slacking off, but rather a good way to focus on what she really wanted. We talked again after she’d spent the fall of 2019 in Milan, Italy, and finished her junior year back in California, grateful that she had gotten home before the pandemic started. She also wisely had secured a summer internship before she went abroad in order to be able to take full advantage of the semester, and so spent the summer of 2020 in an investment banking internship on a small team analyzing technology companies from software to travel tech to auto tech. At the end of the summer, they offered her a two-year job that will be waiting for her at graduation in spring of 2021—a good mix of stability and challenge that will allow Yoana to push herself professionally before she decides again what the next step is.

THE CHANGING NATURE OF WORK

Expectations of work are changing, not just because of the attitudes of younger generations but because of the nature of work itself. With the advance of automation, artificial intelligence, and other technologies, this Fourth Industrial Revolution is making risk skills essential to the career decisions each person makes, and to companies’ recruiting, benefits, and retention strategies. Technology is changing so quickly that our assumptions must constantly evolve about what humans should do and what machines should take over.

Experts predict that as technology reshapes the workplace, machines will do more and more of the repetitive, routine, predictable tasks, which often are the ones that bore humans. Machines also will do more of the jobs considered “risky,” a trend that COVID-19 has accelerated as companies rush to bring in machines that can minimize human contact and the potential for infection.

In turn, the most successful careers will involve the kinds of skills that humans possess but machines do not: strategy, empathy, teamwork, innovation, creativity, and the ability to deal with unpredictable situations. Research shows a close link between innovation, creativity, and comfort and our ability to manage uncertainty. Empathy and teamwork depend on seeing others’ points of view and incorporating them, which can be challenging for people who feel they must try to control everything instead of seeking and embracing input and support. Developing and launching a strategy is an exercise in risk-taking. In other words, every single one of the skills of the future is tied closely to our ability to manage change, uncertainty, and risk.

This new reality upends one of the biggest risk decisions young people and their families make: what skills to invest in as they pay for an expensive education and choose a career track. As technology advances ever faster, technical skills become obsolete just as fast. This shifts our most basic assumptions about what people should study and when.

Governments, schools, universities, and students themselves must find ways to make sure that rising generations of workers learn the knowledge and emotional skills they need. This means pulling down outdated educational structures built over decades and replacing them with new ones more suited to our economy and society. This will be especially challenging for countries that have tighter restrictions on students changing their course of instruction, or whose cultures look down on career changes. In the future, the ability to switch careers and acquire new skills will be the biggest advantage anyone can have to succeed in the new economy, no matter if they are working for companies or for themselves.

New technology platforms already have upended the way people match their skills to companies’ needs, changing how and for whom we work. In wealthy countries, more and more people are working for themselves instead of companies, while those who work “for the man” are spending less and less time in those jobs. For people who are comfortable having more options and more control, this is great from a risk perspective. For people who like stability and security, not so much. For both groups, the shift of risk onto individuals from companies is problematic.

How will individuals, businesses, and policy makers adapt to accommodate this new world? It will take new education systems that provide people with professional skills alongside the risk skills they need in order to thrive. It will take building new systems and resources to support healthy risk-taking by entrepreneurs and gig-economy workers in both the formal and informal economies. It means asking hard questions about how societies can maximize productivity for all workers, not just those in traditional legacy companies but also what increasingly is known as the alternative workforce: contractors, freelancers, gig workers, solopreneurs, small business owners, social enterprises, crowd workers, and microbusinesses. The answer lies in the risk ecosystems and umbrellas that policy makers, businesses, and communities create.

RISK AND THE ALTERNATIVE WORKFORCE

Somewhere under half a percent of the global active labor force participates in the gig economy, most of them treating it as a supplement to their main income, according to an estimate in the World Bank’s 2019 World Development Report. That number may be even less than three-tenths of a percent in developing countries where access to technology is limited. In 2017, more than fifty-seven million Americans—above one third of the labor force—worked for themselves instead of in traditional jobs, a number that doubles each year and is expected to be a majority by 2027, according to a study by Upwork and Freelancers Union.

Platforms like Upwork, Fiverr, Airbnb, Lyft, and Uber have enabled the new freelance-based, technology-enabled “gig economy,” even as traditional companies have cut back on the benefits they offer workers and turned to machines and algorithms to do work that humans once did. Many people fear being thrown out of obsolete jobs and cast into the gig economy whether they like it or not. Some fall victim to learned helplessness and their worst fear becomes reality when they lose their jobs and have no choice but to freelance. Others develop side hustles as a way to insure themselves against job uncertainty.

This new workforce sees risk and uncertainty very differently from workers in traditional jobs; they are both more attuned to risks and better prepared for them. A solid majority of freelancers prefer to build their own diversified client portfolio instead of putting all their career eggs in the basket of a single employer. Increasingly, people are working for themselves by choice. Research shows that many freelance workers consider it less risky to have a diversified stream of income they can control. They do, however, remain concerned about income predictability, as 63 percent dip into their savings at least once a month. Despite short-term worries, they are more future-oriented than traditional workers. More freelancers, 55 percent, said they were concerned about the potential impacts of automation, compared to only 29 percent of traditional workers; 68 percent expected their industry to be changed by robots or automation, versus 34 percent of full-time non-freelancers. The workers who thrive in this new economy will know how to create a sense of security for themselves. They prepare for the future by keeping up with the skills they will need and investing in themselves. More than twice as many freelancers as non-freelancers took skills-building courses in the six months before the survey was conducted.

A bigger challenge is how to replicate for freelancers the support structure of services and skills that big corporations have in house, which gives traditional employees the confidence that they can get the answers and help they need. Even without that, freelancers and solopreneurs are becoming more and more confident. More than half—53 percent—of workers surveyed by the workforce consultancy MBO Partners in 2019 reported that they felt more secure working independently than in a traditional job, up from 32 percent in 2011. These independent workers also saw the riskiness of running their own businesses as significantly lower than did employees in traditional jobs. Consistent with what we’ve seen so far about the difference in risk perceptions between so-called “risk-takers” and those who make more conservative choices, independent workers perceived risk very differently; in their minds they are less likely to see themselves as taking a bigger risk, especially once they’ve made the leap.

In the same survey, independent workers were somewhat less likely (38 percent versus 48 percent) than traditional employees to say they were paid well, but were more likely (69 percent versus 66 percent) to report being satisfied or very satisfied with their income, and 3 percent less likely to report being dissatisfied.

SMART SKILLS FOR THE FUTURE

“There is a lot more risk today whether you are an employee or a freelancer,” Sara Sutton told me. Sutton is the founder and CEO of the job search website FlexJobs, which specializes in remote, part-time, flexible, and freelance jobs. She started the company in 2007 not long after she was laid off, at eight months pregnant, from a senior position at a start-up. Job searching with a baby belly was challenging at best. Even more important, for the baby’s sake, she wanted to find a flexible job she could do remotely. At the time it wasn’t so easy to find freelance and remote jobs as it is today. As an entrepreneur who had successfully started and sold a company before, she formed FlexJobs as a way to solve her own problem while helping the many others she knew must be struggling with similar challenges. Her expertise has been in high demand since COVID-19 struck.

Workers in the future will need new skills, she says: both the specific “hard” technical competencies and training required to perform a job, and “soft” skills involving relationships, teamwork, and strategy. Staying current on hard skills requires investing time in education and training and pushing yourself to learn new things. “You’re likely to have to get a new job, so you can’t just rest on the skills you have as a solid base. You have to continue to push yourself to learn more, and strategically pay attention to the new skills areas that will be in demand,” Sutton said. “For some people, this involves trying to even mentally envision what pushing yourself out of your comfort zone means.”

She sees adaptability and flexibility as being high on the list of skills of the future, along with social intelligence, collaboration, leadership, and critical and complex thinking—the ability to connect dots in creative and multidimensional ways. Key steps to take include setting up a support system and taking responsibility for expressing your needs. “Your community and support network are going to become more important, finding kindred colleagues, other freelancers, friends,” Sutton said. “You’ll need the ability to communicate challenges to others and learn: That is, empathic learning.” (We’ll delve deeper into risk empathy in chapter 12.)

Our communities reduce risk by giving you the feeling that people will have your back. Remember how we saw in chapter 7 that collectivist cultures often can manage change and handle risk better than individualist ones? The most successful workers of the future will benefit from building and integrating into those kinds of ecosystems. In fact, coworking spaces already have begun to provide communities where people can easily identify knowledgeable people they trust and turn to them for advice, recommendations, and referrals.

During the pandemic, I was impressed by how Deskpass, a network of coworking spaces around the world, provided those community-building services virtually. I met cofounder Nicole Vasquez in 2015 shortly after she founded The Shift, her first Chicago coworking space, which she always described as building a community above building a business. I found my website designer and host there, along with a great printer and a network of friends who shared useful professional connections from their networks as well.

Vasquez’s own journey helped her to learn what was most important to her and what she needed to get there, and to provide that to others. “I always thought I would get a job, rise in the ranks, and become CEO,” she told me. She was lucky to get chances early in her career to work closely with owners and get a wide range of experience and skills: marketing, operations, financial, legal, and sales. She earned an MBA—racking up $90,000 in student loans to do so—while working a full-time job. At twenty-five, she got a promotion and a wake-up call. Her boss was supportive but honest to a fault. Though she chose to work from 7 a.m. to 7 p.m. to get ahead, he gently suggested that she not push herself so hard because she already was the youngest person to be promoted to management. Given that everyone at the next level up was at least fifteen years older than she was, it would be a long wait until her next promotion so all of her effort likely would be in vain. She began to feel trapped in a gray-cubicle world where she wasn’t able to use all of her abilities. She moved to a sales and marketing job, where many clients were demanding and rude. “They would yell at me, demean me, and then hit on me,” she said. While on the job, she frequently found herself working remotely between meetings with clients, bringing her laptop in her car and parking near coffee shops to use their Wi-Fi. Somewhere in the middle of this she realized that the job path she had always thought was the “safe” one was not exactly so safe and definitely not the right one for her.

Vasquez finally left to start her own coworking business, confident that even if it didn’t work out, she had an MBA, a supportive family, and a great network. They were her risk cushion. The first year and a half, she didn’t pay herself a salary, thanks to the savings she had stashed away. The next two years, she scraped by. “The biggest risk is making it through that fire,” she said, referring to the bootstrapping phase. She did it by tapping into two sets of skills. First, she drew on a network of people who were on similar paths, asking them for advice and sharing referrals and insights and invaluable encouragement and moral support. “We were all in it together, give and take. It’s like a spiderweb that has grown,” she said. It’s hard to overstate how important having a trusted community—a “tribe”—continues to be for her and for the many freelancers, solopreneurs, and small businesses that her work supports. Second, Vasquez regularly reviewed how what she was doing fit her priorities. It was so easy to get pulled into the stereotypical entrepreneur “hustle” culture, but whenever she began to feel overwhelmed, she looked for ways to delegate or even to hand over control completely.

Eventually she raised funds to start a second, much bigger space, which has been recognized as Chicago’s best coworking space. She also cofounded Deskpass, a membership social enterprise that connects people with more than five hundred coworking sites in twenty cities and counting. Just as she had done with The Shift and Second Shift, she focused her mission on creating community, not just building a business. Eventually, she sold The Shift to a member and later offloaded her management responsibilities at Second Shift.

“Now I have a life where I can work from anywhere,” Vasquez told me after returning from a winter she spent in Miami with her husband for respite from the Chicago cold. In hindsight, she would not have gotten the MBA because real-world experience has been far more valuable. The future of work may well involve many fewer MBAs and more people who have educated themselves with the help of supportive networks like the ones Vasquez has built and relied upon in the growing world of coworkers and so-called digital nomads.

A 2018 MBO Partners study counted 4.8 million US independent workers who described themselves as digital nomads: that is, people who adopt a lifestyle enabled by technologies that allow them to travel and work remotely, anywhere in the world. Many of these rely on coworking spaces. Coworking Resources, a consultancy, and Coworker.com, a coworking listing platform, projected that despite the pandemic, the number of coworking spaces worldwide would reach around 20,000 in 2020. Starting in 2021, they expected the number of spaces to grow by more than 20 percent a year and surpass 40,000 spaces hosting 5 million people by 2024. Many digital nomads and creative professionals have the luxury of choosing that life. It’s a different story for people forced into the gig economy because technology has made them redundant, their jobs have been exported, or they simply need to make ends meet or fill a gap in between jobs. The Uber and Lyft drivers, domestic workers, caretakers, errand runners, and delivery people are navigating a world where the rules are still evolving.

In her book, After the Gig: How the Sharing Economy Got Hijacked and How to Win It Back, the sociologist Juliet Schor argues that many gig workers have fallen through the cracks as the new platforms exploited loopholes in worker and consumer protection systems outpaced by technological change. Schor describes a two-tier system: workers who depend on gigs for their income and those who use them to supplement what they earn from other jobs. Schor and a team of researchers at the Connected Consumption and Connected Economy Project found that gig workers who covered all of their expenses from other income sources were paid more and were overall happier than those who depended on platforms for part or all of their earnings. Around seven in ten drivers in their study relied completely on the platform for their income, while hardly any on home or car share platforms did. The risk equations for those who depended completely on gig income and those who supplemented with it are very different. Someone who doesn’t need to make a rent or mortgage or car payment can turn down a gig that is unpleasant, inconvenient, or doesn’t pay as much. They also are more likely to have health insurance and other risk umbrellas provided elsewhere. “Not only do workers provide the tools and pay all the expenses, but independent contractor status also lets the company off the hook for social security contributions, workman’s compensation, and unemployment insurance,” Schor wrote. “These companies have also outsourced quality control and human resource functions onto consumers, through the ratings systems.”

In the pre-gig world, companies used to build trust in their products and services through their brands. By extension, a strong brand reputation reduced consumers’ risk of buying a faulty product. It’s not practical for millions of individual workers to build brands like this, so tech platforms created a ratings system. But, as Schor points out, there are blind spots in these new systems that allow people to abuse trust placed in them. Users on both ends need backup systems to reduce risks: insurance, background checks, licensing, and safety rules for rideshare drivers and Airbnb hosts, for example, or systems and laws to prevent discrimination. Then there are the externalities, or risks that affect third parties: Noise from Airbnb parties, traffic accidents, congestion, and the siphoning of passengers and their fares from public transportation.

Activists, policy makers, and businesses have been grappling with the consequences (both intended and otherwise) and trying to map a future. Laws like California’s AB-5, which we’ll discuss in a bit, represent initial attempts to create an ecosystem that spreads risk and rewards equitably. But things have changed so fast that it’s been hard to keep up, and trial and error has produced unintended consequences. An appropriate risk ecosystem for the gig economy remains a work in progress.

Even as developed-country workers leave legacy-economy jobs—by choice or not—in the developing world, policy makers have continued their long, slow efforts to bring people into formal systems. To these 61 percent of workers around the world who work in the unregulated “informal” economy, the “new” gig economy in developed countries is nothing novel at all. The International Labor Organization calculated in 2018 that more than two billion people—mostly in developing countries—work in the informal economy where they are neither taxed, overseen, nor protected by any government. “For hundreds of millions of workers, informality means a lack of social protection, rights at work and decent working conditions, and for enterprises it means low productivity and lack of access to finance,” the report’s coauthor, Florence Bonnet, said upon its release.

The world’s wealthiest countries have long been proud of their formal economies with their employment contracts and social protections. Indeed, the multilateral development institutions that these countries control have sent many consultants over the years to offer help to poorer countries to “formalize” more businesses and workers. (To be sure, increasing tax collections to make it easier to pay back foreign debt has been another motive.) They have succeeded in making it easier to do the paperwork to get approval to open businesses in the developing world. But where workers are concerned, wealthy countries are starting to look more like poorer ones instead of the other way around, as economic development theories would predict. “Labor markets are becoming more fluid in advanced economies, while informality is persisting in emerging economies,” analysts at the World Bank noted in the 2019 Global Development Report. “Most of the challenges faced by short-term or temporary workers, even in advanced economies, are the same as those faced by workers in the informal sector. Self-employment, informal wage work with no written contracts or protections, and low-productivity jobs more generally are the norm in most of the developing world.” It would be an understatement to say that policy makers are not thrilled with the new developments. “This type of convergence is not what was expected in the 21st century,” the report’s authors noted dryly.

Let’s return to the original vision of convergence that policy makers imagined: a strengthening and broadening of risk umbrellas for people who work for companies or themselves so that everyone can take smarter risks that help them to be more productive and fulfilled no matter what their work configuration is and no matter whether they live in a developed or developing economy.

RETHINKING THE EMPLOYER-EMPLOYEE RELATIONSHIP

As the number of freelance and contract jobs grew dramatically over the last decade, the median number of years Americans spent at their current employer fell to just over four years in 2018. Some of that is because of a changing economy and generational preferences, as we saw in chapter 5. But part is because companies have been rethinking their relationship with their employees and vice versa.

In the United States, first a group of hospitals and later groups of doctors created health insurance plans in the 1920s. These private plans didn’t really take off, however, until World War II, when the government restricted wage increases as a way to keep inflation down. Employers worked around that rule by offering more and more benefits, including health insurance. In 1943, the Internal Revenue Service exempted health insurance from income tax, making it a good deal for workers and businesses. Employers surely appreciated not only the tax and recruiting benefits but also the productivity benefit from insuring their workers’ health—it helped protect the business from catastrophic illnesses that could cost them a single employee, or worse, an infectious disease that could spread throughout the workplace. It was in their interest to have their workers’ backs.

Today, technology platforms have made it much easier and less expensive for people to connect their skills to those who need them. Companies have outsourced work and shifted staff to contractors, but most likely have not fully thought through the costs of contract workers not having the protections they need: more risk, more stress, less productivity. But employers still benefit if everyone who works for them, contract or full-time, has the health care and broader safety nets that make it easier for them to focus on their work and be more productive. And if freelancers are having trouble providing that safety net for themselves, their work will suffer.

Some workers thrive on the independence that being a contractor instead of employee gives them, but others fear that they will lose their jobs to the seemingly footloose and fancy-free contractors who in reality are anything but. The growing competition for gigs has put pressure on what they can charge, which back in the day was more than employees’ hourly rate to compensate for contractors having to pay their own overhead, including health insurance, and assuming greater risk by not having a steady income.

As the number of people working for themselves increases, our definition of career risks is changing. And companies will have to adjust their attitudes, too. They already are no longer competing mainly with other corporations to hire the best talent. They are competing against opportunities for their most talented, driven people to set out on their own.

The same technology that connects freelancers to companies makes it easier for employees to compare their jobs to positions and cultures at other companies and to easily find job opportunities that better align with their aspirations. In turn, that has changed the career risk equation: there’s a greater downside risk in staying at a job you hate when you compare it to the opportunities—the “upside” risks—of trying something new. This is part of why people now switch jobs much more often than they did in earlier generations. It’s a double-edged sword that requires a new understanding of risk for employee and employer to succeed. This rising turnover also discourages companies from investing in education and training.

Peter Creticos, founder of the Chicago-based Institute for Work & the Economy, says that after World War II companies invested heavily in training, whether in quality standards for their suppliers or upskilling for their workers. They even hired A-list writers, actors, and directors to create Broadway-style musical shows about their companies to educate and motivate their sales forces, as portrayed in the 2018 documentary film Bathtubs over Broadway. Over time, a persistent and growing trend emerged among employers who shifted risk from their own bottom lines to their workers’ shoulders. Pensions switched from guaranteed benefit to defined contribution.

As health care costs have risen, employers have passed more of the cost along to their workers. At the same time, Creticos noted, the question of who owns intellectual property has become problematic. In the old system of long-term employment with a strong company-provided safety net, it made more sense for companies to own IP created by employees working for them. But how many creatives or engineers will be willing to give up rights to their ideas, designs, and inventions to a faceless corporation that has no intention of compensating them appropriately? This could hurt innovation and productivity, Creticos warned: “Where does future invention come from, with this effort to make a purely transactional arrangement with long-term consequences?” Similarly, companies have been making employees responsible for more and more of the investment in learning and re-skilling. Creticos says that this is a short-term decision with long-term negative consequences. “It’s become a very fragile system. Once it starts to tumble down, everything falls with it,” he said. Many CEOs, he added, are aware of the fragility of the system.

So what comes next?

Activists and sympathetic policy makers have responded by trying to force companies to treat as employees—and thus become subject to labor laws—all contractors who do significant amounts of work for them. The state of California in 2019, for example, passed a law, Assembly Bill 5, to force companies to reclassify gig-economy workers as employees. Though AB5 was aimed mainly at rideshare companies like Uber and Lyft, the law also snared media companies and others that use contractors. To comply with the law, Vox Media ended its relationships with hundreds of freelance writers and editors and formally hired just a handful as part-time or full-time staff employees with benefits like health and unemployment insurance and minimum-wage levels.

In light of AB5, some companies worry that providing some benefits to freelancers might make them vulnerable to other laws trying to force them to reclassify workers. And not all workers want to be employees.

The intent of the law was to protect rideshare drivers and ensure that they made a living wage. It was not to take work away from anyone, nor to deny benefits to freelancers or force them into formal relationships they didn’t want, but that’s how it turned out in many cases. The unintended consequences of AB5 have begun to stimulate a bigger conversation. Is the right question even whether someone is an employee or contractor? Companies and gig workers alike are grappling with this.

“There has to be a ‘third way’ for gig workers, but we need to get specific, because we need more than new ideas—we need new laws,” Dara Khosrowshahi, the CEO of the ride-share platform Uber wrote in a New York Times op-ed. “Our current system is binary, meaning that each time a company provides additional benefits to independent workers, the less independent they become. That creates more uncertainty and risk for the company, which is a main reason why we need new laws and can’t act entirely on our own.” He proposed that gig-economy companies be required to establish benefits funds to give workers cash to use for a flexible set of benefits: health insurance, say, or paid time off. He also recognized that gig companies should protect workers from the very real risks that come from, say, driving passengers or delivering food on a bike. “States should require all gig companies to provide medical and disability coverage for injuries incurred on the job, creating a baseline safety net that we cannot give to drivers today without risking their independent status under the law.” Those ideas are a start.

But the conversation also needs to include questions about whether traditional companies and jobs provide the right risk umbrella for all workers, and about the balance among companies, governments, and individuals’ responsibilities for reducing risk. A better approach is to ask how to create a new ecosystem that supports everyone in the way that helps them fulfill their potential, whether as employees or freelancers, managers or line workers, full-time or part-time. COVID-19 has exposed gaping holes in many countries’ current risk umbrellas even though governments have stepped in aggressively.

Some companies are already experimenting to that end. The consulting firm Deloitte reported in its 2019 Human Capital Trends, which surveys nearly 10,000 people in 119 countries, that some companies have created hybrid benefits for workers in nontraditional arrangements. Some 31 percent of respondents have put in place learning and development plans for alternative workers and 22 percent award them bonuses and other types of incentive pay—blurring the line between traditional and freelance workers.

The pandemic showed how much bigger the issue is than just the California law. From February through April 2020, more than twenty-two million US employees lost their jobs, many of them permanently. Their plight drove home the bigger question here: your employer’s health insurance is no good if you don’t have a job. Indeed, for countries with fragmented or nascent health insurance systems, COVID-19 has opened up a whole new debate about whose responsibility it is to protect populations from health risks and what makes the most sense economically. These two questions may lead the United States in very different future directions as policy makers, businesses, and citizens consider what the future of work will look like, and the best way to redesign a risk umbrella that protects a changing workforce, makes businesses more productive, and in turn supports healthy economies.

CREATING NEW RISK UMBRELLAS

Whose responsibility is it to create and manage a risk umbrella? This question goes to the heart of the issues discussed in chapter 8—a society’s values and its citizens’ sense of a shared future in which they all play a part. When it comes to workplace risk, the answer to that question has evolved over history, from early societies that banded together to hunt and protect the spoils from intruders, to feudal societies in which peasants gave the lion’s share of their efforts to lords in exchange for protection and the right to farm the land. Under industrialization, workplace risk and responsibility evolved from the near anarchy that Upton Sinclair portrayed in the slaughterhouses of The Jungle to the paternalism of Henry Ford to insurance and safety regulation as the 20th century advanced.

Modern day workplace risk has multiple components: on-the-job safety, possibility of job loss, and health and life insurance to protect workers and their families. There’s also the question of reputation risk for employees whose careers can be dragged down by their colleagues’ bad decisions as well as their own. On the job risk tends to be addressed by regulations and by insurance specifically for injuries suffered at work. In some countries, job losses are covered by unemployment insurance; in many, government schemes help companies pay furloughed workers to avoid firings during, say, a pandemic or severe recession. Some countries also have job retraining schemes and transition insurance to cover workers in dying industries. Many companies offer health and life insurance to full-time employees, but often only above a certain pay grade. When it comes to reputational risk, the best insurance comes from being aware of your own risk fingerprint and those of your colleagues and the company culture so that you can decide if it’s the best place to be or not.

An additional component that is only now beginning to get its due is the cost of education. Traditionally, individual employees have borne this risk when they are young, while businesses have invested in on the job training and executive education to help promising employees climb the ladder. But both of these are changing. As companies change their ongoing education policies, more recently they have been offering employees student loan reimbursement. But that is only the tip of the iceberg. COVID-19 has raised questions about who needs college degrees or MBAs and how those credentials might evolve to better meet today’s needs.

Companies have a responsibility to do everything they can to make the workplace safe and governments have a role in making sure that companies do so. When it comes to broader protections like unemployment, health and life insurance, the social contract continues to evolve as the economy shifts from industrial and manufacturing jobs to technology and services. Freelancers, of course, operate outside of company protections. Who provides health and life insurance is part of a much bigger issue: how to protect workers from losing jobs, whether as freelancers or employees. An underappreciated aspect of a risk umbrella that is not tied to a particular job is that it also makes it easier for people to leave jobs where they are bored or unhappy, particularly employees who have chronic conditions or families who depend on that person’s job for health insurance. It doesn’t help employees or employers if health insurance becomes golden handcuffs that keep people from looking for jobs where they will be more productive and fulfilled. Health, career, and risk questions are intertwined; COVID-19 has made them even more so at a time when those connections already were fraying.

As we have seen, the Fourth Industrial Revolution—that is, the disruptive impact of new technologies on economic, social, and political systems—already has changed the risk burden between worker and employer by making the gig economy possible. That is only going to accelerate, along with a related trend: concentration of profits and shrinking costs of labor and capital relative to profits. Technology that is easily replicable at minimal marginal costs has allowed tech companies to make more and more money from fewer and fewer human beings’ work. This has huge implications for the social contract among businesses, government, and citizens.

At the same time, corporations are becoming bigger and bigger, gobbling up smaller firms and grabbing more market share that enables them to raise prices even as they keep the cost of labor down. This allows them to make financial returns that the Economist magazine calls “abnormal profits,” defined as profits above a “hurdle” cost of capital. In 2018, the magazine calculated that these abnormal profits—calculated based on an 8 percent cost of capital—amounted to roughly $660 billion among the world’s five thousand largest companies. A third of this accrued to technology firms. “Since 1978 total profits (that is corporate free cashflows, or the money that firms make after paying for investment) have risen from 1.9 percent of GDP to 4.5 percent,” the magazine opined in a special report on competition. “It is sensible to ask why competition is not bringing earnings down to earth and what might be done to boost it. The alternatives are to do nothing about inequality, or to introduce draconian taxes or regulation to redistribute income.”

This is part of the trend and the resulting challenge that the investor and former tech executive Kai-Fu Lee addresses in his terrific 2018 book, AI Superpowers: China, Silicon Valley, and the New World Order. Lee has argued that the biggest danger that new technologies bring is their impact on labor markets and social systems, potentially creating dystopian scenarios of social unrest and destruction. “The very idea of venture capital has been built around high risks and exponential returns,” he wrote. This blind pursuit of profits without regard to the social consequences is dangerous, Lee has argued. We’ve heard a lot of talk about how the world’s richest are worried that the angry 99 percent will come at them with “pitchforks.” But social unrest is not the only thing they should worry about. Even bigger is the reality that if a critical mass of the world’s population can’t afford to enjoy many of the things they produce and the world’s wealth is held by fewer and fewer people, the engines of the global economy will grind to a halt. How do we manage the risks that technology’s unintended social impact imposes? Lee proposes a new kind of venture ecosystem that values good jobs with social impact like caregiving, parks tending, arts, and education. “Jobs like these can be meaningful on both a societal and personal level, and many of them have the potential to generate real revenue—just not the 10,000 percent returns that come from investing in a unicorn technology start-up,” he wrote.

One solution proposed by Microsoft founder-turned-global-philanthropist Bill Gates and others is to tax robots, much as many governments currently charge payroll taxes. The tech industry naturally has pushed back, arguing that we shouldn’t tax things that increase productivity. They are right that we shouldn’t penalize companies for investing in things we want more of. But don’t we also want jobs and a society that works? If so, wouldn’t we want to tax jobs less or not at all? These solutions could change the nature not only of socially beneficial jobs but our ideas of what it means to live well.

And what about the balance between risk and reward? With greater risk should come greater reward, right? This touches on the issues we explored in chapter 8 related to the “fair” price of risk. If it takes tech companies and monopolies less capital and less labor to make greater profits, doesn’t that mean they are taking less risk? And as individual workers take on more risk by going freelance or as employers pass a greater share of health care costs on to them, shouldn’t workers in turn reap greater rewards?

To be sure, not all reward is financial, as millennials’ increasing focus on purpose shows, and as more and more companies have noticed. A strong sense of purpose makes people more resilient and productive not just at the workplace but in all aspects of their lives. It helps them to take the kind of risk that pays off for themselves and others. The feeling of doing something meaningful can be reward in and of itself. But there’s a downside if companies don’t pass along to employees and contractors the increased profits from that productivity.

CAREER AGILITY IN AN UNCERTAIN WORLD

Not everyone’s personality is suited to adapt relatively easily to a fast-moving environment. Unfortunately, dealing with change may not be a choice, says Marti Konstant, a Chicago-based workplace futurist and author of Activate Your Agile Career. She suggests that people who are risk and uncertainty averse rethink their definition of risky versus safe.

“When change happens, don’t do nothing. If you decide to stand still, you are taking a risk that is equal or more to doing something new,” Konstant told me. “It’s risky not to revamp yourself, because stagnation is the biggest problem in your life and career.” The way she spends her time and earns a living has spanned many roles—artist, designer, entrepreneur, brand architect, sales professional, technology marketing executive—and continues to evolve.

There are roles out there for people who prefer working under the umbrella of a more traditional organization, she said. “If you really want to work for an organization and it’s the only way you can see yourself, there are jobs for you,” Konstant said. She believes organizations will want generalists who may not have all the skills a job requires but who know where to find people who do have those skills. “The way to get that job is to know enough about specialties to be able to manage them.”

She also recommends educating yourself about new technologies and how they will be relevant to your area of expertise. “You don’t have to be a futurist and look out ten years. You just have to observe the trends,” she said. Konstant told me the story of a high school Spanish teacher who was the first in her school to understand that computers were necessary and parlayed that into a much higher-paying job. The teacher eventually began training her colleagues, then started training other trainers, calling herself an “instructional technologist.” She got her PhD and is now training trainers in robotics.

Along with keeping on top of trends and making them relevant to your own expertise as a way to minimize the “bad” risk of becoming obsolete and to maximize the opportunities to take “good” risks, Konstant also recommends that people develop additional career competencies: “You can’t afford the luxury of not being your own networker and salesperson,” she said. Note that she’s coming back to old-fashioned people skills—the ones that robots cannot replace. Those include understanding yourself and others, and where you make the biggest contributions to the world: the nexus of your skills, your passions, and your usefulness to others.

We saw in chapter 8 how important purpose is to navigating uncertainty and making wise risk choices. Younger generations have turned to personal purpose as a lodestar as they grapple with the knowledge that they are less likely than their parents were to be better off financially than the previous generation. A young Chicago man shared with me that he felt his biggest challenge was time management at work. His job sounded so boring that I cannot even remember what he said it was. He had looked at various apps and strategies to help him with time management, but none of them fit his needs. So his plan to improve his time management skills was to create his own time management app. “When I’m working on that, I have no trouble concentrating,” he said. “I get a lot done.” Are you thinking what I am? Perhaps his problem at work was not that he was bad at time management, but that it bored him—and that he’d be much better off applying his skills to something he cared about and felt was making a genuine contribution to the world.

Some companies have responded to this new focus on purpose by trying to offer employees a sense that their work is contributing to something important and bigger than themselves, or at least that the company is not causing more harm than good in the world. But there’s a long way to go. As Jeff Hammerbacher, an early Facebook employee, lamented: “The best minds of my generation are thinking about how to make people click ads.”

That reality is showing up in falling job satisfaction and employee engagement, and a widespread sense that jobs have no redeeming purpose. Researchers at Tinbergen Institute in the Netherlands surveyed 100,000 people in forty-seven countries about whether or not their jobs were socially useful. They found that one in four was either unsure of their job’s social value or believed their jobs made no such contribution. The answers differed over time and by country, with people in Poland, Japan, Israel, and India more likely and those in Norway, Switzerland, and Mexico less likely to see their jobs as socially useless.

Attitudes toward whether work should engage a sense of purpose have changed over time, quite naturally along with shifts in the nature of jobs. As the initial luster of tech jobs has faded, many people find themselves working in drab gray cubicles—even when they are working from home or in a hip office—and have given up on dreams of making it rich off of shares in their start-ups, they are asking hard questions about the risks of staying in their jobs or setting out in new directions.

The question of what humans will be good for in the future, when eventually machines will be able to do virtually anything better, forces another one that is relevant right now. What is the biggest contribution that any of us can make? What can we do to launch that human potential? What do we risk by casting off jobs that do not include a sense of purpose? What do we risk by staying? What is the risk of failing to ask and answer these questions?

BEHAVIORS

12

Risk and Organizational Culture

GIVEN HOW DIFFERENT their risk fingerprints are, the Odd Couple might be a better name for Barb Morgan-Browning and Marc Hertz, co-owners of the Chicago small business consultancy One Complete Business. Morgan-Browning is an ebullient extrovert who grew up in a family of business owners and has never had a corporate job, though she did a stint in academia as a sociologist. She looks at the big picture, says things like they are, and shoots from the hip. Hertz, a former award-winning soap opera screenwriter who also has worked inside multibillion-dollar Fortune 500 corporations, is more of an introvert: a good listener with an intense focus on detail who makes decisions methodically and is much more likely to think through possible risks and unintended consequences.

“Barb will tell you I am risk-averse,” Hertz said as soon as we sat down in my Chicago office to talk about how they work through their seemingly polar-opposite risk personalities. “I will,” she said without skipping a beat. But later on, she brought up times when their supposed risk preferences switch, and he is more willing to take risks than she is. What I love about this dynamic duo is how they recognize their differences and see them as a strength.

“Our personalities are as different as possible, but our values are the same,” Morgan-Browning said. Interestingly, their partnership started with her putting on the brakes. After having been burned in a previous business, she did not want a business partner. At first, they collaborated on specific projects. Months later, it was clear that they made a fantastic team. But Morgan-Browning was the one who needed more time before taking the leap. They didn’t start thinking actively about their risk attitudes and the importance of negotiating their differences until they formalized the business partnership.

“For me, to risk is to be free. I’m doing what I really want to do,” Morgan-Browning said. Her grandfather owned his own barbershop. Her father was a serial entrepreneur who sometimes was successful, sometimes not. “The mindset was don’t work for other people; build your own dream. Part of my upbringing is that if you want to make it big, you’ve got to take risks. The shame is not in failing but in not trying,” she said. “Risk and health are intricately linked. The worst part is death. So what if I go bankrupt, lose my house, have to sleep on the floor. Next to death, none of this is close.”

Hertz’s maternal grandparents lived through the Spanish Civil War where their families were on opposite sides of the conflict. They went from being significant landowners to losing it all and selling roasted garbanzo beans and scrap cloth from town to town to survive. “Barb’s family sees risk as a way to ‘make it.’ My family sees it as a survival tactic,” he said.

While Morgan-Browning sees business as central to her purpose, Hertz’s artistically inclined family would never think of themselves as businesspeople. She’s all about the business models while he’s all about the content. She’s about the strategy and he’s about the execution. While she sees risk as a positive, he sees it as something to control. But Hertz will take creative risks that Morgan-Browning won’t. She’s also the one to whom clients turn when they’re feeling nervous and need someone to hold their hand through a risk. On their personality litmus test—ice cream—she prefers plain vanilla while his favorites are the more daring—cookies-and-cream or rocky road. And he’s the more adventurous one when you compare learning styles. “Marc is data driven, an Excel genius and an autodidact who can learn something starting in the middle,” Morgan-Browning said. “I have to start at the beginning, while he will ignore the tutorials and jump right in.”

On business decisions, however, Morgan-Browning often has been more likely to leap before thinking it through. “In the beginning, I would make significant business decisions and not tell him ahead of time. I would promise all sorts of things like, yeah, we can build a website in a week,” she said. “He would yell, and I would shut down,” she recalled. “We thought our employees couldn’t hear us, but they could.” Their differences could have been fatal to the business. But Morgan-Browning and Hertz not only got past their risk and decision-making differences but left them lying in the dust. How? By learning that each of their strengths complemented the other’s and offset their weaknesses. Facing their risk attitudes head-on not only helped them work together but also made them stronger.

“Now it’s all consensus,” Morgan-Browning said. “We put in our operating agreement that if we can’t agree on something, we’ll go to a business therapist. We have very open and honest conversations about money and risk. When conflict does come up, we try to understand the source. What is the history?”

Over time, they learned to figure out each other’s patterns and to use their differences to their mutual advantage. Hertz’s strength in projecting stability turned out to be a godsend when, seven months into their business, Morgan-Browning had her first heart attack. It brought the business to a halt. But she was back in the office way too quickly and struggled to try to maintain the pace she was used to. Fourteen months later, she had a second heart attack. That really focused them on prioritizing what was most important and what they would let fall to the side.

Morgan-Browning and Hertz recognize that they share core values. “We recognized that our disagreements were not personal,” he said. “Being solution-focused helped a lot.” Recognizing that the different paths each one of them takes to get where they need to go gives this dynamic duo the power to take the risks that they both agree are worth taking.

That also helped them to help their clients ask the right questions about what they were willing to lose if their bets didn’t pay off. “The majority of our clients are risk-averse,” Hertz said. That doesn’t always end up with them making the best decisions for themselves or their business: “Often they are willing to compromise on the things they want most in exchange for feeling more secure.”

One client insisted on revising and redoing catalogs and websites so many times ahead of the launch that eventually the client decided not to launch at all. Another client had a lease and a loan all set up, but then simply did not show up to sign the paperwork. Those experiences have taught them how important it is to think about their clients’ risk attitudes as carefully as they have their own.

One Complete Business is a shining example of how understanding risk dynamics is essential to an organization’s success. Though they are small, many of the same principles apply to creating a good risk culture for larger businesses. Company leaders should be self-aware and empathic when it comes to risk, focus on what is most important and consistent with their values, and make sure they have processes that will help them work through risk disagreements.

GROUP DYNAMICS AND RISK CLASHES

Between one-half and four-fifths of business partnerships fail, depending on whom you ask and how you count. Risk-related factors including personality clashes, trust breakdowns, and differing values are among the top reasons that analysts blame for failure of partnerships. “Sharing risk and having complementary skill sets are some of the great advantages of business partnerships, but if the personalities of the partners do not sufficiently mesh, the business may be headed for trouble,” Susan Ward, an IT consultancy owner and small business columnist, has warned her readers. The top question she recommends asking prospective partners is “Are you a risk-taker?”

In a small business with few partners, a clash in risk personalities and expectations becomes obvious quickly, but when the partners are willing to deal with it, it can be solved relatively easily. But what about bigger organizations? The challenge of harmonizing and optimizing risk attitudes quickly becomes more difficult the more employees there are, or the bigger a board is. But the solution is not to pick a bunch of people with similar attitudes, feelings, and behaviors when it comes to risk. Rather, as in Morgan-Browning and Hertz’s partnership, the smartest businesses face their risk differences head on and learn to use those differences to their advantage.

That involves recognizing potential personality differences among management and employees, setting expectations for how risk decisions should be made, building risk skills, and picking or promoting people who complement the existing team. It means proactively assessing your organization’s risk culture, how that affects its ability to innovate through smart risk-taking, and how you might need to change your organizational structure to reach your goals. It means communicating effectively why you are taking certain risks and why other risks are a step too far.

RISKY FAMILY BUSINESS

In family businesses, emotions come into play for both the board and management particularly powerfully because of their relationship bonds (or, when outsiders are brought in, the lack of those ties), the generational differences that come into play, and sometimes even the rivalries among different branches of the family.

In his early forties, Diego (who asked to be refered to by his first name only) was tapped to head his family’s conglomerate, based in Central America with diverse holdings in real estate, agribusiness, and hospitality. As leadership shifted to a new generation for a third time in the 120-year business, Diego believed the company was facing an existential challenge. Sure, they could merely manage its existing businesses. But without a clear, forward-looking plan to grow and change, it risked sliding into irrelevance. Many of his contemporaries—siblings and cousins—shared his view. What big changes did they need to make, and what risks did they need to take, to bring the family business into the 21st century and keep it relevant for generations to come? The challenge was that the older generation didn’t see things the same way. They had endured the civil wars of the 1980s, when they lost a significant portion of their assets through nationalizations and agrarian reforms. Losing so much, after building a business for many decades, had made them extremely risk-averse.

When he took over the helm, Diego thought to ask all the family members about their priorities. He needed to know what each shareholder and future shareholder valued and expected from their interest in the business. Perhaps not surprisingly, the older generation wanted to preserve their capital and valued family harmony. The rising generations wanted to see profitable growth above all things. How did they resolve it? I asked Diego if the family had talked openly about their attitudes toward risk in general, and why each of them felt the way they did. It was as if a giant light bulb went on for him. I spoke with him a few months later. After having reviewed the survey results in an open, nonjudgmental fashion, he told me, the third and fourth generations were better able to understand each other’s concerns and ambitions. The older generation was able to voice its fears and desire to have the business survive for their children and grandchildren, and the younger group shared their enthusiasm around new and exciting opportunities that could reinvigorate the group after over a century of hard work, duty, and responsibility. Those realizations—and the ability to tap into empathy now that they had this new understanding—helped the elder and younger generations to address each other’s concerns and design a strategy that worked better for everyone.

The kind of conflict that Diego’s family company experienced was intensified by an unspoken family dynamic where generational gaps created different sets of priorities, and where leadership was beginning to shift. But it is not at all uncommon, whether because of generational, demographic, experiential, or other differences. A Midwestern board member at a multibillion-dollar family company recalled how the brothers who shared management responsibilities, and later the nonfamily management they brought in, negotiated differences in risk attitudes among themselves and with diverse family shareholders. The extended family shareholders cared most about short-term dividends, so were jittery over anything that could jeopardize the short term; the future be damned. This board member found it helpful to break down issues into pieces that directors could deal with practically rather than trying to broadly align their attitudes. “You don’t have to agree in the abstract, just on the specifics,” he said. Instead of deciding on a strategy to change their risk strategy in general, in other words, directors could focus on a single decision or trade their votes on a set of smaller issues.

Diego’s company is an example of how group dynamics can profoundly alter decision-making and risk-taking, but how self-awareness and empathy can make the difference. Group risk-taking also changes depending on how well members understand and adjust for the way group decisions differ from individual ones. As we saw in chapter 5, we don’t always make the same risk choices when we are in groups or alone; groups tend more to the extremes, which may be much riskier or much more cautious than their individual members would choose on average if they acted independently. The act of taking risks together intensifies that dynamic as it strengthens the bonds between group members: successful risk-taking leads to more risk-taking, while timid behavior breeds more timidity.

Risk dynamics vary across types of organizations. Family-run businesses like Diego’s balance a very different set of shareholder interests than public companies might. Generational differences within families will come into play and need to be resolved. A large “legacy” firm that has always done things a certain way likely is more risk-averse in unhealthy ways that paradoxically create more risk by stifling innovation. By contrast, a start-up firm—particularly one in a “hot” industry that has attracted a lot of capital—may be innovative and creative but dangerously risk-seeking.

RISK CULTURE: An organization’s attitudes, risk decisions, acceptable behaviors, structures, and processes for assessing and managing risks, and the definition of acceptable risk.

Two companies of similar sizes and at comparable stages in their development may have very different risk cultures rooted in their CEO and board’s attitudes, the decisions that they have made about acceptable risk behaviors, their organizational structures, the processes for assessing and managing risks, and the framework for determining acceptable risk. In mergers and acquisitions, failing to recognize risk culture can doom the new organization.

The bigger companies get, the more convoluted internal risk dynamics get, particularly when they buy or merge with each other, and even more so when they are of different sizes or maturities. When a legacy financial services firm, full of change-averse Baby Boomers, buys a fintech start-up full of raring-to-go Gen Zs and millennials, keeping the start-up as a separate division with its own culture may be a much better option than trying to get the start-up’s culture to conform to that of the bigger firm that bought it. A big corporation whose employees are not as comfortable with change and uncertainty could very easily stifle the innovation and creativity that are essential to the value of the start-up it buys. Indeed, it may be best to reconsider whether or not such a merger makes sense at all. So how should businesses considering mergers and acquisitions deal with risk differences? First, they should explicitly consider the risk cultures of both organizations, as we discussed earlier. Second, they need to decide if it makes sense to try to integrate the cultures of the two organizations.

Context matters. Did members choose their group and teammates or were they thrown together randomly or by someone else’s decision? Do they trust each other? How well do they know each other? How diverse is the group? Are group members confident that their opinions will be heard and respected? Does the group care more about conforming to what others expect or about making a difference for the better? When people feel they are where they want to be, that their peers have the right set of skills for the job at hand, and that their opinions are valued, they are more likely to make better decisions—that is, to be more confident taking “good” risks and warier of the “bad” ones.

How driven is the team to achieve its goal? Are members competing with another group? All of these variables play into an organization’s risk decisions and where those choices lead. And they play out differently depending on a company’s size, corporate culture, and sense of purpose.

Finally, risk empathy plays a huge role. How aware are members of the risk attitudes of those around them—and how much do they care about what their peers think and feel? Knowing where those around you are coming from when it comes to risk can give you confidence that you’ve all got each other’s backs.

RISK EMPATHY FOR HIGH-PERFORMING TEAMS

Organizations depend not only on awareness of the risks they face, but on the risk dynamics among team members to innovate and manage their risks wisely. This requires strong people skills, above all risk empathy: the ability to understand and share someone else’s feelings about risk-taking. We saw earlier on in this book that understanding how your customers see risk is important, particularly if they are in other countries. But risk empathy starts within the organization: both in holding back from ill-advised risks and in encouraging the kinds of risks that spur creativity and innovation.

RISK EMPATHY: The ability to understand and share someone else’s feelings about risk-taking.

“If the culture in your organization shows that risk-taking is bad, you will never get innovation. No one will ever do anything brave enough for fear of making a mistake,” said Maria Ross, a consultant and the author of The Empathy Edge: Harnessing the Value of Compassion as an Engine for Success. “Only when you really understand people and make them feel safe and valued will they be free enough to think creatively. Free from fear or anxiety, they will have the ‘mind space’ to do what they need to do without worrying about looking over their shoulders all the time, or thinking ‘I have this really great idea but I saw what happened to the last guy who had a really great idea and it failed.’ ”

Thinking about people’s risk tolerance—and how your own risk fingerprint complements or clashes with those of your colleagues—is an important part of empathy. “We often look at people’s preferences. But we rarely seek to understand someone’s tolerance for risk, some of which is what motivates them,” Ross told me. “Looking at it through that lens, you can think of so many other questions you may want to probe on and ask to put their behavior in context. It’s especially important for those who do have a high tolerance for risk to understand people who don’t and try to get to the ‘Why?’ Was that person badly burned by a project in their past? Did they lose a job over a failure?” Understanding that context will help risk-takers have more patience with those who are risk-averse and understand them better.

This kind of understanding can help you in coaching junior colleagues, making your boss or client happy, or smoothing over disagreements. When it comes to a team’s risk attitudes, understanding how you compare to others can determine the best role for you to assume. “On some teams, I played the devil’s advocate role: ‘Wait a minute, have we thought this through?’ On other teams, I was the one who said, ‘Come on, let’s do this! Let’s think bigger!’ There’s some sort of special alchemy that happens, depending on the team you put together, and where your level of risk is on the spectrum that can determine what role you need to play to make the team successful,” Ross said. As we saw in chapter 5, your risk attitudes can change depending on who else is in the room. “Sometimes you’re calm in a crisis when other people are freaking out, but if everyone else is calm, you feel like you have permission to freak out,” she said.

Your risk relationship is dynamic; it evolves along with the organization and team around you. The more adeptly you and your peers can assemble the parts into an ecosystem of risk personalities, the better the choices you’ll make and the smarter the risks you’ll take. Being attuned to those differences and the context can make the difference between a successful or frustrating meeting; a cohesive and dynamic or hidebound team; an organization that thrives or crumbles in face of change.

A SAFE SPACE FOR RISK COMMUNICATION

Encouraging team members to speak up is a key part of communications, which requires creating an environment in which they feel comfortable saying things that may be unwelcome or make team members uncomfortable. Along these lines, social and organizational psychologists developed the concept of psychological safety in the 1960s to describe the perceived consequences of taking interpersonal risks. There’s a considerable body of evidence that an organization that puts a priority on psychological safety makes employees more likely to speak up, spurs creativity and vitality, and improves information sharing and trust.

Psychological safety has taken on a new life more recently because of the ways in which leaders are seeking to enhance learning and innovation. “Psychological safety is fundamentally about reducing interpersonal risk, which necessarily accompanies uncertainty and change,” the leadership consultant Timothy Clark and the Harvard professor Amy Edmondson have written. They cite several studies that show that organizations that create climates of trust, cooperation, and psychological safety perform better. This demonstrates the virtuous circle of trust-building, risk-taking, innovation and creativity, and success. It also shows how important it is to look at risks in a basket within which reducing or removing negative risks gives you room to take more positive ones. A company that prizes psychological safety will see the benefits from employees being able to suggest what may initially sound like a crazy idea that turns out to be brilliant and to be comfortable that if their new idea doesn’t gain traction or hold water in the end, they will not be unduly penalized; or to raise a red flag that prevents an avoidable loss, or to provide constructive feedback that makes a good product even better.

Creating a psychologically safe, healthy risk atmosphere requires systematically seeking out the kinds of perspectives that can illuminate risks and opportunities that a more tunnel-visioned team might miss. A Chicago company, Table XI, created a fun way to encourage structured debate. Its Inclusion Meeting Cards designate roles like devil’s advocate (challenging ideas) and angel’s advocate (forcing chronic naysayers to take another view) in which team members rotate. It also includes cards like “beating a dead horse” or “down a rabbit hole” to get a meeting back on track when someone goes on and on about a resolved issue or goes off on a tangent; “speak up” or “he-peating” to encourage more timid team members to speak up and to encourage those inclined to take credit for others’ ideas to give it where it is due.

Smart businesses encourage employees to look at challenges from different perspectives, immersing them when possible in other areas of the company. The automaker BMW, which considers managing uncertainty to be a core competency, rotates employees into different departments to get them out of their comfort zones as part of the process of leadership training. “We are training the people on what we call managing uncertainty, managing flexibility, ambiguity,” Harald Krüger, former CEO of BMW, told Leaders on Purpose. He cited his own experience learning in different jobs: as an engineer, in HR, in sales and marketing, and in production.

Rethinking organizational charts can also encourage sensible risk-taking as well as proactive behavior to head off risks. In situations where danger is imminent and time is of the essence, traditional command-and-control management can keep people from acting quickly. At the same time, people need a certain amount of freedom for creativity and innovation to flourish. As a result, many companies are moving from hierarchical to flatter structures. Along these lines, the 2019 Deloitte study cited above reported that 31 percent of respondents had moved from a hierarchical to team model; another 65 percent have added some teamwork elements to their existing hierarchical models.

CEOS AND RISK STEREOTYPES

Sitting atop the corporate hierarchy, the chief executive officer is crucial to a company’s risk culture through the example they set, the message they convey, and the behaviors they reward or penalize. We saw in chapters 5 and 6 how risk stereotypes can cause harm both by warping perceptions and by shaping behaviors. That certainly is true when it comes to CEOs and may be part of why some CEOs behave like the ones noted above. People expect CEOs (whom they often also expect to be white men, since progress elevating women to the C-Suite has been painfully slow) to be risk-takers. That kind of assumption can lead boards to overlook grandiose risk-taking by CEOs. But that is dangerous because not all risk-taking is the same. Some risks create value and other risks destroy it.

Reality reflects the risk stereotype of CEOs, but only to a point. The executive search firm Russell Reynolds studied more than six thousand psychometric profiles and concluded that CEOs meaningfully outscore other executives in embracing risk. Top CEOs score high on other skills that balance out their risk-taking, helping them sort out good from bad: they score high on judgment and low on self-promotion.

There’s a lot of difference among CEOs in terms of risk attitudes—and a lot at stake in understanding what drives that difference. Searching for possible causes of the risky behavior that led to the financial crisis, a group of researchers analyzed more than 1,500 CEOs and chief financial officers at 165 US banks over fifteen years. They looked at personality along with pay, bonuses, and education, the banks’ financial structure, and other factors, and found that far and above, personality made the biggest difference—correlated by as much as 72 percent—in the riskiness of the decisions these executives made.

More and more, we are seeing these risky behaviors play out publicly. In the era of #MeToo, businesses and CEOs have learned the hard way that unchecked personal problems can threaten their futures and fortunes. Research demonstrates that people who take big risks in their personal lives are more likely to take questionable chances at work. Tallying up traffic tickets and other legal infractions including domestic violence, a 2012 University of Chicago study showed increased likelihood that CEOs would commit material misstatements in financial reporting, appoint spendthrift chief financial officers, and foster toxic corporate culture.

After a hacker exposed the identities and data of more than thirty million users of the dating site Ashley Madison, for married people looking to cheat on their spouses, researchers from the University of Texas and Emory University cross-referenced public records with some of that hacked data, involving eleven thousand brokers, executives, white-collar criminals, and police officers. The authors concluded that cheaters were more than twice as likely as control group members to have violated professional conduct standards. Ashley Madison customers were more than four times as likely to have been accused of securities law violations than the control group. If you cheat in the bedroom, the results suggested, you’re also more likely to take unwise risks in the boardroom.

Recent CEO scandals bear this out anecdotally. The ride-sharing company Uber, taking on the “move fast and break things” ethos of its founder Travis Kalanick, also absorbed his cavalier attitude toward risk-taking. Amid mounting pressure, Uber’s board finally jettisoned him as investors became increasingly uncomfortable with his risk profile. The eccentric and narcissistic WeWork CEO Adam Neumann, who was known to walk barefoot around Manhattan, smoke pot, and proclaim his aspiration to live forever, met a similar fate as the office-sharing company prepared for its own ill-starred initial public offering. Or take Patrick Byrd, the CEO of Overstock.com, who was embarrassingly public about his affair with a Russian operative accused in the 2016 US election-meddling scandal. The company’s board fired him after its chief financial officer reported that the company’s insurer refused to renew its policy if Byrd remained in charge. These scandals have made companies recognize how directly personal behavior, morals, and risky choices extend into the workplace. Increasingly, hiring due diligence includes monitoring social media for evidence of drunken debauchery, racism, and other red flags.

While CEOs are the most visible examples of bad risk decisions turned into bad business, they often are merely a symptom of a problem that extends across organizational charts and all the way up and down corporate hierarchies. CEOs and the boards who hire them and enable or discourage their behavior together set the tone for the entire company. Boards are being more and more alert to bad, personal risk-taking and its potential business impact. “We’ve definitely seen an uptick in CEO departures in some way explained by personal misconduct,” said Andrew Challenger, vice president of Challenger, Gray & Christmas. The Chicago-based outplacement firm found that in a record-setting year for CEO churn, fifteen CEOs left in 2019 related to alleged personal behavior infractions including sexual misconduct, drunk driving, racism, and inappropriate human resources dynamics. In 2019, 1,640 CEOs left their posts, up 12.9 from 2018, 41.4 percent from 2017—and the highest total since the firm began counting in 2002.

Boards and investors are paying attention to these risky personal behaviors in a way that they have not done before. “CEOs are being held more responsible, and boards are stepping in, in a different way than they did a decade ago,” Challenger told me in a phone conversation. His company has been tracking scandal-related CEO departures since 2013 and saw a significant increase in late 2017, as a series of sexual scandals hit the news and prompted many women to share their #MeToo experiences on social media. “People are paying attention to personal conduct of CEOs in a way they didn’t do a generation ago because of social media,” Challenger said. “The #MeToo movement is part of that, and I don’t see it going away anytime soon.” Ethical reasons aside, CEOs who engage in this sort of behavior often also engage in other “bad” risky behavior, as we saw above.

Brendan Foo, cofounder of the due diligence consultancy Forward Risk, described how one type of questionable behavior tends to occur in tandem with a slew of others. “Where you have a company in which a senior leader is allowed to behave badly, it tends to be a situation where it’s not limited to personal lives,” Foo told me. These poor decisions often may not be expressly illegal but they are far from ideal: questionable personal choices, nepotistic hires, making assistants do work of a personal nature, profligate spending often disguised in expense reports, and sexist comments.

These behaviors tend to touch many people throughout the company who have choices of whether to look the other way or not, including a cadre of loyalists on the board who will put the firm at risk by supporting the CEO no matter what. “They require a web of enablers,” Foo said. “A CEO doesn’t get to run around unchecked without lots of people going along with it,” he said. A board full of people who have held their seats for a long time is a red flag, particularly if the CEO is visibly overpaid compared to a company’s market cap and peers.

ETHICAL RISK CULTURE

While boards are responsible for paying attention to CEO risk-taking, it also is important for employees up and down the hierarchy to feel comfortable warning about risks and potential missed opportunities that pop up during the course of business. In these cases, competence is not the problem but rather the ethical example that the CEO and senior leaders set and the behaviors that employees assume are okay. That combination can leave a firm vulnerable to employees who are too comfortable taking risks, whether to advance their own interests or supposedly on behalf of the company.

Businesses suffer blows when employees take risks to benefit just themselves, say, by embezzling money, taking shortcuts, or making ill-advised trades. Others take risks that supposedly are intended to benefit the organization, say, by covering up safety issues or ethical or accounting lapses. A group of scholars from Australia’s Macquarie Business School examined this second kind of risk-taking, known as unethical pro-organizational behavior. They found that the employees most likely to act unethically on behalf of their organization had both strong self-interest and strong attachment to the organization. The Macquarie team recommended several strategies businesses can use to discourage these kinds of behaviors: promote concern for other stakeholders, particularly customers; do not tolerate breaches of policy; promote norms for identifying and dealing with concerns; and ensure that managers are effective risk-management role models and advocates. In addition, they wrote, businesses should infuse ethical values into key performance indicators, compensation policy, training, resources devoted to risk management, and communications including statements of the organization’s values.

I asked the moral philosopher David Rodin about how organizations might create an ethical risk culture. His answer circled back to a recurring theme: anchor risk ethics to the organization’s sense of purpose. Every activity creates some risk of harm, even when it also benefits people. So we must make choices about how much the benefit of that activity outweighs the potential harm to employees, shareholders, or other stakeholders. He urges companies to think carefully about the positive ways in which they create value and about the flip side involving how they might create externalities, or the risk of harm to others. Banks, for example, create a tremendous amount of social good, underpinning of economies, but when things go wrong and banking crises erupt the harm is widespread. “Any action, any institution, any structure that creates a risk, has to be justified,” he said. That goes for operational risks, financial risks, or the conduct risks we saw above.

Proprietary research by the organizational ethics consultancy he founded, Principia, found that the single strongest factor predicting ethical risk behavior or misconduct is whether an employee has a belief in the company’s purpose and feels a personal connection to it. Their work confirms what we have seen: that anchoring yourself or your organization with a sense of purpose can reduce risks. Tracking whether your company is fulfilling its purpose is a first step. But you also need to be sure that you balance your purpose against the need to minimize the risk of harm to others. Rodin urges companies to ask themselves: “Are we doing it in a way that monitors and understands and minimizes the negative impacts of risks that we’re creating along the way?” Companies need metrics and mechanisms to imbue all of their decisions with this sense of purpose. By extension, that implies that not only should the company avoid the risk of harm, but that any risk be outweighed by the good the company does.

RISK OVERSIGHT

So what do those metrics and mechanisms look like? Organizational experts are paying more and more attention to group- and organizational-risk culture dynamics across organizations and their boards. After the 2008 financial crisis, regulators, investors, and corporate leaders responded to an overwhelming sense that both companies and their boards utterly failed in recognizing and managing the risks that led up to the collapse of the subprime mortgage market and the domino effect that briefly brought the global economy to its knees.

Regulators let it be known that they would be looking over boards’ shoulders and taking them to task for lax risk oversight. A series of lawsuits attempted to chastise directors for ignoring risks. Companies and boards rushed to put risk monitoring mechanisms in place. But worries have lingered that many of these boards were asking for risk analyses solely as a box-checking exercise.

As a result, regulators, investors, and companies have broadened their attention from the risks being monitored themselves and now are focusing more intently on risk culture and decision-making. The Conference Board, a business membership and research organization, has called risk oversight of the boards themselves “the next frontier in corporate governance.”

“If boards really understand how to take risks well, their organizations will do better,” David Koenig, founder of the Directors and Chief Risk Officers Group (DCRO), an industry organization that formed after the 2008 financial crisis, told me. To this end, corporate boards have been adding risk committees to ensure that there is a critical mass of risk expertise on the board, measure how much attention they pay to risks, and understand how cultural dynamics affect risk decisions.

UK regulators require financial companies’ boards to issue risk-appetite statements describing the amount and type of risks an organization is willing to take in order to meet its strategic objectives. Like other tools, the statements’ effectiveness depends on how enthusiastically boards and companies embrace them. They can help to focus meaningful conversation, or they can be jumbles of words that a team assembled simply because it had to.

“We have tended to look at risk and other items of corporate governance in silos, and they need to be looked at in context,” said Susan Shultz, CEO of the Board Institute, which in 2018 launched a tool, the TBI Protiviti Board Risk Oversight Meter, to help boards improve their risk oversight. “It’s important to have these metrics, but it’s also important to know what’s going on inside the boardroom in terms of strategy and culture,” Shultz said. “Directors often don’t understand how to prioritize risks, what those risks are, and what their role is.”

The Association for Financial Professionals reports that as of early 2020, roughly 37 percent of organizations have a dedicated function to actively assess risk and report it regularly; 29 percent have created ways for departments to assess and report risk; and 23 percent assess risk. Nevertheless, the trade group warns that most companies have a long way to go to get their risk cultures to a healthy place. “Few organizations have adopted formal processes for engaging senior leadership and the board in a discussion of how an increasingly uncertain environment will impact strategy decisions,” Alex Wittenberg, executive director at Marsh & McLennan Advantage, which carried out the survey, noted when announcing the study.

Another tool, the Institute of Risk Management’s Risk Maturity Model, focuses on identifying risks and evaluating risk-reward trade-offs, as well as for understanding how much leadership and staff embrace and execute their risk strategy. The model suggests questions for boards and management teams to ask: Are we providing consistent, coherent, sustained, and visible leadership in terms of how we expect our people to behave and respond when dealing with risk? What tone do we set from the top? How do we reward and encourage appropriate risk-taking behaviors and challenge either overly risk-averse or risk-seeking behaviors? What risks does our current corporate culture create for the organization, and what risk culture is needed to ensure achievement of our corporate goals? Can people talk openly without fear of consequences or being ignored? These are all important questions.

Investors have developed index tools to track corporate governance; that is, the processes by which boards make decisions including who their members will be. With good reason, they believe that this approach will pay off. A widely cited 2004 study by Institutional Shareholder Services, a proxy advisory firm, concluded that firms with good corporate governance were more profitable, had higher stock market returns and dividend payouts, and less risky investments than those with weak governance structures.

Dedicated risk committees, assessments of board processes and culture, risk appetite statements, and scenario exercises can help organizations to better understand their risk relationships and to use that information to strengthen risk culture. But how effective they are will depend upon what their boards and companies do with this new insight and data: whether or not they recruit directors with risk skills and put those skills to use, whether companies provide boards with the information they need. Together, the board and management must include a range of risk attitudes, and understand and optimize their strengths and weaknesses in risk decision-making.

MANAGING RISK IN CROSS-CULTURAL GROUPS

Differences in risk attitudes also crop up regularly within big companies that have many divisions with different functions, or many branches or subsidiaries across geographies and cultures. Group dynamics can be particularly challenging in cross-cultural situations. Companies that understand this pay attention to how cultural norms shape responses to risk and are sensitive to differences within each culture. Again, risk empathy is crucial. That starts with listening carefully to a partner, client, or subsidiary’s biggest risk concerns: whether dangers to head off or opportunities that could be missed. It also means being aware of risk stereotypes among your peers, who might not be tuned in to important information or who might have exaggerated ideas of risk because of their attitudes or biases toward other countries or cultures.

Dan Sharp started his career in the Peace Corps, where volunteers built strong relationships with host country nationals. It was quite a culture shock when he joined Xerox in 1973 and became director of public affairs for Latin America, finding that Americans at corporate headquarters distrusted their country managers. In each country there was a general manager who was a host country national. All of them knew the lay of the land and the priorities the leaders of their countries wanted, but the executives back at home never bothered to ask about that.

Sharp started a regular quarterly update in which country general managers advised headquarters what was going on in their countries and what government and business priorities were. “By asking questions instead of ordering, we built trust,” Sharp said. “It helped us to work with governments rather than trying to impose our own goals without knowing how they fit with what was going on in the country.” And it changed the dynamic between national subsidiaries and the mother ship.

Thanks to that bottom-up approach, Xerox was way ahead of the game as the European Community was being formed. Two years before its competition, it started to reorganize its European businesses regionally and saved itself millions of dollars in the process. That process became a Harvard Business School case study embodying his approach to risk, which he dislikes calling risk management, in favor of “an affirmative search for opportunities.”

COMMUNICATING AND FRAMING RISK

Eren Aslan, a business continuity expert, has worked with both governments and the private sector helping to develop risk readiness. Often, his biggest task in trying to convey the urgency of plans to confront potential threats is that people don’t believe the worst is going to happen. It’s not their area of expertise, nor do they have any exposure. “When people push back, it’s because they don’t know,” he told me.

He learned to figure out a team’s social dynamics before trying to get everyone on board. In particular, he identifies both the vocal naysayers and quiet naysayers. First, he approaches the vocal naysayers privately and shares information with them in hopes of building their knowledge base before the whole team meets again. “When the team is against an idea, you need to go through the meeting again. Business continuity is a social science,” he said. “The challenge is to figure out what people are really saying, versus what they are trying to say.” That often involves finding out what people care about most and what additional resources they need to be able to focus on protecting themselves from risks that may not seem imminent, but that could be fatal if the company ignores them.

Companies need a mix of personality types to succeed: some team members who are willing to pursue opportunities and others who set up systems that help to hedge against risk. These personalities can either work at cross-purposes or recognize that their strengths complement each other. Often people self-select into departments based on their risk personalities: accounting and legal for the risk-averse, sales for the risk-takers. It’s important for departments to recognize these differences when they have to work together. These dynamics apply in social and family groups as well as businesses. The more work each member does on their own risk relationship and tries to understand the risk relationships of their team members, the more effective the group will be.

13

Reshaping Your Risk Relationship

WHEN COSS MARTE was twenty-two years old, he was making $2 million a year selling drugs in Lower Manhattan. At twenty-three, he was sentenced to seven years in prison. At the time, Marte weighed over 230 pounds and his cholesterol and blood pressure were through the roof. Staff in the prison medical unit told him he had maybe five years to live. That was less than his remaining sentence. That was the wake-up call he needed. “I’m not going to die in a nine-by-six-foot prison cell,” he vowed. Using only his body weight, he created a weight-loss regimen and lost more than seventy pounds in six months. He then helped twenty other people to get in shape; together, they lost more than one thousand pounds. When he got out of prison, he, like many former convicts, had a hard time getting a job. To get by, he started selling himself as a personal trainer, offering the conditioning program he had developed while behind bars. Eventually, he entered a Shark Tank-style entrepreneurship contest, which allowed him to open a gym on the exact same corner where he had been selling drugs.

The evolution of Marte’s relationship with risk reflects a mix of both negative and positive risks. From his early story in crime, to his health challenge, to being an entrepreneur and hiring people who other employers might think were too risky, he moved from falling into “bad” risks—whether actively breaking the law or passively allowing a risk to grow by neglecting his health—to being strategic about which “good” risks he embraced, like becoming a legal entrepreneur and making good choices about his health and relationship habits. The negative and positive risks are flip sides of the same coin.

“I wouldn’t recommend taking negative risks,” Marte told me when I visited him at his gym, CONBODY. “With positive risks, you can see positive outcomes or not any outcomes—but definitely less risk of ending up in debt or prisons.”

From early on, risk-taking was part of Marte’s family life. His father was an entrepreneur, first running a beekeeping business in the Dominican Republic, which was how he earned the money to send Coss’s mother to New York City. She was entrepreneurial, too, selling fragrances. Marte remembers growing up seeing her stopping people on the street or subway to spray them with perfume or rub them with lotion as part of her sales pitch. His father followed his mother to the United States in 1991 and started a bodega, which gave Marte his first job.

When he was eleven years old, he fell in with a crowd of kids who smoked marijuana. Soon, his entrepreneurial spirit kicked in. He got a beeper and started supplying his friends. The first time Marte was arrested, he was thirteen years old. He had sold a couple of bags of weed when a police officer came up behind them. The client spent the night in jail but Coss got probation because he was a minor. “It taught me I could get away with it,” Marte told me. When he was fifteen years old, he spent a year in juvenile detention because he violated probation. But when he got out, he quickly fell back into his old habits. He got kicked out of his first semester of college for dealing drugs. Back on the streets of New York City, his business expanded. So did his waistline as he sat in his car, driving around and using it as his base for dealing drugs. “I probably paid $40,000 in parking tickets,” he said. But he didn’t care. As the cash poured in, he bought expensive clothes. He ignored the risks he was taking with his health and freedom, until he was busted again and couldn’t ignore them anymore.

When he got out of prison seven years later, Marte quickly learned how hostile the job environment is to anyone with a criminal record. He not only found a way around that but, doing one better, developed a business model to solve the problem by hiring other ex-cons and making it part of his brand. He was accepted into Defy Ventures, a program to help former convicts switch from illegal to legal entrepreneurship. Requiring twenty-five hours a week, the eighteen-month program taught both “hard” and “soft” skills: finance, marketing, branding, people management, SWOT analysis, how to develop a business plan, and how to pitch to investors. Participants got to meet entrepreneurs and role models like Seth Godin and Tim Draper. To get by, he did housekeeping paying $8 an hour, a pittance in pricey Manhattan.

He ran workouts in the park until he had enough to rent ballet studios to hold classes. By early 2014, his bootstrapping finally gave him enough of a nest egg to formally launch his own company and rent a studio of his own. He did a TEDx talk about his experience that got him invitations to speak around the world, and dozens of franchise requests. Five years after he started CONBODY, he signed an eight-year lease for a bigger space for his gym on Ludlow Street, on the Lower East Side near the foot of the Williamsburg Bridge.

When we met in September 2019, he was pitching investors on a plan to expand. But despite his success so far and his employees’ track record of zero recidivism, investors were proving themselves to be surprisingly risk-averse. “They don’t always outright say so but they are concerned about risk of employees being ex-cons,” Marte told me.

An entirely different threat would put his business at risk early in 2020, when the pandemic led New York City to issue a shelter-in-place order and force gyms and other businesses to close until it was safe to open again. Nearly a year after we met, I touched base to see how he was doing. CONBODY’s studios were still closed, but Marte and his team had pivoted quickly to online classes and, once they were allowed, outdoor sessions. His early experience running workout sessions in parks came in handy. The program developed without special equipment lent itself well to an audience of people who found themselves homebound without all of the trappings of a gym on hand. He was getting ready to launch a new digital platform that would sync to users’ personal tracking devices and allow them to compete with other users. CONBODY’s new digital approach also gave it a much wider geographic reach and made it scalable in a way that in-person alone was not. Still, the days were getting shorter which made him nervous about the cold weather on its way. But the bad old days that gave him his start had made him a veteran at dealing with uncertainty and risk, and ironically made it easier for him to manage what the pandemic had thrown at him and other small business owners.

What shapes people’s relationship with risk? Falling into bad risk habits often is a matter of complacency mixed with circumstances. A “bad risk-taking” ecosystem sucked in the teenaged Coss Marte. A “good risk-taking” ecosystem pulled him out. Taking positive risks requires a motivation and catalyzing moment. It also takes role models and a support system.

You don’t need events as dramatic as Marte’s story to change your relationship with risk. Nor does your shift necessarily need to be a roller coaster ride. Attitude changes, developing habits, and applying tools can help you to reshape the dynamics of your risk relationship once you decide to take control of it. Talking to many people about how their risk relationship evolved, I noted several recurring themes. First, get out of your comfort zone regularly. Create a sense of urgency around the changes you want to see. Build your confidence and monitor your feelings so that you can learn when to rely on intuition and when to step back and be more methodical. Treat the risks in your life as a portfolio and diversify them so that some parts of your life become safety nets that allow you to take more “good” risks. Treat every decision as a risk decision.

MOTIVATION, INSPIRATION, REALIZATION

Jennifer Barc, a life and business coach based in Maryland, has identified three reasons clients make needed changes. For some, change comes almost naturally, driven by motivation and inspiration to actively create the environment they want. For others, necessity is the catalyst, like one of her clients who found out she had to move out of her condo within two weeks. The third group has a realization, often caused by some trigger, that pushes them to act before a problem becomes bigger.

A few are hybrids fusing together motivation and necessity. “They haven’t hit rock bottom, but they could be miserable,” Barc told me. “Those are the most personal cases. They have a more emotional connection to the situation at hand. When they are aware of how they are influenced by their emotional state, they are more likely to change.” That probably is the best description of how she herself got to where she is today. Barc was working as an information technology client support engineer and was good at it but found that the work didn’t fit her personality: it was too much about putting out fires and fixing things after they were broken, but not creative and forward-looking enough. So she moved to a software development company for five years. When she realized it was time to make a change again but wasn’t sure what was next, her friends started coming to her and asking if she could help them fix their lives.

She looks for patterns and root causes of the behaviors and habits she’s trying to help her clients change. How do they categorize things? (Do they categorize things at all?) What are their priorities? How do they decide what makes it to the top of the list? Helping one client to reorganize her house, Barc noticed a huge number of plastic bags. When they collected the bags, they made a knee-high pile that surprised her client. They then sat down to figure out why there were so many bags. Once the client figured out that she was keeping the clutter because she had a vague idea that she might repurpose them, she was able to see the pattern and break it. Three years later, she was still proudly plastic bag–free.

Barc started helping another client reorganize his small business. “It was a lot more than paperwork that needed to be dealt with,” she said. There was not enough planning or budgeting, which then led to a lack of discipline in spending, which then led to unpaid bills and logistical chaos. “Ninety-five percent of clients may have an issue of organization. If they have disorganization in the financial aspect, there also will be issues in project management, procurement, and other areas.” This can create a positive domino effect once they commit to dealing with their problems. “As soon as they fix one silo, they start to see dysfunction in the others,” Barc said.

The small businessman was eager to change, but inertia soon set in. “First it was two steps forward, one step back, then three steps forward and two back…” she said. After a good three months of wrestling with regression, she sat him down for a serious talk. It turned out he was frustrated by not seeing bigger results sooner, even though it takes time to change habits ingrained by decades of use. “The deeper you dig a hole, the longer it takes to get out,” Barc said.

Anyone wanting immediate gratification is bound to be disappointed. Some people give up because change doesn’t happen as fast as they would like it to. Others find that once they change one habit, it becomes easier to change others, and they charge ahead making bigger and bigger changes. The more progress you make, the more important, even urgent, it becomes to make more changes.

EVERY DECISION IS A RISK DECISION

Every decision you make involves weighing risks, even if you might not think of them that way. Even if it’s as mundane as taking a chance on a new recipe for dinner, every time you use your imagination and step out of your comfort zone, the more you use a risk lens to weigh the dilemmas you face, the less daunting they will become. Once you realize you take risks every day, you get better at approaching each one decisively. Recognize and reward yourself for that. Meanwhile, you’ll become savvier and more confident about stepping up when it comes to bigger and bigger risks.

Dr. Cindy McGovern, a San Francisco–based coach of sales teams, sees people struggling to balance risk and reward every single day, whether in dealing with clients or difficult colleagues. She worked with a financial-services firm that had the second highest market share in its segment. Despite its success, the biggest issue holding back the sales team was that they hesitated to ask current clients for more business, even though the company was over-delivering on the promises it had made. “They think the world could come crashing down and they would lose it all if they ask for more business,” she told me. “The risk is relatively low, but in their minds, they had built it up into a terrible thing to ask for more business.”

That may seem surprising, since salespeople by nature tend to be extroverts who are used to putting themselves out there. But they’re also laser-focused on accounts: signing as many as possible and losing as few as possible. And if their key performance indicators don’t reflect the importance of the quality of each account, they can become extremely loss-averse when it comes to their accounts.

This particular firm provided clients with classes and presentations as value added, which cost real money—no matter what the size of the account. McGovern helped team members to overcome their reticence by reminding them of the value they provide and what both they and the client stand to lose. It was providing a $10,000 a year client with training and education perks similar to what those paying $500,000 a year were getting. Over three years, the client hadn’t increased from its low starting level even though the firm had increased the level of services it provided, to the point at which it simply wasn’t profitable to keep the smallest account. When McGovern pressed the sales team on why they weren’t pushing this particular client to upgrade, the answer was the typical, “We don’t want to lose them as a client.”

McGovern got “Louisa,” the sales rep who handled the account, to calculate how much time she was spending with the client. Then she asked Louisa to revisualize the consequences of asking the firm to step up: either getting more business or losing the client. “What’s going to happen when they pull their business?” McGovern asked. “I will be devastated because I have been working so hard,” Louisa said. “But you have been working for free,” McGovern responded. That turned on a light bulb over Louisa’s head.

Finally, Louisa had the hard conversation with the client, which indeed pulled its business. She emailed McGovern to let her know: “Hallelujah!” Instead of being devastated, she was relieved. “It took us going down the rabbit hole to get there, but Louisa realized that the return on investment from that client was no longer a good one,” McGovern recalled.

Another client faced a challenge with an employee who had brought in a big book of business over the years, which his colleagues now managed. In meeting with the entire team, it became clear to McGovern that this particular employee was a bottleneck, deeply disliked by the staff and a major drag on morale. She warned the manager, “Kate,” that she was going to lose valuable team members if she kept “Steve” on. “We can’t lose the business,” Kate said. McGovern persisted, asking: “Is the business really Steve, or is it the people who have been working with the clients Steve brought in ten years ago? Is he interacting with them every day?” She warned Kate that she was putting more value on Steve’s happiness than on the business and risking the rest of the team. Months went by.

Lo and behold, Steve quit on his own. How much business do you think they lost? If you said zero, you’re right. And Steve’s now-former colleagues went out to happy hour together to celebrate. McGovern bumped into Kate a month or two later at a conference and told her that morale had skyrocketed since Steve’s departure. Seeing how the outcome turned out to be the opposite of what she had feared helped Kate to see how important it was to consider both positive and negative outcomes of a scenario. As that insight helped her to change her own relationship with risk, it created a ripple effect around her and her team.

RISK-TAKING IN RELATIONSHIPS

When he was in high school and college, Benjamin Ritter dedicated his life to becoming a professional soccer player: hours in practice and games, eating healthy food, avoiding drinking and drugs, and the social situations that tended to involve them. But then an injury dashed his dreams and forced him to recreate his identity since he could no longer define himself by soccer. And because soccer had been his whole world, he felt awkward and lost in other social situations.

So, with the same fervor with which he had thrown himself into soccer, he made it his top priority to become more comfortable in social situations. At coffee counters or bars, he would purposely sit between two strangers precisely because it felt so awkward. He took a series of odd jobs that pushed him out of his comfort zone and involved meeting lots of strangers: brand ambassador promotions for bars and movies that involved dressing up like a zombie and going up to strangers; handing out popsicles at music festivals; dressing up in little booty shorts and working a bar in Chicago’s Boystown neighborhood. In situations that once would have scared him, he became confident. He studied people’s reactions to the point at which just by looking at their body posture, he could predict how they would respond to him.

From his own life, he learned that the biggest risk you can take is staying in your comfort zone—and to regularly expand your boundaries. “We develop safeguards that get in the way,” he said. “Their safeguards—their idea of risk—has been clouding their ability to see opportunities.” For many people, those safeguards become shackles that, ironically, increase the risk in their life. To reduce overall risk, they need to get comfortable taking small risks. His experiences eventually led him to get a doctoral degree in education in organizational leadership, which he applied in the medical industry before starting his own practice. Through Live for Yourself Consulting, Ritter now coaches other people, helping them manage the risks in their life and work. He draws on his own story to help people to make a habit of regularly expanding their boundaries. “Put yourself in situations you aren’t confident in,” he says. “You may enjoy them or not, but you know that you are capable of dealing with them.”

He urges clients to ground themselves in a sense of purpose and put that at the center of any risk decisions. Notice how that purpose theme keeps popping up in conversations about risk? Indeed, purpose and values are key to relationships, which can be the biggest leap of faith that any of us takes. Being clear about your values is especially important to choosing and nurturing the right relationship. “If one of your values doesn’t include time management, don’t date someone whose is,” Ritter said.

CREATING A PORTFOLIO

A supportive personal relationship can be a key element of creating a good risk portfolio—a diverse set of risk levels and safety nets across all parts of your life—so that you know that even if one risk decision fails, you still have options and strengths. This risk portfolio gives you the freedom to “fail” at some risks, which in turn gives you knowledge and experience that you didn’t have before, and thus increases your chance of succeeding at the next venture.

RISK PORTFOLIO: Similar to an investment portfolio, your personal risk portfolio is the set of different types and levels of risk you face: health, financial, career, and relationship, for example.

Roger Hu is a Chinese American serial entrepreneur whose main focus was advising Chinese companies publicly traded on US markets when I met him in 2019. He shared the story of an earlier venture, an internet platform for golf fans across Asia. In 2012, during a mini boom in popularity of golf in China, Hu launched Teekart, which provided golf courses with digital marketing and tee-time booking services. Banned under Mao Zedong, golf was revived in the 1980s under Deng Xiaoping. In the beginning of this century, the number of golf courses started growing rapidly despite being controversial because of their environmental impact, use of public lands, and potential for facilitating corruption.

By 2015, Hu had attracted institutional investors and his company was growing. But that fall, China’s Communist Party banned golf club membership and a major investor in Teekart defaulted on its commitment. He had to downsize from a staff of sixty to just ten. Still, by switching his focus to other Asian countries and pivoting into golf travel for his large user base, he continued to try to make a go of it. But then, in January 2017, the Chinese government closed 111 golf courses, citing environmental concerns. What was left of the business collapsed. The failure was a major blow that led Hu to rethink his approach to business and risk. “Entrepreneurship was like an addiction, and I lost my grounding,” he told me. It was time to make a new start with a priority on sustaining a healthy mental state. “In hindsight, I think one very important lesson to me was finding the right balance in life,” he told me. “Teekart was literally crowding my mind 24/7, in my dreams and all, and every decision I made, which inevitably led me to make bad decisions.” His wife was pregnant with their first child and they were moving back to the United States. It was a new beginning.

Hu started over, mixing a steady consulting income with new entrepreneurial ventures. His consulting gave him stability and a renewed sense of his own worth. “It’s really about confidence and believing in yourself. When you realize you can create value from who you are, you can get back up and do it again.” He credits his network of business relationships and friends, who gathered around to build his confidence back up and provide other opportunities. Hu’s best friend is a big private equity investor who invested in Hu’s company. “He tells me ‘you don’t see how good you are.’ He even calls me ‘monster,’ which he means in a good way because he thinks incredible isn’t strong enough.”

His experience underscores one of the most powerful elements of your relationship with risk: the people around you and how much you rely on their input. They can help you recognize the risks you might be not be able to see on your own. Understanding your blind spots and filling them in with complementary points of view on a particular risk in question can help you navigate the maze in front of you. And when things go wrong, they can pull you through as long as you don’t let your ego get in the way. “Trust in these relationships is also extremely critical,” Hu said.

ACCELERATED SERENDIPITY

Mike LaRosa, a consultant and founder of the CoWorkaholic website, has visited hundreds of coworking spaces in dozens of countries, and counting, logging 200,000 miles a year before COVID-19. Coworking is more than his professional focus. “Coworking saved my life,” he often says. Being part of a coworking community did for him what twelve years of private education, seven-plus years of college, and countless hours of therapy had not accomplished. Before discovering coworking, he often found himself being restless, frustrated, and resentful. He went through a series of jobs, some of which he enjoyed at first until he didn’t anymore: managing a Starbucks and a retail store, working as a corporate trainer, and organizing corporate events. He’d burned too many bridges to go back. He was trying to run his own event planning business from home, struggling with depression and substance abuse and gaining weight. He sold his car because he needed the money and downsized to a scooter until an elderly driver ran into him and he landed in the hospital.

Things were not looking good, to put it delicately, when he went to a job interview at Washington, DC’s first coworking space. Finding that community was the turning point he needed to help him to break out of his depression and start to thrive. First of all, it created a routine and helped him with self-discipline: habits that create stability that then opens space for creativity and risk-taking. Even more important, everyone cared. They engaged with him. They had helpful suggestions and advice. They noticed if he was wasting time on social media instead of getting work done. He felt accountable and quickly went from being broke to knowing he had talent and, as the word spread and others recognized that too, to his new calling.

LaRosa calls it “accelerated serendipity”: being in a space where people are motivated, supportive, striving for something bigger, and quickly build trust. The social contact and human interaction made a big difference. There were designers, management consultants, coaches. Most important, they had a shared experience of risk so understood when he shared challenges he was facing, which made for a powerful sounding board. “Being around people who had a shared risk attitude helped me to take better, smarter, and more risks because I was surrounded by others in similar situations,” he said.

It also led him to the break he needed. Four staff members of an internet radio company were working in the same space and turned to him to help them launch a new live-events division. Unlike many consulting relationships, which LaRosa said can have an awkward power dynamic and arms-length relationship, this was a collaboration that happened easily and organically because they had all built up trust already. “This was a completely different experience because it started with ‘Oh, you’re just the guy that we got to know who sat next to us for the last three months. And we’ve learned about what you do and this is a need that we have.’ So it was more like the trust was built in from the beginning, so there was lower risk [in the relationship] and so there was higher appetite for risks because the trust was there,” he told me.

THE POWER OF YOUR PEERS

No matter whether it’s through a coworking space or other venue, gathering a supportive group of advisers and friends will give you the confidence to take on “good” risks as well as the support to fight “bad” risks. They can help you to clarify your purpose and reassure you of your worth or help you to find a new path when things are going wrong.

Do you have a chatty best friend who says what needs to be said? Think of two of my favorite character actresses—Joan Cusack, nominated for Academy Awards for her supporting roles in the romantic comedies Working Girl and In and Out, and more recently, Awkwafina in Crazy Rich Asians, guiding the main character through the minefield of family and hangers-on who opposed her relationship with Singapore’s most eligible bachelor.

If you don’t have trusted people in your life who will tell you what you don’t want to hear when it’s in your best interest to hear it, make it a priority to find them. Surround yourself with and regularly consult people who have experience and can help you to navigate what’s in front of you: a life coach, accountant, personal trainer, medical doctor, nutritionist, therapist, lawyer, dating coach, and, of course, the say-it-like-it-is best friend. Including a variety of voices and views will help you to make better decisions. You might think of it as your personal board of directors, starting with the question: Who can help me figure this out? Unlike a traditional board of directors, they likely won’t all meet at once; you’ll consult most of them individually.

Once you’ve assembled the people who can help you personally, consider joining a group where the goal is everyone’s success. Research shows that the people most likely to meet a goal—say, losing weight or starting your own business—do so when they are part of a group.

Peer accountability groups have helped people to share their challenges and support each other as they pursue and track their goals. Joining or building your own accountability group can help you to better manage the risks in your life: how to structure, choose members, schedule, set goals and consequences.

I’ve used accountability groups since long before I knew that’s what they were called. In the 1990s, I met regularly with a group of writer friends who got together on and off for a few years, picking restaurants we knew had good inexpensive food and choosing times we knew they wouldn’t be too crowded. We respectfully suggested ways to improve each other’s work and looked forward to others’ suggestions.

Since becoming a member of the Forum of Young Global Leaders in 2009, I’ve been lucky to be part of a group with tremendous expertise, empathy, and generosity of spirit. I’ve turned to other YGLs countless times for feedback. Sometimes it’s informal, mixed in with catching up with a friend. But over the years there have been more formal groups as well at summits and retreats in between. Many of us have used Bill George’s True North book and accompanying workbook and framework. In fact, my True North group is where I decided to make writing a priority again and chose the topic that would become The Gray Rhino.

From the groups of which I’ve been part, I’ve learned several principles that make for a successful collaboration. First of all, it’s important to establish an atmosphere of mutual understanding and trust. Establish confidentiality: what’s said in the group, stays in the group. Agree on how often you’ll meet and what your goals are. Agree to listen, and on how you’ll handle it if some members dominate the conversation. It can be very useful to have group members sign a shared statement of principles to strengthen your trust even more.

Think about how members’ perspectives differ—particularly when it comes to risk—and what strengths each person brings. Is one group member often seemingly harsh or abrupt, even if unintentionally so? Use that as a way to help build up your spine and ask yourself the hard questions. Do some members have expertise in particular areas? How comfortable is each of you with hearing the things you don’t want to hear? Some people like to hear the brutal truth, while others need more reassurance until they can recognize it on their own. How willing is each member with geting out of your comfort zones? Think about the combinations of approaches that will help each other the most. Set goals, put them on paper (or pixels), and remind each other when, as is bound to happen, you get too wrapped up in day-to-day challenges to keep your eye on the big picture.

Consider how members will keep themselves accountable to themselves and each other. What are you tracking? In a writing group, it’s fairly simple: you have to write something to get feedback, and to give useful feedback to others. Members of a writing group may have other goals, like finishing a manuscript by a certain date, or getting published in a particular medium. But you get the idea. Other groups will have their own goals with different metrics to track how well members are progressing, and strategies for helping people get back on track if they fall behind.

The rigorous feedback atmosphere that Ray Dalio cultivated at Bridgewater led the best-selling author Adam Grant to create his own “challenge network” of people who would give him the feedback he may not want to hear. Another best-selling author, Tim Ferriss, shared in a podcast interview with Grant that he uses a similar system.

One popular format is the mastermind group, a concept coined by Napoleon Hill and developed in his books The Law of Success (1925) and Think and Grow Rich (1937). Mastermind groups help members to brainstorm ideas, share information and resources, and support and encourage each other as well as holding members accountable. These groups are small, ranging from three to ten people who meet regularly, often gathering at a retreat where they can work intensely in a relaxing environment. Members may have to meet specific criteria, like annual revenues, or be nominated by a current member. Mastermind organizers and facilitators typically charge a fee, which can range widely depending on the group, for services including curating the right group and access to expertise.

Another is the microlending circle. Microfinance has long relied on the principle of group accountability to increase the rate of clients who pay back their loans and make the entire group less likely to default on what they owe. The Grameen Bank and imitators make loans to a group of microentrepreneurs who commit to make good on the group’s loans. Each individual thus is accountable to peers with whom they have a relationship, instead of to an impersonal company.

A fascinating kind of peer group, “Death Cafés” help people face the inevitable. Dying is, of course, an inevitability: when (and how), not if. The risk is not death but rather that you’ll leave loved ones to deal with chaotic possessions and finances, that you will die without telling people you love them, or that you will have failed to leave behind the legacy you want. Bernard Crettaz, a Swiss sociologist and ethnographer, hosted what is believed to be the first café mortel, in the town of Neuchâtel in 2004. The idea was to create a respectful, confidential space where people could meet and speak openly and respectfully about mortality without fear of being judged. Jon Underwood adapted the idea, starting a death café in England and eventually an organization to support the concept. Death Café, a social franchise, has since expanded to seventy-three countries, which combined hosted more than eleven thousand death cafés by June 2020. Tragically, Underwood passed away of leukemia in 2017 at only forty-four years old; his mother, sister, and wife now run the social franchise.

I learned about death cafés from the Reverend Barbara Simpson, an interfaith hospice chaplain whom I met through a mutual friend who died slowly and way too young of a degenerative neurological disease. Living in New York City, she saw a need for a way for people to talk about death. Having grown up in a small English village, Simpson took advantage of a visit to northern England in 2011 to connect with Underwood. When she returned home, she started a series of death cafés in New York City, beginning in her Upper West Side apartment and moving to the Ethical Culture Society as it grew.

Over tea in her apartment, Simpson shared how death cafés help people talk about what they fear and then create the end of life and legacy that they want. It includes topics as practical as advanced health-care directives for end-of-life care, environmentally friendly “green” burials, and funeral arrangements: things that can be frightening to speak of. But what the cafés really do is to create a circle of people who care about each other and the legacies they will leave behind. “It’s community that really helps people more than anything,” Simpson told me. “Isolation is an enemy.” Sharing of stories and readings and reflections on what people care about is central to the community, with surprising results. “The death café is really fun,” Simpson said. “We laugh a lot.” As they share and laugh, members develop an under-rated skill: getting comfortable talking about a very uncomfortable subject. In other words, as they get out of their comfort zone, that zone expands along with their perspectives.

CREATING A HEALTHY RISK CIRCLE

All of these peer support groups, from the tried-and-true Alcoholics Anonymous to newer approaches like mastermind groups and death cafés, demonstrate that the people around you can be your risk cushion. It can feel risky to open up and confide in others about your challenges and concerns; being that vulnerable is not easy. The group dynamic helps to keep you accountable and gives you a social circle that can help you to manage your fear of going outside of your comfort zone so that you can experience the rewards of taking a “good” risk.

Take a moment to think about the risk fingerprints of the people around you and ask how their perspectives affect your risk relationship. As we saw in chapter 5 and with Kashfia Rahman’s research on teenagers, being in a group that makes bad risk decisions can push you in a direction you don’t want to go. Your peers matter. Make it a habit of doing a temperature check from time to time to be sure that the risk habits and attitudes of the people around you support good risk decisions and behaviors—and make sure you spend more time with the people who lift you up instead of drag you down.

As we saw in Coss Marte’s story, the wrong circle can make it easy to fall into “bad” risks, but it takes a conscious effort and many people to get you into the habit of positive risk-taking. Good habits include making sure your actions and relationships are consistent with your values and motivation; looking at your decisions through a risk lens; making sure you get out of your comfort zone from time to time; and creating a risk portfolio so that you know you have safety in some parts of your life that give you the freedom to take the right risks even when they feel uncomfortable. The people around you can help you to reinforce these habits.

Ultimately, joining or creating a supportive group reduces the risks in your life because your circle gives you a chance to avoid blundering forward blindly or falling in with a crowd who leads you to take the kind of risks you don’t want or need; to connect you to resources that can support you; and ultimately, to get better at navigating an uncertain world.

14

Risking Globally, Risking Locally

THE WORLD IS getting scarier. Often it feels harder and harder to do much of anything to exert control over the risks we face in our daily lives, much less over many of the global risks facing the entire planet. Like past viruses that ignore national boundaries, the COVID-19 pandemic has raced around the world. Temperatures are rising and weather is becoming more extreme. Scientists warn that we risk the collapses of ecosystems—reefs, mangrove swamps, glaciers—and the life they support. Financial collapse in a single industry or country can create a domino effect across global financial markets, as happened with subprime mortgages in the Great Financial Crisis. The rise of disruptive new technologies and artificial intelligence have upended industries, changed global trade and employment trends, created deep anxiety over the future of work, and increased the speed of potential for the global spread of disinformation and hate speech. Even as inequality among countries shrinks, inequality within them has risen, leading to political and social instability, distrust in civil institutions, racial tensions, nationalism, and protectionism. As we saw in 2008 and more recently in June 2020, unrest in one country can ignite protests elsewhere.

These all intersect in a complex system. “When considered in isolation, individual risks—whether economic, geopolitical, societal, or environmental in character—give the false impression that they can be contained or mitigated; in real life, systemic connectivity shows this to be an artificial construct. In an interdependent world, risks amplify each other and, in so doing, have cascading effects,” Professor Klaus Schwab, founder of the World Economic Forum, and Thierry Malleret of Monthly Barometer wrote in their book COVID-19: The Great Reset. “That is why isolation or containment cannot rhyme with interdependence and interconnectedness.”

The more complex a problem is, the more uncertainty it involves, and the more daunting it seems. The COVID-19 pandemic has added a whole new level of complexity, uncertainty, and anxiety as it has become clearer how interrelated many of our most pressing global issues are. That makes them harder to solve and requires us to take on many challenges at once. It’s become harder to ignore racial and economic inequality as the pandemic has hit hardest in communities that have less access to good health care and whose members are most likely to have jobs they cannot do from home, forcing them to risk exposure in order to feed their families. Climate change has gotten more attention as the steep drop in economic activity has cut emissions sharply, resulting in clear skies and water and showing both that it is possible to reduce emissions through collective action, and that the benefits of doing so can be great. Studies have shown that people who live in more polluted areas have respiratory issues, which makes them more vulnerable to viruses like SARS-CoV-2. This adds to the urgency of cutting emissions; while pollution and greenhouse gases are not exactly the same, they go hand in hand.

The crisis has shown just how urgent it is that the world works together to address the most pressing risks, even as the huge financial stress that the pandemic caused appears to make it harder to do so. But that involves a whole new level of uncertainty: connecting and finding common interests with often unfamiliar nations and people.

Global risks like climate change, pandemics, or weapons of mass destruction may seem too big compared to the emotional, physical, or financial resources most of us have on hand. Traveling around the world to speak to all kinds of audiences, I get many questions: What can each one of us do about pollution and the environment? How do we deal with the job shocks coming with the advancement of robots and artificial intelligence? How do we navigate uncertainty? What can we do to protect ourselves if the economic bubble bursts? How can any one person affect global inequality? Or meaningfully slow climate change? Most people feel they have little control, and little say, even as they become more and more anxious over environmental and security issues. But they want to know what they can do anyway.

How do you find what you need to cope and, more importantly, to do your part to reduce these global risks?

PERSONAL AND COLLECTIVE AGENCY

Around the time of the 2016 US presidential race, I started seeing a lot of an expression that I don’t recall having seen nearly so often in popular media before: a “sense of (human) agency.” The media used the term much the same as the ancient Greeks did: in the sense that people’s actions can lead to results. Once largely confined to tedious academic papers, “human agency” broke into the public consciousness as journalists sought to explain the motivation behind a populist surge, particularly in the United States, of people who had no trust in government and were willing to do just about anything to gain a feeling that they had power. The term became so popular that actress-turned-Goop-preneur Gwyneth Paltrow even used it in a New York Times Magazine interview.

Whenever I think of global threats like pandemics or climate change, this question of agency comes to mind, front and center. As we have seen, whether or not we feel we can control a situation has a powerful influence on how risky we think a situation is, and how willing we are to do something about it. Agency is important in two senses: whether you feel personally that you have power as an individual to change things for the better, and whether you feel that working with those around you—your peers, fellow citizens, your organization, your government—will make a difference. These two concepts, personal and collective agency, go hand in hand. Each is more effective in combination with the other.

The more people see that others are doing something, the more they want to do it. Each person feels that they are contributing something, but it only works when a critical mass of people join in. The more people change their behavior, the more collective impact everyone has. And the more impact people are having, the better it feels, and the less discouraged people become. That removes the huge obstacle I mentioned: that people don’t act because they feel they don’t have any power to make a difference.

One of the silver linings of the pandemic has been that it has reinforced the importance of every single person doing their part: staying home unless absolutely necessary and protecting public health if they had to go out, social distancing, wearing a mask, washing hands and surfaces. I often hear that one of the (many) reasons we have not yet succeeded in heading off the accelerating climate crisis is that people feel they are too small to do something as individuals. The media encourages this defeatist thinking with too many stories about why whatever readers are doing to reduce their greenhouse gas emissions is futile, whether it is eating less meat, switching to a hybrid vehicle or bicycle or public transportation, conserving water or energy. Some of these stories claim that people doing their part absolve corporations and governments of their responsibility to fix the problem. Or they argue that doing a small thing will keep people from supporting bigger changes to save the planet. I can picture the editors assigning those articles to young reporters just learning the trade: “Get me something counterintuitive!”

These articles are wrong. I know from experience in organizations and as an active citizen that small acts make people more—not less—likely to do more of those small things and grow them into big things. Project Drawdown, an initiative aimed at reversing greenhouse gas emissions, has compiled lists of actions toward that end and estimated how much impact each solution could have. Rare, a conservation organization focused on behavior change, has analyzed the Project Drawdown solutions that involve behavior change: things like switching to new technologies, eating less meat and more plant-based foods, composting and reducing food waste, telecommuting instead of flying to meetings, using LED instead of traditional light bulbs, or using rideshare and public transportation. The potential they found is way more than those wet-behind-the-ears reporters would suggest. If people adopt all of these thirty behavioral changes at a large scale, we can reduce greenhouse gases by between 20 percent and 37 percent. That’s impressive and significant.

Here’s where anyone can be part of a virtuous cycle. The more we believe we have the power to change something, the more likely we are to recognize and face up to it. The more we believe our government protects us from risks, the more likely we are to support that government. And the more impact people and their governments are having, the better it feels, and the less discouraged people become. That removes the huge obstacle I mentioned: that people don’t act because they feel they don’t have any power to make a difference. And big global risks need lots and lots of people around the world to make a difference together. That starts with making sure they believe they have the power to do so.

GLOBAL CATASTROPHIC RISKS

The Global Challenges Foundation and the research group ComRes surveyed more than eight thousand people in eight countries in 2017 about their attitudes toward global catastrophic risks and how prepared we are to combat them. The survey found that three quarters of adults considered themselves to be global citizens, and 62 percent of adults agreed that they personally could make a difference on global challenges. At the same time, in all of the countries surveyed, most adults put more confidence in organizations and groups over individuals alone when it comes to responding effectively to global risks. The older people were, the more that was true. Strikingly, the survey also found that nearly as many—58 percent—of adults felt that just one person could hurt global cooperation on risks. The numbers where belief in this destructive agency were highest in South Africa (68 percent) and the United States (63 percent). And younger people were much more likely (66 percent) than older people (49 percent) to believe in their own power to set back global cooperation.

The strength of this belief in negative agency may explain why some people have been so adamant in their refusal to accept that human-caused climate change or even the COVID-19 pandemic are real. Seeing problems that appear to be far too big and beyond their ability to change, people have refused to change their behavior to produce less waste and pollution, angrily resisted calls for them to wear masks amid a pandemic, and even harassed health-care workers and employees of stores who were asking them to protect their own and others’ safety.

How do we convince more humans on Planet Earth to work together to reduce these global catastrophic risks? How do we replace negative agency with positive agency?

CONSTRUCTIVE CHANGE

Wearing a jaunty gray tweed beret, Professor Sang-jin Han bounded down the steps to greet me and guide me to his office at his foundation in Seoul. It had been a quarter-century since I took his graduate seminar on democratic transitions at Columbia University, where he was a visiting professor, and he retired from teaching at Seoul National University in 2010. Though his hair had a bit more gray in it than the last time I had seen him, he was the very embodiment of youthful energy. As I caught up with Professor Han and his wife and collaborator Young-hee Shim, we discovered many overlaps that had developed between our work over the intervening years.

In 1995, a few years after that Columbia seminar, Koreans were shocked by the deaths of more than one hundred people in a gas explosion in a subway tunnel in Daegu; then just a couple months later, by more than five hundred deaths in a Seoul department store collapse. Combined with deaths and destruction wreaked by Tropical Storm Janis and a political corruption scandal, these events were examples of the types of risks that modernity brings with it: human activities carried out with too little attention to making sure things did not go wrong. Thus began his immersion in risk society theory and a deep collaboration with Ulrich Beck, the German sociologist; and the British sociologist Anthony Giddens around global risks. “Risk society” theory focuses on the risks that are the direct (even if often unintended) consequences of successful modernization: climate crisis, technology, inequality, financial crises, terrorism. These are human-driven, self-inflicted risks, as opposed to the risks earlier societies faced, which emerged from nature. The earliest cave people risked getting eaten by a mountain lion, starving, or being washed away by a flood; today, that mountain lion might appear because humans destroyed its habitat, and people who starve or drown in storms likely are victims of extreme weather caused by human-induced climate change. As Beck put it, “The world can no longer control the dangers produced by modernity; to be precise, the belief that modern society can control the dangers that itself produces is collapsing—not because of its omissions and defeats but of its triumphs.”

Han’s work on risk is closely tied to the sociology of human agency, with personal roots in his experiences. As a young high-school student in Korea, he experienced the April student revolution in 1960 and the military coup d’état in May 1961. Amid the 1964 student protests against Korea’s rapprochement with Japan, he created a study group aimed at finding a constructive path forward. The military shut the group down, then drafted him. In 1971, the military arrested and jailed him, though he was later acquitted of the charges against him. He went on to pursue his PhD at Southern Illinois University, then to postdoctoral studies at Bielefeld University in Germany.

On his return to Seoul in 1981 to teach at Seoul National University, Professor Han began developing what later became known as joongmin theory—joong being the middle class, and min being popular force—to create a better framework for responding to societal and global dangers. He wanted to find a way to harmonize the hierarchical nature of Confucian philosophy with the power of grassroots movements and empowering individual citizens. In other words, he sought a healthy balance incorporating individual empowerment and community well-being with active, constructive engagement between citizens and the state. He now defines joongmin as “a participatory group that prefers rational reform.” Han’s work is particularly compelling because it bridges Western and Asian conceptions of individual and collective agency, as well as authoritarian and democratic styles of government. It also is especially well suited to South Korean society’s acute sensitivity to risk.

Like Beck, Han sees risk as a signal of successful modernization, not as a consequence of failing. Korea’s impressive economic development over the past three decades prioritized speed over process, size over substance, and quantity over quality. “Everyone was driven to get more, to invest more, to get things done faster than planned, to expand, and so on, without taking into account the quality and long-term consequences of this drive—without properly addressing the issue of risks and their management,” he has written. “The preoccupation with growth, speed, and size was too overwhelming to reasonably consider the conceivable risks.” But now it is time for what Beck and his collaborators have termed a “second modernity”: a time of new awareness of risks and the development of new social and political structures that can address them both globally and locally.

Some of South Korea’s most powerful citizen movements have been catalyzed by the government’s failure to protect them from risks that should have been preventable. Just six months before my trip to Seoul, the country had removed its president, Park Geun-hye, over a litany of corruption complaints. But the failing that most angered Koreans was her inexplicable and unforgivable absence for seven hours after the Sewol ferry disaster, which left deep emotional scars. In April 2014, the ferry sank, killing more than three hundred people, mostly students. Citizens were outraged at the behavior of the captain and three crew members, who were charged with murder, and eleven others, who were indicted for abandoning ship; at the operator’s negligence and illegal redesign of the ship; at regulators’ failures to prevent the disaster; and at the government’s cover-up and failure to accept responsibility. As I strolled around Gwanghwamun Plaza in central Seoul in October 2017, months after the candlelight protests that catalyzed Park’s impeachment, yellow ribbons were still visible memorializing the ferry victims. Later that evening, there were two competing protests along the plaza; one in support of the victims and one in support of the deposed president.

All of this took place as Donald Trump and Kim Jong-Un slung insults at each other following North Korea’s nuclear test weeks earlier. Back in the United States, the nuclear dispute was all over the news. But in Seoul, the logical target of a potential attack, it took back seat to the unhealed wounds from the ferry accident. On my afternoon walk, I passed a man holding a sign with Trump’s screaming head superimposed on a Nazi uniform next to a flaming cloud and a message that boiled down to roughly “Madman, stay away! No nuclear war.” Still, I was disappointed that the Joint Security area along the border was closed, so I would not get a chance to see it when I visited the Demilitarized Zone.

By and large, however, Seoul seemed to be relatively nonplussed by all of the nuclear chest-thumping. My new Korean friends asked me if I was surprised that they were so calm about the threat. It was a good question. Part of the answer, I think, was that they had been living with it for so long that they tuned it out. But more important was that they were focused on the local, personally relevant issues that they cared about. Too many of the big decisions about North Korea were being made in Washington and Beijing, with Seoul playing a surprisingly bit part given the enormity of its stake in the matter on which its very existence relied.

That’s an important lesson for thinking about how to get citizens to care more about global risks: People care about local issues and want to be able to participate. When global risks are framed as local challenges that people can get involved in fixing, they are more likely to act and to want their governments to do so as well.

What was happening in Seoul was a somewhat unusual case, since typically many people don’t pay much attention to global risks until they experience them locally. Here was a local and global risk that people downplayed, perhaps because that was the only way to get through each day. Perhaps their inability to control a clear and present danger was the reason that they focused so intensely on risks they are more likely to control.

Professor Han had piqued my interest in Beck’s ideas, so as soon as I returned to Chicago, I dove in. Beck’s dense academic prose, which the process of translation from German no doubt did not make any easier, is not for the faint of heart. The many flashes of brilliance throughout, to which I cannot do full justice here, made it worth the effort.

Beck writes of how modernity has created threats that transcend national borders, a “global community of threats” that require global responses. “Perceiving global risks calls for a cosmopolitan outlook,” Beck wrote in World at Risk, his 2008 sequel to his seminal Risk Society. By this he meant incorporating citizens of other nations in decisions involving risks that could affect them, too—say, climate or financial risks in which decisions and actions can cause devastation halfway around the world.

This is not mere altruism, because these risks also can boomerang back to their origins in an interconnected economy. A stricken country buys fewer goods and services, for example. It also may send waves of migrants to countries whose economies and societies have limited capacity to absorb them.

“On the one hand, global risks, crises, and threats are cited as the motors of a growing awareness of globality,” Beck wrote. “On the other hand, unequal social impacts and vulnerabilities spark risk conflicts that stubbornly resist any global standardization.”

Decisions with global risk implications depend on national and local governments, which in turn depend on public perceptions that lead citizens to support sometimes difficult decisions. Ultimately, Beck believed that such a mindset shift was possible: “Paradoxically, the challenges posed by global threats provide it with a source of new global morality and action,” he wrote. He framed the social structures of the future as David not against but rather plus Goliath.

A new global cosmopolitan vision, Beck believed, requires both shock and catharsis. Could COVID-19 be that?

ME-HERE-NOW VERSUS US-EVERYWHERE-FOREVER

Peter Atwater, an adjunct lecturer in the economics department at William & Mary and the founder of the consultancy Financial Insyghts, tracks the relationship between social mood and confidence in the face of uncertainty, and in turn the effect of this dynamic on risk perception and people’s willingness to consider how their futures are connected with those of others. You could think of social mood as a synonym for confidence when it comes to groups. Both combine a measure of certainty with our beliefs, thoughts, and feelings, and project that combination to create an outlook for the future. Social mood and confidence, in turn, shape our perceptions of what is certain and what is not.

In uncertain times, Atwater says, humans lose confidence and narrow their scope. They become tightly focused on the “me-here-now.” That is, we think mainly about short-term risks to ourselves in our current state. We want things to be as concrete as possible. The more fearful we are, the smaller our worlds become. In times of greater prosperity and confidence, by contrast, people’s perspective widens, to “us-everywhere-forever.” Our ability to think in the abstract increases. And the higher our social mood and confidence, the greater our certainty becomes. Unfortunately, to head off risks and, especially, to get through times of crisis, we need an us-everywhere-forever approach—much along the lines of Beck’s vision—to get us out. Looking at self-interest from a communal, global, long-term perspective is an important step toward confronting risks that face us now and will in the future.

When social mood goes up, we become capable of seeing risks as affecting those around us and looking into the future. But not always. In fact, it can backfire. It can lead to overconfidence and dangerous decisions. In his book Moods and Markets, Atwater describes how the zeitgeist—the defining spirit or mood of a particular time in history—affects how people see risk. “At the very top, many corporate leaders openly ridicule their internal risk managers as obstacles to doing business; and many CEOs even go so far as to publicly overrule their risk teams, canceling hedges and entering into bold, long-term contracts that assume continued robust growth/price appreciation,” Atwater writes. Boards of directors go along, and regulators, creditors, and rating agencies all fall into lockstep. “At the very top, there is a collective abdication of risk management.”

I spoke with Atwater about how social mood and confidence levels affect risk-taking. “The world is no more nor no less certain than it has ever been,” he told me. “What’s really changing is your perception of the world. So on September 10, 2001, you were deluded from an optimistic perspective about the certainty of world. Equally, on September 12th, you were equally deluded on a pessimistic basis. What you have to do is go back and remind yourself that the variation is not in the world around us but that it is in our own perceptions.”

We perceive events far in the future to be much less certain than those that are imminent—and rightly so. We’re also much more confident about the decisions we make about short-term issues. “There are two things necessary for me to feel confidence,” Atwater said. “I have to feel that things are relatively predictable. And I have to have a view that I have some sort of control.” These two factors affect whether we are likely to embrace or fear a particular risk.

Atwater uses a quadrant to represent how confident people are in particular situations. In environments of high certainty and control, our high confidence brings with it us-everywhere-forever thinking and a willingness to take risk—and at the extremes too much risk. On the other hand, when we lack certainty and control, we exhibit me-here-now thinking. Feeling underconfident, we often take too little risk.

The top right-hand quadrant—in control in a predictable world—represents our comfort zone. People tend to like control and predictability. The lower left-hand quadrant is where we have no comfort. We abhor uncertainty and powerlessness—especially when combined. You might picture the bottom right, where we have no control but the conditions are fairly predictable, as flying in an airplane or living in a prison. But the bottom right is fragile: air turbulence sends people into panic and prayer mode. The top left is a casino: you control whether you bet or not, but you can’t predict the outcome. “But if you talk to gamblers they believe they have predictability. Someone on a lucky streak says ‘I am going to win,’ ” Atwater told me. That’s not an accident: casinos and their cousins, the financial markets, try hard to persuade people that wins are more predictable than they are in reality.

These collective attitudes create the social moods that Atwater studies. In turn, these moods define the scope of risks and how to deal with them: everyone for themselves, or as shared challenges to be managed together. Seen through Atwater’s me-here-now versus us-everywhere-forever lens, the current state of affairs in the world is troubling. The more complex risks are, the more uncertain the world becomes. But as uncertainty intensifies, the harder it is to hold on to the us-everywhere-forever attitude that the world needs to address those risks. In other words, the very conditions that create uncertainty also make it harder to feel confidence that we can find solutions.

A GLOBAL RISK POOLING RESERVE FUND

The very origin of the clans, tribes, and city-states that eventually evolved into nations were created to pool risks and protect their members—essentially to give groups of people the confidence that they could survive a world of hazards. Though for a long time most people tended to think of citizenship as tied to a single nation-state, and though many still do, that way of thinking is obsolete.

For a world at risk, we need to go one step further. To reduce global risks, we need to consider ourselves as multilayered citizens: of our communities, of our nations, and of our shared planet. Multilateral organizations evolved over the 20th century and continue to do so with the same purpose and recognition: that citizens of the planet face risks that can only be managed through cooperation.

“Our hubris is no shield against planetary risks,” Dr. Arunabha Ghosh, CEO of the India-based Council on Energy, Environment and Water, said in a speech to the United Nations’ High-level Forum on Sustainable Development. “Masters of the planet we might have become—but vulnerable we remain.” He pointed out that today’s biggest gravest concerns involve “tail risks,” which are unlikely but can be catastrophic—like the COVID-19 pandemic and severe climate shocks: “With growing environmental and health stresses, such calamitous events are likely to take place more often and overlap with one another, potentially overwhelming both international and individual state response capacities.”

Ghosh noted that when it comes to issues where countries have common agreements, it’s often hard to consummate them because some states are concerned about free riders or otherwise cannot make collective action work. This is a classic example of the challenge that political scientists call the tragedy of the commons, under which some actors decide to let others solve problems for them, which in turn discourages other actors from doing their part, and so on… until nobody does anything to fix it. Unfortunately, when any country falls short in its efforts to control global risks, it affects the rest of the world.

In contrast to focusing on the benefits countries could mutually achieve by working together, Ghosh proposes to solve the tragedy of the commons problem through the opposite approach: “A focus on common aversions—outcomes we all wish to avoid—changes the game to one of coordination as everyone must follow the same rules to avoid a car crash. We all have an interest in avoiding pandemics, extreme weather events, or a collapse in agricultural output.”

To that end, Ghosh has proposed a Global Risk Pooling Reserve Fund to act as an insurance cushion against climate, environmental, and health risks. The entire insurance industry is based on the idea that if many people combine their risks and together allocate resources to protect whoever a particular risk hits, the cost to everyone is much lower. The same principle comes into play here. Everyone on the planet faces global risks. Some countries have contributed more to creating these risks, and some—not necessarily the same ones—have greater means to protect themselves. By combining resources, countries can insure citizens against the impact of global risks at a much lower cost and much more efficiently than any single country could do and ensure that they have resources to manage disasters when—not if—they strike.

So how would this risk pooling fund work? Bear with me for a moment while I explain, because it’s important to show that there’s a workable plan. An insurance fund would be created to insure different kinds of climate-related risks, like coastal or river flood basin storm damage, or inland droughts, wildfires, crop failures, depleted aquifers, or cities running out of water. Countries would allocate to the fund a share of their International Monetary Fund Special Drawing Rights, a quasi-currency created in 1960 to serve as an international reserve asset; its value is based on a basket of five currencies. The fund would then reinsure risks above its resources via private reinsurers or to multilateral and/or national development banks. Countries could draw on the fund in the event of climate-related disasters over a certain threshold: say, a category three hurricane, or a drought above a certain number of days. In turn, because they would have some protection against climate-caused financial shocks, developing countries could raise funds more cheaply for sustainable infrastructure projects, such as clean energy, electric mobility, and sustainable agriculture, that would reduce the risks posed by a changing climate.

In addition, Ghosh proposes a Climate Risk Atlas for Developing Countries, which would measure how vulnerable countries are to climate change and the progress that they are making. This is key for two reasons. First, as noted above, when they lower their risks, they (and the companies based there) can get financing at a lower cost, enabling them to invest more in reducing risks even further and in growing their economies.

Second—and I cannot stress enough how key this is—such a tracking tool would help people around the world watch as countries make progress. This will show that collectively citizens and countries do have the power to face the problem and change things for the better. It also makes it harder for people and their governments to blame other countries for not acting, in order to avoid doing their own part. The climate crisis suffers from the tragedy of the commons: the tendency for some people and nations to free-ride and let others do the work. It’s like the memory that COVID-19 dredged up of the mathematical modeling for social science class that I took in college when my math skills were the weakest in the group but I ended up doing the lion’s share of the work on an epidemiology project. (Our grade was not very good, but I don’t think I’ve been prouder of grades that were higher.) But when everyone’s input gets tracked, it’s harder for freeloaders to get off the hook for slacking.

Finally, a tracking tool would scale climate challenges down to individual tasks for each nation that feel more manageable and easier to celebrate—and allow each country to take credit for—when they are achieved. Celebrating progress encourages more of it.

A NEW GLOBAL GENERATION

In May 2019, I spent a few days in Aspen, Colorado, to participate in the launch of Earth’s Call, an initiative meant to support innovative solutions to the climate crisis. It brought together social entrepreneurs, aging hippies, appropriately tanned philanthropists, tech entrepreneurs and Burning Man regulars, Native American leaders, artists, musicians, and climate activists. A line of severe thunderstorms had disrupted flights on the final leg of the trip, from Denver to Aspen, so participants were travel-addled as we straggled into the welcome cocktail hour. Happy to at last be somewhere that was not the Denver airport, I sat down on a couch. An earnest teenager with warm brown eyes and long brown hair plopped down in the seat next to me. “Hi! I’m Haven!” That is, Haven Coleman, the then twelve-year-old co–executive director of the Youth Climate Strike in the United States. She explained that she’d had to travel with her dad as a chaperone because she wasn’t old enough to go by herself. Her energy was endearing, inspiring, and encouraging.

The next day would be the first Friday of 2019 that the seventh-grader had not stood in front of a government building or business storefront in her hometown, Denver, holding up posters to draw attention to the climate crisis as part of a global movement of young people—notably Sweden’s Greta Thunberg—skipping school once a week to “strike” in support of smarter climate policies. Just two months earlier, more than one million students had joined in more than two thousand strikes in one hundred twenty-five countries. By that September, more than four million students around the world joined in for a series of 4,500 strikes across one hundred fifty countries. The global connections among young people across the planet reinforced the movement, showing that no country was alone in its efforts to save the planet.

In 2017, Coleman made the news for trying to convince the state of Colorado’s elected representatives to switch from climate denial to embracing efforts to solve the problem. That April, she spoke out at a town hall held by Colorado Republican Representative Doug Lamborn, urging him to embrace renewable energy then invited him to join her science class the following week (he declined). A few months later, she made an impassioned plea to Colorado Senator Cory Gardner, a Republican whose campaign was supported by fossil fuel companies. Stepping up to the microphone at a town hall, she urged him to create a climate solutions caucus in Congress and take up the fight against climate change. “It’s morally right to stand up and fix this so that your kids and I don’t have to suffer when we’re older,” she said. “If the carbon polluters’ money is holding you back, I can organize kids, adults, and money and we can use social media and do grassroots.”

Coleman was joined in Aspen by several other youth (though most of them were not quite as youthful as she was) activists from all around the world. Melati and Isabel Wijsen spoke about their successful campaign to ban single-use plastic on the Indonesian island of Bali. Born in the United States and raised in Mexico, Xiuhtezcatl Martinez, not only a climate activist but also a rapper, was there representing Earth Guardians Youth. Martinez was a coplaintiff in two climate-related lawsuits against the United States government: Juliana v. United States and Martinez v. Colorado Oil and Gas Conservation Commission.

Together, young people and students around the world have been able to draw attention to the climate crisis in a way that we “grown-ups” have failed to do. And why shouldn’t they? It’s their future at risk even more than ours is. Older generations may pay less attention to longer term, slower moving risks because they feel they won’t be affected, but millennials, Gen Z, and whatever we call the generations that come after them will spend a much greater part of their lives on a planet where extreme weather and changing climate are an everyday reality.

A SHARED PATH FORWARD

We need a global new risk ecosystem appropriate to the times: one that pools risk equitably across countries, celebrates progress reducing risk, and engages citizens to apply their personal agency to support collective goals.

Paradoxically, the more success activists have achieved in getting their issues on the agenda at big global summits, the less connected and empowered many people feel. Climate change or weapons of mass destruction become the responsibility of the United Nations, G-7, G-20, or whatever the group of the moment is. That’s why ongoing communication and sharing of knowledge about global catastrophic risks is so important. But for it to be effective, we need to include ways for individual citizens to engage and do their part—and feel that they are making a difference far beyond their own community.

Globalists need to understand that to people who have never been on an airplane, much less to a foreign country, a globalized world is intimidating. Around 42 percent of Americans have a passport, up more than eight-fold in the last three decades but still well below 76 percent of British citizens and 66 percent of Canadians. Only 20 percent of Americans can converse in two or more languages, far below the 56 percent of Europeans with that skill.

My family roots are in Wisconsin, where the words “that’s different” are not a compliment. But from an early age, when my Belgian-born mother taped index cards into my picture books with French translations (Êtes-vous ma mère?), I was aware of other countries, languages, and cultures. I traveled abroad for the first time when I was sixteen, spending a summer in Germany and Belgium. I lived in the Dominican Republic in college. I remember how excited and nervous I was before getting on the airplanes for those trips. Since then I’ve traveled all over the place, met world leaders, eaten all kinds of foods, and had many adventures. I am lucky to have a global network of friends and business contacts. Much of my career has involved bridging the gap between the world I live in now and the world where I grew up: between a cosmopolitan, global outlook and an American-as-apple-pie mindset. Both have value, and both can learn from each other.

The most important thing that you can do is to learn as much as you can about global risks. As we’ve learned, knowledge can give you a sense of control. It also can give you the power to do what you can within your own sphere of influence, whether that means changing your behavior in daily life and in your community—both of which yield the most direct, concrete, and satisfying results—along with or supporting your government when it makes tough decisions to head off future catastrophe.

15

A New Risk Vocabulary

WHEN ARTIST DRUE Kataoka, Founder of Drue Kataoka Studios, talks about risks, she doesn’t just mean the business or creative risks involved with making art for a living. She also means physical risks, such as those she undertook to create After the Celestial Axe. This stunning forest sculpture involved thousands of mirror fragments that she and her team arranged by cutting open twenty-seven surfaces (some six feet wide) across a massive, fallen oak tree. To execute her vision of this glittering “jewel in the forest,” she had to learn how to drive two tractors and also hired two burly men to wield six-foot chainsaws. A giant slab of wood hit one of them in the head and sent him tumbling down a hill. She also works with molten metal for her “celestial lace” mirror-polished stainless-steel sculpture series; not for the faint of heart. And she explores the intersection of art and technology, with part of one of her brush paintings traveling into space for the first zero-gravity art exhibit at the International Space Station. It was cut out from a larger canvas that stayed on Earth; when it returned to our planet, the cut-out was slightly younger than the part that stayed at home, the result of time dilation effects described by Einstein’s Special Theory of Relativity.

Risk, uncertainty, and making great leaps into the unknown are at the very heart of art and creativity. “Often in other disciplines your main interest is in defending your point of view and figuring out how to entrench yourself deeper into it,” she told me. “As an artist, you may want to deliberately jump out of your skin and leap into another’s, assuming their vantage point,” Kataoka said. “You do it knowing that the first attempt may be a complete failure, but that if you keep moving and trying different things, different techniques, different processes, experiment, experiment, iterate, iterate, and test, you’ll make important discoveries. Ultimately, as you travel these different nonlinear roads, certain things get revealed to you that you couldn’t have figured out otherwise. New techniques and new ideas emerge. And they are the gems that become the points of departure for other, new directions.”

Kataoka continues to be obsessed with time travel of a different sort from her time dilation-based artwork Up! that went into outer space and back: immortal works, which she defines as art that is so transformative that it lasts across time. Immortal works requires big risks financially, emotionally, creatively, and often physically. “I look back at works that artists like Michelangelo or Leonardo da Vinci left us, and so many artistic masterpieces, whether they’re in the Forbidden City or the Louvre or the Vatican,” she told me. “If they lasted for this amount of time, what was it that made them immortal works, and why are they still resonating with us today? What is the environment that gave birth to the immortal artworks, which are the transformative high watermarks of the Renaissance? How did they do that?” And, by extension: What risks did those artists take and why?

Think of the ceiling of the Sistine Chapel, which resulted from the combination of Michelangelo’s own talent and risk fingerprint with a broader ecosystem that allowed him to blossom: visionary patrons who gave him the freedom to take artistic risks, and the creative and intellectual energy of the Renaissance. The giant mural on the ceiling was not only a momentous physical undertaking, but also a huge creative risk even for an artist of Michelangelo’s caliber. Known for working with marble, he had no experience painting frescos. And it was a huge financial risk for his Vatican patrons.

Kataoka was born in Tokyo to an American mother and Japanese father of samurai lineage, giving her one foot in the East and one in the West. She knew from an early age that she wanted to be an artist. Later, in high school in the San Francisco Bay Area, she made two decisions that her mentors and friends told her were crazy: foregoing a traditional art school to select Stanford University instead and not going to New York or Paris like budding artists were expected to do. “I have always had an interdisciplinary approach to art and to creativity, and I knew art school wasn’t going to prepare me for the world that was unfolding and changing very fast,” she said. She followed her gut instinct that Silicon Valley was the place to be for an artist to respond to new social and economic trends catalyzed by technology: “Back then I said Silicon Valley is going to be the creative, cultural epicenter of the world and people laughed. Today it’s clear how the creative and cultural shock waves that emanate from this place affect societies globally in such a huge, transformative way.” It was a big, counterintuitive career risk, but her instinct turned out to be accurate.

By the time she was a senior in high school, Kataoka had mastered the art of Japanese ink-painting. After creating a large body of work on traditional subject matter such as cherry blossoms, bamboo leaves, and misted landscapes, she started to use traditional techniques to capture a radically different subject matter: American jazz musicians, athletes, and political figures. She felt that this was still true to the ancient Zen principle of residing in and capturing the essence of the present moment, which no longer contained the picturesque views Zen monks had witnessed millennia ago. Stanford University’s athletic director learned of her work and invited her to install a fifty-painting exhibit that was so popular that its original six-month run was extended to four years. The paintings she sold paid for her entire university education at Stanford and got her signed to a gallery upon graduating, which is the traditional path for many artists.

But it quickly became clear that being in a gallery was a huge step backward because Kataoka lost both money and creative control. “People are often surprised to learn that galleries take 50 percent from the artist with each sale, and all art is given on consignment to the gallery until it sells, so that the artist assumes the risk,” she said, adding that the terms are some of the worst of any industry. “Galleries also creatively constrain the artist by saying, ‘Hey why don’t you do more of this “safer” work that we know is guaranteed to sell well and less of the “risky” but ultimately more significant art.’ They are just a form of retail, and in retail standardized products are much easier to sell than highly differentiated, unique, and ambitious—that is, risky—artwork. If Michelangelo had had a gallerist when he was asked to do the Sistine Chapel, the gallerist would have said, ‘Stick to your marbles. We know what’s selling well, and what you do best, so let’s just keep going with that.’ ” After just one year, Kataoka took another unexpected risk, leaving the gallery where her work was selling well and starting her own studio, which allowed her to sell direct to consumer and interact with her collectors. “From the beginning, I ran my studio like a Silicon Valley start-up: lean, agile, and disruptive. With the middlemen gone, I could invest so many more resources into expensive materials and research and development.”

Her creative and business risk-taking go hand in hand. “My art studio bets on risk; we have bet on change, if you will, from day one,” Kataoka said. “If you think about things from the establishment point of view, a risk is change happening. For me, and for us in our studio, the risk would be change not happening.”

Kataoka looks at the tectonic shifts going on in the world today and sees not just uncertainty but possibility: creative opportunities to explore, just as happened during the Renaissance. “I feel like we’re actually returning to something that happens in dynamic times of creativity, like the Renaissance, when you have great people like Leonardo da Vinci and Michelangelo and all these different exchanges and surface area between all these different disciplines,” she said. “That’s the thing that led to great leaps in innovation and thinking.”

The Renaissance was a time of great uncertainty and complex interactions of ideas, a time of great ambitions and great risks. In some ways, not unlike Annie Edson Taylor’s world or other periods of great turmoil but also great progress. “Disorder is embedded in the Greek creation myth, where in the beginning there was not light but chaos. That wasn’t necessarily a bad thing,” the journalist Tim Weiner wrote in The Geography of Genius, his exploration of how and why creative genius flourishes at particular times and places. “For the Greeks—and, as I’d later learn, Hindus too—chaos is the raw material of creativity.”

If so, then in the wake of COVID-19, we have an abundance of the raw material of creativity. The question for us today is whether we can take these ingredients and use them to make great strides: to replicate the parts of the cultural, economic, and social ecosystems that created Michelangelo and his artistic, scientific, and other counterparts across time and geography. Can we tap into our own uncertain times to create something better?

If we were to create a risk ecosystem as powerful as that of the Renaissance, what would that look like when transposed to our own times? Michelangelo’s patrons provided financial support and safety nets to allow him to take big risks. But that was a risk umbrella for a single man of proven great talent. What if we were able to create a system that gave everyone the freedom to reach their potential? Yes, we need great works of art to inspire us. But we also need the benefits of the big and small risks that everyone takes in the course of life; each one of us needs someone to take a risk on us. In this imagined ecosystem, each of us would be more accepting of the possibility of failure by everyone who makes a worthy effort—not just those whose privilege grants them automatic forgiveness—and see it as part of a necessary process, not a shortcoming. Citizens would be risk literate, able to judge the likelihood of a danger, to calibrate our response to their emotions as well as the facts, and to take the appropriate amount of risk. We would compensate people fairly for risks they take for the common good and we would price risk equitably. We would be risk self-aware and empathic, paying attention to insights into our own and other’s risk fingerprints. How do we get to this place where creativity and innovation flourish and citizens prosper?

We need to start with a new conversation about risk that recognizes risk as a defining factor in our personalities, perceptions, and actions. It must consider individuals, organizations, and societies and how their decisions and behaviors influence each other and change over time. The basis of that conversation requires a new vocabulary that embraces both risk opportunity and danger, acknowledges the combined roles of emotion and reason in risk decisions, and incorporates ethical considerations and concern for the intertwined risks to others as well as to ourselves. It should account for changes as time passes, moods change, and perspectives evolve.

A NEW RISK CONVERSATION

What is risk? Like the mirror fragments in Kataoka’s After the Celestial Axe, its appearance changes depending on your point of view. Risk can be a danger, an opportunity, or both. Risk is taking a chance: a possibility or an estimated probability. Risk is a muscle. Risk is a privilege. Risk is what you love or what you fear. What you are willing to risk signals your sense of purpose. Every risk is a choice; every choice is a risk.

When you look at your decisions through a risk lens, it changes your logic. Are you risking your health or your finances? Your present or your future? Something mediocre or something worth doing everything to preserve or attain? What are the options in front of you? When you evaluate a risk in front of you, ask: “Risky compared to what?” Ask yourself not just about a possible action but about inaction: “What is the risk of not doing this?”

These questions are part of the new risk conversation we need to have. I hope that as you’ve read this book you’ve absorbed some of the vocabulary essential to how we talk about the choices we make and the chances we take: Your risk ecosystem begins with your own risk fingerprint. Risk empathy and the difference between risk aversion and risk savvy. Risk agency. Risk literacy. Risk muscle. Risk portfolio. Risk umbrella. Risk culture.

Your Risk Fingerprint. Your personality, your upbringing, your experiences, your environment, and your community all come together to create your risk fingerprint. Your risk fingerprint includes your purpose. My many conversations with risk-takers of all kinds made it clear that to talk properly about risk, we cannot ignore values and purpose whether for ourselves or our organizations. Knowing what you are risking and why is everything. It gives you a strong foundation that girds you against uncertainty. It powers you through decisions that otherwise might be difficult—but become crystal clear when you know the purpose behind your choices. Chapters 2 through 9 explored factors that create our risk fingerprints as individuals, groups, and societies. Understanding these—along with the cost of not paying attention—gives you the power to manage them. Use the knowledge of what’s behind your own risk attitudes and behaviors and those of the people around you in order to make better decisions.

Do you instinctively see risks as good or bad, or value neutral? Are you more likely to take risks actively, by commission: sky diving or base jumping, gambling, starting a company, jaywalking, getting married or having kids, buying that penny stock your cousin recommends? Or is your risk-taking passive, by omission: failing to do what you need to do to head off obvious health, finance, relationship, or career “bad” risks, or failing to step up when you see the opportunity to take “good” risks? This awareness can help you to understand why you do what you do and make better choices.

Risk Empathy. Paying attention to the risk fingerprints of those around you will help you to see things from their point of view, and in turn will support better relationships across cultures; in families, communities, and politics; and across generations. There is no “ideal” risk type. But it helps to find collaborators and advisers whose styles complement yours, making up for your weaknesses. Recognizing your differences and being empathetic can smooth over disputes. Don’t let your preconceptions about what someone is willing to risk get in the way. If you have doubts about what someone thinks about a risk, ask; don’t assume. Do not underestimate the value of an open and frank conversation about how you think about risk. Know the difference between risk aversion and risk savvy—and why it matters.

Risk Agency. Agency is the feeling that you have power to control a situation, or at least aspects of it. Understanding what you can control—or having confidence that those in power will do what they can to prevent a crisis—gives you much more power to manage uncertainty. The more you think through possible scenarios and plan for contingencies, the less of a risk there is that an undesired outcome will sink you. Maintaining a realistic sense of your own agency—your power to shape the world around you—is perhaps the biggest asset you have when you need to confront risk. Knowing what you cannot control is important, too. Each person may feel insignificant. But, just as beaches would not exist without many grains of sand, we cannot solve global problems without a critical mass of people who feel they have the agency to do so. Increasingly, today’s global risks are the kind that need billions of individuals to take the initiative if we are to solve them. In chapters 12 through 14, we delved into some of the behaviors and habits you can adopt to feel more control over the risks in your life.

Risk Literacy. When most people talk about risk literacy, what they really mean is risks literacy: understanding the specific possible events that might harm us. What we really need is risk literacy: understanding the nature of risk itself and our relationship with it. Yes, humans need to take much more seriously the many specific dangers that face the world. But to do so, we first need a better grounding in our relationship with risk itself. It’s time for a new, shared risk conversation that embraces risk awareness as a powerful tool for success—one that includes becoming comfortable with failure and uncertainty.

Risk Muscle. We’ve seen over and over again how people’s ability to see risks changes with experience. Risk perception and response are, in effect, like muscles that complement each other and that strengthen with practice. The more you use your risk muscle, the better you get at making good decisions and taking smart actions. In chapter 9, we explored how to distinguish between objective/rational and subjective/emotional risk perceptions, all the while recognizing the importance of both to healthy risk decision-making. Recognizing the power of emotion gives you the tools you need to compensate for it. In chapter 10, we examined how awareness of your physical responses to stressful decision-making situations can help you to control both your mental and physical response and influence your risk moods instead of letting them control you. And in chapter 13, we looked at how establishing good habits can give you a greater sense of control and thus comfort with risk and uncertainty. That includes regular check-ins to be sure that your good habits are not making you complacent, since many efforts to reduce risk—like insurance, safety belts, and helmets—can, paradoxically, increase risky behaviors.

Your Risk Portfolio. Being aware of and adjusting risks across parts of your life and business creates a diversified risk portfolio, just like your financial adviser sets up with your savings and investments. Take greater risks where you are more comfortable doing so. At the same time, use checks and balances to slow your decision process where you might be too likely to take a leap that is too dangerous. Create safety cushions to help you take healthy amounts of risk where you otherwise might hesitate. Optimize the combination of personal, career, health, financial, and safety risk attitudes and behaviors. This gives you the freedom to take bigger risks in pursuit of the things about which you care most.

Risk Ecosystem. You are a unique point in a wider risk ecosystem. It is impossible to separate your risk relationship from the culture, community, nation, and planet where you live. A feedback loop among governments, businesses, and citizens establishes shared risk values and beliefs. The right mix of education, smart rules, information, and safety nets create a risk environment that supports maximum creativity, flexibility, innovation, and productivity while encouraging healthy risk-taking and penalizing irresponsible behavior.

Risk Umbrella. An important part of the risk ecosystem, the risk umbrella is what protects each of us when the winds of fortune blow against us. Governments and businesses provide spokes of the umbrella when they provide health, unemployment, disaster recovery, and other types of insurance. Individuals strengthen it when they buy their own insurance. But alongside that, you might say the fabric is made up of the purpose that drives us forward, the community that supports us, and the skills upon which we rely.

A conversation is not just words, however; though we need a shared vocabulary, actions demonstrate concepts even more powerfully. And so I want to close our journey together with the story of two remarkable people who live this vocabulary every day and exemplify it in the risk choices they have made and continue to make.

A WHY TO LIVE FOR

Mark Pollock became the first blind person to race to the South Pole by foot in 2009. A retinal problem had cost him his sight in his right eye when he was five years old. When he was twenty-two, he lost his remaining ability to see after a failed surgery to restore his ebbing vision in his left eye. The Northern Irishman relearned how to live independently and reclaimed his self-esteem by throwing himself back into rowing, in which he’d excelled in college, going on to win medals at the Commonwealth Games in 2002. He soon began running competitively, doing six marathons in seven days across China’s Gobi Desert, a race at the North Pole, and another at Mount Everest.

On the ten-year anniversary of losing his sight, he decided to do the South Pole race, raising €100,000 in sponsorship and training intensively for the forty-three-day expedition race in fifty-degree-below-zero conditions with two sighted partners. He’d had to fight to get into the race, which had—to put it mildly—not been designed with blind people in mind.

Pollock likes to quote Nietzsche: “He who has a ‘why’ to live for can bear with almost any ‘how’.” Pollock’s “why” was the competition, persevering, overcoming, and above all standing up to the risk of failure. Adapting to his visual impairment as a child, and then again when he lost the rest of his eyesight, Pollock had adapted to shocks that were largely out of his hands and learned to methodically minimize risk in situations that would raise the hairs on most people’s necks. “There are a lot of people who do ‘extreme’ sports. When you’re one of them, you are often told, ‘Oh, you must have a death wish.’ Most people I know who do these adventures are certainly taking risks, but they are calculated risks. Arguably they, we, are quite risk-averse. We train, we practice, we scenario-plan—in preparation for Antarctica for example, we learned how to cross a crevasse field safely—we do everything we can to mitigate against the things that could hurt us. So, when I talk about risk, I’m talking about risk of failure as opposed to risk of death or injury.” He needed that risk of failure to give meaning to his choices and add to his sense of achievement. “When there was no risk of failure, the feeling at the end was flat,” he said.

Pollock’s motivation, skills, and habits would carry him through a third life-changing shock that was not the result of his risk-taking but rather a cruel accident. Just over a year after the South Pole achievement and four weeks before he was to be married, Pollock was navigating his way out of a bedroom, feeling his way along the perimeter, where unbeknownst to him a normally closed window had been left open. He fell out of a third-story window onto the concrete below in a freak accident that fractured his skull and damaged his spinal cord in two places, leaving him paralyzed below his waist. That brought with it a whole new level of uncertainty along with daunting new degrees of possible failure that involved not just him but also his fiancée, Simone George. It also would become an exercise in radical risk empathy.

They had met when, as George puts it, Pollock was “just” blind and asked her to teach him to dance. They talked about the challenge in their 2018 TED Talk about finding the right balance between acceptance and hope after the accident and before embarking on a quest to cure paralysis in our lifetime. I’d met them some time before the talk, which moved me enough that I reached back out to understand how their relationship with risk—as individuals and as a couple—shaped their decisions and gave them a lodestar to get past despair.

Pollock and George both thrive when faced with seemingly insurmountable odds; in that sense, their risk appetite is compatible, to the point where George suggested they could use an impartial third party to rein them in. But they go about risk-taking in very different ways. Pollock is the methodical planner, George the instinctive, impulsive one motivated by a lifelong relationship with the impossible. “My favorite thing to do in my job as a lawyer is to run the case that serves justice but that everybody else says is too difficult to run,” she said.

While Pollock was in the hospital recovering from the fall, he was thinking about what his condition would mean for George. “I think I’d weighed up somehow that I was going to have to be there, you know? But she didn’t necessarily have to be, and she should get out of there if she could,” Pollock recalled. His mother and her father were both worried as well.

Pollock didn’t want her to leave him, but his concern for her future weighed heavily on him. He tried to give George a way out, broaching the subject of their impending wedding: “You need to get yourself as far away from this as possible,” he said.

“Are you breaking up with me?” she asked him.

They finally compromised: She said that she would stay as long as he and his back needed her and he finally agreed. If and when that changed, they could revisit things.

As they relived the experience, all of us were on the verge of tears. “High on morphine, the back of your head stapled, not able to feel from the waist down in intensive care, you were planning for me and you in a way that I had no capacity for seeing,” George said to Pollock. “And I was annoyed with you.” She now realizes that he was willing to risk his happiness to protect hers. And he now realizes that she believed the risk of staying with him was worth it. “If you love someone you risk that they’re going to hurt you,” George said. “You know, you risk that they’re going to die. The risk of that pain is huge. But the pain of leaving in that moment was huge also.”

Pollock and George had the trifecta of a risk ecosystem: a strong sense of purpose embedded in their risk fingerprints combined with self-awareness; the skills and experience that had built up their risk muscles; and deep risk empathy that helped them to navigate their relationship with each other and partnership in taking on a challenge. In a way, their biggest risk challenge lay in their relationship: not just the possibility of losing the other person but fearing that either of them might lose core parts of their identity. “There’s risk associated with any change in your identity,” Pollock said. “I think it’s a major part of all of us.”

The couple struggled with the balance between acceptance and hope. Did they want to make paralysis work their entire lives? Would George become “the caregiver” whom people forgot was a talented, dedicated lawyer? In her characteristic instinctive style, she plunged ahead, looking for answers and exploring the possibility that there might be a way to contribute to the creation of the cure. “The risk I suppose, is that we would let the hope get bigger than the acceptance, we would become the cure addicts, constantly chasing the next thing that might work,” she said. “Putting all of our passion, energy and time into that, and not into other parts of our lives or into our relationship, and we would wake up one day having maybe contributed something to the field, but not with any thought put into why we were doing what we were doing. And then one would be at risk of a sort of psychic collapse. You know, like a ‘What was the point of it all?’ type of collapse. What if you weren’t cured anyway and no one else got cured and that thing we worked so hard on just ended up in a slush pile along with everyone else’s hopes and dreams?”

Pollock spent sixteen months in the hospital. In the end, the couple found a path forward by focusing on realism. They reasoned out that you don’t balance acceptance and hope; you run them in parallel. Both require a healthy relationship with risk. Pollock responded with his trademark planning, George with her signature instinctive impulsivity. Their relationship with risk-taking, both as individuals and as a couple, helped to show them the way. Together, they came up with a plan—a huge risk in and of itself—that worked for them both, true to who they both were: an ambitious initiative to cure paralysis in our lifetime. They met with leading spinal experts around the world, from medical doctors and scientists to engineers. They raised millions of dollars to help develop and commercialize research. They advocated for people with spinal injuries. Pollock has walked more than 1.5 million steps with the help of his Ekso Bionics exoskeleton robot. Working with UCLA scientist Dr. Reggie Edgerton, who applied electrical stimulation to his spinal cord, Pollock gained the ability to feel his legs for the first time since the accident. Pollock and George took up residence in the lab for three months along with his robot. By the end, he was able to pull his knee to his chest while his spine was being stimulated.

“I could see the value that Mark could add. He already had a public platform: his ability to speak and be heard, to tell the story, were all things that many of those we met in the spinal unit didn’t have the advantage of. Their need for a cure, in a way, obliged us to act,” George said. “And the risk was mitigated for us on other fronts: being able to raise the money to do this or being brazen enough to go into places like Harvard and knock on the door of the neuroscientist and say, ‘We want to know about what you’re doing’ and to ask, ‘How can we help you?’ We had all of that privilege; we could do it because of our education and skills.” They were privileged, yes, but also hemmed in by a harsh reality: strangely parallel to refugees who risk their lives to cross dangerous waters because all of the other options were worse, to people in desperate straits who find the only way forward they can that is not technically a risk because there are no other feasible choices. Ironically, the constraints and limitations produced something magical that grew out of their calculations of the risks of not rising to the challenge.

“Endurance sports perhaps prepared me for the pursuit of a cure for paralysis. Endurance racing requires us to define the mission, gather a team with the right skills, and to tell the story of what happened, which helps to secure the money to do it. And the search for paralysis requires a surprisingly similar approach, the main difference is that there’s more risk of failure in the cure space,” Pollock said. “Yet that risk of failure is part of what makes it worth doing. Just coasting along probably means you’re not doing something that matters. The challenge is how we live with the twin possibilities of success and failure and for that we must value ourselves by our willingness to try. When you do that, then the reputational risk of failure disappears, liberating us in accepting the vulnerability of trying, which may just lead to a success that can never be guaranteed.”

In other words, once you have that sense of value and purpose, the fear of the risk dissipates. The risk simply becomes who you are. Your choice is to shrink away or to embrace the risk choices at the heart of your identity.

ACKNOWLEDGMENTS

At the, er, risk of leaving someone out, I want to thank the people who have helped make this book happen.

To all the readers around the world who compelled me to explore “personal gray rhinos” and risk personalities.

To Fausto Fernos and Marc Felion for alerting me of Annie Edson Taylor’s story and to Liza Frolkis for introducing me to them.

To Professor Gerald Leonard Cohen for his help with etymology.

To Ailish Campbell, Brian Barnier, Kristi Daeda, John DeBlasio, Jim DeLoach, Diego De Sola, Michael Drexler, Alyssa Dver, Soulaima Gourani, Knut Hammarskjold, Dave Hanley, Justin Harlow, Dwight Hopkins, Kalin Anev Janse, Sony Kapoor, Dave Landsittel, Barbara Maul, Meg Mckeen, Leslie Millenson, Olivier Oullier, Rodrigo Perezalonso, Jacques-Philippe Piverger, Prasad Ramani, Mauricio Ramirez, April Rinne, Murat Sarayli, Carrie Scherpelz, Frank Sensenbrenner, Bill Shultz, Lutfey Siddiqi, David Teten, Silje Vallestad, and Danielle Wishart, who have been generous with your time and thoughtful insights on risk, human agency, and more. A special thanks to Jérôme Tagger, Raj Thamotheram, and the Preventable Surprises network; and to Bryn Freedman and Amanda Miller at TED for helping develop the personal elements of the gray rhino.

To all of my friends who shared your often strong opinions on cover design, especially Hillary Claggett and Karen Gordon, to my varied, diverse, and very lively Facebook community for your helpful feedback, and to my Margate Park neighbors for cheering me along and being there to help celebrate my progress.

To Tony Mendiola and all the gang at Human Citizen Workplace, especially Jonathan Perman, John Kowalkowski, and Vitaly Novok, for your camaraderie.

To Dan Gross at strategy+business magazine, a true writer’s editor, for his championing of my risk exploration and for his patience as I fit columns in between book writing. Portions of this book have appeared in very different forms in strategy+business.

To Yuen Ting and Wendy Niu for research assistance, and to Beatrice Weiner and Wendy Schmidt for design help.

To my beyond-words-wonderful speaking agent Priscilla Chan, and to Lu Ruiting and Anna Dai at CITIC and Jinny Park at Business Books & Co. for helping me to muddle through jet lag and open new windows and insights across Asia.

To fellow “authoress” members, whose advice, encouragement, support, and cheering have been invaluable in so many ways to which I cannot begin to do justice.

To the World Economic Forum and the Young Global Leaders and Global Shapers communities, especially the Chicago Hub. You are my inspiration, support system, and the source of many of the most compelling stories in this book.

To the more than sixty people who took the time to be interviewed formally and generously shared your stories and insights, and to many others who spoke with me informally about risk. Many of you went way above and beyond, making introductions and acting as sounding boards.

To Si Alhir, Brendan Foo, Julia Graham, Dan Grayson, David Koenig, Lori Michelle Leavitt, Q McCallum, Yuhyun Park, Bill Powers, Joy Rains, and Amy Waldman, who braved much less polished versions of the manuscript and offered extensive, thoughtful, and candid feedback that improved it greatly.

To Hal Shipman for his friendship (and delicious meals!) over the decades and for the wonderful author photo.

To my talented and insightful editor, Jessica Case, for making the manuscript stronger, and to the entire supportive team at Pegasus.

To my agent, Andrew Stuart, who has championed the ideas behind The Gray Rhino and this book from the very beginning.

As always, to the Usual Suspects for your friendship and love over so many years and books. You know who you are.

Finally, my deepest gratitude to Jeff Leonard, gone way too soon. Your friendship, mentorship, encouragement, and insights were instrumental in the development of gray rhino theory and laid some of the foundation stones beneath this book. The world is a better place because of the time you spent here.

ABOUT THE AUTHOR

Michele Wucker coined the term “gray rhino” to alert people to the obvious risks that we are more prone to neglect yet have more power to manage than we might think. Her influential third book, The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore, has moved financial markets, shaped government policy and business strategies around the world, and inspired a popular TED talk expanding the idea to personal issues. She has been honored as a Young Global Leader of the World Economic Forum and a Guggenheim Fellow and held leadership roles at the Chicago Council on Global Affairs, World Policy Institute, and International Financing Review. She lives in Chicago.

ALSO BY MICHELE WUCKER

The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore

Lockout: Why America Keeps Getting Immigration Wrong When Our Prosperity Depends on Getting It Right

Why the Cocks Fight: Dominicans, Haitians, and the Struggle for Hispaniola

ENDNOTES

1. A schoolteacher from Auburn: David Whalen, “The Lady Who Conquered Niagara,” http://web.archive.org/web/20191026141437/http://bay-journal.com/bay/1he/people/fp-taylor-annie.html.

2. Photo is public domain. Source is https://commons.wikimedia.org/wiki/Category:Annie_Taylor#/media/File:Queen-of-the-Mist.jpg.

3. The carnival promoter: Marvin Kusmierz, “Anna Edson Taylor (1839–1921) Bay City teacher was first person to go over Niagara Falls,” Bay Journal, (Added Feb. 2003; Updated March 2010), https://web.archive.org/web/20191026141437/http://bay-journal.com/bay/1he/people/fp-taylor-annie.html.

4. Annie Edson Taylor’s life: Stateside Staff, “Annie Taylor’s trip over Niagara Falls,” Michigan Public Radio, Oct. 27, 2014, http://www.michiganradio.org/post/annie-taylors-trip-over-niagara-falls; Jess Catcher, “10 Surprising Facts About the First Person To Survive Going Over Niagara Falls In A Barrel.” Little Things, undated, accessed October 25, 2020, https://www.littlethings.com/annie-edson-taylor-niagara-falls/2; Patrick Sirianni, “Annie the Brave,” Oakwood Niagara Cemetery website, October 23, 2015, https://oakwoodniagara.org/annie-edson-taylor/; Kate Kelly. “Annie Edson Taylor (1838–1921): American Daredevil,” March 2, 2014, https://americacomesalive.com/2014/03/02/annie-edson-taylor-1838-1921-american-daredevil/; Stephen W. Bell, “Going Over Niagara Falls in a Barrel: Quaint Stunt Still a Challenge to Daredevils,” Los Angeles Times/Associated Press, April 13, 1986, https://www.latimes.com/archives/la-xpm-1986-04-13-mn-4454-story.html.

5. Even as some people: Peter Fischer, Tobias Greitemeyer, Andreas Kastenmüller, Claudia Vogrincic, Anne Sauer, “The effects of risk-glorifying media exposure on risk-positive cognitions, emotions, and behaviors: a meta-analytic review,” Psychological Bulletin. May 2011, 137(3): 367–90. doi: 10.1037/a0022267; Peter Fischer, Evelyn Vingilis, Tobias Greitemeyer, Claudia Vogrincic, “Risk-taking and the media,” Risk Analysis, May 2011, 31(5): 699–705, doi: 10.1111/j.1539-6924.2010.01538.x; Peter Fischer, Jörg Kubitzki, Stephanie Guter, and Dieter Frey, “Virtual driving and risk taking: do racing games increase risk-taking cognitions, affect, and behaviors?” Journal of Experimental Psychology: Applied, March 2007, 13(1): 22–31. doi: 10.1037/1076-898X.13.1.22.

6. Western societies have tried: Chris Michael, “ ‘Lagos shows how a city can recover from a deep, deep pit’: Rem Koolhaas talks to Kunlé Adeyemi,” The Guardian, Feb. 26, 2016, https://www.theguardian.com/cities/2016/feb/26/lagos-rem-koolhaas-kunle-adeyemi; Pooja Bhatia, “Koolhaas Takes Silicon Valley, Ozy, Dec. 8, 2014, https://www.ozy.com/provocateurs/rem-koolhaas-takes-silicon-valley/36643; Oliver Wainwright, “Rem Koolhaas’s Venice Biennale will ‘Be about architecture, not architects,’ ” The Guardian, March 12, 2014, https://www.theguardian.com/artanddesign/architecture-design-blog/2014/mar/12/rem-koolhaas-venice-biennale-architecture.

7. The linguists Henry and Renée Kahane: Henry and Renée Kahane, “Byzantium’s Impact on the West: The Linguistic Evidence,” Illinois Classical Studies, 6(2, fall 1981): 389–415, https://www.jstor.org/stable/23062525.

8. The history of the mathematical: Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk (New York: Wiley, 1996).

9. Bernoulli built on insights: Abraham de Moivre, (1711) De mensura sortis, (“On the Measurement of Chance”), Philosophical Transactions 27: 213–264 cited in Terje Aven, “A Conceptual Foundation for Assessing and Managing Risk, Surprises and Black Swans,” in G. Motet and C. Bieder (eds.), The Illusion of Risk Control, Safety Management, doi 10.1007/978-3-319-32939-0_3.

10. As the economic historian: Jonathan Levy, Freaks of Fortune: The Emerging World of Capitalism and Risk in America (Cambridge, MA: Harvard University Press: 2012).

11. Humans have invented: Paul Slovic, The Perception of Risk (Sterling, VA, and London: Earthscan Publications, 2000), xxxvi.

12. Mathematicians and scientists: Iain Wilkinson, Risk, Vulnerability and Everyday Life (London: Routledge, 2010), 61.

13. Risk as an end in itself: Jens O. Zinn, “The meaning of risk-taking—key concepts and dimensions,” Journal of Risk Research, 22: 1, 1–15, doi: 10.1080/13669877.2017.1351465.

14. In his seminal 1921 book: Frank Knight, Risk, Uncertainty and Profit, (Boston, MA: Hart, Schaffner and Marx; Houghton Mifflin Company, 1921).

15. Knight, who considered: Michael Emmett Brady, “Adam Smith, Not J. M. Keynes or Frank Knight, Was the First Scholar to Make the Uncertainty—Risk Distinction Explicitly and Apply it Rigorously,” (September 5, 2015). Scholedge International Journal of Management & Development, 2(9): 24–36. https://ssrn.com/abstract=2656667.

16. The eminent British economist: John Maynard Keynes, A Treatise on Probability (London: Macmillan & Co., 1921).

17. Drawing on earlier work: Yasuhiro Sakai, “J.M. Keynes and F.H. Knght: How to Deal with Risk, Probability, and Uncertainty.” Center for Risk Research, Chiga University, CRR Discussion Paper A-15, March 2016.

18. A large portion of our positive activities: John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Macmillan, 1936).

19. Our attitudes toward specific risks: Ulrich Beck, World at Risk (Cambridge, UK: Polity Press, 2009), 12. Originally published as Weltrisikogesellschaft, (Suhrkamp, 2007).

20. Some risk professionals: Robert B. Pojasek, How New Risk Management Helps Leaders Master Uncertainty (New York: Business Expert Press, LLC, 2019).

21. This trope has inflamed: Benjamin Zimmer, Language Log (blog), March 27, 2007, http://itre.cis.upenn.edu/~myl/languagelog/archives/004343.html; Victor Mair, “Danger + opportunity ≠ crisis: How a misunderstanding about Chinese characters has led many astray,” http://www.pinyin.info/chinese/crisis.html; “As Usual, American ‘Linguists’ Like Robert Lane Green and Geoffrey Nunberg Have No Idea What They Are Talking About,” https://patenttranslator.wordpress.com/2011/04/03/as-usually-american-linguists-like-robert-lane-green-and-geoffrey-nunberg-have-no-idea-what-they-are-talking-about/.

22. Combining ji with another: Benjamin Zimmer. “CRISIS = DANGER + OPPORTUNITY: THE PLOT THICKENS,” Language Log, March 27, 2007, http://itre.cis.upenn.edu/~myl/languagelog/archives/004343.html.

23. Spirituality in the community: Roger T. Ames 安樂哲, The Great Commentary (Dazhuan 大傳) and Chinese natural cosmology, International Communication of Chinese Culture 2, 1–18 (2015), https://doi.org/10.1007/s40636-015-0013-2.

24. Chris has to think about it a bit more: US Parachute Association, “Skydiving Safety,” accessed October 25, 2020, https://uspa.org/Find/FAQs/Safety.

25. What’s more: Brendan Cole, “Half of All Skydiving Deaths in the U.S. This Year Have Happened at the Same Airport,” Newsweek, July 2, 2019, https://www.newsweek.com/half-all-skydiving-deaths-us-this-year-have-happened-same-airport-1447060.

26. By comparison, the odds: National Safety Council, “What Are the Odds of Dying From…” accessed July 2019, https://www.nsc.org/work-safety/tools-resources/injury-facts/chart.

27. Businesses spend $500 million: Eben Harrell, “A Brief History of Personality Tests,” Harvard Business Review, March–April 2017, https://hbr.org/2017/03/the-new-science-of-team-chemistry.

28. The American psychologists: R. B. Cattell, “The description of personality: basic traits resolved into clusters,” Journal of Abnormal and Social Psychology, 38(4): 476–506, http://dx.doi.org/10.1037/h0054116.

29. By the 1980s: Anja Alide Jolijn Hendriks, “The construction of the five-factor personality inventory (FFPI),” Groningen: s.n., 2009, https://www.rug.nl/research/portal/files/14667781/A.A.J.Hendriks.PDF.

30. A study of 50 fifth-graders: Ronnie L. McGhee, David J. Ehrler, Joseph A. Buckhalt, and Carol Phillips, “The Relation between Five-Factor Personality Traits and Risk-Taking Behavior in Preadolescents,” Psychology 3(8, 2012): 558–561, http://dx.doi.org/10.4236/psych.2012.38083.

31. A study of 178 undergraduates: Richard E. Vestewig, “Extraversion and risk preference in portfolio theory,” Journal of Psychology, 97(2d Half): 237–245.

32. Oehler and Wedlich cite: Andreas Oehler and Florian Wedlich, “Influence of Extraversion and Neuroticism on Risk Attitude, Risk Perception and Return Expectations,” Conference Proceedings, Semantic Scholar, 2017, https://pdfs.semanticscholar.org/c9b1/23816eaa00dc326ac37067ee57e7ebaa1696.pdf.

33. Some studies have uncovered: James M. Honeycutt. “Personality traits explain whether you follow or flout coronavirus mask-wearing and social-distancing guidelines.” Marketwatch, July 15, 2020. https://www.marketwatch.com/story/personality-traits-explain-whether-you-follow-or-flout-coronavirus-mask-wearing-and-social-distancing-guidelines-11594822706.

34. Another personality scale: The Standard Chartered Investor Personality Study 2020; https://av.sc.com/corp-en/content/docs/investor-personality-report-2020.pdf.

35. In a CFA Institute report: Greg B. Davies, “New Vistas in Risk Profiling,” CFA Institute Research Foundation Brief, 2017, http://www.cfapubs.org/doi/pdf/10.2470/rfbr.v3.n5.1.

36. Smyth and Buu: The New York Times, “AFTER THE WAR; 3 Journalists Missing in Iraq.” April 11, 1991. https://www.nytimes.com/1991/04/11/world/after-the-war-3-journalists-missing-in-iraq.html.; “AFTER THE WAR; 2 Missing Journalists Are Released by Iraq,” Reuters, April 17, 1991; https://www.nytimes.com/1991/04/17/world/after-the-war-2-missing-journalists-are-released-by-iraq.html; Frank Smyth, “Remembering a Friend Lost to Saddam’s Terror,” International Herald Tribune, June 3, 2004, https://cpj.org/2004/12/remembering-a-friend-lost-to-saddams-terror.php.

37. The organizational behavior: Hongwei Xu, Martin Ruef, “The myth of the risk-tolerant entrepreneur,” Strategic Organization 2(4, 2004): 331–355, https://doi.org/10.1177/1476127004047617.

38. Another reason, they suggest: J. Sorensen and O. Sorenson, “From Conception to Birth: Opportunity Perception and Resource Mobilization in Entrepreneurship,” Advances in Strategic Management 20: 8. Cited in Xu and Ruef.

39. In fact, those who: M. H. Bazerman, Judgement in Managerial Decision-Making, 2nd edition (New York: Wiley, 1990); D. Kahneman and A. Tversky, “Subjective Probability: A Judgment of Representativeness,” Cognitive Psychology 3: 430–435.

40. In his study of new business owners: John Pinfold, “The Expectations of New Business Founders,” Journal of Small Business Management, 39: 279–285.

41. In a survey: Arnold C. Cooper, Carolyn Y. Woo, and William C. Dunkelberg, “Entrepreneurs’ perceived chances for success,” Journal of Business Venturing, 3(2, 1988): 97–108, https://doi.org/10.1016/0883-9026(88)90020-1.

42. In extensive research: Robert H. Brockhaus, “The Psychology of the Entrepreneur,” Encyclopedia of Entrepreneurship 1982, 39–57, https://ssrn.com/abstract=1497760.

43. Social scientists call this: James A. F. Stoner, “Risky and cautious shifts in group decisions: The influence of widely held values,” Journal of Experimental Social Psychology, 4(4, 1968): 442–459; https://doi.org/10.1016/0022-1031(68)90069-3.

44. Fairly or not: Richard Zeckhauser, “Horizon Length and Portfolio Risk,” Journal of Risk and Uncertainty, 2002.

45. Read the headlines: Mrinalini Krishna, “Millennials Are Risk Averse and Hoarding Cash,” Investopedia, June 25, 2019, https://www.investopedia.com/news/millennials-are-risk-averse-and-hoarding-cash/; Neil Howe, “Yes, Millennials Are A ‘Risk Averse Generation.’ ” Hedgeye, July 18, 2018, https://app.hedgeye.com/insights/68981-millennials-are-a-risk-averse-generation; T. Rowe Price Investment Services, “Overcome Risk Aversion to Optimize Millennial Investment Behavior,” December 2017, https://www.troweprice.com/content/dam/fai/Collections/DC%20Resources/Next%20Generation%20Thinking/optimize-millennial-behavior.pdf.

46. People also base: Steven Albert and John Duffy, “Differences in risk aversion between young and older adults,” Neuroscience and Neuroeconomics, 2012.

47. Research suggests: Steven Albert and John Duffy, “Differences in risk aversion between young and older adults,” Neuroscience and Neuroeconomics, 2012, citing L. L. Carstensen, J. A. Mikels, and M. Mather, “Aging and the intersection of cognition, motivation, and emotion,” in J. Birren and K. W. Schaie (eds), Handbook of the Psychology of Aging, 6th ed., 342–362 (San Diego: Academic Press, 2005); B. De Martino, O. Kumaran, B. Seymour, and R. J. Dolan. “Frames, biases, and rational decision-making in the human brain,” Science 313, 684–687; G. R. Samanez-Larkin, A. D. Wagner, and B. Knutson, “Expected value information improves financial risk taking across the adult life span,” Social Cognitive and Affective Neuroscience, doi: 10.1093/scan/nsq043.

48. Recent research has added: Sumitava Mukherjee, “Revise the Belief in Loss Aversion,” Frontiers in Psychology, December 3, 2019, doi: 10.3389/fpsyg.2019.02723; D. Gal and D. D. Rucker, “The loss of loss aversion: will it loom larger than its gain?” Journal of Consumer Psychology, 28:497–516, https://ssrn.com/abstract=3049660.

49. Young people in the early: Ulrike Malmendier and Stefan Nagel, “Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?” National Bureau of Economic Research, March 2008, http://nber.org/conferences/2008/si2008/AP/malmendier.pdf.

50. Millennials in 2018: “Weighing Down Workplace Engagement,” Padilla Infographic, January 10, 2017, https://padillaco.com/the-news/news-items/weighing-down-workplace-engagement-infographic/.

51. San Diego State University: Jean Twenge, iGen: Why Today’s Super Connected Kids Are Growing Up Less Rebellious, More Tolerant, Less Happy—And Completely Unprepared for Adulthood (and What that Means for the Rest of Us) (New York: Atria Books, 2018).

52. The nature of risk-taking: William H. Frey, “The millennial generation: A demographic bridge to America’s diverse future” (Washington, DC: Brookings Institution, 2018), https://www.brookings.edu/research/millennials/.

53. In 2017, the average age: United States Census Bureau, https://www.census.gov/data/tables/time-series/demo/families/marital.html; accessed October 31, 2020.

54. In Japan: Motoko Rich, “Craving Freedom, Japan’s Women Opt Out of Marriage,” The New York Times, August 3, 2019, https://www.nytimes.com/2019/08/03/world/asia/japan-single-women-marriage.html?searchResultPosition=1.

55. In Scandinavian countries: Victor Kiprop, “Countries With the Oldest Average Marrying Age,” WorldAtlas, Sept. 10, 2018, https://www.worldatlas.com/articles/countries-with-the-oldest-average-marrying-age.html.

56. Millennials and some: Johnny Wood, “The United States divorce rate is dropping, thanks to millennials,” World Economic Forum Agenda, October 5, 2018. weforum.org/agenda/2018/10/divorce-united-states-dropping-because-millennials/.

57. Divorce rates in the United States: Philip N. Cohen, “The Coming Divorce Decline,” SocArXiv, September 14, doi: 10.31235/osf.io/h2sk6; Marisa Lascala, “The U.S. Divorce Rate Is Going Down, and We Have Millennials to Thank,” Good Housekeeping, Feb. 27, 2019; https://www.goodhousekeeping.com/life/relationships/a26551655/us-divorce-rate/.

58. Relationships bring: Ned Sublette, “Something to Lose,” Cowboy Rumba, Palm Pictures, 2006.

59. How much you have: Ruth Hill, “Using Stated Preferences and Beliefs to Identify the Impact of Risk on Poor Households,” Journal of Development Studies, 45(2):151–171, January 2009, doi: 10.1080/00220380802553065.

60. Statistically, white men: M. L. Finucane, P. Slovic, C. K. Mertz, J. Flynn and T. A. Satterfield, “Gender, race, and perceived risk: The ‘white male’ effect,” Health, Risk & Society, 2, 159–172.

61. But closer examination: Paul Slovic, “Trust, Emotion, Sex, Politics and Science: Surveying the Risk Assessment Battlefield,” The Perception of Risk, 390–412, citing Flynn, et al., 1994.

62. You’re likely to size up: Sheryl Ball, Catherine C. Eckel, and Marcia Heracleous, “Risk Aversion and Physical Prowess: Prediction, Choice and Bias,” Journal of Risk and Uncertainty, 41(3, 2010): 167–93, referenced in Huston, 2016.

63. A 2017 study: Malin Malmström, Aija Voitkane, Jeaneth Johansson, Joakim Wincent, “VC Stereotypes About Men and Women Aren’t Supported by Performance Data,” Harvard Business Review, March 15, 2018, https://hbr.org/2018/03/vc-stereotypes-about-men-and-women-arent-supported-by-performance-data.

64. Firms led by female: Andrea Weber and Christine Zulehner, “Female hires and the success of start-up firms,” American Economic Review 100, 358–361; https://www.researchgate.net/publication/45143436_Female_Hires_and_the_Success_of_Start-up_Firms.

65. Other scholars have found: Johnnie E. V. Johnson and P. L. Powell, “Decision Making, Risk and Gender: Are Managers Different?” British Journal of Management 1994, 5, 123–138.

66. There is extensive evidence: Ingrid Waldron, Christopher McCloskey, and Inga Earle, “Trends in gender differences in accident mortality: Relationships to changing gender roles and other societal trends,” Demographic Research, 13, 415–454, https://www.demographic-research.org/volumes/vol13/17/13-17.pdf.

67. Context matters: Elke U. Weber, Anne-Renee Blais, and E. Nancy Betz, “A domain-specific risk-attitude scale: Measuring risk perceptions and risk behaviors,” Journal of Behavioral Decision Making, 15, 263–90.

68. A much cited: James P. Byrnes, David C. Miller, and William D. Schafer, “Gender Differences in Risk Taking: A Meta-Analysis,” Psychological Bulletin 125(3, 1999): 367.

69. But there are problems: Julie A. Nelson, Gender and Risk-Taking: Economics, Evidence, and Why the Answer Matters (New York: Routledge, 2018).

70. Nelson makes a compelling case: Julie A. Nelson, “Are Women Really More Risk-Averse than Men?” GDAE Working Paper, No. 12–05: September 2012.

71. For example, Gerald Hudgens and Linda Fatkin: Gerald A. Hudgens and Linda Torsani Fatkin, “Sex differences in risk taking: repeated sessions on a computer simulated task,” Journal of Psychology 119 (3): 197–206.

72. In her fantastic: Therese Huston, How Women Decide: What’s True, What’s Not, and What Strategies Spark the Best Choices (New York: Houghton Mifflin Harcourt, 2016), 146.

73. Women are judged: Victoria L. Brescoll, Erica Dawson, and Eric Luis Uhlmann, “Hard Won and Easily Lost: The Fragile Status of Leaders in Gender-Stereotype-Incongruent Occupations,” Psychological Science, 21(11, 2010): 1640–1642, https://doi.org/10.1177/0956797610384744.

74. Similarly, relationships: Linda S. Austin, What’s Holding You Back?: Eight Critical Choices For Women’s Success (New York: Basic Books, 2000).

75. Other research: Renate Schubert, Matthias Gysler, Martin Brown, Hans-Wolfgang Brachinger, “Financial Decision-Making: Are Women Really More Risk-Averse?” American Economic Review, 89: 381–385.

76. Other economic and social factors: Marco Castillo, Ragan Petrie, Maximo Torero, “Gender differences in risk preferences of entrepreneurs,” World Bank draft working paper, December 2017.

77. In the aftermath: Sallie Krawcheck, Own It: The Power of Women at Work (New York: Currency, 2017).

78. Some of women’s: Penelope Wang, “Brokers still treat men better than women,” Money, 23(6, 1994): 108–110.

79. A 2003 study: Stanley Atkinson, Samantha Boyce Baird, and Melissa Frye, “Do female mutual fund managers manage differently?” Journal of Financial Research, 26(1): 1–18.

80. The scholars: Peggy Dwyer, James Gilkenson, and John List, “Gender differences in revealed risk taking: Evidence from mutual fund investors,” Economic Letters, 76(2002): 151–158.

81. In a study: Ajay Palvia, Emilia Vähämaa, Sami Vähämaa, “Are Female CEOs and Chairwomen More Conservative and Risk Averse? Evidence from the Banking Industry During the Financial Crisis,” Journal of Business Ethics, 131(3, 2015): 577–594, https://www.jstor.org/stable/24703627.

82. In fact: Christopher Caldwell, “The Pink Recovery: Why Women Are Doing Better,” Time, August 24, 2009, Vol. 174, No. 7, 13.

83. Comparisons of behavior and judgment: Mara Mather and Nichole Lighthall, “Risk and Reward Are Processed Differently in Decisions Made Under Stress.” Current Directions in Psychological Science, 21(2, 2012): 36–41, doi: 10.1177/0963721411429452.

84. The management scholars: K. C. Mishra, Mary J. Metilda, “A study on the impact of investment experience, gender, and level of education on overconfidence and self-attribution bias,” IIMB Management Review, 2015, 27, 228–239, http://dx.doi.org/10.1016/j.iimb.2015.09.001.

85. Other research also suggests: Deborah Tannen, “The Power of Talk: Who Gets Heard and Why,” Harvard Business Review, September–October 1995, https://hbr.org/1995/09/the-power-of-talk-who-gets-heard-and-why.

86. A 1994 study found: Mary A. Lundeberg, Paul W. Fox, and Judith Punčochář, “Highly Confident but Wrong: Gender Differences and Similarities in Confidence Judgments,” Journal of Educational Psychology, LXXXVI, 1994: 114–121.

87. Barber and Odean argue: Brad Barber and Terrance Odean, “Boys will be boys: gender, overconfidence, and common stock investment,” The Quarterly Journal of Economics 116: 261–292.

88. They found overconfidence: Barber and Odean citing Fischhoff, Slovic, and Lichtenstein 1977; Lichtenstein, Fischhoff, and Phillips, 1982; Yates, 1990; Griffin and Tversky, 1992.

89. In typically “male”: Ellen Lenney, “Women’s Self-Confidence in Achievement Settings,” Psychological Bulletin, LXXXIV (1977): 1–13.

90. As women have become more present: Ingrid Waldron, Christopher McCloskey, and Inga Earle, “Trends in gender differences in accident mortality: Relationships to changing gender roles and other societal trends,” Demographic Research, 13, 2005: 415–454, https://www.demographic-research.org/volumes/vol13/17/13-17.pdf.

91. Their research further suggests: Catherine C. Eckel and Philip Grossman, “Sex Differences and Statistical Stereotyping in Attitudes Toward Financial Risk,” Evolution and Human Behavior, 23(4): 281–295, 2002.

92. They point out: Catherine C. Eckel and Philip J. Grossman, “Men, Women and Risk Aversion: Experimental Evidence,” Handbook of Experimental Economics, January 2008.

93. Disturbingly, doctors: Cited by Eckel and Grossman: K. A. Schulman, J. A. Berlin, et al., “The effects of race and sex on physicians’ recommendations for cardiac catheterization,” New England Journal of Medicine, 340: 618–626; S. Saha, G. D. Stettin, and R. F. Redberg, “Gender and willingness to undergo invasive cardiac procedures,” Journal of General Internal Medicine, 14(1999): 122–125.

94. Some research even suggests: Priyanka B. Carr and Claude M. Steele, “Stereotype Threat Affects Financial Decision Making,” Psychological Science, 21(10, 2010): 1411–1416, https://www.jstor.org/stable/41062498.

95. In situations when men: Joseph A. Vandello, Jennifer K. Bosson, Rochelle M. Burnaford, and Jonathan R. Weaver, “Intrepid, Imprudent, or Impetuous?: The Effects of Gender Threats on Men’s Financial Decisions,” Psychology of Men & Masculinity, 14(2, 2013): 184–191, https://doi.org/10.1037/a0027087; Joseph A. Vandello, Jennifer K. Bosson, Dov Cohen, Rochelle M. Burnaford, and Jonathan R. Weaver, “Precarious manhood,” Journal of Personality and Social Psychology, 95(6), 2008: 1325–1339, doi: 10.1037/a0012453.

96. Happily, in other contexts: A. P. McKenna, A. E. Waylen, and M. E. Burkes, “Male and female drivers: How different are they?” Reading (UK): The University of Reading, Foundation for Road Safety Research, 1998.

97. The management scholars: Do-Yeong Kim and Junsu Park, “Cultural differences in risk: The group facilitation effect,” Judgment and Decision Making, 5(5, 2010), http://journal.sjdm.org/10/91115/jdm91115.pdf.

98. Individualist cultures: R. Ronay and D-Y Kim, “Gender differences in explicit and implicit risk attitudes: A socially facilitated phenomenon,” British Journal of Social Psychology, 45(2006): 397–419.

99. In other cases: Michelle K. Ryan and S. Alexander Haslam, “The Glass Cliff: Evidence that Women are Over-Represented in Precarious Leadership Positions.” British Journal of Management, 16(2, 2005): 81–90, doi: 10.1111/j.1467-8551.2005.00433.

100. Many observers have noted: Amanda Taub, “Why Are Women-Led Nations Doing Better With Covid-19?” New York Times, May 15, 2020, https://www.nytimes.com/2020/05/15/world/coronavirus-women-leaders.html; Supriya Garikipati, Uma Kambhampati, “Women leaders are better at fighting the pandemic,” Vox EU, June 21, 2020, https://voxeu.org/article/women-leaders-are-better-fighting-pandemic.

101. What if countries led by women: Louise Champoux-Paillé and Anne-Marie Croteau, “Why women leaders are excelling during the coronavirus pandemic,” May 13, 2020, The Conversation, https://theconversation.com/why-women-leaders-are-excelling-during-the-coronavirus-pandemic-138098.

102. Trust cuts two ways: Catherine Mei Ling Wong and Olivia Jensen (2020) “The paradox of trust: perceived risk and public compliance during the COVID-19 pandemic in Singapore,” Journal of Risk Research, 2020, doi: 10.1080/13669877.2020.1756386.

103. Part of the reason that New Zealand: Noah Smith, “ ‘A Team of Five Million’ How New Zealand Beat Coronavirus,” DirectRelief, August 3, 2020, https://www.directrelief.org/2020/08/a-team-of-5-million-how-new-zealand-beat-coronavirus/.

104. The Ipsos MORI Perils of Perception study: Ipsos MORI. “The Perils of Perception 2018,” https://www.perilsofperception.com/.

105. Most countries tend to overestimate: Ipsos MORI. “The Perils of Perception 2017,” https://www.perilsofperception.com/.

106. Other studies bear out: Pew Global Attitudes Survey 2017, https://www.pewresearch.org/global/dataset/spring-2017-survey-data/.

107. The 2019 PWC CEO Survey: “22nd Annual Global CEO Survey: CEOs’ curbed confidence spells caution,” PWC 2019. https://www.pwc.com/gx/en/ceo-survey/2019/report/pwc-22nd-annual-global-ceo-survey.pdf.

108. The PWC results are consistent with: Future of Humanity Institute, “When Will AI Exceed Human Performance? Evidence from AI Experts,” May 2017, https://arxiv.org/abs/1705.08807.

109. A 2012 citizens’ survey in Tokyo, Beijing, and Seoul: Han, Sang-jin. “The Historical Context of Social Governance Experiments in East Asia: The Challenges of Risk Society,” Korea Journal, 58(1, 2018): 12–40.

110. Europeans, by contrast: Paul B. Thompson, “How we got to now: why the US and Europe went different ways on GMOs,” The Conversation, November 5, 2015, https://theconversation.com/how-we-got-to-now-why-the-us-and-europe-went-different-ways-on-gmos-48709.

111. Other observers argue: C. Ford Runge, Gian-Luca Bagnara, and Lee Ann Jackson, “Differing U.S. and European Perspectives on GMOs: Political, Economic and Cultural Issues,” Estey Centre Journal of International Law and Trade Policy, 2(2, 2001): https://www.iatp.org/sites/default/files/Differing_US_and_European_Perspectives_on_GMOs.htm.

112. In a 2019 report by the European Food Safety Authority: Joan Conrow, “EU opposition to GMOs is overstated, new survey reveals,” Alliance for Science, August 3, 2019, https://allianceforscience.cornell.edu/blog/2019/08/eu-opposition-gmos-overstated-new-survey-reveals/.

113. Meanwhile, just shy of half of Americans: Cary Funk, Brian Kennedy, and Meg Hefferon, “Public Perspectives on Food Risks,” Pew Research (blog) November 19, 2018, https://www.pewresearch.org/science/2018/11/19/public-perspectives-on-food-risks/.

114. Scholarly research bears out: Robert N. Bontempo, William P. Bottom, and Elke U. Weber, “Cross-cultural differences in risk perception: A model-based approach,” Risk Analysis, 17(4), 1997: 479–88, http://dx.doi.org/10.1111/j.1539-6924.1997.tb00888.x.

115. Developing countries tend to be: World Bank, 2016, “World Development Report 2016: Digital Dividends,” Washington, DC: World Bank, doi: 10.1596/978-1-4648-0671-1.

116. Not surprisingly: Global Challenges Foundation and ComRes, “Attitudes to Global Risk and Governance Survey 2018,” https://globalchallenges.org/initiatives/analysis-research/surveys/.

117. Each nation has its own: Gallup and Lloyd’s Register Foundation. Lloyd’s Register Foundation World Risk Report 2019, London: 2020, https://wrp.lrfoundation.org.uk/.

118. In the 1970s, the Dutch organizational psychologist Geert Hofstede: Geert Hofstede (2011). “Dimensionalizing Cultures: The Hofstede Model in Context.” Online Readings in Psychology and Culture, 2(1, 2011): https://doi.org/10.9707/2307-0919.1014.

119. Older European cultures: Harry C. Triandis, “The self and social behavior in differing cultural contexts,” Psychological Review, 96(3, 1989): 506–520, https://doi.org/10.1037/0033-295X.96.3.506.

120. Building on the Australian and Korean studies: Junsu Park, Do-Yeong Kim, and Chong Zhang, “Understanding Cross-National Differences in Risk Through a Localized Cultural Perspective,” Cross-Cultural Research, 50(1, 2016): 34–62.

121. Comparisons of Asian and Western subjects: Christopher Hsee, “Researching risk preference,” Chicago Booth Review, June 1, 2008; https://review.chicagobooth.edu/behavioral-science/archive/researching-risk-preference-0.

122. Indeed, when they looked into how risky: Elke U. Weber and Christopher Hsee, “Cross-cultural Differences in Risk Perception, but Cross-cultural Similarities in Attitudes Towards Perceived Risk,” Management Science, 44(9, 1998).

123. Echoing other research: S. Yamaguchi, M. Gelfand, M. Mizuno, and Y. Zemba, “Illusion of Collective Control or Illusion of Personal Control: Biased Judgment about a Chance Even in Japan and the U.S.,” paper presented at the second conference of the Asian Association of Social Psychology, Kyoto, Japan (1997); cited in Nisbett 2003.

124. Attitudes toward uncertainty: Nisbett 2003, 104–106.

125. Ken Chen, a professor: M. Keith Chen, “The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets,” American Economic Review, 103(2, 2013): 690–731, http://dx.doi.org/10.1257/aer.103.2.690.

126. The negotiations between: “Support in Principle for US-EU Trade Pact,” Pew Research Center, Washington, DC, April 2014, https://www.pewresearch.org/global/wp-content/uploads/sites/2/2014/04/Pew-Research-Center-Bertelsmann-Foundation-U.S.-Germany-Trade-Report-FINAL-Wednesday-April-9-20142.pdf.

127. In the Bible, the Parable of the Talents: Matthew 25:14–30; https://www.whatchristianswanttoknow.com/22-bible-scriptures-about-risk-taking/#ixzz5gNwKCa54.

128. Can any one of you: Matthew 6:27.

129. Take therefore no thought: Matthew 6:34.

130. Protected by the welfare state: Hans-Werner Sinn, “A Theory of the Welfare State,” National Bureau of Economic Research, Working Paper No. 4856, 1994, https://www.nber.org/papers/w4856.pdf.

131. The free-market economist: “The Social Responsibility of Business Is to Increase Its Profits,” Milton Friedman, New York Times, September 13, 1970, https://www.nytimes.com/1970/09/13/archives/article-15-no-title.html; Milton Friedman, Capitalism and Freedom (Chicago, IL: University of Chicago Press, 1962).

132. A group of CEOs: Business Roundtable, “Statement on the Purpose of a Corporation,” https://opportunity.businessroundtable.org/; August 19, 2019, Signatures updated September 2020.

133. The Council of Institutional Investors: “Council of Institutional Investors Responds to Business Roundtable Statement on Corporate Purpose,” August 19, 2019, https://www.cii.org/aug19_brt_response.

134. While many observers: Colin Mayer, Leo E. Strine Jr, and Jaap Winter, “50 years later, Milton Friedman’s shareholder doctrine is dead,” Fortune, September 13, 2020, https://fortune.com/2020/09/13/milton-friedman-anniversary-business-purpose/.

135. Like many others: Joe Nocera, “Old habits die hard,” Bloomberg, September 18, 2020, https://www.bloomberg.com/amp/opinion/articles/2020-09-18/milton-friedman-was-wrong-look-at-income-inequality.

136. Not long after: Lisa MacCallum and Emily Brew, Inspired INC: Become a Company the World Will Get Behind. (Crowd Press, 2019).

137. As defined by: Leaders on Purpose 2019 CEO Report, https://www.leadersonpurpose.com/ceo-research.

138. In her book: Marina Krakovsky, The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit (New York: Palgrave Macmillan, 2015).

139. Small and medium enterprises make up: JP Morgan Institute Small Business Dashboard, https://www.jpmorganchase.com/institute/research/small-business/small-business-dashboard; accessed October 25, 2020.

140. Wider access to credit: Robert Cull, Tilman Ehrbeck, and Nina Holle, “Financial Inclusion and Development: Recent Impact Evidence,” World Bank and CGAP (Consultative Group to Assist the Poor), April 2014, http://www.cgap.org/sites/default/files/FocusNote-Financial-Inclusion-and-Development-April-2014.pdf; Cyn-Young Park and Rogelio V. Mercado Jr., “Financial Inclusion, Poverty, and Income Inequality In Developing Asia,” ADB Economics Working Paper Series Number 426. Asian Development Bank, 2015, http://www.adb.org/sites/default/files/publication/153143/ewp-426.pdf.

141. People who do not meet corporate standards: Bridgett Davis, The World According to Fannie Davis (New York: Little, Brown and Company, 2019).

142. In these lending circles: Sophie Quinton, “The Immigrant Lending Circles That Pave the Way to Citizenship,” Atlantic, July 8, 2013, https://www.theatlantic.com/business/archive/2013/07/the-immigrant-lending-circles-that-pave-the-way-to-citizenship/425991/.

143. The Denver, Colorado based nonprofit lender: Oscar Perry Abello, “Small Loan Funds for Underserved Businesses Join Forces,” Next City, November 26, 2019, https://nextcity.org/daily/entry/small-loan-funds-for-underserved-businesses-join-forces.

144. She uses a similar approach for investors: Devin Thorpe, “Using Biomimicry This Activist Is Turning Impact Investing Upside Down to Erase Racial Wealth Gaps,” Forbes, July 5, 2019, https://www.forbes.com/sites/devinthorpe/2019/07/05/using-biomimicry-this-activist-is-turning-impact-investing-upside-down-to-erase-racial-wealth-gaps/#3d6e5c2742d4.

145. Islamic financiers now brag: Vali Nasr, The Rise of Islamic Capitalism: Why the New Muslim Middle Class Is the Key to Defeating Extremism (New York: Council on Foreign Relations Books/Free Press, 2010).

146. But even so: Bernardo Vizcaino, “Islamic finance sees mixed growth, buoyed by capital market—study,” Reuters, November 27, 2018; https://www.reuters.com/article/islamic-finance-report/islamic-finance-sees-mixed-growth-buoyed-by-capital-market-study-idUSL8N1Y20D3.

147. Islamic finance scholars: Mahmoud El-Gamal, “An Economic Explication of the Prohibition of Gharar in Classical Islamic Jurisprudence,” May 2, 2001. Paper prepared for the 4th International Conference on Islamic Economics held in Leicester, UK, August 13–15, 2000.

148. After the rental-car agency Hertz: David Welch. “Hertz Killing Share Sale Ends Unusual Bid to Fund Bankruptcy,” Bloomberg, June 18, 2020, https://www.bloomberg.com/news/articles/2020-06-18/hertz-shares-halted-amid-rethinking-of-stock-sale-in-bankruptcy.

149. It was immediately clear: Yasmin Khorram and Kate Rooney, “Young trader dies by suicide after thinking he racked up big losses on Robinhood,” CBNC, June 18, 2020, https://www.cnbc.com/2020/06/18/young-trader-dies-by-suicide-after-thinking-he-racked-up-big-losses-on-robinhood.html.

150. There is a real divide: Sven Ove Hansson, “Risk: Objective or Subjective, Facts or Values,” Journal of Risk Research 13(2, 2010): 231–238, doi: 10.1080/13669870903126226.

151. Criticizing sensationalist headlines: Kristin Hugo, “Cancer Risk Claims: ‘Take No Notice’ Unless Something Is Proven to Be ‘Dangerous Rather Than Simply Frightening,’ Says Cambridge Professor,” Newsweek, July 19, 2018, https://www.newsweek.com/2018/07/27/cancer-cancer-risk-causes-professor-david-spiegelhalter-coffee-bacon-1031134.html.

152. The decision theorist: Ron Howard, “Risky Decisions” (Slide show), Stanford University, https://archive.is/20120714164305/http://stanford-online.stanford.edu/sdrmda61w/session10b/slides/sld031.htm.

153. In a charming YouTube video: Cambridge Ideas video, https://www.youtube.com/watch?v=a1PtQ67urG4. There’s more about Professor Risk at his website, www.understandinguncertainty.org.

154. The social psychologist: Paul Slovic, The Perception of Risk (London and Sterling, VA: Earthscan Publications, 2000), 392.

155. Dr. Lorna Breen: Taylor Romine, “An ER doctor who continued to treat patients after she recovered from Covid-19 has died by suicide,” CNN, April 28, 2020, https://www.cnn.com/2020/04/28/us/er-doctor-coronavirus-help-death-by-suicide-trnd/index.html.

156. Chauncey Starr, “Social Benefit versus Technological Risk,” Science, New Series, 165(3899, 1969): 1232–1238, https://www.jstor.org/stable/1727970.

157. But that sense of control: Lennart Sjöberg, Bjørg-Elin Moen, Torbjørn Rundmo, “Explaining Risk Perception: An evaluation of the psychometric paradigm in risk perception research,” Rotunde 84 (Trondheim: Torbjørn Rundmo, 2004), citing Langer, 1975 and McKenna 1993.

158. When people are overconfident in their decisions: Justin Kruger and David Dunning, “Unskilled and unaware of it: How difficulties in recognizing one’s own incompetence lead to inflated self-assessments,” Journal of Personality and Social Psychology, 77(6, 1999): 1121–1134, https://doi.org/10.1037/0022-3514.77.6.1121.

159. We’re more likely to think: Sjöberg, et al., 2004.

160. Scholars have identified: B. Barber, T. Odean, “Boys will be boys: gender, overconfidence, and common stock investment,” Quarterly Journal of Economics, 116(2001): 261–292.

161. Understanding of a particular risk: Joop Hartog, Ada Ferrer-i-Carbonell, Nicole Jonker, “On a Simple Measure of Individual Risk Aversion,” TI 2000-074/3 Tinbergen Institute Discussion Paper, 2000.

162. As a business travel writer: Ben “Lucky” Schlappig, “Am I Rebooking My American 737 MAX Flight?” One Mile at a Time, March 13, 2019, https://onemileatatime.com/rebooking-american-737-max-flight/.

163. The way people perceive risks: Lennart Sjöberg, Bjørg-Elin Moen, Torbjørn Rundmo, “Explaining Risk Perception: An evaluation of the psychometric paradigm in risk perception research,” Rotunde 84 (Trondheim: Torbjørn Rundmo, 2004); R. Poulton, S. Davies, R. G. Menzies, J. D. Langley, and P. A. Silva, “Evidence for a non-associative model of the acquisition of a fear of heights,” Behaviour Research and Therapy, 36(1998): 537–544.

164. Children who injured: R. Poulton, S. Davies, R. G. Menzies, J. D. Langley, and P. A. Silva, “Evidence for a Non-associative Model of the Acquisition of a Fear of Heights,” Behaviour Research and Therapy, 36(1998): 537–544.

165. The frequencies of accidents: Slovic, 2000, 37.

166. People holding an egalitarian preference: Slovic, 2000, xxxiii.

167. You might think of these: Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus, and Giroux, 2011).

168. Teenagers make riskier decisions: J. Metcalfe and W. Mischel, “A hot/cool-system analysis of delay of gratification: Dynamics of willpower,” Psychological Review, 106(1999): 3–19; Bernd Figner and Elke U. Weber, “Who Takes Risks When and Why? Determinants of Risk Taking,” Current Directions in Psychological Science, 20(4, 2011): 211–216, http://www.jstor.org/stable/23045774.

169. Many of the losses people fear: Colin Camerer, “Three Cheers—Psychological, Theoretical, Empirical—For Loss Aversion,” Journal of Marketing Research 42(2, 2005): 129–133, https://www.jstor.org/stable/30164010.

170. The 18th-century Swiss mathematician: Bernstein 1996, 99–111. Bernoulli introduced the utility concept in a 1738 paper published by the Imperial Academy of Sciences in St. Petersburg, based on a talk he gave in 1731.

171. The higher the potential gain: Bernd Figner and Elke U. Weber, “Who Takes Risks When and Why? Determinants of Risk Taking,” Current Directions in Psychological Science, 20(4, 2011): 211–216, http://www.jstor.org/stable/23045774.

172. The social context: Raquel Laneri, “I went to jail for leaving my baby outside a restaurant,” New York Post, November 25, 2017, https://nypost.com/2017/11/25/i-went-to-jail-for-leaving-my-baby-outside-a-restaurant/; Tony Marcano, “Toddler, Left Outside Restaurant, Is Returned to Her Mother,” New York Times, May 14, 1997, https://www.nytimes.com/1997/05/14/nyregion/toddler-left-outside-restaurant-is-returned-to-her-mother.html.

173. This brings us to the ways: Kim Brooks, Small Animals: Parenthood in the Age of Fear (New York: Flatiron Books, 2018), 106–109.

174. Brooks sees the nanny state: Brooks 2018, 103.

175. In Britain, some schools: Ellen Barry, “In Britain’s Playgrounds, ‘Bringing in Risk’ to Build Resilience,” New York Times, March 10, 2018, https://www.nytimes.com/2018/03/10/world/europe/britain-playgrounds-risk.html.

176. It’s hard to absorb: Hanna Rosin, “The Overprotected Kid,” Atlantic, April 2014, https://www.theatlantic.com/magazine/archive/2014/04/hey-parents-leave-those-kids-alone/358631/.

177. The interdisciplinary Risk and Social Policy Working Group: “COVID-19 Technical Report: Wave I,” Risk and Social Policy Working Group, June 22, 2020, https://static1.squarespace.com/static/5ec4464f22cd13186530a36f/t/5efcdd3f10bf462e5c8102b8/1593630019832/FINAL_techreport_wave1.pdf https://www.riskandsocialpolicy.org/.

178. The odds of catching: World Health Organization, “Estimating mortality from COVID-19,” August 4, 2020, https://www.who.int/news-room/commentaries/detail/estimating-mortality-from-covid-19.

179. But as a ballpark figure: “Mortality Risk of COVID-19,” Our World in Data, https://ourworldindata.org/mortality-risk-covid.

180. Participants in a study: Xue Wang, Liuna Geng, Jiawen Qin, and Sixie Yao, “The potential relationship between spicy taste and risk seeking,” Judgment and Decision Making 11(6, 2016): 547–553.

181. The researchers cited: Wang et al., (2016) citing (Ji et al., 2013) on Chinese preferences; Rozin and Schiller, 1980 on Mexico; and Byrnes and Hayes, 2013 on US stereotyping; T. T. Ji, Y. Ding, H. Deng, J. Ma, and Q. Jiang, “Does ‘spicy girl’ have a peppery temper? The metaphorical link between spicy tastes and anger.” Social Behavior and Personality, 41(8, 2013): 1379–1385; N. K. Byrnes and J. E. Hayes, “Personality factors predict spicy food liking and intake,” Food Quality and Preference, 28 (2013): 213–221; P. Rozin and D. Schiller, “The nature and acquisition of a preference for chili pepper by humans,” Motivation and Emotion, 4(1, 1980): 77–101.

182. Researchers studied the “Iceman”: Otto Muzik, “Cold comfort: exposure to chilly temperatures may help fight anxiety,” World Economic Forum Agenda, May 7, 2019, https://www.weforum.org/agenda/2019/05/brain-over-body-hacking-the-stress-system-to-let-your-psychology-influence-your-physiology.

183. Among birds: Max Planck Society, “Risk-taking behavior depends on metabolic rate and temperature in great tits,” Phys.org, September 30, 2014, https://phys.org/news/2014-09-risk-taking-behavior-metabolic-temperature-great.html.

184. Other environmental factors: Mariano Sigman, The Secret Life of the Mind; How Your Brain Thinks, Feels, and Decides (New York: Little, Brown, 2017).

185. Researchers have, in fact, identified: Edriving.com, September 18, 2019, https://www.edriving.com/three60/study-identifies-new-driving-risk-factor-beats-per-minute/; Elizabeth Walshe, “Can Loud Music Affect Driving Performance?” Children’s Hospital of Philadelphia Research Institute, April 16, 2018, https://injury.research.chop.edu/blog/posts/can-loud-music-affect-driving-performance.

186. Fragrances also can affect: Kandhasamy Sowndhararajan and Songmun Kim, “Influence of Fragrances on Human Psychophysiological Activity: With Special Reference to Human Electroencephalographic Response,” Scientific Pharmaceutica 84(2016): 724–751; doi: 10.3390/scipharm84040724.

187. What about smoking: W. Kip Viscusi and Joni Hersch, “Cigarette Smokers as Job Risk Takers,” Review of Economics and Statistics 83(2, 2001): 269–280.

188. Smoking also involves: Glenn W. Harrison, Andre Hofmeyr, Don Ross, and J. Todd Swarthout, “Risk Preferences, Time Preferences and Smoking Behavior,” Southern Economic Journal 85(2018): 313–348.

189. Their study of student smokers and nonsmokers: Glenn W. Harrison, Andre Hofmeyr, Harold Kincaid, Don Ross, and J. Todd Swarthout, “Addiction and Intertemporal Risk Attitudes,” Online working paper, March 2019; https://www.academia.edu/38518772/Addiction_and_Intertemporal_Risk_Attitudes.

190. A team of Israeli researchers: Eyal Ert1, Eldad Yechiam, Olga Arshavsky, “Smokers’ Decision Making: More than Mere Risk Taking,” PLOS ONE 1 July 2013, Volume 8, Issue 7, e68064.

191. Our brains often register: John Coates, The Hour Between Dog and Wolf: How Risk Taking Transforms Us, Body and Mind (New York: Penguin, 2012), 121.

192. Your senses transmit indicators: Julia Spaniol, Francesco Di Muro, Elisa Ciaramelli, “Differential Impact of Ventromedial Prefrontal Cortex Damage on ‘Hot’ and ‘Cold’ Decisions Under Risk,” https://pubmed.ncbi.nlm.nih.gov/30535630/; doi: 10.3758/s13415-018-00680-1.

193. A study of serotonin levels: Arwen B. Long, Cynthia M. Kuhn, and Michael L. Platt, “Serotonin shapes risky decision making in monkeys,” SCAN 4(2009): 346–356, doi:10.1093/scan/nsp020.

194. All of them work in concert: Coates, 2012, 120–125.

195. Some research has shown: Yan Lu and Melvyn Teo, “Do Alpha Males Deliver Alpha? Testosterone and Hedge Funds,” January 12, 2018, http://dx.doi.org/10.2139/ssrn.3100645.

196. In a broader study of fund managers: Economist Data Team, “Are alpha males worse investors?” The Economist, February 20, 2018, https://www.economist.com/graphic-detail/2018/02/20/are-alpha-males-worse-investors.

197. Overall genetics: Richard Karlsson Linnér, Pietro Biroli, […] Jonathan P. Beauchamp. “Genome-wide association analyses of risk tolerance and risky behaviors in over 1 million individuals identify hundreds of loci and shared genetic influences,” Nature Genetics, Vol. 51, 245–257 (2019), https://www.nature.com/articles/s41588-018-0309-3; “Study Identified Numerous Genes Associated with Risk Tolerance and Risky Behaviors,” Neuroscience News January 14, 2019, https://neurosciencenews.com/risk-behavior-genetics-10530/.

198. Researchers from the: “The Genetics of Taking Risks,” 23andMe company blog, January 14, 2019; https://blog.23andme.com/23andme-research/the-genetics-of-taking-risks/.

199. A 2011 Harvard Kennedy School study: Anna Dreber, David G. Rand, Nils Wernerfelt, Justin R. Garcia, J. Koji Lum, Richard Zeckhauser, “The Dopamine Receptor D4 Gene (DRD4) and Self-Reported Risk: Taking in the Economic Domain,” Cambridge: Harvard Kennedy School Faculty Research Working Paper Series RWP11-042, November 2011; https://pdfs.semanticscholar.org/c410/64de783adc10c99327df1cc622f53ecbcf82.pdf.

200. The Canadian high-risk sports specialist Kelley McMillan Manley, “What Makes Risk Takers Tempt Fate?” National Geographic, August 15, 2016, https://www.nationalgeographic.com/adventure/features/extreme-athletes-risk-taking/; Cynthia J. Thomson, Rebecca J. Power, Scott R. Carlson, Jim L. Rupert, and Grégory Michel, “A comparison of genetic variants between proficient low- and high-risk sport participants,” Journal of Sports Sciences 33(18, 2015): 1861–1870, https://doi.org/10.1080/02640414.2015.1020841.

201. One study of brain scans: Richard J. Haier, Benjamin V. Siegel Jr., Andrew MacLachlan, Eric Soderling, Stephen Lottenberg, and Monte S. Buchsbaum, “Regional Glucose Metabolic Changes After Learning a Complex Visuospatial/Motor Task: a PET Study,” Brain Research, 570(1–2, 1992): 134–43.

202. The same goes for trading: Coates, 94–96.

203. In a similar vein: Andrew W. Lo and Dmitry V. Repin, “The Psychophysiology of Real-Time Financial Risk Processing,” Journal of Cognitive Neuroscience 14(3, 2022): 323–339.

204. When we care about: Brett Steenbarger, “Best Practices in Trading: Using Biofeedback to Manage Trading Stress,” Traderfeed, January 24, 2015, http://traderfeed.blogspot.com/2015/01/best-practices-in-trading-using_24.html.

205. American Express, Redefining the C-Suite: Business the Millennial Way, 2017.

206. VirtuAli and Workplace Trends, The Millennial Leadership Survey, 2015, http://web.archive.org/web/20200308073536/https://workplacetrends.com/the-millennial-leadership-survey/.

207. Somewhere under half a percent: World Development Report 2019: The Changing Nature of Work, Washington, DC: The World Bank, 2018; Rong Chen and Simeon Djankov, “Gig economy growth pains,” December 20, 2018, https://blogs.worldbank.org/developmenttalk/gig-economy-growth-pains.

208. In 2017, more than 57 million Americans: Edelman Intelligence, “Freelancing in America,” Upwork and Freelancers Union, September 2017, https://www.upwork.com/i/freelancing-in-america/2017/.

209. This new workforce sees: Edelman Intelligence. “Freelancing in America.” Upwork and Freelancers Union, September 2017, https://www.upwork.com/i/freelancing-in-america/2017/.

210. A bigger challenge: MBO Partners, 2019 State of Independence in America, https://www.mbopartners.com/state-of-independence/.

211. A 2018 MBO Partners study: MBO Partners 2019 State of Independence in America, https://www.mbopartners.com/state-of-independence/.

212. Coworking Resources, a consultancy: Coworking Resources, “Global Coworking Growth Study 2020,” July 2020, https://www.coworkingresources.org/blog/key-figures-coworking-growth.

213. In her book: Juliet B. Schor, After the Gig: How the Sharing Economy Got Hijacked and How to Win It Back (Oakland: University of California Press, 2020).

214. Even as developed-country workers: International Labour Office, Women and men in the informal economy: a statistical picture (third edition) (Geneva: ILO, 2018).

215. As the number of freelance: Bureau of Labor Statistics, September 2018, https://www.bls.gov/news.release/tenure.nr0.htm.

216. In the United States: Aaron E. Carroll, “The Real Reason the U.S. Has Employer-Sponsored Health Insurance,” New York Times, September 5, 2017, https://www.nytimes.com/2017/09/05/upshot/the-real-reason-the-us-has-employer-sponsored-health-insurance.html.

217. To comply with the law: Ari Levy and Alex Sherman, “Vox Media to cut hundreds of freelance jobs ahead of changes in California gig economy laws,” CNBC, December 16, 2019, https://www.cnbc.com/2019/12/16/vox-media-to-cut-hundreds-of-freelance-jobs-ahead-of-californias-ab5.html.

218. There has to be a ‘third way’ for gig workers: Dara Khosrowshahi, “I Am the C.E.O. of Uber. Gig Workers Deserve Better,” The New York Times, Aug. 10, 2020, https://www.nytimes.com/2020/08/10/opinion/uber-ceo-dara-khosrowshahi-gig-workers-deserve-better.html.

219. Some companies are already experimenting: Deloitte Insights, “Leading the Social Enterprise: Reinvent with a Human Focus: 2019 Deloitte Global Human Capital Trends,” Deloitte Development LLC, 2019, 6, https://www2.deloitte.com/content/dam/insights/us/collections/HC-Trends2019/DI_HC-Trends-2019.pdf.

220. From February through April 2020: Jeanna Smialek, Ben Casselman, and Gillian Friedman, “Workers Face Permanent Job Losses as the Virus Persists,” The New York Times, October 3, 2020, https://www.nytimes.com/2020/10/03/business/economy/coronavirus-permanent-job-losses.html.

221. This allows them to make financial returns: The Economist, “Special Report: Competition: Trustbusting in the 21st Century,” November 15, 2018, https://www.economist.com/special-report/2018/11/15/dynamism-has-declined-across-western-economies; https://www.economist.com/special-report/2018/11/15/across-the-west-powerful-firms-are-becoming-even-more-powerful.

222. This is part of the trend: Kai-Fu Lee, AI Superpowers: China, Silicon Valley, and the New World Order (Boston: Houghton Mifflin Harcourt, 2018).

223. As Jeff Hammerbacher: Ashlee Vance, “This Tech Bubble Is Different,” Bloomberg, April 14, 2011, https://www.bloomberg.com/news/articles/2011-04-14/this-tech-bubble-is-different.

224. That reality is showing up: Robert Dur and Max van Lent, “Socially Useless Jobs,” Tinbergen Institute Discussion Paper TI 2018–034/VII, March 31, 2018, https://papers.tinbergen.nl/18034.pdf.

225. Sharing risk and having complementary skill sets: Susan Ward, “Why Business Partnerships Fail and How to Succeed,” The Balance Small Business, November 20, 2019, https://www.thebalancesmb.com/why-business-partnerships-fail-4107045.

226. How driven is the team: Gary Bornstein, Uri Gneezy, and Rosmarie Nagel, “The effect of intergroup competition on group coordination: an experimental study,” Games & Economic Behavior, 41 (2002): 1-25, https://rady.ucsd.edu/faculty/directory/gneezy/pub/docs/inter-group.pdf.

227. If the culture in your organization: Maria Ross, The Empathy Edge: Harnessing the Value of Compassion as an Engine for Success (Vancouver: Page Two Books, 2019).

228. Psychological safety has taken on: Amy C. Edmondson and Zhike Lei, “Psychological Safety: The History, Renaissance, and Future of an Interpersonal Construct,” Annual Review of Organizational Psychology and Organizational Behavior 1 (March 2014): 23–43, https://doi.org/10.1146/annurev-orgpsych-031413-091305.

229. Along these lines: Deloitte Insights, “Leading the Social Enterprise: Reinvent with a Human Focus: 2019 Deloitte Global Human Capital Trends,” Deloitte Development LLC, 2019, 6, https://www2.deloitte.com/content/dam/insights/us/collections/HC-Trends2019/DI_HC-Trends-2019.pdf.

230. Creating a psychologically safe: Michele Wucker, “How to Make Your Zoom Meetings More Inclusive,” LinkedIn Pulse, April 20, 2020, https://www.linkedin.com/pulse/how-make-your-zoom-meetings-more-inclusive-michele-wucker-/.

231. Smart businesses encourage employees: “Purpose-Driven Leadership for the 21st Century: How Corporate Purpose is Fundamental to Reimagining Capitalism,” Leaders on Purpose, 2019, https://www.leadersonpurpose.com/ceo-research.

232. Reality reflects the risk stereotype: Dean T. Stamoulis, Melissa Swift, Erin Marie Conklin, Molly Forgang, “Inside the Mind of the Chief Executive Officer,” Russell Reynolds Associates, April 20, 2016, https://www.russellreynolds.com/en/Insights/thought-leadership/Documents/ITMO_CEO.pdf.

233. Searching for possible causes: Jens Hagendorff, Anthony Saunders, Sascha Steffen, and Francesco Vallascas, “The Wolves of Wall Street: Managerial Attributes and Bank Business Models,” August 17, 2018, http://dx.doi.org/10.2139/ssrn.2670525; Laura Noonan. “Personalities key in shaping banks’ risk taking, study says,” Financial Times, June 9, 2016, https://www.ft.com/content/0116059a-348c-11e6-ad39-3fee5ffe5b5b.

234. Tallying up traffic tickets: Robert H. Davidson, Aiyesha Dey, and Abbie J. Smith, “Executives’ ‘Off-the-Job’ Behavior, Corporate Culture, and Financial Reporting Risk,” Chicago Booth Research Paper No. 12–24, Feb. 27, 2013; Fama-Miller Working Paper, https://ssrn.com/abstract=2096226.

235. After a hacker exposed: Matt Robinson, “CEOs Who Cheat in the Bedroom Will Cheat in Boardroom, Study Shows,” Bloomberg, August 9, 2019, https://www.bloomberg.com/news/articles/2019-08-09/ceos-who-cheat-on-spouse-twice-as-likely-to-cheat-at-work-study; John M. Griffin, Samuel Kruger, and Gonzalo Maturana, “Personal infidelity and professional conduct in 4 settings,” PNAS 116(33, 2019), 16268–16273; first published July 30, 2019, https://doi.org/10.1073/pnas.1905329116.

236. Recent CEO scandals: Ginia Bellafante, “Was WeWork Ever Going to Work?” The New York Times, October 4, 2019, https://www.nytimes.com/2019/10/04/nyregion/wework-Adam-Neumann.html.

237. Or take Patrick Byrd: Abha Bhattarai, “Inside Overstock.com, where a firebrand CEO and ‘Deep State’ intrigue took center stage,” The Washington Post, September 27, 2019, https://www.washingtonpost.com/business/2019/09/26/inside-overstockcom-where-firebrand-ceo-deep-state-intrigue-took-center-stage/?wpisrc=nl_evening&wpmm=1.

238. The Chicago-based outplacement firm: Challenger Gray, “2019 Year-End CEO Report: 160 CEOs Out in December, Highest Annual, Quarterly Totals On Record,” press release, January 6, 2020, https://www.challengergray.com/press/press-releases/2019-year-end-ceo-report-160-ceos-out-december-highest-annual-quarterly-totals.

239. Businesses suffer blows: Elizabeth A. Sheedy, Patrick Garcia, and Denise Jepsen, “The Role of Risk Climate and Ethical Self-interest Climate in Predicting Unethical Pro-Organisational Behaviour,” July 22, 2019, Macquarie Business School Research Paper, https://ssrn.com/abstract=3425675.

240. The Association for Financial Professionals: “Survey: Cyberrisk Is Financial Professionals’ Top Concern,” PRNewswire. February 4, 2020, https://www.prnewswire.com/news-releases/survey-cyberrisk-is-financial-professionals-top-concern-300997251.html.

241. In 2012, during a mini boom: “Golf has become the darling of the Chinese media,” Chinessima, December 19, 2016, https://chinessima.com/en/2016/12/golf-has-become-the-darling-of-the-chinese-media-2.html.

242. But then, in January 2017: “China swings back at golf, shutting down 111 courses,” ESPN, January 23, 2017, https://www.espn.com/golf/story/_/id/18536868/china-cracks-golf-closes-111-courses.

243. Many of us have used: Bill George, True North: Discover Your Authentic Leadership (San Francisco: Jossey-Bass, 2007).

244. The rigorous feedback atmosphere: Robert Glazer, “Adam Grant & Tim Ferriss Have a ‘Challenge Network’ for Feedback. Here’s Why You Need One Too,” LinkedIn Pulse, December 24, 2019, https://www.linkedin.com/pulse/adam-grant-tim-ferriss-have-challenge-network-feedback-robert-glazer/.

245. One popular format: Napoleon Hill, The Law of Success, revised and expanded by Arthur R. Pell (New York, Tarcher Perigee, 2005) (1925); Think and Grow Rich (Shippensburg, PA: Sound Wisdom, 2016) (1937).

246. A fascinating kind of peer group: Sophie Elmhirst, “Take me to the death café,” Prospect, January 22, 2015, https://www.prospectmagazine.co.uk/magazine/take-me-to-the-death-cafe; Brandy Schillace. Death’s Summer Coat, (New York: Pegasus Books, 2016); Brendan O’Connor, “An Afternoon at the Death Café,” January 25, 2016, The Awl, https://www.theawl.com/2016/01/an-afternoon-at-the-death-cafe/.

247. These all intersect: Klaus Schwab and Thierry Malleret, COVID-19: The Great Reset (Geneva: Forum Publishing, 2020).

248. The term became so popular: Taffy Brodesser-Akner, “How Goop’s Haters Made Gwyneth Paltrow’s Company Worth $250 Million,” New York Times Magazine, July 25, 2018.

249. Project Drawdown: Katie Williamson, Aven Satre-Meloy, Katie Velasco, Kevin Green, “Climate Change Needs Behavior Change: Making the Case for Behavioral Solutions to Reduce Global Warming,” (Arlington, VA: Rare, 2018), available online at https://rare.org/wp-content/uploads/2019/02/2018-CCNBC-Report.pdf.

250. The Global Challenges Foundation: ComRes, “Attitudes to global risks and governance,” Stockholm: Global Challenges Foundation, 2017.

251. As Beck put it: Beck, World at Risk, 8.

252. Beck writes of how modernity: Beck, World at Risk, 161.

253. When social mood goes up: Peter Atwater, Moods and Markets: A New Way to Invest in Good Times and Bad (Upper Saddle River, NJ: FT Press, 2012).

254. Our hubris is no shield: Arunabha Ghosh, “Multilateralism for Chronic Risks,” UN75 Global Governance Innovation Perspectives, June 2020, Washington, DC; Stimson Center; Doha Forum; Council on Energy, Environment and Water, https://www.stimson.org/2020/multilateralism-for-chronic-risks/.

255. In 2017, Coleman made the news: Jessica Kutz, “Meet the 12-year-old activist taking politicians to task over climate change,” Grist, February 23, 2019, https://grist.org/article/meet-the-12-year-old-activist-taking-politicians-to-task-over-climate-change/.

256. A few months later: Rebecca Leber, “Badass Little Girl Confronts Climate-Denying Congressman With Brilliant Question,” Mother Jones, April 14, 2017; https://www.motherjones.com/environment/2017/04/watch-young-girl-invite-republican-congressman-her-science-class/; Amy Thomson, “Young Girls Keep Going to Town Halls and Owning Republicans—It’s Amazing,” Mother Jones, August 19, 2017, https://www.motherjones.com/media/2017/08/teenagers-keep-going-to-town-halls-and-owning-republicans-and-its-amazing/.

257. Around 42 percent of Americans: Daniel Avery, “A Record Number of Americans Are Traveling Abroad,” Newsweek, March 28, 2019, https://www.newsweek.com/record-number-americans-traveling-abroad-1377787.

258. Only 20 percent of Americans: Jay Mathews, “Half of the world is bilingual. What’s our problem?” Washington Post, April 25, 2019, https://www.washingtonpost.com/local/education/half-the-world-is-bilingual-whats-our-problem/2019/04/24/1c2b0cc2-6625-11e9-a1b6-b29b90efa879_story.html.

259. Disorder is embedded: Tim Weiner, The Geography of Genius: Lessons from the World’s Most Creative Places (New York: Simon & Schuster, 2016).

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INDEX

A note about the index: The pages referenced in this index refer to the page numbers in the print edition. Clicking on a page number will take you to the ebook location that corresponds to the beginning of that page in the print edition. For a comprehensive list of locations of any word or phrase, use your reading system’s search function.

A

- acceptable risk, 137–157, 200–201

- Activate Your Agile Career, 190

- active risks, ix, 20–21, 151–152

- After the Celestial Axe, 243, 247

- After the Gig: How the Sharing Economy Got Hijacked and How to Win It Back, 181

- Against the Gods: The Remarkable Story of Risk, 17, 151

- AI Superpowers: China, Silicon Valley, and the New World Order, 189

- Albert, Steven, 67–68

- Allport, Gordon, 36

- ambiguity, 84–85

- América-Economía, 131

- Ames, Roger, 29

- Ansari, Ali, 104

- Aquino, Corazon, 93

- Ardern, Jacinda, 96, 156

- Armani, Giorgio, 92

- Arora, Agam, 61–63

- Aslan, Eren, 212

- Atlantic, The, 154

- Atwater, Peter, 236–237

- Austin, Linda S., 84

- Austin, Stephen F., 55

- Awkwafina, 223

B

- Baba, Eiho, 28–29

- Bachelet, Michelle, 93

- Bagnara, Gian-Luca, 101

- banking practices, 26, 79, 85–87, 122, 131–133, 205–208

- Barber, Brad, 88–89

- Barc, Jennifer, 216–217

- Barra, Mary, 93

- Barry, Ellen, 154

- Bathtubs over Broadway, 184

- Bazerman, Max, 53

- Beauchamp, Jonathan, 164

- Beck, Ulrich, 25, 232–235

- behaviors, vii–xiii, xvii–xviii, 36–37, 192–254

- beliefs, 119–136

- Bernoulli, Daniel, 18, 151

- Bernstein, Peter L., 17, 151

- Betz, Nancy, 82

- Beyoncé, 55

- Bhatia, Marty, 7–9

- Bhatia, Megan, 7–9

- Bible, 119–120

- “Big Five” personality factors, 36–41

- biofeedback, 39, 168–170

- Blais, Ann-Renée, 82

- Bond, Michael Harris, 112

- Bonnet, Florence, 182

- brain processes, 158–172

- Braut, Geir Sverre, 17

- Breen, Lorna, 143

- Brescoll, Victoria, 83–84, 93

- Brew, Emily, 125–126

- Brockhaus, Robert H., 53–54

- Brooks, Kim, 153–154

- Bush, George H. W., 47

- Buu, Alain, 47

- Byrd, Patrick, 206

C

- calculated probability, 26, 27

- Caldwell, Christopher, 87

- Camerer, Colin, 150, 169

- Cardano, Girolamo, 17

- Carr, Priyanka, 90

- Carroll, Lewis, 54

- Challenger, Andrew, 206

- Chamorro, Violeta, 93

- Champoux-Paillé, Louise, 96

- changes, making, 7–14, 168–172, 228–242

- Chen, Ken, 113

- Chin, Cindy, 60

- Clark, Timothy, 203

- climate change, 11, 24, 98–105, 125, 148, 229–233, 239–241

- Clinton, Bill, 122

- Coates, John, 162–163, 169

- Cohen, Philip N., 73

- Coleman, Haven, 240–241

- collective agency, 229–233

- confidence levels, 53, 80–89, 145–151, 236

- context risk, 26, 27

- controllability, 142–146

- Conversation, The, 96

- Cooper, Arnold, 53

- Cordero, Nick, 143

- Covey, Stephen, 9

- COVID-19 pandemic

- acceptable risks, 139, 142–145, 155–156

- dealing with, 50–51, 142–145, 179–181, 186–187, 215, 238

- recognizing risks, xvi, 10, 14, 37, 95–99, 123, 129, 228–232

- risk assessments, 175, 186–187, 238

- views on, 134

- COVID-19: The Great Reset, 228

- coworking spaces, 179–181, 221–223

- Creticos, Peter, 184–185

- Crettaz, Bernard, 225

- Croteau, Anne-Marie, 96

- cultures, national, 107–111

- cultures, organizational, 195–212

- cultures, risk, 66–77, 95–116, 195–212, 247

- Cusack, Joan, 223

- Cyrus, Miley, 160

D

- da Vinci, Leonardo, 244, 246

- daredevils, 13, 35, 114

- Davies, Greg, 39

- Davis, Bridgett, 130–131

- Davis, Fannie, 130–131

- de Fermat, Pierre, 17

- de Méré, Chevalier, 17

- de Moivre, Abraham, 18

- death, causes of, 148–149, 149

- death cafés, 225–226

- DeGeest, Thomas, 49–50

- disasters, 98, 100–101, 104, 108, 114, 121, 142, 147–149, 233–234, 239

- “dread factor,” 102, 142, 148

- Duffy, John, 67–68

- Dunkelberg, William, 53

- Dunning, David, 145

- Dwyer, Peggy, 86

E

- Eckel, Catherine C., 89–90

- Economist, 188

- Edgerton, Reggie, 253

- Edmondson, Amy, 203

- Einstein, Albert, 243

- electrophysiological activity, 160–163

- El-Gamal, Mahmoud, 134

- emotion, 137–157

- empathy, 12, 114, 202–203, 247–248, 251–253

- Empathy Edge: Harnessing the Value of Compassion as an Engine for Success, The, 202

- employer-employee relationships, 183–187

- Entrepreneur, 60, 78

- entrepreneurship, vii, xviii, 49–60, 78–80, 132, 178–180, 213–227

- estimated probability, 26, 27, 247

- ethics, 124–126, 207–208

- Eysenck Personality Inventory Test, 37

F

- Feng, Gary, 29

- Figner, Bernd, 151

- Figuera, Rosanna, 49–51

- Financial Crisis, x–xi, 38, 69–72, 87, 99, 122–123, 129–134, 228

- financial risks, x–xiii, 37–39, 52–53, 74–80, 86–87, 120–123

- Fiorina, Carly, 93

- Flash Boys, 127

- Foo, Brendan, 207

- food allergies, 126, 137–140

- food safety, 100–101, 114, 139–140

- foods, spicy, 158–159, 161

- Ford, Henry, 187

- Fortune, 85

- Freaks of Fortune, 18

- freelancers, 46–48, 69, 78, 176–189

- Friedman, Milton, 124–125

- Frieze, Deborah, 132–133

- Fuller, Dorothy, 58–59

- future of work, 173–192

G

- Galileo, 17

- Galton, Sir Francis, 36

- Gardner, Cory, 241

- Gates, Bill, 189

- gender, 34, 78–94, 163–164

- Gender and Risk-Taking: Economics, Evidence, and Why the Answer Matters, 82

- generational differences, 66–77, 85, 173–174, 183, 198–201, 240–243

- genetically modified (GMO) foods, 100–101

- genetics, 164–166

- geographies of risk, 95–116

- Geography of Genius, The, 246

- George, Bill, 224

- George, Simone, 251–253

- Geun-hye, Park, 234

- Ghosh, Arunabha, 238–239

- Giddens, Anthony, 25, 232

- gig economy, 11, 78, 176–189

- Gilkeson, James, 86

- “glass cliff,” 92–93

- Glass-Steagall Act, 122

- Global Journalist Security, 48–49

- global risks, 228–242

- Goldberg, Lewis, 36–37

- Gray Rhino: How to Recognize the Obvious Dangers We Ignore, x, xvi, 224

- gray rhino risks, x–xii, 224

- Great Depression, 14, 26, 70, 122

- Great Financial Crisis, x–xi, 38, 69–72, 87, 99, 122–123, 129–134, 228

- Great Flu Pandemic, 14

- Green Day, 160

- Gross, Gad Schuster, 47

- Grossman, Philip, 89–90

- Guardian, The, 12

- Gyori, Christa Lynne, 127

H

- habits, creating, 170–172

- Hammerbacher, Jeff, 191

- Han, Sang-jin, 100, 102, 232–235

- Hansson, Sven Ove, 139

- Harvard Business Review, 36, 79

- Haslam, Alexander, 92–93

- health risks

- assessment of, 174–175, 186–187, 238

- ignoring, vii–viii, xiv

- life shocks, 148–152

- pandemics, xvi, 10, 14, 37, 50–51, 95–99, 123, 129, 134, 139, 142–145, 155–156, 175, 179–181, 186–187, 215, 228–232, 238

- recognizing, vii–xiii, xvi, 10, 14, 37, 95–99, 123, 129, 145, 155–156, 228–232

- smoking risks, 9, 141–142, 152, 160–161, 164–165

- Hersch, Joni, 160

- Hertz, Marc, 195–198

- Hill, Napoleon, 224

- Hill, Ruth Vargas, 74

- Hof, Wim, 159

- Hofstede, Geert, 107–108, 112

- Hogan, Bob, 40

- Hogan, Joyce, 40

- Holocaust, 68

- hormones, xvii, 5, 162–165, 172

- Hour Between Dog and Wolf, The, 162

- How Women Decide: What’s True, What’s Not, and Why It Matters, 83

- Howard, Ronald, 140

- Hsee, Christopher, 110

- Hu, Roger, 220–221

- Hunt, James, 42

- Hussein, Saddam, 47

- Huston, Therese, 83

I

- I Ching, 29, 120

- “Ignorance Index,” 98–99

- immediacy, 142, 148–149

- individualist-collectivist contrasts, 92, 108–110

- Inspired INC: Become a Company the World Will Get Behind, 125

- investments, xvii, 19–20, 39, 67–68, 79–80, 85–87, 92–94, 132–134

- Iraq conflict, 47

- Ivon, Nena, 57

J

- Jackson, Lee Ann, 101

- Jamme, Mariéme, 15–16

- Jensen, Olivia, 96–97

- Jong-Un, Kim, 234

- Journal of Risk and Uncertainty, 65

- judgment, 117–192

- Juliana v. United States and Martinez v. Colorado Oil and Gas Conservation Commission, 241

- Jungle, The, 187

K

- Kahane, Henry, 17

- Kahane, Renée, 17

- Kahneman, Daniel, 53, 68, 150–151, 168

- Kalanick, Travis, 206

- Karam, Sami J., 103

- Kataoka, Drue, 243–247

- Kazakova, Tatjana, 127

- Kearns, Alex, 134

- Keillor, Garrison, 145

- Kennedy, John F., 27

- Keynes, John Maynard, 22, 23, 30

- Keynesian risk, 27, 30

- Khosrowshahi, Dara, 185–186

- Kim, Do-Yeong, 91

- Klein, Calvin, 92

- Knight, Frank, 21–23, 30

- Knightian risk, 22–23, 27, 30

- Koebele, Elizabeth, 156

- Koenig, David, 209

- Konstant, Marti, 190

- Koolhaas, Rem, 12

- Korshak, Stanley, 58

- Krakovsky, Marina, 127–128

- Krawcheck, Sallie, 85–86

- Krüger, Harald, 204

- Kruger, Justin, 145

L

- Lamborn, Doug, 241

- Landman, Keren, 97

- LaRosa, Mike, 221–222

- Law of Success, The, 224

- leadership, xii, 70–75, 92–100, 126–127, 174–179, 198–219

- Lee, Kai-Fu, 189

- Levy, Jonathan, 18

- Lewis, Michael, 127

- life shocks, 148–152

- Lighthall, Nichole, 87–88

- List, John, 86

- local risks, 228–242

- logographs, 28

M

- MacCallum, Lisa, 125–126

- Madison, Ashley, 205–206

- Malleret, Thierry, 228

- Malmendier, Ulrike, 70–71

- Marin, Sanna, 96

- Marte, Coss, 213–215, 226

- Martinez, Xiuhtezcatl, 241

- Mather, Mara, 87–88

- May, Theresa, 93

- Mayer, Marissa, 93

- McCallum, Q, 80–81

- McGovern, Cindy, 217–219

- McKinley, William, 4

- medical issues, vii–xiii. See also health risks

- Metilda, Mary J., 88

- Michelangelo, 244–246

- micromorts, 140–142, 141

- Middleman Economy, The, 127

- Mishra, K. C., 88

- Mitchell, Paul, 92

- Moods and Markets, 236

- moral clarity, 103

- moral failure, 102–103

- moral hazards, xviii, 18, 120–123

- moral judgments, 120–123, 153

- Morgan-Browning, Barb, 195–198

- music risks, 160, 161

- Myers-Briggs Test, 36

N

- Nagel, Stefan, 70–71

- Nasr, Vali, 133–134

- national cultures, 107–111

- National Geographic, 165, 171

- Nature Genetics, 164

- negative agency, 232

- negative risk, 27, 203, 213

- Nelson, Julie, 82–83, 93

- Neumann, Adam, 206

- neurobiology, 39, 158–172

- New Deal, 122

- New York Times Magazine, 230

- New York Times, The, 147, 154, 186

- Newquist, Gunnar, 166–167

- Newsweek, 47

- Newton, Isaac, 127

- Niagara Falls, 1–4, 14

- Nietzsche, Friedrich, 250

- Nisbett, Richard, 110–111

- Njå, Ove, 17

- Nocera, Joe, 125

- Nolte, Dennis, 71

O

- Obama, Barack, 123

- Obamacare, 123

- objective risk, 35, 67, 84, 107, 139–140

- Odbert, Henry S., 36

- Odean, Terrance, 88–89

- Oehler, Andreas, 37

- organizational culture, 195–212

- Oullier, Olivier, 168

- overconfidence, 53, 80, 88–89, 145–146, 236

- Own It, 85

P

- Page, Lionel, 169

- Paltrow, Gwyneth, 230

- Palvia, Ajay, 87

- Pan-American Exposition, 1–2

- Pant, Rajiv, 146–147

- Parable of the Talents, 119–120, 132, 135

- Park, Junsu, 91

- Pascal, Blaise, 17

- Pascal’s Triangle, 17

- passive risks, viii, ix, 20, 151–152

- People’s Daily, xi

- Perception of Risk, The, 19

- Perils of Perception study, 98–99

- personal agency, 229–231, 241

- personality traits, xvii, 1–14, 33–45

- Pinfold, John, 53

- Pollock, Mark, 250–254

- positive agency, 232

- positive risk, 11, 27, 70, 73, 171, 213–215, 226–227

- practice, power of, 168–172

- Prakash, Sucharu “Chris,” 151–152

- “Precious Mirror of the Four Elements,” 17

- probability, 17–30, 68, 83, 149

- Psychological Consultancy, 41, 43

- psychological safety, 203–204

- psychometrics, 36, 39–40, 142, 205

- pure risk, 26, 27

R

- Rahman, Kashfia, 170–171, 226

- Ratner, Dan, 78

- reason, 137–157

- responsibility, 121–124, 153–154

- Reynolds, Barbara, 21

- Reynolds, Russell, 205

- Rise of Islamic Capitalism, The, 133

- Risk, Uncertainty and Profit, 21

- risk agency, 229–231, 241, 247–248

- risk appetite, 19–20, 39–41

- risk assessment, 81–82, 174–175, 186–187, 238

- risk assets, 19–20

- risk attitude, viii, xvii–xviii, 14, 39–45, 61–77, 115–192, 211–212

- risk aversion, 9–12, 35–53, 61–93, 103–111, 154, 162–175, 195–210, 247–251

- risk bearers, 128–130

- risk behavior, vii–xiii, xvii–xviii, 36–37, 192–254

- risk beliefs, 119–136

- risk capacity, 39–41

- risk circle, 226–227

- risk communication, 203–208, 212

- risk conversations, 247–250

- risk cultures, 66–77, 95–116, 195–212, 247

- risk definition, 16, 19–21

- risk dynamics, ix–x, xiii, xvii, 197–202

- risk ecosystem, xviii, 6, 56–76, 132–133, 177–189, 203, 215, 241–252

- risk empathy, 12, 114, 202–203, 247–248, 251–253

- risk fingerprints, xviii, 4–7, 45–60, 97, 244, 247–248

- risk literacy, 11, 24, 102, 155–157, 246–249

- risk management, 12, 18–21, 75–80, 116, 123, 137–138, 166–172, 200–211, 236

- risk meaning, 15–30

- risk muscle, 172, 247, 249, 252

- risk oversight, 209–211

- risk perception, xvii, 14, 19, 95–116, 106, 142–150

- risk pooling fund, 238–240

- risk portfolio, 220, 226, 247, 249

- risk profiles, xvii–xviii, 42, 78, 205–206

- risk relationships, 9–14, 72–75, 202–227

- risk responses, 33, 95, 139, 160, 167–172

- risk savvy, 66–68, 93–94, 247–248

- risk seeking, 35–40, 48, 53, 65–66, 158–165, 170, 200, 210

- risk sensitivity, xvii, 6, 10, 33, 97–102, 159

- risk society, 24–26, 121–124, 134–136, 232–235

- Risk Society, 235

- risk software, 38–39

- risk tolerance, 33, 39, 117–192, 202–203

- Risk Type Compass, 39–44, 41, 115

- risk types, 39–44, 41, 115

- risk umbrella, 106–107, 123–128, 177–183, 186–190, 246–247, 250

- risk variations, 89–90, 101–111

- risk vocabulary, 243–254

- risk-free meaning, 26–27

- risks

- acceptable risks, 137–157, 200–201

- active risks, ix, 20–21, 151–152

- appetite for, 19–20, 39–41

- assessment of, 81–82, 174–175, 186–187, 238

- assets and, 19–20

- attitudes, viii, xvii–xviii, 14, 39–45, 61–77, 115–192, 211–212

- aversion to, 9–12, 35–53, 61–93, 103–111, 154, 162–175, 195–210, 247–251

- behaviors and, vii–xiii, xvii–xviii, 36–37, 192–254

- beliefs and, 119–136

- categories of, 20–21

- concept of, 15–19

- context risk, 26, 27

- cost of, 130–135

- culture and, 66–77, 95–116, 195–212, 247

- decisions and, vii–xiii, xvi–xvii, 1–7, 217–219, 247–254

- definition of, 16, 19–21

- dreaded risks, 142, 148

- dynamics of, ix–x, xvii–xviii, 197–202

- ecosystems, xviii, 6, 56–76, 132–133, 177–189, 203, 215, 241–252

- eliminating, 26–27

- emotion and, 137–157

- empathy and, 12, 114, 202–203, 247–248, 251–253

- entrepreneurship and, vii, xviii, 49–60, 78–80, 132, 178–180, 213–227

- equitable risks, 101–102, 128, 142, 150, 182, 241, 246

- ethics and, 124–126, 207–208

- financial risks, x–xiii, 37–39, 52–53, 74–80, 86–87, 120–123

- fingerprints, xviii, 4–7, 45–60, 97, 244, 247–248

- future and, 173–192

- gender and, 34, 78–94, 163–164

- genetics of, 164–166

- geographies of, 95–116

- global risks, 228–242

- gray rhino risks, x–xii, 224

- health risks, vii–viii, xvi, 9–10, 14, 37, 50–51, 95–99, 129, 134, 139–145, 152–165, 175–181, 186–187, 215, 228–232, 238

- judgment and, 117–192

- local risks, 228–242

- managing, 12, 18–21, 75–80, 116, 123, 137–138, 166–172, 200–211, 236

- meaning of, 15–30

- measuring, 140–142, 141

- nature of, viii, xvii, 12–14, 24, 52, 67, 72, 85, 142, 150, 249

- negative risk, 27, 203, 213

- neurobiology of, 39, 158–172

- new approaches to, 125, 130–133, 174

- new risks, 60, 121, 142, 148, 187–190

- new vocabulary for, 243–254

- objective risk, 35, 67, 84, 107, 139–140

- organizational culture and, 195–212

- origins of, 16–17

- passive risks, viii, ix, 20, 151–152

- perception of, xvii, 14, 19, 95–116, 106, 142–150

- personality and, xvii, 1–14, 33–45

- physiology of, 158–172

- positive risk, 11, 27, 70, 73, 171, 213–215, 226–227

- probability and, 17–30, 68, 83, 149

- profiles, xvii–xviii, 42, 78, 205–206

- pure risk, 26, 27

- purpose and, 119–136

- reason and, 137–157

- relationships and, 9–14, 72–75, 202–227

- responses to, 33, 95, 139, 160, 167–172

- science of, 33–45

- seeking, 35–40, 48, 53, 65–66, 158–165, 170, 200, 210

- sensitivity to, xvii, 6, 10, 33, 97–102, 159

- severity of, 23, 142, 148–152

- standing-still risk, 7–9

- stereotypes and, 34, 76–94, 115, 204–207

- subjective risk, 35, 67, 140

- taking, vii–xiii, 1–30, 33–116, 119–192, 195–254

- tolerance and, 33, 39, 117–192, 202–203

- types, 39–44, 41, 115

- uncertainty and, 21–30, 108–112, 190–192

- values and, 119–136

- views on, 61–77, 90–94, 95–116, 134–136, 228–242

- vocabulary, 243–254

- well-known risks, 142, 147–148

- well-understood risks, 142, 147–148

- zero risk, 26, 27

- risky business, 124–126

- risky shift, 64–67, 108–109

- Ritter, Benjamin, 219–220

- Rodin, David, 208

- Rometty, Ginny, 93

- Roosevelt, Theodore, 4

- Rosin, Hanna, 154

- Rosling, Hans, 140

- Ross, Maria, 202–203

- Ruef, Martin, 52

- Runge, C. Ford, 101

- Russell, Frank M. “Tussy,” 3

- Ryan, Michelle K., 92–93

S

- Sarnecka, Barbara W., 153

- Sassoon, Vidal, 92

- Schlappig, Ben “Lucky,” 148

- Schor, Juliet, 181–182

- Schwab, Klaus, 228

- Secret Life of the Mind, The, 159

- sexual behavior, 81, 99, 113, 161, 164

- Sharp, Dan, 211

- Shi-Chieh, Chu, 17

- Shim, Young-hee, 232

- shock factors, 148–152

- Shoshanna, Jermikko, 55–59

- Shultz, Susan, 209–210

- Sidzhimova, Yoana, 174–175

- Sigman, Mariano, 159

- Simpson, Barbara, 225–226

- Sinclair, Upton, 187

- Singer, Harold, 58

- Sinn, Hans-Werner, 124

- SitterCity, 78

- Skinner, Gideon, 99

- Slovic, Paul, 19, 75, 142, 144, 149–150

- Small Animals: Parenthood in the Age of Fear, 153

- Smith, Adam, 22

- smoking risks, 9, 141–142, 152, 160–161, 164–165

- Smyth, Frank, 46–49

- social media, 10, 12, 72, 97, 126, 206–207, 222, 241

- Solberg, Øivind, 17

- Sorensen, Annette, 152–153

- spicy foods, 158–159, 161

- Spiegelhalter, David, 140–142

- Springsteen, Bruce, 160

- standing-still risk, 7–9

- Starr, Chauncey, 144

- Steele, Claude M., 90

- Steenbarger, Brett, 169–170

- stereotypes, 34, 76–94, 115, 204–207

- stress hormones, 162–165, 172

- stunt performers, 1–4, 14, 35, 49

- subjective risk, 35, 67, 140

- Sublette, Ned, 73

- Sutton, Sara, 178–179

T

- Tannen, Deborah, 88

- Taylor, Annie Edson, 1–4, 2, 14, 246

- Techau, Jan, 102–103

- Temin, Davia, 43–45

- Terrell, Randall, 54–56

- Thiers, Genevieve, 78–79, 92

- Think and Grow Rich, 224

- Thomson, Cynthia, 165

- Thunberg, Greta, 240

- Time, 87

- Times-Press, 1

- tolerance, 33, 39, 117–192, 202–203

- Treatise on Probability, A, 22

- Trickey, Geoff, 6, 40, 42–43, 140

- True North, 224

- Trump, Donald, 123, 234

- Tulgan, Bruce, 69–70

- Tversky, Amos, 53, 68, 151

- Tweardy-Torres, Matthew, 142–144

- Twenge, Jean, 72

U

- uncertainty, 21–30, 108–112, 190–192

- Underwood, Jon, 225

V

- Vähämaa, Emilia, 87

- Vähämaa, Sami, 87

- values, 119–136

- Vasquez, Nicole, 179–180

- Vietnam War, 144

- Village Voice, 46

- violence, xii, 11, 98–100, 106–107, 205

- Viscusi, W. Kip, 160

- vocabulary, 243–254

- voluntariness, 142–146

W

- Wafels & Dinges, 49–51

- Waldron, Ingrid, 89

- Ward, Steve, 167–168

- Ward, Susan, 198

- Weber, Andrea, 80

- Weber, Elke, 82, 110, 151

- Wedlich, Florian, 37

- Weiner, Tim, 246

- well-known risks, 142, 147–148

- well-understood risks, 142, 147–148

- Whitman, Meg, 93

- Wijsen, Isabel, 241

- Wijsen, Melati, 241

- Wittenberg, Alex, 210

- Women’s Wear Daily, 58

- Wong, Catherine Mei Ling, 96–97

- Woo, Carolyn, 53

- work, future of, 173–192

- workforce, alternative, 122, 177–178, 187

- World According to Fannie Davis, The, 130

- World at Risk, 235

- World Risk Poll, 105–107

- World War I, 14

- World War II, vii, 14, 102, 183, 184

X

- Xiaoping, Deng, 220

- Xu, Hongwei, 52

- Xu, Li, 115–116

Z

- Zedong, Mao, 220

- zero risk, 26, 27

- Zimmer, Ben, 27

- Zinn, Jens O., 20

- Zulehner, Christine, 80

YOU ARE WHAT YOU RISK

Pegasus Books, Ltd.

148 West 37th Street, 13th Floor

New York, NY 10018

Copyright © 2021 by Michele Wucker

First Pegasus Books cloth edition April 2021

Interior design by Maria Torres

Jacket design: Brock Book Design Co. / Charles Brock

Illustration: VectorStock

Author photo credit: Hal Shipman

All rights reserved. No part of this book may be reproduced in whole or in part without written permission from the publisher, except by reviewers who may quote brief excerpts in connection with a review in a newspaper, magazine, or electronic publication; nor may any part of this book be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or other, without written permission from the publisher.

Library of Congress Cataloging-in-Publication Data is available.

ISBN: 978-1-64313-678-3

Ebook ISBN: 978-1-64313-679-0

Distributed by Simon & Schuster

www.pegasusbooks.com

Table of Contents

Title Page

Preface

Chapter 1: You Are What You Risk

Chapter 2: The Meaning of Risk

Risk Perceptions and Personalities

Chapter 3: The New Science of Risk and Personality

Chapter 4: Risk Fingerprints Magnified

Chapter 5: Who Thinks What about Risk and Why

Chapter 6: Gender, Risk, and Stereotype Threat

Chapter 7: Geographies of Risk

Attitudes, Judgment, and Tolerance

Chapter 8: Beliefs, Values, Purpose, and Risk

Chapter 9: Emotion, Reason, and Acceptable Risk

Chapter 10: The Neurobiology of Risk

Chapter 11: Risk and the Future of Work

Behaviors

Chapter 12: Risk and Organizational Culture

Chapter 13: Reshaping Your Risk Relationship

Chapter 14: Risking Globally, Risking Locally

Chapter 15: A New Risk Vocabulary

Acknowledgments

About the Author

Endnotes

Bibliography

Index

Copyright